<PAGE>
As filed with the Securities and Exchange Commission on October 28, 1998
Registration No. 333-__________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
FORM SB-2
Registration Statement
Under the Securities Act of 1933
------------------------------------
CLASSIC TRENDS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 5013 76-0540287
----- ---- ----------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
10696 HADDINGTON, SUITE 117 FREDERIC G. HINDLE
HOUSTON, TEXAS 77043 CLASSIC TRENDS INTERNATIONAL, INC.
(713) 464-2626 10696 HADDINGTON, SUITE 117
(Address and telephone HOUSTON, TEXAS 77043
number of principal (713) 464-2626
executive offices) (Name, address and
telephone number of
agent for service)
COPIES TO:
THOMAS C. PRITCHARD
BREWER & PRITCHARD, P.C.
1111 BAGBY, 24TH FLOOR
HOUSTON, TEXAS 77002
PHONE (713) 209-2950
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
----------------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount of
Securities To Be Being Offering Price Aggregate Registration
Registered Registered Per Share(1) Offering Price(1) Fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2) 15,603,400 .0182199 $284,293.38 $79.03
- -------------------------------------------------------------------------------------------------------------------------
TOTAL 15,603,400 .0182199 $284,293.38 $79.03
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) The book value of the common stock as calculated pursuant to Rule 457 (f).
----------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the SEC, acting pursuant to
said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1998
CLASSIC TRENDS INTERNATIONAL, INC.
15,603,400 SHARES
- -------------------------------------------------------------------------------
This prospectus relates to the registration of the distribution by Posh
International, Inc., the sole stockholder of the company, of 100% of the
shares of company common stock outstanding on the record date, which has been
established as June 11, 1997. The shares of the common stock represent all
of the company common stock owned by Posh International, Inc. and will be
distributed by Posh International, Inc. to its stockholders of record as of
the record date on the basis of one share of company common stock for every
share of Posh International, Inc. common stock held of record on the record
date. No consideration will be paid to Posh International, Inc. or the
company by the Posh International, Inc. stockholders for the shares of the
company received in the distribution. Following the distribution, Posh
International, Inc. will own no shares of the company common stock or other
securities of the company. The distribution is expected to be effected as
soon as practicable after the registration statement, of which this
prospectus is a part, is declared effective. Certificates representing the
shares of the company common stock will be mailed to the Posh International,
Inc. stockholders on that date or as soon thereafter as practicable.
As the distribution of the shares of common stock is being registered
under the Securities Act, holders who subsequently resell such shares to the
public may be deemed to be underwriters with respect to such shares of common
stock for purposes of the Securities Act with the result that they may be
subject to certain statutory liabilities if the registration statement is
defective by virtue of containing a material misstatement or omitting to
disclose a statement of material fact. The company has not agreed to
indemnify any of the Posh International, Inc. stockholders regarding such
liability.
- -------------------------------------------------------------------------------
--------------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
--------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------
The date of this Prospectus is October 28, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Information and Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Summary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Limited Operating History; History of Operating Losses; Profitability Uncertain. . . . 4
Capital Requirements; Limited Sources of Liquidity; Need for Additional Funds. . . . . 5
Qualified Opinion Regarding Financial Statements . . . . . . . . . . . . . . . . . . . 5
Ability to Execute Business Strategy; Market Uncertainty; Lack of Marketing Plan . . . 6
Geographic Concentration of Revenue; Customer Concentration. . . . . . . . . . . . . . 5
Dependence on Two Products; Development Costs; Uncertainty of Any New Product. . . . . 6
Reliance on Key Personnel; Management of Growth. . . . . . . . . . . . . . . . . . . . 6
Dependence on Subcontractors for Production, Packaging, Storage and Handling . . . . . 6
Lack of Patent Protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Possible Future Product Liability Claims . . . . . . . . . . . . . . . . . . . . . . . 7
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
No Dividend History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Lack of Public Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Penny Stock Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Authorized Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lack of Disinterested, Independent Directors . . . . . . . . . . . . . . . . . . . . . 8
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Determination of Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Directors, Executive Officers, Promoters and Control Persons. . . . . . . . . . . . . . 11
Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . 12
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Interest of Named Experts and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 13
Disclosure of Commission Position on Indemnification
For Securities Act Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Organization Within Last Five Years . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and Analysis of Financial Condition and
Results of Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . . . 22
Market For Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . 23
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. . 24
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
If you receive any information or any representation other than that
contained in this prospectus, such information or representation must not be
relied upon as having been authorized by the company. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby, or an offer to sell or a solicitation of an offer
to buy any securities offered hereby to or from any person in any
jurisdiction in which such offer or solicitation would be unlawful. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
business or affairs of the company since the date hereof or that the
information in this prospectus is correct as of any time subsequent to the
date as of which such information is furnished.
<PAGE>
SUMMARY INFORMATION AND RISK FACTORS
The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information, including "Risk
Factors" and the financial statements and notes thereto, appearing elsewhere
in this prospectus.
THE COMPANY
The company's business strategy is to market and distribute automotive
care products. Currently, the company markets Guardian Angel, an internal
engine treatment, and Posh Wash, an exterior car care product. Guardian
Angel is a concentrated engine treatment that impregnates itself into the
metal to increase its density and reduce friction and wear. Posh Wash is a
one-step automotive care cream that eliminates the need to use several
chemical automotive appearance products, including waxes, washes, polishes,
protectants, degreasers and glass/chrome/leather cleaners, to achieve a
similar result. The company subcontracts all manufacturing, packaging,
storing and handling of Guardian Angel and Posh Wash. The average wholesale
price for Guardian Angel is $22.75 and the suggested retail price is $29.95.
The average wholesale price for a 16 oz. bottle of Posh Wash, including
applicator sponge, is $15.16 and the suggested retail price is $19.95. For
the fiscal year ended June 30, 1998, the company received approximately 77%
of its revenue from Guardian Angel and 7% of its revenue from Posh Wash.
The remaining 16% of revenues are derived from the sale of sales and
marketing materials to distributors. Hereafter all references to the
"company" included Posh International, Inc. ("Posh"), unless expressly
provided otherwise.
The company's principal executive offices are located at 10696
Haddington, Suite 117, Houston, Texas 77043, and its telephone number is
(713) 464-2626.
<TABLE>
<CAPTION>
THE DISTRIBUTION
<S> <C>
Common Stock to be
Distributed 15,603,400 shares to be distributed to the
stockholders of Posh on the basis of one
share of Classic Trends International, Inc.
common stock for every share of Posh common
stock held of record on the record date. The
board of directors of Posh fixed the record
date for purposes of the distribution as
June 11, 1997.
Shares of Common Stock
Outstanding Before Distribution 15,603,400
Shares of Common Stock
Outstanding After Distribution 15,603,400
Risk Factors An investment in the shares of common stock
involves a high degree of risk. Prospective
investors should review carefully the
information set forth under "Risk Factors."
No Proceeds The distribution will result in no proceeds
to the company.
Lack of Market There is currently no market for the common
stock; there is no assurance that any market
will develop; if a market develops for the
company's securities, it will likely be
limited, sporadic and highly volatile.
See "Risk Factors."
</TABLE>
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information presented below is derived from the
audited financial statements of the company for the fiscal year ended June
30, 1998, and the pro forma unaudited financial statements for the twelve
months ended June 30, 1997 which have been prepared by management and utilize
the company's audited financial statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED
JUNE 30, 1997(1) JUNE 30, 1998
<S> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues $532,335 $201,932
Cost of Sales 105,797 110,235
Selling Expenses 346,985 219,206
General and Administrative
Expenses 471,508 350,810
Operating Loss $(405,887) $(478,319)
Net Loss $(408,917) $(442,549)
JUNE 30, 1998
BALANCE SHEET DATA:
Working Capital (Deficit) $(531,831)
Total Assets 494,340
Long-Term Debt --
Stockholders' Equity (Deficit) $(436,441)
</TABLE>
-----------------------------
(1) The financial information for the twelve months ended June 30, 1997
reflects the combined operations of the company, and its predecessor
entity, Posh.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE MAKING AN
INVESTMENT DECISION CONCERNING THE COMMON STOCK.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain statements that are forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology or by
discussions of strategy. Such statements include, but are not limited to,
the discussions of the company's operations, liquidity and capital resources.
Forward-looking statements are included in the "Risk Factors," "Results of
Operations," and "Business" sections of this prospectus. Although the company
believes that the expectations reflected in forward-looking statements are
reasonable, there can be no assurances that such expectations will prove to
be accurate forward-looking statements. Generally, these statements relate
to business plans, strategies, anticipated strategies,
3
<PAGE>
levels of capital expenditures, liquidity and anticipated capital financing
needed to effect the business plan. All phases of the company's operations
are subject to a number of uncertainties, risks and other influences, many of
which are outside the control of the company and cannot be predicted with any
degree of accuracy. In light of the significant uncertainties inherent in the
forward-looking statements made in the prospectus, the inclusion of such
statements should not be regarded as a representation by the company or any
other person that the objectives and plans of the company will be achieved.
Investors are cautioned that such forward-looking statements involve risks
and uncertainties, including, without limitation, the risks set forth in
"Risk-Factors." The forward-looking statements contained herein speak only
as of the date of this prospectus and the company expressly disclaims any
obligation or undertaking to release any updates or revisions to any such
statement to reflect any change in the company's expectations or any change
in events, conditions or circumstance on which any such statement is based.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; PROFITABILITY UNCERTAIN
The company commenced operations in June 1997 and has a history of
losses since inception. The company, as a development stage company, has a
limited operating history on which to base an evaluation of its business and
prospects. The company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development. For the fiscal year ended June 30, 1998, and the
twelve months ended June 30, 1997, the company had revenues of $201,932 and
$532,335, respectively, with net losses of $442,549 and $408,917,
respectively. The company expects continued losses in the current fiscal
year. The company may experience continued operating losses in future
periods. The company believes that its results of operations have been and
will continue to be affected by various factors, including market acceptance
of Guardian Angel and Posh Wash and any other products that may be
introduced in the future, the need for additional capital, and seasonality.
There can be no assurance that the company, and its business operations, will
experience profitability in the future, if at all. See "Financial
Statements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CAPITAL REQUIREMENTS; LIMITED SOURCES OF LIQUIDITY; NEED FOR ADDITIONAL FUNDS
The company requires substantial capital to pursue its operating
strategy. To date, the company has relied upon net cash provided by financing
activities to fund its capital requirements. Cash provided by financing
activities was $343,443 and $332,085 for the fiscal year ended June 30, 1998,
and the twelve months ended June 30, 1997, respectively. The company's
operations used $291,029 and $402,085 of cash in operations during the fiscal
year ended June 30, 1998 and the twelve months ended June 30, 1997,
respectively. There can be no assurance that the company will generate
sufficient cash in future periods to satisfy its capital requirements.
At June 30, 1998, the company had cash, short-term debt and a working
capital deficit of $92,830, $930,781 and $531,831, respectively. The company
has an unsecured $50,000 line of credit with Southwest Bank of Texas
through May 1999 which bears interest at 8.5% per annum. As of June 30,
1998, the company had utilized $49,805. In addition, in May 1998, the
company borrowed $35,280 from Southwest Bank of Texas bearing interest at
9.5% per annum, which was repaid in August 1998. In addition, in May 1998
the company borrowed $188,889 from an unaffiliated third party for a period
of one year, bearing interest at 7.5% per annum. In December 1996, 1,250,000
shares of Posh common stock were sold in a capital raising transaction for
$436,000. During 1997, $176,000 from the capital raising transaction above
had been received in cash and $260,000 remained in notes receivable. As of
June 30, 1998, $60,000 had been received by the company. Subsequent to June
30, 1998, the company received 400,000 shares of common stock of Titan
Resources, Inc. as partial payment of the stock subscriptions receivable. On
the day of the transfer, the stock was valued at $.359 per share, or
$143,600. As of October 14, 1998, 140,000 shares of Titan Resources, Inc.
stock had been sold for an aggregate of $49,967 and the company retained
ownership of 260,000 shares of stock. As of October 14, 1998, the value of
the stock was $.21 per share, or $54,600, which would leave a receivable
account balance of $95,433, if the stock were sold as of that date. The
company utilizes approximately $20,000 per month in operations. While the
company anticipates that revenues and the repayment of debt will be
sufficient to fund the company's operations for a period of seven months,
there can be no assurance that the company will not need additional capital
in order to pursue its business strategy in the future. The market for the
Titan stock is sporadic and volatile. A drop in the price of the Titan stock
could result in a reduction in the period for which revenue and repayment of
debt will be utilized. If the company is unable to secure sufficient capital
in the future, its ability to pursue the current business strategy, as well as
results of operations in future periods, may be impaired. The company has no
current commitments or arrangements for additional debt or equity financing,
and there can be no assurance that additional financing will be available on
acceptable terms, if at all. See "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources," and "Financial Statements."
4
<PAGE>
QUALIFIED OPINION REGARDING FINANCIAL STATEMENTS
The company had a net loss of $442,549 for the fiscal year ended June
30, 1998 and had a retained deficit of $1,289,321 at that date. The company
requires substantial capital to pursue its operating strategy and at June 30,
1998 had cash of $92,830. Until the company can obtain sales levels
sufficient to fund working capital needs, the company will be dependent upon
external sources of financing. The company's internally generated cash flows
from operations have historically been and continue to be insufficient for
cash needs. The company's independent accountants have qualified their
opinion with respect to the company's financial statements for the fiscal year
ended June 30, 1998 to reflect that losses incurred from operations have
raised substantial doubt about the ability of the company to continue as a
going concern. Furthermore, the financial statements do not include any
adjustments that might result from the outcome of such uncertainty. The
company's current cash forecast indicates that there will be negative cash
flows from operations for the calendar year ending December 31, 1998, and
the fiscal year ending June 30, 1999. The company's ability to continue as a
going concern is dependent upon its ability to expand the market for the
Guardian Angel and Posh Wash products and to obtain additional funding to
facilitate the company's expansion. Management believes the company will be
successful in expanding its revenue base and obtaining additional funding in
sufficient amounts to provide for the company's existing operating
requirements and expansion of its revenue base. However, there is no
assurance that revenues and additional financing will be sufficient to cover
cash requirements or to bring the company to a positive cash flow position.
Furthermore, lower than expected revenues, unforeseen costs in entering new
markets, insufficient market penetration to support general and
administrative costs (including advertising), any new product introductions
and seasonality could shorten the period of time that such proceeds should be
sufficient. At this time, management has no specific plans or commitments
with respect to raising additional capital. If financing were required,
there is no assurance that the company will be successful in any such effort.
Failure to obtain sufficient funding will adversely impact the company's
financial position, and could cause the company to curtail operations, sell
assets, or take other actions as necessary in order to meet cash flow
requirements. Moreover, any such action, even if successful, could cause
dilution to stockholders and, consequently, a reduction in the price of the
common stock if there exists any market for the common stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ABILITY TO EXECUTE BUSINESS STRATEGY; MARKET UNCERTAINTY
The company's growth depends on its ability to sell Guardian Angel and
Posh Wash in both new and established markets. The company has historically
distributed Guardian Angel and Posh Wash primarily in Texas. There can be no
assurance that the company will be able to expand sales of Guardian Angel and
Posh Wash in current markets. The company intends to distribute Guardian
Angel, Posh Wash, and any future products in markets where the company has
limited or no previous operating experience. The company's ability to expand
into additional metropolitan areas will depend upon a number of factors,
including identifying and securing distributors, the recruiting and training
of skilled representatives, television advertising, the availability of
adequate financing, the availability of an adequate supply of the company's
products, existing and emerging competition, the company's ability to
maintain sufficient profit margins, and other factors, many of which are
beyond the control of the company. To date, the company has conducted limited
market feasibility studies with respect to Guardian Angel and Posh Wash, and
therefore, there can be no assurance that Guardian Angel and Posh Wash will
achieve substantial market penetration or that there will be sufficient
demand. Management's expansion strategy is to target a market and develop
the market prior to entering a new market. Management intends to utilize
available cash in several markets through television advertising and network
marketing with independent third party representatives. The company expects
the utilization of infomercials to increase and expand the sales generated by
independent third party representatives. While Guardian Angel and Posh Wash
have gained limited acceptance in current markets, there can be no assurance
of successful marketing of Guardian Angel and Posh Wash in additional
markets, and as a result, the company may not generate sufficient revenue
from product sales to cover expenses related thereto.
GEOGRAPHIC CONCENTRATION OF REVENUE; CUSTOMER CONCENTRATION
For the fiscal year ended June 30, 1998 and the twelve months ended
June 30, 1997, 20.3% and 34.7% of revenue was derived from the Texas area.
Accordingly, until the company expands its revenue base, results for a
particular quarter may be adversely affected by economic or severe weather
conditions in the State of Texas. The company's strategy is to expand and
diversify its customer and distribution base through the use of its 30 minute
Guardian Angel television infomercial to sell Guardian Angel directly to
consumers. However, the company has been, and continues to be, dependent on
independent representatives for the sales of Guardian Angel and Posh Wash.
For the fiscal year ended June 30, 1998 and the twelve months ended June 30,
1997, the company's sales of products to independent representatives were
approximately 67% and 86% respectively of the company's total revenues. The
company expects the percentage attributable to these representatives to
decrease as the company
5
<PAGE>
expands its direct sales of the products to consumers through television
direct response advertising. The company believes a significant portion of
the company's sales are to representatives actively recruiting additional
customers as independent representatives and retail outlets. There can be no
assurance that the television direct response advertising will be successful
and reduce the company's dependency on individual representatives.
DEPENDENCE ON TWO PRODUCTS; DEVELOPMENT COSTS; UNCERTAINTY OF ANY NEW PRODUCT
The company is currently dependent on the sales of two products,
Guardian Angel and Posh Wash, which represented approximately 84% of the
company's revenues for the fiscal year ended June 30, 1998. The company will
be dependent on revenues from these products for the foreseeable future and
until it is able to successfully develop and market additional products.
There is no assurance that any additional products will be developed (or
acquired) and distributed. Dependence on two products poses a significant
risk in the event problems (real or perceived) are encountered with respect
to the quality or cost of the product or competitive products reduce demand
for Guardian Angel and/or Posh Wash. While the company intends to develop and
market additional products in the future, frequently there are problems,
delays, expenses, and difficulties encountered in the development and
marketing of new products, many of which are beyond the control of the
company. These difficulties include, but are not limited to, unanticipated
developmental, testing, manufacturing, and marketing costs; unforeseen
production or marketing problems; and competition that may exceed
management's expectations. An unsuccessful new product could have a more
adverse affect on the company's results of operations than would be the case
in a company with a broader line of products.
RELIANCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH
The success of the company is dependent upon the experience and
abilities of Mr. Hindle, a director and president, and Mr. Shriver, a
director and consultant. The company has entered into an employment
agreement with Mr. Hindle that expires in October 2008 and a consulting
agreement with Mr. Shriver that expires in October 2008. The company does
not maintain key-man life insurance on these individuals. The loss of the
services of Messrs. Shriver or Hindle, for any reason, could have a material
adverse effect on the company. Furthermore, the company's continued growth
will depend upon its ability to attract and retain additional skilled
personnel. There can be no assurance that the company will be able to hire
and retain the necessary additional personnel. See "Management."
DEPENDENCE ON SUBCONTRACTORS FOR PRODUCTION, PACKAGING, STORAGE AND HANDLING
The company is purchasing the Guardian Angel formula from Sun Coast
Chemicals of Daytona, Inc. ("Sun Coast"). The company maintains a
non-exclusive supplier relationship with Sun Coast for manufacturing and
bottling responsibilities. Sun Coast has no obligation to supply all of the
product demanded by the company if such demand exceeds the supply of Sun
Coast. While there is no assurance as to the capacity of Sun Coast, the
company believes that Sun Coast has sufficient financial incentive and
capacity to accommodate the company's demand for Guardian Angel. There can
be no assurance that Sun Coast will not market, or has not marketed, this
product through third-party arrangements, the result of which could have an
adverse effect on the business of the company. In addition, the company
subcontracts all packaging, storage and handling of Guardian Angel to
Nightingale Rehabilitation, Inc. ("Nightingale"), with which it does not have
a contract, but instead operates on an order-by-order basis. While the
company has not experienced delays in filling orders in the past, and
believes Sun Coast and Nightingale will continue to package, store and handle
Guardian Angel on favorable terms, there can be no assurance that Sun Coast
and Nightingale will continue packaging, storing and handling Guardian Angel
on favorable terms, if at all, the result of which may have a material
adverse impact on the company. Management does not have any contracts for
back-up and/or fulfillment production and there can be no assurance that the
company will be able to locate additional subcontractors in the event that
Sun Coast terminates its agreement or Nightingale terminates its relationship
with the company.
The company is purchasing the Posh Wash formula from Mr. Robert Tisman
who has subcontracted all manufacturing and bottling responsibility of Posh
Wash to J.F. Daley, Inc. ("Daley"). Pursuant to the terms of the supplier
agreement, Mr. Tisman has no obligation to supply all the product demanded by
the company if such demand exceeds the supply of Mr. Tisman or Daley. While
there is no assurance as to the capacity of Mr. Tisman or Daley, the company
believes that these suppliers have sufficient financial incentive and
capacity to accommodate the company's demand for Posh Wash. The
non-exclusive distribution and supply agreement with Mr. Tisman expires in
January 2003. There can be no assurance that Mr. Tisman will not market, or
has not marketed, this product through third-party arrangements, the result
of which could have an adverse effect on the business of the company. In
addition, the company subcontracts all packaging, storage and handling of
Posh Wash to Nightingale, with which it does not have a contract, but instead
operates on an order-by-order basis. While the company has not
6
<PAGE>
experienced delays in filling orders in the past, and believes that Daley and
Nightingale can accommodate the company's growth strategy, the company may
experience delays or fulfilling deficiencies in the future. Furthermore,
there can be no assurance that Daley will continue to manufacture Posh Wash
or that Nightingale will continue to package, store and handle Posh Wash on
terms favorable, if at all, the result of which may have a material adverse
impact on the company. Management does not have any contracts for back-up
production and/or fulfillment and there can be no assurance that Mr. Tisman or
the company will be able to locate additional subcontractors in the event
that Daley terminates its contract with Mr. Tisman or Nightingale terminates
its relationship with the company.
The company may seek to enter into additional joint ventures, licensing,
or other marketing agreements with third parties in connection with arranging
for the development or manufacturing of certain products that the company may
obtain rights to in the future. In addition, the marketing of new products
that may be distributed by the company may be undertaken by third parties, as
is currently the case with its current products. Although the company
intends to have its own professional staff to support and monitor marketing
activities, the successful development and marketing of a particular product
will be dependent upon the ability and efforts of third parties, including
independent representatives. Potential markets for certain of the company's
current and future products may be international in which case the company
will rely on international personnel for marketing and support activities.
These types of arrangements provide the company with less control over
operations, thereby subjecting the company to a greater risk in the event of
lack of performance.
LACK OF PATENT PROTECTION
Neither the company nor the inventor of Guardian Angel or Posh Wash has
applied for any patents covering the formula used in these products. There
can be no assurance that any particular aspect of the Guardian Angel or Posh
Wash formula will not be found to infringe on the claims of other existing
patents or proprietary rights. See Business - "Patents and Trademarks."
POSSIBLE FUTURE PRODUCT LIABILITY CLAIMS
The company is an additional insured on a general liability insurance
policy in the general aggregate amount of $2,000,000 ($1,000,000 maximum for
each occurrence) from Sun Coast for Guardian Angel, but insurance is not
furnished by Daley for Posh Wash. To date, the company has not experienced
any product liability or other general liability claims. However, the
company may be adversely effected in the future by product liability claims
from any of the company's current or future products, insurance company
defense positions with respect to coverage, or damages exceeding the amount
of applicable liability insurance limits.
COMPETITION
The business in which the company competes is subject to numerous
competitive factors which include, among others, price, quality, reliability
and market acceptance. The company's current products, Guardian Angel and
Posh Wash, compete with washes, waxes, polishes, protectants, degreasers,
cleaners and engine treatments developed and marketed by large
multi-national, national, and regional companies that have substantially
greater financial, marketing and other resources than the company. There can
be no assurance that these competitors will not develop a product similar to
the company's current or future products, that a competitor will not contract
with Mr. Tisman or Sun Coast to distribute a similar product, or that such
products developed by competitors will not be more innovative, superior or
less expensive than the company's current or future products. There can be
no assurance that the company will be able to compete successfully within the
industry. See "Business -Competition."
NO DIVIDEND HISTORY
The company has never paid cash dividends on its common stock and
presently intends to retain any earnings to finance the expansion of its
business. See "Dividend Policy."
LACK OF PUBLIC MARKET
Prior to this prospectus, there has been no public trading market for
the company's common stock. Upon the registration statement becoming
effective, the common stock will not be listed on a national securities
exchange,
7
<PAGE>
Nasdaq, or on the OTC Electronic Bulletin Board. Management's strategy is to
list the common stock on the OTC Electronic Bulletin Board as soon as
practicable. The current strategy of management is to develop a public
market for its common stock by soliciting brokers to become market-makers of
the shares. However, to date the company has not solicited any such
securities brokers to become market-makers. There can be no assurance that an
active trading market for the common stock will develop or be sustained upon
the registration statement becoming effective or that the market price of the
common stock will not decline below the initial public trading price. The
initial public trading price will be determined by market makers independent
of the company.
The trading price of the company's common stock could be subject to wide
fluctuations in response to variations in quarterly results of operations,
changes in earning estimates by analysts, announcements of technological
innovations or new solutions by the company or its competitors, and other
events or factors, many of which are beyond the company's control. In
addition, the stock market has usually experienced extreme price and volume
fluctuations which have affected the market price for many companies in
industries similar or related to that of the company which have been
unrelated to the operating performance of these companies. These market
fluctuations may have a material adverse effect on the market price of the
company's common stock.
PENNY STOCK REGULATION
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from such rules, the broker-dealer must make
a special written determination that a penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in any secondary market for a stock that
becomes subject to the penny stock rules. The company's common stock may be
subject to the penny stock rules, and accordingly, stockholders may find it
difficult to sell their shares, if at all.
AUTHORIZED STOCK
The board of directors of the company has the authority to issue up to
5,000,000 shares of "blank check" preferred stock with such designations,
rights and preferences as may be determined by the board of directors.
Accordingly, the board of directors of the company is empowered, without
further stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the voting power or other rights of the holders of the company's common
stock. Certain companies have used the issuance of preferred stock as an
anti-takeover device and the board of directors could, without further
stockholder approval, issue preferred stock with certain rights that could
discourage an attempt to obtain control of the company in a transaction not
approved by the board of directors. The board of directors of the company
also has authority to issue up to 30,000,000 shares of common stock. See
"Description of Capital Stock."
