SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 14, 1997
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CAPITAL GROWTH HOLDINGS, LTD.
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(Exact Name of Registrant as Specified in Charter)
Colorado 33-21443 87-1077246
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
660 Steamboat Road, Greenwich, Connecticut 06830
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 861-7750
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<TABLE>
<S> <C>
Galt Financial Corporation, 26 West Dry Creek Circle, Ste. 600, Littleton, CO 80120
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(Former Name or Former Address, if Changed Since Last Report)
</TABLE>
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Item 1. Change in Control of Registrant.
On March 14, 1997, the Registrant acquired 100% of the outstanding
capital stock of International Capital Growth, Ltd. ("ICG"), a Delaware
corporation and member of the National Association of Securities Dealers, Inc.,
in a reverse acquisition consummated through a share exchange transaction (the
"Share Exchange") that resulted in a change in control of the Registrant. The
Share Exchange was not subject to the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act").
Prior to and in connection with the Share Exchange, the Registrant
adopted a stock option plan (a copy of which is attached hereto as an exhibit),
amended its charter (a copy of which is attached hereto as an exhibit) to, among
other things, change its name from Galt Financial Corporation to Capital Growth
Holdings, Ltd. and effected a 60 for 1 reverse split of its outstanding capital
stock (the "Reverse Stock Split"). Upon effectiveness of the Reverse Stock
Split, the Registrant had 297,094 shares of capital stock issued and
outstanding. On March 14, 1997, in accordance with the terms and conditions of
the Share Exchange, the Registrant issued 18,980,000 shares of its capital stock
and 1,875,000 redeemable warrants (the "Warrants") to the former security
holders of ICG in exchange for outstanding securities of ICG, in each case of
the same type and denomination. The former shareholders of the Registrant
currently own approximately 2%, and the former stockholders of ICG currently own
approximately 98%, of the outstanding capital stock of the Registrant.
The 18,980,000 shares of capital stock of the Registrant that were
issued in the Share Exchange consisted of (a) 2,549,000 shares of common stock
("Common Stock"), (b) 11,349,666 shares of newly-authorized class B common stock
("Class B Common Stock"), (c) 4,001,334 shares of newly-designated 5% Cumulative
Convertible Series A Preferred Stock ("Series A Preferred Stock") and (d)
1,080,000 shares of newly-designated 5% Cumulative Convertible Series B
Preferred Stock ("Series B Preferred Stock"), all of which classes of capital
stock vote together as one class. The Class B Common Stock is junior in priority
with respect to dividends to the Common Stock and the Designated Preferred Stock
(defined below) and automatically converts into Common Stock on a one-for-one
basis on December 31, 1998. The holders of the Series A Preferred Stock and
Series B Preferred Stock (collectively, the "Designated Preferred Stock") are
entitled to preferential cumulative dividends until conversion thereof into
Class B Common Stock, share equally with the Class B Common Stock in any
dividend declared thereon, can be converted into Class B Common Stock by the
holder on a one-for-one basis at any time and automatically convert into Class B
Common Stock on a one-for-one basis on October 12, 1997. The Warrants consist of
1,625,000 redeemable warrants, each exercisable to purchase one share Common
Stock at $4.00 per share (subject to adjustment) at any time until October 1999
(the "Common Warrants") and 250,000 redeemable warrants, each exercisable to
purchase one share of Class B Common Stock at $2.00 per share (subject to
adjustment) at any time, subject to an exercise schedule, until November 1999
(the "Class B Warrants").
In connection with the Share Exchange, the former officers and
directors of the Registrant (see Table I) resigned and certain of the current
officers and directors of ICG were elected as officers and directors of the
Registrant (see Table II). The ownership and control
2
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structure of the Registrant prior to and upon the consummation of the Share
Exchange is illustrated in Tables I and II below:
Capital Growth Holdings, Ltd.
(formerly Galt Financial Corporation)
Tables of Officers, Directors and Principal Shareholders
Table I
Prior to the Share Exchange(1)
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Common Beneficial
Applicable Position Held Stock Beneficially Ownership
Name of Beneficial Owner Prior to Share Exchange Owned(2) ----------------
- ------------------------------ ------------------------------ --------------------- (3)
<S> <C> <C> <C>
Earnest Mathis President and Director 81,250 27.35%
Kenneth J. Wolf Secretary, Treasurer and
Director 87,063 29.31%
Gary J. McAdam Director 80,085 26.96%
All directors and
officers as a group -- 248,398 83.61%
</TABLE>
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(1) As of March 13, 1997, giving effect to the Reverse Stock Split
described above.
(2) Does not include a total of 2,906 shares of common stock (on a
post-reverse split basis) of the Registrant that have been issued to
the former officers and directors of the Registrant listed above in
exchange for the conversion into equity of certain financial
obligations of the Registrant in favor of such individuals.
(3) Calculated as provided by Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended. Based on a total of 297,094 shares of
capital stock of the Registrant issued and outstanding, which consists
solely of Common Stock.
3
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Table II
Upon Consummation of the Share Exchange(1)
<TABLE>
<CAPTION>
Applicable Position Held Amount of Percentage of
Upon Consummation Voting Stock Beneficial
Name of Beneficial Owner of Share Exchange Beneficially Owned Ownership(2)
- ------------------------------------ --------------------------- ------------------ ----------------
<S> <C> <C> <C>
Rush & Co.(3)(4)(5) None 3,586,334 18.06%
Emanuel Arbib(4) Director 3,336,334 16.83%
Ronald B. Koenig Chairman of the Board of 3,336,333 16.83%
Directors, President and Chief
Executive Officer
Stanley Hollander(6) Senior Vice President and 3,336,333 16.83%
Director
Hollander Family Partnership LP(6) None 3,336,333 16.83%
Alan L. Jacobs Executive Vice President
and Director 2,925,000 14.75%
Tigris Holdings Ltd.(7) None 1,200,000 6.05%
Michael S. Jacobs(8) Senior Vice President, Secretary 997,000 4.97%
and Treasurer
Jay J. Matulich(9) Senior Vice President 995,000 4.96%
John D. Booth(5) Director 250,000 1.26%
N. Bulent Gultekin(10) Director 25,000 .13%
All directors and officers as a group -- 15,201,000 74.59%
</TABLE>
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(1) As of March 27, 1997 giving effect to the Reverse Stock Split described
above and the Private Offering described in Item 5 hereof.
(2) Calculated as provided by Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended. Based on a total of 19,829,496 shares
of capital stock of the Registrant issued and outstanding consisting of
3,398,496 shares of Common Stock, 11,349,666 shares of Class B Common
Stock, 4,001,334 shares Series A Preferred Stock and 1,080,000 shares
of Series B Preferred Stock, all of which classes of capital stock vote
together as one class.
(3) Consists of 3,336,334 shares of Series A Preferred Stock, 25,000 shares
of Common Stock, 200,000 shares of Class B Common Stock and 25,000
Common Warrants.
(4) Rush & Co. holds 3,336,334 shares of Series A Preferred Stock for the
benefit of Capital Growth Holdings, Limited, a Turks & Caicos Islands
corporation. Fifty percent of Capital Growth Holdings, Limited is owned
by entities which may be deemed to be in the control of Emanuel Arbib,
a director of the Registrant. As such, Mr. Arbib may be deemed to be
the beneficial owner of the shares of Common Stock beneficially owned
by Capital Growth Holdings, Limited. Other than such holdings, Mr.
Arbib owns no capital stock of the Registrant.
(5) Rush & Co. holds 200,000 shares of Class B Common Stock, 25,000 shares
of Common Stock and 25,000 Common Warrants for the benefit of John D.
Booth, a director of the Registrant. Other than such holdings, Mr.
Booth owns no capital stock of the Registrant.
(6) Stanley Hollander, Senior Vice President and Director of the
Registrant, may be deemed to be the beneficial owner of the shares of
the Registrant held by Hollander Family Partnership LP. Other than such
holdings, Mr. Arbib owns no capital stock of the Registrant.
(7) Consists of 1,080,000 shares of Series B Preferred Stock and 120,000
shares of Common Stock.
(8) Consists of 747,000 shares of Common Stock and stock options
exercisable to purchase 250,000 shares of Class B Common Stock at $2.00
per share.
(9) Consists of 745,000 shares of Common Stock and stock options
exercisable to purchase 250,000 shares of Class B Common Stock at $2.00
per share.
(10) Consists of stock options exercisable to purchase 25,000 shares of
Class B Common Stock at $2.00 per share.
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Item 2. Acquisition or Disposition of Assets.
As described in Item 1, above, the Registrant acquired 100% of the
outstanding capital stock of ICG, which represents all of the assets and
liabilities of ICG. A copy of the Agreement Concerning the Exchange of
Securities of International Capital Growth for Securities of Galt Financial
Corporation, dated January 7, 1997 is attached hereto as an exhibit. The assets
and liabilities of ICG consist mainly of cash and contractual rights and
liabilities.
The consideration paid to the security holders of ICG by the Registrant
for their respective securities of ICG was in the form of securities of the
Registrant of the same type and denomination, and in certain circumstances with
different rights and privileges, as the securities of ICG tendered therefor. The
terms of the 1:1 exchange ratio in the Share Exchange and the prior Reverse
Stock Split by the Registrant were determined in an arm's-length negotiation
between the Registrant's and ICG's respective management teams. The principal
basis used in such negotiation was the relative value of (i) capital stock of
the Registrant that would be owned by the then security holders of ICG to (ii)
capital stock of the Registrant that would be owned by the then shareholders of
the Registrant, upon consummation of the Share Exchange.
The Share Exchange resulted in the ownership of a member of the
National Association of Securities Dealers, Inc., ICG, by a publicly-held
company, the Registrant. As such, in accordance with Rule 2720 of the NASD
Conduct Rules, Keane Securities Co., Inc., as qualified independent underwriter
in the Share Exchange, conducted an appropriate due diligence investigation of
the Share Exchange and opined that the ratio of Common Stock of the Registrant
held by the Registrant's pre-Share Exchange shareholders after the Share
Exchange, as compared to that of the former ICG security holders, was fair.
Prior to the Share Exchange, none of ICG's shareholders was affiliated
with the Registrant or any of its affiliates, directors, officers or any
associate of any such director or officer.
Item 4. Changes in Registrant's Certifying Accountant.
As of March 25, 1997, the Registrant's Board of Directors voted to
engage Richard A. Eisner & Company, LLP, independent certified public accountant
to ICG, to act as the Registrant's independent certified public accountant
effective immediately, thereby dismissing and replacing Angell & Deering, which
resigned effective March 25, 1997. The former accountant's reports for the
Registrant's two most recent fiscal years did not contain any adverse opinion or
disclaimer of opinion, nor were any such reports modified as to uncertainty,
audit scope or accounting principles. There have been no disagreements between
the Registrant and the former accountant with regard to any matters which would
have caused such accountant to make reference to the subject matter thereof with
their report.
5
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Item 5. Other Events.
On March 27, 1997, the Registrant completed a private offering (the
"Private Offering") of shares of its Common Stock at $2.25 per share pursuant to
Regulation D ("Regulation D") and Regulation S ("Regulation S"), each as
promulgated under the Securities Act, to "accredited investors" as that term is
defined in Regulation D and to non-"U.S. persons" in an "offshore transaction"
as such terms are defined in Regulation S, respectively. The Registrant issued a
total of 549,496 shares of Common Stock in the Private Offering which yielded
gross proceeds of $1,236,366. The Registrant will issue a total of 24,985
redeemable warrants as partial compensation to certain sub-placement agents in
the Private Offering (the "Sub-Placement Agent Warrants"). Each Sub-Placement
Agent Warrant is exercisable to purchase one share of Common Stock at $4.00 per
share (subject to adjustment) at any time prior to redemption thereof until
March 2000.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
Financial statements of International Capital Growth,
Ltd., a Delaware corporation, covering the year ended
December 31, 1996 will be filed by amendment hereto
not later than May 28, 1997.
(b) Pro Forma Financial Information.
Unaudited pro forma financial statements of the
Registrant giving effect to the acquisition of ICG
will be filed by amendment hereto not later than May
28, 1997.
(c) Exhibits.
2.1 Agreement Concerning the Exchange of
Securities of International Capital Growth,
Ltd. for Securities of Capital Growth
Holdings, Ltd. dated January 7, 1997 without
schedules or exhibits thereto
3(i).1 Restated Articles of Incorporation of Galt
Financial Corporation
3(i).2 Certificate of Designation of 5% Cumulative
Convertible Series A Preferred Stock
3(i).3 Certificate of Designation of 5% Cumulative
Convertible Series B Preferred Stock
10. Capital Growth Holdings, Ltd. 1997 Stock
Option Plan
16 Letter, dated March 25, 1997, of Angell &
Deering
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27. Financial Data Schedule will be filed by
amendment hereto not later than May 28, 1997
Item 8. Change in Fiscal Year.
As of March 25, 1997, the Registrant's Board of Directors voted to
change the Registrant's fiscal year from a fiscal year that runs from February 1
to January 31, to a fiscal year that runs from January 1 to December 31,
commencing the year ended December 31, 1997. The report covering the transition
period will appear in the Registrant's annual report on Form 10-KSB for the
eleven months ended December 31, 1997.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
As described in Item 1, above, on March 14, 1997, the Registrant issued
its securities to the security holders of ICG in the Share Exchange in exchange
for securities of ICG of the same type and denomination. Of such securities,
1,307,500 shares of Common Stock and 1,307,500 Common Warrants were issued to
non-"U.S. persons" in an "offshore transaction" in reliance upon Regulation S.
See Item 1, above, for additional information.
As described in Item 5, above, on March 27, 1997, the Registrant
completed the Private Offering of shares of its Common Stock at $2.25 per share.
Of such Common Stock, 292,777 shares were sold in reliance upon Regulation S
yielding gross proceeds to the Registrant with respect to such shares of
$658,748.25. Such Common Stock was sold through Capital Growth International
L.L.C., as placement agent, and certain sub-placement agents, which agents
received total commissions of $39,524.90 on such sales.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CAPITAL GROWTH HOLDINGS, LTD.
Dated: March 28, 1997
/s/ Ronald B. Koenig
-------------------------------------
Ronald B. Koenig
President and Chief Executive Officer
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Exhibit Index
Exhibit No. Description
2.1 Agreement Concerning the Exchange of
Securities of International Capital
Growth, Ltd. for Securities of Capital
Growth Holdings, Ltd. dated January 7,
1997 without schedules or exhibits
thereto
3(i).1 Restated Articles of Incorporation of
Galt Financial Corporation
3(i).2 Certificate of Designation of 5%
Cumulative Convertible Series A
Preferred Stock
3(i).3 Certificate of Designation of 5%
Cumulative Convertible Series B
Preferred Stock
10 Capital Growth Holdings, Ltd. 1997
Stock Option Plan
16 Letter, dated March 25, 1997, of Angell
& Deering
27 Financial Data Schedule will be filed by
amendment hereto not later than May
28, 1997
9
AGREEMENT
CONCERNING THE EXCHANGE OF SECURITIES
OF INTERNATIONAL CAPITAL GROWTH, LTD.
