United States Securities and Exchange Commission
Washington D.C.
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
For the fiscal year ended December 31, 1996
Commission File Number O-3718
Equity Growth Systems, inc.
(Name of Small Business Registrant in its charter)
Delaware
(State or other jurisdiction
of incorporation or
organization)<PAGE>
11-2050317
(I.R.S. Employer Identification
Number)
3821-B Tamiami Trail, Suite 201, Port Charlotte, Florida, 33952
(Address of principal executive offices including Zip Code)
(941) 255-9582
(Registrant's telephone number)
Securities registered under Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which
registered: None
Securities Registered under Section 12(g) of the Act: Common Stock
(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, during the past twelve months (or for such shorter period that
the Registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days: Yes [_] No[x]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
form 10-KSB or any amendment to this Form 10-KSB: [X]
State Registrant's revenues for its most recent fiscal year: $225,031
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days: $ 0 based on the absence of
any bid price therefore during 1996.
State the number of shares outstanding of each of the Registrant's
classes of equity, as of the latest practicable date: 3826,148 shares
of common stock, as of December 18, 1997.
This registration statement on Form 10-KSB, is comprised of 135
sequentially numbered pages, with the required exhibit index located at
sequentially numbered page 68.
Table of Contents
Item Page
Number Number Item Caption
Item 1. 4 Description of Business
Item 2. 13 Description of Properties
Item 3. 31 Legal Proceedings.
Item 4. 37 Submission of Matters to Vote of Security Holders
Item 5. 37 Market for Common Equity and Related Stockholder
Matters.
Item 6. 39 Management's Discussion and Analysis of Financial
Condition and Results of Operations or Plan of
Operation
Item 7. 40 Financial Statements
Item 8. 40 Changes in and Disagreements with Accountants
Item 9. 44 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Securities Exchange Act of 1934, as amended.
Item 10. 49 Executive Compensation
Item 11. 55 Security Ownership of Certain Beneficial Owners and
Management
Item 12. 60 Certain Relationships and Related Transactions
Item 13. 68 Exhibits, Financial Statements & Reports on
Form 8-K (index)
73 Signatures
97 Additional Information
This document incorporates into a single document the requirements of the
Securities and Exchange Commission for the Annual Report to
Stockholders and the Form 10-KSB.<PAGE>
PART I
Item 1. Business
(a) Historical Data
Equity Growth Systems, inc. ("the Registrant"), was incorporated in
Delaware on December 8, 1964, as Infotec, Inc. Its current address is
3821-B Tamiami Trail, Suite 201; Port Charlotte, Florida 33952 and its
current telephone number is (941) 255-9582.
On April 7, 1993, the Registrant and KSG Technologies, Inc., a
Maryland corporation ("KSG")
then operating as Mercantile Realty Investors, Inc., "MRI") entered into
a Plan and Agreement of Merger ("the Merger Agreement"), pursuant to
authorization by their respective Boards of Directors, providing for the
merger of the Registrant into MRI ("the Merger"). The Merger was
subsequently approved by the shareholders of MRI and MRI and the
Registrant filed a registration statement with respect thereto (on Form
S-4) with the Securities and Exchange Commission. Although the registra-
tion statement was declared effective, the Merger was canceled because
the parties were unwilling to spend the funds required to prepare and
file the applications with state securities regulatory authorities that
would have been required. KSG has issued 200,000 shares of its common
stock to the Registrant, as trustee for its stockholders of record as of
March 23, 1995, as compensation for cancellation of the merger agreement.
Such shares will be distributed to the beneficial owners at such time as
management is assured that such shares can be distributed pursuant to
exemptions from registration requirements under federal or state
securities laws, as restricted securities subject to the holding period
requirements of Securities and Exchange Commission Rule 144. The
Registrant and KSG intend to seek a no action position from the staff of
the Securities and Exchange Commission with reference to federal
registration requirements, and to seek similar relief from state
securities regulatory authorities in states where specific exemptions are
not found, at such time as KSG becomes current in its reporting
obligations under the Securities Exchange Act of 1934, as amended. If
KSG and the Registrant obtain a satisfactory no action letter from the
Securities and Exchange Commission but cannot obtain comparable relief
from regulators in all states in which the Registrant has stockholders,
then the 200,000 shares would be distributed pro rata, solely to
stockholders residing in states where such distribution would be either
exempt from registration requirements or distribution is permitted
pursuant to a no-action agreement with state regulators. A copy of the
agreement between the Registrant and KSG (then operating as Equity Growth
Systems, Inc.; "EGSI") was filed as an exhibit to the Registrant's report
on Form 10-KSB for the year ended December 31, 1994.
page 3
During March of 1995, the Registrant's Board of Directors elected
Edward Granville-Smith, then president of KSG (then operating as EGSI),
to the Registrant's Board of directors, after which, all directors other
than Mr. Granville-Smith resigned. Mr. Granville-Smith, as the sole
director, elected himself as president, chief executive officer and
chairman of the Registrant's board of directors. Thereafter, Mr.
Granville-Smith, as the sole stockholder, officer and director of
Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), caused
Milpitas to assign interests in four leases involving five separate
leased parcels of real estate (one lease covers two parcels), four
promissory notes secured by mortgages on real estate leased to third
parties, in each case subject to mortgages to third parties, and four
demand notes with an aggregate original principal balance of
approximately $163,415, to the Registrant in exchange for 1,616,000
shares of the Registrant's common stock, $0.01 par value. The demand
notes are subject to an arrangement with Mr. Jerry C. Spellman (which the
Registrant has agreed to honor) whereby payments thereon are used to
repay a $104,000 loan by Mr. Spellman to a former holder. Milpitas
thereafter distributed such stock to the Granville-Smith Trust, which
thereafter transferred it to K. Walker, Ltd., a Bahamian corporation
(affiliated with Mr. Granville-Smith) and Bolina Trading Company, a
Panamanian corporation (affiliated with Jerry C. Spellman).
Because it appeared that certain assets which Mr. Granville-Smith
intended to include in such assignment may not have been included in the
indenture, effective December 29, 1995, Mr. Granville-Smith, on his own
behalf and as the statutory trustee and liquidating agent for Equity
Growth Systems, inc., a dissolved Maryland corporation ("EGS Maryland");
and First Ken-Co Properties, Inc., a dissolved Delaware corporation
("FKP"); and as the current sole officer, director and stockholder of
Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), executed a
corrective bill of sale (a copy of which was included as an exhibit to
Registrant's Form 10-KSB for year ending December 31, 1995). The
corrective bill of sale assigned the following to the Registrant: all of
the assets owned by EGS Maryland and FKP, together with all of the rights
of certain partnerships in which Milpitas served as sole general partner,
to a series of notes secured by wrap mortgages (mortgages inferior to
first mortgages) and to income from long term leases on the subject
properties.
The Registrant is now involved in the business of seeking to
acquire and operate interests in income producing, commercial real
estate.
(b) Financial Information About Industry Segments.
Not Applicable.
(c) Narrative Description of Business.
1. The Registrant:
page 4
During 1995, the Registrant issued 1,616,000 shares of its common
stock, $0.01 par value, in exchange for all of the assets owned by Equity
Growth Systems, inc., a dissolved Maryland corporation (not to be
confused with the Registrant), all of the assets owned First Ken-Co
Properties, Inc., a dissolved Delaware corporation, and for all of the
rights of certain partnerships in which Milpitas Investors, Inc. (a
Delaware corporation) served as sole general partner), including lease
income from five parcels of real estate, four promissory notes secured by
mortgages on such real estate (in each case subject to mortgages to third
parties), and four demand notes with an aggregate original principal
balance of approximately $163,415.00 The demand notes are subject to an
arrangement with Mr. Jerry C. Spellman (which the Registrant has agreed
to honor) whereby payments thereon are used to repay a $104,000 loan by
Mr. Spellman to a former holder thereof. One parcel and one note have
been written off by the accountants due to non judicial foreclosure. (See
litigation and Financial statements).
Milpitas is wholly owned by Edward Granville-Smith, the
Registrant's Chairman and President. Mr. Granville-Smith is one of the
Registrant's two largest beneficial stockholders. Milpitas holds the
following partnership interests:
1.98% general partnership interest in Montco Associates.
96.02% limited partnership interest in Montco Associates.
0.99% general partnership interest in Sound-Safe Associates.
97.01% general and limited partnership interest in Sound-Safe Associates.
.495% limited partnership interest in Safe-Ten Associates
.99666% limited partnership interest in San-Safe Associates
.99666% limited partnership interest in Pay West Associates
0.99% general partnership interest in Paymont Associates
0.99% general partnership interest in Paynev Associates
The Registrant also acquired all rights to unsecured advances
aggregating $163,415 made by Milpitas to four of the limited partnerships
in which it served as general partner (owning less than a 2% general
partnership interest).
The transactions were treated as purchases (rather than pooling of
interests) for accounting purposes and consequently, the assets acquired
were recorded at their estimated current values at the acquisition date.
Such current values were based in part, upon the current values of the
net assets and corporate interests acquired. See notes to the financial
statements filed herewith.
page 5
2. The Notes Receivable:
As of December 31, 1996, the following was true:
The notes receivable were obligations of Pay West Associates,
Safe-Ten Associates, San-Safe Associates and Paynor Associates,
partnerships in which Milpitas has a less than 2% general partnership
interest (the "Second Stage Milpitas Partnerships"). They owned the real
estate which they acquired from Paymont Associates and Pay Nev
Associates; Sound Safe Associates; First Ken-Co Properties, Inc.; and,
Montco Associates (all either partnerships in which Milpitas served as
general partner, or in the case of First Ken-Co Properties, Inc., af-
filiates of Milpitas, collectively referred to as the First Stage
Milpitas Affiliates").
The properties were acquired by the First Stage Milpitas Affiliates
through the issuance of long term notes secured by first mortgages on the
properties (the "First Mortgages") to Sixth Ludingham Properties, Inc., a
Delaware corporation; First Mortgage Corporation, a Washington
corporation; Eleventh Wallingford Properties, Inc., a Delaware
corporation; and, Sixth Basengstoke Properties, Inc., a Delaware
corporation. They were then leased on a long term basis (the "Long Term
Leases") and thereafter sold to the Second Stage Milpitas Partnerships,
subject to the Long Term Leases and the First Mortgages, in exchange for
long term notes secured by wrap mortgages (the "Wrap Mortgages;" the
Second Stage Milpitas Partnerships not being obligors to the holders of
the First Mortgages, but acquiring the properties subject to the rights
of such holders). Consequently, the First Stage Milpitas Affiliates
remain as the sole obligors on the first mortgages, but are the payees on
the Wrap Mortgages and are entitled to all of the income from the Long
Term Leases, including all renewals thereof.
The Wrap Mortgage agreements, as currently in effect, contain
repayment schedules which allocate each quarterly installment such that
the interest rates vary over the term of the notes, from the stated
effective interest rate. The current value of the notes on December 31,
1995 is the remaining balance reflected in the repayment schedule based
on the actual effective interest rate over the effective remaining terms
of the notes.
As material subsequent event,
SOUND SAFE ASSOCIATES, a Limited Partnership formed under the
laws of Maryland, and a wholly owned subsidiary of registrant, defaulted
on the mortgage on the property located in Memphis Tennessee because it
was unable to satisfy the pay-off balloon payment that was due on
December 31, 1996 in the amount of $174,801.00. The mortgage holder
refused to negotiate with SOUND SAFE ASSOCIATES or extend the term of the
mortgage and refused further amortization payments from the lessor of the
underlying lease. Non Judicial Foreclosure was instituted and finalized
in August, 7, 1997. Copies of the notice of foreclosure and
advertisement of foreclosure are included as exhibits filed with this
10K-SB
page 6
The Registrant is considering purchasing the Fee for said property
from Lutheran Brotherhood. However, as a result of foreclosure, the
Registrant has written off the balance of the related wrap around
mortgage receivable ($251,722) and promissory note receivable of
($93,686). See section on Description of Real Estate and Operating Data,
1. Lease Rights Currently Owned: b) Safeway Stores, Incorporated.
On October 21, 1997, The District Court of Kansas entered an Order
of Dismissal With Prejudice of Associated Wholesale Grocers, Inc., vs San
Safe Associates, et. al. Case No. 972072WC. The order is based on a
Joint Stipulation of parties involved in the litigation. A copy of the
Order of Dismissal is filed as an Exhibit to this Form 10-KSB for 1996.
On October 20, 1997, In a mutual release, Associated Wholesale
Grocers agreed to pay the sum of One Hundred Fifty Thousand Dollars
($150,000) to Fleet National Bank in exchange for the transfer of free,
clear, insurable, and marketable title of the Subject Property to Four B
Corporation, a Kansas corporation; Fleet National Bank receives
Fifty-two Thousand ($52,000) of the above $150,000, with the remaining
balance of $98,000.00 to be distributed to First Ken-Co Properties and
San Safe. First Ken- Co Properties and San Safe the agreed to hold the
$98,000.00 in escrow and First Ken-Co. Properties and San Safe would
litigate in the State of Maryland all remaining issues between them,
including the rightful disbursement of the $98,000.00 held in escrow.In
that same matter, First Ken-Co. Properties is expected to seek from the
limited partners of San Safe an accounting and damages in the amount in
excess of $300,000.00. Registrant holds the position that the ultimate
rightful disbursement of a substantial portion of these funds is to
registrant for the purposes of reduction of wrap around mortgage
indebtedness and promissory note receivables. A lawsuit was filed January 7,
1998, a copy of which is attached as an Exhibit to this 10-KSB for 1996.
The following schedule discloses the imputed interest rates and the
stated maturity dates for each loan:
Effective Maturity
Interest Rate Date Remaining Balance at
Amount Stated Stated Maturity Date
$ 910,415 12.904% 2005 $248,395
370,397 12,320% 2005 370,397
728,056 9.080% 2003 232,200
* Over the remaining effective term
page 7
The notes are payable in quarterly installments and total amounts
due in the 11 years subsequent to December 31, 1996 and the principal
portion thereof are as follows:
Year Total Principal Portion *
1997 300,409 160,436
1998 300,409 170,409
1999 300,409 180,944
2000 300,409 191,940
2001 166,861 110,996
2002 833,182 381,609
2003 60,221 47,775
2004 60,221 52,069
2005 445,616 441,252
_______
* As specified by the repayment schedules.
3. Advances to Partnerships:
The Second Stage Milpitas Partnerships were indebted to Milpitas as
payors under a series of interest free loans from the general partner,
called for by the respective partnership agreements. The loans were to
be repaid upon sale of the real estate owned by the Second Stage Milpitas
Partnerships, however, because the limited partners rejected a number of
bone fide purchase offers, the Second Stage Milpitas Partnerships and
Milpitas entered into an agreement during September of 1987, converting
the loans into demand promissory notes, bearing no interest until called
by Milpitas. Milpitas called all of the demand notes on October 1, 1987.
Because the Second Stage Milpitas Partnerships were unable to make the
required payments, the holders and the makers agreed that the notes would
remain outstanding on a demand basis, yielding compound interest and that
all funds in excess of those required to service secured debt received by
the Second Stage Milpitas Partnerships, would be applied to payments on
the notes. Advances to the Second Stage Milpitas Partnerships include an
aggregate of $122,815 (face amount), with a current accrued amount due
(based on principal plus accrued but unpaid interest as of December 31,
1996) of $148,058. The Registrant acquired all rights to such notes from
Milpitas during 1995, as disclosed above.
4. Mortgages Payable:
The table below summarizes the terms of the First Mortgages which
are repayable in quarterly installments and are collateralized by real
property owned and operated by the Second Stage Milpitas Partnerships.
page 8
Interest Maturity Remaining Balance at
Amount Rate Date Maturity Date
$ 753,493 9.75% 2001 $284,170
127,037 9.75% 2000 $ 76,612
602,289 9.75% 2002 $226,674
$1,483,319 Total $582,461 Total
Total installments due in the years subsequent to December 31, 1996
and the principal portion thereof are as follows:
Year Total Principal Portion
1997 $ 299,409 $ 160,423
1998 $ 299,409 $ 176,656
1999 $ 299,409 $ 194,529
2000 $ 374,919 $ 290,830
2001 $390,737 $ 355,520
2002 $337,840 $ 305,361
(d) Investment Policies:
(1) The Registrant plans to invest in retail properties with a physical
make-up of and improved area of between 65,000 and 400,000 square
feet, and unimproved area sufficient to allow credit tenant
expansion. The lease income must be 60% or more from credit tenants
rated "B" or better by one of the major rating bureaus and have a
duration of at least fifteen years remaining. Further, non credit
leases must have at least one year remaining on their lease term.
(2) The medium of exchange for the purchase will consist of cash and
securities of the Registrant, as follows;
a) Seventy-five percent (75%) of the purchase price is to be
provided through institutional mortgages or other securitized
funding. Such institutional paper must have a term of at
least seven years or more and an amortization schedule of at
least two to five years longer than the prime credit lease
term(s). The capitalization rate of the purchased income
streams (leases) must be at least one hundred and thirty
percent (130%) of the financing obligation's pay rate.
b) Ten to fifteen percent of the purchase price is to be provided
through sale of shares of the Registrant's preferred stock
(with an anticipated dividend rate of twenty-five basis points
above the interest rate charged on the institutional mortgage
or securitized paper) to institutional investors. In certain
instances this funding may be raised through issuance of the
Registrant's common stock or a combination of common and
preferred securities.
page 9
c) The balance of the purchase price is expected to be funded
through the issuance of shares of the Registrant's preferred
stock to the Seller.
d) Day to day management of the Registrant's properties is
expected to be carried out on location by local management
companies supervised by the Registrant's personnel and
affiliates.
e) Asset management is expected to be supervised directly by the
Registrant's officers, especially Messrs. Granville-Smith,
Homan, and Scimeca . (see Item 8, Directors, Executive
Officers, Promoters and Control Persons).
f) Although the Registrant currently owns three wrap-around first
mortgages (the fourth wrap around was subject to foreclosure
see Legal proceedings and accountants Financial Statements)),
secured by two absolute institutional net leases from
Safe-way, Inc. (See "Item 3: Legal Proceedings" for a
discussion of problems experienced by the Registrant in
obtaining estoppel statements from Safe-way, Inc., and other
matters), and two from the Payless Group, it does not intend
to invest in mortgage instruments in the future, absent
unusual opportunities. Rather, the Registrant's objectives are
investments in credit lease income and related retail
property. As indicated, any retail property purchased must be
covered by leases from institutionally rated credit tenant(s)
in a ratio of at least 60% of the total income stream (lease
income). It is not the intent of the Registrant to venture
into any other area of the real estate industry other than
warehouse space leased to credit tenants and signature office
space (both "land mark" or space leased on a long term basis
to credit tenants).
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
Not applicable.
Item 2. Properties.
Administrative Facilities
As of December 31, 1996:
page 10
The Registrant ''s principal administrative facility is situated on
1,000 square feet leased from ERA Realty on a gross lease basis of
$500.00 per month. The lease started on November 29, 1994 and ended
November 30, 1995; it has been extended by the parties twice for
additional one year periods on identical terms. The Registrant expects
to move sometime in 1997. The current facilities are located at 22247
New Rochelle Avenue, Port Charlotte, Florida 33952, and are in
management's opinion, in adequate condition to meet the Registrant's
current requirements.
As a material subsequent event,
The Registrant has moved it's principal administrative facility.
The Registrant's principal administrative facility is situated on 1000
square feet leased from Kay Walker, LTD on a gross lease basis at $500.00
per month. This is a monthly rental without a written lease and started
in June, 1997. The address of the facility is 3821-B Tamiami Trail, Suite
201, Port Charlotte, Florida. The current facilities are, in
management's opinion, in adequate condition to meet the Registrant's
current requirements.
Investment Property
The Registrant is currently engaged in the business of acquiring
interests in real estate that meet the investment parameters described in
"Item I, Description of Business: .... (d) Investment Policies" above.
All of the Registrant's current property rights were obtained from Mil-
pitas Investors, Inc., a Delaware corporation ("Milpitas") wholly owned
by Edward Granville-Smith, the Registrant's Chairman and President, or
from Mr. Granville-Smith, as the statutory trustee and liquidating agent
for Equity Growth Systems, inc., a dissolved Maryland corporation ("EGS
Maryland"); and, First Ken-Co Properties, Inc., a dissolved Delaware
corporation ("FKP"), in exchange for 1,616,000 shares of the Registrant's
common stock, $0.01 par value. The demand notes included among such
assets are subject to an arrangement with Mr. Jerry C. Spellman (which
the Registrant has agreed to honor) whereby profits generated therefrom
are used to repay a $104,000.00 loan by Mr. Spellman, to a former holder
thereof.
Milpitas serves as the general partner in a number of limited
partnerships (the "Milpitas Partnerships"), of which now own or lease
the real estate in which the Registrant has a current leasehold interest
(the "Partnership Properties"). The Partnership Properties were acquired
by Milpitas or its affiliates (the "First Stage Milpitas Affiliates") in
exchange for purchase money notes secured by mortgages (the "First
Mortgages"). The Partnership Properties were then leased to third
parties and sold (subject to such leases) to related limited partnerships
(in which Milpitas or its affiliates served as general partner,
hereinafter referred to as the "Second Stage Milpitas Partnerships") for
promissory notes secured by wrap mortgages (subordinate to the mortgages
in place from Milpitas or its affiliates to the original property owners,
the Wrap Mortgages"). In each case, the rights to income from the long
term leases in place were retained by the First Stage Milpitas Affiliates
but are now owned by the Registrant. The Registrant also now owns the
Wrap Mortgages; however, the Registrant is responsible for all payments
due on the First Mortgages, as described in the following tables (as of
January 1, 1997):
page 11
A. Leases
P.L. Drug Stores of Nevada and Payless Drug Stores, Inc., Lease
Registrant's Lessee's Registrant's
Aggregate Future Aggregate Term Aggregate Term
Date Obligations Obligations (5) Net Income (2)
January 1, 1997 $ 400,306 $ 479,665 $ 79,359
October 1, 2000 $ 353,187 $ 247,500 $ (105,687)
October 1, 2005(3) None $ 238,900 $ 238,900
October 1, 2009(4) None $ 192,500 $ 192,500
October 1, 2010(3) None $ 192,500 $ 192,500
October 1, 2015(3) None $ 192,500 $ 192,500
October 1, 2020(3) None $ 192,500 $ 192,500
October 1, 2025(3) None $ 192,500 $ 192,500
________
(1) Balance of underlying mortgage payments owed by the Registrant on
such date.
(2) Balance of underlying mortgage payments owed by the Registrant at
end of then current term, after applying all lease payments to debt
service.
(3) Represents renewal on parcel one
(4) Represents renewal on parcel two.
(5) Payment of rent to the Registrant during balance of then current
term.
The total cumulative net income of the Registrant from the P.L. Drug
Stores of Nevada and Payless Drug Stores, Inc., lease for both parcels,
assuming exercise of all of the option terms, would be $1,175,072
Pay Less Drug Stores, North West, Inc., Lease
Registrant's Lessee's Registrant's
Aggregate Future Aggregate Term Aggregate Term
Date Obligations (1) Obligations(2) Net Income
October 1, 2002 None $ 262,500 $ 262,500
October 1, 2007 None $ 157,500 $ 157,500
October 1, 2012 None $ 157,500 $ 157,500
October 1, 2017 None $ 157,500 $ 157,500
October 1, 2022 None $ 157,500 $ 157,500
October 1, 2027 None $ 157,500 $ 157,500
________
page 12
(1) Balance of underlying mortgage payments owed by the Registrant on
such date.
(2) Payment of rent to the Registrant during balance of then current
term.
The total cumulative net income of the Registrant from the Payless
lease, assuming exercise of all of the option terms, would be $1,050,000
Associated Wholesale Grocers, Inc., Lease
Registrant's Lessee's Registrant's
Aggregate Future Aggregate Term Aggregate Term
Date Obligations (1) Obligations (2) Net Income
April 1, 1998 None $ 208,878 $ 208,878
April 1, 2003 None $ 133,682 $ 133,682
April 1, 2008 None $ 133,682 $ 133,682
April 1, 2013 None $ 133,682 $ 133,682
April 1, 2018 None $ 133,682 $ 133,682
April 1, 2023 None $ 133,682 $ 133,682
April 1, 2028 None $ 133,682 $ 133,682
April 1, 2033 None $ 133,682 $ 133,682
________
(1) Balance of underlying mortgage payments owed by the Registrant on
such date.
