As filed with the Securities and Exchange Commission on February 12, 1998
Registration No. 333-_____
================================================================================
U.S.SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MICROCAP FINANCIAL SERVICES.COM, INC.
(Name of Small Business Issuer in Its Charter)
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<S> <C> <C>
Delaware 7375 06-1489574
(State or Jurisdiction of (Primary Standard (IRS Employer
Incorporation or Organization) Industrial Classification Identification Number)
Code Number)
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7280 W. Palmetto Park Road
Suite 202
Boca Raton, Florida 33433
(561) 417-8053
(Address and Telephone Number of Principal Executive Offices)
7280 W. Palmetto Park Road, Suite 202, Boca Raton, Florida 33433
(Address of principal place of business or intended principal place of business)
Ronald B. Koenig
Chairman of the Board of Directors,
and Co-Chief Executive Officer
MicroCap Financial Services.com, Inc.
7280 W. Palmetto Park Road
Suite 202
Boca Raton, Florida 33433
(561) 417-8053
http://www.microcap1000.com
(Name, Address and Telephone Number of Agent for Service)
COPIES OF COMMUNICATIONS TO:
Dale S. Bergman, P.A.
Broad and Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Telephone No. (305) 373-9400
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]
================================================================================
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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 this form is a post-effective amendment filed pursuant to Rule
462(d) 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. [ ]
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CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (1) PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 27,108,800 Shares $2.46 $66,686,664 $ 19,672.56
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 840,000 $2.375 $ 1,995,000 $ 5,885.25
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 2,250,000 $1.00 $2,250,000 663.75
- ----------------------------------------------------------------------------------------------------------------------
Total $26,221.56
- ----------------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of calculating the registration fee
and pursuant to Rule 457.
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
PROSPECTUS
30,198,800 SHARES
MICROCAP FINANCIAL SERVICES.COM, INC.
(Formerly known as Capital Growth Holdings, Ltd.)
The selling stockholders are offering for sale up to 30,198,800 shares
of common stock, including shares underlying warrants.
We are registering the re-sale of the shares of common stock pursuant
to commitments with these stockholders. We will pay the expenses of registering
the re-sale of the shares.
The selling stockholders may sell their shares in public or private
transactions, at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sales of the shares, but will receive
approximately $4,245,000 from the exercise of the warrants if all of the
warrants are exercised.
There is currently only a limited trading market for our common stock.
Our stock is quoted on the OTC Bulletin Board under the symbol "MFSI". On
February 10, 1999, the last reported bid price of the common stock was $2.40 per
share.
THESE SHARES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION. NONE OF THESE ORGANIZATIONS HAVE DETERMINED WHETHER THIS PROSPECTUS
IS COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
YOU SHOULD ONLY RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE
ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. OUR COMMON STOCK IS NOT BEING
OFFERED IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
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.
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THIS PROSPECTUS
--------------------
The date of this Prospectus is February 12, 1999
<PAGE>
SUMMARY........................................................................1
FORWARD-LOOKING STATEMENTS.....................................................5
RISK FACTORS...................................................................5
USE OF PROCEEDS...............................................................12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................................16
BUSINESS......................................................................20
MANAGEMENT....................................................................26
PRINCIPAL STOCKHOLDERS........................................................35
CERTAIN TRANSACTIONS..........................................................37
SELLING STOCKHOLDERS..........................................................39
DESCRIPTION OF SECURITIES.....................................................43
PLAN OF DISTRIBUTION..........................................................46
LEGAL MATTERS.................................................................48
EXPERTS.......................................................................48
WHERE YOU CAN FIND MORE INFORMATION...........................................48
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SUMMARY
THIS IS A SUMMARY AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY
BE IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION CONTAINED IN
THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS DOES NOT GIVE EFFECT TO 12,585,567 SHARES OF COMMON STOCK ISSUABLE
UPON THE EXERCISE OF OUTSTANDING OPTIONS UNDER OUR STOCK OPTION PLAN AS WELL AS
OUTSTANDING WARRANTS. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES IN
THIS PROSPECTUS TO "MICROCAP FINANCIAL SERVICES.COM, INC.," "WE," "OUR" AND "US"
REFER TO MICROCAP FINANCIAL SERVICES.COM, INC. AND ITS SUBSIDIARIES.
ABOUT US
We are a multimedia provider of online financial information services
to the investment community. Our U.S. based web-site www.microcap1000.com.
focuses on companies with market a capitalization of under $500 million and is
designed to be the premier source for information on the MicroCap sector. Our
first international site will be developed through an alliance with Freeserve
Limited, the United Kingdom's largest and fastest growing Internet service
provider and a subsidiary of Dixons Group, plc, the United Kingdom's largest
electronics retailer. This site will provide information and services within
Freeserve's financial channel through a web-site to be called UK-Invest.com.
EXISTING WEB SITE - WWW.MICROCAP1000.COM
MicroCap 1000.com is operated by our wholly owned subsidiary
MicroCap1000.com, Ltd. The site was fully launched in October 1998 and provides
comprehensive Internet-based electronic publishing of unique content, online
internet investor access investor access services, and hosts the MicroCap 1000
Index, the only real time index covering the Micro Cap sector. The site has
aggregated over 140,000 registered users. The site's unique content consists of
news and analysis from well known Wall Street analysts and money managers
targeted specifically at companies with market capitalizations of under $500
million. MicroCap1000.com assists the online investor by empowering them with
relevant information and ideas to make investment decisions. Currently, there
are over 80 web-sites which carry MicroCap1000's content and/or index including
CBS Marketwatch, Lycos and Wall Street City.
SITE UNDER DEVELOPMENT - WWW.UK-INVEST.COM
We have initiated our global internet expansion through an alliance
with the UK's largest and fastest growing internet service provider, Freeserve
Limited, a subsidiary of Dixons Group, plc, the UK's largest electronics
retailer. We will provide the investor information and services about all UK
securities within Freeserve's financial channel through our soon to be created
web-site www.uk-invest.com. The site is being designed to be the "CBS
Marketwatch" of the UK and is anticipated to its users offer to its users a
number of opportunities for commerce over the internet, or e-commerce, including
premium pay data and tools packages and the ability to effect brokerage
transactions over the internet. Management believes www.uk-invest.com will be
the platform to launch similar sites in other European countries.
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BUSINESS STRATEGY
Our revenue model for MicroCap1000 has the following 3 components: (1)
a fee paid premium service; (2) advertising fees and (3) payments from companies
attempting to reach interested internet investors. In connection with our fee
paid premium service, our goal is two-fold. The first is to convert a portion of
our free subscribers to fee paying premium service customers. The second is to
attract new subscribers to the premium service as a result of grass roots
marketing efforts on other sites. We are currently building our subscriber base
in order to provide an adequate platform for generating advertising fees from
both the site and video streamed presentations. Development of the subscriber
base will also enable us to generate fees from companies that are interested in
accessing our subscribers who are potential investors.
Our revenue model for uk-invest.com will be similar to the revenue
model for MicroCap1000 with the added component of electronic trading. Trading
over the internet, or e-brokering has yet to catch on in the U.K. as it has in
the U.S. We believe this is a significant marketing opportunity for us and are
exploring joint venture relationships with U.K. based e-brokering providers.
We intend to utilize our U.S. and U.K. platforms to aggregate, through
acquisition, complementing companies and products that will provide realtime,
value-added E-commerce programs of financial investment information to online
users worldwide.
HISTORY
We historically generated revenues primarily from the activities of our
wholly owned subsidiary International Capital Growth, Ltd. which acted as
placement agent in private financings and as a financial consultant to various
companies. However, over the last six months we have shifted our focus almost
exclusively to MicroCap1000 activities.
MicroCap1000 has yet to generate any revenue. For the nine months ended
September 30, 1998 we had a net loss of approximately $1.2 million and an
accumulated deficit of $4.3 million. We anticipate the net loss to continue
until such time as MicroCap1000.com, Ltd. generates significant revenues.
Our executive offices are located at 7280 W. Palmetto Park Road, Suite
202, Boca Raton, Florida 33433, and our telephone number is (561) 417-8053.
2
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ABOUT THE OFFERING
Common Stock Offered by the
Selling Stockholders.................. 30,198,800 shares, of which 27,108,800
shares are presently outstanding and
3,090,000 shares are issuable upon
exercise of 1998 consulting warrants.
Common Stock Outstanding
After the Offering.................... 46,938,296 shares(1)
OTC Bulletin Board Trading Symbol..... MFSI
Use of Proceeds....................... We will not receive any proceeds from
the sale of the shares by the selling
stockholders. We are also registering
the re-sale of shares issuable upon
exercise of warrants. If the warrants
are exercised, we will only receive
proceeds upon the exercise of the
warrants if the warrants are exercised.
Any proceeds received from the exercise
of the warrants will be used for working
capital and general corporate purposes.
Risk Factors ........................ The securities offered hereby involve a
high degree of risk.
- ------------
(1) Does not include (i) 7,025,000 shares of Common Stock reserved for
issuance upon exercise of options granted under the Company's 1998
Stock Option Plan or (ii) 2,975,000 shares of Common Stock reserved for
issuance upon exercise of options available for future grant under the
1998 Stock Option Plan and (iii) 5,560,567 shares of Common Stock
issuable upon the exercise of warrants.
3
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SUMMARY FINANCIAL DATA
Set forth below are selected financial data of the Company for each of
the periods indicated. The selected financial data for the period from February
26, 1996 (inception) through December 31, 1996 and for the year ended December
31, 1997 has been derived from the historical financial statements of the
Company included elsewhere in this Registration Statement. The financial data
for the nine months ended September 30, 1998 and 1997 were derived from the
unaudited financial statements of the Company. 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.
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<CAPTION>
FOR THE PERIOD FROM
FOR THE NINE MONTHS ENDED FEBRUARY 26, 1996
------------------------------ YEAR ENDED (INCEPTION) THROUGH
SEPT. 30, 1998 SEPT. 30, 1997 DEC. 31, 1997 DECEMBER 31, 1996
-------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
Total revenue 775,929 4,423,486 $3,428,054 $22,033
Total operating expenses 1,982,351 3,250,668 4,429,939 740,649
Net Income (loss) before taxes (1,206,422) 1,172,818 (1,001,885) (718,616)
Provision for taxes 0 300,000 0 0
Net income (loss) $(1,206,422) $772,818 $(1,001,885) $(718,616)
=========== ======== =========== =========
Less cumulative preferred dividend 0 (9,131) (29,624) (8,530)
Net income (loss) attributable to
Common Stockholders $(1,206,422) $763,687 $(1,031,509) $(727,146)
=========== ======== =========== =========
Basic (loss) income per common share $(0.06) $0.05 ($0.07) ($0.06)
====== ===== ====== ======
Diluted (loss) income per common share $(0.06) $0.04 ($0.07) ($0.06)
====== ===== ====== ======
Weighted average common shares
outstanding - basic 20,927,957 14,464,601 15,655,000 11,613,000
Effect of potential common stock 0 5,168,345 0 0
Weighted average common shares
outstanding - diluted 20,927,957 19,548,196 15,655,000 11,613,000
</TABLE>
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<CAPTION>
BALANCE SHEET DATA:
SEPTEMBER 30, DECEMBER 31, 1997
1998 1997
------------- -----------------
<S> <C> <C>
Total Assets $3,246,011 $3,001,183
Total Liabilities $511,749 $482,608
Long-Term Debt $0 $0
Stockholders' Equity $2,734,262 $2,518,575
</TABLE>
4
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FORWARD-LOOKING STATEMENTS
Certain important factors may affect our actual results and could cause
those results to differ materially from any forward-looking statements made in
this Prospectus or that are otherwise made by us or on our behalf.
"Forward-looking statements" are not based on historical facts and are typically
phrased using words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate" or "continue" and similar expressions or
variations.
Differences in actual results may be caused by factors such as those
discussed in the "Risk Factors" below as well as those discussed elsewhere in
this Prospectus and in our filings with the SEC.
RISK FACTORS
THE SHARES OFFERED ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS, AS WELL AS THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE INVESTING.
NEED FOR ADDITIONAL FUNDS
We anticipate that our current cash resources will enable us to
continue operations through at least February 2000. Continued operations
thereafter will require additional funds. We currently have no outside
commitments for additional sources of funding. We cannot assure you that we will
be able to generate revenues or raise additional funds on terms that are
favorable to us, if at all, or that such revenues and/or funds would be
sufficient to satisfy our capital needs for a significant period of time beyond
February 2000.
LACK OF OPERATING HISTORY
We have little operating history upon which you can evaluate our
performance and prospects. We face the risks frequently encountered by
developing companies. These risks include the potential inability to compete
with more established firms, to retain and maintain key personnel 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. Our subsidiary MicroCap
1000.com, Ltd. commenced limited operations in October, 1998 and is still in the
start-up phase.
RISKS RELATED TO DEPENDENCE ON ADVERTISING REVENUES AND SPONSORSHIPS
We expect to derive a significant portion of our revenues from the sale
of advertising on our Internet sites. In selling Internet-based advertising, we
will likely depend on advertising agencies, which exercise substantial control
over the placement of advertising for their clients. Our success will depend on
our ability to convince advertisers and advertising agencies of the benefits of
advertising on our Internet sites, and on our ability to retain, broaden and
diversify our future base of advertising customers. In order to generate
significant advertising revenues, we will depend on the development of a larger
base of users of our Internet site possessing demographic characteristics
attractive to advertisers. If we are unable to attract and retain paying
advertising customers or we are forced to offer lower than anticipated
advertising
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rates in order to attract and/or retain advertising customers, our business will
be harmed.
UNCERTAIN ACCEPTANCE OF THE INTERNET AS AN ADVERTISING MEDIUM; LACK OF
MEASUREMENT STANDARDS
Use of the Internet by consumers is at an early stage of development
and market acceptance of the Internet as a medium for information, commerce and
advertising is subject to a high level of uncertainty. We believe that our
success depends upon our ability to obtain significant revenues from our
Internet operations, which will require the development and acceptance of the
Internet as an advertising medium. In order for us to generate advertising
revenues, advertisers and advertising agencies must direct a portion of their
budgets to the Internet as a whole, and specifically to our Internet site. We
believe that most advertisers and advertising agencies have limited experience
with the Internet as an advertising medium and neither advertisers nor
advertising agencies have devoted a significant portion of their advertising
budgets to Internet-related advertising to date. We cannot assure you that
advertisers or advertising agencies will be persuaded, or able, to allocate or
continue to allocate portions of their budgets to Internet-based advertising or,
if so persuaded or able, that they will find Internet-based advertising to be
more effective than advertising in traditional media such as television, print
or radio, or in any event decide to advertise on our Internet site.
DEPENDENCE ON CONTINUED GROWTH IN THE USE OF THE INTERNET
Rapid growth in the use of and interest in the Internet is a recent
phenomenon, and we cannot assure you that acceptance and use of the Internet
will continue to develop or that a sufficient base of users will emerge to
support our business. Revenues from our Internet operations will depend largely
on the widespread acceptance and use of the Internet as a source of information
and entertainment and as a vehicle for commerce in goods and services. The
Internet may not be accepted as a viable commercial medium for a number of
reasons. If use of the Internet does not continue to grow or grows more slowly
than expected, or if the Internet infrastructure does not effectively support
growth that may occur, our business would be harmed.
COMPETITION
We compete with other Internet sites for the time and attention of
consumers and for advertising and subscription revenues. Competition among
Internet sites is intense and is expected to increase significantly in the
future. In our area of focus of finance, we compete with various companies and
Internet sites, such as Yahoo Business, Inc., CBS Market Watch, CNN Financial
Network, MSN Investor, The Motley Fool, Silicon Investor and Excite Money &
Investing, among others. Many, if not all, of these competitors also offer a
wider range of products and services than we do, which products and services may
be sufficiently attractive to Internet users to attract users to their services
and, consequently, dissuade them from accessing our Internet sites. If we are
unable to continue to attract a significant number of Internet users to our
Internet site, our business will be harmed.
LOW BARRIERS TO ENTRY
The market for Internet-based products and services is relatively new,
intensely competitive and rapidly evolving. There are minimal barriers to entry,
and current and new competitors can launch new Internet sites at a relatively
low cost within relatively short time periods. Accordingly, we expect
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competition to persist and intensify and the number of competitors to increase
significantly in the future. We cannot assure you that our Internet sites will
compete successfully.
LIMITED EXPERIENCE IN SALES AND MARKETING OF ADVERTISING
None of our senior management team has any significant experience in
selling advertising on the Internet or any other medium, and few members of our
senior management team have any significant experience in the Internet industry.
Achieving acceptance by potential advertisers and advertising agencies of our
Internet sites as a viable marketing forum will require us to develop and
maintain relationships with key advertisers and advertising agencies, and there
can be no assurance that any such relationships will be developed, on a timely
basis or at all.
DEPENDENCE ON THIRD PARTIES FOR INTERNET OPERATIONS AND CONTENT DEVELOPMENT
We believe that the ability to advertise our Internet site on other
Internet sites and the willingness of the owners and operators of such sites to
direct users to our Internet site through hypertext links are critical to the
success of our Internet operations. Other Internet sites, particularly
search/index guides and other companies with strategic ability to direct user
traffic, significantly affect traffic to our Internet site. There can be no
assurance that we will establish or maintain such arrangements in the future.
Our ability to develop original and compelling Internet-based products and
services is also dependent on maintaining relationships with and using products
provided by third-party vendors. Developing and maintaining satisfactory
relationships with third parties could become more difficult and more expensive
as competition increases among Internet sites. If we are unable to develop and
maintain satisfactory, relationships with such third parties on terms acceptable
to us, or if our competitors are better able to leverage such relationships, our
business will be harmed.
UNPREDICTABILITY OF REVENUES
As a result of our limited operating history and the emerging nature of
the Internet, including Internet-based advertising, and our business plan
subscription services and electronic commerce, we cannot forecast our expenses
and revenues accurately. We believe that, due primarily to the relatively brief
time the Internet has been available to the general public, there has not yet
been developed a commercially viable business model from which to successfully
operate any form of Internet-based product and/or service business. Further,
few, if any, of our operating expenses can be quickly or easily reduced. As a
result, we may be unable to adjust spending in a timely manner to compensate for
any unexpected expenditures or a shortfall in actual revenues as compared to
estimated revenues.
RISKS OF NEW BUSINESS AREAS
Development and operation of an internet website is a new business area
for and a deviation from our historical business. Our long-term success will
depend, in part, on our ability to expand operations beyond solely relying on
Internet-based advertising revenues into areas such as subscription-based
products and services and electronic commerce, in addition to successfully
developing new Internet sites and
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enhancing the existing one. We cannot assure you that we will be able to expand
into such areas, develop and launch any new Internet sites or enhance existing
ones.
RISKS ASSOCIATES WITH POTENTIAL ACQUISITIONS AND INVESTMENTS
We may entertain new business opportunities and ventures in a broad
range of areas. Typically, such opportunities require extended negotiations, the
investment of a substantial amount of capital and substantial burdens on our
management personnel and our financial and operational systems. We cannot assure
you that such a venture would ever achieve profitability.
RISKS OF TECHNOLOGICAL CHANGE
The market for Internet-based products and services is characterized by
rapid technological developments, frequent new product introductions and
evolving industry standards. The emerging character of these products and
services and their rapid evolution will require that we continually improve the
performance, features and reliability of our Internet-based products and
services, particularly in response to competitive offerings. We cannot assume
you that we will be successful in responding quickly, cost effectively and
sufficiently to these developments. In addition, the widespread adoption of new
Internet technologies or standards could require substantial expenditures by us
to modify or adapt our Internet site and services and could fundamentally affect
the character, viability and frequency of Internet-based advertising, either of
which could have a material adverse effect on our business. In addition, new
Internet-based products, services or enhancements offered by us may contain
design flaws or other defects that could require costly modifications or result
in a loss of consumer confidence, either of which could harm our business.
CAPACITY CONSTRAINTS; SYSTEM DISRUPTIONS AND RELIANCE ON THIRD PARTIES
The satisfactory performance, reliability and availability of our
Internet site and its computer network infrastructure are critical to attracting
Internet users and maintaining relationships with advertising customers. Our
Internet-based advertising revenues will be directly related to the number of
advertisement impressions delivered by us. System interruptions that result in
the unavailability of our Internet site or slower response times for users would
reduce the number of advertisements delivered, reduce the attractiveness of our
Internet sites to users and advertisers, and could harm our business. We are
dependent on third parties for uninterrupted Internet access.
SECURITY RISKS
We have instituted certain security measures designed to protect our
Internet site and other operations from unauthorized use and access. Such
measures cannot guarantee complete security. A party who is able to circumvent
our security measures could misappropriate proprietary information or cause
interruptions in our Internet operations. We may be required to spend
significant money and resources to protect against the threat of such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of Internet transactions and the privacy of users may also inhibit the
growth of the Internet generally, particularly as a means of conducting
commercial transactions. To the extent that activities of us or any third party
contractors involve the storage and transmission of proprietary information,
such as computer software or credit card numbers, security breaches could expose
us to a risk
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of loss or litigation and possible liability. We cannot assure you that
contractual provisions attempting to limit our liability in such areas will be
successful or enforceable, or that parties will accept such contractual
provisions as part of our agreements.
DEPENDENCE ON LICENSED TECHNOLOGY; PROTECTION OF INTELLECTUAL PROPERTY
Our success is dependent upon our ability to protect and leverage the
value, if any, of our original Internet technologies, software, content and our
trademarks, trade names, service marks, domain names and other proprietary
rights we either currently have or may have in the future. We have filed service
marks for our logo and name, as well as for the names of our site. Given the
uncertain application of existing copyright and trademark laws to the Internet,
we cannot assure you that existing laws will provide adequate protection for our
technologies, sites or domain names. Policing unauthorized use of our
technologies, content and other intellectual property rights entails significant
expenses and could otherwise be difficult or impossible to do given, among other
things, the global nature of the Internet. From time to time, we may be subject
to legal proceedings and claims in the ordinary course of business, including
claims of alleged infringement of the trademarks and other intellectual property
of third parties by us or our licensees. Such claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources. We are not currently aware of any legal proceedings or claims that we
believe will materially harm our business.
RISKY NATURE OF OUR BUSINESS
Our business is concentrated in the securities industry and,
particularly, providing information about the securities industry over the
Internet. As a result, our business is affected by many factors, including
economic and political conditions, broad trends in business and finance,
legislation and regulation affecting the 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 ours.
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 our revenues from our financial consulting and investment and result
in less interest in information about the MicroCap companies.
RISKS OF FOREIGN MARKETS
We recently signed an agreement to be the exclusive provider of
investor information and services within the financial channel of Freeserve
Limited, the United Kingdom's largest and fastest growing internet service
provider. We may enter into other agreements with other internet service
providers outside of the United States. Conducting business outside the United
States will require us to become familiar with and comply with foreign laws,
rules, regulations and customs. Expansion into non-U.S. markets may also require
significant additional expenses. Our management has limited experience
conducting business outside of the United States. We cannot assure you that we
will be successful engaging in business outside the United States. Moreover, our
failure to comply with foreign laws, rules and regulations of which we are not
aware may harm our business.
9
<PAGE>
LIABILITY FOR INTERNET CONTENT
As a publisher and a distributor of content over the Internet, we face
potential liability or defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. In addition, we could be exposed to liability
with respect to the content or unauthorized duplication of material indexed in
our search services. Although we currently carry general liability insurance,
such insurance would not cover potential claims arising from our activities on
the Internet. As a result, any imposition of liability that is not covered by
insurance could harm our business. We are currently in the process of attempting
to obtain insurance that would cover our activities on the Internet. However, we
cannot assure you that such insurance will be available on terms acceptable to
us or at all.
GOVERNMENT REGULATIONS
Currently few laws and regulations are directly applicable to the
Internet. However, it is possible that new laws and regulations will be adopted
covering issues such as access, obscene or indecent communications and the
pricing, characteristics and quality of Internet products and services. As a
provider of Internet-based products and services, we are subject to the
provisions of existing and future federal and local legislation that could be
applied to our operation. Such legislation could also dampen the growth of the
Internet generally and decrease the acceptance of the Internet as an advertising
medium, and could, thereby, harm our business.
NET CAPITAL REQUIREMENTS
The SEC, the Department of the Treasury 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 us or our 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.
DEPENDENCE ON KEY PERSONNEL; ABSENCE OF NON-COMPETITION AGREEMENTS
Our success will depend upon the services of our executives and certain
key personnel, including Ronald B. Koenig, our Chairman of the Board of
Directors and Co-Chief Executive Officer; Stanley Hollander our President and
Co-Chief Executive Officer; and Alan L. Jacobs, our Executive Vice President. We
also have key consultants John Flanders and Richard Hefter. Competition among
financial services firms for executives and other professional personnel is
intense and subject to escalating compensation expenses. We cannot assure you
that we will be able to successfully attract and retain key personnel. The loss
of the services of any one or more of such personnel or inability to attract
such personnel could harm our business. We do not have employment or
non-competition agreements with any key officer or director. Further, we do not
maintain key man life insurance on any of our executives or key personnel. We
cannot assure you that such officers and directors will remain associated with
us in any particular capacity or that they will not currently, or in the future,
compete, directly or indirectly, with us.
10
<PAGE>
EXERCISE OF WARRANTS WILL HAVE DILUTIVE EFFECT
We currently have outstanding warrants to purchase 12,585,567 shares of
common stock and are registering the re-sale of the shares underlying 3,090,000
warrants provide an opportunity for the holders thereof to profit from a rise in
the market price of our common stock with resulting dilution in the ownership
interest in us held by the then present stockholders. Because holders of the
Warrants would most likely opt to exercise their securities and receive the
underlying common stock at a time when we 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 we may be able to obtain additional capital would
be adversely affected.
SECURITIES ELIGIBLE FOR FUTURE SALE
Of our 46,938,296 shares outstanding, 44,831,262 are restricted shares
as that term is defined in Rule 144 promulgated under the Securities Act. Of
such 44,831,262 shares of common stock, 30,198,400 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 our 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 affiliate of us 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 us.
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 may sell their shares during a favorable movement in the market price
of 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
We have 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 our common stock. If issued, the preferred stock could
be utilized, as a method of discouraging, delaying or preventing a change in
control. Although we have no present intention to issue any additional shares of
our preferred stock, we cannot assure you that we will not do so in the future.
