EXHIBIT 10.1
SERIES D PREFERRED STOCK PURCHASE
AND WARRANT EXERCISE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AND WARRANT EXERCISE AGREEMENT,
dated as of January 31, 2003 (this "AGREEMENT"), is entered into by and among
Tangible Asset Galleries, Inc., a corporation formed under the laws of the State
of Nevada (the "COMPANY"), Stanford Venture Capital Holdings, Inc., a
corporation formed under the laws of the State of Delaware (the "PURCHASER"),
Silvano DiGenova, an individual resident of the State of California (the
"INSIDER"), and those whose names appear on EXHIBIT A attached hereto (the
"WARRANT HOLDERS").
W I T N E S S E T H:
WHEREAS, the Company is a dealer of rare coins, fine arts and
other collectibles and its common stock (the "COMMON STOCK") is quoted on the
OTC Bulletin Board; and
WHEREAS, the Company, the Purchaser and the Insider were
parties to a Securities Purchase Agreement, dated as of April 3, 2002 (the
"PRIOR PURCHASE AGREEMENT"), pursuant to which the Purchaser acquired (i)
3,000,000 shares of the Company's Series B $1.00 Convertible Preferred Stock,
with a stated value of $1.00 per share (the "SERIES B PREFERRED STOCK"), and
(ii) warrants to purchase in the aggregate 30,000,000 shares (the "WARRANTS") of
the Common Stock; and
WHEREAS, the Company and the Purchaser were parties to a
Bridge Loan Agreement, dated as of December 27, 2002 (the "FIRST BRIDGE LOAN
AGREEMENT"), pursuant to which the Purchaser lent the Company $500,000 in
exchange for a note issued by the Company (the "FIRST BRIDGE NOTE"); and
WHEREAS, the Company and the Purchaser are parties to a Second
Bridge Loan Agreement, dated as of January 16, 2003 (the "SECOND BRIDGE LOAN
AGREEMENT"), pursuant to which the Purchaser lent the Company another $500,000
in exchange for a note issued by the Company (the "SECOND BRIDGE NOTE"; the
First Bridge Note and the Second Bridge Note collectively, the "BRIDGE NOTES");
and
WHEREAS, the Purchaser wishes to purchase from the Company,
and the Company wishes to issue and sell to the Purchaser, upon the terms and
conditions of this Agreement, for an aggregate purchase price of $2,000,000,
2,000,000 shares of the Company's Series D $1.00 Convertible Preferred Stock,
with a stated value of $1.00 per share (the "SERIES D PREFERRED STOCK"), the
terms of which are as set forth in the Certificate of Designation of Series D
$1.00 Convertible Preferred Stock attached hereto as EXHIBIT B (the "SERIES D
CERTIFICATE OF DESIGNATION"); and
WHEREAS, in connection with the purchase of the Series D
Preferred Stock pursuant to this Agreement by the Purchaser, the Company intends
to modify the terms of the Warrants so that the per-share exercise price for all
the shares of the Common Stock covered under the Warrants is reduced to $0.001,
which reduced exercise price shall remain the same following a contemplated 20:1
reverse stock split of the outstanding shares of the Common Stock (the "REVERSE
STOCK SPLIT") and the Warrant Holders intend to exercise all the Warrants
concurrent with the effectiveness of the Reverse Stock Split at such reduced
per-post-split-share exercise price; and
WHEREAS, the Company and the Purchaser are executing and
delivering this Agreement in reliance upon the exemptions from registration
provided by Regulation D ("REGULATION D") promulgated by the Securities and
Exchange Commission (the "COMMISSION") under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and/or Section 4(2) of the Securities Act.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE; WARRANT MODIFICATION AND
EXERCISE
a. PURCHASE OF PREFERRED STOCK. Subject to the terms and conditions set
forth in this Agreement, the Purchaser hereby agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to the Purchaser, the
Series D Preferred Stock for an aggregate purchase price of TWO MILLION DOLLARS
($2,000,000) which shall be payable on the closing dates in the Table of Closing
Dates (as shown below) by (i) cancellation of the obligation of the Company to
repay the principal of the Bridge Notes and (ii) payment of $1,000,000 in
immediately available funds.
b. CLOSINGS. The Series D Preferred Stock to be purchased by the
Purchaser hereunder, in numbers set forth opposite each of the closing dates in
the Table of Closing Dates below, shall be issued in such denominations and in
such names as the Purchaser may request from the Company at least three business
days prior to any closing.
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c. TABLE OF CLOSING DATES.
- ------------------------------------- ----------------------------------------- -----------------------------
CLOSING DATE PURCHASE PRICE NUMBER OF SHARES OF SERIES D
PREFERRED STOCK ISSUED
- ------------------------------------- ----------------------------------------- -----------------------------
February 7, 2003 (the "FIRST One Million Dollars ($1,000,000) 1,000,000
CLOSING DATE") (payable by converting the principal of
the Bridge Loans)
- ------------------------------------- ----------------------------------------- -----------------------------
February 15, 2003 (the "SECOND Five Hundred Thousand Dollars ($500,000) 500,000
CLOSING DATE")
- ------------------------------------- ----------------------------------------- -----------------------------
March 15, 2003 (the "LAST CLOSING Five Hundred Thousand Dollars ($500,000) 500,000
DATE")
- ------------------------------------- ----------------------------------------- -----------------------------
d. WARRANT MODIFICATION AND EXERCISE. The Company hereby reduces the
exercise price for all the shares of the Common Stock covered by the Warrants to
$0.001 per share effective immediately. If the Reverse Stock Split occurs, the
exercise price of the Warrants following such Reverse Stock Split shall remain
to be $0.001 per combined share. On the First Closing Date, the Warrant Holders
shall deliver to the Company the Warrant Exercise Forms attached to the
Warrants, pursuant to which the Warrant Holders shall exercise all the Warrants,
to be effective concurrently with the Reverse Stock Split, at $0.001 per
combined share. In the case of the Warrant held by the Purchaser, the aggregate
exercise price thereunder in the amount of $250 shall be deemed fully paid upon
conversion on the First Closing Date of all of the accrued interest under the
Bridge Notes through such date. As to the Warrants held by the remaining Warrant
Holders, the exercise price thereunder shall be paid by such respective holders
in personal checks delivered to the Company. Immediately upon the effectiveness
of the Reverse Stock Split, the Company shall issue an aggregate of 1,500,000
post-split shares (the "WARRANT STOCK") of the Common Stock to the Warrant
Holders represented in certificates in such respective numbers and under such
respective names as designated by the Warrant Holders. Notwithstanding anything
to the contrary in the Company's Certificate of Designation of Series B $1.00
Convertible Preferred Stock or Certificate of Designation of Series C $100
Redeemable 9% Convertible Preferred Stock (the "SERIES C PREFERRED STOCK"), the
Insider, as holder of all of the issued and outstanding shares of the Series C
Preferred Stock and of 400,000 shares of the Series B Preferred Stock, and the
Purchaser, as holder of all the remaining issued and outstanding shares of the
Series B Preferred Stock, hereby agree that neither the "Conversion Price" nor
"Conversion Rate" (as such terms are used in such certificates of designations)
shall be adjusted as a result of the reduction of the exercise price of the
Warrants hereunder.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
The Purchaser represents and warrants to, and covenants and agrees with,
the Company as follows:
a. QUALIFIED INVESTOR. The Purchaser (i) is experienced in making
investments of the kind described in this Agreement and the related documents,
(ii) is able, by reason of the business and financial experience of its
management, to protect its own interests in connection with the transactions
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described in this Agreement and the related documents, (iii) is able to afford
the loss of its entire investment in the Series D Preferred Stock, (iv) is an
"accredited investor" as defined in Rule 501(a) of Regulation D and (v) knows of
no reason to anticipate any material change in its financial condition for the
foreseeable future.
b. RESTRICTED SECURITIES. All subsequent offers and sales by the
Purchaser of the Series D Preferred Stock and the Common Stock issuable upon
conversion or exercise of the Series D Preferred Stock shall be made pursuant to
an effective registration statement under the Securities Act or pursuant to an
applicable exemption from such registration.
c. RELIANCE OF REPRESENTATIONS. The Purchaser understands that the
Series D Preferred Stock is being offered and sold to it in reliance upon
exemptions from the registration requirements of the United States federal
securities laws, and that the Company is relying upon the truthfulness and
accuracy of the Purchaser's representations and warranties, and the Purchaser's
compliance with its covenants and agreements, each as set forth herein, in order
to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Series D Preferred Stock.
d. ACCESS TO INFORMATION. The Purchaser (i) has been provided with
sufficient information with respect to the business of the Company for the
Purchaser to determine the suitability of making an investment in the Company
and such documents relating to the Company as the Purchaser has requested and
the Purchaser has carefully reviewed the same, (ii) has been provided with such
additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (iii) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company and
any questions that the Purchaser had with respect thereto have been answered to
the full satisfaction of the Purchaser.
e. LEGALITY. The Purchaser has the requisite corporate power and
authority to enter into this Agreement.
f. AUTHORIZATION. This Agreement and any related agreements, and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser, and such agreements, when executed and delivered by
each of the Purchaser and the Company will each be a valid and binding agreement
of the Purchaser, enforceable in accordance with their respective terms, except
to the extent that enforcement of each such agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors rights
generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY AND INSIDER
The Company and the Insider, jointly and severally, represent and warrant
to, and covenant and agree with, the Purchaser that:
a. ORGANIZATION. The Company is a corporation duly organized and
validly existing and in good standing under the laws of the State of Nevada. The
Company has no other interest in any other entities, except for those
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subsidiaries listed on SCHEDULE 3(a) attached hereto. Each of the Company's
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state set forth following the name of such
subsidiary as follows: Tangible Collectibles, Inc. (Delaware); Superior
Galleries, Inc. (Nevada); Vintageroadshow, Inc. (California); Gehringer &
Kellar, Inc. (Pennsylvania); and Tangible Investments of America, Inc.
(Pennsylvania). Each of the Company and its subsidiaries is duly qualified as a
foreign corporation and in good standing in all jurisdictions in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification. The minute books
contain true and complete records of all actions taken at all meetings and by
all written consents in lieu of meetings of the directors, shareholders and
committees of the board of directors of the Company from the date of
organization through the date hereof. The stock record books and other similar
records of the Company have been provided or made available to the Purchaser or
its counsel prior to the execution of this Agreement, are complete and correct
in all material respects and have been maintained in accordance with sound
business practices. The Company has, prior to the execution of this Agreement,
delivered to the Purchaser true and complete copies of the Company's Articles of
Incorporation, Certificates of Designation filed prior to the date of this
Agreement, and Bylaws, each as amended through the date hereof. The Company is
not in violation of any provisions of its Articles of Incorporation,
Certificates of Designation or Bylaws.
b. CAPITALIZATION. On the date hereof, the authorized capital of the
Company consists of: (i) 100,000,000 shares of Common Stock, of which 41,211,463
shares are issued and outstanding, (ii) 15,000,000 shares of preferred stock, of
which (A) 1,400,000 shares are designated as Series A $5.00 Convertible
Preferred Stock with 125,000 of such shares outstanding; (B) 3,400,000 shares
are designated as the Series B Preferred Stock, all of which are issued and
outstanding; (C) 7,000 shares are designated as the Series C Preferred Stock),
of which 7,000 shares are currently outstanding and none of which will be
outstanding as a result of the transactions contemplated by the Insider
Agreement (as defined in Section 4(i)), and (D) 2,000,000 shares shall be
designated as Series D Preferred Stock pursuant to this Agreement. On the date
hereof, the Company has issued warrants to purchase 38,309,587 shares of Common
Stock at exercise prices from $0.05 to $1.19 per share, and options to purchase
5,122,500 shares of Common Stock at exercise prices from $0.05 to $2.00 per
share and is obligated to issue warrants to purchase an aggregate of 131,250
shares of Common Stock at exercise prices ranging from $0.05 to $0.90 per share.
SCHEDULE 3(b) attached hereto sets forth a complete list of all holders of
options, warrants, notes, or any other rights or instruments which would entitle
the holder thereof to acquire shares of the Common Stock or other equity
interests in the Company upon conversion or exercise, setting forth for each
such holder the type of security, number of equity shares covered thereunder,
the exercise or conversion price thereof, the vesting schedule thereof (if any),
and the issuance date and expiration date thereof. Other than as disclosed in
SCHEDULE 3(b) attached hereto, there are no outstanding rights, agreements,
arrangements or understandings to which the Company is a party (written or oral)
which would obligate the Company to issue any equity interest, option, warrant,
convertible note, or other types of securities or to register any shares in a
registration statement filed with the Commission. Other than disclosed in
SCHEDULE 3(b) attached hereto, to the Knowledge of the Company (as defined in
Section 9), there is no agreement, arrangement or understanding between or among
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any entities or individuals which affects, restricts or relates to voting,
giving of written consents, dividend rights or transferability of shares with
respect to any voting shares of the Company, including without limitation any
voting trust agreement or proxy. SCHEDULE 3(b) attached hereto contains a
complete and accurate schedule of all the shares subject to "lock-up" or similar
agreement or arrangement by which any equity shares are subject to resale
restrictions and the Company has provided the Purchaser complete and accurate
copies of all such agreements, which agreements are in full force and effect.
