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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1 to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g)
of the Securities Exchange Act of 1934
Premier Classic Art, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3680581
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1158 Staffler Road,
Bridgewater, New Jersey 08807
(Address of registrant's principal executive offices) (Zip Code)
(908) 526-7388
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class to be so registered: on which each class is to be registered:
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<S> <C>
None None
</TABLE>
Securities to be registered under Section 12(g) of the Act:
Common Stock,
par value $.0001
Copies to: Gerald A. Adler, Esquire
Bondy & Schloss LLP
6 East 43rd Street
New York, New York 10017-4656
Telephone No. (212)-661-3535
Fax No. (212) 972-1677
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<PAGE>
Index to Form 10-SB Registration Statement
<TABLE>
<CAPTION>
Item Number and Caption Page
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<S> <C>
PART I
1. Description of Business ............................................................... 1
2. Management's Discussion and Analysis of Financial Condition and Plan of Operation ..... 3
3. Description of Property ............................................................... 3
4. Security Ownership of Certain Beneficial Owners and Management ........................ 3
5. Management ............................................................................ 4
6. Executive Compensation ................................................................ 4
7. Certain Relationships and Related Transactions ........................................ 4
8. Description of Securities ............................................................. 5
PART II
1. Market For Common Equity and Related Shareholder Matters .............................. 6
2. Legal Proceedings ..................................................................... 6
3. Changes in and Disagreements with Accountants ......................................... 6
4. Recent Sales of Unregistered Securities ............................................... 6
5. Indemnification of Officers and Directors ............................................. 7
PART F/S
Financial Statements ..................................................................... 8-19
PART III
1. Index to Exhibits ..................................................................... 20
2. Description of Exhibits ............................................................... 20
Signatures ............................................................................... 21
</TABLE>
<PAGE>
PART I
DESCRIPTION OF BUSINESS
General Development of Business
Premier Classic Art, Inc. (the "Company") was incorporated as Pet-Con
Industries, Inc. in the State of Delaware on June 14, 1991. The Company
previously manufactured recyclable containers and bottles for sale to private
grocery product manufacturers and food packers. The Company discontinued these
operations in June 1995 and had no operating activities from then until
September 1999.
On September 2, 1999, the Company purchased all of the outstanding shares
of stock of Cool Classic Incorporated, a Nevada corporation, in exchange for
3,069,788 shares of the Company's common stock. Cool Classic Incorporated is
the owner of 400,000 original, hand-painted animation production cels, which
the Company now plans to market and sell.
Description of Business
Having acquired the outstanding stock of Cool Classic Incorporated with
its collection of 400,000 animation production cels, the Company intends to
market and sell these cels to the public through its website as well as through
art galleries, department type stores, other retail outlets and catalogues.
Pursuant to a Sub-Lease and Assembly Agreement, dated as of September 1999,
by and between the Company and Royal Animated Art, Inc., a California
corporation ("Royal"), the Company stores its collection of cels in a warehouse
leased by Royal from a third party. In addition, Royal has agreed to provide
services such as cleaning, sorting, cataloguing, matching with backgrounds,
matting and framing (as requested by the Company) as well as generally preparing
the cels for market. The Company is to pay Royal $1,000 per month for the
warehouse space as well as out of pocket costs for labor and materials plus 15%
of such costs as an estimate of Royal's overhead allocable to the Company's
products for the services rendered to the Company.
In addition to the marketing and sale of its own collection of cels, the
Company has entered into a Distribution Agreement, dated September 2, 1999,
with Royal. The agreement is for a three year term, subject to renewal As part
of the agreement, Royal grants the Company the non-exclusive right to purchase
and market reproductions of certain animation and comic strip images and
characters, including all animation art and comic strip lithographs, which
Royal has or acquires reproduction rights to. These rights are subject to any
restrictions or limitations contained in agreements under which Royal acquires
its rights and to the approval of Royal over whether and how many reproductions
of each particular piece of artwork should be sold to the Company. The Company
is to pay Royal a percentage of Royal's suggested retail price, depending on
whether the Company sells directly to the ultimate consumer (50%) or to
wholesalers, distributors, retailers and/or other middlemen (25%).
Animation Cels
The term "cel" is used to describe the basic component of most types of
animation art. In its strictest sense, a cel is a plastic sheet, either
cellulose nitrate or cellulose acetate, on which animated characters are
painted. In practice, the term cel has come to mean that plastic sheet in
combination with the outline and coloring of a character, object or special
effect. Outlines can be either hand-inked or Xerographically transferred to the
sheet of plastic. Those outlines are then filled with color, either by
hand-painting or a serigraphic process, to complete the cel.
The Company's cel collection includes a combination of 12 field cels
(approximately 12" x 10" in size) and pan cels (approximately 36" x 10"). The
cels are selected from and were used in the production of Real
Ghostbusters/Slimer, Ewoks (Star Wars), He-Man, Master of the Universe, She-Ra,
Princess of Power, Bravestar, Flash Gordon, Shelly Duvall's Bedtime Stories,
Beethoven, Back to the Future and others.
Original Production Cels
These cels are hand-painted and have actually been used in the making of
animated films. They can have either Xerographed or hand-inked outlines and are
hand-painted at the studio. Each animation film is made of
<PAGE>
thousands of individual hand-painted cels. They are filmed in sequence to
create the illusion of motion. Many original production cels have been either
lost or destroyed through the years, which enhances their value as collectible
art. In addition each cel is a one-of-a-kind piece of art, and this rarity also
enhances its value. Because they were created to make an actual cartoon, each
cel is a component part of a larger movement. Different cels from the same
scene may be more or less desirable depending on a variety of factors such as
size, profile, and expression of the character, any damage to inking or paint
and overall visual appearance.
Sericels
Sometimes called serigraph cels, seri-cels re-create the look and feel of
the original art by means of Serigraphy, a fine art process. The serigraphy
process involves silk-screening each individual color to the cel, one at a
time. Every distinct shade is a separate screen and a separate pass in the
procedure. As a result of this fine art process, each color is flawlessly
reproduced. Sericels are also created in limited quantities, typically 2,500 to
5,000 peices. Because of their larger edition size, sericels are the most
affordable type of animation art and, the Company believes, ideal for the
beginning collector.
The Making of Cels
The Company does not produce its own cels. However, an understanding of the
production process is helpful toward an understanding of the nature of the cels
and their collectibility.
For production cels, the process begins when a storyboard is created by a
talented animator, who with the film director, determines the extent of the
background to be shown, the size of the characters and props to be used in each
scene. The animator makes a sketch from what will become each of approximately
16 frames per foot of film. Next, an outlined ink drawing is made of each of the
sketches. This outline is on a sheet of clear celluloid acetate. Each and every
inked outline is turned over to a painter and, by hand, the brilliant colors are
applied with special paints. Once each cel is hand painted and the foregrounds
and backgrounds are complete, the artwork is ready for photography. Using a
multiplane camera, the foreground, animation plane and the background are
meticulously arranged and photographed.
To produce a serigraph cel, or sericel, a hand cut, master screen is
prepared for each individual color of the original artwork. To produce this
Serigraph Cel, or Seri-Cel, a hand cut, master screen is prepared for each
individual color of the original artwork. The serigrapher meticulously applies
each color separately one screen at a time in perfect registration. The result
is an original work of art. The images chosen for a sericel are carefully
selected from the studio archives. Each sericel is limited in production to
only a certain number of pieces. After each edition size is achieved, the
screens used to create the art are destroyed, thus insuring their limited
status.
Industry and Competition
The Company believes that the collection of animation production cels is a
rapidly expanding pastime with more and more people every day discovering the
enjoyment and appreciating the hand-craftsmanship of these timeless works of
art. The Company is aware of two major distributors of animation cels, The Walt
Disney Co. (through its Walt Disney Art Classics division) and Time Warner Inc.
(through its Warner Bros. division) in addition to several distributors of
lesser stature. These distributors have significantly greater resources than
the Company. In addition, many collectors and distributors of cels have
established a presence on the Internet.
Sales and Marketing
Commencing January 11, 2000, the Company opened a website at
www.premierclassicart.com through which it offers for sale a selection of its
animation cels. The website receives an average of approximately 695 hits per
week. The Company recently sold 500 cels to a distributor at $40 per cel.
The Company will also attempt to market the cels through art galleries,
department stores, other retail outlets and catalogues. The Company has no
existing agreement with any such gallary or store.
2
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Seasonality
The Company's management believes that the demand for animation cels is
not subject to seasonal fluctuations.
Employees
The Company currently employs one executive and, if its revenue increases,
management expects that it will require one to three additional employees. The
Company also utilizes the services of Royal to prepare its cels for
presentation to the public. These are not regular employees of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATION
Liquidity and Capital Resources
The Company does not have adequate cash reserves to meet its future cash
requirements. The Company is seeking to raise additional working capital through
debt or equity financings. The Company's ability to continue as a going concern
will depend upon successful completion of such financings and on its ability to
market its inventory. The Company has spent approximately $55,000 to sort the
cel art, copy the appropriate backgrounds and assemble the cels for sale. The
Company does not expect to have to purchase any property or equipment over the
next year that cannot be financed in the ordinary course of business.
Plan of Operation
The Company plans to continue marketing and selling its collection of cels
over the internet and through art galleries, department stores, other retail
outlets and catalogues. The Company currently has no agreement with any such
entity. The Company anticipates that it will take more than five years for it to
liquidate the collection so as to maximize its value and to take advantage of
opportunities to sell pieces when possible. The Company has received only
limited revenues from cels to date. Royal, in accordance with its agreement with
the Company provides the necessary artistic staff to process and prepare its
cels for presentation to the public. The Company has 35,000 cels ready for
presentation and distribution.
On January 4, 2000, the Company sold 500 cels to a distributor at a price
of $40 per cel. The Company cannot be certain that it will continue to sell cels
at this price.
PROPERTY
On September 3, 1999, the Company entered into a Sublease and Assembly
Agreement with Royal Animated Art, Inc. of California. The agreement provides
for the Company to pay Royal Animated Art, Inc. $1,000 per month for the use of
space in a warehouse facility in order to store the Company's collection of
cels. The agreement also provides for services to be performed by Royal in
connection with the cels and payment by the Company of Royal's costs in
connection with such services plus 15% of its overhead costs.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the name and address of each officer and
director of the Company and each person who owns beneficially more than five
percent of the Common Stock of the Company, and the number of shares owned by
each such person and by all officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature of Ownership Approximate % of Class
- ------------------------------------------------ -------------------------------- -----------------------
<S> <C> <C>
Charles Trapp, Chairman, Chief Executive
Officer and President ......................... 1,158,845 15.2
Louis Pistilli, Secretary and Director ......... 125,000 1.6
James E. Cheatham, Director .................... 124,590 1.6
Joe Cool Collectibles, Inc. .................... 3,069,788 40.3
Giltner Stephens ............................... 1,000,000(1) 13.1
Herman Rush .................................... 266,667(2) 3.5
Directors and Officers as a Group .............. 1,408,435 18.4
</TABLE>
(1) Includes 250,000 shares underlying a convertible note, 350,000 shares of
common stock and warrant to purchase 400,000 shares of common stock at $1.00
per share which expires in September 2002.
(2) Includes an option to purchase 266,667 shares at $1.00 per share which
expires in September 2002.
3
<PAGE>
MANAGEMENT
Name Age Company Position
- ---------------------------- ----- ----------------------------------
Charles F. Trapp ........... 50 Chairman, Chief Executive Officer
and President
Louis A. Pistilli .......... 45 Director
James E. Cheatham .......... 63 Director
Charles F. Trapp is a certified public accountant and has served as the
Company's Chairman, Chief Executive Officer and President since September 1999.
Prior to that time, he was President of Somerset Kensington Capital Co. Inc., a
Company involved in financial restructuring and turnaround management. Mr.
Trapp was Vice President of Finance for A.W. Computer Systems, Inc. from
September 1996 to February 1999. A.W. filed Chapter 11 in May 1998 and
converted to Chapter 7 in February 1999.
Louis A. Pistilli is a certified public accountant and has been the
Secretary and a director of the Company since September 1999. He has been the
managing partner of the accounting firm of Pistilli & Romm LLC since January
1999. From January 1990 to December 1998, Mr. Pistilli served as managing
partner of the accounting firm of Pistilli & Company.
James E. Cheatham has been a director of the Company since September 1999.
Since September 1998, Mr. Cheatham has served as President of Giftrunner.com,
Inc., an Internet gift shopping website. From December 1995 to August 1998, he
served as President of Lionshare Group, a financial consulting company.
EXECUTIVE COMPENSATION
Commencing on September 1, 1999, the Company began paying its President
and CEO, Mr. Charles Trapp, a salary of 5,000 per month. As of December 31,
1999, Mr. Trapp has received an aggregate salary of $20,000 from the Company for
his services as President. Prior to being elected as the Company's President,
Mr. Trapp received 1,158,845 shares of the Company's common stock in exchange
for consulting services rendered. Mr. Trapp also receives as compensation a
Company-leased automobile and life insurance listing his wife as the
beneficiary.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Herman Rush, who owns an option to purchase 266,667 shares of the
Company's issued and outstanding common stock at $1.00 per share which expires
September 2002, is the President of Royal Animated Art, Inc. The Company has
entered into a Sub-Lease and Assembly Agreement, as well as a Distribution
Agreement, with Royal Animated Art, Inc.
Joe Cool Collectibles owns 3,069,788 shares of the Company's common stock.
Mr. Giltner Stephens owns 350,000 shares of the Company's common stock, a
warrant to purchase 400,000 shares at $1.00 per share which expires in
September 2002 and a one year $775,000 convertible note due September 2, 2002
and convertible into 250,000 shares at $3.10 per share.
In September 1999, the Company issued to Mr. Louis Pistilli 125,000 shares
in the aggregate (75,000 at $.001 per share for services rendered and 50,000 at
$.10 per share) pursuant to a 504 offering.
In September 1999, the Company issued to Charles F. Trapp 1,158,845 shares
of common stock at $.001 per share in exchange for services rendered.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of common stock,
$.001 par value, of which 7,643,946 shares are issued and outstanding. The
holders of common stock have one vote per share. None of the shares have
preemptive or cumulative voting rights, have any rights of redemption or are
liable for assessments or further calls. None of the shares have any conversion
rights. The holders of common stock are entitled to dividends, when and as
declared by the Board of Directors from funds legally available therefor. Upon
liquidations of the Company the holders of common stock are entitled to share
pro rata in any distribution to shareholders.
4
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Preferred Stock
The Company is authorized to issue 10,000,000 shares of Series A
cumulative convertible preferred stock, $.002 par value of which there are
136,000 shares issued and outstanding. The Series A cumulative convertible note
preferred stock is convertible into 30,600 shares of common stock.
Colonial Stock Transfer, 455 East 400 So. #100, Salt Lake City, Utah 84111
is the transfer agent and registrar for the Company's common stock and
preferred stock.
Shares Eligible for Future Sale
The Company has 7,643,946 shares of common stock outstanding, but, of
these shares, only 1,657,109 shares are freely tradable. All of the remaining
shares of common stock are considered "restricted securities" and in the
future, may be sold only in compliance with rule 144 or in an exempt
transaction under the Securities Act of 1933 (the "Act") unless registered
under the Act (the "restricted shares").
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain conditions, a person, including an affiliate of the
Company (or persons whose shares are aggregated), who has owned restricted
shares of common stcok beneficially for at least one year is entitled to sell,
within any three month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares pf the same class or,
if the common stock is quoted on a national quotation system, the average
weekly trading volume during the four calendar weeks preceding the sale. A
person who has not been an affiliate of the Company for at least the three
months preceding the sale and who has beneficially owned shares of common stock
for at least two years is entitled to sell such shares under Rule 144 without
regard to any of the limitations described above.
Warrants
The Company has outstanding warrants to purchase 666,666 shares of its
common stock all at an exercise price of $1.00 per share. The warrants are for
a term of three years and are exercisable beginning on September 1999.
5
<PAGE>
PART II
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's securities trade are traded on the OTC Bulletin Board and in
the over-the-counter market "pink sheets". The Company's trading symbol is
"PART". Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions. The following sets forth the range of high and low bid
information for the quarterly periods as reported on America Online:
High Low
------ ------
1997: (No quotations available
for 1997.)
1998: 1st Quarter .......... 0 0
2nd Quarter .......... 0 0
3rd Quarter .......... .01 .01
4th Quarter .......... 0 0
1999: 1st Quarter .......... 0 0
2nd Quarter .......... 0 0
3rd Quarter .......... 6 1/2 0
4th Quarter .......... 6 1/2 3 7/8
Holders
As of December 30, 1999, the number of holders of record of common stock,
excluding the number of beneficial owners whose securities are held in street
name was approximately 370.
Dividend Policy
The Company does not anticipate paying any cash dividends on its common
stock in the foreseeable future because it intends to retain its earnings to
finance the expansion of its business. Thereafter, the declaration of dividends
will be determined by the Board of Directors in light of conditions then
existing, including, without limitation, the Company's financial condition,
capital requirements and business condition.
The Company is prohibited from paying cash dividends on the common stock
until the preferred stock is converted into common stock or all preferred
dividends in arrears are brought current.
LEGAL PROCEEDINGS
The Company is not party to any material pending legal proceedings and has
no knowledge that any such proceedings are threatened.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
RECENT SALES OF UNREGISTERED SECURITIES
The following paragraphs set forth certain information with respect to all
securities sold by the Company within the past three years without registration
under the Securities Act of 1933, as amended (the "Securities Act"). The
information includes the names of the purchasers, the date of issuance, the
title and number of secur-ities sold and the consideration received by the
company for the issuance of these shares.
In September 1999, the Company issued to Charles F. Trapp 1,158,845 shares
of common stock at $.001 per share in exchange for services rendered.
In September 1999, the Company issued to Mr. Louis Pistilli 75,000 shares,
to Mr. Giltner Stevens 100,000 shares, to Mr. Michael Salerno 306,980 shares, to
Mr. Charles McLaughlin 76,744 shares and to Royal Trading Ltd 376,049 shares
each at $.001 per share and for services rendered.
In September 1999, the Company issued 3,069,788 shares of common stock to
Joe Cool Collectibles, Inc. in exchange for all the outstanding stock of Cool
Classics, Inc.
6
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In September 1999 the company issued a warrant, exercisable 13 months
after issuance to Giltner B. Stevens to purchase 400,000 shares of the
Company's common stock at $1.50 per share.
The following individuals and/or entities purchsed the following number of
shares of common stock of the company at $.10 per share pursuant to Rule 504 of
Regulation D of the Securities Act of 1933, as amended which offering closed on
September 2, 1999.
SHAREHOLDERS NUMBER OF SHARES
Gerald A. Adler 41,660
Juan M. Camprubi Sala 250,000
John Catterson 41,670
Dauns Management, Inc. 150,000
Anthony DiNota 250,000
Edward David 250,000
Betty Jane Figlia 50,000
Joel S. Forman 41,660
Roslyn A. Haber 41,670
Mark Harmon 41,670
John P. Kneafsey 10,000
M & L Financial, Inc. 34,000
Charles McLaughlin 80,000
Jose Maria Losa 250,000
Carolina Lugo 336,000
Louis A. Pistilli 50,000
Joseph Rosenthal 41,670
Giltner B. Stevens 250,000
John J. Villa 20,000
West Valley Financial Management, Inc. 20,000
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation, a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
bylaws, disinterested director vote, stockholder vote, agreement or otherwise.
<PAGE>
The Company's Certificate of Incorporation contains no specific
provision pertaining to the liability or indemnification of its officers or
directors. However, the Company's by-laws provide that no director or officer of
the corporation shall be liable for the acts, defaults or neglects of any other
director or officer, or for any loss sustained by the corporation, unless the
same has resulted from his own willful misconduct, willful neglect, or
negligence. The by-laws further provide as follows:
Each director and officer of the corporation and each person who shall
serve at the corporation's request as a director or officer of another
corporation in which the corporation owns shares of capital stock or of
which it is a creditor shall be indemnified by the corporation against
all reasonable costs, expenses and liabilities (including reasonable
attorney's fees) actually and necessarily incurred by or imposed upon
him in connection with, or resulting from, any claim, action, suit,
proceeding, investigation or inquiry of whatever nature in which he may
be involved as a party or otherwise by reason of his being or having
been a director or officer of the corporation or such director or
officer of such other corporation, at the time of the incurring or
imposition of such costs, expenses or liabilities, except in relation
to matters as to which he shall be finally adjudged in such action,
suit, proceeding, investigation or inquiry to be liable for willful
misconduct, willful neglect, or gross negligence toward or on behalf of
the corporation in the performance of his duties as such director or
officer of the corporation or as such director or officer of such other
corporation. As to whether or not a director or officer was liable by
reason of willful misconduct, willful neglect, or gross negligence
toward or on behalf of the corporation in the performance of his duties
as such director or officer of the corporation or as such director or
officer of such other corporation, in the absence of such final
adjudication of the existence of such liability, the Board of Directors
and each director and officer may conclusively rely upon an opinion of
legal counsel selected by or in the manner designated by the Board of
Directors. The foregoing right to indemnification shall be in addition
to and not in limitation of all other rights to which such person may
be entitled as a matter of law and shall inure to the benefit of the
legal representative of such person.
7
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PREMIER CLASSIC ART, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report 1 - 2
Financial Statements:
Balance Sheets, November 30, 1999,
May 31, 1999 and 1998 3
Statement of Operations, Six Months
Ended November 30, 1999 and 1998
and the Years Ended May 31, 1999, 1998
and 1997 4
Statement of Stockholders' Equity
(Deficiency) for the Six Months Ended
November 30, 1999, and 1998 and the
Years Ended May 31, 1999, 1998 and 1997 5
Statement of Cash Flows, for the Six Months
Ended November 30, 1999 and 1998
and the Years Ended May 31, 1999, 1998
and 1997 6
Notes to Financial Statements 7 - 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Premier Classic Art, Inc.