11
<PAGE>
LISTING ON OTC BULLETIN BOARD; LIMITED TRADING MARKET; "PENNY STOCK" REGULATIONS
MAY IMPOSE CERTAIN RESTRICTIONS
Our common stock has been quoted on the OTC Bulletin Board since June
12, 1997. Our common stock has only a limited trading market. We cannot assure
you that a more active trading market will develop or, if developed, that it
will be maintained. We cannot predict the effect, if any, that the sale of
restricted shares of common stock or shares of common stock issuable upon
exercise of the warrants or the availability of such securities for sale will
have on the market price of the common stock. 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 limited 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 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 SEC, 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.
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION
WITH THE EXERCISE OF THE WARRANTS
We 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 SEC, 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 we 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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered by
the selling stockholders. We will receive proceeds only upon the exercise of the
warrants for which we are registering the underlying shares of common stock, if
these warrants are exercised. We would receive $4,245,000 from the exercise of
the warrants assuming all of the warrants were exercised. We cannot assure you
as to when, if ever, any or all of such warrants will be exercised. Proceeds, if
any, received from the exercise of the warrants will be used for working capital
requirements and other general corporate purposes.
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We estimate we will spend $68,721 in registering the shares.
MARKET FOR COMMON EQUITY
Our common stock is currently quoted on the OTC Bulletin Board under
the symbol "MFSI". The table set forth below presents the high and low bid
prices of the common stock for the period indicated 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. 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.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ---- ------ ----
<S> <C> <C>
Quarter ended June 30, 1997 (commencing June 6, 1997) ............................ $2.75 $2.25
Quarter ended September 30, 1997 ................................................. $2.75 $2.25
Quarter ended December 31, 1997 .................................................. $2.50 $0.75
1998
- ----
Quarter ended March 31, 1998...................................................... $1.00 $0.25
Quarter ended June 30, 1998....................................................... $1.00 $0.50
Quarter ended September 30, 1998.................................................. $0.25 $0.71
Quarter ended December 31, 1998................................................... $0.375 $1.25
1999
- ----
First Quarter (through February 11, 1999)......................................... $4.00 $1.18
</TABLE>
On February 10, 1999, the last reported bid price of the common stock
was $2.40.
As of February 10, 1998, there were approximately 405 holders of record
of the common stock.
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<PAGE>
DIVIDEND POLICY
As of March 25, 1997, the Board of Directors declared an annual
cumulative dividend of $.225 per share on the common stock for the calendar
years 1997 and 1998. The dividend is due and payable to the holders of record on
the day the Board of Directors adopted the resolution to pay such dividend and
is 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 dividend, which began accruing as
of January 1, 1997, was payable on a quarterly basis ending on December 31,
1998. Although we made all prior dividend payments in a timely manner, we
determined, due to our limited cash resources, not to make the June 30, 1998,
September 30, 1998 and December 31, 1998 dividend payments. We can not predict
at this time when our cash resources will be sufficient to make such payment. We
recognize such payment as an obligation.
On October 12, 1997, each of our 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 were entitled to 5% per share annual
cumulative dividends prior to payment of dividends on any other class of capital
stock. The cumulative dividends on such preferred stock have accrued unpaid
since October 12, 1997 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 us to the former holders
of such preferred stock as of December 31, 1998 is $38,154.
We do not anticipate declaring any additional dividends on any of our
classes of capital stock. Any future dividend declarations and payments would be
subject to the restrictions set forth above, approval of our Board of Directors
and any contractual restrictions.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at September 30,
1998, and should be read in conjunction with the financial statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
ACTUAL
------------------
<S> <C>
Accounts payable and accrued expenses..................... $ 65,967
Dividends payable - preferred stockholders................ 38,154
Dividends payable - common stockholders................... 384,071
Deferred revenue.......................................... 23,557
-------------
Total Liabilities......................................... $ 511,749
Stockholder's equity:
Preferred stock, $.001 par value, 20,000,000
shares authorized, no shares issued and
outstanding.......................................... --
Common stock, $.001 par value, 100,000,000
shares authorized; 18,978,496 issued and
outstanding at 9/30/98(1) ........................... $ 18,978
Class B Common stock - $.001 par value,
25,000,000 shares authorized, 16,431,000
shares issued and outstanding(2)..................... 16,431
Additional paid-in capital .......................... 7,037,739
Accumulated deficit ................................. (4,308,886)
Treasury stock (15,000 shares)....................... (30,000)
-------------
Total stockholders' equity ............................... 2,734,262
-------------
Total capitalization ..................................... 2,734,262
=============
</TABLE>
- ------------
(1) Does not include 7,668,400 shares issued in connection with a private
placement which occurred during fourth quarter 1998 or 2,325,400 shares
issued in connection with a private placement which occurred in
February, 1999. Also does not include 16,431,000 shares of common stock
into which our Class B common stock automatically converted effective
December 31, 1998.
(2) Effective December 31, 1998, each share of Class B common stock
automatically converted into one share of Common Stock.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company has historically generated revenues primarily from its
activities as a placement agent in private financings and as a consultant. The
financial statements and discussion below reflect those activities. The Company
however, shifted its focus predominantly to MicroCap1000 activities in October
1998. Therefore, the financial data attached and described below are not
reflective of current operations and cannot be indicative of future results.
Among other differences, operating expense are anticipated to increase as a
result of such activities.
The Company anticipates that its net loss will increase until such time
at which MicroCap1000 generates meaningful revenues. MicroCap1000 has not
generated any revenue to date and there is no guarantee that it will do so in
the future. The Company has added additional personnel and incurred additional
expenses consistent with the launch of a new business.
The Company believes that its current resources will permit the Company
to continue operations through at least February 2000. There can be no
assurance, however, that the Company will be able to satisfy its liquidity needs
for a significant period of time beyond February 2000. To continue operations
beyond such period, the Company must generate significant revenues or raise
additional funds through the sale of its equity securities. The Company
currently has no outside commitments for additional sources of liquidity.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO DECEMBER 31, 1996
REVENUES
The Company generated $3,428,054 in revenues during the fiscal year
ended December 31, 1997, of which $1,650,268 resulted from fees in connection
with a private placement consummated by the Company's subsidiary, International
Capital Growth, Ltd. ("ICG") as placement agent for a publicly held company in
the second quarter. Further, in the fourth quarter, the Company earned $401,408
in fees in connection with a private placement consummated by ICG as placement
agent. The Company generated $1,331,461 in other private placement fees,
$359,914 in consulting fees, $94,170 in interest income and realized a $39,804
gain on settlement of debt. The Company also recognized $448,971 in net losses
on its securities portfolio, principally from the decline in value of securities
of one company, First American Railways, Inc., held by the Company. The Company
generated $22,033 in revenues during the fiscal year ended December 31, 1996,
such income consisting solely of interest.
OPERATING EXPENSES
Operating expenses for the fiscal year ended December 31, 1997 were
$4,429,939, consisting of commissions of $859,844, insurance expenses of
$276,153, rent expenses of $259,295, travel and entertainment expenses of
$291,059, professional expenses in the United States of $238,763, professional
expenses in the United Kingdom of $96,342, and other general and administrative
expenses of $2,287,368, approximately 59% of which consisted of management and
employee salaries, and the recognition of the
16
<PAGE>
equity in the net loss of the Company's unconsolidated subsidiary Capital Growth
Europe, Limited ("CGE") of $121,115. Operating expenses for the fiscal year
ended December 31, 1996 were $740,649, consisting of general and administrative
expenses.
NET LOSS
As a result of the foregoing, the Company had a net loss of $1,001,885
for the fiscal year ended December 31, 1997. The Company had a net loss of
$718,616 for the fiscal year ended December 31, 1996.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO
NINE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES
Total revenues decreased by $3,647,557, to $775,929 during the nine
months ended September 30, 1998 from $4,423,486 during the comparable period in
1997. Revenues generated from consulting fees decreased by $54,762 to $294,266
from $349,028 during the comparable period in 1997. Revenues generated from the
net realized and unrealized loss on marketable and not readily marketable
securities decreased by $3,015,985 to a loss of ($502,211) as compared to a gain
of $2,513,774 during the comparable period in 1997. The decrease is primarily
due to the decline in the carrying value of the Company's largest portfolio
position, common stock of First American Railways, Inc. Revenues generated from
private placement fees which consists of cash and securities earned in private
placements in which ICG acts as placement agent decreased by $593,056 from
$1,501,786 during the nine months ended September 30, 1997 to $908,730 during
the comparable period in 1998. Interest income during the nine months ended
September 30, 1998 decreased by $53,474 to $20,382 compared to $73,856 for the
comparable period in 1997.
OPERATING EXPENSES
Total operating expenses decreased by $1,268,317, to $1,982,351 as
compared to $3,250,668 during the comparable period of 1997. This decrease is
due primarily to the reduction in commission expense and the significant steps
the Company has taken to reduce its expenses for fiscal 1998 such as eliminating
salaried personnel and reducing salaries paid to management. General and
administrative expenses decreased by $497,914 to $1,893,875 in 1998 as compared
to $2,391,789 during the comparable period in 1997. The equity in the loss of an
unconsolidated affiliate and write-down of advances has increased by $61,068
from $0 for the nine months ended September 30, 1997 to $61,068 for the nine
months ended September 30, 1998 as a result of the write-off of the Company's
investment in CGE.
NET LOSS
The Company's net income for the nine months ended September 30, 1998
decreased by $1,979,240 to a net loss of ($1,206,422) from a net income of
$772,818 during the comparable period in 1997. This decrease resulted primarily
from a reduction in placement fees and a loss rather than a gain on the
Company's portfolio of securities. During the nine months ended September 30,
1997, the Company purchased a portfolio of securities at below market generating
a gain of approximately $1.8 million. During the nine months ended September 30,
1998 the value of the Company's portfolio of securities declined dramatically
together with a due diligence expense the Company incurred in connection with an
acquisition which was not consummated.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Capital for the Company has been provided by the investments made by
the initial stockholder group and through private placements of the Company's
securities. In March 1997, the Company raised net proceeds of approximately
$900,000 in a private placement of 549,496 shares of its Common Stock. During
1998, the Company raised net proceeds of approximately $2,906,050 in a private
placement of 23,248,400 shares. To date approximately $900,000 of the proceeds
of that offering have been used for the organization and initial operations of
MicroCap1000.com, Ltd. The remainder of the proceeds are being held for
additional investment in MicroCap1000.com, Ltd. and for working capital for the
Company. In February of 1999 the Company raised net proceeds of approximately
$2,325,400 in a private placement of 2,325,400 shares. The proceeds are being
held for additional investment in MicroCap1000.com, Ltd. and for working capital
for the Company.
The dividend is due and payable to the holders of record on the day the
Board of Directors adopted the resolution to pay such dividend. On July 1, 1997,
the Company paid a $.1125 per share dividend to the 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. On each of September 30, 1997,
December 31, 1997 and April 2, 1998, 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, from October 1, 1997 through December 31, 1997,
and from January 1, 1998 through March 31, 1998, respectively. The Company
determined not to make the $.05625 per share common stock dividend payments due
on June 30, 1998, September 30, 1998 and December 31, 1998. Instead, the company
retained the capital for operations.
In the fourth quarter of 1997 and the throughout 1998, 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 $530,399 at September 30, 1998.
This was predominantly the result of the decline in the per share bid price of
the Company's common stock of First American Railways, Inc., from an average
cost of $1.06 per share to a $0.03 per share bid price at September 30, 1998.
Subsequently, First American Railways, Inc. filed bankruptcy on October 6, 1998.
In addition, in an effort to raise funds for operating expenses, the Company
sold a portion of its portfolio securities.
The Company has no material capital commitments other than annual
salaries to its executive officers and employees of approximately $1,237,200 and
a letter of credit in the amount of $100,000 to secure future rent payments at
the Company's London office. The Company believes that its current cash
resources will be adequate to satisfy its operations through the next twelve
months.
VARIABILITY OF RESULTS
The Company anticipates that its future financial results will vary
dramatically. This is the result of the start-up nature of MicroCap1000.com,
Ltd., the uncertainties associated with revenues from the Company's internet
activities as well as the cyclical nature of the investment banking business.
18
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs and other
business systems being written using two digits rather than four to represent
the year. Many of the time-sensitive applications and business systems of the
Company and its vendors may recognize a date using "00" as the year 1900 rather
than the Year 2000, which could result in system failure or disruption of
operations. The Year 2000 problem will impact the Company. An assessment of the
Year 2000 exposure has been made by the Company and the plans to resolve the
related issues are being implemented. The Company believes it will be able to
achieve Year 2000 compliance in a timely manner. The Company believes that it
will satisfactorily resolve all significant Year 2000 problems and that the
related costs will not be material. Estimates of Year 2000 related costs are
based on numerous assumptions, including the continued availability of certain
resources, the ability to correct all relevant applications and third party
remediation plans. There is no guarantee that the estimates will be achieved and
actual costs could differ materially from those anticipated.
19
<PAGE>
BUSINESS
GENERAL
The Company is a multimedia provider of online financial information
services to the investment community. The Company's U.S. based web-site
www.microcap1000.com focuses on companies with a market capitalization of under
$500 million and is designed to be the premiere source for information on the
Microcap sector. The Company's first international site will be developed
through an alliance with Freeserve Limited, the United Kingdom's largest and
fastest growing Internet service provider and a subsidiary of Dixons Group, plc,
the United Kingdom's largest electronics retailer. This site will provide
information and services within Freeserve's financial channel through a web-site
to be called UK-Invest.com.
The Company historically generated revenues from the activities of its
wholly owned subsidiary International Capital Growth, Ltd. which acted as
placement agent in private financings and as a financial consultant to various
companies. However, over the last six months the Company has shifted its focus
predominantly to the online financial information services through its wholly
owned subsidiary Microcap 1000.com, Ltd. Microcap 1000.com, Ltd. has not
generated any revenues for the Company to date.
INDUSTRY
The Internet is a global connection of thousands of computer networks
interconnected to enable commercial organizations, educational institutions,
government agencies and individuals to communicate, access and share information
and conduct business electronically or by using their computers. Much of the
growth to date in the use of the Internet by businesses and individuals is due
to the emergence of the World Wide Web. The World Wide Web is a network medium
that includes a wide range of content and activities. Within the World Wide Web
there can be found content such as a magazines, news and sports information,
radio broadcasts, and corporate, product, financial, educational, research and
political information, as well as activities such as customer service,
electronic commerce, hotel and airline reservations, banking, games and
discussion groups. Electronic documents or "web pages", which may contain
textual, audio and video information, are published on the World Wide Web on
what is referred to as "web sites". Users of the World Wide Web can view these
web sites by using software called web browsers such as Netscape Navigator or
Microsoft Internet Explorer. Users specify which electronic documents they wish
to view with their web browser by entering a documents unique electronic
address.
MARKET OPPORTUNITY
Increasingly, people are using the Internet to access information and
conduct business. The World Wide Web provides the opportunity for Internet
content providers to offer information in a manner not typically produced by
traditional forms of media. Management believes that a significant opportunity
exists for companies providing original, entertaining, informative and
compelling content on the Internet. Specifically, management believes that a
significant opportunity exists to exploit certain niches of the Internet user
community by providing business and finance related content, with complementary
technologies such as search/index guides.
Internet content providers will benefit from the increasing number of
Internet users since advertisers will more likely advertise on Web sites that
demonstrate a high volume of user traffic and provide advertising programs
designed for specific demographic groups. In addition, content providers
20
<PAGE>
may be able to charge a subscription fee for users to access certain of their
content. Additionally, the Company believes that the growth of the Internet and
its adaptation to commercial use presents a significant new opportunity for
merchants to reach a wide customer base or for companies to educate potential
investors about their businesses and potential investment opportunities.
In the summer of 1998, management saw that there was a limited amount
of information available about Microcap companies, companies with a market
capitalization of less than $500 million. Management also saw the impact the
Internet was having on the way people gathered information and conducted
business. Management believed there were very few, if any, web sites that
provided quality information regarding this market sector. Management believed
there a significant opportunity existed to exploit this niche of Internet users
by providing information on Microcap companies with sophisticated search/index
guides and content delivery systems.
MICROCAP1000.COM
Thus, in October 1998, the Company fully launched its web-site,
www.microcap1000.com, which is designed to be the premiere source of
information on the Microcap sector. The web site provides comprehensive,
internet-based electronic publishing of unique content on the Microcap sector,
generated by well-known analysts and money managers, internet investor access
for public companies; and broadcasts over the internet through video-streamed
netcasts of various financial programs. The web-site currently has approximately
140,000 registered users and was ranked among the top web sites for investors by
Barron's, the Dow Jones Business and Financial Weekly, in its November 23, 1998
issue.
Included on Microcap1000.com is the Microcap1000 Index. The
Microcap1000 Index was created based upon proprietary tools and techniques and
is designed to contain information on 1000 Microcap companies with the greatest
opportunities for growth. Criteria for membership in the index includes, among
others:
/bullet/ market capitalization of between $25 and $500 million;
/bullet/ revenue in excess of $25 million;
/bullet/ net income in excess of $2.5 million;
/bullet/ quarter over quarter earnings growth;
/bullet/ liquidity measures; and
/bullet/ management ownership measures.
The Company's goal with its index is to utilize the index to increase
the exposure of the Microcap sector by getting the index quoted with other
market barometers such as the Dow Jones Industrial Average, NASDAQ 500 Index and
Russell 2000.
www.microcap1000.com hosts unique financial content on the Microcap
sector and Microcap companies. This content is written by well known analysts
and money managers known as MC1000 Gurus, as well as the Company's editorial
staff. This content includes:
/bullet/ Microcaps on the Move: updated twice daily focussing on the industry's
performance
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/bullet/ Company News: highlights and performance on selected Microcap companies
/bullet/ Ideas and Trends: unique investment opportunities
/bullet/ Interviews: questions and answers with money managers and analysts
/bullet/ Sectors/Industries: industry discussion and analyses on featured
industry
In addition to general commentary Microcap1000 is designed to offer
investors investment recommendations. As a result, the site offers stock picks
from experts on the Microcap sector and a model portfolio. The model portfolio
consists of 15 stocks, each of which is out of the Microcap1000 Index, which the
experts believe have significant upside potential.
The Company also produces a live video streamed netcast called the
Microcap1000 Roundtable on the Company's web site. The roundtable typically
consists of three money managers or analysts offering industry discussion and
investment recommendations.
UK-INVEST.COM
The Company has signed an agreement with Freeserve Limited to be the
provider of investor information and services about securities of companies
trading on markets in the U.K. Freeserve Limited, a subsidiary of Dixons Group,
plc, is the U.K.'s largest electronics retailer. The site is being designed as
the "CBS Marketwatch" of the U.K. and is anticipated to offer to its users a
number of opportunities for electronic commerce over the Internet including
premium pay data and tools packages and the ability to effect brokerage
transactions over the Internet.
The fundamental premise behind developing UK-iNvest.com is that a need
exists in the U.K. for such an online information source. This need can be
explained as follows:
1. THE UK PUBLIC HAS AN INCREASING INTEREST IN EQUITY MARKETS.
Particularly in recent years with the privatization of the utility industry (and
going back about 10 years to privatization in general throughout the UK and the
growth of the stock market), the opportunity for and awareness of equity
investing has grown.
2. ACCESS TO INFORMATION ON UK STOCKS IS LIMITED. Unlike in the US,
brokerage firms and unit trusts rarely advertise, particularly on TV. Analysts
do not appear on financial talk shows touting their recommendations. Thus, there
is a great lack of stock information available to the public in a timely manner.
3. ONLINE MEDIA HAS YET TO MEET AND EXPLOIT THIS NEED. A survey of UK
financial Web sites shows that no one is providing comprehensive coverage of
both stock market news and opportunities. No one is providing "ideas" and giving
visitors an opportunity to research further into these ideas for themselves.
Further, online investing - online information gathering and commerce,
in general - is growing worldwide at explosive proportions. It is only a matter
of time before this phenomenon sweeps through the investing households in the
UK. Forrester Research, for example, projects "iCommerce" to reach as high as
$3.2 trillion in 2003, representing nearly 5% of all global sales. Individuals
are trading over the Internet almost 350,000 times a day, up from 250,000 in the
third quarter, accounting for 25% of the 1.4
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<PAGE>
million trades on the New York Stock Exchange and Nasdaq Stock Market say they
execute each day, combined. Online trading has jumped 30% this past quarter,
according to Charles Schwab Corp. and E-Trade, the two largest online
brokerages. Schwab, the first to offer UK customers a fully automated online
dealing system, says it expects its system to push up the proportion of online
trades to at least a quarter of its total by the end of 2001.
Pursuant to the terms of the FreeServe Agreement, the Company made
certain payments and will grant to FreeServe warrants to purchase shares of
common stock. If the Agreement is extended for an additional two-year term
(after the initial term of two years), the Company will be required to make
additional cash payments.
BUSINESS STRATEGY
The Company's strategy is be a leading provider of content on the World
Wide Web, specifically in the areas of business and finance. The Company's goals
is to provide interactive content in this area, and to generate revenues from
advertisers and sponsors who wish to access the demographic groups using the
Company's Internet sites.
The Company's revenue model for Microcap1000.com consists of the
following three components: (1) a fee paid premium service; (2) advertising fees
from both the site and the video streamed presentations, (3) and payments from
Microcap companies attempting to reach potential investors to describe why
management believes their company is a good investment opportunity. Management
believes the same revenue model will be used for U.K.-invest.com., with the
additional component of electronic trading revenue; electronic trading has yet
to show the dynamic growth in the U.K. as it has in the U.S.
Management believes possibilities exist to segment certain proprietary
content areas on the Company's web site as subscription areas. The Company plans
to offer this proprietary content to subscribers for a fee. In connection with
the fee paid premium service, the Company's goal is two-fold. The first is to
convert a portion of free subscribers to fee paying premium service customers.
The second is to attract new subscribers to the premium service as a result of
grass roots marketing effort on other sites. The premium service is anticipated
to include real time dynamic quotes, portfolio management tools, and proprietary
research recommendations. As traffic to the Company's web site increases, the
Company will review other opportunities for deriving revenue, such as offering
products and services from advertisers and sponsors.
We are currently building our subscriber base in order to provide an
adequate platform for generating advertising fees from both the site and video
streamed presentations. Although the Company does not currently have any
advertisers or sponsors, the Company expects that ultimately it will derive
substantially all of its revenues from the sale of advertising on its web site.
Once it has a large subscriber based, the Company will seek to establish
advertising relationships with large corporations which wish to have access to
the demographic group visiting the Company's web site.
Development of the subscriber base will also enable us to generate fees
from companies that are interested in accessing our subscribers who are
potential investors. While there is a lot information available about "blue
chip" or other companies with larger market capitalizations, there are not a lot
of resources for comprehensive information about Microcap companies. Because of
their relatively lower valuation, investors see opportunities in this sector and
are looking for information. Companies conducting business in this sector are
looking for mediums to educate the investing public about their companies. The
Company's web site addresses both of these issues. Management believes that
Microcap companies would pay a fee for a forum to educate the investing public
about their companies. Accordingly, management intends to explore this an
opportunity to generate revenues. However, in order
23
<PAGE>
to be able to market the Company's subscriber base to such companies, the
Company must spend time developing its products and increasing its subscriber
base.
COMPETITION
We compete with other Internet content providers for the time and
attention of consumers and for advertising and subscription revenues.
Competition among Internet content providers is intense and is expected to
increase significantly in the future. Our Internet site competes against a
variety of companies that provide similar content through one or more media,
such as print, radio, television and the Internet. To compete successfully, we
must develop and deliver popular, original, informative and compelling Internet
content to attract Internet users and to support advertising and, in the future,
subscription fees. In our niche of business and finance, in addition to
competing with numerous newspapers, magazines, television programs and radio
broadcasts that cover the same material, we compete with various Internet
content providers such as Yahoo Business, Inc; CBS Market Watch; CNN Financial
Network, MSN Investor; The Motley Fool; Silicon Investor; and Excite Money &
Investing, among others. Many, if not all, of these competitors also offer a
wider range of services than we do, which services may be sufficiently
attractive to Internet users to attract users to their services and,
consequently, dissuade them from accessing Internet site. If we are unable to
attract a significant number of Internet users to our Internet site business, we
will be harmed.
The market for Internet content and services is relatively new,
intensely competitive and rapidly evolving. There are minimal barriers to entry,
and current and new competitors can launch new Internet sites at relatively low
cost within relatively short time periods. In addition, we compete for the time
and attention of Internet users with thousands of non-profit Internet sites
operated by, among other persons, individuals, government and educational
newspaper publishers, cable television companies and start-up ventures attracted
to the Internet market. Accordingly, we expect competition to persist and
intensify and the number of competitors to increase significantly in the future.
Should we seek in the future to attempt to expand the scope of our Internet
site, we will compete with a greater number of Internet sites and other media
companies Because the operations and strategic plans of existing and future
competitors are undergoing rapid change, it is extremely difficult for us to
anticipate which companies are likely to offer competitive content and services
in the future. We cannot assure you that our Internet site will compete
successfully.
We believe that the competitive factors attracting Internet users
include the quality of presentation and the relevance, timeliness, dept and
breadth of information and services offered by us. With respect to attracting
advertisers and advertising agencies, we believe that the competitive factors
include, among others, the number of users accessing our Internet site, the
demographics of such user base, our ability to deliver focused and compelling
advertising and interactivity through our Internet site and the overall
cost-effectiveness and value of advertising offered by us. In addition, the
success of our business strategy depends on the sale of future Internet
advertising at premium prices, based in part on the demographic characteristics
of our Internet users. With respect to attracting subscription-based users in
the future, we believe that the competitive factors include, among others, the
quality, uniqueness and usefulness of the content being provided, the price
charged for such content and the cost and accessibility of similar content
through the Internet or competing media. Given the intense competition among
Internet content providers and other media, we cannot assure you that we will be
able to compete successfully with respect to any of these factors.
24
<PAGE>
Many, if not all, of our current and potential competitors have
significantly greater financial, editorial, technical and marketing resources,
longer operating histories, greater name recognition, and greater experience
that us; and also have established relationships with advertisers and
advertising agencies. Many, if not all, of such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive advertising
and subscription price policies and devote substantially more resources to
developing Internet content than us. We cannot assure you that we will be able
to compete successfully against current or future competitors or that
competitive pressures faced by us will not harm our business. In addition, in
response to competitive pressures, we may make certain pricing, content and/or
marketing decisions or enter into acquisitions or new ventures that could harm
our business.