LACK OF DISINTERESTED, INDEPENDENT DIRECTORS
All of the directors of the company have a direct financial interest in
the company, either through common stock ownership interests, royalty
arrangements or otherwise. While management believes that its current
directors will be able to exercise their fiduciary duties as directors, the
company expects to appoint an independent, disinterested director to serve on
the board of directors in the future. See "Management-Certain Transactions."
ITEM 4. USE OF PROCEEDS
The company will not receive any proceeds from the distribution of
company common stock to Posh stockholders.
8
<PAGE>
DIVIDEND POLICY
The company had not paid any dividends on its common stock and expects
to retain any future earnings for use in its business. Future dividend
policy will be determined by the board of directors of the company in light
of prevailing financial needs of the company.
CAPITALIZATION
The following table sets forth the capitalization of the company as of
June 30, 1998.
<TABLE>
<CAPTION>
JUNE 30, 1998
<S> <C>
Long-term debt $ --
Stockholder's Deficit:
Common Stock, $.001 par value,
30,000,000 shares authorized; 15,603,400
shares issued and outstanding respectively . . . . 15,603
Additional paid-in capital . . . . . . . . . . . . . 837,235
Accumulated deficit. . . . . . . . . . . . . . . . . (1,289,321)
Preferred Stock, $.001 par value,
5,000,000 shares authorized,
no shares outstanding. . . . . . . . . . . . . . . --
-----------
Total stockholders' equity (deficit) . . . . . . . . $(436,441)
-----------
-----------
</TABLE>
- -------------------
DETERMINATION OF OFFERING PRICE
Inapplicable.
DILUTION
Inapplicable.
SELLING STOCKHOLDERS
Inapplicable.
PLAN OF DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The board of directors of Posh has determined that it is in the best
interest of Posh and its stockholders to make the distribution in the
manner described herein. Posh and the company are engaged in unrelated
businesses. The distribution will result in the company being a separate
publicly held company. Posh's board of directors believes that the
distribution will allow investors to better evaluate the company and its
future prospects independently, enhancing the likelihood that it will achieve
appropriate market recognition regarding its own performance and potential.
Posh's board of directors also believes that, by distributing the common
stock of the company to Posh stockholders, the potential for increasing the
long-term value of each stockholder's investment in Posh will be enhanced.
9
<PAGE>
MANNER OF EFFECTING THE DISTRIBUTION
This prospectus relates to the distribution by Posh of 100% of the
shares of company common stock. The company's common stock will be
distributed by Registrar and Transfer Company, the distribution agent, to
Posh stockholders of record as of the record date on the basis of one share
of company common stock for every share of Posh common stock. All such
shares of company common stock will be fully paid and nonassessable and the
holders thereof will not be entitled to preemptive rights. No consideration
will be paid to Posh or the company by the Posh stockholders for the shares
of company common stock received in the distribution. Following the
distribution, Posh will own no shares of the company common stock or other
securities of the company. The distribution is currently expected to be
effected as soon as practicable after the registration statement, of which
this prospectus is a part, is declared effective. Certificates representing
the shares of company common stock will be mailed to the Posh stockholders on
that date or as soon thereafter as practicable. The company will not receive
any proceeds from the resale of common stock by the Posh stockholders.
LISTING AND TRADING OF THE COMMON STOCK
The company hopes to list the common stock on the OTC Electronic
Bulletin Board after the registration statement becomes effective. Shares of
common stock distributed to the Posh stockholders will be freely
transferable, except for shares received by persons who may be deemed to be
"affiliates" of the company under the Securities Act. Persons who may be
deemed to be affiliates of the company after the distribution include
individuals or entities that control, are controlled by or under common
control with the company, and include directors and principal executive
officers of the company, as well as any stockholder owning 10% or more of the
total stock issued and outstanding. Under Rule 144 resales of common stock
for the account of affiliates cannot be made until the common stock has been
held for one year from the later of its acquisition from the company or an
affiliate of the company. Thereafter, shares of common stock may be resold
without registration subject to Rule 144's volume limitation, aggregation,
broker transaction, notice filing requirements, and requirements concerning
publicly available information about the company ("Applicable Requirements").
The volume limitations provide that a person (or persons who must aggregate
their sales) cannot, within any three-month period, sell more than the greater
of one percent of the then outstanding shares, or the average weekly reported
trading volume during the four calendar weeks preceding each such sale. The
five individuals listed as directors and executive management of the company
are affiliates of the company. After the distribution the company believes it
will have more than 100 stockholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The company believes that the distribution of company common stock to
Posh results in a tax-free transaction to Posh and the company. However
stockholders should consult their own tax advisors as to the particular tax
consequences of the distribution to them, including the applicability and
effect of state, local and foreign taxes.
LEGAL PROCEEDINGS
As of the date of this prospectus, there are no legal proceedings
pending or, to the company's knowledge, threatened against the company or to
which it is a party.
10
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald L. Shriver 65 Chairman of the Board
Frederic G. Hindle 53 President, Director and Chief Executive
Officer
Donald L. Shriver, Jr. 37 Secretary and Director
Denny C. Pearce 61 Director
Grady Cavness, Sr. 51 Director
</TABLE>
DONALD L. SHRIVER has over 38 years of experience in marketing
consumer products, including 17 years marketing automotive products. Mr.
Shriver served as chairman of the board of the company since its inception in
June 1997. Mr. Shriver served as chairman of the board of Posh from October
1995 to June 1997. Mr. Shriver served as chief executive officer of Flair
Image from its inception in September 1991. Flair Image served as managing
partner of Posh Wash G.P. since the partnership was formed in June 1994. Mr.
Shriver co-founded Petrolon, Inc. in 1978, which, under his leadership as
president, became one of the leading automotive aftermarket corporations in
the world through the sale of the "Slick 50" product line of engine treatment
products. Mr. Shriver sold his interest in Petrolon, Inc. in March 1991, and
in July 1995, Petrolon, Inc. was acquired by the Quaker State Corporation.
Mr. Shriver received a Bachelor of Arts degree from Texas Christian
University.
FREDERIC G. HINDLE has over 24 years of experience in the
day-to-day operation of entrepreneurial companies including, management,
administration, marketing, and strategic planning. Mr. Hindle has served as
president and a director of the company since its inception in June 1997.
Mr. Hindle served as president of Posh from October 1995 to June 1997. Mr.
Hindle has served as an executive officer of Flair Image since August 1993.
From 1982 until August 1993, Mr. Hindle was an executive officer with
Investment Realty company ("IVC"), a real estate brokerage and development
company located in Houston that Mr. Hindle founded in 1982. At IVC, Mr.
Hindle was responsible for the day-to-day operations of the business which
was involved in the development of a variety of real estate projects ranging
from $1 to $10 million. Mr. Hindle received a Bachelor of Science in
Engineering from the University of Florida.
DONALD L. SHRIVER, JR. has served as secretary and a director of
the company since its inception in June 1997. Mr. Shriver, Jr. served as
secretary and a director of Posh from October 1995 to June 1997. Mr.
Shriver, Jr. has served as operations manager of Flair Image since its
inception in September 1991. Mr. Shriver, Jr. served as communications
director of Entourage International, Inc., a direct sales company from 1986
to 1990. Mr. Shriver, Jr. has over nine years experience in computer desktop
publishing and graphic design. Mr. Shriver, Jr. received a Bachelor of Arts
degree from Houston Baptist University.
DENNY C. PEARCE has served as a director of the company since its
inception in June 1997. Mr. Pearce served as director with Posh
International, Inc. from October 1995 to June 1997. From 1978 to April
1995, Mr. Pearce owned and operated Tech-Weld Inc., a welding supply company
he founded. In April 1995, Mr. Pearce sold Tech-Weld and since that date has
owned and operated NPI Systems, Inc., a nut and bolt supply company.
GRADY CAVNESS, SR. has served as a director of the company since
its inception in June 1997. Mr. Cavness served as director with Posh
International, Inc. from October 1995 to June 1997. Mr. Cavness has served
for 17 years as area manager for Stesani Distributing Co., Coors Products.
Mr. Cavness has served as Thurman Thomas' business manager since 1990. Mr.
Cavness received his Bachelor of Business Administration degree from the
University of Texas at El Paso.
Directors are elected annually and hold office until the next annual
meeting of the stockholders of the company and until their successors are
elected and qualified. The board has not established any committees.
Officers are elected annually and serve at the discretion of the board of
directors. Donald L. Shriver, Jr. is the son
11
<PAGE>
of Donald L. Shriver. There are no other family relationships between or
among any of the directors and executive officers of the company. No
compensation is paid to any director in any such capacity other than
reimbursement of out-of-pocket expenses to attend Board meetings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the
beneficial ownership of all shares of the company common stock upon the
completion of the distribution of such shares to Posh stockholders by (i)
each person who owns beneficially more than five percent of the outstanding
shares of common stock, (ii) each director of the company, (iii) each named
executive officer, and (iv) all directors and officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED PERCENT OF VOTING POWER
- ------------------------ ------------ -----------------------
<S> <C> <C>
Frederic G. Hindle . . . . . . . . . . 4,169,094 26.7%
Donald L. Shriver(2) . . . . . . . . . 4,129,094 26.5%
Metro Publications, Inc. . . . . . . . 1,440,000 9.2%
Denny C. Pearce. . . . . . . . . . . . 1,119,312 7.2%
Donald L. Shriver, Jr. . . . . . . . . 500,000 3.2%
Grady Cavness, Sr.(3). . . . . . . . . 122,500 *
All directors and officers
as a group (5 persons) . . . . . . . 10,040,000 64.3%
</TABLE>
- --------------------------
* Less than one percent.
(1) The business address of each individual is the same as the address of the
company's principal executive offices, except for Metro Publications, Inc.
whose business address is 681 Fifth Avenue, 10th Floor, New York, New York
10022, Mr. Pearce whose business address is 6606 N. Gessner, Houston, Texas
77040, and Thurman Thomas Investments, Inc. whose business address is 2506
Robinhood, Houston, Texas 77005.
(2) Mr. Shriver disclaims any voting power or investment power over the shares
of common stock held by Donald L. Shriver, Jr.
(3) These shares of company common stock are held by Thurman Thomas
Investments, Inc. over which Mr. Cavness exercises voting control.
DESCRIPTION OF SECURITIES
Under the company's articles of incorporation, the authorized capital
stock of the company consists of 35,000,000 shares, of which 30,000,000
shares are $.001 par value per share of common stock, and 5,000,000 shares
are preferred stock, par value $.001 per share. Upon the distribution of the
common stock pursuant to this prospectus, the company will have outstanding
15,603,400 shares of common stock.
COMMON STOCK
The holders of common stock are entitled to one vote per share with
respect to all matters required by law to be submitted to stockholders of the
company. The holders of common stock have the sole right to vote, except as
otherwise provided by law or by the company's articles of incorporation,
including provisions governing any preferred stock. The common stock does
not have any cumulative voting, preemptive, subscription or conversion
rights. Election of directors and other general stockholder action requires
the affirmative vote of a majority of shares represented at a meeting in
which a quorum is represented. The outstanding shares of common stock are
validly issued, fully paid and non-assessable.
Subject to the rights of any outstanding shares of preferred stock, the
holders of common stock are entitled to receive dividends when, as and if
declared by the board of directors out of funds legally available therefor.
In the event of liquidation, dissolution or winding up of the affairs of the
company, the holders of common stock are
12
<PAGE>
entitled to share ratably in all assets remaining available for distribution
to them after payment or provision for all liabilities and any preferential
liquidation rights of any preferred stock then outstanding.
PREFERRED STOCK
The board of directors is authorized, without action by the holders of
the common stock, to provide for the issuance of preferred stock in one or
more series, to establish the number of shares to be included in each series
and to fix the designations, powers, preferences and rights of the shares of
each such series and the qualifications, limitations or restrictions thereof.
This includes, among other things, voting rights, conversion privileges,
dividend rates, redemption rights, sinking fund provisions and liquidation
rights which shall be superior to the common stock. The issuance of one or
more series of the preferred stock could adversely affect the voting power of
the holders of the common stock and could have the effect of discouraging or
making more difficult any attempt by a person or group to attain control of
the company. The company has no present plans to issue any shares of
preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Registrar and
Transfer Company, Cranford, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
There are 15,603,400 shares of common stock currently outstanding. Upon
the effectiveness of this registration statement, all of the shares of common
stock outstanding held by non-affiliates will be eligible for immediate
resale in the public market if and when any market for the common stock
develops. Sales of such shares held by affiliates will, however, be subject
to the restrictions of Rule 144 promulgated under the Securities Act. An
affiliate of the issuer is any person who directly or indirectly controls, is
controlled by, or is under common control with, the issuer. Affiliates of
the company may include its directors, executive officers, and persons
directly or indirectly owning 10% or more of the outstanding common stock.
Under Rule 144 resales of common stock for the account of affiliates cannot
be made until it has been held for one year from the later of its acquisition
from the company or an affiliate of the company. Thereafter, shares of
common stock may be resold without registration subject to Rule 144's volume
limitation, aggregation, broker transaction, notice filing requirements, and
requirements concerning publicly available information about the company.
The volume limitations provide that a person (or persons who must aggregate
their sales) cannot, within any three-month period, sell more than the
greater of one percent of the then outstanding shares, or the average weekly
reported trading volume during the four calendar weeks preceding each such
sale.
INTEREST OF NAMED EXPERTS AND COUNSEL
Not applicable.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
ORGANIZATION WITHIN LAST FIVE YEARS
See "Certain Relationships and Related Transactions".
13
<PAGE>
DESCRIPTION OF BUSINESS
THE COMPANY
In October 1995, Posh was incorporated as a Texas corporation and
acquired all of the outstanding partnership interests in Posh Wash G.P, owned
by Mr. Pearce, Metro Publications and Messrs. Shriver and Hindle (Flair
Image transferred its Posh Wash G.P. partnership interest to Messrs. Shriver
and Hindle in October 1995), and from October 1995, to June 1997 all business
had been conducted through Posh. The company was incorporated in May 1997,
as a wholly owned subsidiary of Posh and in June 1997, all of the assets and
liabilities of Posh were assigned to the company in exchange for 15,603,400
shares of company common stock. Concurrently therewith, the board of
directors of Posh established a record date of June 11, 1997, to distribute
all of the issued and outstanding stock of the company to the Posh
stockholders. The historical management of Posh has assumed management of
the company. Posh's fiscal year was September 30 and the company adopted a
fiscal year in 1997 of June 30.
The company's business strategy is to market and distribute automotive
care products. Currently, the company markets Guardian Angel, an internal
treatment, and Posh Wash, an exterior car care product. Guardian Angel is a
concentrated engine treatment that impregnates itself into the metal to
increase its density and reduce friction and wear. Posh Wash is a one-step
automotive care cream that eliminates the need to use several chemical
automotive appearance products, including waxes, washes, polishes,
protectants, degreasers and glass/chrome/leather cleaners, to achieve a
similar result. The company subcontracts all manufacturing, packaging,
storing and handling of Guardian Angel and Posh Wash, and relies upon third
parties for selling and distributing, a strategy management believes reduces
overhead and limits capital expenditures and labor costs. These functions
are tracked in the company's automated management information system. The
company expects to utilize infomercials for Guardian Angel to increase sales
of the company's products and to reduce the company's reliance on independent
representatives. The average wholesale price for Guardian Angel is $22.75
and the suggested retail price is $29.95. The average wholesale price for a
16 oz. bottle of Posh Wash, including applicator sponge, is $15.16 and the
suggested retail price is $19.95. For the fiscal year ended June 30, 1998,
the company received approximately 77% of its revenue from Guardian Angel and
7% of its revenue from Posh Wash. The remaining 16% of revenues are derived
from the sale of sales and marketing materials to distributors.
INDUSTRY BACKGROUND
In 1998, Automotive Marketing, a predominant trade magazine reported
that 30% of do-it-yourselfers bought oil treatment products and 26% bought
appearance products. Management believes this amount is expected to increase
as the average automobile age (currently 7.9 years) continues to increase due
to the rising cost of new automobiles, and as car owners search for more ways
to maintain the "new" appearance of older cars. The study distributed in
April 1998 by "Automotive Marketing," found that 66% of respondents were
light do-it-yourselfers who at least washed and waxed their automobiles. Of
the total do-it-yourselfers, only 55% bought auto supplies in auto parts
stores, and management believes that this percentage has been steadily
decreasing. Other retail outlets where chemical automotive appearance
products are purchased include grocery stores, mass merchandisers, service
stations, and auto detail shops. This study found that female
do-it-yourselfers were becoming an important part of the market segment that
purchases automotive maintenance products.
PRODUCTS
The company's strategy is to develop and market automotive care products
that management believes have a potential for consumer application.
GUARDIAN ANGEL
Currently, the company markets and distributes Guardian Angel, a
two-step automotive engine treatment. During the fiscal year ended June 30,
1998, the company distributed 14,849 bottles of Guardian Angel. The average
wholesale price for a two-step package of Guardian Angel is $22.95 and the
suggested retail price is $29.95. Management believes that Guardian Angel is
a technologically advanced engine treatment product and is unique, as
compared to traditional automotive engine treatments or oil additives.
Guardian Angel is not a typical solid particulate based engine treatment that
coats the metal with Teflon, graphite, or other solid friction reducing
agents. Guardian Angel is a concentrated proprietary formula that protects
car and truck engines from excessive wear caused by the high temperatures of
normal operation. Guardian Angel Engine Treatment and Guardian Angel Power
Booster Treatment contain polarized liquid polymer molecules that penetrate
and bond with your car's engine, creating a heat-transfer mechanism that
eliminates damaging heat buildup and friction wear. Guardian Angel is a
proprietary product blended through a reactionary process with polymeric
14
<PAGE>
additives that include rust inhibitors, corrosion inhibitors, anti-oxidants,
synergistic binders, extreme temperature packages and anti-wear packages.
Since the 1970's, producers of polytetrafluoroethylene ("PFTE") engine
treatment formulas have successfully educated the consumer regarding the need
to reduce engine friction. Most competitive engine treatment formulas
contain PFTE, popularly known as Teflon, which is a slippery solid substance.
PFTE engine treatment formulas claim to reduce metal-to-metal grinding of
moving engine parts during start-up which is when management estimates that
significant engine wear occurs. The company, based on studies reported in
LUBRICATION WORLD, estimates that the annual market for engine treatment
products is approximately $150 million.
The first function of lubrication is to establish a film thick enough
and strong enough to prevent metal-to-metal contact, and therefore reduce
wear. Unlike oil or other engine lubrication additives, Guardian Angel is not
a coating or film. Guardian Angel actually impregnates itself in the metal
and magnetically bonds to the critical "high" points of an engine where
"boundary lubrication" exists. This liquid polarized molecule permanently
sets up a safety barrier of molecule-to-molecule contact instead of
metal-to-metal contact. Guardian Angel impregnates itself into the metal
increasing the density which results in:.
- Guardian Angel Engine Lubrication and Power Booster improving engine
protection;
- Guardian Angel exhibiting better unlubricated wear resistance with its
molecular bond;
- Guardian Angel creating a slippery surface that reduces the damaging
effects of friction; and
- Guardian Angel transferring heat away from the engine "hot spots."
The second function of lubrication is to reduce friction. Even where
full film lubrication is present, force is required to move parts over one
another and overcome the viscosity effect of the lubricant. Also, when the
lubricant becomes contaminated with soot, dirt, and sludge, the viscosity is
increased, and therefore friction and drag is increased. Guardian Angel
reduces this friction in two ways:
- Millions of elongated liquid polarized polymer molecules complete the
circuit of thermal cycling-and-effectively carry away friction heat,
even in dirty oil; and
- The use of Guardian Angel treats the metal and reduces contamination
of oil. This is especially true of sludge and metal particles caused
by "Boundary Lubrication" and metal-to-metal wearing.
The third function of lubrication is to keep engine interiors clean and
protect against rust and corrosion, oil contamination, dirt, dust, metal
particles, carbon, water, acids and unburned gasoline. Guardian Angel Engine
Protectant and Guardian Angel Power Booster along with high grade motor oil
or synthetic oil contain:
- Additives which inhibit rust and corrosion caused by water
condensation;
- Detergent/dispersing agents which prevent the formation of sludge and
varnish; and
- Neutralizing acids which retard the oxidation of the oil at high
temperatures.
Because of the lubricating qualities of Guardian Angel, contamination
of the oil is significantly decreased to the extent the additives in the
lubricant function longer and allow longer intervals between oil changes.
For proper lubrication, some oil must reach the area of the top piston ring
in order to lubricate both the rings and the cylinder walls. This oil is
exposed to the combustion of the fuel, therefore some of it is actually
burned off. When this burning is excessive, black smoke is emitted from
exhaust, oil consumption is excessive, and heavy carbon deposits are
accumulated in the combustion chamber and on the spark plugs. Guardian Angel
lubrication keeps the piston rings free and minimizes the amount of oil that
is burned in the combustion chamber. This reduces oil consumption and
pollution. Guardian Angel lubrication minimizes carbon deposits in the
combustion chamber and on the spark plugs increasing efficiency and
horsepower. Increased efficiency also increases fuel economy and reduces
exhaust emissions.
The fourth function of lubrication is to permit starting and allow prompt
circulation. It is important to use lubrication which insures satisfactory
cranking, proper circulation, and high temperature protection. Guardian
Angel provides a safety factor for engine cranking before oil is circulated,
and while engine surfaces are dry. The friction-reducing properties of
Guardian Angel increases the cranking speed, and decreases the amperage drain
on the battery. Engines start quickly even in extremely cold temperatures
with minimal engine wear. Guardian Angel does not change the oil viscosity
and management believes it is suitable for use with all premium and synthetic
motor oils.
The fifth function of lubrication is to cool engine parts. The use of
Guardian Angel aids engine cooling by:
15
<PAGE>
- Immediately transferring heat away from engine parts allowing the oil
to transfer the heat back to the oil crank case;
- Reducing friction and decreasing water temperature aiding upper engine
cooling;
- Reducing friction and decreasing oil temperature aiding lower engine
cooling; and
- Helping keep oil passages clear of sludge deposits and contaminants so
oil can circulate and cool properly.
The sixth function of lubrication is to seal combustion pressures. The
surfaces of the piston rings, ring grooves and cylinder walls are not
completely smooth. When seen under a microscope these surfaces consist of
little hills and valleys. Because of this the rings cannot completely prevent
high combustion compression and pressure from escaping into the low pressure
area of the crankcase. This wastes horsepower and reduces efficiency.
Guardian Angel impregnates into the metal increasing the density by filling
in these hills and valleys increasing cylinder compression and horsepower.
Management believes that with the use of Guardian Angel, the consumer's
automobile will last longer, run smoother, use less gasoline, cost less to
maintain and reduce the possibility of roadside breakdowns. Management
believes that Guardian Angel offers the following advantages.
- Easy to Use - No special tools or equipment are needed. The consumer
simply adds Guardian Angel Engine Protection to the crankcase of their
automobile. The consumer adds Guardian Angel Power Booster oil
treatment after their next regularly scheduled oil-change for optimum
performance.
- Improved Performance - Guardian Angel provides the consumer with,
increased gas mileage, increased horsepower, increased compression,
improved lubrication, reduced wear and down-time, reduced oil
consumption, reduced friction and drag reduced operating temperatures,
and reduced emissions.
POSH WASH
Currently the company markets and distributes Posh Wash, a one-step
automotive care cream. During the fiscal year ended June 30, 1998, the
company distributed 825 bottles of Posh Wash. The average wholesale price
for a 16 oz. bottle of Posh Wash, including applicator sponge, is $15.16 and
the suggested retail price is $19.95. Management believes that Posh Wash is
a technologically advanced car care product and is unique from traditional
automotive washes and waxes. Posh Wash is not a typical detergent-based car
wash that contains harsh cleaning agents, caustic alkalis, phosphates, and
solvents which can be abrasive to automobile surfaces. Posh Wash is a car
care cream containing special wetting agents and emulsifiers which, when
applied with the applicator sponge, emulsifies with the surface soils and
holds them in suspension and prevents surface abrasion. Furthermore, Posh
Wash leaves a wax-like shine but does not remove paint as does typical
automotive waxes. Accordingly, management believes Posh Wash replaces the
need to utilize several automotive chemical appearance products, including
washes, waxes, polishes, protectants, degreasers and glass/chrome/leather
cleaners, to achieve a similar result.
Management believes that Posh Wash has numerous benefits over
traditional car care products. Posh Wash can be utilized to clean exposed
materials including paint, glass, wood, leather, vinyl, plastic, upholstery,
rubber, clear coats, and chrome. Posh Wash removes (and protects against)
road grime, tar, corrosive chemicals, bird droppings, and bug residue. When
applied, Posh Wash dries without streaks or water spots, and protects the
automobile with two sunscreens. Posh Wash provides a protective wax finish
at the same time as the car is washed, without buffing, and without leaving a
residue build-up. Posh Wash eliminates the need to use removers, washes,
rinses, waxes, polishes, and conditioners and conserves water since Posh Wash
can clean an entire automobile using only one bucket of water, an important
marketing factor in areas that have restrictive water use regulations.
Moreover, Posh Wash is environmentally safe and contains no petroleum
distillates. The process for cleaning an entire car (interior and exterior)
using Posh Wash are as follows:
- Fill bucket with clean water;
- Apply Posh Wash with damp applicator sponge starting at top of
automobile and working way down towards tires;
- Rinse entire automobile with wet sponge or hose;
- Towel dry;
- For interior, apply Posh Wash using a clean bucket of water and
sponge; and
- Dry interior with a soft cotton towel.
16
<PAGE>
The company believes that Posh Wash will be successful in the
competitive chemical automotive appearance market because Posh Wash is
neither a detergent-based wash or a petroleum distillate wax. Management
believes that Posh Wash is unique in the way it works because it is a
chemical automotive appearance product that breaks the cycle of washing and
waxing which, over time, removes the automobile's paint with each use.
OTHER PRODUCTS
The company's long-term strategy is to introduce new products to its
independent representatives as a means of expanding its product base. At
this time, the company is evaluating several test products which are
non-exclusive products being marketed and distributed by other companies.
The company has not made a final determination whether these products will be
profitable to the company for distribution. There can be no assurance that
the company will market or distribute these products, or if such marketing or
distribution occurs whether the company will be successful in its efforts.
MARKETING
STRATEGY
The company had approximately 367 independent representatives
participating in the company's sales program generating product sales from
their home-based business. During the next year, the company plans to
utilize infomercials to create a market presence for Guardian Angel.
Management believes that the power of person-to-person selling and use of
direct response television will increase company sales to sufficient levels
to maintain future operations of the company.
