PLAY CO. TOYS & ENTERTAINMENT CORP.
550 Rancheros Drive
San Marcos, California 92069
INFORMATION STATEMENT REGARDING THE PROPOSED
ACTION TO BE TAKEN PURSUANT THE WRITTEN CONSENT
OF A MAJORITY STOCKHOLDER IN LIEU OF A SPECIAL
MEETING OF THE STOCKHOLDERS
----------
This information statement has been mailed on July 19, 1996 to the
stockholders of record on June 21, 1996 of American Toys, Inc., a Delaware
corporation (the "Company") in connection with the proposed action to be take by
the Company pursuant to the written consent by the majority of the stockholders
of the Company dated July 20, 1996. The action to be taken pursuant to the
written consent shall be taken on August 9, 1996. The principal executive
offices of the Company are located at 550 Rancheros Drive, San Marcos,
California 92069, the Company's telephone number is (619) 471-4505.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS AND NO
STOCKHOLDER MEETING WILL BE HELD TO CONSIDER ANY MATTER
WHICH WILL BE DESCRIBED HEREIN.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
Increase in the Authorized shares of Common Stock
On June 20, 1996, the Company's majority stockholder, American Toys, Inc.
("American Toys"), which owns 2,548,930 or approximately 66.0% of the 3,863,853
issued and outstanding shares of the Company's common stock, par value $.01 per
share (the "Common Stock") outstanding as of such date, executed a written
consent authorizing the Company to amend its Certificate of Incorporation such
that (i) the Company's Series D Preferred Stock shall be convertible into shares
of the Company's Common Stock at the average closing bid price for the thirty
(30) days prior to the written notice of conversion and (ii) the Company's
Series E Preferred Stock shall be separated into two classes, 6,000,000 shares
of which will be designated the Class I Series E Preferred Stock, which shares
shall be convertible at any time into twenty fully paid and nonassessable shares
of the Company's Common Stock, par value $.01 per share and the remaining
14,000,000 shares of which shall be designated the Class II Series E Preferred
Stock, which shares will be convertible two (2) years from issuance into twenty
fully paid and nonassessable shares of the Company's Common Stock, par value
$.01 per share. Under Section 228 of the General Corporation Law of the State of
Delaware, any action requiring the consent of the stockholders at an annual or
special meeting of the stockholders of the Company, may be taken without a
meeting, without prior notice and without a vote, if a consent or
<PAGE>
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Company.
RECENT DEVELOPMENTS
On May 3, 1996, the Corporation held an annual meeting of its stockholders,
at which time it proposed to its stockholders (i) the election of three persons
nominated by the Board of Directors as Directors, (ii) the authorization of an
amendment to the Corporation's Certificate of Incorporation to effect a change
of the name of the Corporation from Play Co. Toys to Play Co. Toys &
Entertainment Corp., (iii) the authorization of an amendment to the
Corporation's Certificate of Incorporation to authorize one share of Preferred
Stock, par value $.01 per share, as the "Series D Preferred Stock" and (iv) the
authorization of an amendment to the Corporation's Certificate of Incorporation
to increase the number of authorized shares of Common Stock to 410,000,000
shares and to authorize 20,000,000 shares of Preferred Stock, par value $.01 per
share, as the "Series E Preferred Stock". All proposals were adopted by the
stockholders and an amendment to the Corporation's Certificate of Incorporation
filed with the State of Delaware. The certificate of amendment as filed, amended
the name of the Corporation, authorized a share of Series D Preferred Stock,
authorized 1,000,000 shares of the Series E Preferred Stock and increased the
authorized shares of Common Stock to 30,000,000. As shares of the Series E
Preferred Stock are issued, additional shares may be authorized from time to
time.
On March 18, 1996, EACC loaned an additional $500,000 to the Company which
was subordinated to the Congress Financing. In addition, EACC paid for
approximately $28,000 of the costs incurred to arrange the Congress Financing,
bringing the aggregate due to EACC to $528,000 as of March 31, 1996. Subsequent
to March 31, 1996, the $528,070 was converted into 528,000 shares of Series E
Preferred Stock. These shares of Series E Preferred Stock will be designated
Class I Series E Preferred Stock.
On June 30, 1996, in return for the issuance of 334,000 shares of Series E
Preferred Stock, EACC provided the Company with $334,000. These shares of Series
E Preferred Stock will be designated Class I Series E Preferred Stock.
On February 1, 1996, the Corporation entered into a Loan and Security
Agreement (the "Loan Agreement") with Congress Financial Corporation (Western)
("Congress") to replace its credit line with Imperial Bank. The Loan Agreement
provides the Corporation with a secured line of credit of up to 60% of the value
of all of its inventory, not to exceed $7,000,000 (the "Congress Financing").
The Congress Financing is secured by the Corporation's assets and a $2,000,000
letter of credit ("L/C") provided by Europe American Capital Corp. ("EACC") an
affiliate of Ilan Arbel, the Corporation's Chairman of the Board. Additionally,
the Congress Financing is guaranteed by American Toys and Mr. Jay.
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<PAGE>
In connection with the issuance of the L/C the Corporation on February 2,
1996 granted to EACC options (i) to purchase up to an aggregate of 1,250,000
shares of Common Stock of a purchase price of 25% of the closing bid price for
the Common Stock on the last business day prior to exercise, for a period of six
months from issuance and (ii) to purchase up to an aggregate of 20,000,000
shares of the Corporation's Series E Preferred Stock.
On February 2, 1996, Irwin Lampert and Richard Brady resigned as members of
the Corporation's Board of Directors. Mr. Brady continues as the Corporation's
Chief Executive Officer and President. Subsequently, the board appointed
Sheikhar Boodram, as a Director. Mr. Boodram is a Director of both American
Toys, the majority stockholder of the Corporation and Mister Jay Fashions
International, Inc. ("Mr. Jay"), the majority stockholder of American Toys.
In August 1995, American Toys, entered into consulting agreements with
Harold Rashbaum and Citadel Commercial Corp., whereby Harold Rashbaum would
consult with American Toys and the Corporation in the areas of retailing and
marketing, and Citadel Commercial Corp. would consult with American Toys and the
Corporation in the areas of financial management, specifically trade credit and
banking. Pursuant to such agreements, American Toys issued to each consultant
30,000 shares of its Common Stock.
On October 18, 1995, prior to the Congress Financing, the Corporation
entered into an agreement (the "LOC Agreement") with EACC, pursuant to which
EACC agreed to provide to Imperial Bank a letter of credit terminating April 16,
1996, in the amount of $2,000,000 from Soginvest Bank, Switzerland, or such
other bank or financial institution. The letter of credit was required by
Imperial Bank in order for it to waive certain defaults as of September 1995,
under the Corporation's loan agreement with Imperial Bank and to increase the
Corporation's line of credit from $3,500,000 to $5,500,000. On November 3, 1995
the letter of credit was issued and accepted by Imperial Bank at which time
Imperial Bank waived certain defaults under its loan agreement which were
present as of September 1995, and increased its line of credit to $5,500,000.