Except for certain guarantees of debt made by the Company on behalf of its
subsidiaries as such guarantees are set forth in SCHEDULE 3(b) attached hereto,
there are no outstanding obligations of the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire for value any outstanding shares of
capital stock or other ownership interests of the Company or any of its
subsidiaries or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any of the Company's subsidiaries or
any other entity. There are no anti-dilution or price adjustment provisions
regarding any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Securities.
c. CONCERNING THE COMMON STOCK AND THE WARRANT STOCK. The Series D
Preferred Stock, the Warrant Stock and the Common Stock issuable upon conversion
of the Series D Preferred Stock, when issued, shall be duly and validly issued,
fully paid and non-assessable, and will not subject the holder thereof to
personal liability by reason of being such a holder.
d. AUTHORIZED SHARES. The Company has available a sufficient number of
authorized and unissued shares of Common Stock as may be necessary to effect
conversion of the Series D Preferred Stock. Each of the Company and the Insider
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of shares of Common Stock upon the conversion of the Series D
Preferred Stock. The Company further acknowledges that its obligation to issue
shares of Common Stock upon conversion of the Series D Preferred Stock is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
e. LEGALITY. The Company has the requisite corporate power and
authority to enter into this Agreement, and to issue and deliver the Series D
Preferred Stock, the Warrant Stock and the Common Stock issuable upon conversion
of the Series D Preferred Stock.
f. TRANSACTION AGREEMENTS. This Agreement, the Series D Certificate of
Designation, the Registration Rights Agreement (as defined below), the Stanford
Consulting Agreement (as defined below), and the Insider Agreement (as defined
below) (collectively, the "PRIMARY DOCUMENTS"), and the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Company; this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the other Primary Documents, when executed and delivered
by the Company, will each be, a valid and binding agreement of the Company,
enforceable in accordance with their respective terms, except to the extent that
enforcement of each of the Primary Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity.
6
g. FINANCIAL STATEMENTS. The financial statements and related notes
thereto contained in the Company's filings with the Commission (the "COMPANY
FINANCIALS") are correct and complete in all material respects and have been
prepared in accordance with United States generally accepted accounting
principles applied on a basis consistent throughout the periods indicated and
consistent with each other. The Company Financials present fairly and accurately
the financial condition and operating results of the Company in all material
respects as of the dates and during the periods indicated therein. Except as
disclosed in SCHEDULE 3(G) attached hereto, since December 31, 1998, there has
been no change in any accounting policies, principles, methods or practices,
including any change with respect to reserves (whether for bad debts, contingent
liabilities or otherwise), of the Company or any of its subsidiaries.
h. COMMISSION FILINGS. The Company has furnished or made available to
the Purchaser true and complete copies of all the documents it has filed with
the Commission since its inception, all in the forms so filed. As of their
respective filing dates, such filings already filed by the Company or to be
filed by the Company after the date hereof but before the First Closing Date
complied or, if filed after the date hereof, will comply in all material
respects with the requirements of the Securities Act and the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and regulations of
the Commission thereunder, as the case may be, and none of the filings with the
Commission contained or will contain any untrue statement of a material fact or
omitted or will omit any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading, except to the extent such filings have
been all prior to the date of this Agreement corrected, updated or superseded by
a document subsequently filed with Commission.
i. NON-CONTRAVENTION. The execution and delivery of this Agreement and
each of the other Primary Documents, and the consummation by the Company of the
transactions contemplated by this Agreement and each of the other Primary
Documents, do not and will not conflict with, or result in a breach by the
Company of, or give any third party any right of termination, cancellation,
acceleration or modification in or with respect to, any of the terms or
provisions of, or constitute a default under, (A) its Articles of Incorporation,
Certificates of Designation or Bylaws of the Company, as amended through the
date hereof, (B) any material indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Company or its subsidiaries are a party or
by which they or any of their properties or assets are bound, or (C) any
existing applicable law, rule, or regulation or any applicable decree, judgment
or order of any court or federal, state, securities industry or foreign
regulatory body, administrative agency, or any other governmental body having
jurisdiction over the Company, its subsidiaries, or any of their properties or
assets (collectively, "LEGAL REQUIREMENTS"), other than those which have been
waived or satisfied on or prior to the First Closing Date.
j. APPROVALS AND FILINGS. Other than the completion of the filing of
the Series D Certificate of Designation, no authorization, approval or consent
of any court, governmental body, regulatory agency, self-regulatory
organization, stock exchange or market or the stockholders of the Company is
required to be obtained by the Company for the entry into or the performance of
this Agreement and the other Primary Documents.
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k. COMPLIANCE WITH LEGAL REQUIREMENTS. Except as disclosed in SCHEDULE
3(k) attached hereto, neither the Company nor any of its subsidiaries has
violated in any material respect, and is not currently in material default
under, any Legal Requirement applicable to the Company or such subsidiary, or
any of the assets or properties of the Company or such subsidiary, where such
violation could reasonably be expected to have any Material Adverse Effect (as
defined below) on the business or financial condition of the Company or such
subsidiary. "MATERIAL ADVERSE EFFECT" means, with respect to any Person, a
material adverse effect on (i) the business, condition, capitalization, assets,
liabilities, operations or financial performance of the Person, or (ii) the
ability of the Person to consummate the transactions contemplated by the Primary
Documents or to perform any of its obligations under this Agreement.
l. ABSENCE OF CERTAIN CHANGES. Since December 31, 2001 and except as
previously disclosed to the Purchaser and listed on SCHEDULE 3(l), there has
been no change nor development that may have a Material Adverse Effect on the
Company, and no event has occurred or circumstance exists that may result in
such a Material Adverse Effect.
m. INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS. Except as set
forth on SCHEDULE 3(m) attached hereto, neither the Company nor any of its
subsidiaries is indebted to any of such entity's shareholders, officers or
directors (or to members of their immediate families) in any amount whatsoever
(including, without limitation, any deferred compensation or salaries payable).
n. RELATIONSHIPS WITH RELATED PERSONS. To the Knowledge of the Company,
except as set forth in SCHEDULE 3(n) attached hereto, no officer, director, or
principal shareholder of the Company or any of its subsidiaries nor any Related
Person (as defined below) of any of the foregoing has, or since December 31,
1998 has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible) used in or pertaining to the business of the
Company or any of its subsidiaries. Except as set forth in SCHEDULE 3(n)
attached hereto, no officer, director, or principal shareholder of the Company
or any of its subsidiaries nor any Related Person of the any of the foregoing
is, or since December 31, 1998 has owned an equity interest or any other
financial or profit interest in or held any management position with, a Person
(as defined below) that has (i) had business dealings or a material financial
interest in any transaction with the Company or any of its subsidiaries, or (ii)
engaged in competition with the Company or any of its subsidiaries with respect
to any line of the merchandise or services of such company (a "COMPETING
BUSINESS") in any market presently served by such company except for ownership
of less than one percent of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth in SCHEDULE 3(n) attached hereto,
no director, officer, or principal shareholder of the Company or any of its
subsidiaries nor any Related Person of any of the foregoing is a party to any
Contract with, or has claim or right against, the Company or any of its
subsidiaries. As used in this Agreement, "PERSON" means any individual,
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or any governmental
body; "RELATED PERSON" means, (X) with respect to a particular individual, (a)
8
each other member of such individual's Family (as defined below); (b) any Person
that is directly or indirectly controlled by such individual or one or more
members of such individual's Family; (c) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest (as defined below); and (d) any Person with respect to which
such individual or one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a similar capacity); (Y)
with respect to a specified Person other than an individual, (a) any Person that
directly or indirectly controls, is directly or indirectly controlled by, or is
directly or indirectly under common control with such specified Person; (b) any
Person that holds a Material Interest in such specified Person; (c) each Person
that serves as a director, officer, partner, executor, or trustee of such
specified Person (or in a similar capacity); (d) any Person in which such
specified Person holds a Material Interest; (e) any Person with respect to which
such specified Person serves as a general partner or a trustee (or in a similar
capacity); and (f) any Related Person of any individual described in clause (b)
or (c). For purposes of the foregoing definition, (a) the "FAMILY" of an
individual includes (i) the individual, (ii) the individual's spouse and former
spouses, (iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "MATERIAL INTEREST" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
of voting securities or other voting interests representing at least 1% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 1% of the outstanding equity securities or
equity securities in a Person.
o. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed to the Purchaser that could reasonably be expected to have a Material
Adverse Effect upon the Company or any of its subsidiaries. The representations
and warranties of the Company set forth in this Agreement do not contain any
untrue statement of a material fact or omit any material fact necessary to make
the statements contained herein, in light of the circumstances under which they
were made, not misleading.
p. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Each of the Company and
its subsidiaries has good and marketable title to all of its material properties
and assets, both real and personal, and has good title to all its leasehold
interests. Except as disclosed in SCHEDULE 3(p) attached hereto, all material
properties and assets reflected in the Company Financials are free and clear of
all Encumbrances (as defined below) except liens for current Taxes not yet due.
As used in this Agreement, "ENCUMBRANCE" means any charge, claim, community
property interest, condition, equitable interest, lien, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
q. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and to the Knowledge of the Company, such business does not and would
not conflict with or constitute an infringement on the rights of others.
9
r. PERMITS. Each of the Company and its subsidiaries has all permits,
licenses and any similar authority necessary for the conduct of its business as
now conducted, the lack of which would have a Material Adverse Effect on such
company. Neither the Company nor any of its subsidiaries is in default in any
respect under any of such permits, licenses or similar authority.
s. ABSENCE OF LITIGATION. Except as disclosed on SCHEDULE 3(s) attached
hereto, there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or body, or arbitration tribunal pending or, to the
Knowledge of the Company or its subsidiaries, threatened, against or affecting
the Company or its subsidiaries, in which an unfavorable decision, ruling or
finding would have a Material Adverse Effect on the Company and its
subsidiaries, taken as a whole, or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, the Primary Documents.
t. NO DEFAULT. Except as disclosed on SCHEDULE 3(t) attached hereto,
neither the Company nor any of its subsidiaries is in default in the performance
or observance of any obligation, covenant or condition contained in any
indenture, mortgage, deed of trust or other instrument or agreement to which it
is a party or by which it or its property may be bound.
u. TAXES. Except as disclosed on SCHEDULE 3(u) attached hereto,
1. All Tax Returns (as defined below) required to have been filed
by or with respect to the Company or any of its subsidiaries
(including any extensions) have been so filed. All such Tax
Returns are true, complete and correct in all material
respects. All Taxes (as defined below) due and payable by the
Company, or any of its subsidiaries, whether or not shown on
any Tax Return, or claimed to be due by any Taxing Authority,
(as defined below) have been paid or accrued on the balance
sheet included in the Company's latest filing with the
Commission.
2. Neither the Company nor any of its subsidiaries has any
material liability for Taxes outstanding other than as
reflected in the balance sheet in the interim financial
statements of the Company for the nine-month period ended on
September 30, 2002 (the "INTERIM FINANCIAL Statements") or
incurred subsequent to the date of the Interim Financial
Statements in the ordinary course of business. The unpaid
Taxes of the Company and its subsidiaries (i) did not, as of
the most recent fiscal month end, exceed by any material
amount the reserve for liability for such tax (other than the
reserve for deferred taxes established to reflect timing
differences between book and tax income) set forth on the
balance sheet included in the Interim Financial Statements and
(ii) will not exceed by any material amount that reserve as
adjusted for operation and transactions through the First
Closing Date.
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3. Neither the Company nor any of its subsidiaries is a party to
any agreement extending the time within which to file any Tax
Return. No claim has ever been made by a Taxing Authority of
any jurisdiction in which the Company or any of its
subsidiaries does not file Tax Returns that the Company or
such subsidiary is or may be subject to taxation by that
jurisdiction.
4. The Company and each of subsidiaries have withheld and paid
all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee,
creditor or independent contractor.
5. There has been no action by any Taxing Authority in connection
with assessing additional Taxes against or in respect of the
Company or any of its subsidiaries for any past period. There
is no dispute or claim concerning any Tax liability of the
Company or any of its subsidiaries (i) claimed, raised or, to
the Knowledge of the Company, threatened by any Taxing
Authority or (ii) of which the Company is otherwise aware.
There are no liens for Taxes upon the assets and properties of
the Company or any of its subsidiaries other than liens for
Taxes not yet due. SCHEDULE 3(U) attached hereto indicates
those Tax Returns, if any, of the Company, and each of its
subsidiaries that have been audited or examined by Taxing
Authorities, and indicates those Tax returns of the Company
and of its subsidiaries that currently are the subject of
audit or examination. The Company has made available to the
Purchaser complete and correct copies of all federal, state,
local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed
against or agreed to by, the Company and any of its
subsidiaries since the fiscal year ended December 31, 2001.
6. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns
required to be filed by, or which include or are treated as
including, the Company or with respect to any Tax assessment
or deficiency affecting the Company or any of its
subsidiaries.
7. The Company has not received any written ruling related to
Taxes or entered into any agreement with a Taxing Authority
relating to Taxes.
8. The Company does not have any liability for the Taxes of any
person or entity other than the Company (i) under Section
1.1502-6 of the Treasury regulations (or any similar provision
of state, local or foreign Legal Requirements), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
9. The Company (i) has not agreed to make nor is required to make
any adjustment under Section 481 of the Internal Revenue Code
by reason of a change in accounting method and (ii) is not a
"consenting corporation" within the meaning of Section
341(f)(1) of the Internal Revenue Code.
11
10. The Company is not a party to or bound by any obligations
under any tax sharing, tax allocation, tax indemnity or
similar agreement or arrangement.
11. The Company is not involved in, subject to, or a party to any
joint venture, partnership, contract or other arrangement that
is treated as a partnership for federal, state, local or
foreign Tax purposes.
12. The Company was not included nor is includible, in the Tax
Return of any other entity.