FOR SECURITIES OF
GALT FINANCIAL CORPORATION
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TABLE OF CONTENTS
<TABLE>
Page
ARTICLE I
<S> <C> <C>
Exchange of Securities..................................................................... 1
1.1 Issuance of Securities..................................................................... 1
1.2 Issuance of Stock Options.................................................................. 2
1.3 Exemption from Registration................................................................ 2
1.4 Closing; Effective Time.................................................................... 2
1.5 Delivery of ICG Securities and Subscription Agreements; Subscription
Agreements Not Delivered; Securities Not Delivered......................................... 3
ARTICLE II
Representations and Warranties of ICG...................................................... 3
2.1 Organization............................................................................... 3
2.2 Capital.................................................................................... 3
2.3 Subsidiaries............................................................................... 3
2.4 Directors and Officers..................................................................... 3
2.5 Financial Statements....................................................................... 4
2.6 Absence of Changes......................................................................... 4
2.7 Absence of Undisclosed Liabilities......................................................... 4
2.8 Tax Returns................................................................................ 4
2.9 Trade Names and Rights..................................................................... 4
2.10 Compliance with Laws....................................................................... 4
2.11 Litigation................................................................................. 4
2.12 Authority.................................................................................. 5
2.13 Ability to Carry Out Obligations........................................................... 5
2.14 Full Disclosure............................................................................ 5
2.15 Assets..................................................................................... 5
2.16 Restricted Securities...................................................................... 5
ARTICLE III
Representations and Warranties of Galt and the Galt Principals............................. 5
3.1 Organization............................................................................... 5
3.2 Capital.................................................................................... 6
3.3 Subsidiaries............................................................................... 6
3.4 Directors and Officers..................................................................... 6
3.5 Financial Statements....................................................................... 6
3.6 Absence of Changes......................................................................... 6
3.7 Absence of Undisclosed Liabilities......................................................... 6
3.8 Tax Returns................................................................................ 6
<PAGE>
Page
3.9 Trade Names and Rights..................................................................... 7
3.10 Compliance with Laws....................................................................... 7
3.11 Litigation................................................................................. 7
3.12 Authority.................................................................................. 7
3.13 Ability to Carry Out Obligations........................................................... 7
3.14 Full Disclosure............................................................................ 7
3.15 Assets..................................................................................... 7
3.16 Material Contracts......................................................................... 7
ARTICLE IV
Covenants Prior and Subsequent to Closing.................................................. 8
4.1 Mutual Investigative Rights................................................................ 8
4.2 Conduct of Business........................................................................ 8
4.3 Indemnification............................................................................ 8
ARTICLE V
Conditions Precedent to Galt's Performance................................................. 9
5.1 Conditions................................................................................. 9
5.2 Accuracy of Representations................................................................ 9
5.3 Performance................................................................................ 9
5.4 Absence of Litigation...................................................................... 9
5.5 Closing Certificates....................................................................... 9
5.6 Satisfactory Delivery of Documents......................................................... 9
5.7 Compliance with Laws....................................................................... 9
5.8 Corporate Approvals........................................................................ 9
5.9 Legal Opinion.............................................................................. 10
ARTICLE VI
Conditions Precedent to ICG's Performance.................................................. 10
6.1 Conditions................................................................................. 10
6.2 Accuracy of Representations................................................................ 10
6.3 Performance................................................................................ 10
6.4 Absence of Litigation...................................................................... 10
6.5 Closing Certificates....................................................................... 10
6.6 Satisfactory Delivery of Documents......................................................... 11
6.7 Compliance with Laws....................................................................... 11
6.8 Corporate Approvals........................................................................ 11
6.9 Legal Opinion.............................................................................. 11
6.10 Adoption of Stock Option Plan.............................................................. 11
6.11 Galt Recapitalization...................................................................... 11
6.12 Class B Common Stock....................................................................... 12
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6.13 Designation of Preferred Stock............................................................. 12
6.14 Name Change of Galt........................................................................ 12
6.15 Resignation and Appointment of Officers of Galt............................................ 12
6.16 Resignation and Appointment of Directors of Galt........................................... 12
ARTICLE VII
Closing.................................................................................... 12
7.1 Closing.................................................................................... 12
7.2 Ownership of Galt.......................................................................... 13
ARTICLE VIII
Miscellaneous.............................................................................. 13
8.1 Captions and Headings...................................................................... 13
8.2 No Oral Change............................................................................. 13
8.3 Non-Waiver................................................................................. 14
8.4 Time of Essence............................................................................ 14
8.5 Entire Agreement........................................................................... 14
8.6 Choice of Law.............................................................................. 14
8.7 Counterparts............................................................................... 14
8.8 Notices.................................................................................... 14
8.9 Binding Effect............................................................................. 14
8.10 Mutual Cooperation......................................................................... 14
8.11 Finders.................................................................................... 15
8.12 Announcements.............................................................................. 15
8.13 Expenses................................................................................... 15
8.14 Survival of Representations and Warranties................................................. 15
8.15 Exhibits and Schedules..................................................................... 15
</TABLE>
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SCHEDULES
<TABLE>
<S> <C>
Galt Common Stock to be Issued in the Exchange of Securities .................................. Schedule 1.1(a)
Galt Class B Common Stock to be Issued in the Exchange of Securities .......................... Schedule 1.1(b)
Galt 5% Cumulative Convertible Series A Preferred Stock to be Issued
in the Exchange of Securities................................................................ Schedule 1.1(c)
Galt 5% Cumulative Convertible Series B Preferred Stock to be Issued
in the Exchange of Securities................................................................ Schedule 1.1(d)
Galt Redeemable Common Stock Purchase Warrants to be Issued in the
Exchange of Securities (October Private Placement Warrants) ................................ Schedule 1.1(e)
Galt Redeemable Class B Common Stock Purchase Warrants to be Issued
in the Exchange of Securities (Consulting Warrants).......................................... Schedule 1.1(f)
Galt Stock Options to be Issued in the Exchange of Securities ................................. Schedule 1.2
EXHIBITS
Form of Certificate of Designation of Series A Preferred Stock ................................ Exhibit 1.1(c)
Form of Certificate of Designation of Series B Preferred Stock ................................ Exhibit 1.1(d)
Form of Redeemable Common Stock Purchase Warrant................................................ Exhibit 1.1(e)
Form of Redeemable Class B Common Stock Purchase Warrant Exhibit 1.1(f)
Form of Subscription Agreement.................................................................. Exhibit 1.3
Financial Statements of ICG..................................................................... Exhibit 2.5
Financial Statements of Galt.................................................................... Exhibit 3.5
Form of 1997 Galt Stock Option Plan............................................................. Exhibit 6.10
</TABLE>
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EXCHANGE AGREEMENT
AGREEMENT made this 7th day of January , 1997, by and among GALT
FINANCIAL CORPORATION, a Colorado corporation ("Galt"), EARNEST MATHIS, KENNETH
J. WOLF AND GARY MCADAM, each individually as the majority shareholders and sole
directors of Galt (the "Galt Principals"), INTERNATIONAL CAPITAL GROWTH, LTD., a
Delaware corporation ("ICG"), and, at the Closing (as defined in Section 1.4
hereof), the holders of outstanding securities of ICG (the "ICG
Securityholders") who are listed on Schedules 1.1(a) through (f) hereto and have
executed Subscription Agreements in substantially the form attached as Exhibit
1.3 hereto (each such executed agreement, a "Subscription Agreement").
RECITALS
WHEREAS, Galt desires to acquire all of the issued and outstanding
securities of ICG from the ICG Securityholders in exchange, on a one-for-one
basis, for securities of Galt;
WHEREAS, ICG desires to assist Galt in acquiring all of the issued and
outstanding securities of ICG pursuant to the terms and subject to the
conditions of this Agreement; and
WHEREAS, the ICG Securityholders, by execution of a Subscription
Agreement, agree to exchange all securities of ICG owned by them for an equal
number of securities of like tenor, except as described herein, of Galt;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants and
representations contained herein, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS:
ARTICLE I
Exchange of Securities
1.1 Issuance of Securities. At the Closing, subject to the terms and
conditions of this Agreement, Galt shall issue to the persons specified below
and deliver to ICG the appropriate type and denomination of security of Galt
(each, a "Galt Security"), in each case with the same respective rights,
privileges, terms and conditions, except as provided below and subject to
applicable law, as the security of ICG (each, an "ICG Security") held by such
ICG Securityholder and delivered to ICG for exchange with Galt in accordance
with terms hereof (the "Exchange of Securities"), including:
(a) validly issued, fully paid and non-assessable unregistered
shares of common stock of Galt (the "Galt Common Stock") in
the names and denominations set forth on Schedule 1.1(a)
hereto;
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(b) validly issued, fully paid and non-assessable unregistered
shares of Galt Class B Common Stock (as defined in Section
6.12 hereof) in the names and denominations set forth on
Schedule 1.1(b) hereto;
(c) validly issued, fully paid and non-assessable unregistered
shares of 5% Cumulative Convertible Series A Preferred Stock
(the "Series A Preferred Stock"), with the rights, privileges,
terms and conditions set forth in the Certificate of
Designation attached hereto as Exhibit 1.1(c), in the names
and denominations set forth on Schedule 1.1(c) hereto;
(d) validly issued, fully paid and non-assessable unregistered
shares of 5% Cumulative Convertible Series B Preferred Stock
(the "Series B Preferred Stock"), with the rights, privileges,
terms and conditions set forth in the Certificate of
Designation attached hereto as Exhibit 1.1(d), in the names
and denominations set forth on Schedule 1.1(d) hereto;
(e) redeemable Galt Common Stock purchase warrants in the form
attached hereto as Exhibit 1.1(e), with the respective terms
and in the names and denominations set forth on Schedule
1.1(e) hereto;
(f) redeemable Galt Class B Common Stock purchase warrants in the
form attached hereto as Exhibit 1.1(f) and in the name and
denomination set forth on Schedule 1.1(f) hereto.
1.2 Issuance of Stock Options. After the Closing, Galt shall issue
stock options pursuant to the 1997 Galt Stock Option Plan (as defined in Section
6.10 hereof) in the respective names and denominations listed on Schedule 1.2
hereto, with the same respective rights, privileges, terms and conditions,
except as provided on Schedule 1.2 hereto and subject to applicable law, as the
stock options of ICG held by such persons.
1.3 Exemption from Registration. The parties hereto intend that all
Galt Securities to be issued to the ICG Securityholders be exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 3(b), 4(2) or 4(6) of the Act and the rules and regulations
promulgated thereunder or pursuant to Regulation S promulgated under the Act. In
furtherance thereof, the ICG Securityholders will execute and deliver to Galt at
the Closing a copy of a Subscription Agreement in substantially the form
attached hereto as Exhibit 1.3, which Subscription Agreement will re-affirm
certain representations made upon the acquisition of such holder's ICG
Securities.
1.4 Closing; Effective Time. As soon as practicable after the
satisfaction of the conditions of Galt, the Galt Principals and ICG under this
Agreement, a closing (the "Closing") of the transactions contemplated by the
Agreement will take place on such date (the "Closing Date") and at such time as
ICG shall determine. The Exchange of Securities shall be deemed effective at
12:01 a.m. on the Closing Date (the "Effective Time"). As of the Effective Time,
the ICG Securityholders that have executed and delivered Subscription Agreements
will be securityholders of Galt with the respective rights and privileges
attributed to such status.
2
<PAGE>
1.5 Delivery of ICG Securities and Subscription Agreements;
Subscription Agreements Not Delivered; Securities Not Delivered. At the Closing,
ICG shall deliver to Galt, on behalf of the ICG Securityholders, ICG Securities
along with executed Subscription Agreements to be exchanged for Galt Securities
as provided in Section 1.1 hereof. If, at the Closing, any ICG Securityholder
does not deliver a duly executed Subscription Agreement to Galt, such ICG
Securityholder will remain a Securityholder of ICG and will not participate in
the Exchange of Securities pursuant to Section 1.1 hereof at the Closing. If, at
the Closing, any ICG Securityholder shall have delivered to Galt their
Subscription Agreement, but shall not have delivered any of their ICG Securities
in exchange for Galt Securities, then such ICG Security that was not delivered
shall automatically be cancelled and cease to exist, and each certificate
previously evidencing any such ICG Security will thereafter represent the right
to receive, upon surrender of such certificate to Galt, a certificate
representing such type and denomination of Galt Security into which such ICG
Security was converted.
ARTICLE II
Representations and Warranties of ICG
ICG hereby represents and warrants to Galt on the date hereof, except
as noted, which representations and warranties will also be true, except as
noted, on the Closing Date, that:
2.1 Organization. ICG is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has all necessary
corporate powers to own its properties and to carry on its business as now owned
and operated by it, and is duly qualified to do business and is in good standing
in each of the states where its current business requires qualification, except
where the failure to so qualify would have no material adverse effect on ICG.
2.2 Capital. The authorized capital stock of ICG consists solely of (i)
25,000,000 shares of $.001 par value common stock, of which 13,415,000 shares
are issued and outstanding on the date hereof, (ii) 6,000,000 shares of
preferred stock, of which an aggregate of 5,565,000 shares of Series A and
Series B preferred stock are outstanding on the date hereof, and (iii) 2,535,000
common stock purchase warrants and common stock options, exercisable into
2,535,000 shares of common stock. All of the outstanding common stock of ICG is
duly and validly issued, fully paid and nonassessable. There are no outstanding
subscriptions, options, rights, warrants, debentures, instruments, convertible
securities or other agreements or commitments obligating ICG to issue or to
transfer from treasury any additional shares of its capital stock of any class,
except for up to 137,500 common stock purchase warrants that may be issued to
certain subplacement agents in connection with a contemplated private placement
of ICG, and as indicated in this Section 2.2.
2.3 Subsidiaries. ICG does not have any subsidiaries, except that ICG
owns 50% of Capital Growth Holdings, Limited, a Channel Islands corporation.
2.4 Directors and Officers. The names and titles of all directors and
officers of ICG as of the date of this Agreement are as follows: Ronald B.
Koenig, Chairman of the Board of
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Directors, Chief Executive Officer and President; Stanley Hollander, Senior Vice
President and Director; Alan L. Jacobs, Executive Vice President, Senior
Managing Director and Director; Jay J. Matulich, Senior Vice President; Michael
S. Jacobs, Senior Vice President, Secretary and Treasurer; Robert Zelinka,
Senior Vice President and Director of Research, Emanuel M. Arbib, Director; John
D, Booth, Director; and N. Bulent Gultekin, Director.