We have audited the accompanying balance sheets of Premier Classic Art, Inc.(the
"Company") as of November 30, 1999, May 31, 1999 and May 31, 1998, and the
related statements of operations, stockholders' equity (deficiency), and cash
flows for the six months ended November 30, 1999 and 1998 and the years ended
May 31, 1999, 1998 and 1997. These financial statements are the responsibility
of the Company's management. 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, such financial statements referred to above present fairly, in
all material respects, the financial position of Premier Classic Art, Inc. at
November 30, 1999, May 31, 1999 and May 31, 1998 and the results of their
operations and their cash flows for the six months ended November 30, 1999 and
1998 and the years ended May 31, 1999, 1998 and 1997 in conformity with
generally accepted accounting principles.
-1-
<PAGE>
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully explained in Note 1 of Notes to
Financial Statements, the Company needs to obtain additional financing and sell
its inventory to liquidate its debts that are in default and support the
Company's overhead. These uncertainties raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
/s/ Wiener, Goodman & Company, P.C.
- -----------------------------------
WIENER, GOODMAN & COMPANY, P.C.
Certified Public Accountants
Eatontown, New Jersey
December 28, 1999
-2-
<PAGE>
PREMIER CLASSIC ART, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
November
30, 1999 May 31, 1999 May 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets:
Cash $ 217,758 $ - $ -
Marketable securities 45,938 - -
Prepaid expenses 459,920 - -
Inventories 307,389 - -
----------- ----------- -----------
Total Current Assets 1,031,005 - -
Goodwill-net 126,276 - -
Other assets 5,000 - -
----------- ----------- -----------
TOTAL ASSETS $ 1,162,281 $ - $ -
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Short-term debt $ 775,000 $ - $ -
Current portion of long-term debt 43,725 217,370 217,370
Accounts payable 6,330 46,263 46,263
Accrued expenses 76,739 151,408 128,008
----------- ----------- -----------
Total Current Liabilities 901,794 415,041 391,641
----------- ----------- -----------
Long-term debt - - 88,630
----------- ----------- -----------
Total Liabilities 901,794 415,041 480,271
----------- ----------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficiency):
Series A cumulative convertible
preferred stock - 8% cumulative,
$.002 par value, 10,000,000 shares
authorized; 152,800 issued and
outstanding at November 30, 1999,
256,800 issued and outstanding
at May 31, 1999 and 1998 306 514 514
Common stock - $.001 par value,
50,000,000 shares authorized; 7,640,166
issued and outstanding at November 30,
1999, 75,410 issued and
outstanding at May 31, 1999 and 1998 7,640 75 75
Additional paid-in capital 1,704,572 917,366 828,736
Cumulative other comprehensive
(loss) (869) - -
Deficit (1,451,162) (1,332,996) (1,309,596)
----------- ----------- -----------
Total Stockholders' Equity (Deficiency) 260,487 (415,041) (480,271)
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 1,162,281 $ - $ -
=========== =========== ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
PREMIER CLASSIC ART, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, May 31,
------------------------------ ------------------------------------------------
1999 1998 1999 1998 1997
----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cost and Expenses:
Selling, general
and administrative $ 390,301 $ - $ - $ - $ -
---------- --------- -------- -------- --------
Loss from operations 390,301 - - - -
Other expense
Interest expense 33,121 11,700 23,400 23,400 23,400
---------- --------- -------- -------- --------
Total other expense 33,121 11,700 23,400 23,400 23,400
---------- --------- -------- -------- --------
Loss before income taxes and
extraordinary gain (423,422) (11,700) (23,400) (23,400) (23,400)
Income tax provision - - - - -
---------- --------- -------- -------- --------
Loss before extraordinary gain (423,422) (11,700) (23,400) (23,400) (23,400)
Extraordinary gain on
extinguishment of debt 305,256 - - - -
========== ========= ======== ======== ========
Net (loss) $ (118,166) $ (11,700) $(23,400) $(23,400) $(23,400)
---------- --------- -------- -------- --------
Net (loss) per common
share-basic and diluted $ (0.13) $ (0.16) $ (0.31) $ (0.31) $ (0.31)
Extraordinary gain on
extinguishment of debt 0.09 - - - -
---------- --------- -------- -------- --------
Net earnings (loss) per common
share-basic and diluted $ (0.04) $ (0.16) $ (0.31) $ (0.31) $ (0.31)
========== ========= ======== ======== ========
Weighted average of common
shares outstanding - basic
and diluted 3,437,212 75,410 75,410 75,410 75,410
========== ========= ======== ======== ========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
PREMIER CLASSIC ART, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Series A
Preferred Stock
Net unrealized --------------------
Comprehensive (loss) on market- Shares Par
Total (loss) Deficit able securities Outstanding Value
----------- ------------- ------------ ----------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance June 1, 1997 $ (456,871) $(1,286,196) 256,800 $ 514
Retroactive effect of 1-for-50
reverse stock split effective
September 1, 1999
Net (loss) (23,400) (23,400)
-------------------------------------------------------------------------------------
Balance, May 31, 1998 (480,271) (1,309,596) 256,800 514
Capitalized debt 88,630 - -
Net (loss) (23,400) (23,400) -
-------------------------------------------------------------------------------------
Balance, May 31, 1999 (415,041) (1,332,996) 256,800 514
Sale of common stock (at $.12
per share) 15,000
Issuance of stock to repay
accounts payable (valued at
$.10 per share) 1
Issuance of stock to repay debt
and accrued interest (valued at
$.10 per share) 2
Conversion of preferred stock
to common stock - (40,000) (80)
Capitalized debt 38,319
Issuance of common stock for
services (valued at $.10 per share) 209,362
Issuance of common stock in
connection with acquisition
(valued at $1.75 per share) 306,879
Issuance of common stock for
services (valued at $.10 per share) 1,400
Sale of common stock (at $.10 per
share) 223,600
Conversion of preferred stock
to common stock (64,000) (128)
Net unrealized loss on marketable
securities (869) $ (869) (869)
Net income (118,166) (118,166) (118,166)
----------
$ (119,035)
----------
-------------------------------------------------------------------------------------
Balance, November 30, 1999 $ 260,487 $ - $(1,451,162) $ (869) 152,800 $ 306
========== ========== =========== ====== ======= =====
</TABLE>
<PAGE>
[RESTUB]
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional
Shares Par Paid-In
Outstanding Value Capital
----------- ------- ----------
<S> <C> <C> <C>
Balance June 1, 1997 3,770,521 $ 3,770 $ 825,041
Retroactive effect of 1-for-50
reverse stock split effective
September 1, 1999 (3,695,111) (3,695) 3,695
Net (loss)
-----------------------------------------
Balance, May 31, 1998 75,410 75 828,736
Capitalized debt - 88,630
Net (loss) - -
-----------------------------------------
Balance, May 31, 1999 75,410 75 917,366
Sale of common stock (at $.12
per share) 124,590 125 14,875
Issuance of stock to repay
accounts payable (valued at
$.10 per share) 925 1
Issuance of stock to repay debt
and accrued interest (valued at
$.10 per share) 2,360 2
Conversion of preferred stock
to common stock 9,000 9 71
Capitalized debt 38,319
Issuance of common stock for
services (valued at $.10 per share) 2,093,618 2,094 207,268
Issuance of common stock in
connection with acquisition
(valued at $1.75 per share) 3,069,788 3,070 303,809
Issuance of common stock for
services (valued at $.10 per share) 14,000 14 1,386
Sale of common stock (at $.10 per
share) 2,236,000 2,236 221,364
Conversion of preferred stock
to common stock 14,475 14 114
Net unrealized loss on marketable
securities
Net income
-----------------------------------------
Balance, November 30, 1999 7,640,166 $ 7,640 $1,704,572
========= ======= ==========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
PREMIER CLASSIC ART, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, May 31,
-------------------------- ------------------------------------------
1999 1998 1999 1998 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(118,166) $ (11,700) $ (23,400) $ (23,400) $ (23,400)
Adjustments to reconcile net income to
cash provided by operating activities:
Common stock issued for services 3,494
Depreciation and amortization 43,924
Extraordinary gain on extinguishment
of debt (305,256)
Non-cash compensation expense 207,268
Changes in operating assets and
liabilities:
(Increase) in marketable securities (46,807)
(Increase) in security deposits (5,000)
(Increase) in prepaid expenses (459,920)
Increase in accounts payable 6,330
Increase in accrued expenses 46,604 11,700 23,400 23,400 23,400
--------- --------- --------- --------- ---------
Net Cash Used in Operating
Activities (627,529) - - - -
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Payment for acquisition (166,813) - - - -
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock 238,600 - - - -
Proceeds from short term borrowings 775,000 - - - -
Payments of short term borrowings (1,500) - - - -
--------- --------- --------- --------- ---------
Net Cash Provided by Financing
Activities 1,012,100 - - - -
--------- --------- --------- --------- ---------
Net increase in cash 217,758 - - - -
Cash - beginning of year - - - - -
--------- --------- --------- --------- ---------
Cash - end of year $ 217,758 $ - $ - $ - $ -
========= ========= ========= ========= =========
Supplemental disclosure of
non-cash financing activities:
Capital contribution to forgive debt $ 38,319 $ - $ 88,630 $ - $ -
========= ========= ========= ========= =========
Non-cash investing activities:
Unrealized (loss) on marketable
securities $ (869)
=========
Supplementary information:
Details of acquisition:
Fair value of assets acquired $ 473,692
Common stock issued 306,879
---------
Net cash paid for acquisition $ 166,813
=========
</TABLE>
See notes to financial statements.
-6-
<PAGE>
PREMIER CLASSIC ART, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
Premier Classic Art, Inc. (the "Company") formerly Pet-Con Industries,
Inc. previously manufactured recyclable containers and bottles for sale
to private label grocery product manufacturers and private label food
packers. The Company discontinued operations in June 1995. On September
1, 1999 the Company changed its name and is currently engaged in the
marketing of original, hand-painted production animation cels through a
variety of outlets throughout the United States.
Basis of Presentation
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company is currently in default on its long-term debt from prior
operating activities and operating activities have just commenced under
new management.
The Company's ability to continue as a going concern is dependant upon
its ability to obtain needed working capital through additional equity
and/or debt financing and its ability to market its inventory.
Management is actively seeking additional capital to liquidate its
current obligations. There is no assurance that additional capital will
be obtained or the Company will be able to sell its current inventory.
These uncertainties raise substantial doubt about the ability of the
Company to continue as a going concern.
The financial statements do not include any adjustments relative to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
-7-
<PAGE>
Marketable Securities
The Company classifies its investment in equity securities as
"available for sale", and accordingly, reflects unrealized losses, net
of deferred taxes, as a separate component of stockholders' equity
(deficiency).
The fair values of marketable securities are estimated based on quoted
market prices. Realized gains or losses from the sales of marketable
securities are based on the specific identification method.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments. The Company places its temporary cash investments with
quality financial institutions and, by policy, limits the amount of
credit exposure with any on financial institution.
Reverse Stock Split
Effective September 1, 1999 the Board of Directors approved a
one-for-fifty reverse stock split of its common stock. All references
in the accompanying financial statements to the number of shares and
per share amounts have been retroactively restated to reflect this
transaction.
Prepaid Expenses
Prepaid expenses consist primarily of a three year consulting agreement
in the amount of $500,000 which was paid in cash by the Company in
September 1999. Consulting expense charged to operations for the six
months ended November 30, 1999 and 1998 was $41,667 and -0-,
respectively. For the years ending May 31, 1999, 1998 and 1997, there
was no consulting expense.
Inventories
Inventories, consisting of finished animated cels, were acquired as
part of the acquisition and are stated using fair market value of the
common stock issued in exchange for the inventory.
Amortization of Intangibles
Goodwill represents related costs over the value assigned to the net
tangible assets acquired. Goodwill is amortized on a straight line
basis over 12 months. Amortization for the six months ended November
30, 1999 and 1998 was $40,329 and -0-, respectively. For the years
ending May 31, 1999, 1998 and 1997 there was no amortization expense.
-8-
<PAGE>
Revenue Recognition
Revenue will be recognized upon shipment of merchandise.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123). The standard encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock
options and other equity instruments to employees based on fair value
accounting rules. The Company has adopted the disclosure-only
provisions of SFAS No. 123.
Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share", which requires companies to present basic earnings per
share ("EPS") and diluted earnings per share instead of the primary and
fully diluted EPS that was required. The new standard requires
additional information disclosures and also makes certain modifications
to the currently applicable EPS calculations defined in Accounting
Principles Board No. 15.
Basic and diluted loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding during
the year. Diluted earnings per common share are computed by dividing
net earnings by the weighted average number of common and potential
common shares during the year. Potential common shares are excluded
from the loss per share calculation. because the effect would be
antidilutive. Potential common shares relate to the preferred stock
that is convertible into common stock, convertible debt and outstanding
warrants. The number of potential common shares outstanding were
701,810, 59,064 and 59,064 as of November 30, 1999, May 31, 1999 and
May 31, 1998, respectively.
Fair Value of Financial Instruments
At November 30, 1999, the fair values of cash, other current assets,
accounts payable, accrued interest and other accrued liabilities
approximated their carrying values because of the short-term nature of
these instruments. The estimated fair values of the convertible debt
subject to fair value disclosures was determined by multiplying the
number of common shares the debt is convertible into by the quoted
market price of the Company's Common Stock at November 30, 1999.
-9-
<PAGE>
Carrying Fair
Value Value
--------- -----------
Convertible debt $ 775,000 $ 1,500,000
Reclassifications
Certain reclassifications have been made to prior year balances in
order to conform with the current year's presentation.
2. MARKETABLE SECURITIES
Estimated Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
-------- --------- ---------- ----------
November 30, 1999:
Marketable securities-
current:
Common stock $ 46,807 $ 45,938 $ - $ 869
======== ======== ===== =====
There were no realized gains or losses for the six months ended
November 30, 1999 and 1998 or the years ended May 31, 1999, 1998 and
1997.
3. ACQUISITION
On September 8, 1999, the Company acquired the assets, consisting of
inventory of original, hand-painted production animation cels, of Cool
Classic, Inc., a subsidiary of Joe Cool Collectibles, Inc. for
3,069,788 shares of the Company's common stock, which represents
approximately 40% of the total outstanding shares of the Company.
The acquisition has been accounted for under the purchase method of
accounting and includes the operations of the acquired entity from
September 8, 1999 through September 30, 1999. The assets were recorded
at fair market value. The asset of inventory was recorded at $306,879.
Goodwill of approximately $167,000 reflects related costs over the
value assigned to the net tangible assets acquired. The Company has not
included any proforma unaudited results of operations as the acquired
entity had no operations prior to acquisition.
-10-
<PAGE>
4. DEBT
Short-term debt consisted of the following:
On September 3, 1999, the Company issued a $775,000 principle 10 1/2 %
convertible note due September 3, 2000. Interest is payable monthly,
commencing in December 1999 and payable in arrears from September 1999.
The note is convertible into 250,000 shares of the Company's common
stock, at the option of the holder, at a conversion price of $3.10 per
share. The convertible note contains a provision for an automatic
conversion if the closing bid of the common stock is greater than or
equal to $5.50 per share for twenty consecutive trading days. In
connection with the execution of this note, the Company sold the holder
100,000 shares of the Company's restricted common stock for $.001 per
share (which was below fair market value) and a warrant to purchase
400,000 shares of the Company's common stock at an exercise price of
$1.00 per share. This transaction resulted in additional interest
expense of $9,900.
The holder of this note received a first priority security in the
Company's inventory and an insurance policy in the amount of $1.5
million, naming the holder as an additional insurer.
Long-term debt consisted of the following:
November 30, May 31, May 31,
1999 1999 1998
------------ -------- -------
10% notes payable to stock-
holders, obligation in
default at July 1997 (a) $ 3,000 $ 83,000 $ 83,000
12% note payable, obligation
in default at May 31, 1994 (b) - 35,000 35,000
8% notes payable to stock-
holders, less discount of
$6,957, obligation in default
at October 1998 (c) 23,043 33,043 33,043
10% note payable, obligation
in default at April 1994 (d) - 25,000 25,000
18% notes payable, obligation
in default at December 1995 (e) - 23,645 23,645
12% note payable, obligation
in default at June 1994 10,000 10,000 10,000
8% note payable to stockholder,
less discount of $2,318,
obligation in default at
September 1998 7,682 7,682 7,682
------- -------- --------
Total 43,725 217,370 217,370
Less current maturities 43,725 217,370 217,370
------- -------- --------
$ - $ - $ -
======= ======== ========
-11-
<PAGE>
(a) On August 13, 1999, the Company paid $1,500 in cash for
payment in full of a $30,000 note with accrued interest of
$21,645. On August 23, 1999, the Company issued 1,000 shares
of common stock for payment of the principal of $50,000 and
accrued interest of $36,075.
(b) On August 23, 1999, the Company issued 700 shares of common
stock for payment of the principal of $35,000 and accrued
interest of $28,495.
(c) On August 23, 1999, the Company issued 200 shares of common
stock for payment of principal of $10,000 and accrued interest
of $4,644.
(d) On August 17, 1999 the president personally took
responsibility for the principal of $25,000 and the accrued
interest of $13,319.
(e) On August 23, 1999, the Company issued 460 shares of common
stock for payment of the principal of $23,645 and accrued
interest of $21,318.
The above transactions, (a through e),resulted in the Company issuing
2,360 shares of the Company's common stock and a extraordinary gain on
extinguishment of debt of $305,256 included in the statement of
operations.
5. STOCK OPTIONS AND WARRANTS
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". In September 1999, the Company issued three-year
warrants to purchase 666,666 shares of Common Stock at an exercise
price of $1.00 per share. In connection with the short-term debt, the
Company issued a warrant for 400,000 shares of common stock and in
connection with the consulting agreement, the Company issued a warrant
to purchase 266,666 shares of common stock.
-12-
<PAGE>
Information regarding the Company's warrants for the six months ended
November 30, 1999 is as follows:
Weighted Average
Shares Exercise Price
------ ----------------
Warrants outstanding
beginning of period - $ -
Warrants exercised - $ -
Warrants granted 666,666 $ 1.00
Warrants cancelled - $ -
-------
Warrants outstanding,
end of period 666,666 $ 1.00
=======
Warrants price range
end of period $1.00
Weighted-average fair value
of warrants granted during
the year $ .56
The following table summarizes information about fixed-price stock options
outstanding at November 30, 1999:
<TABLE>
<CAPTION>
Weighted Average Weighted Number
Range of Number Outstanding Remaining Contractual Average Exercise Exercisable at Weighted Average
Exercise Prices at November 30, 1999 Life Price November 30, 1999 Exercise Price
- --------------- -------------------- --------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 666,666 3 years $1.00 666,666 $0.56
</TABLE>
6. STOCK BASED COMPENSATION
On September 1, 1999, the Company issued 2,093,618 shares of common
stock for consulting services rendered. The Company valued these shares
at fair market value and recorded additional compensation expense of
$207,268 which is included in selling general and administrative costs
in the Statement of Operations.
7. INCOME TAXES
The Company has a net operating loss ("NOL") carryforward of
approximately $900,000 expiring in various years through 2014. The
Company has not reflected any benefit of such NOL carryforward in the
accompanying financial statements in accordance with Financial
Accounting Standards Board Statement No. 109 "Accounting for Income
Taxes" (SFAS 109) as the realization of this deferred tax benefit is
not more than likely.
-13-
<PAGE>
The Tax Reform Act of 1986 provided for a limitation on the life of NOL
carryforwards, following certain ownership changes. As a result of
transactions in the Company's common stock during the six months ended
November 30, 1999, a change in ownership of greater than 50%, as
defined, has occurred. Under such circumstances, the potential benefits
from utilization of tax carryforwards may be substantially limited or
reduced on an annual basis.
There is no provision for income taxes for the six months ended
November 30, 1999 and for the years ended May 31, 1999, as the Company
had net losses.
The tax effect of the net operating loss carryforward on deferred
income taxes at November 30, 1999 and May 31, 1999 was as follows:
Temporary
Difference Tax Effect
---------- ----------
Net operating loss $ 900,000 $ 360,000
Valuation allowance (900,000) (360,000)
--------- ---------
$ - $ -
========= =========
8. EXTRAORDINARY GAINS
In August 1999, the Company issued common shares to extinguish
long-term debt and accrued interest. In connection with these
transactions the Company recorded extraordinary gains of approximately
$305,000 ($.23 per share) for the six months ended November 30, 1999.
9. COMMITMENTS AND CONTINGENCIES
Leases
On September 3, 1999, the Company signed a sublease and assembly
agreement with a warehouse facility. The sublease requires the Company
to pay certain utility and related charges.
Future minimum lease payments are as follows:
Years Ending
November 30, Amount
------------ -------
2000 $12,000
2001 5,000
2002 -
2003 -
2004 -
-------
$17,000
=======
-14-
<PAGE>
Rent expense for the six months ended November 30, 1999 and 1998 was
$3,000 and -0-, respectively. For the years ended May 31, 1999, 1998
and 1997, there was no rent expense.
The assembly agreement requires the Company to pay actual labor and
material plus 15% of those costs to assemble the cels. The agreement
also requires the Company to pay actual labor, material and shipping
costs plus 15% of those costs to ship the cels.