EMPLOYEES
As of February 8, 1999, the Company had a total of nine 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 1764 square feet at 7280 W. Palmetto Park Road, Suite
202, Boca Raton, Florida 33433 for use by the Company, ICG and Microcap1000
pursuant to a monthly tenancy in favor of ICG for monthly rent of $3,783.31
which payments are allocated among the entities;
2. Approximately 2,040 square feet at 2425 Olympic Boulevard #660E,
Santa Monica, California 90404 for use by the Company, ICG and Microcap1000
pursuant to a lease held by ICG expiring on November 30, 2000 for monthly rent
of $6,664.40 which payments are allocated among the entities; and
3. Approximately 325 square feet of office space at 4 Hill Street,
London, England W1X 7FU, consisting of one separate office for use by the
Company, ICG and Microcap1000 pursuant to a sub-lease held by CGI expiring in
October 2111 for monthly rent of $2,467.50 which payments are allocated among
the entities. See "Certain Transactions."
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings and is not
aware of any contemplated proceeding by any governmental authority.
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<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Ronald B. Koenig............. 64 Chairman of the Board of Directors, Co-Chief
Executive Officer
Stanley Hollander............ 61 Co-Chief Executive Officer and President
Alan L. Jacobs............... 57 Executive Vice President and Director
Michael S. Jacobs............ 33 Senior Vice President, Secretary and Treasurer
Jay J. Matulich(3)........... 44 Senior Vice President
N. Bulent Gultekin........... 50 Director
</TABLE>
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, Stanley Hollander is President and Jay J. Matulich is Vice
President of ICG. Stanley Hollander is also a Director of ICG.
Ronald Koenig and Stanley Hollander are also Directors of
MicroCap1000.com, Ltd. a subsidiary of International Capital Growth, Ltd. Jay
Matulich is Chairman of MicroCap1000.com, Ltd. and Michael Jacobs is
Secretary/Treasurer of MicroCap1000.com, Ltd.
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 serves at the discretion of the Company's Board of Directors.
There is no family relationship among any of the directors or executive
officers of the Company or ICG except that Alan L. Jacobs and Michael S. Jacobs
are father and son, respectively.
Ronald B. Koenig. Mr. Koenig is Chairman of the Board of Directors and
Co-Chief Executive Office of the Company. In addition, Mr. Koenig has been
Chairman of the Board of Directors, President and Chief Executive Officer of
International Capital Growth, Ltd. since March 1996. Since August, 1998 he has
been a Director of MicroCap1000.com, Ltd. 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, L.L.C. 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)
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<PAGE>
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.
Stanley Hollander. Mr. Hollander is President and Co-Chief Executive
Officer of the Company. In addition, Mr. Hollander has served as Senior Vice
President and a Director of the Company since March 1997 and President and a
Director of International Capital Growth, Ltd. since March 1996. Since August,
1998 he has been a Director of MicroCap1000.com, Ltd. 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, L.L.C.
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.
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, L.L.C. 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 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.
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. Since August 1998 he has served as
Treasurer for MicroCap1000.com, Ltd. 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, L.L.C. 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
27
<PAGE>
1997 and Vice President of International Capital Growth, Ltd. since March 1996.
Since August, 1998 he has served as Chairman of MicroCap1000.com, Ltd. 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, L.L.C. Since
April 1995, Mr. Matulich has served as a Director of Waste Systems
International, Inc., a publicly-held company. From March 1996 to June 1996, Mr.
Matulich served as Chairman of BioSafe International, Inc. 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.
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.
SIGNIFICANT CONSULTANTS
In August, 1998 we entered into a consulting agreement with John
Flanders and CyberJunction.com Online, Inc. to develop our website,
www.microcap1000.com. The agreement provides CyberJunction will be paid $169,399
cash in addition to 500,000 stock options exercisable at $.375. $155,000 of such
amount has been paid to date. We anticipate entering into a new agreement with
Mr. Flanders pursuant to which he will spend his full time with the Company and
be compensated at the annual rate of $150,000.
From 1991 through 1992 Mr. Flanders was COO of Flanders, Brunetti and
Flanders Investment Management, Inc. For the period 1992 through 1995 Mr.
Flanders was Director of Sales for THOR24. During the period 1995 through 1996
he was Senior Manager of Marketing and Business Development at NETCOM Online
Communications Services and during the period 1996 through 1997 he was Senior
Manager of Strategic Market Development at Orbit Network. Subsequently, Mr.
Flanders was Vice President of Sales and Marketing at eMerging Media, Inc. and
has since co-founded and become CEO of CyberJunction.com Online.
Richard Hefter has acted as contributing editor for
www.microcap1000.com through his Company, Write Creations. During 1998, Mr.
Hefter was paid a total of $59,000 and issued warrants to purchase 100,000
shares of the Company's Common Stock exercisable at $.375. In January 1999 the
Company re-structured its relationship with Mr. Hefter such that he will be paid
monthly at an annual rate of $160,000 and he was granted options to purchase
475,000 shares of Common Stock exercisable at $1.18.
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<PAGE>
From 1994 to 1998 Mr. Hefter was a faculty member in English at
Northwestern University and associate director of communications in
Northwestern's Office of Development. Prior to that he as a public relations
writer for the Office of Health Science Relations at the University of Iowa.
From 1990 to 1992 Mr. Hefter was literary editor of New City Newspaper. During
the period 1988 through 1990 he was senior editor of INSIDE CHICAGO. He holds a
Bachelor of Arts degree in English from Stanford University and a Master of Fine
Arts degree in creative writing from the University of Iowa Writers' Workshop.
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, as
amended (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."
29
<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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND POSITION FISCAL YEAR ENDED SALARY OPTIONS
- ---------------------------------- -------------------------------- -------------------- --------------------
<S> <C> <C> <C>
Ronald B. Koenig
President, Chief Executive
Officer and Director December 1996(2) $ 48,076 -----
December 1997(3) $250,000 -----
December 1998(4) $200,000 1,420,000(6)
Stanley Hollander
Vice President and Director December 1996(2) $ 48,076 -----
December 1997(3) $263,000 -----
December 1998(4) $196,000 1,420,000(6)
Alan Jacobs
Executive Vice President, Senior
Managing Director and Director December 1996(2) $ 43,269 -----
December 1997(3) $225,000 -----
December 1998(5) $ 17,306 480,000(6)
Michael Jacobs
Senior Vice President, Secretary
and Treasurer December 1996(2) $ 32,588 -----
December 1997(3) $150,000 250,000(1)
December 1998(4) $150,000 900,000(6)
Jay J. Matulich
Vice President December 1996(2) $ 24,038 -----
December 1997(3) $125,000 250,000(1)
December 1998(4) $131,000 900,000(6)
</TABLE>
- ------------
(1) Represents shares of Class B Common Stock underlying stock options
granted under the 1997 Stock Option Plan which plan and options were
terminated December 31, 1998.
30
<PAGE>
(2) Covers the period from February 26, 1996, ICG's inception, through
December 31, 1996, the Company's fiscal year for such period.
(3) Covers the period from January 1, 1997 through December 31, 1997, the
Company's fiscal year for such period.
(4) Covers the period from January 1, 1998 through December 31, 1998, the
Company's fiscal year for such period.
(5) Covers the period from January 1, 1998 through January 31, 1998 prior
to Mr. Jacob's temporary leave of absence commenced.
(6) Represents shares of Common Stock underlying stock options granted
under the 1998 Stock Option Plan.
The Company through MicroCap1000 currently pays annual salaries to
Messrs. Koenig, Hollander, A. Jacobs, M. Jacobs and Matulich of $224,000,
$315,000, $180,000, $150,000 and $150,000 respectively. Alan L. Jacobs, the
Company's and ICG's Executive Vice President, had taken a temporary leave of
absence from his full-time employee responsibilities with such entities. During
that leave of absence, Mr. Jacobs continued in such capacities on a part-time
basis and as director. Mr. Jacobs was Senior Advisor to and was being
compensated by First American Railways, Inc., a client of ICG. Mr. Jacobs did
not receive any salary from the Company or ICG while on leave of absence but
received, during that time, 25% of the net profit on any financing transaction
introduced by Mr. Jacobs. Mr. Jacobs has rejoined the Company. Other than as set
forth above, none of the Company's executive officers or directors received any
salary or wages or other compensation from the Company during the last three
completed fiscal years.
31
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
(INDIVIDUAL GRANTS)(1)
NUMBER OF SHARES
OF CLASS B PERCENT OF TOTAL EXERCISE
COMMON STOCK OPTIONS GRANTED IN PRICE EXPIRATION
NAME UNDERLYING OPTIONS(1) 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. The plan and options granted pursuant
thereto were terminated effective December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISE IN FISCAL YEAR
ENDED DECEMBER 31, 1997
AND OPTION VALUES AT DECEMBER 31, 1997
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. The plan and options granted pursuant
thereto were terminated effective December 31, 1998.
Stock Option Plan
1997 STOCK OPTION PLAN. The Company previously had established the
Company's 1997 Stock Option Plan (the "Stock Option Plan"). However, this plan
was subsequently terminated. All of the options granted pursuant to such plan
either expired or were terminated effective December 31, 1998 with the consent
of the holder.
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<PAGE>
1998 STOCK OPTION PLAN. Effective August 15, 1998, the Board of
Directors and a majority of the Company's stockholders adopted the 1998 Stock
Option. The Company believes such a plan is desirable in order 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 10,000,000 shares of common stock may be
granted from time to time to key employees (including officers), consultants and
directors of the Company. Options shall be designated as Incentive Stock Options
("ISOs") or Nonqualified Stock Options ("NQSOs").
The Stock Option Plan is anticipated to be administered by Mr. Bulent
Gultekin, an outside director of the Company. Upon the election of an additional
outside director, such person would be asked to join a committee with Mr.
Gultekin to administer the Stock Option Plan. Mr. Gultekin is, and upon such
appointment, the committee would be 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 common stock) of the fair market value
per share of 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 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 aggregate fair
market value (determined at the time an ISO is granted) of the 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
outstanding ISOs to employees, consultants 7,025,000 and/or directors of the
Company at the time of such grants, to purchase an aggregate of shares of common
stock. Some of these ISOs vest immediately; others vest over a period of time.
The options are exercisable at prices ranging from $.25 to $1.25 per shares and
are exercisable over a period of five years from the original date of grant.
33
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1998
(INDIVIDUAL GRANTS)(1)
NUMBER OF SHARES OF % OF TOTAL EXERCISE
COMMON STOCK OPTIONS GRANTED PRICE EXPIRATION
NAME UNDERLYING OPTIONS IN FISCAL YEAR PER SHARE DATE
- ----------------- ------------------- --------------- --------- ----------
<S> <C> <C> <C> <C>
Ronald Koenig 1,420,000 18% $.375 10/20/03
Stanley Hollander 1,420,000 18% $.375 10/20/03
Alan L. Jacobs 480,000 6% $.375 10/20/03
Michael S. Jacobs 650,000 8% $.375 10/20/03
Michael S. Jacobs 250,000 3% $.25 8/20/03
Jay J. Matulich 650,000 8% $.375 10/20/03
Jay J. Matulich 250,000 3% $.25 8/20/03
Bulent Gultekin 40,000 .05% $.375 10/20/03
</TABLE>
- ------------
(1) Consists of shares of Common Stock underlying options granted under the
1998 Stock Option Plan.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISE IN FISCAL YEAR
ENDED DECEMBER 31, 1998
AND OPTION VALUES AT DECEMBER 31, 1998
NUMBER COMMON STOCK
UNDERLYING UNEXERCISED OPTIONS
AT DECEMBER 31, 1998(1) VALUE OF UNEXERCISED
----------------------------------------------------- IN-THE-MONEY OPTIONS AT
NAME EXERCISABLE UNEXERCISABLE DECEMBER 31, 1998(2)
- ----------------- ------------------------ ------------------------ -----------------------
<S> <C> <C> <C>
Ronald Koenig 284,000 1,136,000 248,500
Stanley Hollander 284,000 1,136,000 248,500
Alan L. Jacobs 96,000 384,000 84,000
Michael S. Jacobs 130,000 520,000 113,750
Michael S. Jacobs 50,000 200,000 50,000
Jay J. Matulich 130,000 520,000 113,750
Jay J. Matulich 50,000 200,000 50,000
Bulent Gultekin 8,000 32,000 7,000
</TABLE>
- ---------------
(1) Consists of shares of Common Stock underlying options granted under the
1998 Stock Option Plan.
(2) Based on fair market at December 31, 1998 at $1.25 per share.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock as of February 11, 1999, 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>
NUMBER OF SHARES PERCENT OF CLASS
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OUTSTANDING(2)
- --------------------------- ------------------ ----------------
<S> <C> <C>
Ronald B. Koenig 3,356,270(4) 6.23%
Stanley Hollander 3,281,270(5)(3) 6.09%
Alan L. Jacobs 2,711,626(8) 5.03%
Hollander Family Partnership LP 3,281,270(5)(3) 6.09%
Michael S. Jacobs 927,000(6) 1.72%
Jay J. Matulich 916,000(7) 1.70%
N. Bulent Gultekin 8,000(9) .014%
All directors and executive officers
as a group (6 persons)(7)(10) 11,200,166(7)(10) 20.7%
5% OR GREATER HOLDERS
Giant Trading Inc. 2,720,000 5.05%
</TABLE>
- ------------
(1) Each beneficial owner for which an address is not listed has an address
c/o MicroCap Financial Services.com, Ltd., 7280 W. Palmetto Park Road,
Suite 202, Boca Raton, FL 33433.
(2) Based on a total of 46,938,296 shares of Common Stock outstanding.
(3) Stanley Hollander, President and Co-Chief Executive Officer 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.
(4) Consists of 3,072,270 shares of Common Stock and options exercisable to
purchase 284,000 shares of Common Stock which are currently vested. Mr.
Koenig holds options to purchase a total of 1,420,000 of Common Stock
which vest at the rate of 20% of the total grant immediately and 40% at
each of the first two anniversaries of the date of the grant, December
31, 1998.
(5) Consists of 3,072,270 shares of Common Stock and options exercisable to
purchase 284,000 shares of Common Stock which are currently vested. Mr.
Hollander holds options to purchase a total of 1,420,000 of Common
Stock which vest at the rate of 20% of the total grant immediately and
40% at each of the
35
<PAGE>
first two anniversaries of the date of the grant, December 31, 1998.
(6) Consists of 747,000 shares of Common Stock and options exercisable to
purchase 180,000 shares of Common Stock that are currently vested. Mr.
Jacobs holds options to purchase a total of 900,000 shares of Common
Stock which vest at the rate of 20% of the total grant immediately and
40% at each of the first two anniversaries of the date of the grant,
December 31, 1998.
(7) Consists of 736,000 shares of Common Stock and options exercisable to
purchase 180,000 shares of Common Stock that are currently vested. Mr.
Matulich holds options to purchase a total of 900,000 shares of Common
Stock which vest at the rate of 20% of the total grant immediately and
40% at each of the first two anniversaries of the date of the grant,
December 31, 1998.
(8) Consists of 2,615,626 shares of Common Stock and options exercisable to
purchase 96,000 shares of Common Stock that are currently vested. Mr.
Jacobs holds options to purchase a total of 480,000 shares of Common
Stock which vest at the rate of 20% of the total grant immediately and
40% at each of the first two anniversaries of the date of the grant,
December 31, 1998.
(9) Consists of stock options exercisable to purchase 8,000 shares of
Common Stock that are currently vested. Mr. Gultekin holds options to
purchase a total of 40,000 shares of Common Stock which vest at the
rate of 20% of the total grant immediately and 40% at each of the first
two anniversaries of the date of the grant, December 31, 1998.
(10) Consists of 10,177,166 shares of Common Stock and stock options
exercisable to purchase shares of Common Stock.
36
<PAGE>
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 are approved by
a majority of the Company's independent directors.
On March 14, 1997, the Company issued an aggregate of 2,906 additional
shares of Common Stock to certain stockholders and former officers of the
Company in exchange for the release by such individuals of obligations owed to
them from the Company in the aggregate of $46,343, thereby converting such debt
into equity. Such shares were valued at their fair value of $6,539 ($2.25 per
share) and the Company, in connection with such issuance, recorded a gain of
$39,804.
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 was due on March 26, 1998 and carried 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. The note was
repaid on April 9, 1998.
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 held
47.44% 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 held a 60% membership interest in CGI.
Messrs. Koenig and Hollander beneficially own 15.49% and 15.12% 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.
Effective January 1, 1997, CGI assigned to ICG 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, were assigned to ICG for no
consideration. One Consulting Agreement, which expires on July 30, 1998,
currently provides for monthly payments to ICG of $2,500 and compensation rights
in favor of ICG if certain business transactions introduced by ICG to such
public company are consummated. The other Consulting Agreement currently grants
to ICG 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 ICG if certain business transactions introduced by ICG to such
public company ard consummated.
37
<PAGE>
During the fiscal year ended December 31, 1997, the Company paid
consulting fees of $99,000 to Helix Investments Limited, a stockholder of CGH,
in connection with the organization of road show presentations in London,
England relating to an offering made pursuant to Regulation S as promulgated
under the Securities Act for which ICG acted as placement agent.
On May 19, 1998, ICG sold to John Booth, who resigned as a director of
the Company as of June 1, 1998, ICG's 50% interest in Capital Growth Europe for
approximately $4,000, which price represented approximately 50% of the value of
Capital Growth Europe's cash accounts. Such transaction was approved by a
majority of the Company's disinterested directors.
On December 31, 1998 the Company granted 100,000 shares of Common Stock
to its former CEO of MicroCap1000.com, Ltd. upon termination.
38
<PAGE>
SELLING STOCKHOLDERS
The shares of Common Stock offered hereby are owned by the Selling
Stockholders. The following table sets forth certain information with respect to
the ownership of the Common Stock by each Selling Stockholder as of February 11,
1999.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
COMMON STOCK PRIOR TO OWNERSHIP
----------------------------------------- NUMBER OF SHARES OWNERSHIP OF COMMON
NAME OF SELLING STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED STOCK AFTER OFFERING
- -------------------------------- ---------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Giant Trading Inc. 2,520,000 5.37% 2,520,000 0
Freeserve Limited 2,000,000 4.26% 2,000,000 0
Robert S. London 1,900,000 4.04% 1,900,000 0
Rosebud Capital Growth Fund Limited 1,800,000 3.83% 1,800,000 0
Rush & Co. 1,760,000 3.75% 1,760,000 0
Alan Gaines 1,600,000 3.41% 1,600,000 0
Fontenelle LLC 1,600,000 3.41% 1,600,000 0
Cameo Trust Corporation 1,280,000 2.73% 1,280,000 0
Archdream Limited 1,220,400 2.60% 1,220,400 0
Cass & Co. Magnum US Equity Fund 1,200,000 2.56% 1,200,000 0
Cass & Co. Magnum Capital Growth Fund 1,120,000 2.39% 1,120,000 0
Bradley Properties SA 1,000,000 2.13% 1,000,000 0
Salahi Ozturk 900,000 1.91% 900,000 0
Interactive Marketing, Inc. 840,000 1.78% 840,000 0
Cass & Co. Magnum Edge Fund 800,000 1.70% 800,000 0
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
COMMON STOCK PRIOR TO OWNERSHIP
----------------------------------------- NUMBER OF SHARES OWNERSHIP OF COMMON
NAME OF SELLING STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED STOCK AFTER OFFERING
- -------------------------------- ---------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Cass & Co. Magnum Turbo Growth Fund 800,000 1.70% 800,000
Banca Del Gottardo 683,800 1.46% 683,800
Cass & Co. Magnum Opportunity Fund 640,000 1.36% 640,000
Joseph A. Bauer 600,000 1.28% 600,000 0
Cass & Co. Magnum Tech Fund 520,000 1.11% 520,000
Unity Venture Capital Associates, Ltd. 500,000 1.07% 500,000
Irv Freiberg(2) 425,000 * 425,000
Robert B. Prag 400,000 * 400,000
Cass & Co. Magnum Global Equity Fund 400,000 * 400,000
Magnum Growth Fund LP 240,000 * 240,000
Twice International S.A. 220,000 * 220,000
Vane Clayton 200,000 * 200,000
Gloria Stasior 200,000 * 200,000
Paul T. Mannion, Jr. 200,000 * 200,000
Richard A. Kunin MD Profit Sharing Plan 200,000 * 200,000
Marvin Shiller 200,000 * 200,000
Frank J. Nigro, III 200,000 * 200,000
Napier Brown Holdings 187,500 * 187,500
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
COMMON STOCK PRIOR TO OWNERSHIP
----------------------------------------- NUMBER OF SHARES OWNERSHIP OF COMMON
NAME OF SELLING STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED STOCK AFTER OFFERING
- -------------------------------- ---------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Wellness and Prevention Marketing LLC 160,000 * 160,000 0
American Financial Communications 160,000 * 160,000 0
SF Consulting Co 160,000 * 160,000 0
Joseph Matulich & Lillian Matulich 160,000 * 160,000 0
Magnum Low Volatility Fund LP 160,000 * 160,000 0
Mark L. Friedman 125,000 * 125,000 0
David Greenberg IRA Rollover 120,000 * 120,000 0
S. Greenberg Sep. Prop. Trust 120,000 * 120,000 0
Matthew Stasior 100,000 * 100,000 0
Harvey R. Brice 100,000 * 100,000 0
Gary Fischoff(2) 100,000 * 100,000 0
Corner Bank, Ltd. 75,000 * 75,000 0
Richard Golob 40,000 * 40,000 0
David Christensen 40,000 * 40,000 0
Alan Mandel 30,000 * 30,000 0
James C. Gale 30,000 * 30,000 0
Edgar Astaire 25,000 * 25,000 0
Leonard Block 25,000 * 25,000 0
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
COMMON STOCK PRIOR TO OWNERSHIP
----------------------------------------- NUMBER OF SHARES OWNERSHIP OF COMMON
NAME OF SELLING STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED STOCK AFTER OFFERING
- -------------------------------- ---------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Chad L. Kiefer 24,000 * 24,000 0
Evert A. Bruckner Family Trust UA 24,000 * 24,000 0
dtd Dec. 10, 1993
Christopher M. Stevens 16,000 * 16,000 0
Luke Bruckner 16,000 * 16,000 0
Edward Haymes 12,500 * 12,500 0
Lynn-Rose Saltzman 10,000 * 10,000 0
Michael Crowl 9,600 * 9,600 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 250,000 shares which
may be issued to certain Selling Stockholders upon the exercise of the
Consultant 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 Stockholders, it has been assumed that all
their shares so offered will be sold.
42
<PAGE>
<PAGE>
DESCRIPTION OF SECURITIES
CAPITAL STOCK OF MICROCAP FINANCIAL SERVICES.COM, INC.
We have 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. 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 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. 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.
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 1,637,484 Redeemable
Warrants issued and outstanding. The following is a brief summary of certain
provisions of the Redeemable Warrants.
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
43
<PAGE>
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 Common Stock (the "Consulting Warrants") in exchange for
consulting services to be rendered on behalf of the Company. Of the 250,000
Consulting Warrants, 52,083 of the Consulting Warrants vested on a pro rata
basis based upon the period of time that such consulting services were provided
to the Company and the balance were forfeited. In accordance with such vesting
schedule, the Consulting Warrants entitle the registered holder to purchase up
to 52,083 shares of 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 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.
ADDITIONAL WARRANTS. In addition to the warrants described above and
options granted under the Company's Employee Stock Option Plan, the Company has
a total of 3,871,000 warrants outstanding as follows:
44
<PAGE>
--------------------------------------------------------------------
AMOUNT EXERCISE PRICE EXPIRATION
--------------------------------------------------------------------
275,000 .25 August, 2000
--------------------------------------------------------------------
250,000 .375 October, 2000
--------------------------------------------------------------------
100,000 .375 October, 2000
--------------------------------------------------------------------
6,000 .625 October, 2000
--------------------------------------------------------------------
150,000 .81 December, 2001
--------------------------------------------------------------------
250,000 $1.00 January, 2004
--------------------------------------------------------------------
2,000,000 $1.00 January, 2002
--------------------------------------------------------------------
840,000 $2.375 February, 2001
--------------------------------------------------------------------
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 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
45
<PAGE>
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 Stockholders.
Any distribution of any such securities by the Selling Stockholders, 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. ICG, a wholly-owned subsidiary of the
Company, is a registered broker-dealer with the SEC and a member of the NASD,
will not participate in the distribution of 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 Stockholders from the
securities offered hereby will be the offering price less applicable commissions
or discounts, if any. There is no assurance that the Selling Stockholders will
sell any of the securities offered hereby.
The Selling Stockholders 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
Stockholders 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 Stockholder 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 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
46
<PAGE>
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 Stockholders, any discounts, commissions
and other items constituting compensation from the Selling Stockholders 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 Stockholder 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 46,938,296 shares of Common Stock outstanding. Of these
shares, the 30,198,800 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 16,739,496 shares, 14,633,062 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.
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 469,387 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
47
<PAGE>
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.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock
offered hereby will be passed upon for the Company by Broad and Cassel, a
general partnership including professional associations, Miami, Florida.
EXPERTS
The financial statements of MicroCap Financial Services.com, Inc.
(formerly known as Capital Growth Holdings, Ltd.) as of December 31, 1997 and
for year ended December 31, 1997 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.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any report or document we
file at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the SEC at 1-800-SEC-0880 for more information about the public reference
rooms. Our SEC filings are also available from the SEC's web site located at
http://www.sec.gov.
Quotations for the prices of our common stock appear on the OTC
Bulletin Board and reports, and other information about us can also be inspected
at the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a Registration Statement on Form SB-2 under
the Securities Act with respect to the common stock covered by this Prospectus.
This Prospectus, which is a part of the Registration Statement, does not contain
all the information set forth in, or annexed as exhibits to, the Registration
Statement, as permitted by the SEC's rules and regulations. For further
information with respect to us and the common stock offered under this
Prospectus, please refer to the Registration Statement, including the exhibits.
Copies of the Registration Statement, including exhibits, may be obtained from
the SEC's public reference facilities listed above upon payment of the fees
prescribed by the
48
<PAGE>
SEC, or may be examined without charge at these facilities. Statements
concerning any document filed as an exhibit are not necessarily complete and, in
each instance, we refer you to the copy of the document filed as an exhibit to
the Registration Statement.
We will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, upon request, a copy of any or all of the information
incorporated herein by reference. Exhibits to any of the documents, however,
will not be provided unless such exhibits are specifically incorporated by
reference into such documents. The requests should be addressed to: MicroCap
Financial Services.com, Inc., 7280 West Palmetto Park Road, Suite 202, Boca
Raton, Florida 33433, telephone number (561) 417-8053.
