As filed with the Securities and Exchange Commission on January 16, 1998
Registration No. 333-37879
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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CAPITAL GROWTH HOLDINGS, LTD.
(Exact Name of Registrant as Specified in Its Charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 6211 06-1489574
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
660 Steamboat Road
Greenwich, Connecticut 06830
(203) 861-7750
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Ronald B. Koenig
Chairman of the Board of Directors,
President and Chief Executive Officer
Capital Growth Holdings, Ltd.
660 Steamboat Road
Greenwich, Connecticut 06830
(203) 861-7750
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
with a copy to:
Rubi Finkelstein, Esq.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
(212) 506-5000
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
Coss-Reference Sheet Showing Location in Prospectus of
Information Required by Items in Part I of Form SB-2
<TABLE>
<CAPTION>
Registration Statement Item Number and Caption Caption or Location in Prospectus
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<S> <C> <C>
1. Front of Registration Statement Outside Front Cover
of Prospectus ....................................... Cover Page
2. Inside Front Cover and Outside Back Cover Pages
of Prospectus ....................................... Inside Front and Outside Back; Back Cover Pages
3. Summary Information and Risk Factors ............... Prospectus Summary; Risk Factors
4. Use of Proceeds .................................... Use of Proceeds
5. Determination of Offering Price ..................... Not Applicable
6. Dilution ............................................. Not Applicable
7. Selling Security Holders ........................... Selling Securityholders
8. Plan of Distribution ................................. Plan of Distribution
9. Legal Proceedings .................................... Business-Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons .................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management ....................................... Principal Stockholders
12. Description of Securities ........................... Description of Securities
13. Interest of Named Experts and Counsel ............... Experts; Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ...... Management--Indemnification
15. Organization Within Last Five Years .................. Not Applicable
16. Description of Business .............................. Business
17. Management's Discussion and Analysis or Plan of
Operation .......................................... Management's Discussion and Analysis and Results
of Operations
18. Description of Property .............................. Business--Facilities
19. Certain Relationships and Related Transactions ...... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters ................................. Risk Factors; Market for Common Equity; Dividend
Policy; Principal Stockholders
21. Executive Compensation .............................. Management
22. Financial Statements ................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................. Business--Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
</TABLE>
<PAGE>
PROSPECTUS
4,748,480 Shares
CAPITAL GROWTH HOLDINGS, LTD.
Common Stock
------------------------
This Prospectus relates to the offer and sale from time to time by certain
security holders (collectively, the "Selling Securityholders") of Capital
Growth Holdings, Ltd., a Delaware corporation (the "Company"), of 4,748,480
shares (the "Shares") of common stock, $.001 par value ("Common Stock"),
including 1,649,984 Shares issuable upon exercise of redeemable common stock
purchase warrants (the "Warrants"), of the Company.
The Company will not receive any proceeds from this offering; however, the
maximum gross proceeds payable to the Company from the exercise of all of the
outstanding Warrants would be $6,599,940.
There is currently only a limited trading market for the Common Stock. The
Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
"CGHL". On January 13, 1998, the last reported bid price of the Common Stock
was $.75 per share. See "Market for Common Equity."
The Company is unaware of any specific plan of distribution of the Selling
Securityholders with respect to the Shares. The Company believes, however, that
the Shares will be sold from time to time on the OTC Bulletin Board by such
Selling Securityholders or by their pledgees, donees, transferees or other
successors in interest, to or through underwriters or directly to other
purchasers or through brokers or agents in one or more transactions at varying
prices determined at the time of sale. The aggregate net proceeds to the
Selling Securityholders from the sale of the Shares pursuant to this Prospectus
will be the sale price of such Shares less any commissions. The Company has
agreed to pay all of the expenses in connection with the preparation of this
Prospectus and the related Registration Statement and the qualification of the
Shares under applicable state securities laws. See "Plan of Distribution."
This offering is being made without using the services of an underwriter.
Neither International Capital Growth, Ltd. ("ICG"), a wholly-owned subsidiary
of the Company, nor Capital Growth International LLC ("CGI"), an affiliate of
the Company, each a registered broker-dealer with the Securities and Exchange
Commission (the "SEC") and a member of the National Association of Security
Dealers, Inc. (the "NASD"), will participate in this offering in any capacity.
The Selling Securityholders and any broker-dealers, agents or underwriters that
participate with the Selling Securityholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), in which event any commission received
by such broker-dealers, agents or underwriters and any profit on the resale of
the Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution."
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE
INVESTMENT SHOULD PURCHASE THESE SECURITIES.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and financial statements and related notes appearing
elsewhere in this Prospectus. Unless the context requires otherwise, all
information in this Prospectus gives retroactive effect to the reverse
acquisition by the Company in March 1997 of International Capital Growth, Ltd.
("ICG"), a Delaware corporation and wholly-owned subsidiary of the Company. For
accounting purposes, ICG is considered the acquirer of the Company. See "The
Company."
Investors should carefully consider the information set forth under the
heading "Risk Factors."
The Company
Capital Growth Holdings, Ltd. ("CGH" or the "Company") is a financial
services firm concentrating in investment and merchant banking in the United
States and Europe. The Company provides growth companies with access to needed
capital on an agency or principal basis by using unique financing approaches
and tools, while providing the opportunity for investors and the Company to
potentially earn above-average market returns. In addition, the Company is
evaluating (i) entering into the securities brokerage business, (ii) expanding
into businesses that complement the Company's current operations and (iii)
capitalizing upon the synergies that may exist among the Company's present and
future operations.
The Company's investment banking activities are conducted through its
wholly-owned subsidiary, ICG. ICG commenced limited operations in October, 1996
and through December, 1996 was in the development stage. Accordingly, the
Company has limited operating history upon which an evaluation of the Company's
performance and prospects can be made. ICG's business focus is to act as
placement agent in connection with the international private placement of
securities of its client companies through a world-wide network of
sub-placement agents. In addition, Capital Growth Europe, Limited ("CGE"), a
London based, 50% owned subsidiary of ICG, acts as a sub-placement agent for
ICG in Europe and sources European investment banking transactions. Since
inception, ICG has raised approximately $15.5 million on behalf of two client
companies.
The Company is evaluating entering into the securities brokerage business
and establishing underwriting operations to provide investment services to
domestic and foreign institutional and individual investors and investment
banking services to company clients. As part of the Company's efforts to
develop such businesses, the Company may acquire Capital Growth International
LLC ("CGI"), an affiliate of the Company, hire personnel, and obtain the
necessary capital to commence operation. Alternatively, the Company may seek to
acquire a currently operating broker-dealer to pursue such business activities.
There can be no assurance, however, that an acquisition of either CGI or a
currently operating broker-dealer will ever occur. See "Risk
Factors--Uncertainty of Establishment of Securities Brokerage and Underwriting
Operations." The Company may also offer money management services through a
relationship with an independent money manager as part of its proposed
securities brokerage business.
The Company's management believes that significant synergies would exist
between the operations of ICG and a brokerage operation. These synergies would
enable the brokerage operation to capture (i) brokerage commissions from ICG's
existing relationships with money managers worldwide who have either invested
or acted as sub-placement agents in ICG sponsored transactions and have
expressed a willingness to direct certain commission-generating business to the
brokerage operation; (ii) additional brokerage commissions from investors in
ICG sponsored transactions if such investors liquidate an investment; (iii) a
number of public offering and private placement opportunities resulting from
ICG introductions; and (iv) additional brokerage commissions by acting as
sub-placement agent for ICG sponsored transactions.
Further, in the course of its business activities, ICG is anticipated to
encounter investment opportunities that are more appropriate for a principal
investment due to the nature, size or timing of a subject company's capital
requirements. The Company, through ICG, has invested in, and is anticipated to
continue investing in, either through ICG or a separate business entity,
business opportunities on a principal basis to further capitalize on the
synergies generated through CGH's various business activities.
The Company's executive offices are located at 660 Steamboat Road,
Greenwich, Connecticut 06830, and its telephone number is (203) 861-7750.
3
<PAGE>
The Offering
Maximum Common Stock Offered by
the Selling Securityholders
Assuming Exercise of All
Warrants (1) ........................... 4,748,480 Shares
Maximum Common Stock
Outstanding After the Offering,
Assuming Exercise of All
Warrants (1)(2) ........................ 5,048,480 Shares
Total Capital Stock Outstanding (3) ...... 19,829,496 Shares
OTC Bulletin Board
Trading Symbol ........................... CGHL
Use of Proceeds ........................... The Company will not receive any
proceeds from the sale of the
Shares by the Selling
Securityholders. Any proceeds
received by the Company, from time
to time, upon exercise of the
Warrants will be used for working
capital and general corporate
purposes. See "Use of Proceeds."
Plan of Distribution ..................... The Company is unaware of any
specific plan of distribution of
the Selling Securityholders with
respect to the Shares, but
believes that the Shares will be
sold at prevailing market prices
on the OTC Bulletin Board, without
payment of any underwriting
commissions or discounts other
than ordinary transaction costs.
The aggregate net proceeds to the
Selling Securityholders from the
sale of the Shares pursuant to
this Prospectus will be the sale
price of such Shares less
transaction costs. The Company is
paying all of the expenses in
connection with the preparation of
this Prospectus and the related
Registration Statement. See "Plan
of Distribution."
Risk Factors .............................. The securities offered hereby
involve a substantial degree of
risk and should not be purchased
by anyone who cannot afford the
loss of their entire investment.
See "Risk Factors."
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(1) Includes 1,649,984 shares of Common Stock issuable upon exercise of the
Warrants.
(2) Includes an additional 300,000 shares of Common Stock currently
outstanding.
(3) Consists of (i) 3,398,496 shares of Common Stock (including 3,098,496
shares of Common Stock being offered hereby and an additional 300,000
shares of Common Stock which are also currently outstanding) and (ii)
16,431,000 shares of Class B common stock, par value $.001 per share
("Class B Common Stock"), each of which classes of capital stock vote
together as one class. Does not include (i) 1,649,984 shares of Common
Stock issuable upon exercise of the Warrants, (ii) up to 52,083 shares of
Class B Common Stock issuable upon exercise of redeemable Class B Common
Stock purchase warrants issued to a consultant to the Company (the
"Consulting Warrants"), (iii) 785,000 shares of Class B Common Stock
reserved for issuance upon exercise of options granted under the Company's
1997 Stock Option Plan (the "Stock Option Plan") or (iv) 715,000 shares of
Class B Common Stock reserved for issuance upon exercise of options
available for future grant under the Stock Option Plan. See "Description
of Securities" and "Management--1997 Stock Option Plan."
4
<PAGE>
Selected Financial Data
Set forth below are selected financial data of the Company for each of the
periods indicated. The historical financial statements of the Company as of
December 31, 1996 and for the period from February 26, 1996 (inception) through
December 31, 1996 have been audited by Richard A. Eisner & Company, LLP,
independent auditors, and such financial statements and the report thereon are
included elsewhere in this Registration Statement. The financial data for the
nine months ended September 30, 1996 and 1997 were derived from the unaudited
financial statements of the Company. In the opinion of management, however,
such data reflect all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the data for such periods. Operating
results for interim periods are not necessarily indicative of the results that
may be expected for a full year. All of the information set forth below should
be read in conjunction with the Company's consolidated financial statements,
including the notes thereto, "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
financial information of the Company included in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
For the Nine Months Ended
For the period from September 30,
February 26, 1996 (inception) -----------------------------
through December 31, 1996 1996 1997
------------------------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
Consulting fees .................................... $ 0 $ 0 $ 351,434
Private placement fees .............................. 0 0 2,059,287
Unrealized gains on securities ..................... 0 0 1,540,880
Interest income .................................... 22,033 1,243 73,856
---------- ---------- -----------
Total Revenue ....................................... 22,033 1,243 4,025,457
========== ========== ===========
Operating expenses:
Equity in net loss of unconsolidated affiliate ...... 0 0 96,115
Selling expenses .................................... 0 0 504,332
General and administrative ........................... 740,649 15,472 2,386,790
---------- ---------- -----------
Total operating expenses .............................. 740,649 15,472 2,987,237
========== ========== ===========
Net income (loss) before taxes ........................ (718,616) (14,229) 1,038,220
Provision for taxes ................................. 0 0 250,000
---------- ---------- -----------
Net income (loss) .................................... (718,616) (14,229) 788,220
Less cumulative preferred dividend .................. (8,530) 0 (28,417)
---------- ---------- -----------
Net income (loss) attributable to common
stockholders. ....................................... (727,146) (14,229) 759,803
========== ========== ===========
Primary:
Net income (loss) per common share .................. ($ 0.06) 0.0 $ 0.05
========== ========== ===========
Weighted average number of shares outstanding ......... 11,910,346 11,210,550 14,576,409
========== ========== ===========
Fully diluted:
Net income per common share ........................... $ 0.04
===========
Weighted average number of shares outstanding ......... 19,676,184
===========
</TABLE>
December 31, 1996 September 30, 1997
Balance Sheet Data: ------------------- -------------------
Total Assets ............... $3,486,834 $4,895,096
Total Liabilities ......... $ 51,000 $ 352,947
Long-Term Debt ............ $ 0 $ 0
Stockholders' Equity ...... $3,435,834 $4,542,149
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE
THESE SECURITIES. PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS
SHOULD CAREFULLY READ THIS OFFERING DOCUMENT AND CONSIDER, ALONG WITH OTHER
MATTERS REFERRED TO HEREIN, THE RISK FACTORS LISTED BELOW. THIS PROSPECTUS
CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT OF 1934, AS AMENDED
(THE "EXCHANGE ACT"), SEE "--FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS."
Anticipated Cash Shortage; Need for Additional Funds; Losses from Portfolio
Investments
The Company anticipates that its current cash resources will enable the
Company to continue its operations for approximately six months. Continued
operations thereafter will require additional funds from the sale of certain
portfolio securities, revenues from operations, additional fundraising or
otherwise. There can be no assurance that the Company will be able to generate
sufficient revenues or raise additional funds on terms that are favorable to
the Company, if at all. Further, subsequent to September 30, 1997, the market
price of certain of the Company's investments in equity securities declined
significantly. Such securities, which had a carrying value of approximately
$2,900,000 at September 30, 1997, declined in value to approximately $500,000
at December 31, 1997.
Risky Nature of the Company's Business
The Company's business is concentrated in investment banking and the
securities industry. As a result, the Company's business is affected by many
factors of a national and international nature, including economic and
political conditions, broad trends in business and finance, legislation and
regulation affecting the national and international business and financial
communities, currency values, market conditions and the level and volatility of
interest rates. These and other factors may contribute to reduced levels of new
issue or merger, acquisition, restructuring and leveraged capital activities,
or the level of participation in financing and investment transactions related
to such activities, generally resulting in lower revenues for businesses, such
as the Company's, concentrating in investment and merchant banking, principal
transactions, and in the future, securities brokerage. Profitability may be
adversely affected because fixed costs remain relatively unchanged.
Further, substantial fluctuations in the volume of securities transactions
and the price levels of securities can occur on a daily basis as well as over
longer periods. Reduced volume of securities, foreign exchange, futures and
commodities transactions, reduced market liquidity and reduced prices generally
result in lower revenues for businesses, such as the Company's, concentrating
in investment and merchant banking, and principal transactions. Lower price
levels of securities may result in reduced volume of transactions, and may also
result in losses from declines in the market value of securities held in
trading, and investment positions. Sudden sharp declines in market values of
securities can result in illiquid markets. Such markets, if prolonged, may
lower the Company's revenues from investment and merchant banking, and
principal transactions, and in the future, securities brokerage.
Lack of Operating History; Start-Up Company
The Company's predecessor, ICG, was founded in February, 1996 and
commenced limited operations in October, 1996. Through December, 1996, ICG was
in the development stage. Accordingly, the Company has little operating history
upon which an evaluation of the Company's performance and prospects can be
made.
The Company faces the type of risks frequently encountered by start-up
companies. These risks include the potential inability to compete with more
established firms, retain and maintain key personnel, create an efficient
internal operational structure and produce reliable business projections, as
well as uncertainty as to which areas to target for growth and expansion and as
to the source of funding for operations and expansion. See "--Competition and
Developments Affecting the Structure of the Securities Industry" and
"--Dependence on Key Personnel; Absence of Non-Competition Agreements."
Further, the Company's management has limited experience in building or
acquiring and operating a securities brokerage business and underwriting
operations. The development of a securities brokerage business and underwriting
operations will be time consuming, costly and will expose the Company to
additional liability. The acquisition of such business may also expose the
Company to successor liability, may require the maintenance of
6
<PAGE>
additional offices and thereby further increase the Company's expenses. As a
result, if the Company establishes operations as a broker or underwriter of
securities, the Company's prospects as such are highly uncertain. See "--
Potential Securities Law Liability," "--Risks to Company's Capital from
Underwriting and Marketmaking Activities," "--Volatile Nature of Securities
Brokerage Business; Recent Trends," "--Potential Liability from Securities
Brokerage Business," "--Uncertainty of Establishment of Securities Brokerage
and Underwriting Operations" and "--Dependence on Clearance from Certain State
Securities Commissions."
Competition and Developments Affecting the Structure of the Securities Industry
All aspects of the Company's business and anticipated business are highly
competitive. The Company expects to compete in domestic and international
markets with numerous financial services companies for potential financing
transactions and investment capital.
Because the securities industry is highly capital-intensive, the Company
is continuously exploring opportunities to raise additional capital. The
ability of a company to expand its business is closely related to its capital
structure and its ability to raise additional capital. Large brokerage firms
and brokerage subsidiaries of large corporations have greater capital,
financial and other resources than the Company. They may also have the ability
to raise substantially more capital than the Company can raise on terms more
favorable than those available to the Company. In addition, several small and
specialized securities firms have been successful in raising significant
amounts of capital for their merger and acquisition activities, merchant
banking investment vehicles and for their own accounts, thereby further
intensifying the level of competition in the industry in which the Company is
and plans to operate.
As a result of legislative and regulatory initiatives in the United States
to remove or relieve certain restrictions on the businesses in which commercial
banks can operate, the Company also competes with large commercial banking
institutions, certain of which are in the process of enlarging the scope of
their investment banking activities. Commercial banking organizations, in
general, are expanding their securities and investment advisory activities, as
well as other activities related to the provision of financial services. These
developments may lead to the creation of integrated financial services firms
that are able to compete more effectively than the Company in certain of its
businesses. Furthermore, competition with well-capitalized foreign firms is
intense in international capital markets and is increasing in domestic markets.
To the extent that the Company can compete for investment opportunities it may
only be able to do so on less favorable terms than those obtained by larger,
more established firms.
Speculative Nature of Investments in Certain Companies
The Company, through its present and future subsidiaries, anticipates
offering to its investing clients securities of, or investing directly in,
private and public companies with capitalization of less than $250
million--so-called micro cap companies. Investments in these companies would be
speculative and involve a high degree of risk. As a result, the Company may
experience difficulty in raising capital on behalf of, or incur losses when
making a principal investment in, such companies.
Some of these companies may be in the early stages of development with
little or no operating history, while others may be more seasoned companies
that operate at losses or which experience substantial fluctuations in
operating results. Such companies may need substantial capital to support
expansion or to achieve or maintain a competitive position. Such companies may
face intense competition, including competition from companies with greater
financial resources, more extensive research and development, manufacturing,
marketing and service capabilities, and a larger number of qualified managerial
and technical personnel. Such companies may have insufficient cash flow to
service their debt obligations, including bridge financings which may be
arranged by the Company.
Moreover, ICG may take positions in, or offer to its investing clients
securities of, companies in rapidly changing high-technology fields or
regulated industries. Such companies face additional risks of product
obsolescence and rapidly changing regulatory environments which could adversely
affect such companies' prospects. As a result, no assurance can be given that
investments arranged by the Company will not result in substantial or complete
losses to the Company or its investing clients of their entire investment in
such companies. See "--Investment Banking Dependence on Past Performance and
Certain State Clearances" and "--Risk of Significant Losses from Merchant
Banking Activities."
7
<PAGE>
Investment Banking Dependence on Past Performance and Certain State Clearances
The Company, through ICG, acts as placement agent in private placements of
its company clients' securities and may commence operations as an underwriter
of securities in the future through a majority-owned subsidiary of CGH. See
"--Uncertainty in Establishment of Brokerage and Underwriting Operations." The
Company's ability to raise capital on behalf of such companies may be adversely
affected by the risky nature of such investments. The Company's ability to
raise such capital may also be adversely affected by the poor financial
performance from time to time of companies for which the Company had previously
raised capital. Further, the ability of the Company to offer securities of
certain client companies in certain states may be limited by certain state
securities commissions and the Company's subsidiaries' ability to qualify to
conduct business therein. See "--Dependence on Clearance from Certain State
Securities Commissions."
Potential Securities Law Liability
Under applicable securities laws and court decisions relating to a
placement agent's and an underwriter's liability and limitations on
indemnification by an issuer, an investment bank acting in either such capacity
may be exposed to substantial securities liability for misstatements and
omissions of material facts in offering documents and other communications with
respect to securities offerings.
Uncertainty of Establishment of Securities Brokerage and Underwriting
Operations
The Company is evaluating on what basis, if any, to enter the securities
brokerage business and establish underwriting operations. To do so, the Company
may either acquire an affiliated broker-dealer, CGI, and develop such
operations through such entity or acquire, or develop a joint-venture with, a
currently operating broker-dealer.
CGI is registered as a broker-dealer with the SEC and is a member of the
NASD. CGI's restriction letter with the NASD would allow CGI to act as a broker
and underwriter of securities provided that CGI maintain certain net capital
requirements and comply with applicable rules and regulations. The closing of
an acquisition of CGI would be subject to regulatory approval, the retention of
qualified personnel and the procurement of adequate capital for regulatory and
operational purposes by CGH. There can be no assurance that the Company will be
successful in such efforts or that securities brokerage operations will be
commenced through CGI or that the Company will acquire CGI.
The commencement of operations as a broker or underwriter of securities
through the acquisition by the Company of a currently operating broker-dealer
would be subject to the ability of the Company to seek out and negotiate the
acquisition of such an entity on terms favorable to the Company. If such
acquisition could not be accomplished through the issuance of equity in the
Company in exchange for majority ownership interest in such entity by the
Company, such acquisition would also be subject to the Company's procurement of
adequate capital for purchase of such a broker-dealer. There can be no
assurance that the Company will be successful in any effort to acquire a
broker-dealer or raise capital for the acquisition of a broker-dealer.
Accordingly, there can be no assurance that securities brokerage operations
will be commenced on behalf of the Company through such a transaction.
Risks to Company's Capital from Underwriting and Marketmaking Activities
The Company may, in the future, commence operations as an underwriter of
securities. Risks to the Company's capital with respect to underwritings will
include market, credit and liquidity risks, which risks arise primarily when
underwritten securities cannot be resold, for any reason, at anticipated
levels. If the Company were to expand its proposed underwriting activities, it
would likely make increased commitments of capital to marketmaking activities
in securities of these issuers. The expected additional concentration of
capital in the securities of those issuers held in inventory would increase the
Company's exposure to such risks. Moreover, underwriting commitments would
constitute a charge against net capital and the Company's ability to make
underwriting commitments may be limited by the requirement that it must at all
times be in compliance with such net capital requirements. See "--Net Capital
Requirements."
Volatile Nature of Securities Brokerage Business; Recent Trends
The Company may, in the future, commence operations as a broker of
securities. The securities business is volatile and is directly affected by
national and international economic conditions, broad trends in business and
finance and fluctuations in volume and price levels of securities transactions,
all of which are beyond the control
8
<PAGE>
of the Company. Reduced trading volume generally results in reduced transaction
revenues and decreased profitability. Severe market fluctuations in the future
could have a material adverse effect on the Company's business, financial
condition and operating results.
During the last two decades, the securities brokerage industry has
undergone many fundamental changes, including the emergence of discount
brokers, the dominance of institutional investors and consolidation. Several
current trends also affect the securities brokerage industry, including the
increased use of technology and greater self-reliance among individual
investors. There can be no assurance that these trends or future changes in the
securities brokerage industry will not have a material adverse effect on the
Company's business, financial condition and operating results. In addition,
commissions charged to customers of brokerage services have steadily decreased
over the past several years, and the Company expects such decreases to
continue. There can be no assurance that such decreases will not have a
material adverse effect on the Company' business, financial condition and
operating results.
Potential Liability from Securities Brokerage Business
Many aspects of the securities brokerage business involve substantial
risks of liability. In recent years, there has been an increasing incidence of
litigation involving the securities brokerage industry, including class action
suits that generally seek substantial damages and other suits seeking punitive
damages. Like securities brokerage firms, the Company is, and in the future
will be, potentially subject to substantial settlements and judgments in
connection with securities offered and sold by or through the Company. The
securities business is also subject to various other risks, including customer
default and employees' misconduct, errors and omissions. Losses associated with
these risks could have a material adverse effect on the Company's business,
financial condition and operating results.
Further, if the Company develops its securities brokerage operations
through the acquisition of an operating broker-dealer, the Company may be
subject to liability resulting from acts or omissions of such broker-dealer or
its employees that occurred prior to such acquisition under the theory of
successor liability or otherwise. Due to the nature of such potential or
pending legal actions, the Company, at the time of such acquisition, may be
unaware, or find it difficult to assess the extent of, such liability.
Risk of Significant Losses from Merchant Banking Activities
The Company has, and anticipates to continue, through ICG or a separate
subsidiary, making direct investments in private and public companies with
capitalization of less than $250 million--so called micro cap companies. Some
of these companies may be in the early stages of development with little or no
operating history, while others may be more seasoned companies that operate at
losses or which experience substantial fluctuations in operating results. In
either case, investments in these companies would be speculative and would
involve a high degree of risk. See "Speculative Nature of Investments in
Certain Companies."
In certain cases, such a direct investment may be structured as a small
short-term debt financing that is intended to be re-paid from the proceeds of a
subsequent, larger financing. With such an investment, the Company runs the
risk that the client company may not have the resources to pay principal and/or
interest on such loan in the event of failure to consummate a proposed offering
of securities or inability to obtain subsequent financing. Additionally, such
investments may be unsecured. There can be no assurance that such a direct
investment will not result in a substantial or complete loss to the Company.
Uncertainty of Offering of Money Management Services
If the Company enters the securities brokerage business, the Company
anticipates offering money management services to its clients through an
alliance with one or more independent money management operations. However,
there can be no assurance that any such alliances will be made, or be made on
terms favorable to the Company, in the near future, or at all.
The money management business is subject to the various risks inherent in
the financial industry. Any one or all of these factors may adversely affect
the results of operations of the money management business and individual money
managers. See "--Risky Nature of the Company's Business."
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Dependence on Public Offering Market
The Company's business is based in part upon the market for public
financings, which also affects the market for private financings. Changes in
the securities markets and general economic conditions, including economic
downturns, fluctuations in interest rates, the availability of credit,
inflation and other factors, may affect the value of investments of the Company
and/or the scope and depth of the investments available to the Company. The
market for public offerings is cyclical in nature and, accordingly, there can
be no assurance that the securities markets will, at any point in time, be
receptive to public offerings, particularly those of growth companies. Any
adverse change in the market for public offerings could have a material adverse
effect on the Company and could severely limit the Company's ability to realize
its business objectives for itself and on behalf of its investing clients. See
"--Risky Nature of the Company's Business."
Dependence on Clearance from Certain State Securities Commissions
In order to engage in securities brokerage or underwriting activities, the
Company may also need to apply for clearance from state securities commissions
to conduct business within such states. The Company cannot conduct revenue
producing operations within a state prior to receiving such clearance
therefrom. There can be no assurance that such clearances will be received.
ICG has applied for clearance from certain state securities commissions,
including Illinois, Pennsylvania and New Jersey, to conduct business within
such states. ICG cannot conduct revenue producing operations within a state
prior to receiving such clearance. Currently, the only states in which ICG may
generate commissions are California, Connecticut, Florida and New York. There
can be no assurance, however, that such clearances will be received as
anticipated.
Limited Liquidity of Portfolio Investments
The Company anticipates that a significant portion of the investment
opportunities identified by the Company will consist of securities that are
subject to restrictions on sale. Restricted securities cannot be sold publicly
unless they are registered under the Securities Act, or sold under Rule 144 or
other rules under the Securities Act that permit only limited sales under
specified conditions. Restricted securities may also be subject to contractual
restrictions on transfer with the issuer of such securities. Because it is
anticipated that the Company will identify investments in growth companies, the
ability of the Company or its clients to sell certain of its securities
purchased in private placements may be limited by, and subject to, the lack or
limited nature of a trading market for the securities and the volatility of the
stock market as a whole. Such limitations could prevent or delay any sale of
the client company's securities. Accordingly, the Company and its investing
clients may be substantially dependent upon the ability of the company clients
to implement a plan which, within a reasonable period of time, would facilitate
a trading market for the company client's securities. Restricted securities
generally sell at a price lower than similar securities that are not subject to
restrictions on sale. When restricted securities are sold to the public, the
Company, under certain circumstances, may be deemed to be an "underwriter" or a
controlling person with respect thereto for the purposes of the Securities Act,
and therefore be subject to liabilities as such under the Securities Act.
Possible Need for Additional Investments in Client Companies
Following its initial investment for its own portfolio, ICG may make
additional debt and equity investments ("Additional Investments") in its client
companies in order to increase its investment in a successful client company,
to exercise warrants, options, or convertible securities obtained in the
original financing, to preserve ICG's proportionate ownership when a subsequent
financing is planned or to protect ICG's initial investment when such client
company's performance does not meet expectations. ICG will have the discretion
to make an Additional Investment, if any, as it determines subject to the
availability of capital resources. In certain circumstances a client company
may be unable to secure additional financing through sources other than through
ICG under favorable terms, if at all. The failure by ICG to arrange for such
Additional Investments may, in certain circumstances, jeopardize the continued
viability of a client company and ICG's initial investment. If such financing
is not obtained, a client company may be forced to alter its business plan,
cease its operations, liquidate its assets and/or seek protection from
bankruptcy laws due, for example, to the client company's lack of capital for
planned expansion of operations or its inability to meet its financial
obligations. The necessity of making Additional Investments may limit the
number of companies in which ICG has the ability to invest. There can be no
assurance that ICG will
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have sufficient funds to make necessary Additional Investments or that,
following an Additional Investment, ICG will not lose the entire amount of its
initial and Additional Investment. ICG has no established criteria in deciding
whether to make an Additional Investment except that ICG's management will
exercise its business judgment and apply levels of evaluation similar to that
which it applies in connection with initial investments.
Compliance with Federal, State and Foreign Regulation
The Company's businesses, and the securities industry in general, is
subject to extensive regulation in the United States at both the federal and
state level. As a matter of public policy, various regulatory bodies are
charged with safeguarding the integrity of the securities and other financial
markets. These bodies are charged with protecting the interests of customers
participating in those markets, not with protecting the interests of the
Company's stockholders. In addition, self-regulatory organizations and other
regulatory bodies in the United States such as the NASD, require strict
compliance with their rules and regulations. Failure to comply with any of
these laws, rules or regulations could result in fines, suspension or
expulsion, which could have a material adverse effect upon the Company.
Additional legislation or regulation, changes in existing laws and rules, or
changes in the interpretation or enforcement of existing laws and rules, may
directly affect the mode of operation and profitability of the Company.
Abroad, the Company's anticipated business is subject to regulation by
various foreign governments and regulatory bodies. Any new regulation or change
in existing regulation by such governments and bodies, including but not
limited to the imposition of exchange controls, could restrict the
participation of or increase the cost of participation by United States
securities firms, including the Company, in the relevant foreign market and
restrict the flow of dividends and other payments from and to the Company's
operations in the relevant jurisdiction. In addition, CGE is subject to U.K.
law and the rules and regulations of the Securities and Futures Authority.
Failure to comply with any of these laws, rules or regulations could result in
fines, suspensions or expulsion, which could have an adverse effect upon the
Company.
Investment Company Act Considerations
The regulatory scope of the Investment Company Act of 1940, as amended
("Investment Company Act"), which was enacted principally for the purpose of
regulating vehicles for pooled investments in securities, extends generally to
companies engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities. The Investment Company Act may, however, also
be deemed to be applicable to a company that does not intend to be
characterized as an investment company but which, nevertheless, engages in
activities which may be deemed to be within the definitional scope of certain
provisions of the Investment Company Act. The Company believes that its
principal activities will not subject the Company to regulation under the
Investment Company Act. Nevertheless, there can be no assurance that the
Company will not be deemed to be an investment company. In the event the
Company is deemed to be an investment company, the Company may become subject
to certain restrictions relating to the Company's activities, including
restrictions on the nature of its investments and the issuance of securities.
In addition, the Investment Company Act imposes certain requirements on
companies deemed to be within its regulatory scope, including registration as
an investment company, adoption of a specific form of corporate structure,
compliance with certain burdensome reporting, record-keeping, voting, proxy,
disclosure and other rules and regulations. In the event of characterization of
the Company as an investment company, the failure by the Company to satisfy
regulatory requirements, whether on a timely basis or at all, could have a
material adverse effect on the Company.