Distribution Agreement
On September 3, 1999, the Company signed a three year distribution
agreement with an option to extend it for an additional two years. The
distribution agreement requires the Company to pay a fee of 50% of the
distributors retail price when the distributor sells directly to the
ultimate consumer and 25% when sold to wholesalers.
10. SUBSEQUENT EVENT
In December 1999, the Company issued 4,000 shares of common stock for
payment of $30,725 of debt and $19,573 of accrued interest. This
transaction will result in a gain on extinguishment of debt of $49,898
in the subsequent period. In December 1999, the Company also negotiated
payment of $13,000 of principal and 12,914 of accrued interest for the
remaining long term debt.
-15-
<PAGE>
PART III
Index and Description of Exhibits
1. Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -----------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation, together with all amendments
3.2 By-Laws
10.1 Marketing Agreement, dated as of September 14, 1999, by and between the Company and
Giltner B. Stevens
10.2 Loan Agreement, dated September 2, 1999, by and between the Company and Giltner Stephens
10.3 Sub-Lease and Assembly Agreement, dated as of September 3, 1999, by and between the
Company and Royal Animated Art, Inc.
10.4 Plan and Agreement of Reorganization, dated as of September 2, 1999, by and among the
Company, Cool Classic Incorporated and Joe Cool Collectibles, Inc.
10.5 Employment Agreement, dated as of September 1, 1999, by and between the Company and
Charles F. Trapp
10.6 Distribution Agreement, dated as of September 1999, by and between the Company and Royal
Animated Art, Inc.
</TABLE>
2. Description of Exhibits
Exhibits are set forth above under Item 1 of this Part III.
20
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf the
undersigned thereto duly authorized.
Dated: January 3, 2000
Premier Classic Art, Inc.
/s/ Charles Trapp
By:---------------------------------------
Name: Charles Trapp
Title: President and CEO
21
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
PET-CON INDUSTRIES, INC.
Pet-Con Industries, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify:
First: That on August 24, 1999, the Board of Directors of the
Corporation adopted resolutions setting forth proposed amendments to the
Certificate of Incorporation of the Corporation and to take all proper and
necessary action to obtain the approval of the proposed amendments by the
requisite number of shareholders of the Corporation. The resolutions setting
forth the proposed amendments by the Board of Directors of the Corporation are
as follows:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by striking out Articles FIRST and FOURTH thereof and by
substituting in lieu of said Articles the following new Articles:
FIRST: The name of the Corporation is Premier Classic
Art, Inc.
FOURTH: (a) The total number of shares of Common Stock which
the corporation shall have authority to issue is Fifty Million
(50,000,000), par value One Mil ($.001) per share (the "Common Stock");
(b) The total number of shares of Preferred Stock which the corporation
shall have authority to issue is Ten Million (10,000,000) par value Two
Mils ($.002) per share; (c) The 10,614,326 shares of Common Stock
presently outstanding shall be reduced to 212,286 shares of Common
Stock and such additional fractional shares of Common Stock as may be
necessary to increase a fractional share to a full share by effecting a
one for fifty reverse stock split (the "Reverse Stock Split") and such
reduction in shares of Common Stock outstanding shall take effect on
the date selected by the Board of Directors occurring within thirty
(30) days after authorization by the shareholders and after the filing
of a Certificate of Amendment of the Certificate of Incorporation with
the state of Delaware (the "Certificate of Amendment"); (c) The 216,800
shares of Series A Preferred Stock, $.002 par value, presently
outstanding and presently convertible into 2,439,000 shares of Common
Stock (11.25 shares of Common Stock for each outstanding share of
Series A Preferred Stock), as a result of the Reverse Split shall be
convertible into 48,780 shares of Common Stock (.225 shares of Common
Stock for each outstanding share of Series A Preferred Stock) and such
additional fractional shares of Common Stock as may be necessary to
increase a fractional share to a full share by
effecting the Reverse Split.
<PAGE>
SECOND: That thereafter, the aforesaid proposed amendments to Articles
FIRST and FOURTH to the Certificate of Incorporation of the Corporation were
approved by shareholders action by written consent in lieu of a meeting,
pursuant to Section 228 of the General Corporation Law of the state of Delaware
by a majority of the shares entitled to vote. A total of 6,229,479 shares out of
10,600,376 shares took such action by written consent on August 24, 1999.
Dated: New York, New York
August 24, 1999
Pet-Con Industries, Inc.
By:___________________________
James Cheatham, President
Attest:
_____________________________
Martin McDermott, Secretary
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF RENEWAL OF "PET-CON INDUSTRIES, INC." FILED IN THIS OFFICE
ON THE THIRTEENTH DAY OF AUGUST, A.D. 1999, AT 2:01 O'CLOCK P.M.
[SEAL]
[SEAL] ____________________________________
Edward J. Freel, Secretary of State
2264872 8100 Signature
991541012 Authentication: 0144358
Date: 12-15-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/06/1993
991338238 - 2264872
STATE OF DELAWARE
CERTIFICATE FOR RENEWAL
AND REVIVAL OF CHARTER
Pet-Con Industries, Inc., a corporation organized under the
laws of Delaware, the charter of which was voided for non-payment of taxes, now
desires to procure a restoration, renewal and revival of its charter, and hereby
certifies as follows:
1. The name of this corporation is Pen-Con Industries, Inc.
2. Its registered office in the State of Delaware is located
at 1209 Orange Street, City of Wilmington, Zip Code
19801, County of New Castle, the name and address of its
registered agent is The Corporation Trust Company,
Wilmington, DE 19801.
3. The date of filing of the original Certificate of
Incorporation in Delaware was 3/4/1991.
4. The date when restoration, renewal, and revival of the
charter of this company is to commence is the 28 day of
Feb 1996, same being prior to the date of the expiration
of this charter. This renewal and revival of the charter
of this corporation is to be perpetual.
5. This corporation was duly organized and carried in the
business authorized by the charter until the 1day of
March A.D. 1996, at which time its charter became
inoperable and void for non-payment of taxes and this
certificate of renewal and revival is filled by authority
of the duly elected directors of the corporation in
accordance with the laws of the State of Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of
the Section 312 of the General Corporation Law of the State of Delaware, as
amended, providing for the renewal, extension and restoration of charters, J.E.
Cheatham, the last and acting authorized officer hereunto set his hand to this
certificate this 13 day of August, 1999.
By:______________________________
Authorized Officer
Name: J.E. Cheatham
Title: President
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
RENEWAL OF "PET-CON INDUSTRIES, INC." FILED IN THIS OFFICE ON THE THIRTEENTH DAY
OF AUGUST, A.D. 1999, AT 2:01 O'CLOCK P.M.
[SEAL]
__________________________________________
Edward J. Freel, Secretary of State
[SEAL] Signature
Authentication: 0144357
2264872 8100 Date: 12-15-99
991541012
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/06/1993
933405211 - 2264872
CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
PET-CON INDUSTRIES, INC.
PET-CON INDUSTRIES, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the state of Delaware, DOES
HEREBY CERTIFY:
That, pursuant to the authority conferred upon the board Directors of
Pet-Con Industries Inc. (the "Company") by Article Fourth of its Certificate of
Incorporation, the Board of Directors of the Company adopted a resolution which
establishes. designates and provides for the issuance of a series preferred
stock, $0.002 par value, designated "Series A Convertible Preferred Stock",
consisting of 300,000 shares, and establishes the designations, preferences,
qualifications, privileges, limitations, conversion rights and other rights of
the Company's Series A Convertible Preferred Stock, which resolution is as
follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors of the Company by Article Fourth of the Certificate of Incorporation,
the Board of Directors does hereby establish and designate and provide for the
Issuance of a series preferred stock, $0.002 par value, designated "Series A
Convertible Preferred Stock" (the "Preferred Stock"), consisting of 300,000
shares, and does hereby fix and determine the relative rights, powers ant
preferences thereof to be as follows:
I. Rights on Liquidation, Dissolution or Winding Up
A. In the event of any liquidation, dissolution or winding up of the
Company, the holders of shares of the Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company available
for distribution to its Stockholders, either from capital, surplus or
earnings before any payment shall be made, to the holders of shares of
the Company's Common Stock, the amount of $2.50 per share plus all
accrued but unpaid dividends thereon and all interest due thereon. It,
upon any liquidation, dissolution or winding up of the Company, the
assets of the Company available for distribution to the holders of the
Preferred Stock shall be insufficient to pay the holders of the
Preferred Stock the full amounts to which they respectively shall be
entitled pursuant to this Section 1. A., the holders of shares of the
Preferred Stock shall share ratably in any distribution of assets
according to the respective amounts that would be payable in respect of
the shares of Preferred Stock held by them upon such distribution if
all amounts payable on or with respect to said shares were paid in full.
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B. In the event of any liquidation, dissolution or winding up of the
Company, after payment have been made to the holders of shares of the
Preferred Stock of the full amounts to which they shall have been
entitled pursuant to the first sentence of Section I. A. hereof, the
holders of shares of the Company's Common Stock shall have the exclusive
right to Share in all remaining assets of the Company available for
distribution to its stockholders, such remaining assets to be shared by
the holders of shares of the Company's Common Stock on a pro rate basis.
II. Voting
A. On all matters presented to the holders of the Company's Common Stock,
each holder of shares of the Preferred Stock shall be entitled to
exercise such number of votes per share of Preferred Stock held by such
holder as shall equal the number (including any fraction to one decimal
place) of shares of Common Stock into which each share of Preferred
Stock is convertible pursuant to Section III hereof on the date as of
which a record of those entitled to vote is taken or, if no such record
date is established, on the date such vote is taken. In the event such
number of votes is not ascertained or not readily ascertained, each
share of the Preferred Stock shall be entitled to 11.25 votes. Except as
otherwise required by law or hereunder, holders of the Preferred Stock
and the holders of the Common Stock shall vote as a single class on all
such matters.
B. The Company shall not, without the affirmative vote or consent of the
holders of shares representing at least 60% of the shares of the
Preferred Stock then outstanding, acting as a separate class:
i) in any manner authorize or create any class of capital stock
ranking, either as to payment of dividends or distribution of
assets, prior to the Preferred Stock pari passu with the Preferred
Stock,
ii) in any manner alter or change the designations, powers,
preferences or rights or the qualifications, limitations or
restrictions of the Preferred Stock;
iii) declare or make any such dividend or distribution as described in
Section IV hereof;
iv) liquidate the Company;
v) redeem or repurchase any Common Stock; or
vi) sell all or substantially all of the assets of the Company.
III. Conversion
A. Each holder of shares of the Preferred Stock shall have the right, at
such holder's option, at any time or from time to time, to convert each
share of Preferred Stock into 11.25 shares of fully paid and
nonassessable shares of the Company's Common Stock; provided, however,
that such Conversion ratio shall be subject to adjustment as set forth
in Section Ill. C. hereof.
The holder of any shares of the Preferred Stock may exercise the
conversion right provided in this Section III. A. by delivering to the
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Company during regular business hours, at the Company's principal office
(or at such other place as maybe designated by the Company), the
certificate or certificates representing the shares to be converted,
duly endorsed or assigned in blank or to the Company (if required by
it), accompanied by written notice stating that the holder elects to
convert such shares and stating the name or names (with address) in
which the certificate or certificates for the shares of Common Stock are
to be issued.
Conversion shall be deemed to have been effected on the date when such
delivery is made, and such date is referred to herein the 'Conversion
Date." As promptly as practicable after the Conversion Date the Company
shall issue and deliver to or upon the written order of such holder, at
such office or to the place designated by the Company, a certificate or
certificates for the number of full shares of Common Stock to which such
holder is entitled and a check or cash in respect of any fractional
interest in a share of Common Stock as provided in Section III. C.
hereof. The person in whose name the certificate or certificates for
Common Stock are to be issued shall be deemed to have become a holder of
record of such Common Stock on the applicable Conversion Date unless the
transfer books of the Company are closed on that date, in which event
the person shall be deemed to have become a holder of record on the next
succeeding date on which the transfer books are open, but the Conversion
Price shall be that in effect on the Conversion Date. Upon conversion of
only a portion of the number of shares covered by a certificate
representing shares of Preferred Stock surrendered for conversion, the
Company shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the expense
of the Company, a new certificate governing the number of shares of
Preferred Stock representing the unconverted portion of the certificate
so surrendered, which new certificate shall entitle the holder thereof
to dividends on the shares of Preferred Stock represented thereby to the
same extent as if the certificate theretofore covering such unconverted
shares had not been surrendered for conversion.
B. No fractional shares of Common Stock or scrip shall be issued upon
conversion at shares of the Preferred Stock. If more than one share of
Preferred Stock shall be surrendered or converted at any one time by the
same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate
number of shares of Preferred Stock so surrendered, Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Preferred Stock, the Company shall pay a
cash adjustment in respect of such fractional interest in an amount
equal to the then Current Market Price (as defined in Section III. D.
(iv) hereof) of a share of Common Stock multiplied by such fractional
interests. Fractional interests shall not have been entitled to
dividends, and the holders thereof shall not be entitled to any rights
as stockholders of the Company in respect of such fractional interests.
C. The Conversion Price shall be subject to adjustment from time to time as
follows:
(i) If the number of shares of Common Stock outstanding at any time
after the Closing Date is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of Shares
of Common Stock, then, immediately following the record date fixed
for the determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up, the
Conversion Ratio shall be appropriately adjusted so that the
number of shares of Common Stock issuable on conversion of each
share of Preferred Stock shall be adjusted in proportion to such
increase in outstanding shares.
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(ii) If the number of shares of Common Stock outstanding at any time
after the Closing Date is decreased by a combination of the
outstanding shares of Common Stock, then, immediately following
the record date for such combination, the Conversion Ratio shall
be appropriately adjusted so that the number of shares of Common
Stock issuable on conversion of each share of Preferred Stock
shall be adjusted in proportion to such decrease in outstanding
shares.
(iii) If, at any time after the Closing Date, any capital
reorganization, or any reclassification of the stock of the
Company (other than a change in par value or from par value to no
par value of from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Company with or into another
person other than a consolidation or merger in which the Company
is the continuing company and which does not result in any change
in the Common Stock) or of the sale or other disposition of all or
substantially all the properties and assets of the Company as an
entirety to any other person, each share at the Preferred Stock
shall, after such reorganization, reclassification, consolidation,
merger, sale or other disposition, be convertible into the kind
and number of shares of stock or other securities or property of
the Company or of the Company resulting from such consolidation or
surviving such merger or to which such properties and assets shall
have been sold or otherwise disposed to which the holder of the
number of shares of Common Stock deliverable (immediately prior to
the time of such reorganization, reclassification, consolidation,
merger, sale or other disposition) upon conversion of such shares
would have been entitled upon such reorganization,
reclassification, consolidation, merger, sale or other
disposition. The provisions of this clause (iv) shall similarly
apply to successive reorganizations, reclassifications,
consolidations, mergers, sales and other dispositions.
(iv) All calculations under this Section III. C. shall be made to the
nearest cent or to the nearest one-tenth of a share, as the case
may be.
(v) In any case in which the provisions of this Section III. C. shall
require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the
occurrence of such event (i) issuing to the holder of any share of
Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of capital stock
issuable upon the conversion by reason of the adjustment required
by such event over and above the shares of capital stock issuable
upon such conversion before giving effect to such adjustment and
(ii) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to Section III. B.
hereof; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares and such cash,
upon the occurrence of the event requiring such adjustment.
D. In the event the Company shall propose to take any action of the types
described in clauses (i), (ii) or (iii) of Section Ill. C. hereof, the
Company shall give notice to each holder of shares of the Preferred
Stock, in the manner set forth in Section III, D. hereof, which notice
shall specify the record date, if any, with respect to any such action
and the date is on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Ratio
5
<PAGE>
and the number, kind or class of shares or other securities or property
which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of share of Preferred Stock. In
the case of any action that would require the fixing of a record date,
such notice shall be given at least 20 days prior to the date so fixed,
and in the case of all other action, such notice shall be given at least
30 days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or
validity of any such action.
F. For the purposes of this Section III, the sale or other disposition of
any capital stock of the Company theretofore held in its treasury shall
be deemed to be an issuance thereof.
G. The Company shall pay all documentary, stamp or other transactional
taxes attributable to the issuance or delivery of shares of capital
stock of the Company upon conversion of any shares of the Preferred
Stock, provided, however that the Company shall not be required to pay
any taxes that may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other
than that of the holder of the shares of Preferred Stock in respect of
which such shares are being issued.
H. The Company shall reserve, free from preemptive rights, out of its
treasury stock or its authorized but unissued share of the Company's
Common Stock or both, solely for the purpose of effecting the conversion
of the shares of the Preferred Stock pursuant to this Section III a
sufficient number of shares to provide for the conversion of all
outstanding shares of the Preferred Stock.
IV. Dividends
The holder of each share of the Preferred Stock shall be entitled to
receive, before any dividend shall be declared or paid upon or set aside for the
Company's Common Stock, when and as declared by the Board of Directors of the
Company, out of funds legally available for that purpose, quarterly dividends in
cash at the rate of $ .20 per share per annum, and no more, Dividends on shares
of the Preferred Stock shall be payable in quarter-annual installments on August
1, November 1, February 1, and May 1 in each year commencing May 1, 1994.
Dividends on shares of the Preferred Stock shall be cumulative (whether or not
there shill be net profits or net assets of the Company legally available for
the payment of such dividends) so that if Full Cumulative Dividends (as
hereinafter defined) upon the Preferred Stock to the end of the last completed
Dividend Period (as hereinafter defined) have not been paid or declared and a
sum sufficient for payment thereof set apart, then the amount of the deficiency
in such dividends must be fully paid with an incremental dividend equal to 10%
per annum of the aforesaid dividend from the date such dividend was due to the
date such dividend is paid, or dividends in such amount must be declared on the
shares of the Preferred Stock and a sum sufficient for the payment thereof must
be set part for such payment, before any dividend may be declared or paid or any
other distribution ordered or made upon the Company's Common Stock (other than a
dividend payable in Common Stock) and before any sum or sums may be set aside
for or applied to the purchase or redemption of any shares of any Common Stock
or the Preferred Stock. All dividends declared upon the Preferred Stock shall be
declared pro rata per share. Dividends accruing during each Dividend Period
shall be payable on the next succeeding Dividend Payment Date (as hereinafter
defined). Holders of shares of the Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of the Full
Cumulative Dividends at the rate set forth herein. No dividend or distribution
shall be declared or made with respect to any other type or class of securities
issued by the Company.
6
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For purposes of this Section IV:
"Dividend Payment Date" means, as to each respective Dividend Period, the
first day after the expiration of such Dividend Period.
"Full Cumulative Dividends' means (whether or not in any Dividend Period,
as any part thereof, in respect of which Such term is used there shall have been
net profits or net assets of the Company legally available for the payment of
such dividends) that amount which shall be equal to dividends at the full rate
fixed for the Preferred Stock as provided herein for the period of time elapsed
from the Closing Date to the date as of which Full Cumulative Dividends are to
be computed.
"Dividend Period" means each fiscal quarter or portion thereof during which
the relevant share of the Preferred Stock is outstanding.
V. Redemption
A. The Company shall not have the right to redeem the Series A Preferred
Stock prior to May 31, 1995. After May 31, 1995, the Company shall have
the fight, at its option, to redeem all or any portion of the shares of
Preferred Stock then outstanding at a price per share of $6.00 plus an
amount equal to all accrued but unpaid dividends thereon and any
incremental dividends or interest due thereon (the "Redemption Price").
If less than all outstanding shares o Preferred Stock then outstanding
are redeemed, the Company shall redeem a like percentage of the shares
of Preferred Stock held by each holder thereof.
B. At least 30 days prior to the date of any such redemption (the
"Redemption Date"), written notice thereof (the "Redemption Notice")
shall be given by the Company by mail, postage prepaid, or by telex to
non-United States residents, to each holder of record (at the close of
business on the business day next preceding the day on which the
Redemption Notice i given) of shares of Preferred Stock notifying such
holder of the redemption. The Redemption Notice shall be addressed to
each holder at his address as show by the records of the Company. From
and after the close of business on the Redemption Date, unless there
shall have been a default in the payment of the Redemption Ratio, all
rights of holders of shares of Preferred Stock, except the right to
receive the Redemption Price, shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose whatsoever.
C. For each share of the Preferred Stock to be redeemed pursuant to Section
V. A. hereof, the Company shall be obligated on the applicable
Redemption Date to pay the holder thereof, upon surrender by such holder
at the Company's principal office (or at such other place as may be
designated by the Company) of the certificate or certificates
representing such shares an amount in immediately available funds equal
to the Redemption Ratio. It the funds of the Company legally available
for the redemption o shares of the Preferred Stock on any Redemption
Date are insufficient to redeem the number of shares to be redeemed on
such date, those funds that are legally available shall be used to
redeem the maximum number of shares of the Preferred Stock ratably among
the holders of the share to be redeemed based upon the respective
aggregate Redemption Price of the shares held by each holder, and an
amount equal to the balance that would have been payable to each such
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holder shall become an obligation of the Company to the respective
holder, the amount of which shall bear simple interest at a floating
rate equal to the prime rate of interest announced by Citibank, N. A. as
in effect from time to time. At any time after such Redemption Date when
additional funds of the Company are legally available for the redemption
of such shares, such funds shall promptly be used to redeem the maximum
number of shares of the Preferred Stock that the Company had become
obligated to redeem but has not redeemed.
D. The Company shall redeem the Shares of the Preferred Stock then
outstanding to the extent set forth in a notice given by the holders of
Preferred Stock pursuant to Section 8.3 of the Purchase Agreement
between the Company and the holders of the Preferred Stock. The Company
shall have 180 days after its receipt of such notice to make payment in
full of the Redemption Ratio.