As used in this Agreement, a "TAX RETURN" means any return, report, information
return, schedule, certificate, statement or other document (including any
related or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or other
document issued by, a Taxing Authority in connection with any Tax; "TAX" means
any and all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross, receipts, excise, real or personal property,
sales, withholding, social security, retirement, unemployment, occupation, use,
service, service use, license, net worth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by Taxing Authority, whether computed
on a separate, consolidated, unitary, combined or any other basis; and such term
includes any interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments; and "TAXING AUTHORITY" means any
governmental agency, board, bureau, body, department or authority of any United
States federal, state or local jurisdiction or any foreign jurisdiction, having
or purporting to exercise jurisdiction with respect to any Tax.
v. CERTAIN PROHIBITED ACTIVITIES. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity, (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
w. CONTRACTS; NO DEFAULTS. (A) SCHEDULE 3(w) attached hereto contains a
complete and accurate list, and the Company has made available to the Purchaser
true and complete copies, of:
1. each Applicable Contract (as defined below) that involves
performance of services or delivery of goods or materials of
an amount or value in excess of $25,000;
2. each Applicable Contract that was not entered into in the
ordinary course of business or is not cancelable by the
Company or a subsidiary of the Company with no penalty upon
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advance notice of 30 days or less and that involves
expenditures or receipts of the Company or its subsidiaries in
excess of $5,000;
3. each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements having a value
per item or aggregate payments of less than $5,000 and with
terms of less than one year);
4. each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs,
or liabilities by the Company or any of its subsidiaries with
any other person or entity;
5. each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any of the
Company and its subsidiaries or any affiliate of the foregoing
or limit the freedom of any of the Company and its
subsidiaries or any affiliate of the foregoing to engage in
any line of business or to compete with any person or entity;
6. each employment or consulting agreement of the Company and its
subsidiaries (other than unwritten at will employment
arrangements);
7. each Applicable Contract providing for payments to or by any
person or entity based on sales, purchases, or profits, other
than direct payments for goods;
8. each power of attorney executed by any of the Company and its
subsidiaries that is currently effective and outstanding;
9. each Applicable Contract entered into other than in the
ordinary course of business that contains or provides for an
express undertaking by any of the Company and its subsidiaries
to be responsible for consequential damages;
10. each Applicable Contract for capital expenditures in excess of
$25,000;
11. each written warranty, guaranty, and other similar undertaking
with respect to contractual performance extended by any of the
Company and its subsidiaries other than in the ordinary course
of business; and
12. each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
13
As used in this Agreement, "CONTRACT" means any agreement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding; "APPLICABLE CONTRACT" means any Contract (a) under
which any of the Company or its subsidiaries has or may acquire any rights, (b)
under which any of the Company or its subsidiaries has or may become subject to
any obligation or liability, or (c) by which any of the Company or its
subsidiaries or any of the assets owned or used by it is or may become bound.
(B) Except as set forth in SCHEDULE 3(w) attached hereto, (i) each of the
Company and its subsidiaries is, and has been, in material compliance with all
applicable terms and requirements of each Contract under which such company has
or had any obligation or liability or by which such company or any of the assets
owned or used by such company is or was bound; (ii) each other person or entity
that has or had any obligation or liability under any Contract under which any
of the Company and its subsidiaries has or had any rights is, and has been, in
material compliance with all applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) may contravene, conflict with, or result in a material
violation or breach of, or give any of the Company and its subsidiaries or other
person or entity the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; and (iv) none of the Company and its
subsidiaries has given to or received from any other person or entity any notice
or other communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Contract.
(C) Each Applicable Contract is valid, in full force, and binding on and
enforceable against the other party or parties to such contract in accordance
with its terms and provisions.
(D) Except as disclosed on SCHEDULE 3(W) attached hereto, there are no
renegotiation of, attempts to renegotiate, or outstanding rights to renegotiate
any material amounts paid or payable to any of the Company and its subsidiaries
under current or completed Contracts with any person or entity and, to the
Knowledge of the Company, no such person or entity has made written demand for
such renegotiation.
(E) The Contracts relating to the sale, design, or provision of products or
services by the Company or any of its subsidiaries have been entered into in the
ordinary course of business and have been entered into without the commission of
any act alone or in concert with any other person or entity, or any
consideration having been paid or promised, that is or would be in violation of
any Legal Requirement.
x. AGENT FEES. The Company has not incurred any liability for any
finder's or brokerage fees or agent's commissions in connection with the
transactions contemplated by this Agreement.
y. INSURANCE. SCHEDULE 3(y) attached hereto sets forth a true and
correct list of all the insurance policies covering the business, properties and
assets of the Company and its subsidiaries presently in force (including as to
each (i) risk insured against, (ii) name of carrier, (iii) policy number, (iv)
amount of coverage, (v) amount of premium, (vi) expiration date and (vii) the
14
property, if any, insured). All of the insurance policies set forth on SCHEDULE
3(y) attached hereto are in full force and effect and all premiums, retention
amounts and other related expenses due have been paid, and neither the Company
nor any of its subsidiaries has received any written notice of cancellation with
respect to any of the policies. Such policies, taken together, provide adequate
insurance coverage for the assets and the operations of the Company and its
subsidiaries for all risks normally insured against by companies carrying on the
same business or businesses as the Company and its subsidiaries.
z. EMPLOYEES. SCHEDULE 3(z) attached hereto is a true and correct list
of all employees of the Company and its subsidiaries and includes their accrued
vacation and sick pay, the nature of their duties and the amounts of their
compensations (including deferred compensation).
aa. EMPLOYEE BENEFITS.
1. Except as disclosed on SCHEDULE 3(aa) and except Plans (as
defined below), administered by third parties, that provide
group health coverage (medical and dental), (i) neither the
Company nor any of its ERISA Affiliates (as defined below)
maintains or sponsors (or ever maintained or sponsored), or
makes or is required to make contributions to, any Plans;
2. With respect to each Plan which provides health care coverage,
the Company and each of its ERISA Affiliates have complied in
all material respects with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA"), and the
applicable COBRA regulations and (ii) the applicable
requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations thereunder, and
neither the Company nor any ERISA Affiliate has incurred any
liability under Section 4980B of the Internal Revenue Code;
3. Other than routine claims for benefits under the Plans, there
are no pending, or, to the Knowledge of the Company,
threatened, actions or proceedings involving the Plans, or the
fiduciaries, administrators, or trustees of any of the Plans
or the Company or any of its ERISA Affiliates as the employer
or sponsor under any Plan, with any governmental agency, any
participant in or beneficiary of any Plan or any other person
whatsoever. The Company knows of no reasonable basis for any
such claim, lawsuit, dispute, or controversy.
As used in this Agreement, "PLAN" means (i) each of the "employee benefit plans"
(as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), of which any of the Company or any member of
the same controlled group of businesses as the Company within the meaning of
Section 4001(a)(14) of ERISA (an "ERISA AFFILIATE") is or ever was a sponsor or
participating employer or as to which the Company or any of its ERISA Affiliates
makes contributions or is required to make contributions, and (ii) any similar
15
employment, severance or other arrangement or policy of any of the Company or
any of its ERISA Affiliates (whether written or oral) providing for health,
life, vision or dental insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits.
bb. PRIVATE OFFERING. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Series D Preferred Stock, (ii) the issuance of Common
Stock pursuant to the conversion and/or exercise of such securities into shares
of Common Stock, each as contemplated by the Primary Documents, are exempt from
the registration requirements of the Securities Act. The Company agrees that
neither the Company nor anyone acting on its behalf will offer any of the Series
D Preferred Stock or any similar securities for issuance or sale, or solicit any
offer to acquire any of the same from anyone so as to render the issuance and
sale of such securities subject to the registration requirements of the
Securities Act. The Company has not offered or sold the Series D Preferred Stock
by any form of general solicitation or general advertising, as such terms are
used in Rule 502(c) under the Securities Act.
cc. MERGERS, ACQUISITIONS AND DIVESTITURES. Except as set forth on
SCHEDULE 3(cc) attached hereto, none of the Company and its subsidiaries has
ever acquired any equity interest in or any major assets of any other Person, or
sold the equity interest in any of its subsidiaries or any major asset owned by
it or any of its subsidiaries, in a deal the terms of which were not based on
arms' length negotiations. Except as set forth on SCHEDULE 3(cc) attached
hereto, to the Knowledge of the Company, none of the Insider and the officers
and directors of the Company or its subsidiaries has received any benefit in
connection with any of the foregoing transactions or is under any agreement or
understanding with any Person (including agreements or understandings among
themselves) with respect to the receipt of or entitlement to any such benefit.
4. CERTAIN COVENANTS, ACKNOWLEDGMENTS AND RESTRICTIONS
a. TRANSFER RESTRICTIONS. The Purchaser acknowledges that (i) neither
the Series D Preferred Stock nor the Common Stock issuable upon conversion of
the Series D Preferred Stock have been registered under the Securities Act, and
such securities may not be transferred unless (A) subsequently registered
thereunder or (B) they are transferred pursuant to an exemption from such
registration, and (ii) any sale of the Series D Preferred Stock or the Common
Stock issuable upon conversion thereof (collectively, the "SECURITIES") made in
reliance upon Rule 144 under the Securities Act ("RULE 144") may be made only in
accordance with the terms of said Rule 144. The provisions of Section 4(a) and
4(b) hereof, together with the rights of the Purchaser under this Agreement and
the other Primary Documents, shall be binding upon any subsequent transferee of
the Series D Preferred Stock.
b. RESTRICTIVE LEGEND. The Purchaser acknowledges and agrees that,
until such time as the Securities shall have been registered under the
Securities Act or the Purchaser demonstrates to the reasonable satisfaction of
the Company and its counsel that such registration shall no longer be required,
16
such Securities may be subject to a stop-transfer order placed against the
transfer of such Securities, and such Securities shall bear a restrictive legend
in substantially the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
SHALL NO LONGER BE REQUIRED.
c. FILINGS. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the Purchaser
as required by federal and state laws and regulations, or by any domestic
securities exchange or trading market, and if applicable, the filing of a notice
on Form D (at such time and in such manner as required by the rules and
regulations of the Commission), and to provide copies thereof to the Purchaser
promptly after such filing or filings. With a view to making available to the
holders of the Securities the benefits of Rule 144 and any other rule or
regulation of the Commission that may at any time permit such holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3 or Form SB-2, the Company shall (a) at all times make
and keep public information available, as those terms are understood and defined
in Rule 144, (b) file on a timely basis with the Commission all information that
the Commission may require under either of Section 13 or Section 15(d) of the
Exchange Act and, so long as it is required to file such information, take all
actions that may be required as a condition to the availability of Rule 144 (or
any successor exemptive rule hereafter in effect) with respect to the Common
Stock; and (c) furnish to any holder of the Securities forthwith upon request
(i) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company as filed with the Commission, and (iii) any other reports
and documents that a holder of the Securities may reasonably request in order to
avail itself of any rule or regulation of the Commission allowing such holder to
sell any such Securities without registration. Notwithstanding the foregoing,
the Company shall have until February 15, 2003 to make its periodic filings on
Forms 10KSB for the fiscal year ended June 30, 2002 and on Form 10QSB for the
fiscal quarter ended September 30, 2002.
d. PERIODIC FILINGS WITH THE COMMISSION. The Company shall, no later
than February 15, 2003, make all the filings required to be filed by such date
with the Commission by the Company as a company subject to the periodic
reporting requirements under the Exchange Act.
e. RESERVATION OF COMMON STOCK. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Series D Preferred
Stock.
17
f. REGISTRATION REQUIREMENT. Concurrently with the execution of this
Agreement, the Purchaser and the Company shall execute a registration rights
agreement in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT").
g. EXCHANGE OF SERIES C PREFERRED STOCK. The Insider shall have
exchanged all 7,000 shares of the Series C Preferred Stock held by him,
representing all of the issued and outstanding shares of such stock, into the
Common Stock at an exchange price of $0.06 per share pursuant to the Insider
Agreement (as defined below). The Company hereby covenants with the Purchaser
that after such exchange, no additional share of the Series C Preferred Stock
will be issued notwithstanding anything to the contrary in the Company's
Certificate of Designation of Series C $100 Redeemable 9% Convertible Preferred
Stock.
h. FILING OF THE SERIES D CERTIFICATE OF DESIGNATION. The Company shall
have authorized, caused to be executed, and filed with the Secretary of State of
the State of Nevada the Series D Certification of Designation by the First
Closing Date.
i. AGREEMENT WITH INSIDER. Concurrently with the execution of this
Agreement, the Company and the Insider shall execute a Share Exchange and Note
Modification Agreement in the form of EXHIBIT D attached hereto (the "INSIDER
AGREEMENT").
j. STOCK SPLIT. The Board of Directors of the Company shall authorize
the Reverse Stock Split of the outstanding shares of the Company's Common Stock,
to be effective concurrently with the effectiveness of the registration
statement to be filed with the Commission pursuant to the Registration
Agreement, so that every 20 shares of the Common Stock will be converted into
one share of the Common Stock. The Company shall use reasonable best efforts to
obtain such other approval or authorization as necessary to effectuate the
Reverse Stock Split and to cause the above-mentioned registration statement and
the Reverse Stock Split to become effective as promptly as possible.
k. REPAYMENT OF DEBT. The Company shall repay all outstanding
indebtedness for borrowed money, other than (i) the $2,500,000 debt to the Wes
English Estate and (ii) the $1,000,000 debt to the Insider as evidenced by that
certain Promissory Note dated April 3, 2002 from the Company, no later than the
Last Closing Date.
l. CONSULTING AGREEMENT. The Company shall enter into a consulting
agreement (the "STANFORD CONSULTING AGREEMENT") substantially in the form of
EXHIBIT E attached hereto with the Purchaser by no later than the First Closing
Date.
m. NEGOTIATION WITH ROBERT HERSCH. The Company shall obtain, no later
than the First Closing Date, an extension of its consulting agreement with
Robert Hersch through May 31, 2003.
n. RETURN OF CERTIFICATES ON CONVERSION. Upon any conversion by the
Purchaser of less than all of the Series D Preferred Stock pursuant to the terms
of the Series D Certificates of Designation, the Company shall issue and deliver
to the Purchaser within 7 business days of the date of conversion, a new
certificate or certificates for, as applicable, the total number of shares of
18
the Series D Preferred Stock, which the Purchaser has not yet elected to convert
(with the number of and denomination of such new certificate(s) designated by
the Purchaser).
