-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vuj/XeA97i6uTlQJteI2JjQHlMY1J73Bczg95cL2xTg352vvgMWyvhMbc+6JllGR afP7jOFcQg71ZaLa3+hjVw== 0000950109-96-006556.txt : 19961009 0000950109-96-006556.hdr.sgml : 19961009 ACCESSION NUMBER: 0000950109-96-006556 CONFORMED SUBMISSION TYPE: PRRN14A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961008 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD TRENZ INC CENTRAL INDEX KEY: 0000841447 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 592839130 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRRN14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23258 FILM NUMBER: 96640851 BUSINESS ADDRESS: STREET 1: 3471 N FEDERAL HWY STREET 2: STE 501 CITY: FT LAUDERDALE STATE: FL ZIP: 33306 BUSINESS PHONE: 9545680433 MAIL ADDRESS: STREET 1: 3471 NORTH FEDERAL HWY CITY: FT LAUDERDALE STATE: FL ZIP: 33306 FORMER COMPANY: FORMER CONFORMED NAME: DIMENSION GROUP INC DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SHAREHOLDERS COMMITTEE FOR HOLLYWOOD TRENZ CENTRAL INDEX KEY: 0001019535 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 078629431 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRRN14A BUSINESS ADDRESS: STREET 1: SCHARRFF WITCHEL & CO STREET 2: 60 EAST 42ND ST STE 763 CITY: NEW YORK STATE: NY ZIP: 10165 BUSINESS PHONE: 2039666664 MAIL ADDRESS: STREET 1: C/O O ROURKE O HANLAN & ZIMMERMANN STREET 2: 27 PINE ST CITY: NEW CANAAN STATE: CT ZIP: 06840 PRRN14A 1 REVISED NOTICE AND PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [_] Filed by a Party other than the Registrant [X] Check the appropriate box: [X] Preliminary Proxy Statement [_] Confidential, for use of the Commission Only (as Permitted by [_] Definitive Proxy Statement Rule 14a-6(e)(2)) [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12 Hollywood Trenz, Inc. ------------------------------------------------------------------------ (Name of Registrant as Specified In Its Charter) Shareholders Committee of Hollywood Trenz, Inc. ------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [X] $500 per each party to the controversy pursuant to Exchange Act Rule 14a- 6(i)(3). [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (i) Title of each class of securities to which transaction applies: (ii) Aggregate number of securities to which transaction applies: (iii) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): (iv) Proposed maximum aggregate value of transaction: (v) Total fee paid: [X] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: $500.00 (2) Form, Schedule or Registration Statement No.: Pre 14A (3) Filing Party: Shareholders Committee of Hollywood Trenz, Inc. (4) Date Filed: July 5, 1996 (Filed in hard copy; not filed on Edgar) Notes: THE SHAREHOLDERS COMMITTEE OF HOLLYWOOD TRENZ, INC. c/o Victor L. Zimmermann, Jr. O'Rourke O'Hanlan & Zimmermann 27 Pine Street New Canaan, CT 06840 (203) 966-6664 SOLICITATION OF PROXIES IN CONNECTION WITH PROPOSED CONSENT TO ACTION October , 1996 Hollywood Trenz, Inc. 3471 North Federal Highway Ft. Lauderdale, Florida 33306 Copies of this proxy statement and form or proxy are being mailed on or about ____________, 1996 to shareholders of record as of ___________, 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dear Fellow Hollywood Trenz Shareholders: The Shareholders Committee of Hollywood Trenz, Inc. (the "Committee") believes that the time has come to seek new shareholder representation on the Board of Directors of Hollywood Trenz, Inc. (the "Company"). Through these changes, the Committee believes that the Company's Board of Directors and management will be more able to accomplish the corporate purpose of the Company, including the completion of the Company's entertainment center in Phoenix, Arizona, and expansion and development of other theme parks, both domestically and abroad, and resultant maximization of the value of the Company's shares. To accomplish this goal, the Committee needs your support and your proxy. The proxy will be used to execute a consent to action by shareholders without a meeting whereby existing directors will be removed and new directors will be appointed to serve until the next annual meeting. Unless otherwise indicated, the person named in the accompanying BLUE proxy will execute a consent to action without a meeting FOR the following purposes: 1. FOR the removal of any bylaw amendments adopted by the Board of Directors of the Company on or after March 31, 1996, which restrict the rights of shareholders to nominate and/or elect persons for election to the Board of Directors of the Company, and to raise matters for consideration of the shareholders at the Company's annual shareholders' meeting. (As of this date the Committee is not aware that any such bylaw amendments have been adopted. If such bylaw amendments are either subsequently adopted or it is learned that such bylaw amendments were previosly adpopted by the Board of Directors of the Company, additional proxy materials will be forwarded by the Committee in order to disclose to shareholders the terms of any such bylaw amendments which the Committee may seek to remove). 2. FOR the removal of the following directors of the Company: Edward R. Showalter Robert E. Burton, Jr. Gregory D. Smith 3. FOR the election of the Committee's nominees for Director. If, after reading the Proxy Statement and the accompanying letter, you want to join us in seeking achievement of the corporate purposes of the Company: MARK the enclosed BLUE Proxy to indicate how you wish a consent to action to be executed on your behalf. SIGN the enclosed BLUE Proxy DATE the enclosed BLUE Proxy RETURN the enclosed BLUE Proxy in the postage prepaid envelope. YOUR PROXY IS IMPORTANT TO US NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN. PLEASE MARK THE BLUE PROXY, SIGN, DATE, AND RETURN IT PROMPTLY IN THE ENCLOSED, SELF-ADDRESSED, STAMPED ENVELOPE. BLUE PROXIES WHICH ARE SIGNED, BUT UNMARKED, WILL BE COUNTED AND A CONSENT WILL BE EXERCISED IN FAVOR OF THE ACTIONS DESCRIBED ABOVE. YOU may be receiving a WHITE PROXY from the Company opposing the efforts of the Committee. WE URGE YOU NOT TO SIGN ANY WHITE PROXY CARD YOU MAY RECEIVE FROM THE COMPANY. Any proxy may be revoked at any time before the proxy is exercised by either a later dated proxy, written notice of revocation to the Secretary of the Company at its principal office, or a vote in person at the Meeting of Shareholders. THE ONLY PROXY THAT COUNTS IS THE LATEST, DATED ONE. IF YOUR SHARES OF THE COMPANY'S STOCK ARE HELD IN THE NAME OF YOUR BROKER, BANK, OR THEIR NOMINEE, YOU WILL NEED TO CONTACT YOUR BROKER OR BANK TO GIVE INSTRUCTIONS AS TO WHETHER YOU WISH A CONSENT TO ACTION To BE EXECUTED ON YOUR BEHALF. As more fully described elsewhere in the Proxy Statement, the Committee and its nominees are not members of the Company's current management. If you have any questions or require any assistance in completing your BLUE Proxy, please call Michael Noveilli at (212) 843-8344. WHY THE COMMITTEE IS SOLICITING PROXIES Michael Noveilli, Eric Landis, Scott MacCaughern, and Kenneth Callison, who as of July 30, 1996, owned, of record or beneficially, in the aggregate 1,622,975 shares or approximately 3.1% of the outstanding shares of the Company, decided to form the Committee and make this proxy solicitation after they came to believe, as described below, that current management's policies were not directed towards achieving the corporate purpose of the Company and allowing shareholders to exercise their legitimate rights as shareholders. Mr. Noveilli, Mr. Landis and Mr. MacCaughern are all members of the securities industry, and have purchased shares of the common stock of the Company for themselves and for their customers, after being convinced by the Company's President, Edward R. Showalter ("Showalter"), of his vision for the Company and the concrete steps which were allegedly being taken to realize the corporate purpose. Mr. Callison is a shareholder who has made a substantial investment in the Company. The Committee, which consists of the foregoing persons, has recently become increasingly dissatisfied with the Board of Directors and management of the Company. The Committee's primary concerns regarding the Company are: . Waste of corporate assets. . Inability to fulfill the corporate purpose of the Company. . Dilution of shareholder value . Failure to hold an annual shareholders' meeting the entire period the Company has been a public company. (1) Waste of Corporate Assets - ------------------------------ Since January, 1995, the Company has raised over $1,550,000 in cash according to the notes to its Statement of Cash Flows for the Six Months Ended June 30, 1995 and 1996 filed as part of its Form 10-QSB dated August 12, 1996. ("Third Quarter 96 10Q.") That cash is non existent according to the Third Quarter 96 10Q. While the Committee is not aware where all the capital has gone the Committee is aware that the Company has still been unable to open its first entertainment park/restaurant. According to an article in the Phoenix Business Journal on June 21, 1996, which quoted a Denver based real estate broker who apparently represented the Company in negotiations for its first site in Denver, the Company executed a lease for a 37,000 square foot entertainment center in December, 1995 but Showalter did not pay the $12,000 security deposit or come up with construction plans for the building's retrofit as required by the landlord. According to the article, the landlord subsequently canceled the lease. The text of the Phoenix Business Journal article is annexed hereto as Exhibit A. Where has the money gone? This is not a company doing research and development which may require substantial capital while failing to show any tangible assets. This is a Company whose sole corporate objective, as outlined in its 1994 and 1995 Form 10K's, is to get its flagship entertainment center up and going. We wonder how in the world it is possible to have so exhausted the Company's capital that there is not enough left to pay the $12,000 security deposit on what is supposed to be a major asset of the Company? The Company was successful in at least having a lease executed and construction commenced on its Phoenix, Arizona site but has been altogether unable to meet its obligations to its builders on a timely basis there as well. In connection with the litigation instituted by a member of the Committee, Kenneth Callison, against the current directors, (see the "Litigation", below) the former project manager for the Phoenix site, Spencer Finseth ("Finseth"), was interviewed in depth. According to Finseth his first four paychecks bounced, the plumbing contractor received his first draw on his contract and was not paid again, leaving a balance due of approximately $70,000. When Finseth complained to Showalter in May, 1996, that the contractors and subcontractors were not getting paid in a timely manner, Showalter told Finseth that the Company had no money and that he had been selling stock on the open market to pay the contractors but the price had gotten so low he could no longer finance Company operations this way. How is it possible that a publicly held company runs its business this way and apparently went through in excess of $1.5 million in capital and cannot pay its ongoing expenses towards one entertainment center? The Committee does not know the answers but believes shareholders deserve not only explanations for where the money went but new better management in the future if the Company is going to realize its corporate purpose. (2) Inability to Fulfill the Corporate Purpose of the Company --------------------------------------------------------- As late as April 12, 1996, when the Company's annual report on Form 10K- KSB was executed by Showalter, the Company was claiming that their entertainment center in Phoenix was expected to open in the second quarter of 1996 and that the Denver facility would be open by the summer. As reported in the Phoenix Business Journal article in July the Denver facility has been abandoned and according to Finseth the Phoenix facility is nowhere near completion. The Committee believes that with the continuing problem relative to payments due contractors in Phoenix the facility may not be completed unless the Company is recapitalized. The Committee believes it is unlikely that a successful recapitalization can take place under current management given the unfavorable publicity regarding Showalter's background and his current track record as chief executive officer of the Company. According to Finseth most of the contractors on the Phoenix site had walked off the job by May 8, 1996 and all of them were gone by May 15, 1996. The Company has apparently been able to recruit some new contractors and entice others to return to do some limited work subsequent to that date but Showalter has continued to bounce checks given to the contractors as payment. According to Finseth, within the past thirty days the plumbing contractor was recently issued a $68,000 bad check while JMC Mechanical was issued a $98,000 bad check. The Committee now believes that so many people have lost confidence in Showalter that he will never be able to achieve the corporate purpose of opening an entertainment center in a timely manner in addition to installing needed confidence in the investment community. Not only has his track record with the Company evidenced an inability to achieve corporate objectives but there have been recent unfavorable press reports dealing with Showalter's prior background which the Committee believes will only make it more difficult for the Company to achieve its goals with current management. The front page of the Business Section of the Miami Herald for April 16, 1995, featured an article (the "Herald Article") dealing with Showalter's inability to fulfill the Company's corporate objective of opening its first family entertainment center in Denver in 1994 and included examples of Showalter's past business failures and run-ins with the law. The Herald Article reported that in the past seven years, according to court records, Showalter has defaulted on loans, written bad checks, stiffed landlords, cheated on his taxes and defied court judgments. The article also noted that Showalter declared personal bankruptcy in 1990 and as a result of his ownership of a garment company, America's Favorite Clothing, in the mid-1980s, Showalter ceased business without paying his creditors and was sued for over $200,000.00 and faced criminal charges for his conduct. Showalter plead no contest to grand theft and was placed on a fifteen year probationary term in order to make restitution. The text of the entire article is included as Exhibit B to these proxy materials. In addition to the unfavorable press reports the Securities and Exchange Committee has been conducting an investigation into the Company's affairs. The existence of this investigation was reported in the Company's 1995 Annual Report on Form 10KSB. The Committee believes that the timing of the opening of the Company's first entertainment center is critical. In large part the Committee's decision to undertake this consent solicitation is tied to its belief that the Company's relationship with the Sunkyung Securities LTD. ("SKG") can be extremely profitable and is integral to its future growth. Sunkyong Securities is the brokerage and investment banking division of the Sunkyong Group ("SKG"), the fifth largest conglomerate in Korea. With revenues of over $24 billion, SKG ranks among the top 100 of the Fortune Global 500. One of the Committee's nominees for director, Ronald Olsen, former Managing Director of SKG, was responsible for introducing SKG to the Company. However Mr. Olsen did not receive, and will not receive any compensation, in the form of finder, consulting or other fees for making the introduction. The Committee believes that SKG will provide the financing for construction of the Company's entertainment centers in Korea and possibly throughout Asia if the Company can finish its first entertainment center here in the United States in a timely manner. The Committee believes that the relationship with SKG will be irreparably jeopardized by further delays since it is believed according to Ronald Olsen that SKG may already be negotiating with other developers of similar entertainment centers to joint venture projects overseas. (3) Dilution of Shareholder Value ----------------------------- Over the last two and one-half years, according to the Form S-8 registration statements filed with the Securities and Exchange Commission, a total of 29,680,000 shares of the Company's common stock have been issued all for purported services rendered and most, if not all, without bringing needed capital to the Company. All of these shares were registered with the Securities and Exchange Commission on Form S-8 which may be used to issue shares for consultants who have provided bona fida services to the Company. These issuances have substantially diluted shareholder value since there has been no tangible benefit which is readily apparent from the issuance of these additional shares. As recently as October 31, 1994, as reported on the Company's quarterly report on Form 10-Q there were 1,486,495 shares outstanding as opposed to approximately 30,555,544 which it is believed the Company maintained were outstanding as of the end of May. The number believed to be outstanding as of the end of May, 1996, was determined by the number reported on the Company's Form 10-KSB for 1995 and as reported on subsequent registrations using Form S-8. The Company has now reported on its Third Quarter 10-QSB that it issued 22,200,000 shares of restricted common stock for services during May and that it presently has 51,205,544 shares of common stock outstanding as of August 12, 1996. Approximately 22,200,000 shares were issued, nearly doubling the number outstanding and there is no disclosure in the Third Quarter 96 10-QSB as to when the shares were issued or for what consideration. Meanwhile the price of the Company's common stock has deteriorated from a value of approximately $4.00 per share on March 31, 1995 (after a one-for-ten reverse stock split in 1994) to the current level of approximately $.16. The Committee believes that Showalter knowingly misused the Form S-8 registration process to issue shares to individuals and entities who were not the ultimate intended beneficiary of the shares and who were not performing bona fida services which would entitle them to be the recipient of shares registered on Form S-8. The Committee further believes that Showalter and his fellow directors approved the recent issuance of 22,200,000 shares solely for the purpose of entrenching themselves in office and thwarting the efforts of the Committee. According to a sworn statement of Timothy Brannon, a former employee of the Company who has submitted an affidavit in connection with the litigation described below, Showalter told him within one month of joining the Company that it would be necessary to register the shares on Form S-8 in his name even though it was intended that the stock would be parceled out to various individuals and entities after it was registered and even though some of these individuals would not have performed services for their stock. After the shares were registered on Form S-8 in Brannon's name he was then requested to find individuals who would buy the stock of the Company at a discount to the market price and the securities of the Company which had been registered but not issued in Brannon's name would then be issued to the buyers. ( A copy of the Brannon affidavit is annexed hereto as Exhibit C). It is the Committee's belief that Showalter was attempting to avoid the Securities and Exchange Commission rules and regulations which call for detailed disclosure regarding shares initially registered to the public through the misuse of the Form S-8 registration process. (4) Failure to Hold An Annual Meeting of Shareholders ------------------------------------------------- The Committee maintains that Showalter for all intents and purposes, is Hollywood Trenz. The shareholders exist in name and on paper only, since there has been no annual or other meeting of shareholders in the Company's existence. There is currently no oversight available to control Showalter and prevent continued dilution of shareholder value, waste of corporate assets, and the continued inability to fulfill the corporate purposes of the Company. It is the Committee's opinion that shareholders should not have to fight incumbent management for the right to have an annual meeting at which directors would be elected by the shareholders. The Company is required to have an annual meeting of shareholders under the law of the state of Delaware where the Company is incorporated and Showalter has completely ignored the requirements of state corporate law in failing to call for an annual meeting. Although the Company's bylaws provide that the directors shall serve until the next annual meeting of shareholders the accountability envisioned by this provision has been rendered meaningless since Showalter has never called for an annual meeting. He and the other directors have therefore been able to continue in office without putting themselves up for an annual vote of shareholders. The Committee believes that such flagrant flouting of the requirements of state law and shareholder rights is grounds alone for removal of the entire board. RECENT LITIGATION ----------------- A legal action was recently filed against the Showalter and other members of the Board of the Company in the Court of Chancery of the State of Delaware, on behalf of one of the Committee's members. The Complaint in this action is annexed hereto as Exhibit D. A primary objective of this action was to restrain the Board from further issuing shares on Form S-8. A temporary restraining order was issued and later re-entered by the Delaware Court of Chancery. The material allegations of the Complaint have been denied by the defendants. The case has now entered a discovery phase. The plaintiff in the action, Kenneth Callison, intends to amend the Complaint to contest the recent issuance of 22,200,000 shares on the grounds that such an issuance is a clear breach of fiduciary duty which the directors owe to minority shareholders. THE COMMITTEE'S PLANS FOR REORGANIZATION ---------------------------------------- The Committee believes that the Company's management and management policy should be subject to independent and objective review and that new directors are required, who are untainted by the prior business and legal troubles reported with respect to Showalter, who will operate the Company in a manner giving due regard for the legal rights of shareholders to elect directors and who are able to bring the necessary strategic vision to the Company. For these reasons, the Committee has resolved to make this solicitation, in an effort to ensure that all shareholders of the Company have the choice of electing new, independent directors to the Board who are committed to the pursuit of corporate purposes and the maximization of shareholder value. If action by the shareholders of the Company results in the election of a new Board of Directors nominated by the Committee, the new directors will initiate an aggressive reorganization and institute a construction plan to complete the Company's first entertainment center in Phoenix, Arizona, which has been beset by problems since construction commenced in July, 1995. The following is a broad outline of the Committee's plan of reorganization: 1. Close headquarters location in Ft Lauderdale, Florida, effective ---------------------------------------------------------------- immediately, and move into space at the Company's entertainment center in - ------------------------------------------------------------------------- Phoenix. This will result in obvious cost savings to the Company and also result - ------- in greater management oversight of the Company's initial center, especially during its embryonic stage. 2. Form Interim Management Committee. The Committee would consist of Ronald --------------------------------- Olsen, Michael Noveilli and Eric Landis. Mr. Noveilli and Mr. Landis are members of the Committee while Mr. Olsen is Mr. Landis's father-in-law and a nominee for director as proposed by the Committee. 3. Hire a high profile Chief Executive Officer. The Committee has had talks ------------------------------------------- with an executive with over 20 years of experience in the restaurant industry. This executive has demonstrated success in managing large country clubs, resorts, hotels and developing and managing new restaurant entertainment concepts. This executive founded a company that developed and consulted on over twelve theme restaurants. The executive has demonstrated significant interest in becoming the Chief Executive Officer if there is a change in management. However consummation of an agreement is subject to many variables, including and most importantly the executive's perception of the financial viability of the Company at the time of any change in management. If the Committee is not successful in negotiating an agreement with this individual, someone with like experience will be sought. The Committee believes that no one in current management has a proven track record in restaurant management which the Committee believes is critically important if not essential to the Company's success. 4. Obtain 3-5 million dollar new capital infusion. Since the Company is ---------------------------------------------- now apparently insolvent the Committee views finding a new source of capital quickly a critical component of its reorganization plan. The Committee believes that the Company's present financial difficulties cannot be remedied under current management because it will be difficult if not impossible to find new sources of capital given the press reports regarding Showalter's past and present business and legal difficulties. The Committee believes that given the fact that Mr. Noveilli, Mr. Landis and Mr. MacCaughern are all members of the securities industry, the prospects for finding new capital once the Company is under new management will be good. The Committee does believe that it is likely that there will need to be further dilution to existing shareholders since any source for the needed capital will demand significant equity participation. 