SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported) February 9, 1999
CONTINENTAL HERITAGE CORPORATION
(Exact name of Registrant as Specified in Charter)
Delaware 000-7633 75-1449332
(State of Incorporation) (Commission File (IRS Employer
Number) Identification No.)
2140 America's Cup Circle, Las Vegas, Nevada 89117
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (702) 228-8146
Former Name or Former Address, if Changed Since Last Report
Item 5. Other Events
Loan Agreement
Effective February 9, 1999, the Registrant entered into a Loan Agreement with
seven individual investors (the Investors), pursuant to which the Investors
agreed to lend $1,000,000 (the Loan) to the Registrant. The loan proceeds
have been placed in a separate account which the Registrant may access for
advances through application to a Disbursement Agent. The Disbursement Agent,
Gerald M. Holland, is a shareholder of the Registrant and one of the Investors.
In return for their agreement to loan funds to the Registrant, the Investors
received a promissory note for $1,000,000 plus Class A Warrants for the
purchase of an aggregate of 2,000,000 shares of the Registrant's common stock.
The promissory note bears interest at the rate of 10% per annum, provides for
monthly interest payments commencing September 1999 and six equal monthly
payments of principal commencing March 2000. The note matures on August 31,
2000. The Class A Warrants have an exercise price of $.3125 per share and
expire on February 8, 2004. The Investors also agreed to loan, on a pro rata
basis, an additional $500,000 over and above the $1,000,000 original loan if
additional funds are required by the Registrant for purchase of product. If
the additional loan is made, the Investors will receive additional Class A
Warrants on a pro rata basis for the additional funds loaned. Class A Warrants
for the purchase of an aggregate of 351,250 shares of the Registrant's common
stock were also issued to Gerald M. Holland and Damaso W. Saavedra, two
individuals who represented the Investors in the negotiations with the
Registrant, which were Warrants those Investors would have otherwise received.
Non-Recourse Pledge Agreement; Irrevocable Proxy.
As collateral for repayment of the Loan, Steve Gould, Lee Kaplan, Robert Bray
and Gerald Holland executed a Non-Recourse Pledge Agreement. The Pledge
Agreement provides that Messrs. Gould, Kaplan, Bray and Holland pledge as
collateral security for payment of the Loan an aggregate of 4,978,264 shares of
the Registrant's Common Stock which they hold to the Investors. Further, Class
A Warrants for the purchase of 112,000 shares of the Registrant's Common Stock
issued to each of Messrs. Gould and Kaplan have been pledged under the
Non-Recourse Pledge Agreement. Messrs. Gould, Kaplan, Bray and Holland have
each granted to the Investors an Irrevocable Proxy entitling the Investors at
any time prior to repayment of the initial loan and/or the additional loan to
vote on major decisions presented to the Registrant's shareholders, provided
however, that the Proxy may not be used by the Investors to vote to remove any
director or officer from the Registrant for reasons other than gross
negligence, theft, or legal incompetency. Further, the Investors may not vote
to elect any person as a director of the Registrant other than those persons
currently holding that position. The Proxy terminates upon repayment of the
initial loan and/or the additional loan to the Investors.
Mr. Gould is President, Chief Executive Officer and a director of the
Registrant. Mr. Kaplan is Chairman of the Board of Directors and
Vice-President of the Registrant. Mr. Bray is Secretary and a director of the
Registrant.
Messrs. Holland and Saavedra have executed an additional Non-Recourse Pledge
Agreement to provide further security for the repayment of the note by pledging
the Class A Warrants to purchase 351,250 shares of the Registrant's Common
Stock which were granted to Messrs. Holland and Saavedra for their
representation of the Investors in the negotiations for the Loan..
Master Distributorship Granted to the Investors
In connection with the Loan, the Registrant also granted to the Investors a
Master Distributorship. The Master Distributorship granted to the Investors
shall be operated in accordance with the policies of VisionQuest Worldwide,
Inc., the subsidiary of the Registrant, and is entitled to receive compensation
in accordance with VisionQuest's Marketing Compensation Plan in the form of
commissions and bonuses on down-line sales activity. The Investors shall
receive 80% of the commissions earned by the Master Distributorship and 10% of
such commissions shall be paid to each of Messrs. Holland and Saavedra.
Payment of the commission earned by the Master Distributorship will be made
monthly by the Registrant and will be included in the Company's regular monthly
bonus run as to its Distributors and/or Members. The actual amount of
compensation to be derived under the Master Distributorship is not available as
the Marketing Compensation Plan is in the process of being developed by
management.