Net Capital Requirements
The Securities and Exchange Commission, the Department of the Treasury,
the Securities and Futures Authority in the U.K. and various other securities
and commodities exchanges and other regulatory bodies in the United States and
abroad either have or are considering the imposition of rules with respect to
net capital requirements which could affect the Company or its subsidiaries. A
change in such rules, or the imposition of new rules, affecting the scope,
coverage, calculation or amount of such net capital requirements, or a
significant operating loss or any unusually large charge against net capital
could adversely affect the ability of the Company to pay dividends or to expand
or even maintain levels of business.
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Control by Management
The Company's founders (including most of the Company's officers and
directors, among others (collectively, the "Control Group")), own 53.68% of the
issued and outstanding shares of voting securities of the Company. The Control
Group will continue to control the Company for an indefinite period of time.
Further, the Control Group and their affiliates may purchase shares in the open
market, which purchases would facilitate the maintenance of the Control Group's
level of control over the Company. Such level of control enables the Control
Group to prevent an outside party from obtaining control of the Company through
the purchase of the Company's securities and to substantially control the
election of directors of the Company and the outcome of matters submitted to a
vote of the Company's stockholders.
Dependence on Key Personnel; Absence of Non-Competition Agreements
The Company's success will depend upon the services of its executives and
certain key personnel, including Ronald B. Koenig, its Chairman of the Board of
Directors, President, and Chief Executive Officer, Alan L. Jacobs, its
Executive Vice President, and Stanley Hollander, its Senior Vice President.
Competition among financial services firms for executives and other
professional personnel is intense and subject to escalating compensation
expenses. There can be no assurance that the Company will be successful in
attracting and retaining key personnel. The loss of the services of any one or
more of such personnel or the inability of the Company to attract such
personnel could have a material adverse effect on the Company. The Company does
not have employment or non-competition agreements with any officer or director
of the Company or any of its subsidiaries. Further, the Company does not
maintain key man life insurance on any of its executives or key personnel.
There can be no assurance that such officers and directors will remain
associated with the Company in any particular capacity or that they will not
currently, or in the future, compete, directly or indirectly, with the Company.
See "Management."
Conflicts of Interest
Each of the Company's officers has a full-time position with CGI. None of
such officers is currently required to commit any portion of his business time
to the affairs of the Company. CGI may become a majority-owned subsidiary of
the Company and become engaged in the securities brokerage and underwriting
businesses. Until such time, such personnel will have conflicts of interest in
allocating management time among their various business activities. The
officers and directors of the Company may be involved in other positions at CGI
with activities similar to those to be undertaken by the Company and there can
be no assurance that they will offer any suitable prospective business
opportunities to the Company. Such persons may have conflicts of interest in
determining to which entity a particular business opportunity should be
presented. In general, officers and directors of a corporation are required to
present certain business opportunities to such corporation. Accordingly, as
result of multiple business affiliations, certain of the Company's officers,
directors and stockholders may have similar legal obligations to present
certain business opportunities to multiple entities. There can be no assurance
that any of the foregoing conflicts will be resolved in favor of the Company.
See "Management" and "Certain Transactions."
Exercise of Warrants Will Have Dilutive Effect
The Warrants provide, during their respective terms, an opportunity for
the holder thereof to profit from a rise in the market price of the Common
Stock with resulting dilution in the ownership interest in the Company held by
the then present shareholders. Because holders of the Warrants would most
likely opt to exercise their securities and receive the underlying Common Stock
at a time when the Company may be able to obtain capital by a new offering of
securities on terms more favorable than those provided by such securities, the
terms on which the Company may be able to obtain additional capital would be
affected adversely. See "Description of Securities."
Securities Eligible for Future Sale
All but 288,834 of the Company's 3,398,496 currently outstanding shares of
Common Stock are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act. Of such 3,398,496 shares of Common Stock,
3,098,496 shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, except for any
such shares purchased by "affiliates," which will be subject to certain resale
limitations under Rule 144. Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of one year may sell only an
amount every three months equal to the greater of (a) one percent of the
Company's issued and outstanding Common Stock, or (b) the average weekly volume
of sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not an
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affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for two years if there is
adequate current public information available concerning the Company. Further,
the Company has 16,431,000 shares of Class B Common Stock issued and
outstanding, all of which are "restricted securities." Such shares of Class B
Common Stock will automatically convert to Common Stock on December 31, 1998,
at which time such shares of Common Stock may be sold in compliance with Rule
144. See "Description of Securities."
Issuances of additional shares of Common Stock may cause current
shareholders of the Company to suffer significant dilution which may adversely
affect any market for the securities of the Company. See "Dilution."
Prospective investors should be aware that the possibility of sales may,
in the future, depress the price of the Common Stock in any market which may
develop and, therefore, the ability of any investor to market shares may be
dependent directly upon the number of shares that are offered and sold.
Affiliates of the Company may sell their shares during a favorable movement in
the market price of the Common Stock, if a market develops in the Common Stock,
which may have a negative effect on the price per share of the Common Stock.
Possible Adverse Effects of Authorization of Preferred Stock
The Company has 20,000,000 authorized shares of preferred stock, none of
which are currently issued and outstanding. The preferred stock may be issued
with such designations, rights and preferences as may be determined from time
to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval (but subject to applicable government
regulatory restrictions), to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any additional shares of its preferred stock there can be no assurance that the
Company will not do so in the future. See "Description of Securities."
Listing on OTC Bulletin Board; Limited Trading Market; "Penny Stock"
Regulations May Impose Certain Restrictions
The Company's Common Stock has been quoted on the OTC Bulletin Board since
June 12, 1997. The Common Stock has only a limited trading market. There can be
no assurance that a more active trading market will develop or, if developed,
that it will be maintained. No prediction can be made as to the effect, if any,
that the sale of restricted shares of Common Stock or shares of Common Stock
issuable upon conversion of the Class B Common Stock on December 31, 1998 or
exercise of the Warrants or the availability of such securities for sale will
have on the market price of the Common Stock from time to time, if such a
market develops. As a result, an investor might find it difficult to dispose
of, or to obtain accurate quotations as to the value of, the Common Stock.
In addition, as the Common Stock has no active trading market and the
trading price of the Common Stock is less than $5.00 per share, trading in the
Common Stock is subject to the requirements of Rule 15g-9 promulgated under the
Exchange Act. Under such rule, broker-dealers who recommend such low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements, including a requirement that
they make an individualized written suitability determination for the purchase
and receive the purchaser's written consent prior to the transaction. The
Common Stock is also subject to the Securities Enforcement Remedies and Penny
Stock Reform Act of 1990, which requires additional disclosure in connection
with any trades involving a stock defined as a penny stock (generally,
according to recent regulations adopted by the Commission, any equity security
not traded on an exchange or quoted on Nasdaq that has a market price of less
than $5.00 per share, subject to certain exceptions), including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell their securities in the secondary market.
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Requirements of Current Prospectus and State Blue Sky Registration in
Connection with the Exercise of the Warrants
The Company will be able to issue the Shares issuable upon the exercise of
the Warrants only if (i) there is a current Prospectus relating to the
securities offered under an effective Registration Statement filed with the
Commission, and (ii) such Common Stock is then qualified for sale or exempt
therefrom under applicable state securities laws of the jurisdictions in which
the various holders of such Warrants reside. While this Prospectus relates to a
current, effective Registration Statement, there can be no assurance, that the
Company will be successful in maintaining a current Registration Statement.
After a Registration Statement becomes effective, it may require updating by
the filing of post-effective amendments.
Forward-Looking Statements and Associated Risk
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act which represents the Company's expectation or beliefs, including statements
regarding, among other things, (i) the Company's growth strategy or potential,
(ii) anticipated trends in the Company's businesses, (iii) the Company's
ability to compete with its competitors and (iv) the Company's profitability
and projected financial condition. Any statements contained in this Prospectus
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "plan," "believe," "anticipate," "intend," "estimate" or "continue,"
the negative or other variations thereof or comparable terminology are intended
to identify forward-looking statements. These statements are based upon
Management's beliefs at the time they are made as well as assumptions made by
Management based upon information available to it. The current assumptions
regarding the Company's operations, performance, development and results of its
business include (i) the accuracy of estimates of anticipated increases in the
Company's expenses due to implementation of the Company's business plan, (ii)
the successful completion of securities offerings anticipated to be consummated
through ICG, (iii) the maintenance of market conditions affecting the Company's
services, (iv) the successful implementation and maintenance of a securities
brokerage operation and (v) appropriate regulatory approvals. Forward-looking
statements are inherently subject to various risks and uncertainties, including
those described above, as well as potential changes in economic or regulatory
conditions that are largely beyond the Company's control. Should one or more of
these risks materialize or changes occur, or should Management's assumptions
prove to be incorrect, the Company's actual results may materially vary from
those anticipated or projected.
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THE COMPANY
General
Capital Growth Holdings, Ltd. was incorporated in Colorado on June 15,
1987. The Company, formerly known as Galt Financial Corporation, and
previously, Earnco, Inc., was organized to evaluate, structure and complete a
merger with, or acquisition of, an operating business.
Acquisition of International Capital Growth, Ltd.
On March 14, 1997, the Company acquired 100% of the outstanding capital
stock of International Capital Growth, Ltd., a Delaware corporation and member
of the NASD, in a reverse acquisition consummated through a share exchange
transaction (the "Share Exchange"). The Share Exchange was treated as a
recapitalization. In connection therewith, ICG's historic capital accounts were
retroactively adjusted to reflect the equivalent number of shares issued by CGH
in the transaction while ICG's historical deficit accumulated during the
development stage is carried forward. The Share Exchange was not subject to the
registration requirements of the Securities Act.
The Share Exchange resulted in a change in control of the Company.
Immediately after the Share Exchange, the former shareholders of the Company
owned approximately 2%, and the former stockholders of ICG owned approximately
98%, of the outstanding capital stock of the Company.
Prior to and in connection with the Share Exchange, the Company adopted a
stock option plan, amended its charter 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 Company had 297,094
shares of capital stock issued and outstanding. On and after March 14, 1997, in
accordance with the terms and conditions of the Share Exchange, the Company
issued 18,982,906 shares of its capital stock and 1,875,000 redeemable warrants
(the "Exchange 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 18,982,906 shares of capital stock of the Company that were issued in
connection with the Share Exchange consisted of (a) 2,551,906 shares of Common
Stock, (b) 11,349,666 shares of newly-authorized Class B Common Stock, (c)
4,001,334 shares of newly-designated 5% Cumulative Convertible Series A
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"),
and (d) 1,080,000 shares of newly-designated 5% Cumulative Convertible Series B
Preferred Stock, par value $.001 per share (the "Series B Preferred Stock"),
all of which classes of capital stock voted together as one class. The Class B
Common Stock is junior in priority with respect to dividends to the Common
Stock and automatically converts into Common Stock on a one-for-one basis on
December 31, 1998. The Company's Series A Preferred Stock and Series B
Preferred Stock automatically converted into Class B Common Stock on a
one-for-one bais on October 12, 1997. The former holders of the Series A
Preferred Stock and Series B Preferred Stock are entitled to preferential
cumulative dividends which accrued until conversion thereof into Class B Common
Stock. The Exchange Warrants consisted of 1,625,000 Warrants, each exercisable
to purchase one share Common Stock, which are being registered hereby, at $4.00
per share (subject to adjustment) at any time until October 1999 or March 2000,
as the case may be, and 250,000 Consulting 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 vesting schedule, until November 1999.
See "Description of Securities" and "Dividend Policy."
In connection with the Share Exchange, the then officers and directors of
the Company resigned and certain of the officers and the directors of ICG were
elected as officers and directors of the Company. See "Management."
Private Placement
On March 27, 1997, the Company 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 Company issued
549,496 shares of Common Stock in the Private Offering which yielded net
proceeds of $1,069,000. The Company also issued a total of 24,984 Warrants as
partial compensation to certain sub-placement agents in the Private Offering,
each 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. The shares of Common Stock underlying the Warrants issued to such
sub-placement agents are being registered in this offering. The placement agent
in the Private Offering is an affiliate of the Company. See "Certain
Transactions."
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Change in Fiscal Year End and Reincorporation
On March 25, 1997, the Company changed from a fiscal year that runs from
February 1 through January 31 to a fiscal year that runs from January 1 through
December 31, commencing the year ended December 31, 1997. On June 25, 1997, the
Company effected a reincorporation from the State of Colorado to the State of
Delaware which transaction included the adoption of the Company's current
Certificate of Incorporation and By-Laws.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
offered by the Selling Securityholders. Management estimates that the aggregate
expense of this offering will be approximately $80,597, all of which will be
borne by the Company.
The gross proceeds from the exercise of all of the outstanding Warrants
would be $6,599,940. The Company intends to use the proceeds from the exercise
of the Warrants, if any, for working capital and general corporate purposes.
Proceeds not immediately required for such purposes will be invested
principally in United States government securities, short-term certificates of
deposit, money market funds or other short-term interest-bearing investments.
MARKET FOR COMMON EQUITY
The Company's Common Stock is currently quoted on the OTC Bulletin Board
under the symbol "CGHL". There is currently no public trading market for the
Company's Class B Common Stock. The table set forth below presents the high and
low bid prices of the Common Stock for the period indicated in 1997 based on
information provided by the OTC Bulletin Board. Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions. Further, for
the period from June 6, 1997 through July 8, 1997, traditional high and low
quotes could not be determined as during such time there was only one market
maker for the Common Stock. Prior to June 6, 1997, there was no trading market
for the Common Stock.
1997: High Low
- ----- ---- ---
From June 6 (initial listing), through June 30 ...... $2.75 $2.25
From July 1, through September 30 .................. $2.75 $2.25
From October 1, through December 31 .................. $2.50 $0.75
On January 13, 1998, the last reported bid price of the Common Stock was
$.75.
As of January 13, 1998, there were approximately 370 holders of record of
the Common Stock and 16 holders of record of the Class B Common Stock.
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DIVIDEND POLICY
As of March 25, 1997, the Company's Board of Directors declared an annual
cumulative dividend of $.225 per share on the Common Stock for the calendar
years 1997 and 1998, subject to (i) the payment of dividends on any class of
capital stock with priority over the Common Stock, (ii) applicable net capital
requirements and (iii) restrictions under applicable law (the "Common Stock
Dividend"). The Common Stock Dividend, which began accruing as of January 1,
1997, is currently payable on a quarterly basis ending on December 31, 1998.
On October 12, 1997, each share of the Company's 4,001,334 shares of 5%
Cumulative Convertible Series A Preferred Stock and 1,080,000 shares of 5%
Cumulative Convertible Series B Preferred Stock converted into one share of
Class B Common Stock. Pursuant to the terms of the Certificates of Designation
of such preferred stock, the holders thereof are entitled to 5% per share
annual cumulative dividends prior to payment of dividends on any other class of
capital stock of the Company. The cumulative dividends on such preferred stock
have accrued unpaid since October 12, 1996 and were payable on a quarterly
basis commencing December 31, 1996 and on October 24, 1997, ten business days
after the conversion thereof. The aggregate amount of such arrearage owed by
the Company to the former holders of such preferred stock as of October 12,
1997 is approximately $38,000.
The Company's ability to pay dividends on its common equity is limited by
state law and the Company's ability to pay dividends on classes of capital
stock with priority over the class of equity on which such dividend is paid.
Under Delaware law, the Company may declare and pay dividends or make other
distributions on its capital stock only out of capital surplus (as defined
under Delaware Law) and in case there shall be no such surplus, out of its net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. The Class B Common Stock is junior in priority to the
Common Stock with respect to the payment of dividends and is subject to a $.20
per share limitation on dividends in 1998.
The Company does not anticipate declaring any additional dividends on any
of its classes of capital stock. Any future dividend declarations and payments
would be subject to the restrictions set forth above, approval of the Company's
Board of Directors and any contractual restrictions.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997 (i) on an actual basis (ii) on an as adjusted basis to give
effect to the conversion of the Series A Preferred Stock and Series B Preferred
Stock into Class B Common Stock on October 12, 1997. The following table should
be read in conjunction with the financial statements of the Company and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
September 30, 1997
----------------------------
Actual As Adjusted
------------- ------------
<S> <C> <C>
Liabilities:
Accrued expenses and other liabilities ....................................... $ 66,000 $ 66,000
Deferred tax liability ...................................................... 250,000 250,000
Dividends payable ............................................................ 36,947 36,947
---------- ----------
Total liabilities ............................................................ 352,947 352,947
Stockholders' equity:
Series A Preferred Stock--$.001 par value, 4,001,334 shares authorized;
4,001,334 shares issued and outstanding at liquidation value of $.14 actual,
none issued and outstanding as adjusted .................................... 560,187 --
Series B Preferred Stock--$.001 par value, 1,080,000 shares authorized;
1,080,000 shares issued and outstanding at liquidation value of $.21 actual,
none issued and outstanding as adjusted .................................... 226,800 --
Common Stock--$.001 par value, 25,000,000 shares authorized; 3,398,496
shares issued and outstanding actual and as adjusted ..................... 3,398 3,398
Class B Common Stock--$.001 par value, 25,000,000 shares authorized;
11,349,666 shares issued and outstanding actual and 16,431,000 shares
issued and outstanding as adjusted ....................................... 11,350 16,431
Additional paid in capital ................................................... 4,365,808 5,147,714
Accumulated deficit ......................................................... (541,794) (541,794)
Subscriptions receivable ...................................................... (53,600) (53,600)
Treasury stock (15,000 Shares) ................................................ (30,000) (30,000)
---------- ----------
Total stockholders' equity ................................................... 4,542,149 4,542,149
---------- ----------
Total capitalization ......................................................... $4,542,149 $4,542,149
========== ==========
</TABLE>
17
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected financial data of the Company for each of the
periods indicated. The historical financial statements of the Company as of
December 31, 1996 and for the period from February 26, 1996 (inception) through
December 31, 1996 have been audited by Richard A. Eisner & Company, LLP,
independent auditors, and such financial statements and the report thereon are
included elsewhere in this Registration Statement. The financial data for the
nine months ended September 30, 1996 and 1997 were derived from the unaudited
financial statements of the Company. In the opinion of management, however,
such data reflect all adjustments (consisting only of normal recurring
adjustments) necessary to, however, fairly present the data for such periods.
Operating results for interim periods are not necessarily indicative of the
results that may be expected for a full year. All of the information set forth
below should be read in conjunction with the Company's consolidated financial
statements, including the notes thereto, "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information of the Company included in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
For the period from -----------------------------
February 26, 1996 (inception)
through December 31, 1996 1996 1997
------------------------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
Consulting fees .................................... $ 0 $ 0 $ 351,434
Private placement fees .............................. 0 0 2,059,287
Unrealized gains on securities ..................... 0 0 1,540,880
Interest income .................................... 22,033 1,243 73,856
---------- ---------- -----------
Total Revenue ....................................... 22,033 1,243 4,025,457
========== ========== ===========
Operating expenses:
Equity in net loss of unconsolidated affiliate ...... 0 0 96,115
Selling expenses .................................... 0 0 504,332
General and administrative ........................... 740,649 15,472 2,386,790
---------- ---------- -----------
Total operating expenses .............................. 740,649 15,472 2,987,237
========== ========== ===========
Net income (loss) before taxes ........................ (718,616) (14,229) 1,038,220
Provision for taxes ................................. 0 0 250,000
---------- ---------- -----------
Net income (loss) .................................... (718,616) (14,229) 788,220
Less cumulative preferred dividend .................. (8,530) 0 (28,417)
---------- ---------- -----------
Net income (loss) attributable to common
stockholders ....................................... (727,146) (14,229) 759,803
========== ========== ===========
Primary:
Net income (loss) per common shares .................. ($ 0.06) 0.0 $ 0.05
========== ========== ===========
Weighted average number of shares outstanding ......... 11,910,346 11,210,550 14,576,409
========== ========== ===========
Fully diluted:
Net income per common share ........................... $ 0.04
-----------
Weighted average number of shares outstanding ......... 19,676,184
===========
</TABLE>
Balance Sheet Data:
December 31, 1996 September 30, 1997
------------------- -------------------
Total Assets ............... $3,486,834 $4,895,096
Total Liabilities ......... $ 51,000 $ 352,947
Long-Term Debt ............ $ 0 $ 0
Stockholders' Equity ...... $3,435,834 $4,542,149
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
CGH is a diversified financial services firm pursuing investment and
merchant banking, and evaluating the feasibility of developing securities
brokerage, underwriting and money management operations, in the United States
and Europe. The Company has one wholly-owned subsidiary, ICG. ICG owns a 50%
interest in CGE.
ICG commenced formal operations in October 1996 when it became registered
as a broker-dealer with the SEC and obtained membership with the NASD. On March
14, 1997, ICG consummated a share exchange transaction with the Company and
became the Company's wholly-owned subsidiary. In June 1997, the Company
reincorporated into the State of Delaware and had its common stock listed on
The Nasdaq Stock Market, Inc.'s OTC Bulletin Board under the symbol "CGHL".
Through December 1996, ICG was a development stage company.
During the first six months of fiscal year 1997, the Company has generated
revenues and earnings from ICG's investment banking activities. However, the
Company anticipates that its operating expenses will increase in the event of
the commencement of securities brokerage activities. To remain profitable, the
Company must generate revenues in excess of operating expenses anticipated to
be incurred in connection with ICG's business, the potential commencement of
securities brokerage activities and the expansion of its business.
Management is also considering the possibility of merging the Company with
one of a number of unaffiliated companies engaged in businesses unrelated to
the Company's current business. If such a transaction is consummated, the
Company may divest itself of its current business, which may be purchased by
affiliates of the Company or an independent third party. There can be no
assurance that any such transaction will be consummated. The consummation of
such a transaction would be subject to numerous conditions, including, without
limitation, the successful completion of due diligence investigations, the
execution of definitive documentation, the requisite approvals of the Company's
and the merger candidate's boards of directors and shareholders and the
consents of the appropriate regulatory agencies.
Over the next 12 months the Company may seek to raise additional capital
through either the sale of its portfolio securities or through additional
fundraising. The Company believes that it currently has adequate cash resources
to continue operations for approximately six months.
As ICG did not commence business activities until October 1996, the
Company believes that a period to period comparison of results of operations
would not be meaningful.
Results of Operations for the Period from February 26, 1996 (inception) to
December 31, 1996
Revenues. The Company generated interest income of $22,033 on funds
raised in a private placement of the Company's securities in March and October
1996.
Operating Expenses. Operating expenses for the period were $740,647,
consisting principally of professional fees, management and employee salaries
and establishment of its business as a broker-dealer.
Net Loss. As a result of the foregoing, the Company had net loss of
$718,616.
Results of Operating for the Nine Months ended September 30, 1997
Revenues. The Company generated $4,025,457 in revenues during the nine
months ended September 30, 1997, of which $1,650,268 resulted from fees in
connection with an $11.1 million private placement consummated by ICG as
placement agent for a publicly held company in the second quarter. The Company
generated $409,019 in other private placement fees, $351,434 in consulting
fees, unrealized gains on its securities portfolio of $1,540,880, principally
from the securities of one company, as well as interest income of $73,856.
Operating Expenses. Operating expenses for the nine months ended
September 30, 1997 were $2,987,237, consisting of selling expenses of $504,332,
general and administrative expenses of $2,386,790, approximately 40% of which
consisted of management and employee salaries, and the recognition of the
equity in the net loss of the Company's unconsolidated subsidiary Capital
Growth Europe of $96,115.
19
<PAGE>
Net Income. As a result of the foregoing, and after provision for taxes
of $250,000, the Company had net income of $788,220 for the nine months ended
September 30, 1997.
Liquidity and Capital Resources
Capital for the Company has been provided by the investments made by the
initial shareholder group and through private placements of the Company's
securities. In March 1997, the Company raised net proceeds of approximately
$1.0 million in a private placement of 549,496 shares of its common stock.
To date, the Company has used its capital for merchant banking (securities
investments), working capital and for general corporate purposes. In addition,
in March 1997, the Company loaned $200,000 to an entity controlled by Messrs.
Ronald B. Koenig and Stanley Hollander, two of the Company's directors,
officers and principal shareholders. The loan carries interest at the rate of
6% per annum and was approved by a majority of disinterested directors of the
Company.
In March 1997, the Company acquired from a third party marketable
securities for a total cost of $450,000, which were valued on September 30,
1997 at approximately $1.87 million.
On July 1, 1997, the Company paid a $.1125 per share dividend to holders
of its common stock which dividend totaled $382,332 in the aggregate. The
dividend represented payment for the six month period from January 1, 1997
through June 30, 1997 of a two year $.225 annual per share dividend (the
"Common Stock Dividend"). On each of September 30, 1997 and December 31, 1997,
the Company paid a $.05625 per share dividend which in each case totaled
$191,165 in the aggregate, representing payment of the Common Stock Dividend
for the three month periods from July 1, 1997 through September 30, 1997 and
from October 1, 1997 through December 31, 1997, respectively. The balance of
the Common Stock Dividend is anticipated to be paid on a quarterly basis at a
rate of $.05625 per share from March 31, 1998 through December 31, 1998.
On September 15, 1997, the Company loaned $25,000 to Capital Growth
International LLC, an affiliate of the Company. This loan was repaid on October
2, 1997 without interest.
On October 12, 1997, each share of the Company's 4,001,334 shares of
Series A Preferred Stock and 1,080,000 shares of Series B Preferred Stock
converted into one share of Class B Common Stock, at which time the 5% per
share annual dividend that has accrued thereon ceased to accrue and became due
and payable on October 24, 1997 out of funds legally available therefor. The
dividend due and payable to the holders of the Series A Preferred Stock and
Series B Preferred Stock is approximately $38,000 in the aggregate. As a result
of such conversion, the Company has a total of 3,398,496 shares of Common Stock
and 16,431,000 shares of Class B Common Stock currently outstanding.
Subsequent to September 30, 1997 the market price of certain of the
Company investments in equity securities declined significantly. The securities
with a carrying amount of approximately $2,900,000 at September 30, 1997
declined to approximately $500,000 at December 31, 1997.
In the event of the commencement of securities brokerage activities, the
Company anticipates committing a significant amount of capital thereto. The
Company anticipates raising additional equity capital of up to $1.0 million in
gross proceeds for this purpose. There can be no assurance, however, that the
Company's efforts to raise additional capital will be successful. The Company
has no material capital commitments other than annual salaries to its executive
officers and employees of approximately $1,237,000 and a letter of credit in
the amount of $100,000 to secure future rent payments and leasehold
improvements at the Company's London office. The Company believes that its
current cash resources will be adequate to satisfy its operations for
approximately six months.
Variability of Results
The Company anticipates that a substantial portion of its future revenues
will originate from ICG's activities as placement agent in private financings.
When acting as placement agent, ICG is typically compensated upon the
successful closing of a financing. Agency financings typically take from 90 to
120 days to consummate after ICG is retained as placement agent. Activities
will be undertaken and expenses incurred in one fiscal period although a fee
may not be earned until a subsequent period. As a result, the financial results
of the Company may vary dramatically from quarter to quarter. Further, the
Company's operating results will also vary as a result of the marking to market
of its portfolio of securities.
20
<PAGE>
BUSINESS
General
Capital Growth Holdings, Ltd. ("CGH" or the "Company") is a financial
services firm concentrating in investment and merchant banking in the United
States and Europe. The Company provides growth companies with access to needed
capital on an agency or principal basis by using unique financing approaches
and tools, while providing the opportunity for investors and the Company to
potentially earn above-average market returns. In addition, the Company is
evaluating (i) entering into the securities brokerage business, (ii) expanding
into businesses that complement the Company's current operations and (iii)
capitalizing upon the synergies that may exist among the Company's present and
future operations.
The Company's investment banking activities are conducted through its
wholly-owned subsidiary, ICG. ICG commenced limited operations in October, 1996
and through December, 1996 was in the development stage. Accordingly, the
Company has limited operating history upon which an evaluation of the Company's
performance and prospects can be made. ICG's business focus is to act as
placement agent in connection with the international private placement of
securities of its client companies through a world-wide network of
sub-placement agents. In addition, CGE, a London based, 50% owned subsidiary of
ICG, acts as a sub-placement agent for ICG in Europe and sources European
investment banking transactions. Since inception, ICG has raised approximately
$15.5 million on behalf of two client companies.
The Company is evaluating entering into the securities brokerage business
and establishing underwriting operations to provide investment services to
domestic and foreign institutional and individual investors and investment
banking services to company clients. As part of the Company's efforts to
develop such businesses, the Company may acquire CGI, an affiliate of the
Company, hire personnel, and obtain the necessary capital to commence
operation. Alternatively, the Company may seek to acquire a currently operating
broker-dealer to pursue such business activities. There can be no assurance,
however, that an acquisition of either CGI or a currently operating
broker-dealer will ever occur. The Company may also offer money management
services through a relationship with an independent money manager as part of
its proposed securities brokerage business.
The Company's management believes that significant synergies would exist
between the operations of ICG and a brokerage operation. These synergies would
enable the brokerage operation to capture (i) brokerage commissions from ICG's
existing relationships with money managers worldwide who have either invested
or acted as sub-placement agents in ICG sponsored transactions and have
expressed a willingness to direct certain commission-generating business to the
brokerage operation; (ii) additional brokerage commissions from investors in
ICG sponsored transactions if such investors liquidate an investment; (iii) a
number of public offering and private placement opportunities resulting from
ICG introductions; and (iv) additional brokerage commissions by acting as
sub-placement agent for ICG sponsored transactions.
Further, in the course of its business activities, ICG is anticipated to
encounter investment opportunities that are more appropriate for a principal
investment due to the nature, size or timing of a subject company's capital
requirements. The Company, through ICG, has invested in, and is anticipated to
continue investing in, either through ICG or a separate business entity,
business opportunities on a principal basis to further capitalize on the
synergies generated through CGH's various business activities.
Acquisition of International Capital Growth, Ltd.
In March, 1997, CGH, then an inactive company, acquired 100% of the
outstanding capital stock of ICG in a reverse acquisition consummated through a
share exchange transaction (the "Share Exchange"). The Share Exchange was
treated as a recapitalization. In connection therewith, ICG's historic capital
accounts were retroactively adjusted to reflect the equivalent number of shares
issued by CGH in the transaction while ICG's historical deficit accumulated
during the development stage is carried forward. See "The Company."
Financial Service Enterprises
U.S. Investment Banking: International Capital Growth, Ltd. ICG was
formed in February, 1996 and commenced formal operations in October, 1996 when
it was granted registration as a broker-dealer from the SEC and membership with
the NASD. Management's goal through ICG is to provide access to capital for its
corporate clients, primarily through "agency financings," and offer its
investor clients the potential to earn substantial returns
21
<PAGE>
while earning fees for its own account consisting of both cash and equity
securities. In an agency financing, a placement agent, such as ICG, offers to
investors securities of its company clients and typically receives a cash
commission on the sale of such securities as well as certain other
compensation, including equity securities. Management believes that ICG's
success will derive from combining (a) Management's expertise in identifying
growth companies with strong fundamentals, skillful management and a
sustainable competitive advantage in their respective fields; (b) a long-term
relationship approach to investment banking; (c) a global distribution network;
and (d) unique financing tools.
In June, 1997, ICG, acting as placement agent, raised approximately $11.1
million in a private placement of convertible debentures for a publicly-held
company.
Management has developed substantial expertise in identifying young
companies exhibiting the necessary fundamentals required for their success. In
addition, Management has developed a unique relationship oriented approach
towards both corporate clients and investors, emphasizing communication and a
common goal. By maintaining seats on, or participating in meetings of, a client
company's board of directors and providing consulting services, Management
believes it will be able to provide guidance at a more sophisticated level than
is typically available to young companies. Management believes this approach
differs greatly from that used by traditional Wall Street firms which are
predominantly transaction oriented. As a result of this hands-on approach,
Management also believes it is well equipped to communicate client company
developments to the financial community.
A critical element in ICG's approach to its business is the strong,
personal relationships maintained between Management and the international,
independent network of sales representatives ("Sub-Placement Agents") that
distribute securities for ICG sponsored transactions. This network of
Sub-Placement Agents currently encompasses in excess of 30 agents in 7
countries and is anticipated to be expanded by Management. As a result of these
relationships and Management's experience, ICG believes it has the potential to
effectively raise capital for its sponsored transactions.
European Corporate Finance: Capital Growth Europe, Limited. CGE was
formed as a United Kingdom corporation in May 1996 by ICG and an experienced
group of financial professionals in London; each group holds a 50% interest
therein. CGE became licensed with the Securities Futures Authority of the
United Kingdom in November 1996, which enables CGE to carry out corporate
finance business in United Kingdom.
CGE undertakes sales and distribution functions for ICG sponsored
transactions in the United Kingdom. Further, CGE plans to operate as an
originator of European transactions and as a corporate finance business in the
small-cap sector of the European equity markets.
In addition, it is intended that CGE will carry out corporate finance
advisory work for its clients. CGE's target client is a business with sales of
less than $825 million, net assets of less than $165 million and/or profits of
under $82.5 million.
The Company believes there are substantial synergies between ICG and CGE.
Management believes that by applying its U.S. investment banking expertise to
the United Kingdom and European financial markets, it will benefit by
diversifying its efforts and widening the regions from which its potential
investment banking transactions may be generated. Further, ICG will seek to
capitalize upon the synergies in terms of personnel and knowledge of products,
industry and markets between the United States and the United Kingdom corporate
financing activities.