o. REPLACEMENT CERTIFICATES. The certificate(s) representing the shares
of the Series D Preferred Stock held by the Purchaser shall be exchangeable, at
the option of the Purchaser, at any time and from time to time at the office of
Company, for certificates with different denominations representing an equal
aggregate number of shares of the Series D Preferred Stock, as requested by the
Purchaser upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
p. APPROVAL RIGHTS. From the date hereof and until the Last Closing
Date, the Company shall not take any of the following actions without the prior
written consent of the Purchaser, which consent will not be unreasonably
withheld or delayed:
1. sell a material portion of the assets of the Company or any
of its subsidiaries or merge the Company or any of its subsidiaries into or with
another unaffiliated company;
2. change the articles of incorporation, bylaws or other
charter documents of the Company or any of its subsidiaries, except as
contemplated hereby;
3. change substantially or materially the nature of the
business of the Company or any of its subsidiaries;
4. issue any equity securities or securities convertible into
equity securities of the Company or any of its subsidiaries, other than the
Series D Preferred Stock and Warrant Stock pursuant to this Agreement and any
Common Stock issued upon conversion of the Series B Preferred Stock or Series D
Preferred Stock held by the Purchaser;
5. make any acquisition or any capital expenditure, services
of related expenditures or agree to a schedule of spending or payments for
assets which, in the aggregate, exceeds or would exceed $50,000 over a
consecutive twelve month period, except for the acquisition of inventory or
other related assets in the ordinary course of business;
6. enter into any credit facility or incur any material amount
of debt, other than incurring obligations for purchases of inventory or other
related assets in the ordinary course of business;
7. offer or sell any securities of the Company or its
subsidiaries other than permitted in clause (4) above;
8. expand the number of members of the board of directors of
the Company;
9. declare or pay dividends or redeem securities, except for
(i) the dividends relating to the Series A preferred stock pursuant to the terms
of the relevant certificate of designation; or (ii) any transaction relating to
the Series B Preferred Stock or Series D Preferred Stock; or
19
10. enter into or modify a related-party transaction.
q. RECONSTITUTION OF THE BOARD. On or before February 15, 2003, the
Company shall cause the reconstitution of its Board of Directors to comply with
the regulatory requirements for companies that list their securities on the
American Stock Exchange or the NASDAQ Small Cap Market as currently being
proposed or later adopted prior to such date.
r. INFORMATION STATEMENT. As soon as practicable but in no event later
than 45 days from the date of this Agreement, the Company shall file a Schedule
14C Information Statement concerning the Reverse Stock Split with the
Commission.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SHARES
The Purchaser understands that the Company's obligation to issue the Series
D Preferred Stock on each closing date to the Purchaser pursuant to this
Agreement is conditioned upon the following (unless waived by the Company):
a. The accuracy on each closing date of the representations and
warranties of the Purchaser contained in this Agreement as if made on each
closing date and the performance by the Purchaser on or before each closing date
of all covenants and agreements of the Purchaser required to be performed on or
before each closing date.
b. The absence or inapplicability on each closing date of any and all
laws, rules or regulations prohibiting or restricting the transactions
contemplated hereby, or requiring any consent or approval, except for any
stockholder or Board of Director approval or consent contemplated herein, which
shall not have been obtained.
c. All regulatory approvals or filings, if any, on each closing date
necessary to consummate the transactions contemplated by this Agreement shall
have been made as of each closing date.
d. The receipt of good funds as of each closing date as scheduled in
the Table of Closings in Section 1(c).
6. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SHARES
The Company understands that the Purchaser's obligation to purchase the
Series D Preferred Stock on each closing date is conditioned upon each of the
following, unless waived in writing by the Purchaser:
20
a. The Purchaser shall have completed to its satisfaction its due
diligence review of the Company, the Company's business, assets and liabilities,
and the Company shall have furnished to the Purchaser and its representatives,
such information as may be reasonably requested by them.
b. The accuracy on each closing date of the representations and
warranties of the Company contained in this Agreement as if made on such closing
date, and the performance by the Company on or before the First Closing Date of
all covenants and agreements of the Company required to be performed on or
before the First Closing Date.
c. The Company shall have delivered to the Purchaser the Series D
Preferred Stock as scheduled in the Table of Closings in Section 1(c).
d. On each closing date after the First Closing Date, the Company shall
have fulfilled each of its obligations under this Agreement, including, without
limitation, those covenants under Section 4, which the Company is required by
the terms of this Agreement to fulfill by such closing date.
e. On each closing date, the Insider shall have fulfilled each of his
obligations under the Insider Agreement which the Insider is required by the
terms of such Insider Agreement to fulfill by such closing date.
f. On each closing date, the Purchaser shall have received from the
Company such other certificates and documents as it or its representatives, if
applicable, shall reasonably request, and all proceedings taken by the Company
or the Board of Directors of the Company, as applicable, in connection with the
Primary Documents contemplated by this Agreement and the other Primary Documents
and all documents and papers relating to such Primary Documents shall be
satisfactory to the Purchaser.
g. All regulatory approvals or filings, if any, necessary to consummate
the transactions contemplated by this Agreement shall have been made as of each
closing date.
h. The Purchaser shall have received by the First Closing Date a legal
opinion from Rutan & Tucker LLP substantially in the form attached hereto as
EXHIBIT F and a legal opinion from Kolesar & Leatham, Chtd. substantially in the
form attached hereto as EXHIBIT G.
i. The Purchaser shall have received a Closing Certificate
substantially in the form attached hereto as EXHIBIT H.
j. With respect to the Last Closing Date only, the Company shall have
reimbursed the Purchaser the expenses incurred in connection with the
negotiation or performance of this Agreement pursuant to Section 8 hereof.
7. RIGHT TO INFORMATION
As long as any portion of the Series D Preferred Stock remains outstanding,
the Company hereby agrees to provide the Purchaser with:
21
a. audited financial statements for each fiscal year, as soon as they
become available but in no event later than 90 days after the end of each such
fiscal year;
b. unaudited financial statements for each quarter, as soon as they
become available but in no event later than 45 days after the end of each such
quarter; and
c. budget plans as they are prepared.
8. FEES AND EXPENSES
The Company and the Insider shall bear their own costs, including
attorney's fees, incurred in the negotiation of this Agreement and consummating
of the transactions contemplated herein. Within 30 days of receipt of supporting
documentation, the Company shall reimburse the Purchaser for all of the
Purchaser's reasonable out-of-pocket expenses incurred in connection with the
negotiation or performance of this Agreement, including without limitation
reasonable fees and disbursements of counsel to the Purchaser.
9. GOVERNING LAW; MISCELLANEOUS
Except for issues involving Nevada law which shall be governed by and
interpreted in accordance with the laws of the State of Nevada, this Agreement
shall be governed by and interpreted in accordance with the laws of the State of
Florida, without regard to its principles of conflict of laws. Each of the
parties consents to the jurisdiction of the federal courts of Florida or the
state courts of the State of Florida in connection with any dispute arising
under this Agreement or any of the transactions contemplated hereby, and hereby
waives, to the maximum extent permitted by law, any objection, including any
objections based on FORUM NON CONVENIENS, to the bringing of any such proceeding
in such jurisdictions. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference only and shall not form part of, or affect the
interpretation of this Agreement. This Agreement and each of the Primary
Documents have been entered into freely by each of the parties, following
consultation with their respective counsel, and shall be interpreted fairly in
accordance with its respective terms, without any construction in favor of or
against either party. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or unenforceability of this Agreement in any other jurisdiction. This
Agreement shall inure to the benefit of, and be binding upon the successors and
assigns of each of the parties hereto, including any transferees of the Series D
Preferred Stock and the Warrant Stock. This Agreement may be amended only by an
instrument in writing signed by the party to be charged with enforcement. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof. All references to the
"KNOWLEDGE OF THE COMPANY" means the actual knowledge of either of the Insider
and the Company's Chief Financial Officer after reasonable investigation and due
diligence. This Agreement, together with the other Primary Documents, including
any certificate, schedule, exhibit or other document delivered to their terms,
22
constitutes the entire agreement among the parties hereto with respect to the
subject matters hereof and thereof, and supersedes all prior agreements and
understandings, whether written or oral, among the parties with respect to such
subject matters. If any action should arise between the parties hereto to
enforce or interpret the provisions of this Agreement, the prevailing party in
such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
10. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or the next business day following deposit of such
notice with an internationally recognized courier service, with postage prepaid
and addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by 5 days advance
written notice to each of the other parties hereto.
COMPANY: Tangible Asset Galleries, Inc.
3444 Via Lido
Newport Beach, California 92663
Attention: Silvano DiGenova, Chief Executive Officer
Telephone: (949) 566-0021
Facsimile: (949) 566-1943
WITH A COPY TO: Rutan & Tucker LLP
611 Anton Boulevard, 14th Floor
Costa Mesa, California 92626-1931
Attention: Thomas G. Brockington, Esq.
Telephone: (714) 641-5100
Facsimile: (714) 546-9035
PURCHASER: Stanford Venture Capital Holdings, Inc.
6075 Poplar Avenue
Memphis, Tennessee 38119
Attention: James M. Davis, President
Telephone: (901) 680-5260
Facsimile: (901) 680-5265
WITH A COPY TO: Stanford Financial Group
5050 Westheimer
Houston, Texas 77056
Attention: Mauricio Alvarado, Esq.
Telephone: (713) 964-5145
Facsimile: (713) 964-5245
23
11. SURVIVAL
The agreements, covenants, representations and warranties of the Company,
the Insider and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder for a period of four
years from the date of the Last Closing Date, except that:
a. the Company's representations and warranties regarding Taxes
contained in Section 3(u) of this agreement shall survive as
long as the Company remains statutorily liable for any
obligation referenced in Section 3(u), and
b. the Company's representations and warranties contained in
Section 3(b) shall survive until the Purchaser and any of its
affiliates are no longer holders of any of the securities
purchased hereunder.
12. INDEMNIFICATION
Each of the Company and the Insider, jointly and severally, on the one
side, and the Purchaser (each in such capacity under this section, the
"INDEMNIFYING PARTY") agrees to indemnify the other party and each officer,
director, employee, agent, partner, stockholder, member and affiliate of such
other party (collectively, the "INDEMNIFIED PARTIES") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims and other liabilities of any and every kind, including, without
limitation, judgments and costs of settlement, and (ii) any and all reasonable
out-of-pocket costs and expenses of any and every kind, including, without
limitation, reasonable fees and disbursements of counsel for such Indemnified
Parties (all of which expenses periodically shall be reimbursed as incurred), in
each case, arising out of or suffered or incurred in connection with any of the
following: (a) any misrepresentation or any breach of any warranty made by the
Indemnifying Party herein or in any of the other Primary Documents, (b) any
breach or non-fulfillment of any covenant or agreement made by the Indemnifying
Party herein or in any of the other Primary Documents, or (c) any claim relating
to or arising out of a violation of applicable federal or state securities laws
by the Indemnifying Party in connection with the sale or issuance of the Series
B Preferred Stock, the Series D Preferred Stock, the Common Stock issuable upon
conversion of the Series B Preferred Stock or the Series B Preferred Stock, or
the Warrant Stock by the Indemnifying Party to the Indemnified Party
(collectively, the "INDEMNIFIED LIABILITIES"). To the extent that the foregoing
undertaking by the Indemnifying Party may be unenforceable for any reason, the
Indemnifying Party shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
(SIGNATURES ON THE FOLLOWING PAGE)
24
[SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AND
WARRANT EXERCISE AGREEMENT]
IN WITNESS WHEREOF, this Series D Preferred Stock Purchase and
Warrant Exercise Agreement has been duly executed by each of the undersigned.
TANGIBLE ASSET GALLERIES, INC.
By: /S/ SILVANO DIGENOVA
--------------------------------------
Name: Silvano DiGenova
Title: Chief Executive Officer
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By: /S/ JAMES M. DAVIS
---------------------------------------
Name: James M. Davis
Title: President
"INSIDER"
By: /S/ SILVANO DIGENOVA
--------------------------------------
Silvano DiGenova, an individual
"WARRANT HOLDERS"
/S/ SILVANO DIGENOVA
------------------------------------------
Silvano DiGenova, an individual
/S/ DANIEL T. BOGAR
------------------------------------------
Daniel T. Bogar, an individual
/S/ WILLIAM R. FUSSELMANN
------------------------------------------
William R. Fusselmann, an individual
25
/S/ OSVALDO PI
------------------------------------------
Osvaldo Pi, an individual
/S/ RONALD M. STEIN
------------------------------------------
Ronald M. Stein, an individual
26
EXHIBIT INDEX
EXHIBIT A WARRANT HOLDERS
EXHIBIT B SERIES D CERTIFICATE OF DESIGNATION
EXHIBIT C REGISTRATION RIGHTS AGREEMENT
EXHIBIT D INSIDER AGREEMENT
EXHIBIT E STANFORD CONSULTING AGREEMENT
EXHIBIT F FORM OF RUTAN LEGAL OPINION
EXHIBIT G FORM OF KOLESAR LEGAL OPINION
EXHIBIT H FORM OF CLOSING CERTIFICATE
27
SCHEDULE INDEX
SCHEDULE DESCRIPTION PAGE NUMBER
- -------- ----------- -----------
3(a) Organization
3(b) Capitalization
3(g) Financial Statements
3(k) Compliance With Legal Requirements
3(l) Absence of Certain Changes
3(m) Indebtedness to Officers, Directors and Shareholders
3(n) Relationships With Related Persons
3(p) Title to Properties; Liens and Encumbrances
3(s) Absence of Litigation
3(t) No Default
3(u) Taxes
3(w) Contracts; No Defaults
3(y) Insurance
3(z) Employees
3(aa) Employee Benefits
3(cc) Mergers, Acquisitions and Divestitures
28
SCHEDULE 3(a)
ORGANIZATION
------------
Tangible Asset Galleries, Inc. (Nevada)
Superior Galleries, Inc. (Nevada)
Tangible Collectibles, Inc. (Delaware) - Inactive*
Gehringer & Kellar, Inc. (Pennsylvania) - Inactive*
Vintageroadshow.com, Inc. - Inactive*
*Upon filing of these corporations final tax returns in March 2003, these
corporations will be dissolved.