2.5 Financial Statements. Exhibit 2.5 hereto consists of the audited
statement of financial condition of ICG as of August 31, 1996 (the "ICG
Financial Statements") and unaudited condensed statement of financial condition
and condensed statement of operations as of and for the period ended October 31,
1996. The ICG Financial Statements have been prepared in accordance with
generally accepted accounting principles and practices consistently followed by
ICG throughout the periods indicated, and fairly present the financial position
of ICG as of the date of the balance sheet included in the ICG Financial
Statements and the results of operations for the periods indicated.
2.6 Absence of Changes. Since October 31, 1996, there has not been any
material adverse change in the financial condition or operations of ICG, except
for any change disclosed in or contemplated by the Memorandum and in the
ordinary course of business, which changes have not in the aggregate been
materially adverse.
2.7 Absence of Undisclosed Liabilities. As of the date of ICG's October
31, 1996 balance sheet included in Exhibit 2.5, ICG did not have any material
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
in such balance sheet.
2.8 Tax Returns. Within the times and in the manner prescribed by law,
ICG has filed all federal, state and local tax returns required by law and has
paid all taxes, assessments and penalties due and payable. The provisions for
taxes, if any, reflected in Exhibit 2.5 are adequate for the periods indicated.
There are no present disputes as to taxes of any nature payable by ICG.
2.9 Trade Names and Rights. ICG owns and holds any trademark, service
mark, trade name, copyright, patent and proprietary information and other rights
material to its business as now conducted.
2.10 Compliance with Laws. To its knowledge, ICG has complied in all
material respects with, and is not in material violation of, applicable federal,
state or local statutes, laws and regulations affecting its properties or the
operation of its business, including all federal and state securities laws and
regulations.
2.11 Litigation. To the best knowledge of the officers of ICG, ICG is
not a defendant in any suit, action, arbitration or legal, administrative or
other proceeding, or governmental investigation which is pending or, to the best
knowledge of the officers of ICG, threatened against or affecting ICG or its
business, assets or financial condition. To the best knowledge of the officers
of ICG, ICG is not in default with respect to any material order, writ,
injunction
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or decree of any federal, state, local or foreign court, department, agency or
instrumentality applicable to it. ICG is not engaged in any material litigation
to recover monies due to it.
2.12 Authority. The Board of Directors of ICG has authorized the
execution of this Agreement and the consummation of the transactions
contemplated herein, and ICG has full power and authority to execute, deliver
and perform this Agreement, and this Agreement is a legal, valid and binding
obligation of ICG and is enforceable in accordance with its terms and
conditions, except to the extent that the enforceability hereof (a) may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect and (b) is subject to principles of equity.
2.13 Ability to Carry Out Obligations. The execution and delivery of
this Agreement by ICG and the performance by ICG of its obligations hereunder in
the time and manner contemplated will not cause, constitute or conflict with or
result in (a) any material breach or violation of any of the provisions of or
constitute a default under any material license, indenture, mortgage,
instrument, certificate of incorporation, bylaw, or other agreement or
instrument to which ICG is a party, or by which it may be bound, nor will any
consents or authorizations of any party other than those hereto be required, (b)
an event that would permit any party to any agreement or instrument to terminate
it or to accelerate the maturity of any indebtedness or other obligation of ICG,
or (c) an event that would result in the creation or imposition of any lien,
charge or encumbrance on any asset of ICG, in each case, in which a waiver or
consent has not been obtained.
2.14 Full Disclosure. None of the representations and warranties made
by ICG herein or in any exhibit, certificate or memorandum furnished or to be
furnished by ICG, or on its behalf, contains or will contain any untrue
statement of material fact.
2.15 Assets. ICG has good and marketable title to all property owned by
it, free and clear of all liens, claims and encumbrances, except such liens
incurred in the ordinary course of business.
2.16 Restricted Securities. ICG and the ICG Securityholders, by
execution of this Agreement and the Subscription Agreements, acknowledge that
all of the Galt Securities to be issued hereunder are restricted securities and
none of such securities may be sold or publicly traded except in accordance with
the provisions of the Act and the rules and regulations promulgated thereunder.
ARTICLE III
Representations and Warranties of Galt and the Galt Principals
Galt and each of the Galt Principals jointly and severally represent
and warrant to ICG on the date hereof, except as noted, which representations
and warranties shall also be true, except as noted, on the Closing Date, that:
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3.1 Organization. Galt is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado, has all
necessary corporate powers to own its properties and to carry on its business as
now owned and operated by it, and is duly qualified to do business and is in
good standing in each of the states where its business requires qualification
except where the failure to so qualify would have no material adverse effect on
Galt.
3.2 Capital. The authorized capital stock of Galt consists solely of
(i) 100,000,000 shares common stock, of which 17,816,667 shares of common stock
are issued and outstanding on the date hereof and (ii) 20,000,000 shares of
preferred stock, none of which are outstanding on the date hereof. All of the
outstanding common stock is duly and validly issued, fully paid and
nonassessable. There are no other outstanding subscriptions, options, rights,
warrants, debentures, instruments, convertible, exchangeable or exercisable
securities or other agreements or commitments obligating Galt to issue or to
transfer from treasury any additional shares of its capital stock of any class.
On the Closing Date, before giving effect to the Exchange of Securities, the
only capital stock of Galt that will be issued and outstanding will be 300,000
shares of Galt Common Stock, and Galt will have (i) 25,000,000 shares of Class B
Common Stock authorized in addition to the capital stock authorized on the date
hereof (ii) 4,365,000 shares of Series A Preferred Stock and (iii) 1,200,000
shares of Series B Preferred Stock designated in accordance with the terms of
this Agreement.
3.3 Subsidiaries. Galt does not have any subsidiaries or own any
interest in any other enterprise.
3.4 Directors and Officers. The names and titles of all directors and
officers of Galt as of the date of this Agreement arc as follows: Earnest
Mathis, President and Director; Kenneth J. Wolf, Secretary/Treasurer and
Director; and Gary J. McAdam, Director.
3.5 Financial Statements. Exhibit 3.5 hereto consists of the audited
financial statements of Galt for the years ended January 31, 1995 and 1996 and
Galt's quarterly unaudited financial statement for the six months ended October
31, 1996 (collectively, the "Galt Financial Statements"). The Galt Financial
Statements have been prepared in accordance with generally accepted accounting
principles and practices consistently followed by Galt throughout the periods
indicated, and fairly present the financial position of Galt as of the dates of
the balance sheets included in the Galt Financial Statements and the results of
operations for the period indicated.
3.6 Absence of Changes. Since October 31, 1996, there has not been any
material change in the financial condition or operations of Galt.
3.7 Absence of Undisclosed Liabilities. As of Galt's October 31, 1996
balance sheet, included in Exhibit 3.5, Galt does not have any material debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected in such
balance sheet.
3.8 Tax Returns. Within the times and in the manner prescribed by law,
Galt has filed all federal, state and local tax returns required by law and has
paid all taxes, assessments,
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and penalties due and payable. The provisions for taxes, if any, reflected in
Exhibit 3.5 are adequate for the periods indicated. There are no present
disputes or to taxes of any nature payable by Galt.
3.9 Trade Names and Rights. Galt does not own nor use any patent,
trademark, service mark, trade name or copyright in its business.
3.10 Compliance with Laws. To the best knowledge of the officers of
Galt, Galt has complied in all material respects with, and is not in material
violation of, applicable federal, state or local statutes, laws or regulations
affecting its properties or the operation of its business, including all federal
and state securities laws and regulations.
3.11 Litigation. To the best knowledge of the officers of Galt, Galt is
not a defendant in any suit, action, arbitration, or legal, administrative or
other proceeding, or governmental investigation which is pending or, to the best
knowledge of the officers of Galt, threatened against or affecting Galt or its
business, assets or financial condition. To the best knowledge of the officers
of Galt, Galt is not in default with respect to any material order, writ,
injunction or decree of any federal, state, local or foreign court, department,
agency or instrumentality applicable to it. Galt is not engaged in any material
litigation to recover monies due to it.
3.12 Authority. The Board of Directors of Galt have authorized the
execution of this Agreement and the transactions contemplated herein, and Galt
has full power and authority to execute, deliver and perform this Agreement, and
this Agreement is the legal, valid and binding obligation of Galt, and is
enforceable in accordance with its terms and conditions, except to the extent
that the enforceability hereof (a) may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect and (b)
is subject to principals of equity.
3.13 Ability to Carry Out Obligations. The execution and delivery of
this Agreement by Galt and the Galt Principals and the performance by Galt and
the Galt Principals of their respective obligations hereunder will not cause,
constitute or conflict with or result in (a) any material breach or violation of
any of the provisions of or constitute a default under any material license,
indenture, mortgage, instrument, article of incorporation, bylaw or other
agreement or instrument to which Galt or any of the Galt Principals is a party,
or by which it or they may be bound, (b) an event that would permit any party to
any agreement or instrument to terminate it or to accelerate the maturity of any
indebtedness or other obligation of Galt, or (c) an event that would result in
the creation or imposition of any lien, charge or encumbrance on any asset of
Galt, in each case, in which a waiver or consent has not been obtained.
3.14 Full Disclosure. None of the representations and warranties made
by Galt herein, or in any exhibit, certificate or memorandum furnished or to be
furnished by Galt or on its behalf, contains or will contain any untrue
statement of material fact or omit any material fact the omission of which would
be misleading.
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3.15 Assets. Galt has good and marketable title to all property owned
by it, free and clear of all liens, claims and encumbrances, except such liens
incurred in the ordinary course of business and as otherwise indicated in
Exhibit 3.5.
3.16 Material Contracts. There are no material contracts of Galt.
ARTICLE IV
Covenants Prior and Subsequent to Closing
4.1 Mutual Investigative Rights. From the date of this Agreement until
the Closing, ICG and Galt shall provide to the other party, and such other
party's counsel, accountants, auditors and other authorized representatives,
full access during normal business hours and upon reasonable advance written
notice to all of each party's properties, books, contracts, commitments and
records for the purpose of examining the same. ICG and Galt shall furnish the
other party with all information concerning each such party's affairs as the
other party may reasonably request.
4.2 Conduct of Business. Prior to the Closing, each party shall conduct
its business in the normal course and shall not sell, pledge or assign any
assets without the prior written approval of the other party, except in the
normal course of business. Neither party shall amend its Articles of
Incorporation or Bylaws (except as may be contemplated by this Agreement),
declare dividends, redeem or sell stock or other securities, incur additional or
newly-funded liabilities, acquire or dispose of fixed assets, change employment
terms, enter into any material or long-term contract, guarantee obligations of
any third party, settle or discharge any balance sheet receivable for less than
its stated amount, pay more on any liability than its stated amount, or enter
into any other transaction other than in the normal course of business, except
in each case, with respect to ICG, as may be contemplated by the Confidential
Private Placement Memorandum of ICG dated November 22, 1996, together with all
amendments thereof and supplements and exhibits thereto (the "Memorandum"), or
in furtherance of the successful completion of the private placement
contemplated thereby, which private placement shall be completed after the
Closing.
4.3 Indemnification. Galt and each of the Galt Principals agree to
jointly and severally indemnify and hold harmless ICG, and ICG agrees to
indemnify and hold harmless Galt and each of the Galt Principals against and in
respect of any liability, damage or deficiency, all actions, suits, proceedings,
demands, assessments, judgments, costs and expenses including reasonable
attorney's fees incident to any of the foregoing, resulting from any material
misrepresentations made by an indemnifying party to an indemnified party, an
indemnifying party's breach of covenant or warranty or an indemnifying party's
nonfulfillment (unless waived in writing by the party claiming indemnification)
of any agreement hereunder, or from any material misrepresentation in or
omission from any certificate furnished or to be furnished hereunder.
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ARTICLE V
Conditions Precedent to Galt's Performance
5.1 Conditions. Galt's obligations hereunder shall be subject to the
satisfaction at or before the Closing of all the conditions set forth in this
Article V. Galt may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Galt of any other condition of or any of Galt's
other rights or remedies, at law or in equity.
5.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by ICG in this Agreement or in any
written statement that shall be delivered to Galt by ICG under this Agreement
shall be true and accurate on and as of the Closing Date as though made at that
time.
5.3 Performance. ICG shall have performed, satisfied and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by it as required hereunder.
5.4 Absence of Litigation. No action, suit, or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against ICG on or before the Closing Date which would
materially affect ICG's ability to perform its obligations hereunder.
5.5 Closing Certificates. ICG shall have delivered to Galt (a) a
certificate dated the Closing Date and signed by the Chief Executive Officer of
ICG certifying that each of the conditions specified in Article II has been
fulfilled and that all of the representations set forth in Article II are true
and correct as of the Closing Date, and (b) such additional documents,
certificates and opinions Galt may reasonably require for the purpose of
enabling it to review or pass upon the matters referred to in this Agreement or
in order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained, including without
limitation, a certificate of the Secretary or Assistant Secretary of ICG
certifying as to the adoption of resolutions of ICG's board of directors and
stockholders authorizing this Agreement and the consummation of the transaction
contemplated hereby.
5.6 Satisfactory Delivery of Documents. All instruments and documents
delivered to Galt pursuant to the provisions hereof shall be reasonably
satisfactory to legal counsel for Galt.
5.7 Compliance with Laws. At the Closing, the Exchange of Securities
and the transactions contemplated by this Agreement shall be permitted by
applicable law.
5.8 Corporate Approvals. Prior to the Closing, the directors and
stockholders of ICG shall have approved, to the extent required by applicable
law, the execution and delivery of this Agreement and the consummation of the
actions contemplated herein.
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5.9 Memoranda; Legal Opinion. Prior to the Closing, Galt shall have
received (i) a Blue Sky Memorandum regarding the application of applicable state
blue sky securities laws to the Exchange of Securities, (ii) a memorandum
regarding the application of United Kingdom securities laws to the Exchange of
Securities and (iii) an opinion of ICG's counsel dated as of the Closing Date to
the effect that:
(a) ICG is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware; and
(b) The execution, delivery and performance of this Agreement by
ICG and the consummation of the transactions contemplated
hereby do not conflict with the Certificate of Incorporation
of ICG or its Bylaws, or any agreement of which counsel is
aware.
(c) The issuance of the Galt Securities to the ICG Securityholders
is exempt from registration under the Securities Act of 1933,
as amended.
ARTICLE VI
Conditions Precedent to ICG's Performance
6.1 Conditions. ICG's obligations hereunder shall be subject to the
satisfaction at or before the Closing of all the conditions set forth in this
Article VI. ICG may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by ICG of any other condition of or any of ICG's
rights or remedies, at law or in equity.
6.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by Galt and the Galt Principals in
this Agreement or in any written statement that shall be delivered to ICG by
Galt or any of the Galt Principals under this Agreement shall be true and
accurate on and as of the Closing Date as though made at that time.
6.3 Performance. Each of Galt and the Galt Principals shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by them,
respectively, as required hereunder.
6.4 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the action
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against ICG, Galt or any of the Galt Principals on or
before the Closing Date.