Securities Brokerage and Underwriting. The Company is evaluating on what
basis, if any, to enter the securities brokerage business and establish
underwriting operations to provide investment services to domestic and foreign
institutional and individual investors and investment banking services to
company clients. The Company may acquire CGI, a non-operating broker-dealer and
affiliate of the Company and develop securities brokerage and underwriting
operations through such entity. CGI is registered as a broker-dealer with the
SEC and is a member of the NASD. CGI's restriction letter with the NASD would
allow CGI to act as a broker and underwriter of securities provided that CGI
maintain certain net capital requirements and comply with applicable rules and
regulations. There can be no assurance, however, that an acquisition of CGI
will be completed on terms favorable to the Company, or at all. The closing of
such acquisition would be subject to regulatory approval, the retention of
qualified personnel and the procurement of adequate capital for regulatory and
operational purposes. If such acquisition does not occur, the Company may
acquire, or develop a joint venture with, a currently operating broker-dealer
to pursue such
22
<PAGE>
business activities. See "Risk Factors--Uncertainty of Establishment of
Securities Brokerage and Underwriting Operations" and "Certain Transactions."
The Company may also offer money management services through its
securities brokerage operations through a relationship with an independent
money manager.
Merchant Banking. In its capacity as agent, ICG anticipates encountering
many opportunities that are more appropriate for a principal investment than an
agency financing due to the nature, size or timing of a subject company's
capital requirements. Management believes that opportunities for principal
investments will include investments through both debt and equity securities in
both public and private companies in a variety of industries and at various
stages of development.
To the extent permitted by applicable rules and regulations, ICG may, in
certain instances, raise capital on an agency basis for companies in which such
entity has made a principal investment. Management believes that the ability to
invest on a principal basis offers a significant competitive advantage in
attracting companies that require agency financing in those cases in which the
financing structure requires an initial or "bridge" component (i.e., a
relatively small short-term debt financing which typically includes an equity
"kicker" and is re-paid from the proceeds of a subsequent, larger financing).
Thus, investing on a principal basis is a logical extension of ICG's agency
financing. Management believes the volume of ICG's agency business may increase
due to the Company's ability to offer potential corporate clients a prior
principal investment. In such event, the Company may also benefit directly from
such a principal investment in a company.
Management has also independently organized a public "blank check" company
to be used in connection with an ICG sponsored or other reverse merger
transaction. A blank check company is a development stage company that has no
specific business plan or purpose or, in this case, has indicated that its
business plan is to engage in a merger or acquisition with an unidentified
company. Assuming the successful regulatory approval of the aforementioned
transaction, the merchant banking operation may organize several similar blank
check companies. Management believes substantial value may be created by
merging a blank check company with an active operating company. The merchant
banking operation may also acquire control of inactive public companies for
such purpose.
Competition
All aspects of the Company's business and anticipated business are highly
competitive. The Company expects to compete in domestic and international
markets with numerous financial services companies for potential financing
transactions and investment capital.
Because the securities industry is highly capital-intensive, the Company
is continuously exploring opportunities to raise additional capital. The
ability of a company to expand its business is closely related to its capital
structure and its ability to raise additional capital. Large brokerage firms
and brokerage subsidiaries of large corporations have greater capital,
financial and other resources than the Company. They may also have the ability
to raise substantially more capital than the Company can raise on terms more
favorable than those available to the Company. In addition, several small and
specialized securities firms have been successful in raising significant
amounts of capital for their merger and acquisition activities, merchant
banking investment vehicles and for their own accounts, thereby further
intensifying the level of competition in the industry in which the Company is
and plans to operate.
As a result of legislative and regulatory initiatives in the United States
to remove or relieve certain restrictions on the businesses in which commercial
banks can operate, the Company also competes with large commercial banking
institutions, certain of which are in the process of enlarging the scope of
their investment banking activities. Commercial banking organizations, in
general, are expanding their securities and investment advisory activities, as
well as other activities related to the provision of financial services. These
developments may lead to the creation of integrated financial services firms
that are able to compete more effectively than the Company in certain of its
businesses. Furthermore, competition with well-capitalized foreign firms is
intense in international capital markets and is increasing in domestic markets.
To the extent that the Company can compete for investment opportunities it may
only be able to do so on less favorable terms than those obtained by larger,
more established firms.
23
<PAGE>
Employees
As of December 31, 1997, the Company, including ICG, had a total of seven
full-time employees and one part-time employee. None of the Company's employees
are represented by a union and the Company has not experienced any work
stoppages. The Company believes its relations with its employees is
satisfactory.
Description of Properties
The Company, its subsidiaries and affiliates share or plan to share the
use of office space as described below:
1. Approximately 855 square feet at 660 Steamboat Road, Greenwich,
Connecticut 06830 for use as the principal executive offices of the
Company, ICG and CGI pursuant to a lease held by CGI expiring on
September 30, 1998 for monthly rent of $6,250 payable entirely by ICG for
the benefit of the Company, ICG and CGI;
2. Approximately 700 square feet at 777 South Flagler Drive, 8th Floor,
West Tower, West Palm Beach, Florida 33401 for use by the Company, ICG
and CGI pursuant to a monthly tenancy in favor of ICG for monthly rent of
$2,500 payable entirely by ICG for the benefit of the Company, ICG and
CGI;
3. Approximately 2,040 square feet at 2425 Olympic Boulevard, #660E, Santa
Monica, California 90404 for use by the Company, ICG and CGI pursuant to
a lease held by ICG expiring on November 30, 2000 for monthly rent of
$5,834 payable entirely by ICG for the benefit of the Company, ICG and
CGI; and
4. Approximately 1,200 square feet of office space at 4 Hill Street,
London, England WIX 7FU consisting of two separate offices for use by the
Company, ICG and CGI and CGE, respectively, pursuant to a sub-lease from
an entity controlled by a director of both the Company and ICG, held by
CGI and CGE expiring in October 2111 for monthly rent of $16,666, which
is payable by ICG and CGE, for the benefit of the Company, ICG, CGI and
CGE. See "Certain Transactions."
Description of Legal Proceedings
The Company is not a party to any pending legal proceedings.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
In March 1997, in connection with the Share Exchange, which effected a
change in control of the Company, the Company's Board of Directors voted to
engage its current independent auditors to ICG, to act as the Company's
independent auditors. Their appointment corresponded with the dismissal and
replacement of Angell & Deering, which resigned effective March 25, 1997. The
former accountant's reports for the Company's fiscal years ended January 31,
1995 and 1996 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 Company 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. See "The
Company."
24
<PAGE>
MANAGEMENT
Directors and Executive Officers
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Ronald B. Koenig (1) ...... 63 Chairman of the Board of Directors, President and Chief
Executive Officer
Alan L. Jacobs (2) ......... 56 Executive Vice President and Director
Stanley Hollander (3) ...... 60 Senior Vice President and Director
Michael S. Jacobs ......... 32 Senior Vice President, Secretary and Treasurer
Jay J. Matulich (4) ......... 43 Senior Vice President
John D. Booth ............... 39 Director
N. Bulent Gultekin ......... 50 Director
</TABLE>
- ----------------
(1) Ronald B. Koenig is also a Director of Emerging Growth Acquisition
Corporation I, a publicly-held company.
(2) Alan L. Jacobs is also a Director of Emerging Growth Acquisition Corporation
I, a publicly-held company.
(3) Stanley Hollander is also a Director of Capital Media Group, Ltd. and
Emerging Growth Acquisition Corporation I, each a publicly-held company.
(4) Jay J. Matulich is also a Director of BioSafe International, Inc., a
publicly-held company.
Each officer and director listed above holds the same respective
position(s) with ICG, except that Alan L. Jacobs is also Senior Managing
Director of ICG, and Stanley Hollander and Jay J. Matulich are Vice Presidents
of ICG. Stanley Hollander is also a Director of ICG.
Each director of the Company listed in the above table holds office until
the next annual meeting of shareholders and until their respective successors
have been elected and qualified. Each officer of the Company listed in the
table above has served the Company in the respective capacities listed above
since March 14, 1997 and continues to serve at the discretion of the Company's
Board of Directors.
Ronald B. Koenig. Mr. Koenig has been Chairman of the Board of Directors,
President and Chief Executive Officer of International Capital Growth, Ltd.
since March 1996. He has served as Chairman of the Board, Chief Executive
Officer and a Director of Emerging Growth Acquisition Corporation I, a
publicly-held corporation, since July 1996. Mr. Koenig has been Chairman, from
October 1994 to July 1995, and co-founder of U.S. Sachem Financial Consultants,
L.P. and, since July 1995, of its successor Capital Growth International LLC.
From 1989 to 1993, Mr. Koenig was a Senior Managing Director and department
head of corporate finance at Gruntal & Co., Incorporated. From 1974 to 1985,
Mr. Koenig was a Managing Director, and from 1985 to 1989, Chairman of the
Board, of Ladenburg Thalmann & Co., Inc. From 1972 to 1974, he served as Vice
President, Institutional Sales at Jas. H. Oliphant & Co., an institutional
research boutique. From 1968 to 1972, he held a position in sales with Leif
Werle & Co., an NYSE specialist firm. Mr. Koenig was educated at the University
of Pennsylvania (The Wharton School) and holds a B.S. in economics. Mr. Koenig
presently serves on The Wharton School Undergraduate Executive Board and is on
the business advisory board to Sterling National Bank & Trust Company of New
York.
Alan L. Jacobs. Mr. Jacobs has served as Executive Vice President and a
Director of the Company since March 1997. Since March 1996, Mr. Jacobs has
served as Senior Managing Director, Executive Vice President and a Director of
International Capital Growth, Ltd. and, since January 1995, of Capital Growth
International LLC. He has served as Chief Operating Officer and a Director of
Emerging Growth Acquisition Corporation I, a publicly-held corporation, since
July 1996. From February 1995 to October 1997 and from July 1993 to September
1994, Mr. Jacobs served as a Director of Boca Raton Capital Corporation, a
publicly-held Florida corporation ("BRCC"). He was Chairman of the Board of
Directors of BRCC from November 1993 to September 1994 and Chief Executive
Officer of BRCC from November 1993 to October 1997. From January 1992 to
December 1995, Mr. Jacobs served as Associate Director of Investment Banking at
Josephthal Lyon & Ross Incorporated. From May 1985 to December 1991, Mr. Jacobs
served as Managing Director of Investment Banking with Ladenburg Thalmann &
Co., Inc., an
25
<PAGE>
investment banking firm. Mr. Jacobs earned an A.B. in liberal arts in 1963 from
Franklin & Marshall College and a J.D. from Columbia Law School in 1966.
Stanley Hollander. Mr. Hollander has served as Senior Vice President and a
Director of the Company since March 1997 and Vice President and a Director of
International Capital Growth, Ltd. since March 1996. He has served as President
and a Director of Emerging Growth Acquisition Corporation I, a publicly-held
corporation, since July 1996. Since 1993, Mr. Hollander has served as
President, Chief Executive Officer and co-founder of U.S. Sachem Financial
Consultants, L.P. and, since July, 1995, its successor Capital Growth
International LLC. From December 1995 to present, Mr. Hollander has been a
Director of Capital Media Group, Ltd., a publicly-held company. From 1989 to
1993 he served as a Managing Director and joint head of corporate finance at
Gruntal & Co., Incorporated. From 1985 to 1989 he served as a Managing Director
of Investment Banking at Ladenburg Thalmann & Co., Inc. From 1979 to 1985 he
was co-owner and Vice President of Zemex Electronics-Stanlee, distributors of
consumer electronics. From 1959 to 1979, Mr. Hollander was president of All
Brand Appliances Brandmart, distributors of consumer electronics. Mr. Hollander
was educated at the University of Alabama.
Michael S. Jacobs. Mr. Jacobs has served as Senior Vice President,
Secretary and Treasurer of the Company since March 1997 and of International
Capital Growth, Ltd. since March 1996. He has served as Chief Financial Officer
and Treasurer of Emerging Growth Acquisition Corporation I, a publicly-held
corporation, since July 1996. Since February 1995, Mr. Jacobs has been a Senior
Vice President of U.S. Sachem Financial Consultants, L.P. and, since July 1995,
its successor Capital Growth International LLC. From 1993 to 1995 he was a Vice
President of Investment Banking at Josephthal Lyon & Ross Incorporated, and
from 1990 to 1993, Mr. Jacobs was an associate in corporate finance at Gruntal
& Co., Incorporated. From 1989 to 1990, Mr. Jacobs was a financial analyst at
Ladenburg Thalmann & Co., Inc. Educated at New York University's Stern School
of Business and Emory University, he holds an M.B.A. in finance and a B.B.A.
degree.
Jay J. Matulich. Mr. Matulich has served as Senior Vice President of the
Company since March 1997 and Vice President of International Capital Growth,
Ltd. since March 1996. He has served as Secretary of Emerging Growth
Acquisition Corporation I, a publicly-held corporation, since July 1996. Since
October 1994, Mr. Matulich has been a Senior Vice President of U.S. Sachem
Financial Consultants, L.P. and, since July 1995, of its successor Capital
Growth International LLC. Since April 1995, Mr. Matulich has served as a
Director of BioSafe International, Inc., a publicly-held company. From May 1990
to October 1994, Mr. Matulich was a Vice President of Gruntal & Co.,
Incorporated. From 1989 to May 1990, Mr. Matulich served as an associate in the
Shansby Group, a San Francisco-based leveraged buy-out firm. From 1986 to 1989,
Mr. Matulich was a Senior Manager at Arthur Young & Co., accountants in the
merger and acquisitions group. Educated at Brigham Young University, Mr.
Matulich has a B.A. degree.
John D. Booth. Mr. Booth has been a Director of the Company since March
1997 and of International Capital Growth, Ltd. since March 1996. He has been
Chairman of Maintel Europe Limited and Luther Pendragon Limited since 1996 and
1991, respectively. From 1993 to 1996, Mr. Booth was Managing Director at
Bankers Trust International. From 1988 to 1993, he was Senior Vice President at
Prudential Bache Securities. From 1986 to 1988, Mr. Booth was a partner at E.F.
Hutton International Associates. From 1980 to 1983, he was Vice President at
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From 1980 to 1983, Mr.
Booth was an Account Executive at J. Walter Thompson Company. Educated at
Oxford University, he holds an M.A. and a B.A. in modern languages.
N. Bulent Gultekin. Mr. Gultekin has been a Director of the Company since
March 1997 and of International Capital Growth, Ltd. since March 1996. Since
1981, Mr. Gultekin has been an Associate Professor of Finance at The Wharton
School of the University of Pennsylvania. From 1993 to 1994, he served as the
Governor of the Central Bank of the Republic of Turkey. From 1989 to 1991, Mr.
Gultekin served as Chief Advisor to Prime Minister Mesut Yilmaz of the Republic
of Turkey. From 1990 to 1992, Mr. Gultekin was a director of The Bell Atlantic
Mutual Funds. Mr. Gultekin earned a BSC in 1965 and an MBA in 1973 from Turkish
universities and a Ph.D. in finance and statistics in 1976 from The Wharton
School of the University of Pennsylvania.
Compensation of Directors
The directors of the Company and ICG are reimbursed for their expenses in
connection with their activities as directors and members of committees of the
boards of directors of such entities. No other compensation is paid to such
individuals in their capacity as directors, other than Mr. N. Bulent Gultekin
who is paid a fee of $2,500 for his participation in each meeting of the
Company's Board of Directors.
26
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by ICG for services
rendered in all capacities to certain officers of ICG for the periods
indicated.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Securities
Compensation Underlying
Name and Position with ICG Fiscal Year Ended Salary Options(#)(1)
- ------------------------------------- ------------------- -------------- --------------
<S> <C> <C> <C>
Ronald B. Koenig
President, Chief Executive
Officer and Director ............ January 1997(2) $ 67,307 --
December 1997(3) $229,167 --
Stanley Hollander
Vice President and
Director ........................ January 1997(2) $ 69,897 --
December 1997(3) $229,167 --
Alan Jacobs
Executive Vice President,
Senior Managing Director and
Director ........................ January 1997(2) $ 60,577 --
December 1997(3) $206,250 --
Michael Jacobs
Senior Vice President, Secretary
and Treasurer .................. January 1997(2) $ 44,127 --
December 1997(3) $137,500 250,000
Jay J. Matulich
Vice President .................. January 1997(2) $ 33,654 --
December 1997(3) $114,583 250,000
</TABLE>
- ----------------
(1) Represents shares of Class B Common Stock underlying stock options granted
under the 1997 Stock Option Plan.
(2) Covers the period from February 26, 1996, ICG's inception, through January
31, 1997, the Company's fiscal year for such period.
(3) Covers the period from February 1, 1997 through December 31, 1997, the
Company's transitional fiscal year for such period.
The Company, through ICG, currently pays annual salaries to Messrs.
Koenig, Hollander, A. Jacobs, M. Jacobs and Matulich of $175,000, $175,000,
$157,500, $105,000 and $87,500, respectively. Other than as set forth above,
none of the Company's officers or directors received any salary or wages or
other compensation from the Company during the last three completed fiscal
years.
During the fiscal year ended December 31, 1997, the Company had no active
retirement, stock option or other plans or arrangements pursuant to which cash
or non-cash compensation was paid to its officers or directors other than the
Stock Option Plan and ICG's 401(k) plan. As of March 14, 1997, in connection
with the Share Exchange, the Company put into effect the Capital Growth
Holdings, Ltd. 1997 Stock Option Plan pursuant to which the Company granted
options to purchase 635,000 shares of Class B Common Stock to certain directors
and employees of ICG in exchange for previously granted options of the same
tenor to purchase an equal number of shares of common stock of ICG and granted
options to purchase an additional 150,000 shares of Class B Common Stock to
another employee of ICG. See "--1997 Stock Option Plan."
27
<PAGE>
Option Grants in Fiscal Year Ended December 31, 1997
(Individual Grants)
<TABLE>
<CAPTION>
Number of Shares Percent of Total Exercise
of Class B Common Stock Options Granted Price Expiration
Name Underlying Options(1) in Fiscal Year Per Share Date
- -------------------------- ------------------------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C>
Michael S. Jacobs ...... 250,000 31.8% $2.00 November 20, 2006
Jay J. Matulich ......... 250,000 31.8% $2.00 November 20, 2006
</TABLE>
- ----------------
(1) Consists of shares of Class B Common Stock underlying options granted under
the Stock Option Plan.
Aggregated Option Exercises in Fiscal Year Ended December 31, 1997
and Option Values at December 31, 1997
<TABLE>
<CAPTION>
Number of Shares of Class B
Common Stock
Underlying Unexercised Options
at December 31, 1997(1)
------------------------------- Value of Unexercised
In-the-Money Options at
Name Exercisable Unexercisable December 31, 1997
- ---------------------------- ------------- --------------- ------------------------
<S> <C> <C> <C>
Michael S. Jacobs ...... 83,333 166,667 None
Jay J. Matulich ......... 83,333 166,667 None
</TABLE>
- ----------------
(1) Consists of shares of Class B Common Stock underlying options granted under
the Stock Option Plan.
Indemnification
The Company's Certificate of Incorporation provides for indemnification
rights of officers, directors, and others and limits the personal liability of
directors for monetary damages to the extent permitted by Delaware Law. Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the "Securities Act") may be permitted for directors, officers and controlling
persons of the Company, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. See
"Description of Securities--Delaware Law and Certain Charter Provisions."
1997 Stock Option Plan
General. The Company has established the Company's 1997 Stock Option Plan
(the "Stock Option Plan"), which the Company believes is desirable to attract
and retain executive officers, other key employees and directors and to further
the growth and profitability of the Company. Under the Stock Option Plan,
options to purchase an aggregate of not more than 1,500,000 shares of Class B
Common Stock may be granted from time to time to key employees (including
officers), consultants and directors of the Company. The Company may not grant
options covering more than 500,000 shares to any one participant during any
fiscal year. Options shall be designated as Incentive Stock Options ("ISOs") or
Nonqualified Stock Options ("NQSOs").
The Stock Option Plan is administered by a committee consisting of John D.
Booth and Emanuel M. Arbib, two disinterested, outside directors of the
Company. The committee is generally empowered to interpret the Stock Option
Plan; to prescribe rules and regulations relating thereto; to determine the
terms of the option agreements; to amend the option agreements with the consent
of the optionee; to determine the key employees and directors to whom options
are to be granted; and to determine the number of shares subject to each option
and the exercise price thereof. The per share exercise price of options granted
under the Stock Option Plan will be not less than 100% (110% for ISOs if the
optionee owns more than 10% of the Class B Common Stock) of the fair market
value per share of Class B Common Stock on the date the options are granted.
Options will be exercisable for a term that will not be greater than ten
years from the date of grant (five years from the date of grant of an ISO if
the optionee owns more than 10% of the Class B Common Stock). In the event of
the termination of such relationship between the option holder and the Company
for cause (as defined in the Stock Option Plan), all options granted to that
option holder terminate immediately. Options may be exercised during the option
holder's lifetime only by the option holder, his or her guardian or legal
representative.
Options granted pursuant to the Stock Option Plan which are ISOs are
intended to enjoy the attendant tax benefits provided under Sections 421 and
422 of the Code. Accordingly, the Stock Option Plan provides that the
28
<PAGE>
aggregate fair market value (determined at the time an ISO is granted) of the
Class B Common Stock subject to ISOs exercisable for the first time by an
option holder during any calendar year (under all plans of the Company) may not
exceed $100,000.
The Board may modify, suspend or terminate the Stock Option Plan;
provided, however, that certain material modifications affecting the Stock
Option Plan must be approved by the stockholders, and any change in the Stock
Option Plan that may adversely affect an option holder's rights under an option
previously granted under the Stock Option Plan requires the consent of the
option holder.
Existing Stock Options. Under the Stock Option Plan, the Company has
granted ISOs to Jay J. Matulich, Michael S. Jacobs, Robert Zelinka, N. Bulent
Gultekin, and Richard Lane, employees and/or directors of the Company at the
time of such grants, to purchase 250,000, 250,000, 100,000, 25,000 and 10,000
shares of Class B Common Stock, respectively. All of such ISOs vest at the rate
of one-third of the total number of options granted at the end of each of the
first three anniversaries of the original date of grant and are exercisable at
an exercise price of $2.00 per share for a period of ten years from the
original date of grant. The Company has also granted ISOs to Ms. Kimberly A.
Goguen, a consultant to the Company, under the Stock Option Plan to purchase
150,000 shares of Class B Common Stock, exercisable at an exercise price of
$2.25 per share under the same terms as those set forth above.
401(k) Plan
ICG maintains a 401(k) Plan (the "401(k) Plan") through a national mutual
fund company that is available to all employees. An employee may contribute on
a pre-tax basis up to 15% of the employee's total annual wages from ICG,
subject to annual limitations prescribed by the Internal Revenue Code. Employee
contributions are fully vested and non-forfeitable at all times.
ICG makes matching contributions to the 401(k) Plan on behalf of its
employees, subject to funding availability. ICG uses a matching formula under
which it contributes $.50 for each $1.00 contributed by employees. Fifty
percent of the matching contributions vest immediately while the remaining
fifty percent vest one year after the contribution. Once vested, the matching
contributions are non-forfeitable at all times.
CERTAIN TRANSACTIONS
The Company requires that all material transactions with affiliates be
made on terms that are no less favorable to the Company than those that can be
obtained from unaffiliated third parties. Such transactions will be approved by
a majority of the Company's independent directors.
On March 26, 1997, the Company loaned $200,000 to an entity controlled by
Messrs. Ronald B. Koenig and Stanley Hollander, two of the Company's Directors.
The Note, which is due on March 26, 1998 and carries interest at the rate of 6%
per annum. Such Note, when issued, was approved by a majority of the
independent members of the Board of Directors of the Company.
On March 27, 1997, the Company completed a private offering (the "Private
Offering") of its Common Stock at $2.25 per share pursuant to Regulation D and
Regulation S, each as promulgated under the Securities Act. The Private
Offering, which yielded gross proceeds to the Company of $1,236,366, was
offered and sold through Capital Growth International LLC ("CGI"), as placement
agent, which was paid $74,181.96 in commissions in connection therewith,
$39,074.76 of which was used to compensate certain sub-placement agents. CGI is
an affiliate of the Company and ICG. Several of the officers and directors of
the Company and ICG are also officers and directors of CGI. Additionally, the
beneficial holders of 100% of the membership interests in CGI beneficially hold
56.53% of the outstanding capital stock of the Company, which holds 100% of the
outstanding capital stock of ICG. Messrs. Ronald B. Koenig, Chairman of the
Board of Directors, President and Chief Executive Officer of the Company and
ICG, and Stanley Hollander, Senior Vice President and a Director of the Company
and Vice President and a Director of ICG, each own a 50% interest in Sachem
Financial Consultants, L.P., which holds a 60% membership interest in CGI.
Messrs. Koenig and Hollander beneficially own 16.70% and 16.19% of the
outstanding capital stock of the Company, respectively. Mr. Emanuel Arbib, a
former Director of the Company and ICG, may be deemed to beneficially own a 30%
membership interest in CGI and 16.83% of the outstanding capital stock of the
Company.
The Company, ICG and CGI share the use of approximately 855 square feet of
office space at 660 Steamboat Road, Greenwich, Connecticut 06830. The lease on
such property, which expires on September 30, 1998, is held by CGI. Rent for
use of such property, which is $6,250.00 per month, is paid by ICG at no cost
to CGI.
29
<PAGE>
The Company, ICG and CGI share the use of approximately 700 square feet of
office space at 777 South Flagler Drive, 8th Floor, West Tower, West Palm
Beach, Florida 33401. The monthly tenancy on such property is in favor of ICG.
Rent for use of such property, which is $2,500 per month, is paid by ICG at no
cost to CGI.
The Company, ICG and CGI share the use of approximately 2,040 square feet
of office space at 2425 Olympic Boulevard, #660E, Santa Monica, California
90404. The lease on such property, which expires on November 30, 2000, is held
by ICG. Rent for use of such property, which is $5,834 per month, is paid by
ICG at no cost to CGI.
The Company, ICG, CGI and CGE occupy a total of 1200 square feet of office
space at 4 Hill Street, London, England WIX 7FU; the Company, ICG and CGI have
use of approximately 600 square feet and CGE has use of approximately 600
square feet. The sublease on such property, which expires in October 2111, is
held by CGI and CGE. ICG, for its own account and on behalf of the Company and
CGI, pays monthly rent of $8,333. CGE pays monthly rent of $8,333. The lease on
the premises is held by an entity that may be deemed to be beneficially owned
by ICG and/or Emanuel Arbib, a former Director of the Company and ICG.
It is currently contemplated by management of the Company, ICG and CGI
that CGI will assign all rights and obligations in connection with two
Financial Advisory and Consulting Agreements (the "Consulting Agreements") each
of which are between CGI and a separate publicly-held company. The Consulting
Agreements, which were entered into in connection with CGI's investment banking
business, are anticipated to be assigned to ICG for nominal consideration. One
Consulting Agreement, which expires on July 30, 1998, currently provides for
monthly payments to CGI of $2,500 and compensation rights in favor of CGI if
certain business transactions introduced by CGI to such public company are
consummated. The other Consulting Agreement currently grants to CGI a right of
first refusal, exercisable until April 26, 1998, to offer securities of such
public company and provides for certain compensation rights in favor of CGI if
certain business transactions introduced by CGI to such public company are
consummated.
30
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock as of December 31, 1997, by
(i) any person who is known to the Company to be the beneficial owner of more
than five percent of the capital stock of the Company; (ii) each director of
the Company; (iii) the Company's chief executive officer during the last
completed fiscal year; (iv) each officer of the Company; and (v) all current
directors and officers of the Company as a group. Except as noted below, each
person has sole voting and investment power with respect to all shares of
capital stock of the Company listed as owned by such person.
<TABLE>
<CAPTION>
Amount and
Name and Address of Nature of Percent of
Beneficial Owner(1) Beneficial Ownership Class(2)
------------------- -------------------- --------
<S> <C> <C>
Rush & Co.
Swiss American Securities
100 Wall Street
4th Floor
New York, NY 10005 ...... 3,586,334(3)(4)(5) 18.09%
Emanuel Arbib ............ 3,336,334(4) 16.83%
Ronald B. Koenig ......... 3,072,270 15.49%
Stanley Hollander ......... 2,997,270(6) 15.12%
Hollander Family
Partnership LP ............ 2,997,270(6) 15.12%
Alan L. Jacobs ............ 2,778,126 14.01%
Michael S. Jacobs ......... 830,333(7) 4.17%
Jay J. Matulich ............ 828,333(8) 4.16%
John D. Booth ............ 250,000(5) 1.26%
N. Bulent Gultekin ......... 8,333(9) .04%
All current directors and
officers as a group ...... 10,764,665(10) 53.68%
</TABLE>
- ----------------
(1) Each beneficial owner for which an address is not listed has an address
c/o Capital Growth Holdings, Ltd., 660 Steamboat Road, Greenwich, CT
06830.
(2) Based on a total of 19,829,496 shares of capital stock outstanding
consisting of 3,398,496 shares of Common Stock and 16,431,000 shares of
Class B Common Stock, all of which vote together as one class.
(3) Consists of 3,536,334 shares of Class B Common Stock, 25,000 shares of
Common Stock and 25,000 Warrants.
(4) Rush & Co. holds 3,336,334 shares of Class B Common 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 Mr. Emanuel
Arbib. 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 Company.
(5) Rush & Co. holds 200,000 shares of Class B Common Stock, 25,000 shares
of Common Stock and 25,000 Warrants for the benefit of John D. Booth, a
director of the Company. Other than such holdings, Mr. Booth owns no
capital stock of the Company.
(6) Stanley Hollander, Senior Vice President and Director of the Company,
may be deemed to be the beneficial owner of the shares of the Company
held by Hollander Family Partnership LP. Other than such holdings, Mr.
Hollander owns no capital stock of the Company.
(7) Consists of 747,000 shares of Class B Common Stock and options
exercisable to purchase 83,333 shares of Class B Common Stock that are
currently vested. Mr. Jacobs holds options to purchase a total of
250,000 shares of Class B Common Stock which vest at the rate of
one-third of the total grant at the end of each of the first three
anniversaries of the date of grant, November 21, 1996.
(8) Consists of 745,000 shares of Class B Common Stock and options
exercisable to purchase 83,333 shares of Class B Common Stock that are
currently vested. Mr. Matulich holds options to purchase a total of
250,000 shares of Class B Common Stock which vest at the rate of
one-third of the total grant at the end of each of the first three
anniversaries of the date of grant, November 21, 1996.
(9) Consists of stock options exercisable to purchase 8,333 shares of Class
B Common Stock that are currently vested. Mr. Gultekin holds options to
purchase a total of 25,000 shares of Class B Common Stock which vest at
the rate of one-third of the total grant at the end of each of the first
three anniversaries of the date of grant, November 21, 1996.
(10) Consists of 10,539,666 shares of Class B Common Stock, 25,000 shares of
Common Stock, 25,000 Warrants and stock options exercisable to purchase
174,999 shares of Class B Common Stock.
31
<PAGE>
SELLING SECURITYHOLDERS
The shares of Common Stock offered hereby are owned by the Selling
Securityholders. The following table sets forth certain information with
respect to the ownership of the Common Stock by each Selling Securityholder as
of December 31, 1997.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Before
the Offering (1)
---------------------------- Shares Beneficially
Name and Address Shares Owned After
of Beneficial Owner Shares (2) Percent (3) Offered (4) the Offering
- ------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Rosebud Capital Growth Fund Ltd.
c/o Dawn E. Davies
Charlotte House
Charlotte Street
P.O. Box N9204
Nassau, Bahamas ............... 900,000 24.67% 900,000 0
Banca del Gottardo
Attn: Mr. Diego Lucchini
Viale Stefano Franscini 8
6901 Lugano, Switzerland ...... 404,000 11.39% 404,000 0
Edgeport Nominees Limited
c/o Ian Goldbart
44 Worship Street
London EL2A 2JT
England ........................ 340,000 9.53% 340,000 0
Republic National Bank of New York
2 Place du Lac
1211 Geneva 3
Switzerland ..................... 300,000 8.45% 300,000 0
Fairnoon Management Ltd.
11 Queen Street
London WIX 7PD
England ........................ 250,000 7.10% 250,000 0
Giant Trading Inc.
Passage Max Meuron 1
Case Postale 1461
2001 Neuchatel
Switzerland ..................... 200,000 5.89% 200,000 0
Gems Opportunity Fund
c/o MeesPierson Fund Services
(Dublin) Ltd.
4th Floor, Russell House
Stokes Place, St. Stephens Green
Dublin 2, Ireland ............... 200,000 5.72% 200,000 0
Napier Brown Holdings Ltd.
International House
1 St. Katherine's Way
London, E1 9UN .................. 200,000 5.72% 200,000 0
Cameo Trust Corporation Limited
Cameo House
18 Hope Street
Douglas, Isle of Man
British Isles
1M1 1AQ ........................ 188,000 5.39% 188,000 0
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned Before
the Offering (1)
---------------------------- Shares Beneficially
Name and Address Shares Owned After
of Beneficial Owner Shares (2) Percent (3) Offered (4) the Offering
- ------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Josef A. Bauer
820 Park Avenue
New York, NY 10021 ............ 150,000 4.32% 150,000 0
P. G. Ridgwell
c/o Napier Brown Holdings Ltd.