SCHEDULE 3(b)
CAPITALIZATION
--------------
(Omits Nonconvertible Notes)
The Company's Board and shareholders have approved an increase in the authorized
number of shares of common stock to 250,000,000 shares, but the Company has not
yet filed a Certificate of Amendment of Articles of Incorporation with respect
to this change.
Notwithstanding the last sentence of Section 3(b) of the Series D Preferred
Stock Purchase and Warrant Exercise Agreement, the issuance of the Series D
Preferred Stock will result in an adjustment (reduction) in the conversion price
of the Company's outstanding Series B Convertible Preferred Stock.
List of common stock shareholders under "lock-up" agreements:
Lock-up Agreements Exhibit I (see April 2002 agreement)
Shareholder Common Shares under Lock-up
- -------------------------------------- -----------------------------------------
Steven Bayern 111,268
Patrick Kolenick 111,268
Richard Viola (1) 1,053,861
Shawn Bayern 1,351,104
Robert Escobio (1) 416,988
Silvano DiGenova 15,486,000
Lock-up Agreements Exhibit II (see April 2002 agreement)
Shareholder Common Shares under Lock-up
- -------------------------------------- -----------------------------------------
Andrew Denis 2,163,250
Toni Giovanetti 2,176,942
Richard Viola (1) 1,067,934
Aquila Airways 273,830
Robert Escobio (1) 422,556
KSH Investment Fund 1, LP 100,000
Lock-up Agreement Exhibit III
Shareholder Common Shares under Lock-up
- -------------------------------------- -----------------------------------------
CynDel & Co., Inc. 5,818,869
(1) Some of the same shares are under both lock-up agreements for these
shareholders
-2-
On November 15, 2000, the Company entered into a $1,000,000 demand convertible
note payable to National Recovery Limited Partnership ("NRLP"), a lender
controlled by Carl J. Fusco ("Fusco"), a Director of the Company at the time of
the transaction, bearing interest at 13.5% per annum, interest payable monthly,
with profit sharing interest in the Company's wholly-owned subsidiary, Tangible
Collectibles, Inc., secured by the inventory of that subsidiary and guaranteed
by the Company and its chief executive officer and principal stockholder,
convertible into common stock at $0.75 per share for the first $500,000 and
$1.00 per share for the remaining $500,000. In June 2001 Fusco resigned, as a
Director of the Company and NRLP no longer was a related party. On October 1,
2001, the Company amended the note to increase the maximum loan balance to
$1,375,000. On January 22, 2003 the Company repaid the note in full.
On July 6, 2001, as part of the Superior business asset acquisition, Superior
executed a revolving promissory note ("Credit Line") with the seller of the
assets in the aggregate amount of $3,000,000 bearing interest at the prime rate
plus 4% and secured by the assignment of notes receivable from consignors of
property to Superior. Superior received these consignor notes receivable as
evidence of loans made by Superior where repayment of notes is made form the
proceeds of the consignor's property consigned through Superior. The line was
due on July 5, 2002. The Company and its chief executive officer and principal
stockholder guaranteed the Credit Line. On July 10, 2002, the Company repaid the
Credit Line in full.
On November 20, 2001, the Company entered into a repurchase agreement with Wes
English (the "Buyer") providing for the sale of rare coins to the Buyer for
aggregate purchase price of $1,176,000, and granting the Company a non-exclusive
right to repurchase and re-sell the coins (in the event Buyer declares the coin
available for sale) at the original sale price to the Buyer (an aggregate amount
$1,176,000) at any time during the term of the agreement until the expiration
date on May 20, 2002. The repurchase agreement also grants the Company the
non-exclusive obligation to market the coins that are the subject of the
repurchase agreement and if the Company exercises the right to repurchase, the
Company must share with the Buyer 50% of the gross profit realized on the
subsequent sale of each coin repurchased. In addition, the repurchase agreement
provides for the obligation of the Company to repurchase, at the expiration date
and at the option of the Buyer, any coin still outstanding under the repurchase
agreement at a repurchase price of 106% of the original sale price to the Buyer.
Since the Company has the obligation to market the coins that are the subject of
the repurchase agreement, the sale of the coins to the buyer is not
substantially complete until the coins are marketed, repurchased and sold to
third parties. Accordingly, only those coins which the Company has re-marketed
and sold to third parties are recorded and recognized as sales, and the
aggregate value of the coins remaining under and subject to the repurchase
agreement are classified as inventory until third party sales are completed. As
of December 31, 2002, the Company had repurchased all the coins covered under
the agreement.
On July 9, 2002 and July 26, 2002 the Company entered into temporary working
capital loan agreements with John Wesley English ("English") in the amounts of
$1,500,000 and $1,000,000 respectively. These loans bear interest at the prime
lending rate plus 7% per annum, were secured by the inventory of the Company and
a personal guarantee of the Company's chief executive officer and principal
stockholder, and were due to repaid in 60 days. On August 8, 2002, the Company
converted the two loans from English into a Line of Credit with English by
executing a Secured Revolving Line of Credit Agreement ("Line of Credit"). The
-3-
Line of Credit bears interest at the prime lending rate plus 7% per annum, was
due on September 9, 2002, is secured by substantially all the assets of the
Company and a personal guarantee of the Company's chief executive officer and
principal stockholder. The Line of Credit provide for interest payments to made
in cash, inventory or restricted common shares of the Company at the sole
discretion of English. On September 16, 2002 the Line of Credit was amended to
extend the due to October 15, 2002. In November 2002 English became deceased and
the aforementioned Line of Credit became an asset of the Estate of John Wesley
English ("English Estate"). As of the January 22, 2003, the balance of the Line
of Credit was $2,500,000 plus accrued interest and no contact has been made by
the representatives of the English Estate with regard to the disposition of the
Line of Credit.
List of former HotelInterative, Inc. shareholders now holding shares and
warrants, each warrant is identical with terms as described on the schedule
above all subject to registration statement requirements:
HOLDER SHARES WARRANTS
- ---------------------------------------------------------------- -------------------- ------------------
SCOTT S. ACKERMAN 6,766 508
FRANK J. ANILE 8,054 605
JOSEPH S. ANILE II 153,023 11,484
AQUILA AIRWAYS INC. 273,830 20,550
SHAWN BAYERN 1,369,146 102,749
STEVEN J. BAYERN 112,754 8,462
CYNDEL & CO INC. 5,818,869 436,680
ANDREW M. DENIS 2,163,250 162,343
ROBERT DENIS 68,458 5,138
ROBERT ESCOBIO 422,556 31,711
TONI GIOVANETTI 2,176,942 163,370
THEODORE KAPLAN & SELMA KAPLAN ITTEN 68,458 5,138
RICHARD & DIANE'S VIOLA JTTEN 1,067,934 80,144
PATRICK M. KOLENIK 112,754 8,462
KSH INVESTMENT GROUP, INC 740,950 55,605
BRENDA MANLEY 136,915 10,275
JOSEPH NEMETH 136,915 10,275
SAMUEL B. RICHMAN 6,766 508
UNITED GROWTH FUND, INC. 136,915 10,275
STEPHEN M. WAGNER 6,766 508
KATHLEEN WICKMAN 136,915 10,275
WIN CAPITAL CORP. 68,458 5,138
ALFRED E. ABIOUNESS 80,538 6,045
JOSEPH P. ABOOD 20,135 1,512
IRA ABRAMS & BRENDA AABRAMS JTTEN 12,081 907
KATAYOUN ANASTASI & EDWARD A. ANASTIOS 40,269 3,023
RONALD A. BALIKN 80,538 6,045
BARNETT FAMILY LTD PARTNERSHIP II 20,135 1,512
WILLIAM C. BATHOLOMAY 80,538 6,045
LINDA BASSIN 20,135 1,512
CHRISTOPHER R. BERG 20,135 1,512
VALERY BERGER 20,135 1,512
GERALD K. BERGH 32,216 2,418
BILL D. BERKLEY & CLAUDIA J. BERKLEY, JJTTN 8,054 605
BILL D. BERKLEY GST TRUST UA 8,054 605
06/02/92 & BILL D. BERKLEY TTEE
BERKELY INVESTMENTS INC. 16,108 1,209
MARY A BERKELY GST TRUST US BILL D. BERKLEY TTEE 8,054 605
PAUL D. BERKLEY TRUST 2 UA 10/26/99 PAUL D. BERKELY TTEE 8,054 605
BRITO & BRITO ACCOUNTING INC. 120,807 9,067
SEAN L. HACHILL 20,135 1,512
-4-
HOLDER SHARES WARRANTS
- ---------------------------------------------------------------- -------------------- ------------------
CARCAP CO. LLC 32,216 2,418
JORGE CASADO 20,135 1,512
MIGUEL CHIBRAS 80,538 6,045
M. ROBERT CHING & PHYLLIS J. CHING LIVING TRUST UA 06-15/95 80,538 6,045
JAMES S. COBB & CAREN A. COBB JTTEN 80,538 6,045
EDMUND T. CRANCH 20,135 1,512
SCOTT CROWTHER 40,269 3,023
LAUREN A. DAMAN 20,135 1,512
DIANA DE LA VEGA 40,269 3,023
HARVEY DECKERT TRUST UA 05/05/95 20,135 1,512
HARVEY DECKERT TTEE
DENNIS A. DESMOND 20,135 1,512
CARLOS DIAZ-PADRON & EMILIA DIAZ- PADRON TEN ENT 20,135 1,512
PAULETTE FEDER 10,068 756
JACK FEINBLATTT & DALE FEINBLATT JTTEN 16,108 1,209
LLOYD FIELDS 20,135 1,512
JAMES FRIEDMAN (IRA) BEAR STERNS SEC CORPO CUST 20,135 1,512
EGON FROMM 20,135 1,512
STANLEY L. GOLDBERG RECOCABLE TRUST UA 12/17/93 STANLEY L. 80,538 6,045
GOLDBERT TTEE
SHELEY M. GOLDSTEIN 10,068 756
STEVEN R. GOLDTEIN 20,135 1,512
WILFREDO GONZALEZ & ADALIA GONZALEZ JTTEN 16,108 1,209
SEAN J. GREENE 20,135 1,512
DAVID HARARI 20,135 1,512
HAROLD S. HEFTER 12,081 907
JOSEPH HENRY & CELESTE M. HENRY TEN COMM. 8,054 605
AUGUSTIN HERRAN & ROSIEL HERRAN JTTEN 40,269 3,023
HOTEL INVESTMENT INC. 184,432 13,841
ELIAS EDUARDO JABECH & SANDRA MARIA JABECH JTTEN 40,269 3,023
JAMES W. JOHNSON 40,269 3,023
HENRY M. KLOTZ 20,135 1,512
JEFFERYL. KOHN 20,135 1,512
KOHN FAMILY REVOCABLE TRUST UA 02/06/97 STEVEN A. KOHN TTEE 32,216 2,418
LYUDMILA KORETS 20,135 1,512
DIANA KRAMER 40,269 3,023
MORRIS M. MACY 20,135 1,512
IRWIN W. MESSER 20,135 1,512
CARLOS NEGRON 20,135 1,512
JULES M. NESS 20,135 1,512
ORBE ENTERPRISES C/O HUMBERTIO HERNANDEZ 80,538 6,045
SIMON PELMAN 20,135 1,512
JORGE A. PERERA & LISA PEREIRA TEN COM 16,108 1,209
JONATHAN E.PLATE TRUST UA 01/23/97 JONATHAN E.PLATE TTEE 20,135 1,512
VINCENTE I. PUMADA & MRIAM D. PUMARADA JTTEN 4,027 303
SOLEINAN RABANIPOUR 40,268 3,023
SHELDON RABIN (IRA) BEAR STEARNS SEC SORP CUST 20,135 1,512
DEBRA RABINOWITZ 10,068 756
EDWIN W. & CHERYL S. RICHARDSON TEN COM 40,269 3,023
MIKE RIDGWAY 12,081 907
DONALD G. ROSS JR. (IRA) BEAR STEARNS SEC CORP CUST 20,135 1,512
STEVEN RUBEL 40,269 3,023
LINDA RUBIN 40,269 3,023
SHEILA SANDMAN 20,135 1,512
PATRICAIA SAN PEDRO 40,269 3,023
JUDY SHAPIRO 80,538 6,045
TRUDE C. TAYLOR 80,538 6,045
HUMBERTO UZCATEGUI 8,054 605
PATRICK F. VETERRE & LINDA A. VETEREJTTEN 20,135 1,512
HARRY VIDGER 10,068 756
DOUGLAS L. WEED 20,135 1,512
GERG WERLINICH 64,431 4,836
XANADU ASSOCIATES LLC 40,269 3,023
-5-
HOLDER SHARES WARRANTS
- ---------------------------------------------------------------- -------------------- ------------------
ZERO NET INC 805,380 60,441
ALKIS P. ZINGAS TRUST US 12/02/81 40,269 3,023
FRANCIS ANDERSON 1,788 135
DARIN BARKER 2,586 195
ALAN BEINHACKER 290 22
MORRIS BETESH 725 55
CHRISTOPHER BROTHERS 2,586 195
PAUL BROTHERS 1,933 146
PAUL DORFMAN 145 11
MICHAEL FENTON 1,445 109
FRANCIS KEHOE 20,818 2,313
HELEN KOHN 145 11
LEWIS MASON 1,445 109
NANCY MURDOCCO 1,445 109
KAREN ANN ORLANDO GABRIEL PLAUT 580 44
MARY ELLEN SPEDALE 910 69
RONIT SUCOFF 30,818 2,313
WIN CAPITAL CORP. 4,929 370
CAPITAL INVESTMENTS SERCIES, INC. 95 8
KATHY ROCKLEN 806 61
- ----------------------------------------------------------------- ------------------- ------------------
TOTAL 18,755,345 1,407,587
The Series B Preferred Shareholders are entitled to additional warrants in
connection with the Company's failure to register their securities, and the
Series C Preferred Shareholder is entitled to additional warrants as a result of
the Company's failure to pay dividends on such securities.