(2) Payment of rent to the Registrant during balance of then current
term.
The total cumulative net income of the Registrant from the
Associated Wholesale Grocers, inc., lease, assuming exercise of all of
the option terms, would be $1,144,652; however, Associated Wholesale
Grocers, Inc., has indicated to the Registrant that it intends to
exercise buy out rights pursuant to which it would only be required to
pay the Registrant an aggregate sum of $150,000, from which the
Registrant would be required to pay the remaining $137,000 due on
underlying notes. The limited partners have retained legal counsel and
are seeking to replace the general partner. Counsel for the Registrant
and the general partner do not believe that the limited partners have the
legal capacity to effect such change.
On October 21, 1997, The District Court of Kansas entered an Order
of Dismissal With Prejudice of Associated Wholesale Grocers, Inc., vs San
Safe Associates, et. al. Case No. 972072WC. The order is based on a
Joint Stipulation of parties involved in the litigation. A copy of the
Order of Dismissal is filed as an Exhibit to this Form 10-KSB for 1996.
On October 20, 1997, In a mutual release, Associated Wholesale
Grocers agreed to pay the sum of One Hundred Fifty Thousand Dollars
($150,000) to Fleet National Bank in exchange for the transfer of free,
clear, insurable, and marketable title of the Subject Property to Four B
Corporation, a Kansas corporation; Fleet National Bank receives
Fifty-two Thousand ($52,000) of the above $150,000, with the remaining
balance of $98,000.00 to be distributed to First Ken-Co Properties and
San Safe. First Ken- Co Properties and San Safe the agreed to hold the
$98,000.00 in escrow and First Ken-Co. Properties and San Safe would
litigate in the State of Maryland all remaining issues between them,
including the rightful disbursement of the 98,000.00 held in escrow. In
that same matter, First Ken-Co. Properties is expected to seek from the
limited partners of San Safe an accounting and damages in the amount in
excess of $300,000.00. Registrant holds the position that the ultimate
rightful disbursement of a substantial portion of these funds is to
registrant for the purposes of reduction of wrap around mortgage
indebtedness and promissory note receivables. A lawsuit was filed January
7, 1998, a copy of which is attached as an Exhibit to this 10-KSB for 1996.
page 13
B. Description of Real Estate and Operating Data
1. Lease Rights Currently Owned:
The following information pertains to the lease income rights
currently owned by the Registrant and described in the tables above:
a) P.L. Drug Stores of Nevada and Pay Less Drug Stores.
A portion of the property is owned by Pay Nev Associates and Paymont
Associates, Maryland limited partnerships, and the balance is leased
by Pay Nev Associates and Pay Mont Associates from Montebello Plaza
Company, a California general partnership and subleased to P.L. Drug
Stores of Nevada and Pay Less Drug Stores. The combined parcels are
leased (and subleased) to P.L. Drug Stores of Nevada and Pay Less
Drug Stores, subject to the Registrant's rights to all lease income
therefrom and to the Registrant's obligations to pay the underlying
note and mortgage obligations (see table above).
(1) The lease is dated as of May 26, 1975 with the primary term
terminating on October 1, 2000. Thereafter, the lessee has
the right to extend the lease for 5 additional five year
terms, ending on October 1, 2025, except for the subleased
portion of the property, the term of which can only be
extended for one additional nine year period. The lessee may,
upon not less than 12 months' notice to the Registrant, offer
to purchase the property on October 31, 2000, at a price
calculated in accordance with a formula set forth in an
exhibit to the lease (a copy of the lease being included as an
exhibit to this report.
(2) The following legal description pertains to the portion of the
leased property owned by Pay Nev Associates and Paymont
Associates:
Real property situated in the City of Sparks, County of
Washoe, State of Nevada and described as follows:
PARCEL A: Lot 3 of SUTTER HILL SUBDIVISION, (Subdivision
Tract No. 1438), according to the map thereof, filed in the
office of the County Recorder of Washoe County, State of
Nevada, on November 1, 1973, under Filing No. 306755.
page 14
Excepting therefrom that portion of Lot 3 described as
follows: Beginning at the Southeast corner of Lot 2 of said
Sutter Hill Subdivision; thence North 00 degrees 47'27" East
along the Easterly line of said Lot 2; said Easterly line
being common with Lot 3, a distance of 186.32 feet; thence
leaving said Easterly line and proceeding South 89 degrees
12'33" East 2.52 feet; thence North 89 degrees 12'33"West 2.52
feet to the point of beginning.
PARCEL B: Together with the following described parcel being
a portion of Lot 2 of said Sutter Hill Subdivision being more
particularly described as follows: Beginning at the most
easterly NE corner of said Lot 2, as the same is shown on
Sheet 2 of 2, of the map entitled "Official Platt, Sutter Hill
Subdivision", filed in the Official Records of Washoe County,
Nevada, November 1, 1973, as File No. 306755, and proceeding,
Thence N 89 degrees 12'33" W along the northerly line of said
Lot 2, a distance of 127.58 feet to a lot corner as shown on
the above mentioned map, Thence leaving said northerly line
and proceeding S 00 degrees 47'27" W 3.68 feet, Thence S 89
degrees 12'33" E, and parallel to the above mentioned
northerly line 127.58 feet to the easterly line of said Lot
2, Thence N 00 degrees 47'27" E along said easterly line 3.68
feet to the point of beginning and containing 469.5 square
feet.
(3) The following legal description pertains to the portion of the
leased (technically subleased) property leased by Pay Nev
Associates and Paymont Associates to the sublessees:
Real property situated in the City of Montebello, County of
Los Angeles, State of California, described as: Parcel 1 of
Parcel Map No. 5149 as shown in Maps filed in Book 54, page 67
of Parcel Maps of Los Angeles County (subject to ground lease
dated October 4, 1974 and recorded November 12, 1974 in Book
M4836 of Official Records, Los Angeles County Records, Page
354.
(4) Basic Rent Allocations
Annually Quarterly
Fee Property $ 113,515.00 $ 28,378.75
Leasehold Property $ 60,908.50 $ 15,227.13
Total $ 174,423.50 $ 43,605.88
The lease calls for payments to the Registrant during the
Basic Term of an annual basic rent (see table above) equal to
the sum of the Basic Allocations described in the table above,
payable in advance in equal quarterly installments on the 1st
day of January, April, July, and October in each year, until
October 1, 2000.
page 15
(5) Lessee Renewal Options
If the lessee is not in default (as defined in the lease), it
will have the right to renew the term of the lease to the Fee
Property, for five successive periods of five years each; and,
as to the Leasehold Property, for one period of nine years, in
each case by giving the Registrant notice of it's election to
renew not less than six months prior to the expiration of the
Basic Term or of the then current renewal term, as the case
may be, each renewal term to be upon the same terms, covenants
and conditions as in the Lease provided, except that:
(a) there is no right to renew the term of the lease as to
any Property for any period of time beyond the expiration
of the last renewal term;
(b) in the case of the Fee Property, the annual basic rent
will be $49,500 during the first renewal term and $38,500
during each successive renewal term; and,
(c) in the case of the Leasehold Property, the annual basic
rent will be $26,550 during the renewal term, payable in
each case in equal quarterly installments in advance.
(6) Assignment of Lease Income
The lease income is assigned by the Registrant to service a 30
year wrap around mortgage (the "Wrap Mortgage"). The Wrap
Mortgage was issued by Paymont Associates and Paynev
Associates (both Maryland limited partnerships in which
Milpitas serves as general partner) to Pay West Associates,
for the sum of $1,541,000 with an effective interest rate of
12.94% per annum. The Wrap Mortgage is payable quarterly on
the first day of each April, July, October and January. The
final payment of $248,395.00 is due January 1, 2007.
The Wrap Mortgage is subordinate to a Deed of Trust dated May
20, 1975, from Paymont Associates and Paynev Associates,
(collectively referred to for purposes of this paragraph as
the "Grantor") to Title Insurance and Trust Company as trustee
for Sixth Ludingham Properties, Inc., a Delaware corporation.
The Deed of Trust secures a note of the Grantors in the
original principal amount of $1,656,000 bearing interest at
the rate of 9.75% per annum. It matures on January 1, 2001
(the "Trust Note").
The difference between payments on the Wrap Mortgage and the
Trust Note has, since October 1, 1987 when the note was called
has been credited towards payment of the debt service on a
demand note due to the Registrant from Pay-West Associates, a
Maryland limited partnership.
page 16
b) Safeway Stores, Incorporated
As of December 31, 1996 the following is reported:
The lease is dated as of October 15, 1975, with the primary term of
the lease terminating December 31, 1996. The lease provides for six
additional five year option terms; however, the lessee made an
irrevocable offer to purchase the leased premises on December 31,
1996 at a price of $250,845.48. Of this amount, $179,007.48 was
required to satisfy the first mortgage, also due on December 31,
1996.
The Registrant rejected such offer to purchase by proper notice to
lessee given prior to August 31, 1996.
The legal description of the subject property is as follows:
Real property and buildings and improvements thereon in the City of
Memphis, County of Shelby, State of Tennessee designated as SWC
Winchester Road & Mill Branch Road, to-wit: A part of Parcel No.
11, a 114,165 acre tract, as described in Deed of Warranty in Book
3142, Page 551, in Office of Register, Shelby County, Tennessee,
more particularly described as follow: Beginning at a point on the
West right-of-way line of Mill Branch Road, said point being the
Southeast corner of Chevron Oil Company property, (also said point
being 200 feet south of the intersection the West right-of-way line
of Mill Branch Road and the South right-of-way line of Mill Branch
Road a distance of 257.0 feet; thence S 89 degrees 55' W a distance
of 379.08 feet; thence North a distance of 487.22 feet to a point on
the South right-of-way line of Winchester Road; thence N 87 degrees
44' E and along said South right-of-way line of Winchester Road a
distance of 72.20 feet a chord bearing and distance of N 88 degrees
49'36" E 106.82 feet to the Northwest corner of Chevron Oil Company
property a distance of 200.0 feet to the point of beginning,
containing 145,580 square feet of 3.342, more or less.
During the year ending on December 31, 1996 (the last year of the
initial term), the lease called for payment of $95,659.65 payable in
equal quarterly installments of $23,914.91. The lessee extended
the term of the lease for seven additional periods of five years
each, at annual rentals as follows:
During the initial five year option term, the annual lease payments
due will be $55,312.50, payable in quarterly installments of
$13,828.125; and
During the following six, five year renewal periods, the annual
lease payments due will be $35,400, payable in quarterly
installments of $8,850.
page 17
The lease income has been assigned to service a 30 year wrap around
mortgage owned by a wholly owned subsidiary of the Registrant,
(SOUND-SAFE ASSOCIATES, a Limited Partnership formed under the Laws
of Maryland) for the sum of EIGHT HUNDRED THOUSAND DOLLARS
($800,000) with an effective interest rate of 13.4983% per annum;
payable quarterly with the first payment due on the last day of June
1976 with all subsequent payments due the last day of each March,
June, September and December up to and including December 2006; as
set forth on the amortization schedule included among the exhibits
filed with the Registrant's report on Form 10-KSB for 1995 (the
Sound Safe Associates Amortization Schedule). The final payment of
the remaining balance of $173,128.17 is due on December 31, 2006.
Each payment is credited to interest and principal as indicated on
the Amortization Schedule. The above inclusive promissory note
wraps and is subordinate to a note and Deed of Trust dated February
1, 1976 between the Registrant (through it's wholly owned subsidiary
SOUND-SAFE ASSOCIATES, a Maryland Limited Partnership) as Grantor
and Mid-South Title Company, Inc. as Trustee, and First Mortgage
Corporation, a Washington Corporation, as Beneficiary, which Deed of
Trust secures a note of the Grantor in the original principal amount
of $875,300 bearing an interest rate of 9 3/4 per annum, due
December 31, 1996. The difference between payments on the wrap
around mortgage and the underlying mortgage has been (since October
1, 1987 when the note was called) and continues to be credited
towards payment of the debt service of a Demand Note due the
Registrant from SAFE-TEN ASSOCIATES, a Maryland Limited Partnership,
(including the schedule of uncollected principal and interest which
has been, and continues to accrued and being added back to the
note). A copy of such note is included among the exhibits filed as
a part the Registrant's report on Form 10-KSB for 1995.
As a material subsequent event the following is reported:
SOUND SAFE ASSOCIATES. A Limited Partnership formed under the Laws
of the State of Maryland, defaulted on the mortgage on the property
located in Memphis Tennessee because it was unable to satisfy the
pay-off balloon payment that was due on December 31, 1996 in the
amount of $174,801.00.
The mortgage holder, Lutheran Brotherhood, refused to negotiate
with SOUND SAFE ASSOCIATES, or extend the term of the mortgage and
refused further amortization payments from the lessor of the
underlying lease. Non Judicial Foreclosure was instituted and
finalized in August, 7, 1997. Copies of the notice of foreclosure
and advertisement of foreclosure are included as exhibits filed
with this 10K-SB.
page 18
First Bank as assignor, granted, conveyed, assigned and transferred
to Lutheran Brotherhood, Inc., a Minnesota corporation ("Lutheran
Brotherhood"), as assignee, all First Banks rights, title and
interest in and to the Original Deed of Trust, under that certain
Assignment of Deed of Trust dated May 19, 1976, and filed for
record as Instrument Number L2 9160 on May 28, 1976, in the
Register's Office of Shelby County, Tennessee ; and Assignment of
Leases under that certain Assignment of Assignment of Leases and/or
Rents dated May 19, 1976, and filed for record as Instrument Number
L2 9161 on May 28, 1976 and in the Register's of Shelby County,
Tennessee; and to Tripartite Agreement under that certain
Assignment of Tripartite Agreement dated May 19, 1976, and
recorded as Instrument Number L2 9162 in the Register's Office of
Shelby County, Tennessee. A copy of the these documents are set
forth as an Exhibit in this 10-KSB for Calender Year 1996.
On August 7, 1997, the mortgage holder, Lutheran Brotherhood,
foreclosed on the mortgage and purchased the fee at the scheduled
foreclosure sale.
As a result of these events, the Registrant has lost it's equitable
interest in the property, lost it's lease income, lost income equal
to the payments of the first mortgage and lost income equal to the
difference between payment of the mortgage and the amount of the
underlying mortgage.
As a result of these events of foreclosure, the Registrant wrote
off the balance of the related wrap around mortgage receivable
($251,722) and promissory note receivable of ($93,686).
The Registrant, through it's new president, is considering
future negotiation with Lutheran Brotherhood and the possibility of
purchasing the fee. Without a successful repurchase from Lutheran
Brotherhood the equity associated with this real property is lost .
In addition, the Registrant is considering an action to recover the
amounts due on a promissory note due from San Safe and the
difference between the wrap around mortgage and the underlying
mortgage foreclosed.
In addition, Through August 1997, the Registrant had received
funds from Sun West N.O. P. the lessee on the underlying lease
which represented the monthly rent payments on the underlying lease
by the tenant of the Memphis property. Because the mortgage holder
would not accept any amortization payments on their matured loan
from Sun West N.O.P., the Registrant was using proceeds to reduce
the related wrap around mortgage receivable.
c) Safeway Stores, Incorporated
As of December 31, 1996,
(1) The lease is dated as of January 1, 1976 with the primary term
of the lease extending to and including the last day of March,
1998.
page 19
The Lessee made an irrevocable offer to purchase the property
on December 31, 1995, at a price of $136,999.93. In July and
August 1995, notices of rejection of the offer to purchase
were sent. A dispute has arisen concerning the sufficiency of
the notices. The Lessee increased its offer to purchase the
property to $150,000; however, the limited partners of
San-Safe Associates objected to the sale. The partnership is
currently negotiating with holder of the underlying mortgage
on the property for a determination that such mortgage has
been satisfied (see "Item 3: Legal Proceedings").
(2) Fee Property
All buildings, structures and other improvements including all
building equipment and building equipment and building
fixtures owned by Lessor, if any (including, without
limitation, equipment and fixtures constituting a portion of
the heating, ventilation or air conditioning systems installed
in such buildings, structure or other improvement, located on
that part of Tract 4031-1-1 REPLAT OF PART OF WHITE OAKS
SUBDIVISION, a subdivision of land, and part of the Southwest
1/4 of the Southwest 1/4 of Section 32, Township 10, Range 24,
in Kansas City, Wyandotte County, Kansas, described as
follows: COMMENCING at the Southeast corner of said 1/4
Section; thence North 89 degrees 46'08" along the South line
of said 1/4 1/4 Section, a distance of 275.34 feet; thence
North 0 degrees 13'52" East, a distance of 60.01 feet to a
point on the North right-of-way line of Parallel Avenue (as
now established), and the TRUE POINT OF BEGINNING of the Tract
of land to be herein described; thence continuing North 0
degrees 13'52" East, a distance of 474.81 feet to a point on
the North line of said Tract 403a-1-1; thence South 89
degrees 38'40" East along the North line of said Tract
403A-1-1, a distance of 122.14 feet to an angle point therein;
thence North 89 degrees 06'33" East and continuing along the
North line of said Tract 403A-1-l, a distance of 125.02 feet
to a point on the East right-of-way line of 81st Street, (as
now established) said point being North 89 degrees 34'40"
West, 30.00 feet from the East line of said 1/4 1/4 section;
thence South 0 degrees 25' 20" West along the West
right-of-way line of said 81st street, a distance of 23.90
feet to the point of curve in said right-of-way line; thence
Southerly and Southwesterly along said right-of-way line along
a curve to the right, an arc distance of 229.70 feet;
thence South 7 degrees 25'20" West, tangent to the last
described curve and continuing along said right-of-way line, a
distance of 178.17 feet to the point of curve in said
right-of-way line; thence Southwesterly along a curve to the
right, tangent to the last described course, having a radius
of 88.31 feet, and arc distance of 67.01 feet to the
intersection of said West right-of-way, a distance of 164.55
feet to a jog therein; thence North ) degrees 25'20" East
along said jog, a distance of 10.00 feet; thence North 89
degrees 46'08" West and continuing along said North
right-of-way line, a distance of 13.83 feet to the POINT OF
BEGINNING.
page 20
(3) Basic Lease Schedule
For the period commencing January 1, 1976 and ending on March
31, 1998, the amount of $75,554.92 per annum, payable in equal
quarter-annual installments of $18,888.73, payable on the
first day of each January, April, July and October during such
period.
(4) Assignment of Lease Income
The lease Income has been and continues to be assigned to
service a thirty (30) wrap around mortgage owned by a wholly
owned subsidiary of the Registrant, FIRST KEN-CO PROPERTIES,
INC., A Delaware Corporation for the sum of SIX HUNDRED
SIXTY-EIGHT THOUSAND FOUR HUNDRED TEN DOLLARS ($668,410.00)
with an effective interest rate of 12.32% per annum; payable
quarterly, due on the first day of January, June, July, and
January up to and including January 1, 2005 as set as set
forth on the amortization schedule included among the exhibits
filed as a part the Registrant's report on Form 10-KSB for
1995 (the First Ken-Co Properties Amortization Schedule). The
final payment of the remaining balance of $173,128.17 is due
on December 31, 2006. Each payment is credited to principal
and interest. The above inclusive promissory note wraps and is
subordinate to a note and Deed of Trust dated October 29, 1990
(a revision of an inclusive Promissory Note dated November 6,
1975) between the Registrant (FIRST KEN-CO PROPERTIES, INC.),
a Delaware Corporation as Mortgagor, and ELEVENTH WALLINGFORD
PROPERTIES, Inc., a Delaware Corporation as Mortgagee, which
Mortgage secures a note of the Mortgagor in the original
principal amount of $685,000 bearing an interest rate 9 3/4%
per annum, due December 31, 1995. The partnership is
currently seeking a determination that such obligation has
been satisfied or as to any remaining balance due claimed.
The difference between payments on the wrap around mortgage
and the underlying mortgage has been (since October 1, 1987
when the note was called) and continues to be credited towards
payment of the debt service of a Demand Note due the
Registrant from SAN-SAFE ASSOCIATES, a Maryland Limited
Partnership. (including the schedule of uncollected interest
and principal which is accruing and being added back to the
note). A copy of such note was included among the exhibits
filed as a part the Registrant's report on Form 10-KSB for
1995.
As a material subsequent event:
On October 21, 1997, The District Court of Kansas entered an Order
of Dismissal With Prejudice of Associated Wholesale Grocers, Inc., vs San
Safe Associates, et. al. Case No. 972072WC. The order is based on a
Joint Stipulation of parties involved in the litigation. A copy of the
Order of Dismissal is filed as an Exhibit to this Form 10-KSB for 1996.
page 21
On October 20, 1997, Associated Wholesale Grocers , Inc., a
Missouri Corporation; First Ken-Co Properties, Inc., a Delaware
corporation; Fleet National Bank , a national banking association;
Safeway Inc., a Delaware corporation, and San Safe Associates, a
Maryland limited partnership; entered a mutual release involving the
Kansas litigation and Maryland litigation and the First Ken-Co., and
Safeway lease dated October 15, 1975. A copy of that mutual release is
filed as an Exhibit to this Form 10-KSB for 1996.
In the mutual release, Associated Wholesale Grocers agreed to pay
the sum of One Hundred Fifty Thousand Dollars ($150,000) to Fleet
National Bank in exchange for the transfer of free, clear, insurable, and
marketable title of the Subject Property to Gour B Corporation, a Kansas
corporation; Fleet National Bank receives Fifty-two Thousand
($52,000) of the above $150,000, with the remaining balance distributed
to First Ken-Co Properties and San Safe at closing on October 16, 1997;
On October 20, 1997, Ken-Co and San Safe agreed to settle the
Kansas City Litigation, Case No. 97-2072-JWL, with Associated Wholesale
Grocers,Inc., Fleet National Bank, and Safeway, Inc., but reserved
claims against each other. A copy of that agreement is filed as an
Exhibit.
The parties agreed that $98,000.00 is to be distributed to First
Ken-Co. Properties and San Safe to be held in escrow; The parties also
agreed that First Ken-Co. Properties and San Safe would litigate in the
State of Maryland all remaining issues between them, including the
rightful disbursement of the 98,000.00 held in escrow. In that same
matter, First Ken-Co. Properties is expected to seek from the limited
partners of San Safe an accounting and damages in the amount in excess of
$300,000.00. Registrant holds the position that the ultimate rightful
disbursement of a substantial portion of these funds is to go to the
registrant for the purpose of reduction of wrap around mortgage
indebtedness and promissory note receivables. A lawsuit was filed January 7,
1998, a copy of which is attached as an Exhibit to this 10-KSB for 1996.
d) Payless Drug Stores Northwest, Inc.
(1) The lease dated as of April 1, 1977 with the primary term of
the lease terminating October 1, 2002.
(2) Fee Property:
All buildings, structures and other improvements (other than
Additions) presently situated or hereafter constructed upon
the Land (the "Leased Improvements"); and all easements,
rights and appurtenances relating to the Land and the leased
Improvements; and, all fixtures, including all components
thereof, now or hereafter located in, on or used in connection
with Leased Improvements, together with all replacements,
modifications and alterations thereof made pursuant to the
lease (collectively, the "Fixtures").
page 22
The above improvements, etc., are located on a parcel of land
located in the Northeast quarter of Section 2, Township 2
South, Range 1 West, Willamette Meridian, Washington County,
Oregon, more particularly describe as follows: Beginning at
the most Southerly corner of Parcel II PAY LESS SHOPPING
CENTER, a plat of record in Washington County, Oregon; thence
following the Southeasterly line of said Parcel II North 44
degrees 50'05" East 125.69 feet; thence Northeast 45 degrees
09'55" West 4.54 feet; thence 44 degrees 50'05" East 104.00
feet to the most Easterly corner of said Parcel II; thence
along the Northeasterly line of said Parcel II, North 45
degrees 09' 55" West 495.16 feet to the most Northerly corner
of said Parcel II; said point being located on the
Southeasterly right of way line of S.W. Main Street as shown
on the plat of the aforementioned PAY LESS SHOPPING CENTER;
thence following said right of way line 21.28 feet along the
arc of a 150.00 foot radius curve concave to the Northwest
(long chord bears South 81 degrees 00' 24" West 21.26 feet) to
a point of reverse curve; thence 55.68 feet along the arc of
a 380.23 foot radius curve concave to the Southeast (long
chord bears South 80 degrees 53' 14" West 55.63 feet); thence
South 14 degrees 36' 10" East 106.97 feet; thence South 44
degrees 31' 30" West 114.00 feet to a point on the South-
westerly line of said Parcel II; thence South 45 degrees 16'
18" East 45.225 feet to the point of beginning.