MARKETING TECHNIQUES
Management believes person-to-person sales of its products are
successful because of the benefits provided by the products. However,
equally important to representatives is the compensation plan utilized by the
company. The company utilizes a seven level payment plan that all
representatives participate in once they make an initial purchase of company
products. Commissions are paid through the company's seven level Unilateral
Commission Plan. Representatives earn money by retailing company products,
wholesaling company products, and by recruiting, training, and motivating
others to sell and recruit.
Using the experience of a Hollywood, California production company, the
company contracted for and completed the production of a 30-minute
infomercial with Warren Chaney Productions, Inc. Beginning in the fourth
quarter of 1998, the company expects to introduce Guardian Angel by
purchasing media time on selected cable stations in areas where the company
has independent representatives. The company believes the sale of Guardian
Angel by direct response television will also produce potential independent
representatives. In addition, the company expects media advertising to
promote name recognition for independent representatives, thereby increasing
independent representative person-to-person sales. Purchasers will buy the
product and receive information on marketing along with their product.
Another important element in the company's marketing strategy is to keep
the retail price of Guardian Angel and Posh Wash low. The company prices
Guardian Angel and Posh Wash at a suggested retail price point that it
believes is affordable to a large percentage of the population. To date, the
company's returns of product from retailers has been insignificant.
PRODUCTION, STORAGE, HANDLING AND SHIPPING
The company subcontracts all manufacturing and packaging of Guardian
Angel and Posh Wash. The company purchases the Guardian Angel formula from
Sun Coast who manufactures Guardian Angel on an order-by-order basis. Sun
Coast is a manufacturing company that manufactures various lubrication
products and is located in Flagler Beach, Florida. Management believes that
the current facilities of Sun Coast can accommodate the growth plan of the
company, and if not, that there are other companies similar to Sun Coast that
could manufacture Guardian Angel in the event the relationship with Sun Coast
was terminated. Sun Coast manufactures the Guardian Angel formula at its
location and bottles Guardian Angel in 8 oz. bottles. See "Risk
Factors-Dependence on Subcontractors for Production, Packaging, Storage and
Handling."
The company is the non-exclusive distributor of the formula for Guardian
Angel throughout the continental United States and the entire foreign market.
The unit cost to the company of an 8 oz. bottle, Guardian Angel
17
<PAGE>
packed, ranges from $2.24 to $1.91 depending upon the amount ordered. The
company does not have any sales quota or minimum purchase agreements.
The company purchases the Posh Wash formula from Mr. Tisman who, in
turn, subcontracts the manufacturing of Posh Wash to Daley on an
order-by-order basis. Daley is a manufacturing company that manufactures
various creams, shampoos, and make-up and has three manufacturing facilities
located in Missouri, Illinois and California. Management believes that the
current facilities of Daley can accommodate the growth plan of the company,
and if not, that there are other companies similar to Daley that could
manufacture Posh Wash in the event the relationship with Daley was
terminated. Daley manufactures the Posh Wash formula at its California
location and bottles Posh Wash in a 16 oz., silk-screened, two-color bottle
with flip cap. See "Risk Factors-Dependence on Subcontractors for
Production, Packaging, Storage and Handling."
Mr. Tisman entered into a product supplier agreement with Flair Image,
Inc. which was assigned to Posh Wash G.P. in October 1995 which was
subsequently assigned to Posh in November 1995. The product supplier
agreement between the company and Mr. Tisman automatically renewed through
January 2003. Pursuant to the agreement, the company is the non-exclusive
distributor of the Posh Wash formula throughout the continental United States
and the entire foreign market. The unit cost to the company of a 16 oz.,
silk-screened, two-color bottle with flip cap, Posh Wash packed, ranges from
$1.81 to $1.49 depending upon the amount ordered. The company does not have
any sales quota or minimum purchase agreements. The company has agreed to
pay Mr. Tisman a sales commission of 2-1/2% of the current retail price of
each Posh Wash sold, based initially upon a sales price of $19.95, with a
mutually agreed upon bonus arrangement to be negotiated between the parties
when retail sales reach $250,000 per month, $500,000 per month, and
$1,000,000 per month.
After the product is supplied by Daley and Sun Coast, each bottle is
packaged in appropriate containers. Each bottle of Guardian Angel is
packaged in a customized box that contains one 8 oz. bottle of step 1
Guardian Angel Engine Treatment and one 8 oz. bottle of step 2 Guardian Angel
Power Booster. Each bottle of Posh Wash along with an applicator sponge is
packaged into a 4" x 8-1/4" x 4" box. The company subcontracts the
manufacture of the Posh Wash applicator sponge to Armaly Brands, the
manufacture of the Posh Wash box to Carton Sales company, Inc., the
manufacture of the Guardian Angel box to Frankston Admiral, Inc., and the
packaging of Guardian Angel and Posh Wash to Nightingale. Completed product
is warehoused at Nightingale which is located in Houston, Texas. Nightingale
is currently charging the company $90 per month for storage and handling.
The company does not have written contracts with any of these subcontractors
other than current purchase orders. Management believes that there exists
other subcontractors that could provide the necessary services if any current
subcontractor terminates its relationship with the company.
The company is responsible for all shipping costs between manufacturers
and Nightingale. In addition, the company is responsible for all shipping
costs from Nightingale's warehouse to independent distributors and other
retailers. The company utilizes various national trucking lines and United
Parcel Service for all of its shipping requirements, excluding deliveries in
the Houston metropolitan area that are handled by a local delivery company.
DISTRIBUTION
The company's strategy is to expand and diversify its customer and
distribution base. The company has been and continues to be dependent on
independent representatives to sell company products in accordance with the
marketing program. Moreover, the company has produced a 30-minute television
infomercial it will use in selected cable television media markets to sell
Guardian Angel. In addition to selling products through television 1-800
direct sales, new independent representatives will be developed through a
presentation of the marketing program when they receive the product. For the
fiscal year ending June 30, 1998, the company's sales of Guardian Angel and
Posh Wash to independent representatives represented 84% of the company's
total revenue. The company expects the percentage of total company sales to
independent representatives to increase because satisfied customers earn
commissions when recommending the purchase of company products to new
customers. Since independent representatives earn commissions from retailing
products, wholesaling products or recruiting other representatives that sell
company products, the company expects to continue to expand sales revenue of
products sold through independent representatives. In addition, the company
believes revenues from products sold will increase from direct response sales
generated from the television infomercial. As of June 30, 1998, the company
had approximately 367 independent representatives. Independent
representatives buy products at wholesale prices and pay the company in
advance for all products ordered.
COMMISSIONS
Commissions are paid by the company based on a seven level Unilateral
Commission Plan. When a representative sells company products and the
customer decides to also become a representative, the new representative is
placed on the original representatives first level of the company's seven
level commission plan.
18
<PAGE>
The original representative earns commissions on all repeat sales of all
first level representatives and their entire downline of representatives
through seven levels as long as they continue to train and motivate their
sales organization to build a clientele of retail customers who order a
minimum of $50 wholesale volume per month. Commissions are:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th 5th 6th 7th
Product Level Level Level Level Level Level Level
- ------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Guardian Angel 10% 5% 5% 20% 5% 5% 5%
Posh Wash 10% 5% 5% 10% 5% 5% 5%
</TABLE>
In addition to traditional channels of network marketing distribution,
the company believes that Guardian Angel and Posh Wash can be sold through a
variety of other distribution channels such as mail order, direct response
advertising, and home shopping networks. Management will continue to pursue
all networks of distributing Guardian Angel and Posh Wash in order to promote
its product.
ROYALTIES
The company has entered into several agreements to pay royalties in
exchange for capital investments and advertising contributions. The
agreements provide for the company to pay royalties to investors based on,
but not limited to, the number of bottles of Posh Wash sold per month based
on the wholesale price, the percentage of international licensing fees
received, and percentages of income earned from the sale of other automotive
products. Based on the company's existing product line and geographic
distribution, the company currently pays the following royalties: (i) 2.5%
of the retail price of Posh Wash, currently $19.95, to Mr. Tisman; (ii) a
$1.00 per bottle royalty on all sales of Posh Wash to Thurman Thomas
Investments; (iii) a $.1482 per bottle royalty on all sales of Posh Wash in
the United States until sales reach 700,000 bottles, then a $.1482 per bottle
royalty on all sales of Posh Wash in the United States over 10,000 bottles
per month thereafter, and a 1.48% royalty of all gross international sales of
Posh Wash to six unaffiliated investors--Allen J. Becker, Jeffrey D.
Friedman, Mark A. Kaufman, James A. Friedman, Linscomb & Williams Investment
Partnership and Window Communications Corporation; and (iv) a $.50 per bottle
royalty on all sales of Posh Wash over 12,000 bottles per month and a $1.00
per bottle royalty on all sales of Posh Wash over 20,000 bottles per month to
Sunbelt Broadcasting II, L.P. until such royalties total $300,000. The
company's strategy is to minimize any future royalty payments.
COMPETITION
The automotive products aftermarket is a highly fragmented and
competitive industry. Guardian Angel and Posh Wash compete with numerous
other car wash and engine treatment products, several of which are a part of
a range of automotive products marketed under a common trade name. While
management does not believe that competitors are distributing a product based
upon Sun Coast's or Mr. Tisman's formulas, there can be no assurance that
this will not occur in the future. Companies that market such products have
significantly greater financial resources than the company. The primary
competitive factors in the automotive aftermarket are brand-name recognition,
product quality, ease of use, channels of distribution, shelf space and
perceived price/value relationship. There can be no assurance that the
company will be able to successfully compete in this highly competitive
marketplace.
PATENTS AND TRADEMARKS
Neither the company, Mr. Tisman nor Sun Coast has applied for any
patents covering the formula used in Posh Wash or Guardian Angel. The
company has obtained federal trademark registration on the "Posh Wash" brand
name and has applied for trademark registration on the "Guardian Angel" brand
name.
PERSONNEL
As of June 30, 1998, the company had three salaried employees, and
approximately 367 independent representatives who are compensated on a
commission basis. The company also employs additional office personnel on a
temporary basis. None of the company's employees are represented by labor
unions. The company believes its employee relations are good.
19
<PAGE>
AVAILABLE INFORMATION
The SEC maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the SEC. The address of the site is
http:\\www.sec.gov. Visitors to the site may access such information by
searching the EDGAR data base on the site.
Prior to the date of this prospectus, the company was not subject to the
information and reporting requirements of the Securities Act. As a result of
this registration statement becoming effective, the company will become
subject to such requirements and, in accordance therewith, the company will
file periodic reports, proxy materials and other information with the SEC.
The company will provide its stockholders with annual reports containing
audited financial statements and, if determined to be feasible, quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial information. The company has filed a registration statement of
Form SB-2 under the Securities Act, with respect to the securities being
registered. This prospectus does not contain all the information set forth
in the registration statement and the exhibits and schedules thereto, to
which reference is hereby made. Copies of the registration statement and its
exhibits are on file at the offices of the SEC and may be obtained upon
payment of the fees prescribed by the SEC or may be examined, without charge,
at the public reference facilities of the SEC, 450 Fifth Street, Northwest,
Washington D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The company
will provide without charge to each person who receives a copy of the
prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference in this prospectus (not
including exhibits to the information that is incorporated by reference
unless the exhibits are themselves specifically incorporated by reference).
Such request should be directed to the company, attention Frederic G. Hindle,
10696 Haddington, Suite 117, Houston, Texas 77043.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion should be read in conjunction with the
financial statements and notes thereto also contained in this prospectus.
GENERAL
The following analysis compares the financial condition of the company
for the twelve months ended June 30, 1997 and the fiscal year ended June 30,
1998. Financial information for the twelve months ended June 30, 1997
reflects combined operations of the company, and its predecessor entity,
Posh. The pro forma unaudited financial statements for the twelve months
ended June 30, 1997, have been prepared by the company and are derived from
audited financial statements included elsewhere in this prospectus. The
company was incorporated in May 1997. On June 10, 1997, the company acquired
all of the assets and liabilities of Posh.
The company recognizes revenue when the product is shipped to the
customer. To date, total product exchanges and cash refunds have been
minimal. The company allows product sold to new customers on their initial
order to return any unsold product. The company provides an allowance for
these returns. Total returns for fiscal 1998 and the twelve months ended June
30, 1997 amounted to less than 5.2% and 6.4%, respectively.
For the fiscal year ended June 30, 1998, Guardian Angel represented 77%
and Posh Wash represented 7% of the company's revenues, respectively. The
remaining 16% of revenues were derived from the sale of sales and marketing
materials to distributors. For the twelve months ended June 30, 1997,
Guardian Angel represented 82% and Posh Wash represented 18% of the
company's revenues, respectively.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1997,
COMPARED WITH THE RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30,
1998.
Revenues decreased from $532,335 for the twelve months ended June 30,
1997, to $201,932 for the fiscal year ended June 30, 1998. The decrease of
$330,403 or 62% was primarily due to changes in the company's marketing
strategy.
20
<PAGE>
Costs of goods sold for the twelve months ended June 30, 1997 were
$105,797 compared with $110,235 for the fiscal year ended June 30, 1998,
resulting in gross profits of $428,539 and $91,697, respectively. The
company's gross margin as a percentage of sales decreased from 80.5% for the
twelve months ended June 30, 1997, compared to 45.4% for the fiscal year
ended June 30, 1998. The decrease in the gross profit percentage reflects a
reduced margin received on a large quantity bulk sale made during the year
and the write-off of obsolete inventory. Historically, the company has not
incurred a material amount (both in product and dollar amounts) of returns.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operation-General."
Selling expenses decreased from $346,985, for the twelve months ended
June 30, 1997, to $219,206 for the fiscal year ended June 30, 1998. The
decrease of $127,779 or 36.8% primarily reflects the revised marketing plan
and curtailing marketing activities involved with the company's previous
business plan.
General and administrative expenses decreased from $471,508 for the
twelve months ended June 30, 1997, to $350,810 for the fiscal year ended June
30, 1998. The decrease in general and administrative expenses of $120,698 or
25.6% primarily reflects the reduced overhead required by the company's
business plan.
The company had a net loss of $408,917 for the twelve months ended June
30, 1997, compared with a net loss of $442,549 for the fiscal year ended June
30, 1998. The company expects to incur additional losses for the remainder
of the fiscal year and management does not believe that the company will
achieve profitability until such time as it develops additional markets for
the Guardian Angel and Posh Wash products and gains broader market acceptance
in its existing markets. The increased net loss of $33,632 or 8.2% was
principally due to the decrease in revenues.
Net loss per share of common stock was approximately $(.03) for both the
fiscal year ended June 30, 1998, and the twelve months ended June 30, 1997.
The company may in the future experience significant fluctuations in its
results of operations. Such fluctuations may result in volatility in the
price and/or value of the company's common stock if any market develops.
Results of operations may fluctuate as a result of a variety of factors,
including the introduction of new products and services, the timing of
significant marketing programs, the number and timing of the hiring of
additional personnel, competitive conditions in the industry and general
economic conditions. Shortfalls in revenues may adversely and
disproportionately affect the company's results of operations because a high
percentage of the company's operating expenses are relatively fixed.
Accordingly, the company believes that period to period comparisons of
results of operations should not be relied upon as an indication of future
results of operations. There can be no assurance that the company will be
profitable. Due to the foregoing factors, it is likely that in one or more
future periods the company's operating results will be below the expectations
of stockholders.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the company's primary source of liquidity was
$92,830 of cash, $16,812 of accounts receivable, $200,000 of stock
subscriptions receivable and $89,308 of inventory. The company's working
capital deficit and stockholders' deficit were $531,831 and $436,441,
respectfully, as of June 30, 1998.
Net cash used by operating activities during the fiscal year ending June
30, 1998 was $291,029 compared with $402,085 for the twelve months ended June
30, 1997. Net cash provided by financing activities was $343,443 for the
fiscal year ended June 30, 1998, compared with $332,085 for the twelve months
ended June 30, 1997. The company expects to continue to incur negative cash
flows from operations and will likely need to fund this shortfall with
proceeds from debt, royalty agreements or sales of equity.
The company has financed its growth primarily through royalty
arrangements with various investors and borrowings from Flair Image. In May
1998, the company borrowed $188,889 from an unaffiliated third party pursuant
to a one-year note bearing interest at 7.5% per annum. In May 1998, the
company borrowed $50,000 from Southwest Bank of Texas against an unsecured
line of credit bearing interest at 8.5%. At June 30, 1998, the balance due
was $49,805. In addition, in May 1998, the company borrowed $35,280 from
Southwest Bank of Texas bearing interest at 9.5% per annum. The company
repaid this debt in August 1998. In December 1996, 1,250,000 shares of Posh
common stock were sold for an aggregate amount of $436,000 in a capital
raising transaction. During 1997, $176,000 from the transaction was received
in cash and $260,000 remained in notes receivable. As of June 30, 1998,
$200,000 remained outstanding. Subsequent to June 30, 1998, the company
received 400,000 shares of common stock of Titan Resources, Inc., as partial
payment of the stock subscription receivable. On the day of the transfer,
the stock was valued at $.359 per share, or $143,600. As of October 14,
1998, 140,000 shares of Titan Resources, Inc., stock had been sold for an
aggregate amount of $49,967 and the company retained ownership of
21
<PAGE>
260,000 shares of stock. As of October 14, 1998, the value of the stock was
$.21 per share, or $54,600, which would leave a receivable account balance of
$95,433, if the stock were sold as of October 14, 1998. In October 1995, the
company's note payable to affiliates, which amounted to $236,544 at June 30,
1998, was acquired by two stockholders of such affiliates and acquired by the
company in exchange for common stock and the company also reduced its
liability for future royalties by $136,250 by issuing 61,250 shares of common
stock and a warrant to acquire 150,000 shares of common stock at $.50 per
share, which warrant was subsequently terminated. Management's goal is not
to incur additional royalties in future periods. As of June 30, 1998, the
company's sources of internal and external financing were limited. Cash flow
problems could be created in the event payments from retailers are delayed,
for any reason, which could delay payments made to suppliers that could cause
credit problems with suppliers. It is not expected that internal sources of
liquidity will improve until net cash is provided by operating activities and
until such time, the company will rely upon external sources for liquidity.
In addition to the $236,544 loan agreement which was acquired by two
stockholders of an affiliate, the $188,889 loan from an unaffiliated third
party, the $50,000 line of credit with Southwest Bank of Texas and the
$35,280 loan from Southwest Bank of Texas, the company has not established
financing arrangements with any other lenders and does not expect such
arrangements to be available. There can be no assurance that the company
will be able to obtain any additional financing on reasonable terms, if at
all. The company utilizes approximately $20,000 per month in operations. The
company believes that revenues and the repayment of debt will provide
adequate liquidity to meet the company's capital requirements for the next
seven months. The market for the Titan stock is sporadic and volatile. A drop
in the price of the Titan stock could result in a reduction in the period for
which revenue and repayment of debt will be utilized. Lower than expected
revenues resulting from adverse economic conditions or otherwise, unforeseen
costs in entering new markets, insufficient market penetration to support
general and administrative costs (including advertising), any new product
introductions and seasonality could restrict the company's ability to expand
its business plan, and, if severe enough, may shorten the period during which
the available cash may be expected to satisfy the company's capital
requirements. As of June 30, 1998, the company had no material capital
commitments.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The company's board of directors has established a committee to initiate
formal communications with its subcontractors to determine the extent to
which the company's operations are vulnerable to those third parties' failure
to remediate their own Year 2000 Issues. There can be no guarantee that the
systems of other companies on which the company's operations rely will be
timely converted and would not have an adverse effect on the company's
operations. Any year 2000 compliance problems of the company could have a
material adverse effect on the company's business, results of operations and
financial condition.
SEASONALITY
Since a greater number of people wash their cars during the summer
months, the second and third quarters of the year tend to account for a
greater portion of the company's revenue than do the first and fourth
quarters of the year. This seasonal pattern, as well as the timing of market
expansions and new product introductions, may cause the company's results of
operations to vary significantly from quarter to quarter.
DESCRIPTION OF PROPERTY
The company's corporate headquarters are located in 2,500 square feet of
leased space in Houston, Texas. These premises are utilized by members of
senior management and accounting personnel. The lease expires in September
30, 1999, and provides for a base rent of $1,325 per month which management
believes to be competitive with market prices.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1997, the company agreed to distribute 15,603,400 shares of its
common stock to Posh in consideration for all the right, title and interest
in and to the assets and liabilities of Posh. Posh agreed to distribute the
company's common stock to the Posh stockholders.
22
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Currently there is no public trading market for the company's securities.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the chief
executive officer of the company. No other executive officer has received in
excess of $100,000 in compensation during the last three fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
LONG-TERM
NAME AND PRINCIPAL FISCAL OTHER ANNUAL COMPENSATION ALL OTHER
POSITION YEAR SALARY(1) BONUS COMPENSATION(2) OPTION COMPENSATION
------------------- ------ ------ ----- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Frederic G. Hindle,
President and Chief 1998 $60,000(3)
Executive Officer 1997 $60,000(4)
1996 $60,000(5) $ 4,468(6)
</TABLE>
- ------------------
(1) Compensation received in the form of a management fee.
(2) The named executive officer did not receive prerequisites or other benefits
valued in excess of 10% of the total reported annual fees and bonus.
(3) $30,000 has not been paid to date and is currently being accrued.
(4) $42,000 has not been paid to date and is currently being accrued.
(5) $10,000 has not been paid to date and is currently being accrued.
(6) Consists of incentive compensation.
EMPLOYMENT AND CONSULTING AGREEMENTS
In October 1995, Mr. Hindle entered into a 10-year employment agreement
with Posh that was assumed by the company that provided for a monthly
management fee of $5,000 plus sales incentive compensation ranging from 3%-5%
of the wholesale price of each bottle of Guardian Angel and Posh Wash sold
plus identical incentive compensation for each additional product sold by the
company. In October 1998, the company entered into an amended and restated
employment agreement with Mr. Hindle that expires in October 2008 which
provides for a minimum management fee of $7,000 per month plus incentive
compensation as described above. If Mr. Hindle is constructively terminated,
as that term is defined in the amended and restated employment agreement
attached hereto as Exhibit 10.3(2), Mr. Hindle will receive incentive
compensation for the entire term of the employment agreement plus the greater
of one year of base compensation or the remaining base compensation that
would have been paid pursuant to the employment agreement. In October 1995,
Mr. Shriver entered into a 10-year consulting agreement with Posh that was
assumed by the company that provides for a monthly fee of $5,000 plus sales
incentive compensation ranging from 3%-5% of the wholesale price of each
bottle of Guardian Angel and Posh Wash sold plus identical incentive
compensation for each additional product sold by the company. In October
1998, the company entered into an amended and restated consulting agreement
with Mr. Shriver that expires in October 2008 which provides for a monthly
fee of $7,000 and provides for incentive compensation as described above.
Messrs. Hindle and Shriver did not receive incentive compensation during the
twelve months ended June 30, 1997, and the fiscal year ended June 30, 1998,
and no incentive compensation was accrued.
STOCK OPTIONS
In June 1997, the board of directors and majority stockholders adopted a
stock option plan under which 600,000 shares of common stock have been
reserved for issuance. As of the date of this prospectus, no options have
23
<PAGE>
been granted pursuant to such plan and the company has no present plans for
the issuance thereof. The company does not have a defined benefit plan or
any retirement or long-term incentive plans.
CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for the company by Brewer & Pritchard, P.C., Houston, Texas.
EXPERTS
The financial statements for the fiscal year ended June 30, 1998, the
period from June 12 to June 30, 1997, the period from October 1, 1996 to June
11, 1997 and the period from October 9, 1995 to September 30, 1996, included
in this registration statement have been included herein in reliance upon the
report of Null Lairson, P.C., independent accountants, given on the authority
of said firm as experts in auditing and accounting.
24
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CLASSIC TRENDS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1998 AND THE PERIOD FROM JUNE 12 TO JUNE 30, 1997
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
POSH INTERNATIONAL, INC.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION (OCTOBER 9, 1995) TO SEPTEMBER 30, 1996 AND THE PERIOD
FROM OCTOBER 1, 1996 TO JUNE 11, 1997
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Statements of Changes in Stockholders' Equity. . . . . . . . . . . . . . . . . . F-16
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . F-18
</TABLE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30, 1997
<S> <C>
Management's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Unaudited Pro Forma Statements of Income . . . . . . . . . . . . . . . . . . . . F-24
Unaudited Pro Forma Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-25
</TABLE>
F-1
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Classic Trends International, Inc.
Houston, Texas
We have audited the accompanying balance sheets of Classic Trends International,
Inc., a Texas Corporation (the Company), for the twelve months ended June 30,
1998, and for the period June 12 to June 30, 1997, and the related statements of
income, changes in stockholders' equity and cash flows for the periods then
ended. These financial statements are the responsibility of the management of
Classic Trends International, Inc. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Classic Trends International, Inc.
as of June 30, 1998, and for the period June 12 to June 30, 1997, and the
results of its operations and its cash flows for the periods then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant operating loss raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Null Lairson, P.C.