IN WITNESS WHEREOF, Pet-Con Industries, Inc. has caused this Certificate to
be signed by Michael G. Salerno, President and attested by Douglas E.
Chamberlain, its Secretary, this 4th day of November, 1993.
By: /s/ Michael G. Salerno
-----------------------------
Pet-Con Industries, Inc.
Michael G. Salerno, President
Attest: /s/ Douglas E. Chamberlaine
-----------------------------
Secretary
8
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BYLAWS
OF
PREMIER CLASSIC ART, INC.
(A Delaware corporation)
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as may
properly come before such meeting shall be held at such time and date as the
Board of Directors, by resolution, shall determine and as set forth in the
notice of meeting. The annual meeting shall be held at such place, within or
without the State of Delaware, as the Directors may, from time to time, fix. In
the event the Board of Directors fails to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the registered
office of the corporation in the State of Delaware. The meeting shall be open to
all shareholders, whether or not said shareholder is entitled to vote on any
matters as provided herein.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. NOTICE OF MEETINGS. Written notice, stating the place, day
and hour of the meeting, shall be given by or under the direction of the
President or Secretary. The notice of an annual meeting shall state that the
meeting is called for the election of directors and for the transaction of other
business which may properly come before the meeting, and shall (if any other
action which could be taken at a special meeting is to be taken at such annual
meeting) state the purpose or purposes. The notice of a special meeting shall in
all instances state the purpose or purposes for which the meeting is called.
Except as otherwise provided by the General Corporation Law, a copy of the
notice of any meeting shall be given, personally or by mail not less than ten
(10) days nor more than thirty (30) days before the date fixed for such meeting,
unless the lapse of the prescribed period of time shall have been waived, and
directed to each stockholder at his record address or at such other address
which he may have furnished by request in writing to the Secretary of the
corporation. Notice shall be given to each stockholder entitled to vote at such
meeting, of record at the close of business on the day fixed by the Board of
Directors as a record date for the determination of the stockholders entitled to
vote at such meeting or, if no such date
<PAGE>
has been fixed, of record at the close of business on the day next preceding the
day on which notice is given. Notice shall be in writing and shall be delivered
to each stockholder in person or sent by United States mail, postage prepaid. A
waiver of such notice, in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent to such notice. Except as otherwise required by statute, notice of
any adjourned meeting of the stockholders shall not be required. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
SECTION 4. QUORUM. Except as may otherwise be required by statute, the
presence at any meeting, in person or by proxy, of the holders or record of a
majority of the shares then issued and outstanding and entitled to vote shall be
necessary and sufficient to constitute a quorum for the transaction of business.
The stockholders present may adjourn the meeting despite the absence of a
quorum. The stockholders present at a duly organized meeting may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 5. VOTING. Each stockholder entitled to vote in accordance with
the terms of the certificate of incorporation and in accordance with the
provisions of these bylaws shall be entitled to one (1) vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three (3) years from its date unless such proxy
provides for a longer period. Any action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these bylaws.
SECTION 6. STOCKHOLDER LIST. A complete list of the stockholders
entitled to vote at the ensuing election, arranged in alphabetical order, with
the address of each, and the number of shares held by each, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and it may be inspected by any stockholder who is present.
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SECTION 7. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Whenever the
vote of stockholders at a meeting thereof is required or permitted to be taken
in connection with any corporate action, by any provision or statute, these
bylaws, or the certificate of incorporation, the meeting and vote of
stockholders may be dispensed with if a majority of the stockholders of the
class of stock entitled to vote at the meeting, who would have been entitled to
vote at the action if such meeting were held, shall consent in writing to such
corporate action being taken. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by the Board of Directors, except as otherwise provided by
statute, the certificate of incorporation or these bylaws.
SECTION 2. NUMBER AND QUALIFICATIONS. The Board of Directors shall
consist of a minimum of three (3) and a maximum of nine (9) members. This number
may be changed from time to time by resolution of the Board of Directors.
Directors need not be a resident of the State of Delaware, citizen of the United
States or a stockholder of the Corporation. Directors shall be natural persons
of the age of eighteen (18) years or older.
SECTION 3. ELECTION AND TERM OF OFFICE. Members of the initial Board of
Directors of the corporation shall hold office until the first annual meeting
stockholders. At the first annual meeting of stockholders, and at each annual
meeting thereafter, the stockholders shall elect directors to hold office until
the next succeeding annual meeting. Each director shall hold office until his
successor is duly elected and qualified, or until their earlier resignation or
removal. Election of directors need not be by ballot.
SECTION 4. COMPENSATION. The Board of Directors may provide by
resolution that the corporation shall allow a fixed sum and reimbursement of
expenses for attendance at meetings of the Board of Directors and for other
services rendered on behalf of the corporation. Any director of the corporation
may also serve the corporation in any other capacity, and receive compensation
therefor in any form, as the same may be determined by the Board of Directors in
accordance with these bylaws.
SECTION 5. REMOVAL AND RESIGNATION. Except as may otherwise be provided
by statute, the stockholders may, at any special meeting called for the purpose,
by a vote of the holders of the majority of the shares then entitled to vote at
an election of directors, remove any or all directors from office, with or
without cause.
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A director may resign at any time by giving written notice to the Board
of Directors, the president or the secretary of the corporation. The resignation
shall take effect immediately upon the receipt of notice, or an any later period
of time specified therein. The acceptance of such resignation shall not be
necessary to make it effective, unless the resignation requires acceptance for
it to be effective.
SECTION 6. VACANCIES. Any vacancy occurring in the office of a
director, whether by reason of an increase in the number of directorships or
otherwise, may be filled by a majority of the directors then in office, though
less than a quorum. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, unless sooner displaced. When
one or more directors resign from the Board of Directors, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office as herein provided in the filling of
other vacancies.
SECTION 7. POWERS. The Board of Directors shall exercise all
of the powers of the corporation except such as are by statute, the
certificate of incorporation or these bylaws conferred upon or
reserved to the stockholders.
SECTION 8. EXECUTIVE COMMITTEE. By resolution adopted by a majority of
the Board of Directors, the Board of Directors may designate one (1) or more
committees, including an executive committee, each consisting of one (1) or more
directors. The Board of Directors may designate one (1) of more directors as
alternate members of any such committee, who may replace any absent or
disqualified member at any meeting of such committee. Any such committee, to the
extent provided in the resolution and except as may otherwise be provided by
statute, shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers that may require the same;
but the designation of such committee and delegation thereto of authority shall
not operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law. If there be more than two (2)
members on such committee, a majority of any such committee may determine its
action and may fix the time and place of its meetings, unless provided otherwise
by the Board of Directors; however, if there be only two (2)
4
<PAGE>
members, unanimity of action shall be required. Committee action may be by way
of a written consent signed by all committee members. The Board of Directors
shall have the power at any time to fill vacancies on committees, to discharge
or abolish any such committee, and to change the size of any such committee.
Except as otherwise prescribed by the Board of Directors, each committee may
adopt such rules and regulations governing its proceedings, quorum, and manner
of acting as it shall deem proper and desirable.
Each such committee shall keep a written record of its acts and
proceedings and shall submit such record to the Board of Directors. Failure to
submit such record or failure of the Board of Directors to approve any action
indicated therein, will not however, invalidate such action to the extent it has
been carried out by the corporation prior to the time the record or such action
was, or should have been, submitted to the Board of Directors as herein
provided.
SECTION 9. MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent, to writing, of all
the directors.
Regular meetings of the directors may be held without notice at such
place and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board of Directors may be called by the
president or by the secretary on the written request of any two (2) directors on
at least two (2) days' notice to each director and shall be held at such place
or places as may be determined by the directors, or as shall be stated in the
call of the meeting. Nothing shall prohibit a telephone meeting of the Board of
Directors provided a quorum is present.
SECTION 10. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of the Board of Directors, or of such committee
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. NUMBER. The Corporation shall have a president, a secretary
and a treasurer, and such other officers and agents as may be deemed necessary.
More than one office may be held by the same person.
5
<PAGE>
SECTION 2. SUBORDINATE OFFICERS. The Board of Directors, from time to
time, may appoint other officers and agents, including one or more assistant
secretaries and one or more assistant treasurer, each of whom shall hold office
for such period and each of whom shall have such authority and perform such
duties as are provided in these bylaws or as the Board of Directors from time to
time may determine. The Board of Directors may delegate to any officer the power
to appoint any such subordinate officers and agents and to prescribe their
respective authorities and duties.
SECTION 3. REMOVALS AND RESIGNATIONS. The Board of Directors may, by
vote of a majority of its entire number, remove from office any officer or agent
of the corporation that was appointed by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Board of Directors. The resignation shall take effect immediately upon the
receipt of the notice, or any later period of time specified therein. The
acceptance of such resignation shall not be necessary to make it effective,
unless the resignation requires acceptance for it to be effective.
SECTION 4. VACANCIES. Whenever any vacancy shall occur in any office by
death, resignation, removal or otherwise, the same shall be filled at any
meeting of directors for the unexpired portion of the term in the manner
prescribed by these bylaws for the regular election or appointment to such
office.
SECTION 5. CHAIRMAN. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and shall have
and perform such other duties as from time to time may be assigned to him by the
Board of Directors.
SECTION 6. SALARIES. The salaries of the officers of the corporation
shall be fixed from time to time by the Board of Directors, except that the
Board of Directors may delegate to any person the power to fix the salaries or
other compensation of any officers or agents appointed, in accordance with the
provisions of these bylaws or any statute. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation. Nothing contained in this bylaw shall be construed so as to
obligate the corporation to pay any officer a salary, the same being within the
sole discretion of the Board of Directors.
SECTION 7. SURETY BOND. The Board of Directors may in its
discretion secure the fidelity of any or all of the officers of the
corporation by bond or otherwise.
6
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ARTICLE IV
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate, signed in the name of the
corporation by the president and by the secretary of the corporation, certifying
the number of shares owned by that person in the corporation. Any or all of the
signatures on any such certificate may be a facsimile.
Certificates of stock shall be in such form as shall, in conformity to
law, be prescribed from time to time by the Board of Directors. Any restrictions
on the transfer or registration of transfer of any shares of stock of any class
or series shall be noted conspicuously on the certificate representing such
shares.
SECTION 2. TRANSFER OF STOCK. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
transfers or registration of transfers of shares of stock of the corporation
shall be made only on the stock ledger of the corporation by the registered
holder thereof or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and, in case of shares represented by
certificates, on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
SECTION 3. LOST, DESTROYED, AND STOLEN CERTIFICATES. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, and alleged to have been lost,
destroyed or stolen, and the Board of Directors may require the owner of such
lost, destroyed or stolen certificate, or his representative, to furnish an
affidavit as to such loss, to give the corporation a bond sufficient to
indemnify the corporation against any claim that may be made against it on
account of the alleged loss, theft, or destruction of any such certificate or
the issuance of any such new certificate, and satisfy such other reasonable
requirements, including evidence of such loss, destruction, or theft, as may be
imposed by the corporation.
SECTION 4. UNCERTIFICATED SHARES. Subject to any conditions imposed by
the General Corporation Law, the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
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<PAGE>
SECTION 5. FRACTIONAL SHARE INTERESTS. The corporation may, but shall
not be required to, issue fractions of a share. If the corporation does not
issue fractions of a share, it shall (1) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share or an uncertificated fractional share shall,
but scrip or warrants shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the event of liquidation.
The Board of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing the full shares or uncertificated full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
ARTICLE V
DIVIDENDS
SECTION 1. DIVIDENDS. Subject to the provisions of the certificate of
incorporation, the Board of Directors may, at any regular or special meeting and
out of funds legally available therefor, declare dividends upon the capital
stock of the corporation as and when it deems expedient. Before any dividend is
declared, there may be set apart out of any funds of the corporation available
for dividends such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends of for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 2. RELIANCE ON CORPORATE RECORDS. A director shall be fully
protected in relying in good faith upon the books of account as to the value and
amount of the assets, liabilities and net profits of the corporation, or any
other facts pertinent to the existence and amount of surplus or other funds from
which dividends might properly be declared and paid.
SECTION 3. MANNER OF PAYMENT. Dividends may be paid in cash,
in property, or in shares of the capital stock of the corporation.
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<PAGE>
ARTICLE VI
SEAL AND FISCAL YEAR
SECTION 1. SEAL. The corporate seal, subject to alteration by the Board
of Directors, shall be in the form of a circle, shall bear the name of the
corporation and shall indicate its formation under the laws of the state of
Delaware and the year of incorporation. Such seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
SECTION 2. FISCAL YEAR. The Board if Directors shall in its
sole discretion, designate a fiscal year for the corporation.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. EXCULPATION. No director or officer of the corporation shall
be liable for the acts, defaults or neglects of any other director or officer,
or for any loss sustained by the corporation, unless the same has resulted from
his own willful misconduct, willful neglect, or negligence.
SECTION 2. INDEMNIFICATION. Each director and officer of the
corporation and each person who shall serve at the corporation's request as a
director or officer of another corporation in which the corporation owns shares
of capital stock or of which it is a creditor shall be indemnified by the
corporation against all reasonable costs, expenses and liabilities (including
reasonable attorney's fees) actually and necessarily incurred by or imposed upon
him in connection with, or resulting from, any claim, action, suit, proceeding,
investigation or inquiry of whatever nature in which he may be involved as a
party or otherwise by reason of his being or having been a director or officer
of the corporation or such director or officer of such other corporation, at the
time of the incurring or imposition of such costs, expenses or liabilities,
except in relation to matters as to which he shall be finally adjudged in such
action, suit, proceeding, investigation or inquiry to be liable for willful
misconduct, willful neglect, or gross negligence toward or on behalf of the
corporation in the performance of his duties as such director or officer of the
corporation or as such director or officer of such other corporation. As to
whether or not a director or officer was liable by reason of willful misconduct,
9
<PAGE>
willful neglect, or gross negligence toward or on behalf of the corporation in
the performance of his duties as such director or officer of the corporation or
as such director or officer of such other corporation, in the absence of such
final adjudication of the existence of such liability, the Board of Directors
and each director and officer may conclusively rely upon an opinion of legal
counsel selected by or in the manner designated by the Board of Directors. The
foregoing right to indemnification shall be in addition to and not in limitation
of all other rights to which such person may be entitled as a matter of law and
shall inure to the benefit of the legal representative of such person.
SECTION 3. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation or who is or was a director, officer, employee or agent
of the corporation, or who is or was serving, at the request of the corporation,
as director, officer, employee or agent of any partnership, joint venture,
trust, association or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not he is indemnified against such liability by this Article
VII.
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INDEX
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PAGE
ARTICLE I Meetings of Stockholders . . . . . . . . . . . . 1
ARTICLE II Board of Directors . . . . . . . . . . . . . . 3
ARTICLE III Officers . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV Capital Stock . . . . . . . . . . . . . . . . . 7
ARTICLE V Dividends . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI Seal and Fiscal Year . . . . . . . . . . . . . 9
ARTICLE VII Indemnification of Officers and directors . . 9
11
<PAGE>
PREMIER CLASSIC ART, INC.
1158 Staffler Road
Bridgewater, New Jersey 08807
Tel:(908) 526-7388
Fax:(908) 595-0072
September 14, 1999
Giltner B. Stevens
2531 East 32nd Street
Joplin, Missouri 64804
Dear Gil:
This is to set forth and confirm our agreement pursuant to which
Premier Classic Art, Inc. and/or its wholly owned subsidiary, Cool Classic
Incorporated (collectively, the "Company") will retain your services, with
respect to the marketing of cels and other cartoon art (the "Product") owned
and/or distributed by the Company. In this regard, the following shall
constitute the terms of our agreement:
1. The term of this Agreement shall be three (3) years (the "Term").
2. Except for Sales made to Wal Mart resulting from your introduction,
the Company will not market any of the Products to Wal Mart, from the latter of
one (1) year from the date hereof or the date of your last sale to Wal Mart. For
purposes of this Agreement, the term "Sales" is defined as net proceeds to the
Company after deductions for sales returns, sales allowances, fees for shelf
space and cooperative advertising costs.
3. On any Sales to Wal Mart, you shall be entitled to ten (10%) percent
of the first $5,000,000 in Sales, or any part thereof, and twelve and one half
(12 1/2%) of all Sales to Wal Mart in excess of that amount.
4. This Agreement with you is exclusive as it relates to the Product
for the Term and you agree that you will not market Product for any other
company during the Term.
5. In the event Wal Mart purchases in excess of $10,000,000 of Product
in a twenty four (24) month period, the Company shall issue to you a warrant to
purchase 4.9% of the net outstanding shares of common stock of the Company. The
warrants will be exercisable at a price per share equal to eighty (80%) percent
of the average closing bid price of the Company's common stock, for the previous
twenty (20) trading days as reported by NASDAQ, any major exchange on which the
Company's shares are listed or the OTC Bulletin Board, whatever the case may be.
<PAGE>
If the foregoing meets with your complete approval, kindly indicate
your acceptance by signing you name in the space provided below.
Sincerely,
Charles F. Trapp
President
Agreed and Accepted:
_____________________
Giltner Stevens
<PAGE>
LOAN AGREEMENT
AGREEMENT, dated as of the 2nd day of September, 1999, by and
between GILTNER STEVENS with a principal office at 2531 East 32nd Street,
Joplin, Missouri 60804 (the "Lender") and PREMIER CLASSIC ART, INC., a Delaware
corporation with its principal office at 1158 Staffler Rd., Bridgewater, NJ
08807 (the "Borrower").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, Borrower has entered into an Agreement to acquire all
of the issued and outstanding shares of capital stock of Cool Classic
Incorporated ("CCI"), the owner of original production cels ("Cels") used in the
production of animation art (the "Acquisition") pursuant to a Plan and Agreement
of Reorganization dated September 2, 1999 (the "Exchange Agreement") between
Borrower, CCI and Joe Cool Collectives, Inc. ("JCC") the sole shareholder of
CCI; and
WHEREAS, the Borrower has entered into an agreement to acquire
from Royal Animated Art, Inc. certain distribution and production rights to
certain animated characters (the "Distribution Rights"); and
WHEREAS, in order to finance the Acquisition and the
acquisition of the Distribution Rights, the Borrower is borrowing from the
Lender the sum of Seven Hundred Seventy Five Thousand ($775,000) Dollars, in
consideration of which the Borrower is issuing to the Lender, a Convertible Note
(as hereinafter defined) and granting to the Lender a security interest in
200,000 Cels (the "Cels"), as more fully hereinafter provided; and
WHEREAS, to induce the Lender to enter into this Agreement,
the Borrower will execute and cause to be executed certain collateral security
documents and instruments, all as more fully hereinafter provided in Article II
hereof.
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
COMMITMENT OF LENDER;
BORROWING CONDITIONS
1. Commitment. Subject to the terms and conditions of this
Agreement, the Lender hereby agrees to make a term loan to the Borrower (the
"Loan") (as hereinafter defined) in the aggregate principal amount of Seven
Hundred Seventy Five Thousand ($775,000) Dollars (the "Loan Amount").
<PAGE>
2. Convertible Promissory Note.
(a) General. The Loan shall be evidenced by a negotiable
convertible promissory note, issued by the Borrower substantially in the form of
Exhibit A annexed hereto (the "Convertible Note"), dated the date of the closing
of the transaction contemplated by this Agreement (the "Closing Date"), in the
Loan Amount. The Convertible Note shall be in the Loan Amount and payable in
full one year from the Closing Date.
(b) Interest. The unpaid principal amount from time to
time outstanding on the Convertible Note shall bear interest at the rate of ten
and one half (10 1/2%) percent per annum, computed on the basis of the actual
number of days elapsed in a year of 360 days. Interest shall be payable monthly
in arrears commencing ninety (90) days from the date of the Convertible Note and
on the same day of each month thereafter and at maturity (each such date is
hereinafter referred to as an "interest payment date").
(c) Late Charge. If any payment due is not paid within
five (5) days of the interest payment date, the Borrower shall pay the Lender, a
late charge, to reimburse the Lender for administrative costs and expenses
occasioned by the late payment and not as a penalty, in an amount equal to two
(2%) percent of the delinquent payment, or the maximum late charge permitted by
applicable law or government regulation, whichever is less. Lender shall use his
best efforts to notify Borrower of its delinquent payment prior to the
incurrence of a late charge, provided, however, that failure by Lender to so
notify Borrower shall not relieve Borrower of its obligation to pay such late
charge. In the event any check given by the Borrower to the Lender is
dishonored, the Borrower shall pay to the Lender, in addition to the aforesaid
late charge, an administrative fee of $75.00.
(d) Prepayment. At any time from and after the date
hereof, Borrower may from time to time, on any interest payment date and upon at
least thirty (30) days prior written notice to the Lender, prepay the
Convertible Note, in whole but not in part, without a premium; provided,
however, that upon receipt of a prepayment notice the Lender may, at any time up
to the immediately succeeding interest payment date, elect to convert all of the
outstanding principal amount of the Convertible Note into shares of capital
stock of the Borrower in accordance with the provisions of clause (e) of this
Section Two.
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<PAGE>
(e) Conversion. Pursuant to the terms of the Convertible
Note, the Lender shall have the right at its sole option to convert into shares
of common stock of the Borrower, par value $.001 per share (the "Common Stock"),
the entire principal amount of the Convertible Note, in whole or in part, at a
price of $3.10 per share (the "Conversion Price") and subject to the following
terms and conditions:
(i) Automatic Conversion. If at any time during the
term of the Note, the closing market bid price of the Common Stock equals or
exceeds $5.50 per share for a period of twenty (20) consecutive trading days as
reported on a national exchange, (if any), NASDAQ, the Over-the-Counter Bulletin
Board or any other electronic quotation system, the Convertible Note shall
automatically be converted, on the last trading day of such period into a number
of shares of Common Stock to be determined by dividing the outstanding balance
of the Note by the Conversion Price.