(3) Basic Lease Terms
The Lessee is obligated to pay to the Registrant an annual
fixed rental (the "Fixed Rent") in advance of $107,964.00
payable in equal quarter-annual installments of $26,991.00
each, on the 1st day of April, July, October and January to
and including October 1, 2002. The Basic Rent is paid ab-
solutely net to the lessor, so that the lease shall yield the
Lessor the full amount of the installments of Basic Rent
throughout the Term.
(4) Lessee Renewal Options
If no Event of Default has occurred and be continuing, lessee
has been granted the right to extend the lease for five
successive terms of five years each, upon giving written
notice to the Registrant of one or more of such extensions at
least one hundred eighty (180) day prior to the termination of
the then current Term. During each such extended term all of
the terms and conditions of the lease shall continue in full
force and effect except that the annual basic rent during the
first extended term is $52,500 and during each of the
remaining four extended terms the annual basic rent will be
$31,500, payable each extended term in equal quarter-annual
installments in advance.
page 23
(5) Assignment of Lease Income
The lease Income has been and continues to be assigned to
service a thirty (30) year wrap around mortgage issued by a
wholly owned subsidiary of the Registrant, MONTCO ASSOCIATES,
a Limited Partnership formed under the Laws of Maryland for
the sum of ONE MILLION FIFTY-EIGHT THOUSAND TWO HUNDRED AND
FIFTEEN DOLLARS ($1,058,215.00) with an effective interest
rate of 9.0825 percent per annum; payable quarterly on the
first day of March, June, July up to and including January 1,
2003 as set forth on the amortization schedule include among
the exhibits filed as a part the Registrant's report on Form
10-KSB for 1995 (the Montco Associates Amortization Schedule).
The final payment of the remaining balance $266,320.98 is due
on December 31, 2002. Each payment will be credited to
principal and interest as set forth in the Amortization
Schedule. The above inclusive promissory note wraps and is
subordinate to a note and Deed of Trust dated April 1, 1977
between the Registrant (MONTCO ASSOCIATES) as Mortgagor, and
SIXTH BASINGSTOKE PROPERTIES, INC., as Mortgagee, which
Mortgage secures a note of the Mortgagor in the original
principal amount of $1,029,000 bearing an interest rate of
9.75% per annum, due January 1, 2003. The difference between
payments on the wrap around mortgage and the underlying
mortgage has been (since October 1, 1987 when the note was
called) and continues to be credited towards payment of the
debt service of a Demand Note due the Registrant from PAYNOR
ASSOCIATES, A Maryland Limited Partnership. (including the
schedule of uncollected interest and principal which is
accruing and being added back to the note). A copy of such
note is included among the exhibits filed as a part the
Registrant's report on Form 10-KSB for 1995.
Item 3. Legal Proceedings.
Litigation:
As of December 31, 1996;
The Registrant was not a party to any legal proceedings. Although
the Registrant is not a party to the following proceedings directly, they
involve real estate in which the Registrant has an interest:
First Ken-Co Properties, Inc., v Safeway Stores, Inc., case number
96351021/CL221148, in the Circuit Court for Baltimore County, Maryland
(the "Maryland Case"); and, Associated Wholesale Grocers, Inc., v San Safe
Associates, et. al., case number 97-2072-JWL , in the United States
District Court for the District of Kansas (the "Kansas Case").
The current tenant (by assignment from the original tenant) for the
Registrant's Kansas City property (located at 8120 Parallel, in the City
of Kansas City, Wyandotte County, Kansas), claims to have had a
conditional right to purchase such property (based on the rights of the
original tenant) and allegedly submitted an irrevocable offer to
purchase. The plaintiff (a predecessor in interest to the rights of the
Registrant) alleged that the assignment of lease rights to the current
tenant had not been adequately effected and that it was, pursuant to the
terms of the lease, entitled to continue dealing with the original tenant
for, among other purposes, provision of required notices.
page 24
The plaintiff alleged that it exercised its right to reject the
tenant's offer to purchase through notice of rejection tendered to the
original tenant. The defendant/tenant has answered, alleging that
because of subsequent assignments of the lease, notice to prior parties
in interest was not adequate and consequently, that the Registrant's
counsel failed to take the steps required to properly reject such offer
as to all potential parties involved.
The corporation in whose name record ownership was originally
registered, as general partner of a limited partnership, initiated suit
against the tenant in Baltimore, Maryland for declaratory relief that
notice of rejection was adequate. The defendant then initiated action in
the United States District Court for the District of Kansas to the same
subject matter seeking judgment requiring the Plaintiff in the Maryland
action to sell the property. That action has been contested. The
defendant/tenant in the Maryland Case has filed a motion seeking to have
the venue of that law suit changed to Kansas City and to consolidate the
actions, and the plaintiff in the Maryland Case has contested such
motion. Lease payments continue to be made. The plaintiff in the
Maryland action is also considering interposing counterclaims in the
Kansas action, including claims alleging violations of the lease
(unapproved improvements that detrimentally affected the lessor's
business).
Because the Registrant is not a party, its potential exposure ap
pears to be limited to sharing in the proceeds of a forced sale, if the
litigation is determined in favor of the current tenant.
As a material subsequent event the following information is provided:
1. On October 21, 1997, The District Court of Kansas entered an
Order of Dismissal With Prejudice of Associated Wholesale Grocers, Inc.,
vs San Safe Associates, et. al. Case No. 972072WC. The order is based
on a Joint Stipulation of parties involved in the litigation. A copy
of the Order of Dismissal is filed as an Exhibit to this Form 10-KSB for
the year ending December 31, 1996.
On October 20, 1997, Associated Wholesale Grocers , Inc., a
Missouri Corporation; First Ken-Co Properties, Inc., a Delaware
corporation; Fleet National Bank, a national banking association;
Safeway Inc., a Delaware corporation, and San Safe Associates, a
Maryland limited partnership; entered a mutual release involving the
Kansas litigation and Maryland litigation and the First Ken-Co .And
Safeway lease dated October 15, 1975. A copy of that mutual release is
filed as an Exhibito this Form 10-KSB for the year ending 1996.
In the mutual release, Associated Wholesale Grocers agrees to pays
the sum of One Hundred Fifty Thousand Dollars ($150,000) to Fleet
National Bank in exchange for the transfer of free, clear, insurable, and
marketable title of the Subject Property to Gour B Corporation, a Kansas
corporation; Fleet National Bank receives Fifty-two Thousand
($52,000) of the above $150,000, with the remaining balance distributed
to First Ken-Co Properties and San Safe at closing on October 16, 1997;
On October 20, 1997, Ken-Co and San Safe agreed to settle the
Kansas City Litigation, Case No. 97-2072-JWL, with Associated Wholesale
Grocers,Inc., Fleet National Bank, and Safeway, Inc., but reserved
claims against each other. A copy of that agreement is filed as an
Exhibit to this Form 10-KSB for the year ending December 31, 1996.
The parties agreed that $98,000.00 is to be distributed to First
Ken-Co. Properties and San Safe to be held in escrow; The parties also
agree that First Ken-Co. Properties and San Safe will litigate in the
State of Maryland all remaining issues between them, including the
rightful disbursement of the 98,000.00 held in escrow; The litigation to
take place inn the Circuit Court for Baltimore City. Maryland;
2. Sound Safe Associates, defaulted on the property located in
Memphis Tennessee because it was unable to satisfy the pay-off balloon
payment that was due on December 31, 1996 in the amount of $174,801.00.
Non Judicial Foreclosure was instituted and finalized in August, 7, 1997.
Copies of the Notice of Foreclosure and advertisement of Foreclosure
are included as exhibits filed with this 10K-SB. Sound Safe may have
certain rights under Tennessee Law concerning equity of concerning any
procedural defects in the non-judicial foreclosure. It is possible
after examination of the legal issues by Tennessee counsel this matter
might result in further legal action.
Furthermore, Sound Safe is obligated to pay a wrap around mortgage
that is more than the above described mortgage. The difference between
the payment due and the wrap around mortgage has reduced the amount of
a certain debt owed by San Safe to the Registrant. The Registrant may
have a cause of action against either San Safe or Sound Safe or both for
payment of the San Safe indebtedness.
In addition, the Registrant is considering an action to recover the
amounts due on a promissory note due from San Safe and the difference
between the wrap around mortgage and the underlying mortgage foreclosed
The registrant has used its best efforts to obtain information
concerning the litigation and potential litigation issues now pending and
reported above, however , David Albright, Jr., the lead counsel on most
of these issues described in litigation and potential litigation, has
been unwilling to effectively comment or communicate with Registrant's
officers, attorney's and agents concerning the litigation and potential
litigation. It is possible that Registrant is unaware of certain actions
taken by Mr. Albright on behalf of Registrant concerning litigation or
potential litigation.. Unless communication improves Registrant is
considering appropriate action against Mr Albright for his failure to
effectively communicate. Copy of letter to Mr. Albright is attached as
an Exhibit to this 10-KSB for 1996.
page 26
Potential Litigation:
As of December 31, 1996,
Based on information available to the Registrant, it believes that there
is a potential for litigation involving:
1. San Safe Associates limited partners (who have retained counsel to
assist them in removing an affiliate of the Registrant as general
partner). Management has retained legal counsel who is negotiating
with counsel for the limited partners on behalf of the Registrant
and the general partner. See Item 2, Description of Properties -
Investment Property - A. Leases - Associated Wholesale Grocers,
Inc., Lease.
2 The Registrant's predecessors in interest (the Milpitas
partnerships) entered into negotiations with Exten Ventures, Inc.,
a Delaware corporation, during 1990, for sale of the assets
subsequently assigned to the Registrant. The Milpitas Partnerships
have advised the Registrant's management that the transactions were
never concluded due to the inability or refusal of Exten Ventures,
Inc., to comply with its commitments. While management notes that
applicable status of limitation on any alleged transactions with
Exten Ventures, Inc., have probably expired, management cannot
provide any assurances that Exten Ventures, Inc., will not initiate
litigation in the future.
3. The Registrant has not made the final payments required under the
mortgage for its Kansas City property, although it continues to
make periodic payments which the mortgagor has continued to accept.
4. The Registrant has used its best efforts to obtain information
concerning the assets it obtained from Milpitas; however, much of
the information was under the control of Charles Schnepfe,
Milpitas' accountant, who served for material periods as its chief
executive officer and as the chairman of its board of directors.
Mr. Schnepfe refuses to provide any information with respect to
activities by Milpitas during the time it was under his control, to
the Registrant. It is possible that the Registrant is unaware of
matters performed or ignored by Mr. Schnepfe which could prove
material in the future. Mr. Schnepfe was provided with a copy the
Registrant's report on Form 10-KSB for 1995 with instructions to
comment on any inaccuracies or deficiencies but did not indicate
that any existed, having refused to respond.
page 27
As a material subsequent event,
.5. From August to October, 1997 the Registrant has received additional
funds from Sun West N.O.P. for rent on the Tennessee property that
had been subject to the non-judicial foreclosure on
August 7, 1997. Demand for return of these rents paid after the
date of the Non- Judicial foreclosure. The Registrant has not
returned the rents as of the filing of this 1996 10KSB.
6. The registrant has used its best efforts to obtain information
concerning the litigation and potential litigation issues now
pending and reported above, however, David Albright, Jr., the lead
counsel on most of these issues described in litigation and
potential litigation, has been unwilling to effectively comment or
communicate with Registrant's officers, attorney's and agents
concerning the litigation and potential litigation. It is possible
that Registrant is unaware of certain actions taken by Mr. Albright
on behalf of Registrant concerning litigation or potential
litigation. Unless communication improves Registrant is
considering appropriate action against Mr Albright for his failure
to effectively communicate. Copy of letter to Mr. Albright is
attached as an Exhibit to this 10-KSB for 1996.
7.
Other Legal Matters:
As of December 31, 1996:
The Registrant is seeking to determine the remaining balance due on
underlying mortgages involving the Safe-way, Inc., property and believes
that the remaining balance is approximately $40,000. However, a trustee
involved in the transaction has advised the Registrant's counsel that it
should be compensated for services associated with such mortgage.
Consequently, the Registrant cannot currently quantify the total costs
that will be required to discharge such mortgage.
As a material subsequent event,
During August of 1997, Mr. Gene R. Moffitt resigned as the
Registrant's President, Asset Manager and Chief Operating Officer of the
Registrant. It is the Compaany's position that this resignation violated
the terms of his employment and acquisition agreements, the Registrant is
negotiating for him to voluntarily return all of the Registrant's common
stock that has been issued to him. Should such securities not be
voluntarily returned, the Registrant would probably sue Mr. Moffitt for
its return alleging breach of contract.
Mr. Moffitt submitted his letter of resignation dated August 1,
1997, In his letter Mr. Moffitt stated the resignation was due to a
failure to communicate concerning certain operations of business and
business activities of the Chairman of the Board. Mr Moffit gave no
specific reasons for his resignation. A Copy of the letter of Resignation
is attached as an Exhibit to this Form 10-KSB for the year ending December
31, 1996.
It is the Registrant's position that Mr. Moffitt failed to properly
communicate with the Registrant.
page 28
On the 28th day of November, 1997, The Board of Directors of the
Registrant accepted the resignation of Gene R. Moffitt on the basis that
Mr. Moffitt, individually and through the entity known as Moffitt
Properties, LTD., exercised poor judgement in recent efforts to acquire
certain properties and Mr. Moffitt has failed to communicate with the
Board of Directors in a timely and appropriate fashion. Copy of the Board
of Directors"s Resolution is attached as an Exhibit to this Form 10-KSB
for the year ending December 31, 1996.
Mr. Moffitt's failure to communicate is in direct violation of his
employment agreement, and as such, the registrant will negotiate with Mr.
Moffitt for the voluntary return of the common stock of the Registrant
that has been issued to him. Should such securities not be voluntarily
returned the registrant may find it necessary to sue Mr Moffitt for it's
return.
On the same day , The Board of Directors of the Registrant dismissed
and removed Rafi Weiss from the position of Senior Vice President of
Acquisitions. For what ever reason, known only to Mr. Weiss, he failed or
refused to cooperate with counsel in an effort to prepare a basic due
diligence package concerning this filing. A copy of the Board of
Director's Resolution is attached as an Exhibit. To this form 10-KSB for
the year ending December 31, 1996.
Mr. Weiss's failure to cooperate is in direct violation of his
employment agreement, and as such, the registrant will negotiate with Mr.
Weiss for the voluntary return of the common stock of the Registrant that
has been issued to him. Should such securities not be voluntarily
returned the registrant may find it necessary to sue Mr Weiss for it's
return.
Non Judicial Matters of Concern:
As a material subsequent event, The Real Property and building
improvements, thereon in the City of Memphis, County of Shelby, designated
as SWC Winchester Road & Mill Branch Road, were subject to a Non Judicial
Foreclosure on August 7, 1997. See Description of Real Estate and
Operating data, Safeway Stores, Inc.
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant did not submit any matter to a vote of security
holders during its fiscal year ended December 31, 1996.
page 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stock-
holder Matters.
(a) Market Information.
The Registrant's Common Stock has been traded in the past in the
over-the-counter market. However, there is currently no established
public trading market for the Common Stock. Information regarding
quotations of bid and asked prices for the Common Stock is not currently
reported by the National Quotation Bureau. Accordingly, there is no
information available to the Registrant as to bid quotations during the
quarterly periods in the years 1993, 1994, 1995 or 1996, as called for by
this Item.
Immediately following filing of this report, the Registrant intends
to prepare a disclosure document complying with the requirements of
Securities and Exchange Commission Rule 15c2-11, and to have a Form
15c2-11 filed with the National Association of Securities Dealers, Inc.,
by a member thereof, permitting resumption of trading in the Registrant's
securities. Management can provide no predictions as to the trading value
of the Registrant's securities, if and when trading resumes.
(b) Holders.
The number of holders of record of Common Stock, $.01 par value, of
the Registrant (its sole class of common equity) as of the close of
business on August 31, 1997 was approximately 2,230.
(c) Dividends.
The Registrant has not declared any dividends on its Common Stock,
and does not expect to do so at any time in the foreseeable future. The
Registrant expects to pay dividends on its preferred stock after its
issuance, in order to permit its use as a method to pay for real estate
acquisitions.
(d) Selected Financial Data.
The following selected financial data should be read in conjunction
with the financial statements of the Registrant and the notes thereto
included elsewhere herein.
1994 1995 1996
Net Revenues * ** $ 0 154 225
Income/(loss) from Operations (17,136) (41) (250)
Income/(loss) from Operations
Per Share *** ( .01) (.0167) (.072)
Total Assets 4,843 2,584,527 2,055,534
Total Liabilities 61,029 1,917,582 1,618,255
Stockholders' Equity (Deficit) (56,186) 666,945 437,579
page 30
_______
As noted in Part I Item 1 above, in March 1974, the Registrant was
forced to discontinue its operations as a result of the foreclosure
by the Registrant's principal creditor, on its security interest in
the Registrant's operating assets. Until March of 1995, the
Registrant's activities were limited to the collection of royalties
under the License Agreement and the Victor Agreement and the
disbursement of funds under the Creditors Plan as described in Item
1 in Part I. Those activities ceased in August 1991.
** Revenue for 1996 includes lease, interest and wrap mortgage income.
*** Earnings per share were calculated using the weighted average of
common stock issued and outstanding.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operation
During the year ended December 31, 1996 the Registrant reported
income of approximately $225,000 as compared to income from all sources of
$154,000 during the prior year ended.
During the year ended December 31, 1996 the Registrant's cost of
revenue was approximately $300,090, as compared to $194,884 during the
prior year. The increase was attributable to the bad debt expense
incurred for the year ending December 31, 1996.
During the year ended December 31, 1996 the Registrant reported a
net loss of approximately $(249,559), or $0.073) per share, compared to
41,045 or $.0167 per share during the prior year end. The increase in net
loss primarily reflects the bad debt expense previously discussed.
Liquidity and Capital Resources
As of December 31, 1996 the Registrant had a working capital
position of approximately $(243,299) as compared to a working capital
position of $(194.792) for the year ended December 31, 1995. This
increase reflects the write off of the wrap around mortgage and the
attached note receivable of the transferred property. To date the cash
flow generated from operations have been adequate to meet the
Registrant's mortgage obligations. A shareholder has been contributing
funds to meet various general and administrative expenses required to
fulfill all of the Registrant's obligations. No officer of the Registrant
has been receiving or accruing compensation at this time.
Item 7. Financial Statements.
Response to this Item is contained in Item 14(a).
page 31
Item 8. Changes in and Disagreements with Accountants.
General
In conjunction with the change in control of the Registrant during
1995, it replaced the auditor used by former management, William C.
Kugler, C.P.A., of Woodbury, New York, with Leo J. Paul, P.A., of Miami,
Florida. There were no disputes or disagreements associated with such
change. During March of 1996, Mr. Paul advised the Registrant that
despite having committed to prepare the audit for 1995, other commitments
made it impossible for him to perform his duties, whereupon the registrant
retained its current auditor, Joel S. Baum, P.A. Correspondence
pertaining to Mr. Paul was filed with the Securities and Exchange Commis-
sion in a 12b-25 Notification during March of 1996 and is incorporated
herein by reference.
Mr. Kugler
Mr. Kugler's report on the financial statements for either of the
past two years contained no adverse opinion or a disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the Registrant's two most recent fiscal years and any
subsequent interim period preceding Mr. Kugler's resignation, there were
no disagreements on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Mr. Kugler would
have caused him to make a reference to the subject matter of the
disagreement(s) in connection with his report.
None of the following events occurred during the Registrant's two
most recent fiscal years and any subsequent interim period preceding Mr.
Kugler's resignation, reportable events"):
(A) Mr. Kugler's having advised the Registrant that the internal
controls necessary for the Registrant to develop reliable financial
statements do not exist;
(B) Mr. Kugler's having advised the Registrant that information had come
to Mr. Kugler's attention that led him to no longer be able to rely
on management's representations, or that made him unwilling to be
associated with the financial statements prepared by management;
page 32
(C) (1) Mr. Kugler's having advised the Registrant of the need to
expand significantly the scope of its audit, or that
information came to Mr. Kugler's attention during the time
period covered by Item 304(a)(1)(iv) of Securities and Exchange
Commission Regulation SK, that if further investigated might
have (i) materially impacted the fairness or reliability of
either: a previously issued audit report or the underlying
financial statements, or the financial statements issued or to
be issued covering the fiscal period(s) subsequent to the date
of the most recent financial statements covered by an audit
report (including information that might have prevented him
from rendering an unqualified audit report on those financial
statements), or (ii) caused him to be unwilling to rely on
management's representations or be associated with the
Registrant's financial statements, and
(2) due to Mr. Kugler's resignation (due to audit scope limitations
or otherwise) or dismissal, or for any other reason, Mr. Kugler
did not so expand the scope of his audit or conduct such
further investigation; or
(D) (1) Mr. Kugler's having advised the Registrant that information
came to Mr. Kugler's attention that he has concluded materially
impacts the fairness or reliability of either (i) a previously
issued audit report or the underlying financial statements, or
(ii) the financial statements issued or to be issued covering
the fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including
information that, unless resolved to Mr. Kugler's satisfaction,
would prevent him from rendering an unqualified audit report on
those financial statements), and (2) due to Mr. Kugler's
resignation or for any other reason, the issue was not resolved
to Mr. Kugler's satisfaction prior to his resignation,
dismissal or declination to stand for re-election.
Mr. Paul
Mr. Paul's report on the financial statements for either of the past
two years contained no adverse opinion or a disclaimer of opinion, nor was
it qualified or modified as to uncertainty, audit scope, or accounting
principles.
During the Registrant's two most recent fiscal years and any
subsequent interim period preceding Mr. Paul's resignation, there were no
disagreements on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Mr. Paul would
have caused him to make a reference to the subject matter of the
disagreement(s) in connection with his report.
None of the following events occurred during the Registrant's two
most recent fiscal years and any subsequent interim period preceding Mr.
Paul's resignation, reportable events"):
(A) Mr. Paul's having advised the Registrant that the internal controls
necessary for the Registrant to develop reliable financial
statements do not exist;
(B) Mr. Paul's having advised the Registrant that information had come
to Mr. Paul's attention that led him to no longer be able to rely on
management's representations, or that made him unwilling to be
associated with the financial statements prepared by management;
page 33
(C) (1) Mr. Paul's having advised the Registrant of the need to expand
significantly the scope of its audit, or that information came
to Mr. Paul's attention during the time period covered by Item
304(a)(1)(iv) of Securities and Exchange Commission Regulation
SK, that if further investigated might have (i) materially im-
pacted the fairness or reliability of either: a previously
issued audit report or the underlying financial statements, or
the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including
information that might have prevented him from rendering an
unqualified audit report on those financial statements), or
(ii) caused him to be unwilling to rely on management's rep-
resentations or be associated with the Registrant's financial
statements, and
(2) due to Mr. Paul's resignation (due to audit scope limitations
or otherwise) or dismissal, or for any other reason, Mr. Paul
did not so expand the scope of his audit or conduct such
further investigation; or
(D) (1) Mr. Paul's having advised the Registrant that information came
to Mr. Paul's attention that he has concluded materially
impacts the fairness or reliability of either (i) a previously
issued audit report or the underlying financial statements, or
(ii) the financial statements issued or to be issued covering
the fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including
information that, unless resolved to Mr. Paul's satisfaction,
would prevent him from rendering an unqualified audit report on
those financial statements), and (2) due to Mr. Paul's
resignation or for any other reason, the issue was not resolved
to Mr. Paul's satisfaction prior to his resignation, dismissal
or declination to stand for re-election.
page 34
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons#;
Compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended.