Upon the consummation of the Congress Financing the Imperial Bank line of credit
was repaid and terminated.
As compensation to EACC for the issuance of the $2,000,000 letter of credit
to Imperial Bank, the Corporation granted to EACC an option (the "Option") to
purchase 350,000 shares of Common Stock, at a price equal to 25% of the closing
bid price on the last business day prior to the date on which notice of the
exercise is given, until April 16, 1996.
As additional compensation the Corporation paid to EACC a fee of $15,000.
In addition the Corporation paid $5,000 for EACC's counsel's fees.
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VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at June 27, 1996 based
upon information obtained by the persons named below, with respect to the
beneficial ownership of common shares by (i) each person known by the Company to
be the owner of 5% or more of the outstanding common shares; (ii) by each
officer and director; (iii) and by all officers and directors as a group.
Number of Percentage
Name Shares Owned
- ---- ------ -----
American Toys, Inc.(1) 2,548,930 66.0%
448 West 16th Street
New York, New York
Ilan Arbel(1) 2,548,930 66.0%
c/o American Toys, Inc.
448 West 16th Street
New York, New York
Richard Brady 125,662 3.3%
c/o Play Co. Toys
550 Rancheros Drive
San Marcos, CA 92069
Alan Berkun 50,000 1.3%
83 Arnold Ct.
East Rockaway, New York
Angela Burnett(2) 10,000 .3%
c/o Play Co. Toys
550 Rancheros Drive
San Marcos, CA 92069
Sheikhar Boodram -- --
c/o Play Co. Toys
550 Rancheros Drive
San Marcos, CA 92069
Officers and Directors
as a Group (5 persons)(1)-(7) 2,734,592 70.9%
--------- -----
- ----------
(1) Ilan Arbel is the Chief Executive Officer and a Director of American Toys
and may be deemed an indirect beneficial owner of a majority of the issued
and outstanding common stock of American Toys (through his family's
ownership of Mister Jay Fashions International, Inc.), notwithstanding that
Mr. Arbel disclaims any beneficial ownership of such shares which are owned
or controlled by his family. Accordingly, Mr. Arbel will be able to
exercise control over the shares of Common Stock owned by American Toys.
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(notes continued from previous page)
(2) Includes an option to purchase 10,000 shares of Common Stock at a price of
$2.10 per share granted in June 1994, which option has vested and is
exercisable.
MANAGEMENT
Officers and Directors.
The directors of the Company are elected annually by the shareholders and
the officers are appointed annually by the Board of Directors. Vacancies on the
Board of Directors may be filled by the remaining directors. Each director and
officer will hold office until the next annual meeting of shareholders, or until
his successor is elected and qualified. The executive officers and directors of
the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Ilan Arbel 42 Chairman of the Board of Directors
Richard Brady 44 Chief Executive Officer and President
Angela Burnett 44 Secretary and Chief Financial Officer
Alan Berkun 36 Director
Sheikhar Boodram 34 Director
- ----------
All Directors hold office until the next annual meeting of stockholders or
until their successors are duly elected and qualified. Officers are elected
annually by, and serve at the discretion of the Board of Directors. There are no
family relationships between or among any Officers or Directors of the
Corporation. The Corporation granted to Hanover Sterling & Company, Ltd., the
Underwriter of the Corporation's initial public offering, the right to nominate
one individual for election to the Corporation's Board of Directors. Since
Hanover ceased operations in February 1995, this right is no longer outstanding.
Ilan Arbel has been the Chairman of the Board of Directors of the
Corporation since June 1994 and a Director of the Corporation since May 1993.
Mr. Arbel has been the President, Chief Executive Officer and a Director of
American Toys, Inc. since its inception in February 1993. In July 1993 Mr. Arbel
resigned as President of American Toys upon the election of Irwin Lampert as his
replacement. Upon Mr. Lampert's resignation on March 7, 1995, Mr. Arbel was
re-elected President of American Toys. Mr. Arbel has been President, Chief
Executive Officer, a Director and an affiliate of Mister Jay Fashions
International, Inc. since 1991. Since August 1995, Mr. Arbel has been a Director
of Multimedia Concepts International, Inc., a public company, a designer and
manufacture of clothing. In 1990, Mr. Arbel was an Officer and Director of Carlo
Fashions, Inc., a company which filed a bankruptcy petition and has received a
discharge in bankruptcy. From 1989 to present, Mr. Arbel has been the sole
5
<PAGE>
Officer and Director of TransAtlantic Commerce Corp., a company involved in
investments and finance in the United States and Europe. Mr. Arbel is a graduate
of the University Bar Ilan in Israel, with B.A. degrees in Economics, Business
and Finance.
Richard Brady is a co-founder of the Company and has acted as its Executive
Vice-President, Secretary and a Director since its inception in 1974. In June
1994, Mr. Brady became assistant Secretary upon the election of Angela Burnett
as Secretary. In December 1995, Mr. Brady was appointed Chief Executive Officer
and President to the Company.
Angela Burnett has been the Treasurer of the Company since 1992 and the
Secretary of the Company since June 1994. In December 1995, Ms. Burnett was
appointed Chief Financial Officer and Secretary. Ms. Burnett has been employed
at the Company since 1985, where she was initially employed as the data entry
employee in charge of inventory control, becoming Assistant Controller of the
Company in 1988.
Sheikhar Boodram was appointed as a Director of the Corporation on February
2, 1996. Mr. Boodram has been a Director of American Toys, Inc. since May 1993.
From September 1992 to present, Mr. Boodram has been employed as Vice-President
and a Director of Mister Jay Fashions International, Inc. From October 1991 to
September 1992, Mr. Boodram was employed as a designer with Mister Jay Fashions
International, Inc. Mr. Boodram has been the President and Secretary of
Multimedia Concepts International, Inc. since June 12, 1995. Mr. Boodram is the
sole Officer and Director of American Eagle Industries Corp. and Match II, Inc.
From 1979 until October 1991, Mr. Boodram was the production manager for Lady
Helene Sophisticates, Ltd., a manufacturer of ladies garments which ceased
operations in 1991.
Alan Berkun has been a Director of the Corporation since July 1993. Mr.
Berkun has also been a Director of American Toys since July 1993. Mr. Berkun has
been a Director of Multimedia Concepts International, Inc., since June 1995. For
more than the past five years, Mr. Berkun has been employed by Russo Securities
as its general counsel. Mr. Berkun was licensed as an NASD Series 7 Registered
Representative with Russo Securities from October 1991 through November 1991 and
June 1989 through October 1989. Mr. Berkun's Series 7 license lapsed in December
1993, however, subsequently, Mr. Berkun received a waiver from the NASD and
renewal of his Series 7 status. Presently, Mr. Berkun is the sole Officer,
Director and stockholder of Emme Corp., d/b/a Marlowe & Company, a registered
NASD broker/dealer. Mr. Berkun is an attorney licensed in the State of New York.