6.5 Closing Certificates. Galt shall have delivered to ICG (a) a
certificate dated the Closing Date and signed by the President and Chief
Financial Officer of Galt certifying that each of the conditions specified in
this Article III has been fulfilled and that all of the representations set
forth in Article III are true and correct as of the Closing Date and (b) such
additional documents, certificates and opinions ICG may reasonably require for
the purpose of enabling
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it to review or pass upon the matters referred to in this Agreement or in order
to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained, including without
limitation, a certificate of the Secretary or Assistant Secretary of Galt
certifying as to the adoption of resolutions by Galt's board of directors and
shareholders authorizing this Agreement and the consummation of the transactions
contemplated hereby.
6.6 Satisfactory Delivery of Documents. All instruments and documents,
including due diligence documents, delivered to ICG pursuant to the provisions
hereof shall be reasonably satisfactory to legal counsel for ICG.
6.7 Compliance with Laws. At the Closing, the Exchange of Securities
and the transactions contemplated by this Agreement shall be permitted by
applicable law, and Galt shall have sufficient shares of its capital stock
authorized to complete the Exchange of Securities and reserved to account for
securities convertible, exercisable or exchangeable into Galt Common Stock and
Galt Class B Common Stock.
6.8 Corporate Approvals. Prior to the Closing, the directors and
shareholders of Galt shall have approved, to the extent required by ICG the
transactions contemplated herein.
6.9 Legal Opinion. Prior to the Closing, ICG shall have received an
opinion of Galt's counsel dated as of the Closing Date to the effect that:
(a) Galt is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado;
(b) Certificates of Designation of the Series A Preferred Stock
and Series B Preferred Stock of Galt in substantially the
forms attached hereto as Exhibits 1.1(c) and 1.1(d),
respectively, have been approved by Galt's Board of Directors
and each is enforceable against Galt in accordance with their
respective terms; and.
(c) The execution, delivery and performance of this Agreement by
Galt and the Galt Principals and the consummation of the
transactions contemplated hereby do not conflict with the
Certificate of Incorporation of Galt or its Bylaws, or any
agreement of which counsel is aware.
6.10 Adoption of Stock Option Plan. Prior to the Closing, Galt shall
adopt a stock option plan in substantially the form attached hereto as Exhibit
6.10 (the "1997 Galt Stock Option Plan").
6.11 Galt Recapitalization. Prior to the Closing, Galt shall have
effected a recapitalization (the "Galt Recapitalization") in form satisfactory
to ICG including (a) the conversion of all debt obligations of Galt into Galt
Common Stock and, subsequently, (b) a reverse stock split (the "Galt Reverse
Stock Split") of its outstanding shares of Galt Common Stock so that prior to
the Closing, Galt will have a total of 300,000 shares of Galt Common
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Stock, and no other shares of capital stock or securities convertible into or
exchangeable or exercisable for such capital stock, issued and outstanding.
6.12 Class B Common Stock. Prior to the Closing, Galt shall have
amended its charter in accordance with applicable law to provide for the
authorization of 25,000,000 shares of a new class of common stock of Galt (the
"Galt Class B Common Stock") with the same rights, and privileges as the Galt
Common Stock except that (a) the holders of the Galt Common Stock and the Galt
Class B Common Stock may have different rights with respect to dividends on such
stock and (b) the Galt Class B Common Stock will convert into Galt Common Stock
on December 31, 1998.
6.13 Designation of Preferred Stock. Prior to the Closing, Galt's Board
of Directors shall have adopted, Certificates of Designation of the Series A
Preferred Stock and Series B Preferred Stock of Galt in substantially the forms
attached hereto as Exhibits 1.1(c) and 1.1(d), respectively.
6.14 Name Change of Galt. Prior to the Closing, Galt shall amend its
charter to effect a change of its corporate name to Capital Growth Holdings,
Ltd. All references in this Agreement to Galt after the effectiveness of such
change of corporate name are to Galt Financial Corporation re-named Capital
Growth Holdings, Ltd.
6.15 Resignation and Appointment of Officers of Galt. Concurrently with
the Closing, all officers of Galt shall resign and the directors of Galt shall,
in accordance with the Bylaws of Galt, elect the officers of ICG (as set forth
in Section 2.4 hereof) to serve as officers of Galt in the respective positions
held by them as officers of ICG to serve as officers of Galt in accordance with
the Bylaws of Galt, except that Robert Zelinka shall not be elected an officer
of Galt.
6.16 Resignation and Appointment of Directors of Galt. Concurrently
with the Closing, the directors of Galt shall elect to the Galt Board the
directors of ICG (as set forth in Section 2.4 hereof) to serve as directors of
Galt in accordance with the Bylaws of Galt.
ARTICLE VII
Closing
7.1 Closing. The Closing of this Agreement shall be held at the offices
of Orrick, Herrington & Sutcliffe LLP, on the Closing Date. At the Closing:
(a) ICG shall deliver to Galt copies of Subscription Agreements
executed by all of the ICG Securityholders participating in
the Exchange of Securities on the Closing Date, together with
certificates representing outstanding ICG Securities delivered
to or in the possession of ICG;
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(b) Galt shall deliver to ICG, on behalf of the ICG
Securityholders, securities of Galt, for which the ICG
Securities have been delivered for exchange, pursuant to
Sections 1.1 and 1.5 hereof;
(c) Galt shall deliver (i) the certificates described in Section
6.5 hereof, (ii) the legal opinion of its counsel set forth in
Section 6.9 hereof, (iii) a certificate from the Secretary of
State of the State of Colorado dated at or about the Closing
Date to the effect that Galt is in good standing under the
laws of said state, (iv) letters of resignation of Galt's
officers and directors and director resolutions providing for
the appointment of officers and directors, as provided herein,
and (v) such other instruments and documents required to be
delivered pursuant to the provisions of this Agreement;
(d) ICG shall deliver (i) the certificates described in Section
5.5 hereof, (ii) the memoranda and legal opinion of its
counsel set forth in Section 5.9 hereof and (iii) a signed
consent and/or minutes of its directors approving this
Agreement and each matter to be approved under this Agreement.
7.2 Ownership of Galt. Upon Closing, the outstanding securities of Galt
shall be as follows:
<TABLE>
<S> <C>
Voting Securities
Common Stockholders (not including Original Galt Shareholders) 2,549,000 shares
Class B Common Stockholders 11,349,666 shares
Series A Preferred Stockholders 4,001,334 shares
Series B Preferred Stockholders 1,080,000 shares
Original Galt Shareholders 300,000 shares
- -----------------------------------------------------------------------------------------------------------
Total: 19,280,000 shares
Exercisable Securities
Common Stock Purchase Warrants 1,625,000
Class B Common Stock Purchase Warrants 250,000
Stock Options 660,000
- -----------------------------------------------------------------------------------------------------------
Total: 2,535,000
</TABLE>
ARTICLE VIII
Miscellaneous
8.1 Captions and Headings. The article, paragraph, schedule and exhibit
headings throughout this Agreement are for convenience and reference only and
shall not define, limit or add to the meaning of any provision of this
Agreement.
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8.2 No Oral Change. This Agreement and any provision hereof may not be
waived, changed, modified or discharged orally, but only by an agreement in
writing signed by the party against whom enforcement of any such waiver, change,
modification or discharge is sought.
8.3 Non-Waiver. The failure of any party to insist in any one or more
cases upon the performance of any of the provisions, covenants or conditions of
this Agreement or to exercise any option herein contained shall not be construed
as a waiver or relinquishment for the future of any such provisions, covenants
or conditions. No waiver by any party of one breach by another party shall be
construed as a waiver with respect to any other subsequent breach.
8.4 Time of Essence. Time is of the essence of this Agreement and of
each and every provision hereof.
8.5 Entire Agreement. This Agreement and the agreements referenced
herein contain the entire Agreement and understanding among Galt, the Galt
Principals and ICG, and upon execution and delivery of Subscription Agreements,
certain ICG Securityholders, and supersedes all prior agreements and
understandings.
8.6 Choice of Law. This Agreement and its application shall be governed
by the laws of the state of Colorado.
8.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, including the
Subscription Agreements.
8.8 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of delivery if delivered personally on the party to whom
notice is to be given, or on the third day after mailing if mailed to the party
to whom notice is to be given, by first class mail, registered or certified,
postage prepaid, and properly addressed as follows:
Galt: Galt Financial Corporation
26 West Dry Creek Circle, Suite 600
Littleton, Colorado 80120
Attn: Earnest Mathis
ICG: International Capital Growth, Ltd.
660 Steamboat Road, Second Floor
Greenwich, Connecticut 06830
Attn: Ronald B. Koenig
8.9 Binding Effect. This Agreement shall inure to and be binding upon
the heirs, executors, personal representatives, successors and assigns of each
of the parties to this Agreement.
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8.10 Mutual Cooperation. The parties hereto shall cooperate with each
other to achieve the purpose of this Agreement and shall execute such other and
further documents and take such other and other actions as may be necessary or
convenient to effect the transaction described herein.
8.11 Finders. The parties hereto represent that no finder has brought
about this Agreement, and no finder's fee has been paid or is payable by either
party.
8.12 Announcements. ICG and Galt will consult and cooperate with each
other as to the timing and content of any public announcements regarding this
Agreement and the transactions contemplated hereby.
8.13 Expenses. Each party will pay its own legal, accounting and other
out-of-pocket expenses incurred in connection with this Agreement, except that
ICG shall pay the first $10,000 of legal fees, accounting fees and expenses of
Galt and to the extent such fees and expenses of Galt exceed $10,000, such fees
and expenses shall be paid by the Galt Principals.
8.14 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties set forth in this Agreement
or in any instrument, certificate, opinion or other writing providing for in it,
shall survive the Closing, excluding the covenants set forth in Sections 4.1 and
4.2, above.
8.15 Exhibits and Schedules. As of the execution hereof by Galt and
ICG, Galt and ICG have provided each other with the Exhibits and Schedules
described herein. Any material changes to the Exhibits and Schedules shall be
immediately disclosed to the other party.
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<PAGE>
IN WITNESS WHEREOF, ICG, Galt and the Galt Principals have executed
this Agreement on the date indicated above.
GALT FINANCIAL CORPORATION INTERNATIONAL CAPITAL GROWTH, LTD.
By: /s/ Earnest Mathis By: /s/ Ronald B. Koenig
-------------------------- ----------------------------------
Earnest Mathis, President Ronald B. Koenig
Chief Executive Officer
/s/ Earnest Mathis
- -----------------------------------
Earnest Mathis
/s/ Kenneth J. Wolf
- -----------------------------------
Kenneth J. Wolf
/s/ Gary McAdam
- -----------------------------------
Gary McAdam
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RESTATED
ARTICLES OF INCORPORATION
OF
GALT FINANCIAL CORPORATION
The undersigned, who is a natural person eighteen years of age or
older, hereby restates pursuant to the Colorado Business Corporation Act, as
amended, the following Articles of Incorporation of Galt Financial Corporation:
FIRST: The name of the corporation is changed from Galt
Financial Corporation to Capital Growth Holdings, Ltd.
SECOND: The corporation shall have and may exercise all of the rights,
powers and privileges now or hereafter conferred upon corporations organized
under the laws of Colorado. In addition, the corporation may do everything
necessary, suitable or proper for the accomplishment of any of its corporate
purposes. The corporation may conduct part or all of its business in any part of
Colorado, the United States or the world and may hold, purchase, mortgage, lease
and convey real and personal property in any of such places.
THIRD: (a) The aggregate number of common shares which the corporation
shall have authority to issue is 125,000,000 shares of Common Stock consisting
of 100,000,000 shares of Common Stock and 25,000,000 shares of Class B Common
Stock. The Common Stock and Class B Common Stock shall constitute the sole
voting groups of the corporation, except to the extent any additional voting
group or groups may hereafter be established in accordance with the Colorado
Business Corporation Act. The Common Stock and Class B Common Stock shall be
entitled to receive the net assets of the corporation upon dissolution subject
to the rights of any Preferred Stock.
(b) Each Common Stock and Class B Common Stock holder of record shall
have one vote for each share of stock standing in his name on the books of the
corporation and entitled to vote, except that in the election of directors each
shareholder shall have as many votes for each share held by him as there are
directors to be elected and for whose election the shareholder has a right to
vote. Cumulative voting shall not be permitted in the election of directors or
otherwise. Preemptive rights to purchase additional shares of stock are denied.
(c) Unless otherwise ordered by a court of competent jurisdiction, at
all meetings of shareholders one-third of the shares of a voting group entitled
to vote at such meeting, represented in person or by proxy, shall constitute a
quorum of that voting group. Unless otherwise required by law, a majority vote
of those shareholders represented in person or by proxy will be sufficient to
take any corporate action.
<PAGE>
(d) The Class B Common Stock will be junior to the Common Stock with
respect to any dividends and will automatically convert to Common Stock on
December 31, 1998.
(e) The corporation shall have the authority to issue 20,000,000 shares
of Preferred Stock, which may be issued in one or more series at the discretion
of the board of directors. In establishing a series, the board of directors
shall give to it a distinctive designation so as to distinguish it from the
shares of all other series and classes, shall fix the number of shares in such
series, and the preferences, rights and restrictions thereof. All shares of any
one series shall be alike in every particular except as otherwise provided by
these Restated Articles of Incorporation or the Colorado Business Corporation
Code.
(1) Dividends. Dividends in cash, property or shares shall be
paid upon the Preferred Stock for any year on a cumulative or noncumulative
basis as determined by a resolution of the board of directors to the extent
earned surplus for each such year is available, in an amount as determined by a
resolution of the board of directors. Such Preferred Stock dividends shall be
paid pro rata to holders of Preferred Stock as determined by a resolution of the
board of directors. No other dividend shall be paid on the Preferred Stock.
Dividends in cash, property or shares of the corporation may
be paid upon the Common Stock, as and when declared by the board of directors,
out of funds of the corporation to the extent and in the manner permitted by
law, except that no Common Stock dividend shall be paid for any year unless the
holders of Preferred Stock, if any, shall receive the maximum allowable
Preferred Stock dividend for such year.
(2) Distribution in Liquidation. Upon any liquidation,
dissolution or winding up of the corporation, and after paying or adequately
providing for the payment of all its obligations, the remainder of the assets of
the corporation shall be distributed, either in cash or in kind, first pro rata
to the holders of the Preferred Stock until an amount to be determined by a
resolution of the board of directors prior to issuance of such Preferred Stock
has been distributed per share, and, then, the remainder pro rata to the holders
of the Common Stock.
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(3) Redemption. The Preferred Stock may be redeemed in whole
or in part as determined by a resolution of the board of directors prior to the
issuance of such Preferred Stock, upon prior notice to the holders of record of
the Preferred Stock, published, mailed and given in such manner and form and on
such other terms and conditions as may be prescribed by the Bylaws or by
resolution of the board of directors, by payment in cash or Common Stock for
each share of the Preferred Stock to be redeemed, as determined by a resolution
of the board of directors prior to the issuance of such Preferred Stock. Common
Stock used to redeem Preferred Stock shall be valued as determined by a
resolution of the board of directors prior to the issuance of such Preferred
Stock. Any rights to or arising from fractional shares shall be treated as
rights to or arising from one share. No such purchase or retirement shall be
made if the capital of the corporation would be impaired thereby.