5. Negotiate With Creditors and Contractors Once a source of new capital ----------------------------------------- has been obtained new management will negotiate with existing creditors including all of the contractors who are owed money on the Phoenix project to obtain satisfactory resolutions to their claims. 6. Finish Construction on Phoenix Site. ------------------------------------ 7. Hire and Train Staff Phoenix Site. ---------------------------------- 8. Grand Opening of Phoenix Location. ---------------------------------- 9. Negotiate with SKG for Joint Venture in Korea. Through a joint ---------------------------------------------- venture agreement with SKG of Seoul, Korea, and Hollywood Trenz together, have anticipated opening the first international Hollywood Trenz center in Seoul, Korea, within 12 months. Although the Committee cannot be positive at this time that SKG will still desire to joint venture this development with the Company even if the Committee is successful in replacing existing management, the Committee believes that the chances will be improved with new management and the presence of SKG's former employer, Ronald Olsen. 10. Determine Future Sites and Forms of Financing. ----------------------------------------------- The new Board of Directors is well diversified and represents highly ethical and competent individuals in industries well suited to guide Hollywood Trenz through this critical stage. The strategy of combining a strong management team, well defined corporate goals, and an unbridled focus on the exponential growth of earnings per share, will ultimately lead to maximizing shareholder value, and enable all of us to participate in the success of this exciting endeavor. Reference is made to the table under "PRINCIPAL SHAREHOLDERS" below and Appendix "A" attached for further information about the members of the Committee. We believe that corporate democracy depends on the voice of the shareholders, as reflected in your proxy. We urge you to take an active part in ensuring shareholder democracy at the Company and in choosing the directors of your Company. REMOVAL OF DIRECTORS For the reasons set forth above, the Committee believes that the Company's Board of directors has not been acting in a manner which is consistent with the best interests of the Company and its shareholders. Under Delaware corporate law, the Company's shareholders are permitted to remove directors of the Company with or without cause. Under Delaware law, shareholders can act either at a meeting or by written consent in lieu of a meeting if a majority of outstanding shares is represented by the consents. Rather than request each shareholder to execute a consent, the Committee has determined to ask shareholders to execute proxies to one of the members of the Committee who will then execute one consent to action on behalf of everyone who has executed a proxy. Under Delaware law, a proxy is valid for up to three years unless revoked. The Committee believes that the removal of the following persons from the Company's Board of Directors is in the best interest of the Company and its shareholders: Edward R. Showalter Robert E. Burton, Jr. Gregory D. Smith The persons named in the BLUE Proxy or their substitutes will execute a consent to action without a meeting on your behalf removing the Company's Board of Directors and electing those named above unless you withheld authority to so act with respect to one or more Directors by marking the appropriate space in the BLUE Proxy. ELECTION OF DIRECTORS According to the Company's bylaws, the term of office of each director expires every one year. The number of directors is currently fixed at three. All directors are supposed to be elected each year. The Committee has proposed removal of all of the Company's three current directors. The committee has assembled nominees for directors whom it believes are highly qualified and have the talent, vision and experience necessary to maximize shareholder value while overseeing the Company's business. Any person so appointed will serve until his successor is elected and qualified. The persons named in the BLUE Proxy or their substitutes will execute a consent to action without a meeting which action will result in the removal of existing directors and the election of the Committee's nominees listed below (the "Committee's Nominees") as directors unless you withhold authority by marking the appropriate space on the BLUE Proxy. Each of the Committee's Nominees has agreed to serve as a director if appointed or elected. If any of the Committee's Nominees should become unavailable for election (which contingency is not now expected), the shares represented by the BLUE Proxy will be voted for such substitute nominees(s) as the Committee may name. If appointed or elected as directors of the Company, each of the Committee's Nominees will devote such portion of his time as he deems appropriate to serve as a director of the Company. If elected, the nominees will suggest that the Board of Directors initially meet monthly with additional Board meetings held as needed. Except as set forth in this Proxy Statement, as of the date hereof, none of the committee's members and nominees, nor any of their respective affiliates have or intend to have any arrangement or understanding with any person with respect to any future employment by the Company or with respect to any future transaction to which the Company or any of its affiliates will or may be a party. None of the Committee's nominees have had any business relationships with the Company during its last fiscal year nor are any of the Committee's nominees employed by the Company or any of its subsidiaries or affiliates. To the extent practicable, the Committee desires to be able, through the election of its slate, to direct the policies of the Board of Directors of the company with the least possible disruption to the Company's business and employees. There can be no assurance, however, that all key personnel will remain in the employ of the Company even if requested to do so. None of the committee members has any current intention of making a proposal with respect to any merger or similar transaction involving the Company. THE COMMITTEE'S NOMINEES The following table sets forth certain information concerning the Committee's Nominees: Name Age Principal Business Occupation - ---- --- ----------------------------- For the Last Five Years ----------------------- Joseph B. LaRocco 37 Attorney, Stamford, Connecticut since 1982. Mr. LaRocco represents securities firms, investment funds, investment banks, and corporate finance firms. Alfred Hahnfeldt 50 Founder and Chief Executive Officer of the NetStar Company, a company specializing in the design, development and installation of interactive voice response systems which enable companies to provide services for customers on the Internet. Also founder and Chief Executive Officer of Spinneret Financial Systems, Ltd., a financial consulting firm. Formerly Vice President and Chief Financial Officer for HO Penn Machinery Company, Inc. at $180 million Caterpillar dealership. B.A. Yale University 1968. Ronald D. Olsen 60 President, Human Resources International. Formerly Managing Director of Sunkyong Group of Korea, a major multinational conglomerate, from 1987-1996. Executive with IBM corporation from 1958-1987. Except as indicated in the foregoing table, none of the Committee members own any shares of the Company solely of record but not beneficially. Appendix "A" hereto lists all purchases and sales of securities of the Company made within the past two years by members of the Committee, the Nominees and their associates. No member of the Committee or Nominee is or has been within the past year a party to any contracts, arrangements or understandings with any person with respect to any securities of the Company including, but not limited to, joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guaranties of profit, division of losses or profits or the giving or withholding of proxies except as noted below./1/ None of the members of the Committee or the Nominees has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors during the last ten years). /1/ Michael Noveilli, a member of the Committee, executed a consulting agreement in April, 1996 whereby he agreed to attempt to find sources of capital for the Company. Pursuant to this agreement, Mr. Noveilli was to receive shares of the Company's common stock to be issued immediately, the purpose of which was to compensate him for his efforts to locate sources of capital as well as to recognize his assistance in locating market makers for the Company's stock and negotiating an agreement with Sunkyong Securities Ltd.. The shares were not issued and Mr. Noveilli thereafter decided he could no longer continue to work with Mr. Showalter and decided to assist in forming the Committee. Mr. Noveilli has agreed to waive any claim pursuant to this agreement, which he may have against the Company, in the event the Committee's nominees are elected. Except as indicated in the foregoing table, no associates of members of the committee or associates of Nominees to the Board of Directors holds any common stock of the Company. SOLICITATION OF PROXIES The Committee expects to solicit proxies by mail, telephone, telegram and personal interview. The Committee will also request brokers, custodians, and other nominees to forward solicitation materials to the beneficial owners of the voting securities of the Company, and they will be reimbursed for their reasonable out-of-pocket expenses. All of the expenses of this solicitation will be borne by the Committee. It is estimated that the total costs incurred to date in connection with this solicitation have been approximately $15,000 and that it is estimated that a total of approximately $100,000 (including legal fees) will be expended in connection therewith. It is the Committee's beliefs that this solicitation will enhance the value of all shareholder interests is in the Company. Accordingly, the Committee intends to seek reimbursement from the Company of the costs of this solicitation in the event that it is successful in removing Edward R. Showalter as a director and then only to the extent cash flow permits and such reimbursement does not materially affect the Company's ability to complete construction on its Phoenix site. The Committee will submit the question of such reimbursement to a vote of the shareholders. [Front of the proxy] THIS PROXY IS BEING SOLICITED BY THE SHAREHOLDERS COMMITTEE OF HOLLYWOOD TRENZ, INC. To Be Used to Act by Written Consent Without A Meeting October 1, 1996 The undersigned hereby revokes all prior proxies given by the undersigned and he hereby appoints Eric T. Landis, Michael Noveilli and Scott MacCaugheren, or any one of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes them and each of them to represent the undersigned to act by written consent without a meeting for the purposes set forth below with all powers which the undersigned would possess if personally present, with respect to all of the shares of Hollywood Trenz, Inc., standing in the name of the undersigned, upon such business as follows: 1. Amend the Company's Bylaws to remove amendments after April 1, 1996, (if any), which impose certain requirements upon shareholders who wish to nominate a person to the Company's Board of Directors or bring any other business before an annual meeting of the shareholders of the Company. (As of this date, there have been no such amendments to the Committee's knowledge). [ ] For [ ] Against [ ] Abstain 2. Remove the following Directors: Edward R. Showalter Robert E. Burton, Jr. Gregory A. Smith [ ] For [ ] Against [ ] For the Removal of All Except INSTRUCTIONS: To withhold authority to act for the removal of any director, mark the "For All Except" box and write the name(s) of the director(s) as to whom your action is to be withheld in the space provided below. - -------------------------------------------------------------------------------- 3. Elect or appoint the following Directors for a one-year term: Ronald D. Olsen Joseph B. LaRocco Alfred Hahnfeldt [ ] For [ ] Against [ ] For All Except INSTRUCTIONS: To withhold authority to act for any nominee, mark the "For All Except" box and write the name(s) of the nominee(s) for whom your action is to be withheld in the space provided below. - -------------------------------------------------------------------------------- [This is the back of the proxy] THIS PROXY IS SOLICITED ON BEHALF OF THE