The Company has agreed to indemnify its officers and directors with respect
to certain liabilities including liabilities which may arise under the
Securities Act of 1933. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to any charter, provision, by-law, contract,
arrangement, statute or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses
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<PAGE>
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person of the Company in connection with
the Securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Executive Compensation
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded to,
earned by, paid by the Company during the years ended March 31, 1996, 1995 and
1994 to each of the named executive officers of the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- -----------------------------------
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Restricted Underlying LTIP All
Name and Principal Other Annual Stock Option/ Payments Other
Position Year Salary($) Bonus($)(1) Compensation($) Awards(s)($) SARS($) ($) Compensation
- ----------------------- ---- --------- ----------- --------------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Brady 1996 117,230 -- 7,979(2) -- -- -- --
Chief Executive Officer, 1995 120,000 -- 7,829(2) -- -- -- --
President and Director 1994 114,450 -- 7,229(2) -- -- -- --
</TABLE>
(1) No bonuses were paid during the periods herein stated.
(2) Includes an automobile allowance of $6,600 for 1996, 1995 and 1994,
respectively, and the payment of life insurance premiums of $1,379, $1,888,
and $629, for 1996, 1995 and 1994, respectively.
Employment Agreements
In May 1993 the Company entered into three year employment agreement with
Richard Brady, the Chief Executive Officer and President of the Company. The
employment agreement provides for an annual salary of $120,000. In addition, the
employment agreement provides for an automobile allowance and an annual bonus of
2% of the earnings of the Company before depreciation, interest and taxes
("EBDIT"), provided the Company earns a minimum EBDIT of $750,000 for the fiscal
year ended March 31, 1994 and $900,000 for the fiscal year ended March 31, 1995.
The Company also pays for $500,000 of life insurance for Mr. Brady. No bonuses
were earned for either of the years ended March 31, 1996, 1995 or 1994.
7
<PAGE>
The Company has no plans to issue additional securities to its management,
promoters or their affiliates or associates other than through the Company's
stock option plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1994, Messrs. Davidson, Brady and the Donald Welker Trust each
gave notice to the Company of their intention to put 82,727, 29,614 and 122,381
of their respective Series B preferred shares to the Company at a price of $1.00
per share, for aggregate consideration of $234,722. In addition, such notice
also demanded payment of accrued dividends to Messrs. Davidson, Brady and the
Donald Welker Trust on their respective Series A and Series B Preferred Shares
as follows: Mr. Davidson accrued dividends on his Series A Preferred Shares of
$8,325 and on his Series B Preferred Shares of $11,020.39; Mr. Brady accrued
dividends on his Series A Preferred Shares of $2,775 and accrued dividends on
his Series B Preferred Shares of $3,944.58; and the Donald Welker Trust accrued
dividends on his Series B Preferred Shares of $16,300. All of such sums were
paid on April 1, 1994.
In June 1994, the Company applied to the California Corporation Department
to change its domicile from California, where it was incorporated in 1973, to
Delaware, through a merger with a newly formed Delaware corporation (the
"Delaware Reorganization"). Each share of outstanding Common Stock was exchanged
for 50 shares of common stock of the Company (Delaware) in connection with the
Delaware Reorganization.
In June 1994, Irwin Lampert and Alan Berkun each acquired 50,000 shares of
the Common Stock for total consideration of $500 each. For financial statement
purposes, these shares were valued at 50% of the November 1994 initial public
offering price, or $250,000, as these are unregistered shares. The difference
between the valuation and cash received, $249,000, has been charged to
operations for the year ended March 31, 1995. Also in June 1994, Lampert &
Lampert were issued 50,000 shares of the Common Stock.
On November 9, 1994, the Company redeemed an aggregate of 224,708 shares of
Series B preferred stock owned by Messrs. Davidson and Brady aggregating
$224,708, from the proceeds of the Company's initial public offering.
As of January 10, 1995, the Series C Preferred Stock was converted into
428,580 shares of the Common Stock. During January 1995, effective February 1,
1995, the Donald Welker Trust gave notice to the Company to put 122,368 shares
of its Series B Preferred Stock to the Company as well as accrued dividends
thereon, aggregating $137,000. On April 3, 1995, the Company redeemed the
122,368 shares of Series B Preferred Stock at the redemption price of $122,368
and paid dividends on the Series B Preferred Stock aggregating $15,931.
On October 18, 1995, prior to the Congress Financing, the Company entered
into the LOC Agreement with EACC, pursuant to which EACC agreed to provide to
Imperial Bank a letter of credit terminating April 16, 1996, in the amount of
$2,000,000 to Imperial Bank. Upon the
8
<PAGE>
consummation of the Congress Financing the Imperial Bank line of credit was
repaid and terminated. See "Recent Developments."
In February 1996, the Welker Trust gave notice to the Company to put the
remaining 122,368 shares of its Series B Preferred Stock to the Company as well
as accrued dividends thereon, aggregating $9,152.88. Pursuant to an oral
agreement between the Company and the Welker Trust, the Company shall redeem
122,368 shares plus accrued interest thereon, pursuant to a payment schedule.
The Company shall pay $43,840.30 to the Welker Trust on each of March 1, 1996,
April 1, 1996 and May 1, 1996.
On January 30, 1996, pursuant to the requirements of the Loan Agreement
with Congress, American Toys, the majority stockholder of the Company, converted
all $1,400,000 of debt owed by the Company into equity. In exchange for the
debt, American Toys received from the Company one share of preferred stock, with
the right to vote to elect 2/3 of the Company's Board of Directors, subject
stockholder approval, which approval has been obtained. The conversion of debt
into equity increases the Company's stockholders' equity and reduces total
liabilities, thereby reducing the Company's debt to equity ratio.
In February 1996, pursuant to the terms of the Congress Financing, EACC
delivered to Congress a $2,000,000 letter of credit. EACC is an affiliate of
Ilan Arbel, the Company's Chairman of the Board. The Congress Financing is also
guaranteed by American Toys, the majority stockholder of the Company. In
connection with the issuance of the L/C the Company granted to EACC options,
subject to stockholder approval, (i) to purchase up to an aggregate of 1,250,000
shares of Common Stock of a purchase price of 25% of the closing bid price for
the Common Stock on the last business day prior to exercise, for a period of six
months from issuance and (ii) to purchase up to an aggregate of 20,000,000
shares of the Company's preferred stock, designated as the "Series E Preferred
Stock". No options have been exercised pursuant to items (i) or (ii). For the
option to purchase up to an aggregate of 1,250,000 shares of the Company's
Common Stock at a price off 25% of the closing bid price for the Common Stock on
the last business day prior to exercise, it was never the intention of the
Company or EACC to exercise the option, accordingly, granting of the option was
unwound. Additionally, the Company has placed no value on the options to
purchase up to an aggregate of 20,000,000 shares of the Company's Series E
Preferred Stock.