FOURTH: The number of directors of the corporation shall be fixed by
the bylaws, or if the bylaws fail to fix such a number, then by resolution
adopted from time to time by the board of directors, provided that the number of
directors shall not be less than three nor more than nine.
FIFTH: The street address of the registered office of the corporation
is 26 West Dry Creek Circle, Suite 600, Littleton, Colorado 80120. The name of
the registered agent of the corporation at such address is Earnest Mathis.
SIXTH: The address of the principal office of the
corporation is 26 West Dry Creek Circle, Suite 600, Littleton,
Colorado 80120.
SEVENTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of
the corporation, and the same are in furtherance of and not in
limitation or exclusion of the powers conferred by law.
(a) Conflicting Interest Transactions. As used in this paragraph,
"conflicting interest transaction" means any of the following: (i) a loan or
other assistance by the corporation to a director of the corporation or to an
entity in which a director of the corporation is a director or officer or has a
financial interest; (ii) a guaranty by the corporation of an obligation of a
director of the corporation or of an obligation of an entity in which a director
of the corporation is a director or officer or has a financial interest; or
(iii) a contract or transaction between the corporation and a director of the
corporation or between the corporation and an entity in which a director of the
corporation is a director or officer or has a financial interest. No conflicting
interest transaction shall be void or voidable, be enjoined, be set aside, or
give rise to an award of damages or other sanctions in a proceeding by a
shareholder or by or in the right of the corporation, solely because the
conflicting interest transaction involves a director of the corporation or an
entity
3
<PAGE>
in which a director of the corporation is a director or officer or has a
financial interest, or solely because the director is present at or participates
in the meeting of the corporation's board of directors or of the committee of
the board of directors which authorizes, approves or ratifies a conflicting
interest transaction, or solely because the director's vote is counted for such
purpose if: (A) the material facts as to the director's relationship or interest
and as to the conflicting interest transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or committee in
good faith authorizes, approves or ratifies the conflicting interest transaction
by the affirmative vote of a majority of the disinterested directors, even
though the disinterested directors are less than a quorum; or (B) the material
facts as to the director's relationship or interest and as to the conflicting
interest transaction are disclosed or are known to the shareholders entitled to
vote thereon, and the conflicting interest transaction is specifically
authorized, approved or ratified in good faith by a vote of the shareholders; or
(C) a conflicting interest transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board of directors, a
committee thereof, or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes, approves or ratifies the
conflicting interest transaction.
(b) Loans and Guaranties for the Benefit of Directors. Neither the
board of directors nor any committee thereof shall authorize a loan by the
corporation to a director of the corporation or to an entity in which a director
of the corporation is a director or officer or has a financial interest, or a
guaranty by the corporation of an obligation of a director of the corporation or
of an obligation of an entity in which a director of the corporation is a
director or officer or has a financial interest, until at least ten days after
written notice of the proposed authorization of the loan or guaranty has been
given to the shareholders who would be entitled to vote thereon if the issue of
the loan or guaranty were submitted to a vote of the shareholders. The
requirements of this paragraph (b) are in addition to, and not in substitution
for, the provisions of paragraph (a) of Article SEVENTH.
(c) Indemnification. The corporation shall indemnify, to the maximum
extent permitted by law, any person who is or was a director, officer, agent,
fiduciary or employee of the corporation against any claim, liability or expense
arising against or incurred by such person made party to a proceeding because he
is or was a director, officer, agent, fiduciary or employee of the corporation
or because he is or was serving another entity or employee benefit plan as a
director, officer, partner, trustee, employee, fiduciary or agent at the
corporation's request. The corporation shall further have the
4
<PAGE>
authority to the maximum extent permitted by law to purchase and maintain
insurance providing such indemnification.
(d) Limitation on Director's Liability. No director of this corporation
shall have any personal liability for monetary damages to the corporation or its
shareholders for breach of his fiduciary duty as a director, except that this
provision shall not eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for: (i) any breach of
the director's duty of loyalty to the corporation or its shareholders; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) voting for or assenting to a distribution in
violation of Colorado Revised Statutes ss. 7-106-401 or the articles of
incorporation if it is established that the director did not perform his duties
in compliance with Colorado Revised Statutes ss. 7-108-401, provided that the
personal liability of a director in this circumstance shall be limited to the
amount of the distribution which exceeds what could have been distributed
without violation of Colorado Revised Statutes ss. 7-106-401 or the articles of
incorporation; or (iv) any transaction from which the director directly or
indirectly derives an improper personal benefit. Nothing contained herein will
be construed to deprive any director of his right to all defenses ordinarily
available to a director nor will anything herein be construed to deprive any
director of any right he may have for contribution from any other director or
other person.
(e) Negation of Equitable Interests in Shares or Rights. Unless a
person is recognized as a shareholder through procedures established by the
corporation pursuant to Colorado Revised Statutes ss. 7-107-204 or any similar
law, the corporation shall be entitled to treat the registered holder of any
shares of the corporation as the owner thereof for all purposes permitted by the
Colorado Business Corporation Act, including without limitation all rights
deriving from such shares, and the corporation shall not be bound to recognize
any equitable or other claim to, or interest in, such shares or rights deriving
from such shares on the part of any other person including without limitation, a
purchaser, assignee or transferee of such shares, unless and until such other
person becomes the registered holder of such shares or is recognized as such,
whether or not the corporation shall have either actual or constructive notice
of the claimed interest of such other person. By way of example and not of
limitation, until such other person has become the registered holder of such
shares or is recognized pursuant to Colorado Revised Statutes ss. 7-107-204 or
any similar applicable law, he shall not be entitled: (i) to receive notice of
the meetings of the shareholders; (ii) to vote at such meetings; (iii) to
examine a list of the shareholders; (iv) to be paid dividends or other
distributions payable to shareholders; or (v) to own, enjoy and exercise any
other rights deriving from such shares against the corporation. Nothing
contained herein will be construed to deprive any beneficial shareholder, as
defined in
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Colorado Revised Statutes ss. 7-113-101(1), of any right he may have pursuant to
Article 113 of the Colorado Business Corporation Act or any subsequent law.
DATED the 7th day of January , 1997.
/s/ Earnest Mathis
----------------------
Earnest Mathis
Earnest Mathis hereby consents to appointment as the registered agent
for the Corporation.
/s/ Earnest Mathis
----------------------
Earnest Mathis
6j.1223.4
6
CERTIFICATE OF THE DESIGNATION
OF
5% CUMULATIVE CONVERTIBLE SERIES A PREFERRED STOCK
(Par Value $.001 Per Share)
OF
CAPITAL GROWTH HOLDINGS, LTD.
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board of Directors") of Capital
Growth Holdings, Ltd., a Colorado corporation (the "Company"), by unanimous
written consent on March 14, 1997 (the "Designation Date").
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation of the Company, and the provisions of
the Colorado Corporation Code, one series of the class of authorized preferred
stock, $.001 par value, of the Company is hereby created and that the
designations, powers, preferences and relative, participating, optional or other
special rights of the shares of such series, and qualifications, limitations and
restrictions thereof, are hereby fixed as follows:
1. Number of Shares and Designations. Four million three hundred
sixty-five thousand (4,365,000) shares of preferred stock, $.001 par value, of
the Company are hereby constituted as a series of preferred stock of the Company
designated as 5% Cumulative Convertible Series A Preferred Stock (the "Series A
Preferred Stock").
2. The Series B Preferred Stock. The powers, preferences and relative,
participating, optional or other special rights of the shares of the Series A
Preferred Stock, and the qualifications, limitations and restrictions thereof,
are identical to, and rank in parity with, those of the 5% Cumulative
Convertible Series B Preferred Stock (the "Series B Preferred Stock") designated
as such on the Designation Date, except that the liquidation preference of the
Series B Preferred Stock is equal to twenty-one cents ($.21) (subject to
adjustment under certain circumstances).
3. Dividends. The holders of shares of the Series A Preferred Stock
shall be entitled to cumulative dividends payable in cash out of funds legally
available for that purpose at the rate of five percent (5%) per annum of the
Series A Liquidation Preference (as defined in Section 4 hereof) accruing from
October 12, 1996 (the date of approval of International Capital Growth, Ltd., a
Delaware corporation) for membership (the "Membership Date") with the National
Association of Securities Dealers, Inc.). The dividend is payable quarterly on
December 31, March 31, June 30 and September 30 of each year, commencing on the
first such date after the Membership Date. Dividends shall be paid to the
holders
<PAGE>
of record as of a date, not more than thirty (30) days prior to the dividend
payment date, as may be fixed by the Board of Directors. Dividends accrue from
the first day of the quarterly period in which such dividend may be payable,
except with respect to the first quarterly dividend, which, if due, shall accrue
from the Membership Date. No dividends may be paid on any shares of capital
stock ranking junior to the Series A Preferred Stock unless and until all
declared but unpaid dividends on the Series A Preferred Stock have been declared
and paid in full. The holders of shares of the Series A Preferred Stock are also
entitled to share equally in any dividends, when, as and if declared by the
Board of Directors on the Class B common stock of the Company, without par value
(the "Class B Common Stock").
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company, either voluntary or involuntary, the holders of shares of the
Series A Preferred Stock shall be entitled to receive prior and in preference to
any distribution of any of the assets of the Company to the holders of the
common stock of the Company, without par value (the "Common Stock"), or the
Class B Common Stock and pari passu with the holders of the Series B Preferred
Stock, fourteen cents ($.14) per share (subject to adjustment for stock splits,
combinations, reclassifications or similar events affecting such shares) for
each outstanding share of Series A Preferred Stock (the "Series A Liquidation
Preference"). If, upon the occurrence of such an event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock and Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of the
Company legally available for distribution shall be distributed among the
holders of the Series A Preferred Stock and Series B Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive in respect of such shares.
(b) For purposes of this Section 4, a liquidation, dissolution
or winding up of the Company shall be deemed to be occasioned by, or to include,
(A) the acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of the Company) in which
outstanding shares of the Company are exchanged for securities or other
consideration issued, or caused to be issued by the acquiring corporation or its
subsidiary, or (B) a sale, lease, exchange or other transfer (in one transaction
or a series of transactions) of all or substantially all of the assets of the
Company, unless in each case the Company's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
Company's acquisition or
2
<PAGE>
sale or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity.
(c) Whenever the distribution provided for in this Section 4
shall be payable in property other than cash, the value of such property shall
be the fair market value thereof as determined in good faith by not less than a
majority of the Directors then serving on the Board of Directors of the Company.
5. Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance thereof, at the office of the Company or any transfer agent for such
stock that may be appointed by the Company (the "Transfer Agent"), into one (1)
fully paid and nonassessable share of the Class B Common Stock. The number of
shares of the Class B Common Stock into which each share of Series A Preferred
Stock is convertible is hereinafter referred to as the "Conversion Rate" for
such series. The Conversion Rate is subject to adjustment for stock splits,
combinations, reclassifications or similar events affecting such shares as set
forth in this Section 5.
(ii) Before any holder of Series A Preferred Stock shall be
entitled to convert such stock into shares of the Class B Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Company or any Transfer Agent, and shall give written
notice to the Company at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of the Class B Common Stock are to be
issued. The Company shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series A Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of the Class B Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of the Class B Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of the Class B
Common Stock as of such date.
(b) Automatic Conversion.
(i) Each share of Series A Preferred Stock shall automatically
be converted into shares of the Class B Common Stock at the then effective
Conversion Rate for such series on October 12, 1997 (the one-year anniversary
date of the Membership Date (the
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"Automatic Conversation Date")), without any action by the holder of such share
and whether or not a certificate representing such share is surrendered to the
Company or the Transfer Agent. The Class B Common Stock is automatically
convertible into shares of the Common Stock on December 31, 1998, pursuant to
the rights, privileges, terms and conditions of the Class B Common Stock set
forth in the Articles of Incorporation of the Company.
(ii) As soon as practicable after the Automatic Conversation
Date the Company shall issue and deliver or cause to be issued and delivered a
certificate or certificates for the number of full shares of the Class B Common
Stock issuable upon such automatic conversion, as determined in accordance with
Section 5(a) hereof, in exchange for the certificate representing the shares of
Series A Preferred Stock which shall be surrendered by the holder without notice
by the Company in the manner specified in Section 5(a)(ii).
(c) Adjustments to Conversion Rate for Stock Dividends and
Combinations or Subdivisions of Common Stock. If the Company at any time or from
time to time while shares of Series A Preferred Stock are issued and outstanding
shall declare or pay, without consideration, any dividend on the Class B Common
Stock payable in Class B Common Stock, or shall effect a subdivision of the
outstanding shares of Class B Common Stock into a greater number of shares of
Class B Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Class B Common Stock or in any right to acquire Common
Stock), or if the outstanding shares of Class B Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Class B Common Stock, then the Conversion Rate for the Series A
Preferred Stock in effect immediately before such event shall, concurrently with
the effectiveness of such event, be proportionately decreased or increased, as
appropriate. If the Company shall declare or pay, without consideration, any
dividend on the Class B Common Stock payable in any right to acquire Class B
Common Stock for no consideration, then the Company shall be deemed to have made
a dividend payable in Class B Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire the
Class B Common Stock.
(d) Adjustments for Reclassification and Reorganization.
If the Class B Common Stock issuable upon conversion of the Series
A Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in the preceding paragraph), the Conversion Rate then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A Preferred
Stock shall be convertible into, in lieu of the number of shares of the Class B
Common Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares
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<PAGE>
of the Class B Common Stock that would have been subject to receipt by the
holders upon conversion of the Series A Preferred Stock immediately before that
change.
(e) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(f) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A Preferred Stock, and the number of shares
of the Class B Common Stock to be issued shall be rounded to the nearest whole
share. Whether or not fractional shares are issuable upon such conversion shall
be determined on the basis of the total number of shares of Series A Preferred
Stock the holder is at the time converting into the Class B Common Stock and the
number of shares of the Class B Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Section 5, the Company, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request at any time of any holder of Series A
Preferred stock furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
applicable Conversion Rate at the time in effect, and (C) the number of shares
of the Class B Common Stock and the amount, if any, of other property which at
the time would be received upon the conversion of a share of Series A Preferred
Stock.
(g) Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall send by
mail or courier against receipt to each holder of Series A Preferred Stock, at
least ten (10) days prior to the date
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<PAGE>
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(h) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of the Class B Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of the Class B Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock;
and if at any time the number of authorized but unissued shares of the Class B
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, in addition to such other
remedies as shall be available to the holders of the Series A Preferred Stock,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of the
Class B Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to these provisions.
(i) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, or sent
by courier against receipt, and addressed to each holder of record at his
address appearing on the books of the Company.