(ii) Reservation of Shares. The Borrower shall at all
times reserve and keep available, free from preemptive rights, unissued or
treasury shares, shares of Common Stock sufficient to effect the conversion of
the Convertible Note; and, if at any time, the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding principal of the Convertible Note, the Borrower will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(iii) Anti-Dilution Adjustments. The Conversion Price
shall be subject to adjustment as follows:
(x) In case the Borrower shall at any time
subdivide or combine the outstanding shares of common stock, declare a stock
dividend, stock split, reverse stock split or other similar transaction or
reclassify its common stock, the Conversion Price in effect immediately prior to
such transaction shall be proportionately adjusted to reflect the effect of such
transaction. Any such adjustment shall be effective at the close of business on
the date such transaction shall become effective.
(y) In case of a consolidation or merger of the
Borrower with or into another corporation (other than a merger or consolidation
in which the Borrower is the continuing corporation and which does not result in
a reclassification of outstanding shares of common stock of the class issuable
upon the conversion of the Convertible Note and pursuant to which the security
holders of the Borrower are not entitled to receive securities of another
issuer), or in case of any sale or conveyance to another corporation of the
property of the Borrower as an entirety or substantially as an entirety, the
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<PAGE>
Borrower or such successor or purchasing corporation, as the case may be, shall
execute an instrument providing that the Lender shall have the right thereafter
to convert the Convertible Note into the kind and amount of shares of stock and
other securities and property receivable upon such reclassification,
consolidation, merger, sale, or conveyance by the Lender, of the number of
shares of common stock of the Borrower into which the Convertible Note might
have been converted immediately prior to such reclassification, consolidation,
merger, sale, or conveyance. Such interest shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for herein. The foregoing provisions shall similarly apply to successive
reclassification of shares of common stock and to successive consolidations,
mergers, sales, or conveyances.
Upon conversion, all accrued interest on converted amounts of
principal of the Convertible Note shall be due, but no principal or interest
shall thereafter be due or payable under the Convertible Note with respect to
the principal converted, and the Note shall be cancelled upon such payment of
accrued interest and expenses.
2. Additional Shares. At Closing, Borrower shall sell to
Lender, for $.001 per share, 100,000 shares of Borrowers' Common Stock (the
"Additional Shares"), all of which shares shall be restricted securities as that
term is defined in the Securities Act of 1933, as amended (the "Act") which
shares will bear a restrictive legend to that effect.
3. Warrant. As additional consideration for the Loan,
Borrower shall issue to Lender a Warrant (the "Warrant") to purchase 400,000
shares of capital stock of the Borrower exercisable, for a term of three (3)
years, at $1.00 per share, commencing thirteen (13) months after the date of the
Convertible Note (the "Warrant Shares"), in the form annexed thereto as Exhibit
B.
ARTICLE II
SECURITY
1. Security. All of the obligations of the Borrower under
this Agreement and the Convertible Note shall be secured by the following:
(a) A first priority security interest in and to 200,000
Cels pursuant to the terms of a security agreement in the form annexed hereto as
Exhibit C (the "Security Agreement"); and
-4-
<PAGE>
(b) An insurance policy on the Cels, naming the Lender as
an additional insured, in the minimum amount of $1,500,000, a binder for which
is to be delivered on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
1. Representations and Warranties of the Borrower.
The Borrower makes the following representations and
warranties:
(a) Organization and Authorization. The Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, is duly authorized to transact business and
is in good standing in every other jurisdiction where the failure to qualify to
do business would have a material adverse effect upon the Borrower, and the
Borrower is duly authorized and empowered to create, grant and issue the
Convertible Note, the Warrant, the shares underlying the Convertible Note (the
"Conversion Shares") and the shares underlying the Warrant (the "Warrant
Shares") and to execute and deliver this Agreement. The Borrower has the
corporate power to own, lease and operate its assets, and to carry on its
business as presently conducted. All corporate action on the part of the
Borrower requisite for the due creation, issuance and delivery of this
Agreement, the Warrant, the Convertible Note, the Warrant Shares and the
Conversion Shares and the Security Agreement has been duly and effectively
taken. This Agreement, the Security Agreement, the Convertible Note and the
Warrant, upon the granting, issuance and delivery thereof, will be, valid,
binding and enforceable obligations of the Borrower, in accordance with their
respective terms and compliance herewith will not violate any provision of law,
the corporate charter or by-laws of the Borrower, or any agreement, judgment,
order or decree to which the Borrower is a party or otherwise bound subject to
applicable bankruptcy, insolvency, or reorganization, moratorium or other
similar laws relating to or affecting generally the enforcement of creditors'
rights. No approval or consent of any governmental agency or body of the United
States or any state thereof or of any other entity or person is required as of
the Closing Date for the legal and valid execution and delivery by the Borrower
of this Agreement, and the Security Agreement, the issuance by the Borrower of
the Convertible Note or the Warrant pursuant to this Agreement, the Warrant
Shares or the Conversion Shares upon conversion of the Convertible Note or
exercise of the Warrant or the performance of any obligation of the Borrower
under any provision of the Security Agreement or this Agreement.
-5-
<PAGE>
(b) Capitalization. On the Closing Date, on consummation
of the transactions contemplated hereby, the Borrower's authorized capital stock
will consist solely of 50,000,000 shares of Common Stock, par value $.001 per
share and 10,000,000 shares of preferred stock $.002 per share. Except as set
forth herein and in Schedule 1 hereto, no person has any agreement,
subscription, option or warrant, or any other right or commitment entitling such
person to acquire from the Borrower any shares (whether or not outstanding on
the date of this Agreement) of the Borrower's capital stock or any other
securities (whether or not outstanding on the date of this Agreement) which are
convertible into or exchangeable or exercisable for any such shares. There are
no agreements or other instruments of any kind to which the Borrower or, so far
as the Borrower knows, any person, is or upon the consummation of the
transactions contemplated hereby will be, a party which relate to the voting of
the Borrower other than the certificate of incorporation and by-laws of the
Borrower. Except as set forth on Schedule 2 hereto, there are no binding
agreements providing registration rights to stockholders or holders of other
securities of the Borrower.
(c) Title to and Condition of Properties. Except as
otherwise herein provided and after giving effect to the Acquisition, the
Borrower owns outright, free and clear of all liens, claims, encumbrances, or
any interest of any third person of any nature whatsoever all of its properties
and assets. The business conducted by the Borrower conforms in all material
respects with all applicable ordinances and regulations and building, zoning and
other laws. All of the property and assets of the Borrower are in good repair,
working order and condition subject to normal wear and tear and depreciation.
(d) Litigation. There is no litigation, legal or
administrative proceeding, investigation or other action of any nature pending
or, to the knowledge of Borrower, threatened, against or affecting the Borrower
and/or its subsidiaries which (a) involves the possibility of any judgments or
liabilities aggregating more than Ten Thousand ($10,000) Dollars in the
aggregate not fully covered by insurance or (b) which may materially and
adversely affect the assets of the Borrower or the right of the Borrower to
carry on its business as now conducted or as contemplated pursuant to the
Exchange Agreement.
(e) Other Documents. The following further documents are
being delivered herewith, all of which are true, complete and accurate:
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(i) Copies of the Certificate of Incorporation (and
all amendments thereto) of the Borrower.
(ii) Certified copies of the By-Laws of the Borrower
as amended to date.
(iii) Certificates of Good Standing of the Borrower.
(f) Offerings. The Borrower has not sold any securities
within the twelve month period prior to the Closing Date in reliance on any
exemption under Section 3(b) of the Act or in violation of Section 5(a) of the
Act that along with the offering contemplated herein would result in aggregate
proceeds to the Borrower in excess of One Million ($1,000,000) Dollars.
(g) No General Solicitation or Advertising in regard to
this Transaction. Neither the Borrower nor any of its affiliates, nor any
distributor or any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation as that term is used in Rule 502(c) of
Regulation D of the Act) or general advertising in connection with the offer and
sale of the Convertible Note, the Warrant or the Additional Shares, or (ii) has
made any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the
Convertible Note or the Conversion Shares under the Act.
(h) Eligibility of Borrower under Rule 504(a). The
Borrower is a nonreporting issuer, as it is not required to file with the
Securities and Exchange Commission under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Borrower, as of
the Closing Date, is not required by the OTC Bulletin Board to maintain current
filings under such sections of the Exchange Act. The Borrower is not subject to
the reporting requirements of Sections 13 or 15(d)of the Exchange Act, is not an
investment company or a developmental stage company that either has no specific
business plan or purpose or has indicated that its business plan is to engage in
a merger or acquisition with an unidentified company or companies, or other
entity or person. Neither the Convertible Note nor the Conversion Shares will
bear a restrictive legend with respect to The exemption from registration under
the Act pursuant to Rule 504(d) and it is the Borrower's belief that the Lender
will be permitted to resell the Conversion Shares without registration under the
Act pursuant to Rule 504(d).
(i) Filings. The sale and issuance by the Borrower of the
Convertible Note, the Warrant and the Additional Shares, is being made pursuant
to an exemption from the registration requirements of Section 30-54.215 of the
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Missouri Uniform Securities Act to permit the consummation of the sale of the
those securities in accordance with Rule 504 of Regulation D of the Act. The
Borrower agrees to file a Form D, within 15 days after the Closing Date, with
the Securities and Exchange Commission and to file such other form(s) required
by "blue sky" laws. The Borrower is not required under federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Convertible Note, the Warrant and the Additional
Shares in accordance with the terms hereof
(j) Taxes. All tax returns of the Borrower and, to the
best of Borrower's knowledge after due inquiry, CCI have been duly filed and are
correct and all taxes, assessments and other governmental charges upon the
Borrower CCI which are shown to be due and payable thereon have been paid. The
Borrower does not know of any ongoing tax audit, proposed tax deficiency,
assessment, charge or levy against it or CCI, the payment of which is not
adequately provided for on the books of the Borrower or CCI.
(k) No Other Offering. Neither the Borrower nor any agents
acting on its behalf have directly or indirectly offered the Convertible Note
for sale other than to the Lender.
(l) Full Disclosure. This Agreement and all of the
exhibits or schedules attached hereto do not contain any statement that is false
or misleading with respect to any material fact and do not omit to state a
material fact necessary in order to make the statements therein not false or
misleading.
(m) Compliance with Instruments; etc. The Borrower and, to
the best of Borrower's knowledge after due inquiry, CCI is not (a) in default
under any indenture, agreement or instrument to which it is a party or by which
it is bound, (b) in violation of its Certificate of Incorporation, By-Laws or of
any applicable law, (c) in default with respect to any order, writ, injunction
or decree of any court, administrative agency or arbitrator, or (d) in default
under any order, license, regulation or demand of any government agency, which
default or violation would materially and adversely affect the business,
properties, condition (financial or otherwise) or business prospects of the
Borrower.
(n) In connection with an offering pursuant to Rule 504 of
Regulation D, wherein the Borrower is raising an additional $225,000 from the
sale of 2,250,000 shares of its common stock (the "504 Shares"), pursuant to
which the Borrower agrees to accept the subscription of the Lender for 250,000
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of such shares (the "Additional 504 Shares"), the Borrower agrees that it will
not sell the 504 Shares to any subscriber unless said subscriber agrees, in a
subscription agreement (the "Subscription Agreement"), to place the 504 Shares
purchased, in escrow, with Bondy & Schloss LLP (the "Escrow Agent"), which
shares will be held in escrow by the Escrow Agent until the earlier of one (1)
year from the date of such subscription or such time as Lender has received
gross proceeds from the sale of the Conversion Shares and/or the Additional 504
Shares, in the amount of $1,251,000 (the "Escrow Period").
2. Representations and Warranties of the Lender. The Lender
represents and warrants that:
(a) Investment Intent. The Convertible Note being acquired
hereunder and the Conversion Shares, Warrant and/or Warrant Shares which may be
acquired by it upon conversion of the Convertible Note and exercise of the
Warrant, if applicable, would be acquired for his own account and not with the
view to, or the resale of, in connection with, any distribution or public
offering thereof within the meaning of the Act subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part of the
Convertible Note and/or the Conversion Shares, in compliance with applicable
state securities laws and under an exemption from registration under Rule 504 of
the Act. He. understands that neither the Convertible Note, the Conversion
Shares, the Warrant or the Warrant Shares have been registered under the Act,
that they must be held indefinitely unless they are registered under the Act or
are exempt from registration and that the reliance of the Borrower and others
upon this exemption is predicted in part upon this representation and warranty.
(b) Accredited Investor/Investment Experience. The Lender
is an accredited investor (as defined in Rule 501 of Regulation D), and has such
experience in business and financial matters that he is capable of evaluating
the merits and risks of an investment in the Borrower. As of the Closing Date,
Lender (i) has adequate means of providing for his current needs and possible
personal contingencies, (ii) has no need for liquidity in this investment, (iii)
is able to bear the substantial economic risk of an investment in the
Convertible Note, Warrants and Additional Shares for an indefinite period, and
(iv) can afford the complete loss of his investment. The Lender recognizes the
highly speculative nature of this investment.
(c) Non-Affiliate Status. The Lender is neither an
officer, director nor "affiliate" (as that term is defined in Rule 405 of the
Act) of the Company.
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(d) Disclosure of Documents. The Lender has received all
documents, records, books and other information pertaining to the Lender's
investment in the Company may that have been requested by the Lender. The Lender
has had the opportunity to ask questions of, and receive answers from the
Borrower.
(e) Manner of Sale. At no time was the Lender presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or adverting
in connection with the offer and sale of the Convertible Note, Warrant and
Additional Shares.
(f) No Advertisements. The Lender is not purchasing the
Convertible Note, Warrant nor the Additional Shares as a result of, or
subsequent to, any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio or presented at any seminar or meeting.
(g) No Legal, Tax or Investment Advice. The Lender
understands that nothing in this Agreement or any other materials presented to
the Lender in connection with the purchase and sale of the Convertible Note,
Warrants or Restricted Securities constitutes legal, tax or investment advice.
The Lender has relied on and has consulted with such legal, tax and investment
advisors as he, in his sole discretion has deemed necessary or appropriate in
connection with his purchase of said securities.
(h) Certain Risks. The Lender recognizes that the purchase
of the Convertible Note, Warrants and the Additional Shares involves a night
degree of risk in that: (i) an investment in the Borrower is highly speculative
and only investors who can afford the loss of their entire investment should
consider investing in the borrower; (ii) a purchaser may not be able to
liquidate his investment; (iii) transferability is extremely limited; (iv) in
the event of disposition, the Lender could sustain the loss of his entire
investment; (v) no return on investment, whether though distributions,
appreciation, transferability or otherwise and no performance by, through or of
the Borrower has been promised, assured, represented or warranted by the
Borrower, or by any director, officer, employee, agent or representative
thereof;(vi) although this offering is being made pursuant to Rule 504(b)(1) of
Regulation D of the Act, there may be certain restrictions placed upon the
resale of the securities by a particular state.
(i) Missouri Uniform Securities Act. The Lender
acknowledges that he has been made aware that the securities being offered
herein have not been registered under the Missouri Uniform Securities Act in
reliance on the Accredited Investor Exemption thereunder and that this
representation constitutes the required statement to the effect that the Lender
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is aware that the securities offered hereby may be disposed of only through a
licensed broker-dealer and that Lender is also aware that it is a felony to sell
securities in violation of the Missouri Uniform Securities Act.
(j) Upon the expiration of the Escrow Period as defined in
Section 1(n) of this Article V, the Escrow Agent will be authorized to
distribute the 504 Shares to the subscribers in accordance with the terms of
escrow provisions of the Subscription Agreement and/or an escrow agreement.
ARTICLE IV
COVENANTS
1. Affirmative Covenants of the Borrower.
Except as specifically set forth herein, so long as any part
of the principal of or interest on the Convertible Note remains issued and
outstanding, without the prior written consent of the Lender:
(a) Discharge Taxes and Indebtedness. The Borrower will
pay and discharge, as they become due, all taxes, assessments, debts, claims and
other governmental or non-governmental charges lawfully imposed upon or
incurred by it or the properties and assets of the Borrower, except taxes,
assessments, debts, claims and charges contested in good faith in appropriate
proceedings for which the Borrower shall have set aside adequate reserves for
the payment of such tax, assessment, debt, claim or charge. The Borrower shall
provide the Lender, upon the Lender's request, evidence of payment of such
taxes, assessments, debts, claims and charges satisfactory to the Lender.
(b) Insurance. (i) The Borrower shall maintain such
insurance on its properties and assets with financially sound and responsible
insurance companies, in such amounts as from time to time reasonably required by
the Lender but in no event, less than $1,500,000. The Borrower shall (i) deliver
to the Lender, upon its request, a detailed list of insurance then in effect,
stating (A) the names of the insurance companies, (B) the amounts and rates of
the insurance, (C) dates of expiration thereof and the properties and risks
covered thereby; (ii) upon request, provide to the Lender copies of all
insurance policies. All such policies shall name Lender as an additional insured
and shall be part of the collateral securing the Convertible Note.
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(c) Maintain Properties. The Borrower shall maintain in
full force and effect its corporate existence, rights and franchises and all
material terms of licenses and other rights to use licenses, trademarks, trade
names, service marks, copyrights, patents or processes owned or possessed by it
and necessary to the conduct of its business. The Borrower will maintain,
preserve and keep all of its properties, equipment and assets in good repair,
working order and condition, and make, or cause to be made, all necessary or
appropriate repairs, renewals, replacements, substitutions, additions,
betterments and improvements thereto.
(d) Financial Statements, Reports, Certificates. Borrower
agrees to deliver to Lender (i) as soon as available, but in any event within
forty-five (45) days after the end of each quarter for the first three (3)
quarters during each of the Borrower's fiscal years, a company-prepared balance
sheet, income statements, and cash flow statement prepared by Borrower, covering
Borrower's operations during such period; and (ii) as soon as available, but in
any event within ninety (90) days after the end of each of Borrower's fiscal
years, financial statements of Borrower for each such fiscal year, audited by
independent certified public accountants and certified, by such accountants to
have been prepared in accordance with GAAP. Borrower shall also deliver a copy
of each annual, quarterly and other report or financial statements it shall be
required to file with the Securities and Exchange Commission, promptly after
such filing.
(e) Location of Inventory and Equipment. Borrower shall
keep its inventory only at the locations identified on Schedule 3; provided,
however, that Borrower may amend Schedule 3 so long as such amendment occurs by
written notice to Lender not less than thirty (30) days prior to the date on
which the inventory is moved to such new location, so long as such new location
is within the continental United States, and so long as, at the time of such
written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected, Lender's security interest
in such assets.
(f) Furnish Information. Promptly on request of the
Lender, the Borrower will furnish such information as may reasonably be
necessary to determine whether (a) the Borrower is complying with its covenants
and agreements contained in this Agreement or (b) an event of default has
occurred hereunder.
(g) Maintain Office. The Borrower will maintain an office
at the address set forth in this Agreement or at such other place as it shall
determine upon not less than fifteen (15) days prior notice to the Lender, where
notices, presentations and demands to or upon it with respect to this Agreement
can be made.
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(h) Copies of Legal Process and Claims. The Borrower
shall, within ten (10) days after receipt, forward to the Lender at his offices,
a copy of any communication, notice, legal process or other notification
relating to an uninsured claim or alleged claim against it in excess of Ten
Thousand ($10,000) Dollars and any proceedings relating to the replevin of any
personal property, or to recover possession of any real property, leased or
owned by the Borrower. The Borrower shall, within ten (10) days after receipt,
forward to the Lender at his office, notice of any proceeding or hearing or
threat thereof before any state or Federal bureau, agency, commission, board or
department which could materially affect the operation of its business. With
respect to any legal process, proceeding or hearing, the return date of which is
less than such ten (10) days, notice shall be given forthwith.
(i) Additional Documentation. In furtherance of the
transactions herein contemplated, the Borrower will execute and cause to be
delivered to the Lender and any other holder of the Note such other
certificates, documents, statements, agreements and opinions as may be
reasonably requested by the Lender during the term of this Agreement.
(j) Reserve Shares for Issuance. The Borrower shall at all
times take such action as may be necessary to reserve and keep available such
shares, such portion of its authorized but unissued shares of capital stock,
free from preemptive rights, as shall be required for issuance and delivery of
the Conversion Shares or Warrant Shares upon conversion of the Convertible Note
or Warrant.
(k) Notice of Adverse Change. The Borrower shall promptly
give notice to the holder(s) of the Notes (but in any event within seven (7)
business days) after becoming aware of the existence of any condition or event
which constitutes, or the occurrence of, any of the following:
(i) any Event of Default; or
(ii) the institution or threatening of institution of
an action, suit or proceeding against the Borrower before any court,
administrative agency or arbitrator, including, without limitation, any action
of a foreign government or instrumentality, which, if adversely decided, could
materially adversely affect the business, prospects, properties, financial
condition or results of operations of the Borrower, whether or not arising in
the ordinary course of business.
Any notice given under this Article V, Section (l)(k) shall specify the nature
and period of existence of the condition, event, information, development or
circumstance, the anticipated effect thereof and what actions the Borrower has
taken and/or proposes to take with respect thereto.
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(l) Use of Proceeds. The Borrower shall use approximately
65% of the proceeds of the Loan to finance the costs of the Acquisition and the
acquisition of the Distribution Rights with the balance of the proceeds to be
utilized for working capital.