On March 18, 1996, EACC loaned an additional $500,000 to the Company which
was subordinated to the Congress Financing. In addition, EACC paid for
approximately $28,000 of the costs incurred to arrange the Congress Financing,
bringing the aggregate due to EACC to $528,000 as of March 31, 1996. Subsequent
to March 31, 1996, the $528,070 was converted into 528,000 shares of Series E
Preferred Stock. These shares of Series E Preferred Stock will be designated
Class I shares.
On June 30, 1996, in return for the issuance of 334,000 shares of Series E
Preferred Stock, EACC provided the Company with $334,000. These shares of Series
E Preferred Stock will be designated Class I shares.
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<PAGE>
I. AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
The Board of Directors of the Company have unanimously determined that an
amendment to the Company's Certificate of Incorporation, whereby (i) the
Company's Series D Preferred Stock shall be convertible into shares of the
Company's Common Stock at the average closing bid price for the thirty (30) days
prior to the written notice of conversion and (ii) the Company's Series E
Preferred Stock shall be separated into two classes of whereby 6,000,000 shares
of which shall be convertible at any time and 14,000,000 shares of which shall
be convertible two (2) years from issuance is advisable, and accordingly, has
voted to recommend an amendment to the stockholders for adoption. Stockholders
are urged to carefully read the materials that follow as they involve matters of
particular importance. The full text of the Amendment to the Certificate of
Incorporation is set forth in Appendix A to this Information Statement.
Authorization of Conversion Provision of Series D Preferred Stock
The Board of Directors has unanimously approved a proposal to amend the
Certificate of Incorporation such that the Company's Series D Preferred Stock
shall be convertible into shares of the Company's Common Stock at the average
closing bid price for the thirty (30) days prior to the written notice of
conversion. As of June 21, 1996, there were 3,863,530 shares of Common Stock
issued and outstanding and 150,000 shares reserved for issuance upon the
exercise of options, warrants and other contractual commitments. As of June 21,
1996, American Toys, the Company's majority shareholder, owned 2,548,930 shares
of the Company's Common Stock as well as one share of the Company's Series D
Preferred Stock which was obtained by American Toys converting $1,400,000 of
debt owed by the Company into a share of preferred stock, with the right to
elect 2/3 of the Company's Board of Directors and which has a liquidation value
of $1,400,000.
American Toys desires to convert its share of Series D Preferred Stock into
shares of the Company's Common Stock and then "spin-off" all of its shares of
the Company's Common Stock (inclusive of the shares American Toys currently owns
and the shares American Toys would acquire via the conversion of its share of
Series D Preferred Stock) to the shareholders of American Toys by way of a
dividend distribution.
The Board of Directors proposed an amendment to the Company's Certificate
of Incorporation (the "Amendment"), and same was approved by written consent of
the Company's majority stockholder, American Toys, such that the Company's
Series D Preferred Stock shall be convertible into shares of the Company's
Common Stock at the average closing bid price for the thirty (30) days prior to
the written notice of conversion. The conversion provision being authorized by
the Amendment would enable the Company's majority shareholder to proceed with
its desire to "spin-off" its shares of the Company's Common Stock to American
Toys' shareholders without the delay and expense associated with the holding of
a special meeting.
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<PAGE>
The Company has no current plans, or commitments for the issuance of any
Common Stock, except as described herein. However, the Board may consider
transactions involving the sale or issuance of Common Stock.
Authorization of Classification of the Series E Preferred Stock into Two Classes
The Board of Directors has unanimously approved a proposal to amend the
Certificate of Incorporation such that the Company's Series E Preferred Stock
shall be separated into two classes, 6,000,000 shares will be designated Class
I, which shares shall be convertible at any time and the remaining 14,000,000
shares shall be designated Class II, which shares will be convertible two (2)
years from issuance.
EACC has requested that the Company create and separate the Series E
Preferred Stock into two classes, one of which permits the conversion of the
Series E Preferred Stock at any time (Class I) and another class that permits
the conversion of the Series E Preferred Stock two (2) years from issuance
(Class II). The Board of Directors has proposed an amendment to the Company's
Certificate of Incorporation whereby the Series E Preferred Stock would be
separated into two classes. The shares of Series E Preferred Stock designated
Class I will be convertible at any time, the shares of Series E Preferred Stock
designated Class II will be convertible two (2) years from issuance. The Company
has asked American Toys, the Company's majority shareholder, and American Toys
has agreed to give its written consent to this proposal so that the Company can
procure the financing it desires from EACC. All of the shares of Series E
Preferred Stock previously issued to EACC will be Class I shares.
The Company has no current plans or commitments for the issuance of any
shares of Series E Preferred Stock, except as described herein. However, the
Board may consider transactions involving the sale or issuance of Series E
Preferred Stock.
Amendment Proposed by the Board of Directors
The full text of the Amendment to Article FOURTH is annexed hereto as
Appendix A to this Information Statement. The following description of the
amendment is qualified in its entirety by reference to Article FOURTH of
Appendix A.
The Company's Certificate of Incorporation currently authorizes thirty-one
million four hundred sixty-nine thousand four hundred forty-five (31,469,445)
shares consisting of thirty million (30,000,000) shares of Common Stock, par
value $.01 per share and one million four hundred sixty-nine thousand four
hundred forty-five (1,469,455) shares of preferred stock, par value $.01 per
share, of which 469,444 have been designated the Series B Preferred Stock, 1
share of which has been designated the Series D Preferred Stock, and 1,000,000
shares of which have been designated the Series E Preferred Stock.
The one share of Series D Preferred Stock is currently not convertible,
however, it has a liquidation value of $1,400,000. As of June 27, 1996, the
Company has outstanding 3,863,530
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<PAGE>
shares of Common Stock. As of such date, there was also reserved for issuance
upon the conversion or exercise of various securities of the Company 150,000
shares of Common Stock, leaving a total of 25,986,470 shares authorized,
unissued and unreserved shares of Common Stock available for future issuances,
including the shares that American Toys intends to purchase pursuant to the
conversion of the share of Series D Preferred Stock.
Consequences of the Amendment
Stockholders should note that certain disadvantages may result from the
adoption of the amendment. Such disadvantages may include a significant
reduction in their interest in the Company with respect to earnings per share,
voting, liquidation, value and book and market value per share if the additional
authorized shares of Common Stock are issued. While not having such purpose, the
amendment could have the effect of deterring a future takeover attempt which the
majority of stockholders may deem to be in their best interest. Such event would
arise if the Board of Directors deemed it in the best interest of the Company to
issue an option to purchase Common Stock, a security convertible into shares of
Common Stock or shares of Common Stock to a party friendly to management in an
amount that would make it less likely for an unfriendly purchase to attempt an
acquisition of shares by tender offer or other purchase. If a majority in voting
power of the current stockholders desire a takeover or change in control of the
Company, and if such takeover or change were opposed by the Board of Directors,
the additional shares of Common Stock could possibly be used by the Company to
thwart the desires of the majority.