(j) Costs of Conversion. The Company shall pay all
documentary, stamp or other similar taxes attributable to the issuance or
delivery of the Class B Common Stock (or other shares or other securities) of
the Company upon conversion of any shares of the Series A Preferred Stock.
However, the Company shall not be required to pay any taxes which may be payable
in respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of the
Series A Preferred Stock in respect of which such shares are being issued.
6. Voting Rights.
(a) In addition to any voting rights required by law, each
holder of Series A Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of the Series B Preferred Stock, the Common
Stock and the Class B Common Stock as one class, including, without limitation,
the election of directors, and shall be entitled to that number of votes equal
to the largest number of whole shares of the Class B Common Stock into which
such holder's Series A Preferred Stock could be converted, rounding to the
nearest share pursuant to the provisions of Section
6
<PAGE>
5 hereof, on the record date for the determination of stockholders entitled to
vote on such matter or, if no record date is established, on the date such vote
is taken or any written consent of stockholders is first executed.
(b) The Company shall not, without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
Series A Preferred Stock given in writing or by vote at a meeting (as the case
may be):
(i) amend, alter or repeal in any respect the
rights, preferences, privileges, and other terms and provisions of
the Series A Preferred Stock;
(ii) increase the authorized number of shares of
Series A Preferred Stock;
(iii) authorize or issue or obligate itself to
issue, (x) any convertible debt or (y) any equity security, including any other
equity security or debt instrument convertible into or exchangeable for any such
equity security, that is in parity with or has a preference over the Series A
Preferred Stock, with respect to its preferential 5% dividends or liquidation,
except the shares of Series B Preferred Stock designated on the Designation
Date.
7. Status of Converted Series A Preferred Stock. In the event any
shares of Series A Preferred Stock shall be converted pursuant to Section 5
hereof, the shares of Series A Preferred Stock so converted shall be cancelled,
and any dividends with respect to such converted shares that have been declared
(including the 5% dividend that starts accruing on the Membership Date) and have
accrued up to and including the date of conversion and have not been paid shall
be paid in cash to the former holders of such shares within ten (10) business
days after such conversion. Any undeclared dividends shall be cancelled.
8. Acquired Stock. Shares of Series A Preferred Stock acquired by the
Company by reason of purchase, conversion or otherwise shall be retired and
shall become authorized but unissued shares of preferred stock, which may be
reissued as part of a new series of preferred stock hereafter created under the
Company's Articles of Incorporation.
Dated this 14th day of March , 1997.
/s/ Earnest Mathis
------------------------------------
Earnest Mathis, President
6j.1223
7
CERTIFICATE OF THE DESIGNATION
OF
5% CUMULATIVE CONVERTIBLE SERIES B PREFERRED STOCK
(Par Value $.001 Per Share)
OF
CAPITAL GROWTH HOLDINGS, LTD.
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board of Directors") of Capital
Growth Holdings, Ltd., a Colorado corporation (the "Company"), by unanimous
written consent on March 14, 1997 (the "Designation Date").
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation of the Company, and the provisions of
the Colorado Corporation Code, one series of the class of authorized preferred
stock, $.001 par value, of the Company is hereby created and that the
designations, powers, preferences and relative, participating, optional or other
special rights of the shares of such series, and qualifications, limitations and
restrictions thereof, are hereby fixed as follows:
1. Number of Shares and Designations. One million two hundred thousand
(1,200,000) shares of preferred stock, $.001 par value, of the Company are
hereby constituted as a series of preferred stock of the Company designated as
5% Cumulative Convertible Series B Preferred Stock (the "Series B Preferred
Stock").
2. The Series A Preferred Stock. The powers, preferences and relative,
participating, optional or other special rights of the shares of the Series B
Preferred Stock, and the qualifications, limitations and restrictions thereof,
are identical to, and rank in parity with, those of the 5% Cumulative
Convertible Series A Preferred Stock (the "Series A Preferred Stock") designated
as such on the Designation Date, except that the liquidation preference of the
Series A Preferred Stock is equal to fourteen cents ($.14) (subject to
adjustment under certain circumstances).
3. Dividends. The holders of shares of the Series B Preferred Stock
shall be entitled to cumulative dividends payable in cash out of funds legally
available for that purpose at the rate of five percent (5%) per annum of the
Series B Liquidation Preference (as defined in Section 4 hereof) accruing from
October 12, 1996 (the date of approval of International Capital Growth, Ltd., a
Delaware corporation, for membership (the "Membership Date") with the National
Association of Securities Dealers, Inc.). The dividend is payable quarterly on
December 31, March 31, June 30 and September 30 of each year, commencing on the
first such date after the Membership Date. Dividends shall be paid to the
holders
<PAGE>
of record as of a date, not more than thirty (30) days prior to the dividend
payment date, as may be fixed by the Board of Directors. Dividends accrue from
the first day of the quarterly period in which such dividend may be payable,
except with respect to the first quarterly dividend, which, if due, shall accrue
from the Membership Date. No dividends may be paid on any shares of capital
stock ranking junior to the Series B Preferred Stock unless and until all
declared but unpaid dividends on the Series B Preferred Stock have been declared
and paid in full. The holders of shares of the Series B Preferred Stock are also
entitled to share equally in any dividends, when, as and if declared by the
Board of Directors on the Class B common stock of the Company, without par value
(the "Class B Common Stock").
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company, either voluntary or involuntary, the holders of shares of the
Series B Preferred Stock shall be entitled to receive prior and in preference to
any distribution of any of the assets of the Company to the holders of the
common stock of the Company, without par value (the "Common Stock"), or the
Class B Common Stock and pari passu with the holders of the Series A Preferred
Stock, twenty-one cents ($.21) per share (subject to adjustment for stock
splits, combinations, reclassifications or similar events affecting such shares)
for each outstanding share of Series B Preferred Stock (the "Series B
Liquidation Preference"). If, upon the occurrence of such an event, the assets
and funds thus distributed among the holders of the Series B Preferred Stock and
Series A Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire assets and
funds of the Company legally available for distribution shall be distributed
among the holders of the Series B Preferred Stock and Series A Preferred Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive in respect of such shares.
(b) For purposes of this Section 4, a liquidation, dissolution
or winding up of the Company shall be deemed to be occasioned by, or to include,
(A) the acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of the Company) in which
outstanding shares of the Company are exchanged for securities or other
consideration issued, or caused to be issued by the acquiring corporation or its
subsidiary, or (B) a sale, lease, exchange or other transfer (in one transaction
or a series of transactions) of all or substantially all of the assets of the
Company, unless in each case the Company's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
Company's acquisition or
2
<PAGE>
sale or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity.
(c) Whenever the distribution provided for in this Section 4
shall be payable in property other than cash, the value of such property shall
be the fair market value thereof as determined in good faith by not less than a
majority of the Directors then serving on the Board of Directors of the Company.
5. Conversion. The holders of the Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance thereof, at the office of the Company or any transfer agent for such
stock that may be appointed by the Company (the "Transfer Agent"), into one (1)
fully paid and nonassessable share of the Class B Common Stock. The number of
shares of the Class B Common Stock into which each share of Series B Preferred
Stock is convertible is hereinafter referred to as the "Conversion Rate" for
such series. The Conversion Rate is subject to adjustment for stock splits,
combinations, reclassifications or similar events affecting such shares as set
forth in this Section 5.
(ii) Before any holder of Series B Preferred Stock
shall be entitled to convert such stock into shares of the Class B Common Stock,
such holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any Transfer Agent, and shall give
written notice to the Company at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of the Class B Common Stock are to be
issued. The Company shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series B Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of the Class B Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series B Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of the Class B Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of the Class B
Common Stock as of such date.
(b) Automatic Conversion.
(i) Each share of Series B Preferred Stock shall
automatically be converted into shares of the Class B Common Stock at the then
effective Conversion Rate for such series on October 12, 1997 (the one-year
anniversary date of the Membership Date (the
3
<PAGE>
"Automatic Conversation Date")), without any action by the holder of such share
and whether or not a certificate representing such share is surrendered to the
Company or the Transfer Agent. The Class B Common Stock is automatically
convertible into shares of the Common Stock on December 31, 1998, pursuant to
the rights, privileges, terms and condition of the Class B Common Stock set
forth in the Articles of Incorporation of the Company.
(ii) As soon as practicable after the Automatic
Conversation Date the Company shall issue and deliver or cause to be issued and
delivered a certificate or certificates for the number of full shares of the
Class B Common Stock issuable upon such automatic conversion, as determined in
accordance with Section 5(a) hereof, in exchange for the certificate
representing the shares of Series B Preferred Stock which shall be surrendered
by the holder without notice by the Company in the manner specified in Section
5(a)(ii).
(c) Adjustments to Conversion Rate for Stock Dividends and
Combinations or Subdivisions of Common Stock. If the Company at any time or from
time to time while shares of Series B Preferred Stock are issued and outstanding
shall declare or pay, without consideration, any dividend on the Class B Common
Stock payable in Class B Common Stock, or shall effect a subdivision of the
outstanding shares of Class B Common Stock into a greater number of shares of
Class B Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Class B Common Stock or in any right to acquire Common
Stock), or if the outstanding shares of Class B Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Class B Common Stock, then the Conversion Rate for the Series B
Preferred Stock in effect immediately before such event shall, concurrently with
the effectiveness of such event, be proportionately decreased or increased, as
appropriate. If the Company shall declare or pay, without consideration, any
dividend on the Class B Common Stock payable in any right to acquire Class B
Common Stock for no consideration, then the Company shall be deemed to have made
a dividend payable in Class B Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire the
Class B Common Stock.
(d) Adjustments for Reclassification and Reorganization.
If the Class B Common Stock issuable upon conversion of the Series
B Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in the preceding paragraph), the Conversion Rate then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series B Preferred
Stock shall be convertible into, in lieu of the number of shares of Class B
Common Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of the
4
<PAGE>
Class B Common Stock that would have been subject to receipt by the holders upon
conversion of the Series B Preferred Stock immediately before that change.
(e) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred Stock against impairment.
(f) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series B Preferred Stock, and the
number of shares of the Class B Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series B Preferred Stock the holder is at the time converting into the Class B
Common Stock and the number of shares of the Class B Common Stock issuable upon
such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 5, the Company, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any holder of Series B Preferred stock furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the applicable Conversion Rate at the time in effect, and (C)
the number of shares of Class B Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Series B Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall send by
mail or courier against receipt to each holder of Series B Preferred Stock, at
least ten (10) days prior to the date
5
<PAGE>
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(h) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of the Class B Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of its
shares of the Class B Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred Stock;
and if at any time the number of authorized but unissued shares of the Class B
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, in addition to such other
remedies as shall be available to the holders of the Series B Preferred Stock,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of the
Class B Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to these provisions.
(i) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Series B Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, or sent
by courier against receipt, and addressed to each holder of record at his
address appearing on the books of the Company.
(i) Costs of Conversion. The Company shall pay all
documentary, stamp or other similar taxes attributable to the issuance or
delivery of the Class B Common Stock (or other shares or other securities) of
the Company upon conversion of any shares of the Series B Preferred Stock.
However, the Company shall not be required to pay any taxes which may be payable
in respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of the
Series B Preferred Stock in respect of which such shares are being issued.
6. Voting Rights.
(a) In addition to any voting rights required by law, each
holder of Series B Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of the Series B Preferred Stock, the Common
Stock and the Class B Common Stock as one class, including, without limitation,
the election of directors, and shall be entitled to that number of votes equal
to the largest number of whole shares of the Class B Common Stock into which
such holder's Series B Preferred Stock could be converted, rounding to the
nearest share pursuant to the provisions of Section
6
<PAGE>
5 hereof, on the record date for the determination of stockholders entitled to
vote on such matter or, if no record date is established, on the date such vote
is taken or any written consent of stockholders is first executed.
(b) The Company shall not, without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
Series B Preferred Stock given in writing or by vote at a meeting (as the case
may be):
(i) amend, alter or repeal in any respect the
rights, preferences, privileges, and other terms and provisions of
the Series B Preferred Stock;
(ii) increase the authorized number of shares of
Series B Preferred Stock;
(iii) authorize or issue or obligate itself to
issue, (x) any convertible debt or (y) any equity security, including any other
equity security or debt instrument convertible into or exchangeable for any such
equity security, that is in parity with or has a preference over the Series B
Preferred Stock, with respect to its preferential 5% dividends or liquidation,
except the shares of Series A Preferred Stock designated on the Designation
Date.
7. Status of Converted Series B Preferred Stock. In the event any
shares of Series B Preferred Stock shall be converted pursuant to Section 5
hereof, the shares of Series B Preferred Stock so converted shall be cancelled,
and any dividends with respect to such converted shares that have been declared
(including the 5% dividend that starts accruing on the Membership Date) and have
accrued up to and including the date of conversion and have not been paid shall
be paid in cash to the former holders of such shares within ten (10) business
days after such conversion. Any undeclared dividends shall be cancelled.
8. Acquired Stock. Shares of Series B Preferred Stock acquired by the
Company by reason of purchase, conversion or otherwise shall be retired and
shall become authorized but unissued shares of preferred stock, which may be
reissued as part of a new series of preferred stock hereafter created under the
Company's Articles of Incorporation.
Dated this 14th day of March, 1997.
/s/ Earnest Mathis
- ----------------------------
Earnest Mathis, President
6j.1223
7
CAPITAL GROWTH HOLDINGS, LTD.