49
<PAGE>
MICROCAP FINANCIAL SERVICES.COM, LTD.
AND SUBSIDIARIES
(formerly Capital Growth Holdings, Ltd.)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements
Independent auditors' report ............................................ F-2
Balance sheet as of December 31, 1997 ................................... F-3
Statements of operations for the year ended December 31, 1997 and for the
period from February 26, 1996 (inception) through December 31, 1996 .. F-5
Statements of changes in stockholders' equity for the year ended
December 31, 1997 and for the period from February 26, 1996
(inception) through December 31, 1996 ................................. F-6
Statements of cash flows for the year ended December 31, 1997 and for the
period from February 26, 1996 (inception) through December 31, 1996 ... F-8
Notes to financial statements ........................................... F-10
Condensed balance sheet as of September 30, 1998(unaudited) ............. F-22
Condensed statements of operations for the nine months ended
September 30, 1998 and 1997 (unaudited) ............................... F-23
Condensed statements of cash flows for the nine months ended
September 30, 1998 and 1997 (unaudited) ............................... F-24
Notes to financial statements ........................................... F-25
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
MicroCap Financial Services.com, Inc.
Boca Raton, Fl 33433
We have audited the accompanying consolidated balance sheet of Capital
Growth Holdings, Ltd. (now known as Microcap Financial Services.com, Inc.) as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended December 31,
1997 and for the period from February 26, 1996 (inception) through 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of Capital Growth
Holdings, Ltd. and subsidiary as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year ended
December 31, 1997 and for the period from February 26, 1996 through December 31,
1996 in conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
--------------------------------
Richard A. Eisner & Company, LLP
New York, New York
February 4, 1998
With respect to Note H,
March 26, 1998
With respect to Note N,
March 28, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH HOLDINGS, LTD.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Notes A and B)
<S> <C>
ASSETS
- ------
Cash and cash equivalents ........................................................................ $ 810,659
Due from broker .................................................................................. 273,131
Securities owned at market value (cost $1,136,359) (Note C{7)).................................... 634,058
Securities not readily marketable, at fair value (cost $759,000) (Note C{7))...................... 627,498
Note receivable and accrued interest from affiliate (Note H) ..................................... 209,000
Restricted cash (Note K{1))....................................................................... 102,334
Furniture, fixtures, equipment, and leasehold improvements
(net of accumulated depreciation of $21,772) (Notes C{2) and D).................................. 197,503
Customer list (net of accumulated amortization of $40,000) (Notes C{6) and E{7)).................. 80,000
Investment in and advances to unconsolidated affiliate (Note C{8)) ............................... 65,000
Other assets ..................................................................................... 2,000
-----------
$ 3,001,183
===========
LIABILITIES
- -----------
Accounts payable and accrued expenses ............................................................ 179,251
Dividends payable--preferred stockholders......................................................... 38,154
Dividends payable--common stockholders............................................................ 191,165
Deferred revenue ................................................................................. 74,038
-----------
482,608
-----------
Commitments and other matters (Notes H, I, J and K)
STOCKHOLDERS' EQUITY (Notes A, B, E, F and G)
- ---------------------------------------------
Preferred stock--$.001 par value; 20,000,000 shares authorized, none issued
Common stock--$.001 par value; 100,000,000 shares authorized; 3,398,496
shares issued .................................................................................... 3,398
Class B common stock--$.001 par value; 25,000,000 shares authorized
16,431,000 shares issued and outstanding ........................................................ 16,431
Additional paid-in capital ....................................................................... 5,107,930
Accumulated deficit .............................................................................. (2,525,584)
F-3
<PAGE>
Subscription receivable .......................................................................... (53,600)
Treasury stock--at cost (15,000 common shares)................................................... (30,000)
-----------
2,518,575
-----------
$ 3,001,183
===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH HOLDINGS, LTD.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FEBRUARY 26, 1996
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------------
<S> <C> <C>
Revenue (Notes C{7) and C{10)):
Consulting fees ...................................... $ 359,914
Private placement fees ............................... 3,383,137
Net realized and unrealized loss on marketable
and not readily marketable securities .............. (448,971)
Gain on debt settlement .............................. 39,804
Interest income ...................................... 94,170 $ 22,033
------------ ---------
3,428,054 22,033
------------ ---------
Operating expenses:
Commission ........................................... 859,844
General and administrative ........................... 3,448,980 740,649
Equity in loss of unconsolidated affiliate ........... 86,115
Write-down of advances to unconsolidated affiliate ... 35,000
------------ ---------
4,429,939 740,649
------------ ---------
Net loss............................................... (1,001,885) (718,616)
Less cumulative preferred dividend .................... (29,624) (8,530)
------------ ---------
Net loss attributable to common stockholders .......... $(1,031,509) $(727,146)
=========== =========
Basic and diluted loss per common share, (Note C{5))... $ (.07) $ (.06)
=========== =========
Weighted average number of common shares outstanding--
basic and diluted (Note C{5))......................... 15,655,000 11,613,000
========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH HOLDINGS, LTD.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Notes A and B)
CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Issuance of common stock 2,549,000 $ 3,088,260
Issuance of common stock in a noncash
transaction Note E[7]) 60,000 $ 120,000
Issuance of Class B stock 11,289,666 214,803
Issuance of Series A
Issuance of Series B
Net loss
--------- ----------- ---------- ---------
Balance-December 31, 1996 2,549,000 3,088,260 11,349,666 334,803
Consulting expense attributable to warrants
(Note F)
Dividends declared
Recapitalization resulting from the
acquisition of Capital Growth Holdings, Ltd.
(Note B) 297,094
Issuance of common stock (Note E[5]) 549,496 922,075
Collection of subscription receivable
Issuance of common stock to settle debt (Note H) 2,906 6,539
June, 1997 exchange of shares of no par
shares for $.001 par value shares (Note A) (4,013,476) (323,453)
Conversion of Series A and B preferred stock
into Class B common stock (Note E[1]) 5,081,334 5,081
Purchase of common stock (Note E[6])
Net loss
--------- ----------- ---------- ---------
Balance-December 31, 1997 3,398,496 3,398 16,431,000 16,431
========= =========== ========== =========
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED
--------- ---------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Issuance of common stock
Issuance of common stock in a noncash
transaction Note E[7])
Issuance of Class B stock
Issuance of Series A 4,001,334 $ 560,187
Issuance of Series B 1,080,000 $ 226,800
Net loss
---------- --------- ---------- ---------
Balance-December 31, 1996 4,001,334 560,187 1,080,000 226,800
Consulting expense attributable to warrants
(Note F)
Dividends declared
Recapitalization resulting from the
acquisition of Capital Growth Holdings, Ltd.
(Note B)
Issuance of common stock (Note E[5])
Collection of subscription receivable
Issuance of common stock to settle debt (Note H)
June, 1997 exchange of shares of no par
shares for $.001 par value shares (Note A)
Conversion of Series A and B preferred stock
into Class B common stock (Note E[1]) (4,001,334) (560,187) (1,080,000) (226,800)
Purchase of common stock (Note E[6])
Net loss
---------- --------- ---------- ---------
Balance-December 31, 1997 0 0 0 0
========== ========= ========== =========
F-6
<PAGE>
<CAPTION>
ADDITIONAL
PAID IN ACCUMULATED SUBSCRIPTION
CAPITAL DEFICIT RECEIVABLE
------- ------- ----------
<S> <C> <C> <C>
Issuance of common stock
Issuance of common stock in a noncash
transaction (Note E[7])
Issuance of Class B stock
Issuance of Series A $(55,600)
Issuance of Series B
Net loss $(718,616)
----------- --------
Balance-December 31, 1996 (718,616) (55,600)
Consulting expense attributable to warrants $35,417
(Note F)
Dividends declared (805,083)
Recapitalization resulting from the (46,322)
acquisition of Capital Growth Holdings, Ltd.
(Note B)
Issuance of common stock (Note E[5])
Collection of subscritpion receivable 2,000
Issuance of common stock to settle debt (Note H)
June, 1997 exchange of shares of no par
shares for $.001 par value shares (Note A) 4,336,929
Conversion of Series A and B preferred stock
into Class B common stock (Note E[1]) 781,906
Purchase of common stock
Net loss (1,001,885)
---------- ----------- --------
Balance-December 31, 1997 $5,107,930 $(2,525,584) $(53,600)
========== =========== ========
<CAPTION>
TREASURY STOCK
--------------
SHARES AMOUNT TOTAL
------ ------ -----
<S> <C> <C> <C>
Issuance of common stock $ 3,088,260
Issuance of common stock in a noncash 120,000
transaction (Note E[7])
Issuance of Class B stock 214,806
Issuance of Series A 504,587
Issuance of Series B 226,800
Net loss (718,616)
-----------
Balance-December 31, 1996 3,435,834
Consulting expense attributable to warrants 35,417
(Note F)
Dividends declared (805,083)
Recapitalization resulting from the (46,322)
acquisition of Capital Growth Holdings, Ltd.
(Note B)
Issuance of common stock (Note E[5]) 922,075
Collection of subscritpion receivable 2,000
Issuance of common stock to settle debt (Note H) 6,539
June, 1997 exchange of shares of no par
shares for $.001 par value shares (Note A) 0
Conversion of Series A and B preferred stock
into Class B common stock (Note E[1]) 0
Purchase of common stock (15,000) $(30,000) (30,000)
Net loss (1,001,885)
------- -------- -----------
Balance-December 31, 1997 (15,000) $(30,000) $ 2,518,575
======= ======== ===========
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
CAPITAL GROWTH HOLDINGS, LTD.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FEBRUARY 26, 1996
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, 1996
1997
--------------------------------------------
<S> <C> <C>
Cash flows from operation activities:
Net Loss $(1,001,885) $ (718,616)
Adjustments to reconcile net loss to net cash used in operation activities:
Depreciation and amortization 63,486
Equity in loss of unconsolidated affiliate and write-down of advances 121,115
Valuation of warrants for consulting 35,417
Change in unrealized depreciation of securities 633,802
Realized gains on securities (184,831)
Gain on conversion of debt (39,804)
Compensation paid with securities 283,432
Receipt of securities in payment of fees (1,583,141)
Loss on disposal of fixed assets 46,286
Accrued interest (9,000)
Change in:
Due from broker (273,131)
Other assets (2,000)
Accounts payable and accrued expenses 128,251 51,000
Deferred revenue 74,038
----------- ----------
Net cash use in operating activities (1,707,965) (667,616)
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 26, 1996
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, 1996
1997
--------------------------------------------
<S> <C> <C>
Cash flows from investing activities:
Additions to fixed assets (266,811)
Proceeds from sale of securities 273,132
Loans to affiliates (225,000)
Repayment of loan from affiliates 25,000
Investment in and advances to unconsolidated affiliate (186,115)
Investment in securities (563,950) (120,464)
Investment in restricted cash (2,334) (100,000)
----------- ----------
Net cash used in operating activities (759,963) (406,579)
Cash flows from financing activities:
Proceeds from the issuance of common stock and preferred stock 924,075 4,034,450
Cash acquired on recapitalization 21
Dividends paid (575,764)
F-8
<PAGE>
Purchase of Treasury stock (30,000)
----------- ----------
Net cash provided by financing activities 318,332 4,034,450
Net increase (decrease) in cash and cash equivalents (2,149,596) 2,960,255
Cash at beginning of period 2,960,255
Cash and cash equivalents at end of period $ 810,659 $2,960,255
Supplemental disclosures of noncash transactions:
Acquisition of customer list for common stock $ 120,000
Common stock issued to settle debt $ 46,343
Dividends declared but not paid $ 229,319
</TABLE>
F-9
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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 the former ICG shareholders
receiving 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 accumulated
deficit was carried forward. The operations reflect those of ICG from inception.
Through December 31, 1996 the Company had been in the development stage and had
conducted no revenue producing activities. During the first quarter of 1997 the
Company ceased being in the development stage. The Company is developing a
financial services firm to pursue business opportunities in the United States
and the United Kingdom. In June 1997, after the recapitalization, CGH, a
Colorado corporation, was merged into a Delaware corporation, Capital Growth
Holdings, Ltd. This transaction resulted in the exchange of no par shares for
$.001 par value shares.
The Company has sustain recurring losses and at December 31, 1997 has
an accumulated deficit of $2,525,584 which has been funded by equity financing.
The Company has implemented certain cost reductions. However, there is no
assurance that profitable operations ultimately can be attained or that
additional financing will be available to support ongoing operations. The
Company believes that its current resources will enable it to meet its current
and anticipated obligations on a timely basis through December 31, 1998.
(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"). The transaction is a
recapitalization for accounting purposes. 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%
F-10
<PAGE>
cumulative convertible Series B preferred stock. The warrants consist of
1,625,000 redeemable warrants, each exercisable to purchase one share of 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 a vesting 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.
(NOTE C)--Summary of Significant Accounting Policies:
(1) Principle of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, ICG. All significant intercompany
transactions and balances have been eliminated.
{2) Furniture, fixtures, equipment and leasehold improvements:
Furniture, fixtures, and equipment are recorded at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets which range from 3 to 7 years. Leasehold improvements are amortized
over the lesser of the economic useful life of the improvement or the term of
the lease, whichever is shorter.
(3) 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.
(4) Fair value of financial instruments:
The carrying value of cash and cash equivalents, due from broker,
restricted cash, accounts payable and accrued expenses approximates their fair
value because of the short maturity of those instruments. Due to the related
party nature of notes receivable and accrued interest, the Company is not
reasonably able to determine their fair values.
(5) Net loss per common share:
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," in the year ended December 31, 1997 and
has retroactively applied the effects thereof for all periods presented.
Accordingly, the presentation of per share information includes calculations of
basic and dilutive loss per share. The impact on the per share amounts
previously reported was not significant.
F-11
<PAGE>
Net loss per common share is based on the weighted average number of
common shares and Class B 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.
(6) Customer list:
Customer lists are stated at cost and are being amortized over three
years.
(7) Valuation of securities:
Securities owned, 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. Securities which do not have a
readily ascertainable market value are valued at their estimated fair value as
determined by the management. Management considers fair value to be cost unless
the value has deteriorated or where later investments have been concluded by a
significant outside investor, then the investment is valued at the last per
share sales price paid unless circumstances dictate a lower valuation. The
values of securities owned by the Company can change substantially because of
volatility in the price for such securities, changes in the business prospects
of the issuer of the securities, specific events influencing the operations of
the issuer of the securities, and various other circumstances outside the
security issuer's control. Accordingly, the value of the securities could
decline so that a loss would be required to be recognized for the total carrying
amount of such securities. Related changes in unrealized appreciation or
depreciation are reflected in the statement of operations.
Included in securities owned at market value and securities not readily
marketable are the common shares of two public companies which constitute a
significant portion of the company's total assets. These companies are subject
to the reporting requirements of the U.S. Securities and Exchange Commission.
The carrying amount of such investments are as follows:
First American Railways, Inc. $377,637
Worlds Inc. 415,000
F-12
<PAGE>
Unaudited summarized financial information for the aforementioned
investments are as follows:
First American Railways, Inc.
(unaudited)
Balance Sheet Data:
DECEMBER 31, 1997
-----------------
Current assets.............................................. $ 4,564,230
Non-current assets.......................................... 45,985,228
Current liabilities......................................... 7,086,375
Non-current liabilities..................................... 41,831,945
Income Statement Data:
FOR THE TWELVE FOR THE TWELVE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
Revenues............................... $ 9,895,867 --
Gross Profit........................... 3,145,831 --
Operating Loss......................... (4,163,180) (2,150,300)
Net loss............................... (6,969,221) (2,595,762)
Worlds, Inc.
(a development stage enterprise)
(unaudited)
Balance Sheet Data:
DECEMBER 31, 1997
-----------------
Current assets........................................... $3,616,542
Non-current assets....................................... 209,452
Current liabilities...................................... 1,866,430
Non-current liabilities.................................. 1,968,333
F-13
<PAGE>
FOR THE PERIOD
APRIL 8, 1997
Income Statement Data: (INCEPTION) TO
DECEMBER 31, 1997
-----------------
Net revenues................................................. $ 1,420
Gross profit................................................. 1,420
Operating loss before extraordinary item..................... (6,809,148)
Net loss..................................................... (6,686,471)
(8) Investment in and advances to an unconsolidated affiliate:
The Company has a 50% equity interest in an unconsolidated affiliate Capital
Growth (Europe) Limited ("CGE"). The investment is recorded using the equity
method of accounting. The Company reviews the investment and advances for
impairment whenever events or changes in circumstances indicates that the
carrying amount of its investment or advances may not be recoverable. A loss in
value of the investment or advances is recorded if it is believed that such loss
is other than a temporary decline.
(9) Cash equivalents:
The Company considers all liquid short-term investments with original maturities
of three months or less to be cash equivalents.
(10) Revenue recognition:
Consulting and private placement fees are recorded when earned. In addition, the
Company earns fees in the form of securities. These securities are valued at
market on the date they are earned. Security transactions are recorded on a
trade date basis.
(11) Recently issued accounting pronouncements:
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 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.
F-14
<PAGE>
(NOTE D)--Furniture, Fixtures, Equipment, and Leasehold Improvements:
At December 31, 1997, fixed assets consist of the following:
Furniture and fixtures ................................. $ 89,802
Equipment .............................................. 9,967
Leasehold improvements (located in Europe) ............. 119,506
--------
219,275
Less accumulated depreciation........................... 21,772
--------
Net..................................................... $197,503
========
(NOTE E)--Stockholders' Equity:
(1) Preferred stock:
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 a
preferential cumulative dividend which began accruing on 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 Series A and B have a
liquidation preference of $.14 and $.21 per share, respectively.
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 shares of Class B common stock on a one-for-one basis, 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
therefore.
(2) Class B common stock:
The holders of the Class B common stock are entitled to one vote per
share. 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.
(3) Dividend:
F-15
<PAGE>
In March 1997, the Board of Directors declared annual dividends of
$.225 per share of common stock, for the calendar years ended 1997 and 1998,
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 $.20 per share limitation on annual
dividends in 1998.
(4) Subscription receivable:
Subscription receivable represents amounts to be collected by the
Company for 382,851 shares of Series A convertible preferred stock converted to
Class B common stock on October 12, 1997.
(5) 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 $922,000. A placement
fee of approximately $74,000 was paid to Capital Growth International LLC
("CGI"), an affiliate of the Company (Note H). 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.
(6) Treasury stock:
In March and May 1997 the Company purchased an aggregate of 15,000
shares of common stock and 12,500 warrants from the original holders at its
approximate fair value.
(7) Noncash transaction:
In November 1996, the Company granted 60,000 shares of common stock for
a customer list. The Company valued the shares at its fair value of $2.00 per
share.
(NOTE F)--Warrants:
In October 1996 the Company raised $3,250,000 through the sale of units
in a private placement. Each unit was sold for $50,000 and consisted of 25,000
shares of common stock and 25,000 redeemable warrants. At December 31, 1997 the
Company has 1,612,500 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 1996 until October 1999.
In addition, the Company issued 24,984 redeemable warrants to
sub-placement agents in connection with the Company's March private placement.
Each warrant is exercisable into common stock at a price of $4.00 per share at
any time prior to redemption from March 1997 until March 2000.
F-16
<PAGE>
In addition, the Company agreed to issue 250,000 redeemable 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. Consulting services were provided for a 5 month period and
therefore 52,083 warrants were issued. Each consulting warrant is exercisable to
purchase one share of Class B common stock at an exercise price of $2.00 per
share at any time prior to redemption through November 3, 1999. The issuance has
resulted in a charge to operations of $35,417 based on the fair value of the
warrant ($.68 per warrant). The fair value of these warrants was estimated using
the Black-Scholes pricing model with the following assumptions: interest rate
5.92%, dividend yield of 0%, volatility factor of .30 and average expected life
of 3 years.
The above warrants may be redeemed by the Company at $.05 per
redeemable warrant subject to certain conditions and the closing bid price of
the common stock trades at least $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. A summary of the Company's warrants and related
information for the year ended December 31, 1997 and for the period February 26,
1996 (inception) through December 31, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED WEIGHTED FEBRUARY 26, 1996 WEIGHTED
DECEMBER 31, AVERAGE THROUGH AVERAGE
1997 EXERCISE PRICE DECEMBER 31, 1996 EXERCISE PRICE
------------ -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period............... 1,875,000 $3.73 --
Granted or exchanged............................. 1,899,984 $3.74 1,875,000 $3.73
Expired or exchanged............................. (2,085,417) $3.57 --
---------- ---------
Outstanding at end of period..................... 1,689,567 $3.94 1,875,000 $3.73
========== =========
Exercisable at end of period..................... 1,689,567 $3.94 1,875,000 $3.73
========== =========
Weighted-average remaining months of
contractual life at year end.................... 21 33
</TABLE>
(NOTE G)--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.
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. Had
F-17
<PAGE>
compensation cost for the Company's stock option grants to employees and
directors been determined based upon the fair value at the grant date consistent
with the methodology prescribed under SFAS 123, the net loss in 1997 and 1996
would have been approximately $(1,218,000) and $(748,000) or $(.08) and $(.06),
respectively, for basic and diluted loss per share. 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
5.79%, dividend yields of 0%, volatility factor of expected market price of the
Company's common stock of .34, and a weighted-average expected life of the
option of 5 years. The fair value of options grant during 1996 was $.88 per
share. No options were granted during 1997.
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 reliable
single measure of the fair value of its employee stock option.
On January 7, 1997, the Company adopted a stock option plan (the "1997
Plan") for granting of options to purchase up to 1,500,000 shares of Class B
common stock, pursuant to which employees, directors and consultants are
eligible to receive incentive and/or nonqualified stock options. Options granted
under the 1997 Plan are exercisable for a period of up to 10 years from date of
grant at an exercise price which is not less than the fair value on date of
grant, except that the exercise price of options granted to a stockholder owning
more than 10% of the outstanding capital stock may not be less than 110% of the
fair value of the common stock at date of grant. In connection with the Share
Exchange, ICG option holders exchanged 635,000 options for options under the
1997 Plan.
F-18
<PAGE>
A summary of the Company's stock option activity and related
information for the year ended December 31, 1997 and for the period February 26,
1996 (inception) through December 31, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 26, 1996
DECEMBER 31, THROUGH
1997 DECEMBER 31, 1996 EXERCISE PRICE
------------ ----------------- --------------
<S> <C> <C> <C>
Outstanding at beginning of period............ 660,000 -- $2.00
Granted or exchanged.......................... 635,000 660,000 $2.00
Expired or exchanged.......................... (660,000) -- $2.00
-------- -------
Outstanding at end of period.................. 635,000 660,000 $2.00
======== =======
Exercisable at end of period.................. 211,667 -- $2.00
======== =======
Weighted-average remaining contractual
life at year end............................. 8.89 9.89
</TABLE>
At December 31, 1997, 865,000 options were available for grant under the Plan.
(NOTE H)--Related Party Transactions:
Capital Growth International LLC ("CGI"), a company, owned by certain
of the ICG directors, utilizes space at the Company's offices without
renumeration. Such space was not considered significant for the year ended
December 31, 1997 and for the period from February 26, 1996 (inception) through
December 31, 1996.
In March 1997, an aggregate of $46,343 of notes and accrued interest
due to stockholders and former officers were exchanged for 2,906 shares of
common stock. The shares were valued at their fair value of $6,539 ($2.25 per
share) and a gain of $39,804 was recorded.
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.
At December 31, 1997, $9,000 of interest was accrued on the loan. On March 26,
1998, the note was extended for 90 days.
On September 15, 1997 the Company loaned $25,000 to CGI which was
repaid on October 2, 1997 without interest.
F-19
<PAGE>
During the year ended December 31, 1997, the Company paid consulting
fees of $99,000 to a stockholder of CGH.
During the year ended December 31, 1997, the Company paid commissions
of $36,000 to CGE.
CGI assigned certain consulting and financial advisory service
agreements to the Company for no consideration. In addition, the Company
purchased from CGI warrants to acquire common stock in a public company for
approximately $14,000.
(See also Note E(5))
(NOTE I)--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, be at least the greater of 6 2/3 of aggregate indebtedness or
$5,000. At December 31, 1997 ICG had net capital of $1,259,314 which was
$1,246,095 in excess of its required net capital.
(NOTE J)--Exemption from Rule 15C3-3:
ICG 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 K)--Commitments:
(1) Letter of credit:
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
CGE. The letter of credit is secured by a money market account.
(2) Leases:
The Company is obligated for annual minimum rentals under leases for
office space as follows:
Year Ending
December 31,
------------
1998 $136,000
1999 70,000
2000 64,000
--------
$270,000
========
F-20
<PAGE>
Rent expense was approximately $259,000 and $51,000 for the year ended
December 31, 1997 and for the period February 26, 1996 to December 31, 1996,
respectively.
(3) Retirement plan:
Effective January 1, 1997, the Company has a 401(k) profit-sharing plan
covering all eligible employees as defined in the plan. Contributions are made
at the discretion of employees. The Company contributes 50% of the employee's
contribution amount to the plan. Pension expense for the year ended December 31,
1997 was approximately $21,000.
(NOTE L)--Provision For Taxes:
At December 31, 1997, the Company has net operating loss carryforwards
available for tax purposes of $1,070,000, expiring in 2012 and capital loss
carryforwards of $161,000 expiring in 2001 that may be used to offset future
taxable income. The difference between the net loss for financial reporting
purposes and the net operating loss for tax purposes is primarily due to
unrealized loss on marketable securities and equity in loss of unconsolidated
affiliate not currently deductible for tax purposes. The Company has provided a
valuation reserve against the full amount of the net operating loss benefit of
$424,000, capital loss benefit of $60,000 and the benefit of $300,000 from
temporary differences, since the likelihood of realization cannot be determined.
The difference between the statutory tax rate of 34% and the Company's
effective tax rate of 0% is due to the increase in a valuation allowance of
$394,000 and $273,000 in 1997 and 1996.
(NOTE M)--Fourth Quarter Adjustments:
During the first three quarters of 1997 the Company did not reflect its
security portfolio at market value. The effect of such adjustment on each of the
first three quarters of 1997 has not yet been determined by the Company.
(NOTE N)--Subsequent Event:
Through March 28, 1998 market value of one of the securities held by
the Company declined by approximately $165,000.