Subordinated Promissory Notes to Messrs. Gould and Kaplan
On October 1, 1998, prior to the Registrant's acquisition of Encore
International, Inc., Encore executed and delivered promissory notes in the
amount of $56,000 each to Steve Gould and Lee Kaplan in payment for funds
advanced by them to initiate the business of Encore. Such notes bore interest
at the rate of 6% per annum and matured on September 30, 1999. In connection
with the Loan, both Messrs. Gould and Kaplan agreed to accept replacement notes
which provided that no payment of interest or principal may be made to them
unless at the time all payments of principal and interest due on the promissory
notes delivered to the Investors have been made. The replacement notes
delivered by the Registrant to Messrs. Gould and Kaplan bear interest at a rate
of 10% per annum and mature August 31, 2000 with the same schedule of payments
of principal and interest as is contained in the $1,000,000 principal amount
promissory note given to the Investors. In addition to the replacement notes,
Messrs. Gould and Kaplan will each receive Class A Warrants to purchase 112,000
shares of Registrant's Common Stock. Such Class A Warrants are on the same
terms and conditions as the Class A Warrants issued to the Investors in
connection with the Loan.
Class B and Class C Warrants
Under the terms of the Stock Exchange Agreement by which the Registrant
acquired Encore, the Registrant agreed to issue an additional 1,000,000 shares
of the Registrant's Common Stock to Steve Gould, Robert Bray, Lee Kaplan and
Gerald M. Holland (the Shareholders) if the consolidated net revenues of the
Registrant are at least $8,000,000 for the twelve (12) month period commencing
March 1, 1999 (the Year 1999 Additional Shares) and an additional 1,000,000
shares if the consolidated net revenues of the Registrant are at least
$15,000,000 (on a non-cumulative basis) for the twelve (12) month period
commencing March 1, 2000 (the Year 2000 Additional Shares). The Loan
Agreement provides that in the event that the Shareholders shall be entitled to
receive the Year 1999 Additional Shares, Class B Warrants for the purchase of
an aggregate of 427,500 additional shares of the Registrant's Common Stock
shall be issued to Gerald M. Holland and Damosa Saavedra. The Class B Warrants
are exercisable at $.3125 per share and expire five years from March 1, 2000.
In the event that the Shareholders shall be entitled to receive the Year 2000
Additional Shares, Class C Warrants for the purchase of an aggregate of 427,500
additional shares of the Registrant's Common Stock shall be issued to Gerald M.
Holland and Damosa Saavedra. The Class C Warrants are exercisable at $.3125
per share and expire five years from March 1, 2001.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Financial Statements
(a) Financial Statements: Not applicable.
(b) Pro Forma Financial Information required pursuant to Article 11 of
Regulation S-X: Not applicable.
Exhibits:
No. Description:
10.1 Loan Agreement dated February 9, 1999 (incorporated by reference to
Exhibit 10.9 of Registrant's Form 10-KSB filed with the Commission on
March 15, 1999).
10.2 Form of $1,000,000 Promissory Note delivered to the Investors
(incorporated by reference to Exhibit 10.10 of Registrant's Form 10-KSB
filed with the Commission on March 15, 1999).
10.3 Form of Class A Warrant (incorporated by reference to Exhibit 10.11 of
Registrant's Form 10- KSB filed with the Commission on March 15, 1999).
10.4 Form of Class B Warrant (incorporated by reference to Exhibit 10.12 of
Registrant's Form 10- KSB filed with the Commission on March 15, 1999).
10.5 Form of Class C Warrant (incorporated by reference to Exhibit 10.13 of
Registrant's Form 10- KSB filed with the Commission on March 15, 1999).
10.6 Non-Recourse Pledge Agreement (incorporated by reference to Exhibit
10.14 of Registrant's Form 10-KSB filed with the Commission on March 15,
1999).
10.7 Irrevocable Proxy (incorporated by reference to Exhibit 10.15 of
Registrant's Form 10-KSB filed with the Commission on March 15, 1999).
10.8 Subordinated Promissory Note from Registrant in favor of Steve Gould
(incorporated by reference to Exhibit 10.16 of Registrant's Form 10-KSB
filed with the Commission on March 15, 1999).
10.9 Subordinated Promissory Note from Registrant in favor of Lee Kaplan
(incorporated by reference to Exhibit 10.17 of Registrant's Form 10-KSB
filed with the Commission on March 15, 1999).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Continental Heritage Corporation
(Registrant)
Date: March 15, 1999. By: /s/Steve Gould
Steve Gould
President and Principal
Executive Officer