International House
1 St. Katherine's Way
London, E1 9UN .................. 150,000 4.32% 150,000 0
Tigris Holdings Ltd.
Eagle Court
6-7 St. John's Lane
London EC1M 4BH
England ........................ 120,000 3.53% 120,000 0
Bocap AS
Attn: Mr. Ove Hoegh
Perkveien 55
Box 2416 Solli
0201 Oslo, Norway ............... 89,222 2.63% 89,222 0
Susan Greenberg
1185 Corsica Drive
Los Angeles, CA 90272 ......... 74,444 2.17% 74,444 0
Neil Micklethwaite
26 Spencer Road
London SW18 2LS
UK .............................. 66,000 1.94% 66,000 0
Corner Bank Ltd.
Attn: Landi Vittoria
Via Canova 16
6901 Lugano Switzerland ......... 61,111 1.80% 61,111 0
Vital Miljo AS
Bjarne Odegaard
Radhusgt 7B
0151 Oslo
Norway ........................ 55,931 1.63% 55,931 0
Harvey R. Brice
Superior Ink Printing Co., Inc.
70 Bethune Street
New York, NY 10014 ............ 50,000 1.46% 50,000 0
Luciano R. Nicasio
111 Highland Avenue
Rowayton, CT 06853 ............ 50,000 1.46% 50,000 0
Saracen International Incorporated
c/o Walter Prime
50 Shirley Street
P.O. Box N-341
Nassau, The Bahamas ............ 50,000 1.46% 50,000 0
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned Before
the Offering (1)
---------------------------- Shares Beneficially
Name and Address Shares Owned After
of Beneficial Owner Shares (2) Percent (3) Offered (4) the Offering
- ------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cogefin (Bermuda) Limited
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM12
Bermuda ........................... 50,000 1.47% 50,000 0
Anthony Hopenhajm
Trianon
16 West 46th Street
New York, NY 10036 ............... 50,000 1.46% 50,000 0
Rush & Company
Attn: John D.S. Booth
92 Fentiman Road
London SW8 1LA
England ........................... 50,000 1.46% 50,000 0
Gary Barnett
621 South Saltair Avenue
Los Angeles, CA 90049 ............ 50,000 1.46% 50,000 0
Auric Investments Limited
24 St. George's Street
Douglas
Isle of Man
1M1 1AH ........................... 50,000 1.46% 50,000 0
Pyramid Partners, LP
c/o Steven Blatt
Tanner, Mainstain & Hoffer
10866 Wilshire Blvd., 10th Floor
Los Angeles, CA 90024-0478 ...... 35,000 1.02% 35,000 0
Madeliene Curtiss
Datchet House
London Road
Datchet, Windsor Berks
UK .............................. 30,000 * 30,000 0
Robert Zelinka
7612 Marbella Terrace
Boca Raton, FL 33433 ............ 29,125 * 29,125 0
Merit Partners
Attn: Jeffry Schoenbaum
402 S. Westshore Blvd
Tampa, FL 33609 .................. 25,000 * 25,000 0
Bostar AS
Attn: Mr. Ove Hoegh
Parkveien 55
P.O.B. 2416, Solli
N-0201, Oslo ..................... 25,000 * 25,000 0
Allan M. Rudnick IRA R/O
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067 ............ 25,000 * 25,000 0
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned Before
the Offering (1)
---------------------------- Shares Beneficially
Name and Address Shares Owned After
of Beneficial Owner Shares (2) Percent (3) Offered (4) the Offering
- ------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Michael Ralby
D.E. Frey & Co., Inc.
2999 NE 191st Street, PH8
Aventura, FL 33180 ............... 25,000 * 25,000 0
Shelby Developments Limited
c/o Line Management Services
Limited
57-63 Line Wall Road
Gibraltar ........................ 25,000 * 25,000 0
Robert S. London
212 Aurora Drive
Montecito, CA 93108 ............... 25,000 * 25,000 0
Mamimu Ltd.
c/o Aaron Grunfeld, Esq.
10390 Santa Monica Boulevard
4th Floor
Los Angeles, CA 90025 ............ 25,000 * 25,000 0
Joseph Matulich and Lillian Matulich
as Co-Trustees of Matulich Living
Trust dtd 7/19/90
675 Harrow Drive
San Mateo, CA 94402 ............... 25,000 * 25,000 0
Raphael & Bella Wizman JTWROS
40 Kings Park Road
Commack, NY 11725 ............... 24,444 * 24,444 0
CM Investment Nominees Ltd.
9 Devonshire Square
London EC2M 4YL
UK .............................. 20,000 * 20,000 0
The Rogoff Family Trust
1700 Banks Road
Margate, FL 33063 ............... 18,333 * 18,333 0
Eliezer J. Wizman & Karen A
Wizman JTWROS
12 Shelton Court
Commack, NY 11725 ............... 15,000 * 15,000 0
Asher Plaut and Evelyn Plaut
JTWROS
127 Fields Avenue
Staten Island, NY 10314 ......... 12,500 * 12,500 0
Craig A. Blumberg
209 East 56th Street, #9A
New York, NY 10022 ............... 12,500 * 12,500 0
Edward Haymes
7108 Queenferry Circle
Boca Raton, FL 33496 ............ 12,222 * 12,222 0
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned Before
the Offering (1)
---------------------------- Shares Beneficially
Name and Address Shares Owned After
of Beneficial Owner Shares (2) Percent (3) Offered (4) the Offering
- ------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Orrin S. and Jeffrie K. Stern, TBE
6329 NW 23rd Way
Boca Raton, FL 33496 ............ 12,222 * 12,222 0
John J. Heckler & Lenore F. Heckler
JTWROS
PO Box 3257
Telluride, CO 81435 ............ 12,222 * 12,222 0
Thomas A. & Ellen Weiss JTWROS
17381 Springtree Lane
Boca Raton, FL 33487 ............ 12,222 * 12,222 0
Richard M. & Gail L. Weiss
JTWROS
9050 SW 69th Court
Miami, FL 33156 .................. 12,222 * 12,222 0
Sid Paterson
1385 York Ave. Apt. 34H
New York, NY 10021 ............... 12,222 * 12,222 0
Badger AS
Attn: Peter Barrington Kirk
Overbergun 22B
1315 Nesoya Norway ............... 12,222 * 12,222 0
Wartels International Corp.
Attn: Mrs. Denise Webster
12 Chemin De La Garance
1208 Geneva
Switzerland ..................... 12,222 * 12,222 0
Anne P. & Harry Newman, Jr
JTWROS
5530 The Toledo
Long Beach, CA 90803 ............ 12,222 * 12,222 0
Harper, Allen C. & Carol E
JTWROS
5841 SW 116th Street
Coral Gables, FL 33156 ......... 12,222 * 12,222 0
Harry O. Hefter
3227 Greenleaf Ave
Wilmette, IL 60041 ............... 12,000 * 12,000 0
The Marvin J. Richman Family Trust,
dtd 3/22/85
149-1/2 South Camden Drive
Beverly Hills, CA 90212 ......... 10,000 * 10,000 0
Alan W. Rubin
922 South Barrington Ave. #102
Los Angeles, CA 90049 ............ 10,000 * 10,000 0
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned Before
the Offering (1)
---------------------------- Shares Beneficially
Name and Address Shares Owned After
of Beneficial Owner Shares (2) Percent (3) Offered (4) the Offering
- ------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Societe Financiere Privee SA
Attn: Mr. Christophe Pele
3, rue Maurice
Casa Postale 3668
1211 Geneve 3 ............... 10,000 * 10,000 0
Eurocapital, Ltd.
c/o GFI Servizi Finanziari SA
Via Balestra 27
Lugano, Switzerland
6900 ........................ 9,287 * 9,287 0
Paul J. Coughlin III
687 River Rd
Cos Cob, CT 06807 ......... 7,500 * 7,500 0
Daniel & Tova S. Plant JTWROS
275 Leroy Ave
Cedarhurst, NY 11516 ...... 6,111 * 6,111 0
Ruth Zelinka
200 E. 57th Street
New York, NY 10022 ......... 6,111 * 6,111 0
Sverre O. Lie
Department of Pediatrics
University Hospital
0027 Oslo, Norway ......... 4,000 * 4,000 0
Brill Securities, Inc.
152 W. 57th Street
New York, NY 10019 ......... 3,813 * 3,813 0
Gary Pearson
37 Millfarm Rd.
Stoughton, MA 02072 ......... 1462 * 1462 0
Pellet Investments
5063 Toole Avenue
Missoula, MT 59802 ......... 366 * 366 0
</TABLE>
- ----------------
* Less than 1%
(1) Unless otherwise indicated, each shareholder has sole voting and investment
power with respect to the Common Stock indicated as beneficially owned
thereby.
(2) These share amounts include up to an aggregate of 1,649,984 shares which
may be issued to certain Selling Securityholders upon the exercise of the
Warrants.
(3) In accordance with Rule 13d-2 of the Exchange Act, shares that are not
outstanding, but that are issuable pursuant to the exercise of outstanding
Warrants, all of which are exercisable within 60 days of the date of this
Prospectus, have been deemed to be outstanding for the purpose of
computing the percentage of outstanding shares owned by the individual
having such right, but have not been deemed outstanding for the purpose of
computing the percentage for any other person. See "Description of
Securities."
(4) With respect to the Selling Securityholders, it has been assumed that all
their shares so offered will be sold.
37
<PAGE>
DESCRIPTION OF SECURITIES
Capital Stock of Capital Growth Holdings, Ltd.
CGH has 145,000,000 shares of authorized capital stock, consisting of
100,000,000 shares of common stock, par value $.001 per share ("Common Stock"),
25,000,000 shares of Class B common stock, par value $.001 per share ("Class B
Common Stock") and 20,000,000 shares of preferred stock, par value $.001 per
share ("Preferred Stock").
Common Stock. Each holder of Common Stock is entitled to one vote for
each share held of record on all matters to be voted on by stockholders. The
holders of Common Stock vote in one class with the holders of Class B Common
Stock. There is no cumulative voting with respect to the election of directors,
with the result that the holders of more than 50% of the shares voted for the
election of directors can elect all of the directors. Subject to a $38,000
arrearage on the Company's converted Series A and Series B Preferred Stock and
any preferences that may be applicable to any future issuances of preferred
stock, the holders of Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock along with the holders
of Class B Common Stock are entitled to share ratably in all assets remaining
available for distribution to them after payment of liabilities and after
provision has been made for any class of stock that may be granted in the
future having preference over Common Stock and Class B Common Stock. Holders of
shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are fully paid and
nonassessable. The approval of holders of a majority of the outstanding shares
of Common Stock is required to vary the rights of the Common Stock.
Class B Common Stock. Each holder of the Class B Common Stock is entitled
to one vote for each share held of record on all matters to be voted on by
stockholders. The holders of the Class B Common Stock vote in one class with
the holders of Common Stock. There is no cumulative voting with respect to the
election of directors, with the result that the holders of more than 50% of the
shares voted for the election of directors can elect all of the directors.
Subject to a $38,000 arrearage on the Company's converted Series A and Series B
Preferred Stock, the preferences applicable to the outstanding Common Stock and
any preferences that may be applicable to any future issuances of preferred
stock, the holders of Class B Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor, subject to a $.20 per share limitation on dividends in
1998. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, the holders of Class B Common Stock along with the
holders of the Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision has been made for any class of stock that may be granted in the
future having preference over the Class B Common Stock and Common Stock.
Holders of shares of Class B Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Class B Common Stock, except that each share of Class B
Common Stock will automatically convert into one share of Common Stock (subject
to adjustment under certain circumstances) on December 31, 1998. All of the
outstanding shares of Class B Common Stock are fully paid and nonassessable.
The approval of holders of a majority of the outstanding shares of Class B
Common Stock is required to vary the rights of the Class B Common Stock.
Preferred Stock. The Preferred Stock may be issued in series from time to
time with such designation, rights, preferences and limitations as the Board of
Directors may declare by resolution. The rights, preferences and limitations of
separate series of Preferred Stock may differ with respect to such matters as
may be determined by the Board of Directors, including, without limitation, the
rate of dividends, method and nature of payment of dividends, terms of
redemption, amounts payable on liquidation, sinking fund provisions (if any),
conversion rights (if any) and voting rights. The potential exists, therefore,
that additional shares of Preferred Stock might be issued which would grant
dividend preferences and liquidation preferences to preferred stockholders over
common stockholders in addition to those already in existence with respect to
the Designated Preferred Stock. Unless the nature of a particular transaction
and applicable statute require such approval, the Board of Directors has the
authority to issue shares of Preferred Stock without stockholder approval. The
issuance of Preferred Stock may have the effect of delaying or preventing a
change in control without any further action by stockholders.
Redeemable Warrants. The Company currently has 1,649,984 Redeemable
Warrants issued and outstanding. The following is a brief summary of certain
provisions of the Redeemable Warrants.
38
<PAGE>
Each Redeemable Warrant entitles the registered holder to purchase one
share of Common Stock at an initial exercise price of $4.00 per share (subject
to adjustment for stock splits, combinations and reclassifications) at any time
prior to redemption from October 3, 1996, October 15, 1996, March 20, 1997, and
March 27, 1997 until October 3, 1999, October 15, 1999, March 20, 2000 and
March 27, 2000, respectively, as the case may be. Redeemable Warrants may be
redeemed by the Company at $.05 per Redeemable Warrant on 30 days' notice,
provided that (i) certain securities are registered under the Securities Act
and applicable state blue sky laws, (ii) a current Prospectus is then available
for the sale of such securities, and (iii) the closing bid price for the Common
Stock as reported by Nasdaq, the OTC Bulletin Board, or such other market on
which the Common Stock is then traded equals or exceeds $6.00 for any 20
trading days within a period of 30 consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption.
The Redeemable Warrants are not exercisable or redeemable unless, at the
time of the exercise or redemption, the Company has a current Prospectus
covering the shares of Common Stock issuable upon the exercise of such
warrants, or such shares have been registered, qualified or deemed to be exempt
under the securities laws of the state of residence of the exercising holder of
such warrants. Moreover, if the shares of Common Stock underlying the
Redeemable Warrant are not registered or qualified for sale in the state in
which a warrant holder resides, such holder might not be permitted to exercise
the Redeemable Warrants.
If the Company has a current Prospectus covering the shares of Common
Stock issuable upon exercise of the Redeemable Warrants, or such shares have
been registered, qualified or deemed exempt under Federal and applicable State
securities laws, each Redeemable Warrant may be exercised by surrendering the
warrant certificate, with the subscription form attached to the warrant
certificate properly completed and executed, together with payment of the
exercise price to the warrant agent. The Redeemable Warrants may be exercised
in whole or from time to time in part. If less than all of the Redeemable
Warrants evidenced by a warrant certificate are exercised, a new warrant
certificate will be issued for the remaining number of Redeemable Warrants.
The Redeemable Warrants do not confer upon the holders thereof any voting,
dividend or other rights as shareholders of the Company.
Consulting Warrants. The Company issued redeemable warrants to purchase
up to 250,000 shares of Class B Common Stock (the "Consulting Warrants") in
exchange for consulting services to be rendered on behalf of the Company. The
Consulting Warrants vested on a pro rata basis based upon the period of time
that such consulting services were provided to the Company.
In accordance with such vesting schedule, the Consulting Warrants entitle
the registered holder to purchase up to 52,083 shares of Class B Common Stock
at an initial exercise price of $2.00 per share (subject to adjustment for
stock splits, combinations and reclassifications) at any time prior to
redemption from the date of issuance until November 3, 1999. The Consulting
Warrants may be redeemed by the Company at $.05 per Redeemable Warrant on 30
days' notice, provided that (a) the shares of Common Stock underlying the Class
B Common Stock underlying the Consulting Warrants are registered under the
Securities Act and applicable state blue sky laws, (b) a current Prospectus is
then available for the sale of the Common Stock, and (c) the closing bid price
for the Common Stock as reported by Nasdaq, the OTC Bulletin Board, or such
other market on which the Common Stock is then traded equals or exceeds $6.00
for any 20 trading days within a period of 30 consecutive trading days ending
on the fifth trading day prior to the date of the notice of redemption.
Delaware Law and Certain Charter Provisions
Under Delaware law, directors and officers of a Delaware corporation can
generally be held liable for certain types of negligence and other acts and
omissions in connection with the performance of their duties to the corporation
and its stockholders. As permitted by the Delaware General Corporation law (the
"Delaware GCL"), however, the Certificate of Incorporation contains a provision
eliminating the liability of the Company's directors and officers for monetary
damages for breaches of their duty of care to the Company and the stockholders,
except as described below.
Such provision does not eliminate liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts of omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) for unlawful payments of dividends or
unlawful stock purchases or redemptions as provided in Section 174 of the
Delaware GCL; or (iv) for any transaction from which the director derives an
improper personal benefit. Such provision does not eliminate the duty of care,
but only eliminates liability for monetary damages for
39
<PAGE>
breaches of such duty under various circumstances. Accordingly, such provision
has no effect on the availability of equitable remedies, such as an injunction
or rescission, based upon a breach of the duty of care. Equitable remedies may
not, however, be wholly effective to remedy the injury caused by any such
breach.
The Certificate of Incorporation provides that the Company shall indemnify
its directors and officers to the fullest extent permitted by Delaware law and
advance expenses to such directors and officers to defend any action for which
rights of indemnification are provided. In addition, the Certificate of
Incorporation permits the Company to grant such rights to its employees and
agents. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors, officers
and employees.
The Company is subject to the provisions of Section 203 of the Delaware
GCL, an anti-takeover law. In general, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is, or the transaction in which the person became an
interested stockholder was, approved in a prescribed manner or certain other
exceptions apply. For purposes of Section 203, a "business combination" is
defined broadly to include a merger, asset sale or other transaction resulting
in a financial benefit to the interested stockholder, and subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associated, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American
Securities Transfer & Trust, Inc., Lakewood, Colorado.
PLAN OF DISTRIBUTION
This Prospectus covers the sale of Shares by the Selling Securityholders.
Any distribution of any such securities by the Selling Securityholders, or by
their pledgees, donees, transferees or other successors in interest may be
effected from time to time in one or more of the following transactions: (a) to
underwriters who will acquire securities for their own account and resell them
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale (any
public offering price and any discount or concessions allowed or reallowed or
paid to dealers may change from time to time); (b) through brokers, acting as
principal or agent, in transactions (which may involve block transactions) on
the OTC Bulletin Board or on one or more exchanges on which the securities are
then listed, in special offerings, exchange distributions pursuant to the rules
of the applicable exchanges or in the over-the-counter market, or otherwise, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices; (c) directly
or through brokers or agents in private sales at negotiated prices; or (d) by
any other legally available means. Neither ICG, a wholly-owned subsidiary of
the Company, nor CGI, an affiliate of the Company, each a registered
broker-dealer with the SEC and a member of the NASD, will participate in this
offering in any capacity.
The Company will not receive any proceeds from the sale of the Shares
offered hereby. The aggregate proceeds to the Selling Securityholders from the
securities offered hereby will be the offering price less applicable
commissions or discounts, if any. There is no assurance that the Selling
Securityholders will sell any of the securities offered hereby.
The Selling Securityholders and such underwriters, brokers, dealers or
agents, upon effecting a sale of securities, may be considered "underwriters"
as that term is defined in the Securities Act. Sales effected through agents,
brokers or dealers will ordinarily involve payment of customary brokerage
commissions although some brokers or dealers may purchase such securities as
agents for others or as principals for their own account. The Selling
Securityholders will pay any sales commissions or other sellers' compensation
applicable to such transactions. A portion of any proceeds of sales and
discounts, commissions or other sellers' compensation may be deemed to be
underwriting compensation for purposes of the Securities Act.
Pursuant to applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the securities offered hereby may not
simultaneously engage in market making activities for the Common Stock for a
period of five business days prior to the commencement of such distribution. In
addition, each Selling Securityholder and any other person who participates in
a distribution of the securities will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including Regulation
M, which provisions
40
<PAGE>
may limit the timing of purchases and may affect the marketability of the
securities and the ability of any person to engage in market making activities
for the Common Stock.
At the time a particular offering of securities is made, to the extent
required, a Prospectus supplement will be distributed which will set forth the
number of securities being offered and the terms of the offering, including the
purchase price or the public offering price, the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriters
for securities purchased from the Selling Securityholders, any discounts,
commissions and other items constituting compensation from the Selling
Securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the securities will be sold in such jurisdictions, if required,
only through registered or licensed brokers or dealers. In addition, in certain
states the securities may not be sold unless the securities have been
registered or qualified for sale in such state or an exemption from
registration or qualification is available and the conditions of such exemption
have been satisfied.
The Company has agreed that it will bear all costs, expenses and fees in
connection with the registration or qualification of the Shares under federal
and state securities laws. The Company and each Selling Securityholder have
agreed to indemnify each other and certain other persons against certain
liabilities in connection with the offering of the securities, including
liabilities arising under the Securities Act.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 3,398,496 shares of Common Stock outstanding. Of these
shares, the 3,098,496 shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, except
for any shares purchased by an "affiliate" of the Company (as defined in the
Securities Act and the rules and regulations thereunder) which will be subject
to the resale limitations of Rule 144 promulgated under the Securities Act. Of
the remaining 300,000 shares, 11,166 are deemed to be "restricted securities,"
as that term is defined under Rule 144 promulgated under the Securities Act, as
such shares were issued in private transactions not involving a public
offering. Of these, a total of 8,260 shares will become available for sale 90
days after the date of this Prospectus, subject to the provisions of Rule 144
under the Securities Act. Further, the Company has 16,431,000 shares of Class B
Common Stock issued and outstanding, all of which are "restricted securities."
Such shares of Class B Common Stock will automatically convert to Common Stock
on December 31, 1998, at which time such shares of Common Stock may be sold in
compliance with Rule 144.
In general, under Rule 144, as currently in effect, beginning 90 days
after the effective date of the Registration Statement of which this Prospectus
is a part, a stockholder (or stockholders whose shares are aggregated),
including an affiliate of the Company, who beneficially has owned his or her
restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an affiliate, is entitled
to sell, within any three-month period, a number of such shares that does not
exceed the greater of one percent of the then outstanding shares of Common
Stock (approximately 33,985 shares immediately after this offering) or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, affiliates of the
Company must comply with the restrictions and requirements of Rule 144, other
than the one-year holding period requirement, in order to sell shares of Common
Stock which are not restricted securities. Under Rule 144(k), if a period of at
least two years has elapsed between the later of the date restricted securities
were acquired from the Company and the date they were acquired from an
affiliate of the Company, a stockholder who is not an affiliate of the Company
at the time of sale and has not been an affiliate at any time during the 90
days prior to the sale would be entitled to sell the shares immediately without
compliance with the foregoing requirements under Rule 144, other than the
requirements as to the availability of current public information about the
Company.
Prior to this offering, there has been only a limited public market for
the Common Stock. The Company can make no predictions as to the effect, if any,
that sales of shares of Common Stock or the availability of shares for sale
will have on the market price prevailing from time to time. Nevertheless, sales
of substantial amounts of Common Stock in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
41
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Orrick, Herrington & Sutcliffe
LLP, New York, New York.
EXPERTS
The financial statements of Capital Growth Holdings, Ltd. as of December
31, 1996 and for the period February 26, 1996 (inception) through December 31,
1996 appearing in this Prospectus and Registration Statement have been audited
by Richard A. Eisner & Company, LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the Registration
Statement and the exhibits and schedules filed as a part thereof. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected, without charge, at the Public Reference Section of the Commission at
450 Fifth Street N.W., Washington, D.C., and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York, and
500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of all or any
portion of the Registration Statement can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the prescribed fees. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http:\\www.sec.gov. Descriptions contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete and each such description
is qualified by reference to such contract or document.
The Company intends to make available to its stockholders annual reports
containing financial statements audited by an independent certified public
accounting firm. In addition, the Company intends to make available to its
stockholders quarterly reports containing unaudited financial information for
each of the first three fiscal quarters of each year.
42
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Auditors ............................................. F-2
Balance Sheet as of December 31, 1996 ....................................... F-3
Statement of Operations for the period February 26, 1996 (inception) to
December 31, 1996 ......................................................... F-4
Statement of Changes in Stockholders' Equity for the period February 26, 1996
(inception) to December 31, 1996 .......................................... F-5
Statement of Cash Flows for the period February 26, 1996 (inception) to
December 31, 1996 ......................................................... F-6
Notes to Financial Statements ............................................. F-7
Condensed Consolidated Balance Sheet At September 30, 1997 (Unaudited) ...... F-11
Condensed Consolidated Statement of Operations for the nine months ended
September 30, 1997 and September 30, 1996 (Unaudited) ..................... F-12
Condensed Consolidated Statement of Cash Flows for the nine months ended
September 30, 1997 and September 30, 1996 (Unaudited) ..................... F-13
Notes to Financial Statements (Unaudited) ................................. F-14
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Capital Growth Holdings, Ltd.
Greenwich, Connecticut
We have audited the accompanying balance sheet of Capital Growth Holdings,
Ltd. (a development stage company) as at December 31, 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for
the period February 26, 1996 (inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Capital Growth Holdings,
Ltd. at December 31, 1996, and the results of its operations and its cash flows
for the period February 26, 1996 (inception) to December 31, 1996 in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 22, 1997
With respect to Notes A and B
March 14, 1997
With respect to Notes D[3] and L
March 27, 1997
F-2
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
(a development stage company)
BALANCE SHEET
DECEMBER 31, 1996
(Notes A and B)
<TABLE>
<S> <C>
ASSETS
- ------
Cash .................................................................. $2,960,255
Restricted cash (Note J) ............................................. 100,000
Customer list (Note C[3]) ............................................. 120,000
Investments in debt and equity securities (at estimated fair value)
(Note C[4]) ......................................................... 120,464
Investments in and advances to unconsolidated affiliate (Note C[5]) ... 186,115
----------
TOTAL ............................................................... $3,486,834
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Accrued expenses and other liabilities .............................. $ 51,000
----------
Commitments (Note J)
Stockholders' equity (Notes D, E and F):
Common stock--no par value; 100,000,000 shares authorized;
2,846,094 shares issued and outstanding .............................. $3,088,260
Class B common stock--no par value; 25,000,000 shares
authorized; 11,349,666 shares issued and outstanding ............... 334,803
Series A convertible preferred stock, stated at liquidation
preference - (no par value); 4,001,334 shares authorized, issued
and outstanding ...................................................... 560,187
Series B convertible preferred stock, stated at liquidation
preference - (no par value); 1,080,000 shares authorized, issued
and outstanding ...................................................... 226,800
Deficit accumulated during the development stage ..................... (718,616)
Subscription receivable ............................................. (55,600)
----------
Total stockholders' equity .......................................... 3,435,834
----------
TOTAL ............................................................... $3,486,834
==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
(a development stage company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 26, 1996 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Interest income ................................................... $ 22,033
General and administrative expense .............................. (740,649)
----------
Net loss ......................................................... (718,616)
Less cumulative preferred dividend .............................. (8,530)
----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ..................... $ (727,146)
==========
Net loss attributable to common stock per share (Note C[2]) ...... $ (.06)
==========
Weighted average number of shares outstanding (Note C[2]) ......... 11,910,346
==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 26, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class B Series A
Shares Common Common Covertible
Outstanding Stock Stock Preferred
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Balance--February 26, 1996 ............ 297,094
Issuance of common stock ............... 2,549,000 $3,088,260
Issuance of Class B common stock ...... 11,289,666 $214,803
Issuance of Class B common stock in
a noncash transaction for $2.00 per
share equivalent ..................... 60,000 120,000
Issuance of convertible preferred
Series A stock ........................ 4,001,334 $560,187
Issuance of convertible preferred
Series B stock ........................ 1,080,000
Subscription receivable ...............
Net loss .............................. ---------- -------- --------
BALANCE--DECEMBER 31, 1996.............. $3,088,260 $334,803 $560,187
========== ======== ========
<CAPTION>
Deficit
Accumulated
Series B During the
Convertible Development Subscription
Preferred Stage Receivable Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance--February 26, 1996 ............ $ 0
Issuance of common stock ............... 3,088,260
Issuance of Class B common stock ...... 214,803
Issuance of Class B common stock in
a noncash transaction for $2.00 per
share equivalent ..................... 120,000
Issuance of convertible preferred
Series A stock ........................ 560,187
Issuance of convertible preferred
Series B stock ........................ $226,800 226,800
Subscription receivable ............... $ (55,600) (55,600)
Net loss .............................. $ (718,616) (718,616)
-------- ---------- --------- ----------
BALANCE--DECEMBER 31, 1996.............. $226,800 $ (718,616) $ (55,600) $3,435,834
======== ========== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
(a development stage company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 26, 1996 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss ............................................................... $ (718,616)
Adjustment to reconcile net loss to net cash used in operating activities:
Change in operating liabilities:
Increase in accrued expenses and other liabilities ..................... 51,000
----------
Net cash used in operating activities ................................. (667,616)
----------
Cash flows from investing activities:
Investment in restricted cash .......................................... (100,000)
Investment in and advances to unconsolidated affiliate .................. (186,115)
Investments in debt and equity securities .............................. (120,464)
----------
Net cash used in investing activities ................................. (406,579)
----------
Cash flows from financing activities:
Proceeds from the issuance of common and preferred stock ............... 4,034,450
----------
NET INCREASE IN CASH ...................................................... 2,960,255
Cash--February 26, 1996 ................................................... 0
----------
CASH--DECEMBER 31, 1996 ................................................... $2,960,255
==========
Noncash transaction:
Acquisition of customer list for common stock ........................... $ 120,000
==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(NOTE A)--The Corporation:
Capital Growth Holdings, Ltd. (the "Company" or "CGH"), formerly Galt
Financial Corporation, was incorporated in the State of Colorado on June 15,
1987. On March 14, 1997, CGH, an inactive company, acquired 100% of the
outstanding capital stock of International Capital Growth, Ltd. ("ICG") (a
company formed in February 1996), a Delaware corporation and member of the
National Association of Securities Dealers, Inc. The acquisition was
consummated through an exchange of shares that resulted in a change in control
of CGH (see Note B for further discussion). The transaction has been treated as
a recapitalization. In connection therewith, ICG's historic capital accounts
were retroactively adjusted to reflect the equivalent number of shares issued
by CGH in the transaction while ICG's historical deficit accumulated during the
development stage is carried forward. The operations reflect those of ICG from
inception. Through December 31, 1996 the Company has been in the development
stage and has conducted no revenue producing activities. During the first
quarter of 1997 the Company ceased being in the development stage. The Company
is developing a diversified financial service firm to pursue business
opportunities in the United States and the United Kingdom.
(NOTE B)--Acquisition:
As discussed in Note A, the Company acquired 100% of the outstanding
capital stock of ICG in a reverse acquisition consummated through a share
exchange transaction (the "Share Exchange"). In accordance with the Share
Exchange, the Company issued 18,980,000 shares of its capital stock and
1,625,000 redeemable warrants to the shareholders of ICG in exchange for the
outstanding common and convertible preferred shares and warrants of ICG. In
addition, warrants to obtain 250,000 shares of Class B common stock issued by
ICG to a consultant were exchanged.
The 18,980,000 shares of capital stock of the Company that were issued in
the Share Exchange consisted of (a) 2,549,000 shares of common stock, (b)
11,349,666 shares of Class B common stock, (c) 4,001,334 shares of 5%
Cumulative Convertible Series A Preferred Stock and (d) 1,080,000 shares of 5%
Cumulative Convertible Series B Preferred Stock. 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
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 issuance of warrants
exercisable at $2.00 per share will result in a charge to operations based on
their fair value over the number of months that such consulting services are
provided. In connection with the share exchange, ICG stock option holders
exchanged their options for options of the Company. The options are exercisable
into Class B common stock of the Company.
(NOTE C)--Summary of Significant Accounting Policies:
[1] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[2] Net loss per common share:
Net loss per common share is based on the weighted average number of
common shares outstanding during the year. Common stock equivalents
representing options and warrants and convertible securities have not been
included as they would be antidilutive. Net loss attributable to common stock
was adjusted to reflect cumulative dividends on preferred shares outstanding.
[3] Customer list:
Customer lists are stated at cost and are being amortized over three years.
F-7
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
(NOTE C)--Summary of Significant Accounting Policies: (Continued)
[4] Investment in debt and equity securities:
Investment in debt and equity securities are carried at cost which
approximates fair value.
[5] Investment in and advances to unconsolidated affiliate:
The Company has a 50% equity interest in an unconsolidated affiliate
Capital Growth (Europe) Limited.
Investment in and advances to an unconsolidated affiliate are recorded
using the equity method of accounting.
[6] Recently issued accounting pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share". This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statement of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations. This statement will be effective for the Company's 1997 year
end. The Company has not yet quantified what effect the adoption of SFAS 128
will have on its loss/earnings per share of common stock.
(NOTE D)--Stockholders' Equity:
[1] Preferred stock:
The authorized preferred stock of the Company consists of 20,000,000
shares, $.001 par value. The preferred stock 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 fix the number of shares in such series, and the
preferences, rights and restrictions thereof.