REGISTRATION RIGHTS: The Company is obligated to register securities under (1)
an Agreement dated April 3, 2002 with the holders of Series B $1.00 Convertible
Preferred Stock and Series C Convertible Preferred Stock; (2) an Agreement and
Plan of Merger dated June 25, 2001, relating to the Hotel Interactive
transaction; and (3) its private placement of securities conducted from July to
October 2001.
SHAREHOLDER (VOTING) AGREEMENTS: Shareholder Agreement dated April 3, 2002 among
the Company, Stanford Venture Capital Holdings, Inc. and Silvano DiGenova.
REDEMPTION OBLIGATIONS. The Company is required to redeem its Series A
Convertible Preferred Stock, at the option of the holder thereof after March 21,
2004, pursuant to the Certificate of Designation for such securities.
-6-
SCHEDULE 3(g)
FINANCIAL STATEMENTS
--------------------
Other than the changes in accounting policy as required under changes in
generally accepted accounting principles since December 31, 1998, and the
addition of assets or operations that required the application or adoption of
accounting policy that was not required or necessary prior to the addition of
assets or operations, there have been no changes in accounting policy,
principles, methods or practices including any change with respect to reserves
(whether for bad debts, contingent liabilities or otherwise), of the Company or
any of its subsidiaries since December 31, 1998.
-7-
SCHEDULE 3(k)
COMPLIANCE WITH LEGAL REQUIREMENTS
----------------------------------
The Company is required under its bylaws to hold annual shareholders meetings in
the fifth month following the end of the Company's fiscal year. The Company has
not held its annual shareholders meetings for the fiscal years ended December
31, 2000, June 30, 2001 and June 30, 2002.
The Company is required under its bylaws to furnish annual reports to the
shareholders not later than 120 days after the end of each fiscal period. Other
than filing with the Form 10-KSB with the Securities and Exchange Commission for
the fiscal years ended December 31, 2000 and June 30, 2001, the Company has not
sent an annual report to the shareholders for the fiscal years ended December
31, 2000, June 30, 2001, and June 30, 2002.
The Company is required to file Forms 10-KSB and 10-QSB within 90 days and 45
days respectively subsequent to close of fiscal periods with the Securities and
Exchange Commission. The Company has not filed Form 10-KSB for the fiscal year
ended June 30, 2002 and Form 10-QSB for the quarter ended September 30, 2002.
The Company is required to file a registration statement for securities issued
under the Agreement and Plan of Merger by and between Tangible Asset Galleries,
Inc., Tangible Asset Galleries Acquisition Corp, and HotelInteractive, Inc.
dated June 25, 2001 within six months of the effective date of the transaction.
The Company has not filed such registration statement.
The Company is required to file a registration statement for securities issued
under the Private Placement Memorandum dated July 6, 2001 and terminated October
31, 2001, within sixty days of the termination date of the offering. The Company
has not filed such registration statement.
The Company is required to file a registration statement for securities under
Securities and Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002 within 180 days of the first closing date of the
transaction. The Company has not filed such registration statement.
-8-
SCHEDULE 3(l)
ABSENCE OF CERTAIN CHANGES
--------------------------
On February 19, 2002, the Company reported on Form 8-K for the date of February
7, 2002, the sale of all of the outstanding chares of HotelInteractive, Inc. a
wholly-owned subsidiary of the Company to HCR Holdings, Inc.
On February 28, 2002, the Company reported on Form 8-K for the date of February
22, 2002, the divesture of the assets and assignment of the liabilities of
Gehringer & Kellar, Inc, to the management of Gehringer & Kellar, Inc.
On April 28, 2002, the Company reported on Form 8-K for the date of April 10,
2002, the change in control of the Company as result of the sale of Series B and
Series C Convertible Preferred Shares to Stanford Venture Capital Holdings, Inc,
and Silvano DiGenova, the Company's chief executive officer and principal
stockholder.
On May 31, 2002, the Company reported on Form 14-C a Definitive Information
Statement relative to the increase in the Company's authorized number of Common
Shares and to reduce the number of Board of Directors subject to shareholder
approval and estimate to be effective on or about June 23, 2002.
The Company incurred losses during the periods following December 31, 2002. The
loss for the full fiscal year ended June 30, 2002 was approximately $4.9
million, and the loss for the six (6) month period ended December 31, 2002 was
between $1.0 million and $1.5 million. The Company will have a "going concern"
qualification in its audit opinion for the year ended June 30, 2002.
-9-
SCHEDULE 3(m)
INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS
----------------------------------------------------
On December 31, 2000, the Company executed a promissory note payable to Silvano
DiGenova, the Company's chief executive officer and principal stockholder,
bearing interest at 9.5% per annum for three months and 12.5% per annum to
maturity with interest payable monthly in arrears. The note was issued in full
satisfaction of a note of the same amount maturing on January 1, 2001 with
interest at 10% per annum. The note was to mature on December 31, 2004, at which
time all outstanding principal and interest is due. On April 10, 2002, the
promissory note balance of $700,000 was converted into 7,000 Series C
Convertible Redeemable Preferred ("Series C") Shares with a dividend of 9%
payable quarterly. The Series C shares are convertible into common shares at the
rate of $0.22 per common share and are redeemable for cash on December 31, 2004.
As of January 22, 2003, the Company has accrued, but not paid $47,250 of
dividends due to Mr. DiGenova.
On December 31, 2000, the Company executed a $1,400,000 promissory note payable
to Silvano DiGenova, the Company's chief executive officer and principal
stockholder, bearing interest at 9.5% per annum for three months and 12.5% per
annum to maturity with interest payable monthly in arrears. The note was
convertible into common shares of the Company at $0.22 per share, as specified
in the agreement. The note was issued in full satisfaction of a note of the same
amount maturing on March 31, 2004 that was convertible at $1.00 per share with
interest at 9% per annum, but in default at December 31, 2000. The note in the
amount of $1,400,000 was set to mature on June 30, 2002. On April 10, 2002 the
note was converted into 400,000 Series B Convertible Preferred ("Series B")
Shares along with warrants to purchase 4,000,000 common shares of the Company,
and, a secured subordinate note ("secured note") in the amount of $1,000,000
bearing interest at the rate of 9% per annum. The secured note is repayable in
quarterly installments of $150,000 of principal plus accrued interest. As of
January 22, 2003 no principal reductions have been made and the balance of the
secured note is $1,000,000 plus accrued interest.
On December 10, 2002, the Company executed a promissory note payable to Silvano
DiGenova, the Company's chief executive officer and principal stockholder,
bearing interest at 12.0% per annum and payable on demand. The proceeds of the
note were used to pay-off the line of credit with First Bank & Trust. As of
January 22, 2003 no principal reductions have been made and the balance of the
note is $289,969.77 plus accrued interest.
On December 13, 2002, the Company executed a promissory note payable to Silvano
DiGenova, the Company's chief executive officer and principal stockholder,
bearing interest at 12.0% per annum and payable on demand. The proceeds of the
note were used for working capital. As of January 22, 2003 no principal
reductions have been made and the balance of the note is $70,000 plus accrued
interest.
As reported on Schedule 3 (z), the Company has accrued vacation days payable to
Silvano DiGenova, Steven Deeds, Nadyne Lorenz, Ray Remmer and Ron Remmer.
-10-
There are amounts that are not material or substantial that may be due to
Silvano DiGenova, Steven Deeds and Paul Biberkraut as reimbursements for any
expenses of the Company incurred by these officers on behalf of the Company.
-11-
SCHEDULE 3(n)
RELATIONSHIP WITH RELATED PERSONS
---------------------------------
Silvano DiGenova has a first priority security interest in the inventory and
accounts receivable of the Company as described in the UCC-1 filing dated
January 10, 2002.
On August 3, 1999, the Company entered into an agreement with Rick Wesselink
that provides for Wesselink to render services to the Company upon request.
Compensation for such services is commission on sales of specific coins for
which services were rendered equal to 50% of the difference between the net
sales price to a third party and the Company invoice price as approved by
Silvano DiGenova.
On August 6, 2000, Tangible Collectibles, Inc. ("TCI"), a wholly-owned
subsidiary of the Company entered into a consulting agreement ("agreement") with
RLH Enterprises, Inc. ("RLH") to render services relating to all activities
associated with the purchase, marketing and sale of rare coins on behalf of the
Company on an exclusive basis. The agreement provided for a compensation based
on the greater of a guaranteed fee of $285,000 per year or 37.5% of TCI's income
before taxes. In October 2001, after a review of TCI's performance under the
agreement and a related financing agreement, TCI and RLH mutually agreed to
terminate the agreement. Prior to the execution of the agreement, Robert L.
Hughes, the principal owner of RLH was employed by Superior Galleries, Inc.
("Superior"), at the time a Competing Business. Subsequent to termination of the
agreement, to the knowledge of the Company, Hughes is employed by Spectrum
Numismatics, Inc. a Competing Business.
On November 15, 2000, the Company entered into a $1,000,000 demand convertible
note payable to National Recovery Limited Partnership ("NRLP"), a lender
controlled by Carl J. Fusco ("Fusco"), a Director of the Company from November
27, 2000 to June 25, 2001, bearing interest at 13.5% per annum, interest payable
monthly, with profit sharing interest in the Company's wholly-owned subsidiary,
Tangible Collectibles, Inc., secured by the inventory of that subsidiary and
guaranteed by the Company and its chief executive officer and principal
stockholder, convertible into common stock at $0.75 per share for the first
$500,000 and $1.00 per share for the remaining $500,000. On October 1, 2001, the
Company amended the note to increase the maximum loan balance to $1,375,000. On
January 22, 2003 the Company repaid the note in full. Prior to the date of the
above referenced note and during the period when Fusco was Company Director, the
Company entered into and concluded several joint ventures and profit sharing
agreements with Fusco or NRLP. Other than the referenced note, its related
terms, and the shares of Common Stock owned by NRLP or Fusco, to the knowledge
of the Company, Fusco and NRLP have had no agreements of any kind that carry a
financial interest in the properties of the Company or claims or rights with or
against the Company and its subsidiaries or a financial or profit interest in
any Competing Business.
In November 2001, the Company negotiated an agreement with the management of
Gehringer & Kellar, Inc. ("G&K") to divest the assets and assign the liabilities
of Gehringer & Kellar, Inc. dba Keystone Coin & Stamp Exchange ("Keystone') that
was approved by the Company's Board of Directors subject to a final accounting.
The operations of Keystone were transferred to G&K on November 28, 2001 based on
the negotiation and while the accounting and written agreement were being
-12-
finalized. On February 22, 2002, a final accounting was agreed upon between the
Company and G&K and the transaction was substantially completed. As part of the
agreement the Company issued 325,000 shares of the Company's common stock to G&K
as a fee for assuming the liabilities. The value of the common shares was
$16,250 and G&K agreed to pay the Company $135,086 for the net assets of
Keystone. Steven Gehringer, a G&K management member, was a member of the
Company's Board of Directors from November 20, 2000 to June 25, 2001. G&K were
the owners of substantially all the outstanding shares of Keystone until the
Company purchased all of the shares on December 30, 1999. Prior to the purchase
by the Company of such shares, G&K operated a Competing Business. Since the
transfer of Keystone assets on November 28, 2001, G&K are operating a Competing
Business
Pursuant to the employment agreement of Silvano DiGenova ("DiGenova") dated
April 30, 2001, DiGenova is eligible to receive a bonus equal to a percentage of
his base salary upon the Company achieving specified net income goals as defined
in the agreement. The agreement also provides for bonuses based on the
achievement of certain market capitalization goals and allows DiGenova to engage
in business related activity of personal nature in managing his tangible and
financial assets including the buying and selling of such assets, it being
understood that any activity wholesale in nature or buying and selling such
assets through dealers, brokers or auctioneers is deemed not to be competitive
with the activities of the Company.
Pursuant to the employment agreement of Michael R. Haynes ("Haynes") dated
September 6, 2000, Haynes is eligible to receive a bonus equal to a percentage
of his base salary upon the Company achieving specified net income goals as
defined in the agreement. The agreement also provides for bonuses based on the
achievement of certain market capitalization goals. Haynes employment with
company was terminated on June 3, 2002. Prior to the employment with the
Company, Haynes was the President of a Competing Business. In January 2003,
Haynes became the President of Collectors Universe, Inc, a Competing Business.
On July 9, 2001, Superior engaged Steven Deeds ("Deeds") in employment as its
President. Pursuant to that employment, as modified to date, Deeds received 0.5%
of the aggregate hammer price of all coins sold through Superior. Prior to
employment with the Company, Deeds was a director of coin auctions for a
Competing Business.
-13-
SCHEDULE 3(p)
TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES
-------------------------------------------
On August 30, 1999, the Company obtained a line of credit agreement with a bank
that bore interest at the bank's prime rate plus 1.5%, secured by substantially
all the assets of the Company and guaranteed by the chief executive officer and
principal stockholders. On February 11, 2002 the bank released the lien on the
inventory of uncertified coins and art. On December 10, 2002 the line of credit
with the bank was paid off in full with proceeds of a loan from the Company's
chief executive officer and principal stockholder.
The Company signed a long-term loan agreement with a finance company dated
October 17, 2000 secured by a delivery van and payable in 60 monthly
installments of $456.54 principal and interest at rate of 5.9% per annum. The
outstanding balance as of January 22, 2003 is $13,875.89 plus accrued interest
On November 15, 2000, the Company entered into a $1,000,000 demand convertible
note payable to National Recovery Limited Partnership ("NRLP"), bearing interest
at 13.5% per annum, interest payable monthly, with profit sharing interest in
the Company's wholly-owned subsidiary, Tangible Collectibles, Inc., secured by
the inventory of that subsidiary and guaranteed by the Company and its chief
executive officer and principal stockholder, convertible into common stock at
$0.75 per share for the first $500,000 and $1.00 per share for the remaining
$500,000. On October 1, 2001, the Company amended the note to increase the
maximum loan balance to $1,375,000. On January 22, 2003 the Company repaid the
note in full.