SHAREHOLDERS COMMITTEE OF HOLLYWOOD TRENZ, INC. THE COMMITTEE RECOMMENDS AFFIRMATIVE VOTES ON PROPOSALS ONE, TWO, AND THREE. CONSENTS TO ACTION WILL BE EXECUTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, A CONSENT TO ACTION WILL BE EXECUTED ON BEHALF OF THE SHARES REPRESENTED IN FAVOR OF PROPOSALS ONE, TWO, AND THREE. PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. - --------------------------- RECORD DATE SHARES (signature) X: Date: -------------------------- -------------------- (signature) X: Date: -------------------------- -------------------- NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. APPENDIX "A" ------------ INFORMATION ABOUT THE COMMITTEE AND THE NOMINEES ------------------------------------------------ All securities of the Company set forth in this Appendix are owned beneficially by the persons indicated in the table below, except as described in the table. No funds were borrowed to acquire such shares. No member of the Committee or Nominee is or has been within the past year a party to any contracts, arrangements or understandings with any person with respect to any securities of the Company including, but not limited to joint ventures, loan or option arrangement, puts or calls, guarantees against loss or guaranties of profit, division of losses or profits or the giving or withholding of proxies except the agreement with Michael Noveilli previously set forth above. Names and Business Addresses of Committee ------------------------------------------ Michael Noveilli Kenneth Callison Dutchess Capital Partners Allied Health Association 380 Lexington Avenue 7936 East Arapahoe Court Suite 517 Suite 2300 New York, NY 10168 Englewood, CO 80112 Scott MacCaughern Eric T. Landis Round Hill Securities Merit Capital Associates, Inc. 5263 Heather Lane 1221 Post Road East Park City, UT 84060 Westport, CT 06880 Names and Business Addresses of Nominees ---------------------------------------- Ron Olsen c/o Merit Capital Associates, Inc. 1221 Post Road East Westport, CT 06880 Alfred Hahnfeldt Joseph B. LaRocco Spinneret Financial Systems, Ltd. 1055 Washington Boulevard One Marshall Street Stamford, CT 06901 Suite 206 South Norwalk, CT 06854
Purchases and Sales of Shares of Company Common Stock, No Par Value ------------------------------------------------------------------- Committee Member Date Buy/Sell Number of Shares ---------------- ---- -------- ---------------- Shares - ------ Eric Landis 7/11/95 B 45,000 7/14/95 B 5,000 7/31/95 B 100 9/28/95 B 15,000 10/2/95 B 6,450 10/3/95 B 5,000
10/16/95 B 20,000 11/15/95 B 20,000 12/14/95 B 50,000 12/14/95 B 50,000 12/20/95 B 50,000 2/9/96 B 20,000 2/12/96 B 20,000 2/23/96 B 50,000 2/26/96 B 50,000 3/6/96 B 9,000 3/7/96 B 14,000 3/8/96 B 30,450 3/11/96 B 3,000 3/11/96 B 5,000 3/12/96 B 4,000 3/12/96 B 3,000 3/13/96 B 5,000 3/18/96 B 10,000 3/26/96 B 7,000 3/27/96 B 33,000 3/27/96 B 30,000 3/29/96 B 97,000 4/22/96 B 57,000 4/29/96 B 3,000 5/31/96 B 7,000 7/11/95 S 20,000 2/16/96 S 55,000 3/13/96 S 45,000 3/26/96 S 7,000 3/28/96 S 30,000 5/31/96 S 7,000 6/10/96 S 60,000 William Landis 8/11/95 B 20,000 (father) 11/7/95 B 5,000 11/13/95 B 15,000 12/14/95 B 50,000 12/20/95 B 100,000 1/31/96 B 135,000 3/13/96 B 45,000 3/26/96 B 70,000 3/27/96 B 30,000 3/28/96 B 10,000 3/29/96 B 100,000 4/30/96 B 5,000 4/30/96 B 20,000 5/1/96 B 85,000 5/2/96 B 30,000 5/3/96 B 20,000 5/6/96 B 14,000
5/6/96 B 30,000 5/7/96 B 20,000 5/7/96 B 30,000 5/8/96 B 10,000 5/8/96 B 10,000 5/9/96 B 15,000 6/10/96 S 19,000 Ronald D. Olsen/2/ 7/24/95 B 6,550 2/9/96 B 25,000 Scott MacCaughern (owner of record or beneficially owned) Eileen MacCaughern 4/5/95 B 1,000 (mother) 4/6/95 B 100 4/6/95 B 2,000 8/30/95 B 17,400 Barbara Pires 4/25/85 B 2,000 (sister) 5/2/95 B 1,475 Linda Lee 10/18/96 B 2,450 (sister-in-law) Michael Noveilli 4/6/96/3/ B 79,000 (individually) 5/6/96 S 10,000 5/8/96 S 10,000 Mr./Mrs. Michael 8/22/95 B 10,000 Noveilli, Sr. 1/18/96 B 10,000 (father and mother) Kenneth Callison 9/27/94 B 30,000 9/28/94 B 20,000 11/7/94 B 5,000 12/15/94 B 2,650 12/16/94 B 2,350 6/11/96 B 25,000 6/12/96 B 51,000
- ---------------------------- /2/ Also a Nominee for director /3/ Shares journaled from Allied Capital on April 6, 1996. Nominees for Director --------------------- Alfred Hahnfeldt 1/26/95 B 10,000 2/17/95 S 7,000 2/24/95 S 3,000 3/13/95 B 3,500 3/30/95 S 3,500 Joseph B. LaRocco 8/19/95 B 10,000 1/5/96 B 15,000 2/9/96 B 25,000
EX-99.1 2 EXHIBIT A EXHIBIT A --------- Article printed in The Phoenix Business Journal, June 21, 1996 Theme-park developer faces mounting bills, legal action By ILAN RUBER The Business Journal The glitter and stars surrounding the opening of a $3.5 million Hollywood-themed park in Phoenix are fading, as the company behind the project faces unpaid contractors and legal action by a group of its shareholders. Ft. Lauderdale, Fla.-based Hollywood Trenz Inc., is building a 34,000-square- foot theme park at 2710 W. Bell Road that includes a theme restaurant, laser-tag arena and virtual-reality arcade games. The project reportedly is near completion and company president and CEO Ed Showalter said the park will open by the end of summer. But the former project coordinator for the site at Interstate 17 and Bell Road, said there still is about $1 million worth of construction needed for the part to be 100 percent complete. And he says contractors working on the project haven't been paid for their work. "This guy's out of control," Spencer Finseth who acted as project coordinator for Hollywood Trenz, said of Showalter, "He's bounced checks on me." Finseth left the project early in May, and said he still is owed between $5,000 and $7,000 from Showalter. Only between 10 percent and 15 percent of the construction bills have been paid as of early May and about 50 percent of the construction was completed when he walked off the job, Finseth said. A number of subcontractors also have quit and have filed liens against the property, he said. Coleman Plumbing in Phoenix received a cashier's check for about $17,000 but still is owed $68,000, a company spokeswoman said. Ray Lewis of Adobe Drywall in Phoenix said he never was paid from the beginning for work on the park. He said he still is owed more than $50,000. "I really felt concerned that the subs get paid," Finseth said. "When one of the smaller subs get stiffed for $60,000 to $70,000, it could close them down." Last week, a Delaware court lifted a temporary restraining order that prohibited Hollywood Trenz from issuing certain shares of stock to individuals, such as contractors, electricians and plumbers, in exchange for services. Vic Zimmermann, an attorney representing the shareholder group, said a complaint had been filed June 10 against the company and its directors for misuse of funds and misuse of the company's capital stock. "They (Hollywood Trenz) issued stock -- to consultants who we don't think were bona fide consultants," he said. The shareholders allege the stock was not being issued for actual consulting services, but rather for the company's capital-raising actions, according to Charles Butler, another lawyer representing the stockholders. It wasn't going to the people that it said it was going to," but to keep the business up and running, Butler said. The company issued stock for services because it didn't have the cash up front to pay for the work, Zimmermann said. "Not only did they not have the cash, which is not disputed, but some of the stock which allegedly was issued for bona fide services, the services were never performed." Proceeds from the stock, registered May 17 with the Securities and Exchange Commission, were to be used for employees and consultants and employee-benefit plans, Butler said. He said by law, the stock is not to be used in a capital- raising transaction. The ban to issue stock was filed Monday after Hollywood Trenz representative submitted affidavits that said the restraining order forced the company to halt its operations in Phoenix. According to Butler, the Delaware Chancery Court said it had assumed there were no operations in Phoenix. "Mr. Showalter's representatives responded to the motion with Showalter's affidavits, which we feel are completely erroneous." In light of that, the court rescinded the restraining order. But Butler said the 10-day ban allotted plaintiffs' attorneys time to collect evidence and prepare to file for a preliminary injunction to stop the stock issuance. "I haven't filed for a preliminary injunction, yet," he said. Zimmermann said he expected to file a motion for the preliminary injunction on Wednesday. The initial order was handed down without notice to Showalter. Zimmermann said that was because the shareholders believe the stock was in the process of being issued and once issued, it would be impossible take further action. Showalter was not present at the hearing and in a telephone interview Wednesday said he would not comment further on the matter. He did issue a statement vindicating himself and Hollywood Trenz of the shareholders' allegations. "The purported shareholders group that brought the suit did not, in fact, represent the shareholders of Hollywood Trenz, but was comprised of a group of dissident individuals who were seeking control of the company for their own self - -serving and personal gain," Showalter said. "This group attempted to use the court and the media to further their scheme by making erroneous statements about the company and its directors." Part of the preliminary injunction suit will ask the court to order a stockholder list. The shareholders committee was formed after the original suit was filed by Ken Callison, a Littleton, Colo., stockholder. The group consists of people who have an interest in the stock and the company, Zimmermann said. Callison was not available for comment. Chip Block, a Denver-area real estate agent in a transaction involving Hollywood Trenz, said he, too, has had trouble with Showalter and the company. "It was difficult to get a deal done up here given the financial condition for the company," said Block, who leased a space for the Hollywood Trenz concept in Littleton. He said he leased a 37,000-square-foot building in December for an entertainment center, but Showalter did not pay the $12,000 security deposit or come up with construction plans for the building's retrofit as required by the landlord. Block said the landlord since has canceled the lease. Because of the Denver lease deal going sour, Block lost out on his commission and said he'd never work with Showalter again. "Once you go around the block with Ed, you don't do it again," Block said. In addition to the injunction on issuance of certain shares of stock, the lawsuit is asking the court to set a date for an annual meeting of shareholders within the next 60 days. Directors for the company allegedly were appointed by Showalter, but never elected, Zimmermann said. Ralph Shattuck, a shareholder who purchased about $100,000 worth of Hollywood Trenz stock said such a meeting never has been held. Shattuck said he has a promissory note for $20,000 from Showalter that was to be paid in November 1994. He has not received his money. "He promised to have it taken care of before they opened up the doors. Now I questioned why I bought into this $100,000 fiasco." Hollywood Trenz stock is trading at about 10 cents a share, down from about $17 a share when the company went public in 1993. "A lot of investors have lost money," Zimmermann said. "That's really the bottom line." EX-99.2 3 EXHIBIT B EXHIBIT B --------- Article printed in The Miami Herald Sunday, April 16, 1995 High-tech fun center is having rocky start Past difficulties dog owner in new venture By JAMES McNAIR Herald Business Writer On a vacant knoll in suburban Denver, just above the shine of traffic on Interstate 25, Edward R. Showalter Jr. hopes to lay his greatest golden egg. Under on big roof, the Fort Lauderdale man would create a $14 million, six-story shrine of high-tech entertainment for all ages. Among the draws: A massive laser tag arena, a motion-simulator theater, a virtual-reality center, a two story video wall, two jungle gyms, two stages, a retail store, private party rooms and a 400-seat restaurant with four bars. Denver's would be the first. Then Sunrise, Orlando, Atlanta and Las Vegas. By 2001, Showalter plans to open 51 Hollywood Trenz Family Entertainment Centers. If people come and spend as he says they will, his company, Hollywood Trenz Inc., will gross $1.5 billion a year. That's the plan. Now for the reality. By its own account, Hollywood Trenz was to have broken ground for the Denver center on a least four occasions in 1994 -- but didn't. A financing deal announced last September fell through and hasn't been replaced. Meanwhile, three company officers have bailed out and the company's publicly traded shares have plunged in value, from $17 last April 22 to $2.62 on Thursday. (The market was closed for Good Friday.) "The investment community has gotten totally had on this deal," said Michael Pinson, publisher