Members of the Board of Directors may have a conflict in proposing this
amendment, and such amendment may operate to the disadvantage of stockholders by
reducing the likelihood of a hostile takeover of the Company which may result in
a change in the membership of the Board of Directors.
12
<PAGE>
FINANCIAL INFORMATION
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED MARCH 31, 1995 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL
BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS TO STOCKHOLDERS WITHOUT CHARGE
UPON WRITTEN REQUEST THEREFOR SENT TO ANGELA BURNETT, SECRETARY, PLAY CO. TOYS &
ENTERTAINMENT CORP., 550 RANCHEROS DRIVE, SAN MARCOS, CALIFORNIA 92069. EACH
SUCH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION THAT AS OF JUNE 21, 1996
THE PERSON MAKING THE REQUEST WAS THE BENEFICIAL OWNER OF COMMON SHARES OF THE
CORPORATION ENTITLED TO VOTE AT THE SPECIAL MEETING OF STOCKHOLDERS.
By Order of the Board of Directors,
Angela Burnett
Secretary
July 19, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN
YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF IT IS
MAILED IN THE UNITED STATES OF AMERICA.
13
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PLAY CO. TOYS & ENTERTAINMENT CORP.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
<PAGE>
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
PLAY CO. TOYS & ENTERTAINMENT CORP.
Under Section 242 of the Delaware Corporation Law:
The undersigned, for the purpose of amending the Certificate of
Incorporation of Play Co. Toys & Entertainment Corp., does hereby certify and
set forth:
FIRST:
The name of the Corporation is
PLAY CO. TOYS & ENTERTAINMENT CORP.
SECOND:
The Certificate of Incorporation was filed by the Department of State on
June 15, 1994.
THIRD:
The amendment of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is to (i) amend the conversion
provision of the Series D Preferred Stock to make said Series D Preferred Stock
convertible into shares of the Corporation's Common Stock at the average closing
bid price for the thirty (30) days prior to the written notice of conversion and
(ii) amend the conversion provisions of the Series E Preferred Stock to separate
said Series E Preferred Stock into two (2) class, whereby 6,000,000 shares of
Series E Preferred Stock shall be convertible at any time (Class I), and whereby
14,000,000 shares of Series E Preferred Stock shall be convertible two (2) years
from issuance (Class II), as follows:
The Certificate of Incorporation of this Corporation are amended by
changing "Article IV, so that, as amended, said Article shall read as follows:
"FOURTH
FOURTH:
A. Authorized Capital Stock. The total number of shares of all classes
of capital stock which this Corporation shall have authority to issue is
THIRTY-ONE MILLION FOUR HUNDRED SIXTY-NINE THOUSAND FOUR HUNDRED FORTY-FIVE
(31,469,445) shares consisting of THIRTY MILLION (30,000,000) shares of
Common Stock, par value $.01 per share (hereinafter, the "Common Stock"),
and ONE MILLION FOUR HUNDRED SIXTY- NINE THOUSAND FOUR HUNDRED FORTY-FIVE
(1,469,445) shares of preferred stock, par value $.01 per share
(hereinafter, the "Preferred Stock"), of which 469,444 shares have been
designed, "Series B Preferred Stock", the relative rights, preferences and
limitations of which are as set forth in sub-paragraph (B) of this Article
IV, one share has been designated, "Series D Preferred Stock", the relative
rights, preferences and limitations of which are as set forth in
<PAGE>
sub-paragraph (C) of this Article and 1,000,000 shares have been
designated, "Series E Preferred Stock", the relative rights, preferences
and limitations of which are as set forth in sub- paragraph (D) of this
Article IV.
B. Series B. Preferred Stock.
(i) Designation. The designation of this series of Preferred
Stock, par value $.01 per share, shall be the "Series B Preferred
Stock."
(ii) Rank. The Series B Preferred Stock shall, with respect to
rights on liquidation, winding up and dissolution, rank (a) junior to
any other series of the Preferred stock established by the Board of
Directors and, if approved by the affirmative vote of the holders of
the outstanding shares of the Series B Preferred Stock, the terms of
which shall specifically provide that such series shall rank prior to
the Series B Preferred Stock (any such other securities are referred
to herein collectively as the "Senior Securities"), (b) on a parity
with any other series of the Preferred Stock established by the Board
of Directors, the terms of which shall specifically provide that such
series shall rank on a parity with the Series B Preferred Stock (the
Series B Preferred Stock and any such other securities are referred to
herein collectively as the "Parity Securities") and (c) prior to any
other equity securities of the Corporation, including the Series D
Preferred Stock and Series E Preferred Stock and the Common Stock, all
of such equity securities of the Corporation to which the Series B
Preferred Stock ranks prior, including the Common Stock, are referred
to herein collectively as the "Junior Securities").
(iii) Dividends.
(a) Accrual of Dividends. The holders of the then
outstanding shares of Series B Preferred Stock shall be entitled
to receive, out of any funds legally available therefor,
cumulative dividends at the annual rate of $0.60 per share
payable in cash as provided in Section (iii)(b) below. Such
dividends shall accrue on each share from its issue date, and
shall accrue, whether or not earned or declared. Such dividends
shall be cumulative so that if such dividends in respect of any
dividend period, at the rate specified above, shall not have been
paid or declared and a sum sufficient for the payment thereof set
apart, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared and
set apart for the Common Stock. The data on which the Corporation
initially issues any shares of the Series B Preferred Stock shall
be deemed its "issue date" regardless of the number of times such
share is transferred on the stock records of the Corporation or
the number of certificates which may be issue to evidence such
share.
(b) (1) Dividends on the shares of Series B Preferred Stock
shall be payable in cash annually on each February 1 or such
other date determined by the Board of Directors of the
Corporation (each such date being hereafter referred to as a
"Series B Dividend Payment Data") commencing on February 1, 1995.
If the Board of Directors selects a date other than February 1,
the Corporation shall deliver by regular mail notice to each
record holder of the Series B Preferred Stock, and (2) Dividends
shall be payable to each holder of record of the Series B
Preferred Stock, the record data being either (A) the January 31
immediately preceding the Series B Dividend Payment Date, or (B)
the date determined by the Board of Directors of the Corporation.
If the Board of Directors determines the record data, the
Corporation shall deliver by regular mail notice to each record
holder to the Series B Preferred Stock.
2
<PAGE>
(c) Other Dividends. So long as any shares of the Series B
Preferred Stock are outstanding, no dividend or other
distribution shall be paid, or declared and set apart for
payment, on the shares of Common Stock or any other class or
series of capital stock of the Corporation, without the written
consent of the holders of a majority of the outstanding shares of
the Series B Preferred Stock.
(iv) Put.