Houston, Texas
October 5, 1998
F-2
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
BALANCE SHEET
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $92,830 $40,416
Investment - 42
Accounts receivable-trade - 2,710
Accounts receivable-other 16,812 5,000
Stock subscription receivable 200,000 260,000
Inventory 89,308 143,991
-------- --------
TOTAL CURRENT ASSETS 398,950 452,159
FIXED ASSETS, NET OF ACCUMULATED DEPRECIATION 17,500 28,867
OTHER ASSETS
Goodwill, net of accumulated amortization 73,547 75,521
Organizational Costs, net of accumulated amortization 4,343 6,204
-------- --------
TOTAL OTHER ASSETS 77,890 81,725
-------- --------
TOTAL ASSETS $494,340 $562,751
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $59,398 $46,233
Accrued interest payable to a related party 49,696 30,197
Accounts payable to a related party 210,383 92,883
Liability for future royalties 100,786 100,786
Current note payable 273,974 50,000
Notes payable to a related party 236,544 236,544
-------- --------
TOTAL CURRENT LIABILITIES 930,781 556,643
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; 5,000,000
shares authorized; none issued - -
Common stock, $.001 par value; 30,000,000
shares authorized; 15,603,400 issued 15,603 15,603
Additional paid-in-capital 837,277 837,277
Deficit accumulated during the development stage (1,289,321) (846,772)
-------- --------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (436,441) 6,108
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $494,340 $562,751
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1998 AND PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
JUNE 12 TO
JUNE 30
1998 1997
---------- ----------
<S> <C> <C>
SALES $201,932 $27,654
COST OF SALES 110,235 9,835
---------- ----------
GROSS PROFIT 91,697 17,819
OPERATING EXPENSES
Selling Expenses 219,206 10,432
General and administrative expenses 350,810 38,534
---------- ----------
Total Operating Expenses 570,016 48,966
OPERATING LOSS (478,319) (31,147)
NON-OPERATING INCOME (EXPENSE)
Gain on sale of investment 59,469 -
Interest expense (23,699) (1,037)
---------- ----------
Net Loss $(442,549) $(32,184)
---------- ----------
---------- ----------
Cummulative Revenues since Inception $997,438 $691,757
---------- ----------
---------- ----------
Cummulative Expenses since Inception $2,286,759 $1,538,529
---------- ----------
---------- ----------
Earnings (Loss) Per Share $(0.03) $(0.00)
---------- ----------
---------- ----------
Weighted Average Number of Common
Shares Outstanding 15,603,400 15,603,400
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1998 AND PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
PREFERRED STOCK STOCK PAID-IN ACCUMULATED
STOCK SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 11, 1997 $ - 15,603,400 $15,603 $837,277 $(814,588) $38,292
Net Loss - - - - (32,184) (32,184)
--------- ---------- ------- ---------- ----------- ----------
BALANCE AT JUNE 30, 1997 - 15,603,400 15,603 837,277 (846,772) 6,108
Net Loss - - - - (442,549) (442,549)
--------- ---------- ------- ---------- ----------- ----------
BALANCE AT JUNE 30, 1998 $ - 15,603,400 $15,603 $837,277 $(1,289,321) $(436,441)
--------- ---------- ------- ---------- ----------- ----------
--------- ---------- ------- ---------- ----------- ----------
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998 AND PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $(478,319) $(31,147)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 11,367 544
Amortization 3,835 204
Accrual of interest expense (23,699) (1,037)
Changes in operating assets and liabilities:
Investments 42 (42)
Accounts receivable (9,102) 159
Inventory 54,683 4,393
Accounts payable and accrued liabilities 13,165 9,758
Accounts payable to related parties 136,999 3,833
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES (291,029) (13,335)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 59,469 -
Proceeds from note payable 223,974 25,000
Proceeds from contributed capital - 41
Proceeds from stock subscription receivable 60,000 -
---------- ----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 343,443 25,041
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 52,414 11,706
Cash and cash equivalents at beginning of year 40,416 28,710
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $92,830 $40,416
---------- ----------
---------- ----------
Cummulative cash inflows since inception 1,789,285 1,234,949
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Classic Trends International, Inc., (the "Company") was
organized on May 28, 1997 as a Texas Corporation. Under its Articles of
Incorporation, the Company is authorized to issue 30,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
On June 11, 1997, all of the assets and liabilities of Posh International,
Inc. were assigned to the company in exchange for 15,603,400 shares of
company common stock.
Posh International, Inc., a Texas Corporation, was organized on October 9,
1995. Prior to its formation, the Company's primary product line was
produced, marketed, and distributed by Flair Image, Inc. The Company was
organized by incorporating Posh Wash, G.P., and exchanging the new
Company's stock for Flair's rights to Posh Wash products.
The principal business of Posh International, Inc. was direct matrix
marketing of car care products. Matrix marketing relies on recruiting a
network of distributors who sell products directly to the public. In
addition to soliciting customers, each distributor attempts to recruit new
distributors. The distribution of commissions on sales is determined by the
number of layers of distributors between the Company and the point of sale.
The Company's primary products are Posh Wash car cleaning and waxing
products, and Guardian Angel, an engine additive and restorative
ingredient. Its primary market area includes Austin, Dallas, Ft. Worth and
Houston, Texas. The Company has non-exclusive rights to sell Posh Wash and
Guardian Angel, a line of engine additive products, throughout the United
States and internationally.
METHOD OF ACCOUNTING - The financial statements are prepared using the
accrual basis of accounting
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Company considers all cash accounts and petty cash on hand to be cash or
cash equivalents.
DEPRECIATION - Software is carried at cost. Depreciation of software is
provided using the straight-line method for financial reporting.
Depreciation expense was $10,304 and $544 for 1998 and 1997, respectively.
F-7
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
OTHER ASSETS - Other assets consist of organization expenses and goodwill.
Goodwill is the excess of acquisition costs over the fair market value of
net assets acquired. Goodwill is amortized over 40 years and organization
expenses are amortized over 5 years, using the straight-line method of
amortization.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The company considers all trade and other
receivables to be fully collectible; accordingly, no allowance for doubtful
accounts is required.
INVENTORY - Inventory is stated at the lower-of-cost or market on the
average cost method.
INCOME TAXES - Deferred income taxes are reported using the liability
method. Deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities
are recognized for taxable timing differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
REVENUE RECOGNITION - Revenue is recognized when the product is shipped to
the customer. For the initial order on certain new customers, the Company
allows the customer to return any unsold product. The Company provides an
allowance for these returns.
ADVERTISING COSTS - Advertising costs consist mainly of the development of
an infomercial for the Company's product. Since results are unproven and
life of the product created is undetermined, all advertising costs were
expensed.
LIABILITY FOR FUTURE ROYALTIES - The liability for future royalties
represents cash received from investors for the right to receive future
royalties. The liability is amortized as the royalties are paid in the
amount of the royalties due under the agreements.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
trade accounts receivable. The Company markets its product under a matrix
marketing plan. The primary focus of matrix marketing is the recruitment of
individuals, who serve as the Company's distributors. Each distributor is
encouraged to recruit others. The incentive to do so that they derive
commissions from the sales of each distributor they recruit either directly
or indirectly. To maximize their income potential each distributor strives
to develop multiple layers of additional distributors that are tied to
them. As a result a loss of distributors could result in a loss in either a
geographic or demographic market.
F-8
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
MAJOR SUPPLIER - The Company is currently dependent on the sales of the
Posh Wash product which is supplied by an individual who has entered into a
non-exclusive distribution and supply agreement with the Company to provide
the product. The Company has no other source to obtain the product and the
supplier is not obligated to supply all of the product demanded by the
Company. The supply agreement was automatically renewed in January 1998,
and is automatically renewable in five year terms, thereafter.
EARNINGS PER SHARE - Earnings per share is based on the weighted average
number of shares of common stock outstanding during the period. The
Company declared a two-for-one stock split in 1996. All share and per
share amounts have been adjusted to reflect the stock splits.
DEVELOPMENT STAGE OPERATIONS - Operations since inception have been devoted
to developing markets for its products and raising capital.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company had a net loss of $442,549 for the period
ended June 30, 1998 and had a retained deficit of $1,289,321 at that date.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. The Company's ability to continue as a going concern is
dependent upon its ability to expand the market for the Posh Wash and
Guardian Angel products and to obtain additional funding to facilitate the
Company's expansion. Management believes the Company will be successful in
expanding its revenue base and obtaining additional funding in sufficient
amounts to provide for the Company's existing operating requirements and
expansion of its revenue base.
3. RELATED PARTY TRANSACTIONS
The Company incurred management and consulting fees of $120,000 under an
employment agreement and consulting agreement with its chairman of the
board and president, which provide for total monthly compensation of
$10,000 plus incentive compensation ranging from a total of 6% to 10% of
monthly product sales. In the event of termination, the Company could be
required to pay all amounts which would have been due under these
agreements through the expiration of the agreement, which is October,
2005.
Accounts payable to related parties consist of amounts payable to officers
and others for management fees and commissions.
The notes payable to a related party are owed to Flair Image and consist of
various unsecured notes which mature at various dates from October, 1998
through March, 1999. Each note bears interest at 7.5%, which is due at
maturity. No interest payments were made on these notes during fiscal
years 1998 or 1997.
F-9
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
4. NOTES PAYABLE
Notes payable consist of the following:
Note payable to bank dated May 28, 1998, for $35,280, at 9.5% interest per
annum, principal and interest due in one payment on August 28, 1998.
Unsecured.
Note payable to an individual dated May 8, 1998, for $188,889, at 7.5%
interest per annum, principal and interest due in one payment on May 8,
1999. Unsecured.
Note payable to a bank, revolving line of credit, with interest at 8.5% per
annum. At June 30, 1998, the balance due was $49,805. Unsecured.
Notes payable to related parties mature at various dates from October, 1998
to March, 1999 (see Note 3).
5. COMMITMENTS
In June, 1995, the Company received $103,750 from various investors in
exchange for a royalty of $0.1482 per bottle on all sales in the United
States until sales reach 700,000 bottles, then a $0.1482 per bottle royalty
for all sales in the United States over 10,000 bottles per month and 1.482%
of all international sales.
The Company is obligated under a purchase agreement with the exclusive
supplier and inventor of Posh Wash to pay a royalty of 2.5% of the retail
price of each bottle sold, with a mutually agreed upon bonus arrangement to
be negotiated when retail sales reach $250,000 per month, $500,000 per
month and $1,000,000 per month. These royalties are recorded as a
component of cost of sales. Total royalties paid under this agreement for
the period ended June 30, 1998 and 1997 amounted to $5,000.00.
On June 24, 1994, the Company sold a royalty interest on various products
to an investor for cash of $200,000. In October 1995, the Company
negotiated a reduction in the royalties originally granted in exchange for
61,250 shares of the Company's common stock and a warrant to acquire
150,000 shares of the Company's common stock for $.50 per share. Under the
revised agreement, the investor obtained the right to receive a $1 per
bottle royalty on all future sales of Posh Wash product.
F-10
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
6. CONTINGENCY
On December 31, 1996, the Company sold stock to three entities for $176,000
in cash and $260,000 to be set up as a receivable. As of June 30, 1998,
$200,000 of the receivable is still outstanding. Collection efforts have
proven successful in obtaining marketable securities in satisfaction of the
outstanding receivable balance. Any deficiency between the market prices
of the stock, when sold, and the receivable will be satisfied by the
entities owing the receivable (See Note 11).
7. PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
"blank check" preferred stock with such designations, rights, and
preferences as it may determine. No preferred stock has been issued as of
October 5, 1998.
8. STOCK OPTION PLAN
In October, 1995, the Board of Directors and majority stockholders of the
Company adopted an incentive stock option plan under which 600,000 shares
of the common stock have been reserved for issuance. No stock under this
plan has been issued as of October 5, 1998.
9. INCOME TAXES
The Company's deferred tax asset relates to its current period loss,
creating a net operating loss carryforward. The deferred tax asset totals
$194,088 but due to the uncertainties related to the continuing operations
of the Company the entire asset has been offset by an asset valuation
reserve. The current year loss carryforward will expire in 2011.
10. LEASE COMMITMENTS
The Company has various leases for office space and equipment all of which
are classified as operating leases. Rent expense under these leases was
$37,686 for the period ended June 30, 1998. The approximate remaining
annual minimum lease payments under these operating leases existing as of
June 30, 1998 are $5,525 for 1998 and $3,021 for 1999, which totals $8,546.
11. SUBSEQUENT EVENTS
PUBLIC STOCK OFFERING
Subsequent to June 30, 1998, the Company plans to register as a public
company with the Securities and Exchange Commission by completing a
Regulation S-B filing for small business issuer. A small business issuer
is defined as a company that has revenue of less than $25,000,000.
F-11
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
11. SUBSEQUENT EVENTS, continued
STOCK SUBSCRIPTION RECEIVABLE
Subsequent to June 30, 1998, the Company received 400,000 shares of common
stock of Titan Resources, Inc., as partial payment of the Stock
Subscription Receivable. On the day of the transfer, the stock was valued
at $.359 per share, or $143,600. As of October 14, 1998, 140,000 shares
of Titan Resources, Inc., stock have been sold for a total amount of
$49,967. As of October 14, 1998, 260,000 shares of the stock are still
owned. The value of the stock is $.21 per share, or $54,600, which would
leave a balance owing on the receivable account of $95,433, if the stock
were sold today.
RELATED PARTY TRANSACTION
Subsequent to June 30, 1998, the Company amended its employment
agreement and consulting agreement with its chairman of the board and
president increasing the monthly compensation from $10,000 to $14,000,
and changing the expiration date of the agreement from October, 2005
to October, 2008.
F-12
<PAGE>
[LOGO]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Posh International, Inc.
Houston, Texas
We have audited the accompanying balance sheets of Posh International, Inc., a
Texas Corporation (the Company), as of June 11, 1997, and the related statements
of income, changes in stockholders' equity and cash flows for the periods
October 9, 1995 (date of inception) to September 30, 1996, and October 1, 1996
to June 11, 1997. These financial statements are the responsibility of the
management of Posh International, Inc. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The Company did not make a count of its physical inventory at September 30,
1996, stated at $184,922. The Company's records do not permit the application of
other auditing procedures to inventories.
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Posh International, Inc. as of June
11, 1997, and the results of its operations and its cash flows for the period
then ended, in conformity with generally accepted accounting principles. Since
the Company did not take physical inventories and we were not able to apply
other auditing procedures to satisfy ourselves as to inventory quantities, the
scope of our work was not sufficient to enable us to express, and we do not
express, an opinion on the statements of income, changes in stockholders' equity
and cash flows for the period October 9, 1995 to September 30, 1996.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant operating loss raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Lairson, Stephens & Reimer, LLP
Houston, Texas
August 7, 1997
CERTIFIED PUBLIC ACCOUNTANTS
11 Greenway, Ste 1515
Houston, Texas 77016-1104
Tel. (713) 621-1513 Fax (713) 621-1570
F-13
<PAGE>
POSH INTERNATIONAL, INC.
BALANCE SHEET
JUNE 11, 1997
<TABLE>
<CAPTION>
1997
--------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 28,710
Accounts receivable-trade 2,869
Accounts receivable-other 5,000
Stock subscription receivable 260,000
Inventory 148,384
--------
TOTAL CURRENT ASSETS 444,963
FIXED ASSETS, NET OF ACCUMULATED DEPRECIATION 29,411
OTHER ASSETS
Goodwill, net of accumulated amortization 75,626
Organizational Costs, net of accumulated amortization 6,302
--------
TOTAL OTHER ASSETS 81,928
--------
TOTAL ASSETS $556,302
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 37,513
Accrued interest payable to a related party 29,159
Accounts payable to a related party 89,050
Liability for future royalties 100,786
Current note payable 25,000
Notes payable to a related party 236,544
--------
TOTAL CURRENT LIABILITIES 518,052
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $,001 par value; 2,000,000
shares authorized; none issued -
Common stock, $.0005 par value; 25,000,000
shares authorized; 15,603,400 issued 7,802
Additional paid-in-capital 845,036
Deficit accumulated during the development stage (814,588)
--------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 38,250
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $556,302
--------
--------
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
POSH INTERNATIONAL, INC.
STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 11, 1997 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 1 OCTOBER 9 TO
TO JUNE 11 SEPTEMBER 30
1997 1996
----------- ------------
<S> <C> <C>
SALES $ 459,074 $ 205,029
COST OF SALES 88,091 115,101
----------- ------------
GROSS PROFIT 370,983 89,928
OPERATING EXPENSES
Selling expenses 286,128 393,981
General and administrative expenses 348,010 251,397
----------- ------------
Total Operating Expenses 634,138 645,378
OPERATING LOSS (263,155) (555,450)
NON-OPERATING INCOME (EXPENSE)
Interest expense (12,888) (16,156)
----------- ------------
NET LOSS $ (276,043) $ (571,606)
----------- ------------
----------- ------------
Cummulative Revenues since Inception $ 664,103 $ 205,029
----------- ------------
----------- ------------
Cummulative Expenses since Inception $ 1,478,691 $ 743,573
----------- ------------
----------- ------------
Earnings (Loss) Per Share $ (0.02) $ (0.09)
----------- ------------
----------- ------------
Weighted Average Number of Common
Shares Outstanding 13,340,475 6,209,646
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
POSH INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDED JUNE 11, 1997 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
PREFERRED STOCK STOCK PAID-IN RETAINED
STOCK SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 9, 1995
(DATE OF INCEPTION) $ - $ - $ - $ - $ - -
Issuance of common stock - for
acquisition of assets and
assumption of liabilities of
Posh Wash G.P., October 9, 1995 - 6,000,000 6,000 - - 6,000
Issuance of common stock to public,
May 24, 1996 - 551,700 552 410,286 410,838
Net Loss - - - - (538,545) (538,545)
--------- --------- ------ ----------- ---------- ---------
BALANCE AT SEPTEMBER 30, 1996 - 6,551,700 6,552 410,286 (538,545) (121,707)
(UNAUDITED)
Issuance of common stock to public,
December 31, 1996 - 1,250,000 1,250 434,750 436,000
Stock Split, 2 for 1, December 31, 1996 - 7,801,700 - - - -
Net Loss - - - - (276,043) (276,043)
--------- --------- ------ ----------- ---------- ---------
BALANCE AT JUNE 11, 1997 $ - 15,603,400 7,802 845,036 (814,588) 38,250
--------- --------- ------ ----------- ---------- ---------
--------- --------- ------ ----------- ---------- ---------
</TABLE>
See Notes to Financial Statements
F-16
<PAGE>
POSH INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 11, 1997 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
UNAUDITED
OCTOBER 1 OCTOBER 9 TO
TO JUNE 11 SEPTEMBER 30
1997 1996
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (263,155) $(555,450)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES:
Depreciation 2,108 -
Amortization 2,674 3,679
Interest expense accrual (12,888) (16,156)
Changes in operating assets and liabilities:
Accounts receivable 6,549 (14,418)
Inventory 69,600 (184,922)
Other assets - (88,280)
Accounts payable and accrued expenses 7,629 40,069
Accounts payable to related parties 29,456 78,566
---------- ------------
NET CASH USED IN OPERATING ACTIVITIES (158,027) (736,912)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (31,519) -
---------- ------------
NET CASH USED IN INVESTING ACTIVITIES (31,519) -
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 176,000 416,838
Proceeds from note payable 25,000 -
Proceeds from note payable to related party - 236,544
Proceeds from future royalties - 101,305
Payments on liabilities for future royalties - (519)
---------- ------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 201,000 754,168
---------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,454 17,256
Cash and cash equivalents at beginning of year 17,256 -
---------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $28,710 $ 17,256
---------- ------------
---------- ------------
Cummulative cash inflows since inception $1,191,017 $ 872,001
---------- ------------
---------- ------------
Cummulative cash outflows since inception $1,162,307 $ 854,745
---------- ------------
---------- ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock for receivable $ 260,000
----------
----------
</TABLE>
See Notes to Financial Statements.
F-17
<PAGE>
POSH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 11, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Posh International, Inc., a Texas Corporation (the Company),
was organized on October 9, 1995. Prior to its formation, the Company's
primary product line was produced, marketed, and distributed by Flair
Image, Inc. The Company was organized by incorporating Posh Wash, G.P. and
exchanging the new Company's stock for Flair's rights to Posh Wash
products.
The principal business of Posh International, Inc. was direct matrix
marketing of car care products. Matrix marketing relies on recruiting a
network of distributors who sell products directly to the public. In
addition to soliciting customers, each distributor attempts to recruit new
distributors. The distribution of commissions on sales is determined by the
number of layers of distributors between the Company and the point of sale.
The Company's primary products are Posh Wash car cleaning and waxing
products, and Guardian Angel, an engine additive and restorative
ingredient. Its primary market area includes Austin, Dallas, Ft. Worth and
Houston, Texas. The Company has non-exclusive rights to sell Posh Wash and
Guardian Angel, a line of engine additive products, throughout the United
States and internationally.
METHOD OF ACCOUNTING - The financial statements are prepared using the
accrual basis of accounting
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Company considers all cash accounts and petty cash on hand to be cash or
cash equivalents.
DEPRECIATION - Software is carried at cost. Depreciation of software is
provided using the straight-line method for financial reporting.
Depreciation expense was $2,108 for 1997.
OTHER ASSETS - Other assets consist of organization expenses and goodwill.
Goodwill is the excess of acquisition costs over the fair market value of
net assets acquired. Goodwill is amortized over 40 years and organization
expenses are amortized over 5 years, using the straight-line method of
amortization.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The company considers all trade and other
receivables to be fully collectible; accordingly, no allowance for doubtful
accounts is required.
INVENTORY - Inventory is stated at the lower-of-cost or market on the
average cost method.
F-18
<PAGE>
POSH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 11, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
INCOME TAXES - Deferred income taxes are reported using the liability
method. Deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities
are recognized for taxable timing differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
REVENUE RECOGNITION - Revenue is recognized when the product is shipped to
the customer. For the initial order on certain new customers, the Company
allows the customer to return any unsold product. The Company provides an
allowance for these returns.
ADVERTISING COSTS - Advertising costs consist mainly of the development of
an infomercial for the Company's product. Since results are unproven and
life of the product created is undetermined, all advertising costs were
expensed.
LIABILITY FOR FUTURE ROYALTIES - The liability for future royalties
represents cash received from investors for the right to receive future
royalties. The liability is amortized as the royalties are paid in the
amount of the royalties due under the agreements.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
trade accounts receivable. The Company markets its product under a matrix
marketing plan. The primary focus of matrix marketing is the recruitment of
individuals, who serve as the Company's distributors. Each distributor is
encouraged to recruit others. The incentive to do so that they derive
commissions from the sales of each distributor they recruit either directly
or indirectly. To maximize their income potential each distributor strives
to develop multiple layers of additional distributors that are tied to
them. As a result a loss of distributors could result in a loss in either a
geographic or demographic market.
MAJOR SUPPLIER - The Company is currently dependent on the sales of the
Posh Wash product which is supplied by an individual who has entered into a
non-exclusive distribution and supply agreement with the Company to provide
the product. The Company has no other source to obtain the product and the
supplier is not obligated to supply all of the product demanded by the
Company. The supply agreement will be renewed in January 1998, and is
automatically renewable in five year terms, thereafter.
EARNINGS PER SHARE - Earnings per share is based on the weighted average
number of shares of common stock outstanding during the period. The
Company declared a two-for-one stock split in 1996. All share and per
share amounts have been adjusted to reflect the stock splits.
DEVELOPMENT STAGE OPERATIONS - Operations since inception have been devoted
to developing markets for its products and raising capital.
F-19
<PAGE>
POSH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 11, 1997
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company had a net loss of $276,043 for the period
ended June 11, 1997 and had a retained deficit of $814,588 at that date.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. The Company's ability to continue as a going concern is
dependent upon its ability to expand the market for the Posh Wash and
Guardian Angel products and to obtain additional funding to facilitate the
Company's expansion. Management believes the Company will be successful in
expanding its revenue base and obtaining additional funding in sufficient
amounts to provide for the Company's existing operating requirements and
expansion of its revenue base.
3. RELATED PARTY TRANSACTIONS
The Company incurred management fees of $88,798 under an employment
agreement and a consulting agreement with its chairman of the board and
president, which provide for total monthly compensation of $10,000 plus
incentive compensation ranging from a total of 6% to 10% of monthly
product sales. In the event of termination, the Company could be required
to pay all amounts which would have been due under these agreements
through the expiration of the agreements, which is October, 2005.
Accounts payable to related parties consist of amounts payable to officers
and others for management fees and commissions.
Notes payable to Flair Image consist of various unsecured notes which
mature at various dates from October, 1997 through March, 1998. Each note
bears interest at 7.5%, which is due at maturity. No interest payments
were made on these notes during fiscal year 1997.
4. NOTES PAYABLE
The Company established a revolving line of credit with a bank with
interest at 8.5%. At June 11, 1997, the balance due was $25,000.
Notes payable to related parties mature at various dates from October, 1997
to March, 1998 (see Note 3).
5. COMMITMENTS
In June, 1995, the Company received $103,750 from various investors in
exchange for a royalty of $0.1482 per bottle on all sales in the United
States until sales reach 700,000 bottles, then a $0.1482 per bottle royalty
for all sales in the United States over 10,000 bottles per month and 1.482%
of all international sales.
F-20
<PAGE>
POSH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 11, 1997
5. COMMITMENTS, continued
The Company is obligated under a purchase agreement with the exclusive
supplier and inventor of Posh Wash to pay a royalty of 2.5% of the retail
price of each bottle sold, with a mutually agreed upon bonus arrangement to
be negotiated when retail sales reach $250,000 per month, $500,000 per
month and $1,000,000 per month. These royalties are recorded as a
component of cost of sales. Total royalties paid under this agreement for
the period ended June 11, 1997 amounted to $5,000.00.
On June 24, 1994, the Company sold a royalty interest on various products
to an investor for cash of $200,000. In October 1995, the Company
negotiated a reduction in the royalties originally granted in exchange for
61,250 shares of the Company's common stock and a warrant to acquire
150,000 shares of the Company's common stock for $.50 per share. Under the
revised agreement, the investor obtained the right to receive a $1 per
bottle royalty on all future sales of Posh Wash product.
In October 1995, the Company issued warrants to acquire 552,000 shares of
its common stock to various members of its Board of Directors, consultants
and an investor. Warrants to acquire 402,000 shares of common stock are
exercisable at $1 per share with the remaining warrant to purchase 150,000
shares exercisable at $.50 per share.
6. CONTINGENCY
On December 31, 1996, the Company sold stock to three entities for $176,000
in cash and $260,000 to be set up as a receivable. As of June 11, 1997,
the receivable is still outstanding. Collection efforts have proven
successful in obtaining marketable securities in satisfaction of the
outstanding receivable balance. Any deficiency between the market prices
of the stock, when sold, and the receivable will be satisfied by the
entities owing the receivable (See Note 11).
7. PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000 shares of
"blank check" preferred stock with such designations, rights, and
preferences as it may determine. No preferred stock has been issued as of
June 11, 1997.
8. STOCK OPTION PLAN
In October, 1995, the Board of Directors and majority stockholders of the
Company adopted an incentive stock option plan under which 600,000 shares
of the common stock have been reserved for issuance. No stock under this
plan has been issued as of June 11, 1997.
F-21
<PAGE>
POSH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 11, 1997
9. INCOME TAXES
The Company's deferred tax asset relates to its current period loss,
creating a net operating loss carryforward. The deferred tax asset totals
$194,088 but due to the uncertainties related to the continuing operations
of the Company the entire asset has been offset by an asset valuation
reserve. The current year loss carryforward will expire in 2011.
10. LEASE COMMITMENTS
The Company has various leases for office space and equipment all of which
are classified as operating leases. Rent expense under these leases was
$25,498 for the period ended June 11, 1997. The approximate remaining
annual minimum lease payments under these operating leases existing as of
June 11, 1997 are $14,546 for 1997, $11,050 for 1998 and $3,021 for 1999,
which totals $28,617.
11. SUBSEQUENT EVENTS
Subsequent to June 11, 1997, the Company received 400,000 shares of common
stock of Titan Resources, Inc., as partial payment of the Stock
Subscription Receivable. On the day of the transfer, the stock was valued
at $.359 per share, or $143,600.