of Investment Digest newsletter in Clearwater. Pinson's remark would come as no surprise to many people who have had business dealings with Showalter. In the last seven years, court records show, Showalter has defaulted on loans, written bad checks, stiffed landlords, cheated on his taxes and defied court judgments. He declared personal bankruptcy in 1990. He is serving a 15-year probation term for grand theft from an Orlando lender in 1988. "He's like the ultimate white collar crook," said Gary Neville a Santa Monica, Calif., architect who guaranteed a $400,000 loan to a Showalter company in Hilaleah, then lost it when Showalter defaulted and filed for bankruptcy. Showalter's launch of Hollywood Trenz raises serious questions about how a company president can shelter a shady past from the investing public. Unless they did their own sleuthing shareholders of Hollywood Trenz would have had no knowledge of Showalter's misdeeds. In documents filed with the Securities and Exchange Commission, Hollywood Trenz makes no mention of Showalter's bankruptcy filing, his no-contest plea to grand theft and most of the lawsuits. The company's annual report for 1993 says Showalter ran American Movie Retail Inc. in Fort Lauderdale from 1989 to 1992. It doesn't say the store was booted out of shopping centers in Coconut Grove and Oakland Park for falling behind on the rent. Charles Senatore, head of the SEC's regional office in Miami, would not talk about Hollywood Trenz's disclosure requirements. Leslie Croland, a former SEC attorney now in private practice in Miami, said public companies must disclose any information from the past five years that is "material" in helping reasonable investors decide to buy, hold or sell the stock. "If there was a bankruptcy of any officer or director in the past five years, it has to be disclosed." Croland said. "The no-contest plea is debatable." Hollywood Trenz has not yet filed its annual report for 1994. But a filing for the nine month's ended Sept. 30 reveals a company in desperate shape: Sales -- from the company's only operation, a shirts-and-paraphernalia store in Sarasota - -- were $63,706. Its net loss was $2 million. Moreover, its current debts -- those due in a year -- were $4.6 million, while its current assets were $122,299. The filing also makes this unsurprising disclosure: The SEC is looking at its financial statements. Who is Showalter? Although he has an electrical engineering degree from Penn State, Ed Showalter is Hollywood all the way. Showalter, 44 years old and divorced, flies around the country on a Lear jet. When he's not driving his red Mitsubishi 3000GT, he's often in the back of a limousine. He lives rent-free in a $810,000 house on the Intracosatal Waterway in Pompano Beach. Hollywood Trenz owns the house. With his bushy mustache, pony tail, pointed cowboy boots and outgoing personality, Showalter is easy to warm up to. Acquaintances call him a born promoter. "Ed comes across with a lot of boyish charm, and he's very disarming," said Scott Frazier, an Orlando attorney who sued Showalter in 1988 on behalf of a lender, National Factors Ltd. When conversations turn to business, Showalter draws rapt attention. Neville, the Santa Monica architect, recalled that Showalter talked big numbers and big projections. But he said it was Showalter's determination and knowledge of the Hollywood licensing business that impressed him most of all. Showalter, who did not respond to repeated requests for interviews, left his engineering career in 1985, according to the Hollywood Trenz business plan. He moved from Columbus, Ohio, to Miami. His first venture, America's Favorite Clothing, was a wholesaler of garments bearing the likeness of such characters as Batman, Roger Rabbit and Cathy. Recession takes toll America's Favorite Clothing fell victim to recession in the later 1980s, the business plan states. When Showalter didn't pay his debts, creditors took him to court. National Factors, which financed his inventory, had him charged with grand theft in Orlando and sued for the recovery of more than $200,000. Showalter pleaded no contest to the charge. He stayed out of prison by agreeing to repay National Factors $149,000 over a 15-year period. "Unfortunately, it seemed to be the only way to get a penny out of Ed," said Frazier, National's attorney. As of last week, Showalter owed $122,095, said Gary Rogatz, a senior administrator with the Florida Probation and Parole office in Fort Lauderdale. He has a strong incentive to keep paying. "If he's not in compliance, then we would send a violation report to Orlando and let them know, then the judge would issue a warrant for his arrest," Rogat said. New companies As America's Favorite Clothing faltered, Showalter started new with American Movie Retail. It sold Hollywood and cartoon theme shirts and merchandise in at least two locations, CocoWalk in Coconut Grove and Yates Plaza in Oakland Park. He was evicted from both. He still hasn't paid off a $97,000 judgment from the CocoWalk lawsuit. Things weren't much better in Showalter's personal life. In 1991, he was chased out of his home in Oakland Park's Oak Tree Country Club for failing to pay his rent. "The sheriff actually had to remove his things and put them on the street," said Salome Zikakis, attorney for Showalter's landlord, Guy Shoemaker. Not one to brood, Showalter created another company -- Hollywood Trenz -- in 1993. This time, it was a company whose shares were traded in the stock market. Specifically the NASDAQ Electronic Bulletin board, realm of obscure, low-priced "penny" stocks. Hollywood Trenz was formed in one of those backroom mergers that enable a company to go public without going through an exhaustive SEC review. A publicly owned shell company called Dimension Capital "bought" Interstate Finance & Trust, a real estate company, from Showalter. For compensation, he received a majority share of Dimension's stock. He change the merged company's name to Hollywood Trenz. Lavish entertainment centers The stage was set for Showalter to build his grandiose Hollywood Trenz Family Entertainment Centers. To raise money, he flew to investment seminars in Boston, San Francisco and Las Vegas, touting the stock to brokerage houses, newsletter publishers and investors. Showalter's ebullience worked wonders. "They were talking about laser tag, virtual reality and a Planet Hollywood type of environment. I thought it was a very exciting project," said Pinson, the newsletter publisher. From his fifth-floor office in the Roselli Building in Oakland Park, Showalter hired employees and had the first blueprints for the entertainment center drawn. A flurry of press releases ensued last spring. One announced an agreement to buy nine acres near Denver. Another set the groundbreaking for June 1994, the grand opening by year end. The announcements set fire to Hollywood Trenz shares last April, but interest was short-lived. In the real Hollywood entertainment executives smelled a hoax. Last spring, Showalter talked with actress Shelley Duvall about a deal in which Duvall would lend her name, image and talent to a children's fantasy theater in Hollywood Trenz's Denver center. Duvall's business partner at the time, Christian Eddleman, said no contract was ever signed. But he said Showalter dropped Duvall's name everywhere he went. "He's essentially using that false pretense to open doors in Hollywood," Eddleman said angrily. "Anybody other than Shelley would have had him for dinner." Real estate purchases Another indication of trouble was Showalter's struggle to pay for real estate he had bought through Interstate Finance & Trust -- now carried on Hollywood Trenz's books. Interstate had borrowed $3.5 million to buy three Florida properties. One was the $810,000, four-bedroom pool house where Showalter lives rent-free in Pompano Beach. The others were in Brevard County: a 34-acre site in Melbourne and two acres of waterfront property in Cocoa. According to filings with the SEC, Hollywood Trenz planned to build homes on the Brevard County parcels. It never happened. The U.S. Fish & Wildlife Service told the company endangered gopher tortoises and scruljays lived on part of the 34-acre tract. The properties in Pompano Beach and Cocoa went into foreclosure. They still are. "Bottom line is he just didn't pay," said Jack Korthals, who sued on behalf of the seller, W. Burke Allen of Fairfax, Va. The real estate problems had no apparent effect on Showalter's enthusiasm to become the H. Wayne Huizenga -- his personal hero -- of the family entertainment industry. In his business plan, Showalter forecast opening five centers by the end of 1995, 51 by the end of 2000. Each center, he predicted, would have an average daily attendance of 2,657 people, each spending an average of $31. With the completion of the 51st center, Hollywood Trenz would general $1.5 billion a year in sales and $306 million a year in net income, or $1 of profit for every $5 sale. But in mid-1994, Hollywood Trenz barely had the money to build a chain of hot dog stands, let alone a chain of family entertainment centers at $14 million a pop. In October, the company announced a $14 million financing deal from First Financial of Boston, but it was never finalized. It raised $1.8 million for the liberal issuance of new shares in the first nine months of 1994., but the money went right back out in expenses. As of Sept. 30 Hollywood Trenz had $17,028 in cash. Meanwhile, its stock price had fallen to the 40-cent range, prompting the company to declare a 1-for-10 reverse stock split that elevated the price to a more respectable $4. It was all a house of cards to Showalter's employees. Three former vice presidents - two of whom are suing Hollywood Trenz for back pay -- said Showalter spent much of his time traveling to raise money that never seemed to add up. "I thought we had a good thing going," said Robert Tansill, who quit as vice president of construction last summer and filed suit after receiving seven bounced paychecks. "I didn't think it was a scam, but they haven't done anything and they keep promising they're going to build this thing in Colorado." "Showalter's all talk," Tansill said. "he's great at putting out press releases, but it's nothing but a way to raise money. He doesn't have the savvy or backing to (build the Hollywood Trenz centers)." Darrell Wilde left as vice president of operations in January and sued for nearly $20,000 in back pay. He said ground-breaking for the Denver center was perpetually "two weeks away." "I don't know if it's ever happen." Wilde said. "I'm pretty sure it won't happen, but I don't think (Showalter) is willing to give it up." Las November, the Arapaho County Commission in Colorado gave final approval to the Hollywood Trenz project. The company has yet to obtain a building permit, though. County Planner Ed Clark wonders if that will ever happen. "I don't know whether to believe them or not," Clark said. "It could be all smoke and mirrors." Expecting progress Bill Howard, a consultant hired to represent Hollywood Trenz in Colorado, said the project is still on as far as he is concerned. "To the best of my knowledge, they're solidifying their financing and, when they do, they'll move forward," Howard said. I'm not particularly alarmed." Pinson, the newsletter publisher, is alarmed. He issued a sell recommendation on April 3. He wrote that Showalter refused to return telephone calls or answer written questions about the status of the project. "They're promoting their stock, which is perfectly legitimate and common," Pinson said in an interview, "but it's another thing to haul out investor packages that they're going to break ground in 30 days and they've got $14 million in financing -- and it never happens." Ted Sobo, a Fort Lauderdale lawyer, won a court case against Showalter and America's Favorite Clothing in 1989 over an unpaid $10,000 business loan from Stephen I. Levy. He said Showalter still didn't pay up. "I don't know anybody in his right mind who'd want to invest in a company run by Mr. Showalter," Sobo said. A HISTORY OF DIFFICULTIES Here are some of the bigger legal problems involving Edward R. Showalter Jr., president of Hollywood Trenz Inc. since 1988. . 1988: National Factors Ltd., an Orlando-based inventory lender, wins a civil judgment against Showalter and his Hialeah-based garment company Jazzle's for more than $200,000. The same year, the state attorney's office in Orlando uses the case to file a grand theft charge against Showalter. Showalter pleads no contest, is ordered to pay $149,000 in restitution and is put on probation for 15 years. More than $122,000 remains to be paid. . 1989: The Internal Revenue Service files a lien against Showalter for failing to remit $8,835 in withholding taxes due from an unidentified company of his in 1987. The taxes remain unpaid. . 1990: Gary Neville, a Santa Monica, Calif. developer sues Showalter for $381,115. Neville said he had guaranteed a loan for Jazzle's and, when Showalter defaulted, was held accountable for the note. . 