F-21
<PAGE>
MICROCAP FINANCIAL SERVICES.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
A S S E T S
SEPTEMBER 30, 1998
(UNAUDITED)
Assets:
Cash and cash equivalents................................... 2,339,363
Due from broker............................................. 44,930
Securities owned at market value............................ 28,899
Securities not readily marketable, at fair value............ 501,500
Restricted cash............................................. 104,193
Furniture, fixtures, equipment, and leasehold improvements.. 176,970
Customer list............................................... 50,000
Other Assets................................................ 156
-----------
TOTAL ASSETS................................................ $ 3,246,011
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses....................... $ 65,967
Dividends payable - preferred stockholders.................. 38,154
Dividends payable - common stockholders..................... 384,071
Deferred revenue............................................ 23,557
-----------
Total Liabilities........................................... 511,749
Stockholders' equity:
Preferred Stock - $.001 par value; 20,000,000 shares
authorized, none issued.................................
Common Stock - $.001 par value, 100,000,000
shares authorized; 18,978,496 issued.................... 18,978
Class B Common Stock - $.001 par value, 25,000,000 shares
authorized; 16,431,000 shares issued and outstanding.... 16,431
Additional Paid in Capital....................................... 7,037,739
Accumulated Deficit.............................................. (4,308,886)
Treasury Stock (15,000 Shares)................................... (30,000)
-----------
Total stockholders' equity.................................. 2,734,262
-----------
T O T A L................................................... $ 3,246,011
===========
See notes to financial statements
F-22
<PAGE>
MICROCAP FINANCIAL SERVICES.COM, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
-------------------------
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
Revenues:
Consulting fees 349,028 294,266
Private placement fees 908,730 1,501,786
Net realized and unrealized gain (loss) on
marketable and not readily marketable
securities (502,211) 2,513,774
Gain debt settlement 39,804
Interest income 20,382 73,856
----------- ----------
Total revenue 775,929 4,423,486
----------- ----------
Operating expenses
Commission 27,408 772,764
General and administrative 1,893,875 2,391,789
Equity in loss of unconsolidated affiliate 61,068 0
Write-down of Advances to unconsolidated
affiliate 0 86,115
----------- ----------
Total operating expenses 1,982,351 3,250,668
----------- ----------
Net Income (loss) before taxes (1,206,422) 1,172,818
Provision for taxes 0 300,000
----------- ----------
Net income (loss) $(1,206,422) $ 772,818
Less cumulative preferred dividend 0 (9,131)
----------- ----------
Net income (loss) attributable to
Common stockholders $(1,206,422) $ 763,687
=========== ==========
Basic (loss) income per share $(0.06) $0.05
====== =====
Diluted (loss) income per share $(0.06) $0.04
====== =====
Weighted average common shares outstanding -
basic 20,927,957 14,464,601
Effect of Potential Common Stock 0 5,168,345
----------- ----------
Weighted average common shares outstanding -
diluted 20,927,957 19,548,196
---------- ----------
See notes to financial statements.
F-23
<PAGE>
<TABLE>
<CAPTION>
MICROCAP FINANCIAL SERVICES.COM, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS NINE MONTHS
----------- -----------
ENDED ENDED
----- -----
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) (1,206,422) 772,818
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 53,888 31,394
Equity In loss of unconsolidated affiliate and write-down of advances 65,000 86,115
Valuation of warrants for consulting 0 35,417
Deferred tax expense 0 300,000
Gain on debt settlement (39,804)
Gain on Sale of CGE (3,932) 0
Receipt of securities in payment of fees (187,500) 0
Net realized and unrealized gain (loss) on marketable and not
readily marketable securities 502,211 (2,513,774)
Changes in:
Due from broker 228,201
Other assets 1,844 (30,943)
Accounts payable and accrued expenses (113,284) (10,000)
Deferred revenues (50,481) 108,750
---------- ----------
0
Net cash (used in) provided by operating activities (710,475) (1,260,027)
---------- ----------
Cash flows from investing activities:
Additions to fixed assets (3,355) (220,200)
Exercise of warrants (60,000) 0
Proceeds from sale of securities 476,446 0
Proceeds from sale of CGE 3,932
Advances/repayment to unconsolidated affiliate 209,000 (200,000)
Investment in securities 0 985,315
Investment in restricted cash (1,859)
---------- ----------
Net cash provided by (used in) investing activities 624,164 565,115
---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of common stock and preferred stock 1,945,389 957,948
Dividends paid (383,974) (575,764)
Collection of Subscriptions Receivable 53,600 0
Purchase of treasury stock 0 (30,000)
---------- ----------
Net cash provided by financing activities 1,615,015 352,184
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,528,704 (342,728)
Cash at beginning of period 810,659 3,060,255
---------- ----------
Cash and cash equivalents at end of period 2,339,363 2,717,527
========== ==========
</TABLE>
See notes to financial statements.
F-24
<PAGE>
MICROCAP FINANCIAL SERVICES.COM, INC.
(formerly known as Capital Growth Holdings, Ltd.)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of MicroCap Financial Services.com, Inc. (the
"Company" or "MFSI") have been prepared 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 of the full fiscal year.
During the first quarter of 1997 the Company ceased being a development stage
company.
(2) THE CORPORATION
Effective November 5, 1998, Capital Growth Holdings, Ltd., ("CGH") changed it's
name to MicroCap Financial Services.com, Inc. 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 the
former ICG shareholders receiving control of CGH (see Note 3 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 accumulated deficit was carried forward. The
operations reflect those of ICG from inception. In June 1997, after the
recapitalization, CGH, a Colorado corporation, was merged into a Delaware
corporation, Capital Growth Holdings, Ltd. This transaction resulted in the
exchange of no par shares for $.001 per value shares.
(3) ACQUISITION
As discussed in Note 2 above, the Company acquired 100% of the outstanding
capital stock of ICG in a reverse acquisition consummated through a share
exchange transaction (the "Share Exchange"). The transaction is a
recapitalization for accounting purposes. 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.
F-25
<PAGE>
The 18,980,000 shares of capital stock of the Company that were issued in the
Share Exchange consisted of (1) 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 of 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
a vesting 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.
(4) PRINCIPLE OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
(5) VALUATION OF SECURITIES
Securities owned, 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. Securities which do not have a readily ascertainable
market value are valued at their estimated fair value as determined by the
management. Management considers fair value to be cost unless the value has
deteriorated or where later investments have been concluded by a significant
outside investor, then the investment is valued at the last per share sales
price paid unless circumstances dictate a lower valuation. The values of
securities owned by the Company can change substantially because of volatility
in the price for such securities, changes in the business prospects of the
issuer of the securities, specific events influencing the operations of the
issuer of the securities, and various other circumstances outside the security
issuer's control. Accordingly, the value of the securities could decline so that
a loss would be required to be recognized for the total carrying amount of such
securities. Related changes in unrealized appreciation or depreciation are
reflected in the statement of operations.
Included in securities owned at market value and securities not readily
marketable are the common shares of one public company which constitute a
significant portion of the Company's total assets. The company is subject to the
reporting requirements of the U.S. Securities and Exchange Commission.
The carrying amount of such investments at September 30, 1998 are as follows:
World's Inc. 415,000
F-26
<PAGE>
Unaudited summarized financial information for the aforementioned investment is
as follows:
Worlds, Inc.
(a development stage enterprise)
(unaudited)
BALANCE SHEET DATA:
SEPTEMBER 30, 1998
------------------
Current Assets 2,407,869
Non-Current Assets 88,030
Current Liabilities 1,598,410
Non-Current Liabilities 1,937,500
INCOME STATEMENT DATA:
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1998
------------------
Net Revenues 16,132
Gross profit (2,888,395)
Operating loss before extraordinary item (2,881,346)
Net loss (2,708,799)
(6) DIVIDEND
In March 1997, the Board of Directors declared annual dividends of $.225 per
share of common stock, for the calendar years ended 1997 and 1998, 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 $.20 per share limitation on annual dividends in 1998. The
company has determined not to make the $.05625 per share common stock dividend
payment on June 30, 1998 as well as September 30, 1998 due to the Company's
current limited cash resources, although the Company had previously declared
such dividend. The Company anticipates offering its shareholders the opportunity
to accept common stock in lieu of cash as payment for the Common Stock Dividend.
There is no assurance, however, that this offer will be accepted. The Company
does not expect to make its last declared dividend on December 31, 1998.
F-27
<PAGE>
(7) REVENUE RECOGNITION
Consulting fees and private placement fees are recorded when earned. In
addition, the Company earns fees in the form of securities. These securities are
valued at market on the date they are earned. Security transactions are recorded
on a trade date basis.
(8) NET INCOME (LOSS) PER SHARE OF COMMON STOCK
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any dilutive
effects of options, warrants and convertible securities. Dilutive earnings per
share is very similar to the previously reported fully diluted earnings per
share. The Company adopted Statement No. 128 and has retroactively applied the
effects thereof for all periods presented. The impact on the per share amounts
previously reported was not significant. The effects of potential Common Shares
such as warrants, options and Convertible Preferred Stock have not been included
as effect would be antidilutive.
(9) PREFERRED STOCK
The former holders of Series A and B preferred stock were entitled to a
preferential cumulative dividend equal to $38,154 in the aggregate, which
accrued from October 12, 1996 through October 12, 1997.
(10) 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, be at least the greater of 6 2/3 of aggregate indebtedness or $5,000.
At September 30, ICG had net capital of $790,720 which was $785,085 in excess of
its required net capital.
(11) EXEMPTION FROM RULE 15C3-3
ICG is exempt from the reserve requirement of the Securities and Exchange
Commission's Rule 15c3-3 pursuant to Section 15c3-3(k)(2)(ii).
F-28
<PAGE>
(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 CGE. The
letter of credit is secured by a money market account.
(13) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 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) 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, 1998 and September
30, 1997.
Section 382 of the Internal Revenue Code contains provisions which may limit the
loss carryforwards available if significant changes occur in stockholder
ownership interests. Although the Company has not performed a detailed analysis,
management believes that such limitations will apply as of September 30, 1998.
Accordingly, the Company would be subject to a significant annual limitation on
the utilization of its net operating losses.
(15) RESTATEMENT
The Company has restated the condensed consolidated statement of operations for
the nine months ended September 30, 1997 to reflect its security portfolio at
market value without provision for discounts at September 30, 1997.
(16) PRIVATE PLACEMENT
Prior to September 30, 1998 the Company raised approximately 1,945,000 in a
private placement of 15,580,000 shares.
(17) SUBSEQUENT EVENTS
On October 26, 1998 the company granted 250,000 warrants to purchase Common
Stock to a consultant in connection with services to be rendered from October
1998 through October 2000. The Company valued these warrants at approximately
$118,000 representing the fair value at date of grant.
On October 27, 1998 the Company exchanged 1,000,000 shares of its Common Stock
for 2,500,000 shares of Atlantic Caspian Resources, PLC which had a fair market
value of approximately $136,000.
F-29
<PAGE>
On October 29, 1998 the Company adopted a stock option plan (the "1998" plan)
for granting up to 10,000,000 shares of Common Stock pursuant to which
employees, consultants, independent contractors, Officer and Directors are
eligible to receive incentive and/or non qualified stock options. Options
granted under the 1998 plan are exercisable for a period of up to 10 years from
date of grant at an exercise price which is not less than the fair value on date
of grant, except that the exercise price of options granted to a stockholder
owning more than 10% of the outstanding capital stock may not be less than 110%
of the fair value of the common stock at date of grant. Through February 10,
1999 the Company has granted 7,025,000 options to purchase Common Stock at
exercise prices from $.25 to $1.18 under the 1998 plan.
On December 9, 1998 the Company granted 160,000 shares of Common Stock to a
consultant. The Company valued the shares at $240,000 representing the fair
value at date of grant.
On December 31, 1998 the Company granted 100,000 shares of Common Stock to its
former CEO of MicroCap1000.com, Ltd. upon termination. The Company valued these
shares at $125,000.
In addition, on January 7, 1999 the Company issued 275,000 shares of Common
Stock in lieu of payment of $308,000 for services rendered by a consultant
during year ended December 31, 1998.
On January 27, 1999 the Company granted 2,000,000 warrants to purchase Common
Stock to a joint venture partner. The Company valued these warrants at
$1,600,000.
On February 9, 1999 the Company granted 840,000 warrants to purchase Common
Stock to a consultant. The Company valued these warrants at approximately
$395,000.
The fair market value of Common Stock, options and warrants issued in connection
with the above consultant agreements will be typically recorded as expense
within twelve months of the execution of the related agreements.
Through February 10, 1999 the Company sold 9,993,800 shares of common stock in a
series of private placements yielding net proceeds of approximately $3,284,000.
F-30
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus in connection with the offering made hereby, and
any information or representation not contained or incorporated herein must not
be relied upon as having been authorized by us. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares described in the cover page hereof, or an offer to sell or
a solicitation of an offer to buy the shares offered hereby in any jurisdiction
where, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create any implication that there has
been no change in our affairs since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.
================================================================================
================================================================================
MICROCAP FINANCIAL
SERVICES.COM, INC.
Common Stock
--------------------------
PROSPECTUS
--------------------------
_____________________, 1999
================================================================================
<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 stockholders, 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.
II-1
<PAGE>
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:
Securities and Exchange Commission registration fee $26,221.56
Legal fees and expenses $ 7,500.00
Accounting fees and expenses $30,000.00
Miscellaneous $ 5,000.00
----------
Total $68,721.56
==========
All amounts except the Securities and Exchange Commission registration
fee are estimated.
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 stockholders 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
II-2
<PAGE>
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.
In the fourth quarter of 1998 the Company completed a private offering
(the "1998 Offering") of shares of its Common Stock at $.125 per share pursuant
to Regulation D to "accredited investors" as that term is defined in Regulation
D. The Company issued 23,248,400 shares in the 1998 private offering which
yielded aggregate gross proceeds of $2,906,050. No placement agent was utilized.
The Company did not pay any commissions in connection with the sale of
securities.
On February 10, 1999 the Company completed a private offering (the
"1998 Offering") of shares of its Common Stock at $1.00 per share pursuant to
Regulation D to "accredited investors" as that term is defined in Regulation D.
The Company issued 2,325,400 shares in the 1999 private offering which yielded
aggregate gross proceeds of $2,325,400. No placement agent was utilized. The
Company did not pay any commissions in connection with the sale of securities.
ITEM 27.--EXHIBITS
(a) The following is a list of Exhibits filed herewith as part of the
Registration Statement:
EXHIBIT NO. DESCRIPTION
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 Broad and Cassel
5.2** Content Supply Agreement between Freeserve Limited and MicroCap
Financial Services.com, Inc.
10.1* 1997 Stock Option Plan
10.5 Lease Agreement regarding 7280 W. Palmetto Park Road, Suite 202,
Boca Raton, Florida
II-3
<PAGE>
10.6 1998 Stock Option Plan
16.1* Lease Agreement, as amended, regarding 2425 Olympic Boulevard,
Santa Monica, CA dated October 21, 1997
21.1* Letter, dated March 25, 1997, of Angell & Deering
23.1* Subsidiaries of the Company
23.2 Consent of Richard A. Eisner & Company, LLP
27.1 Power of Attorney (included on the signature page II-5 of Part II
of this Registration Statement)
27.2 9/30/98 Financial Data Schedule
- ------------
* Previously filed or incorporated by reference
** To be filed by amendment
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,
II-4
<PAGE>
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form SB-2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boca Raton, State of Florida, on the 12th day of February, 1999.
By: /s/ RONALD B. KOENIG
--------------------------------------
Ronald B. Koenig
Chairman of the Board of Directors and
Co-Chief Executive Officer
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Ronald B. Koenig his true and
lawful attorneys-in-fact, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments, including any post-effective
amendments, to this Registration Statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact or their substitutes, each acting alone, may lawfully do or
cause to be done by virtue hereof.
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 Chairman of the Board of Directors and February 12, 1999
- ------------------------------------------ Co-Chief Executive Officer
Ronald B. Koenig
/s/ STANLEY HOLLANDER President and Co-Chief Executive February 12, 1999
- ------------------------------------------ Officer
Stanley Hollander
/s/ MICHAEL S. JACOBS Vice President, Secretary and February 12, 1999
- ------------------------------------------ Treasurer (Principal Financial and
Michael S. Jacobs Accounting Officer)
/s/ ALAN L. JACOBS Director February 12, 1999
- ------------------------------------------
Alan L. Jacobs
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.5 Lease Agreement regarding 7280 W. Palmetto Park Road, Suite 202,
Boca Raton, Florida
10.6 1998 Stock Option Plan
23.2 Consent of Richard A. Eisner & Company, LLP
27.1 Power of Attorney (included on the signature page II-5 of Part II
of this Registration Statement)
27.2 9/30/98 Financial Data Schedule
EXHIBIT 10.5
[LOGO]
SCHEVER INTERNATIONAL PLAZA, INC.
<PAGE>
INDEX
PAGE
----
ARTICLE I Description of Property............................... 1
ARTICLE II Rent...................................................1
ARTICLE III Landlord's Services....................................4
ARTICLE IV Preparation of Premises................................5
ARTICLE V Repair and Maintenance.................................6
ARTICLE VI Tenant Care and Repair.................................6
ARTICLE VII Late Payments..........................................7
ARTICLE VIII Holding Over...........................................7
ARTICLE IX Alterations, Additions and Improvements................7
ARTICLE X Assignment and Subletting..............................9
ARTICLE XI Rules and Regulations..................................10
ARTICLE XII Relocation.............................................11
ARTICLE XIII Floor Loads, Noise and Vibrations......................11
ARTICLE XIV Tenant's Insurance.....................................11
ARTICLE XV Non-Liability and Indemnification......................12
ARTICLE XVI Destruction or Damage by Fire or Other Casualty........13
ARTICLE XVII Eminent Domain.........................................13
ARTICLE XVIII Signs..................................................14
ARTICLE XIX Default................................................14
ARTICLE XX Subordination..........................................16
ARTICLE XXI Access by Landlord.....................................17
ARTICLE XXII Lawful Use of Premises.................................17
ARTICLE XXIII Quiet Enjoyment........................................17
ARTICLE XXIV Tenant Forbidden to Encumber Landlord's Interest.......17
ARTICLE XXV Applicable Law.........................................17
ARTICLE XXVI Representations and Agreements.........................18
ARTICLE XXVII Force Majeur...........................................18
ARTICLE XXVIII Relationship of the Parties............................18
ARTICLE XXIX Plate Glass............................................18
ARTICLE XXX Provisions Relating to Interpretation..................18
ARTICLE XXXI Brokerage..............................................18
ARTICLE XXXII Recovery of Litigation Expense.........................19
ARTICLE XXXIII Notices................................................19
ARTICLE XXXIV Miscellaneous..........................................19
RULES AND REGULATIONS........................................................1-5
GUARANTY.....................................................................1-2
EXHIBIT "A" Demised Premises Floor Plan............................
EXHIBIT "B" Option to Extend
EXHIBIT "C" Work Letter Agreement
Disclosure and Acknowledgement
Real Estate Agency Disclosure
<PAGE>
LEASE
FACE PAGE
1. Landlord: Schever International Plaza, Inc.
2. Landlord's Address: 7280 W. Palmetto Park Road, Suite 201
Boca Raton, FL 33433
3. Tenant: International Capital Growth, Ltd.
4. Tenant's Address: 7280 W. Palmetto Park Road - Suite 202
Boca Raton, FL 33433
5. Lease Commencement
Date (if premises
are complete): October 5, 1998
6. Rental Commencement
Date: October 5, 1998
7. Expiration Date: October 31, 2001
8. Lease Term
(and options,
if any): Three {3} years
9. Leased Premises: Suite 202-N
10. Garage Spaces
Allocated: Two {2}
11. Gross Dimensions
(approximation): 1,508 usable square feet/1,764 rentable square feet
12. Rent Per Square Foot: $16.00 per rentable square foot per annum
13. Percentage of Building: 3.45%
14. Tenant Use: General Office Use
15. Restrictions
(if any):
<PAGE>
16. Tenant's Trade
Name: International Capital Growth, Ltd.
17. Annual Base Rent {$28,224} Twenty-Eight Thousand Two Hundred
Twenty-Four and No/100 Dollars per year
(Subject to adjust- {$2,352} - Two Thousand Three Hundred Fifty-Two
ment or addendum): and No/100 Dollars per month
18. Additional Rental:
Estimated pursuant to Paragraph 2.3.F.)
A. Maintenance/Operating Expenses, Real Estate Taxes and Insurance:
$8.28 Per Square Foot
$1,217.16 Per Month
$14,605.92 Per Year
B. 6% Florida Sales Tax: (Subject to Adjustment)
$214.15
19. TOTAL MONTHLY RENTAL OBLIGATION: $3,783.31
20. Security Deposit: $7,138.32
21. Participating Brokers (if any):
Arvida Realty Sales, Ltd.
22. Other:
THIS IS A LEGALLY BINDING DOCUMENT. IT IS PART OF YOUR LEASE. PLEASE READ IT
THOROUGHLY BEFORE YOU SIGN. THE ITEMS CONTAINED ON THIS FACE PAGE REFER TO
VARIOUS PROVISIONS IN THE LEASE. THERE ARE NO AGREEMENTS BETWEEN THE PARTIES
UNLESS CONTAINED IN WRITING IN THIS LEASE.
<PAGE>
SCHEVER INTERNATIONAL PLAZA
STANDARD LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into this 14th day of September,
1998 by and between SCHEVER INTERNATIONAL PLAZA, INC., hereinafter referred to
as "Landlord" or "Lessor", and International Capital Growth, Ltd., a Delaware
corporation, hereinafter referred to as "Tenant".
WITNESSETH:
In consideration of the rents, covenants and agreements herein,
Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord upon
terms, provisions and conditions herein, the real property hereinafter
described.
ARTICLE I - DESCRIPTION OF PROPERTY
1.1. Description of Property: Landlord leases to Tenant a portion of
the real property in the development known as Schever International Plaza, Boca
Raton, Florida (hereinafter referred to as the "Leased Premises") reflected on
the floor plan attached hereto as Exhibit "A" and made a part hereof.
1.2. Rentable Area: The Leased Premises consists of approximately (see
Face Page) square feet and constitutes (see Face Page) percentage of the square
footage of the building. Notwithstanding the foregoing, any deviation between
actual square footage and the foregoing estimate shall not serve as grounds for
any claim of breach or rescission, although same may result in a modification of
sums due as set forth hereinafter.
1.3. Term: This Lease shall be for a term of (see Face Page) years,
hereinafter sometimes referred to as the "Term" or "Initial Term"), commencing
on (see Face Page). If the Leased Premises are not ready for occupancy by the
commencement date for any reason, Landlord shall not be liable for any claims,
damages, liabilities in connection therewith or by reason thereof, and the term
shall commence on the date the Leased Premises are ready for occupancy. In the
event of the necessity of a Certificate of Occupancy prior to commencement, then
the Standard Addendum Agreement shall be deemed incorporated herein and shall
control.
1.4. Use: The Leased Premises shall be used and occupied by Tenant
solely for the purpose of (see Face Page) and for no other purpose without
Landlord's prior written consent.
ARTICLE II - RENT
2.1. Rental: Subject to paragraph 2.2 hereof, Tenant covenants and
agrees with Landlord to pay rentals as set forth on the Face Page. All rental
payments are due on the first of any month during the lease term. If the rental
commencement date is other than the first day, then the first month's rental
shall be prorated accordingly.
<PAGE>
2.1. (a) Security Deposit: Concurrently with the execution hereof,
Tenant shall pay to Landlord the amount set forth on the Face Page to be held as
a deposit to secure performance of Tenant's obligations hereunder. Upon the
occurrence of any event of default, or upon the failure by Tenant to timely pay
any sum, it is obligated to pay hereunder, Landlord may without prior notice to
Tenant, apply all or part of the security deposit to the curing of any default.
Upon notice of application of security deposit, Tenant shall immediately tender
sufficient sums to reinstate the original security deposit within three (3) days
of notice thereof. Upon termination or expiration of this Lease, the security
deposit shall be returned to Tenant, to the extent the same is not then applied
to either the curing of any event of default or setoff for damages beyond
reasonable wear and tear.
2.2. Adjustment in Rental. The rental obligation during each successive
year after the first year of the term, or any renewal thereof,* shall be
*increased by five percent (5%) over the previous year's Base Rent.
No adjustment shall ever result in a reduction of the rent below the
rental of the preceding year.
Nothing contained in this Section shall negate Tenant's obligation for
additional rent as defined herein.
2.3. Tenant's Share of Basic Operating Expenses:
A. The term "COMMON AREA" shall mean all real or personal property
owned by the Landlord for the common, non-exclusive use of the Landlord, the
Tenant, its employees, guests and invitees, including, but not limited to
sidewalks, landscaped areas, lighting, delivery areas, parking area, entrance
and lobby areas, security, elevators, stairways, hallways shared by more than
one tenant, and all lavatories shared by more than one tenant, or any portions
thereof.
B. The term "OPERATING EXPENSES" shall mean the operating expenses of
the building and all expenditures by Landlord to maintain the building, parking
and related facilities, and such additional facilities in subsequent years as
may be determined by Landlord to be necessary in accordance with sound and
reasonable practices for facilities of a like kind and character. Operating
expenses shall include all expenses, costs and
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disbursement of any nature in connection with the ownership, operation and
maintenance of the building, including, but not limited to, the following:
1. All supplies and materials used in the operation and maintenance of
the building;
2. Cost of all utilities for the COMMON AREAS of the building,
utilities shall include, but not be limited to water, electric, air-conditioning
and ventilation; and utilities supplied to Tenant's leased premises. In the
absence of any specific meter reading on the leased premises, Tenant's
obligation shall be a pro rata share of the utility expense for the building.
3. Cost of all maintenance and service agreements for the building, the
equipment therein and grounds, including but not limited to janitorial, window
cleaning, elevator maintenance, trash removal, plumbing, security, fire alarm
system, security alarm system, guard service, painting, gardening, landscaping,
plant rotation and replacement, sprinklers, glass replacement and any costs and
expenses associated with maintenance of the parking garage.
4. All insurance relating to the building, including casualty,
liability, Landlord's personal property used in connection therewith and rent
insurance;
5. All real estate and other taxes and assessments and governmental
charges, whether federal, state, county or municipal and whether they be by
taxing districts or authorities presently taxing the Leased Premises or by
others, subsequently created or otherwise, and any other taxes and assessments
attributable to the building or its operation excluding, however, federal and
state taxes on income and ad valorem taxes on Tenant's personal peroperty and on
the value of tenant leasehold improvements to the extent that the same exceeds
standard building allowances;
6. Cost of unreimbursed repairs and general maintenance;
7. Wages and salaries of all employees engaged in direct operation and
maintenance of the building, employer's social security taxes, unemployment
taxes or insurance, and any other taxes which may be levied on such wages and
salaries, the cost of disability and hospitalization insurance, pension or
retirement benefits or any other fringe benefits for such employees;
8. Legal expenses, accounting expenses and management fees incurred
with respect to the buildings.