(a) Notice. On each February 1, 1995 and 1996, each of the
holders of the Series B Preferred Stock may, at his option,
require the Corporation to redeem one-half of the shares of
Series B Preferred Stock originally issued to him, for a per
share price equal to the sum of $1.00 plus all accrued but unpaid
dividends on each share of the Series B Preferred Series B
Preferred Stock (the "Redemption Price"), upon the terms set
forth below. A holder who desires to consummate such redemption
shall give written notice (the "Put Notice") to the Corporation.
Within five (5) days after receipt of a Put Notice, the
Corporation shall deliver notice (the "Company Notice") to the
other holders of the Series B Preferred Stock, which shall state
that a holder of the Series B Preferred Stock has delivered a Put
Notice. If any holder of the Series B Preferred Stock delivers a
Put Notice within ten (10) days after delivery of the Company
Notice, the Put Notice shall be deemed timely delivered, however,
the Corporation shall not be required to deliver another Company
Notice. If a holder does not exercise his rights hereunder, the
number of shares which he was entitled to sell to the Corporation
shall carry over to the next date on which he has a put right
(for example, if he does not exercise his put right on February
1, 1995, he shall be entitled to sell all of the shares
originally issued to him on February 1, 1996).
(b) Payment. On the thirtieth day after delivery of the
Company Notice pursuant to Section 2(a) above, the Corporation
shall pay the Redemption Price to the holder of the Series B
Preferred Stock in cash or by bank cashier's check provided that
the holder of the Series B Preferred Stock surrenders to the
Corporation the certificate or certificates representing such
shares duly endorsed for transfer. For purposes of calculating
the Redemption Price, dividends shall be deemed to cease accruing
on the day before payment of the Redemption Price.
(c) Limitation on Redemption. If the funds of the
Corporation legally available for redemption of shares of the
Series B Preferred Stock are insufficient to redeem the total
number of such shares to be redeemed, those funds which are
legally available will be used to redeem the maximum possible
number of such shares, and if at the time of payment to one
holder the Corporation has received a Put Notice from another
holder, then the funds available for redemption shall be applied
ratably among such holders. The shares of the Series B Preferred
Stock not redeemed shall remain outstanding and entitled to all
rights and preferences provided herein. At any time thereafter
when additional funds of the Corporation are legally available
for the redemption of shares of the Series B Preferred Stock,
such funds will immediately be used to redeem the balance of the
shares set forth in the Redemption Notice which were not
redeemed.
(v) Redemption.
(a) Notice. The Corporation may redeem all of the issued and
outstanding shares of the Series B Preferred Stock for a per
share price equal to the Redemption
3
<PAGE>
Price, upon the terms set forth below. If the Corporation desires to
redeem the Series B Preferred Stock, it shall deliver notice (the
"Redemption Notice") by regular mail to each holder of record of the
Series B Preferred Stock at the address of each holder as it appears
on the books of the Corporation. Dividends shall cease accruing on the
date of the Redemption Notice.
(b) Delivery of Certificates and Payment. On or before the tenth
day after the date of the Redemption Notice (the "Period"), each
holder of the Series B Preferred Stock shall deliver to the secretary
of the Corporation at its principal office his certificates for the
Series B Preferred Stock, duly endorsed in blank (or accompanied by
proper instruments of transfer). Upon such surrender, the holder
thereof shall be entitled to receive payment of the Redemption Price
for each share of the Series B Preferred Stock so surrendered. The
Corporation shall make such payment within five days after the later
of (i) the date on which the holder delivered such certificates or
(ii) the last day of the Period.
(vi) Preference on Liquidation.
(a) Payment on Preferred Stock. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
the holder of each share of the Series B Preferred Stock then
outstanding shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, whether
from capital, surplus or earnings, before any payment shall be made in
respect of the Common Stock, an amount equal to the Redemption Price.
If upon liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the Preferred
Stock the full amounts to which they shall be entitled, the holders of
the Preferred Stock shall share ratably in any distribution of assets.
(b) Merger and Consolidation. The merger or consolidation of the
Corporation with another corporation in which the Corporation is not
the surviving corporation or the sale of all or substantially all of
the assets of the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation as those terms are used
in this Article IV.
(c) Payment on Common Stock. Upon completion of the distributions
required by Section 4(a) above, the holders of the Common Stock shall
be entitled to receive ratable any remaining assets and funds of the
Corporation available for distribution in connection with any such
liquidation, dissolution or winding up of the Corporation.
(d) Determination of Value. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
which will involved the distribution of assets other than cash, the
Board of Directors shall determine in good faith the value of the
assets to be distributed to the holders of shares of the Series B
Preferred Stock and the holders of shares of Common Stock.
(vii) Voting Rights. The holders of Series B Preferred Stock shall not
have any voting rights.
4
<PAGE>
C. Series D. Preferred Stock.
(i) Designation. The designation of this series of Preferred Stock,
par value $.01 per share, shall be the "Series D Preferred Stock."
(ii) Rank. The Series D Preferred Stock shall rank junior to the
Series B Preferred Stock and Series E Preferred Stock.
(iii) Dividends.
(a) The Holder of the share of Series D Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors,
out of funds legally available for the payment of dividends,
cumulative dividends at the annual rate of 7%. The dividend is payable
within 90 days of each year anniversary thereof (the "Series D
Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividend shall be paid to the holder of record at the
close of business on the date ten business days prior to the Series D
Dividend Payment Dates, which dividend may be paid in cash or kind, at
the discretion of the Corporation. Each of such dividends shall be
fully cumulative and shall accrue (whether or not declared), without
interest, from the date such dividends are payable as herein provided.
(b) If at any time the Corporation shall have failed to pay full
dividends which have accrued (whether or not declared) on any Senior
Securities, no dividend shall be declared by the Board of Directors or
paid or set apart for payment by the Corporation on the share of the
Series D Preferred Stock or any other Parity Securities unless, prior
to or concurrently with such declaration, payment or setting apart for
payment, all accrued and unpaid dividends on all outstanding shares of
Senior Securities shall have been or be declared and paid or set apart
for payment, without interest. No dividends shall be declared or paid
or set apart for payment on any Parity or Junior securities for any
period unless full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on the Series D Preferred Stock for
all dividend payment periods terminating on or prior to the date of
payment of such full cumulative dividends. If any dividends are not
paid in full, as aforesaid, upon the share of the Series D Preferred
Stock and any other Parity Securities, all dividends declared upon the
share of the Series D Preferred Stock and any other Parity Securities
shall be declared pro rate so that the amount of dividends declared on
the share of Series D Preferred Stock and such other Parity Securities
shall in all cases bear to each other the same ratio that accrued
dividends per share on the Series D Preferred Stock and such other
Parity securities bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series D Preferred Stock or any other Parity
Securities which may be in arrears.
(c) The Holder of the share of the Series D Preferred Stock shall
be entitled to receive the dividends provided for in paragraph
(iii)(a) hereof in preference to and in priority over any dividends
upon any of the Junior Securities.