1990: Showalter files bankruptcy in Florida. He lists $938,415 in debts, $50 in cash on hand and a "watch, jeans, shoes and socks" worth $100. The filing wiped out his debt to Neville. . 1990: David Margolis, general manager of O&M Financial in Miami, sues Showalter and his America's Favorite Clothing company for allegedly defaulting on a $112,500 loan. Margolis dropped the suit and has never been repaid. . 1990: A Broward Judge orders Showalter to repay $10,000 to businessman Stephen I. Levy to satisfy a loan to America's Favorite Clothing. Levy's lawyer said Showalter never paid. . 1991: Showalter is evicted from his home in Oakland Park. . 1991: Another Showalter company, American Movie Retail, is evicted from CocoWalk in Coconut Grove and ordered to pay $97,000 to the landlord. CocoWalk's lawyer said the debt remains unpaid. . 1993: Robert Tansill, a former vice president of Showalter's Hollywood Trenz Inc., files a civil fraud suit against Showalter for unpaid wages. One year later, another Hollywood Trenz vice president, Darrell Wilde, files a similar suit. The suits are pending. . 1995: A Virginia Judge returns a default judgment against Showalter for failing to live up to an agreement to provide businessman W. Burke Allen with bailout financing for a distressed shopping center in Maryland. The amount of the judgment has yet to be set. In a related case, Allen and Florida Realty Mortgage Trust of Miami file foreclosure suits against Hollywood Trenz for allegedly defaulting on payments for a waterfront house in Pompano Beach and a waterfront lot in Melbourne that Allen had sold to Hollywood Trenz. The suits are pending. . 1995: Certified Manufacturing Co. of Pleasantville, N.Y. wins a lawsuit against Hollywood Trenz, in small claims court for failing to pay for items such as Daffy Duck magnets and Bugs Bunny cookie jars. Certified said Hollywood Trenz hasn't paid. EX-99.3 4 EXHIBIT C EXHIBIT C --------- IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY KENNETH CALLAISON, ) ) Plaintiff, ) ) C.A. No._____ v. ) ) EDWARD R. SHOWALTER, ) ROBERT E. BURTON, JR. ) GREGORY D. SMITH, ) ) Defendants, ) ) and ) ) HOLLYWOOD TRENZ ) a Delaware Corporation ) ) Nominal Defendant. ) AFFIDAVIT --------- STATE OF COLORADO ) : ss.: Denver COUNTY OF DENVER ) TIMOTHY BRANNON, being duly sworn, deposes and says: 1. I was employed by Hollywood Trenz, Inc. ("Hollywood Trenz" and/or the "Company") from August 1994 through May 9, 1996. I was first introduced to the Company in April, 1993 when I was working as a stockbroker with Strategic Research in Denver, Colorado. Showalter had come to our firm after merging the Company into a public shell and wanted our assistance in obtaining a listing on the National Association of Securities Dealers "Bulletin Board" so that there would be a public market for the Company's stock. 2. After assisting Showalter in obtaining a listing, I began to get more involved in the Company by performing certain public relations and other services on the Company's behalf. At various times Showalter offered to sell registered stock of the Company at a discount if I could find buyers. I assisted in these efforts and did in fact find buyers of the Company's stock. I was always assured by Showalter and Robert Burton, a key executive with the Company and former law partner with a prestigious firm, that there was nothing improper with this procedure. I did not know at the time that I had been finding buyers for stock that had been registered on Form S-8. I subsequently became aware of this fact after being employed by the Company. 3. After attending the opening of the Company's first retail outlet in Sarasota, Florida in February, 1994, I was approached by Showalter as to whether I would be interested in coming to work for the Company full time at a salary of $10,000 per month. After further discussions I agreed and went to work for the Company full time in August, 1994. 4. My job from the outset was as General Manager, in charge of operations. I had responsibility for the day to day operations of the Company. Within approximately three weeks after starting the job, it was obvious the Company was not in a position to continue my agreed upon salary and I was promised stock as compensation. 5. Within a month after my arrival at Hollywood Trenz, I was told that Hollywood Trenz would be filing a Form S-8 to register the issuance of common stock. I was told by Showalter that it would be necessary to register the stock in my name. I was informed by Messrs. Showalter and Robert Burton that this was proper and legal to register the stock in the name of someone who was associated with Hollywood Trenz, even though it was intended that the stock would be parceled out to various individuals and entities after it was registered and even though some of these individuals would not have performed services for their stock. I was aware that some of the ultimate recipients would not have performed services since I was asked by Showalter to find individuals who would be willing to buy the stock at a discount to the market price. 6. On September 14, 1994, a Form S-8 was filed to register the issuance of 1.2 million shares in my name. A consulting agreement between myself and the Company was attached as an exhibit stating that the shares were being registered in my name for services performed or to be performed by me. Although I knew that the stock would not be retained by me and would be transferred to various other individuals, I was assured by Showalter and Burton that there was nothing wrong with this arrangement. 7. Immediately following the registration of the shares in September of 1994, and before the shares had been issued in my name Showalter requested that I find individuals who would buy the stock at a discount. After being assured by Showalter and Burton that this was legal I did so. Showalter then instructed an officer of Hollywood Trenz, Tonya Hickman, to have the transfer agent of Hollywood Trenz transfer virtually all of the shares to other individuals and entities rather than to me. Ms. Hickman was a corporate officer at the time in the Florida office. I was aware that she was so instructed since she would send me copies of her correspondence to the transfer agent. At the time, I did not know who the individuals and entities (to whom the stock was transferred) were or why they were receiving shares other than the individuals I had convinced to buy the stock. 8. On November 22, 1994, I was again told that a Form S-8 had been filed and 300,000 shares were registered in my name. A Consulting Agreement between myself and Hollywood Trenz was again filed as an exhibit to the S-8. Again, I was assured by Showalter and Burton that this was perfectly legal even though I knew I would not be retaining the shares and that in fact they would never be issued in my name. 9. Immediately following the registration of the shares in November of 1994, Showalter again instructed Tonya Hickman to have the transfer agent of Hollywood Trenz transfer virtually all of the shares to other individuals and entities. Again I had helped sell some of the stock after being assured by Burton and Showalter that the procedure was legal. I believe that it may have been at this point that Showalter asked me to deal with the transfer agent directly since they would no longer accept the request of others to issue the Form S-8 stock but wanted the representations of the individual in whose name it had been registered. 10. On July 15, 1995, a Form S-8 was filed registering 1.8 million shares in my name. A Consulting Agreement was again attached between myself and the Company and again I was assured by Showalter and Burton that this procedure was proper and legal. 11. Immediately following the registration of the shares in July of 1995, Showalter instructed me to have the transfer agent of Hollywood Trenz transfer virtually all of the shares to other individuals and entities. Again I had helped find some buyers of the shares at a discount, after assurances from Showalter and Burton and they were issued shares although they had not performed services for those shares. 12. Shortly after that date, in August or September of 1995, I was again told that 3.5 million shares would be registered in my name under a Form S-8. At or about that time, I decided to seek legal advice concerning the propriety of this practice and I consulted with an attorney by the name of Samuel Wing. After discussing the situation with Mr. Wing, including the use of my name on prior filings of the Form S-8, I declined to execute a Consulting Agreement which had been drawn between Hollywood Trenz and myself and informed Showalter and Burton I would no longer allow the use of my name for these arrangement. Thereafter, I was aware that the Form S-8 was filed in the name of Euro-International Designs. I am personally aware that Euro-International Designs is a company that is owned by Mr. Showalter's wife, Tracy Braime. 13. I have become aware that Hollywood Trenz has recently filed another S-8 which registers shares in the name of several individuals or entities, including Euro International Designs. I was informed by Showalter's wife, Tracy Braime, the owner of Euro International Designs, on or about May 4, 1996, that the only services which she had provided to the Company were limited to inserting some photos of Hollywood celebrities into glass table tops and picture frames. This was in direct response to a question from me intended to find out what she or her company was doing in exchange for being issued shares. 14. I have reason to believe, based on my own personal experience and my conversations with Ed Showalter, that shares are being issued as a result of the S-8 offerings to individuals and/or entities who have not been the bona fide provider of services to the Company. I believe that Mr. Showalter has continued to use the Form S-8 to register shares of Hollywood Trenz which are then transferred to individuals or entities with whom he has a close personal relationship and who have an arrangement with him to let him participate in the proceeds received by the subsequent sale of the stock. I know that shares registered to Euro International Designs have then been issued to companies who have helped Showalter with personal services such as secure financing for his personal residence. I am specifically aware that 300,000 shares registered in the name of his wife's company were then transferred to Stevco Inc. in December, 1995 in exchange for personal services rendered to Showalter. /s/Signature appears here. ------------------------------- Timothy Brannon Sworn to before me this ___ day of June, 1996. - ----------------------------- Notary Public EX-99.4 5 EXHIBIT D EXHIBIT D --------- IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY KENNETH CALLISON, ) ) Plaintiff, ) ) v. ) ) EDWARD R. SHOWALTER, ) ROBERT E. BURTON, JR., ) GREGORY D. SMITH, ) C.A. No. 15036 ) Defendants, ) ) and ) ) HOLLYWOOD TRENZ, INC., ) a Delaware corporation, ) ) Nominal Defendant. ) FIRST AMENDED INDIVIDUAL AND DERIVATIVE COMPLAINT FOR INJUNCTIVE RELIEF ------------------------------------------ Plaintiff Kenneth Callison, by his undersigned attorneys, brings this action individually and derivatively on behalf of Hollywood Trenz, Inc., a Delaware corporation ("Hollywood Trenz," "HTNZ," or the "Company") to enjoin the continued fraud, mismanagement and improper dilution of stock ownership by the current directors of the Company. Plaintiff alleges as follows: Introduction ------------ 1. Edward Showalter ("Showalter"), for all intents and purposes, is Hollywood Trenz. The Board of Directors of Hollywood Trenz exists in name and on paper only. There is no managerial entity available to rein in Showalter's massive, sustained, and debilitating fraud on the public, the corporation or its shareholders. This Court's unequivocal intervention is needed to salvage the dire circumstance this company faces and to stop a fraud upon the investing public. 2. Showalter, the Chairman of the Board of Directors and President of Hollywood Trenz, a sophisticated con artist who has concealed his past and current misdeeds from the investing public. Among the more glaring deficiencies in the management and operation of Hollywood Trenz is the fact that it has never held an annual meeting of shareholders -- a circumstance that plaintiff seeks to remedy through a separate action pursuant to 8 Del. C. (S) 211 filed on June 6, ---- -- 1996. But until the stockholders can hold an honest election of directors, plaintiff needs this Court's intervention to stop the unlawful conduct by Showalter -- conduct undertaken with the apparent knowledge and acquiescence of the remaining two directors. THE PARTIES ----------- 3. Plaintiff Kenneth Callison is and, since June of 1994, has been a shareholder of Hollywood Trenz, currently holding approximately 24,000 shares. 