Name Age Term Positions
Edward
Granville-Smith, Jr. 65 * Chairman of the Board of Directors,
Director, Chief Executive Officer;
Gene R. Moffitt 55 *** President, Asset Management, Chief
Operating Officer;
Rafi Weiss 36 ** Senior Vice President, Acquisitions;
Donald E. Homan 55 ** Vice President & Chief Financial Officer;
Charles J. Scimeca 53 ** Secretary & Treasurer
______
# In addition to the Directors, Executive officers, are the following
control persons or potential control persons: Jerry C. Spellman,
William A. Calvo, III, Joseph D. Radcliffe, Diversified Corporate
Consulting Group, L.L.C.
Elected on March 23, 1995, by the board of directors of the
Registrant, to serve as a director until the next annual meeting of
the Registrant's stockholders, and until his successors are elected,
qualified and assume their offices. Service as an officer is at the
pleasure of the board of directors. In November, 1997 was elected
as President and Chief Operating Officer.
** Elected on March 31, 1996, and hold office at the pleasure of the
Registrant's Board of Directors. In November, 1997 Rafi Weiss was
removed from his position with the Registrant in November, 1997.
*** Elected on March 31, 1996, and resigned on August 2, 1997.
Resignation accepted by the Registrant's Board of Directors in
November, 1997.
Biographies of Directors, Officers and Director Nominees
1. Edward Granville-Smith, Jr.
As of December 31, 1996, E. Granville-Smith, Jr., age 65, has
since March 23, 1995, served as the Registrant's president, as a member of
its Board of Directors (in which he serves as Chairman) and as the
Registrant's Chief Executive Officer. He was President of Equity Growth
Systems, Inc., a Registrant specializing in structuring and marketing
mortgage backed securities as well as the acquisition of select commercial
real estate for its own account. From 1981 to the present, he has been a
real estate consultant and principal involved in various aspects of
commercial real estate financing and syndication, both internationally and
domestically. One primary accomplishment during this period was the
successful sale of the real estate assets of some twenty-nine limited
partnerships to both domestic and foreign investors. From 1972 through
1980, he was Chairman of the Board, Chief Executive Officer and President
of United Equity Corporation, a Registrant which was primarily involved in
the structuring, financing and marketing, through the syndication of
various tax incentive ventures with an aggregate valuation in excess of
$100 million. From 1959 through 1972, Mr. Granville-Smith, Jr. built the
Washington Insurance Agency, Inc., and became the Chairman of one of the
top one percent of insurance brokerage houses in the Washington area.
page 35
Mr. Granville-Smith, attended Brown University from September, 1951
through June, 1952 at which time he entered the United States Marine
Corps. Upon discharge from the Marine Corps in 1955, he enrolled in the
Georgetown University School of Foreign Service and graduated in June of
1959 with a B.S.F.S. degree. Mr. Granville-Smith's professional af-
filiations include CLU and CPCL.
As a material subsequent event, E. Granville Smith, Jr. was elected
President an Chief operating Officer of the Registrant to serve at the
pleasure of the Registrant's Board of Directors in addition to his duties
as of December 31, 1996.
Gene R. Moffitt
As of December 31, 1996, Gene R. Moffitt, age 54, served as the
Registrant's Executive Vice President for Asset Management and Chief
Operating Officer. Mr. Moffitt has 28 years of commercial real estate in
the area of development and sales, leasing and and property management.
For longer than the past five years , he has served as a senior vice-
president, officer and member of the board of directors of Block &
Company, Inc., Realtors of Kansas City, Missouri, one of the largest
brokerage firms in the Midwest.
Mr Moffitt is a graduate of Central Missouri State University,
Bachelor of Science degree in business administration). He is a member of
the Kansas City Real Estate Board, the Missouri Association of Realtors,
the National Institute of real estate Brokers and the international
Council of Shopping Centers. He has served as a panelist and principal
speaker for educational programs, has served on the International Council
of Shopping Centers, (I.C.S.C. ), the National Association of Corporate
Real Estate Executives (N.A.C.O.R.E.), the International Association of
Assessing Officers, (I.A.A.) And Collier's International. Teaching
credits include guest lecturer at the University of Missouri, Kansas
City, Kansas University, fifth year architectural classes. Mr Moffitt
serves as consultant to Swope Parkway Health Center of Kansas City,
Community Builders of Kansas City and to applied Urban Research Institute.
As a material subsequent event, on August 2, 1997 Mr. Moffitt
resigned as President and Chief Operating Officer of the Registrant. On
29th day of November, 1997, the Registrant accepted the resignations.
page 36
Rafi Weiss
As of December 31, 1996, Mr. Weiss, age 36, served as the
Registrant's vice president for acquisitions. He has been involved in the
real estate industry for the past 13 years. He graduated from Brooklyn
College in the summer of 1979, with a Bachelor Of Science degree in
Political Science. Upon graduation in 1979, he immediately began selling
real estate as a salesman for Erwin Weiss, a local broker. Six months
later he qualified as a broker, licensed by the State of New York, and
opened Weiss Realty, his own firm. Since the summer of 1983, he has been
employed by Tricon Capital Inc., a firm in New York City and left the
residential market in Brooklyn. His activity was restricted to commercial
transactions in the City of New York. A total of 14 transactions
involving loft buildings were sold. In 1984 Mr. Rafi expanded his ac-
tivities from the New York City real estate market to the national real
estate market, where his clients have included Reisman Property Interests,
Sabron Funding, Patrician Properties, National Property Analysts, National
Property Advisors of Vermont, Core Properties, The Karan Group, American
Realty of Pennsylvania, etc. In 1994, Tricon Capital was acquired by Bell
Atlantic, as a wholly owned subsidiary which now operates as Tricon
Development, Inc.
As a material subsequent event, In November, 1997, the Board of
Directors removed Mr. Weiss from the above positions.
Donald E. Homan
Mr. Homan, age 55, is the Vice-President and Chief Financial Officer
of the Registrant. Mr. Homan has been in the Mortgage Banking business
since 1980. In that period of time Mr. Homan has been a regional manager
and senior vice president for the national mortgage company,
Waterfield/RealAmerica Mortgage Corporation of Fort Wayne, Indiana. Mr
Homan has also served as President of his own Registrant, Homan Financial
Corporation located in Kansas City, Missouri. Prior to entering the
mortgage banking business, Mr. Homan was a real estate appraiser for Job
Real Estate Appraisers and O'Flaherty Company, both of Kansas City,
Missouri. Mr. Homan's appraisal expertise has been primarily focused in
commercial and income producing properties. Mr. Homan started his real
estate career in 1969 in the commercial real estate brokerage business.
Mr. Homan graduated from Rockhurst College in 1965 with a Bachelor
of Arts Degree. Mr. Homan has been a member of the Mortgage Bankers
Association since 1980 and a member of the National Association of Review
Appraisers from 1986 through 1993.
Charles J. Scimeca
Charges J. Scimeca, age 53, serves as the secretary and treasurer of
the Registrant and as the president of Equity Growth Systems Realty, Inc.,
a wholly owned subsidiary of the Registrant formally named Coast To Coast
Realty. Equity Growth Systems Realty, Inc., was acquired by the
Registrant during 1996 and is headquartered in Clearwater, Florida. Mr.
Scimeca has served as the president of Equity Growth Systems Realty, Inc.,
since its formation in 1982. From 1980 until 1982, Mr. Scimeca was on
sabbatical, exploring business opportunities in various industries. From
1975 until 1980, Mr. Scimeca served as chief operating officer for Andy
Frain Maintenance & Security, Inc., headquartered in Chicago, Illinois.
His responsibilities included budgeting and implementing cleaning services
for high rise office, retail and industrial properties for such notable
clients as Standard Brands, JMB Realty, John Hancock Insurance Company and
other Fortune 500 companies. From 1965 until 1975, Mr. Scimeca was the
owner and manager of the Mecca Restaurant, a full-service family owned
multi-unit restaurant business headquartered in Chicago, Illinois. He is
a member of the Clearwater Association of Realtors and International
Council of Shopping Centers. He holds a degree in Business
Administration.
page 38
Family Relationships.
There are no family relationships among the current officers and
directors of the Registrant.
Involvement in Certain Legal Proceedings.
Based on information provided in response to questionnaires filed as
exhibits to this report, except as otherwise disclosed in this Report,
during the five year period ending on December 31, 1996, no current
director, person nominated to become a director, executive officer,
promoter or control person of the Registrant has been a party to or the
subject of:
(1) Any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time;
(2) Any conviction in a criminal proceeding or has been subject to a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) Any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking
activities; and
(4) Been found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated.
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as
Amended
To the best of the Registrant's knowledge, no one engaged in any
transactions in the Registrant's securities during 1996, except with
reference to receipt of securities from the Registrant, as described in
this report.
Item 10. Executive Compensation.
(a) Prior to March 23, 1995
In March 1993, the Board of Directors of the Registrant authorized
the issuance of 25,000 shares of Common Stock (valued for this purpose at
$.01 per share) to Solomon Manber as compensation for various consulting
services which he had performed for the Registrant. Such shares were
issued in May 1993.
page 38
Except as set forth in the preceding paragraph, neither Mr. Wulfing
nor Mr. Manber received any cash or other compensation whatsoever from the
Registrant for services rendered during the fiscal years ending December
31, 1991, 1992, 1993 or 1994 as an officer or director, or in any other
capacity. There is no compensation plan or arrangement which would result
in a payment to either Mr. Wulfing or Mr. Manber upon his resignation,
retirement or termination of employment, or a change in his
responsibilities following a change in control of the Registrant.
(b) After March 23, 1995
No current officers or directors of the Registrant have ever
received any compensation from the Registrant, except, as follows:
Edward Granville-Smith
Employment Agreement
On May 22, 1995, the Registrant entered into a five year employment
agreement with Edward Granville-Smith, its current sole director,
president and chief executive officer. A copy of such agreement is filed
as an exhibit to this report. The agreement provided the following
compensation:
(a) 110,000 shares of the Registrant's newly authorized common stock,
$0.01 par value, the shares to be registered on Securities and
Exchange Commission Form S-8 and listed with any exchange or trading
system on which other shares of the Registrant's Common Stock are
subsequently listed.
(b) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 5% of the Registrant's pre-tax profits for
the subject calendar year by the average bid price for the
Registrant's common stock during the last five trading days prior to
the end of the last day of each year and the first five days of the
new year, provided, however, that the employment agreement must have
been in effect for at least one business day during the subject
year.
page 39
(c) An annual salary in a sum equal to the lesser of 5% of the
Registrant's annual gross income, on a calendar basis, or 15% of its
net pre-tax profit, all as determined for federal income tax
purposes, without taking depreciation or tax credits into account,
to be paid on or before the 30th day of March of the year following
the calendar year for which such salary is due; provide, however,
that subject to availability of cash flow, Mr. Granville-Smith will
be entitled to a monthly draw against his salary rights of $2,500
per month, but subject to review on a quarterly basis, with the
expectation of the parties that it will be substantially increased
as increased profits and cash flow from operations permit.
(d) Mr. Granville-Smith shall, in addition to the foregoing, be entitled
to a benefit package equal to the most favorable benefit package
provided by the Registrant or its subsidiaries to any of their
employees, officers, directors, consultants or agents.
(e) The Registrant will defend, indemnify and hold Mr. Granville-Smith
Mr. Granville-Smith and his personal advisors and attorneys harmless
from any and all liabilities, suits, judgments, fines, penalties or
disabilities, including expenses associated directly, indirectly or
incidentally therewith (e.g. legal fees, court costs, travel,
lodging and meal expenses, investigative costs, witness fees, etc.)
resulting from any actions or failures to act on behalf of the
Registrant, whether in the past or future, to the fullest extent
legally permitted, and in conjunction therewith, shall assure that
all required expenditures are made by the Registrant in a manner
making it unnecessary for Mr. Granville-Smith or his personal
advisors or attorneys to incur any out of pocket expenses.
Pursuant to the terms of the employment agreement, Mr.
Granville-Smith was entitled to receive $27,863 in cash and an amount of
the Registrant's common stock equal to $27,863 divided by the average bid
price for the Registrant's common stock during the last five trading days
prior to the end of 1996 and the first five trading days of 1997. Because
there was no bid price during such period (and the resulting number would
therefore have been infinite), Mr. Granville-Smith has agreed to defer
determination of his stock compensation until the first day that bids for
the Registrant's common stock are quoted on the NASDAQ bulletin board sys-
tem. Consequently, the quantity of stock issuable to him cannot currently
be determined. In addition, because management deemed that the
Registrant's cash flow should be conserved, Mr. Granville-Smith has agreed
to defer payment of his annual bonus.
page 40
Stock Issued in Exchange for Assets
Mr. Granville-Smith, as the sole stockholder, officer and director
of Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), caused
Milpitas to assign interests in four leases involving five separate leased
parcels of real estate (one lease covers two parcels), four promissory
notes secured by mortgages on such real estate (in each case subject to
mortgages to third parties), and four demand notes with an aggregate
original principal balance of approximately $160,000 to the Registrant, in
exchange for 1,616,000 shares of the Registrant's common stock, $0.01 par
value. The demand notes are subject to an arrangement with Mr. Jerry C.
Spellman (which the Registrant has agreed to honor) whereby payments
thereon are used to repay a $104,000 loan by Mr. Spellman to a former
holder thereof. Milpitas thereafter distributed such stock to the
Granville-Smith Trust, which thereafter transferred it to K. Walker, Ltd.,
a Bahamian corporation (affiliated with Mr. Granville-Smith) and Bolina
Trading Company, a Panamanian corporation (affiliated with Jerry C.
Spellman).
Because it appeared that certain assets which Mr. Granville-Smith
intended to include in such assignment may not have been included in the
indenture, effective December 29, 1995, Mr. Granville-Smith, on his own
behalf and as the statutory trustee and liquidating agent for Equity
Growth Systems, inc., a dissolved Maryland corporation ("EGS Maryland");
and First Ken-Co Properties, Inc., a dissolved Delaware corporation
("FKP"); and as the current sole officer, director and stockholder of
Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), executed a
corrective bill of sale (a copy of which is included as an exhibit to this
registration statement). The corrective bill of sale assigned the
following to the Registrant: all of the assets owned by EGS Maryland and
FKP, together with all of the rights of certain partnerships in which
Milpitas Investors, Inc. (a Delaware corporation) served as sole general
partner, to a series of notes secured by wrap mortgages (mortgages
inferior to first mortgages) and to income from long term leases on the
subject properties.
Bolina Trading Co., S.A.
On May 26, 1995, the Registrant entered into a consultant agreement
with Bolina Trading Co., S.A., a Panamanian corporation. A copy of such
consulting agreement is filed as an exhibit to this report.
Pursuant to the terms of the consulting agreement, Bolina Trading
Co., S.A., will serve as a special advisor to Mr. Granville-Smith, in
conjunction with Mr. Granville-Smith's role as an officer and director of
the Registrant, with special responsibilities in the areas of strategic
planning and raising debt or equity capital required to implement the
Registrant's strategic plans. In conjunction wit the foregoing, the
consultant will make available to Mr. Granville-Smith, the services of J.
C. Spellman, its managing director, or of other personnel acceptable to
Mr. Granville-Smith, on an as needed basis, provided that, such services
shall not exceed 520 hours per year without an additional payment of $100
per additional hour. As compensation for the consultant's services, the
Registrant is required to register on Securities and Exchange Commission
Form S-8 and thereafter, immediately issue to the consultant, 84,000
shares of its common stock, no further payments being required unless the
Registrant requires the consultant to provide more than 520 hours of
services per year, in which case the consultant will be entitled to an
additional payment of $100 per additional hour.
Messrs. Scimeca, Moffitt and Homan
During June of 1996, the Registrant recruited three executive
officers, Messrs. Charles J. Scimeca, Gene R. Moffitt and Donald E. Homan.
Mr. Scimeca is a Florida resident and Messrs. Homan and Moffitt both have
offices in Kansas City, Missouri.
page 41
Such recruitment was effected in two parts, first, the Registrant
exchanged 100,000 shares with each person (300,000 shares in the
aggregate), for all of the capital stock in their corporations (Mr.
Scimeca's corporation was formed in 1983 and its name was recently changed
to Equity Growth Realty, inc.; Messrs. Homan's and Moffitt's
corporations, Moffitt Properties, Ltd., and Homan Equities, Inc., are both
recently organized Missouri corporations). Immediately following such
acquisitions the Registrant and the subject corporation entered into
employment agreements with the respective officer. Each employment agree-
ment was materially identical and provides for the following compensation
(the subject corporation being identified a the "Subsidiary"): ....
(a) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 10% of the Subsidiary's pre-tax profits for
the subject calendar year by the average bid price for the
Registrant's common stock at during the last five trading days prior
to the end of the last day of each year and the initial five days of
the new year, provided, however, that the employment agreement shall
have been in effect for at least one half of the subject year; and,
provided further that in the event of a reorganization pursuant to
which another entity becomes the Subsidiary's parent, the common
stock of such entity will be issuable hereunder, rather than that of
the Registrant.
(b) An annual cash bonus equal to 40% of the Subsidiary's pre-tax
profits for the subject calendar year, provided, however, that the
employment agreement shall have been in effect for at least one half
of the subject year.
(c) A guaranteed minimum monthly draw against the annual bonus described
above, in a sum equal to not be less that $6,250; subject to
availability of cash flow.
As a material subsequent event, during August of 1997, Mr. Moffitt
resigned as an officer of the Registrant because of delays in implementing
its proposed plan of operation. Because such resignation violated the
terms of his employment and acquisition agreements, as described above,
the Registrant is negotiating for him to voluntarily return all of the
Registrant's common stock that has been issued to him (as described
above). Should such securities not be voluntarily returned, the
Registrant would probably suit Mr. Moffitt for its return alleging breach
of contract (see Item 3, Legal Proceedings).
As a material subsequent event, In November, 1997, The Board of
Directors terminated Mr. Rafi Weiss as an officer of the Registrant
because of unwillingness to communicate with the Registrant. Because such
resignation violated the terms of his employment and acquisition
agreements, as described above, the Registrant is negotiating for him to
voluntarily return all of the Registrant's common stock that has been
issued to him (as described above). Should such securities not be
voluntarily returned, the Registrant would probably suit Mr. Moffitt for
its return alleging breach of contract (see Item 3, Legal Proceedings).
page 42
Compensation Committee Interlocks and Insider Participation.
Except as described above or the subsequent event described below,
the only decision which was made by the Registrant's Board of Directors
since January 1, 1993 regarding compensation of an executive officer was
the determination to issue stock to Mr. Manber, as described above. Mr.
Manber abstained from voting on such matter.
In view of the foregoing, the remaining information called for by
this Item is inapplicable.
Long-Term Incentive Plan ("LTIP") Awards Table
Neither the Registrant nor any subsidiary thereof has any long term
incentive plans, except as described above or the subsequent event
described below.
Compensation of Directors
Standard Arrangements
In the future, subject to availability of funds, all members of the
Registrant's board of directors will be paid a per diem fee of $300
dollars for attendance at meetings of the board of directors and
committees thereof. Such compensation will, at the option of the
Registrant, be paid in cash or in shares of the Registrant's common stock,
based on the mean closing bid price therefore reported on the date of the
meeting.
In addition, if required, members of the Registrant's board of
directors will be reimbursed for travel expenses and lodging is arranged
for them, at the Registrant's expense. At such time as adequate funds are
available, all directors (and officers) of the Registrant will be covered
by liability insurance. Outside directors (those who are not officers or
employees of the Registrant) will generally be issued 10,000 shares of the
Registrant's common stock (post reverse split) as an inducement to become
directors; however, the stock will be subject to total forfeiture in the
event that the director does not serve in such role for at lease 365 days.
Directors will be reimbursed for all out of pocket expenses incurred in
the performance of their roles, subject to provision of receipts in form
and substance adequate to satisfy Internal Revenue Service audit
requirements (e.g., long distance telephone, postage, etc.).
Other Arrangements
Neither the Registrant nor any of its subsidiaries have any other
arrangements to compensate its directors.
page 43
Employment contracts, termination of employment & change-in-control
arrangements.
The Registrant does not have any compensatory plan or arrangement,
including payments to be received from the Registrant, with respect to a
named executive officer that results or will result from the resignation,
retirement or any other termination of such executive officer's employment
with the Registrant and its subsidiaries or from a change-in-control of
the Registrant or a change in the named executive officer's
responsibilities following a change-in-control, which, including all
periodic payments or installments, exceeds $104,000, except as follows:
Section 1.4 of the Registrant's employment agreement with Mr.
Granville-Smith provides as follows:
"In the event that this Agreement is terminated by the Registrant
for any reason, including those set forth in Section 1.3, or, if it
is terminated because of a discontinuance of business as a result of
a corporate reorganization or change in management, then the Chief
Executive Officer will be entitled to all of the compensation called
for by this Agreement, payable, to the extent possible, in one lump
sum payment to be provided concurrently with such termination. In
conjunction with such termination, any stock options to which the
Chief Executive Officer will be entitled at the time of termination
will be converted into the immediate right to receive the difference
between the exercise price therefor and the average offering price
for the Registrant's common stock during the ten days preceding such
termination, but in no event less than $1.00 per share option."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of December 31, 1996, the Registrant had 3,771,148 shares of
common stock outstanding. The following information pertains to the
ownership of such securities by the Registrant's principal stockholders,
officers and directors.
As a material subsequent event, as of December 18, 1997, the
Registrant had 3,826,148 shares of common stock outstanding.
(a) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of the date of this Registration
Statement, the number and percentage of shares of common stock owned of
record and beneficially by any group (as that term is defined for purposes
of Section 13(d)(3) of the Exchange Act), person or firm that owns more
than five percent (5%) of the Registrant's outstanding common stock (the
Registrant's only class of voting securities).
page 44
Name and Address of Amount of Nature of Percent of
Beneficial Owner * Shares Ownership Class ++
Edward Granville-Smith 1,055,000# ** 27.6%
3821-B Tamiami Trail,
Suite 201 Port Charlotte
Florida, 33952
Jerry C. Spellman 867,691## *** 22.7%
2510 Virginia Avenue, NW
Washington, D.C. 20037
Charles J. Scimeca 300,000 *** 7.8%
23698 US Highway 19 North
Clearwater, 34265
Diversified Corporate
Consulting Group, LLC 200,000 + 5.2%
3097 Main Street
Tannersville, New York
12485
William A. Calvo, III 300,000 + 7.8%
1941 Southeast 51st Terrace ****
Ocala, Florida 34471
Joseph D. Radcliffe 300,000 + 7.8%
84 Clum Hill Road *****
Elka Park, New York 12427
_____
# The 1995 10-KSB erroneously showed the amount of shares to be
954,000. The correct amount was 945,000. Scrivener's error
transposed the 954,000 for 945,000 ON THE 1995 10-ksb.
## The 1995 10-KSB erroneously reports that Mr Spellman is erroneously
reported the amount of shares to be 954,000 shares. The same
scriveners error mentioned above is partially responsible for the
error, but a second error is the number of shares issued. The
correct number of shares issued to persons or entities controlled by
Mr. Spellman was 867,691.
* Includes all stock held either personally or by affiliates.
**** Beneficial ownership, record ownership is held by K. Walker, Ltd., a
Bahamian corporation and also 110,000 shares of stock in the record
ownership of Warren McFaddin.
*** Beneficial ownership, record ownership is held by Bolina Trading
Company, a Panamanian corporation of all but 2701 shares. 2400
shares are held by Mr Spellman personally and 301 shares held by
First Investment Planning Company..
**** Record ownership of 40,000 shares, and joint record ownership with
wife, Cyndi N.Calvo of 100,000 shares
in addition, wife, Cyndi N. Calvo has record ownership of 40,000
shares. Three children have 40,000 shares each in Trust with Mr
Calvo as Trustee.
***** Record ownership of 200,000 shares. In addition, son, Michael
Radcliffe has record ownership of 50,000 shares and son,
Dennis Radcliffe has record ownership of 50,000 shares.
+ Does not include an additional 200,000 shares held by other members
of Diversified Corporate Consulting Group, LLC, or their families
(see Item 12: Certain Relationships and Related Transactions).