9. Costs incurred in compliance with new or revised federal or state
laws or municipal ordinances or codes or regulations promulgated under any of
the same;
10. Amortization of the cost of installation of capital investment
items which are primarily for the purpose of reducing (or avoiding increases in)
operating costs of which may be required by governmental authority. All such
costs shall be amortized over
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the reasonable life of the capital investment items with the reasonable life and
amortization schedule being determined in accordance with generally accepted
accounting principles, and in no event to extend beyond the reasonable life of
the building. In the case of installations for the purpose of reducing (or
avoiding increases in) operating costs, Landlord shall, upon request, provide
Tenant a cost justification therefor.
C. Basic Operating Costs shall not include: (i) costs for which
Landlord is entitled to specific reimbursement by Tenant, any other tenant of
the building, or any other third party; (ii) costs of initial construction of
the building; (iii) cost of renovating or modifying space in the building for
lease to other tenants; (iv) leasing commissions; and (v) debt service on any
indebtedness secured by the building.
D. The Tenant's proportionate share of Basic Operating costs shall be a
percentage of the total operating expenses for a given year or prorated portion
thereof and shall be deemed "ADDITIONAL RENT" hereinunder, and shall be paid to
Landlord on the first day of each month in an amount equal to one-twelfth (1/12)
of the Landlord's estimate of Tenant's proportionate share of same. Tenant's
percentage shall be as set forth in Paragraph 1.2.
E. Landlord may, at its option, furnish Tenant a budget for taxes and
operating expenses setting forth Landlord's estimates of such amounts for the
coming year. Said budget, if provided, may be submitted to Tenant on or about
January 31st of each year.
F. Within 120 days after the end of each calendar year, or as soon
thereafter as possible, Landlord shall furnish to Tenant an operating statement
for the preceding years and an appropriate cash adjustment shall be made between
Landlord and Tenant to reflect any differences between payments made based upon
the estimated costs and actual costs. Provided, further, however, that if within
a calendar year there shall be collective increases in the taxes or operating
expenses which exceeds ten (10%) percent of the estimated budget, the Landlord
may, at its option, adjust the budget for the remaining portion of the year to
reflect such change so as to more accurately reflect costs and prevent a large
variance between the estimated budget and actual expenses paid.
G. Review of Records. Tenant, at his expense, shall have the right,
during reasonable business hours, upon giving reasonable notice, to review
Landlord's books and records relating to any increased or additional costs
payable hereunder for the preceding year or Landlord may, at his option, provide
a report prepared by a certified public accountant, which report shall be
conclusive.
H. Tenant shall be responsible for all government sales or use taxes or
other charges which may be imposed on the privilege of leasing the Leased
Premises to Tenant.
ARTICLE III - LANDLORD'S SERVICES
3.1. Landlord shall furnish Tenant, subject to the terms and
obligations of this Lease, and Tenant's performance of its obligations
hereunder, the following services:
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A. Maintenance of the heating, ventilation and air-conditioning system
serving the COMMON AREAS of premises. Tenant is responsible for the cost and
expenses of use of heating, ventilation, air-conditioning system and other
electric usage in Leased Premises.
B. Running water at those COMMON AREAS points of supply, if any,
provided for lavatory and drinking purposes only.
C. Janitorial service in and about the building and the Leased Premises
five (5) days per week.
D. Elevators for ingress and egress from the Leased Premises and
authorized entry to the building twenty-four (24) hours a day, seven (7) days a
week.
E. Electricity for all COMMON AREAS and to the leased premises.
F. Replacement of fluorescent lamps in building, standard light
fixtures installed by Landlord and incandescent bulb replacement in all COMMON
AREAS.
3.2. Failure by Landlord to any extent to furnish such services or any
cessation thereof shall not render Landlord liable in any respect for damages of
any nature. Should any such services be interrupted, Landlord shall use
reasonable diligence to restore same promptly, but Tenant shall have no claim
for rebate of rent or damages, or constructive eviction, or breach of lease, on
account thereof.*
3.3. Tenant shall pay Landlord for any electric services utilized by
Tenant. Tenant understands that all utilities supplied to the Leased Premises
are billed to the Landlord and Tenant's estimated share thereof has been
included in the CAM estimate on the Face Sheet.
ARTICLE IV - PREPARATION OF PREMISES
4.1. In the event renovations and/or alterations are to be made to the
Leased Premises to suit Tenant's needs, Landlord shall make those improvements
for Tenant's occupancy in accordance with agreed upon plans and specifications
between Landlord and Tenant. All facilities, material and work, if any, shall be
furnished by Landlord at Tenant's expense by or for the account of Tenant unless
otherwise agreed to. No construction, whether or not to be paid for by Landlord
or Tenant, shall commence without Landlord's specific written advance approval
nor shall Tenant contract with any other party for improvements, alterations or
modifications of the Leased Premises without such approval by Landlord.
4.2. In the event any such construction or renovations shall have been
substantially completed, notwithstanding the fact the minor or insubstantial
details of construction remain to be performed, by the non-compliance of which
does not materially interfere with Tenant's use of the premises, it is expressly
understood that the correction, completion or adjustment of said construction,
whether or not to be performed by Landlord, do not constitute a valid reason for
withholding any rent and shall not constitute a breach of
* Notwithstanding anything contained herein to the contrary, in the event the
services are interrupted as a result of Landlord's negligence, and such
interruption shall continue for more than forty-eight (48) consecutive hours,
then Tenant's rent shall thereafter be abated until such time as such
services or utilities are restored or Tenant begins using the Premises again,
whichever shall first occur.
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lease or otherwise give rise to any cause of action or defense for non-payment
of any obligations hereunder.
4.3. If the substantial completion of the work required by Landlord
shall be delayed due to any act or omission of or attributable to Tenant, then
the Leased Premises shall be deemed ready for occupancy on the date they would
have been ready but for such delay, and all rental and other payments due by
Tenant hereunder shall commence as of such date that substantial completion
would have occurred but for such action or inaction on the part of or
attributable to Tenant.
4.4. The Tenant acknowledges that the fact that minor or insubstantial
details of construction, mechanical adjustment or decoration may remain to be
performed, the non-completion of said details does not materially interfere
with Tenant's use of the Leased Premises.
4.5. Tenant acknowledges that Landlord has not made any representations
or warranties with respect to the condition of the Leased Premises and neither
Landlord nor any assignee of Landlord shall be liable for any latent or patent
defect therein. Landlord hereby assigns to Tenant all warranties made by others
to Landlord with respect to improvements on the Leased Premises and any other
rights it may have against contractors, suppliers or others with respect to
negligence or faulty performance in connection with the construction or repair
of such improvements. The taking of possession of the Leased Premises by Tenant
shall be conclusive evidence that the Leased Premises were in good and
satisfactory condition at the time such possession was taken, except for the
minor or insubstantial details referred to in Section 4.4. of which Tenant shall
give Landlord notice within thirty (30) days after the commencement date,
specifying such details with reasonable particularity.
ARTICLE V - REPAIR AND MAINTENANCE
5.1. *Once the Leased Premises have been accepted by Tenant which
acceptance shall be deemed conclusive upon the earlier of (a) Tenant's
substantial taking of occupancy; (b) Tenant's payment of any lease obligation;
or (c) the accrual of any lease obligations of Tenant, Landlord shall not be
required to make any improvements or repairs or alterations whatsoever to the
Leased Premises, nor shall Landlord bear liability whether to Tenant or any
invitee, guest, solicitor, or other third party for any defects, including
latent defects with respect to the Leased Premises.
5.2. Tenant shall promptly give Landlord written notice of any damage
which has occurred in the Leased Premises. This Section shall not apply in the
case of damage or destruction by fire or other casualty, which event is covered
elsewhere in this Lease.
ARTICLE VI - TENANT CARE AND REPAIR
6.1. Tenant shall maintain the Leased Premises in a clean, attractive
condition and shall be responsible for all repairs, both to the interior and
exterior, structural or non-structural, ordinary or extraordinary which may be
necessary or proper within the Leased Premises for the lease term.
* Except for (i) Landlord's obligations set forth in the Work Letter attached
to this Lease as Exhibit "C", which are to be performed prior to Tenant's
occupancy and (ii) Landlords service and maintenance obligations under
Article III,
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ARTICLE VII - LATE PAYMENTS
7.1. Payments by Tenant. Tenant agrees to timely pay all obligations
hereunder at the times and in the manner herein provided and to occupy at all
times the Leased Premises. Any rent or other payment due hereunder which is not
paid within five (5) days of the due date shall cause the automatic imposition
of a late charge equal to either the maximum interest allowed by the laws of the
State of Florida on any principal balance, or Ten and 00/100 ($10.00) Dollars
per day, whichever is greater, said late charge shall be deemed additional rent
and shall be paid with the late payment.
ARTICLE VIII - HOLDING OVER
8.1. Subject to any other provisions of this Lease, if Tenant should
remain in possession of the Leased Premises after the termination or expiration
of the term and/or any renewal hereof and without the execution by Landlord and
Tenant of a New Lease, then Tenant shall be deemed to be occupying the Leased
Premises as a tenant at sufferance, subject to all the covenants and obligations
of this Lease and at a daily rental of twice the per day rental in effect
immediately prior to such expiration or termination, computed on the basis of a
thirty (30) day month, but such holding over shall not be deemed an extension or
the lease term.
ARTICLE IX - ALTERATIONS, ADDITIONS AND IMPROVEMENTS
9.1. All of Tenant's fixtures and non-movable office furniture and
equipment attached to the building shall remain the property of the Landlord at
the expiration of the lease term, and Tenant shall promptly repair all damage
caused by removal of any property by Tenant. All property on the Leased
Premises in the nature of trade fixtures and any alteration or addition to the
Leased Premises (including but not limited to wall-to-wall carpeting, drywall
partitions, paneling or other wall covering) and any other article attached or
affixed to the floor, wall or ceiling of the Leased Premises shall become the
property of Landlord and shall be surrendered with the Leased Premises as part
thereof at the termination of this Lease, without payment or compensation
therefor. If, however, Landlord so requests in writing, Tenant will, prior to
vacating the premises upon the termination or expiration of this Lease, remove
any or all alterations, additions, fixtures, equipment and property placed or
installed by it in the Leased Premises and will repair any damage caused by such
removal. Any property of Tenant not removed within five (5) days after
expiration or other termination of this Lease shall be deemed the property of
Landlord and Landlord shall have no duty of any nature to Tenant with respect to
any such property remaining on the Leased Premises regardless of the value, use,
importance, type, quality or quantity of the property and/or its importance to
Tenant or anyone else.
9.2. Tenant shall not have the right to make any alterations or
improvements to the Leased Premises or any part thereof. However, Landlord shall
agree to alterations if each of the following conditions are met:
(a) All plans and specifications for the proposed alteration or
improvement must be submitted to the Landlord for his prior written approval.
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(b) All such alterations or improvements shall be performed by
Landlord at Tenant's expense in accordance with a separate agreement or at
Landlord's discretion any such improvements or alterations by Tenant shall be
done at Tenant's expense, by a licensed contractor approved by Landlord. If
requested by Landlord, Tenant will post a bond or other security reasonably
satisfactory to Landlord to protect Landlord against liens arising from work
performed by Tenant.
(c) No alteration or improvement shall be undertaken until Tenant
shall have procured all permits, licenses and other authorizations, if any,
required for the lawful and proper undertaking thereof. Landlord agrees to join
in the application for such permission or authorization whenever such action is
necessary.
(d) Landlord will complete the Leased Premises substantially in
accordance with the plans and specifications to be approved by both Tenant and
Landlord. In the event the cost of improvements or finishing Leased Premises
exceeds the Landlord's allowance for same, the cost in excess of such allowance
will be paid in advance by the Tenant, the amount of such advance payment to be
determined on the basis of Landlord's estimate of the total cost of finishing
the Leased Premises, such estimates to be based on the aforementioned plans and
specifications. Cost will include but not be limited to direct and indirect
construction cost, permit fees, architectural fees, applicable insurance
premiums, and any other cost directly attributable to finishing the Leased
Premises. Any advance payment received by Landlord from Tenant in excess of
Tenant's portion of the cost of finishing the Leased Premises will be refunded
to Tenant by Landlord after a final accounting of the total cost of said Leased
Premises is completed by Landlord, but in any event, not later than ninety (90)
days after occupancy of the Leased Premises by Tenant.
(e) Landlord makes no representations or warranties as to the
sufficiency of the plans and specifications to meet the requirements of Tenant's
business. Prior to or during Landlord's construction activities, the parties may
agree upon changes in the plans and specifications. If any change in the plans
or specifications increases the cost of work or materials or the time required
for completion of construction, Tenant shall reimburse Landlord for such
increase in cost at the time the increased cost is incurred and shall reimburse
Landlord for any loss in rent at the time the rent would have become due.
(f) Landlord shall not be responsible for any loss for Tenant
improvements at any time.
(g) Tenant, its employees, contractors, agent and invitees shall
not have any claim against Landlord for any bodily injury or property damage
arising during or from construction activities.
(h) All alterations and improvements when completed shall be of
such a nature as not to reduce or otherwise adversely affect the value of the
Leased Premises, nor to diminish the general utility or change the general
character thereof.
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ARTICLE X - ASSIGNMENT AND SUBLETTING
10.1. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law, or otherwise: (a) assign or otherwise transfer this Lease or
the terms and estate hereby granted, or offer or advertise to do so; or (b)
mortgage, encumber, or otherwise hypothecate this Lease or the Leased Premises
or any part thereof in any manner whatsoever, without in each instance obtaining
the prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed.
10.2. In addition to any other reasonable basis, Landlord shall be
deemed to be reasonably withholding its consent to any such assignments, letting
or subletting, if such assignment, letting or subletting would result in the
assignment, leasing or subleasing of,
(a) the Leased Premises to any party, business or tenant who
proposed to conduct a business therein which is not in conformance with the
provisions of paragraph 2 hereof; or
(b) less than the whole of the Leased Premises, or for a term
less than the whole of the term which remains hereunder; or
(c) the Leased Premises to any party, business or tenant who is
then a tenant of the project if the Landlord has or will have during the ensuing
six (6) months suitable space for rent in the building; or
(d) the Leased Premises at a rental rate less than the then
current market rate for comparable premises in the building; and
(e) the Leased Premises to a party whose financial condition and
credit rating in Landlord's sole judgment is not equal to or better than that of
Tenant's; or
(f) the Leased Premises to a party whose business is of a
character which does not, in Landlord's sole opinion, conform with the character
of the Building.
10.3. The provisions of this Section shall apply to a transfer of a
majority of the stock of Tenant as if such transfer were an assignment of this
Lease; but said provisions shall not apply to transactions with a corporation
into or with which Tenant is merged or consolidated or to which substantially
all of Tenant's assets are transferred or to any corporation which controls or
which is controlled by Tenant, or is under common control of Tenant, provided in
any of such events: (a) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal to the
greater of (i) the net worth of Tenant immediately prior to such merger,
consolidated or transfer of (ii) the net worth of Tenant herein named on the
date of this Lease; and (b) proof satisfactory to Landlord of such net worth
shall have been delivered to Landlord at least ten (10) days prior to the
effective date of any such transaction.
10.4. Further, the Landlord may consent to the sublease of all or any
part of the Leased Premises provided the Tenant enters into a sublease
containing the same terms and
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conditions contained herein (exclusive of rent) and the Landlord shall receive
one-half (1/2) of the difference between any higher rent paid by a subtenant and
the rent paid by Tenant.
10.5. Any assignment agreed to by Landlord shall be evidenced by a
validly executed assignment and assumption of lease. Any attempted transfer,
assignment, subletting, mortgaging or encumbering of this Lease in violation of
this Section shall be void and confer no rights upon any third person. Such
attempt shall constitute a material breach of this Lease and entitle Landlord to
the remedies provided for default.
10.6. If without such prior written consent, this Lease is transferred
or assigned by Tenant, or if the Leased Premises, or any part thereof, are
sublet or occupied by anybody other than Tenant, whether as a result of any act
or omission by Tenant, or by operation of law or otherwise, Landlord, whether
before or after the occurrence of an event of default may, in addition to, and
not in diminution of or substitution for, any other rights and remedies under
this Lease or pursuant to law to which Landlord may be entitled as a result
thereof, collect rent from the transferree, assignee, subtenant or occupant and
apply the net amount collected to the rent herein, reserved.
10.7. Tenant shall always, and notwithstanding any such assignment or
subleasing, and notwithstanding the acceptance of rent by Landlord from any
such assignee or subtenant, remain liable for the payment of rent hereunder and
for the performance of all of the agreements, conditions, covenants and terms
herein contained, on the part of Tenant herein to be kept, observed, or
performed, his liability to always be that of principal and not of surety, nor
shall the giving of such consent to an assignment or sublease, be deemed a
complete performance of the said covenants contained in this Article so as to
permit any subsequent assignment or subleasing without the like written consent.
10.8. Notwithstanding the foregoing, where Tenant desires to assign or
sublease, the Landlord shall have the right, but not the obligation, to cancel
and terminate the Lease and deal with Tenant's prospective assignees or
subtenant directly without any obligation to Tenant.
10.9. The Landlord shall have the right to sell, mortgage or otherwise
encumber or dispose of Landlord's interest in the building and Leased Premises
and this Lease without Tenant's prior consent, but subject to non-disturbance of
Tenant's possession, and all other Tenant's rights hereunder.
ARTICLE XI - RULES AND REGULATIONS
11.1. Tenant, its agents, employees, guests and invitees, shall comply
with all Rules and Regulations promulgated by Landlord from time to time with
respect to use of both the Leased Premises and the Common Areas. Tenant
acknowledges receipt of the existing Rules and Regulations which are
incorporated into this Lease as if set forth herein as additional obligations of
Tenant.
11.2. Without notice and without liability to Tenant, Landlord shall
have the right to:
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A. Change the name or street address of the building.
B. Install and maintain signs on the exterior of the building.
C. Make reasonable rules and regulations as, in the judgment of
Landlord, may from time to time be needed for the safety of the tenants, the
care and cleanliness of the building and the preservation of good order therein.
Tenant shall be notified in writing when each such rule and regulation is
promulgated.
D. Grant utility easements or other easements to such parties, or
replat, subdivide or make such other changes in the legal status of the land
underlying the building, as Landlord shall deem necessary, provided such grant
or changes do not substantially interfere with Tenant's use of the Leased
Premises as intended under this Lease.
E. Sell the building and assign this Lease and the deposit to the
purchaser (and upon such assignment to be released from all of its obligations
under this Lease). Tenant agrees both to attorn to such purchaser, or any other
successor or assign of Landlord through foreclosure, deed in lieu of
foreclosure, or otherwise, and to recognize such person as the Landlord under
this Lease, provided Tenant's possession pursuant to this Lease shall remain
non-disturbed.
ARTICLE XII - RELOCATION
12.1. If Landlord determines to utilize the Leased Premises for other
purposes during the term, Tenant agrees to relocate to other space in the
building designated by Landlord, provided such other space is of equal or larger
size than the Leased Premises,* Landlord shall pay all out-of-pocket expenses
of any such relocation, including the expenses of moving and reconstruction of
all Tenant furnished and Landlord furnished improvements. In the event of such
relocation, this Lease shall continue in full force and effect without any
change in the terms or other conditions, but with the new locations substituted
for the old location.
* and with no increase in Base Rent or Additional Rent.
ARTICLE XIII- FLOOR LOADS, NOISE AND VIBRATION
13.1. Tenant shall not place a load upon any floor of the Leased
Premises which exceeds the load per square foot which such floor was designed to
carry or which is allowed by law. Business machines and mechanical equipment
belonging to Tenant, which cause noise or vibrations that may be transmitted to
the structure of the building or to the Leased Premises to such a degree as to
be objectionable by Landlord shall, at the Tenant's expense, be placed and
maintained by Tenant in settings of cork, rubber or spring-type vibration
eliminators sufficient to eliminate such noise or vibration.
ARTICLE XIV - TENANT'S INSURANCE
14.1. Tenant shall, at its sole cost and expense, provide and maintain
during the entire term of this Lease or any extension or renewal thereof,
liability insurance in the single limit of One Million and no/100
($1,000,000.00) Dollars for individual injury and Three Million and no/100
($3,000,000.00) Dollars if injury or death to more than one person, hazard
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insurance with similar coverages to liability insurance, workmen's compensation
insurance in sufficient statutory amounts, and plate glass insurance with
respect to any windows located in the Leased Premises. The original of each such
policy of insurance or certified duplicate thereof issued by the insurance or
insuring organization shall be delivered by Tenant to Landlord on or before ten
(10) days prior to occupancy of the Leased Premises by Tenant and shall list the
Landlord as co-insured for notice purposes. Tenant shall have no interest of any
nature in any insurance policy obtained by Landlord with respect to the Leased
Premises.
ARTICLE XV - NON-LIABILITY AND INDEMNIFICATION
15.1. Neither Landlord nor any beneficiary, agent, servant, or employee
of Landlord, nor any superior lessor nor any superior mortgagee, shall be liable
to Tenant for any loss, injury, or damage to Tenant or to any other person, or
to its or their property, irrespective of the cause of such injury, damage or
loss, unless caused by or resulting from the negligence of Landlord, his agents,
servants or employees in the operation or maintenance of the Leased Premises or
the building, subject to the doctrine of comparative negligence in the event of
contributory negligence on the part of Tenant or any of its subtenants or
licensees or its or their employees, agents or contractors. Tenant recognizes
that any superior mortgagee will not be liable to Tenant for injury, damage, or
loss either caused by, or resulting from the negligence of the Landlord.
Further, neither Landlord, any superior lessor or superior mortgagee, nor any
partner, director, officer, agent, servant, or employee of Landlord shall be
liable: (a) for any such damage caused by other tenants or persons in, upon or
about the building, or caused by operations in constrution of any private,
public or quasi-public work; or (b) even if negligent, for consequential damages
arising out of any loss of use of the Leased Premises or any equipment or
facilities therein by Tenant or any person claiming through or under Tenant.
15.2. The obligations of Landlord under this Lease do not constitute
personal obligations of the individual partners, directors, officers or
shareholders of Landlord, and Tenant shall look solely to the real estate that
is the subject of this Lease and to no other assets of the Landlord for
satisfaction of any liability in respect of this Lease and will not seek
recourse against the individual partners, directors, officers or shareholders of
Landlord or any of their personal assets for such satisfaction.
15.3. The obligations of Tenant hereunder shall not be affected,
impaired or excused, nor shall Landlord have any liability whatsoever to Tenant,
because: (a) Landlord is unable to fulfill, or is delayed in fulfilling any of
his obligations under this Lease by reason of strike, other labor trouble,
governmental pre-emption of priorities or other controls in connection with a
national or other public emergency or shortages of fuel, supplies, labor or
materials, Act of God or any other cause whether similar or dissimilar.
15.4. The Tenant covenants and agrees with Landlord that during the
entire term of this Lease the Tenant will indemnify and save harmless the
Landlord against any and all claims, debts, demands or obligations which may be
made against the Landlord or against the Landlord's title in the premises
arising by reason of any negligent acts or omissions of the Tenant, its
officers, agents or employees in occupying the premises, and if it becomes
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necessary for the Landlord to defend any action seeking to impose any such
liability, the Tenant will pay the Landlord all costs of court and reasonable
attorneys' fees, including appellate fees and costs to defend any claim even in
the absence of litigation, in addition to any other sums which said Landlord may
be called upon to pay by reason of a judgment or decree against the Landlord in
the litigation or other form of claim presentation in which such claim is
asserted.
15.5. Landlord shall not be liable for any damage to Tenant's property
caused by water from bursting or leaking pipes, waste water about the rented
property, or otherwise; or from an intentional or negligent act of any
co-tenant or occupant of the property surrounding the rented property, or other
person, or by fire, hurricane or other Acts of God; or by riots or vandals; or
from any other cause; all such risks shall be assumed by the Tenant.
ARTICLE XVI - DESTRUCTION OR DAMAGE BY FIRE OR OTHER CASUALTY
16.1. (a) In the event of a fire or other casualty in the Leased
Premises, Tenant shall immediately give notice thereof to Landlord. If the
Leased Premises shall be partially destroyed by fire, eminent domain, or other
casualty so as to render the Leased Premises untenantable in whole or in part,
the rental provided for herein shall abate as to the portion of the Leased
Premises rendered untenantable until such times as the Leased Premises are made
tenantable as determined by Landlord, and Landlord agrees to commence and
complete such repair work promptly and with reasonable diligence. In the event
of total or substantial damage or destruction of the building where Landlord
decides not to rebuild, then all rent owed up to the date of such damage or
destruction shall be paid by Tenant and this Lease shall terminate upon notice
thereof to Tenant. Landlord shall give Tenant written notice of its decisions,
estimates or elections under this Article within sixty (60) days after any such
damage or destruction is reported. *Substantial damage or destruction shall be
deemed to exist if the cost of restoration exceeds thirty-five (35%) percent of
the replacement value. The foregoing shall not apply to any casualty damage
caused in whole or in part by the negligence of Tenant, its agents, employees or
invitees.
16.1. (b) Should Landlord elect to effect any repairs under this Lease,
Landlord shall only be obligated to restore or rebuild the Leased Premises to a
building standard condition, and then only to the extent that insurance proceeds
are available to Landlord therefor. In the event that the insurance proceeds
available to Landlord are insufficient to re-construct the Leased Premises to a
condition substantially comparable to that which existed prior to the casualty,
then the Tenant shall have the right to terminate this Lease upon written notice
to Landlord.
ARTICLE XVII - EMINENT DOMAIN
17.1. If the Leased Premises, building, or any part thereof, other than
parking, shall be taken by eminent domain so as to render the Leased Premises
untenantable, then this Lease shall terminate, and all proceeds from any taking
or condemnation, including leasehold value, shall belong to and be paid to
Landlord, Tenant specifically waiving any rights to any eminent domain proceeds.
* In the event Landlord elects not to rebuild or notice of Landlord's decision
is not given to Tenant within the sixty (60) day period, then Tenant shall
have the option to terminate this Lease.