On December 31, 2000, the Company executed a promissory note payable to Silvano
DiGenova, the Company's chief executive officer and principal stockholder,
bearing interest at 9.5% per annum for three months and 12.5% per annum to
maturity with interest payable monthly in arrears. The note was convertible into
common shares of the Company at $0.22 per share, as specified in the agreement
and was secured by the Company's inventory and accounts receivable. The note was
issued in full satisfaction of a note of the same amount maturing on March 31,
2004 that was convertible at $1.00 per share with interest at 9% per annum, but
in default at December 31, 2000. The note in the amount of $1,400,000 was sent
to mature on June 30, 2002. On April 10, 2002 the note was converted into
400,000 Series B Convertible Preferred ("Series B") Shares along with warrants
to purchase 4,000,000 common shares of the Company, and, a secured subordinate
note ("secured note") in the amount of $1,000,000 bearing interest at the rate
of 9% per annum. The secured note is collateralized by the Company's inventory
and accounts receivable. The secured note is repayable in quarterly installments
of $150,000 of principal plus accrued interest. As of January 22, 2003 no
principal reductions have been made and the balance of the secured note is
$1,000,000 plus accrued interest.
On July 6, 2001, the Company completed the acquisition of the assets placed in
the Company's wholly-owned subsidiary, Superior Galleries, Inc. ("Superior"),
whereby Superior issued a non-interest bearing promissory note payable to the
seller for $701,000 secured by all the assets of Superior and guaranteed by the
Company and its chief executive officer and principal stockholder. The note
provided for periodic payments up to January 10, 2002. In January 2002 the
-14-
Company defaulted on the note, but continued to make periodic payments of
principal and interest through September 2002. On October 30, 2002, the Company
renegotiated the note by making a lump-sum payment and agreeing to pay the
remaining balance of $181,214.35 by making 10 monthly payments of $19,132.99 of
principal and interest commencing December 1, 2002. The renegotiated note bears
interest at the rate of 12% per annum. As of January 22, 2003 the note balance
was $147,863.44 plus accrued interest.
On July 6, 2001, as part of the Superior business asset acquisition, Superior
executed a revolving promissory note ("Credit Line") with the seller of the
assets in the aggregate amount of $3,000,000 bearing interest at the prime rate
plus 4% and secured by the assignment of notes receivable from consignors of
property to Superior. Superior received these consignor notes receivable as
evidence of loans made by Superior where repayment of notes is made form the
proceeds of the consignor's property consigned through Superior. The line was
due on July 5, 2002. The Company and its chief executive officer and principal
stockholder guaranteed the Credit Line. On July 10, 2002, the Company repaid the
Credit Line in full.
On October 31, 2001, the Company closed a private placement of Series A $5.00
Redeemable 8% Convertible Preferred Stock ("Series A Shares") with sales of
125,000 Series A Shares with total offering proceeds of $625,000. The Series A
Shares carry a $0.40 annual dividend per share payable quarterly in cash or the
Company's Common Stock at the Company's election, is convertible into 11 shares
of the Company's Common Stock and provides for a cash redemption or conversion
into the Company's Common Stock based on elections by the stockholders or the
Company subject to certain contingencies. The Series A Shares are redeemable
after march 31, 2004 for cash, at the option of the holder, in the amount of
$5.50 per share, with such amount for each holder payable in ten equal quarterly
installments, the first payment being due the quarter immediately following the
redemption date. The certificate of designation of the Series A Shares provides
that the Company shall not allow any liens on its inventory, unless subordinated
to the interests of the Series A Shares, with such preference on the inventory
equal to the inventory value, as determined in accordance with GAAP, of 150% of
the stated par value of the aggregate of the outstanding Series A Shares, except
for the inventory of the Company that is on consignment to be sold by third
parties or was otherwise purchased pursuant to a security interest.
On November 20, 2001, the Company entered into a repurchase agreement with an
individual (the "Buyer") providing for the sale of rare coins to the Buyer for
aggregate purchase price of $1,176,000, and granting the Company a non-exclusive
right to repurchase and re-sell the coins (in the Buyer declares the coin
available for sale) at the original sale price to the Buyer (an aggregate amount
$1,176,000) at any time during the term of the agreement until the expiration
date on May 20, 2002. The repurchase agreement also grants the Company the
non-exclusive obligation to market the coins that are the subject of the
repurchase agreement and if the Company exercises the right to repurchase, the
Company must share with the Buyer 50% of the gross profit realized on the
subsequent sale of each coin repurchased. In addition, the repurchase agreement
provides for the obligation of the Company to repurchase, at the expiration date
and at the option of the Buyer, any coin still outstanding under the repurchase
agreement at a repurchase price of 106% of the original sale price to the Buyer.
Since the Company has the obligation to market the coins that are the subject of
the repurchase agreement, the sale of the coins to the buyer is not
-15-
substantially complete until the coins are marketed, repurchased and sold to
third parties. Accordingly, only those coins which the Company has re-marketed
and sold to third parties are recorded and recognized as sales, and the
aggregate value of the coins remaining under and subject to the repurchase
agreement are classified as inventory until third party sales are completed. As
of December 31, 2002, the Company had repurchased all the coins covered under
the agreement.
On July 9, 2002 and July 26, 2002 the Company entered into temporary working
capital loan agreements with John Wesley English ("English") in the amounts of
$1,500,000 and $1,000,000 respectively. These loans bear interest at the
prime-lending rate plus 7% per annum, were secured by the inventory of the
Company and a personal guarantee of the Company's chief executive officer and
principal stockholder, and were due to repaid in 60 days. On August 8, 2002, the
Company converted the two loans from English into a Line of Credit with English
by executing a Secured Revolving Line of Credit Agreement ("Line of Credit").
The Line of Credit bears interest at the prime lending rate plus 7% per annum,
was due on September 9, 2002, is secured by substantially all the assets of the
Company and a personal guarantee of the Company's chief executive officer and
principal stockholder. The Line of Credit provide for interest payments to made
in cash, inventory or restricted common shares of the Company at the sole
discretion of English. On September 16, 2002 the Line of Credit was amended to
extend the due to October 15, 2002. In November 2002 English became deceased and
the aforementioned Line of Credit became an asset of the Estate of John Wesley
English ("English Estate"). As of the January 22, 2003, the balance of the Line
of Credit was $2,500,000 plus accrued interest and no contact has been made by
the representatives of the English Estate with regard to the disposition of the
Line of Credit.
On October 9, 2002, the Company's subsidiary Superior Galleries, Inc.
("Superior") executed a promissory note with a third party rare coin dealer in
the amount of $1,011,975 for the purchase of rare coin inventory from an
unrelated third party. The note bears interest of $75,000 through January 20,
2003 and thereafter bears interest at the rate of 2.5% per month. The loan is
secured by the rare coin inventory purchases with the proceeds of the note. All
proceeds from the sales of the rare coins securing the note will be applied
against the loan principal and interest. As of January 22, 2003 the balance of
loan is $786,975 plus accrued interest.
On November 1, 2002, the Company's subsidiary Superior Galleries, Inc.
("Superior") executed a promissory note with a third party rare coin dealer in
the amount of $179,350 to pay down the promissory note related to the Superior
acquisition of July 2001. The note bears interest of $7,500 through January 31,
2003 and thereafter bears interest at the rate of 1.50% per month. The loan is
secured by specific rare coin inventory. All proceeds from the sales of the rare
coins securing the note will be applied against the loan principal and interest.
As of January 22, 2003 the balance of loan is $179,350 plus accrued interest.
The Company utilizes leased assets not owned by the Company and such assets are
subject to the limitations as provided in each specific lease agreement.
KSH Strategic Investment Fund I, LP, secured promissory note dated July 3, 2001,
in the original principal amount of $275,000, bearing interest at the rate of
10% per annum, payable at the earlier of the receipt of the proceeds of a
private placement memorandum or July 3, 2002. In August 2002, KSH and Company
agreed to extend the payment terms of the secured promissory note on a month to
month basis. The balance of the promissory at January 22, 2002 was $31,250 plus
accrued interest.
-16-
SCHEDULE 3(s)
ABSENCE OF LITIGATION
---------------------
The Company has been named as the defendant in a lawsuit initiated by plaintiffs
Steve Bayern and CynDel & Co., Inc. dated November 11, 2001 in the Supreme Court
of the State of New York, County of New York, that alleges breach of contract in
the approximate amount of $450,000, representing the aggregate of monthly fees
to be paid for the approximately three years. On February 28, 2002, the parties
executed a letter to "stand still" on the lawsuit and nay counterclaims until
April 15, 2002, at which time, the parties will assess the progress on the
contemplated preferred stock financing. On April 3, 2002, the Company entered
into a settlement and release agreement to settle all claims of all parties to
the lawsuit.
-17-
SCHEDULE 3(t)
NO DEFAULT
----------
On June 15, 2001, the Company entered into and advisory agreement with Steven
Bayern ("Bayern"), a shareholder of 5% or more of the Company's Common Stock,
pursuant to which Bayern is to provide advice to the Company with respect to
corporate governance matters and corporate strategy. The Company did not pay
Bayern in accordance with the terms of the agreement claiming a number of
defenses including fraud, failure of consideration, failure to mitigate damages
and other defenses. Bayern filed suit in New York alleging breach of contract.
On April 3, 2002, the Company entered into a settlement and release agreement
with Bayern to settle all claims of all parties to the suit.
On June 15, 2001, the Company entered into a three-year consulting agreement
with CynDel & Co., Inc. ("CynDel") expiring in June 2004 to provide financial
advice and other financial consulting services at the rate of $120,000 per year.
Steven Bayern and Patrick Kolenick both of who are shareholders of more than 5%
of the Company's Common Stock own CynDel. The Company had not paid CynDel in
accordance with the terms of the agreement claiming a number of defenses
including fraud, failure of consideration, failure to mitigate damages and other
defenses. CynDel filed suite in New York alleging breach of contract. On April
3, 2002, the Company entered into a settlement and release agreement with CynDel
to settle all claims of all parties to the suit.
On July 6, 2001, the Company completed the acquisition of the assets placed in
the Company's wholly-owned subsidiary, Superior Galleries, Inc. ("Superior"),
whereby Superior issued a non-interest bearing promissory note payable to the
seller for $701,000 secured by all the assets of Superior and guaranteed by the
Company and its chief executive officer and principal stockholder. The note
provided for periodic payments up to January 10, 2002. The Company had a dispute
with the seller regarding the covenants of the seller, the Company suspended
payments in accordance with the terms of the note and negotiated temporary
payments by mutual consent of the parties. The dispute was resolved with the
Seller and both parties agreed to revised payment schedule of principal and
interest. As of January 22, 2003 the balance of the note was $147,863.44 plus
accrued interest
On July 6, 2001, as part of the Superior business asset acquisition, Superior
executed a revolving promissory note ("Credit Line") with the seller of the
assets in the aggregate amount of $3,000,000 bearing interest at the prime rate
plus 4% and secured by the assignment of notes receivable from consignors of
property to Superior. The Credit Line contained a default provision such that
any default in the promissory note related to the asset acquisition as described
above is also a default under the Line of Credit. On July 10, 2002, the Company
repaid the Credit Line in full.
On July 9, 2002 and July 26, 2002 the Company entered into temporary working
capital loan agreements with John Wesley English ("English") in the amounts of
$1,500,000 and $1,000,000 respectively. These loans bear interest at the
prime-lending rate plus 7% per annum, were secured by the inventory of the
Company and a personal guarantee of the Company's chief executive officer and
principal stockholder, and were due to repaid in 60 days. On August 8, 2002, the
-18-
Company converted the two loans from English into a Line of Credit with English
by executing a Secured Revolving Line of Credit Agreement ("Line of Credit").
The Line of Credit bears interest at the prime lending rate plus 7% per annum,
was due on September 9, 2002, is secured by substantially all the assets of the
Company and a personal guarantee of the Company's chief executive officer and
principal stockholder. The Line of Credit provide for interest payments to made
in cash, inventory or restricted common shares of the Company at the sole
discretion of English. On September 16, 2002 the Line of Credit was amended to
extend the due to October 15, 2002. In November 2002 English became deceased and
the aforementioned Line of Credit became an asset of the Estate of John Wesley
English ("English Estate"). As of the January 22, 2003, the balance of the Line
of Credit was $2,500,000 plus accrued interest and no contact has been made by
the representatives of the English Estate with regard to the disposition of the
Line of Credit. This Line of Credit is in technical default.
The Company is required under its bylaws to hold annual shareholders meetings in
the fifth month following the end of the Company's fiscal year. The Company has
not held its annual shareholders meetings for the fiscal years ended December
31, 2000, June 30, 2001 and June 30, 2002.
The Company is required under its bylaws to furnish annual reports to the
shareholders not late than 120 days after the end of each fiscal period. Other
than filing with the Form 10-KSB with the Securities and Exchange Commission for
the fiscal years ended December 31, 2000 and June 30, 2001, the Company has not
sent an annual report to the shareholders for the fiscal years ended December
31, 2000, June 30, 2001, and June 30, 2002.
The Company is required to file Forms 10-KSB and 10-QSB within 90 days and 45
days respectively subsequent to close of fiscal periods with the Securities and
Exchange Commission. The Company has not filed Form 10-KSB for the fiscal year
ended June 30, 2002 and Form 10-QSB for the quarter ended September 30, 2002.
The Company is required to file a registration statement for securities issued
under the Agreement and Plan of Merger by and between Tangible Asset Galleries,
Inc., Tangible Asset Galleries Acquisition Corp, and HotelInteractive, Inc.
dated June 25, 2001 within six months of the effective date of the transaction.
The Company has not filed such registration statement.
The Company is required to file a registration statement for securities issued
under the Private Placement Memorandum dated July 6, 2001 and terminated October
31, 2001, within sixty days of the termination date of the offering. The Company
has not filed such registration statement.