4. Defendant Hollywood Trenz is a Delaware corporation. It was initially known as Dimension Capital, Inc. ("Dimension"), and existed as a publicly traded shell corporation. In 1993, Dimension acquired all of the stock of Interstate Finance and Trust Co. ("Interstate"), a private company owned and operated by Edward Showalter. In the acquisition by Dimension, Showalter obtained control of a publicly traded entity through a transaction that did not have to withstand scrutiny by the SEC or underwriters' counsel, a process he would not likely have withstood given his background. Showalter then changed the name of Dimension to Hollywood Trenz. 5. Defendant Showalter is the Chairman of the Board of Directors, President and CEO of Hollywood Trenz. He is also a convicted felon (grand theft), a tax cheat, and a check kiter who declared personal bankruptcy in 1990 to avoid paying legal judgments against him. 6. Defendant Robert Burton ("Burton") is Vice Chairman of the Board, Chief Operating Officer and Secretary of the Company. Formerly a partner in the Ohio law firm of Squire, Sanders & Dempsey, Burton was induced by Showalter to participate both as an investor and as part of the management of Hollywood Trenz. Burton has lost over $400,000, including his retirement savings, as a result of his relationship with Showalter, and he has apparently determined that he is now in too deep and his only hope of recouping his money is to aid and abet Showalter. He has actively and knowingly assisted Showalter in his illegal schemes to issue stock. 7. Defendant Gregory Smith (Smith") is a director of the company and also owns a separate company involved in aircraft charters. Smith has actively participated with Showalter and Burton to authorize corporate waste, gross mismanagement, and fraud. SHOWALTER'S BACKGROUND ---------------------- 8. Showalter's entrepreneurial career began with his formation of America's Favorite Clothing, a garment company. It failed in the mid 1980's and would be unremarkable except for one fact: Showalter ceased business without paying his creditors. One of them sued him for over $200,000. Facing criminal charges for his conduct, Showalter pled no contest to grand theft and was placed on a 15-year probationary term and ordered to make restitution. Showalter has never disclosed his conviction for grand theft in any public filings with the SEC relating to Hollywood Trenz, despite having a legal obligation under applicable SEC rules and regulations to make such disclosure. 9. Also not disclosed to the SEC -- or the investing public -- was the fact that as a consequence of numerous bad business deals, Showalter was so deeply in debt that in 1990 he declared personal bankruptcy. As a director of a publicly traded company, Showalter is required to disclose in appropriate SEC filings the fact of his personal bankruptcy. 10. Each of the above factors -- all certainly relevant to any investor considering whether to entrust his money to a business controlled by Showalter - -- were concealed from the SEC, which is presumably one reason the SEC has launched an investigation into Showalter's activities at Hollywood Trenz. HOLLYWOOD TRENZ -- BUSINESS BACKGROUND -------------------------------------- 11. Hollywood Trenz began as a T-shirt and memorabilia store in Sarasota, Florida. This effort has since closed down completely with, predictably, a judgment by creditors against Showalter for $81,682. Nonetheless, Showalter has been successful in actively promoting Hollywood Trenz as a company that will establish family theme parks to include arcades, laser tag, a toddler's play area, a retail store and theme restaurant. To date, despite issuing millions of shares of stock and raising millions of dollars from investors, development of this idea consists of little more than one shell in a strip shopping center in Phoenix, Arizona. 12. As Showalter began to raise capital for his scheme, he announced that he would open theme parks in Denver and Phoenix. After spending $1.2 million on the Denver effort, Showalter has abandoned it while failing to pay the landlord even the security deposit on the land. At the Phoenix site, there have been some site improvements which have also been abandoned with, again, lawsuits and mechanic's liens in their wake. The company is functionally bankrupt and is being propped up financially only by Showalter's continued fraudulent stock sales to the public. SHOWALTER'S SCHEME ------------------ 13. As described above, the method by which Showalter came to control a publicly traded corporation enabled him to avoid an initial public offering with the attendant review by the SEC and due diligence investigations by underwriters' counsel. By simply merging with an existing publicly traded company, Showalter was able to begin marketing his scheme to the public through the public entity, renamed Hollywood Trenz. 14. Whether the concept marketed by Showalter would have succeeded under different managers remains unresolved. It is clear enough, however, that under Showalter's tutelage, Hollywood Trenz has been an unmitigated disaster for all but Showalter. Shareholders have seen the value of their investment drop like a stone from $17.00 per share in April of 1994 to $.14 currently due to mismanagement and fraudulent dilution of the stock. Creditors, contractors, vendors and former employees all are in some form of litigation with the company. Showalter, meanwhile, routinely rides in limousines, rented Lear jets charged to the Company by Director Greg Smith and resides in an $800,000 house in Florida, all financed for his benefit by the Company with funds derived from the fraudulent registration and sales of stock. 15. Publicly traded companies such as Hollywood Trenz are permitted to register securities that are offered to employees on SEC Form S-8. Under SEC rules applicable to Form S-8 registrations, the term "employee" includes independent contractors working under a written contract. Unlike other registrations, a Form S-8 registration statement is not reviewed by the SEC and is effective immediately upon filing. The issuer -- which must be a publicly trading entity already subject to SEC filing requirements -- benefits from the streamlined registration process while the recipient of the stock benefits from the fact that the stock is freely tradable and thus can be reduced to cash by a sale on the open market. The use of Form S-8 is restricted by law in one respect explicitly: it may not be used by an issuer to ---------------------------------- raise capital. - ------------- 16. Unfortunately, the Form S-8 procedure affords an opening for the unscrupulous. Shares can be registered using Form S-8 and issued to a willing independent contractor/employee/co-conspirator who never performs the services that were to be rendered, keeps only a fraction of the shares for him/herself and "kicks back" the remainder to the issuer or his nominee. The nominee then sells the shares in the public market and turns the proceeds over to the issuer or to insiders for their personal benefit. 17. This is precisely the scheme that Showalter has hit upon. Since October of 1993, Showalter has been to the well of Form S-8 no less than 12 times, causing Hollywood Trenz to issue over 17 million shares of stock to purported "consultants," many of whom never performed services. 18. The scheme has been outlined in some detail by Timothy Brannon ("Brannon"), a former Hollywood Trenz insider who has come forward to explain the fraudulent activity to the SEC and others in his affidavit filed on June 6, 1996 in this case. 19. Brannon was initially hired by Showalter to be a manager. Shortly after his hiring, however, and on four subsequent occasions, Brannon was asked directly by Showalter to sign overlapping consulting agreements with Hollywood Trenz for millions of shares of Hollywood Trenz stock. Brannon was told by Showalter and Burton that he was signing for large blocks of stock to be registered on Form S-8 but that only a tiny fraction of the stock would actually go to him for his personal benefit. Showalter would cause the rest to be issued in the name of various other individuals and entities. Thereafter, with the assistance of Brannon, Showalter would find persons to buy the stock at a discount from the current market price. In other instances, Showalter simply had stock issued to his personal creditors, who could then sell the stock on the open market to satisfy Showalter's obligations to them. 20. For example, based on his personal experience and conversations with Showalter, Brannon has testified under oath that: shares are being issued as a result of the S-8 offerings to individuals and/or entities who have not been the bona fide provider of services to the Company. I believe that Mr. Showalter has continued to use the Form S-8 to register shares of Hollywood Trenz which are then transferred to individuals or entities with whom he has a close personal relationship and who have an arrangement with him to let him participate in the proceeds received by the subsequent sale of the stock. I know that shares registered to Euro International Designs [Showalter's wife's company] have then been issued to companies who have helped Showalter with personal services such as secure financing for his personal residence. I am specifically aware that 300,000 shares registered in the name of his wife's company were then transferred to Stevco Inc. in December, 1995 in exchange for personal services rendered to Showalter. 21. Although the stock registered on Form S-8 was ostensibly for issuance over a period of time as services were rendered under consulting agreements, the fact is that in each instance all of the stock was issued almost immediately upon the filing of the applicable Form S-8. 22. Brannon has personal knowledge that at least one so-called "consultant" in fact performed minimal services for Hollywood Trenz, but nonetheless received several large blocks of stock. That consultant was Showalter's wife, Tracey Braime, doing business as Euro-International Designs. During Brannon's employment with Hollywood Trenz, Showalter's wife admitted to Brannon that she had performed minimal services for Hollywood Trenz. 23. Support for Tracey Braime's comment to Brannon can be found in the fact that the contracts she signed with the company are almost patently a sham. She has signed three separate overlapping consulting agreements with the company to design some of the interior decor of the Phoenix entertainment center, consisting of movie memorabilia. The market price of the stock she was to receive under the contracts had a combined value of some $1.4 million. Braime is a full time college student, majoring in drama. 24. Braime had already contracted to perform interior decorating under contract with the company for three years for a fee/stock equivalent of $960,000 when, without any additional consideration, the company fortuitously signed another three-year contract with Braime to perform exactly the same service, this time for a fee/stock equivalent of $190,000. Braime received yet a third three-year contract only one month later, again agreeing to perform exactly the same services, this time for a fee/stock equivalent of $216,000. 25. Whatever else can be said about Tracey Braime, it is simply not possible that a responsible Board, acting within the scope of its fiduciary responsibilities, could have hired a 24-year-old drama student, who is the wife of the CEO, to be paid well over a million dollars to do decorating. SHOWALTER FRAUDULENTLY LAUNDERS HIS FRAUDULENTLY REGISTERED STOCK --------------------------------- 26. Once Showalter has slipped past the SEC by impermissibly registering stock pursuant to a Form S-8 that he actually plans to use to finance ongoing operations, he still has to bring the stock to market. Since no underwriter would even consider underwriting a Showalter stock offering, he has no legal means to move the stock to an unsuspecting public. Undaunted, Showalter has yet another scheme to move the stock into the market. 27. Showalter directs his "consultants," the recipients of the stock, to direct, in turn, transfers to various nominees of Showalter who own brokerage accounts. In the case of Euro-International Designs, for example, his wife owns an account at D.E. Frey in Denver, Colorado. This account has by far been the one used most often. 