On March 14, 1997, the Board of Directors designated 4,365,000 shares of
preferred stock as 5% Cumulative Series A Preferred Stock and 1,200,000 shares
of preferred stock as 5% Cumulative Convertible Series B Preferred Stock.
The holders of Series A and B preferred stock are entitled to preferential
cumulative dividends beginning October 12, 1996 equal to 5% of the liquidation
preference per annum and share equally with the Class B common stock in any
dividends declared thereon. The shares are convertible at the option of the
holder and automatically convert into Class B common stock on a one-for-one
basis on October 12, 1997. The Series A and B have a liquidation preference of
$.14 and $.21 per share, respectively.
Supplemental loss per share would have been calculated as $.05 per common
share if the convertible preferred stock was treated as common stock at date of
issuance.
[2] Class B common stock:
Each Class B common stock is entitled to one vote per share. The Class B
common stock is junior in priority with respect to dividends to the common
stock and the Series A and B preferred stock and automatically converts into
common stock on a one-for-one basis on December 31, 1998.
[3] Dividend:
In March 1997, the Board of Directors declared an annual dividend of $.225
per share of common stock, accruing as of January 1, 1997 payable commencing
June 30, 1997 and on a quarterly basis thereafter. The dividend will be paid
after payment of any dividends due on all classes of stock with priority over
common stock (currently Series A and B preferred stock), subject to any
operating restrictions. In addition, the Board of Directors determined that any
dividend declared on Class B common stock will be subject to a $.15 and $.20
per share limitation on annual dividends in 1997 and 1998, respectively.
F-8
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
(NOTE D)--Stockholders' Equity: (Continued)
[4] Subscription receivable:
Subscription receivable represents amounts to be collected by the Company
from a Series A convertible preferred stockholder.
(NOTE E)--Warrants:
In October 1996 the Company raised $3,250,000 through the sale of units in
a private placement. Each unit was sold for $25,000 and consisted of 12,500
shares of common stock and 12,500 redeemable warrants. As a result, the Company
has 1,625,000 redeemable warrants issued and outstanding.
Each redeemable warrant entitles the registered holder to purchase one
share of common stock at an initial exercise price of $4.00 per share (subject
to adjustment for stock splits, combinations and reclassifications) at any time
prior to redemption from October 3, 1996 and October 15, 1996 until October 3,
1999 and October 15, 1999, respectively.
Additionally, the Company has agreed to issue 250,000 redeemable common
stock purchase warrants in exchange for consulting services to be rendered on
behalf of the Company. The consulting warrants vest at the rate of 125,000 per
annum on a pro rata basis based upon the number of months that such consulting
services are provided to the Company. Each consulting warrant entitles the
registered holder to purchase one share of common stock at an initial exercise
price of $2.00 per share at any time prior to redemption from the date of
issuance until 36 months thereafter.
(NOTE F)--Stock Option Plan:
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. The alternative
fair value accounting provided for under Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
requires the use of an option valuation model. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The Company's 1996 Incentive Stock Option Plan has authorized the grant of
options to management personnel for up to 1,500,000 shares of the Company's
common stock. All options granted have 10 year terms and carry certain vesting
requirements.
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 1996 interest rates of
6.2%, dividend yields of 0%, volatility factors of the expected market price of
the Company's common stock of .1 and .35; and a weighted-average expected life
of the option of 10 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock option. The pro
forma net loss for 1996 is $(1,332,416) or $.11 loss per share. A summary of
the Company's stock option activity and related information for the period
February 26, 1996 through December 31, 1996 is as follows:
F-9
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
(NOTE F)--Stock Option Plan: (Continued)
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
--------- -----------------
<S> <C> <C>
Outstanding--beginning of period .................................... -- --
Granted ............................................................ 660,000 $ 2.00
Outstanding and exercisable -- end of year ........................... 660,000 2.00
Weighted-average fair value of options granted during the year ...... 0.92
</TABLE>
(NOTE G)--Related Party Transactions:
The Company is under common ownership with Capital Growth International,
L.L.C. ("CGI") and CGI is utilizing space at the Company's offices without the
allocation of rent. Such amount was not material for period from February 26,
1996 through December 31, 1996. Rent expense for the period from February 26,
1996 through December 31, 1996 was approximately $51,000.
(NOTE H)--Net Capital Requirements:
The Company is subject to the Securities and Exchange Commission Uniform
Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1 (8 to 1 for the first 12 months of
operations). At December 31, 1996 the Company had net capital of $2,909,255
which was $2,859,255 in excess of its required net capital.
(NOTE I)--Exemption From Rule 15c3-3:
The Company is exempt from the reserve requirement of the Securities and
Exchange Commission's Rule 15c3-3 pursuant to Section 15c3-3(k)(2)(ii).
(NOTE J)--Commitments:
The Company has issued a letter of credit in the amount of $100,000 to
secure future rent payments and leasehold improvements at the London office of
Capital Growth (Europe) Limited. The letter of credit is secured by a money
market account.
(NOTE K)--Provision for Taxes:
At December 31, 1996 the Company has a net operating loss carryforward of
approximately $700,000 available to apply against future taxable income. These
carryovers expire in 2011 and result, for financial reporting purposes, in
noncurrent benefits to the Company of approximately $287,000 at December 31,
1996, representing the effect of their potential use in reducing future taxable
income. Because of the uncertainty of the realization of such benefits in
future years, the Company has fully reserved against such benefits and has not
recognized them at any dollar value in the accompanying financial statements.
In addition, due to changes in ownership the future use of the net operating
loss carryforward may be subject to limitations.
(NOTE L)--Subsequent Event:
On March 27, 1997, the Company completed a private offering of its common
stock at $2.25 per share. The Company issued a total of 549,496 shares of
common stock which yielded net proceeds of approximately $1,000,000. A
placement fee of approximately $74,000 was paid to CGI. In connection
therewith, the Company agreed to issue warrants to purchase 24,984 shares of
common stock as partial compensation to certain nonaffiliated sub-placement
agents. Each warrant is exercisable to purchase one share of common stock at
$4.00 per share (subject to adjustment) through March 2000.
F-10
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(unaudited)
<TABLE>
ASSETS
- ------
<S> <C>
Cash ................................................................................ $1,231,503
Investments in debt and equity securities (Note 17) ................................. 2,866,034
Loans to affiliates ................................................................. 225,000
Restricted cash ..................................................................... 101,872
Fixed assets, net ................................................................... 250,537
Customer list ....................................................................... 90,000
Other assets ........................................................................ 130,150
----------
TOTAL ASSETS ........................................................................ $4,895,096
==========
</TABLE>
<TABLE>
<S> <C>
LIABILITIES:
- ------------
Accrued expenses and other liabilities ............................................. $ 66,000
Deferred tax liability ............................................................ 250,000
Dividends payable .................................................................. 36,947
----------
Total Liabilities .................................................................. 352,947
----------
STOCKHOLDERS' EQUITY:
- ---------------------
Series A convertible preferred Stock--$.001 par value, 4,001,334 shares authorized;
4,001,334 shares issued and outstanding at liquidation value of $.14 per share ... 560,187
Series B convertible preferred Stock--$.001 par value, 1,080,000 shares authorized;
1,080,000 shares issued and outstanding at liquidation value of $.21 per share ... 226,800
Common Stock--$.001 par value, 25,000,000 shares authorized; 3,398,496 shares issued
and outstanding .................................................................. 3,398
Class B Common Stock--$.001 par value, 25,000,000 shares authorized; 11,349,666
shares issued and outstanding ................................................... 11,350
Additional Paid in Capital ......................................................... 4,365,808
Accumulated Deficit ............................................................... (541,794)
Subscriptions Receivable ............................................................ (53,600)
Treasury Stock (15,000 Shares) ...................................................... (30,000)
----------
Total stockholders' equity ......................................................... 4,542,149
----------
TOTAL .............................................................................. $4,895,096
==========
</TABLE>
See Notes to unaudited Financial Statements
F-11
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1997 September 30, 1996
-------------------- -------------------
<S> <C> <C>
Revenues:
Consulting fees .......................................... $ 351,434 0
Private placement fees .................................... 2,059,287 0
Unrealized gains on securities (Note 17) .................. 1,540,880 0
Interest Income .......................................... 73,856 1,243
----------- -----------
Total revenue ............................................. 4,025,457 1,243
=========== ===========
Operating expenses
Equity in net loss of unconsolidated affiliate ............ 96,115 0
Selling Expenses .......................................... 504,332 0
General and administrative ................................. 2,386,790 15,472
----------- -----------
Total operating expenses .................................... 2,987,237 15,472
----------- -----------
Net income (loss) before taxes .............................. 1,038,220 (14,229)
Provision for taxes ....................................... 250,000 0
----------- -----------
Net income (loss) .......................................... $ 788,220 (14,229)
Less cumulative preferred dividend ........................ (28,417)
-----------
Net income (loss) attributable to common stockholders ...... 759,803 (14,229)
=========== ===========
Primary:
Net income (loss) per common share ........................ $ 0.05 $ 0.00
=========== ===========
Weighted average number of shares outstanding ............... 14,576,409 11,210,550
=========== ===========
Fully diluted:
Net income per common share ................................. $ 0.04
===========
Weighted average number of shares outstanding ............... 19,676,184
===========
</TABLE>
See Notes to unaudited Financial Statements
F-12
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ 788,220 (14,229)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Amortization and depreciation ................................. 54,670
Equity in loss of unconsolidated affiliate ..................... 96,115
Valuation of warrant for consulting ........................... 35,417
Deferred taxes ................................................ 250,000
Changes in operating assets and liabilities:
Other assets ................................................... (74,039)
Accrued expenses and other liabilities ........................ 15,000
--------- -------
Net cash provided by (used in) operating activities ............ 1,165,383 (14,229)
--------- -------
Cash flows from investing activities:
Investment in debt and equity securities ........................ (2,746,034)
Investment in fixed Assets ....................................... (274,743)
Investment in restricted cash .................................... (1,872)
Loans to affiliates ............................................. (225,000)
----------
Net cash (used in) investing activities ........................ (3,247,649) 0
---------- -------
Cash flows from financing activities:
Net proceeds from sales of common stock ........................ 957,965 175,950
Dividends paid ................................................... (574,451)
Purchase of treasury Stock ....................................... (30,000)
---------- -------
Net cash provided by financing activities ..................... 353,514 175,950
---------- -------
Net Increase or (Decrease) in cash .............................. (1,728,752) 161,721
Cash at Beginning of Period ....................................... 2,960,255 0
---------- -------
Cash at end of period ............................................. 1,231,503 161,721
========== =======
</TABLE>
See Notes to unaudited Financial Statements
F-13
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
(1) Financial Statement Presentation
The unaudited financial statements of Capital Growth Holdings, Ltd. (the
"Company" or "CGH") have been prepared in accordance with generally accepted
accounting principles for interim financial information pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of operations for
the interim periods presented. Certain information and footnote disclosures
normally included in financial statements, prepared in accordance with
generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations. However, management believes that the
disclosures are adequate to make the information presented not misleading. The
results for the interim periods are not necessarily indicative of the results
for the full fiscal year. During the first quarter of 1997 the Company ceased
being a development stage company.
(2) Principle of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, International Capital Growth, Ltd. ("ICG").
All significant intercompany transactions and balances have been eliminated.
(3) Valuation of Securities
Securities owned and securities sold not yet purchased, which are listed
on a national securities exchange, are valued at their last reported sales
price. Securities which trade over-the-counter are valued at the "bid" price if
held long by the Company and at the "asked" price if sold short by the Company.
Securities which do not have a readily ascertainable market value are valued at
fair value as determined by management.
In circumstances where the Company owns securities, and the Company
believes the disposition of such securities would adversely affect the market
price of the securities due to the volume traded, the Company will discount the
market value accordingly. Unrealized gains and losses on all securities are
reflected in the statement of operations.
In addition, the company earns fees in the form of securities. These
securities are valued at market on the date they are earned. Thereafter, any
increase or decrease in said value is reflected in unrealized gains/losses on
securities.
(4) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
(5) Acquisition of International Capital Growth, Ltd.
On March 14, 1997, CGH, an inactive company, 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 (the "NASD"). The acquisition consummated through a share exchange
transaction (the "Share Exchange").
The Share Exchange resulted in a change in control of the Company. After
the share exchange, the former shareholders of the Company own approximately
2%, and the former stockholders of ICG currently own approximately 98% of the
outstanding capital stock of the Company. The transaction has been treated as a
recapitalization. In connection therewith, ICG's historic capital accounts were
retroactively adjusted to reflect the equivalent number of shares issued by CGH
in the transaction while ICG's historical deficit accumulated during the
development stage is carried forward.
See Notes to unaudited Financial Statements
F-14
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 1997
(Unaudited)
(5) Acquisition of International Capital Growth, Ltd. (Continued)
The 18,980,000 shares of capital stock of the Company 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 and automatically converts into Common Stock on a one-for-one
basis on December 31, 1998.
(6) Subscriptions Receivable
Subscriptions receivable represent amounts to be collected by the Company
from a Series A Preferred stockholder.
(7) Preferred Stock Conversion
On October 12, 1997, each share of the Company's 4,001,334 shares of
Series A Preferred Stock and 1,080,000 shares of Series B Preferred Stock
(collectively the "Designated Preferred Stock") converted into one share of
Class B Common Stock, at which time the 5% per share annual dividend that
accrued thereon ceased to accrue and became due and payable on October 24,
1997, out of funds legally available therefor. The dividend payable to the
holders of the Designated Preferred Stock as of October 12, 1997 is
approximately $38,000 in the aggregate. As a result of such conversion, the
Company has a total of 3,398,496 shares of Common Stock and 16,431,000 shares
of Class B Common Stock currently outstanding.
(8) Warrants
In October 1996 the Company raised $3,250,000 through the sale of units in
a private placement. Each unit was sold for $25,000 and consisted of 12,500
shares of common stock and 12,500 redeemable warrants. As a result, the Company
has 1,625,000 redeemable warrants issued and outstanding.
Each redeemable warrant entitles the registered holder to purchase one
share of common stock at an initial exercise price of $4.00 per share (subject
to adjustment for stock splits, combinations and reclassifications) at any time
prior to redemption from October 3, 1996 and October 15, 1996 until October 3,
1999 and October 15, 1999, respectively.
In addition, the Company issued 24,984 redeemable warrants to
sub-placement agents in connection with the Company's March private placement.
Each warrant initially is exercisable at a price of $4.00 per share at any time
prior to redemption from March 20, 1997 and March 27, 1997 until March 20, 2000
and March 27, 2000, respectively.
Additionally, the Company has 52,083 redeemable warrants outstanding, each
exercisable to purchase one share of Class B common stock at $2.00 per share
(subject to adjustment) at any time, until November 1999. The warrants are
exercisable at $2.00 per share and have resulted in a charge to operations
based on their fair value over the number of months that such consulting
services were provided.
F-15
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 1997
(Unaudited)
(9) Stock Option Plan
The Company's 1997 Stock Option Plan has authorized the grant of options
to management personnel for up to 1,500,000 shares of the Company's common
stock. All options granted have 10 year terms and carry certain vesting
requirements.
A summary of the Company's stock option activity and related information
for the period December 31, 1996 through September 30, 1997 is as follows:
Weighted-Average
Options Exercise Price
--------- -----------------
Outstanding--beginning of period ...... 660,000 $ 2.00
Granted .............................. 150,000 2.25
Exercised .............................. 0 0
Forfeited .............................. 25,000 2.00
Outstanding--end of period ............ 785,000 2.05
Exercisable--end of period ............ 785,000 2.05
(10) Related Party Transactions
The Company is affiliated with Capital Growth International LLC ("CGI")
and CGI is utilizing space at the Company's offices without the allocation of
rent.
In March 1997, the Company loaned $200,000 to an entity controlled by
Messrs. Ronald B. Koenig and Stanley Hollander, two of the Company's Directors.
The transaction was approved by the independent members of the Board of
Directors. The loan is due on March 26, 1998 and bears interest at 6% per
annum.
On September 15, 1997 the Company loaned $25,000 to CGI which was repaid
on October 2, 1997 without interest.
(11) Net Capital Requirements
ICG is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. (8 to 1 for the first 12 months of
operations). At September 30, 1997 the Company had net capital of $1,556,330
which was $1,510,580 in excess of its required net capital.
(12) Commitments
The Company has issued a letter of credit in the amount of $100,000 to
secure future rent payments and leasehold improvements at the London office of
Capital Growth (Europe) Limited. The letter of credit is secured by a money
market account.
(13) Recently Issued Accounting Pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per
Share." This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statements of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations. This statement will be effective for the Company's 1997 year
end. The Company has not yet quantified what effect the adoption of SFAS 128
will have on its loss/earnings per share of common stock.
The Financial Accounting Standards Board has recently issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure," No. 130, "Reporting Comprehensive Income," and
F-16
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 1997
(Unaudited)
(13) Recently Issued Accounting Pronouncements: (Continued)
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The above pronouncements will not have a significant effect on the information
presented in the financial statements.
(14) Private Placement
On March 27, 1997, the Company completed a private offering of its common
stock at $2.25 per share. The Company issued a total of 549,496 shares of
common stock which yielded net proceeds of approximately $1,000,000. A
placement fee of approximately $74,000 was paid to CGI. In connection
therewith, the Company agreed to issue warrants to purchase 24,984 shares of
common stock as partial compensation to certain nonaffiliated sub-placement
agents. Each warrant is exercisable to purchase one share at $4.00 per share
(subject to adjustment) through March 2000.
(15) Dividends
As of March 25, 1997, the Company's Board of Directors declared an annual
cumulative dividend of $.225 per share on the Common Stock for the calendar
years 1997 and 1998, subject to (i) the payment of dividends on all classes of
capital stock with priority over the Common Stock (currently, the Designated
Preferred Stock) and (ii) restrictions under applicable law (the "Common Stock
Dividend"). The Common Stock Dividend, which began accruing as of January 1,
1997, is currently payable on a quarterly basis ending on December 31, 1998.
(16) Income Taxes
The Company estimates at the end of each interim period the effective rate
to be applicable for the full fiscal year. The rate so determined is used to
provide for its tax provision for the nine months ended September 30, 1997.
Deferred tax liability at September 30, 1997 consists of the following:
Deferred tax asset
Net operating loss carryforward ...... $ 440,000
Loss from equity interest ............ 40,000
----------
480,000
Valuation allowance .................. (110,000)
----------
370,000
Deferred tax liability
Appreciation on securities ......... 620,000
----------
Net ................................. $ 250,000
==========
(17) Subsequent Event
Subsequent to September 30, 1997 the market price of certain of the
Company investments in equity securities declined significantly. The securities
with a carrying amount of approximately $2,900,000 at September 30, 1997
declined to approximately $500,000 at December 31, 1997.
F-17
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby. If given or made, such information or
representation must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer of any securities other
than the securities to which it relates or an offer to any person in any
jurisdiction in which such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the facts herein set
forth since the date hereof.
TABLE OF CONTENTS
Page
-------------
Prospectus Summary .................. 3
Risk Factors ........................ 6
The Company ........................... 15
Use of Proceeds ..................... 16
Market for Common Equity ............ 16
Dividend Policy ..................... 17
Capitalization ........................ 17
Selected Financial Data ............... 18
Management's Discussion and
Analysis and Results of
Operations ........................ 19
Business .............................. 21
Management ........................... 25
Certain Transactions .................. 29
Principal Stockholders ............... 31
Selling Securityholders ............... 32
Description of Securities ............ 38
Plan of Distribution .................. 40
Shares Eligible for Future Sale ...... 41
Legal Matters ........................ 42
Experts .............................. 42
Additional Information ............... 42
Index to Financial Statements ......... F-1
================================================================================
================================================================================
4,748,480 Shares
Capital Growth Holdings, Ltd.
Common Stock
----------------------
PROSPECTUS
----------------------
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24.--Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides for the Company to
indemnify all persons permitted by Delaware General Corporation Law to the
maximum extent permitted thereby. In addition, the Company's Certificate of
Incorporation limits the liability of directors to the maximum extent permitted
by Delaware law. These provisions of the Certificate of Incorporation are
contained in Articles TEN and THIRTEEN, which read as follows:
TENTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that the foregoing shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
THIRTEENTH: Except as may otherwise be specifically provided in this
Certificate of Incorporation, no provision of this Certificate of Incorporation
is intended by the Corporation to be construed as limiting, prohibiting,
denying or abrogating any of the general or specific powers or rights conferred
under the General Corporation Law upon the Corporation, upon its stockholders,
bondholders and security holders, and upon its directors, officers and other
corporate personnel, including, in particular, the power of the Corporation to
furnish indemnification to directors and officers in the capacities defined and
prescribed by the General Corporation Law and the defined and prescribed rights
of said persons to indemnification as the same are conferred under the General
Corporation Law. The Corporation shall, to the fullest extent permitted by the
laws of the State of Delaware, including, but not limited to Section 145 of the
General Corporation Law of the State of Delaware, as the same may be amended
and supplemented, indemnify any and all directors and officers of the
Corporation and may, in the discretion of the Board of Directors, indemnify any
and all other persons whom it shall have power to indemnify under said Section
or otherwise under Delaware law, from and against any and all of the expenses,
liabilities or other matters referred to or covered by said Section. The
indemnification provisions contained in the Delaware General Corporation Law
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any ByLaw, agreement, resolution of stockholders or
disinterested directors, or otherwise, and shall continue as to a person who
has ceased to be a director, officer, employee or agent, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall inure to the benefit of the heirs, executors and
administrators of such person.
In addition, the Company has taken out a professional indemnity policy
with a limit of liability of $5,000,000. The policy is a claims made and
reported policy. Subject to certain exclusions and qualifications, the policy
protects directors, officers, and employees from a claim made for an actual or
alleged error, omission, negligent act, libel or slander in rendering
professional services.
Item 25.--Other Expenses of Issuance and Distribution
The Company estimates that expenses in connection with the offering
described in this Registration Statement will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .................................... $ 3,597
Printing expenses ..................................................................... $10,000
Accounting fees and expenses ......................................................... $25,000
Legal fees and expenses ............................................................... $35,000
Fees and expenses (including legal fees) for qualifications under state securities laws $ 5,000
Miscellaneous ........................................................................ $ 2,000
Total ................................................................................. $80,597
</TABLE>
All amounts except the Securities and Exchange Commission registration fee
and the NASD filing fee are estimated.
II-1
<PAGE>
Item 26.--Recent Sales of Unregistered Securities
During the past three years, the following shares were sold by the Company
without registration under the Securities Act:
(a) On March 14, 1997, the Company acquired 100% of the outstanding
capital stock of International Capital Growth, Ltd., a Delaware corporation
and member of the NASD in a reverse acquisition consummated through a share
exchange transaction (the "Share Exchange") 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. In accordance with
the terms and conditions of the Share Exchange, the Company issued
18,982,906 shares of its capital stock and 1,875,000 redeemable warrants
(the "Exchange Warrants") to the former security holders of ICG, who are
"accredited investors" as that term is defined in Regulation D, or
non-"U.S. persons" participating in an "offshore transaction" as such terms
are defined in Regulation S, in exchange for outstanding securities of ICG,
in each case of the same type, term and denomination. The 18,982,906 shares
of capital stock of the Company that were issued in the Share Exchange
consisted of (i) 2,551,906 shares of Common Stock, par value $.001 per
share, (ii) 11,349,666 shares of newly- authorized Class B Common Stock,
par value $.001 per share, (iii) 4,001,334 shares of newly- designated 5%
Cumulative Convertible Series A Preferred Stock, par value $.001 per share,
and (iv) 1,080,000 shares of newly-designated 5% Cumulative Convertible
Series B Preferred Stock, par value $.001 per share. The Exchange Warrants
consist of 1,625,000 redeemable shares common stock purchase warrants, each
exercisable to purchase one share Common Stock, which shares of Common
Stock are being registered hereby, at $4.00 per share (subject to
adjustment under certain circumstances) at any time until October 1999 or
March 2000, as the case may be, and 250,000 redeemable Class B common stock
purchase warrants, each exercisable to purchase one share of Class B Common
Stock at $2.00 per share (subject to adjustment under certain
circumstances) at any time, subject to an vesting schedule, until November
1999.
(b) On March 27, 1997, the Company completed a private offering (the
"March Private Offering") of shares of its Common Stock at $2.25 per share,
pursuant to Regulation D and Regulation S, 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 Company issued 549,496 shares of Common Stock in the
March Private Offering, which yielded aggregate gross proceeds of
$1,236,366. The Company also issued a total of 24,984 Warrants as partial
compensation to certain sub-placement agents in the March Private Offering.
Each 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. The placement agent in the March Private Offering is an
affiliate of the Company.
Item 27.--Exhibits
(a) The following is a list of Exhibits filed herewith as part of the
Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1* Agreement Concerning the Exchange of Securities of International Capital Growth, Ltd. for
Securities of Galt Financial Corporation dated January 7, 1997
2.2* Agreement and Plan of Merger by and between Capital Growth Holdings, Ltd., a Colorado
corporation, and Capital Growth Holdings, Ltd., a Delaware corporation, dated June 10,
1997
3.1* Certificate of Incorporation of the Company, as amended
3.2* By-Laws of the Company
4.1 Form of Common Stock certificate
4.2* Form of Redeemable Common Stock Purchase Warrant
4.3* Form of Redeemable Class B Common Stock Purchase Warrant
5.1** Opinion of Orrick, Herrington & Sutcliffe LLP
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1* 1997 Stock Option Plan
10.3* Lease Agreement, as amended, regarding 660 Steamboat Road, Greenwich, CT dated
December, 1995
10.4 Lease Agreement, as amended, regarding 2425 Olympic Boulevard, Santa Monica, CA dated
October 21, 1997
11 Statement re: Computation of Per Share Earnings
16.1* Letter, dated March 25, 1997, of Angell & Deering
21.1* Subsidiaries of the Company
23.1 Consent of Richard A. Eisner & Company, LLP
23.2** Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 5.1)
24.1* Power of Attorney (included on the signature page II-5 of Part II of this Registration
Statement)
27.1 Financial Data Schedule
</TABLE>
- ----------------
* Previously filed or incorporated by reference
** To be filed by amendment
II-3
<PAGE>
Item 28.--Undertakings
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the Prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of Prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement.
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, treat the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
Registration Statement for the securities offered in the Registration
Statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to its Registration
Statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 16th day of
January, 1998.
Capital Growth Holdings, Ltd.
By: /s/ Ronald B. Koenig
---------------------
Ronald B. Koenig
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald B. Koenig President, Chief January 16, 1998
- -------------------- Executive Officer and Director
Ronald B. Koenig (Principal Executive Officer)
/s/ Michael S. Jacobs Senior Vice President, Secretary and January 16, 1998
- --------------------- Treasurer (Principal Financial and
Michael S. Jacobs Accounting Officer)
/s/ Ronald B. Koenig* Director January 16, 1998
- --------------------
Stanley Hollander
/s/ Ronald B. Koenig* Director January 16, 1998
- --------------------
Alan L. Jacobs
/s/ Ronald B. Koenig* Director January 16, 1998
- --------------------
John D. Booth
</TABLE>
- ------------
*As attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1* Agreement Concerning the Exchange of Securities of International Capital Growth, Ltd. for
Securities of Galt Financial Corporation dated January 7, 1997
2.2* Agreement and Plan of Merger by and between Capital Growth Holdings, Ltd., a Colorado
corporation, and Capital Growth Holdings, Ltd., a Delaware corporation, dated June 10,
1997
3.1* Certificate of Incorporation of the Company, as amended
3.2* By-Laws of the Company
4.1 Form of Common Stock certificate
4.2* Form of Redeemable Common Stock Purchase Warrant
4.3* Form of Redeemable Class B Common Stock Purchase Warrant
5.1** Opinion of Orrick, Herrington & Sutcliffe LLP
10.1* 1997 Stock Option Plan
10.3* Lease Agreement, as amended, regarding 660 Steamboat Road, Greenwich, CT dated
December, 1995
10.4 Lease Agreement, as amended, regarding 2425 Olympic Boulevard, Santa Monica, CA dated
October 21, 1997
11 Statement re: Computation of Per Share Earnings
16.1* Letter, dated March 25, 1997, of Angell & Deering
21.1* Subsidiaries of the Company
23.1 Consent of Richard A. Eisner & Company, LLP
23.2** Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 5.1)
24.1* Power of Attorney (included on the signature page II-5 of Part II of this Registration
Statement)
27.1 Financial Data Schedule
</TABLE>
- ----------------
* Previously filed or incorporated by reference
** To be filed by amendment
NUMBER 0 SHARES
CAPITAL GROWTH HOLDINGS, LTD.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
100,000,000 AUTHORIZED SHARES $.001 PAR VALUE
------------------------
| CUSIP 139907 10 9 |
------------------------
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES WITHOUT PAR VALUE COMMON STOCK OF
CAPITAL GROWTH HOLDINGS, LTD.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.
Dated:
/s/ Michael D. Jacobs /s/ Ronald B. Koenig
SECRETARY PRESIDENT
[SEAL OF CAPITAL GROWTH HOLDINGS, INC.]
COUNTERSIGNED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By_____________________________________________________
Transfer Agent & Registrar Authorized Signature
<PAGE>
The Corporation will furnish to any shareholder upon request, made in writing,
and without charge a full statement of the designations, preferences,
limitations and relative rights of the shares of each class authorized to be
issued.
CAPITAL GROWTH HOLDINGS, LTD.
TRANSFER FEE: $15.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT_____Custodian____
TEN ENT --as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act___________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
For Value Received,___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________
| |
| |
| |
|_______________________________|
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------- attorney-in-fact
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
-------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
EXECUTED
ORIGINAL
OFFICE LEASE
THE WATER GARDEN
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company,
as Landlord,
and
INTERNATIONAL CAPITAL GROWTH, LTD,
a Delaware corporation,
as Tenant.
<PAGE>
THE WATER GARDEN
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Office Lease (the "Office Lease") which
pertains to the "Project," as that term is defined in the Office Lease, commonly
known as "The Water Garden" located in Santa Monica, California. This Summary
and the Office Lease are collectively referred to herein as the "Lease". Each
reference in the Office Lease to any term of this Summary shall have the meaning
set forth in this Summary for such term. In the event of a conflict between the
terms of this Summary and the Office Lease, the terms of the Office Lease shall
prevail. Any capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Office Lease.
TERMS OF LEASE
(References are to
the Office Lease) DESCRIPTION
----------------- -----------
1. Date: October 21, 1997.
2. Landlord: WATER GARDEN COMPANY L.L.C., a Delaware
Limited Liability Company
3. Tenant: INTERNATIONAL CAPITAL GROWTH, LTD.,
a Delaware corporation.
4. Premises (Article 1).
4.1 Building Address: 2425 Olympic Boulevard, Santa Monica,
California.
4.2 Premises: Approximately 2,040 rentable square feet
of space located on the sixth (6th) floor
of the East tower of the Building and
commonly known as Suite 660E, as further
set forth in Exhibit A to the Office
Lease.
5. Lease Term (Article 2).
5.1 Length of Term: Approximately three (3) years.
5.2 Lease Commencement December 1, 1997.
Date:
5.3 Lease Expiration Date: November 30, 2000.
6. Base Rent (Article 3):
Monthly Annual Rental Rate
Installment of per Rentable
Lease Year Annual Base Rent Base Rent Square Foot
---------- ---------------- --------- -----------
1-3 $70,012.80 $5,834.40 $34.32
7. Additional Rent (Article 4).
7.1 Base Year: The calendar year of 1998.
7.2 Tenant's Share: Approximately .6128%.
8. Security Deposit (Article 21): $5,834.40.
9. Parking Pass Ratio (Article 28): Up to two (2) reserved parking passes
and up to four (4) unreserved parking
passes.
(ii)
<PAGE>
10. Broker(s) (Section 29.18): Tooley & Company
11150 Santa Monica Boulevard
Suite 200
Los Angeles, California 90025
11. Address of Tenant (Section International Capital Growth, Ltd.
29.13): 2425 Olympic Boulevard, Suite 660E
Santa Monica, California 90404
Attention: Mr. Stanley Hollander
The foregoing terms of this Summary are hereby agreed to by Landlord and
Tenant.