The Company is required to file a registration statement for securities under
Securities and Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002 within 180 days of the first closing date of the
transaction. The Company has not filed such registration statement.
-19-
SCHEDULE 3(u)
TAXES
-----
None. The Company's filing deadlines for tax returns for the fiscal year ended
June 30, 2002 have been extended to March 31, 2003.
-20-
SCHEDULE 3(w)
CONTRACTS; NO DEFAULTS
----------------------
1. ACC Financial Services, Inc. dated September 15, 2000
2. Wertzberger Lynn Group, dated August 26, 2000
3. Lo Money, Inc., dated September 11, 2000
4. Repurchase Agreement with Wes English, dated November 20, 2001
5. Asset Purchase and Assumption of Liabilities Agreement, dated November
28,2001
6. Advisory Agreement with Robert Escobio, Dated June 25, 2001
7. Financial Advisory Agreement with CynDel & Co., Inc., dated June 9, 2001
8. Financial Advisory Agreement with Steven Bayern, dated June 9, 2001
9. Advertising Space Agreement with Art & Antiques, dated July 30, 2001
10. Lease Agreement Ford Credit dated September 22, 2000
11. Lease Agreement Mercedes- Benz Credit, dated August 31, 2001
12. Lease Agreement Ford Credit, dated January 31, 2002
13. Real Estate Lease Agreement with LJR Lido Partners LP, dated September 20,
1999
14. Assignment of Real Estate Lease with 9478 Corporation dated July 6, 2001
15. Real Estate Sublease Agreement with A-Mark Auction Galleries, Inc. dated
July 6, 2001
16. Asset Purchase Agreement with A-Mark Auction Galleries, Inc., dated July 6,
2001
17. Agreement and Plan of merger with HotelInteractive , Inc. dated April 9,
2001
18. Collateral Agreement with International Fidelity Insurance Company, dated
February 21, 2002
19. Auction Agreement with the American Numismatic Association, as amended,
dated January 25, 2002
20. Secured Promissory Note from HCR Holdings Corporation, dated February 7,
2002
21. Secured Promissory Note from HotelInteractive, Inc., dated February 7, 2002
22. Share Purchase Agreement with HCR Holdings Corporation, dated February 7,
2002
23. Employment Agreement with Silvano DiGenova, dated April 30, 2001
24. Employment Agreement with Michael Haynes, dated September 6, 2000
25. Consulting Agreement with U.S. Gold Exchange, dated August 3, 1999
26. Commercial Loan and Security Agreement with National Recovery Limited
Partnership, dated November 15, 2000
27. Guaranty for Tangible Collectibles, Inc. in favor of National recovery
Limited Partnership, dated November 15, 2000
28. Guaranty for Superior Galleries, Inc. in favor of A-Mark Auciton
Gallleries, Inc., dated July 6, 2001
29. General Indemnity Agreement with International Fidelity Insurance Company,
dated February 12, 2002
30. Securities Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002
31. Temporary Working Capital Loan Agreement with John Wesley English, dated
July 9, 2002
32. Secured Loan and Security Agreement with John Wesley English, dated July 9,
2002
33. Temporary Working Capital Loan Agreement with John Wesley English, dated
July 26, 2002
34. Secured Loan and Security Agreement with John Wesley English, dated July
26, 2002
-21-
35. Secured Revolving Line of Credit Agreement with John Wesley English, dated
August 8, 2002
36. Secured Promissory Note with Kevin Lipton Rare Coins, dated October 8, 2002
37. Secured Promissory Note with Kevin Lipton Rare Coins, dated November 1,
2002
38. Promissory Note with Keystone Rare Coins, LLC, dated December 9, 2002
39. Promissory Note with Silvano A. DiGenova, dated December 10, 2002
40. Promissory Note with Silvano A. DiGenova, dated December 13, 2002
41. Bridge Loan Agreement and Bridge Note with Stanford Venture Capital
Holdings, Inc., dated January 2, 2003
42. Consulting Agreement with Robert Hersh, dated January 4, 2003
43. Bridge Loan Agreement and Bridge Note with Stanford Venture Capital
Holdings, Inc, dated January 15, 2003
On June 15, 2001, the Company entered into an advisory agreement with Steven
Bayern, a shareholder of 5% or more of the Company's common stock, pursuant to
which Mr. Bayern is to provide advice to the Company with respect to corporate
governance matters and corporate strategy. The Company has not paid Mr. Bayern
in accordance with the terms of the agreement claiming breach by Mr. Bayern. Mr.
Bayern has filed suit in New York alleging breach of contract.
On June 15, 2001, the Company entered into a three-year consulting agreement
with CynDel & Co., Inc. ("CynDel") expiring June 2004 to provide financial
advice and other financial consulting service at the rate of $120,000 per year.
Steven Bayern and Patrick Kolenick, both of who are shareholders of more than 5%
of the Company's common stock, own CynDel. The Company has not paid CynDel in
accordance with the terms of the agreement claiming breach by CynDel. CynDel has
filed suit in New York alleging breach of contract.
On July 6, 2001, the Company completed the acquisition of the assets placed in
Superior Galleries, Inc. ("Superior"), pursuant to which Superior issued a
non-interest bearing promissory note payable to the seller for $701,000, secured
by all the assets of Superior and guaranteed by the Company and the principal
stockholder and chief executive officer of the Company. The note provides for
periodic payment up to January 10, 2002. The Company has a dispute with the
seller regarding the covenants of the seller. In January 2002 the Company
defaulted on the note, but continued to make periodic payments of principal and
interest through September 2002. On October 30, 2002, the Company renegotiated
the note by making a lump-sum payment and agreeing to pay the remaining balance
of $181,214.35 by making 10 monthly payments of $19,132.99 of principal and
interest commencing December 1, 2002. The renegotiated note bears interest at
the rate of 12% per annum. As of January 22, 2003 the note balance was
$147,863.44 plus accrued interest.
On July 6, 2001, as a part of the transaction whereby assets of the business
were purchased, Superior signed a revolving promissory note with the seller of
the assets in the aggregate amount of $3,000,000 bearing interest at 4% over the
prime rate and secured by assignment of the notes receivable from consignors of
property to Superior. The revolving promissory note contained a default
provision such that any default under the promissory note related to the asset
as described above is also a default under the revolving promissory note. The
revolving promissory note was paid off on July 10, 2002.
-22-
The Company is required under its bylaws to hold an annual shareholders meetings
in the fifth month following the end of the Company's fiscal year. The Company
has not held its annual shareholders meetings for the fiscal years ended
December 31, 2000 and June 30, 2001.
The Company is required under its bylaws to furnish an annual report to the
shareholders not later than 120 days after the end of each fiscal period. Other
than filing with the Form 10-KSB with the Securities and Exchange Commission,
the Company has not sent an annual an annual report to the shareholders for the
fiscal years ended December 31, 200 and June 30, 2001.
The Company is required to file a registration statement for securities issued
under the Agreement and Plan of Merger by and between Tangible Asset Galleries,
Inc., Tangible Asset Galleries Acquisition Corp. and HotelInteractive, Inc.
dated as of within six months of the effective date of the transaction. The
Company has not filed such registration statement.
The Company is required to file a registration statement for securities issued
under the Private Placement Memorandum dated as of July 6, 2001 and terminated
October 31, 2001, within sixty days of the termination date of the offering. The
Company has not filed such registration statement.
The Company is required to file a registration statement for securities under
Securities and Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated April 3, 2002 within 180 days of the first closing date of the
transaction. The Company has not filed such registration statement.
The Company entered into an agreement with ACC Financial Services, Inc. ("ACC")
dated September 15, 2000, and on January 7, 2001, the Company suspended payment
and the ACC ceased performing services under such agreement until such time as
the Company could complete the underwriting of certain transactions.
The Company entered into an agreement with Wertzberger Lynn Group
("Wertzberger"), dated August 26, 2000, and on January 7, 2001, the Company
suspended payments and Wertzberger ceased performing services under such
agreements
The Company entered into an agreement with Lo Money, Inc. ("Lo Money"), dated
September 11, 2000, and on January 7, 2001, the Company suspended payments and
Lo Money ceased performing services under such agreement until such time as the
Company could complete the underwriting of certain transactions.
-23-
SCHEDULE 3(y)
INSURANCE
---------
Policy Annual Expiry Property
Risk Carrier Number Coverage Premium Date Insured
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Property American States 02-CD-146435-1 $650K 1,495 10/9/2003 Office Contents &
Leasehold Improvements
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Liability American States 02-CD-146435-1 $2M/$1M/$200K/$10K 18,653 10/9/2003 General and Umbrella
Aggreg/Per Liability
Occ/Fire/Med
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Inland American States 02-CD-146435-1 $100K per loc/$25K 552 10/9/2003 Electronic Date
Marine Break Processing
- ------------------------------------------------------------------------------------------------------------------------------------
Commerical Auto American States 02-CD-146435-1 $1M Owned & 132 10/9/2003 Liability
Non-owned
- ------------------------------------------------------------------------------------------------------------------------------------
Workers' Administaff Coverage as of 10/31/2003 See Schedule 3 (z)
Compensation 01/01/03
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Dishonesty Fidelity Deposit CCP 005 34 14 $2M 2,073 Liability and Theft
Company of 01
Maryland
- ------------------------------------------------------------------------------------------------------------------------------------
Automobile Progressive 04221883-1 $1M/$5K/$1M/$3.5K 3,956 1/14/2004 2000 GMAC Van
Comm Vehicle Ins Bi-PD/Med/UM/Prop
Co. Damg
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory Travelers KTJM-525D061-1 $5M/$1M/$500K/$3.5M 25,000 8/5/2003 Rare Coins & Fine Art
Insurance Co. Per Inventories
Loc/Art/Transit/Shows
- ------------------------------------------------------------------------------------------------------------------------------------
Directors & Officers Fireman's Fund CDO00075664581 $1M 22,994 2/28/2003 D & O Liability
Liability Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Officer Life First Colongy 5,275,524 $2.5M 1,275 5/27/2003 Silvano A. DiGenova
Life
Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 3(z)
EMPLOYEES
---------
As of 12/31/03
Annual Base Other Accrued Accrued
Employee Name (*) Compensation Compensation Vacation Pay Sick Pay Duties
- -----------------------------------------------------------------------------------------------------------------------------
Beaumont, Carol $ 22,880 $ 440 No Cash Value Sales Support
- -----------------------------------------------------------------------------------------------------------------------------
Biberkraut, Paul $ 120,000 Bonus $ -- No Cash Value Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------------------------
Bonham, Michael $ 120,000 Commission $ 2,308 No Cash Value Sales
- -----------------------------------------------------------------------------------------------------------------------------
Brown, Micheal $ 69,000 $ 1,327 No Cash Value Sales
- -----------------------------------------------------------------------------------------------------------------------------
Carlson, Gary $ -- Commission $ -- No Cash Value Sales
- -----------------------------------------------------------------------------------------------------------------------------
Deeds, Steven $ 202,500 Commission $ 7,788 No Cash Value President Auctions
- -----------------------------------------------------------------------------------------------------------------------------
DiGenova, Silvano $ 337,500 Bonus $ 19,471 No Cash Value Chief Executive Officer
- -----------------------------------------------------------------------------------------------------------------------------
Hunt, David $ 60,000 Commission $ 1,154 No Cash Value Sales
- -----------------------------------------------------------------------------------------------------------------------------
Lorenz, Nadyne $ 31,500 $ 606 No Cash Value Sales Support
- -----------------------------------------------------------------------------------------------------------------------------
Lund, Jason $ 30,000 $ 288 No Cash Value Accounting
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery, Tammy $ 40,000 $ 769 No Cash Value Administration
- -----------------------------------------------------------------------------------------------------------------------------
Onishi, Glenn $ 85,000 $ 1,635 No Cash Value Operations
- -----------------------------------------------------------------------------------------------------------------------------
Remmer, Ray $ 25,000 $ 481 No Cash Value Sales Support
- -----------------------------------------------------------------------------------------------------------------------------
Remmer, Ron $ 45,000 $ 1,731 No Cash Value Inventory Control
- -----------------------------------------------------------------------------------------------------------------------------
Viacrucis, Agnes $ 48,000 $ 923 No Cash Value Accounting
- -----------------------------------------------------------------------------------------------------------------------------
Walker, William $ 34,000 $ 654 No Cash Value Operations
- -----------------------------------------------------------------------------------------------------------------------------
* As of January 1, 2003 all employees are co-employees of Tangible Asset
Galleries, Inc. and Administaff, a professional employer organization. All
payroll, payroll taxes, employee benefits and worker's compensation are being
administered by Administaff and charged as a fee to Tangible.
-25-
SCHEDULE 3(aa)
EMPLOYEE BENEFITS
-----------------
Tangible Asset Galleries, Inc. 401 (k) Profit Sharing Plan & Trust
Tangible Asset Galleries, Inc. Profit Sharing Plan
As of January 1, 2003 the Company's benefits are provided by Administaff, a
professional employer organization. Administaff's benefits include health
insurance, dental insurance, vision insurance, workers' compensation coverage,
life insurance and 401(k) retirement plan. The two plans listed above will be
terminated during 2003.
-26-
SCHEDULE (cc)
MERGERS, ACQUISITIONS AND DIVESTITURES
--------------------------------------
On February 7, 2002, the Company completed the sale of its HotelInteractive,
Inc. ("HI") subsidiary. Pursuant to a Share Purchase Agreement entered into
between the Company and HCR Holdings Corporation, a Delaware corporation
("HCR"), the Company agreed to sell to HCR all of HI's issued and outstanding
shares. HCR is controlled by Mr. Richard Viola, a member of the Company's Board
of Directors at the time of the sale. The decision to sell HI to HCR was made
pursuant to the unanimous written consent of the Company's Board of Directors
without counting Mr. Viola's vote. The terms of the sale were negotiating on an
arms-length basis between the Company's management and HCR's.
-27-