28. The "consultant" is instructed by Showalter to direct the transfer agent to transfer the shares. The transfer could be directed anywhere -- to a creditor, a potential investor, a promoter, a personal creditor of Showalter, Showalter's personal accounts or the brokerage of account of Showalter's wife. In many such cases, the recipient of the transferred shares then places the shares in the transferee's brokerage account and lodges "sell" orders on the stock, resulting in cash proceeds to the transferee. Once the proceeds are reduced to cash, Showalter is free to make whatever use of the money he wishes without accountability to the corporation. USING FRAUDULENTLY REGISTERED STOCK TO FINANCE PERSONAL AND CORPORATE BUSINESS --------------------------------------- 29. Showalter has no source of income beyond what he makes in connection with his activities with HTNZ yet his lifestyle would make a Fortune 500 corporate president jealous. He owns an $800,000 home in Florida, sleeps in only the best hotels when he travels, uses private jets, rides in limousines and routinely dines in four star restaurants. Spencer Finseth, a construction project manager lured to work for Showalter, reports that even as a single man he could not keep up with Showalter's pace of late night partying and estimates that it was routine for Showalter to go through at least $1,000 per day in spending money alone. All of that money came from investors who thought they were capitalizing an up-and-coming business. Not only that: approximately three quarters of all issued and outstanding shares of stock of HTNZ was registered using the Form S-8 scheme. 30. Each of the Form S-8 registration statements was signed by all three directors of the Company. Each director was obligated to exercise due diligence in connection with the execution and filing of the Form S-8 registration statements to assure that such registration statements were truthful and contained no materially false or misleading information. Each director had knowledge of the fraudulent scheme for the which the registration statements were filed, knowledge that each purported consulting agreement was a sham, and knowledge that the stock being registered would be issued to persons other than the purported consultants with no valid consideration being paid to the Company. THE THREAT OF IMMEDIATE AND IRREPARABLE HARM -------------------------------------------- A. Showalter's violation of securities laws. 31. It is difficult to assess just how deep a hole Showalter has dug for the company. The fraudulent registrations and fraudulent sales of stock are only part of the total picture of liabilities likely to emerge from a full understanding of Showalter's manipulation of this company. It thus makes little sense to leave the corporation -- on whose behalf this suit is brought -- to successive damage suits against the directors when their stated intent is to continue to break the law. 32. Showalter has exposed the corporation to liability from the SEC for fraudulent registration of the stock. His practice of floating shares into the market through secret brokerage accounts of accomplices also subjects the corporation to potentially enormous liabilities under Section 10(b) and Regulation 10b-5 and various other provisions of both the Securities Act of 1933 and the Securities Exchange Act of 1934. Such exposure constitutes irreparable harm to the company. B. The availability of money damages is doubtful. 33. Defendant Showalter has limited, if any, resources to pay the kind of monetary damages he has caused in this case. Defendant Burton, a prestigious attorney at one time, has been broken on the wheel of Showalter's connivance's and has lost his entire financial nest egg. Each of them is liable for breaches of their duties of loyalty to the shareholders under Delaware law and for violation of the federal securities laws, yet is without means to pay a substantial money damages award. 34. Defendant Greg Smith, while a man of more substantial means than the others, has also often been absent from important decisions that breach fiduciary duties. Plaintiff is comfortable with his allegations of liability against this defendant but is realistic that the probability of a holding of liability on his part so as to give rise to substantial money damages is less than for the other defendants. C. Without an injunction, the Court will be unable to fashion a remedy on behalf of the corporation. 35. There can be no serious doubt about defendants' current plans for raising capital if they are not enjoined: they will continue to register shares fraudulently and sell them to the public fraudulently. 36. If defendants are not enjoined, the shares offered to the public will, most assuredly, enter the market and become indistinguishable from legitimately issued shares. Once this occurs, it will be quite impossible for this Court to rescind the issuances or "unscramble the eggs." In addition, bona fide purchasers for value will have no notice that Showalter is selling stock fraudulently. D. Apart from the securities laws, defendants have violated the Delaware General Corporation Law and intend to do so again. 37. Defendants stated intent to continue to capitalize the company by the use of the consulting agreements registered with the SEC requires that the Court consider the consulting agreements themselves. These agreements, dubious on their face and by their frequency, are deeply suspect in light of the description of Showalter's scheme supplied by Tim Brannon. 38. To the extent these consulting agreements authorize the receipt of stock prior to the rendition of services, they violate both the Delaware General Corporation Law and the Delaware Constitution. 39. To the extent that these agreements grant to the consultant shares of stock that bear no relationship to the services actually rendered, they also violate the Delaware General Corporation Law. E. Issuance of large blocks of stock for little or no consideration violates the rights of existing shareholders. 40. The Company and all bona fide stockholders of the Company, including plaintiff, have been and will continue to be injured by the impermissible issuance of massive amounts of stock for no consideration, the effect of which is the material dilution of the value of the Company's stock. 41. Stockholders of Hollywood Trenz, including plaintiff, have been and will be further injured by the immediate and substantial dilution in the voting power of their stock each time that Showalter succeeds in issuing stock for no or completely inadequate consideration. 42. Plaintiff has no adequate remedy at law. DERIVATIVE ALLEGATIONS ---------------------- 43. Plaintiff brings Counts I, III, IV, V and VI derivatively on behalf of Hollywood Trenz pursuant to Chancery Court Rule 23.1 and 8 Del. C. (S) 327. 44. Plaintiff is and at all times relevant to the matters complained of herein has been a stockholder of the Company. 45. With respect to causes of action that may be derivative in nature, plaintiff has made no demand on the board of directors. 46. Demand on the board of directors would be futile and therefore is excused because all members of the board of directors are active participants in and have personally benefited from the acts alleged in this First Amended Complaint. 47. The acts complained of herein constitute waste of corporate assets and were not the product of an exercise of good faith business judgment by the board of directors of Hollywood Trenz. Count I. Breach of Fiduciary Duties ------------------------------------ 48. Paragraphs 1 through 47 are incorporated herein by reference. 49. As directors, each defendant owed to plaintiff a duty of care with respect his position as manager of the affairs of the company. Defendants have breached their duty of care by: (a) failing to investigate the appropriateness of naming Showalter CEO and president of the company in light of his criminal history, bankruptcy, and gross mismanagement; (b) failing to investigate the legality of registering stock for resale by using SEC Form S-8; (c) causing the company to violate the federal securities laws by: (1) filing incomplete disclosure information with respect to Showalter and the company's financial condition, (2) filing Form S-8 registration statements containing false and misleading consulting agreements, and (3) permitting Showalter to sell stock through the secret use of brokerage accounts in the names of others; (d) failing to ensure that the accounting practices of the corporation would prevent conduct such as Showalter's writing checks on insufficient funds; (e) failing to hold board of directors meetings or annual meetings of stockholders; (f) failing to review the consulting agreements to ensure that the corporation in fact received the services provided therein prior to the issuance of the stock consideration; (g) failing to ensure that the corporation received fair consideration for the stock that it was issuing in return for the consulting agreements; and (h) failing to demand an accounting of the proceeds of the sale of the stock registered by Form S-8. 50. The directors owed to the shareholders a duty of loyalty. Defendants have breached their duty of loyalty by: (a) offering company stock for sale to the public and retaining for themselves and not for the company some or, occasionally, all, of the proceeds from such sale; (b) causing the corporation to enter into written consulting agreements with Showalter's wife's company under circumstances in which she was neither qualified to render the services nor able to render them even if qualified, (c) causing the corporation to pay, impermissibly, Showalter's personal living and entertainment expenses; and (d) converting assets of the corporation to their personal use. 51. The directors owed to the shareholders a duty of oversight of the officers and management of the company. Defendants failed to oversee the books and records of the company or the behavior of its officers, including bouncing checks, breaking promises and ignoring legal obligations of the company. To the extent that defendants ignored or remained unaware of these facts, defendants have breached their duty of oversight. Count II. Unlawful Dilution of Voting Power -------------------------------------------- 52. Paragraphs 1 through 51 are incorporated herein by reference. 53. The conduct described above has unlawfully diluted the individual voting rights of plaintiff in that shares of stock of the Company have been fraudulently issued for no consideration to the Company. Count III. Issuance of Stock Without Consideration --------------------------------------------------- 54. Paragraphs 1 through 53 are incorporated herein by reference. 55. The issuance of stock to the "consultants" as set forth above is without consideration, or with consideration so far below its real value to the corporation as to constitute fraud, in violation of both the Constitution of the State of Delaware and Section 152 of the General Corporation Law, 8 Del. C. 152. ---- -- 56. Such illegal issuance of stock inflicts direct harm on the plaintiff by fraudulently diluting plaintiff's voting power and direct harm on the company and its stockholders by diluting the value of the company's stock and artificially depressing the market for the stock. Count IV. Violation of Federal Securities Laws ---------------------------------------------- 57. Paragraphs 1 through 56 are incorporated herein by reference. 58. The abusive and fraudulent manipulation of SEC Form S-8 and the open market manipulation by secretly offering newly issued stock through the brokerage accounts of confederates violates multiple provisions of the Securities Act of 1933 and The Securities Exchange Act of 1934 and rules and regulations promulgated thereunder. Such conduct jeopardizes the company's ability to raise capital and materially threatens its continued corporate existence. Count V. Unlawful Conversion ----------------------------- 59. Paragraphs 1 through 58 are incorporated herein by reference. 60. Upon information and belief, Showalter has used substantial sums of the money raised through the illegal sale of stock to finance directly or indirectly his personal style of living and otherwise to benefit personally members of the board of directors and not for any proper corporate purposes. Such conversion has been accomplished, upon information and belief, with the knowledge and assent of all of the individual defendants. Count VI. Waste of Corporate Assets ----------------------------------- 61. Paragraphs 1 through 60 are incorporated herein by reference. 62. The stock of the company is one of the few assets it has. Defendants have wasted that asset by offering stock to others for substantially less than its fair value. WHEREFORE, plaintiff prays that this Court: a. exercise its powers to temporarily, preliminarily, and permanently enjoin Hollywood Trenz, the individual defendants, and their respective employees, agents, attorneys and all other persons acting in concert with them from issuing any stock pending the convening of an annual meeting for the purpose of electing directors, and b. grant such other relief as the Court may deem appropriate under the circumstances. Respectfully submitted, SMITH, KATZENSTEIN & FURLOW --------------------------------------- Craig B. Smith I.D. # 472 Charles E. Butler I.D. #2349 Anne E. Bookout I.D. #2273 The Corporate Plaza, 7th Floor 800 Delaware Avenue P.O. Box 410 Wilmington, DE 19899 (302) 652-8400 OF COUNSEL: - ----------- Victor L. Zimmermann, Jr. O'Rourke O'Hanlan & Zimmermann 27 Pine Street New Canaan, CT 06840 (203) 966-6664 Dated: June 26, 1996 -----END PRIVACY-ENHANCED MESSAGE-----