(d) Subject to the foregoing provisions of this Section (iii) the
Board of Directors may declare, and the Corporation may pay or set
apart for payment, dividends and other distributions on any of the
Junior Securities, and may purchase or otherwise redeem any of the
Junior Securities, and may purchase or otherwise redeem any of the
Junior Securities or any warrants, rights or options exercisable for
or convertible into any of the Junior
5
<PAGE>
Securities, and the Holder of the share of the Series D Preferred
Stock shall not be entitled to share therein.
(iv) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
Holder of the share of Series D Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available
for distribution to its stockholders an amount in cash equal to
$1,400,000 for the share outstanding, before any payment shall be made
or any assets of the Corporation available for distribution to its
stockholders an amount in cash equal to $1,400,000 for the share
outstanding, before any payment shall be made or any assets
distributed to the holders of any of the Junior Securities, provided,
however, that the Holder of the outstanding share of Series D
Preferred Stock shall not be entitled to receive such liquidation
payment until the liquidation payments on all outstanding shares of
Senior Securities, if any, shall have been paid in full. If the assets
of the Corporation are not sufficient to pay in full the liquidation
payments payable to the Holder of the outstanding share of the Series
D Preferred Stock or any other Parity Securities, then the holders of
all such shares shall share ratably in such distribution of assets in
accordance with the amount which would be payable on such distribution
if the amounts to which the Holder of the outstanding share of Series
D Preferred Stock and the holders of outstanding shares of such other
Parity Securities are entitled were paid in full.
(b) For the purpose of this Article IV, neither the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or their consideration) of all or substantially all
the property or assets of the corporation or the consolidation or
merger of the Corporation with one or more other corporations shall be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, unless such voluntary sale, conveyance, lease, exchange
or transfer shall be in connection with a dissolution or winding up of
the business of the Corporation.
(v) Redemption. The share of Series D Preferred Stock is not
redeemable by the Corporation.
(vi) Conversion.
(a) Subject to and upon compliance with the provisions of this
Section (vi), the Holder of the share of Series D Preferred Stock
shall have the right, at such Holder's option, at any time, to convert
such share into $1,400,000 worth of shares of the Corporation's Common
Stock at the average closing bid price for the thirty (30) days prior
to the Holder's giving notice of conversion. The shares issued
pursuant to the conversion shall be fully paid and nonassessable
shares of Common Stock of the Corporation.
(b)(i) In order to exercise the conversion privilege, the Holder
of the share of Series D Preferred Stock shall surrender the
certificate representing such share at the office of the transfer
agent for the Series D Preferred Stock, appointed for such purpose by
the Corporation, with the Notice of Election to Convert on the back of
said certificate completed and signed. Unless the shares of Common
Stock issuable on conversion are to be issued in the same name in
which such share of Series D Preferred Stock is registered, the share
surrendered
6
<PAGE>
for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the Holder or
such Holder's duly authorized attorney and an amount sufficient to pay
any transfer or similar tax.
(ii) As promptly as practicable after the surrender of the
certificate for the share of Series D Preferred Stock as
aforesaid, the Corporation shall issue and shall deliver at such
office to such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such share in accordance with the
provisions of this Section (iv).
(iii) The conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificate for the share of Series D Preferred Stock shall
have been surrendered and such notice received by the Corporation
as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby
at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, and such notice
received by the Corporation. All shares of Common Stock delivered
upon conversion of the Series D Preferred Stock will upon
delivery be duly and validly issued and fully paid and
nonassessable, free of all liens and charges and not subject to
any preemptive rights.
(c) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common stock held in its treasury, or both, for the purposes
of effecting the conversion of the Series D Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
the outstanding share of Series D Preferred Stock not theretofore
converted. For purposes of this subsection (c), the number of shares
of Common Stock which shall be deliverable upon the conversion of the
outstanding share of Series D Preferred Stock shall be computed based
upon the average closing bid price for the thirty (30) consecutive
days prior to the Holder giving notice of his intention to convert the
Series D Preferred Stock.
(vii) Voting Rights.
(a) The Holder of the Series D Preferred Stock shall have the
right to vote at all meetings of the stockholders of the Corporation,
or consent in writing in lieu of voting, or otherwise, solely for the
election of the Corporation's Board of Directors.
(b) At such times as the shares of Series D Preferred Stock is
outstanding, the Board of Directors shall be comprised of such odd
number of Directors as shall be fixed by the Board of Directors or as
state in the Corporation's Certificate of Incorporation; provided
however, that such number of Directors shall not be less than three
(3).
(c) The Holder of the share of Series D Preferred Stock, voting
as a separate class shall have the sole right to vote for or consent
in writing in lieu of voting, and elect two-thirds (2/3) of the
Directors of the Corporation, who shall be known as the
7
<PAGE>
Preferred Directors, and to remove any Preferred Directors with or
without cause at any time and to fill all vacancies of Preferred
Directors.
D. Series E Preferred Stock.
(i) Designation. The designation of this series of Preferred Stock,
par value $.01 per share, shall be the "Series E Preferred Stock." There
shall be two classes of Series E Preferred Stock. 6,000,000 shares of
Series E Preferred Stock will be designated as Class I Series E Preferred
Stock and 14,000,000 shares will be designated as Class II Series E
Preferred Stock (the Class I Series E Preferred Stock and Class II Series E
Preferred Stock are collectively referred to herein as the "Series E
Preferred Stock"). The classification of the shares of Series E Preferred
Stock will be determined by the Board of Directors of the Corporation at
the time of issuance.
(ii) Rank. The Series E Preferred Stock shall rank junior to the
Series B Preferred Stock and senior to the Series D Preferred Stock.
(iii) Dividends.
(a) The holders of the shares of the Series E Preferred Stock
shall be entitled to receive, when and as declared by the Board of
Directors, out of funds legally available for the payment of
dividends, cumulative dividends at $1.00 per share. The dividend is
payable within 90 days of each year anniversary thereof (the "Series E
Dividend Payment Date"), in preference to dividends on the Junior
Securities. Such dividend shall be paid to the holder of record at the
close of business on the date ten business days prior to the Series E
Dividend Payment Dates, which dividend may be paid in cash or kind, at
the discretion of the Corporation. Each of such dividends shall be
fully cumulative and shall accrue (whether or not declared), without
interest, from the date such dividends are payable as herein provided.
(b) If at any time the Corporation shall have failed to pay full
dividends which have accrued (whether or not declared) on any Senior
Securities, no dividend shall be declared by the Board of Directors or
paid or set apart for payment by the Corporation on the shares of the
Series E Preferred Stock or any other Parity Securities unless, prior
to or concurrently with such declaration, payment or setting apart for
payment, all accrued and unpaid dividends on all outstanding shares of
Senior Securities shall have been or are declared and paid or set
apart for payment, without interest. No dividends shall be declared or
paid or set apart for payment on any Parity or Junior securities for
any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series E Preferred Stock for all dividend payment periods terminating
on or prior to the date of payment of such full cumulative dividends.