1997 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
SECTION 1
<S> <C> <C>
BACKGROUND, PURPOSE AND DURATION................................................... 1
1.1 Effective Date................................................................................ 1
1.2 Purpose of the Plan........................................................................... 1
SECTION 2
DEFINITIONS................................................. 1
2.1 "1934 Act".................................................................................... 1
2.2 "Affiliate"................................................................................... 1
2.3 "Award"....................................................................................... 1
2.4 "Board"....................................................................................... 1
2.5 "Change of Control............................................................................ 1
2.6 "Code"........................................................................................ 2
2.7 "Committee"................................................................................... 2
2.8 "Company"..................................................................................... 2
2.9 "Consultant".................................................................................. 2
2.10 "Director".................................................................................... 3
2.11 "Disability".................................................................................. 3
2.12 "Employee".................................................................................... 3
2.13 "Exercise Price".............................................................................. 3
2.14 "Fair Market Value"........................................................................... 3
2.15 "Fiscal Year"................................................................................. 3
2.16 "Grant Date".................................................................................. 3
2.17 "Incentive Stock Option"...................................................................... 3
2.18 "Nonemployee Director"........................................................................ 3
2.19 "Nonqualified Stock Option"................................................................... 3
2.20 "Option"...................................................................................... 3
2.21 "Option Agreement"............................................................................ 3
2.22 "Participant"................................................................................. 4
2.23 "Period of Restriction"....................................................................... 4
2.24 "Plan"........................................................................................ 4
2.25 "Rule 16b-3".................................................................................. 4
2.26 "Section 16 Person"........................................................................... 4
2.27 "Shares"...................................................................................... 4
2.28 "Subsidiary".................................................................................. 4
2.29 "Termination of Service"...................................................................... 4
SECTION 3
ADMINISTRATION................................................ 4
3.1 The Committee................................................................................. 4
3.2 Authority of the Committee.................................................................... 5
3.3 Delegation by the Committee................................................................... 5
i
<PAGE>
Page
3.4 Nonemployee Directors......................................................................... 5
3.5 Decisions Binding............................................................................. 5
SECTION 4
SHARES SUBJECT TO THE PLAN.......................................... 5
4.1 Number of Shares.............................................................................. 5
4.2 Lapsed Awards................................................................................. 5
4.3 Adjustments in Awards and Authorized Shares................................................... 6
SECTION 5
STOCK OPTIONS................................................ 6
5.1 Grant of Options.............................................................................. 6
5.2 Option Agreement.............................................................................. 6
5.3 Exercise Price................................................................................ 6
5.3.1 Nonqualified Stock Options............................................................. 6
5.3.2 Incentive Stock Options................................................................ 6
5.3.3 Substitute Options..................................................................... 7
5.4 Expiration of Options......................................................................... 7
5.4.1 Expiration Dates....................................................................... 7
5.4.2 Extension of Option Period............................................................. 8
5.4.3 Death of Participant................................................................... 8
5.4.4 Committee Discretion................................................................... 8
5.5 Exercisability of Options..................................................................... 8
5.6 Payment....................................................................................... 8
5.7 Restrictions on Share Transferability......................................................... 9
5.8 Certain Additional Provisions for Incentive Stock Options..................................... 9
5.8.1 Exercisability......................................................................... 9
5.8.2 Termination of Service................................................................. 9
5.8.3 Company and Subsidiaries Only.......................................................... 9
5.8.4 Expiration............................................................................. 9
5.9 Grant of Reload Options....................................................................... 9
SECTION 6
NONEMPLOYEE DIRECTORS............................................ 10
6.1 Granting of Options........................................................................... 10
6.2 Terms of Options..................................................................... 10
6.2.1 Option Agreement....................................................................... 10
6.2.2 Exercise Price......................................................................... 10
6.2.3 Exercisability......................................................................... 10
6.2.4 Expiration of Options.................................................................. 10
6.2.5 Death of Director...................................................................... 10
6.2.6 Special Rule for Retirement............................................................ 11
6.2.7 Not Incentive Stock Options............................................................ 11
6.2.8 Other Terms............................................................................ 11
ii
<PAGE>
Page
6.3 Elections by Nonemployee Directors............................................................ 11
SECTION 7
MISCELLANEOUS................................................ 11
7.1 No Effect on Employment or Service............................................................ 11
7.2 Participation................................................................................. 11
7.4 Indemnification............................................................................... 12
7.5 Successors.................................................................................... 12
7.6 Beneficiary Designations...................................................................... 12
7.7 Nontransferability of Awards.................................................................. 12
7.8 No Rights as Stockholder...................................................................... 12
7.9 Withholding Requirements...................................................................... 13
7.10 Withholding Arrangements...................................................................... 13
7.11 Deferrals........................................................................................ 13
SECTION 8
AMENDMENT, TERMINATION, CHANGE
IN CONTROL AND DURATION........................................... 13
8.1 Amendment, Suspension, or Termination......................................................... 13
8.2 Change of Control............................................................................. 13
8.3 Duration of the Plan.......................................................................... 14
SECTION 9
LEGAL CONSTRUCTION.............................................. 14
9.1 Gender and Number............................................................................. 14
9.2 Severability.................................................................................. 14
9.3 Requirements of Law........................................................................... 14
9.4 Compliance with Rule 16b-3.................................................................... 14
9.5 Governing Law................................................................................. 14
9.6 Captions...................................................................................... 14
</TABLE>
iii
CAPITAL GROWTH HOLDINGS, LTD., hereby adopts the Capital
Growth Holdings, Ltd. 1997 Stock Option Plan, as follows:
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Effective Date. The Plan is effective as of January 6,
1997, subject to ratification by an affirmative vote of the holders of a
majority of the Shares entitled to vote thereon. Awards may be granted prior to
the receipt of such vote, but such grants shall be null and void if such vote is
not in fact received.
1.2 Purpose of the Plan. The Plan is intended to increase
incentive and to encourage Share ownership on the part of (1) employees of the
Company and/or its Affiliates, (2) consultants who provide significant services
to the Company and/or its Affiliates, and (3) directors of the Company who are
employees of neither the Company nor any Affiliate. The Plan also is intended to
further the growth and profitability of the Company.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following
meanings unless a different meaning is plainly required by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934, as
amended. Reference to a specific section of the 1934 Act or regulation
thereunder shall include such section or regulation, any valid regulation
promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such section or
regulation.
2.2 "Affiliate" means any corporation or any other entity
(including, but not limited to, partnerships and joint ventures) controlling,
controlled by, or under common control with the Company.
2.3 "Award" means, individually or collectively, a grant under
the Plan of Nonqualified Stock Options or Incentive Stock Options.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Change of Control" shall be deemed to have occurred upon
the earliest to occur of the following events: (i) the date the stockholders of
the Company (or the Board,
<PAGE>
if stockholder action is not required) approve a plan or other arrangement
pursuant to which the Company will be dissolved or liquidated, or (ii) the date
the stockholders of the Company (or the Board, if stockholder action is not
required) approve a definitive agreement to sell or otherwise dispose of
substantially all of the assets of the Company, or (iii) the date the
stockholders of the Company (or the Board, if stockholder action is not
required) and the stockholders of the other constituent corporation (or its
board of directors if stockholder action is not required) have approved a
definitive agreement to merge or consolidate the Company with or into such other
corporation, other than, in either case, a merger or consolidation of the
Company in which holders of shares of the Company's Common Stock immediately
prior to the merger or consolidation will hold at least a majority of the
ownership of common stock of the surviving corporation (and, if one class of
common stock is not the only class of voting securities entitled to vote on the
election of directors of the surviving corporation, a majority of the voting
power of the surviving corporation's voting securities) immediately after the
merger or consolidation, which common stock (and if applicable, voting
securities) is to be held in the same proportion as such holders' ownership of
Common Stock of the Company immediately before the merger or consolidation, or
(iv) the date any entity, person or group within the meaning of Section 13(d)(3)
or Section 14(d)(2) of the 1934 Act (other than (A) the Company or any of its
subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries, or (B) any person who, on
the date the Plan is effective, shall own Common Stock of the Company or
securities which are exercisable or convertible or exchangeable into Common
Stock of the Company) shall have become the beneficial owner of or shall have
obtained voting control over, more than thirty percent (30%) of the outstanding
shares of the Common Stock of the Company, or (v) the first day after the date
this Plan is effective when directors are elected such that a majority of the
Board shall have been members of the Board for less than two (2) years, unless
the nomination for election of each new director who was not a director at the
beginning of such two (2) year period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period.
2.6 "Code" means the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code or regulation thereunder
shall include such section or regulation, any valid regulation promulgated under
such section, and any comparable provision of any future legislation or
regulation amending, supplementing or superseding such section or regulation.
2.7 "Committee" means the committee appointed by the Board
(pursuant to Section 3.1) to administer the Plan.
2.8 "Company" means Capital Growth Holdings, Ltd., a Colorado
corporation, or any successor thereto.
2.9 "Consultant" means any consultant, independent contractor,
or other person who provides significant services to the Company or its
Affiliates, but who is neither an Employee nor a Director.
2
<PAGE>
2.10 "Director" means any individual who is a member of the
Board.
2.11 "Disability" means a permanent and total disability
within the meaning of Code section 22(e)(3), provided that in the case of Awards
other than Incentive Stock Options, the Committee in its discretion may
determine whether a permanent and total disability exists in accordance with
uniform and non-discriminatory standards adopted by the Committee from time to
time.
2.12 "Employee" means any employee of the Company or of an
Affiliate, whether such employee is so employed at the time the Plan is adopted
or becomes so employed subsequent to the adoption of the Plan.
2.13 "Exercise Price" means the price at which a Share may be
purchased by a Participant pursuant to the exercise of an Option.
2.14 "Fair Market Value" means the fair market value of a
Share on a particular date, as determined by the Committee in good faith;
provided that if the Shares are traded in a public market, then the Fair Market
Value per share shall be, if the Shares are listed on a national securities
exchange or included in the Nasdaq National Market System or Nasdaq SmallCap
Market, the last reported sale price thereof on the relevant date, or, if the
Shares are not so listed or included, the mean between the last reported "bid"
and "asked" prices thereof on the relevant date, as reported on Nasdaq or, if
not so reported, as reported by the OTC Bulletin Board or as reported in a
customary financial reporting service, as applicable as the Committee
determines.
2.15 "Fiscal Year" means the fiscal year of the Company.
2.16 "Grant Date" means, with respect to an Award, the date
that the Award was granted.
2.17 "Incentive Stock Option" means an Option to purchase
Shares which is designated as an Incentive Stock Option and is intended to meet
the requirements of section 422 of the Code.
2.18 "Nonemployee Director" means a Director who is an
employee of neither the Company nor of any Affiliate.
2.19 "Nonqualified Stock Option" means an option to purchase
Shares which is not intended to be an Incentive Stock Option.
2.20 "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
2.21 "Option Agreement" means the written agreement setting
forth the terms and provisions applicable to each Award granted under the Plan.
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2.22 "Participant" means an Employee, Consultant, or
Nonemployee Director who has an outstanding Award.
2.23 "Period of Restriction" means the period during which
shares of Restricted Stock are subject to forfeiture and/or restrictions on
transferability.
6
2.24 "Plan" means Capital Growth Holdings, Ltd. 1997 Stock
Option Plan, as set forth in this instrument and as hereafter amended from time
to time.
2.25 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934
Act, as amended, and any future regulation amending, supplementing or
superseding such regulation.
2.26 "Section 16 Person" means a person who, with respect to
the Shares, is subject to Section 16 of the 1934 Act.
2.27 "Shares" means the shares of the Company's class B common
stock.
2.28 "Subsidiary" means any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2.29 "Termination of Service" means (a) in the case of an
Employee, a cessation of the employee-employer relationship between an Employee
and the Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability,
retirement, or the disaffiliation of an Affiliate, but excluding any such
termination where there is a simultaneous reemployment by the Company or an
Affiliate; (b) in the case of a Consultant, a cessation of the service
relationship between a Consultant and the Company or an Affiliate for any
reason, including, but not by way of limitation, a termination by resignation,
discharge, death, Disability, or the disaffiliation of an Affiliate, but
excluding any such termination where there is a simultaneous re-engagement of
the consultant by the Company or an Affiliate; and (c) in the case of a
Nonemployee Director, a cessation of the Nonemployee Director's service on the
Board for any reason.
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the
Committee. The Committee shall consist of not less than two (2) Directors. The
members of the Committee shall be appointed from time to time by, and shall
serve at the pleasure of, the Board. The Committee shall be comprised solely of
Directors who both are (a) "disinterested persons" under Rule 16b-3, and (b)
"outside directors" under section 162(m) of the Code. Until such time as the
Board shall appoint the Committee, the Plan
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shall be administered by the Board and any reference herein to the Committee
shall be a reference to the Board.
3.2 Authority of the Committee. It shall be the duty of the
Committee to administer the Plan in accordance with the Plan's provisions. The
Committee shall have all powers and discretion necessary or appropriate to
administer the Plan and to control its operation, including, but not limited to,
the power to (a) determine which Employees and Consultants shall be granted
Awards, (b) prescribe the terms and conditions of the Awards (other than the
Options granted to Nonemployee Directors pursuant to Section 6), (c) interpret
the Plan and the Awards, (d) adopt such procedures and subplans as are necessary
or appropriate to permit participation in the Plan by Employees, Consultants and
Directors who are foreign nationals or employed outside of the United States,
(e) adopt rules for the administration, interpretation and application of the
Plan as are consistent therewith, and (f) interpret, amend or revoke any such
rules.
3.3 Delegation by the Committee. The Committee, in its sole
discretion and on such terms and conditions as it may provide, may delegate all
or any part of its authority and powers under the Plan to one or more directors
or officers of the Company; provided, however, that the Committee may not
delegate its authority and powers (a) with respect to Section 16 Persons, or (b)
in any way which would jeopardize the Plan's qualification under section 162(m)
of the Code or Rule 16b-3.
3.4 Nonemployee Directors. Notwithstanding any contrary
provision of this Section 3, the Board shall administer Section 6 of the Plan,
and the Committee shall exercise no discretion with respect to Section 6. In the
Board's administration of Section 6 and the Options and any Shares granted to
Nonemployee Directors, the Board shall have all of the authority and discretion
otherwise granted to the Committee with respect to the administration of the
Plan.
3.5 Decisions Binding. All determinations and decisions made
by the Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.3, the total number of Shares available for grant under the Plan shall
not exceed 1,500,000. Shares granted under the Plan may be either authorized but
unissued Shares or treasury Shares.
4.2 Lapsed Awards. If an Award terminates, expires, or lapses
for any reason, any Shares subject to such Award again shall be available to be
the subject of an Award.
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4.3 Adjustments in Awards and Authorized Shares. In the event
of any merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, Share exchange or
other change in the corporate structure of the Company affecting the Shares, the
Committee shall adjust the number and class of Shares which may be delivered
under the Plan, the number, class, and price of Shares subject to outstanding
Awards, and the numerical limit of Section 5.1 in such manner as the Committee
(in its sole discretion) shall determine to be appropriate to prevent the
dilution or diminution of such Awards. In the case of Options granted to
Nonemployee Directors pursuant to Section 6, the foregoing adjustments shall be
made by the Board, and any such adjustments also shall apply to the future
grants provided by Section 6. Notwithstanding the preceding, the number of
Shares subject to any Award always shall be a whole number.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of
the Plan, Options may be granted to Employees and Consultants at any time and
from time to time as determined by the Committee in its sole discretion;
provided that with respect to the grant of Options to Consultants, bona fide
services shall be rendered by Consultants and such services must not be in
connection with the offer of sale of securities in a capital-raising
transaction. The Committee, in its sole discretion, shall determine the number
of Shares subject to each Option, provided that during any Fiscal Year, no
Participant shall be granted Options covering more than 500,000 Shares. The
Committee may grant Incentive Stock Options, Nonqualified Stock Options, or a
combination thereof.
5.2 Option Agreement. Each Option shall be evidenced by an
Option Agreement that shall specify the Exercise Price, the expiration date of
the Option, the number of Shares to which the Option pertains, any conditions to
exercise of the Option, and such other terms and conditions as the Committee, in
its discretion, shall determine. The Option Agreement shall specify whether the
Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option. In the Option Agreement with respect to each Option, the Participant, in
consideration of the granting of the Option, shall agree to remain in the employ
or service of the Company or an Affiliate for a period of at least one year from
the Grant Date (but subject to Section 7.1).
5.3 Exercise Price. Subject to the provisions of this Section
5.3, the Exercise Price for each Option shall be determined by the Committee in
its sole discretion.