F-22
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
The pro forma statements of income and statement of cash flows for the
twelve months ended June 30, 1997 reflect financial information from Posh for
the period from July 1, 1996 through June 10, 1997 and reflect the company
for the period from June 11, 1997 through June 30, 1997. These financial
statements have been prepared by the company and are unaudited; however, in
the opinion of management, such statements include all adjustments
(consisting solely of normal recurring adjustments) necessary to a fair
presentation of the financial position, results of operations and changes in
financial position of the company. These unaudited financial statements have
been prepared by the company solely for comparison purposes.
F-23
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
PROFORMA STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997
--------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (405,880)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation 2,652
Amortization 5,060
Accrual of interest expense (1,037)
Changes in operating assets and liabilities:
Investments (42)
Accounts receivable 8,417
Inventory (13,939)
Goodwill (78,977)
Accounts payable and accrued expenses (11,222)
Accounts payable to related parties 92,883
Due from related parties -
--------
NET CASH USED IN OPERATING ACTIVITIES (402,085)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (31,519)
NET CASH USED IN INVESTING ACTIVITIES (31,519)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 176,000
Costs of stock offering paid from proceeds (121,316)
Proceeds from note payable 50,156
Proceeds from note payable to related party 125,944
Proceeds from donated capital 41
Proceeds from future royalties 101,260
Payments on liabilities for future royalties -
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 332,085
NET INCREASE IN CASH (101,519)
Cash Balance, Beginning of Year 141,935
--------
Cash Balance, End of Year 40,416
--------
--------
</TABLE>
F-24
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
PROFORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
SALES $532,335
COST OF SALES 105,797
----------
GROSS PROFIT 426,538
OPERATING EXPENSES
Selling Expenses 346,995
General and administrative expenses 472,535
----------
Total Operating Expenses 819,530
OPERATING LOSS (392,992)
NON-OPERATING INCOME (EXPENSE)
Interest expense (13,925)
----------
Net Loss $(406,917)
----------
----------
Earnings (Loss) Per Share $(0.03)
----------
----------
Weighted Average Number of Common
Shares Outstanding 15,603,400
----------
----------
</TABLE>
F-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Texas law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The articles of
incorporation of the company limit the liability of directors of the company
(in their capacity as directors but not in their capacity as officers) to the
company or its stockholders to the fullest extent permitted by Texas law.
Specifically, directors of the company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
(iii) for an act or omission for which the liability of a director is expressly
provided by an applicable statute, or (iv) for any transaction from which the
director derived an improper personal benefit, whether the benefit resulted
from an action taken in the person's official capacity. Section 2.41 of the
Texas Business Corporation Act relates to directors' liability for unlawful
dividends and stock issuances.
The inclusion of this provision in the articles of incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefitted the
company and its stockholders.
The company's articles of incorporation provide for the indemnification
of its executive officers and directors, and the advancement to them of
expenses in connection with any proceedings and claims, to the fullest extent
permitted by the Texas Business Corporation Act. The articles of
incorporation include related provisions meant to facilitate the indemnities'
receipt of such benefits. These provisions cover, among other things: (i)
specification of the method of determining entitlement to indemnification and
the selection of independent counsel that will in some cases make such
determination, (ii) specification of certain time periods by which certain
payments or determinations must be made and actions must be taken, and (iii)
the establishment of certain presumptions in favor of an indemnitee. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the company pursuant
to the foregoing provisions, the company has been informed that, in the
opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
<TABLE>
<S> <C>
SEC Registration Fee................................... $ 79.03
Printing and Engraving Expenses........................ 2,000.00
Legal Fees and Expenses................................ 15,000.00
Accounting Fees and Expenses........................... 5,000.00
Miscellaneous.......................................... 5,000.00
----------
TOTAL............................................. $27,079.03
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In June 1997, the company issued 15,603,400 shares of company common
stock to Posh in consideration for all the right, title and interest in and
to the assets of Posh. The company believes that the above captioned
transaction is exempt from registration pursuant to Section 4(2) of the
Securities Act as a transaction by an issuer not involving a pubic offering.
II-1
<PAGE>
ITEM 27. EXHIBITS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
<S> <C>
3.1(1) Articles of Incorporation
3.2(1) By-Laws of the company
4.1(1) Form of Specimen of common stock
10.1(1) Assignment of Assets from Posh International, Inc. to the company
10.2(1) Amended and Restated Consulting Agreement between the company and
Donald L. Shriver
10.3(1) Amended and Restated Employment Agreement between the company and
Frederic G. Hindle
10.4(1) 1997 Stock Option Plan of Classic Trends International, Inc.
10.5(2) Product Supplier Agreement with Mr. Tisman, as amended
10.6(1) Independent Representative Agreement
10.7(2) Participation Royalty Agreement with Allen J. Becker
10.8(2) Participation Royalty Agreement with Jeffrey D. Friedman
10.9(2) Participation Royalty Agreement with Mark A. Kaufman
10.10(2) Participation Royalty Agreement with James A. Friedman
10.11(2) Participation Royalty Agreement with Linscomb & Williams
Investment
10.12(2) Participation Royalty Agreement with Window Communications
Corporation
10.13(2) Amendment No. 3 to Investment Agreement with Thurman Thomas
Investments
23.1(1) Consent of Null Lairson, P.C.
23.2(1) Consent of Brewer & Pritchard, P.C.
27.1(1) Financial Data Schedule
</TABLE>
- -----------------------------------
(1) Filed herewith.
(2) The information required by this exhibit is incorporated by reference to
the exhibits filed in connection with Posh's Form 1-A (Commission File
No. 24D-3842) filed in December 1995.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
i. To include any prospectus required by Section 10(a)(3)
of the Securities Act;
ii. Reflect in the prospectus any facts or events
arising after the effective date of which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule
424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a
20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
iii. Include any additional or changed material on the
plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) i. That, for the purpose of determining liability under
the Securities Act, the information omitted from the
form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act shall be deemed to be part of this
registration statement as of the time it was declared
effective.
ii. For determining any liability under the Securities Act,
each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the 28th day of
October, 1998.
CLASSIC TRENDS INTERNATIONAL, INC.
By /s/ FREDERIC G. HINDLE
---------------------------------
FREDERIC G. HINDLE, President and
Chief Executive Officer
----------------------------
This registration statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ FREDERIC G. HINDLE President, Chief Executive October 28, 1998
- -------------------------- Officer and Director
FREDERIC G. HINDLE
/s/ DONALD L. SHRIVER, JR. Secretary and Director October 28, 1998
- --------------------------
DONALD L. SHRIVER, JR.
/s/ DONALD L. SHRIVER Chairman October 28, 1998
- --------------------------
DONALD L. SHRIVER
</TABLE>
II-4
<PAGE>
ARTICLES OF INCORPORATION
OF
CLASSIC TRENDS INTERNATIONAL, INC.
The undersigned, a natural person of the age of eighteen years or more,
acting as sole incorporator of a corporation under the provisions of the
Texas Business Corporation Act, adopts the following Articles of
Incorporation:
ARTICLE 1.
The name of the Corporation is Classic Trends International, Inc.
ARTICLE 2.
The period of duration of the Corporation is perpetual.
ARTICLE 3.
The purpose for which the Corporation is organized is to engage in any or
all lawful business.
ARTICLE 4.
The total number of shares of stock which the Corporation shall have
authority to issue is 35,000,000 consisting of 30,000,000 shares of common
stock, par value $.001 per share (the "Common Stock"), and 5,000,000 shares
of preferred stock, par value $.001 per share (the "Preferred Stock").
Shares of Preferred Stock of the Corporation may be issued from time to
time in one or more classes or series, each of which class or series shall
have such distinctive designation or title as shall be determined by the
Board of Directors of the Corporation ("Board of Directors") prior to the
issuance of any shares thereof. Each such class or series of Preferred Stock
shall have such voting
<PAGE>
powers, full or limited, or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, and shall be stated in
such resolution or resolutions providing for the issue of such class or
series of Preferred Stock as may be adopted from time to time by the Board of
Directors prior to the issuance of any shares thereof pursuant to the
authority hereby expressly vested in it, all in accordance with the laws of
the State of Texas.
ARTICLE 5.
Section 5.1. Cumulative voting shall not be permitted.
Section 5.2. Preemptive rights shall not be permitted.
ARTICLE 6.
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of at least $1,000,
consisting of money, labor done or property actually received.
ARTICLE 7.
Without necessity for action by its shareholders, the Corporation may
purchase, directly or indirectly, its own shares to the extent of the
aggregate of unrestricted capital surplus available therefor and unrestricted
reduction surplus available therefor.
ARTICLE 8.
Section 8.1. The holders of at least a majority of the shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of the shareholders of the Corporation.
2
<PAGE>
Section 8.2. No contract or other transaction between the Corporation and
one or more of its directors, officers or security holders or between the
Corporation and another corporation, partnership, joint venture, trust or
other enterprise of which one or more of the Corporation's directors,
officers or security holders are security holders, members, officers,
directors or employees or in which they are otherwise interested, directly or
indirectly, shall be invalid solely because of such relationship or solely
because such a director, officer or security holder is present or
participates in any meeting of the Board of Directors or Committee thereof
authorizing the contract or other transaction or solely because his or their
votes are counted for such purpose if (a) the material facts as to his
relationship or interest and as to the contract or other transaction are
known or disclosed to the Board of Directors or committee thereof, and such
board or committee in good faith authorizes the contract or other transaction
by the affirmative vote of a majority of the disinterested directors even
though the disinterested directors are less than a quorum; or (b) the
material facts as to his or their relationship or interest and as to the
contract or other transaction are known or disclosed to the shareholders
entitled to vote thereon, and the contract or other transaction is approved
in good faith by a vote of the shareholders; or (c) the contract or other
transaction is fair as to the Corporation as of the time the Corporation
enters into such contract or other transaction.
ARTICLE 9.
The address of the initial registered office of the Corporation is 10696
Haddington, Suite 117, Houston, Texas 77043, and the name of the initial
registered agent of the Corporation at such address is Frederic G. Hindle.
ARTICLE 10.
3
<PAGE>
The initial Board of Directors shall consist of five members who shall
serve as directors until the first annual meeting of shareholders or until
their successors shall have been elected and qualified, and whose names and
addresses are as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Donald L. Shriver 10696 Haddington, Suite 117
Houston, TX 77043
Frederic G. Hindle 10696 Haddington, Suite 117
Houston, TX 77043
Donald L. Shriver, Jr. 10696 Haddington, Suite 117
Houston, TX 77043
Denny C. Pearce 6606 N. Gessner
Houston, TX 77040
Grady Cavness, Sr. 7007 Roberson Road
Missouri City, TX
</TABLE>
The number of directors composing the Board of Directors may be
increased or decreased by the Board of Directors, but no decrease shall have
the effect of shortening the term of any incumbent director.
ARTICLE 11.
4
<PAGE>
Any action required by the Texas Business Corporation Act, as amended,
to be taken at any annual or special meeting of shareholders of the
Corporation, or any action which may be taken at any annual or special
meeting of shareholders of the Corporation, may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voted.
ARTICLE 12.
No director of the Corporation shall be liable to the Corporation or its
shareholders or members for monetary damages for any act or omission in such
director's capacity as a director, except for (i) a breach of such director's
duty of loyalty to the Corporation or its shareholders or members; (ii) an
act or omission not in good faith that constitutes a breach of duty of the
director to the Corporation, or an act or omission that involves intentional
misconduct or a knowing violation of the law; (iii) a transaction from which
a director received an improper benefit, whether or not the benefit resulted
from an action taken within the scope of the director's office; or (iv) an
act or omission for which the liability of a director is expressly provided
by an applicable statute.
ARTICLE 13.
The Corporation shall indemnify all current and former directors and
officers of the Corporation to the fullest extent of the applicable law,
including, without limitation, Article 2.02-1 of the Texas Business
Corporation Act.
ARTICLE 14.
5
<PAGE>
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors or a
committee thereof, the Chairman of the Board, President, or by the holders of
at least 30% of all the shares entitled to vote at the proposed special
meeting.
ARTICLE 15
The name and address of the incorporator of the Corporation is as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Frederic G. Hindle 10696 Haddington, Suite 117
Houston, Texas 77043
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of
May, 1997.
/s/ Frederic G. Hindle
-------------------------------------------
Frederic G. Hindle, Incorporator
6
<PAGE>
BYLAWS
OF
CLASSIC TRENDS INTERNATIONAL, INC.,
A TEXAS CORPORATION
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS. Unless the context clearly requires otherwise, in
these Bylaws:
(a) "BOARD" means the board of directors of the Company.
(b) "BYLAWS" means these bylaws as adopted by the Board and
includes amendments subsequently adopted by the Board or by the
Stockholders.
(c) "ARTICLES OF INCORPORATION" means the Articles of
Incorporation of Classic Trends International, Inc., as filed with the
Secretary of State of the State of Texas and includes all amendments
thereto and restatements thereof subsequently filed.
(d) "COMPANY" means Classic Trends International, Inc., a Texas
corporation.
(e) "SECTION" refers to sections of these Bylaws.
(f) "STOCKHOLDER" means stockholders of record of the Company.
1.2 OFFICES. The title of an office refers to the person or persons
who at any given time perform the duties of that particular office for the
Company.
ARTICLE 2.
OFFICES
2.1 PRINCIPAL OFFICE. The Company may locate its principal office
within or without the state of incorporation as the Board may determine.
2.2 REGISTERED OFFICE. The registered office of the Company required
by law to be maintained in the state of incorporation may be, but need not
be, the same as the principal place of
<PAGE>
business of the Company. The Board may change the address of the registered
office from time to time.
2.3 OTHER OFFICES. The Company may have offices at such other
places, either within or without the state of incorporation, as the Board may
designate or as the business of the Company may require from time to time.
ARTICLE 3.
MEETINGS OF STOCKHOLDERS
3.1 ANNUAL MEETINGS. The Stockholders of the Company shall hold
their annual meetings for the purpose of electing directors and for the
transaction of such other proper business as may come before such meetings at
such time, date and place as the Board shall determine by resolution.
3.2 SPECIAL MEETINGS. The Board, the Chairman of the Board, the
President or a committee of the Board duly designated and whose powers and
authority include the power to call meetings may call special meetings of the
Stockholders of the Company at any time for any purpose or purposes. Special
meetings of the Stockholders of the Company may also be called by the holders
of at least 30% of all shares entitled to vote at the proposed special
meeting.
3.3 PLACE OF MEETINGS. The Stockholders shall hold all meetings at
such places, within or without the State of Texas, as the Board or a
committee of the Board shall specify in the notice or waiver of notice for
such meetings.
3.4 NOTICE OF MEETINGS. Except as otherwise required by law, the
Board or a committee of the Board shall give notice of each meeting of
Stockholders, whether annual or special, not less than 10 nor more than 50
days before the date of the meeting. The Board or a committee of the Board
shall deliver a notice to each Stockholder entitled to vote at such meeting
by delivering a
2
<PAGE>
typewritten or printed notice thereof to him personally, or by depositing
such notice in the United States mail, in a postage prepaid envelope,
directed to him at his address as it appears on the records of the Company,
or by transmitting a notice thereof to him at such address by telegraph,
telecopy, cable or wireless. If mailed, notice is given on the date deposited
in the United States mail, postage prepaid, directed to the Stockholder at
his address as it appears on the records of the Company. An affidavit of the
Secretary or an Assistant Secretary or of the Transfer Agent of the Company
that he has given notice shall constitute, in the absence of fraud, prima
facie evidence of the facts stated therein.
Every notice of a meeting of the Stockholders shall state the
place, date and hour of the meeting and, in the case of a special meeting,
also shall state the purpose or purposes of the meeting. Furthermore, if the
Company will maintain the list at a place other than where the meeting will
take place, every notice of a meeting of the Stockholders shall specify where
the Company will maintain the list of Stockholders entitled to vote at the
meeting.
3.5 STOCKHOLDER NOTICE. Subject to the Articles of Incorporation,
the Stockholders who intend to nominate persons to the Board of Directors or
propose any other action at an annual meeting of Stockholders must timely
notify the Secretary of the Company of such intent. To be timely, a
Stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 50 days nor more
than 90 days prior to the date of such meeting; provided, however, that in
the event that less than 75 days notice of the date of the meeting is given
or made to Stockholders, notice by the Stockholder to be timely must be
received not later than the close of business on the 15th day following the
date on which such notice of the date of the annual meeting was mailed. Such
notice must be in writing and must include a (i) a brief description
3
<PAGE>
of the business desired to be brought before the annual meeting and the
reasons for conducting such business at the meeting; (ii) the name and record
address of the Stockholder proposing such business; (iii) the class, series
and number of shares of capital stock of the Company which are beneficially
owned by the Stockholder; and (iv) any material interest of the Stockholder
in such business. The Board of Directors reserves the right to refuse to
submit any such proposal to stockholders at an annual meeting if, in its
judgment, the information provided in the notice is inaccurate or incomplete.
3.6 WAIVER OF NOTICE. Whenever these Bylaws require written notice,
a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall constitute the equivalent of
notice. Attendance of a person at any meeting shall constitute a waiver of
notice of such meeting, except when the person attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. No written waiver of notice need specify either the business to be
transacted at, or the purpose or purposes of any regular or special meeting
of the Stockholders, directors or members of a committee of the Board.
3.7 ADJOURNMENT OF MEETING. When the Stockholders adjourn a meeting
to another time or place, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Stockholders may
transact any business which they may have transacted at the original meeting.
If the adjournment is for more than 30 days or, if after the adjournment,
the Board or a committee of the Board fixes a new record date for the
adjourned meeting, the Board or a committee of the Board
4
<PAGE>
shall give notice of the adjourned meeting to each Stockholder of record
entitled to vote at the meeting.
3.8 QUORUM. Except as otherwise required by law, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes at
any meeting of the Stockholders. In the absence of a quorum at any meeting
or any adjournment thereof, the holders of a majority of the shares of stock
entitled to vote who are present, in person or by proxy, or, in the absence
therefrom of all the Stockholders, any officer entitled to preside at, or to
act as secretary of, such meeting may adjourn such meeting to another place,
date or time.
If the chairman of the meeting gives notice of any adjourned
special meeting of Stockholders to all Stockholders entitled to vote thereat,
stating that the minimum percentage of stockholders for a quorum as provided
by Texas law shall constitute a quorum, then, except as otherwise required by
law, that percentage at such adjourned meeting shall constitute a quorum and
a majority of the votes cast at such meeting shall determine all matters.
3.9 ORGANIZATION. Such person as the Board may have designated or,
in the absence of such a person, the highest ranking officer of the Company
who is present shall call to order any meeting of the Stockholders, determine
the presence of a quorum, and act as chairman of the meeting. In the absence
of the Secretary or an Assistant Secretary of the Company, the chairman shall
appoint someone to act as the secretary of the meeting.
3.10 CONDUCT OF BUSINESS. The chairman of any meeting of Stockholders
shall determine the order of business and the procedure at the meeting,
including such regulations of the manner of voting and the conduct of
discussion as he deems in order.
5
<PAGE>
3.11 LIST OF STOCKHOLDERS. At least 10 days before every meeting of
Stockholders, the Secretary shall prepare a list of the Stockholders entitled
to vote at the meeting or any adjournment thereof, arranged in alphabetical
order, showing the address of each Stockholder and the number of shares
registered in the name of each Stockholder. The Company shall make the list
available for examination by any Stockholder for any purpose germane to the
meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting
will take place or at the place designated in the notice of the meeting.
The Secretary shall produce and keep the list at the time and
place of the meeting during the entire duration of the meeting, and any
Stockholder who is present may inspect the list at the meeting. The list
shall constitute presumptive proof of the identity of the Stockholders
entitled to vote at the meeting and the number of shares each Stockholder
holds.
A determination of Stockholders entitled to vote at any meeting
of Stockholders pursuant to this Section shall apply to any adjournment
thereof.
3.12 FIXING OF RECORD DATE. For the purpose of determining
Stockholders entitled to notice of or to vote at any meeting of Stockholders
or any adjournment thereof, or Stockholders entitled to receive payment of
any dividend, or in order to make a determination of Stockholders for any
other proper purpose, the Board or a committee of the Board may fix in
advance a date as the record date for any such determination of Stockholders.
However, the Board shall not fix such date, in any case, more than 50 days
nor less than 10 days prior to the date of the particular action.
If the Board or a committee of the Board does not fix a record
date for the determination of Stockholders entitled to notice of or to vote
at a meeting of Stockholders, the record date shall be at the close of
business on the day next preceding the day on which notice is given or
6
<PAGE>
if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held or the date on which the Board adopts the
resolution declaring a dividend.
3.13 VOTING OF SHARES. Each Stockholder shall have one vote for every
share of stock having voting rights registered in his name on the record date
for the meeting. The Company shall not have the right to vote treasury stock
of the Company, nor shall another corporation have the right to vote its
stock of the Company if the Company holds, directly or indirectly, a majority
of the shares entitled to vote in the election of directors of such other
corporation. Persons holding stock of the Company in a fiduciary capacity
shall have the right to vote such stock. Persons who have pledged their
stock of the Company shall have the right to vote such stock unless in the
transfer on the books of the Company the pledgor expressly empowered the
pledgee to vote such stock. In that event, only the pledgee, or his proxy,
may represent such stock and vote thereon.
A plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote shall determine all
elections and, except when the law or Articles of Incorporation requires
otherwise, the affirmative vote of a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote shall determine
all other matters.
Where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in
person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on that matter and the affirmative vote of
the majority of shares of such class or classes present in person or
represented by proxy at the meeting shall be the act of such class.
The Stockholders may vote by voice vote on all matters. Upon
demand by a Stockholder entitled to vote, or his proxy, the Stockholders
shall vote by ballot. In that event, each
7
<PAGE>
ballot shall state the name of the Stockholder or proxy voting, the number of
shares voted and such other information as the Company may require under the
procedure established for the meeting.
3.14 INSPECTORS. At any meeting in which the Stockholders vote by
ballot, the chairman may appoint one or more inspectors. Each inspector
shall take and sign an oath to execute the duties of inspector at such
meeting faithfully, with strict impartiality, and according to the best of
his ability. The inspectors shall ascertain the number of shares outstanding
and the voting power of each; determine the shares represented at a meeting
and the validity of proxies and ballots; count all votes and ballots;
determine and retain for a reasonable period a record of the disposition of
any challenges made to any determination by the inspectors; and certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The certification required herein shall take
the form of a subscribed, written report prepared by the inspectors and
delivered to the Secretary of the Company. An inspector need not be a
Stockholder of the Company, and any officer of the Company may be an
inspector on any question other than a vote for or against a proposal in
which he has a material interest.
3.15 PROXIES. A Stockholder may exercise any voting rights in person
or by his proxy appointed by an instrument in writing, which he or his
authorized attorney-in-fact has subscribed and which the proxy has delivered
to the secretary of the meeting pursuant to the manner prescribed by law.
A proxy is not valid after the expiration of 13 months after the
date of its execution, unless the person executing it specifies thereon the
length of time for which it is to continue in force (which length may exceed
12 months) or limits its use to a particular meeting. Each proxy is
8
<PAGE>
irrevocable if it expressly states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
The attendance at any meeting of a Stockholder who previously has
given a proxy shall not have the effect of revoking the same unless he
notifies the Secretary in writing prior to the voting of the proxy.
3.16 ACTION BY CONSENT. Any action required to be taken at any annual
or special meeting of stockholders of the Company or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the Company by delivery to its registered office, its principal
place of business, or an officer or agent of the Company having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Company's registered office shall be by hand or by
certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within 50 days of
the earliest dated consent delivered in the manner required by this section
to the Company, written consents signed by a sufficient number of holders to
take action are delivered to the Company by delivery to its registered
office, its principal place of business or an officer or agent of the Company
having custody of the book in which proceedings of meetings of
9
<PAGE>
stockholders are recorded. Delivery made to the Company's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE 4.
BOARD OF DIRECTORS
4.1 GENERAL POWERS. The Board shall manage the property, business
and affairs of the Company.
4.2 NUMBER. The number of directors who shall constitute the Board
shall equal not less than 5 nor more than 10, as the Board may determine by
resolution from time to time.
4.3 ELECTION OF DIRECTORS AND TERM OF OFFICE. The Stockholders of
the Company shall elect the directors at the annual or adjourned annual
meeting (except as otherwise provided herein for the filling of vacancies).
Each director shall hold office until his death, resignation, retirement,
removal, or disqualification, or until his successor shall have been elected
and qualified.
4.4 RESIGNATIONS. Any director of the Company may resign at any time
by giving written notice to the Board or to the Secretary of the Company.
Any resignation shall take effect upon receipt or at the time specified in
the notice. Unless the notice specifies otherwise, the effectiveness of the
resignation shall not depend upon its acceptance.
4.5 REMOVAL. Stockholders holding a majority of the outstanding
shares entitled to vote at an election of directors may remove any director
or the entire Board of Directors at any time, with or without cause.
10
<PAGE>
4.6 VACANCIES. A majority of the remaining directors, although less
than a quorum, or a sole remaining director may fill any vacancy on the
Board, whether because of death, resignation, disqualification, an increase
in the number of directors, or any other cause. Any director elected to fill
a vacancy shall hold office until his death, resignation, retirement,
removal, or disqualification, or until his successor shall have been elected
and qualified.
4.7 CHAIRMAN OF THE BOARD. At the initial and annual meeting of the
Board, the directors may elect from their number a Chairman of the Board of
Directors. The Chairman shall preside at all meetings of the Board and shall
perform such other duties as the Board may direct. The Board also may elect
a Vice Chairman and other officers of the Board, with such powers and duties
as the Board may designate from time to time.
4.8 COMPENSATION. The Board may compensate directors for their
services and may provide for the payment of all expenses the directors incur
by attending meetings of the Board or otherwise.
ARTICLE 5.
MEETINGS OF DIRECTORS
5.1 REGULAR MEETINGS. The Board may hold regular meetings at such
places, dates and times as the Board shall establish by resolution. If any
day fixed for a meeting falls on a legal holiday, the Board shall hold the
meeting at the same place and time on the next succeeding business day. The
Board need not give notice of regular meetings.
5.2 PLACE OF MEETINGS. The Board may hold any of its meetings in or
out of the State of Texas, at such places as the Board may designate, at such
places as the notice or waiver of notice of any such meeting may designate,
or at such places as the persons calling the meeting may designate.
11
<PAGE>
5.3 MEETINGS BY TELECOMMUNICATIONS. The Board or any committee of
the Board may hold meetings by means of conference telephone or similar
telecommunications equipment that enable all persons participating in the
meeting to hear each other. Such participation shall constitute presence in
person at such meeting.