If any dividends are not paid in full, as aforesaid, upon the shares
of the Series E Preferred Stock and any other Parity Securities shall
be declared pro rata so that the amount of dividends declared per
share on the Series E Preferred Stock and such other Parity Securities
shall in all cases bear to each other the same ratio that accrued
dividends per share on the Series E Preferred Stock and such other
Parity securities bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series E Preferred Stock or any other Parity
Securities which may be in arrears.
8
<PAGE>
(c) Holders of the shares of the Series E Preferred Stock shall
be entitled to receive the dividends provided for in paragraph
(iii)(a) hereof in preference to and in priority over any dividends
upon the Series D Preferred Stock and any other Junior Securities.
(d) Subject to the foregoing provisions of this Section (iii) the
Board of Directors may declare, and the Corporation may pay or set
apart for payment, dividends and other distributions on any of the
Junior Securities, and may purchase or otherwise redeem any of the
Junior Securities or any warrants, rights or options exercisable for
or convertible into any of the Junior Securities, and the holders of
shares of the Series E Preferred Stock shall not be entitled to share
therein.
(iv) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of shares of Series E Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available
for distribution to its stockholders an amount in cash equal to $1.00
per share for each share outstanding, before any payment shall be made
or any assets distributed to the holders of any of the Junior
Securities, provided, however, that the holder of the outstanding
shares of the Series E Preferred Stock shall not be entitled to
receive such liquidation payment until the liquidation payments on all
outstanding shares of Senior Securities, if any, shall have been paid
in full. In the assets of the Corporation are not sufficient to pay in
full the liquidation payments payable to the holders of the
outstanding shares of the Series E Preferred Stock or any other Parity
Securities, then the holders of all such shares shall share ratably in
such distribution of assets in accordance with the amount which would
be payable on such distribution if the amounts to which the holders of
the outstanding shares of Series E Preferred Stock and the holders of
outstanding shares of such other Parity Securities are entitled were
paid in full.
(b) For the purposes of this Article IV, neither the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or their consideration) of all or substantially all
the property or assets of the Corporation or the consolidation or
merger of the Corporation with one or more other corporations shall be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, unless such voluntary sale, conveyance, lease, exchange
or transfer shall be in connection with a dissolution or winding up of
the business of the Corporation.
(v) Redemption. The shares of Series E Preferred Stock is not
redeemable by the Corporation.
(vi) Conversion.
(a) Subject to and upon compliance with the provisions of this
Section (vi), the holder of a share of Series E Preferred Stock
designated as Class I Series E Preferred Stock shall have the right,
at such holder's option, at any time, terminating five years from
issuance, to convert such share into twenty fully paid and
nonassessable shares of Common Stock of the Corporation. A holder of a
share of Series E Preferred Stock designated as Class II Series E
Preferred Stock shall have the right, at such holder's option, two (2)
years from issuance, to convert such share into twenty fully paid and
nonassessable shares of Common Stock of the Corporation.
9
<PAGE>
(b) The holders of shares of the Series E Preferred Stock at the
close of business on a Series E Dividend Payment Date shall be
entitled to receive the dividend payable on such shares on the
corresponding Series E Dividend Date withholding the conversion
thereof or the Corporation's default in payment of the dividend due on
such Series E Dividend Payment Date (except that holders of shares
called for redemption on a redemption date between such record date
and the Series E Dividend Payment Date shall not be entitled to
receive such dividend on such dividend payment date). However, shares
of Series E Preferred Stock surrendered for conversion during the
period between the close of business on any Series E Dividend Payment
Date and the opening of business on the corresponding Series E
Dividend Payment Date (except shares called for redemption on a
redemption date during such period) must be accompanied by payment of
an amount equal to the dividend payable on such shares on such Series
E Dividend Payment Date. A holder of shares of Series E Preferred
Stock on a Series E Dividend Payment Date. A holder of shares of
Series E Preferred Stock on a Series E Dividend Payment Date who (or
whose transferee) surrenders any of such shares for conversion into
shares of Common Stock on a Series E Dividend Payment Date will
receive the dividend payable by the Corporation on such shares of
Series E Preferred Stock on such date, and the converting holder need
not include payment in the amount of such dividend upon surrender of
shares of Series E Preferred Stock for conversion. Exchange as
provided above, the Corporation shall make no payment or allowance for
unpaid dividends, whether or not in arrears, on converted shares or
for dividends on the shares of Common Stock issued upon such
conversion.
(c)(i) In order to exercise the conversion privilege, the holders
of each share of Series E Preferred Stock to be converted shall
surrender the certificate representing such share at the office of the
transfer agent for the Series E Preferred Stock, appointed for such
purpose by the Corporation, with the Notice of Election to Convert on
the back of said certificate completed and signed. Unless the shares
of Common Stock issuable on conversion are to be issued in the same
name in which such share of Series E Preferred Stock is registered,
each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the holder of such holder's duly authorized attorney and
an amount sufficient to pay any transfer or similar tax.
(ii) As promptly as practicable after the surrender of the
certificates for shares of Series E Preferred Stock as aforesaid,
the Corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
the provisions of this Section (iv).
(iii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificates for shares of Series E Preferred Stock shall
have been surrendered and such notice received by the Corporation
as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby
at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, and such notice
received by the Corporation. All shares of Common Stock delivered
upon conversion of the Series E Preferred Stock will upon
delivery be duly and validly issued
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and fully paid and nonassessable, free of all liens and charges
and not subject to any preemptive rights.
(d) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common stock held in its treasury, or both, for the purposes
of effecting conversions of the Series E Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
all outstanding shares of Series E Preferred Stock not theretofore
converted. For purposes of this subsection (d), the number of shares
of Common Stock which shall be deliverable upon the conversion of all
outstanding shares of Series E Preferred Stock shall be computed as if
at the time of computation of all such outstanding share were held by
a single holder.
(vii) Voting Rights.
(a) The holders of the Series E Preferred Stock shall have no
voting rights.
(b) Common Stock.
(i) Dividends. Subject to the dividend and liquidation
rights of the Series E Preferred stock, the holders of Common
Stock shall be entitled to share equally all dividends declared
and paid by the Corporation.
(ii) Voting. The holders of record of Common Stock shall
have one vote, on all matters upon which stockholders of the
Corporation may vote, for each share of the Common Stock held by
them.
(iii) Dissolution, Liquidation, Etc. In the event of the
dissolution, liquidation or winding up of the affairs of the
Corporation, after payment or provision for payment of the debts
and other liabilities of the Corporation and after the payment to
the holders of the Preferred Stock as provided for in this
Certificate of Incorporation, the remaining assets of the
Corporation shall be distributed to the holders of Common Stock."
FIFTH:
The amendment to the Articles of Incorporation of the Corporation set forth
above was adopted by written consent of the Corporation's majority shareholder
on the day of August.
IN WITNESS WHEREOF, the undersigned President of this Corporation has
executed this Certificate of Amendment on this ____ day of August, 1996.
PLAY CO. TOYS & ENTERTAINMENT CORP.
--------------------------------------
Ilan Arbel, President
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