5.3.1 Nonqualified Stock Options. In the case of a
Nonqualified Stock Option, the Exercise Price shall be not less than one-hundred
percent (100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive
Stock Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair
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Market Value of a Share on the Grant Date; provided, however, that if on the
Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the Code) owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, the Exercise Price shall be not
less than one hundred and ten percent (110%) of the Fair Market Value of a Share
on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of
Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate
consummates a transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons who
become Employees or Consultants on account of such transaction may be granted
Options in substitution for options granted by their former employer. If such
substitute Options are granted, the Committee, in its sole discretion and
consistent with section 424(a) of the Code, shall determine the exercise price
of such substitute Options.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate no later
than the first to occur of the following events:
(a) The date for termination of the Option set forth
in the written Option Agreement; or
(b) The expiration of ten (10) years from the Grant
Date; or
(c) The expiration of three (3) months from the date
of the Participant's Termination of Service for a reason other than the
Participant's death or Disability; or
(d) The expiration of one (1) year from the date of
the Participant's Termination of Service by reason of the Participant's
death or Disability.
(e) A finding by the Committee, after full
consideration of the facts presented on behalf of both the Company and
the Participant, that the Participant has breached his or her
employment or service contract with the Company or an Affiliate, or has
been engaged in disloyalty to the Company or an Affiliate, including,
without limitation, fraud, embezzlement, theft, commission of a felony
or proven dishonesty in the course of his employment or service, or has
disclosed trade secrets or confidential information of the Company or
an Affiliate. In such event, in addition to immediate termination of
the Option, the Participant shall automatically forfeit all Shares for
which the Company has not yet delivered the share certificates upon
refund by the Company of the Exercise Price. Notwithstanding anything
herein to the contrary, the Company may withhold delivery of Share
certificates pending the resolution of any inquiry that could lead to a
finding resulting in a forfeiture; or
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(f) The date, if any, set by the Board as an
accelerated expiration date pursuant to Section 8.2 hereof.
With respect to Sections 5.4.1(c) and (d) above, the only Options which may be
exercised during the three-month and one-year period, as the case may be,
following the date of Participant's termination of employment or service with
the Company or its Affiliates, are Options which were exercisable on the last
date of such employment or service and not Options which, if the Participant
were still employed or rendering service during such three-month or one-year
period, would be exercisable, unless the Option specifically provides to the
contrary.
5.4.2 Extension of Option Period. Notwithstanding the
foregoing, the Committee may extend the period during which all or any portion
of an Option may be exercised to a date no later than the Option term specified
in the Option Agreement provided that any change pursuant to this Section 5.4.2
which would cause an Incentive Stock Option to become a Non-qualified Stock
Option may be made only with the consent of the Optionee.
5.4.3 Death of Participant. Notwithstanding Section 5.4.1, if
a Participant dies prior to the expiration of his or her options, the Committee,
in its discretion, may provide that his or her options shall be exercisable for
up to one (1) year after the date of death.
5.4.4 Committee Discretion. Subject to the limits of Sections
5.4.1, 5.4.2 and 5.4.3, the Committee, in its sole discretion, (a) shall provide
in each Option Agreement when each Option expires and becomes unexercisable, and
(b) may, after an Option is granted, extend the maximum term of the Option
(subject to Section 5.8.4 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under the Plan
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall determine in its sole discretion. After an
Option is granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option. However, in no event may any Option granted to a
Section 16 Person be exercisable until at least six (6) months following the
Grant Date.
5.6 Payment.
5.6.1 Options shall be exercised by the Participant's delivery
of a written notice of exercise to the Secretary of the Company (or its
designee), setting forth the number of Shares with respect to which the Option
is to be exercised, accompanied by full payment for the Shares.
5.6.2 Upon the exercise of any Option, the Exercise Price
shall be payable to the Company in full in cash or its equivalent. The
Committee, in its sole discretion, also may permit exercise (a) by tendering
previously acquired Shares having an
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aggregate Fair Market Value at the time of exercise equal to the total Exercise
Price, or (b) by any other means which the Committee, in its sole discretion,
determines to both provide legal consideration for the Shares, and to be
consistent with the purposes of the Plan.
5.6.3 As soon as practicable after receipt of a written
notification of exercise and full payment for the Shares purchased, the Company
shall deliver to the Participant (or the Participant's designated broker), Share
certificates (which may be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of an
Option as it may deem advisable, including, but not limited to, restrictions
related to applicable Federal securities laws, the requirements of any national
securities exchange or system upon which Shares are then listed or traded, or
any blue sky or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
5.8.1 Exercisability. The aggregate Fair Market Value
(determined on the Grant Date(s)) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by any Employee during any
calendar year (under all plans of the Company and its Subsidiaries) shall not
exceed $100,000.
5.8.2 Termination of Service. No Incentive Stock Option may be
exercised more than three (3) months after the Participant's Termination of
Service for any reason other than Disability or death, unless (a) the
Participant dies during such three-month period, and (b) the Option Agreement or
the Committee permits later exercise.
5.8.3 Company and Subsidiaries Only. Incentive Stock Options
may be granted only to persons who are employees of the Company or a Subsidiary
on the Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be exercised
after the expiration of ten (10) years from the Grant Date; provided, however,
that if the Option is granted to an Employee who, together with persons whose
stock ownership is attributed to the Employee pursuant to section 424(d) of the
Code, owns stock possessing more than 10% of the total combined voting power of
all classes of the stock of the Company or any of its Subsidiaries, the Option
may not be exercised after the expiration of five (5) years from the Grant Date.
5.9 Grant of Reload Options. The Committee may provide in an
Option Agreement that a Participant who exercises all or part of an Option by
payment of the Exercise Price with already-owned Shares, shall be granted an
additional option (a "Reload Option") for a number of shares of stock equal to
the number of Shares tendered to exercise the previously granted Option plus, if
the Committee so determines, any Shares withheld or delivered in satisfaction of
any tax withholding requirements. As determined by the Committee, each Reload
Option shall: (a) have a Grant Date which is the date as of which
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the previously granted Option is exercised, and (b) be exercisable on the same
terms and conditions as the previously granted Option, except that the Exercise
Price shall be determined as of the Grant Date.
SECTION 6
NONEMPLOYEE DIRECTORS
6.1 Granting of Options. Each Nonemployee Director of the
Company shall be granted such number of Options, if any, as the Board shall
grant by resolution.
6.2 Terms of Options.
6.2.1 Option Agreement. Each Option granted pursuant to this
Section 6 shall be evidenced by a written stock option agreement which shall be
executed by the Participant and the Company.
6.2.2 Exercise Price. The Exercise Price for the Shares
subject to each Option granted pursuant to this Section 6 shall be 100% of the
Fair Market Value of such Shares on the Grant Date.
6.2.3 Exercisability. Each Option granted pursuant to this
Section 6 shall become exercisable in full three years after the date the Option
is granted. If a Nonemployee Director incurs a Termination of Service for a
reason other than Retirement, death or Disability, his or her Options which are
not exercisable on the date of such Termination shall never become exercisable.
If the Termination of Service is on account of Retirement, death or Disability,
the Option shall become exercisable in full on the date of the Termination of
Service.
6.2.4 Expiration of Options. Each Option shall terminate upon
the first to occur of the following events:
(a) The expiration of ten (10) years from the Grant Date; or
(b) The expiration of three (3) months from the date of the
Participant's Termination of Service for a reason other than death, Disability
or Retirement; or
(c) The expiration of one (1) year from the date of the
Participant's Termination of Service by reason of Disability or Retirement.
6.2.5 Death of Director. Notwithstanding Section 6.2.4, if a
Director dies prior to the expiration of his or her options in accordance with
Section 6.2.4, his or her options shall terminate one (1) year after the date of
his or her death.
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6.2.6 Special Rule for Retirement. Notwithstanding the
provisions of Section 6.2.4, if the exercisability of an Option is accelerated
under Section 6.2.3 on account of the Participant's Retirement, such Option
shall terminate upon the first to occur of: (a) The expiration of ten (10) years
from the date the Option was granted; or (b) the expiration of one year from the
date of the Participant's death.
6.2.7 Not Incentive Stock Options. Options granted pursuant to
this Section 6 shall not be designated as Incentive Stock Options.
6.2.8 Other Terms. All provisions of the Plan not inconsistent
with this Section 6 shall apply to Options granted to Nonemployee Directors;
provided, however, that Section 5.2 (relating to the Committee's discretion to
set the terms and conditions of Options) shall be inapplicable with respect to
Nonemployee Directors.
6.3 Elections by Nonemployee Directors. Pursuant to such
procedures as the Board (in its discretion) may adopt from time to time, each
Nonemployee Director may elect to forego receipt of all or a portion of the
annual retainer, committee fees and meeting fees otherwise due to the
Nonemployee Director in exchange for Shares. The number of Shares received by
any Nonemployee Director shall equal the amount of foregone compensation divided
by the Fair Market Value of a Share on the date that the compensation otherwise
would have been paid to the Nonemployee Director, rounded up to the nearest
whole number of Shares. The procedures adopted by the Board for elections under
this Section 6.3 shall be designed to ensure that any such election by a
Nonemployee Director will not disqualify him or her as a "disinterested person"
under Rule 16b-3.
SECTION 7
MISCELLANEOUS
7.1 No Effect on Employment or Service. Nothing in the Plan
shall interfere with or limit in any way the right of the Company to terminate
any Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only.
7.2 Participation. No Employee or Consultant shall have the
right to be selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
7.3 Exculpation. No member of the Committee or the Board shall
be personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options under the Plan, provided that this Section 7.3 shall not
apply to (i) any breach of such member's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or
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involving intentional misconduct or a knowing violation of the law, or (iii) any
transaction from which the member derived an improper personal benefit.
7.4 Indemnification. Each person who is or shall have been a
member of the Committee, or of the Board, shall be indemnified and held harmless
by the Company against and from (a) any loss, cost, liability, or expense that
may be imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Option Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
7.5 Successors. All obligations of the Company under the Plan,
with respect to Awards granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business or assets of the Company.
7.6 Beneficiary Designations. If permitted by the Committee, a
Participant under the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Option Agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.
7.7 Nontransferability of Awards. No Award granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, by the laws of descent and distribution, or to
the limited extent provided in Section 7.6. All rights with respect to an Award
granted to a Participant shall be available during his or her lifetime only to
the Participant.
7.8 No Rights as Stockholder. No Participant (nor any
beneficiary) shall have any of the rights or privileges of a stockholder of the
Company with respect to any Shares issuable pursuant to an Award (or exercise
thereof), unless and until certificates representing such Shares shall have been
issued, recorded on the records of the Company or its transfer agents or
registrars, and delivered to the Participant (or beneficiary).
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7.9 Withholding Requirements. Prior to the delivery of any
Shares or cash pursuant to an Award (or exercise thereof), the Company shall
have the power and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy Federal, state, and local
taxes (including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
7.10 Withholding Arrangements. The Committee, in its sole
discretion and pursuant to such procedures as it may specify from time to time,
may permit or require a Participant to satisfy all or part of the tax
withholding obligations in connection with an Award by (a) having the Company
withhold otherwise deliverable Shares, or (b) delivering to the Company
already-owned Shares having a Fair Market Value equal to the amount required to
be withheld. The amount of the withholding requirement shall be deemed to
include any amount which the Committee determines, not to exceed the amount
determined by using the maximum federal, state or local marginal income tax
rates applicable to the Participant with respect to the Award on the date that
the amount of tax to be withheld is to be determined. The Fair Market Value of
the Shares to be withheld or delivered shall be determined as of the date that
the taxes are required to be withheld.
7.11 Deferrals. The Committee, in its sole discretion, may
permit a Participant to defer receipt of the payment of cash or the delivery of
Shares that would otherwise be delivered to a Participant under the Plan. Any
such deferral elections shall be subject to such rules and procedures as shall
be determined by the Committee in its sole discretion.
SECTION 8
AMENDMENT, TERMINATION, CHANGE
IN CONTROL AND DURATION
8.1 Amendment, Suspension, or Termination. The Board, in its
sole discretion, may amend or terminate the Plan, or any part thereof, at any
time and for any reason. However, if and to the extent required to maintain the
Plan's qualification under Rule 16b-3, any such amendment shall be subject to
stockholder approval. In addition, as required by Rule 16b-3, the provisions of
Section 6 regarding the formula for determining the amount, exercise price, and
timing of Nonemployee Director Options shall in no event be amended more than
once every six (6) months, other than to comport with changes in the Code or the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (ERISA is
inapplicable to the Plan.) The amendment, suspension, or termination of the Plan
shall not, without the consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted to such Participant. No Award
may be granted during any period of suspension or after termination of the Plan.
8.2 Change of Control. In the event of a Change of Control,
the Committee may take whatever action it deems necessary or desirable with
respect to the Options outstanding, including, without limitation, accelerating
the expiration or termination date in the respective Option Agreements to a date
no earlier than thirty (30) days after
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notice of such acceleration is given to the Optionee, provided, however, in the
event of a Change of Control, Options granted pursuant to the Plan shall become
immediately exercisable in full. This Section 8.2 shall similarly apply to
successive Changes in Control.
8.3 Duration of the Plan. The Plan shall commence on the date
specified herein, and subject to Section 8.1 (regarding the Board's right to
amend or terminate the Plan), shall remain in effect thereafter. However,
without further stockholder approval, no Incentive Stock Option may be granted
under the Plan after December 31, 2006.
SECTION 9
LEGAL CONSTRUCTION
9.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
9.2 Severability. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
9.3 Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
9.4 Compliance with Rule 16b-3. Transactions under this Plan
with respect to Section 16 Persons are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan, Option
Agreement or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
Notwithstanding any contrary provision of the Plan, if the Committee
specifically determines that compliance with Rule 16b-3 no longer is required,
all references in the Plan to Rule 16b-3 shall be null and void.
9.5 Governing Law. The Plan and all Option Agreements shall be
construed in accordance with and governed by the laws of the State of Colorado.
9.6 Captions. Captions are provided herein for convenience
only, and shall not serve as a basis for interpretation or construction of the
Plan.
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EXECUTION
IN WITNESS WHEREOF, Capital Growth Holdings, Ltd., by its duly
authorized officer, has executed the Plan on the date indicated below.
CAPITAL GROWTH HOLDINGS, LTD.
Dated as of: March 14, 1997 By: /s/ Ronald B. Koenig
--------------------
Ronald B. Koenig
President and Chief Executive Officer
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Angell & Deering
Certified Public Accountants
3801 EAST FLORIDA o SUITE 400 o DENVER, COLORADO 80210 o
(303) 757-8119 o FAX (303) 757-0327
March 25, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Gentlemen:
We have read item 4 of Form 8-K dated March 14, 1997, of Capital Growth
Holdings, LTD. (formerly Galt Financial Corporation) and are in agreement with
the statements contained herein.
Sincerely
/s/ Angell & Deering
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Angell & Deering