5.4 SPECIAL MEETINGS. The Chairman of the Board, the President, or
one-half of the directors then in office may call a special meeting of the
Board. The person or persons authorized to call special meetings of the
Board may fix any place, either in or out of the State of Texas as the place
for the meeting.
5.5 NOTICE OF SPECIAL MEETINGS. The person or persons calling a
special meeting of the Board shall give written notice to each director of
the time, place, date and purpose of the meeting of not less than three
business days if by mail and not less than 24 hours if by telegraph or in
person before the date of the meeting. If mailed, notice is given on the
date deposited in the United States mail, postage prepaid, to such director.
A director may waive notice of any special meeting, and any meeting shall
constitute a legal meeting without notice if all the directors are present or
if those not present sign either before or after the meeting a written waiver
of notice, a consent to such meeting, or an approval of the minutes of the
meeting. A notice or waiver of notice need not specify the purposes of the
meeting or the business which the Board will transact at the meeting.
5.6 WAIVER BY PRESENCE. Except when expressly for the purpose of
objecting to the legality of a meeting, a director's presence at a meeting
shall constitute a waiver of notice of such meeting.
5.7 QUORUM. A majority of the directors then in office shall
constitute a quorum for all purposes at any meeting of the Board. In the
absence of a quorum, a majority of directors present
12
<PAGE>
at any meeting may adjourn the meeting to another place, date or time without
further notice. No proxies shall be given by directors to any person for
purposes of voting or establishing a quorum at a directors meetings.
5.8 CONDUCT OF BUSINESS. The Board shall transact business in such
order and manner as the Board may determine. Except as the law requires
otherwise, the Board shall determine all matters by the vote of a majority of
the directors present at a meeting at which a quorum is present. The
directors shall act as a Board, and the individual directors shall have no
power as such.
5.9 ACTION BY CONSENT. The Board or a committee of the Board may
take any required or permitted action without a meeting if all members of the
Board or committee consent thereto in writing and file such consent with the
minutes of the proceedings of the Board or committee.
ARTICLE 6.
COMMITTEES
6.1 COMMITTEES OF THE BOARD. The Board may designate, by a vote of a
majority of the directors then in office, committees of the Board. The
committees shall serve at the pleasure of the Board and shall possess such
lawfully delegable powers and duties as the Board may confer.
6.2 SELECTION OF COMMITTEE MEMBERS. The Board shall elect by a vote
of a majority of the directors then in office a director or directors to
serve as the member or members of a committee. By the same vote, the Board
may designate other directors as alternate members who may replace any absent
or disqualified member at any meeting of a committee. In the absence or
disqualification of any member of any committee and any alternate member in
his place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or they
13
<PAGE>
constitute a quorum, may appoint by unanimous vote another member of the
Board to act at the meeting in the place of the absent or disqualified member.
6.3 CONDUCT OF BUSINESS. Each committee may determine the procedural
rules for meeting and conducting its business and shall act in accordance
therewith, except as the law or these Bylaws require otherwise. Each
committee shall make adequate provision for notice of all meetings to
members. A majority of the members of the committee shall constitute a
quorum, unless the committee consists of one or two members. In that event,
one member shall constitute a quorum. A majority vote of the members present
shall determine all matters. A committee may take action without a meeting
if all the members of the committee consent in writing and file the consent
or consents with the minutes of the proceedings of the committee.
6.4 AUTHORITY. Any committee, to the extent the Board provides,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Company, and may authorize the
affixation of the Company's seal to all instruments which may require or
permit it. However, no committee shall have any power or authority with
regard to amending the Articles of Incorporation, adopting an agreement of
merger or consolidation, recommending to the Stockholders the sale, lease or
exchange of all or substantially all of the Company's property and assets,
recommending to the Stockholders a dissolution of the Company or a revocation
of a dissolution of the Company, or amending these Bylaws of the Company.
Unless a resolution of the Board expressly provides, no committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger.
14
<PAGE>
6.5 MINUTES. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
ARTICLE 7.
OFFICERS
7.1 OFFICERS OF THE COMPANY. The officers of the Company shall
consist of a President, a Secretary and such Vice Presidents, Assistant
Secretaries, Assistant Treasurers, and other officers as the Board may
designate and elect from time to time. The same person may hold at the same
time any two or more offices, except the offices of President and Secretary.
7.2 ELECTION AND TERM. The Board shall elect the officers of the
Company. Each officer shall hold office until his death, resignation,
retirement, removal or disqualification, or until his successor shall have
been elected and qualified.
7.3 COMPENSATION OF OFFICERS. The Board shall fix the compensation
of all officers of the Company. No officer shall serve the Company in any
other capacity and receive compensation, unless the Board authorizes the
additional compensation.
7.4 REMOVAL OF OFFICERS AND AGENTS. The Board may remove any officer
or agent it has elected or appointed at any time, with or without cause.
7.5 RESIGNATION OF OFFICERS AND AGENTS. Any officer or agent the
Board has elected or appointed may resign at any time by giving written
notice to the Board, the Chairman of the Board, the President, or the
Secretary of the Company. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified. Unless
otherwise specified in the notice, the Board need not accept the resignation
to make it effective.
15
<PAGE>
7.6 BOND. The Board may require by resolution any officer, agent, or
employee of the Company to give bond to the Company, with sufficient sureties
conditioned on the faithful performance of the duties of his respective
office or agency. The Board also may require by resolution any officer, agent
or employee to comply with such other conditions as the Board may require
from time to time.
7.7 PRESIDENT. The President shall be the chief operating officer of
the Company and, subject to the Board's control, shall supervise and direct
all of the business and affairs of the Company. When present, he shall sign
(with or without the Secretary, an Assistant Secretary, or any other officer
or agent of the Company which the Board has authorized) deeds, mortgages,
bonds, contracts or other instruments which the Board has authorized an
officer or agent of the Company to execute. However, the President shall not
sign any instrument which the law, these Bylaws, or the Board expressly
require some other officer or agent of the Company to sign and execute. In
general, the President shall perform all duties incident to the office of
President and such other duties as the Board may prescribe from time to time.
7.8 VICE PRESIDENTS. In the absence of the President or in the event
of his death, inability or refusal to act, the Vice Presidents in the order
of their length of service as Vice Presidents, unless the Board determines
otherwise, shall perform the duties of the President. When acting as the
President, a Vice President shall have all the powers and restrictions of the
Presidency. A Vice President shall perform such other duties as the
President or the Board may assign to him from time to time.
7.9 SECRETARY. The Secretary shall (a) keep the minutes of the
meetings of the Stockholders and of the Board in one or more books for that
purpose, (b) give all notices which these
16
<PAGE>
Bylaws or the law requires, (c) serve as custodian of the records and seal of
the Company, (d) affix the seal of the corporation to all documents which the
Board has authorized execution on behalf of the Company under seal, (e)
maintain a register of the address of each Stockholder of the Company, (f)
sign, with the President, a Vice President, or any other officer or agent of
the Company which the Board has authorized, certificates for shares of the
Company, (g) have charge of the stock transfer books of the Company, and (h)
perform all duties which the President or the Board may assign to him from
time to time.
7.10 ASSISTANT SECRETARIES. In the absence of the Secretary or in the
event of his death, inability or refusal to act, the Assistant Secretaries in
the order of their length of service as Assistant Secretary, unless the Board
determines otherwise, shall perform the duties of the Secretary. When acting
as the Secretary, an Assistant Secretary shall have the powers and
restrictions of the Secretary. An Assistant Secretary shall perform such
other duties as the President, Secretary or Board may assign from time to
time.
7.11 TREASURER. The Treasurer shall (a) have responsibility for all
funds and securities of the Company, (b) receive and give receipts for monies
due and payable to the corporation from any source whatsoever, (c) deposit
all monies in the name of the Company in depositories which the Board
selects, and (d) perform all of the duties which the President or the Board
may assign to him from time to time.
7.12 ASSISTANT TREASURERS. In the absence of the Treasurer or in the
event of his death, inability or refusal to act, the Assistant Treasurers in
the order of their length of service as Assistant Treasurer, unless the Board
determines otherwise, shall perform the duties of the Treasurer. When acting
as the Treasurer, an Assistant Treasurer shall have the powers and
restrictions of the
17
<PAGE>
Treasurer. An Assistant Treasurer shall perform such other duties as the
Treasurer, the President, or the Board may assign to him from time to time.
7.13 DELEGATION OF AUTHORITY. Notwithstanding any provision of these
Bylaws to the contrary, the Board may delegate the powers or duties of any
officer to any other officer or agent.
7.14 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
the Board directs otherwise, the President shall have the power to vote and
otherwise act on behalf of the Company, in person or by proxy, at any meeting
of stockholders of or with respect to any action of stockholders of any other
corporation in which the Company holds securities. Furthermore, unless the
Board directs otherwise, the President shall exercise any and all rights and
powers which the Company possesses by reason of its ownership of securities
in another corporation.
7.15 VACANCIES. The Board may fill any vacancy in any office because
of death, resignation, removal, disqualification or any other cause in the
manner which these Bylaws prescribe for the regular appointment to such
office.
ARTICLE 8.
CONTRACTS, LOANS, DRAFTS,
DEPOSITS AND ACCOUNTS
8.1 CONTRACTS. The Board may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Company. The Board may make such
authorization general or special.
8.2 LOANS. Unless the Board has authorized such action, no officer
or agent of the Company shall contract for a loan on behalf of the Company or
issue any evidence of indebtedness in the Company's name.
18
<PAGE>
8.3 DRAFTS. The President, any Vice President, the Treasurer, any
Assistant Treasurer, and such other persons as the Board shall determine
shall issue all checks, drafts and other orders for the payment of money,
notes and other evidences of indebtedness issued in the name of or payable by
the Company.
8.4 DEPOSITS. The Treasurer shall deposit all funds of the Company
not otherwise employed in such banks, trust companies, or other depositories
as the Board may select or as any officer, assistant, agent or attorney of
the Company to whom the Board has delegated such power may select. For the
purpose of deposit and collection for the account of the Company, the
President or the Treasurer (or any other officer, assistant, agent or
attorney of the Company whom the Board has authorized) may endorse, assign
and deliver checks, drafts and other orders for the payment of money payable
to the order of the Company.
8.5 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may authorize the
opening and keeping of general and special bank accounts with such banks,
trust companies, or other depositories as the Board may select or as any
officer, assistant, agent or attorney of the Company to whom the Board has
delegated such power may select. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE 9.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
19
<PAGE>
9.1 CERTIFICATES FOR SHARES. Every owner of stock of the Company
shall have the right to receive a certificate or certificates, certifying to
the number and class of shares of the stock of the Company which he owns.
The Board shall determine the form of the certificates for the shares of
stock of the Company. The Secretary, transfer agent, or registrar of the
Company shall number the certificates representing shares of the stock of the
Company in the order in which the Company issues them. The President or any
Vice President and the Secretary or any Assistant Secretary shall sign the
certificates in the name of the Company. Any or all certificates may contain
facsimile signatures. In case any officer, transfer agent, or registrar who
has signed a certificate, or whose facsimile signature appears on a
certificate, ceases to serve as such officer, transfer agent, or registrar
before the Company issues the certificate, the Company may issue the
certificate with the same effect as though the person who signed such
certificate, or whose facsimile signature appears on the certificate, was
such officer, transfer agent, or registrar at the date of issue. The
Secretary, transfer agent, or registrar of the Company shall keep a record in
the stock transfer books of the Company of the names of the persons, firms or
corporations owning the stock represented by the certificates, the number and
class of shares represented by the certificates and the dates thereof and, in
the case of cancellation, the dates of cancellation. The Secretary, transfer
agent, or registrar of the Company shall cancel every certificate surrendered
to the Company for exchange or transfer. Except in the case of a lost,
destroyed, stolen or mutilated certificate, the Secretary, transfer agent, or
registrar of the Company shall not issue a new certificate in exchange for an
existing certificate until he has canceled the existing certificate.
9.2 TRANSFER OF SHARES. A holder of record of shares of the
Company's stock, or his attorney-in-fact authorized by power of attorney duly
executed and filed with the Secretary, transfer
20
<PAGE>
agent or registrar of the Company, may transfer his shares only on the stock
transfer books of the Company. Such person shall furnish to the Secretary,
transfer agent, or registrar of the Company proper evidence of his authority
to make the transfer and shall properly endorse and surrender for
cancellation his existing certificate or certificates for such shares.
Whenever a holder of record of shares of the Company's stock makes a transfer
of shares for collateral security, the Secretary, transfer agent, or
registrar of the Company shall state such fact in the entry of transfer if
the transferor and the transferee request.
9.3 LOST CERTIFICATES. The Board may direct the Secretary, transfer
agent, or registrar of the Company to issue a new certificate to any holder
of record of shares of the Company's stock claiming that he has lost such
certificate, or that someone has stolen, destroyed or mutilated such
certificate, upon the receipt of an affidavit from such holder to such fact.
When authorizing the issue of a new certificate, the Board, in its discretion
may require as a condition precedent to the issuance that the owner of such
certificate give the Company a bond of indemnity in such form and amount as
the Board may direct.
9.4 REGULATIONS. The Board may make such rules and regulations, not
inconsistent with these Bylaws, as it deems expedient concerning the issue,
transfer and registration of certificates for shares of the stock of the
corporation. The Board may appoint or authorize any officer or officers to
appoint one or more transfer agents, or one or more registrars, and may
require all certificates for stock to bear the signature or signatures of any
of them.
9.5 HOLDER OF RECORD. The Company may treat as absolute owners of
shares the person in whose name the shares stand of record as if that person
had full competency, capacity and authority to exercise all rights of
ownership, despite any knowledge or notice to the contrary or any
21
<PAGE>
description indicating a representative, pledge or other fiduciary relation,
or any reference to any other instrument or to the rights of any other person
appearing upon its record or upon the share certificate. However, the
Company may treat any person furnishing proof of his appointment as a
fiduciary as if he were the holder of record of the shares.
9.6 TREASURY SHARES. Treasury shares of the Company shall consist of
shares which the Company has issued and thereafter acquired but not canceled.
Treasury shares shall not carry voting or dividend rights.
ARTICLE 10.
INDEMNIFICATION
10.1 DEFINITIONS. In this Article:
(a) "INDEMNITEE" means (i) any present or former Director,
advisory director or officer of the Company, (ii) any person who while
serving in any of the capacities referred to in clause (i) hereof served
at the Company's request as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, and (iii) any person nominated
or designated by (or pursuant to authority granted by) the Board of
Directors or any committee thereof to serve in any of the capacities
referred to in clauses (i) or (ii) hereof.
(b) "OFFICIAL CAPACITY" means (i) when used with respect to a
Director, the office of Director of the Company, and (ii) when used with
respect to a person other than a Director, the elective or appointive
office of the Company held by such person or the employment or agency
relationship undertaken by such person on behalf of the Company,
22
<PAGE>
but in each case does not include service for any other foreign or
domestic corporation or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise.
(c) "PROCEEDING" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or
proceeding, and any inquiry or investigation that could lead to such an
action, suit or proceeding.
10.2 INDEMNIFICATION. The Company shall indemnify every Indemnitee
against all judgments, penalties (including excise and similar taxes), fines,
amounts paid in settlement and reasonable expenses actually incurred by the
Indemnitee in connection with any Proceeding in which he was, is or is
threatened to be named defendant or respondent, or in which he was or is a
witness without being named a defendant or respondent, by reason, in whole or
in part, of his serving or having served, or having been nominated or
designated to serve, in any of the capacities referred to in Section 10.1, if
it is determined in accordance with Section 10.4 that the Indemnitee (a)
conducted himself in good faith, (b) reasonably believed, in the case of
conduct in his Official Capacity, that his conduct was in the Company's best
interests and, in all other cases, that his conduct was at least not opposed
to the Company's best interests, and (c) in the case of any criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful;
provided, however, that in the event that an Indemnitee is found liable to
the Company or is found liable on the basis that personal benefit was
improperly received by the Indemnitee the indemnification (i) is limited to
reasonable expenses
23
<PAGE>
actually incurred by the Indemnitee in connection with the Proceeding and
(ii) shall not be made in respect of any Proceeding in which the Indemnitee
shall have been found liable for willful or intentional misconduct in the
performance of his duty to the Company. Except as provided in the
immediately preceding proviso to the first sentence of this Section 10.2, no
indemnification shall be made under this Section 10.2 in respect of any
Proceeding in which such Indemnitee shall have been (x) found liable on the
basis that personal benefit was improperly received by him, whether or not
the benefit resulted from an action taken in the Indemnitee's Official
Capacity, or (y) found liable to the Company. The termination of any
Proceeding by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, is not of itself determinative that the
Indemnitee did not meet the requirements set forth in clauses (a), (b) or (c)
in the first sentence of this Section 10.2. An Indemnitee shall be deemed to
have been found liable in respect of any claim, issue or matter only after
the Indemnitee shall have been so adjudged by a court of competent
jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses
shall, include, without limitation, all court costs and all fees and
disbursements of attorneys for the Indemnitee. The indemnification provided
herein shall be applicable whether or not negligence or gross negligence of
the Indemnitee is alleged or proven.
10.3 SUCCESSFUL DEFENSE. Without limitation of Section 10.2 and in
addition to the indemnification provided for in Section 10.2, the Company
shall indemnify every Indemnitee against reasonable expenses incurred by such
person in connection with any Proceeding in which he is a witness or a named
defendant or respondent because he served in any of the capacities referred
to in Section 10.1, if such person has been wholly successful, on the merits
or otherwise, in defense of the Proceeding.
24
<PAGE>
10.4 DETERMINATIONS. Any indemnification under Section 10.2 (unless
ordered by a court of competent jurisdiction) shall be made by the Company
only upon a determination that indemnification of the Indemnitee is proper in
the circumstances because he has met the applicable standard of conduct.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who, at the time of such vote, are
not named defendants or respondents in the Proceeding; (b) if such a quorum
cannot be obtained, then by a majority vote of a committee of the Board of
Directors, duly designated to act in the matter by a majority vote of all
Directors (in which designated Directors who are named defendants or
respondents in the Proceeding may participate), such committee to consist
solely of two (2) or more Directors who, at the time of the committee vote,
are not named defendants or respondents in the Proceeding; (c) by special
legal counsel selected by the Board of Directors or a committee thereof by
vote as set forth in clauses (a) or (b) of this Section 10.4 or, if the
requisite quorum of all of the Directors cannot be obtained therefor and such
committee cannot be established, by a majority vote of all of the Directors
(in which Directors who are named defendants or respondents in the Proceeding
may participate); or (d) by the shareholders in a vote that excludes the
shares held by Directors that are named defendants or respondents in the
Proceeding. Determination as to reasonableness of expenses shall be made in
the same manner as the determination that indemnification is permissible,
except that if the determination that indemnification is permissible is made
by special legal counsel, determination as to reasonableness of expenses must
be made in the manner specified in clause (c) of the preceding sentence for
the selection of special legal counsel. In the event a determination is made
under this Section 10.4 that the Indemnitee has met the applicable standard
of conduct as to some matters but not as to others, amounts to be indemnified
may be reasonably prorated.
25
<PAGE>
10.5 ADVANCEMENT OF EXPENSES. Reasonable expenses (including court
costs and attorneys' fees) incurred by an Indemnitee who was or is a witness
or was, is or is threatened to be made a named defendant or respondent in a
Proceeding shall be paid by the Company at reasonable intervals in advance of
the final disposition of such Proceeding, and without making any of the
determinations specified in Section 10.4, after receipt by the Company of (a)
a written affirmation by such Indemnitee of his good faith belief that he has
met the standard of conduct necessary for indemnification by the Company
under this Article and (b) a written undertaking by or on behalf of such
Indemnitee to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company as authorized in this Article. Such written undertaking shall be an
unlimited obligation of the Indemnitee but need not be secured and it may be
accepted without reference to financial ability to make repayment.
Notwithstanding any other provision of this Article, the Company may pay or
reimburse expenses incurred by an Indemnitee in connection with his
appearance as a witness or other participation in a Proceeding at a time when
he is not named a defendant or respondent in the Proceeding.
10.6 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the
Company shall be deemed to have requested an Indemnitee to serve an employee
benefit plan whenever the performance by him of his duties to the Company
also imposes duties on or otherwise involves services by him to the plan or
participants or beneficiaries of the plan. Excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable
law shall be deemed fines. Action taken or omitted by an Indemnitee with
respect to an employee benefit plan in the performance of his duties for a
purpose reasonably believed by him to be in the interest of the participants
and
26
<PAGE>
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Company.
10.7 OTHER INDEMNIFICATION AND INSURANCE. The indemnification
provided by this Article shall (a) not be deemed exclusive of, or to
preclude, any other rights to which those seeking indemnification may at any
time be entitled under the Company's Articles of Incorporation, any law,
agreement or vote of shareholders or disinterested Directors, or otherwise,
or under any policy or policies of insurance purchased and maintained by the
Company on behalf of any Indemnitee, both as to action in his Official
Capacity and as to action in any other capacity, (b) continue as to a person
who has ceased to be in the capacity by reason of which he was an Indemnitee
with respect to matters arising during the period he was in such capacity,
(c) inure to the benefit of the heirs, executors and administrators of such a
person and (d) not be required if and to the extent that the person otherwise
entitled to payment of such amounts hereunder has actually received payment
therefor under any insurance policy, contract or otherwise.
10.8 NOTICE. Any indemnification of or advance of expenses to an
Indemnitee in accordance with this Article shall be reported in writing to
the shareholders of the Company with or before the notice or waiver of notice
of the next shareholders' meeting or with or before the next submission to
shareholders of a consent to action without a meeting and, in any case,
within the 12-month period immediately following the date of the
indemnification or advance.
10.9 CONSTRUCTION. The indemnification provided by this Article shall
be subject to all valid and applicable laws, including, without limitation,
Article 2.02-1 of the Texas Business Company Act, and, in the event this
Article or any of the provisions hereof or the indemnification contemplated
hereby are found to be inconsistent with or contrary to any such valid laws,
the latter
27
<PAGE>
shall be deemed to control and this Article shall be regarded as modified
accordingly, and, as so modified, to continue in full force and effect.
10.10 CONTINUING OFFER, RELIANCE, ETC. The provisions of this Article
(a) are for the benefit of, and may be enforced by, each Indemnitee of the
Company, the same as if set forth in their entirety in a written instrument
duly executed and delivered by the Company and such Indemnitee and (b)
constitute a continuing offer to all present and future Indemnitees. The
Company, by its adoption of these Bylaws, (x) acknowledges and agrees that
each Indemnitee of the Company has relied upon and will continue to rely upon
the provisions of this Article in becoming, and serving in any of the
capacities referred to in Section 10.1(a) of this Article, (y) waives
reliance upon, and all notices of acceptance of, such provisions by such
Indemnitees and (z) acknowledges and agrees that no present or future
Indemnitee shall be prejudiced in his right to enforce the provisions of this
Article in accordance with their terms by any act or failure to act on the
part of the Company.
10.11 EFFECT OF AMENDMENT. No amendment, modification or repeal of
this Article or any provision hereof shall in any manner terminate, reduce or
impair the right of any past, present or future Indemnitees to be indemnified
by the Company, nor the obligation of the Company to indemnify any such
Indemnitees, under and in accordance with the provisions of the Article as in
effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
28
<PAGE>
ARTICLE 11.
TAKEOVER OFFERS
In the event the Company receives a takeover offer, the Board of
Directors shall consider all relevant factors in evaluating such offer,
including, but not limited to, the terms of the offer, and the potential
economic and social impact of such offer on the Company's stockholders,
employees, customers, creditors and community in which it operates.
ARTICLE 12.
NOTICES
12.1 GENERAL. Whenever these Bylaws require notice to any Stockholder,
director, officer or agent, such notice does not mean personal notice. A
person may give effective notice under these Bylaws in every case by
depositing a writing in a post office or letter box in a postpaid, sealed
wrapper, or by dispatching a prepaid telegram addressed to such Stockholder,
director, officer or agent at his address on the books of the Company.
Unless these Bylaws expressly provide to the contrary, the time when the
person sends notice shall constitute the time of the giving of notice.
12.2 WAIVER OF NOTICE. Whenever the law or these Bylaws require
notice, the person entitled to said notice may waive such notice in writing,
either before or after the time stated therein.
ARTICLE 13.
MISCELLANEOUS
13.1 FACSIMILE SIGNATURES. In addition to the use of facsimile
signatures which these Bylaws specifically authorize, the Company may use
such facsimile signatures of any officer or officers, agents or agent, of the
Company as the Board or a committee of the Board may authorize.
29
<PAGE>
13.2 CORPORATE SEAL. The Board may provide for a suitable seal
containing the name of the Company, of which the Secretary shall be in
charge. The Treasurer, any Assistant Secretary, or any Assistant Treasurer
may keep and use the seal or duplicates of the seal if and when the Board or
a committee of the Board so directs.
13.3 FISCAL YEAR. The Board shall have the authority to fix and
change the fiscal year of the Company.
ARTICLE 14.
AMENDMENTS
Subject to the provisions of the Articles of Incorporation, the
Stockholders or the Board may amend or repeal these Bylaws at any meeting.
The undersigned hereby certifies that the foregoing constitutes a true
and correct copy of the Bylaws of the Company as adopted by the Directors on
the 23rd day of May, 1997.
Executed as of this 23rd day of May, 1997.
/s/ Donald L. Shriver, Jr.
------------------------------------------
Donald L. Shriver, Jr., Secretary
30
<PAGE>
<TABLE>
<S> <C>
REGISTERED REGISTERED
- -------------------------------- --------------------------------
NUMBER AMOUNT
CLASSIC TRENDS
INTERNATIONAL, INC.
- -------------------------------- --------------------------------
THIS CERTIFICATE IS TRANSFERABLE
IN CRANFORD, NEW JERSEY
CUSIP 18273T108
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN
OF THE STATE OF TEXAS DEFINITIONS AND INFORMATION
- ----------------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
- ----------------------------------------------------------------------------------------
SHARES OF THE COMMON STOCK OF THE PAR VALUE OF ONE MIL (0.001) PER SHARE OF
REGISTERED
CLASSIC TRENDS INTERNATIONAL, INC.
transferable only on the books of the Corporation by the holder hereof in person or by
attorney upon surrender of this certificate properly endorsed.
This certificate is not valid until countersigned by the Transfer Agent and registered
by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its duly
authorized officers and its facsimile seal to be fixed hereto.