"Landlord":
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company
By /s/ George L. Ochs
---------------------------------------
George L. Ochs,
Vice President
"Tenant":
INTERNATIONAL CAPITAL GROWTH, LTD.,
a Delaware corporation
By: /s/ Stanley Hollander
--------------------------------------
Its: President
----------------------------------
By:
--------------------------------------
Its:
----------------------------------
(iii)
<PAGE>
THE WATER GARDEN
INDEX
ARTICLE SUBJECT MATTER PAGE
------- -------------- ----
SUMMARY OF BASIC LEASE INFORMATION ii
ARTICLE I PREMISES, BUILDING, PROJECT, AND
COMMON AREAS .......................................1
ARTICLE 2 LEASE TERM .........................................2
ARTICLE 3 BASE RENT ..........................................3
ARTICLE 4 ADDITIONAL RENT ....................................3
ARTICLE 5 USE OF PREMISES ....................................9
ARTICLE 6 SERVICES AND UTILITIES .............................9
ARTICLE 7 REPAIRS ...........................................10
ARTICLE 8 ADDITIONS AND ALTERATIONS .........................11
ARTICLE 9 COVENANT AGAINST LIENS ...........................12
ARTICLE 10 INSURANCE .........................................12
ARTICLE 11 DAMAGE AND DESTRUCTION ............................14
ARTICLE 12 NONWAIVER .........................................15
ARTICLE 13 CONDEMNATION ......................................16
ARTICLE 14 ASSIGNMENT AND SUBLETTING .........................16
ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF
TRADE FIXTURES ....................................19
ARTICLE 16 HOLDING OVER ......................................19
ARTICLE 17 ESTOPPEL CERTIFICATES .............................20
ARTICLE 18 SUBORDINATION .....................................20
ARTICLE 19 DEFAULTS; REMEDIES ................................20
ARTICLE 20 ATTORNEYS' FEES ...................................22
ARTICLE 21 SECURITY DEPOSIT ..................................22
ARTICLE 22 SUBSTITUTION OF OTHER PREMISES ....................23
ARTICLE 23 SIGNS .............................................23
ARTICLE 24 COMPLIANCE WITH LAW ...............................23
ARTICLE 25 LATE CHARGES ......................................23
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT;
PAYMENTS BY TENANT ................................24
ARTICLE 27 ENTRY BY LANDLORD .................................24
ARTICLE 28 TENANT PARKING ....................................24
ARTICLE 29 MISCELLANEOUS PROVISIONS ..........................25
EXHIBITS
A OUTLINE OF PREMISES
B FORM OF NOTICE OF LEASE TERM DATES
C RULES AND REGULATIONS
D FORM OF TENANT'S ESTOPPEL CERTIFICATE
(iv)
<PAGE>
THE WATER GARDEN
OFFICE LEASE
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by this
reference (the Office Lease and Summary are sometimes collectively referred to
herein as the "Lease"), dated as of the date set forth in Section I of the
Summary is made by and between WATER GARDEN COMPANY L.L.C., a Delaware Limited
Liability Company ("Landlord"), and INTERNATIONAL CAPITAL GROWTH, LTD., a
Delaware corporation ("Tenant").
ARTICLE I
PREMISES, BUILDING, PROJECT, AND COMMON AREAS
1.1 Premises, Building, Project and Common Areas
1.1.1 The Premises. Upon and subject to the terms hereinafter set
forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the premises set forth in Section 4.2 of the Summary (the
"Premises"), which Premises are located in the "Building," as that term is
defined in Section 1.1.2, below. The outline of the Premises is set forth in
Exhibit A attached hereto.
1.1.2 The Building and The Project. The Premises are a part of the
building set forth in Section 4.1 of the Summary (the "Building") located in
Santa Monica, California. The Building is part of an office project known as
"The Water Garden" which contains another office building (the "Adjacent
Building"). The term "Project," as used in this Lease, shall mean (i) the
Building, the Adjacent Building, and the "Common Areas," as that term is defined
in Section 1.1.3 below, (ii) the land (which is improved with landscaping,
subterranean parking facilities and other improvements) upon which the Building,
the Adjacent Building, and the Common Areas are located, and (iii) at Landlord's
discretion, any additional real property, areas, buildings or other improvements
added thereto pursuant to the terms of Section 1.1.4 of this Lease.
1.1.3 Common Areas. Tenant shall have the non-exclusive right to use
in common with other tenants in the Project, and subject to the rules and
regulations referred to in Article 5 of this Lease, those portions of the
Project which are provided, from time to time, for use in common by Landlord,
Tenant and any other tenants of the Project, whether or not those areas are open
to the general public (such areas, together with such other portions of the
Project designated by Landlord, in its discretion, including certain areas
designated for the exclusive use of certain tenants, or to be shared by Landlord
and certain tenants, such as balconies abutting tenants' premises, are
collectively referred to herein as the "Common Areas"). The Common Areas shall
consist of the "Project Common Areas" and the "Building Common Areas." The term
"Project Common Areas," as used in this Lease, shall mean the portion of the
Project designated as such by Landlord. "Building Common Areas," as used in this
Lease, shall mean the portions of the Common Areas located within the Building
designated as such by Landlord. The manner in which the Common Areas are
maintained and operated shall be at the sole discretion of Landlord, provided
that Landlord shall maintain and operate same in a manner consistent with that
of other first-class, high-rise office buildings in the Santa Monica, California
area (the "Comparable Buildings").
1.1.4 Landlord's Use and Operation of the Building, Project, and
Common Areas. Landlord reserves the right from time to time without notice to
Tenant (i) to close temporarily any of the Common Areas; (ii) to make changes to
the Common Areas, including, without limitation, changes in the location, size,
shape and number of street entrances, driveways, ramps, entrances, exits,
passages, stairways and other ingress and egress, direction of traffic,
landscaped areas, loading and unloading areas, and walkways; (iii) to expand the
Building or the Adjacent Building; (iv) to add additional buildings and
improvements to the Common Areas; (v) to designate land outside the Project to
be part of the Project, and in connection with the improvement of such land to
add additional buildings and common areas to the Project; provided that,
notwithstanding anything to the contrary contained in this Lease, the Project
shall not be
<PAGE>
expanded to include more than the land located in Santa Monica, California,
which has Olympic Boulevard as its Southern boundary, Cloverfield Boulevard as
its Western boundary, Colorado Avenue as its Northern boundary, and 26th street
as its Eastern boundary; (vi) to use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Project or to any
adjacent land, or any portion thereof; and (vii) to do and perform such other
acts and make such other changes in, to or with respect to the Project, Common
Areas and Building or the expansion thereof as Landlord may, in the exercise of
sound business judgment, deem to be appropriate.
1.2 Verification of Rentable Square Feet of Premises, Building, and
Project. For purposes of this Lease, "rentable square feet" shall be calculated
pursuant to Standard Method for Measuring Floor Area in Office Buildings, ANSI
Z65.1 - 1996 ("BOMA"), provided that the rentable square footage of the Building
and the other buildings in the Project shall include all of (and the rentable
square footage of the Premises therefore shall include a portion of) (i) the
Building Common Areas and (ii) the occupied space of the portion of the Project
dedicated to the service of the Project. The rentable square feet of the
Premises, Building, and the Project are subject to verification from time to
time by Landlord's planner/designer and such verification shall be made in
accordance with the provisions of this Article 1. In the event that Landlord's
planner/designer determines that the amounts thereof are different from those
set forth in this Lease, all amounts, percentages and figures appearing or
referred to in this Lease based upon such incorrect amount (including, without
limitation, the amount of the "Rent" and any "Security Deposit," as those terms
are defined in Article 4 and Article 21 of this Lease, respectively) shall be
modified in accordance with such determination. If such determination is made,
it will be confirmed in writing by Landlord to Tenant.
1.3 Base, Shell and Core Work in the Premises. Except as specifically set
forth in this Lease, Tenant shall accept the Premises in its presently existing,
"as is" condition, and Landlord shall not be obligated to provide or pay for any
improvement work or services related to the improvement of the Premises;
provided, however, that, prior to the Lease Commencement Date, Landlord shall
(i) shampoo the carpeting within the Premises, (ii) paint the walls of the
Premises using Building-standard paint, and (iii) repair the chipped cabinet in
the kitchen area of the Premises (collectively, "Landlord's Work"). Since Tenant
is occupying the Premises pursuant to that certain Office Lease dated November
30, 1994 by and between Landlord's predecessor-in-interest, Water Garden
Associates, a Delaware limited partnership and Tenant's predecessor-in-interest,
BLC World Television, Ltd., a Texas limited partnership (the "Prior Lease"),
Landlord agrees that it shall use commercially reasonable efforts to perform
Landlord's Work in a manner so as to minimize interference with Tenant's
business. Tenant hereby acknowledges that, notwithstanding Tenant's occupancy of
the Premises during the performance of Landlord's Work, Landlord shall be
permitted to perform Landlord's Work during normal business hours, without any
obligation to pay overtime or other premiums to construct the Landlord's Work.
Tenant hereby agrees that the performance of Landlord's Work shall in no way
constitute a constructive eviction of Tenant nor entitle Tenant to any abatement
of rent payable pursuant to this Lease. Landlord shall have no responsibility or
for any reason be liable to Tenant for any direct or indirect injury to or
interference with Tenant's business arising from Landlord's Work, nor shall
Tenant be entitled to any compensation or damages from Landlord for loss of the
use of the whole or any part of the Premises or of Tenant's personal property or
improvements resulting from Landlord's Work or Landlord's actions in connection
with Landlord's Work, or for any inconvenience or annoyance occasioned by
Landlord's Work or Landlord's actions in connection with Landlord's Work. Tenant
also acknowledges that Landlord has made no representation or warranty regarding
the condition of the Premises or the Project except as specifically set forth in
this Lease.
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the date
of this Lease. The term of this Lease (the "Lease Term") shall be as set forth
in Section 5.1. of the Summary, shall commence on the date set forth in Section
5.2 of the Summary (the "Lease Commencement Date"), and shall terminate on the
date set forth in Section 5.3 of the Summary (the "Lease Expiration Date")
unless this Lease is sooner terminated as hereinafter provided. For purposes of
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<PAGE>
this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month
period during the Lease Term; provided, however, that the first Lease Year shall
commence on the Lease Commencement Date and end on the last day of the eleventh
month thereafter and the second and each succeeding Lease Year shall commence on
the first day of the next calendar month; and further provided that the last
Lease Year shall end on the Lease Expiration Date. At any time during the Lease
Term, Landlord may deliver to Tenant a notice (the "Notice of Lease Term Dates")
in substantially the form as set forth in Exhibit B attached hereto, which
notice Tenant shall execute and return to Landlord within five (5) days of
receipt thereof, and thereafter the dates set forth on such notice shall be
conclusive and binding upon Tenant. Failure of Tenant to timely execute and
deliver the Notice of Lease Term Dates shall constitute an acknowledgment by
Tenant that the statements included in such notice are true and correct, without
exception.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or
Landlord's agent at the management office of the Project or at such other
place as Landlord may from time to time designate in writing, in currency or a
check for currency which, at the time of payment, is legal tender for private or
public debts in the United States of America, base rent ("Base Rent") as set
forth in Section 6 of the Summary, payable in equal monthly installments as set
forth in Section 6 of the Summary, in advance on or before the first day of each
and every month during the Lease Term, without any setoff or deduction
whatsoever. The Base Rent for the first full month of the Lease Term shall be
paid at the time of Tenant's execution of this Lease by certified or cashier's
check. If any Rent payment date (including the Lease Commencement Date) falls on
a day of the month other than the first day of such month or if any payment of
Rent is for a period which is shorter than one month, the Rent for any
fractional month shall accrue on a daily basis for the period from the date such
payment is due to the end of such calendar month or to the end of the Lease Term
at a rate per day which is equal to 1/365 of the Rent. All other payments or
adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 General Terms. As set forth in this Article 4, in addition to paying
the Base Rent specified in Article 3 of this Lease, Tenant shall pay "Tenant's
Share" of the annual "Project Expenses," as those terms are defined in Sections
4.2.6 and 4.2.4 of this Lease, respectively, allocated to the tenants of the
Building pursuant to the terms of Section 4.3.1 below, to the extent such
Project Expenses allocated to the tenants of the Building which are in excess of
such Project Expenses applicable to the "Base Year," as that term is defined in
Section 4.2.1 of this Lease. Such payments by Tenant, together with any and all
other amounts payable by Tenant to Landlord pursuant to the terms of this Lease,
are hereinafter collectively referred to as the "Additional Rent," and the Base
Rent and the Additional Rent are sometimes herein collectively referred to as
"Rent." All amounts due under this Article 4 as Additional Rent shall be payable
for the same periods and in the same manner as the Base Rent. Without limitation
on other obligations of Tenant which survive the expiration of the Lease Term,
the obligations of Tenant to pay the Additional Rent provided for in this
Article 4 shall survive the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall have
the meanings hereinafter set forth:
4.2.1 "Base Year" shall mean the period set forth in Section 7.1 of
the Summary.
4.2.2 "Expense Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.3 "Operating Expenses" shall mean all expenses, costs and
amounts of every kind and nature incurred in connection with the ownership,
management, maintenance, repair, replacement, restoration or operation of the
Project, including, without limitation, any amounts
-3-
<PAGE>
paid or incurred for (i) the cost of supplying all utilities, the cost of
operating, maintaining, repairing, renovating, complying with conservation
measures in connection with, and managing the utility systems, mechanical
systems, sanitary and storm drainage systems, and elevator systems, and the cost
of supplies and equipment, maintenance, and service contracts in connection
therewith; (ii) the cost of licenses, certificates, permits and inspections and
the cost of contesting the validity or applicability of any governmental
enactments which may affect Operating Expenses, and the costs incurred in
connection with the implementation and operation of a transportation system
management program or a municipal or public shuttle service or parking program;
(iii) the cost of all insurance carried in connection with the Project, or any
portion thereof; (iv) the cost of landscaping, relamping, and all supplies,
tools, equipment and materials used in the operation, repair and maintenance of
the Project, or any portion thereof; (v) the cost of parking area repair,
restoration, and maintenance, including, but not limited to, resurfacing,
repainting, restriping, and cleaning; (vi) fees, charges and other costs,
including consulting fees, legal fees and accounting fees, of all contractors
and consultants; (vii) payments under any equipment rental agreements or
management agreements (including the cost of any management fee and the fair
rental value of any office space provided thereunder); (viii) wages, salaries
and other compensation and benefits of all persons engaged in the operation,
maintenance, management, or security of the Project, or any portion thereof,
including employer's Social Security taxes, unemployment taxes or insurance, and
any other taxes which may be levied on such wages, salaries, compensation and
benefits; (ix) payments under any easement, license, operating agreement,
declaration, restrictive covenant, or instrument pertaining to the sharing of
costs by the Project, or any portion thereof; (x) the cost of operation, repair,
maintenance and replacement of all systems and equipment which serve the Project
in whole or part; (xi) the cost of janitorial services, alarm and security
service, window cleaning, trash removal, replacement of wall and floor
coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other
common or public areas or facilities, maintenance and replacement of curbs and
walkways, repair to roofs and re-roofing; (xii) the cost of any capital
improvements made to the Project which are intended as a labor-saving device or
to effect other economies in the operation or maintenance of the Project, or any
portion thereof, or made to all or any portion of the Project, or any portion
thereof, after the Lease Commencement Date that are required under any
governmental law or regulation that was not applicable to the Project at the
time that permits for the construction of the Building were obtained; provided,
however, that each such permitted capital expenditure shall be amortized
(including interest on the unamortized cost) over its useful life as reasonably
determined; and (xiii) the cost of operations, maintenance, repairs, and other
expenditures (whether capital or non-capital in nature) with respect to the
"Child Care Facilities," as that term is defined in Section 29.9 below, and
their lease at the Project. Notwithstanding the foregoing, for purposes of this
Lease, Operating Expenses shall not, however, include:
(a) costs, including marketing costs, legal fees, space
planners' fees, advertising and promotional expenses, and brokerage
fees incurred in connection with the original construction or
development, or original or future leasing of the Project, and
costs, including permit, license and inspection costs, incurred with
respect to the installation of tenant improvements made for new
tenants initially occupying space in the Project after the Lease
Commencement Date or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or
other occupants of the Project (excluding, however, such costs
relating to any common areas of the Project or parking facilities);
(b) except as set forth in this Section 4.2.3, depreciation,
interest and principal payments on mortgages and other debt costs,
if any, penalties and interest, costs of capital repairs and
alterations, and costs of capital improvements and equipment;
(c) costs for which the Landlord is reimbursed by any tenant
or occupant of the Project or by insurance by its carrier or any
tenant's carrier or by anyone else, and electric power costs for
which any tenant directly contracts with the local public service
company;
(d) any bad debt loss, rent loss, or reserves for bad debts or
rent loss;
(e) costs associated with the operation of the business of
the partnership or entity which constitutes the Landlord, as the
same are distinguished from the costs of
-4-
<PAGE>
operation of the Project (which shall specifically include, but not
be limited to, accounting costs associated with the operation of the
Project). Costs associated with the operation of the business of the
partnership or entity which constitutes the Landlord include costs
of partnership accounting and legal matters, costs of defending any
lawsuits with any mortgagee (except as the actions of the Tenant may
be in issue), costs of selling, syndicating, financing, mortgaging
or hypothecating any of the Landlord's interest in the Project, and
costs incurred in connection with any disputes between Landlord and
its employees, between Landlord and Project management, or between
Landlord and other tenants or occupants, and Landlord's general
corporate overhead and general and administrative expenses;
(f) the wages and benefits of any employee who does not devote
substantially all of his or her employed time to the Project unless
such wages and benefits are prorated to reflect time spent on
operating and managing the Project vis-a-vis time spent on matters
unrelated to operating and managing the Project; provided, that in
no event shall Operating Expenses for purposes of this Lease include
wages and/or benefits attributable to personnel above the level of
Project manager;
(g) amount paid as ground rental for the Project by the
Landlord;
(h) except for a Project management fee to the extent allowed
pursuant to item (m), below, overhead and profit increment paid to
the Landlord or to subsidiaries or affiliates of the Landlord for
services in the Project to the extent the same exceeds the costs of
such services rendered by qualified, first-class unaffiliated third
parties on a competitive basis;
(i) any compensation paid to clerks, attendants or other
persons in commercial concessions operated by the Landlord, provided
that any compensation paid to any concierge at the Project shall be
includable as an Operating Expense;
(j) rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment which if
purchased the cost of which would be excluded from Operating
Expenses as a capital cost, except equipment not affixed to the
Project which is used in providing janitorial or similar services
and, further excepting from this exclusion such equipment rented or
leased to remedy or ameliorate an emergency condition in the
Project;
(k) all items and services for which Tenant or any other
tenant in the Project reimburses Landlord or which Landlord provides
selectively to one or more tenants (other than Tenant) without
reimbursement;
(l) costs, other than those incurred in ordinary maintenance
and repair, for sculpture, paintings or other objects of art;
(m) fees payable by Landlord for management of the Project in
excess of three and one-half percent (3.5%) (the "Management Fee
Cap") of Landlord's gross rental revenues, adjusted and grossed up
to reflect a one hundred percent (100%) occupancy of the Building
with all tenants paying rent, including base rent, pass-throughs,
and parking fees (but excluding the cost of after hours services or
utilities) from the Project for any calendar year or portion
thereof;
(n) any costs expressly excluded from Operating Expenses
elsewhere in this Lease;
(o) rent for any office space occupied by Project management
personnel to the extent the size or rental rate of such office space
exceeds the size or fair market rental value of office space
occupied by management personnel of the Comparable Buildings in the
vicinity of the Building, with adjustment where appropriate for the
size of the applicable project;
(p) costs arising from the gross negligence or wilful
misconduct of Landlord or its agents, employees, vendors,
contractors, or providers of materials or services;
-5-
<PAGE>
(q) costs incurred to comply with laws relating to the removal
of hazardous material (as defined under applicable law) which was in
existence in the Building or on the Project prior to the Lease
Commencement Date, and was of such a nature that a federal, State or
municipal governmental authority, if it had then had knowledge of
the presence of such hazardous material, in the state, and under the
conditions that it then existed in the Building or on the Project,
would have then required the removal of such hazardous material or
other remedial or containment action with respect thereto; and costs
incurred to remove, remedy, contain, or treat hazardous material,
which hazardous material is brought into the Building or onto the
Project after the date hereof by Landlord or any other tenant of the
Project and is of such a nature, at that time, that a federal, State
or municipal governmental authority, if it had then had knowledge
of the presence of such hazardous material, in the state, and under
the conditions, that it then exists in the Building or on the
Project, would have then required the removal of such hazardous
material or other remedial or containment action with respect
thereto; and
(r) costs arising from Landlord's charitable or political
contributions;
If the Project is not fully occupied during all or a portion of any Expense
Year, Landlord shall make an appropriate adjustment to the variable components
of Operating Expenses for such year employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had the Project been fully occupied; and the amount so determined shall be
deemed to have been the amount of Operating Expenses for such year. In no event
shall the components of Project Expenses for any Expense Year related to
electrical costs be less than the components of Project Expenses related to
electrical costs in the Base Year.
4.2.4 "Project Expenses" shall mean the sum of "Operating Expenses"
and "Tax Expenses".
4.2.5 "Tax Expenses" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary (including,
without limitation, real estate taxes, general and special assessments, transit
taxes, leasehold taxes or taxes based upon the receipt of rent, including gross
receipts or sales taxes applicable to the receipt of rent, unless required to be
paid by Tenant, personal property taxes imposed upon the fixtures, machinery,
equipment, apparatus, systems and equipment, appurtenances, furniture and other
personal property used in connection with all or any portion of the Project),
which shall be paid during any Expense Year (without regard to any different
fiscal year used by such governmental or municipal authority) because of or in
connection with the ownership, leasing and operation of the Project, or any
portion thereof.
4.2.5.1 Tax Expenses shall include, without limitation:
(i) Any assessment, tax, fee, levy or charge in addition to,
or in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included within the definition of
real property tax, it being acknowledged by Tenant and Landlord that
Proposition 13 was adopted by the voters of the State of California
in the June 1978 election ("Proposition 13") and that assessments,
taxes, fees, levies and charges may be imposed by governmental
agencies for such services as fire protection, street, sidewalk and
road maintenance, refuse removal and for other governmental services
formerly provided without charge to property owners or occupants,
and, in further recognition of the decrease in the level and quality
of governmental services and amenities as a result of Proposition
13, Tax Expenses shall also include any governmental or private
assessments or the Project's contribution towards a governmental or
private cost-sharing agreement for the purpose of augmenting or
improving the quality of services and amenities normally provided by
governmental agencies. It is the intention of Tenant and Landlord
that all such new and increased assessments, taxes, fees, levies,
and charges and all similar assessments, taxes, fees, levies and
charges be included within the definition of Tax Expenses for the
purposes of this Lease;
(ii) Any assessment, tax, fee, levy, or charge allocable to or
measured by the area of the Premises or the Rent payable hereunder,
including, without
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<PAGE>
limitation, any gross income tax with respect to the receipt of such rent,
or upon or with respect to the possession, leasing, operating, management,
maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof;
(iii) Any assessment, tax, fee, levy or charge, upon
this transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; and
(iv) Any possessory taxes charged or levied in lieu of
real estate taxes.
4.2.5.2 Any expenses incurred in attempting to protest, reduce
or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year
such expenses are paid.
4.2.5.3 Tax refunds shall be deducted from Tax Expenses in the
Expense Year they are received.
4.2.5.4 The amount of Tax Expenses for the Base Year
attributable to the valuation of the Project, inclusive of tenant improvements,
shall be known as "Base Taxes." If, in any comparison year subsequent to the
Base Year, the amount of Tax Expenses decreases, then for purposes of all
subsequent comparison years, including the comparison year in which such
decrease in Tax Expenses occurs, the Base Taxes shall be decreased by an amount
equal to the decrease in Tax Expenses.
4.2.6 "Tenant's Share" shall mean the percentage set forth in
Section 7.2 of the Summary. Tenant's Share was calculated by multiplying the
number of rentable square feet of the Premises by 100, and dividing the product
by the total rentable square feet in the Building.
4.3 Allocation and Calculation of Project Expenses.
4.3.1 Allocation of Project Expenses to Tenants of the Building.
Project Expenses (i.e., Operating Expenses and Tax Expenses) are determined
annually for the Project as a whole. Since the Building is only one of the
buildings which constitute the Project, Project Expenses shall be allocated by
Landlord, in its reasonable discretion, to both the tenants of the Building and
the tenants of the other buildings in the Project. The portion of Project
Expenses allocated to the tenants of the Building shall consist of (i) all
Project Expenses attributable solely to the Building and (ii) an equitable
portion of Project Expenses attributable to the Project as a whole and not
attributable solely to the Building, the Adjacent Building or to any other
building of the Project. Additionally, in allocating Project Expenses to the
tenants of the Building, Landlord shall have the right, from time to time, to
equitably allocate some or all of the Project Expenses allocable to tenants of
the Building among different tenants of the Building (the "Cost Pools"). Such
Cost Pools may include, but shall not be limited to, the office space tenants of
the Building and the retail space tenants of the Building.
4.3.2 Calculation of Project Expenses. Notwithstanding anything to
the contrary set forth in this Article 4, when calculating the Project Expenses
for the Base Year, such Project Expenses shall not include any increase in Tax
Expenses attributable to special assessments, charges, costs, or fees, or due to
modifications or changes in governmental laws or regulations, including but not
limited to the institution of a split tax roll, and Operating Expenses shall
exclude market-wide labor-rate increases due to extraordinary circumstances,
including, but not limited to, boycotts and strikes, and utility rate increases
due to extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages and amortized costs relating
to capital improvements.
4.4 Calculation and Payment of Additional Rent.
4.4.1 Calculation of Excess. For every Expense Year ending or
commencing within the Lease Term, Tenant shall pay to Landlord, in the manner
set forth in Section 4.4.2, below, and as Additional Rent, an amount equal to
Tenant's Share of Project Expenses for such Expense Year in excess of Tenant's
Share of Project Expenses for the Base Year (the "Excess").
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4.4.2 Statement of Actual Project Expenses and Payment by Tenant.
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "Statement") which
shall state the Project Expenses incurred or accrued for such preceding Expense
Year and the amount thereof allocated to the tenants of the Building, and which
shall indicate the amount, if any, of Tenant's Share of Project Expenses in
excess of Tenant's Share of Project Expenses for the Base Year. Upon receipt of
the Statement for each Expense Year ending during the Lease Term, Tenant shall
pay, with its next Installment of Base Rent due, the full amount of Tenant's
Share of Project Expenses for such Expense Year in excess of Tenant's Share of
Project Expenses for the Base Year, less the amounts, if any, paid during such
Expense Year as "Estimated Additional Rent," as that term is defined in Section
4.4.3, below. If the amount of Tenant's Share of Project Expenses for such
Expense Year in excess of Tenant's Share of Project Expenses for the Base Year
is less than the amount paid by Tenant as Estimated Additional Rent during the
applicable period of the Expense Year (but not including any period of the
Expense Year which occurs after the Lease has terminated), Landlord shall pay
the difference to Tenant together with the applicable Statement, even if the
Lease has terminated or expired. The failure of Landlord to timely furnish the
Statement for any Expense Year shall not prejudice Landlord or Tenant from
enforcing its rights under this Article 4. Even though the Lease Term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's Share of Project Expenses allocated to the tenants of the
Building for the Expense Year in which this Lease terminates, if Tenant's Share
of Project Expenses for such Expense Year is in excess of Tenant's Share of
Project Expenses for the Base Year, then Tenant shall immediately pay to
Landlord an amount as calculated pursuant to the provisions of Section 4.4.1 of
this Lease. The provisions of this Section 4.4.2 shall survive the expiration or
earlier termination of the Lease Term.
4.4.3 Statement of Estimated Project Expenses. In addition, Landlord
shall endeavor to give Tenant a yearly expense estimate statement (the "Estimate
Statement") which shall set forth Landlord's reasonable estimate (the
"Estimate") of what the total amount of Project Expenses for the then-current
Expense Year shall be, the amount thereof to be allocated to the tenants of the
Building, and the estimated amount of Tenant's Share of Project Expenses in
excess of Tenant's Share of the Project Expenses for the Base Year (the
"Estimated Additional Rent"). The failure of Landlord to timely furnish the
Estimate Statement for any Expense Year shall not preclude Landlord from
enforcing its rights to collect any Estimated Additional Rent under this Article
4. If, pursuant to the Estimate Statement, Estimated Additional Rent is
calculated for the then-current Expense Year, Tenant shall pay, with its next
installment of Base Rent due, a fraction of the Estimated Additional Rent for
the then-current Expense Year (reduced by any amounts paid pursuant to the last
sentence of this Section 4.4.3). Such fraction shall have as its numerator the
number of months which have elapsed in such current Expense Year, including the
month of such payment, and twelve (12) as its denominator. Until a new Estimate
Statement is furnished (which Landlord shall have the right to deliver to Tenant
at any time), Tenant shall pay monthly, with the monthly Base Rent installments,
an amount equal to one-twelfth (1/12) of the total Estimated Additional Rent set
forth in the previous Estimate Statement delivered by Landlord to Tenant.
4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible.
Tenant shall reimburse Landlord upon demand for any and all taxes required to be
paid by Landlord, excluding state, local and federal personal or corporate
income taxes measured by the net income of Landlord from all sources and estate
and inheritance taxes, whether or not now customary or within the contemplation
of the parties hereto, when:
4.5.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out as determined by Landlord regardless of whether title to such
improvements shall be vested in Tenant or Landlord;
4.5.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion of the Project (including
the Project parking facility); or
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4.5.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for general office purposes
consistent with the character of the Project as a first-class office building
project, and Tenant shall not use or permit the Premises to be used for any
other purpose or purposes whatsoever without the prior written consent of
Landlord, which may be withheld in Landlord's sole discretion. Tenant further
covenants and agrees that Tenant shall not use, or suffer or permit any person
or persons to use, the Premises or any part thereof for any use or purpose
contrary to the provisions of the Rules and Regulations set forth in Exhibit C,
attached hereto, or in violation of the laws of the United States of America,
the State of California, or the ordinances, regulations or requirements of the
local municipal or county governing body or other lawful authorities having
jurisdiction over the Project. Tenant shall comply with all recorded covenants,
conditions, and restrictions now or hereafter affecting the Project. Tenant
shall not use or allow another person or entity to use any part of the Premises
for the storage, use, treatment, manufacture or sale of "Hazardous Material," as
that term is defined in Section 29.23 of this Lease.
ARTICLE 6
SERVICES AND UTILITIES
6.1 Standard Tenant Services. Landlord shall provide the following
services on all days (unless otherwise stated below) during the Lease Term.
6.1.1 Subject to all governmental rules, regulations and guidelines
applicable thereto, Landlord shall provide heating and air conditioning when
necessary for normal comfort for normal office use in the Premises, from Monday
through Friday, during the period from 8 A.M. to 6 P.M. and on Saturday during
the period from 9 A.M. to 1 P.M., except for the date of observation of New
Year's Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day,
Christmas Day and, at Landlord's discretion, other locally or nationally
recognized holidays (collectively, the "Holidays").
6.1.2 Landlord shall provide adequate electrical wiring and
facilities and power for normal general office use as determined by Landlord.
Tenant shall bear the cost of replacement of lamps, starters and ballasts for
lighting fixtures within the Premises.
6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide janitorial services Monday through
Friday except the date of observation of the Holidays, in and about the Premises
and window washing services in a manner consistent with other first-class office
buildings in the Santa Monica, California area.
6.2 Overstandard Tenant Use. Tenant shall not, without Landlord's prior
written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
Building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of Section
6.1 of this Lease. If such consent is given, Landlord shall have the right to
install supplementary air conditioning units or other facilities in the
Premises, including supplementary or additional metering devices, and the cost
thereof, including the cost of installation, operation and maintenance,
increased wear and tear on existing equipment and other similar charges, shall
be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water,
electricity, heat or air conditioning in excess of that supplied by Landlord
pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon
billing, the cost of such excess consumption, the cost of the installation,
operation, and maintenance of equipment which is installed in order to supply
such excess consumption, and the cost of the increased wear and tear on existing
equipment caused by
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such excess consumption; and Landlord may install devices to separately meter
any increased use and in such event Tenant shall pay the increased cost directly
to Landlord, on demand, including the cost of such additional metering devices.
If Tenant desires to use heat, ventilation or air conditioning during hours
other than those for which Landlord is obligated to supply such utilities
pursuant to the terms of Section 6.1 of this Lease, Tenant shall give Landlord
such prior notice, as Landlord shall from time to time establish as appropriate,
of Tenant's desired use and Landlord shall supply such utilities to Tenant at
such hourly cost to Tenant as Landlord shall from time to time establish.
Amounts payable by Tenant to Landlord for such use of additional utilities shall
be deemed Additional Rent hereunder and shall be billed on a monthly basis.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable
for damages, by abatement of Rent or otherwise, for failure to furnish or delay
in furnishing any service (including telephone and telecommunication services),
or for any diminution in the quality or quantity thereof, when such failure or
delay or diminution is occasioned, in whole or in part, by repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, or other fuel at the Building or
Project after reasonable effort to do so, by any accident or casualty
whatsoever, by act or default of Tenant or other parties, or by any other cause
beyond Landlord's reasonable control; and such failures or delays or diminution
shall never be deemed to constitute an eviction or disturbance of Tenant's use
and possession of the Premises or relieve Tenant from paying Rent or performing
any of its obligations under this Lease. Furthermore, Landlord shall not be
liable under any circumstances for a loss of, or injury to, property or for
injury to, or interference with, Tenant's business, including, without
limitation, loss of profits, however occurring, through or in connection with or
incidental to a failure to furnish any of the services or utilities as set forth
in this Article 6, including, but not limited to, a failure to provide
telecommunications, including telephone risers. Landlord may comply with
voluntary controls or guidelines promulgated by any governmental entity relating
to the use or conservation of energy, water, gas, light or electricity or the
reduction of automobile or other emissions without creating any liability of
Landlord to Tenant under this Lease, provided that the Premises are not thereby
rendered untenantable.