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ARTICLE XVIII - SIGNS
18.1. No signs, symbols, awnings, canopies, advertising or identifying
marks of any kind shall be placed by or on behalf of Tenant anywhere on the
Leased Premises or Common Areas without written approval of Landlord. Landlord
agrees to provide and install, at Tenant's cost, all letters or numerals on the
doors in the Leased Premises. All such letters and numerals shall be in the
building standard graphics.
ARTICLE XIX - DEFAULT
19.1. Each of the following shall be deemed a default by the Tenant and
a breach of this Lease:
(a) The filing of a petition by or against the Tenant for
adjudication as a bankrupt under the Bankruptcy Code, as now or hereinafter
amended or supplemented or for reorganization or arrangement within the meaning
of any chapter of said Bankruptcy Code; the dissolution of or the commencement
of any action or proceeding for the dissolution or liquidation of the Tenant,
whether voluntary or involuntary; the appointment of a receiver or trustee of
the property of the Tenant.
(b) The taking of possession of the premises or property of the
Tenant upon the premises by any governmental officer or agency pursuant to any
statutory authority for any purpose.
(c) The making by the Tenant of any assignment for the benefit of
creditors.
(d) A failure by Tenant to pay any sums due under this Lease
after three (3) days written notice to Tenant.
(e) The failure of Tenant at any time and from time to time to
execute and deliver to the Landlord a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same are in full force and effect as modified and stating the
modifications), certifying the dates to which the rent has been paid, stating
whether or not, the other party is in default in performance of any of its
obligations under this Lease and, if so, specifying each such default and
stating whether or not, any event has occurred which with the giving of notice
or passage of time or both, would constitute such a default, and, if so,
specifying each such event. Any such statement delivered pursuant hereto shall
be deemed a representation and warranty to be relied upon by the party
requesting the certificate and by others with whom such party may be dealing,
regardless of independent investigation. Tenant also shall include in any such
statements such other information concerning this Lease as Landlord may
reasonably request.
(f) Failure of the Tenant to execute any document required by
Landlord in connection with the sale or transfer thereof of Landlord's interest
in filing estoppel letters, consents, subordinations, agreements or other stock
documents provided same will not alter or interfere with Tenant's use of the
premises.
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(g) Tenant's failure to perform any other covenant or condition
of this Lease for a period of ten (10) days after written notice to perform.
(i) No failure on the part of the Tenant in the performance
of contractual work required to be performed or acts to be done on conditions to
be modified shall be deemed to exist if steps shall have, in good faith, been
commenced properly by the Tenant to rectify the same and shall be prosecuted to
completion with diligence and continuity.
(ii) In the event of any default of the Tenant, Landlord may
serve written notice on Tenant that the Landlord elects to terminate this Lease
upon a specified date not less than ten (10) days after the date of service,
except in the case of a default for non-payment of monies due and owing for
which a three (3) day notice is appropriate.
(iii) In the event this Lease shall suffer early termination
as hereinbefore provided, or in the event the Leased Premises or any part
thereof shall be abandoned by the Tenant, the Landlord may, at its option,
re-enter and resume possession of said premises or such part hereof, for the
account of the Tenant, and remove all persons and property therefrom by a
suitable action or proceeding at law, without being liable for any damages
therefor. Moving out of the premises or leaving the premises vacant shall not be
deemed an abandonment of the premises, provided that Tenant continues to comply
with its Lease obligations. No re-entry by the Landlord shall be deemed an
acceptance of the premises for Landlord's benefit or a surrrender of this Lease,
nor shall any such re-entry interfere with Landlord's right to accelerate all
unpaid rentals as set forth in this Lease.
(h) The allowance of any lien for services and/or labor and/or
equipment and/or property of any kind to be filed by any party against the
building or Leased Premises, and Tenant's failure within ten (10) days * to
cure, satisfy or adequately bond such lien so as to free Landlord and the
building or any part thereof from any liability or potential liability in
connection therewith. * following actual knowledge of same
19.2. In the event this Lease is terminated by the default or
abandonment or any fault thereof of the Tenant, the entire amount of the unpaid
balance of rent for the term shall be deemed accelerated and shall be due and
payable immediately. Tenant grants Landlord a security interest in all property
on the Leased Premises as security for the payment of all obligations under this
Lease.
19.3. Notwithstanding any language herein or any other agreements
between Landlord and Tenant in the event of default by Tenant of any obligation
hereunder, any changes, obligation or rentals waived by Landlord as and for a
rental concession shall be deemed immediately due and payable as if no such
concession had ever existed. Tenant's maintenance of all obligations of any
nature hereunder shall be deemed a condition subsequent to Landlord's obligation
to honor any rental concessions.
19.4. If Landlord, at his option, shall relet the Leased Premises
during said period, Landlord shall credit Tenant with the net rents received by
Landlord from such reletting, such net rents to be determined by first deducting
from the gross rents, as and when
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received by Landlord, the expenses incurred or paid by Landlord in terminating
this Lease and/or re-entering the Leased Premises and in securing possession
thereof, as well as the expenses of reletting, including, without limitation,
the alteration and preparation of the Leased Premises for new Tenants, brokers'
commissions, attorneys' fees, and all other expenses properly chargeable against
the Leased Premises and the rental therefrom. It is hereby understood that any
such reletting may be for a period shorter or longer than the remaining term of
this Lease but in no event shall Tenant be entitled to receive any excess of
such net rents over the sum payable by Tenant to Landlord hereunder, nor shall
Tenant be entitled in any suit for the collection of damages pursuant hereto to
a credit in respect of any net rents from a reletting, except to the extent
that such net rents are actually received by Landlord.
19.5. All of Landlord's remedies of any nature shall be deemed
cumulative, and Landlord shall have such other and further remedies available to
him as provided by law.
19.6. Landlord shall not be liable to Tenant for breach of this Lease
for any sums in excess of Tenant's leasehold interest.
19.7. Tenant shall not record this Lease in the Public Records of any
County wherein the Leased Premises are located.
19.8. No receipt and retention by Landlord of any payment tendered by
Tenant in connection with this Lease will give rise to or support or constitute
an accord and satisfaction, notwithstanding any accompanying statement,
instruction or other assertion to the contrary (whether by notation on a check
or in a transmittal letter or otherwise), unless Landlord expressly agrees to an
accord and satisfaction in a separate writing duly executed by the appropriate
persons. Landlord may receive and retain absolutely and for itself, any and all
payments so tendered notwithstanding any accompanying instructions by Tenant to
the contrary. Landlord will be entitled to treat any such payments being
received on account of any item or items of rent interest, expense or damage due
in connection herewith, in such amounts and in such order as Landlord may
determine at its sole option.
19.9. No assent or consent to change in or waiver of any part of this
Agreement shall be deemed or taken as made, unless the same be done in writing
and attached hereon and endorsed by the Landlord. No covenant or term of this
Lease stipulated in favor of the Landlord shall be waived, except by express
written consent of the Landlord, whose forebearance or indulgence in any regard
whatsoever shall not constitute a waiver of the convenant, term or condition to
be performed by the Tenant; and until complete performance by the Tenant of the
said covenant, term or condition, the Landlord shall be entitled to invoke any
remedies available under this Lease or by law despite such forebearance or
indulgence.
ARTICLE XX - SUBORDINATION
20.1. This Lease, its terms, conditions and all leasehold interests and
rights hereunder are expressly made, given and granted subject and subordinate
to the lien of any bona fide first mortgage which the Landlord may secure, and
Tenant agrees to execute any instruments required by the mortgagee to effect any
subordination.
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ARTICLE XXI - ACCESS BY LANDLORD
21.1. Tenant shall permit Landlord or its agents or representatives to
enter into and upon any part of the Leased Premises at all reasonable hours to
inspect same; to clean; to make repairs, alterations or additions thereto as
Landlord may deem necessary or desireable, and to accomplish any of the
foregoing at any time in the event of emergency; to show the Leased Premises to
perspective purchasers or tenants, or for any other purpose deemed reasonable by
Landlord.
ARTICLE XXII - LAWFUL USE OF PREMISES
22.1. Tenant further covenants and agrees that said Leased Premises and
all improvements thereon during the term of this Lease shall be used only and
exclusively for lawful purposes, and that said Tenant will not knowingly use or
offer anyone to use said premises or building for any purpose in violation of
the laws of the United States, the State of Florida, the County of Palm Beach,
or any other governmental unit wherein the premises may be located.
ARTICLE XXIII - QUIET ENJOYMENT
23.1. Landlord covenants that so long as Tenant maintains all
obligations under this Lease, Tenant shall have the right to quietly enjoy and
use the Leased Premises for the term hereof, subject only to the provisions of
this Lease.
ARTICLE XXIV - TENANT FORBIDDEN TO ENCUMBER LANDLORD'S INTEREST
24.1. It is expressly agreed and understood between the parties hereto,
that nothing in this Lease contained shall be construed as empowering the Tenant
to encumber or cause to be encumbered the title or interest of Landlord in the
Leased Premises in any manner whatsoever. In the event that anyone claiming by,
through or under the Tenant shall file a lien against Landlord's interest, the
Tenant within ten (10) days after being notified thereof, shall effect a
discharge of the property from the encumbrances of said lien by the posting of a
bond or other security as prescribed by law or by either payment of the lien or
an order of court having jurisdiction discharging such lien. If Landlord must
take the necessary steps to discharge or render same unenforceable, whether by
litigation or notice to lienor of the lien invalidity, Tenant shall pay all
costs in connection therewith including reasonable attorneys' fees.
ARTICLE XXV - APPLICABLE LAW
25.1. This Lease shall be construed under the laws of the State of
Florida, and venue for any action in connection with the enforcement or
interpretation of this Lease shall be Palm Beach County, Florida. Tenant waives
the right to a trial by jury on any issue so triable.
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ARTICLE XXVI - REPRESENTATIONS AND AGREEMENTS
26.1. Tenant expressly acknowledges and agrees that Landlord has not
made any warranties, representations, promises or statements, except to the
extent that the same are expressly set forth in the Lease and that this Lease
alone fully and completely expresses the parties' agreement.
ARTICLE XXVII - FORCE MAJEUR
27.1. Anything in this Lease to the contrary notwithstanding, Landlord
shall not be deemed in default with respect to the performance of any of the
terms, covenants and conditions of this Lease if same shall be due to any other
cause of any nature beyond Landlord's control, including, but not limited to:
strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, government regulations or
controls, inability to obtain any material, service or financing, or through an
Act of God.
ARTICLE XXVIII - RELATIONSHIP OF THE PARTIES: TENANTS OBLIGATION RE: LICENSE
28.1. Nothing contained in this Lease shall be deemed or construed to
create any relationship between the parties other than that of Landlord and
Tenant.
28.2. Tenant shall be solely and exclusively obligated to obtain and
maintain any and all occupational licenses, professional license and other
licenses, if any, and related certificates of authority to lawfully conduct its
business.
ARTICLE XXIX - PLATE GLASS
29.1. The replacement of any glass and/or plate glass damaged or broken
from any cause whatsoever in the Leased Premises shall be Tenant's
responsibility.
ARTICLE XXX - PROVISIONS RELATING TO INTERPRETATION
30.1. Article, paragraph and section titles to this Lease are intended
only for convenience and for ease of reference, and in no way do such titles
define, limit or in any way affect this Lease or the meaning or contents of any
material contained herein.
ARTICLE XXXI - BROKERAGE
31.1. Tenant covenants, warrants and represents to Landlord that Tenant
has not dealt with any real estate brokers or salesmen in the finding,
negotiation or execution of this Lease unless specifically set forth in writing
on the Face Page of this Lease. Tenant hereby indemnifies Landlord for any
claims, costs or damages arising from any breach of the foregoing covenant,
warranty and representations.
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ARTICLE XXXII - RECOVERY OF LITIGATION EXPENSE
32.1. In the event of any litigation or other dispute arising out of
the terms of this Lease of Tenant's use of the leasehold property or Common
Areas between the Landlord and Tenant, the prevailing party shall recover from
the other costs and expenses including, but not limited to, reasonable
attorneys' fees, including any appellate fees, whether or not litigation is
instituted.
ARTICLE XXXIII- NOTICES
33.1. Any notices required by the law and this Lease shall be in
writing, and the same shall be served by certified mail, return receipt
requested, in postage prepaid envelopes addressed to the following addressees or
such other addressees as may be designated in writing:
AS TO LANDLORD:
Schever International Plaza, Inc.
7280 W. Palmetto Park Road - Suite 201-N
Boca Raton, FL 33433
with a copy to:
Tikal & Associates
178 St. George Street
Toronto, Canada M5R2N2
AS TO TENANT:
Mr. Alan Jacobs
International Capital Growth, Ltd.
7280 W. Palmetto Park Road - Suite 202-N
Boca Raton, FL 33433
ARTICLE XXXIV- MISCELLANEOUS ENTIRE AGREEMENT BINDING EFFECT AND SEVERABILITY
34.1. This Lease shall constitute the entire agreement between Landlord
and Tenant; any and all prior written or prior to contemporaneous oral promises
or
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representations shall be deemed merged herein and superseded by the terms
hereof. This Lease shall not be amended, changed or extended except by written
instrument signed by both parties. The provisions of this Lease shall be binding
upon and inure to the benefit of the heirs, executors, administrators,
successors and assigns of the parties, but this provision shall in no way alter
the restrictions on assignment and subletting applicable to Tenant hereunder.
This Lease shall not be deemed terminated in the event of Tenant's demise. If
any provision of this Lease shall be held invalid or unenforceable, the
remainder of this Lease shall not be affected thereby. Whenever the contract so
requires the use of any gender, it shall be deemed to include all genders and
the use of the plural shall include the singular and the use of the singular
shall include the plural.
IN WITNESS WHEREOF the parties have executed this Lease the day and
year first above written.
WITNESS: SCHEVER INTERNATIONAL PLAZA, INC.
/s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
- ---------------------------- -----------------------------------
General Manager
/s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
- ---------------------------- -----------------------------------
WITNESS: INTERNATIONAL CAPITAL GROWTH, LTD.
/s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
- ---------------------------- -----------------------------------
/s/ [ILLEGIBLE]
- ----------------------------
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RULES AND REGULATIONS
OF
SCHEVER INTERNATIONAL PLAZA
"TENANT" shall refer to the TENANT, its agents, employees, invitees,
licensees or guests.
1. OBSTRUCTION OF COMMON AREAS: The COMMON AREAS, as defined in the
TENANT'S Lease, shall not be obstructed in any manner by the TENANT or used for
any purpose other than ingress and egress to and from the demised premises. Any
walls, partitions, skylights, windows, doors or transoms that reflect or admit
light into the passageways or into any other part of the COMMON AREAS, shall not
be covered or obstructed by any TENANT. No garbage cans, garbage, items for
disposal, supplies, or other articles shall be placed in the COMMON AREAS. All
garbage or other items for disposal shall be placed in the proper receptacles
and never placed in the COMMON AREAS except where specifically designated by
LANDLORD such as in a dumpster or other specifically designated site.
2. SIGNS AND ADVERTISING: No projections, signs or advertising shall be
attached to either the outside walls of the building or any windows, walls or
doorways without the express prior written consent of the LANDLORD. The TENANT
shall not mar, damage, destroy, deface, drill into, paint, string wire across or
engrave any part of the building, common areas, or appurtenances thereto without
the prior written consent of the LANDLORD. LANDLORD shall provide a directory in
the lobby and, upon request, will provide signage to be placed near the entrance
to the leased premises. It is the intention of the LANDLORD to have uniformity
in the signage placed in, on or around the building and/or the COMMON AREAS.
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3. KEYS: The LANDLORD shall retain a pass key to TENANT'S premises. No
TENANT shall alter any lock or install a new lock or a knocker on any door of
the demised premises without the express prior written consent of the LANDLORD.
In the event consent is given, the TENANT shall provide the LANDLORD with
additional keys to any new locks. All keys to both the leased premises and other
COMMON AREAS, including but not limited to the bathroom pass keys, storage pass
keys, etc., shall be returned to the LANDLORD at the termination of the Lease.
There shall be a Ten and no/100 ($10.00) Dollar charge per key for each key not
returned to the LANDLORD, which sums may be deducted from TENANT'S security
deposit.
4. LOITERING: The TENANT shall not allow neither littering nor
loitering in the COMMON AREAS by its agents, employees, or invitees.
5. NOISES: TENANT shall not make or allow any of its agents, employees
or invitees to make or permit any disturbing noises in the building nor permit
anything that will interfere with the rights, comforts or convenience of other
tenants. This prohibition shall include but not be limited to musical
instruments, radios, talking machines or any other mechanical or human sounds
which can be heard beyond the leased premises.
6. PETS AND ODORS: No pets or animals of any kind shall be brought
into, kept or harbored in the leased premises or any part of the COMMON AREAS at
any time. No TENANT shall cause or permit any unusual or objectionable odors to
be produced upon or permeate from the leased premises.
7. EQUIPMENT INSTALLATION AND REMOVAL: TENANT shall be liable for all
damages which may be caused by the taking in, moving or removing of furniture or
other equipment to and from the building. All installations or removal of
equipment or furniture or other bulky matter of any description must take place
during the hours which the
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LANDLORD or its agent may determine from time to time. The manager must be
notified of installations or removals prior to the time of its performance.
8. ROOF: At no time is the TENANT allowed on the roof or allowed to use
the roof for any purpose whatsoever.
9. BATHROOMS AND FIXTURES: The bathrooms and other water apparatus
shall not be used for any other purpose than those for which they are
constructed. Damages for misuse shall be borne by the TENANT who, or whose
agents, employees, or invitees shall have caused the damages.
10. SOLICITATION: There shall be no solicitation, canvassing or
peddling in the building of the leased premises or any other COMMON AREAS or
other part of the building at any time, and each tenant shall cooperate in
preventing same by any other persons.
11. HOURS OF OPERATION: LANDLORD reserves the right to close the
building after 6:00 PM subject, however, to admittance under regulations
prescribed by the LANDLORD. After normal business hours, persons entering the
building may be required to identify themselves and/or establish their right to
ingress or egress by use of identification card, building entry card or some
such other electronic or mechanical device. In the case of invasion, riot,
public excitement, or other commotion, LANDLORD reserves the right to prevent
any access to the building during the continuance of same. At no time shall
LANDLORD be liable for damages which may arise from either the admission or
exclusion of any person to or from the building.
12. PARKING: TENANT and all other occupants of the building shall have
access to the parking area through common driveways. The common parking areas
EXCLUSIVE OF RESERVED PARKING are non-exclusive and available to all tenants and
their employees, licensees and guests. LANDLORD may at any time, designate for
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TENANT'S use reasonable parking space in the COMMON AREAS, provided that the
total number of parking spaces is not reduced. No commercial or recreational
vehicles shall be parked on the premises except those vehicles parked on a
temporary basis while delivering, repairing or servicing the building and/or the
TENANTS.
13. DANGEROUS SUBSTANCES AND MACHINERY: No TENANT nor any of TENANT'S
agents, employees or invitees shall, at any time, bring or keep upon the leased
premises or other COMMON AREAS any inflammable, combustible or explosive fluid,
chemical or substance. No article deemed as extra hazardous on account of fire
or explosion shall be brought upon the premises. TENANT shall not operate or
permit to be operated any steam engines, boilers, mechanical machinery or
electric or gas stoves without LANDLORD'S prior written consent. TENANT shall
not use any combustible fluids for any reason within the premises without the
express written consent of LANDLORD.
14. VERMIN INFESTATION: If the leased premises become infested with
vermin, bugs or other infestation, TENANT, at its sole cost and expense, shall
cause the leased premises to be exterminated which may be continued from time to
time to the satisfaction of LANDLORD. Any extermination services utilized shall
be approved in writing by the LANDLORD prior to commencement of extermination
services.
15. FOOD PREPARATION: TENANT shall not allow the preparation of food
for general consumption on the premises nor use the facilities for the
preparation of food without prior written consent of LANDLORD. TENANT shall not
use the premises for houseing, lodging, sleeping nor any other immoral or
illegal purpose. The foregoing shall not be deemed to cover the use of a
refrigerator, or a microwave oven by TENANT for the benefit of TENANT, its
agents and/or employees.
16. CLEANING SERVICES: TENANT shall permit LANDLORD'S employees (or
LANDLORD'S agent's employees) entry into the leased premises for purposes of
the care and
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cleaning of same after 5:30 PM without hindrance, and TENANT shall not employ
any persons other than LANDLORD'S employees, agent, etc., for such purpose
without the prior written consent of LANDLORD. No TENANT shall cause any
unnecessary labor by reason of such TENANT'S carelessness or indifference with
respect to the preservation of good order and cleanliness in the leased
premises. Any outside services employed by TENANT with consent of LANDLORD for
purposes of cleaning shall be at TENANT'S sole cost and expense.
17. MODIFICATIONS TO RULES: These Rules and Regulations may be changed
from time to time by LANDLORD without prior notice being given to TENANT as
LANDLORD may, in its absolute discretion, determine as necessary and
appropriate. LANDLORD will endeavor to notify TENANT of amendments or changes in
the Rules and Regulations as expeditiously as possible. Violation or breach of
these Rules and Regulations shall constitute a breach of the lease agreement and
TENANT shall be liable for any damage caused thereby.
18. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of LANDLORD. No drapes,
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 consent of LANDLORD.
Such awnings, projections, curtains, blinds, screens or other fixtures must be
of a quality, type, design and color and attached in the manner approved by
LANDLORD. Notwithstanding the foregoing, and notwithstanding any provision of
this Lease to the contrary, TENANT, from time to time, will be permitted to
install floor to ceiling drapes on the exterior windows of the Premises; said
drapes shall be submitted to LANDLORD for LANDLORD's approval.
TENANT HEREBY ACKNOWLEDGES RECEIPT OF A COPY OF THE FOREGOING RULES AND
REGULATIONS AT THE TIME OF EXECUTING THE LEASE AGREEMENT.
International Capital Growth, Ltd.
/s/ [ILLEGIBLE]
----------------------------------
TENANT
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GUARANTY
THIS GUARANTY AGREEMENT made and entered between SCHEVER INTERNATIONAL
PLAZA, INC. (Landlord), and Capital Growth Holdings, Ltd. (Guarantor).
WITNESSETH:
1. WHEREAS, the above-referenced Guarantor has requested Landlord to
execute and deliver a lease to International Capital Growth, Ltd. (Tenant); and,
2. WHEREAS, the undersigned Guarantor has agreed to execute this
Guaranty as partial consideration to Landlord in order to induce the Landlord to
execute and deliver the aforesaid Lease to Tenant; and,
3. WHEREAS, Guarantor is involved with the Tenant which involvement
constitutes part of the consideration to Guarantor for the execution of this
Guaranty.
4. WHEREAS, the undersigned is signing this Guaranty in his individual
capacity regardless of any other verbiage which may appear attempting to
designate a corporate capacity; and,
NOW, THEREFORE, in consideration of the foregoing and other
consideration receipt of which is acknowledged by Guarantor, it is agreed as
follows:
1. The undersigned (if more than one, then jointly and severally) do
hereby guarantee to the Landlord (and to any mortgagee holding a mortgage upon
the interest of Landlord) the due and punctual payment of all monetary
obligations pursuant to said Lease and any amendment thereof, as well as full,
prompt and complete payment and/or performance by Tenant of any other
convenants, conditions or provisions of the Lease as if the undersigned were the
named Tenant in the Lease. The undersigned will forthwith pay without the
necessity of prior demand, any and all amounts due and owing under said Lease
for the full term thereof, plus any options, addenda or extensions. The granting
of any such options, addenda or extensions shall not defeat this Guaranty even
if Guarantor has not received notice of any such options, extensions, or
addenda.
2. This Guaranty is absolute, continuing, and unlimited and Landlord
shall not be required to take any proceedings against Tenant or give any notice
to Guarantor before Landlord has the right to demand payment or performance by
Guarantor upon default by Tenant. This Guaranty shall in no way be impaired or
affected by any assignment of the Lease, subletting of the Leased premises, any
extension of payment, forebearance or delay in enforcing any of the terms,
conditions and covenants of Lease, bankruptcy or receivership (either voluntary
or involuntary) of Tenant, assignment by Tenant for the benefit of creditors, or
the rejection or affirmance of this Lease in any legal proceedings.
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3. No recovery or collection under this Guaranty shall be a bar or
defense to further action against the Tenant in the event of subsequent default.
4. There shall be no modifications of any nature of the terms of this
Guaranty unless same be in writing and signed by the Landlord. Guarantor
strictly waives any reliance upon oral statements, representations or conduct,
and further agrees that only written modification shall be legally permissible.
5. All of the terms, agreements and conditions of this Guaranty shall
be binding upon the undersigned, their heirs, executors, administrators and
assigns, and shall inure to the benefit of the Landlord, its successors and
assigns, and to any future owner of the fee simple of the premises referred to
in the Lease, and to any mortgagee of the underlying fee title.
6. In the event of any litigation arising out of this Guaranty, in the
event Landlord prevails, it shall be entitled to recoup all costs incurred
including reasonable attorneys' fees.
IN WITNESS WHEREOF, the undersigned have set their signatures and seals
on the 11 day of September, 1998.
Address: 7280 W. Palmetto Park Road Capital Growth Holdings, Ltd.
Suite 202
Boca Raton, FL 33433 /s/ [ILLEGIBLE]
--------------------------------
Guaranty
Federal I.D. # 06-1448657
- -------------------------
2
<PAGE>
AMENDMENT TO RULES AND REGULATIONS
OF SCHEVER INTERNATIONAL PLAZA, INC.
The following is an amendment to the Rules and Regulations of SCHEVER
INTERNATIONAL PLAZA, INC. pursuant to the rule making authority of SCHEVER
INTERNATIONAL PLAZA, INC. {SCHEVER INTERNATIONAL PLAZA, INC. is hereinafter
referred to as the "LANDLORD"}.
The term "TENANT" shall have the meaning already assigned to said term
pursuant to the existing Rules and Regulations of LANDLORD and any and all
existing Lease Agreements in effect.