Dated: /s/ Donald L. Shriver, Jr. By: Frederic G. Hindle
[SEAL]
Attest: Secretary President
</TABLE>
Countersigned and Registered:
Registrar and Transfer Company
By Transfer Agent
and Registrar
Authorized Signature
<PAGE>
THE ARTICLES OF INCORPORATION OF THIS CORPORATION DENY PREEMPTIVE RIGHTS TO
ITS STOCKHOLDERS. A FULL STATEMENT OF SUCH LIMITATIONS IS SET FORTH IN THE
ARTICLES OF INCORPORATION ON FILE IN THE OFFICE OF THE SECRETARY OF STATE OF
THE STATE OF TEXAS.
A FULL STATEMENT OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES, LIMITATIONS,
RESTRICTIONS AND RELATIVE RIGHTS OF THE VARIOUS CLASSES OF STOCK OR SERIES
THEREOF WHICH THE ARTICLES OF INCORPORATION OF THE CORPORATION AUTHORIZE IT
TO ISSUE AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH RIGHTS IS
SET FORTH IN THE ARTICLES OF INCORPORATION ON FILE IN THE OFFICE OF THE
SECRETARY OF STATE OF THE STATE OF TEXAS. THE CORPORATION WILL FURNISH A COPY
OF SUCH STATEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON
REQUEST OF THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE.
The following abbreviations, when used in the inscription on the face of the
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT -________Custodian_______
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts
survivorship and not as tenants to Minors Act
in common
________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zipcode and
telephone number of assignee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares of Capital Stock represented by the within Certificate, and do hereby
irrevocably constitutes and appoint
- -------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated
---------------------------
----------------------------------------
NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the
certificate, in every particular, without
alteration or enlargement, or any change
whatever.
Signature Guaranteed:
- ------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17 Ad-15.
<PAGE>
ASSIGNMENT
IN EXCHANGE FOR 15,603,400 shares of Classic Trends International, Inc.
("CTI") common stock, the receipt, sufficiency and adequacy of which are hereby
acknowledged, Posh International, Inc. (the "Company") does hereby:
SELL, ASSIGN AND TRANSFER to CTI all right, title and interest in and to
the assets and liabilities listed on Exhibit "A" attached hereto, including but
not limited to; cash, receivables, inventory, know how, trademarks, tradenames,
trade secrets, and product brochures, for its own use and for use of its
successors and assigns;
WARRANT AND COVENANT that no assignment, grant, mortgage, license or other
agreement affecting the rights and property herein conveyed by the undersigned
has been or will be made to others;
COVENANT, when requested and at the expense of the assignee, to execute all
additional instruments and to do all things necessary for carrying out the
purpose of this instrument;
TO BE BINDING on the assigns and successors of the undersigned and extend
to the successors and assigns.
A tax analysis of this transaction is attached hereto as Exhibit "B".
IN WITNESS WHEREOF, the undersigned hereby executes this agreement the 10th
day of June, 1997.
ASSIGNOR:
---------
POSH INTERNATIONAL, INC.
/s/ Frederic G. Hindle
-------------------------------
Frederic G. Hindle
President
ASSIGNEE:
---------
CLASSIC TRENDS INTERNATIONAL, INC.
/s/ Donald L. Shriver, Jr.
-------------------------------
Donald L. Shriver, Jr.
Secretary
<PAGE>
AMENDED AND RESTATED CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement"), entered into as of the
15th day of October, 1998, by and between Classic Trends International,
Inc., a Texas corporation ("Company"), and Donald L. Shriver ("Consultant").
W I T N E S S E T H:
WHEREAS, Company and Consultant are parties to a consulting agreement
entered in October 1995;
WHEREAS, Company and Consultant desire to amend and restate such
consulting agreement; and
WHEREAS, Company and Consultant agree that the consulting agreement
entered in October 1995 is superceded by this amended and restated consulting
agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. CONSULTING SERVICES. Company hereby retains Consultant and
Consultant hereby accepts this arrangement with Company upon the terms and
conditions hereinafter set forth.
2. DUTIES. Consultant will provide service to the Company and will
faithfully and diligently perform the services and functions, provided that
all such services and functions will be reasonable and within Consultant's
area of expertise. Consultant will, during the term of this Agreement (or
any extension thereof), devote his attention and skills as deemed necessary
to the promotion of the business of Company. The foregoing will not be
construed as preventing Consultant from making investments in other
businesses or enterprises provided that (a) Consultant agrees not to become
engaged in any other business activity that interferes with his ability to
discharge his duties and responsibilities to Company and (b) Consultant does
not violate any other provision of this Agreement.
3. TERM. The term of this Agreement will commence as of the date
hereof and will end on October 15, 2008, unless earlier terminated by either
party pursuant to the terms hereof. The term of this Agreement is referred
to herein as the "Term." The Term of this agreement is to be extended
automatically for additional successive periods of one year ("Additional
Term"), unless the employment of Consultant is terminated as provided herein.
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Consultant will be entitled to receive the following:
(a) MONTHLY FEE. Commencing the date hereof, Consultant will be
paid a minimum monthly fee of $7,000.
(b) INCENTIVE COMPENSATION. The Company agrees during the term of
this Agreement that the Company, as is applicable, will pay to Consultant a
sales commission equal to a
<PAGE>
percentage, as specified on Schedule 1 attached hereto, of the then wholesale
price of each product or service sold (including sales in foreign markets) by
Company, an affiliate of Company or pursuant to any arrangement between
Company, an affiliate of Consultant and a third party. Each sales commission
to be paid to Consultant from the sale of products and/or services will be
due and payable by the 10th day of each month from receipts of actual paid
invoices from the preceding months. Consultant shall receive a computer
print-out of all sales of products and services from the Company and shall
have the right to examine all financial and accounting records at his
discretion during normal business hours. In addition, Consultant shall be
entitled to receive an additional sales commission, based on the formula set
forth in Schedule 1 attached hereto, of the wholesale price of each
additional product or service sold by the Company, an affiliate of Company or
pursuant to any arrangement between Company, an affiliate of Consultant and a
third party. This sales commission shall be paid by the Company, or other
third party, as is appropriate, by the 10th day of each month from receipt of
the actual paid invoice from the proceeding months. Consultant shall receive
a computer print-out of all sales from the Company and shall have the right
to examine all financial and accounting records at his discretion during
normal business hours. This additional compensation shall be deemed
"Incentive Compensation." All calculations of the Incentive Compensation
shall be made in accordance with the accounting methods then employed by the
Company. In the event Consultant is terminated by, or voluntarily terminates
his arrangement with, the Company, Consultant shall be entitled to Incentive
Compensation for such period from the date of this Agreement until
termination, to be calculated by Company's independent auditor based upon
unaudited financial statements, payable within 30 days of termination.
(c) EXPENSES. Upon submission of a detailed statement and
reasonable documentation, Company will reimburse Consultant for all
reasonable and necessary or appropriate out-of-pocket travel and other
expenses incurred by Consultant in rendering services required under this
Agreement.
(d) AUTOMOBILE. Company will supply Consultant with an automobile
and be responsible for all expenses related thereto throughout this
Agreement. Company shall furnish Consultant a gasoline allowance calculated
as the actual miles driven by Consultant for Company's business purposes,
multiplied by the maximum allowable reimbursement amount as set by the
Internal Revenue Service.
5. TERMINATION. This Agreement will terminate upon the occurrence of
any of the following events:
(a) The death of Consultant;
(b) Written notice to Consultant from Company of termination for
"Just Cause" (as hereinafter defined);
(c) The voluntary termination by Consultant; or
-2-
<PAGE>
(d) The expiration of the Term or any Additional Term, provided
notice is given by Company to Consultant prior to six months from expiration
of the Term or Additional Term.
For purposes of Section 5(b), "Just Cause" means (i)
Consultant has willfully and intentionally failed to substantially perform
his duties as specified under this Agreement; or (ii) Consultant's criminal
conviction by any state or federal court of any illegal act (other than minor
traffic violations or minor misdemeanors) in connection with his employment
with the Company that could reasonably be expected to materially adversely
affect the Company.
6. OBLIGATIONS OF COMPANY UPON TERMINATION.
(a) In the event of the termination of Consultant's employment
pursuant to Section 5(a), (b), or (c), Consultant will be entitled only to
the compensation and Incentive Compensation earned by him hereunder as of
the date of such termination.
7. WAIVER OF BREACH. The waiver by any party hereto of a breach of
any provision of this Agreement will not operate or be construed as a waiver
of any subsequent breach by any party.
8. COSTS. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party will be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.
9. NOTICES. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and
personally delivered or within two days if sent by mail, registered or
certified, postage prepaid with return receipt requested, as follows:
If to Company: Classic Trends International, Inc.
10696 Haddington, Suite 117
Houston, Texas 77043
Attn: President
If to Consultant: Donald L. Shriver
4728 Robertson Road
Richmond, Texas 77469
Notices delivered personally will be deemed communicated as of actual receipt.
10. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
-3-
<PAGE>
11. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during this Agreement, such provision will be fully severable and this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof will remain in full force and effect and will not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there will be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
12. GOVERNING LAW. This Agreement and the rights and obligations of
the parties will be governed by and construed and enforced in accordance with
the substantive laws (but not the rules governing conflicts of laws) of the
state of Texas. The parties agree that this agreement will performable in
Harris County, Texas.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
COMPANY:
CLASSIC TRENDS INTERNATIONAL, INC.
By /s/ FREDERIC G. HINDLE
------------------------------------------
FREDERIC G. HINDLE, President
CONSULTANT:
/s/ DONALD L. SHRIVER
--------------------------------------------
DONALD L. SHRIVER
-4-
<PAGE>
SCHEDULE 1
SALES COMMISSIONS FOR INCENTIVE COMPENSATION
COMBINED MONTHLY SALES(1)
<TABLE>
<S> <C>
0 - 10,000 bottles(2) 5.00% of wholesale price
10,001 - 20,000 bottles 4.50% of wholesale price
20,001 - 30,000 bottles 4.00% of wholesale price
30,001 - 40,000 bottles 3.50% of wholesale price
40,001 - 100,000 bottles 3.25% of wholesale price
Over 100,000 bottles 3.00% of wholesale price
</TABLE>
- ------------------------
(1) In the event additional products are not distributed in containers, or if
this formula is not readily applicable to revenue sources, the parties to
this Agreement will negotiate a reasonable incentive compensation package
of not less than 5% of the wholesale price of the product sold or 2% of
the gross revenues, whichever is greater.
(2) In the event that products are distributed in containers other than
bottles, the term bottles will be replaced by the appropriate container.
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), entered into as of the
15th day of October, 1998, by and between Classic Trends International,
Inc., a Texas corporation ("Employer") and Frederic G. Hindle ("Employee").
W I T N E S S E T H:
WHEREAS, Employer and Employee are parties to an employment agreement
entered in October 1995;
WHEREAS, Employer and Employee desire to amend and restate such
employment agreement; and
WHEREAS, Employer and Employee agree that the employment agreement
entered in October 1995 is superceded by this amended and restated employment
agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter
set forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer
to elect and remove officers, Employee will serve Employer as its President
and will faithfully and diligently perform the services and functions
relating to such office(s) or otherwise reasonably incident to such office,
provided that all such services and functions will be reasonable and within
Employee's area of expertise. Employee will, during the term of this
Agreement (or any extension thereof), devote his full time, attention and
skills and best efforts to the promotion of the business of Employer. The
foregoing will not be construed as preventing Employee from making
investments in other businesses or enterprises provided that (a) Employee
agrees not to become engaged in any other business activity that interferes
with his ability to discharge his duties and responsibilities to Employer and
(b) Employee does not violate any other provision of this Agreement.
3. TERM. The term of this Agreement will commence as of the date
hereof and will end on October 15, 2008, unless earlier terminated by either
party pursuant to the terms hereof. The term of this Agreement is referred
to herein as the "Term." The Term of this agreement is to be extended
automatically for additional successive periods of one year ("Additional
Term"), unless the employment of Employee is terminated as provided herein.
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) MANAGEMENT FEE. Commencing on the date hereof, Employee will
be paid a minimum management fee of $7,000 per month, payable in accordance
with the then current payroll policies of Employer or as otherwise agreed to
by the parties ("Management Fee"). At any time and from time to time the
Management Fee may be increased for the remaining portion of the term if so
<PAGE>
determined by the Board of Directors of Employer after a review of Employee's
performance of his duties hereunder.
(b) INCENTIVE COMPENSATION. The Employer agrees during the term
of this Agreement that the Employer, as is applicable, will pay to Employee a
sales commission equal to a percentage, as specified on Schedule 1 attached
hereto, of the then wholesale price of each product or service sold
(including sales in foreign markets) by Employer, or an affiliate of Employer
or pursuant to any arrangement between Employer, an affiliate of Employee and
a third party. Each sales commission to be paid to Employee from the sale of
products and/or services will be due and payable by the 10th day of each
month from receipts of actual paid invoices from the preceding months.
Employee shall receive a computer print-out of all sales of products and
services from the Company and shall have the right to examine all financial
and accounting records at his discretion during normal business hours. In
addition, Employee shall be entitled to receive an additional sales
commission, based on the formula set forth in Schedule 1 attached hereto, of
the wholesale price of each additional product or service sold by Employer,
an affiliate of Employer or pursuant to any arrangement between Employer, an
affiliate of Employee and a third party. This sales commission shall be paid
by Employer, or other third party, as is applicable, by the 10th day of each
month from receipt of the actual paid invoice from the proceeding months.
Employee shall receive a computer print-out of all sales from Employer and
shall have the right to examine all financial and accounting records at his
discretion during normal business hours. This additional compensation shall
be deemed "Incentive Compensation." All calculations of the Incentive
Compensation shall be made in accordance with the accounting methods then
employed by the Employer. In the event Employee is terminated by, or
voluntarily terminates his employment with Employer, Employee shall be
entitled to Incentive Compensation for such period from the date of this
Agreement until termination, to be calculated by Employer's independent
auditor based upon unaudited financial statements, payable within 30 days of
termination.
(c) EXPENSES. Upon submission of a detailed statement and
reasonable documentation, Employer will reimburse Employee in the same manner
as other executive officers for all reasonable and necessary or appropriate
out-of-pocket travel and other expenses incurred by Employee in rendering
services required under this Agreement.
(d) AUTOMOBILE. Employer will supply Employee with an automobile
and be responsible for all expenses related thereto throughout this
Agreement. Employer shall furnish Employee a gasoline allowance calculated as
the actual miles driven by Employee for Employer's business purposes,
multiplied by the maximum allowable reimbursement amount as set by the
Internal Revenue Service.
(e) BENEFITS; INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this
Agreement, Employee and his dependents will be entitled to receive such
group medical, dental and vision
-2-
<PAGE>
benefits as Employer may provide to its other employees, provided such
coverage is reasonably available, or be reimbursed if Employee is carrying
his own similar insurance.
(ii) LIFE INSURANCE. During this Agreement, Employer agrees to
continue to provide, at no cost to Employee, life insurance benefits in the
amount of $1,000,000, for the benefit of 50% to Employer and 50% to
Employee's beneficiary; provided such coverage is reasonably available.
(iii) DISABILITY INSURANCE. During this Agreement, Employer
agrees to provide, at no cost to Employee, disability insurance
("Disability Insurance") sufficient to provide, in the event Employee
becomes disabled, payments that will be made evenly over the balance of the
Term and/or Additional Term, as the case may be, of this Agreement equal to
Employee's base management fee as of the date of disability; provided such
coverage is reasonably available.
(iv) OTHER BENEFITS. During the Term, Employee will be
entitled to receive such other benefits as Employer currently provides or
such additional benefits as Employer may provide for its executive officers
in the future.
5. TERMINATION. This Agreement and the employment relationship
created hereby will terminate upon the occurrence of any of the following
events:
(a) The death of Employee;
(b) The "Disability" (as hereinafter defined) of Employee;
(c) Written notice to Employee from Employer of termination for "Just
Cause" (as hereinafter defined);
(d) The voluntary termination of employment by Employee; or
(e) The "Constructive Termination" of employment of Employee (as
hereinafter defined).
(f) The expiration of the Term or any Additional Term, provided
notice is given by Employer to Employee prior to six months from expiration
of the Term or Additional Term.
For purposes of Section 5(b), "Disability" of Employee means
disability of such a nature and degree that it satisfies the requirements of
the Disability Insurance policy and the insurer of such policy has
acknowledged in writing that it will be making full payment of the amount
required under the policy.
-3-
<PAGE>
For purposes of Section 5(c), "Just Cause" means (i) Employee
has willfully and intentionally failed to substantially perform his duties as
specified under this Agreement; or (ii) Employee's criminal conviction by any
state or federal court of any illegal act (other than minor traffic
violations or minor misdemeanors) in connection with his employment with the
Employer that could reasonably be expected to materially adversely affect the
Employer.
For purposes of Section 5(e), any of the following actions or
events, unless consented to in writing by Employee, will be deemed to be a
constructive termination by Employer of Employee's employment hereunder
("Constructive Termination"):
(i) Employer demotes Employee to a lesser position than as
provided in Section 2 or causes a significant reduction of Employee's
authority and/or responsibilities under this Agreement; or
(ii) Employer decreases Employee's salary below the minimum
level provided in Section 4(a) or reduces the employee benefits and
perquisites to which Employee is entitled below the levels provided in
Sections 4(b), (d) or (e).
Notwithstanding the foregoing, a Constructive Termination under (i) or (ii)
above will not occur unless, within 60 days after learning of the action
described herein as the basis for a Constructive Termination, Employee will
advise Employer in writing that he intends to terminate his employment under
this Agreement because of a Constructive Termination and Employer does not,
within 10 days after receipt of such written notice, correct such action and
provide Employee with a written notice of such correction; provided that in
the event of a Constructive Termination under (ii) above, such correction
will require Employer to pay to Employee an amount equal to the difference
between the amount of compensation to which Employee was entitled prior to
the reduction and the amount of compensation actually received by Employee
from the date of reduction to the date Employer reinstates Employee's Salary
to the level provided in Section 4(a).
6. OBLIGATIONS OF EMPLOYER UPON TERMINATION.
(a) In the event of the termination of Employee's employment
pursuant to Section 5(a), (b), (c) or (d), Employee will be entitled only to
the compensation and Incentive Compensation earned by him hereunder as of the
date of such termination (plus life insurance or disability benefits).
(b) In the event of the termination of Employee's employment
pursuant to Section 5(e), Employee will be entitled to receive Incentive
Compensation, the automobile allowance, medical, dental and vision benefits,
life insurance, disability insurance and other benefits provided in the
Agreement for the entire Term of the Agreement, plus the greater of (i) one
year of base compensation at the then base management fee or (ii) the
remaining base compensation at the then base management fee that would have
been paid to Employee during the Term.
-4-
<PAGE>
7. WAIVER OF BREACH. The waiver by any party hereto of a breach of
any provision of this Agreement will not operate or be construed as a waiver
of any subsequent breach by any party.
8. COSTS. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party will be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.
9. NOTICES. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and
personally delivered or within two days if sent by mail, registered or
certified, postage prepaid with return receipt requested, as follows:
If to Employer: Classic International, Inc.
10696 Haddington, Suite 117
Houston, Texas 77043
Attn: Chief Executive Officer
If to Employee: Frederic G. Hindle
3035 Las Palmas
Houston, Texas 77027
Notices delivered personally will be deemed communicated as of actual receipt.
10. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
11. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during this Agreement, such provision will be fully severable and this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof will remain in full force and effect and will not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there will be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable.
12. GOVERNING LAW. This Agreement and the rights and obligations of
the parties will be governed by and construed and enforced in accordance with
the substantive laws (but not the rules governing conflicts of laws) of the
state of Texas. The parties agree that this agreement will performable in
Harris County, Texas.
-5-
<PAGE>
13. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
14. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter and the
number of all words will include the singular and plural.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be
produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EMPLOYER:
CLASSIC TRENDS INTERNATIONAL, INC.
By /s/ DONALD L. SHRIVER
-------------------------------------
DONALD L. SHRIVER, Chairman
EMPLOYEE:
/s/ FREDERIC G. HINDLE
---------------------------------------
FREDERIC G. HINDLE
-6-
<PAGE>
SCHEDULE 1
SALES COMMISSIONS FOR INCENTIVE COMPENSATION
COMBINED MONTHLY SALES(1)
<TABLE>
<S> <C>
0 - 10,000 bottles(2) 5.00% of wholesale price
10,001 - 20,000 bottles 4.50% of wholesale price
20,001 - 30,000 bottles 4.00% of wholesale price
30,001 - 40,000 bottles 3.50% of wholesale price
40,001 - 100,000 bottles 3.25% of wholesale price
Over 100,000 bottles 3.00% of wholesale price
</TABLE>
- ------------------------
(1) In the event additional products are not distributed in containers, or if
this formula is not readily applicable to revenue sources, the parties to
this Agreement will negotiate a reasonable incentive compensation package
of not less than 5% of the wholesale price of the product sold or 2% of the
gross revenues, whichever is greater.
(2) In the event that products are distributed in containers other than
bottles, the term bottles will be replaced by the appropriate container.
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
1997 INCENTIVE STOCK OPTION PLAN
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
1997 INCENTIVE STOCK OPTION PLAN
1. ADOPTION AND PURPOSE
Classic Trends International, Inc., a Texas corporation (the "Company"),
hereby adopts this Classic Trends International, Inc. 1997 Incentive Stock
Option Plan, as hereinafter set forth (the "Plan"), subject to stockholder
approval. The purpose of the Plan is to foster and promote the financial
success of the Company and materially increase stockholder value by (a)
strengthening the Company's capability to develop and maintain an
outstanding management team, (b) motivating superior performance by the
management team, (c) encouraging and providing for obtaining an ownership
interest in the Company, (d) attracting and retaining outstanding
executive talent by providing incentive compensation opportunities
competitive with other companies, and (e) enabling key employees to
participate in the long-term growth and financial success of the
Company. The Plan is intended to provide "incentive stock options"
within the meaning of that term under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Any proceeds of cash or
property received by the Company for the sale of Classic Trends
International, Inc. common stock, $.001 par value (the "Common Stock")
pursuant to options granted under this Plan will be used for general
corporate purposes.
2. ADMINISTRATION
2.1 The Plan shall be administered by a committee (the "Compensation
Committee") appointed by the Board of Directors of the Company (the
"Board") and composed of at least two Board members. If the
Plan is administered by the Compensati Committee, it shall meet the
plan administration requiremens described under Rule 16b-3(c)(2)
promulgated under the Securities Exchange Act of 1934 [see 17 CFR
Section 240.16b-3(c)(2)] or any similar rule which may subsequently
be in effect. Any vacancy on the Compensation Committee shall be
filled by the Board.
2.2 Subject to the express provisions of the Plan, the Compensation
Committee shall have the sole and complete authority to (a)
determine key employees to whom awards hereunder shall be
granted, (b) make awards in such form and amounts as it shall
determine, (c) impose such limitations and conditions upon such
awards as it shall deem appropriate, (d) interpret the Plan,
prescribe, amend and rescind rules and regulations relating to it,
(e) determine the terms and provisions of the respective
participants' agreements (which need not be identical), and (f) make
such other determinations as it deems necessary or advisable for the
administration of the Plan. The decisions of the Compensation
Committee on matters within their jurisdiction under the Plan shall
be conclusive and binding on the Company and all other persons. No
members of the Board or the Compensation Committee shall be liable
for any action taken or determination made in good faith.
2.3 All expenses associated with the Plan shall be paid by the Company
or its Subsidiaries.
2.4 As used in this Section and wherever used in this Plan, the term
"Subsidiary" shall mean a corporation (other than the Company) in
which the Company directly or indirectly controls 50% or more of the
combined voting power of all stock of that corporation.
3. ELIGIBILITY
<PAGE>
The Compensation Committee may grant options to purchase Common Stock
under this Plan (referred to as "Options") only to key employees and
executive officers of the Company or its Subsidiaries. The Compensation
Committee shall determine, within the provisions of the Plan, those key
employees to whom, and the times at which, Options shall be granted. In
making such determinations, the Compensation Committee may take into
account the nature of the services rendered by the employee, his or her
present and potential contributions to the Company's success, and such
other factors as the Compensation Committee in its discretion shall deem
relevant. Grants may be made to the same individual on more than one
occasion. An employee of the Company who is granted Options pursuant to
this Plan shall be referred to as a "Participant."
4. GRANTING OF OPTIONS
4.1 POWERS OF THE COMPENSATION COMMITTEE. The Compensation Committee
shall determine, in accordance with the provisions of the Plan, the
duration of each Option, the exercise price (i.e. Option price)
under each Option, the time or times within which (during the term
of the Option) all or portions of each Option may be exercised, and
whether cash, Common Stock, or other property may be accepted in
full or partial payment upon exercise of an Option.
4.2 NUMBER OF OPTIONS. As soon as practicable after the date an
employee is determined to be eligible under Section 3 hereof, the
Compensation Committee may, in its discretion, grant to such
eligible employee a number of Options determined by the Compensation
Committee.
5. COMMON STOCK
Each Option granted under the Plan shall be convertible into one (1)
share(s) of Common Stock, unless adjusted in accordance with the
provisions of Section 7 hereof. Options may be granted for a number of
shares not to exceed, in the aggregate, 600,000 shares of Common Stock,
subject to adjustment pursuant to Section 7 hereof. For purposes of
calculating the maximum number of shares of Common Stock that may be
issued under the Plan, (i) all the shares issued (including the shares, if
any, withheld for tax withholding requirements) shall be counted when cash
is used as full payment for shares issued upon the exercise of an Option,
and (ii) shares tendered by a Participant as payment for shares issued
upon exercise of an Option shall be available for issuance under the Plan.
Upon the exercise of an Option, the Company may deliver either authorized
but unissued shares, treasury shares, or any combination thereof. In the
event that any Option granted under the Plan expires unexercised, or is
surrendered by a Participant for cancellation, or is terminated or ceases
to be exercisable for any other reason without having been fully
exercised, the Common Stock theretofore subject to such Option shall again
become available for new Options to be granted under the Plan to any
eligible employee (including the holder of such former Option) at an
Option price determined in accordance with Section 6.2 hereof, which price
may then be greater or less than the Option price of such former Option.
No fractional shares of Common Stock shall be issued, and the Compensation
Committee shall determine the manner in which fractional share value shall
be treated.
6. REQUIRED TERMS AND CONDITIONS OF OPTIONS
6.1 AWARD OF OPTIONS. The Compensation Committee may, from time to time
and subject to the provisions of the Plan and such other terms and
conditions as the Compensation Committee may prescribe, grant to any
Participant in the Plan one or more "incentive stock options"
(intended to qualify as such under the provisions of Section 422 of
the Code) to purchase for cash or shares the number of shares of
Common Stock allotted by the Compensation Committee. The date an
Option is granted shall mean the date selected by the Compensation
Committee as of which the Compensation Committee allots a specific
number of shares to a Participant pursuant to the Plan. Except as
otherwise provided in Section 6.4, Options shall not be granted to
any owner of 10% or more of the total combined voting power of the
Company and its Subsidiaries.