6.4 Rent Abatement. If Landlord fails to perform the obligations required
of Landlord under the terms of this Lease and such failure causes all or a
portion of the Premises to be untenantable and unusable by Tenant and such
failure relates to the nonfunctioning of the heat, ventilation, and air
conditioning system in the Premises, the electricity in the Premises, the
nonfunctioning of the elevator service to the Premises, or a failure to provide
access to the Premises, Tenant shall give Landlord notice (the "Initial
Notice"), specifying such failure to perform by Landlord (the "Landlord
Default"). If Landlord has not cured such Landlord Default within five (5)
business days after the receipt of the Initial Notice (the "Eligibility
Period"), Tenant may deliver an additional notice to Landlord (the "Additional
Notice"), specifying such Landlord Default and Tenant's intention to abate the
payment of Rent under this Lease. If Landlord does not cure such Landlord
Default within five (5) business days of receipt of the Additional Notice,
Tenant may, upon written notice to Landlord, immediately abate Rent payable
under this Lease for that portion of the Premises rendered untenantable and not
used by Tenant, for the period beginning on the date five (5) business days
after the Initial Notice to the earlier of the date Landlord cures such Landlord
Default or the date Tenant recommences the use of such portion of the Premises.
Such right to abate Rent shall be Tenant's sole and exclusive remedy at law or
in equity for a Landlord Default. Except as provided in this Section 6.4,
nothing contained herein shall be interpreted to mean that Tenant is excused
from paying Rent due hereunder.
ARTICLE 7
REPAIRS
Tenant shall, at Tenant's own expense, keep the Premises, including all
improvements, fixtures and furnishings therein, in good order, repair and
condition at all times during the Lease Term. In addition, Tenant shall, at
Tenant's own expense, but under the supervision and subject to the prior
approval of Landlord, and within any reasonable period of time specified by
Landlord, promptly and adequately repair all damage to the Premises and replace
or repair all damaged, broken, or worn fixtures and appurtenances; provided
however, that, at Landlord's option, or if Tenant fails to make such repairs,
Landlord may, but need not, make such repairs and replacements, and Tenant shall
pay Landlord the cost thereof, including a percentage of the cost
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thereof (to be uniformly established for the Building and/or the Project)
sufficient to reimburse Landlord for all overhead, general conditions, fees and
other costs or expenses arising from Landlord's involvement with such repairs
and replacements forthwith upon being billed for same. Notwithstanding the
foregoing, Landlord shall be responsible for repairs to the exterior walls,
foundation and roof of the Building, the structural portions of the floors of
the Building, and the systems and equipment of the Building, except to the
extent that such repairs are required due to the negligence or wilful misconduct
of Tenant; provided, however, that if such repairs are due to the negligence or
wilful misconduct of Tenant, Landlord shall nevertheless make such repairs at
Tenant's expense, or, if covered by Landlord's insurance, Tenant shall only be
obligated to pay any deductible in connection therewith. Landlord may, but shall
not be required to, enter the Premises at all reasonable times to make such
repairs, alterations, improvements or additions to the Premises or to the
Project or to any equipment located in the Project as Landlord shall desire or
deem necessary or as Landlord may be required to do by governmental or
quasi-governmental authority or court order or decree. Tenant hereby waives and
releases its right to make repairs at Landlord's expense under Sections 1941 and
1942 of the California Civil Code or under any similar law, statute, or
ordinance now or hereafter in effect.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations. Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord; provided however, that Tenant may make
strictly cosmetic changes to the finish work in the Premises, not requiring any
structural or other substantial modifications to the Premises, upon thirty (30)
days prior notice to Landlord.
8.2 Manner of Construction. Landlord may impose, as a condition of its
consent to any and all Alterations or repairs of the Premises or about the
Premises, such requirements as Landlord in its sole discretion may deem
desirable, including, but not limited to, the requirement that upon Landlord's
request, Tenant shall, at Tenant's expense, remove such Alterations upon the
expiration or any early termination of the Lease Term, and/or the requirement
that Tenant utilize for such purposes only contractors, materials, mechanics and
materialmen selected by Landlord. Tenant shall construct such Alterations and
perform such repairs in conformance with any and all applicable federal, state,
county or municipal laws, rules and regulations and pursuant to a valid building
permit, issued by the City of Santa Monica, all in conformance with Landlord's
construction rules and regulations. All work with respect to any Alterations
must be done in a good and workmanlike manner and diligently prosecuted to
completion to the end that the Premises shall at all times be a complete unit
except during the period of work. In performing the work of any such
Alterations, Tenant shall have the work performed in such manner so as not to
obstruct access to the Project or any portion thereof, by any other tenant of
the Project, and so as not to obstruct the business of Landlord or other tenants
in the Project, or interfere with the labor force working in the Project. In
addition to Tenant's obligations under Article 9 of this Lease, upon completion
of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded
in the office of the Recorder of the County of Los Angeles in accordance with
Section 3093 of the Civil Code of the State of California or any successor
statute, and Tenant shall deliver to the Project management office a
reproducible copy of the "as built" drawings of the Alterations.
8.3 Payment for Improvements. In the event Tenant orders any Alterations
or repair work directly from Landlord, or from the contractor selected by
Landlord, the charges for such work shall be deemed Additional Rent under this
Lease, payable within five (5) days of billing therefor, either periodically
during construction or upon the substantial completion of such work, at
Landlord's option. Upon completion of such work, Tenant shall deliver to
Landlord evidence of payment, contractors' affidavits and full and final waivers
of all liens for labor, services or materials. Tenant shall pay to Landlord a
percentage of the cost of such work sufficient to compensate Landlord for all
overhead, general conditions, fees and other costs and expenses arising from
Landlord's involvement with such work.
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8.4 Construction Insurance. In the event that Tenant makes any Alterations
Tenant agrees to carry "Builder's All Risk" insurance in an amount approved by
Landlord covering the construction of such Alterations, and such other insurance
as Landlord may require, it being understood and agreed that all of such
Alterations shall be insured by Tenant pursuant to Article 10 of this Lease
immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.
8.5 Landlord's Property. All Alterations, improvements, fixtures and/or
equipment which may be installed or placed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord, except
that Tenant may remove any Alterations, improvements, fixtures and/or equipment
which Tenant can substantiate to Landlord have not been paid for with any Tenant
improvement allowance funds provided to Tenant by Landlord, provided Tenant
repairs any damage to the Premises and Building caused by such removal.
Furthermore, if Landlord, as a condition to Landlord's consent to any
Alteration, requires that Tenant remove any Alteration upon the expiration or
early termination of the Lease Term, Landlord may, by written notice to Tenant
prior to the end of the Lease Term, or given following any earlier termination
of this Lease, require Tenant, at Tenant's expense, to remove such Alterations
and to repair any damage to the Premises and Building caused by such removal. If
Tenant fails to complete such removal and/or to repair any damage caused by the
removal of any Alterations, Landlord may do so and may charge the cost thereof
to Tenant.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant, operation
of law or otherwise, to attach to or be placed upon the Project or Premises, and
any and all liens and encumbrances created by Tenant shall attach to Tenant's
interest only. Landlord shall have the right at all times to post and keep
posted on the Premises any notice which it deems necessary for protection from
such liens. Tenant covenants and agrees not to suffer or permit any lien of
mechanics or materialmen or others to be placed against the Project, the
Building or the Premises, or any portion thereof, with respect to work or
services claimed to have been performed for or materials claimed to have been
furnished to Tenant or the Premises, and, in case of any such lien attaching or
notice of any lien, Tenant covenants and agrees to cause it to be immediately
released and removed of record. Notwithstanding anything to the contrary set
forth in this Lease, in the event that such lien is not released and removed on
or before the date occurring five (5) days after notice of such lien is
delivered by Landlord to Tenant, Landlord, at its sole option, may immediately
take all action necessary to release and remove such lien, without any duty to
investigate the validity thereof, and all sums, costs and expenses, including
reasonable attorneys' fees and costs, incurred by Landlord in connection with
such lien shall be deemed Additional Rent under this Lease and shall immediately
be due and payable by Tenant.
ARTICLE 10
INSURANCE
10.1 Indemnification and Waiver. To the extent not prohibited by law,
Landlord, its members and their respective partners, subpartners, officers,
agents, servants, employees, and independent contractors (collectively,
"Landlord Parties") shall not be liable for, any damage either to person or
property or resulting from the loss of use thereof, which damage is sustained by
Tenant. Tenant shall indemnify, defend, protect, and hold harmless Landlord
Parties from any and all loss, cost, damage, expense and liability (including
without limitation court costs and reasonable attorneys' fees) incurred in
connection with or arising from any cause in, on or about the Premises, either
prior to, during, or after the expiration of the Lease Term, provided that the
terms of the foregoing indemnity shall not apply to the gross negligence or
wilful misconduct of Landlord. The provisions of this Section 10.1 shall
survive the expiration or sooner termination of this Lease with respect to any
claims or liability occurring prior to such expiration or
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termination. Notwithstanding anything to the contrary contained in this Lease,
nothing in this Lease shall impose any obligations on Tenant or Landlord to be
responsible or liable for, and each hereby releases the other from all liability
for, consequential damages other than those consequential damages incurred by
Landlord in connection with a holdover of the Premises by Tenant after the
expiration or earlier termination of this Lease or incurred by Landlord in
connection with any repair, physical construction or improvement work performed
by or on behalf of Tenant in the Project.
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
Tenant shall, at Tenant's expense, comply with all insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or use
of the Premises causes any increase in the premium for such insurance policies
then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of
the American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.
10.3 Tenant's Insurance. Tenant shall maintain the following coverages in
the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations, assumed liabilities or use of the Premises, including a
Broad Form endorsement covering the insuring provisions of this Lease and the
performance by Tenant of the indemnity agreements set forth in Section 10.1 of
this Lease, for limits of liability not less than:
Bodily Injury and
Property Damage Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
Personal Injury Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
0% Insured's participation
10.3.2 Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Premises installed by, for, or at the expense of Tenant, (ii)
any improvements which exist in the Premises as of the Lease Commencement Date
(excluding the "Base Building," as that term is defined hereinbelow), and (iii)
all other improvements, alterations and additions to the Premises. The term
"Base Building," for purposes of this Lease, shall mean the structural portions
of the Building, and the public restrooms and the systems and equipment located
in the internal core of the Building on the floor or floors on which the
Premises are located. Such insurance shall be written on an "all risks" of
physical loss or damage basis, for the full replacement cost value new without
deduction for depreciation of the covered items and in amounts that meet any
co-insurance clauses of the policies of insurance and shall include a vandalism
and malicious mischief endorsement, sprinkler leakage coverage and earthquake
sprinkler leakage coverage.
10.3.3 Workers Compensation Insurance in form and with limits in
accordance with the laws of the State of California, including Occupational
Disease Insurance, and Voluntary Compensation Insurance, and Employer's
Liability Insurance with limits not less than Five Hundred Thousand Dollars
($500,000.00) per occurrence; per employee for disease; and in the aggregate for
disease.
10.4 Form of Policies. The minimum limits of policies of insurance
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall (i) name Landlord, Tooley &
Company, and any other party Landlord specifies, as an additional insured; (ii)
specifically cover the liability assumed by Tenant under this Lease, including,
but not limited to, Tenant's obligations under Section 10.1 of this Lease;
(iii) be issued by an insurance company having a rating of not less than A-X in
Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed
to do business in the State of California; (iv) be primary insurance as to all
claims thereunder and provide that any insurance carried by Landlord is excess
and is non-contributing with any insurance requirement of Tenant; (v) provide
that said
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insurance shall not be canceled or coverage changed unless thirty (30) days'
prior written notice shall have been given to Landlord and any mortgagee of
Landlord; and (vi) contain a cross-liability endorsement or severability of
interest clause acceptable to Landlord. Tenant shall deliver said policy or
policies or certificates thereof to Landlord on or before the Lease Commencement
Date and at least thirty (30) days before the expiration dates thereof.
10.5 Subrogation. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are contained
in their respective insurance policies, Landlord and Tenant hereby waive any
right that either may have against the other on account of any loss or damage to
their respective property to the extent such loss or damage is insurable under
policies of insurance for fire and all risk coverage, theft, or other similar
insurance.
10.6 Additional Insurance Obligations. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord, but in no event in excess of the amounts
and types of insurance then being required by landlords of other Comparable
Buildings.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Base Building or any Common Areas serving or providing access
to the Premises shall be damaged by fire or other casualty, Landlord shall
promptly and diligently, subject to reasonable delays for insurance adjustment
or other matters beyond Landlord's reasonable control, and subject to all other
terms of this Article 11, restore the Base Building and such Common Areas. Such
restoration shall be to substantially the same condition of the Base Building
and the Common Areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building or Project or any other modifications to the Base Building or the
Common Areas deemed desirable by Landlord, provided that access to the Premises
and any common restrooms serving the Premises shall not be materially impaired.
Tenant shall, at Tenant's sole cost and expense, repair any injury or damage to
the Premises which is not part of the Base Building, in accordance with Article
8, above, and shall return the Premises to their original condition. Landlord
shall not be liable for any inconvenience or annoyance to Tenant or its
visitors, or injury to Tenant's business resulting in any way from such damage
or the repair of the Base Building or the Common Areas; provided, however, that
if such fire or other casualty shall have damaged the Base Building or Common
Areas necessary to Tenant's occupancy, and if such damage is not the result of
the negligence or wilful misconduct of Tenant or Tenant's employees,
contractors, licensees, or invitees, Landlord shall allow Tenant a proportionate
abatement of Rent to the extent Landlord is reimbursed from the proceeds of
rental interruption insurance purchased by Landlord as part of Operating
Expenses, during the time and to the extent the Premises are unfit for occupancy
for the purposes permitted under this Lease as the sole result of the damage to
the Base Building or the Common Areas, and not occupied by Tenant as a result
thereof.
11.2 Landlord's Option to Repair. Notwithstanding the terms of Section
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises, Building and/or Project; and instead terminate this Lease by notifying
Tenant in writing of such termination within sixty (60) days after the date of
damage, such notice to include a termination date giving Tenant ninety (90) days
to vacate the Premises, but Landlord may so elect only if the Building or
Project shall be damaged by fire or other casualty or cause, whether or not the
Premises are affected, and one or more of the following conditions is present:
(i) repairs to be made by Landlord cannot reasonably be completed within one
hundred twenty (120) days after the date of damage (when such repairs are made
without the payment of overtime or other premiums); (ii) the holder of any
mortgage on the Building or Project or ground lessor with respect to the
Building or Project shall require that
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the insurance proceeds or any portion thereof be used to retire the mortgage
debt, or shall terminate the ground lease, as the case may be; (iii) the damage
which is required to be repaired by Landlord is not fully covered, except for
deductible amounts, by Landlord's insurance policies; or (iv) any owner of any
other portion of the Project, other than Landlord, does not intend to repair the
damage to such portion of the Project; provided, however, that if Landlord does
not elect to terminate this Lease pursuant to Landlord's termination right as
provided above, and the repairs cannot, in the reasonable opinion of Landlord,
be completed within one hundred eighty (180) days after being commenced, Tenant
may elect, no earlier than sixty (60) days after the date of the damage and not
later than ninety (90) days after the date of such damage, to terminate this
Lease by written notice to Landlord effective as of the date specified in the
notice, which date shall not be less than thirty (30) days nor more than sixty
(60) days after the date such notice is given by Tenant. Furthermore, if neither
Landlord nor Tenant has terminated this Lease, and the repairs are not actually
completed within such 180-day period, Tenant shall have the right to terminate
this Lease during the first five (5) business days of each calendar month
following the end of such period until such time as the repairs are complete, by
notice to Landlord (the "Damage Termination Notice"), effective as of a date set
forth in the Damage Termination Notice (the "Damage Termination Date"), which
Damage Termination Date shall not be less than ten (10) business days following
the end of each such month. Notwithstanding the foregoing, if Tenant delivers a
Damage Termination Notice to Landlord, then Landlord shall have the right to
suspend the occurrence of the Damage Termination Date for a period ending thirty
(30) days after the Damage Termination Date set forth in the Damage Termination
Notice by delivering to Tenant, within five (5) business days of Landlord's
receipt of the Damage Termination Notice, a certificate of Landlord's contractor
responsible for the repair of the damage certifying that it is such contractor's
good faith judgment that the repairs shall be substantially completed within
thirty (30) days after the Damage Termination Date. If repairs shall be
substantially completed prior to the expiration of such thirty-day period, then
the Damage Termination Notice shall be of no force or effect, but if the repairs
shall not be substantially completed within such thirty-day period, then this
Lease shall terminate upon the expiration of such thirty-day period. At any
time, from time to time, after the date occurring sixty (60) days after the date
of the damage, Tenant may request that Landlord inform Tenant of Landlord's
reasonable opinion of the date of completion of the repairs and Landlord shall
respond to such request within five (5) business days.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or the Project, and any statute or regulation of
the State of California, including, without limitation, Sections 1932(2) and
1933(4) of the California Civil Code, with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any other statute or regulation, now or hereafter in effect,
shall have no application to this Lease or any damage or destruction to all or
any part of the Premises, the Building or the Project.
11.4 Damage Near End of Term. In the event that the Premises, the
Building, or the Project is destroyed or damaged to any substantial extent
during the last eighteen (18) months of the Lease Term, then notwithstanding
anything contained in this Article 11, Landlord shall have the option to
terminate this Lease by giving written notice to Tenant of the exercise of such
option within thirty (30) days after such damage or destruction, in which event
this Lease shall cease and terminate as of the date of such notice, Tenant shall
pay the Base Rent and Additional Rent, properly apportioned up to such date of
damage, and both parties hereto shall thereafter be freed and discharged of all
further obligations hereunder, except as provided for in provisions of this
Lease which by their terms survive the expiration or earlier termination of the
Lease Term.
ARTICLE 12
NONWAIVER
No waiver of any provision of this Lease shall be implied by any failure
of Landlord to enforce any remedy on account of the violation of such provision,
even if such violation shall continue or be repeated subsequently, and any
waiver by Landlord of any provision of this Lease may only be in writing.
Additionally, no express waiver shall affect any provision other than the one
specified in such waiver and then only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way
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alter the length of the Lease Term or of Tenant's right of possession hereunder,
or after the giving of any notice shall reinstate, continue or extend the Lease
Term or affect any notice given Tenant prior to the receipt of such monies, it
being agreed that after the service of notice or the commencement of a suit, or
after final judgment for possession of the Premises, Landlord may receive and
collect any Rent due, and the payment of said Rent shall not waive or affect
said notice, suit or judgment.
ARTICLE 13
CONDEMNATION
If the whole or any part of the Premises, Building or Project shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if Landlord shall grant a deed or
other instrument in lieu of such taking by eminent domain or condemnation,
Landlord shall have the option to terminate this Lease upon ninety (90) days'
notice, provided such notice is given no later than one hundred eighty (180)
days after the date of such taking, condemnation, reconfiguration, vacation,
deed or other instrument. If more than twenty-five percent (25%) of the
rentable square feet of the Premises is taken, or if access to the Premises is
substantially impaired, Tenant shall have the option to terminate this Lease
upon ninety (90) days' notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking. Landlord shall be
entitled to the entire award or payment in connection therewith, except that
Tenant shall have the right to file any separate claim available to Tenant for
any taking of Tenant's personal property and fixtures belonging to Tenant and
removable by Tenant upon expiration of the Lease Term pursuant to the terms of
this Lease, and for moving expenses, so long as such claims do not diminish the
award available to Landlord, its ground lessor with respect to the Building or
Project or its mortgagee, and such claim is payable separately to Tenant. All
Rent shall be apportioned as of the date of such termination, or the date of
such taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of The California Code of Civil
Procedure.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Tenant shall not, without the prior written consent of
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment, or other transfer of this Lease or any interest hereunder by
operation of law, sublet the Premises or any part thereof, or permit the use of
the Premises by any persons other than Tenant and its employees (all of the
foregoing are hereinafter sometimes referred to collectively as "Transfers" and
any person to whom any Transfer is made or sought to be made is hereinafter
sometimes referred to as a "Transferee"). If Tenant desires Landlord's consent
to any Transfer, Tenant shall notify Landlord in writing, which notice (the
"Transfer Notice") shall include (i) the proposed effective date of the
Transfer, which shall not be less than forty-five (45) days nor more than one
hundred eighty (180) days after the date of delivery of the Transfer Notice,
(ii) a description of the portion of the Premises to be transferred (the
"Subject Space"), (iii) all of the material terms of the proposed Transfer and
the consideration therefor (including calculation of the "Transfer Premium", as
that term is defined in Section 14.3 below, in connection with such Transfer),
the name and address of the proposed Transferee, and a copy of all existing
executed and/or proposed documentation pertaining to the proposed Transfer,
including all existing operative documents to be executed to evidence such
Transfer or the agreements incidental or related to such Transfer, and (iv)
current financial statements of the proposed Transferee certified by an officer,
partner or owner thereof, and any other information reasonably required by
Landlord to determine the financial responsibility, character, and reputation of
the proposed Transferee, nature of such Transferee's business and proposed use
of the Subject Space, and such other information as Landlord may reasonably
require. Any Transfer made without Landlord's prior written consent shall, at
Landlord's option, be null, void and of no effect, and shall, at Landlord's
option, constitute a default by Tenant under this Lease. Whether or not Landlord
consents to any proposed Transfer, Tenant shall pay
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Landlord's review and processing fees, as well as any reasonable legal fees
incurred by Landlord, within thirty (30) days after written request by Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. Without limitation as to other
reasonable grounds for withholding consent, the parties hereby agree that it
shall be reasonable under this Lease and under any applicable law for Landlord
to withhold consent to any proposed Transfer where one or more of the following
apply:
14.2.1 The Transferee is of a character or reputation or engaged in
a business which is not consistent with the quality of the Building or the
Project, or would be a significantly less prestigious occupant of the Building
than Tenant;
14.2.2 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.3 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities involved under the
Lease on the date consent is requested;
14.2.4 The proposed Transfer would cause a violation of another
lease for space in the Project, or would give an occupant of the Project a right
to cancel its lease;
14.2.5 The terms of the proposed Transfer will allow the Transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the Transferee to occupy space
leased by Tenant pursuant to any such right); or
14.2.7 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (1) occupies space in the Project at the time of
the request for consent, (ii) is negotiating with Landlord to lease space in the
Project at such time, or (ill) has negotiated with Landlord during the twelve
(12)-month period immediately preceding the Transfer Notice.
If Landlord consents to any Transfer pursuant to the terms of this Section 14.2
(and does not exercise any recapture rights Landlord may have under Section 14.4
of this Lease), Tenant may within six (6) months after Landlord's consent, but
not later than the expiration of said six-month period, enter into such Transfer
of the Premises or portion thereof, upon substantially the same terms and
conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease, provided that if there are any
material changes in the terms and conditions from those specified in the
Transfer Notice (i) such that Landlord would initially have been entitled to
refuse its consent to such Transfer under this Section 14.2, or (ii) which would
cause the proposed Transfer to be more favorable to the Transferee than the
terms set forth in Tenant's original Transfer Notice, Tenant shall again submit
the Transfer to Landlord for its approval and other action under this Article 14
(including Landlord's right of recapture, if any, under Section 14.4 of this
Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any
proposed Transferee claims that Landlord has unreasonably withheld or delayed
its consent under Section 14.2 or otherwise has breached or acted unreasonably
under this Article 14, their sole remedies shall be declaratory judgment and an
injunction for the relief sought without any monetary damages, and Tenant hereby
waives all other remedies on its own behalf and, to the extent permitted under
all applicable laws, on behalf of the proposed Transferee.
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined
in this Section 14.3, received by Tenant from such Transferee. "Transfer
Premium" shall mean all rent, additional rent or other consideration payable by
such Transferee in excess of the Rent and Additional Rent payable by Tenant
under this Lease on a per rentable square foot basis if less than all of the
Premises is transferred. "Transfer Premium" shall also include, but not be
limited to, key money and bonus money paid by Transferee to Tenant in connection
with such Transfer, and any payment in excess of fair market value for services
rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment,
or furniture transferred by Tenant to Transferee in connection with such
Transfer. In the calculations of Rent (as it relates to the Transfer Premium
calculated under this Section 14.3), and
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the Transferee's Rent and Quoted Rent under Section 14.2 of this Lease, the Rent
paid during each annual period for the Subject Space by Tenant, and the
Transferee's Rent and the Quoted Rent, shall be computed after adjusting such
rent to the actual effective rent to be paid, taking into consideration any and
all leasehold concessions granted in connection therewith, including, but not
limited to, any rent credit and tenant improvement allowance. For purposes of
calculating any such effective rent all such concessions shall be amortized on a
straight-line basis over the relevant term.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
the contrary contained in this Article 14, in the event Tenant contemplates a
Transfer of all or a portion of the Premises (or in the event of any other
Transfer or Transfers entered into by Tenant as a subterfuge in order to avoid
the terms of this Section 14.4), Tenant shall give Landlord notice (the
"Intention to Transfer Notice") of such contemplated Transfer (whether or not
the contemplated Transferee or the terms of such contemplated Transfer have been
determined). The Intention to Transfer Notice shall specify the portion of and
amount of rentable square feet of the Premises which Tenant intends to Transfer
(the "Contemplated Transfer Space"), the contemplated date of commencement of
the Contemplated Transfer (the "Contemplated Effective Date"), and the
contemplated length of the term of such contemplated Transfer, and shall specify
that such Intention to Transfer Notice is delivered to Landlord pursuant to this
Section 14.4 in order to allow Landlord to elect to recapture the Contemplated
Transfer Space for the term set forth in the Intention to Transfer Notice.
Thereafter, Landlord shall have the option, by giving written notice to Tenant
within thirty (30) days after receipt of any Intention to Transfer Notice, to
recapture the Contemplated Transfer Space. In the event such option is exercised
by Landlord, this Lease shall be canceled and terminated with respect to such
Contemplated Transfer Space as of the Contemplated Effective Date until the last
day of the term of the contemplated Transfer as set forth in the Intention to
Transfer Notice. In the event of a recapture by Landlord, if this Lease shall be
canceled with respect to less than the entire Premises, the Rent reserved herein
shall be prorated on the basis of the number of rentable square feet retained by
Tenant in proportion to the number of rentable square feet contained in the
Premises, and this Lease as so amended shall continue thereafter in full force
and effect, and upon request of either party, the parties shall execute written
confirmation of the same. If Landlord declines, or falls to timely elect to
recapture such Contemplated Transfer Space under this Section 14.4, then,
subject to the other terms of this Article 14, for a period of nine (9) months
(the "Nine Month Period") commencing on the last day of such thirty (30) day
period, Landlord shall not have any right to recapture the Contemplated Transfer
Space with respect to any Transfer made during the Nine Month Period, provided
that any such Transfer is substantially on the terms set forth in the Intention
to Transfer Notice, and provided further that any such Transfer shall be subject
to the remaining terms of this Article 14. If such a Transfer is not so
consummated within the Nine Month Period (or if a Transfer is so consummated,
then upon the expiration of the term of any Transfer of such Contemplated
Transfer Space consummated within such Nine Month Period), Tenant shall again be
required to submit a new Intention to Transfer Notice to Landlord with respect
any contemplated Transfer, as provided above in this Section 14.4.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms
and conditions of this Lease shall in no way be deemed to have been waived or
modified, (ii) such consent shall not be deemed consent to any further Transfer
by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord,
promptly after execution, an original executed copy of all documentation
pertaining to the Transfer in form reasonably acceptable to Landlord, (iv)
Tenant shall furnish upon Landlord's request a complete statement, certified by
an independent certified public accountant, or Tenant's chief financial officer,
setting forth in detail the computation of any Transfer Premium Tenant has
derived and shall derive from such Transfer, and (v) no Transfer relating to
this Lease or agreement entered into with respect thereto, whether with or
without Landlord's consent, shall relieve Tenant or any guarantor of the Lease
from liability under this Lease.
14.6 Additional Transfers. For purposes of this Lease, the term "Transfer"
shall also include (i) if Tenant is a partnership, the withdrawal or change,
voluntary, involuntary or by operation of law, of twenty-five percent (25%) or
more of the partners, or transfer of twenty-five percent or more of partnership
interests, within a twelve (12)-month period, or the dissolution of the
partnership without immediate reconstitution thereof, and (ii) if Tenant is a
closely held corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the
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counter), (A) the dissolution, merger, consolidation or other reorganization of
Tenant or, (B) the sale or other transfer of more than an aggregate of
twenty-five percent (25%) of the voting shares of Tenant (other than to
immediate family members by reason of gift or death) within a twelve (12)-month
period, or (C) the sale, mortgage, hypothecation or pledge of more than an
aggregate of twenty-five percent (25%) of the value of the unencumbered assets
of Tenant within a twelve (12)-month period.
14.7 Non-Transfers. Notwithstanding anything to the contrary contained
in this Article 14, an assignment or subletting of all or a portion of the
Premises to an affiliate of Tenant (an entity which is controlled by, controls,
or is under common control with Tenant, or an entity which merges with, is
acquired by, or acquires Tenant (whether through the acquisition of all or
substantially all of the assets or securities of the acquired entity))
(collectively, the "Affiliate"), shall not be deemed a Transfer under this
Article 14, provided that Tenant notifies Landlord of any such assignment or
sublease and promptly supplies Landlord with any documents or information
requested by Landlord regarding such assignment or sublease, or such Affiliate,
and further provided that such assignment or sublease is not a subterfuge by
Tenant to avoid its obligations under this Lease. "Control," as used in this
Section 14.7, shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person or
entity, whether through the ownership of voting securities, by contract or
otherwise.
ARTICLE 15
SURRENDER OF PREMISES;
REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord. The delivery of keys
to the Premises to Landlord or any agent or employee of Landlord shall not
constitute a surrender of the Premises or effect a termination of this Lease,
whether or not the keys are thereafter retained by Landlord, and notwithstanding
such delivery Tenant shall be entitled to the return of such keys at any
reasonable time upon request until this Lease shall have been properly
terminated. The voluntary or other surrender of this Lease by Tenant, whether
accepted by Landlord or not, or a mutual termination hereof, shall not work a
merger, and at the option of Landlord shall operate as an assignment to Landlord
of all subleases or subtenancies affecting the Premises.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, free-standing cabinet work,
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, with
or without the express or implied consent of Landlord, such tenancy shall be
from month-to-month only, and shall not constitute a renewal hereof or an
extension for any further term, and in such case Base Rent shall be payable at a
monthly rate equal to twice the Base Rent applicable during the last rental
period of the Lease Term under this Lease. Such month-to-month tenancy shall be
subject to every other applicable term, covenant and agreement contained herein.
Nothing contained in this Article 16 shall be construed as consent by Landlord
to any holding over by Tenant, and
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Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease upon the expiration or
other termination of this Lease. The provisions of this Article 16 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant falls to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender (including such tenant's lost
profits) and any lost profits to Landlord resulting therefrom.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit D, attached
hereto (or such other form as may be required by any prospective mortgagee or
purchaser of the Project, or any portion thereof), indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other
information reasonably requested by Landlord or Landlord's mortgagee or
prospective mortgagee. Tenant shall execute and deliver whatever other
instruments may be reasonably required for such purposes. Failure of Tenant to
timely execute and deliver such estoppel certificate or other instruments shall
constitute an acceptance of the Premises and an acknowledgment by Tenant that
statements included in the estoppel certificate are true and correct, without
exception.
ARTICLE 18
SUBORDINATION
This Lease shall be subject and subordinate to all present and future
ground or underlying leases of the Building or Project and to the lien of any
first mortgage or trust deed, now or hereafter in force against the Building or
Project, if any, and to all renewals, extensions, modifications, consolidations
and replacements thereof, and to all advances made or hereafter to be made upon
the security of such mortgages or trust deeds, unless the holders of such
mortgages or trust deeds, or the lessors under such ground lease or underlying
leases, require in writing that this Lease be superior thereto. Tenant covenants
and agrees in the event any proceedings are brought for the foreclosure of any
such mortgage or deed in lieu thereof, to attorn, without any deductions or
set-offs whatsoever, to the purchaser or any successors thereto upon any such
foreclosure sale or deed in lieu thereof if so requested to do so by such
purchaser, and to recognize such purchaser as the lessor under this Lease.
Tenant shall, within five (5) days of request by Landlord, execute such further
instruments or assurances as Landlord may reasonably deem necessary to evidence
or confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases. Tenant waives the provisions of
any current or future statute, rule or law which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligations hereunder in the event of any foreclosure proceeding
or sale.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 Defaults. The occurrence of any of the following shall constitute a
default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for fifteen (15) days after written notice
thereof from Landlord to Tenant, or
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19.1.3 Abandonment or vacation of the Premises by Tenant; or
19.1.4 To the extent permitted by law, a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors, or the filing
by or against Tenant or any guarantor of any proceeding under an insolvency or
bankruptcy law, unless in the case of a proceeding filed against Tenant or any
guarantor the same is dismissed within sixty (60) days, or the appointment of a
trustee or receiver to take possession of all or substantially all of the assets
of Tenant or any guarantor, unless possession is restored to Tenant or such
guarantor within thirty (30) days, or any execution or other judicially
authorized seizure of all or substantially all of Tenant's assets located upon
the Premises or of Tenant's interest in this Lease, unless such seizure is
discharged within thirty (30) days; or
19.1.5 The hypothecation or assignment of this Lease or
subletting of the Premises, or attempts at such actions, in violation of Article
14 hereof; or
19.1.6 The failure by Tenant to occupy the Premises within thirty
(30) days after the Substantial Completion of the Premises.