(m) Compliance With Agreements: Compliance With Laws. The
Borrower shall comply with the terms and conditions of all material agreements,
commitments or instruments to which the Borrower is a party or by which it may
be bound, including but not limited to, the Exchange Agreement. The Borrower
shall duly comply in all respects with any relevant laws, ordinances, rules and
regulations of any foreign, federal, state or local government or any agency
thereof, or any writ, order or decree, and conform to all valid requirements of
governmental authorities relating to the conduct of their respective businesses,
properties or assets, including, but not limited to, the requirements of ERISA,
the Environmental Protection Act, the Occupational Safety and Health Act, the
Foreign Corrupt Practices Act and the rules and regulations of each of the
agencies administering such acts.
(n) Payment of Expenses of Transactions. The Borrower will
pay the fees of counsel for the Lender and any other professional fees incurred
by the Lender in connection with this transaction not to exceed $5,000, which
shall be calculated on the basis of such counsel's customary hourly charges. In
addition, the borrower agrees to pay the reasonable expenses incurred by the
Lender for travel and travel related expenses in connection with this
transaction.
(o) Election to Board. For such time as the Convertible
Note remains outstanding, the Borrower shall take such action as may be
necessary to cause the Board of Directors of Borrower to nominate and recommend
to the shareholders of the Borrower, as a proposed member of the Board, at any
annual or special meeting of shareholders of the Borrower called for the purpose
of voting on the election of directors, or by consensual action of shareholders
of the Borrower with respect to the election of directors, one (1) of the
Lender's designees if the Board of Directors consists of three (3) members and
two of the Lender's designees if the Board of Directors is to consist of five
(5) members.
(p) Negative Covenants of the Borrower.
On and after the date hereof, and for so long as any part
of the principal of or interest on the Convertible Note shall remain unpaid,
without the prior written consent of the Lender:
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(i) No Dividends, Retirement or Purchase of Stock. The
Borrower will not declare or pay any dividend or distribution, in cash or
otherwise, on any shares of stock of the Borrower or redeem, return, purchase or
otherwise acquire directly or indirectly any of its shares of stock now or
hereafter outstanding.
(ii) No Indebtedness. Except for indebtedness owing to
the Lender, the Borrower will not incur any indebtedness for borrowed money.
(iii) No Guarantees. Except for obligations owing to
the Lender, the Borrower will not assume, endorse or become liable for or
guarantee the obligations of any corporation, partnership, individual or other
entity excluding the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
(iv) No Liens. The Borrower will not allow the
mortgage or pledge of, or creation of a security interest in, any of its assets.
(v) No Transfer of Assets. The Borrower will not (a)
enter into any acquisition, merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), (b) convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of the business, property, or
assets, whether now owned or hereafter acquired, of Borrower, or (c) acquire by
purchase or otherwise all or substantially all of the property, assets, stock,
or other evidence of beneficial ownership of any person or entity.
(vi) Extraordinary Transactions and disposal of
Assets. Without the prior written consent of the Lender, which consent shall not
be unreasonably withheld, the Borrower will not enter into any transaction not
in the ordinary and usual course of Borrower's business, including the sale,
lease, or other disposition of, moving, relocation, or transfer, whether by sale
or otherwise, of any of Borrower's properties or assets (other than sales of
inventory to buyers in the ordinary course of borrower's business as currently
conducted).
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ARTICLE V
DEFAULTS AND REMEDIES
1. Events of Default. Any one or more of the following events
shall be considered events of default as that term is used herein:
(a) If the Borrower defaults in the payment of any
installment of principal or interest on the Convertible Note after the same
shall become payable as therein or herein set forth; or
(b) If default beyond thirty (30) days from notice
provided in accordance with Article I, Section 2 shall occur under the terms of
the Convertible Note (other than a default covered by clause (a) above), or in
any other agreement between the Borrower and the Lender, or in any other
document or instrument executed and delivered in connection herewith, or under
any agreement or instrument between the Borrower and any third party, which
results in an acceleration of the making of Borrower's obligation to such third
party or in the termination of such agreement or results in the Borrower
becoming immediately liable for any amount to a third party in excess of
$25,000; or
(c) If any representation or warranty made by the Borrower
herein proves to have been untrue in any material respect as of the Closing
Date, or any information, statement, certificate or data furnished hereunder
proves to have been untrue in any material respect as of the date as of which
the facts therein set forth were stated or certified; or
(d) Except for a default covered by clauses (a), (b), (c)
and (e) hereof, if a default shall be made in the due observance or performance
of any other covenant, affirmative or negative, or condition to be kept or
performed by the Borrower contained in this Agreement; or
(e) If the borrower shall (i) sell all or substantially
all of its assets, or (ii) make a general assignment for the benefit of
creditors, or (iii) apply for or consent to the appointment of a receiver,
trustee, or liquidator of the Borrower or of all or a substantial part of its
assets, or (iv) be adjudicated a bankrupt, or (v) file a voluntary petition in
bankruptcy or a voluntary petition seeking reorganization or to effect a plan or
other arrangement with creditors or file a petition or answer seeking to take
advantage of any law (whether Federal or state) relating to the relief of
debtors
2. Acceleration of Loan. Upon the happening of any event of
default specified in Article V, Section 1, the Lender or any other holder of the
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Convertible Note may, by notice in writing delivered to the Borrower, declare
the entire outstanding and unconverted principal amount of the Convertible Note
held by such Lender or Borrower and the interest accrued thereon immediately due
and payable, and the said principal and interest shall thereupon become and be
immediately due and payable without presentment, demand, protest, notice of
protest or other notice of dishonor of any kind, all of which are hereby
expressly waived by the Borrower, Any principal and interest not paid when due
and payable shall bear interest thereafter at the lesser of two (2%) percent per
month or the maximum rate permitted by applicable law.
3. Enforcement of Rights. Upon the happening of any event of
default specified in Article VI, Section 1, the Lender or any other holder of
the Convertible Note may proceed to protect and enforce its rights with respect
to such note and the other documents referred to herein either by suit in equity
or action at law, and proceed to obtain judgment or any other relief whatsoever.
4. Payment of Expenses. The Borrower shall pay all expenses,
court costs and attorneys' fees which may be incurred by the Lender or any other
holder of the Convertible Note in connection with or arising out of any default
by the Borrower hereunder.
ARTICLE VI
CONDITIONS PRECEDENT
1. Conditions of Lenders' Obligations.
The obligations of the Lender hereunder shall be subject to
the performance by the Borrower of all its agreements theretofore to be
performed hereunder and to the following further conditions:
(a) Officer's Certificate. The Lender shall have received
a certificate or certificates of the President or Vice President and Secretary
or Treasurer of the Borrower dated the Closing Date to the effect that:
(i) The representations and warranties of Borrower
herein and in any of the loan documents executed in connection with this
Agreement are true and correct in all material respects at and as of the Closing
Date; and
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(ii) The Borrower has performed all agreements herein
contained to be performed at or prior to the Closing Date.
(b) Certified Copies of Resolutions. The Lender shall have
received certified copies of resolutions of the Board of Directors of the
Borrower, in form and substance satisfactory to the Lender and its counsel, with
respect to the authorization and execution of this Agreement and the Security
Agreement, and the issuance of the Convertible Note, the Warrant, the Conversion
Shares, the Warrant Shares and the Additional Shares.
(c) Delivery of Instruments and Other Documents. The
Lender shall have received in form and content satisfactory to it and its
counsel, executed copies of (1) the Convertible Note, (ii) the Security
Agreement, (iii) such other documents or instruments as the Lender may
reasonably request.
(d) Acquisition Agreement and Related Documents. The
Acquisition shall have closed in accordance with the provisions of the Exchange
Agreement and without material departure therefrom, and the Lender shall have
received fully executed copies of the Exchange Agreement and other documents
executed in connection therewith, and all conditions precedent to the
consummation of the Acquisition, substantially as set forth in the Exchange
Agreement submitted to the Lender prior to the date hereof (other than the
financing provided hereby) shall have been satisfied.
ARTICLE VII
CLOSING
1. Closing. The closing of the Agreement and the issuance of
the Note to the Lender shall occur at the offices of Bondy and Schloss, LLP, 6
East 43rd Street, New York, NY 10017 at 11:00AM on September 2, 1999 (the
"Closing Date") or at such other time or place as the parties shall agree. The
Borrower shall pay all counsel fees and expenses payable pursuant to Article V,
Section 1(n) hereof at such closing.
ARTICLE VII
Miscellaneous
1. Representation to Survive Closing. All warranties,
representations, covenants and agreements made by the Borrower herein shall
survive the Closing.
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2. Notice. All notices, requests, demands and communications
under or in respect hereof shall be deemed to have been duly given and made if
in writing (including fax) if delivered by hand or left at or posted by pre-paid
registered or certified mail (airmail if dispatched to a foreign county) to the
party concerned at its address appearing below the or sent by fax to the number
and with copy as below indicated, Service shall be deemed to be effective: so
far as delivery by hand is concerned when handed to the recipient or left at the
recipient's address; by post three days after posting (seven days if sent to a
foreign country); by fax on the same day as dispatch and receipt is confirmed.
The said addresses and fax numbers shall continue in force until alternatives
are notified and receipt of such notification has been acknowledged:
If to Lender: Giltner Stevens
2531 East 32nd Street
Joplin, MO 60804
Tel.: (417) 623-0789
Fax.: (417) 623-6188
With a copy to: Benton J. Levy
445 Park Avenue
New York, NY 10022
Tel:(212) 207-8787
Fax:(212) 207-8727
If to Borrower: Premier Classic Art.
1158 Staffler Road
Bridgewater, NJ 08807
Tel: (908) 526-7388
Fax: (908) 595-0072
With a copy to: Bondy & Schloss LLP
6 East 43rd Street
New York, NY 10017
Attention: Gerald A. Adler
Tel: (212) 661-3535
Fax: (212) 972-1677
3. Binding upon Successors. All covenants and agreement
herein contained by or on behalf of the Borrower shall bind its successors and
assigns and shall inure to the benefit of the Lender and its successors and
assigns; Borrower may not assign this Agreement or any rights or duties
hereunder without Lender's prior written consent and any prohibited assignment
shall be absolutely void. Lender reserves the right to sell, assign, transfer,
negotiate, or grant participation in all or any part of, or any interest in
Lender's rights and benefits hereunder; provided, that Lender shall, for
informational purposes but not as a requirement , notify the Borrower of the
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identity of all other assignees or participants who have acquired an ownership
interest in the equity of the Borrower as a result thereof. In connection with
any such assignment or participation, Lender may disclose all documents and
information which Lender now or hereafter may have relating to Borrower or
Borrowers's business.
4. Counterparts. This Agreement may be executed in
counterparts at one time or at different times and, irrespective of the date of
execution between the parties named herein, it shall be deemed executed as of
the date first above written.
5. Governing Law; Jurisdiction. This Agreement and the
performance of the parties hereunder shall be construed and interpreted in
accordance with the internal laws of the State of New York, wherein it was
negotiated and executed, and the parties hereunder consent and agree that the
State and Federal Courts which sit in the State of New York and the County of
New York shall have exclusive jurisdiction with respect to all controversies and
disputes arising hereunder.
6. Severability. If any provision of this Agreement is held
to be unenforceable for any reason, the remainder of this Agreement shall,
nevertheless, remain in full force and effect.
7. No Waiver of Rights. No course of dealing on the part of
the Lender, its officers, agents or employees, nor any failure or delay on the
part of the Lender with respect to the exercise of any right, power or privilege
given or granted hereunder, the Convertible Note or any other document or
instrument executed in connection herewith shall operate as a waiver thereof as
to any future defaults, or any single or partial exercise by the Lender of any
right, power or privilege granted or contained herein or therein shall preclude
the Lender from later or further exercise of any right, power or privilege as to
any future defaults. The rights and remedies of the Lender are cumulative and
not exclusive of any other remedies under law.
8. No Broker. Each of the Lender and Borrower represents and
warrants to each other that they have not employed or dealt with any broker in
connection with any transactions contemplated by this Agreement and each of the
Lender and the Borrower shall indemnify and hold each other harmless from and
against any and all claims at any time heretofore or hereafter made for broker's
or finder's fees or commissions, which claim or claims arise from, out of, or in
connection with any of the transactions with any of the transactions
contemplated by this Agreement.
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9. Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise inducted, the inclusive meaning
represented by the phrase "and/or." The words, "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Article, Section,
subsection, paragraph, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. Any reference in this Agreement or in the
Security Agreement to this Agreement or any of the Security Agreement shall
include all alterations, amendments, changes, extension, modifications,
renewals, replacement, substitutions and supplements, thereto and thereof, as
applicable.
10. Indemnification. In the event the Lender is required to
appear before, or participate in, or become involved with, any proceeding
initiated by or brought with respect to the Borrower by any government or
administrative agency, federal, state or local, investigation the business
operations or activities of the Borrower, the Lender shall be reimbursed by the
Borrower for all expenses incurred by it in connection therewith, including, but
not limited to, attorney's fees. Additionally, the Borrower will indemnify and
hold harmless the Lender from each and every liability, loss, obligation, cost
or expense which may be imposed or arising out of (x) any such proceeding, or
(y) any of the transactions evidenced hereby.
11. Term. This Agreement shall become effective upon execution
and delivery hereof by Borrower and Lender and shall continue in full force and
effect until September 3, 2000; provided, however, that this Agreement may be
terminated sooner at such time as the last to occur of the following events has
occurred: the Convertible Note has been paid in full and/or converted into
Conversion Shares.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
PREMIER CLASSIC ART, INC.
By: _____________________________
Charles F. Trapp, President
_____________________________
Giltner Stevens
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SUB-LEASE AND ASSEMBLY AGREEMENT
Agreement entered into this 3rd day of September 1999 between Royal
Animated Art, Inc. ("Royal") located at 345 maple Drive, #297, Beverly Hills,
California 90210 and Premier Classic Art, Inc. ("PCA") located at 1158 Staffler
Road, Bridgewater, New Jersey 08807.
The parties hereto acknowledge and agree as follows:
1. PCA owns an inventory of approximately 400,000 pieces of animation
art more fully described on the attached Schedule A and hereafter referred to as
the "Cels."
The Cels are currently housed in a warehouse located at 9722 Cozycroft
Avenue, Chatsworth, California 91311. The warehouse is currently leased by
Royal. PCA desires to continue to house the Cels in the warehouse.
2. The Cels are currently in unfinished condition, that is they are
unsorted, uncatalogued, unattached to backgrounds, unmatted and unframed. The
Cels must be cleaned, combined into set-ups, matched with backgrounds, when
appropriate, and prepared for the market, as that term is generally understood
in the animation art industry. Color copies made from original background will
be inserted behind each completed Cel. Studio seals and letters of authenticity
will accompany each completed Cel. Cels will be placed in envelopes approved by
PCA as and when requested.
3. PCA will sub-lease from Royal a portion of the space in the
warehouse located on Cozycroft Avenue in Chatsworth, California to continue to
house the Cels ad in Royal's warehouse on Canoga Avenue in Chatsworth,
California to provide the working area to render the services covered hereby.
PCA agrees to comply with the Terms and Conditions of the underlying lease for
the warehouse between Royal and Cozycroft Equities, a copy of which is attached
hereto (the "Lease").
PCA agrees to pay Royal $1,000 monthly :(plus a pro rated share of any
increases contained in the Lease) plus a pro rata share of the utility and
related charges. The first month's payment is due upon the signing of this
Agreement in addition to a security deposit equal to months' rental.
4. Royal agrees to prepare the Cels for market in the manner descried
above, per instructions from PCA. If requested by PCA, Royal will arrange for
the Cels to be matted and/or framed.
In consideration for these services, PCA agrees to pay to Royal,
reimbursement of its actual out-of-pocket costs for labor and materials, plus
15% as and for overhead. Payments shall be made within ten (10) days of invoice.
<PAGE>
5. Upon written instructions from PCA, Royal agrees to handle the
packing and shipping of the Cels on behalf of PCA and PCA agrees to reimburse
Royal for its out of pocket costs for labor, materials and shipping charges,
plus a 15% overhead charge. Payments are to be made withing ten (10) days of
receipt of invoice.
6. PCA shall bear the sole risk of loss for any and all loss or damage
to the Cels from any cause during the period of this Agreement and shall be
responsible to insure against any such loss or damage and agrees that Royal
shall have no risk or responsibility with respect to eh Cels.
7. Nothing contained within this Agreement is intended to create a
Joint Venture or Partnership. This agreement contains the complete understanding
of the parties. This Agreement may be canceled by either party; by; giving
written notice of such intent to the other party ninety (90) days in advance.
IN WITNESS WHEREOF, the parties hereby acknowledge this Agreement as of
the date entered above.
ROYAL ANIMATED ART, INC.
By ______________________________
Herman Rush, President
PREMIER CLASSIC ART, INC.
By ______________________________
Charles F. Trapp, President:
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AGREEMENT dated as of the 2nd day of September, 1999 by and among
Premier Classic Art, Inc., a Delaware corporation, (the "Acquirer") whose
address is 1158 Staffler Road, Bridgewater, New Jersey 08807, Cool Classic
Incorporated, a Nevada corporation whose address is 10010 Canoga Avenue, Suite
B-1, Chatsworth, California 91311 (the "Company") and Joe Cool Collectibles,
Inc., a Nevada corporation whose address is 10010 Canoga Avenue, Suite B-1,
Chatsworth, California 91311 (the "Shareholder")
W I T N E S S E T H
WHEREAS, the Shareholder is the owner of all of the issued and
outstanding shares of Common Stock, no par value, of the Company, the said
shares being hereinafter referred to as the "Company Shares"; and
WHEREAS, the Shareholder desires to effect a reorganization
and Acquirer desires to participate in the reorganization which includes issuing
shares of stock (the "New Shares") upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and promises contained herein, the parties hereby agree as follows
ARTICLE I
GENERAL
1. PLAN ADOPTED
Plan of Reorganization of Acquirer and Company pursuant to the provisions
of Section 368(a)(1)(B) of the Internal Revenue Code is adopted as follows:
1.1. PLAN OF REORGANIZATION. Upon the terms and subject to the conditions
of this Agreement, the Shareholder will transfer to the Acquirer at the closing
of the transaction contemplated hereby (the "Closing"), 1,000 Company Shares and
shall at the Closing represent that said shares constitute all of the issued and
outstanding shares of Common Stock, no par value, of the Company, free and clear
of all liens, pledges, charges, security interests, encumbrances, title
retention agreements, adverse claims, options, equities or restrictions of any
kind whatsoever, except such restrictions upon transfer as are imposed under the
Securities Act of 1933, as amended (the "Securities Act"). The Shareholder shall
deliver to the Acquirer, at the Closing, certificates representing the Company
Shares, duly endorsed in blank or accompanied by stock powers or other
instruments of transfer, duly endorsed in blank, and shall have annexed thereto
all necessary stock transfer stamps or shall provide funds sufficient for the
purchase thereof at the Shareholder's expense.
<PAGE>
1.2. EXCHANGE. In exchange for the Company Shares, Acquirer will issue and
cause to be delivered to Shareholder 3,069,788 New Shares which equals forty
(40%) percent of the issued and outstanding shares of the Acquirer taking into
account the issuance of the shares of Acquirer's Common Stock set forth on
Schedule 5(c) but not taking into account the shares to be issued upon
conversion of the Conversion Shares or the Warrant Shares as those terms are
defined in Schedule 5(c).
1.3. DELIVERY. Upon the terms and subject to the conditions of this
Agreement, and in full consideration of the transfer and assignment and against
the delivery by the Shareholder of the Company Shares, the Acquirer will deliver
to the Shareholder, on the Closing, the New Shares free and clear of all liens,
pledges, charges, security interests, encumbrances, title retention agreements,
adverse claims, options, equities or restrictions of any kind whatsoever, except
such restrictions upon transfer as are imposed under the Securities Act of 1933,
as amended (the "Securities Act").
1.4. CLOSING. The Closing contemplated by this Agreement shall take place
at the offices of Bondy & Schloss LLP, 6 East 43rd Street, New York, New York at
11:00 A.M. on September 2, 1999 or at such other time and place as shall be
fixed by mutual consent of the parties hereto (the "Closing Date") and the
effective date for all transactions contemplated by this Agreement shall be as
of the Closing Date.
1.5. RESTRICTED TRANSFERABILITY. The Shareholder understands and recognizes
that it must bear the economic risk of an investment in the New Shares for an
indefinite period of time, since such shares have not been registered under the
Securities Act, and therefore, cannot be sold unless they are either
subsequently registered under the Securities Act or an exemption from such
registration is available and favorable opinions of counsel in form and
substance satisfactory to the Acquirer to that effect are obtained, and the
certificates representing any securities shall bear on their face a legend, in
substantially the following form:
The shares represented by this Certificate have not been registered under
the Securities Act of 1933. These shares have been acquired for investment
and not for distribution or resale. They may not be mortgaged, pledged,
hypothecated or otherwise transferred without an effective registration
statement for such shares under the Securities Act of 1933 or unless an
exemption from such registration provisions has been established or unless
sold pursuant to Rule 144 under such Act.
1.6. EXEMPTION. The Shares are being issued in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act, as well as in
reliance upon any other applicable exemption from such registration.
1.7. INVESTMENT INTENT. The Shareholder represents that it is acquiring the
Shares for investment and without an intention to distribute them.