Messrs. Calvo and Radcliffe are principals in Diversified Corporate
Consulting Group, LLC.
page 45
(b) Security Ownership of Management
The following table sets forth, as of the date of this Registration
Statement, the number and percentage of the equity securities of the
Registrant, its parent or subsidiaries, owned of record or beneficially by
each officer, director and person nominated to hold such office and by all
officers and directors as a group.
Title of Name of Amount Nature of Percent of
Class Beneficial Owner Shares Ownership Class +
Common Edward
Granville-Smith 1,055,000 ** 27.6%
Common Gene R. Moffitt 100,000 *** 2.6% +
Common Rafi Weiss 50,000 *** 1.3% ++
Common Donald E. Homan 100,000 *** 2.6%
Common Charles J. Scimeca 300,000 *** 7.8%
Common All officers and
directors as a
group (5 people) 1,605,000 ** *** 41.95%
_____
* Includes all stock held either personally or by affiliates.
** Beneficial ownership, record ownership is held by K. Walker, Ltd., a
Bahamian corporation.
*** Record & Beneficial.
+ Because Mr. Moffitt has resigned without meeting the terms of his
employment or acquisition agreements, the Registrant intends to
recover all of the securities heretofore issued to him (see Item 3,
Legal Proceedings").
++ Because Mr. Weiss has been removed from his position with the
company and has violated his employment or acquisition agreements
the Registrant intends to recover all of the securities heretofore
issued to him (see item 3, legal proceedings).
To the best knowledge and belief of the Registrant, there are no
arrangements, understandings, or agreements relative to the disposition of
the Registrant's securities, the operation of which would at a subsequent
date result in a change in control of the Registrant.
(c) Parents of the Registrant
The following table discloses all persons who are parents of the
Registrant (as such term is defined in Securities and Exchange Commission
Regulation C), showing the basis of control and as to each parent, the
percentage of voting securities owned or other basis of control by its
immediate parent if any.
page 46
Percentage Other
of Voting Basis
Basis for Securities For
Name Control Owned Control
Edward
Granville-Smith, Jr. Office 27.6% Officer & Director
J. C. Spellman Shares Held 22.7% Consultant *
_______
Mr. Spellman is the Managing Director of Bolina Trading Co., S.A., a
Panamanian corporation, which owns the subject shares.
(d) Changes in Control.
There are no arrangements, known to the Registrant, the operation of
which mat at a subsequent date result in a change in control of the
Registrant.
Item 12. Certain Relationships and Related Transactions.
Prior to March 23, 1995
In March 1993, the Registrant's Board of Directors authorized the
issuance of 22,848 shares of Common Stock (valued for this purpose at $.01
per share) to certain shareholders who had agreed to accept such shares in
full settlement of their unpaid claims for accrued interest aggregating
$24,354 on the Debentures and Note described in Item 1(a)(i) of the 1991
10-K. The number of shares to be issued to each payee was determined pro
rata in accordance with the respective amounts of the claims. 15,011 of
such shares were issued in May 1993 to George Wulfing (President and a
director of the Registrant, and the beneficial owner of 6.98% of its
outstanding voting securities). Mr. Wulfing abstained from voting on such
matter insofar as it pertained to the issuance of shares to himself.
Subsequent to March 23, 1995
Mr. George Wulfing, the Registrant's president until March 23, 1995,
has represented to current management that, except for liabilities to the
Registrant's attorneys and accountants associated with compliance with
Securities and Exchange Commission reporting obligations, all of the
Registrant's liabilities to creditors are older than six years, and are no
longer enforceable as a result of the expiration of applicable statutes of
limitation.
Edward Granville-Smith, the Registrant's president since March 23,
1995, has negotiated a settlement agreement with the Registrant's
attorneys pursuant to which they accepted the right to receipt of 20,000
shares of the Registrant's common stock, immediately after an increase in
the Registrant's authorized capitalization is effected, in lieu of all
outstanding obligations as of March, 1995. A copy of the subject
agreement is included as an exhibit to 10-KSB for the year ending December
31, 1995.
page 47
Mr. Granville-Smith, Registrant's Chairman, President and Chief
Executive Officer, loaned the Registrant approximately $45,000, $14,800 of
which was used for legal expenses, and $8,000 of which was used to pay the
registrant's accountants for prior work and for the costs of updating the
Registrant's reports under the Securities Exchange Act of 1934, as
amended, including this Report. Mr. Granville-Smith has converted such
loan into additional capital contributions (i.e., he has elected to
neither require repayment of such debt nor issuance of additional common
stock in consideration therefor; rather, only the tax basis for the common
stock he already owns has been increased). In addition, the Registrant's
prior accountants have agreed to accept the right to receipt of 3,072
shares of the Registrant's common stock, immediately after an increase in
the Registrant's authorized capitalization is effected, in lieu of all
outstanding obligations as of March, 1995.
Issuance of Securities to Related Parties
Edward Granville-Smith
Employment Arrangement
On May 22, 1995, the Registrant entered into a five year employment
agreement with Edward Granville-Smith, its current sole director,
president and chief executive officer. A copy of such agreement is filed
as an exhibit to this current report. The agreement provided the
following compensation:
(a) 110,000 shares of the Registrant's newly authorized common stock,
without par value, the shares to be registered on Securities and
Exchange Commission Form S-8 and listed with any exchange or trading
system on which other shares of the Registrant's Common Stock are
subsequently listed.
(b) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 5% of the Registrant's pre-tax profits for
the subject calendar year by the average bid price for the
Registrant's common stock during the last five trading days prior to
the end of the last day of each year and the first five days of the
new year, provided, however, that the employment agreement must have
been in effect for at least one business day during the subject
year.
(c) An annual salary in a sum equal to the lesser of 5% of the
Registrant's annual gross income, on a calendar basis, or 15% of its
net pre-tax profit, all as determined for federal income tax
purposes, without taking depreciation or tax credits into account,
to be paid on or before the 30th day of March of the year following
the calendar year for which such salary is due; provide, however,
that subject to availability of cash flow, Mr. Granville-Smith will
be entitled to a monthly draw against his salary rights of $2,500
per month, but subject to review on a quarterly basis, with the
expectation of the parties that it will be substantially increased
as increased profits and cash flow from operations permit.
page 48
(d) Mr. Granville-Smith shall, in addition to the foregoing, be entitled
to a benefit package equal to the most favorable benefit package
provided by the Registrant or its subsidiaries to any of their
employees, officers, directors, consultants or agents.
(e) The Registrant will defend, indemnify and hold Mr. Granville-Smith
and his personal advisors and attorneys harmless from any and all
liabilities, suits, judgments, fines, penalties or disabilities,
including expenses associated directly, indirectly or incidentally
therewith (e.g. legal fees, court costs, travel, lodging and meal
expenses, investigative costs, witness fees, etc.) resulting from
any actions or failures to act on behalf of the Registrant, whether
in the past or future, to the fullest extent legally permitted, and
in conjunction therewith, shall assure that all required
expenditures are made by the Registrant in a manner making it
unnecessary for Mr. Granville-Smith or his personal advisors or
attorneys to incur any out of pocket expenses.
To date, only the stock compensation has been paid.
Acquisition of Assets
Mr. Granville-Smith, as the sole stockholder, officer and director
of Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), caused
Milpitas to assign interests in four leases involving five separate leased
parcels of real estate (one lease covers two parcels), four promissory
notes secured by mortgages on such real estate (in each case subject to
mortgages to third parties) and four demand notes with an aggregate
original principal balance of approximately $160,000 to the Registrant, in
exchange for 1,616,000 shares of the Registrant's common stock, $0.01 par
value. The demand notes are subject to an arrangement with Mr. Jerry C.
Spellman (which the Registrant has agreed to honor) whereby payments
thereon are used to repay a $100,000 loan by Mr. Spellman to a former
holder. Milpitas thereafter distributed such stock to the Granville-Smith
Trust, which thereafter transferred it to K. Walker, Ltd., a Bahamian
corporation (affiliated with Mr. Granville-Smith) and Bolina Trading
Company, a Panamanian corporation (affiliated with Jerry C. Spellman).
Because it appeared that certain assets which Mr. Granville-Smith
intended to include in such assignment may not have been included in the
indenture, effective December 29, 1995, Mr. Granville-Smith, on his own
behalf and as the statutory trustee and liquidating agent for Equity
Growth Systems, inc., a dissolved Maryland corporation ("EGS Maryland");
and First Ken-Co Properties, Inc., a dissolved Delaware corporation
("FKP"); and as the current sole officer, director and stockholder of
Milpitas Investors, Inc., a Delaware corporation ("Milpitas"), executed a
corrective bill of sale (a copy of which is included as an exhibit to this
registration statement). The corrective bill of sale assigned the
following to the Registrant: all of the assets owned by EGS Maryland and
FKP, together with all of the rights of certain partnerships in which
Milpitas Investors, Inc. (a Delaware corporation) served as sole general
partner, to a series of notes secured by wrap mortgages (mortgages
inferior to first mortgages) and to income from long term leases on the
subject properties.
page 49
Bolina Trading Co., S.A.
On May 26, 1995, the Registrant entered into a consultant agreement
with Bolina Trading Co., S.A., a Panamanian corporation. A copy of such
consulting agreement is filed as an exhibit to the current report.
Pursuant to the terms of the consulting agreement, Bolina Trading
Co., S.A. ("Bolina"), serves as a special advisor to Mr. Granville-Smith,
in conjunction with Mr. Granville-Smith's role as an officer and director
of the Registrant, with special responsibilities in the areas of strategic
planning and raising debt or equity capital required to implement the
Registrant's strategic plans. In conjunction with the foregoing, Bolina
is required to make available to Mr. Granville-Smith, the services of J.
C. Spellman, its managing director, or of other personnel acceptable to
Mr. Granville-Smith, on an as needed basis, provided that, such services
may not exceed 520 hours per year without an additional payment of $100
per additional hour. As compensation for Bolina's services, the
Registrant registered (on Securities and Exchange Commission Form S-8) and
issued to Bolina, 84,000 shares of its common stock.
The Registrant has agreed to honor an obligation owed by Mercantile
Realty Investors, Inc., to the WEFT Trust, an off shore trust affiliated
with Bolina. The obligation, in the original amount of $102,000, was
based on loans made by such trust, to be repaid from income generated by
leases that have subsequently been acquired by the Registrant. To date,
only interest payments have been made. The Registrant has recently
memorialized its obligations in an instrument requiring it to repay the
$102,000 in loans plus 10% interest. A copy of such instrument is filed
as an exhibit to this report.
Diversified Corporate Consulting Group, LLC
On April 2, 1996, the Registrant entered into an agreement with
Diversified Corporate Consulting Group, LLC, a Delaware limited liability
Registrant ("Diversified"), pursuant to which it agreed to provide the
Registrant with a broad range of assistance and in consideration for which
the Registrant agreed to provide Diversified with the following
compensation: payment at Diversified's standard hourly rates for all work
as to which a prior written arrangement with different terms has not been
entered into; payment for documents prepared by Diversified on existing
forms at $50 per page (as an initial licensing fee) augmented by the time
spent in personalizing the subject form; and, an option to purchase
200,000 shares of the Registrant's common stock registered on Securities
and Exchange Commission Form S-8, for the aggregate sum of $80,000.
In addition, in an unrelated transaction, Diversified acquired
110,000 shares of the Registrant's free trading securities from Mr. Warren
A. McFadden, in exchange for an agreement to discharge $30,000 in
liabilities assumed by Mr. McFadden to creditors of the Registrant.
page 50
From April to September of 1997, the Registrant and Diversified
entered into a settlement agreement pursuant to which, in extinguishment
of approximately $110,000 owed by the Registrant to Diversified for
services rendered under the engagement agreement and $30,000 owed by
Diversified to the Registrant (as a result of assumption of a promissory
note from Mr. McFadden to the Registrant), Diversified accepted the
200,000 shares registered on Form S-8 and assigned to Mr. Granville-Smith,
the 110,000 shares of the Registrant's common stock acquired from Mr.
McFadden. Such transaction was more particularly described in a current
report on Form 8-K filed by the Registrant with the Securities and
Exchange Commission during September of 1997.
In addition to the shares described above, principals of Diversified
and their families own an additional 600,000 restricted shares of the
Registrant's common stock, although the holding period requirements under
SEC Rule 144 pertaining thereto have been met.
Employment contracts, termination of employment & change-in-control
arrangements.
Termination Arrangements
Section 1.4 of the Registrant's employment agreement with Mr.
Granville-Smith provides as follows: "In the event that this Agreement is
terminated by the Registrant for any reason, including those set forth in
Section 1.3, or, if it is terminated because of a discontinuance of
business as a result of a corporate reorganization or change in
management, then the Chief Executive Officer will be entitled to all of
the compensation called for by this Agreement, payable, to the extent
possible, in one lump sum payment to be provided concurrently with such
termination. In conjunction with such termination, any stock options to
which the Chief Executive Officer will be entitled at the time of
termination will be converted into the immediate right to receive the
difference between the exercise price therefor and the average offering
price for the Registrant's common stock during the ten days preceding such
termination, but in no event less than $1.00 per share option."
Messrs. Scimeca and Homan will enjoy similar rights after they have
been in the employ of the Registrant for two years (approximately June of
1998).
Additional Employment Agreements
During June of 1996, the Registrant recruited three executive
officers, Messrs. Charles J. Scimeca, Gene R. Moffitt and Donald E. Homan.
Mr. Scimeca is a Florida resident and Messrs. Homan and Moffitt both have
offices in Kansas City, Missouri.
Such recruitment was effected in two parts, first, the Registrant
exchanged 100,000 shares with each person (300,000 shares in the
aggregate), for all of the capital stock in their corporations (Mr.
Scimeca's corporation was formed in 1983 and its name was recently changed
to Equity Growth Realty, inc.; Messrs. Homan's and Moffitt's
corporations, Moffitt Properties, Ltd., and Homan Equities, Inc., are both
recently organized Missouri corporations). Immediately following such
acquisitions the Registrant and the subject corporation entered into
employment agreements with the respective officer. Each employment agree-
ment was materially identical and provides for the following compensation
(the subject corporation being identified a the "Subsidiary"):
page 51
(a) An annual bonus payable in shares of the Registrant's common stock,
determined by dividing 10% of the Subsidiary's pre-tax profits for
the subject calendar year by the average bid price for the
Registrant's common stock at during the last five trading days prior
to the end of the last day of each year and the initial five days of
the new year, provided, however, that the employment agreement shall
have been in effect for at least one half of the subject year; and,
provided further that in the event of a reorganization pursuant to
which another entity becomes the Subsidiary's parent, the common
stock of such entity will be issuable hereunder, rather than that of
the Registrant.
(b) An annual cash bonus equal to 40% of the Subsidiary's pre-tax
profits for the subject calendar year, provided, however, that the
employment agreement shall have been in effect for at least one half
of the subject year.
(c) A guaranteed minimum monthly draw against the annual bonus described
above, subject to availability of cash flow. The initial guaranteed
draws are $2,000 for Mr. Scimeca and $6,250 for Messrs. Homan and
Moffitt.
As a material subsequent event, during August of 1997, Mr. Moffitt
resigned as an officer of the Registrant because of delays in implementing
its proposed plan of operation. Because such resignation violated the
terms of his employment and acquisition agreements, as described above,
the Registrant is negotiating for him to voluntarily return all of the
Registrant's common stock that has been issued to him (as described
above). Should such securities not be voluntarily returned, the
Registrant would probably suit Mr. Moffitt for its return alleging breach
of contract (see Item3, Legal Proceedings").
Mercantile Realty Settlement
On June 20, 1995, the Registrant and Equity Growth Systems, inc., a
Maryland corporation formerly operating under the name Mercantile Realty
Investors (SEC File Number 33-64526) but now operating as KSG
Technologies, Inc., entered into an agreement for settlement of any
potential claims resulting from their mutual decision to cancel a merger
agreement between them. A copy of the agreement has been incorporated by
reference as an exhibit to the 10-KSB for the year ending December 31,
1995.
page 52
Recapitalization
On May 18, 1995, the holders of 1,018,106 of the 2,000,000 shares of
the Registrant's common stock adopted a resolution by execution of a
written consent in lieu of stockholders meeting pursuant to which they
authorized amendments to the Registrant's certificate incorporation be
amended as required to change the name of the Registrant to "Equity Growth
Systems, inc." and to change the Registrant's authorized capitalization as
follows:
(a) The 2,000,000 shares of common stock, $0.001 par value then
authorized, all of which were currently outstanding, were reverse
split into 200,000 shares, $0.01 par value; and, immediately
thereafter;
(b) The Registrant's authorized common stock was increased from 200,000
shares, $0.01 par value, to 20,000,000 shares of common stock, $0.01
par value, and
(c) The Registrant was authorized to issue 5,000,000 shares of preferred
stock, the attributes of which are to be determined by the
Registrant's Board of Directors from time to time, prior to
issuance, in conformity with the requirements of Sections 151 of the
Delaware General Corporation Law.
In addition, the actions taken by the Registrant's immediately past
board of directors during March of 1995, as reflected in the secretarial
certificate executed by Solomon Mamber, then the Registrant's secretary,
on March 23, 1995, were ratified, approved and confirmed; and,
Registrant's officers were authorized, empowered and directed to take all
actions either necessary or expedient to accomplish all of the foregoing
directives.
During the week of May 22, 1995 through May 26, 1995, the
Registrant's officers filed a certificate of amendment accomplishing the
foregoing amendments, with the Delaware Secretary of State, and filed a
notification pursuant to Securities and Exchange Commission Rule 10b-17
with the National Association of Securities Dealers, Inc. Copies of the
certificate of amendment and 10b-17 notification have been incorporated by
reference as exhibits to the 10-KSB for the year ending December 31, 1995.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K.
(a) Index to financial statements and financial statement schedules.
The audited balance sheet of the Registrant for its years ended
December 31, 1996, and 1995and related statements of operations,
stockholder's equity and cash flows for the years ended December 31, 1996,
and 1995 follow in sequentially numbered pages numbered 59 through 76.
The page numbers for the financial statement categories are as follows:
page 53
Page Description
59 Cover Page (Joel S. Baum, C.P.A.)
60 Table of Contents
61 Report of Independent Accountants - December 31, 1996 and 1995;
62 Balance Sheet - December 31, 1996 and 1995;
63 Statements of Income and Accumulated Deficit, December 31, 1996 and
1995;
64 Statements of Shareholders' Deficit, December 31, 1996 and 1995;
65 Statement of Cash Flows - December 31, 1996 and 1995; and
66-76 Notes to Financial Statements - December 31, 1996 and 1995.
(b) 8-K Reports
No reports on Form 8-K were filed during the last quarter of the
calendar year ended December 31, 1996. One report on Form 8-K dealing
with the settlement agreement between the Registrant and Diversified was
filed during the second quarter of 1997.
(c) Exhibits:
Exhibit Description
2.1 Plan and Agreement of Merger dated April 7, 1993 between the
Registrant and Mercantile Realty Investors, Inc. (1)
2.2 Amendment dated May 25, 1993 to Plan and Agreement of Merger.
(3)
2.3 Agreement pertaining to cancellation of the merger between the
Registrant and Equity Growth Systems, Inc. (4)
2.4 Stock Exchange Agreement re Homan Equities, Inc., (6)
2.5 Stock Exchange Agreement re Moffitt Properties, Ltd.. (6)
page 54
2.6 Stock Exchange Agreement re Equity Growth Realty, inc.. (6)
3.1 Certificate of Incorporation of the Registrant. (2)
3.11 Certificate of Amendment to Certificate of Incorporation (May,
1995). (4)
3.2 By-laws of the Registrant. (2)
10.1 Agreement for settlement of outstanding claims with the
Registrant's attorneys. (4)
10.2 Agreement for settlement of outstanding claims with the
Registrant's accountants. (4)
10.3 Employment Agreement with Edward Granville-Smith. (4)
10.4 Consultant Agreement with Bolina Trading Co., S.A. (4)
10.5 Settlement Agreement between Registrant and Equity Growth
Systems, inc., a Maryland corporation. (5)
10.6 Assignment of Indenture of Trust by Milpitas, Inc., including
Indenture of Trust. (6)
10.7 Engagement agreement with Diversified Corporate Consulting
Group, LLC. (6)
10.8 Corrective Bill of Sale. (6)
10.9 (a) Employment Agreement with Gene R. Moffitt. (6)
pg 78 (b) Resignation of Gene R. Moffitt
10.10 Employment Agreement with Donald E. Homan. (6)
10.11 Employment Agreement with Charles J. Scimeca. (6)
10.12 Repayment Agreement with WEFT Trust. (6)
10.13 Settlement between Registrant, Diversified, and Trustee
(8)
17.01 pg 78 Moffett Letter of Resignation (7)
3.3 pg 79 Corporate Resolution Concerning Moffit Resignation (7)
page 55
3.4 pg 81 Corporate Resolution Electing President and Chief
Operating Officer (7)
17.02 pg 82 Corporate Resolution Dismissing Vice President for
Acquisitions. (7)
10.14 pg 83 Assignment of Deed of Trust: L29160 (7)
10.15 pg 84 Assignment of Leases and/ or Rents L2 9161 (7)
10.16 pg 85 Assignment of Tripartite Agreement L29162 (7)
99.03 pg 86 Substitute Trustee's Deed , Memphis Property (7)
99.04 pg 87 Proof of Publication, Memphis Property (7)
99.05 pg 88 Order of Dismissal with Prejudice: Case No 97-2072 (7)
10.7 pg 89 Agreement: First Ken-Co with San Safe dated Oct 20, 1997
(7)
10.18 pg 90 Statement of Unanimous Consent by Ken-Co Properties (7)
10.19 pg 91 General Warranty Deed dated October 20, 1997, Kansas
property (7)
10.20 pg 92 Termination of Memorandum of lease., Kansas property (7)
10.21 pg 93 Mutual Release dated October 20, 1997 (7)
99.6 pg 94 Letter to David Albright, Esq. Dated December 18, 1997.
16 Letter re: Change in Certifying Accountant. (6)
21 Subsidiaries. (6)
23.1 Auditor's Consent (Baum). (6)
23.2 Auditor's Consent (Kugler). (6)
23.3 pg 95 Auditor's Consent (Baum) (7)
99.7 pg 96 Complaint for Declaratory Judgement: First Ken Co. V. JJ Martin
et. al. (7)
99.1 Notifications to National Association of Securities Dealers,
Inc., pursuant to Securities and Exchange Commission Rule
10b-17. (4)
page 56
99.2 Real Estate Title Reports for Nevada/California, Tennessee,
Kansas and Oregon properties subject to Wrap Mortgages and
Leases. (6)
______
(1) Filed as exhibit 2 to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1992; incorporated by reference
herein as an Exhibit hereto.
(2) Filed as an exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1991, bearing the exhibit designation
number shown above; incorporated by reference herein as an exhibit
hereto.
(3) Filed as an exhibit to the Registrant's registration statement on
Form S-4, filed together with Mercantile Realty Investors,
registration number 33-64526, declared effective by the Securities
and Exchange Commission on June 24, 1994, at the identical exhibit
designation numbers; and, incorporated by reference herein as an
exhibit hereto.
(4) Filed as an exhibit to the Registrant's Report on Form 10-KSB for
the fiscal year ended December 31, 1994, bearing the exhibit
designation number shown above; incorporated by reference herein as
an exhibit hereto.
(5) Filed as an exhibit to the Registrant's Report on Form 8-K dated
July 14, 1995, bearing the exhibit designation number shown above;
incorporated by reference herein as an exhibit hereto.
(6) Filed as an exhibit to the Registrant's Report on Form 10-KSB for
the fiscal year ended December 31, 1995,
bearing the exhibit designation number shown above; incorporated by
reference herein as an exhibit hereto.
(7) Filed as an exhibit to the Registrant's Report on Form 10-KSB for
the fiscal year ended December 31, 1996,
bearing the exhibit designation number shown above; incorporated by
reference herein as an exhibit hereto.
(8) Filed as an exhibit to the Form 8-K for period dated September 8,
1997, bearing the exhibit designation number shown above;
incorporated by reference herein as an exhibit hereto.
page 57
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this report to
be signed on its behalf by the undersigned, there unto duly authorized.