2
<PAGE>
6.2 OPTION PRICE. Except as otherwise provided in Section 6.4, the
option price per share of Common Stock deliverable upon the exercise
of an Option shall be 100% of the "Fair Market Value" of a share of
Common Stock on the date the Option is granted. For purposes of
this Plan, Fair Market Value shall mean as of any date and in
respect of any share of Common Stock, the closing price on such date
or on the next business day, if such date is not a business day, of
a share of Common Stock last reported on the principal national
securities exchange on which the Common Stock is listed or admitted
to trade, provided that, if shares of Common Stock shall not have
been traded on such securities exchange for more than 10 days
immediately preceding such date or if deemed appropriate by the
Compensation Committee for any other reason, the Fair Market Value
of shares of Common Stock shall be as determined by the Compensation
Committee in such other manner as it may deem appropriate. In no
event shall the Fair Market Value of any share of Common Stock be
less than its par value.
6.3 TERM AND EXERCISE. Each Option shall be fully exercisable six
months from the date of its grant except in the event of the
Participant's death or "disability" (within the meaning of Section
22(e)(3) of the Code) or unless a shorter period is provided by the
Compensation Committee or another Section of this Plan. Except as
otherwise provided in Section 6.4, each Option may be exercised
during a period of 10 years from the date of grant thereof.
6.4 TEN PERCENT SHAREHOLDER. Notwithstanding anything to the contrary
in this Plan, Options may be granted to any owner of 10% or more of
the total combined voting power of the Company and its Subsidiaries
(i) if the Option price is at least 110% of the Fair Market Value of
a share of Common Stock on the date the Option is granted, and (ii)
the Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
6.5 MAXIMUM AMOUNT OF OPTION GRANT. The aggregate Fair Market Value
(determined on the date the Option is granted) of Common Stock
subject to an Option granted to a Participant by the Compensation
Committee in any calendar year shall not exceed $100,000.
6.6 METHOD OF EXERCISE. Options may be exercised by giving written
notice to the Treasurer of the Company, stating the number of shares
of Common Stock with respect to which the Option is being exercised
and tendering payment thereof. In lieu of part or all of a cash
payment, the Compensation Committee may permit payment in Common
Stock, valued at fair market value (as determined by the
Compensation Committee) on the date of exercise. Payment for Common
Stock, whether in cash or in other shares of Common Stock, shall be
made in full at the time that an Option, or any part thereof, is
exercised.
7. ADJUSTMENTS
7.1 The aggregate number or type of shares of Common Stock with respect
to which Options may be granted hereunder, the number or type of
shares of Common Stock subject to each outstanding Option, and the
Option price per share for each such Option may all be appropriately
adjusted, as the Compensation Committee may determine, for any
increase or decrease in the number of shares of issued Common Stock
resulting from a subdivision or consolidation of shares whether
through reorganization, recapitalization, consolidation, payment of
a share dividend, or other similar increase or decrease.
7.2 Subject to any required action by the stockholders, if the Company
shall be a party to a transaction involving a sale of substantially
all its assets, a merger, or a consolidation, any Option granted
hereunder shall pertain to and apply to the securities to which a
holder of Common Stock would be
3
<PAGE>
entitled to receive as a result of such transaction; provided,
however, that all unexercised Options under the Plan may be
canceled by the Company as of the effective date of any such
transaction by giving notice to the holders of such Options of its
intention to do so, and by permitting the exercise of such Options
during the 30-day period immediately after the date such notice is
given.
7.3 In the case of dissolution of the Company, every Option outstanding
hereunder shall terminate; provided, however, that each Option
holder shall have 30 days' prior written notice of such event,
during which time he shall have a right to exercise his partly or
wholly unexercised Options.
7.4 On the basis of information known to the Company, the Compensation
Committee shall make all determinations under this Section 7,
including whether a transaction involves a sale of substantially all
the Company's assets; and all such determinations shall be
conclusive and binding on the Company and all other persons.
8. OPTION AGREEMENTS
Each award of Options shall be evidenced by a written agreement, executed
by the employee and the Company, which shall contain such restrictions,
terms and conditions as the Compensation Committee may require in
accordance with the provisions of this Plan. Option agreements need not
be identical. The certificates evidencing the shares of Common Stock
acquired upon exercise of an Option may bear a legend referring to the
terms and conditions contained in the respective Option agreement and the
Plan, and the Company may place a stop transfer order with its transfer
agent against the transfer of such shares. If requested to do so by the
Compensation Committee at the time of exercise of an Option, each
Participant shall execute a certificate indicating that he is purchasing
the Common Stock under such Option for investment and not with any present
intention to sell the same.
9. LEGAL AND OTHER REQUIREMENTS
The obligation of the Company to sell and deliver Common Stock under
Options shall be subject to all applicable laws, regulations, rules and
approvals, including, but not by way of limitation, the effectiveness of a
registration statement under the Securities Act of 1933, if deemed
necessary or appropriate by the Board, of the Common Stock reserved for
issuance upon exercise of Options. In the case of officers or other
persons subject to Section 16(b) of the Securities Exchange Act of 1934,
the Compensation Committee may at any time impose any limitations upon the
exercise, delivery and payment of any Option which, in the Compensation
Committee's discretion, are necessary in order to comply with Section
16(b) and the rules and regulations thereunder. A participant shall have
no rights as a stockholder with respect to any shares covered by an
Option, or exercised by him, until the date of delivery of a stock
certificate to him for such shares. No adjustment other than pursuant to
Section 7 hereof shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is delivered.
10. NON-TRANSFERABILITY
During the lifetime of an optionee, any Option granted to him shall be
exercisable only by him or by his guardian or legal representative. No
Option shall be assignable or transferable, except by will, by the laws of
descent and distribution, or pursuant to certain divorce decrees. The
granting of an Option shall impose no obligation upon the optionee to
exercise such Option or right.
11. NO CONTRACT OF EMPLOYMENT
Neither the adoption of this Plan nor the grant of any Option shall be
deemed to obligate the Company or any subsidiary of the Company to
continue the employment of any employee for any particular period, nor
shall the granting of an Option constitute a request or consent to
postpone the retirement date of any employee.
4
<PAGE>
12. INDEMNIFICATION OF COMPENSATION COMMITTEE
In addition to such other rights of indemnification as they may have as
members of the Board or the Compensation Committee, the members of the
Compensation Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any action, suit or proceeding
(or in connection with any appeal therein), to which they or any of them
may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such Compensation Committee member is
liable for gross negligence or misconduct in the performance of his
duties; provided that within 60 days after institution of any such action,
suit or proceeding a Compensation Committee member shall in writing offer
the Company the opportunity, at its own expense, to handle and defend the
same.
13. WITHHOLDING TAXES
Whenever the Company proposes or is required to issue or transfer shares
of Common Stock under the Plan, the Company shall have the right to
require the grantee to remit to the Company an amount sufficient to
satisfy any federal, state and/or local withholding tax requirements prior
to the delivery of any certificate or certificates for such shares.
Alternatively, the Company may issue or transfer such shares of Common
Stock net of the number of shares sufficient to satisfy the withholding
tax requirements. For withholding tax purposes, the shares of Common
Stock shall be valued on the date the withholding obligation is incurred.
14. LEAVES OF ABSENCE
The Compensation Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any Option.
Without limiting the generality of the foregoing, the Compensation
Committee shall be entitled to determine (i) whether or not any such leave
of absence shall constitute a termination of employment within the meaning
of the Plan and (ii) the impact, if any, of any such leave of absence on
Options under the Plan theretofore made to any recipient who takes such
leave of absence.
15. NEWLY ELIGIBLE EMPLOYEES
Except as otherwise provided herein, the Compensation Committee shall be
entitled to make such rules, regulations, determinations and awards as it
deems appropriate in respect of any employee who becomes eligible to
participate in the Plan.
16. TERMINATION AND AMENDMENT OF PLAN
The Board, acting by a majority of its members (exclusive of Board members
who are not eligible to be appointed to the Compensation Committee as
described in Section 2.1) without further action on the part of the
stockholders, may from time to time alter, amend or suspend the Plan or
any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not:
(a) change the total number of shares of Common Stock available for
Options under the Plan (except as provided in Section 7 hereof);
(b) extend the duration of the Option;
5
<PAGE>
(c) increase the maximum term of Options;
(d) decrease the Option price or otherwise materially increase the
benefits accruing to Participants under the Plan; or
(e) materially modify the eligibility requirements of the Plan;
and provided further that no such action shall materially and adversely
affect any outstanding Options without the consent of the respective
optionees.
17. GENDER AND NUMBER
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender and vice
versa, and the singular shall include the plural and the plural shall
include the singular.
18. GOVERNING LAW
The Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the State of Texas.
19. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board.
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[LOGO] 10696 Haddington, Suite 117 INDEPENDENT REPRESENTATIVE FORM #100
Houston, TX 77043 ENTRY APPLICATION/AGREEMENT
(713) 464-2626
Fax (713) 464-2797
APPLICANT INFORMATION IMPORTANT! TO AVOID DELAYS PLEASE TYPE OR PRINT CLEARLY | | | | | | | | - | | | | |
| | | / | | | / | | | -- INCORRECT, INCOMPLETE OR ILLEGIBLE FORMS WILL BE DAY PHONE NUMBER
DATE MONTH YEAR RETURNED TO REPRESENTATIVE. PLEASE REVIEW FOR ACCURACY
BEFORE MAILING. FOR QUESTIONS CALL (713) 464-2626. | | | | | | | | - | | | | |
EVENING PHONE NUMBER
| | | | | | | | | | | | | | | | | | | | | | | | - | | | | |
SOCIAL SECURITY OR FEDERAL ID NUMBER FAX NUMBER
_______________________________________________________________ SPONSOR INFORMATION (CANNOT BE CHANGED AFTER SUBMITTED)
NAME (LAST, FIRST, MIDDLE)
| | | | | | | | | | | | | | | |
_______________________________________________________________ SPONSOR SOCIAL SECURITY OR FEDERAL ID NUMBER
SHIPPING ADDRESS
_______________________________________________________
_______________________________________________________________ NAME (LAST) (FIRST & MIDDLE INITIALS)
MAILING ADDRESS
___________ _____ _______ | | | | | | - | | | | |
CITY STATE (ABBR.) ZIP/POSTAL CODE
- ---------------------------------------------------------------------------------------
ORDER INFORMATION / / INITIAL ORDER DISTRIBUTOR/CONSULTANT
CHECK ONE
/ / Please accept my initial purchase for ONE of
the following: ---->
/ / Representative Only (NO PURCHASE NECCESSARY)
ORDER INFORMATION / / INITIAL ORDER DISTRIBUTOR/CONSULTANT
</TABLE>
<TABLE>
<CAPTION>
STOCK # DESCRIPTION QTY RETAIL SALES AID WHSL. AMOUNT
<S> <C> <C> <C> <C> <C>
200 FAMILY CAR CARE PACK:
Guardian Angel 2 $59.90 $47.90
Posh Wash 1 $19.95 $15.95
Direct-Mail kit 1 $19.95 $19.95
Sales Aid Materials n/a $26.15 $26.15
203A GUARDIAN ANGEL (CASE) LESS 10% 1 359.40 $232.74
Total Retail Total Sales Aids Subtotal
$439.25 $46.10 $342.69
| |
| | Shipping
Please allow 3 - 5 working days for delivery | | $8.50
Alaska and Hawaii add $50.00 | |
| | Handling
| | $2.00
| |
V V Tax
8.25% Sales Tax (TEXAS RESIDENTS ONLY) $36.24 + $3.80 .............> $40.04
-----------------
-----------------
TOTAL DUE TEXAS RESIDENTS $393.23
------------------------------------
------------------------------------
TOTAL DUE NON-Texas Residents $353.19
------------------
------------------
</TABLE>
AGREEMENT INFORMATION (SEE REVERSE SIDE ALSO)
YOU MUST CHECK ALL THAT APPLY
YES NO
/ / / / Please waive the three day right to cancel and rush my
order ASAP.
/ / / / I want to be a Classic Trends International Independent
Representative (no purchase is required).
/ / / / I understand and have read the Terms, Conditions, Policies
and Procedures on the back of this form and agree as an
Independent Representative to abide by them. This
agreement shall be deemed in effect upon receipt and
acceptance by Classic Trends International at its Home Office in
Houston, Texas. I certify that the SSN or FIN shown
above is correct for tax reporting purposes.
/ / / / I understand that I am automatically entered into the 7 high
uni-lateral compensation program and that there is a $50
per month minimum sale to qualify for commissions in
this plan.
/ / / / As an Independent Representative, please enroll me in PI's
automatic product re-order/entry program for each pay
cycle of the Bi-Cycle Bonus System.
__________________________________________ ___________
SIGNATURE FOR AGREEMENT DATE
/ / INITIAL ORDER CONSULTANT
<TABLE>
<CAPTION>
STOCK # DESCRIPTION QTY RETAIL SALES AID WHSL. AMOUNT
<S> <C> <C> <C> <C> <C>
200 FAMILY CAR CARE PACK:
Guardian Angel 2 $59.90 $47.90
Posh Wash 1 $19.95 $15.95
Direct-Mail kit 1 $19.95 $19.95
Sales Aid Materials n/a $26.15 $26.15
Total Retail Total Sales Aids Subtotal
$79.85 $46.10 $109.95
| |
| | Shipping
Please allow 3 - 5 working days for delivery | | $5.50
Alaska and Hawaii add $15.00 | |
| | Handling
| | $2.00
| |
V V Tax
8.25% Sales Tax (TEXAS RESIDENTS ONLY) $ 6.59 + $3.80 ............> $10.39
-----------------
-----------------
TOTAL DUE TEXAS RESIDENTS $127.84
------------------------------------
------------------------------------
TOTAL DUE NON-Texas Residents $117.45
------------------
------------------
</TABLE>
<TABLE>
PAYMENT INFORMATION
<S> <C>
FAX THIS APPLICATION TO (713) 464-2797 OR MAIL IN.
/ / Check/MO / / Master Card / / VISA / / Amex / / Discover
MAKE PAYABLE TO CLASSIC TRENDS INTERNATIONAL, INC.
(Credit Cards are processed through Flair Image, Inc./Classic Trends International)
_______________________________________________________________________________________
PRINT NAME ON CARD
| | | | | | | | | | | | | | | | | | | |
CREDIT CARD NUMBER
| | | - | | | ____________________________________________________
EXP.DATE SIGNATURE
PLACEMENT INFORMATION (CANNOT BE CHANGED AFTER SUBMITTED)
_______________________________________________________________________________
(LAST) (FIRST & MIDDLE INITIALS)
NAME OF THE PERSON WHOM THE APPLICANT WILL BE PLACED UNDER
| | | | | | | | | | | | | | | |
PLACEMENT SOCIAL SECURITY OR FEDERAL ID NUMBER
</TABLE>
V.7-101497
<PAGE>
ANNUAL REGISTRATION FEE $25.00
I understand the only annual financial requirement to remain a Classic
Trends International Consultant or Distributor is the payment of an
Annual Renewal Fee. This fee covers the annual registration and
renewal cost of your Consultant or Distributor account, your
subscription to the Classic Trends International Newsletter, and other
material published by Classic Trends International. I understand that
the renewal fee does not include any products and that any products
purchased in connection with remaining a Consultant or Distributor are
optional.
By signing the Signature for Agreement on the front side of this form
I understand that there is an Annual Renewal Fee.
AGREEMENT
As an Independent Representative of Classic Trends International, Inc. (CTI), I
understand and agree that:
1. I am of legal age and a resident in the state in which I enter into this
Agreement.
2. I shall become a Classic Trends International, Inc. Independent
Representative upon acceptance of this application. I shall have the
right to sell the products offered in accordance with the marketing
program and policies and procedures which may be amended from time to
time.
3. I acknowledge that this Agreement is not binding on either party until
it has been accepted and approved by Classic Trends International,
Inc., at their corporate offices in Houston, Texas and shall be governed
by the applicable Federal, State and local laws. Upon acceptance as an
Independent Representative, applicant is authorized as an Independent
Representative for one year from such date of acceptance.
Representative status may be kept current through continued purchases
and organizational growth as long as applicant complies with all terms
of this Agreement.
4. As a Independent Representative I will not be an employee, but will be
an independent contractor, and as such will not be treated as an
employee for purposes of the Federal Insurance Contributions Act, the
Social Security Act, the Federal Unemployment Tax Act, income tax
withholding at source or any other laws covering employees. As an
Independent Representative, I am responsible for my own business. I
may decide for myself whether to recruit a sales organization and on
the prices at which I will sell. I will in all representations of my
distributorships, including but not limited to advertisements, business
cards, stationary, and verbal communications, refer to myself as an
"Independent Representative" of CTI products. I will abide by and pay
any and all business, sales, local and federal taxes, licenses of
self-employment taxes that may become due through this business as
required by law.
5. I understand that CTI will provide a federal tax form #1099 to
appropriate Independent Representatives and report all compensation paid
to Independent Representatives to the Internal Revenue Service as
required by law.
6. I agree to represent and explain CTI products and plan honestly,
marketing completely and in an ethical and legal manner.
7. I have received, carefully read and accept the CTI Policies and
Procedures and the marketing program which are incorporated, by
reference, as a part of this Agreement. CTI has the right, at its sole
discretion, to modify its Policies and Procedures, marketing program,
compensation, or prices at any time.
8. I understand that I may not make any statements, claims, or
representations regarding CTI or its products other than those approved
and provided in writing in the CTI Policies, and Procedures, marketing
plan, product brochures, marketing film, or any other official printed
literature or publication made available through CTI.
9. I may terminate Agreement at any time by notifying CTI in writing. CTI
this may terminate this Agreement if I breach the terms of this
Agreement or the Policies and Procedures, or if I commit fraud,
dishonesty, or criminal acts. No further commissions or bonuses will
be paid after termination of this Agreement. CTI's failure to enforce
any provision of this agreement shall not be construed as a waiver of
such provision or of anyother provision or subsequent breach of this
Agreement.
10. Any use of the product or trade names or trademarks CTI must be approved
in writing by CTI prior to their use. Any violation of this regulation
will result in immediate termination of the distributorship.
11. I will work toward creating a base of customers who are purchasing
products for personal benefit. I certify that at least 70 percent of my
previous orders have been sold to the consuming public.
12. CTI does not and will not discriminate in acceptance or rejection of
applicants because of race, creed, color, sex or national origin.
Independent Representative positions are open to all persons who
faithfully demonstrate good business ethics, judgement, responsibility
and a sincere desire to be a CTI Independent Representative.
13. This Agreement is governed by the laws of the State of Texas and is
binding on successors and assigns of both parties. In the event any
dispute arises between me CTI related to this Agreement or otherwise,
venue shall lie exclusively in courts in Houston, Harris County, Texas.
14. Any and all costs, including attorneys' fees, incurred by CTI as a
result of any violation of this Agreement or any other dispute
between the parties, hereto shall be borne by the applicant. In the
event that this Agreement at any time for any reason is determined to
be void or superseded, the provisions of this paragraph shall survive.
15. I understand that CTI will buy back inventory and sales kit materials
in a resalable condition for 30 days from the date of purchase. A
10% restocking charge will be deducted from all refunds along with
any commissions paid.
16. I understand that I may fill out an application to become a CTI
Independent Representative, and the company will ship products
directly to my customers upon receipt of check or credit card. No
purchase is necessary on my part to be paid Retail sales commissions.
17. Any Independent Representative who sponsors other Independent
Representatives, must fulfill the obligation of performing a bona
fide supervisory, distributing and selling function in the sale or
delivery of products to the ultimate customer and in the training of
those sponsored. Independent Representatives must maintain ongoing
contact, communication and management supervision with his or her
sales organization. Examples of such supervision may include but are
not limited to newsletters, written correspondence, personal
meetings, telephone contacts, voice mail, electronic mailing,
training sessions, accompanying individuals to company training and
sharing genealogy information with those sponsored. Independent
Representatives must provide evidence to CTI at its request of
ongoing fulfillment of supervisory responsibilities.
18. If Independent Representative has purchased CTI products and/or sales
materials and is in default in payments, CTI shall be entitled to
deduct amounts due from commissions. In addition, default on payments
due for elective purchases from CTI shall be grounds for termination
if Independent Representative and/or such legal action as the company
deems appropriate.
19. Independent Representative agrees to submit any complaint, grievance
or claim against an Independent Representative or CTI to Dispute
Resolution Board for resolution and settlement in accordance with the
terms, conditions, policies and procedures prior to contacting any
regulatory agencies or taking any legal action. Independent
Representative agrees that a breach of this covenant on his or her
part will make Independent Representative liable for any damages
and/or any legal cost to CTI.
20. Independent Representative understands and agrees that the marketing
plans and other plans used by CTI for marketing its products and/or
services has specific reporting and time sensitive qualification
requirements. It is the responsibility of Independent Representative
to understand these, and comply. Failure to do so may affect
Independent Representatives commissions, and no exception can be made.
21. Independent Representative understands that although he or she may
sponsor other Independent Representatives, the compensation plan does
not allow Independent Representative to profit solely, through the
activity of sponsoring those Independent Representatives.
Commissions are paid only from actual product sales made by
Independent Representative or his or her commissionable Independent
Representatives. No one has made any claims or guarantees that I will
derive any specific income or profits as an Independent
Representative. My success will depend on my own efforts. Commissions
on all products listed in the Products Listings shall be paid only to
the qualified Independent Representative and to his or her
organizational sponsors.
22. I understand that I may not contact any of CTI Vendors and/or Third
Parties, in any relationship other than that of a customer. I also
understand that I may not have Contracts or Agreements with any
company dealing with said Vendors and/or Third Parties other than
those established previous to this Agreement. If discovered by CTI,
this Agreement will be immediately terminated, ongoing commission
forfeited and/or remedies sought to the fullest extent of the law.
23. I agree to use only official Company literature and advertising; any
other literature/advertising must have prior written approval from
Classic Trends International, Inc. This includes promotion of your
business on the World Wide Web through a personal web page, web mall
shopping area, classified advertising and/or bulk e-mail services. I
will not use Classic Trends International's trade name and/or
trademark except in the advertising provided to me by CTI or in other
advertising without prior written approval by CTI.
24. Independent Representative is not guaranteed a specific income.
Financial success as an Independent Representative can come only from
sale of company products to the end consumer, building his/her own
sales organization and training that organization to sell, sponsor,
and train.
25. Independent Representative understands that financial reward is based
on ability, personal effort, and initiative. In discussing the
Company compensation plan, Independent Representative will make no
claims as to income potential, either written or oral, except those
prepared by the company for illustration purposes only.
26. An Independent Representative shall be entitled to cancel
participation in the marketing program at any time and for any reason
upon written notice to CTI. Upon notification of cancellation or
termination the sponsoring Independent Representative or CTI will
repurchase inventory and mandatory sales pack materials in accordance
with its policies as stated in Classic Trends International's
marketing program and statement of policies and procedures.
27. To maintain my Independent Representative position in the marketing
program I must maintain a minimum purchase of $50 worth of product
from the Company every month. I understand if I do not purchase at
least $50 of product during a (1) month period my Independent
Representative position will not receive commissions for that month.
After 6 consecutive months without maintaining a minimum purchase in
any one month, I will be placed on inactive status and dropped from
the CTI Uni-Lateral Marketing Program.
28. I understand that CTI may terminate an Independent Representative
agreement for any Independent Representative who misrepresents the
products or the image or purpose of the Company. CTI may also
terminate Independent Representative agreement for Independent
Representatives who violate any of the rules and regulations herein.
29. An Independent Representative may at some point wish to sell his or
her organization. The sale or a downline organization is permissible
providing prior written approval is obtained from CTI and the
integrity of the upline of both the buying and selling Independent
Representatives remains intact.
30. No CTI Independent Representative will be allowed to transfer from
one sponsor to another. An Independent Representative may
voluntarily terminate his or her own Independent Representativeship
and then re-enroll no earlier than one (1) year following the first
month after terminating the original Independent Representative
Agreement. A re-enrolled Independent Representative will then begin
again with no downline upon application and with approval by Company.
The payment of an Independent Representative set-up fee will be
required.
31. My signature on the application confirms that I have carefully
reviewed the company's marketing program and policies and procedures,
and acknowledge that they are incorporated as part of this agreement
in conducting business in their present form and as modified from
time to time by the company.
V3-063097
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Classic Trends International, Inc.:
We hereby consent to the use in this Registration Statement on Form SB-2 of our
reports dated October 5, 1998, and August 7, 1997, relating to the financial
statements of Classic Trends International, Inc., and Posh International, Inc.,
respectively. We also consent to the reference to our firm under the caption
'Experts' in the Prospectus.
/s/ Null Lairson, P.C.
------------------------
Null Lairson, P.C.
Houston, Texas
October 23, 1998
<PAGE>
October 22, 1998
Board of Directors
Classic Trends International, Inc.
10696 Haddington, Suite 117
Houston, Texas 77043
Gentlemen:
As counsel for, Classic Trends International Inc., a Texas corporation
("Company"), you have requested our firm to render this opinion in connection
with the Registration Statement of the Company on Form SB-2 filed under the
Securities Act of 1933, as amended ("Act"), with the Securities and Exchange
Commission relating to the registration of the distribution of 15,603,400 shares
of Company common stock to the stockholders of Posh International, Inc.
We are familiar with the registration statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the registration
statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon all the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas.
2. The shares to be issued upon the distribution are validly authorized
and will be validly issued, fully paid and nonassessable.
<PAGE>
Board of Directors
October 22, 1998
Page 2
We consent to the use in the registration statement of the reference to
Brewer & Pritchard, P.C. under the heading "Legal Matters."
This opinion is conditioned upon the registration statement being declared
effective and upon compliance by the Company with all applicable provisions of
the Act and such state securities rules, regulations and laws as may be
applicable.
Very truly yours,
/s/ Brewer & Pritchard, P.C.
--------------------------------
BREWER & PRITCHARD, P.C.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 92,830
<SECURITIES> 0
<RECEIVABLES> 216,812
<ALLOWANCES> 0
<INVENTORY> 89,308
<CURRENT-ASSETS> 398,950
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 494,340
<CURRENT-LIABILITIES> 930,781
<BONDS> 0
0
0
<COMMON> 15,603
<OTHER-SE> (452,044)
<TOTAL-LIABILITY-AND-EQUITY> 494,340
<SALES> 91,697
<TOTAL-REVENUES> 201,932
<CGS> 110,235
<TOTAL-COSTS> 110,235
<OTHER-EXPENSES> 570,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,699
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (442,549)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