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<PAGE>
ARTICLE II
WARRANTIES AND REPRESENTATIONS
OF SHAREHOLDER AND THE COMPANY
2. The Shareholder and the Company hereby warrant and represent to the
Acquirer as follows:
2.1. ORGANIZATION AND GOOD STANDING OF THE SHAREHOLDER AND THE COMPANY. The
Shareholder and the Company are corporations duly organized, validly existing
and in good standing under the laws of the State of Nevada respectively, have
all requisite corporate powers and authority to carry on their business as
currently conducted and to own or lease and to operate their properties and
assets as and where such properties and assets are now owned or leased and
operated.
2.2. CAPITALIZATION. The authorized capital stock of the Company consists
of 25,000 shares of Common Stock, of which 1,000 are issued and outstanding. No
shares of capital stock are held in the treasury of the Company. All of the
issued and outstanding Company Shares are duly authorized, validly issued, fully
paid and non-assessable, with no liability whatsoever attaching to the ownership
thereof. The Company Shares constitute 100% of the issued and outstanding
capital stock of the Company. There are no subscriptions, options, warrants,
calls or rights of any kind to purchase or otherwise acquire, or plans,
contracts or commitments providing for the issuance of, or the granting of
rights to acquire, and no securities convertible into, or exchangeable for, any
capital stock of the Company, and the holder of the capital stock has no
preemptive rights.
2.3 DUE AUTHORIZATION. The execution, delivery and performance of the
transactions contemplated by this Agreement by the Company and the Shareholder
have been duly authorized by their respective Boards of Directors and will not
contravene any provisions of any agreements to which it is a party, an order of
any court or other agency of government or its Certificate of Incorporation or
by-laws.
2.4. TITLE TO SHARES, CAPACITY, ETC.
(a) All of the Company Shares are owned of record and beneficially by
the Shareholder. Upon the delivery of and payment for the Company Shares, at the
Closing, as provided in Article 1.3 hereof, the Acquirer will acquire from the
Shareholder, good and marketable title to said shares, free and clear of all
liens, pledges, charges, security interests, encumbrances, community property
rights, title retention agreements, restrictions on transfer or voting, claims,
options or equities or other defects of title of any kind whatsoever, except
such restrictions upon transfer as may be imposed by the Securities Act.
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<PAGE>
(b) The Shareholder has full legal right, power and capacity to sell,
assign, transfer and deliver the Company Shares.
(c) The execution and delivery of this Agreement and the sale of the
Company Shares will not conflict with or result in a breach of any of the terms
or provisions of any mortgage, lease, bond, note, debenture, guaranty, deed of
trust or other agreement, instrument or arrangement to which either the
Shareholder or the Company may be or is a party (including by operation of law)
or by which the property of the Company is bound, or any law, administrative
regulation, or any order of any court or governmental agency or authority
entered in any proceeding to which either the Shareholder or the Company was or
is a party or by which their or its property is bound.
(d) There are no actions, suits, legal or governmental proceedings
pending or threatened or relating to this Agreement or the transactions
described herein.
(e) The Shareholder and the Company have duly and irrevocably
authorized, executed and delivered this Agreement and all other documents
necessary to effect the transactions contemplated hereby.
2.5. LEGAL, VALID AND BINDING. This Agreement constitutes the legal, valid
and binding obligation of the Shareholder, enforceable against it in accordance
with its terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and court decisions with respect thereto,
and the availability of equitable remedies.
2.6. FINANCIAL.
(a) The Shareholder and the Company have furnished to the Acquirer a
true and complete copy of a financial statement of the Company as of the Closing
Date, attached hereto as Exhibit A . The financial statement is, and will be on
the date of the Closing, true and complete with respect to each item therein and
will have been prepared in accordance with generally accepted accounting
principals. All assets included in the balance sheet are owned free and clear of
any lien, royalties and encumbrances. The Acquirer recognizes that the Company
is a recently formed entity and that its only assets are certain original
production cels (the "Cels") used in the production of animation art and are the
original hand painted drawings on one or more pieces of acetate, approximately
12" by 10" in size and a small amount of Pan Cels, i.e. original hand painted
drawings on one or more pieces of acetate, approximately 36" by 10" in size.
Each Cel or group of Cels will constitute a complete picture, including all
necessary backgrounds. Each Cel shall include, if available, the artist's
sketches. The Cels are specifically described in Schedule 2.7 hereof. A master
Certificate of authenticity reflecting the copyright information required (if
any) will be delivered for each title on Schedule 2.7.
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<PAGE>
(b) The Shareholder and Company have duly and timely filed all
federal, state and local tax returns required to be filed prior to the date of
this Agreement, and have properly and correctly reported on such returns all
taxes required to be paid by each of them, including income, employment,
franchise, property, rent and sales and use tax returns and has paid all taxes
due and payable on such returns, all deficiencies and assessments, notice of
which has been received, all other taxes and all governmental charges duties,
penalties, interest and fines (collectively "Other Charges") due and payable on
or before the date of the Agreement. All such tax returns required to be filed
after the date of this Agreement and on or prior to the Closing Date, and all
such deficiencies, assessments, taxes and Other Charges required to be paid
during such period, will be filed and paid prior to the Closing Date;
(c) There are no suits, actions, claims, audits, investigations,
inquiries or proceedings pending against the Company in respect of any unpaid
taxes, deficiencies, assessments or Other Charges and there are no such
threatened suits, actions, claims, audits, investigations or inquiries;
2.7. CERTIFICATE OF INCORPORATION BY-LAWS, ETC. True and complete copies of
the Certificate of Incorporation, By-Laws, stock books and stock transfer
records of the Company have been furnished to the Acquirer, and there will be no
amendments or changes thereto prior to the Closing Date. The minute books of the
Company, which have been made available to the Acquirer, contain true and
complete minutes and records of all meetings, proceedings and other actions of
the stockholders, Board of Directors and committees of the Board of Directors of
the Company from the date of the Company's organization to and including the
Closing Date.
2.8. ASSETS. The Company has good and marketable title to its Assets. Set
forth on Schedule 2.7 hereto is a true and correct list of all assets of the
Company owned by it.
2.9. MATERIAL CONTRACTS OF COMPANY. The Company, as of the date hereof, is
not a party to, or bound or affected by any agreement, arrangement or commitment
relating to:
(i) the employment of any person other than officers and personnel
employed at the pleasure of Company in the ordinary course of its business;
(ii) the election or retention in office of any director or officer;
(iii) bonuses, pensions, profit-sharing, retirement, stock options,
stock purchases, employee discounts or other employee benefits;
2.10. LEGAL PROCEEDINGS. Except as set forth on Schedule 2.8 hereto, there
are no actions, suits, proceedings or investigations instituted by or against or
pending or threatened against or affecting, the Company, at law, in equity or
admiralty or before any governmental department, commission, board, agency or
instrumentality, domestic or foreign, whether or not fully
5
<PAGE>
covered by insurance, and the Company is not in default with respect to any
order, writ, injunction or decree of any court or any such department,
commission, board, agency or instrumentality, domestic or foreign.
2.11. ORDERS, DECREES, ETC. There are no orders, decrees, injunctions or
regulations of any court or any governmental department, commission, board,
agency or instrumentality issued specifically against the Company, which do or
may affect, limit or control the Company's method or manner of conducting
business.
2.12. REPRESENTATIONS AND WARRANTIES AT CLOSING. Each representation and
warranty of the Shareholder and the Company as contained in this Agreement will
be true and correct on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date.
ARTICLE III
WARRANTIES AND REPRESENTATIONS OF THE ACQUIRER
WARRANTIES AND REPRESENTATIONS. The Acquirer hereby warrants and represents
as follows:
3.1 CORPORATE ORGANIZATION, ETC. The Acquirer is a corporation duly
organized and existing under the laws of the State of Delaware and has all
requisite corporate power to carry on its business as currently conducted and to
own or lease and to operate its properties and assets as and where such
properties and assets are now owned or leased and operated.
3.2 CAPITALIZATION. The authorized capital stock of the Acquirer consists
of 50,000,000 shares of common stock, $.001 par value, of which, as of August
31, 1999, 212,286 shares were issued and outstanding and 10,000,000 shares of
Preferred Stock $.002 par value, of which 216,800 shares were issued and
outstanding as of August 31, 1999.. The outstanding shares of Preferred Stock
are convertible into an aggregate of 48,780 shares of Common Stock . All of the
issued and outstanding shares of Common Stock and Preferred Stock of the
Acquirer are duly authorized, validly issued, fully paid and non-assessable,
with no liability whatsoever attaching to the ownership thereof. Except as set
forth in Article V(c) hereof, there are no subscriptions, options, warrants,
calls or rights of any kind to purchase or otherwise acquire, or plans,
contracts or commitments providing for the issuance of, or the granting of
rights to acquire, and no securities convertible into, or exchangeable for, any
capital stock of the Acquirer, and none of the holders of the Acquirer's stock
has any preemptive rights.
3.3 DUE AUTHORIZATION. The execution, delivery and performance of the
transactions contemplated by this Agreement by the Acquirer have been duly
authorized by its Board of Directors and will not contravene any provisions of
any agreements to which it is a party, an order of any court or other agency of
government or its Certificate of Incorporation or by-laws.
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3.4 LEGAL VALID AND BINDING. This Agreement constitutes the legal, valid
and binding obligation of the Acquirer, enforceable against it in accordance
with its terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors rights generally or court decisions with respect thereto and
the availability of equitable remedies.
3.5 ISSUANCE OF NEW SHARES. Acquirer is authorized to issue the New Shares.
Upon the issuance of the New Shares, the New Shares shall be fully paid, validly
issued and non-assessable.
3.6 LITIGATION. No material litigation, proceeding or controversy before
any court or governmental agency is pending, and, to the best of its knowledge,
no such litigation, proceeding or controversy has been threatened.
3.7 AUTHORITY TO CONDUCT BUSINESS. Acquirer has the corporate power and
authority to carry on its business as it is now being conducted and to own all
its material properties and assets.
3.8 MATERIAL CONTRACTS OF ACQUIRER. Except as set forth on Schedule 3.8
hereto, Acquirer as of the date hereof is not a party to, or bound or affected
by any agreement, arrangement or commitment relating to:
(i) the employment of any person other than officers and personnel
employed at the pleasure of Acquirer in the ordinary course of its business;
(ii) the election or retention in office of any director or officer;
(iii) bonuses, pensions, profit-sharing, retirement, stock options,
stock purchases, employee discounts or other employee benefits;
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Other than obligations to its
processionals, relating to the transactions contemplated hereby and except as
set forth on Schedule 3.9 hereof, to the actual knowledge of Acquirer, Acquirer
has no other obligations or liabilities
3.10 BROKERS AND FINDERS. Acquirer has not employed or consulted with any
broker or finder in connection with this transaction.
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ARTICLE IV
SHAREHOLDER AND COMPANY COVENANTS
4.1 COVENANTS AND AGREEMENTS . Between the date hereof and the Closing
Date, the Shareholder and the Company covenant and agree that:
(a) Access to Books and Records. The Acquirer and its authorized
representatives shall have full access to the premises and to all books and
records of the Company, and the right to make copies thereof and to take
excerpts therefrom, and the Shareholder and Company agree to furnish the
Acquirer with such other information with respect to the Company as the Acquirer
may from time to time reasonably request. In connection therewith, the
Shareholder and the Company agree to provide Acquirer with copies of all
documents reflecting the transfer to the Company of title to the Cels.
(b) No Change in Capital Stock. No change will be made in the
authorized, issued or outstanding capital stock of the Company and no
subscriptions, options, rights, warrants, calls, commitments or agreements
relating to the authorized, issued or outstanding capital stock of the Company
will be entered into, issued, granted or created.
(c) No Dividend or Redemption. No dividend or other distribution or
payment will be declared, set aside, paid or made on or in respect of shares of
the capital stock of the Company, nor will the Company directly or indirectly,
redeem, retire, purchase or otherwise acquire any of such capital stock.
(d) No Liquidation, Merger, Sale or Acquisition: Sale of Stock. The
Shareholder and the Company will not dissolve, liquidate, adopt a plan of
liquidation or merge, amalgamate or consolidate with any other corporation or
acquire or sell all or substantially all of the business or assets of the
Shareholder or the Company. The Company will not acquire ownership or control of
any capital stock, bonds or other securities of, or any proprietary interest in,
any corporation, partnership, firm, association or business organization, entity
or enterprise, or acquire control, directly or indirectly, of the management or
policies thereof. The Company will not initiate or engage in any negotiations
relating to any of the aforesaid transactions or solicit any offers in
connection therewith.
(e) No Sales or Other Dispositions. The Company will not sell, lease,
abandon, assign, transfer, license, or otherwise dispose of any of its assets.
(f) Prohibition of Certain Commitments. The Company will not incur or
become subject to or agree to incur or become subject to, any liability or
obligation, absolute or contingent.
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(g) No Defaults. The Company will not default under or breach any term
or provision of, or suffer or permit to exist any condition or event which,
after notice or lapse of time or both, would constitute a default under, any
contract, agreement, lease, license, commitment, instrument or obligation to
which the Company is a party.
(h) Maintenance of Properties. The Shareholder shall cause the Company
to keep and maintain its assets in good condition.
(i) Actions Affecting Representations, Warranties and Covenants. The
Shareholder shall cause the Company to refrain from doing any act or thing, or
suffer any act or thing to be done or to exist, which would result in (a) an
inaccuracy in any representation or breach of any warranty of the Company under
this Agreement if such representation or warranty were deemed to be restated and
made again at the time of doing or suffering such act or thing or at the Closing
Date, or (b) any failure by the Shareholders to duly perform or observe any
term, provision, covenant, agreement or condition set forth or provided for in
this Agreement.
(j) Books and Records. The Shareholders shall cause the Company to
maintain its books and records in accordance with generally accepted accounting
principles.
(k) Further Sale or Licensing of Cells. The Shareholder and the Company
will not, subsequent to the Closing herein sell or license others to sell
reproductions in any form of any of the Cels being sold pursuant to this
Agreement.
ARTICLE V
COVENANTS OF ACQUIRER
5. COVENANTS AND AGREEMENTS. Between the date hereof and the Closing Date,
the Acquirer covenants and agrees that:
(a) Investigation by the Shareholders. The Shareholder may, prior to the
Closing Date through its own representatives, make such investigations of the
Acquirer for such purposes as they deem necessary or advisable in connection
with the transactions contemplated hereby, including, without limitation,
enabling them to familiarize themselves with such assets, properties, plants,
operations and financial condition of the Acquirer.
(b) No Change in Corporate Charters or By-Laws. No change will be made
in the corporate charter, by-laws or other constituent documents of the
Acquirer.
(c) No change in Capital Stock. Except as set forth on Schedule V(c)
hereto, no
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change will be made in the authorized, issued or outstanding capital stock of
the Acquirer and no substitutions, options, rights, warrants, calls, commitments
or agreements relating to the authorized, issued or outstanding capital stock of
the Acquirer will be entered into, issued, granted or created except those
already in place on the date hereof. Notwithstanding the foregoing, the Acquirer
may issue shares of stock or options, rights or warrants to acquire shares of
stock for a consideration equal to the market price of the Acquirer's stock as
of the date of the issuance of such stock or options, rights or warrants.
Notwithstanding the foregoing, if any shares of stock or options, rights or
warrants to acquire shares are offered to any officers, directors, or affiliated
or related parties, Shareholder shall be given the same opportunity to accept
such offer on the same terms and conditions, in an amount proportionate to their
respective holdings.
(d) No Liquidation, Merger, sale or Acquisition; Sale of Stock. The
Acquirer will not dissolve, liquidate, adopt a plan of liquidation or merge,
amalgamate or consolidate with any other corporation or acquire or sell all or
substantially all of the business or assets of the Acquirer or any of its
subsidiaries except to another subsidiary.
5.1 REGISTRATION OF SECURITIES.
(a) In the event Acquirer shall, at any time, register securities of
any of its officers or directors with the Commission in accordance with the
Securities Act, the Shareholder shall have the option, exercisable in writing,
to cause Acquirer to register that percentage of the New Shares delivered to
them by Acquirer, then owned by them, as is equal to the percentage of the
shares being registered for Acquirer's officer or director or, if there is more
than one officer or director, the percentage of the officer or director for whom
the largest percentage of shares owned by that director or officer is being
registered. Notwithstanding the foregoing, the Shareholder may not register more
than 50% of the shares being acquired by it.
(b) In the event Acquirer shall, at any time, register its securities
in connection with a public sale of such securities, it agrees to simultaneously
register 50% or more of the New Shares.
(c) Cooperation with Acquirer. The Shareholder will cooperate with the
Acquirer in all respects in connection with this Agreement, including, the
timely supplying of all information reasonably requested by the Acquirer and
executing and returning all documents reasonably requested in connection with
the registration and sale of the Registrable Securities.
10
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO THE TRANSACTION
6.1 CONDITIONS PRECEDENT TO THE ACQUIRER'S OBLIGATION TO CLOSE.
Notwithstanding any other provision herein, the obligations of the Acquirer
under this Agreement are, at the option of the Acquirer, subject to the
fulfillment of each of the conditions set forth below.
(a) Representations, Warranties, Covenants, Agreements and Conditions.
The representations and warranties of the Shareholder contained in this
Agreement, or otherwise made in writing in connection with the transactions
contemplated hereby, shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date. On
or before the Closing Date, the Shareholder shall have complied with and duly
performed any and all covenants, agreements and conditions in all material
respects, on its part to be complied with or performed pursuant to or in
connection with this Agreement.
(b) Certificates. The Acquirer shall have received a certificate dated
the Closing Date and executed by the Shareholder certifying that the
representations and warranties made by the Shareholder in this Agreement are
true and correct at and as of the Closing Date and that it has fulfilled the
covenants, agreements and conditions to be fulfilled by such Shareholder.
(c) Opinion of Counsel. The Acquirer shall have received an opinion of
counsel for the Shareholder, dated as of the Closing Date, in form and substance
satisfactory to the Acquirer, to the effect that to the best of his knowledge,
(i) the Shareholder and the Company are corporations duly incorporated and
validly existing and in good standing under the laws of the State of Nevada and
have the corporate power to carry on its business as it is now being conducted
(.ii) this Agreement has been duly executed by the Company and the Shareholder
and is the valid and binding obligation of the Company and the Shareholder in
accordance with its terms, except as the same may be limited or otherwise
affected by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and the availability of
equitable remedies; and, (iii) the Company Shares are validly issued, fully paid
and non-assessable.
(d) Approval of Counsel to the Acquirer. All actions, proceedings,
instruments and documents required to carry out this Agreement or incidental
thereto, and all other related legal matters shall have been approved by Bondy &
Schloss LLP, counsel for the Acquirer.
(e) No Legal Proceedings. No action or proceeding shall have been
instituted to restrain or prohibit the acquisition by the Acquirer, or the
conveyance by the Shareholder, of the Shares.
11
<PAGE>
(f) No Loss. The assets of the Company shall not have suffered any
destruction or damage by fire, explosion or other calamity exceeding Ten
Thousand ($10,000) Dollars in value not covered by insurance or materially and
adversely affecting the conduct of the business of the Company or its net worth.
6.2 SHAREHOLDERS'S CONDITIONS PRECEDENT. The obligations of the
Shareholders to consummate this Agreement shall be conditioned upon each of the
following:
(a) Representations, Warranties, Covenants, Agreements and Conditions.
The representations and warranties contained in this Agreement made by the
Acquirer shall be true in all material respects at the Closing Date as though
such representations and warranties were made at closing. The Acquirer shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing Date.
(b) Opinion of Counsel. The Shareholder shall have received an opinion
of Bondy & Schloss LLP, counsel for the Acquirer, dated as of the Closing Date,
in form and substance satisfactory to the Shareholders to the effect that to the
best of their knowledge (i) the Acquirer is a corporation duly incorporated and
existing and in good standing under the laws of the State of Delaware (ii) this
Agreement has been duly executed by the Acquirer and is the valid and binding
obligation of the Acquirer in accordance with its terms, except as the same may
be limited or otherwise affected by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws relating to or
affecting creditors' rights generally and court decisions with respect thereto,
and the availability of equitable remedies; and, (iii) the New Shares shall be
validly issued, fully paid and non-assessable.
ARTICLE VII
MISCELLANEOUS
7.1 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations, warranties,
covenants or agreements by any party to this Agreement, nor any document,
certificate or schedule furnished or to be furnished pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements of facts contained herein not
misleading.
7.2 SURVIVAL OF REPRESENTATIONS ETC. All statements contained in any
certificate or other instruments delivered by or on behalf of the Shareholder or
the Company pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Shareholder and the
Company hereunder, and all statements contained in any certificate or other
instruments delivered by or on behalf of the Acquirer pursuant hereto, or in
connection with the transactions contemplated hereby, shall be deemed
representations and warranties by the Acquirer hereunder.
12
<PAGE>
7.3 NO WAIVER. The failure of any of the parties hereto to enforce any
provision hereof on any occasion shall not be deemed to be a waiver of any
preceding or succeeding breach of such provision or any other provision.
7.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties hereto and no amendment, modification or waiver of
any provision herein shall be effective unless in writing executed by the party
charged therewith.
7.5 GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with and shall be governed by the laws of the State of
New York, without reference to the principles of conflicts of laws.
7.6 BINDING EFFECT. This Agreement shall bind and inure to the benefit of
the parties, their successors and assigns.
7.7 ASSIGNMENT. No party may assign its rights or delegate its obligations
under this Agreement without the prior written consent of all parties hereto.
7.8 PARAGRAPH HEADINGS. The paragraph headings herein have been inserted
for convenience of reference only, and shall in no way modify or restrict any of
the terms or provisions hereof.
7.9 NOTICES. Any notice or other communication under the provisions of this
Agreement shall be in writing, and shall be given by postage prepaid, registered
or certified mail, return receipt requested, by hand delivery with return
receipt requested, or by the Express Mail Service offered by the United States
Post Office, directed to the addresses set forth above, or to any new address of
which any party shall have informed the others by the giving of notice in the
manner provide herein with copies to: .