Dated: December 31, 1997
Equity Growth Systems, inc.
By: __________________________
Edward Granville-Smith, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
__________________ Chairman & Chief Executive December 31,1997
Edward Granville-Smith Officer and Sole Director
__________________ Vice President & Chief
Financial OfficerD December 31, 1997
Donald E. Homan
page 58
EQUITY GROWTH SYSTEMS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
page 59
EQUITY GROWTH SYSTEMS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
TABLE OF CONTENTS
Page
FINANCIAL STATEMENTS
Independent auditor's report 1
Balance sheets 2
Statements of operations 3
Statements of shareholders' equity 4
Statements of cash flows 5
Notes to financial statements 6 -16
page 60
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Equity Growth Systems, Inc.
Port Charlotte, Florida
We have audited the balance sheets of Equity Growth Systems, Inc. at December
31, 1996 and 1995, and the related statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
We were unable to obtain a discussion or evaluation from the Company's outside
legal counsel of pending or threatened litigations described in Note 14.
In our opinion, except for the effects on the 1996 financial statements of such
adjustments, if any, as might have been determined to be necessary have we been
able to obtain a discussion or evaluation of pending or threatened litigation
from the Company's outside legal counsel as discussed in the preceding
paragraph, the financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of Equity Growth
Systems, Inc., as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
August 18, 1997
Joel Baum, P.A., CPA
Coral Springs, Florida
page 61
EQUITY GROWTH SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
Current Assets
Cash and cash equivalents $ 962 $ - 0 -
Other receivables - 0 - 5,671
Mortgage receivable,
current portion(Notes 6 and 7) 160,436 215,081
Promissory notes, current portion
(Note 8) 6,844 8,757
Total Current Assets 168,242 229,509
Other Assets
Mortgages receivable (Notes 6 and 7) 1,577,559 1,989,766
Promissory Notes (Notes 8) 264,029 321,670
Interest Receivable 46,004 43,582
Total Other Assets 1,887,592 2,355,018
Total Assets $ 2,055,834 $ 2,584,527
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable And
Other Current liabilities (Note 3) $ 29,436 $ 41,158
Mortgage payable, current portion
(Note 7) 276,605 383,143
Note Payable (Note 9) 105,500 - 0 -
Total Current Liabilities 411,541 424,301
Long-Term Liabilities
Mortgage payable (Note 7) 1,206,714 1,493,281
Total Liabilities 1,618,255 1,917,582
Shareholders' Equity (Note 13)
Preferred Stock - no par value
authorized-5,000,000 shares;
zero issued and outstanding - 0 - - 0 -
Common stock - $.01 par value
authorized-20,000,000 shares; issued
and outstanding-3,771,148 shares
in 1996, 2,822,072 shares in 1995 37,711 28,221
Capital in excess of par value 2,892,195 2,881,492
Accumulated deficit (2,492,327) (2,242,768)
Total Shareholders' Equity 437,579 666,945
Total Liabilities and
Shareholders' Equity $ 2,055,834 $ 2,584,527
The accompanying notes are an integral part of these financial statements.
page 62
EQUITY GROWTH SYSTEMS, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1996 AND 1995
1996 1995
Revenue $ 225,031 $ 153,839
Loss on Noncollectable Financial
Instruments-Net 170,657 - 0 -
General and Administrative Expenses 300,090 194,884
Total expenses 470,747 194,884
Loss before provision for income taxes (245,716) (41,045)
Provisions for income taxes (Note 10) 3,843 - 0 -
Net Loss $ (249,559) $ (41,045)
Earnings per share $ (.073) $ (.0167)
Weighted average of shares outstanding 3,402,81 2,411,036
The accompanying notes are an integral part of these financial statements.
page 63
EQUITY GROWTH SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Capital In
No. of Common excess of Accumulated
Shares Stock Par Value Deficit
Balances
January 1, 1995 2,000,000 $ 20,000 $ 2,125,537 $(2,201,723)
Reverse Split (1,800,000) (18,000) 18,000
Common Stock Issued 2,622,072 26,221 737,955
Net Loss For The
Year Ended
December 31, 1995 (41,045)
Balances
December 31, 1995 2,822,072 28,221 2,881,492 (2,242,768)
Common Stock Issued 949,076 9,490 10,703
Net Loss For the
Year Ended
December 31, 1996 (249,559)
Balances
December 31, 1996 3,771,148 $ 37,711 $ 2,892,195 $(2,492,327)
The accompanying notes are an integral part of these financial statements.
page 64
EQUITY GROWTH SYSTEMS, INC.
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Cash Flows from Operating Activities:
Net Loss $ (249,559) $ (41,045)
Adjustments to Reconcile Net Loss to
Net Cash Used for Operating Activities:
Depreciation - 0 - 2,022
Loss on Noncollectable Financial
Instruments - Net 170,657 - 0 -
Decreases in Other Receivables 5,671 - 0 -
(Increase) Decrease in Mortgage
and Notes Receivable 178,526 (2,580,735)
(Decrease) in Accounts Payable and
Current Liabilities (11,722) (19,871)
Increase (Decrease) in Mortgages and
Note Payable (112,804) 1,980,424
Net Cash Used for Operations (19,231) (763,205)
Cash Flows From Investing Activities:
Purchase of Fixed Assets - 0 - (2,022)
Cash Flow From Financing Activities:
Issuance of Common Stock 9,490 8,221
Additional Paid in Capital Generated
As a result of Issuance of Common Stock 10,703 775,955
Net Cash Provided by
Financing Activities 20,193 764,176
Net Increase (Decrease) in Cash 962 (1,051)
Cash - Beginning of Year - 0 - 1,051
Cash - End of Year $ 962 $ - 0 -
Supplemental Cash Flows Information:
Cash Paid for Interest $ 183,735 $ 97,313
Cash Paid for Income Taxes 2,551 - 0 -
Non Cash Transactions:
In 1996, the Company wrote off a noncollectable wrap mortgage receivable of
$251,772 and a noncollectable promissory note receivable of $93,686.
Additionally, the Company wrote off the related underlying mortgage payable
when the holder foreclosed against it.
The accompanying notes are an integral part of these financial statements.
page 65
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
The Company (formerly known as InfoTech, Inc.) Was organized under the
laws of the State of Delaware on December 8, 1964. The principal
business of the Company is specializing in structuring and marketing
mortgaged backed securities as well as, the acquisition of select
commercial real estate for its own account.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, and any
highly liquid investments with a maturity of three months or less at the
time of purchase.
The Company maintains cash and cash equivalent balances at a financial
institution which is insured by the Federal Deposit Insurance Corporation
up to $100,000. At December 31, 1996, there is no concentration of
credit risk from uninsured bank balances.
Fixed Assets
The fixed assets are depreciated over their estimated allowable useful
lives, primarily over five to seven years utilizing the modified
acceleration cost recovery system. Expenditures for major renewals and
betterments that extend the useful lives of fixed assets are capitalized.
Expenditures for maintenance and repairs are charged to expenses as
incurred.
page 66
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
In February 1992, the Financial Accounting Standards Board issued a
Statement on Financial Accounting Standards 109 of "Accounting for Income
Taxes." Under Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective bases.
Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected
to be recovered or settled. Under Statement 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
income in the period that includes the enactment date.
Earnings / Loss Per Share
Primary earnings per common share are computed by dividing the net income
(loss) by the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. The number of
shares used for the fiscal years ended December 31, 1996 and 1995 were
3,402,815 and 2,411,036, respectively.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
1996 And
1995
Equipment $ 2,022
Less Accumulated Depreciation (2,022)
$ - 0 -
Depreciation expense charged during 1996 and 1995, was $ - 0 - and
$2,022, respectively.
page 67
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - Settlements With Creditors
On October 31, 1996, the Company issued 200,000 shares of its common
stock in consideration for the cancellation of $107,393 owed by the
Corporation to Diversified Corporate Consulting Group, LLC for
professional services rendered since 1994. Additionally, in June and
October of 1996, the Company issued an aggregate of 460,000 shares of the
Company's $.01 par value common stock for advisory services performed on
its behalf with a value of $4,600.
On August 15, 1995, the Company issued 200,000 shares of the Company's
$.01 par value common stock for significant services to the corporation
at the request of its President with a value of $2,000.
In March of 1995, the Company issued 20,000 shares of the Company's $.01
par value of common stock after the reverse split in payment of legal
bills of $45,734 and 6,072 shares of $.01 par value stock in payment of
accounting bill of $15,360. The remaining balance of $67,832 was written
of as the Company was not able to locate creditors.
NOTE 4 - EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Edward Granville-
Smith, a chief executive officer for an initial term of five years
commencing June 1, 1995. The Company registered with the Securities and
Exchange Commission to issue 110,000 shares of common stock to Edward
Granville-Smith for compensation for services prior to June 1, 1995. In
addition, annual salary in a sum equal to the lesser of 5% of the
Company's annual gross income on a calendar basis or 15% of its net pre-
tax profit as determined for federal income tax purposes, without taking
depreciation or tax credits into account to be paid on or before March
30 following the calendar for which salary is due; subject to
availability of cash flow. Edward Granville-Smith would also be entitled
to an annual bonus payable in shares of the Company's common stock,
determined by dividing 5% of the Company's pre-tax profits for the
subject calendar year by the average bid price for the Company's common
stock during the lst five trading days prior to the end of the last day
of each year and the first five days of the new year.
page 68
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 4 - EMPLOYMENT AGREEMENTS (Continued)
During May of 1996, the Company recruited two executive officers,
Messers. Gener R. Moffitt and Donald E. Homan, both with offices in
Kansas City, Missouri. Such recruitment was effected in two parts,
first, the Company exchanged 100,000 shares with each (200,000 shares in
the aggregate), for all of the capital stock in their recently formed
corporations (Moffitt Properties, Ltd., and Homan Equities, Inc., both
Missouri corporations), and then the Company and the subject corporation
entered into employment agreements. Each employment agreement was
identical and provides for the following compensation.
(a) An annual bonus payable in shares of the Company's common stock,
determined by dividing 10% of the Company's pre-tax profits for the
subject calendar year by the average bid price for the Company's
common stock at during the last five trading days prior to the end
of the last day of each year and the initial five days of the new
year, provided, however, that the employment agreement shall have
been in effect for at least one half of the subject year; and,
provided further that in the event of a reorganization pursuant to
which another entity becomes the Company's parent, the common stock
of such entity shall be issuable hereunder, rather than that of the
Company.
(b) An annual cash bonus equal to 40% of the Company's pre-tax profits
for the subject calendar year, provided, however, that the
employment agreement shall have been in effect for at least one half
of the subject year.
(c) A guaranteed minimum monthly draw against the annual bonus described
above, in a sum equal to not be less than $6,250; subject to
availability of cash flow.
NOTE 5 - CONSULTING AGREEMENTS
The Company had entered into two consulting agreements. One with the
Bolina Trading Company, S.A., a Panamanian corporation and the second one
with Warren A. McFadden. Each consultant serves as a special advisor to
Mr. Granville-Smith, in conjunction with Mr. Granville-Smith's role as
an officer and director of the Company, with special responsibilities in
the areas of strategic planning
page 69
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - CONSULTING AGREEMENTS (Continued)
and raising debt on equity capital required to implement the Company's
strategic plans. The agreements' terms called for Bolina Trading
Company, S.A. to receive as compensation 84,000 shares of the Company's
common stock plus $100 per hour after 520 hours of service per year and
Warren A. McFadden to receive as compensation 110,000 shares of the
Company's common stock plus $100 per hours after 520 hours of service
per year. Subsequent to December 31, 1995, all of the above shares
of the Company's common stock were issued.
In 1996, the consulting agreement with Warren A. McFadden was terminated
and the 110,000 shares of common stock he received, which were
subsequently acquired by Diversified Consulting, were used by Diversified
as consideration to cancel a $30,000 promissory note liability owed to
the Company.
NOTE 6 - INDENTURE OF TRUST AND WRAP AROUND MORTGAGES RECEIVABLE
On June 30, 1995, the Company issued 1,616,000 shares of common stock in
payment of an indenture of trust and wrap around mortgages subject to the
underlying mortgages, from the following partnerships: Pay-West
Associates, Montco Associates, San-Safe Associates and San-Ten
Associates.
The indenture of trust consisted of (4) four demand notes bearing
interest at prime plus 4%. These notes are payable from the rental of
the various properties less payment on the wrap around mortgages. The
payment does not cover the accrued interest which is added back to the
notes.
The wrap around mortgage notes bear interest of 9.08% to 13.50%. The
related underlying mortgages bear interest at 9.625% to 9.75%. The
difference between payments on the wrap around mortgages and underlying
mortgages are applied to debt service of the demand notes.
page 70
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 7 - MORTGAGES
Mortgages consist of the following:
12/31/96 12/31/95
Subordinate "wrap" mortgage receivables:
(a) Nevada/California Property 12.904% $ 771,716 $ 857,192
(b) Tennessee Property (Note 14) 13.500% - 0 - 316,045
(c) Kansas Property (Note 14) 12.320% 325,717 345,219
(d) Oregon Property 9.080% 640,562 686,392
1,737,995 2,204,848
Less Current Portion (160,436) (215,081)
$1,577,559 $1,989,766
Original Mortgages Payables:
(a) Nevada/California Property 9.750% $ 753,493 $ 845,180
(b) Tennessee Property (Note 14) 9.625% - 0 - 247,311
(c) Kansas Property (Note 14) 9.750% 127,037 136,999
(d) Oregon Property 9.750% 602,789 646,934
1,483,319 1,876,424
Less Current Portion (276,605) (383,143)
$1,206,714 $1,493,281
(a) The mortgage secures a promissory note and is payable in equal
quarterly installments of $42,701.69 with a final payment of
$291,096.92, maturing January 1, 2001. There is also an underlying
"wrap" mortgage that is payable in equal quarterly installments of
$42,826.50, maturing July 1, 2005, with quarterly payments
decreasing to $9,314.75 for the last five years.
(b) The mortgage secured a promissory note and was payable in equal
quarterly installments of $23,437.01, with a final payment of
$198,238.33 maturing December 31, 1996. There also was an
underlying "wrap" mortgage that was payable in equal quarterly
installments of $23,562.25 maturing December, 2006, with quarterly
payments decreasing to $7,329 for the last 10 years. At December
31, 1996 the mortgage payable was in default and in 1997 the
mortgageholder foreclosed on it. Therefore, the mortgage
payable and related wrap mortgage receivable were written off.
(See Note 14).
page 71
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 7 - MORTGAGES (Continued)
(c) The mortgage secures a promissory note and was payable in equal
quarterly installments of $18,508.87 with a final payment of
$136,999 maturing December 31, 1995. There is also an underlying
"wrap" mortgage that is payable in annual installments of $74,482,
maturing October 1, 2005, with annual payments decreasing to $22,962
the last 10 years. The mortgage payable is currently in default and
the remaining balance has been classified as current. (See Note
14).
(d) The mortgage secures a promissory note and is payable in equal
quarterly installments of $26,409.87 with a final payment of
$232,199.50, maturing January 1, 2003. There is also an underlying
"wrap" mortgage that is payable in equal annual payments of $106,640
maturing December 31, 2002.
NOTE 8 - NOTES RECEIVABLE
1996 1995
Nevada/California Property $ 138,699 $ 125,978
Quarterly payments of $868.55
4% above prime, currently 12.40%
original amount $63,000
Tennessee - 0 - 84,689
Quarterly payment of $477.90
4% above prime, currently 12.40%
original amount $40,000. At 12/31/96
the Note was deemed to be uncollectable
and was written off (See Note 14).
Kansas 44,680 40,465
Quarterly payments of $341.73
4% above prime, currently 12.40%
original amount $21,073 (See Note 14)
Oregon 87,494 79,295
Quarterly payments of $501.13
4% above prime, currently 12.40%
original amount $38,742
270,873 330,427
Less Current Portion (6,844) (8,757)
$ 264,029 $ 321,670
page 72
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 9 - NOTE PAYABLE
1996 1995
A secured note payable including accrued
interest, due on demand with interest
payable quarterly at a rate of 10% per
annum. This loan was assumed by the
Company as part of the asset acquisition.
The Note has a cumulative interest clause
on any short fall in payment being added
to the original principal amount of
$104,000 $105,500 $ -0-
NOTE 10 - INCOME TAXES
As discussed in Note 1, the Company has applied the provisions of
Statement 109.
The significant components of deferred income tax expense benefit for the
years ended December 31, 1996 and 1995 arising from net operating losses
as follows:
1996 1995
Deferred Tax Benefit $ 11,800 $ 6,200
Valuation Allowance 11,800 6,200
$ - 0 - $ - 0 -
The Company has operating loss carry forwards in excess of two million
dollars that can be used to offset future taxable income.
1996 income tax expense consist of prior years' Federal income tax of
$1,292 and prior years' Delaware franchise tax of $2,551.
NOTE 11 - RELATED PARTY TRANSACTION
The chief executive officer of the Company is also an officer of the
general partner in all the partnerships involved in the wrap around
mortgages subject to the underlying mortgages and promissory notes.
page 73
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 12 - COMPENSATION
No officer or director has received an compensation to date, except as
discussed in Note 4.
NOTE 13 - STOCKHOLDERS' EQUITY
On May 18, 1995, the Company adopted a resolution to change the
authorized capitalization as follows:
(a) The 2,000,000 shares of common stock, $0.01 par value then
authorized, all of which were currently outstanding, were reverse
split into 200,000 shares, $0.01 par value; and immediately
thereafter;
(b) The Company's authorized common stock was increased from 200,000
shares, $0.01 par value, to 20,000,000 shares of common stock, $0.01
par value, and
(c) The Company was authorized to issue 5,000,000 shares of preferred
stock, the attributes of which are to be determined by the Company's
Board of Directors from time to time, prior to issuance, in
conformity with the requirements of Sections 151 of the Delaware
General Corporation Law.
NOTE 14 - LEGAL MATTERS
The Company is currently not a party to any legal proceedings. Although
the Company is not a party to the following proceedings directly, they
involve real estate located in Kansas and Tennessee in which the Company
has an interest.
A. The Company is currently in default of the mortgage on the property
located in Kansas City because it did not have the funds to satisfy
the balloon payment, in the amount of $136,999, that was due on
December 31, 1995. However, the mortgage holder has continued to
accept quarterly amortization payments equal to the quarterly
proceeds from the related wrap mortgage receivable. Even though the
aforementioned mortgage payments are currently being accepted
without protest, the mortgage holder still retains the right to
demand full and immediate payment of the total principal due.
page 74
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 14 - LEGAL MATTERS (Continued)
A. Presently there are two ongoing legal proceedings involving the
Kansas City property. First, Associated wholesale Grocers, Inc.,
-vs- San Safe Associates, et. al., in the US District Court for the
District of Kansas (the "Kansas Case") and second, Ken-Co
Properties, Inc., -vs- Safeway Stores, Inc., in the Circuit Court
for Baltimore County, Maryland (the "Maryland Case").
(a) The current tenant (by assignment from the original tenant)
for the Company's Kansas City property (located at 8120
Parallel, in the City of Kansas City, Wyandotte County,
Kansas), claims to have had a conditional right to purchase
such property (based on the rights of the original tenant) and
allegedly submitted an irrevocable offer to purchase. The
plaintiff (a predecessor in interest to the rights of the
Company) alleged that the assignment of lease rights to the
current tenant had not been adequately effected and that it
was, pursuant to the terms of the lease, entitled to continue
dealing with the original tenant for, among other purposes,
provision of required notices.
The plaintiff alleged that it exercised its right to reject
the tenant's offer to purchase through notice of rejection
tendered to the original tenant. The defendant/tenant has
answered, alleging that because of subsequent assignments of
the lease, notice to prior parties in interest was not
adequate and consequently, that the Company's counsel failed
to take the steps required to properly reject such offer as to
all potential parties involved.
(b) The corporation in whose name record ownership was originally
registered, as general partner of a limited partnership,
initiated suit against the tenant in Baltimore, Maryland for
declaratory relief that notice of rejection was adequate. The
defendant then initiated action in the United States District
Court for the District of Kansas to the same subject matter
seeking judgment requiring the Plaintiff in the Maryland
action to sell the property. That action has been contested.
The defendant/tenant in the Maryland Case has filed a motion
seeking to have the venue of that law suit changed to Kansas
City and to consolidate the actions, and the
page 75
EQUITY GROWTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 14 - LEGAL MATTERS (Continued)
plaintiff in the Maryland has contested such motion. Lease
payments continue to be made. The Plaintiff in the Maryland
action is also considering interposing counterclaims in the
Kansas action, including claims alleging violations of the
lease (unapproved improvements that detrimentally affected the
lessor's business).
In management's opinion, because the Company is not a party,
its potential exposure appears to be limited to sharing in the
proceeds of a forced sale, if the litigation is determined in
favor of the current tenant.
B. The Company was also in default of the mortgage on the property
located in Memphis, Tennessee because it could not satisfy the
balloon payment, in the original amount of $193,580, that was due
on December 31, 1996. ($174,801 at 12/31/96. The mortgage holder
(Lutheran Brotherhood) had refused to renegotiate or extend the term
of the mortgage and would not accept any further amortization
payments from the lessor of the underlying lease, other than the one
made in December, 1996, which was based upon the old repayment
schedule's terms.
Through August 1997, the Company had received funds from Sun West
N.O.P., the lessor on the underlying lease, which represented the
monthly rent payments made on such lease ($4,609.38) by the tenant
of the Memphis Property. Because the mortgage holder would not
accept any amortization payments on their matured loan from Sun West
N.O.P., the Company was using such proceeds to reduce the related
wrap mortgage receivable. In August of 1997, the mortgage holder
foreclosed on the mortgage payable, which resulted in a foreclosure
sale of the Memphis, Tennessee property. As a result of these
events of foreclosure, the Company wrote off the balance on the
mortgage payable and the related wrap mortgage receivable ($251,722)
and promissory note receivable ($93,686) at December 31, 1996. (See
Notes 7 and 8).
page 76
EXHIBITS FOR:
EQUITY GROWTH SYSTEMS , Inc.
10 - KSB - 1996
page 77
Exhibit 10.9(b) & 17.01
Moffitt Properties LTD
221 West 48th Street
No. 2105
Kansas City, Missouri 64112
816 561-7550
Fax (816) 561-3770
August 1, 1997
Mr. Edward Granville Smith Via Fax (904) 505-8635
Equity Growth Systems, inc.
3821-B
Tamiami Trail, Sta. 201
Port Charlotte, Fl. 33952
Re: Withdrawal and Resignation
Dear Mr, Granville Smith,
Please be advised that this letter is formal notice to you and to Growth Equity
Systems. I hereby cancel the employment agreement of both Moffitt
Properties, Ltd. As its President and CEO. I am also personally withdrawing
as President and Chief Operating Officer of Equity Growth Systems, Inc.
The resignation is effective as of the writing of this letter at 4:00 p.m.
Central Standard Time, Friday, August 1,1997. I wish that all parties that
are to be required per the United States Securities and Exchange Commission
and any other Government Agencies, stockholders along with any other parties
requiring such notice be notified by you as Chairman,President, and CEO of
Equity Growth Systems, Inc.
My resignation as of today's date is a direct result of your failure to
communicate to me all items of business as well as disposition of monies
received by Equity Growth Systems as it relates to your operation of the
business of the corporation.
This lack of information and knowledge to the business activities conducted
by you on behalf of Equity Growth Systems, Inc. does not allow me to properly
determine whether the business of the corporation is being handled in an
appropriate manner,therefore I cannot be a party to any dealings of the
corporation nor can I be related in any way , shape or form, to an active
position as an officer of a corporation for which I have very little, if any,
knowledge thereof.
It is with deep regret that I make this decision, however, I have no
alternative, since acting as an officer of the corporation without
appropriate knowledge of its day to day business activities could place
Moffitt Properties, Ltd. And me personally in a position whereby either
Moffitt Properties, Ltd. Or Gene R. Moffitt personally could be held
responsible for improper action on behalf of Equity Growth Systems,
Inc.