19.2 Remedies Upon Default. Upon the occurrence of any event of default by
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, specifically including but not
limited to, brokerage commissions and advertising expenses incurred,
expenses of remodeling the Premises or any portion thereof for a new
tenant, whether for the same or a different use, and any special
concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
and (ii), above, the "worth at the time of award" shall be computed by allowing
interest at the rate set forth in Article 25 of this Lease, but in no case
greater than the maximum amount of such interest permitted by law. As used in
Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
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19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all Rent as it becomes due.
19.3 Sublessees of Tenant. Whether or not Landlord elects to terminate
this Lease on account of any default by Tenant as set forth in this Article 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
ARTICLE 20
ATTORNEYS' FEES
If either party commences litigation against the other for the specific
performance of this Lease, for damages for the breach hereof or otherwise for
enforcement of any remedy hereunder, the parties hereto agree to and hereby do
waive any fight to a trial by jury and, in the event of any such commencement of
litigation, the prevailing party shall be entitled to recover from the other
party such costs and reasonable attorneys' fees as may have been incurred.
ARTICLE 21
SECURITY DEPOSIT
Landlord and Tenant acknowledge that Tenant has previously delivered an
amount equal to Four Thousand Five Hundred Ninety Dollars ($4,590.00) to
Landlord as a security deposit (the "Existing Security Deposit") pursuant to the
terms of the Prior Lease. Effective as of the Lease Commencement Date, Landlord
shall apply the Existing Security Deposit then held by Landlord towards the
amount set forth in Section 8 of the Summary (the "Security Deposit"). The
Security Deposit shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants, and conditions of this Lease
to be kept and performed by Tenant during the Lease Term; provided that
concurrent with Tenant's execution of this Lease, Tenant shall deposit with
Landlord an amount equal to One Thousand Two Hundred Forty-Four and 40/100
Dollars ($1,244.40), which amount shall constitute a part of the Security
Deposit. To the extent that as of the Lease Commencement Date, the total amount
then held by Landlord is less than Five Thousand Eight Hundred Thirty-Four and
40/100 Dollars ($5,834.40), Tenant shall pay the difference to Landlord within
ten (10) days following Tenant's receipt of notice thereof from Landlord. If
Tenant defaults with respect to any provisions of this Lease, including, but not
limited to, the provisions relating to the payment of Rent, Landlord may, but
shall not be required to, use, apply or retain all or any part of the Security
Deposit for the payment of any Rent or any other sum in default, or for the
payment of any amount that Landlord may spend or become obligated to spend by
reason of Tenant's default, or to compensate Landlord for any other loss or
damage that Landlord may suffer by reason of Tenant's default. If any portion of
the Security Deposit is so used or applied, Tenant shall, within five (5) days
after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount, and Tenant's
failure to do so shall be a default under this Lease. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit, or any balance thereof, shall be returned to Tenant, or, at
Landlord's option, to the last assignee of Tenant's interest hereunder, within
sixty (60) days following the expiration of the Lease Term. Tenant shall not be
entitled to any interest on the Security Deposit.
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ARTICLE 22
SUBSTITUTION OF OTHER PREMISES
Landlord shall have the privilege of moving Tenant to other space in the
Building comparable to the Premises, and all terms hereof shall apply to the new
space with equal force, provided that Tenant's then existing monetary
obligations under this Lease shall not be increased as a result of such
relocation of the Premises. In such event, Landlord shall give Tenant at least
sixty (60) days prior notice, shall provide Tenant, at Landlord's sole cost and
expense, with tenant improvements at least equal in quality to those in the
Premises and shall move Tenant's effects to the new space at Landlord's sole
cost and expense at such time and in such manner as to inconvenience Tenant as
little as practicable. In addition, Landlord shall reimburse Tenant for the
reasonable costs and expenses incurred by Tenant in connection with such
relocation (including, but not limited to, the costs of reasonable supplies of
replacement stationery and telephone installations), within thirty (30) days of
Landlord's receipt of an invoice therefor. Simultaneously with such relocation
of the Premises, the parties shall immediately execute an amendment to this
Lease stating the relocation of the Premises.
ARTICLE 23
SIGNS
Tenant's identifying signage shall be provided by Landlord, at Tenant's
cost, and such signage shall be comparable to that used by Landlord for other
similar floors in the Building and shall comply with Landlord's Building
standard signage program. Any signs, notices, logos, pictures, names or
advertisements which are installed and that have not been separately approved by
Landlord may be removed without notice by Landlord at the sole expense of
Tenant. Tenant may not install any signs on the exterior or roof of the Project
or the Common Areas. Any signs, window coverings, or blinds (even if the same
are located behind the Landlord-approved window coverings for the Building), or
other items visible from the exterior of the Premises or Building, shall be
subject to the prior approval of Landlord, in its sole discretion. Tenant's
identifying entry on the building directory located in the lobby of the Building
shall be provided by Landlord, at Tenant's cost.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Building's life safety system. Should any
standard or regulation now or hereafter be imposed on Landlord or Tenant by a
state, federal or local governmental body charged with the establishment,
regulation and enforcement of occupational, health or safety standards for
employers, employees, landlords or tenants, then Tenant agrees, at its sole cost
and expense, to comply promptly with such standards or regulations. The judgment
of any court of competent jurisdiction or the admission of Tenant in any
judicial action, regardless of whether Landlord is a party thereto, that Tenant
has violated any of said governmental measures, shall be conclusive of that fact
as between Landlord and Tenant.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within three (3) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the overdue amount plus any attorneys' fees incurred by Landlord
by reason of Tenant's failure to pay Rent and/or other charges when due
hereunder. The late charge shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law
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and shall not be construed as liquidated damages or as limiting Landlord's
remedies in any manner. In addition to the late charge described above, any Rent
or other amounts owing hereunder which are not paid within three (3) days after
the date they are due shall bear interest from the date when due until paid at a
rate per annum equal to the lesser of (1) eighteen percent (18%) per annum or
(ii) the highest rate permitted by applicable law.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 Landlord's Cure. All covenants and agreements to be kept or performed
by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any reduction of Rent. If Tenant shall fail to perform
any of its obligations under this Lease, within a reasonable time after such
performance is required by the terms of this Lease, Landlord may, but shall not
be obligated to, after reasonable prior notice to Tenant (except in the case of
an emergency), make any such payment or perform any such act on Tenant's part
without waiving its rights based upon any default of Tenant and without
releasing Tenant from any obligations hereunder.
26.2 Tenant's Reimbursement. Except as may be specifically provided to the
contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15) days
after delivery by Landlord to Tenant of statements therefor: (i) sums equal to
expenditures reasonably made and obligations incurred by Landlord in connection
with the remedying by Landlord of Tenant's defaults pursuant to the provisions
of Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages and
expenses referred to in Article 10 of this Lease; and (iii) sums equal to all
expenditures made and obligations incurred by Landlord in collecting or
attempting to collect the Rent or in enforcing or attempting to enforce any
rights of Landlord under this Lease or pursuant to law, including, without
limitation, all legal fees and other amounts so expended. Tenant's obligations
under this Section 26.2 shall survive the expiration or sooner termination of
the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant (except in the case of an emergency) to enter the Premises to
(i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees
or tenants, or to the ground or underlying lessors; (iii) post notices of
nonresponsibility; or (iv) alter, improve or repair the Premises or the Building
if necessary to comply with current building codes or other applicable laws, or
for structural alterations, repairs or improvements to the Building.
Notwithstanding anything to the contrary contained in this Article 27, Landlord
may enter the Premises at any time to (A) perform services required of Landlord;
(B) take possession due to any breach of this Lease in the manner provided
herein; and (C) perform any covenants of Tenant which Tenant fails to perform.
Landlord may make any such entries without the abatement of Rent and may take
such reasonable steps as required to accomplish the stated purposes. Tenant
hereby waives any claims for damages or for any injuries or inconvenience to or
interference with Tenant's business, lost profits, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby. For each
of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises, excluding Tenant's vaults, safes and
special security areas designated in advance by Tenant. In an emergency,
Landlord shall have the right to use any means that Landlord may deem proper to
open the doors in and to the Premises. Any entry into the Premises by Landlord
in the manner hereinbefore described shall not be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from any portion of the Premises.
ARTICLE 28
TENANT PARKING
Tenant shall be obligated to rent from Landlord, commencing on the Lease
Commencement Date, one (1) parking pass for the use of a reserved parking space,
and two (2)
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unreserved parking passes, on a monthly basis throughout the Lease Term, which
parking passes shall pertain to the Project parking facility. Tenant shall have
a one (1) time right to increase or decrease the number of reserved and/or
unreserved parking passes rented by Tenant during the Lease Term upon thirty
(30) days prior written notice to Landlord, but in no event may Tenant rent more
than the number of reserved or unreserved parking passes set forth in Section 9
of the Summary. Tenant shall pay to Landlord for automobile parking passes on a
monthly basis the prevailing rate charged from time to time for parking passes
in the Project. Tenant's continued right to use the parking passes is
conditioned upon Tenant abiding by all rules and regulations which are
prescribed from time to time for the orderly operation and use of the Project
parking facility and upon Tenant's cooperation in seeing that Tenant's employees
and visitors also comply with such rules and regulations. Landlord specifically
reserves the right to change the size, configuration, design, layout and all
other aspects of the Project parking facility at any time and Tenant
acknowledges and agrees that Landlord may, without incurring any liability to
Tenant and without any abatement of Rent under this Lease, from time to time,
close-off or restrict access to the Project parking facility for purposes of
permitting or facilitating any such construction, alteration or improvements.
Landlord may delegate its responsibilities hereunder to a parking operator in
which case such parking operator shall have all the rights of control attributed
hereby to the Landlord. The parking passes rented by Tenant pursuant to this
Article 28 are provided to Tenant solely for use by Tenant's own personnel and
such passes may not be transferred, assigned, subleased or otherwise alienated
by Tenant, except to an Affiliate of Tenant, without Landlord's prior approval.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 Binding Effect. Subject to all other provisions of this Lease, each
of the provisions of this Lease shall extend to and shall, as the case may
require, bind or inure to the benefit not only of Landlord and of Tenant, but
also of their respective successors or assigns, provided this clause shall not
permit any assignment by Tenant contrary to the provisions of Article 14 of this
Lease.
29.2 Modification of Lease. Should any current or prospective mortgagee or
ground lessor for the Building or Project require a modification or
modifications of this Lease, which modification or modifications will not cause
an increased cost or expense to Tenant or in any other way materially and
adversely change the rights and obligations of Tenant hereunder, then and in
such event, Tenant agrees that this Lease may be so modified and agrees to
execute whatever documents are reasonably required therefor and to deliver the
same to Landlord within ten (10) days following a request therefor. Should
Landlord or any such prospective mortgagee or ground lessor require execution of
a short form of Lease for recording, containing, among other customary
provisions, the names of the parties, a description of the Premises and the
Lease Term, Tenant agrees to execute and deliver such short form of Lease to
Landlord within ten (10) days following the request therefor.
29.3 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Project or
Building and in this Lease, and Tenant agrees that in the event of any such
transfer, Landlord shall automatically be released from all liability under this
Lease and Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of transfer. Tenant further
acknowledges that Landlord may assign its interest in this Lease to the holder
of any mortgage or deed of trust as additional security, but agrees that an
assignment shall not release Landlord from its obligations hereunder and Tenant
shall continue to look to Landlord for the performance of its obligations
hereunder.
29.4 Prohibition Against Recording. Except as provided in Section 29.3 of
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's election.
29.5 Captions. The captions of Articles and Sections are for convenience
only and shall not be deemed to limit, construe, affect or alter the meaning of
such Articles and Sections.
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29.6 Time of Essence. Time is of the essence of this Lease and each of its
provisions.
29.7 Partial Invalidity. If any term, provision or condition contained in
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to persons
or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.8 No Warranty. In executing and delivering this Lease, Tenant has not
relied on any representations, including, but not limited to, any representation
as to the amount of any item comprising Additional Rent or the amount of the
Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the exhibits attached hereto.
29.9 Child Care Facilities. Tenant acknowledges that any child care
facilities located in the Project (the "Child Care Facilities") which are
available to Tenant and Tenant's employees are provided by a third party (the
"Child Care Provider") which is leasing space in the Project, and not by
Landlord. If Tenant or its employees choose to use the Child Care Facilities,
Tenant acknowledges that Tenant and Tenant's employees are not relying upon any
investigation which Landlord may have conducted concerning the Child Care
Provider or any warranties or representation with respect thereto, it being the
sole responsibility of Tenant and the individual user of the Child Care
Facilities to conduct any and all investigations of the Child Care Facilities
prior to making use thereof. Accordingly, Landlord shall have no responsibility
with respect to the quality or care provided by the Child Care Facilities, or
for any acts or omissions of the Child Care Provider. Furthermore, Tenant, for
Tenant and for Tenant's employees, hereby agrees that Landlord, its members and
their respective partners, subpartners, officers, agents, servants, employees,
and independent contractors shall not be liable for, and are hereby released
from any responsibility for any loss, cost, damage, expense or liability, either
to person or property, arising from the use of the Child Care Facilities by
Tenant or Tenant's employees. Tenant hereby covenants that Tenant shall inform
all of Tenant's employees of the provisions of this Section 29.9 prior to such
employees' use of the Child Care Facilities.
29.10 Entire Agreement. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith, contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises and shall be
considered to be the only agreements between the parties hereto and their
representatives and agents. None of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto.
29.11 Right to Lease. Landlord reserves the absolute right to effect such
other tenancies in the Project as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Building or
Project. Tenant does not rely on the fact, nor does Landlord represent, that any
specific tenant or type or number of tenants shall, during the Lease Term,
occupy any space in the Building or Project.
29.12 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation
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of either party, that time period shall be extended by the period of any delay
in such party's performance caused by a Force Majeure.
29.13 Notices. All notices, demands, statements, designations, approvals
or other communications (collectively, "Notices") given or required to be given
by either party to the other hereunder shall be in writing, shall be sent by
United States certified or registered mail, postage prepaid, return receipt
requested, or delivered personally (i) to Tenant at the appropriate address set
forth in Section 11 of the Summary, or to such other place as Tenant may from
time to time designate in a Notice to Landlord; or (ii) to Landlord at the
following addresses, or to such other firm or to such other place as Landlord
may from time to time designate in a Notice to Tenant:
J.P. Morgan Investment Management, Inc.
522 Fifth Avenue
12th Floor
New York, New York 10036
Attention: Mr. George L. Ochs, Vice-President
and
Tooley & Company
1620 26th Street
Suite 1015N
Santa Monica, California 90404
Attention: Building Manager
With a copy to:
Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
Attn: Anton N. Natsis, Esq.
Any Notice will be deemed given on the date it is mailed as provided in this
Section 29.13 or upon the date personal delivery is made. If Tenant is notified
of the identity and address of the holder of any deed of trust or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or underlying
lessor written notice of any default by Landlord under the terms of this Lease
by registered or certified mail, and such mortgagee or ground or underlying
lessor shall be given a reasonable opportunity to cure such default prior to
Tenant's exercising any remedy available to Tenant.
29.14 Joint and Several. If there is more than one Tenant, the obligations
imposed upon Tenant under this Lease shall be joint and several.
29.15 Authority. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Tenant is
authorized to do so.
29.16 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
29.17 Submission of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
29.18 Brokers. Landlord and Tenant hereby warrant to each other that they
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 10 of the Summary (the "Brokers"), whose commissions shall
be the responsibility of Landlord pursuant to a separate written agreement, and
that they know of no other real estate broker or agent who is entitled to a
commission in connection with this Lease. Each party agrees to indemnify and
defend the other
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party against and hold the other party harmless from any and all claims,
demands, losses, liabilities, lawsuits, judgments, and costs and expenses
(including without limitation reasonable attorneys' fees) with respect to any
leasing commission or equivalent compensation alleged to be owing on account of
any dealings with any real estate broker or agent, other than the Brokers,
occurring by, through, or under the indemnifying party.
29.19 Independent Covenants. This Lease shall be construed as though the
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord; provided, however, that the foregoing shall in no
way impair the right of Tenant to commence a separate action against Landlord
for any violation by Landlord of the provisions hereof so long as notice
is first given to Landlord and any holder of a mortgage or deed of trust
covering the Building or Project or any portion thereof, whose address has
theretofore been given to Tenant, and an opportunity is granted to Landlord and
such holder to correct such violations as provided above.
29.20 Project or Building Name and Signage. Landlord shall have the
right at any time to change the name of the Project or Building and to install,
affix and maintain any and all signs on the exterior and on the interior of the
Project or Building as Landlord may, in Landlord's sole discretion, desire.
Tenant shall not use the name of the Project or Building or use pictures or
illustrations of the Project or Building in advertising or other publicity,
without the prior written consent of Landlord.
29.21 Transportation Management. Tenant shall fully comply with all
present or future programs intended to manage parking, transportation or traffic
in and around the Project or Building, and in connection therewith, Tenant shall
take responsible action for the transportation planning and management of all
employees located at the Premises by working directly with Landlord, any
governmental transportation management organization or any other transportation-
related committees or entities. Such programs may include, without limitation:
(i) restrictions on the number of peak-hour vehicle trips generated by Tenant;
(ii) increased vehicle occupancy; (iii) implementation of an in-house
ridesharing program and an employee transportation coordinator; (iv) working
with employees and any Project, Building or area-wide ridesharing program
manager; (v) instituting employer-sponsored incentives (financial or in-kind) to
encourage employees to rideshare; and (vi) utilizing flexible work shifts for
employees.
29.22 No Discrimination. Tenant covenants by and for itself, its heirs,
executors, administrators and assigns, and all persons claiming under or through
Tenant, and this Lease is made and accepted upon and subject to the following
conditions: that there shall be no discrimination against or segregation of any
person or group of persons, on account of race, color, creed, sex, religion,
marital status, ancestry or national origin in the leasing, subleasing,
transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any
person claiming under or through Tenant, establish or permit such practice or
practices of discrimination or segregation with reference to the selection,
location, number, use or occupancy, of tenants, lessees, sublessees, subtenants
or vendees in the Premises.
29.23 Hazardous Material. As used herein, the term "Hazardous Material"
means any hazardous or toxic substance, material or waste which is or becomes
regulated by, or is dealt with in, any local governmental authority, the State
of California or the United States Government. Tenant acknowledges that Landlord
may incur costs (A) for complying with laws, codes, regulations or ordinances
relating to Hazardous Material, or (B) otherwise in connection with Hazardous
Material including, without limitation, the following: (i) Hazardous Material
present in soil or ground water; (ii) Hazardous Material that migrates, flows,
percolates, diffuses or in any way moves onto or under the Project; (iii)
Hazardous Material present on or under the Project as a result of any discharge,
dumping or spilling (whether accidental or otherwise) on the Project by other
tenants of the Project or their agents, employees, contractors or invitees, or
by others; and (iv) material which becomes Hazardous Material due to a change in
laws, codes, regulations or ordinances which relate to hazardous or toxic
material, substances or waste. Tenant agrees that the costs incurred by Landlord
with respect to, or in connection with, the Project for complying with laws,
codes, regulations or ordinances relating to Hazardous Material shall be an
Operating
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Expense, unless the cost of such compliance, as between Landlord and Tenant, is
made the responsibility of Tenant under this Lease. To the extent any such
Operating Expense relating to Hazardous Material is subsequently recovered or
reimbursed through insurance, or recovery from responsible third parties, or
other action, Tenant shall be entitled to a proportionate share of such
Operating Expense to which such recovery or reimbursement relates.
29.24 Development of the Project.
29.24.1 Subdivision. Tenant acknowledges that the Project has been
subdivided. Landlord reserves the right to further subdivide all or a portion of
the buildings and Common Areas in the Project. Tenant agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord, any
additional documents needed to conform this Lease to the circumstances resulting
from a subdivision and any all maps in connection therewith. Notwithstanding
anything to the contrary set forth in this Lease, the separate ownership of any
buildings and/or Common Areas of the Project by an entity other than Landlord
shall not affect the calculation of Project Expenses or Tenant's payment of
Tenant's Share of Project Expenses.
29.24.2 The Other Improvements. If portions of the Project or
property adjacent to the Project (collectively, the "Other Improvements") are
owned by an entity other than Landlord, Landlord, at its option, may enter into
an agreement with the owner or owners of any of the Other Improvements to
provide (i) for reciprocal rights of access, use and/or enjoyment of the Project
and the Other Improvements, (ii) for the common management, operation,
maintenance, improvement and/or repair of all or any portion of the Project and
all or any portion of the Other Improvements, (iii) for the allocation of a
portion of the Project Expenses to the Other Improvements and the allocation of
a portion of the operating expenses and taxes for the Other Improvements to the
Project, (iv) for the use or improvement of the Other Improvements and/or the
Project in connection with the improvement, construction, and/or excavation of
the Other Improvements and/or the Project, and (v) for any other matter which
Landlord deems necessary. Nothing contained herein shall be deemed or construed
to limit or otherwise affect Landlord's right to sell all or any portion of the
Project or any other of Landlord's rights described in this Lease.
29.24.3 Construction of Project and Other Improvements. Tenant
acknowledges that portions of the Project and/or the Other Improvements may be
under construction following Tenant's occupancy of the Premises, and that such
construction may result in levels of noise, dust, obstruction of access, etc.
which are in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction.
29.25 Tenant's ERISA Representation. Tenant hereby represents and warrants
to Landlord that none of the assets of Tenant are "plan assets" as that term is
defined in 29 C.F.R. ss. 2509.75-2 or ss. 2510.3-101.
29.26 Landlord Exculpation. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord hereunder (including
any successor landlord hereunder) and any recourse by Tenant against Landlord
shall be limited solely and exclusively to the interest of Landlord in and to
the Building and Real Property, and neither Landlord, nor any of its members,
shall have any personal liability therefor, and Tenant, on behalf of itself and
all persons claiming by, through or under Tenant, hereby expressly waives and
releases Landlord and such members from any and all personal liability.
-29-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company
By: /s/ George L. Ochs
-------------------------------
George L. Ochs
Vice President
"Tenant":
INTERNATIONAL CAPITAL GROWTH, LTD.,
a Delaware corporation
By: Stanley Hollander
-------------------------------
Its: President
--------------------------
By: /s/ Stanley Hollander
-------------------------------
Its: President
--------------------------
-30-
<PAGE>
EXHIBIT A
THE WATER GARDEN
OUTLINE OF PREMISES
[MAP OF THE WATER GARDEN]
<TABLE>
<S> <C> <C>
THE SIXTH FLOOR CATTERALL DESIGN OFFICE
WATER 2425 OLYMPIC BOULEVARD EXISTING TENANT IMPROVEMENTS
GARDEN NOT TO SCALE REVISED: 10 JULY 1996
</TABLE>
EXHIBIT A--Page 1
<PAGE>
EXHIBIT B
THE WATER GARDEN
NOTICE OF LEASE TERM DATES
To: ---------------------
---------------------
---------------------
---------------------
Re: Office Lease dated ______________________, 19__ between WATER GARDEN
COMPANY L.L.C., a Delaware Limited Liability Company ("Landlord"), and
_______________________________, a ___________________________ ("Tenant")
concerning Suite ____________ on floor(s)________________ of the office
building located at __________________________________, Santa Monica,
California.
Gentlemen:
In accordance with the referenced Office Lease (the "Lease"), we wish to
advise you and/or confirm as follows:
1. The Substantial Completion of the Premises has occurred, and the
Lease Term shall commence on or has commenced on ___________________
for a term of _______________________ ending on ___________________.
2. Rent commenced to accrue on ___________________________, in the amount
of ____________________.
3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each
billing thereafter, with the exception of the final billing, shall
be for the full amount of the monthly installment as provided for
in the Lease.
4. Your rent checks should be made payable to _________________________
at __________________________________.
5 The exact number of rentable square feet within the Premises is
____________________ square feet.
6. Tenant's Share as adjusted based upon the exact number of rentable
square feet within the Premises is _______%.
Pursuant to the terms of Article 2 of your Lease, you are required to
return an executed copy of this Notice to __________________ within five (5)
days following your receipt hereof, and thereafter the statements set forth
herein shall be conclusive and binding upon you. Your failure to timely execute
and return this Notice shall constitute your acknowledgment that the statements
included herein are true and correct, without exception.
EXHIBIT B - Page 1
<PAGE>
"Landlord":
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company
By:
------------------------------------
Its:
-------------------------------
Agreed to and Accepted as
of____________________, 19__.
"Tenant":
- ------------------------------,
a
----------------------------
By:
---------------------------
Its:
---------------------
By:
---------------------------
Its:
---------------------
EXHIBIT B - Page 2
<PAGE>
EXHIBIT C
THE WATER GARDEN
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts
or omissions of any other tenants or occupants of the Project.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or repairs
required by Tenant. Two keys will be furnished by Landlord for the Premises, and
any additional keys required by Tenant must be obtained from Landlord at a
reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all times
except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the greater Los Angeles area. Tenant, its employees and agents must
be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register. Access to the Building may be refused unless the
person seeking access has proper identification or has a previously arranged
pass for access to the Building. The Landlord and his agents shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In case of invasion, mob, riot, public
excitement, or other commotion, Landlord reserves the right to prevent access to
the Building or the Project during the continuance thereof by any means it deems
appropriate for the safety and protection of life and property.
4. No furniture, freight or equipment of any kind shall be brought into
the Building without prior notice to Landlord. All moving activity into or out
of the Building shall be scheduled with Landlord and done only at such time and
in such manner as Landlord designates. No service deliveries (other than
messenger services) will be allowed between hours of 4:00 p.m. to 6:00 p.m.,
Monday through Friday. Landlord shall have the right to prescribe the weight,
size and position of all safes and other heavy property brought into the
Building and also the times and manner of moving the same in and out of the
Building. Safes and other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage to
any such safe or property in any case. Any damage to any part of the Building,
its contents, occupants or visitors by moving or maintaining any such safe or
other property shall be the sole responsibility and expense of Tenant.
5. No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in the elevators, except between
such hours and in such specific elevator as shall be designated by Landlord.
6. Any requests of Tenant shall be directed to the management office for
the Project or at such office location designated by Landlord. Employees of
Landlord shall not perform any work or do anything outside their regular duties
unless under special instructions from Landlord.
7. Tenant shall not disturb, solicit, or canvass any occupant of the
Project and shall cooperate with Landlord and its agents to prevent such
activities.
8. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting
EXHIBIT C - Page 1
<PAGE>
from the violation of this rule shall be borne by the tenant who, or whose
employees or agents, shall have caused it.
9. Tenant shall not overload the floor of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof without Landlord's consent first had and
obtained.
10. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machines other than fractional horsepower
office machines shall be installed, maintained or operated upon the Premises
without the written consent of Landlord.
11. Tenant shall not use or keep in or on the Premises, the Building, or
the Project any kerosene, gasoline or other inflammable or combustible fluid or
material.
12. Tenant shall not without the prior written consent of Landlord use
any method of heating or air conditioning other than that supplied by Landlord.
13. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Project by reason of noise, odors, or vibrations, or
interfere in any way with other tenants or those having business therein.
14. Tenant shall not bring into or keep within the Project, the Building
or the Premises any animals, birds, bicycles or other vehicles.
15. No cooking shall be done or permitted on the Premises, nor shall the
Premises be used for the storage of merchandise, for lodging or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' laboratory-approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and similar
beverages for employees and visitors, provided that such use is in accordance
with all applicable federal, state and city laws, codes, ordinances, rules and
regulations.
16. Landlord will approve where and how telephone and telegraph wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
17. Landlord reserves the right to exclude or expel from the Project any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use them only as a means of ingress and egress for the
Premises.
19. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls.
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in Santa
Monica, California without violation of any law or ordinance governing such
disposal. All trash, garbage and refuse disposal shall be made only through
entry-ways and elevators provided for such purposes at such times as Landlord
shall designate.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
EXHIBIT C - Page 2
<PAGE>
22. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
23. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises without the prior written consent of
Landlord. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Building must be fluorescent and/or of a quality, type, design
and bulb color approved by Landlord. Tenant shall abide by Landlord's
regulations concerning the opening and closing of window coverings which are
attached to the windows in the Premises, if any, which have a view of any
interior portion of the Building or Building Common Areas.
24. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills.
Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises,
Building, the Common Areas and the Project, and for the preservation of good
order therein, as well as for the convenience of other occupants and tenants
therein. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition of its occupancy of the Premises.
Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
tenant, nor prevent Landlord from thereafter enforcing any such Rules or
Regulations against any or all tenants of the Project.
EXHIBIT C - Page 3
<PAGE>
EXHIBIT D
THE WATER GARDEN
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of ___________________, 199_ by and between ___________
as Landlord, and the undersigned as Tenant, for Premises on the ____________
floor(s) of the office building located at ________________________, Santa
Monica, California __________________________, certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in Exhibit
A represent the entire agreement between the parties as to the Premises.
2. The undersigned currently occupies the Premises described in the Lease.
3. The Lease Term commenced on _________________, and the Lease Term
expires on ______________________.
4. Base Rent became payable on ________________________.
5. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
6. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
7. Tenant shall not modify the documents contained in Exhibit A without
the prior written consent of the holder of the first deed of trust on the
Premises.
8. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through ______________. The current monthly installment of Base Rent is
$_____________.
9. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder.
10. The current amount of the Security Deposit held by Landlord is
$__________.
11. No rental has been paid more than thirty (30) days in advance and no
security has been deposited with Landlord except as provided in the Lease.
12. As of the date hereof, there are no existing defenses or offsets that
the undersigned has against Landlord nor have any events occurred that with the
passage of time or the giving of notice, or both, would constitute a default on
the part of Landlord under the Lease.
13. The undersigned acknowledges that this Estoppel Certificate may be
delivered to Landlord or to a prospective mortgagee, or a prospective purchaser,
and acknowledges that said prospective mortgagee or prospective purchaser will
be relying upon the statements contained herein in making the loan or acquiring
the property of which the Premises are a part and that receipt by it of this
certificate is a condition of making of such loan or acquisition of such
property.
EXHIBIT D - Page 1
<PAGE>
14. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in
California and that Tenant has full right and authority to execute and deliver
this Estoppel Certificate and that each person signing on behalf of Tenant is
authorized to do so.
Executed at _______________________ on the ______ day of _______, 19___.
"Tenant":
-----------------------------------,
a
---------------------------------
By:
-------------------------------
Its:
-------------------------
By:
-------------------------------
Its:
-------------------------
EXHIBIT D - Page 2
EXHIBIT 11
Capital Growth Holdings, Ltd.
Computation of Net Income (Loss) Per Common Share
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------- -------------
<S> <C> <C>
Primary:
Net Income (Loss) $ 788,220 $ (14,229)
Less cumulative preferred dividend (28,417) 0
---------- ----------
NET INCOME (LOSS) USED FOR E.P.S.
COMPUTATION 759,803 (14,229)
========== ==========
Weighted average number of
common shares outstanding 14,447,378 11,210,550
Shares issuable upon exercise of dilutive
stock options and warrants, net of shares
assumed to be repurchased (at the
average market price for period) 129,030 0
---------- ----------
Shares used for computation 14,576,408 11,210,550
========== ==========
Net income per common share $0.05 $ 0.0
========== ==========
Fully Diluted:
NET INCOME USED FOR E.P.S.
COMPUTATION 788,220
----------
Weighted Average number of
common shares outstanding 14,447,378
Shares issuable upon exercise of dilutive
stock options and warrants, net shares
assumed to be repurchased (at the
market price at end of period) 147,472
Convertible Series A & B Preferred Shares 5,081,334
----------
Shares used for computation 19,676,184
==========
Net Income per Common Share $0.04
==========
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2
Amendment No. 1 (Registration No. 333-37879) of our report dated February 22,
1997 (with respect to Notes A and B March 14, 1997 and Notes D[3] and L March
27, 1997) on our audit of the financial statements of Capital Growth Holdings,
Ltd. (the "Company"), as of December 31, 1996 and for the period February 26,
1996 (inception) through December 31, 1996. We also consent to the reference to
our firm under the captions "Selected Financial Data" and "Experts."
RICHARD A. EISNER & COMPANY, LLP
New York, New York
January 14, 1998
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-1-1997 FEB-26-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 1,333,375 3,060,255
<RECEIVABLES> 0 0
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 2,866,034 120,464
<PP&E> 250,537 0
<TOTAL-ASSETS> 4,895,096 3,486,834
<SHORT-TERM> 0 0
<PAYABLES> 102,947 51,000
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
786,987 786,987
<COMMON> 4,380,556 3,423,063
<OTHER-SE> (625,394) (774,216)
<TOTAL-LIABILITY-AND-EQUITY> 4,895,096 3,486,834
<TRADING-REVENUE> 0 0
<INTEREST-DIVIDENDS> 73,856 22,033
<COMMISSIONS> 0 0
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 2,410,721 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 1,038,220 (718,816)
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 788,220 (718,616)
<EPS-PRIMARY> 0.05 (0.06)
<EPS-DILUTED> 0.04 0
</TABLE>