Michael Luftman, Esq. (Counsel to Company and Shareholder)
Reish & Luftman
11755 Wilshire Boulevard
Los Angeles, CA 90025; and
Irwin E. Russell, Esq.
9401 Wilshire Boulevard, Suite 760
Beverly Hills, CA 90212
Gerald A. Adler, Esq. (Counsel to Acquirer)
Bondy & Schloss LLP
6 East 43rd Street
New York, NY 10017
Such notice or communication shall be effective, if sent by mail, three days
after it is mailed within the
13
<PAGE>
continental United States; if sent by Express Mail service, one day after it is
mailed, or by hand delivery, upon receipt.
7.10 CONSENT TO SERVICE OF JURISDICTION AND VENUE.
(a) The Shareholder hereby irrevocably consent to the jurisdiction and
venue of the courts of the State of New York, and of any United States District
Court located within the State of New York in connection with any action or
proceeding arising out of or relating to this Agreement.
(b) The Acquirer hereby irrevocably consents to the jurisdiction and
venue of the courts of the State of New York and of any United States District
Court located within the State of New York in connection with any action or
proceeding arising out of or relating to this Agreement.
7.11 UNENFORCEABILITY, SEVERABILITY. If any provision of this Agreement is
found to be void or unenforceable by a court of competent jurisdiction then the
remaining provisions of this Agreement, shall, nevertheless, be binding upon the
parties with the same force and effect as though the unenforceable part had been
severed and deleted.
7.12 EXECUTION OF DOCUMENTS. At any time, and from time to time hereafter,
the parties hereto will execute and deliver such further conveyances,
assignments and other written assurances as shall reasonably be requested in
order to vest and confirm title to the New Shares, the Company Shares and/or the
assets of the company. and conveyed hereunder.
7.13 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be deemed to be duplicate originals.
7.14 EXPENSES. Shareholders and Acquirer shall pay their own expenses in
connection with this Agreement, including the fees and disbursements of their
counsel, whether or not the transactions contemplated hereby are consummated.
Shareholders agree that their fees will not be charged to the Company.
14
<PAGE>
ARTICLE VIII
TERMINATION
Notwithstanding any other provision of this Agreement, this Agreement may
be terminated:
8.1 FAILURE TO CLOSE. By either Shareholder or Acquirer upon written notice
to the other if the Closing shall not have occurred by the close of business on
or before September 2, 1999, unless the delay results from an action taken, or
the failure to take an action by such party, in breach of this Agreement.
8.2 MATERIAL BREACH BY SHAREHOLDER. At any time prior to or on the Closing
Date, upon written notice by Acquirer to Shareholder, if Shareholder shall have
been in material breach of any representation, warranty, covenant, undertaking
or restriction herein contained and such breach has not been cured by 30 days
after the giving of written notice by Acquirer to Shareholder of such breach.
8.3 MATERIAL BREACH BY ACQUIRER. At any time prior to or on the Closing
Date, upon written notice by Shareholder to Acquirer, if Acquirer shall have
been in material breach of any representation, warranty, covenant, undertaking
or restriction herein contained and such breach has not been cured by 30 days
after the giving of written notice by Shareholders to Acquirer of such breach.
8.4 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either Acquirer or Shareholder as provided above, this Agreement shall forthwith
become void and there shall be no liability on the part of any of the parties
hereto or their respective officers and directors.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date first above written.
Joe Cool Collectibles, Inc.
By:_________________________________
Joseph Cesaro, President
Premier Classic Art, Inc.
By:_________________________________
Charles F. Trapp, President
Cool Classic Incorporated
By:_________________________________
Joseph Cesaro, President
16
<PAGE>
SCHEDULE 2.7
400,000 Original Hand-Painted on acetate consisting of a mixture of 12 Field
(approx. 12" x 10") and Pan Cels (approx. 36" x 10"). Animation Production Cels
(cels) selected from and used on the following programs:
1. Real Ghostbusters/Slimer approx 75,000
2. Ewoks (Star Wars) approx 75,000
3. He-Man, Master of the Universe approx 75,000
4. She-Ra, Princess of Power approx 75,000
5. Bravestar approx 45,000
6. Flash Gordon approx 10,000
7. Shelly Duvall's Bedtime Stories approx 10,000
8. Beethoven approx 5,000
9. Back to the Future approx 10,000
10. Miscellaneous approx 20,000
The total number of "cels" shall be 400,000, however, the number from each of
the titles may vary slightly.
17
<PAGE>
SCHEDULE 2.8
Pending or threatened actions, suits, proceedings or investigations instituted
by or against the Company: NONE.
18
<PAGE>
SCHEDULE 3.8
The Acquirer is obligated to pay to Anthony DiNota, a finder's fee in the amount
of $140,000 payable as follows: $40,000 at the closing of the loan transaction
with Giltner Stevens and $5,000 per for 20 months commencing three months after
the closing of the Giltner Stevens transaction.
At such times as the $775,000 Convertible Note of the Acquirer to Giltner
Stevens remains outstanding, Giltner Stevens has the right to designate one (1)
member of the Board of Directors if the Acquirer maintains a three (3) member
Board of Directors and to designate two(2) members of the Board of Directors if
the Acquirer maintains a five(5) member Board of Directors.
19
<PAGE>
SCHEDULE V(c)
1. The Acquirer is obligated to issue the following securities:
(i) pursuant to agreements to be entered into with Giltner Stevens, 100,000
shares of the Acquirer's Common Stock, a Convertible Promissory Note convertible
into 250,000 shares of the Acquirer's Common Stock (the "Conversion Shares"),
and a warrant to purchase 400,000 shares of the Acquirer's Common stock at $1.00
per share (the "Warrant Shares);
(ii) the issuance of 1,158,845 shares of Common Stock to Charles F. Trapp, an
officer and director of the Company.
(iii) 75,000 shares of Common Stock to Louis Pistelli for agreeing to serve as a
director of the Acquirer.
(iv) 306,980 shares to Michael Salerno for services rendered
(v) 76,744 shares to Charles McLaughlin for services rendered
(vi) 376,049 shares to Royal Trading Ltd. for services rendered.
2. The Acquirer intends to issue 2,250,000 shares of the Acquirer's Common Stock
to Accredited Investors in a placement pursuant of Regulation D of the
Securities Act of 1933, as amended
20
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, entered into as of the 1st day of September, 1999 by and between
Premier Classic Art, Inc. a Delaware corporation, having its principal office at
1158 Staffler Rd. Bridgewater, NJ 08807 and (hereinafter referred to as the
"Corporation"), and Charles F. Trapp residing at 1158 Staffler Rd., Bridgewater,
NJ 08807 (hereinafter referred to as the "Employee").
WHEREAS, the Corporation desires to employ the Employee and the
Employee desires to be employed by the Corporation upon the terms and subject to
the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual coverants herein
contained, And for other good and valuable consideration, it is agreed as
follows:
1. (a) This Corporation hereby employs the Employee as its President
and Chief Financial Officer. The employee shall perform the duties and have the
responsibilities normally associated with such offices.
(b) The Employee agrees to devote substantially all of his time
during normal business hours to the Corporation's business and at other times as
are reasonably necessary. The Employee agrees to use his best efforts while
performing the aforesaid duties and such other executive duties consistent with
the office of president as shall from time to time be assigned to him by the
Board of Directors of the Corporation. During the term of his employment
hereunder, the Employee shall not perform any services for any other company,
which services conflict with his obligation
<PAGE>
under the next preceding sentence of this paragraph 1(b). Nothing in this
Agreement shall preclude the Employee from devoting reasonable periods required
for:
(i) serving as a director or member of a committee of any
organization involving no conflict of interest with the interest of the
Corporation;
(ii) delivering lectures, fulfilling speaking engagements,
teaching at educational institutions;
(iii) engaging in charitable and community activities; and
(iv) managing his personal investments, provided that such
activities do not materially interfere with the regular performance of his
duties and responsibilities under this agreement.
2. (a) The Corporation shall pay to the Employee, commencing
September 2, 1999 a gross salary (before deduction for income taxes, social
security, unemployment benefits, and other deductions required by law ("Base
Salary") at the rate of Sixty Thousand Dollars ($60,000) per annum for the year
ending August 31, 2000. Base Salary shall be payable no less often than monthly
in accordance with corporate policy.
(b) During the Term of Employment, the Executive shall be paid a
10% bonus annually by the Company after completion of the annual audit of the
<PAGE>
Company's financial statements by the independent accountants. The Bonus shall
be based upon the net income of the Company, determined in accordance with
Generally Accepted Accounting Principles, before charges for officers' bonus and
income taxes (EBOBAT).
(c) The Corporation will reimburse the Employee for his necessary
and reasonable out-of-pocket expenses incurred in the course of his employment
and in connection with his duties hereunder, upon presentation to the
Corporation of satisfactory evidence of such expenses.
(d) The Corporation will provide the Employee, his dependents and
beneficiaries, with all payments and benefits to which officers of the
Corporation, their dependents and beneficiaries, are entitled as the result of
the employment of such officers during the period of employment under the terms
of all employee plans.
(e) Medical, dental, health and welfare plans, stock option
plans, stock purchase plans and other deferred compensation plans.
(f) During the term of employment the Company shall pay premiums
on behalf of the Employee up to $3,000 per year for life insurance policies
under which the ownership and beneficiaries are to be designed by the Employee.
(g) During the term of employment the Company shall lease for the
Employee an automobile of the Employee's choice with a cost of up to $35,000 or
in the alternate, the employee may elect to receive a monthly payment consistent
with
<PAGE>
the Internal Revenue Service lease schedule for a vehicle of equivalent value.
Employee shall be subject to taxation for personal use of the automobile in
accordance with the Internal Revenue Code and the Internal Service regulations
thereunder.
(h) Employee will be entitled to all holidays, vacation, sick
leave, and similar benefits provided to the Corporation's other senior
executives.
(i) In the event that there is a material change in the duties
and responsibilities, or location of employment of the Employee from that
existing on the date of this Employment Agreement, Employee shall have the
option to terminate this Employment Agreement by resigning after which he shall
be entitled to receive during the balance of the term monthly payments in the
amount equal to one-twelfth (1/12) of the then Base Salary.
3. The term of the Employees employment hereunder (hereinafter
referred to as the "Term") shall commence on the date hereof and terminate
August 31, 2002.
4. This Employment Agreement and the employment of the Employee
hereunder shall terminate:
(a) As of the close of business on the last day of the month in
which occurred the death of the employee. Accordingly, the legal representative
of the deceased Employee shall be entitled to the compensation for the month in
which death
<PAGE>
shall have occurred plus the amount of bonus that would be due the Employee from
the current year and any unpaid bonus from the prior year. Such Salary and Bonus
shall be paid within 30 days of the end of the month;
(b) At the option of the Corporation, upon written notice to the
Employee, in the event the Employee engages in conduct constituting Cause. For
the Purpose of any provision of this Agreement, the termination of the
Employee's employment shall be deemed to have been for Cause only if the
Employee is guilty of willful misconduct or if the Employee is convicted of
willful criminal conduct (or pleads guilty to such a crime) which is materially
injurious to the Corporation. If Termination is for Cause, Employee shall be
paid the balance if his monthly Base Salary;
(c) If Termination is due to nonperformance by the Corporation
for any reason, or is due to the liquidation, dissolution, consolidation or
merger of the Corporation or transfer of all or a significant portion of its
assets unless the successor to which all or a significant portion of its assets
have been transferred shall have assumed all duties and obligations of the
Corporation under this Employment agreement then the employee shall receive a
consulting fee equal to $100,000 per year for two years following the Employee's
Termination, and shall be payable in equal quarter-annual installments of
$25,000 each.
This Employment Agreement constitutes the entire agreement and understanding
between the Corporation and the Employee relating to the latter's employment,
shall be governed by and construed in accordance with the laws of the State of
New Jersey and may not be changed, terminated or discharged orally.
James Cheatham
President and Director
Charles F. Trapp
<PAGE>
DISTRIBUTION AGREEMENT
Agreement dated this day of September, 1999 by and between Premier
Classic Art, Inc., a Delaware Corporation ("PCA") whose address is 1158 Staffler
Road, Bridgwater, NJ 08807 and Royal Animated Art, Inc., ("Royal") a, California
whose address is 345 North Maple Drive, Suite 297, Beverly Hills, California
90210.
W I T N E S S E T H
WHEREAS, Royal has the right to reproduce, as animation art and/or
comic strip lithographs, numerous animation and comic strip images and
characters, (the "property"), as more particularly described herein);
WHEREAS, Royal desires to grant to PCA the non-exclusive right to
purchase from Royal various forms of the Property as described herein, and PCA
desires to acquire the right to make such purchases;
NOW THEREFORE, subject to the mutual rights and obligations set forth
herein, the parties agree as follows:
1. Royal hereby grants to PCA the non-exclusive right to purchase and
market reproductions in the forms described below, or in such additional forms
as shall be mutually agreed upon, of the Property to which Royal now has or
hereafter acquires reproduction rights, directly or through affiliates. Such
forms shall include hand painted animated cels, seri-cels which are mechanically
reproduced by use of silk screen process, chromo-cels which use offset printing,
and/or lithographic reproductions and comic strip lithographs.
2. The Property as defined herein shall include all animation art and
comic strip lithographs, which Royal now has (as set forth in Schedule A) or
hereafter acquires reproduction rights to.
3. The rights granted to PCA hereunder shall be subject to such
restrictions and limitations as are contained in the agreements under which
Royal acquired such rights, and to the approval of Royal over whether and how
many reproductions of each particular Property should be sold to PCA. Such
approvals shall not be unreasonably withheld.
4. PCA shall pay to Royal for Art purchased by and delivered to PCA, a
percentage of Royal's suggested Wholesale and/or Retail price, as shall be
applicable as follows:
(a) Fifty percent (50%) o\f Royal's suggested Retail price, when PCA
sells direct to the ultimate consumer;
<PAGE>
(b) Twenty-five percent (25%) of Royal's suggested retail price,
when PCA sells to wholesalers. distributors, retailers, and/or other middlemen.
Royal's suggested retail price shall be determined, from time to
time, in Royal's sole discretion and shall be predicated on the images selected,
Royal's underlying rights and Royal agreements, the method of reproduction
utilized (i.e., original hand painted or mechanically reproduced), the size of
the edition, and the quantity ordered.
Royal's prices to PCA, however, shall be in accord with Royal's
prices to its most favorable customers.
It is understood that prices may vary from time to time.
5. Payment for the purchase of the Art shall be as follows: (a) Fifty
percent (50%) of the price per order shall be paid simultaneously with the
submission of the written purchase order;
(b) Fifty percent (50%) of the price for each purchase order shall
be paid upon delivery to PCA, plus appropriate shipping and handling costs (all
orders F.O.B. Chatsworth, Ca.).
6. The terms of this agreement shall be three years. Royal agrees to
renew this agreement for an additional period of two years, upon the same terms
and conditions, at the written request of PCA, provided Herman Rush is actively
associated with Royal, In the event that, after the expiration of three years,
Herman Rush shall no longer be actively associated with Royal, he shall agree to
use his best efforts to introduce PCA to the copyright owners.
7. Any and all claims or disputes that may arise under this agreement
shall be submitted for determination by Arbitration under the rules of the
American Arbitration Association. Unless otherwise mutually agreed by the
parties, if the claim is made by PCA, the hearing shall be held in Los Angeles.
<PAGE>
IN WITNESS WHEREOF, the parties have made and signed this Agreement on
the date indicated above.
ROYAL ANIMATED ART, INC.
By:____________________________
Herman Rush, President
PREMIER CLASSIC ART, INC.
Agreed and accepted
for purposes of By:____________________________
Paragraph 6 Charles F. Trapp
- -------------------------
Herman Rush
<PAGE>
SCHEDULE A
400,000 Original Hand-Painted on acetate consisting of a mixture
of 12 Field (approx. 12" x 10") and Pan Cels (approx. 36" x 10").
Animation Production Cels (cels) selected from and used on the
following programs:
1. Real Ghostbusters/Slimer approx 75,000
2. Ewoks (Star Wars) approx 75,000
3. He-Man, Master of the Universe approx 75,000
4. She-Ra, Princess of Power approx 75,000
5. Bravestar approx 45,000
6. Flash Gordon approx 10,000
7. Shelly Duvall's Bedtime Stories approx 10,000
8. Beethoven approx 5,000
9. Back to the Future approx 10,000
10. Miscellaneous approx 20,000
The total number of "cels" shall be 400,000, however, the number from each of
the titles may vary slightly.
<PAGE>
Schedule A
----------
Properties Available for Distribution
-------------------------------------
<TABLE>
<CAPTION>
Title Code Licensee Expiration Date
<S> <C> <C> <C>
Orphan Annie AA/CS Tribune Media July 31, 2000
Dick Tracy AA/CS Tribune Media Right to extend
Terry & the Pirates AA/CS Tribune Media on good faith
Brenda Starr AA/CS Tribune Media negotiations
Winnie Winkle AA/CS Tribune Media
Dave AA/CS Tribune Media
Blondie AA/CS/3D King Features December 31, 1999
Barney Google AA/CS/3D King Features Right to extend 2 yrs.
Bringing Up Father AA/CS/3D King Features i. e., 12/31/02
Katzenjammer Kids AA/CS/3D King Features "
Mandrake Magician AA/CS/3D King Features "
Phantom AA/CS/3D King Features "
Beetle Bailey AA/CS/3D King Features "
Prince Valiant AA/CS/3D King Features "
Hi and Lois AA/CS/3D King Features "
Marvin AA/CS/3D King Features "
Betty Boop AA/CS/3D King Features "
Popeye AA/CS/3D King Features "
Snuffy Smith AA/CS/3D King Features "
Annie 3DCS Tribune Media Aug. 1, 2002
Dick Tracy 3DCS Tribune Media "
Mixed Media 3DCS Tribune Media "
Mother Goose &
Grimm 3DCS Tribune Media "
Motley's Crew 3DCS Tribune Media "
Broomhilda 3DCS Tribune Media "
Shoe 3DCS Tribune Media "
Annie 3DPF Tribune Media Aug. 1, 2002
Shoe 3DPF Tribune Media "
Dick Tracy 3DPF Tribune Media "
</TABLE>
<PAGE>
Schedule A cont.
----------------
Properties Available for Distribution
-------------------------------------
<TABLE>
<CAPTION>
Title Code Licensee Expiration Date
<S> <C> <C> <C>
Fat Albert AA Filmation Month to Month
Fabulous Funnies AA Filmation "
Heckle and Jeckle AA Filmation "
Lassie AA Filmation "
Lone Ranger AA Filmation "
Snow White Christmas AA Filmation "
Pinnochio AA Filmation "
Journey Back To Oz AA Filmation "
Archie AA Filmation "
Sabrina AA Filmation "
He-Man AA Filmation "
She-Ra AA Filmation "
Ghostbusters AA Filmation "
Bravestar AA Filmation "
Young Sentinals AA Filmation "
Mission Magic AA Filmation "
Oliver Twist AA Filmation "
Black Starr AA Filmation "
Hero Mgh AA Filmation "
Groovie Goolies AA Filmation "
Treasure Island AA Filmation "
Jerry Lewis AA Filmation "
Quakula AA Filmation "
King Arthur AA Filmation "
Mush AA Filmation "
Fraidy Cat AA Filmation "
Wacky Packy AA Filmation "
Waldo Kitty AA Filmation "
</TABLE>
<PAGE>
Schedule A cont.
Properties Available for Distribution
<TABLE>
<CAPTION>
Title Code Licensee Expiration Date
<S> <C> <C> <C>
Star Trek AA Viacom July 31, 2000
Brady Bunch AA Viacom July 31, 2000
Happy Days AA Viacom July 31, 2000
Mighty Mouse AA Viacom July 31, 2000
Heckle & Jeckle AA Viacom July 31, 2000
Alley Oop AA/CS United Media December 31, 2000
Nancy & Sluggo AA/CS United Media
Emmet Kelly, Jr. AA Greene Licensing December 31, 2000
Pinnochio AA/Lithos Lou Scheimer December 31, 2000
My Favorite Martian AA Jack Chertok TV December 31, 2003
Rudolph Reindeer AA/Lithos GoodTime Ent. December 31, 1999
Note:
AA= Animation Art
CS=Comic Strips
Litho=Lithographs
3DCS=3 D Comic Strips
3DPF=3 D Picture Frames
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of Premier Classic Art, Inc. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001095606
<NAME> Premier Classic Art, Inc.
<CURRENCY> U.S.DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAY-31-1999 MAY-31-2000
<PERIOD-START> JUN-01-1998 JUN-01-1999
<PERIOD-END> MAY-31-1999 NOV-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 0 217,758
<SECURITIES> 0 45,938
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 5,372,640
<CURRENT-ASSETS> 0 6,096,256
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 6,227,532
<CURRENT-LIABILITIES> 415,041 901,764
<BONDS> 0 0
75 7,640
0 0
<COMMON> 514 306
<OTHER-SE> (415,630) 5,317,792
<TOTAL-LIABILITY-AND-EQUITY> (415,041) 5,325,738
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 390,301
<OTHER-EXPENSES> 23,400 33,121
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23,400 33,121
<INCOME-PRETAX> (23,400) (423,422)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (23,400) (423,422)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 305,256
<CHANGES> 0 0
<NET-INCOME> (23,400) (118,166)
<EPS-BASIC> (0.31) (0.04)
<EPS-DILUTED> (0.31) (0.04)
</TABLE>