Perhaps all of the business transactions completed to date are perfectly
valid and without fault. Without having knowledge to substantiate
the afore written statement , I cannot, in good conscious, continue as a
party to Equity Growth Systems, Inc. in any way shape
or form. I wish you the best in your endeavor to build Equity Growth Systems
however, my resignation of this time and date is final.
Respectfully,
Gene R. Moffitt
cc: Donald E. Holeman (Fax, 363-8009)
6306 Walnut
Kansas City, MO 64113
Rafi Weiss
Tricon Development Company
1507 Avenue M
Brooklyn, NY 11230
Fax (718) 375-8744
Charles J. Scimeca
23698 U.S. 19 North
Clearwater, FL 34265
Fax (813) 724-3426
Eddie Kerper
Edrick Properties
243 Astancia Blvd.
Suite 101 B
Clearwater, FL 34265
Fax (813) 725-4254
Charles Germ
Executive Realty of Broward
4491 Crystal Lake Drive
Suite 101 C
Pompano Beach, Fl 33064
Fax (954) 943-3131
Mr. G. William Hollar
Sequoia Bank
113 Ithaca Road
Sterling, VA 22170
Mr. Thomas Horne
Timberline Construction
790 Fairfax
Stevens City, VA 22655
Fax (540) 667-7683
Mr. Carlton P. Moffitt, Jr.
Amic Investment Company
804 Moorefiled Park Drive
Suite 104
P. O. Box 35690
Richmond, VA 23236
Fax (804) 330-4239
page 78
Exhibit 3.3
EQUITY GROWTH SYSTEMS, INC.
RESOLUTION OF BOARD OF DIRECTORS
WHEREAS, August 1,1997 Gene R. Moffitt for himself, and Moffitt
Properties, LTD, offered his resignation as President and Chief Operating
Officer of the Company.
WHEREAS, on the same date Gene R. Moffitt canceled the employment
contracts of both himself and Moffitt Properties LTD.
WHEREAS, Mr. Moffitt, individually and through the entity known as
Moffitt Properties, LTD., has exercised poor judgement in recent efforts to
acquire certain properties;
WHEREAS, Mr. Moffitt has failed to communicate with the Board of
Directors in a timely and appropriate fashion.
WHEREFOR IT IS HEREBY RESOLVED BY THE COMPANY'S BOARD OF
DIRECTORS AS FOLLOWS:
That the resignation of Gene R. Moffitt and Moffitt Properties,
LTD, is hereby accepted.
Furthermore the Company hereby accepts the cancellation of employment
contract of both Moffitt Properties as President and CEO.
This 30th day November 1997.
Edward "Ted" Granville Smith, Jr.
Chairman of Board of Directors
page 79
Exhibit 3.4
EQUITY GROWTH SYSTEMS, inc.
RESOLUTION OF BOARD OF DIRECTORS
WHEREAS, August 1, 1997 Gene R. Moffitt for himself and Moffitt
Properties, LTD., offered his resignation as President and Chief Operating
Officer of the company.
WHEREAS, November 1, 1997 the Company accepted the resignation of Gene
R. Moffitt and Moffitt Properties LTD. As its President and CEO.
WHEREAS, The Company is in need of a President and Chief Operating
Officer;
WHEREFORE IT IS HEREBY RESOLVED BY THE COMPANY'S BOARD OF DIRECTORS AS
FOLLOWS:
EDWARD "TED" GRANVILLE SMITH is hereby elected President and Chief
Operating Officer of the Company to serve at the pleasure of the Company's Board
of Directors.
This 30th day November 1997.
Edward "Ted" Granville Smith, Jr.
Chairman, Board of Directors
page 81
Exhibit 17.02
EQUITY GROWTH SYSTEMS, inc.
RESOLUTION OF BOARD OF DIRECTORS
WHEREAS, Mr. Rafi Weiss has served as the Company's Vice President for
Acquisitions.
WHEREAS, Mr. Rafi Weiss is a duly elected officer of said Company, and
as such, has a responsibility and obligation to co-operate with counsel in the
filings of the company's 10-KSB for 1996.
WHEREAS, Mr. Rafi Weiss has been requested to fill out a questionnaire
enabling counsel to comply with basic due diligence requirements.
WHEREAS, for whatever reason, known only to Mr Rafi Weiss, he has
failed or refused to provide basic information requested.
WHEREAS, Mr, Rafi Weiss holds his position at the presence of the
Company's Board of Directors;
WHEREFORE IT IS HEREBY RESOLVED BY THE COMPANY'S BOARD OF DIRECTORS AS
FOLLOWS:
Mr. Rafi Weiss is hereby removed from the position of Company's Vice
President for Acquisitions effective immediately and his Employment Contract is
hereby canceled.
This 30th day November 1997.
Edward "Ted" Granville Smith
Chairman Board of Directors
page 82
Exhibit 10.14
Return To:
FIRST BANK MORTGAGE CORPORATION
SECURITIES BUILDING
SEATTLE, WASHINGTON 98101
Loan No. B-100260-B
Title No. Mid-South No. 208055
ASSIGNMENT OF DEED OF TRUST
For Value Received, FIRST BANK MORTGAGE CORPORATION, a Washington corporation,
as Beneficiary, hereby grants, conveys, assigns and transfers to LUTHERAN
BROTHERHOOD
whose address is 701 Second Avenue South, Minneapolis, Minnesota 55402
all beneficial interest under that certain Deed of Trust, dated February 1, 1976
executed by SOUND-SAFE ASSOCIATES, a Maryland Limited Partnership whose
General Partners are EDWARD GRANVILLE-SMITH and MICHAEL D.
PARKER.
Grantor, to MID-SOUTH TITLE COMPANY, INC.
Trustee, and recorded on MAY 28, 1976.
in Volume L2 of Mortgages, at page 9157, under Auditor's File No.
Records of Shelby County, Tennessee, together with note or notes therein
described or referred to, the money due and to become due thereon, with
interest, and all rights accrued or to accrue under said Deed of Trust.
Dated: May 19, 1976.
FIRST BANK MORTGAGE CORPORATION
This instrument was prepared by Richard
D.Bonesteel, Attorney at Law, Securities
Building, Seattle, Washington 98101 By:
R. G. Aldrich, Vice President
L29160
STATE OF WASHINGTON ) State Tax:
) ss. Reg. Fee:
COUNTY OF KING ) Rec. Fee: $4.00
MAY 28 12: 10.6 PM 76
State of Tennessee
Before me, the undersigned Notary Public in and for the State and County
aforesaid personally appeared R. G. ALDRICH, with whom I am personally
acquainted,and who, upon oath, acknowledged himself to be the VICE PRESIDENT
of First BankMortgage Corporation, the within named bargainer, a corporation
on that he as such Vice President, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name
of the corporation by himself as such Vice President.
WITNESS my hand and seal at my office in Seattle, Washington, this 20th day
of May, 1976.
Notary Public
My commission expires: 9-1-76
7.6. 208055. Sound. Cafe-Mid-South Title Co.-#fee $4.00
page 83
Exhibit 10.15
Return To:
FIRST BANK MORTGAGE CORPORATION
SECURITIES BUILDING
SEATTLE, WASHINGTON 98101
Loan No. B-100260-B
Title No. Mid-South No. 208055
ASSIGNMENT OF ASSIGNMENT OF LEASES AND/OR RENTS
For Value Received, FIRST BANK MORTGAGE CORPORATION, a Washington corporation,
hereby grants, assigns and transfers to LUTHERAN BROTHERHOOD
whose address is 701 Second Avenue South, Minneapolis, Minnesota 55402
ALL OF ITS RIGHT, TITLE AND INTEREST IN AND TO THAT CERTAIN Assignment of
Leases and/or Rents dated
February 1, 1975 executed by SOUND-SAFE ASSOCIATES, a Maryland Limited
Partnership whose General Partners are EDWARD GRANVILLE-SMITH and MICHAEL D.
PARKER.
As Assignor, to FIRST BANK MORTGAGE CORPORATION, as Assignee, and recorded
on MAY 28, 1976 in Volume L2 of Leases, at page 9158,
under Auditor's File No. Records of Shelby County, Tennessee,
Dated: May 19, 1976.
FIRST BANK MORTGAGE CORPORATION
By: L21961__________________________
R.G. Aldrich Assistant Treasurer
Vice President
This instrument was prepared by Richard
D.Bonesteel, Attorney at Law, Securities
Building, Seattle, Washington 98101
STATE OF WASHINGTON ) State Tax:
) ss. Reg. Fee:
COUNTY OF KING Rec. Fee: $4.00
MAY 28 12: 10.6 PM 76
State of Tennessee
Shelby County
Before me, the undersigned Notary Public in and for the State and County
aforesaid personally appeared R. G. ALDRICH, with whom I am personally
acquainted, and who, upon oath, acknowledged himself to be the VICE PRESIDENT
of First Bank Mortgage Corporation, the within named bargainer, a corporation
on that he as such Vice President, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name
of the corporation by himself as such Vice President.
WITNESS my hand and seal at my office in Seattle, Washington, this 20th day
of May, 1976.
Notary Public
My commission expires: 9-1-76
7.6. 208055. Sound. Cafe-Mid-South Title Co.-#fee $4.00
L2 9162
page 84
Exhibit 10.16
FMC Loan No. B-100260-B 2
Mid-South Title Co. No. 208055
42300
ASSIGNMENT OF TRIPARTITE AGREEMENT
FOR VALUE RECEIVED, the undersigned, FIRST BANK MORTGAGE CORPORATION, A
Washington corporation (FIRST BANK) does hereby assign unto LUTHERAN BROTHERHOOD
organized and existing under the laws of the United States of America (LUTHERAN
BROTHERHOOD), its succors and assigns, all of its right, title and interest
in andto that certain Tripartite Agreement dated the 1st day of February,
1976, between SOUND-SAFE ASSOCIATES, a Maryland Limited Partnership whose
general partners are EDWARD GRANVILLE-SMITH and MICHAEL D. PARKER
(SOUND-SAFE), SAFEWAY STORES,INCORPORATED, a Maryland corporation (SAFEWAY)
and FIRST BANK, recorded on May 7, 8, 1976, under Register's No. L29159.
Any notice required to be given in accordance with the terms of said Tripartite
Agreement shall be given by SAFEWAY by registered United States mail, postage
prepaid, addressed to LUTHERAN BROTHERHOOD, 701 Second Avenue South,
Minneapolis, Minnesota 55402.
Dated at Seattle, Washington, this 19th day of May, 1976.
FIRST BANK MORTGAGE CORPORATION, a Washington
corporation
By:
Richard D. Bonesteel
Title: Vice President and Counsel
STATE OF WASHINGTON ) State Tax:
) ss. Reg. Fee:
COUNTY OF KING ) Rec. Fee: $4.00
On this 20th day of May, 1976, before me, the undersigned, a Notary Public in
and for the State of Washington, duly commissioned and sworn, personally
appeared RICHARD D. BONESTEEL to me known to be the VICE PRESIDENT and
COUNSEL of
FIRST BANK MORTGAGE CORPORATION, the corporation that executed the within
instrument and known to be the person who executed the within instrument on
behalf of the corporation herein named and acknowledged to me that such
corporation executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate above written.
Notary Public in and for the State of
Washington, residing at
CONSENT TO ASSIGNMENT
The undersigned hereby consents to the foregoing Assignment.
SAFEWAY STORES, INCORPORATED, a Maryland
corporation
By:
Its Assistant Vice President
By:
Its Assistant Secretary
L2 9162
STATE OF WASHINGTON )
) SS.
COUNTY OF KING )
Before me, the undersigned Notary Public in and for the State and County
aforesaid personally appeared RICHARD D. BONESTEEL, with whom I am personally
acquainted, and who, upon oath, acknowledged himself to be the VICE PRESIDENT
AND
COUNSEL, of First Bank Mortgage Corporation, the within named bargainer, a
corporation, that he as such Vice President and Counsel, being authorized so to
do, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by himself as such Vice President and
Counsel.
WITNESS my hand and seal at my office in Seattle, Washington, this 20th day
of May, 1976.
Notary Public
My commission expires: 9-1-76
T.G. 208055. Sound. Safe
Return to-Mid-South Title Co (H. Curry).-Rec. fee $4.00
State Tax:
Reg. Fee:
Rec. Fee: $4.00
MAY 28 12: 10.6 PM 76
State of Tennessee
Shelby County
page 85
Exhibit 99.03
SUBSTITUTE TRUSTEE'S DEED
WHEREAS, under date of February 1, 1976, Sound-Safe Associates, a
Maryland limited partnership whose general partners were Edward Granville-Smith
and Michael D. Parker, executed a certain Deed of Trust to Mid-South Title
Company, Inc. as Trustee for the purpose of securing the debt and the
obligations therein described, which Deed of Trust is recorded under
Register's No. L2 9157 in the Register's Office of Shelby County, Tennessee; and
WHEREAS, Lutheran Brotherhood, the holder and owner of the debt
secured by said Deed of Trust, having for reasons satisfactory to itself, under
the provisions of said Deed Of Trust, by instrument recorded in the Register's
Office under Register's Office under Register's No. GM 9600 named and appointed
the undersigned or John B. Maxwell, Jr. as Substitute Trustees, either of whom
may act alone, in the place and stead of the said Mid-South Title Company, Inc.;
and
WHEREAS, default was made in the payment of the debt and obligations
secured by said Deed Of Trust and the undersigned, as said Substitute Trustee,
was requested to advertise and sell the property conveyed by said Trust Deed in
compliance with the provisions thereof; and
WHEREAS, the undersigned as Substitute Trustee, did, in compliance
with the provisions of said Trust Deed, advertise for sale the property conveyed
by same, the advertisement of sale, having been published in The Daily News, a
newspaper published in Memphis, Shelby County, Tennessee in the issues of May 8,
1997, May 15, 1997, May 22, 1997, and May 29, 1997, of said newspaper, said
sale having been advertised for Monday, June 9, 1997, commencing at 12:00
o'clock noon at the southwest corner of at the Adams Avenue entrance to the
courthouse, Shelby County, Tennessee, which sale was adjourned by the
undersigned Substitute Trustee to Thursday, August 7, 1997 at the previously
advertised time and location, at which time and place the property was offered
for sale and sold; and
WHEREAS, the highest and best bid of said property was then and there
made by Lutheran Brotherhood, to-wit: a bid of TWO HUNDRED TWO THOUSAND NINE
HUNDRED FIFTY EIGHT AND 28/100 DOLLARS ($202,958.28) for said property, which
bid was then and there accepted by the undersigned as Substitute Trustee.
NOW, THEREFORE, for the consideration named, and for and in
consideration of the compliance with the terms of said bid, the undersigned,
Jane P. Long, as Substitute Trustee, has bargained and sold, and does by there
presents bargain, sell and convey to the said Lutheran Brotherhood, a Minnesota
corporation, the property advertised and sold as herein above recited, situated,
lying and being in the county of Shelby, State of Tennessee, and more
particularly described as follows
Lot 1, Section A, Safeway Stores Incorporated Subdivision as
shown on Plat Book 62, Page 30, in the Registers Office of Shelby
County, Tennessee, to which plat reference is hereby made for a
more particular description, in the City of Memphis.
TOGETHER WITH SUBJECT TO Easement and Agreement for Joint Use of
Facilities between Safeway Stores, Incorporated, a Maryland corporation, as
party of the first part and Boyle Investment Company, as party of the second
part, dated August 13, 1974, recorded September 5, 1974 under Register's No.
J8 5472
and recorded under Register's J8 6663 and First Amendment to Easement Agreement
dated July 23, 1975 and recorded under Register's No. K6 6125, in the Register's
Office of Shelby County, Tennessee.
TO HAVE AND TO HOLD, unto the said Lutheran Brotherhood, its
successors and assigns, in fee simple forever.
The undersigned Substitute Trustee believes the title hereby conveyed
to be good, but warrants the same against the lawful claims of all persons
claiming by, through, and under a conveyance from the undersigned as Substitute
Trustee, under the provisions of the above described Deed of Trust, and not
further or otherwise.
This sale is made subject to any and all outstanding and unpaid real
property taxes upon the property as of the date of the Substitute Trustee's sale
described herein, and any and all other prior restrictions, encumbrances, or
liens of any nature. At the time of the foreclosure, a search of public records
revealed no lien filed by the United States or the State of Tennessee which
affects the property sold and no accompanying right of redemption pursuant to
T.C.A 35-5-104 (b).
The proceeds of this sale, the receipt of which the undersigned
Substitute Trustee hereby acknowledges, have been applied as follows:
TOTAL
BID........................................$202,958.28
Expenses:
Title Abstract................................$ 600.00
Recording Fee (Substitution Trustee).......... 8.00
Advertising................................... 475.89
Environmental.................................1,150.00
Miscellaneous Foreclosure Costs............... 937.64
Attorney Fees................................ 6,953.26
TOTAL EXPENSES $10,124.79
BALANCE APPLIED TO THE FIRST MORTGAGE
INDEBTEDNES............................. $192,833.49
WITNESS, the signature of the undersigned, Jane P. Long, Substitute
Trustee, this 8th day of August, 1997.
________________________
Jane P. Long
Substitute Trustee
STATE OF TENNESSEE
COUNTY OF SHELBY
On this 8th day of August, 1997, before me a Notary Public in and for
said State and County, duly Commissioned and qualified, personally appeared Jane
P. Long, Substitute Trustee, to me known to be the person described in and who
executed the foregoing instrument and acknowledged that she executed the same as
her free act and deed.
WITNESS my hand and Notarial Seal at Office the day and year above
written.
_________________________
Notary Public
page 86
Exhibit 99.04
PROOF OF PUBLICATION
STATE OF TENNESSEE
COUNTY OF SHELBY
PERSONALLY, appeared before me, Lisa Waddell Notary Public of Shelby County,
Tennessee, Dorothy Boyett, who being first duly sworn, made oath that she is the
Executive Assistant of The Daily News Publishing Company, the Publisher of The
Daily News, a daily newspaper of general circulation, published in the City of
Memphis, County of Shelby and State of Tennessee, and that the hereto attached
publication appeared on the same on the following dates:
May 8, 1997
May 15, 1997
May 22, 1997
May 29, 1997
THE DAILY NEWS PUBLISHING COMPANY
By:_________________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, the undersigned, a Notary Public of the State and County
aforesaid, personally appeared Dorothy Boyett with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence) and who upon
oath, acknowledged herself to be the president for other officer authorized to
execute the instrument of The Daily News Publishing Co. The within named
bargainer, a corporation, and that she as such officer, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by herself as Executive Assistant.
WITNESS my hand and Official Seal at Office this 29th day of May, 1997.
____________________________Notary Public
COST OF PUBLICATION
First Insertion $158.63
Second Insertion 158.63
Third Insertion 158.63
Total $475.89
SUBSTITUTE TRUSTEES NOTICE OF FORECLOSURE SALE
Default having been made in the terms, conditions and payments of
debts and obligations secured by a certain Deed of Trust dated February 1, 1975,
executed by Sound-Safe associates, a Maryland limited partnership having as its
general partners Edward Granville-Smith, and Michael D. Parker, to Mid-South
Title Company, Inc. as Trustee, of record as Instrument No. L2 9157 in the
Register's Office of Shelby County. Tennessee, and John B. Maxwell, Jr. and Jane
P. Long having been appointed as Substitute Trustee in an instrument of record
inthe aforesaid Register's Office as Instrument No. GM9600 and Lutheran
Brotherhood, the owner of the debt secured by said Deed of Trust having required
the undersigned to advertise and sell the property described and therein
conveyed, the entire indebtedness having matured and being due and payable, the
undersigned, John B. Maxwell Jr. and Jane P. Long, will, by virtue of the power
and authority vested in them as Substitute Trustees, on Monday June 9t, 1997,
commencing at 12:00 o'clock noon at the southwest corner of the Shelby County
Courthouse, at the Adams Avenue entrance thereto, Memphis, Shelby County,
Tennessee, sell at public out cry to the highest best bidder for cash, free from
the equity redemption, homestead and dower and all other exemptions which are
expressly waived, and subject to unpaid taxes, if any, the following described
property in Shelby County, Tennessee to wit:
Lot 1 Section "A" Safeway Stores, incorporated Subdivision as shown on
plat of record in Plat Book 62, Page 30, in the Register's Office of Shelby
County, Tennessee, to which plat reference is hereby made for a more particular
description. In the City of Memphis.
TOGETHER WITH AND SUBJECT TO Easement and Agreement. For Joint Use of
Facilities between Safeway Stores, Incorporated, a Maryland corporation, as
party of the first part and Boyle Investment Company as party of the second
part dated August 13,1974, recorded September 5, 1974 under Register's No.
J8 6663 and First Amendment to Easement Agreement dated July 23, 1975 and
recorded
page 87
Exhibit 99.05
IN THE UNITED STATE DISTRICT
COURT FOR THE DISTRICT OF KANSAS
ASSOCIATED WHOLESALE GROCERS, INC. Filed
Plaintiff. U.S. District Court
District of Kansas
vs. Ralph L. Deloach
By:
FIRST KEN-CO PROPERTIES, INC., Kansas City, Ks.
SAN SAFE ASSOCIATES,
FLEET NATIONAL BANK, and Case No. 97-2072-JWL
SAFEWAY, Inc.,
Defendants
ORDER OF DISMISSAL WITH PREJUDICE
Having considered the Stipulations of Dismissal of the parties, IT IS HEREBY
ORDERED that this action, shall be and is hereby dismissed with prejudice, with
each party to pay their own costs of this action.
JOHN W. SINGELTARY
JUDGE OF THE U.S. DISTRICT COURT
DATED: 21 October, 1997
Submitted by:
William F. High #14000
Linda S. Skaggs #17085
Blackwell, Sanders, Matheny, Weary
& Lombardi, LLP
9401 Indian Creek Parkway, Ste 1200
Overland Park, Kansas 66210-2007
tel# (913) 696-7000/Fax# (913) 696-7070
Attorneys for Associated Wholesale
Frank Lipman #13591
Bryan Caco, LLP
Suite 3500, 1200 Main Street
Kansas City, Mo 64105-2100
Stephen C. Caruso #29830
Ryan G. Terril
5600 N.E. Antioch Road
Kansas City, Mo. 64119
David F. Albright
Albright, Brown, & Caudill, L.L.C.
120 E. Baltimore Street, #2150
Baltimore, Maryland 21202
Richard Ralls #12234
712 Broadway
Kansas City, Mo. 64105
page 88
Exhibit 10.7
AGREEMENT
First Ken-Co, party of the first part, enters into this Agreement with San Safe,
party of the second part.
WHEREAS the parties hereto have agreed to settle the Kansas City litigation,
Case No. : 97-2072-JWL, with Associated Wholesale Grocers, Inc., Fleet National
Bank, and Safeway, Inc., but have reserved claims against each other.
Therefore, in consideration of this agreement, and other valuable
considerations, the parties agree as follows:
8. The $98,000.00 will be distributed to First Ken-Co and San Safe to be
held in escrow;
9. First Ken-Co and San Safe will litigate in the State of Maryland all
remaining issues between them, including the rightful disbursement of
the $98,000.00 held in escrow;
10. The litigation will be in the Circuit Court for Baltimore City; and
11. The escrow funds will be deposited with the Curcuit Court of Baltimore
City.
SAN SAFE
Date: Oct. 20,1997 By: First Ken-Co Properties by E. Granville-Smith
President
By:
Date: 10/20/1997 FIRST KEN-CO
By: E. Granville-Smith, President
page 89
Exhibit 10.18
STATEMENT OF UNANIMOUS CONSENT TO ACTION TAKEN BY THE SHAREHOLDERS OF FIRST
KEN-CO PROPERTIES, INC.
The undersigned, being all of the shareholders of FIRST KEN-CO PROPERTIES,
INC.
A Delaware corporation, do hereby unanimously consent in writing pursuant to
the General Corporation Laws of the State of Delaware to the adoption of the
following resolution:
RESOLVED, that the officers of this corporation be, and hereby are, authorized
and directed on behalf of this corporation to enter into a settlement of those
certain pending lawsuits described in the Mutual Release (the "Mutual Release")
attached hereto as Exhibit "A" and incorporated herein by this reference, the
settlement, the terms of which settlement are more fully set forth in the Mutual
Release.
RESOLVED, that the officers of this corporation be, and they hereby are,
authorized and directed on behalf of this corporation to, pursuant to the
terms of the Mutual Release, transfer to Four B Corp., a Kansas corporation,
certain real property described in general as 8120 Parallel Parkway, Kansas
City, Kansas, and more particularly described on Exhibit "B", attached
hereto and incorporated herein by reference.
FURTHER RESOLVED, that the officers of this corporation be, and they hereby
are, authorized and directed on behalf of the corporation, to execute any and
all documents, instruments or any other writings they deem necessary and
appropriate in order to effectuate the foregoing Resolution.
IN WITNESS WHEREOF, the undersigned have executed this Statement of Unanimous
Consent to Action on this 20 day of October ,1997.
E. Granville-Smith_______________
Print Name:____________________
______________________________
Print Name:____________________
______________________________
Print Name:____________________
page 90
Exhibit 10.19
GENERAL WARRANTY DEED
THIS GENERAL WARRANTY DEED made this ___ day of October , 1997, by FIRST KEN-CO
PROPERTIES, INC., a Delaware corporation, with an address of ("Grantor") to
FOUR B CORPORATION, a Kansas corporation with a business address of 5300
Speaker Rd., Kansas City, Kansas 66106 ("Grantee").
WITNESSETH:
That Grantor, for and in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, hereby grants, bargains, sells and conveys unto Grantee,
its successors and assigns, all of Grantor's right, title and interest in and
to the real property (the "Property"), lying, being situated in the County of
Wyandotte, State of Kansas, and legally described on Exhibit "A" attached
hereto and incorporated herein.
TO HAVE AND TO HOLD the same, together with all and singular the tenements,
hereditaments and appurtenances there unto belonging or in any wise
appertaining,in fee simple, forever. Grantor, for itself , its successors
and assigns, hereby covenants to Grantee that: (i) Grantor, is lawfully
seized of the Property in fee simple; (ii) Grantor has good right lawful
authority to sell and convey the Property; (iii) the Property is free, clear,
discharged and unencumbered of and from all former and other grants, titles,
charges, estates, judgements, taxes, assessments and encumbrances of any kind
or nature whatsoever, and (iv) Grantor hereby fully warrants the title to the
Property and will forever defend the same unto Grantee, its successors and
assigns, against the lawful claims of all persons whomsoever.
IN WITNESS WHEREOF, Grantor has hereunto signed and sealed these presents as
of the day and year first above written.
[Corporate Seal]
ATTEST: FIRST KEN-CO PROPERTIES, INC.,
A Delaware corporation
______________ By:___________________________
_____________Secretary Oct 20, 1997 E. Granville-Smith Pres.
page 91
Exhibit 10.20
TERMINATION OF MEMORANDUM OF LEASE
THIS TERMINATION OF MEMORANDUM OF LEASE ("Termination") is entered into as of
the____day of October,1997, by and between FIRST KEN-CO PROPERTIES, INC.
A Maryland corporation ("Landlord") and ASSOCIATED WHOLESALE GROCERS, INC.,
a Missouri corporation ("Tenant").
RECITALS:
The following Recitals are a material part of this termination.
B. Landlord and Safeway Stores, Incorporated, a Maryland corporation
("Safeway"), entered into a certain Lease dated October 15,1975 (the
"Lease"), whereby Landlord leased and let it to Safeway, a building and
other appurtenances to said building (herein after called the "Premises"
or "premises"). The Premises are located on certain real property legally
described on Exhibit "A", attached hereto and incorporated herein
(the"Property").
C. Landlord and Safeway further entered into a certain Memorandum of Lease
dated October 15, 1975 and filed of record on October 31, 1975 in the
office of the Recorder of Deeds for Wyandotte County, Kansas, as Document
No., 823447, in Book 2482, at page 165 (the Memorandum") disclosing that
the Landlord and Safeway had entered into the Lease.
D. Tenant is the current holder of the leasehold interest of Safeway.
E. Landlord and Tenant have agreed to terminate the Lease and, therefore,
desire to terminate the Memorandum.
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and conditions herein after contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby agree as follows:
1. The Memorandum is hereby terminated and shall have no further force or
effect.
ACKNOWLEDGMENTS
STATE OF FLORIDA,
IN WITNESS WHEREOF, Landlord and Tenant have executed this Termination
effective as of the day and year first set forth above.
[Corporate Seal}
ATTEST: FIRST KEN-CO PROPERTIES, INC.
A Maryland corporation
__________________________ By:______________________
Printed Name:______________ Printed Name: E. Granville-Smith
Title:_____________________ Title: President
"Landlord"
[Corporate Seal]
ATTEST: ASSOCIATED WHOLESALE GROCERS, INC.
A Missouri corporation
___________________________ By:_______________________
Joseph L. Campbell, II, Secretary Mike DeFabis, President
"Tenant"
All that part of Tract 403A-1-1, REPLAT OF PART OF WHITE OAKS SUBDIVISION, a
subdivision of land, and part of the Southwest 1/4 of the Southwest 1/4 of
Section 32, Township 10, Range 24, in Kansas City, Wyandotte County, Kansas,
described as follows: Commencing at the Southeast corner of said 1/4 1/4
Section; thence North 89 degrees 46 minutes 08 seconds West along the South
line of said 1/4 1/4 section, a distance of 275.34 feet; thence North 0
degrees 13 minutes 52 seconds East, a distance of 60.01 feet to a point on
the North right of way line of Parallel Avenue (as now established), and the
TRUE POINT OF BEGINNING of the Tract of land to be herein described;
thence continuing North 0 degrees 13 minutes 52 seconds East, a
distance of 474.81 feet to a point on the North line of said tract
403A-1-1; thence South 89 degrees 38 minutes 40 seconds East along the
North line of said Tract 403A-1-1, a distance of 122.14 feet to an angle
point therein; thence North 89 degrees 06 minutes 33 seconds East and
continuing along the North line of said TRACT 403a-1-1, A DISTANCE OF 125.02
FEET TO A POINT ON THE West right -of-way line of 81stStreet,
(as now established) said point being North 89 degrees 34 minutes 40 seconds
West, 30.00 feet from the East line of said 1/4 1/4 Section; thence South 0
degrees 25 minutes 20 seconds West along the West right-of-way line of said
81st Street, a distance of 23.90 feet to the point of curve in said right-of
- -way line; thence Southerly and Southwesterly along said right-of-way line
along a curve to the right, tangent to the last described course, having a
radius of 1880.09 feet, an arc distance of 229.70 feet; thence South 7
degrees 25 minutes 20 seconds West, tangent to the last described curve and
continuing along said right-of-way line, a distance of 178.17 feet to the
point of curve in said right-of-way, thence Southwesterly along
a curve to the right, tangent to the last described course having a radius
of 88.31 feet, an arc distance of 67.01 feet to the intersection of said West
right-of-way line with the North line of said Parallel Avenue; thence North
89 degrees 46 minutes 08 seconds West along said North right-of-way line,
a distance of 164.55 feet to a jog therein; thence North 0 degrees 25 minutes
20 seconds East along said jog, a distance of 10.00 feet; thence North 89
degrees 46 minutes 08 seconds West and continuing along said North
right-of-way line, a distance of 13.83 feet to the point of beginning.
EXHIBIT "A"
page 92
Exhibit 10.21
MUTUAL RELEASE
This Mutual Release is entered into this ____ day of October, 1997, by and
between Associated Wholesale Grocers, Inc. ("AWG"), First Ken-Co Properties,
Inc.
("FKC"), Fleet National Bank ("Fleet"), and San Safe Associates ("San Safe") and
these entities are collectively referred to as the "Parties".
WHEREAS, First Ken-Co and Safeway Inc. ("Safeway") are parties to certain
litigation styled First Ken-Co Properties, Inc. v. Safeway Stores Incorporated,
Case No. 96351021 filed in the Circuit Court of Maryland for Baltimore City (the
"Maryland Litigation").
WHEREAS, the Parties are further engaged in certain litigation styled
Associated Wholesale Grocers, Inc. v. First Ken-Co Properties , Inc. Et al.
Case No.: 97-2072-JWL filed in the United States District Court of Kansas (the
"Kansas Litigation").
WHEREAS, FKC and AWG are parties to a certain lease dated October 15,1975,
for real property (the "Subject Property") located at approximately 81st and
Parallel Avenue in Kansas City, Wyandotte County, Kansas and as more
particularly described in the Kansas and Maryland Litigation:
WHEREAS, the Parties desire to resolve the above Litigation, without
admitting liability, such liability expressly denied, but to avoid the cost,
uncertainty and expense of further litigation and therefore enter this mutual
release,
NOW, THEREFORE, in consideration of the mutual promises, covenants,
releases, and payments provided herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
1.
A. AWG agrees to pay the sum of One Hundred Fifty Thousand Dollars
($150,000) to Fleet in exchange for free, clear insurable, and
marketable title of the Subject Property;
B. Fleet will receive the first Fifty-two thousand ($52,000) of the above
$ 150,000, with the remaining balance to be distributed to FKC and San
Safe at Closing with the Closing to occur prior to October 1,1997;
C. The Parties agree to execute such necessary documents in order to
convey free, clear, insurable and marketable title of the Subject
Property to AWG or its assigns;
D. The Parties agree to execute this Mutual Release and such documents as
necessary to dismiss the prejudice the Maryland and Kansas Litigation;
E. FKC agrees that counsel for AWG may execute the Stipulation for
Distribution of Commissioner's Award (Tract 8).
2.
FKC and San Safe and each of their successors, parent, subsidiaries,
and affiliated corporations , officers, directors, employees, and agents, hereby
fully and finally release and discharge Safeway, Fleet and AWG, and each of
their officers, directors, agents employees, affiliates, assigns, including
AWG's assignee Four B Corp., and related entities from and hereby acknowledge
accord and satisfaction of, any and all claims, causes of action, rights of
action, demands, suits, damages, liabilities, accrued or accruing in the
past, present or future, of whatever nature, known or unknown, in contract,
tort, or otherwise, arising under the laws of any State or the laws of the
United States, from the beginning of time through the date hereof, relating
to any claims which arose, or could have arisen in the Litigation.
3.
Fleet on behalf of its successors, parent, subsidiaries, and
affiliated corporations, officers, directors, employees, and agents, hereby
fully and finally release, and discharge FKC, San Safe, Safeway, and AWG's
and each of their officers, directors, agents, employees, affiliates,
assigns, including AWG'S assignee Four B Corp., and related entities from,
and hereby acknowledge accord and satisfaction of , any and all claims,
causes of action, rights of action, demands, suits, damages, and liabilities,
accrued or accruing in the past, present, or future, of whatever nature,
known or unknown, in contract, tort, or otherwise, arising under the laws of
any State or the laws of the United States, from the beginning of time
through the date hereof, relating to any claims which arose, or could have
arisen in the Litigation.
4.
AWG on behalf of its successors , parent , subsidiaries, and
affiliated corporations, officers, directors, employees, and agents, hereby
fully and finally release, and discharge, FKC, San Safe, and Fleet, and each
of their officers, directors, agents, employees, affiliates and related
entities from and hereby acknowledge accord and satisfaction of any and all
claims, causes of action, rights of action, demands, suits, damages,
and liabilities, accrued or accruing in the past, present or future, of
whatever nature, known or unknown, in contract, tort, or otherwise, arising
under the laws of any State or the laws of the United States, from the
beginning of time through the date hereof, relating to any claims which
arose, or could have arisen in the Litigation.
5.
The Parties represent and warrant that neither they nor any of their
agents, attorneys, employees, predecessors, successors, or assigns have
transferred or assigned, or purported or agreed to transfer or assign, any
claims they believe they could assert against each other.
6.
The Parties hereby acknowledge, represent, and warrant that they and
their duly authorized representatives have authority to enter into this Mutual
Release; have read and understood this Mutual Release; that they are entering
into this Mutual Release voluntarily and not out of threat or duress; that the
Parties have to the full extent that they each deemed necessary, sought and
received the advice of their respective counsel.
7.
Should any provision of this Mutual Release, for any reason, be deemed
or held invalid or unenforceable, in whole or in part, that determination shall
not affect any other provision of the Mutual Release. In the event of a
claim by a third party, this Mutual Release is not to be construed as a waiver
of any future defense or rights otherwise available to Parties.
8.
This Mutual Release shall be binding upon the heirs, administrators,
successors, representatives, and assigns of the Parties hereto.
9.
This Agreement, and all rights and duties in connection herewith,
shall be governed by the laws of the State of Kansas.
10.
This Mutual Release may be signed in counterparts, any of which will
be binding upon the Parties to the Mutual Release.
IN WITNESS WHEREOF, the Parties hereto have caused this Mutual Release
to be duly signed and executed this 20TH day of OCTOBER, 1997.
Associated Wholesale Grocers, Inc.
________________________
title________________________
Subscribed and sworn to before me this 20TH day of October, 1997.
________________
__
Notary Public
My Commission Expires:
____________________
First Ken-Co Properties, Inc.
title
Subscribed and sworn to before me this 20th day of October, 1997.
____________________
Notary Public
My Commission Expires:
____________________
Fleet National Bank
_
title
Subscribed and sworn to before me this 20TH day of October, 1997.
My Commission Expires:
____________________
San Safe Associates
title:
Subscribed and sworn to before me this 20TH day of October, 1997.
_________________________
Notary Public
My Commission Expires:
Safeway, Inc.
title:
Subscribed and sworn to before me this 20TH day of OCTOBER, 1997.
__________________________
Notary Public
My Commission Expires:
____________________
page 93
Exhibit 99.6
G. Richard Chamberlin, Esq*.
14950 South Highway 441
Summerfield, Florida 34491
352-245-6044 (voice)
352-245-8155 (fax)
Mail to:
P.O. Box 3370
Belleview, Florida 34421-3370
* Florida & Georgia Bars only
December 18 1997
David Albright, Esq.
Albright, Brown and Goetemiller
120 East Baltimore Street
Suite 2150
Baltimore, Maryland 21202
sent by facimile transmission to: (410) 244-0356
Re: Equtiy Growth Systems, inc.; Form 10-KSB for 1996
Dear Mr Albright
As you are aware by my previous written correspondences and numerous calls
to your office, our office represents Equity Growth Systems, inc.,
(hereinafter referred to as registrant), for the purposes of filing the
above mentioned document with the Securities and Exchange Commission.
Enclosed and attached to this letter is the proposed language concerning the
following: Safeway Stores, Incorporated, Legal proceedings, Potential
Litigation, other legal matters, and non judicial matters of concern.
Please make comments on any of the above and forward your comments to me no
latter than Monday December 22, 1997. If you have any additional
information or disclosures, please make your appropriate comments. If you
know of any omissions please disclose the omissions.
In addition, please respond to the following,
On October 21, 1997, The District Court of Kansas entered
an Order of Dismissal With Prejudice of Associated Wholesale
Grocers, Inc., vs San Safe Associates, et. al. Case No.
972072WC. The order is based on a Joint Stipulation of
parties involved in the litigation. Have the terms of that
Joint stipulation been carried out? Have any terms of the
agreement not been carried out? Please send me copies of
any appropriate signed documents..
On October 20, 1997, Associated Wholesale Grocers , Inc., a Missouri
Corporation; First Ken-Co Properties, Inc., a Delaware corporation; Fleet
National Bank , a national banking association; Safeway Inc., a Delaware
corporation, and San Safe Associates, a Maryland limited partnership;
entered a mutual release involving the Kansas litigation and Maryland
litigation and the First Ken-Co., and Safeway lease dated October 15, 1975.
Has all of that litigation been resolved? Please send copies of any signed
documents?.
On October 20, 1997, Ken-Co and San Safe agreed to settle the
Kansas City Litigation, Case No. 97-2072-JWL, with Associated
Wholesale Grocers,Inc., Fleet National Bank, and Safeway, Inc., but
reserved claims against each other. The parties agreed that
$98,000.00 was to be distributed to First Ken-Co. Properties and San
Safe to be held in escrow;
The parties also agreed that First Ken-Co. Properties and San Safe
would litigate in the State of Maryland all remaining issues between
them, including the rightful disbursement of the 98,000.00 held in
escrow.
Has the money been disbursed, if so provide details and any written
evidence?
Has litigation been instituted? If so, where and when? Please send a
copy of the pleadings?
Please provide us with a due diligence file on the non judicial
foreclosure involving property in Memphis, Tennessee?
As you are aware, SOUND SAFE ASSOCIATES. defaulted on the mortgage
on the property located in Memphis Tennessee because it was unable to
satisfy the pay-off balloon payment that was due on December 31, 1996
in the amount of $174,801.00. The mortgage holder, Lutheran
Brotherhood, refused to negotiate with SOUND SAFE ASSOCIATES, or
extend the term of the mortgage and refused further amortization
payments from the lessor of the underlying lease. Non Judicial
Foreclosure was instituted and finalized in August, 7, 1997. Please
fax at 352-245-8155 or E-Mail at [email protected]. I use Wordperfect
7.0 or Microsoft Word.
The mortgage holder, Lutheran Brotherhood, refused to negotiate with
SOUND SAFE ASSOCIATES, or extend the term of the mortgage and refused
further amortization payments from the lessor of the underlying lease.
Non Judicial Foreclosure was instituted and finalized in August, 7,
1997. Do you have any reason to believe this foreclosure was not
properly or legally conducted?
First Bank as assignor, granted, conveyed, assigned and transferred to
Lutheran Brotherhood, Inc., a Minnesota corporation ("Lutheran
Brotherhood"), as assignee, all First Banks rights, title and
interest in and to the Original Deed of Trust, under that certain
Assignment of Deed of Trust dated May 19, 1976, and filed for record
as Instrument Number L2 9160 on May 28, 1976, in the Register's Office
of Shelby County, Tennessee ; and Assignment of Leases under that
certain Assignment of Assignment of Leases and/or Rents dated May 19,
1976, and filed for record as Instrument Number L2 9161 on May 28,
1976 and in the Register's of Shelby County, Tennessee; and to
Tripartite Agreement under that certain Assignment of Tripartite
Agreement dated May 19, 1976, and recorded as Instrument Number L2
9162 in the Register's Office of Shelby County, Tennessee. Do you
have a copy of any of these records of title in your file? If so
please fax same to my office ASAP?
As a result of these events, the Registrant has lost it's equitable
interest in the property, lost it's lease income, lost income equal to
the payments of the first mortgage and lost income equal to the
difference between payment of the mortgage and the amount of the
underlying mortgage. Is there any cause of action you would
recommend concerning the recovery of this loss on behalf of Equity
Growth Systems, inc?
Is there any litigation concerning Equity Growth Systems, inc., or any
subsidiary or related Company?
Are you aware of any other information not mentioned in the 11 page
attachment that might adversely affect the stockholders of Equity
Growth Systems, inc.?
Although I am relatively new in my involvement with Equity Growth
Systems, Inc, I have reviewed the Company's files and have noticed
your failure to communicate on items extremely important to this
filing. I have contacted your office by mail and by phone and have
never received a return correspondence or phone call?
If you do not respond to this letter and provide some verification on
these important issues, I will include this correspondence as an
amendment to our 10-KSB filing.
If you have any other disclosure information concerning the
filing of this registration please provide me with the
information as soon as possible.
Please be advised that the Registration will be filed no later
than Monday, December 22, 1997. If I do not hear from you
concerning this information request I will assume the information
in the attachment is correct.
You may feel free to contact Edward "Ted" Granville Smith at (941) 505-
8633, concerning any question as to my representation.
Sincerely,
G. Richard Chamberlin , Esq.
cc: Edward "Ted" Granville Smith Jr
page 94
Exhibit 23.3
BAUM & COMPANY, P.A.
Certified Public Accountants
1515 University Drive - Suite 209
coral Springs, Florida 33071
(954) 752-1712
INDEPENDENT ACCOUNTANTS' CONSENT
To the Securities and Exchange Commission
Washington, D.C.
I consent to the use in this Form 10-K for the year ended December 31,
1996 of our report dated August 18, 1997 accompanying the financial
statements of Equity Growth Systems, Inc.
Certified Public Accountant
December 23, 1997
page 95
Exhibit 99.7
FIRST KEN-CO PROPERTIES IN THE
P.O. Box 5388 CIRCUIT COURT
Lighthouse Point, Fl., 33074 OF MARYLAND
Plaintiff FOR BALTIMORE CITY.
V.
J.J. MARTIN
10807 Pleasant Hill Drive
Potomac, Maryland 20854
F.E. MARTIN
10807 Pleasant Hill Drive
Potomac, Maryland 20854
G.A. MARTIN
10807 Pleasant Hill Drive
Potomac, Maryland 20854
LIMITED PARTNERS OF
SAN SAFE LIMITED PARTNERSHIPS
A Maryland Limited Partnership
Defendents
COMPLAINT FOR A DECLARATORY JUDGEMENT
First Ken-Co Properties, Inc. by its undersigned attorneys sue the Defendents,
Limited Partners of San Safe Limited Partnership, a Maryland Limited
Partnership, stating as follows:
1. First Ken-Co. Properties, Inc. ("First Ken-Co") is a Delaware Corporation.
2. Safeway Stores, Inc., now known as Safeway, Inc. ("Safeway") is a
corporation duly organized and existing under and by virtue of the laws
of the State of Maryland.
3. On or about October 15, 1975, First Ken-Co and Safeway entered into a Lease
Agreement (the "Lease") for a property located at 8120 Parallel, Kansas
City, Wyandotte County, Kansas.
4. After execution of the Lease, First Ken-Co sold its ownership interest
in the property to San Safe, retaining a security interest in the property
of the Limited Partners in San Safe Limited Partnership to secure the
payment of $668,410.00 in promissory note, as to which in excess of
$400,000.00 is still due and owing.
5. The parties hereto have settled the Kansas City litigation, Case No.
97-2072-JWL with Associated Wholesale Grocers, Inc., Fleet National
Bank, and Safeway, Inc., but have reserved claims against each other
including who is entitled to the $98,000.00 held in escrow.
6. An actual controversy exists as to whether San Safe is entitled to
receive any monies from the escrow fund in view of the default in the
secured promissory note. An actual controversy also exists between the
parties as to whether First Ken-Co is entitled to recieve any further
monies by way of accounting and damages from the Limited Partners of
San Safe by reasons of their acts and ommissions causing loss to the
property and assets of San Safe.
WHEREFORE, First Ken-Co requests that this court enter its judgement
declaring the following:
A. First Ken-Co is entitled to receive the entire escrow fund; and
B. First Ken-Co. is entitled to receive further monies by way of an
accounting and damages from San Safe in the amount of excess $300,000.00.
Respectfully Submitted,
________________
David Albright
Albright, Brown, & Goertemiller, LLC
120 East Baltimore Street
Suite 2150
Baltimore, Maryland 2120
(410) 244-0350
Attorneys for Plaintiff
page 96
ADDITIONAL INFORMATION
Corporate Headquarters:
3821-B Tamiami Trail, Suite 201, Port Charlotte, Florida, 33952
Telephone Number (941) 255-9582
Fax Number (941) 625-4491
Director
Edward Granville-Smith
Executive Officers
Edward Granville-Smith, Jr.; Director, Chairman and Chief Executive
Officer
Rafi Weiss; Senior Vice President, Acquisitions
Donald E. Homan; Vice President & Chief Financial Officer
Charles J. Scimeca; Secretary & Treasurer
Independent Public Accountant:
Joel S. Baum, P.A., CPA
1515 University Drive, Suite 222; Coral Springs, Florida 33071
Telephone Number (945) 752-1712
Legal Counsel:
G. Richard Chamberlin, Esquire
Post Office Box 3370; Belleview, Florida 34421
Telephone Number (352) 245-6044
Transfer Agent:
Liberty Transfer Company
191 New York Avenue; Huntington, New York 11743
Exhibits to the Form 10-KSB will be provided to shareholders of the
Registrant upon written request addressed to Edward Granville-Smith,
Chairman; Equity Growth Systems, inc., 3821-B Tamiami Trail, Suite 201;
Port Charlotte, Florida 33952. Any exhibits furnished are subject to a
reasonable photocopying charge.
The Securities and Exchange Commission has not approved or
disapproved of this Form 10-KSB and Annual Report to Shareholders nor has
it passed upon its accuracy or adequacy.
page 97