1. ACCESS CARDS: Access Cards {the term "Access Cards" shall be defined
to mean Access Cards issued in accordance with a Lease and also Revocable
Temporary Access Cards} may be issued by the LANDLORD for the benefit of the
TENANT with reference to parking areas. The TENANT is responsible for such
Access Cards. There shall be a $35.00 charge to replace any Access Card. The
number of Access Cards issued by LANDLORD to the TENANT shall be determined by
the LANDLORD and the TENANT in the Lease. Revocable Temporary Access Cards may
be issued by the LANDLORD to the TENANT on a temporary basis at the discretion
of the LANDLORD. Revocable Temporary Access Cards issued by the LANDLORD to the
TENANT may be revoked by the LANDLORD at any time, and from time to time, with
or without cause. Upon written notice of such revocation, the TENANT shall
immediately {within three days} surrender to the LANDLORD any such Revocable
Temporary Access Cards. LANDLORD shall charge $35.00 per month {plus applicable
taxes} for each Revocable Temporary Access Card. Such charge shall be deemed to
be additional rent and shall be the responsibility of the TENANT. Non- payment
of such charge shall be the same as non-payment of rent. LANDLORD shall have the
right to increase the charge for Revocable Temporary Access Cards from time to
time and as appropriate. In the event the TENANT does not wish to pay any such
increased amount for such Revocable Temporary Access Cards, TENANT may surrender
same to LANDLORD together with written notice that TENANT has elected not to
utilize same. Any monthly charge prior to the surrender of a Revocable Temporary
Access Card shall be prorated and paid as additional rent. LANDLORD shall also
have the right to require that TENANT furnish in writing upon request:
{a} The number of parking spaces that the TENANT is presently
utilizing.
{b} The number of Access Cards that the TENANT presently possesses.
{c} The names of any and all employees of TENANT that utilize Access
Cards.
The failure of the TENANT to furnish such information within seven {7} days from
the date of receipt of such written request by Landlord shall constitute a
violation of the Rules and Regulations of LANDLORD. In the event of any such
violation, the LANDLORD shall have the remedies prescribed pursuant to the
existing Rules and Regulations; the Lease; and, the laws of the State of
Florida.
2. The effective date for this Rule shall be June 15, 1997.
INTERNATONAL CAPITAL GROWTH, LTD. SCHEVER INTERNATIONAL PLAZA, INC.
By: /s/ Michael S. Jacobs By: /s/ Ingrid Franke
------------------------ ------------------------------
Name: Michael S. Jacobs Name: Ingrid Franke
Title: Managing Director Title: General Manager
<PAGE>
Exhibit "A"
[Floor Plan Gaphic Omitted]
<PAGE>
EXHIBIT B
OPTION TO EXTEND
- ----------------
Tenant is hereby granted an option to extend the Term for a single
additional period of three {3} consecutive Lease Years {"Extension Period"}, on
the same terms and conditions in effect under the Lease immediately prior to the
Extension Period, except that Tenant shall have no further right to extend, and
monthly Base Rent shall be increased to the Prevailing Rental Rate. The option
to extend may be exercised only by giving Landlord irrevocable and unconditional
written notice thereof no earlier than one year and no later than six months
prior to the commencement of the Extension Period. Said exercise shall, at
Landlord's election, be null and void if Tenant is in default under the Lease at
the date of said notice or at any time thereafter and prior to commencement of
the Extension Period. The term "Lease Year" herein means each twelve month
annual period, commencing with the first day of the Extension Period, without
regard to calendar years.
If Tenant shall fail to exercise the option herein provided, said
option shall terminate, and shall be null and void and of no further force and
effect. Tenant's exercise of said option shall not operate to cure any default
by Tenant of any of the terms or provisions in the Lease, nor to extinguish or
impair any rights or remedies of Landlord arising by virtue of such default. If
the Lease or Tenant's right to possession of the Premises shall terminate in any
manner whatsoever before Tenant shall exercise the option herein provided, or if
Tenant shall have subleased or assigned all or any portion of the Premises, then
immediately upon such termination, sublease or assignment, the option herein
granted to extend the Term, shall simultaneously terminate and become null and
void. Such option is personal to Tenant and shall be extended to an entity owned
or controlled Tenant. Under no circumstances whatsoever shall the assignee under
a complete or partial assignment of the lease, or a subtenant under a sublease
of the Premises, have any right to exercise the option to extend granted herein.
Time is of the essence of this provision.
LANDLORD: SCHEVER INTERNATIONAL
PLAZA, INC.
/s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE]
- ------------------------ ----------------------------------
/s/ [ILLEGIBLE] BY:
- ------------------------ ----------------------------------
TENANT: INTERNATIONAL CAPITAL
GROWTH, LTD.
/s/ [ILLEGIBLE] BY: /s/ Michael S. Jacobs
- ------------------------ ----------------------------------
PRINT NAME AND TITLE
Michael J. Jacobs
Managing Director
<PAGE>
EXHIBIT "C"
THIS WORK LETTER AGREEMENT (this "Work Letter") is attached to and
made part of the certain Office Lease Agreement (the "Lease") dated the 14th day
of September, 1998, by and between SCHEVER INTERNATIONAL PLAZA, INC.
("Landlord") and INTERNATIONAL CAPITAL GROWTH, LTD. ("Tenant"). The terms,
definitions and other provisions of the Lease are hereby incorporated into this
Work Letter by reference.
IN CONSIDERATION OF the execution of the Lease and the mutual covenants
and conditions hereinafter set forth, Landlord and Tenant agree as follows:
1. Tenant agrees to accept possession of the Premises in "As Is"
condition as of the Commencement Date, except that Landlord agrees to complete
the following improvements at Landlord's expense. Any other Tenant Improvements
required by Tenant shall be performed at Tenant's sole cost.
a) Paint premises with building standard paint in Tenant's choice of
color.
b) Steam clean existing carpet.
c) remove built-in furniture.
2. Ratification. Except as expressly modified by the provisions hereof,
the Lease is in full force and effect.
EXECUTED by the parties hereto as of the date first above written.
WITNESSES: LANDLORD:
SCHEVER INTERNATIONAL PLAZA, INC.
/s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE]
- ------------------------ ----------------------------------
General Manager
/s/ [ILLEGIBLE]
- ------------------------
TENANT:
INTERNATIONAL CAPITAL GROWTH, LTD.
/s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE]
- ------------------------ ----------------------------------
/s/ [ILLEGIBLE]
- ------------------------
<PAGE>
DISCLOSURE AND ACKNOWLEDGEMENT
The undersigned International Capital Growth, Ltd. (hereinafter referred to as
the "TENANT" has executed a Lease Agreement with SCHEVER INTERNATIONAL PLAZA,
INC. (hereinafter referred to as "LANDLORD") with reference to a portion of the
real property in the development known as SCHEVER INTERNATAIONAL PLAZA, Boca
Raton, Florida (more fully described in the Standard Lease Agreement). TENANT
acknowledges that the Lease Agreement and the Rules prohibit the TENANT from
having pet(s) on or about the development. The TENANT further acknowledges and
agrees that the Agent for the LANDLORD has a pet and that said pet is on and
about the property on a daily basis with the Agent. TENANT agrees that such
activities by the Agent are acceptable to the TENANT. The TENANT further agrees
that the TENANT shall not attempt, or implement, any procedure to impose
liability of any type or character against the LANDLORD, or the Agent for the
LANDLORD, because the Agent for the LANDLORD has a pet on the property.
LANDLORD
WITNESSES SCHEVER INTERNATIONAL PLAZA, INC.
/s/ Ingrid Fulmer BY: /s/ Ingrid Franke
- ------------------------ ----------------------------------
Name Name: Ingrid Franke
Print Name: Ingrid Fulmer Title: General Manager
/s/ Stephanie Yost
- ------------------------
Name
Print Name: Stephanie Yost
TENANT
WITNESSES INTERNATIONAL CAPITAL GROWTH, LTD.
/s/ Monique MacLaren BY: /s/ Michael S. Jacobs
- ------------------------ ----------------------------------
Name Name: Michael S. Jacobs
Print Name: Monique MacLaren Title: General Manager
/s/ Lachlan MacLaren
- ------------------------
Name
Print Name: Lachlan MacLaren
<PAGE>
ARVIDA REALTY SALES, LTD.
COMMERCIAL DIVISION
7900 GLADES ROAD
P.O. BOX 100
BOCA RATON, FLORIDA 33429
TELEPHONE: (407) 479-1225
LICENSED REAL ESTATE BROKERS
REAL ESTATE AGENCY DISCLOSURE
SELLER/LESSOR: SCHEVER INTERNATIONAL PLAZA INC.
BUYER(S)/LESSEE: INTERNATIONAL CAPITAL GROWTH, LTD.
PROPERTY: 7280 W. Palmetto Park Road, Boca Raton, FL 33433
SALESPERSON: Ingrid Fulmer/Andrea Raskin-Lapis
ARVIDA REALTY SALES, LTD. and the Salesperson (together "ARSL") hereby disclose
to the Buyer/Lessee that ARSL is acting as the real estate broker,
broker-salesperson with respect to the purchase or lease (as applicable) of the
Property solely on behalf of Seller/Lessor as an (check one) __xx__ agent ___
employee ___ independent contractor. Accordingly, ARSL undertakes no duty of
disclosure, representation or otherwise to Buyer/Lessee in this transaction.
This Disclosure is given in accordance with Rule 21V-10, 033, Florida
Administrative Code.
The undersigned acknowledges receipt of
this Disclosure prior to the under-
signed's execution of the contract or
lease (as applicable) for the subject
transaction.
/s/ Michael S. Jacobs
----------------------------
Buyer/Lessee
- --------------------------------
Buyer/Lessee
Date: 9/11/98
--------------------------
EXHIBIT 10.6
--------------------------------------
MICROCAP FINANCIAL SERVICES.COM, INC.
1998 STOCK OPTION PLAN
--------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of
MICROCAP FINANCIAL SERVICES.COM, INC., a Delaware corporation (the "Company"),
by providing an additional incentive to attract, retain and motivate highly
qualified and competent persons who are key to the Company, including key
employees, consultants, independent contractors, Officers and Directors, and
upon whose efforts and judgment the success of the Company and its Subsidiaries
is largely dependent, by authorizing the grant of options to purchase Common
Stock of the Company to persons who are eligible to participate hereunder,
thereby encouraging stock ownership in the Company by such persons, all upon and
subject to the terms and conditions of this Plan.
2. DEFINITIONS. As used herein, the following terms shall have the
meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean any of the following:
(i) a determination by the Company that there has
been a willful, reckless or grossly negligent failure by the Optionee to perform
his or her duties as an employee of the Company;
(ii) a determination by the Company that there has
been a willful breach by the Optionee of any of the material terms or provisions
of any employment agreement between such Optionee and the Company;
(iii) any conduct by the Optionee that either results
in his or her conviction of a felony under the laws of the United States of
America or any state thereof, or of an equivalent crime under the laws of any
other jurisdiction;
(iv) a determination by the Company that the Optionee
has committed an act or acts involving fraud, embezzlement, misappropriation,
theft, breach of fiduciary duty or material dishonesty against the Company, its
properties or personnel;
(v) any act by the Optionee that the Company
determines to be in willful or wanton disregard of the Company's best interests,
or which results, or is intended to result, directly or indirectly, in improper
gain or personal enrichment of the Optionee at the expense of the Company;
(vi) a determination by the Company that there has
been a willful, reckless or grossly negligent failure by the Optionee to comply
with any rules, regulations, policies or procedures of the Company, or that the
Optionee has engaged in any act, behavior or
<PAGE>
conduct demonstrating a deliberate and material violation or disregard of
standards of behavior that the Company has a right to expect of its employees;
or
(vii) if the Optionee, while employed by the Company
and for two years thereafter, violates a confidentiality and/or noncompete
agreement with the Company, or fails to safeguard, divulges, communicates, uses
to the detriment of the Company or for the benefit of any person or persons, or
misuses in any way, any Confidential Information; PROVIDED, HOWEVER, that, if
the Optionee has entered into a written employment agreement with the Company
which remains effective and which expressly provides for a termination of such
Optionee's employment for "cause," the term "Cause" as used herein shall have
the meaning as set forth in the Optionee's employment agreement in lieu of the
definition of "Cause" set forth in this Section 2(b).
(c) "Change of Control" shall mean the acquisition by any
person or group (as that term is defined in the Exchange Act, and the rules
promulgated pursuant to that act) in a single transaction or a series of
transactions of thirty percent (30%) or more in voting power of the outstanding
stock of the Company and a change of the composition of the Board of Directors
so that, within two years after the acquisition took place, a majority of the
members of the Board of Directors of the Company, or of any corporation with
which the Company may be consolidated or merged, are persons who were not
directors or officers of the Company or one of its Subsidiaries immediately
prior to the acquisition, or to the first of a series of transactions which
resulted in the acquisition of thirty percent (30%) or more in voting power of
the outstanding stock of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean the stock option committee
appointed by the Board or, if not appointed, the Board.
(f) "Common Stock" shall mean the Company's Common Stock, par
value $.001 per share.
(g) "Director" shall mean a member of the Board.
(h) "Employee" shall mean any person, including officers,
directors, consultants and independent contractors employed by the Company or
any parent or Subsidiary of the Company within the meaning of Section 3401(c) of
the regulators promulgated thereunder.
(i) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(j) "Fair Market Value" of a Share on any date of reference
shall be the Closing Price of a share of Common Stock on the business day
immediately preceding such date, unless the Committee in its sole discretion
shall determine otherwise in a fair and uniform manner. For this purpose, the
"Closing Price" of the Common Stock on any business day shall be (i) if the
Common Stock is listed or admitted for trading on any United States national
2
<PAGE>
securities exchange, or if actual transactions are otherwise reported on a
consolidated transaction reporting system, the last reported sale price of the
Common Stock on such exchange or reporting system, as reported in any newspaper
of general circulation, (ii) if the Common Stock is quoted on The Nasdaq Stock
Market ("Nasdaq"), or any similar system of automated dissemination of
quotations of securities prices in common use, the mean between the closing high
bid and low asked quotations for such day of the Common Stock on such system, or
(iii) if neither clause (i) nor (ii) is applicable, the mean between the high
bid and low asked quotations for the Common Stock as reported by the National
Quotation Bureau, Incorporated if at least two securities dealers have inserted
both bid and asked quotations for the Common Stock on at least five of the 10
preceding days. If the information set forth in clauses (i) through (iii) above
is unavailable or inapplicable to the Company (e.g., if the Company's Common
Stock is not then publicly traded or quoted), then the "Fair Market Value" of a
Share shall be the fair market value (i.e., the price at which a willing seller
would sell a Share to a willing buyer when neither is acting under compulsion
and when both have reasonable knowledge of all relevant facts) of a share of the
Common Stock on the business day immediately preceding such date as the
Committee in its sole and absolute discretion shall determine in a fair and
uniform manner.
(k) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Code.
(l) "Non-Statutory Stock Option" or "Nonqualified Stock
Option" shall mean an Option which is not an Incentive Stock Option.
(m) "Officer" shall mean the Company's chairman, president,
principal financial officer, principal accounting officer (or, if there is no
such accounting officer, the controller), any vice-president of the Company in
charge of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy-making
function, or any other person who performs similar policy-making functions for
the Company. Officers of Subsidiaries shall be deemed Officers of the Company if
they perform such policy-making functions for the Company. As used in this
paragraph, the phrase "policy-making function" does not include policy-making
functions that are not significant. Unless specified otherwise in a resolution
by the Board, an "executive officer" pursuant to Item 401(b) of Regulation S-K
(17 C.F.R. /section/ 229.401(b)) shall be only such person designated as an
"Officer" pursuant to the foregoing provisions of this paragraph.
(n) "Option" (when capitalized) shall mean any stock option
granted under this Plan.
(o) "Optionee" shall mean a person to whom an Option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(p) "Plan" shall mean this 1998 Stock Option Plan of the
Company, which Plan shall be effective upon approval by the Board, subject to
approval, within 12 months of the date thereof by holders of a majority of the
Company's issued and outstanding Common Stock of the Company.
3
<PAGE>
(q) "Share" or "Shares" shall mean a share or shares, as the
case may be, of the Common Stock, as adjusted in accordance with Section 10 of
this Plan.
(r) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AND OPTIONS. Subject to adjustment in accordance with Section
10 hereof, the Company may grant to Optionees from time to time Options to
purchase an aggregate of up to Ten Million (10,000,000) Shares from Shares held
in the Company's treasury or from authorized and unissued Shares. If any Option
granted under this Plan shall terminate, expire, or be canceled, forfeited or
surrendered as to any Shares, the Shares relating to such lapsed Option shall be
available for issuance pursuant to new Options subsequently granted under this
Plan. Upon the grant of any Option hereunder, the authorized and unissued Shares
to which such Option relates shall be reserved for issuance to permit exercise
under this Plan. Subject to the provisions of Section 14 hereof, an Option
granted hereunder shall be either an Incentive Stock Option or a Non-Statutory
Stock Option as determined by the Committee at the time of grant of such Option
and shall clearly state whether it is an Incentive Stock Option or Non-Statutory
Stock Option. All Incentive Stock Options shall be granted within 10 years from
the effective date of this Plan.
4. LIMITATIONS. Options otherwise qualifying as Incentive Stock Options
hereunder will not be treated as Incentive Stock Options to the extent that the
aggregate Fair Market Value (determined at the time the Option is granted) of
the Shares, with respect to which Options meeting the requirements of Code
Section 422(b) are exercisable for the first time by any individual during any
calendar year (under all stock option or similar plans of the Company and any
Subsidiary), exceeds $100,000.
5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law. Optionees
shall be those persons selected by the Committee from the class of all regular
Employees of the Company or its Subsidiaries, including Employee Directors and
Officers who are regular or former regular employees of the Company, Directors
who are not regular employees of the Company, as well as consultants to the
Company. Any person who files with the Committee, in a form satisfactory to the
Committee, a written waiver of eligibility to receive any Option under this Plan
shall not be eligible to receive any Option under this Plan for the duration of
such waiver.
(b) In granting Options, the Committee shall take into
consideration the contribution the person has made, or is expected to make, to
the success of the Company or its Subsidiaries and such other factors as the
Committee shall determine. The Committee shall also
4
<PAGE>
have the authority to consult with and receive recommendations from Officers and
other personnel of the Company and its Subsidiaries with regard to these
matters. The Committee may from time to time in granting Options under this Plan
prescribe such terms and conditions concerning such Options as it deems
appropriate, including, without limitation, (i) the exercise price or prices of
the Option or any installments thereof, (ii) prescribing the date or dates on
which the Option becomes and/or remains exercisable, (iii) providing that the
Option vests or becomes exercisable in installments over a period of time,
and/or upon the attainment of certain stated standards, specifications or goals,
(iv) relating an Option to the continued employment of the Optionee for a
specified period of time, or (v) conditions or termination events with respect
to the exercisability of any Option, provided that such terms and conditions are
not more favorable to an Optionee than those expressly permitted herein;
provided, however, that to the extent not cancelled pursuant to Section 9(b)
hereof, upon a Change in Control, any Options that have not yet vested, may, in
the sole discretion of the Committee, vest upon such Change in Control.
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither this
Plan nor any Option granted under this Plan shall confer upon any person any
right to employment or continuance of employment (or related salary and
benefits) by the Company or its Subsidiaries.
6. EXERCISE PRICE. The exercise price per Share of any Option shall be
any price determined by the Committee but shall not be less than the par value
per Share; provided, however, that in no event shall the exercise price per
Share of any Incentive Stock Option be less than the Fair Market Value of the
Shares underlying such Option on the date such Option is granted and, in the
case of an Incentive Stock Option granted to a 10% stockholder, the per Share
exercise price will not be less than 110% of the Fair Market Value in accordance
with Section 14 of this Plan. Re-granted Options, or Options which are canceled
and then re-granted covering such canceled Options, will, for purposes of this
Section 6, be deemed to have been granted on the date of the re-granting.
7. EXERCISE OF OPTIONS.
(a) An Option shall be deemed exercised when (i) the Company
has received written notice of such exercise in accordance with the terms of the
Option, (ii) full payment of the aggregate option price of the Shares as to
which the Option is exercised has been made, (iii) the Optionee has agreed to be
bound by the terms, provisions and conditions of any applicable stockholders'
agreement, and (iv) arrangements that are satisfactory to the Committee in its
sole discretion have been made for the Optionee's payment to the Company of the
amount that is necessary for the Company or the Subsidiary employing the
Optionee to withhold in accordance with applicable Federal or state tax
withholding requirements. Unless further limited by the Committee in any Option,
the exercise price of any Shares purchased pursuant to the exercise of such
Option shall be paid in cash, by certified or official bank check, by money
order, with Shares or by a combination of the above; provided, however, that the
Committee in its sole discretion may accept a personal check in full or partial
payment of any Shares. If the exercise price is paid in whole or in part with
Shares, the value of the Shares surrendered shall be their
5
<PAGE>
Fair Market Value on the date the Option is exercised. The Company in its sole
discretion may, on an individual basis or pursuant to a general program
established by the Committee in connection with this Plan, lend money to an
Optionee to exercise all or a portion of the Option granted hereunder. If the
exercise price is paid in whole or part with the Optionee's promissory note,
such note shall (i) provide for full recourse to the maker, (ii) be
collateralized by the pledge of the Shares that the Optionee purchases upon
exercise of such Option, (iii) bear interest at a rate no less than the rate of
interest payable by the Company to its principal lender, and (iv) contain such
other terms as the Committee in its sole discretion shall require. No Optionee
shall be deemed to be a holder of any shares subject to an Option unless and
until a stock certificate or certificates for such shares are issued to the
person(s) under the terms of this Plan. No adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or property)
or distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 10
hereof.
(b) No Optionee shall be deemed to be a holder of any Shares
subject to an Option unless and until a stock certificate or certificates for
such Shares are issued to such person(s) under the terms of this Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 10 hereof.
8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in
such amounts, at such intervals, upon such events or occurrences and upon such
other terms and conditions as shall be provided in an individual Option
agreement evidencing such Option, except as otherwise provided in Section 5(b)
or this Section 8.
(a) The expiration date(s) of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise expressly provided in any Option as
approved by the Committee, notwithstanding the exercise schedule set forth in
any Option, each outstanding Option, may, in the sole discretion of the
Committee, become fully exercisable upon the date of the occurrence of any
Change of Control, but, unless otherwise expressly provided in any Option, no
earlier than six months after the date of grant, and if and only if Optionee is
in the employ of the Company on such date.
(c) The Committee may in its sole discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to any Option or previously acquired by the exercise of any
Option.
6
<PAGE>
9. TERMINATION OF OPTION PERIOD.
(a) Unless otherwise expressly provided in any Option, the
unexercised portion of any Option shall automatically and without notice
immediately terminate and become forfeited, null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the
Optionee's employment is terminated for any reason other than by reason of (A)
Cause, (B) the termination of the Optionee's employment with the Company by such
Optionee following less than 60 days' prior written notice to the Company of
such termination (an "Improper Termination"), (C) a mental or physical
disability (within the meaning of Section 22(e) of the Code) as determined by a
medical doctor satisfactory to the Committee, or (D) death;
(ii) immediately upon (A) the termination by the
Company of the Optionee's employment for Cause, or (B) an Improper Termination;
(iii) one year after the date on which the Optionee's
employment is terminated by reason of a mental or physical disability (within
the meaning of Code Section 22(e)) as determined by a medical doctor
satisfactory to the Committee or the later of three months after the date on
which the Optionee shall die if such death shall occur during the one-year
period specified herein; or
(iv) one year after the date of termination of the
Optionee's employment by reason of death of the employee;
(b) The Committee in its sole discretion may, by giving
written notice ("cancellation notice"), cancel effective upon the date of the
consummation of any corporate transaction described in Subsection 10(d) hereof,
any Option that remains unexercised on such date. Such cancellation notice shall
be given a reasonable period of time prior to the proposed date of such
cancellation and may be given either before or after approval of such corporate
transaction.
(c) Upon Optionee's termination of employment as described in
this Section 9, or otherwise, any Option (or portion thereof) not previously
vested or not yet exercisable pursuant to Section 8 of this Plan or the vesting
schedule set forth in such Option shall be immediately canceled.
10. ADJUSTMENT OF SHARES.
(a) If at any time while this Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split, combination or exchange
of Shares (other than any such exchange or issuance of Shares through which
Shares are issued to effect an acquisition of another business or entity or the
Company's purchase of Shares to exercise a "call" purchase option), then and in
such event:
7
<PAGE>
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under this Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned;
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price; and
(iii) such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, with respect to the
option price or the number of Shares subject to the Options, or both, when, in
the Committee's sole discretion, such adjustments become appropriate by reason
of a corporate transaction described in Subsection 10(d) hereof, or otherwise.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into or exchangeable for shares of its capital stock of
any class, either in connection with a direct or unwritten sale or upon the
exercise of rights or warrants to subscribe therefor or purchase such Shares, or
upon conversion of shares of obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to the number of or exercise price of Shares
then subject to outstanding Options granted under this Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under this Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, reclassifications, recapitalizations, reorganizations or
other changes in the Company's capital structure or its business; (ii) any
merger or consolidation of the Company or to which the Company is a party; (iii)
any issuance by the Company of debt securities, or preferred or preference stock
that would rank senior to or above the Shares subject to outstanding Options;
(iv) any purchase or issuance by the Company of Shares or other classes of
common stock or common equity securities; (v) the dissolution or liquidation of
the Company; (vi) any sale, transfer, encumbrance, pledge or assignment of all
or any part of the assets or business of the Company; or (vii) any other
corporate act or proceeding, whether of a similar character or otherwise.
(e) The Optionee shall receive written notice within a
reasonable time prior to the consummation of such action advising the Optionee
of any of the foregoing. The Committee may, in the exercise of its sole
discretion, in such instances declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option.
8
<PAGE>
11. TRANSFERABILITY OF OPTIONS. No Option granted hereunder shall be
sold, pledged, assigned, hypothecated, disposed or otherwise transferred by the
Optionee other than by will or the laws of descent and distribution, unless
otherwise authorized by the Board, and no Option shall be exercisable during the
Optionee's lifetime by any person other than the Optionee.
12. ISSUANCE OF SHARES. As a condition of any sale or issuance of
Shares upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised, that he is acquiring the
Shares to be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and (ii) (A)an agreement
and undertaking to comply with all of the terms, restrictions and provisions set
forth in any then applicable stockholders' agreement relating to the Shares,
including, without limitation, any restrictions on transferability, any rights
of first refusal and any option of the Company to "call" or purchase such Shares
under then applicable agreements, and
(B) any restrictive legend or legends, to be
embossed or imprinted on Share certificates, that are, in the discretion of the
Committee, necessary or appropriate to comply with the provisions of any
securities law or other restriction applicable to the issuance of the Shares.
13. ADMINISTRATION OF THIS PLAN.
(a) This Plan shall be administered by the Committee, which
shall consist of not less than two Directors. The Committee shall have all of
the powers of the Board with respect to this Plan. Any member of the Committee
may be removed at any time, with or without cause, by resolution of the Board
and any vacancy occurring in the membership of the Committee may be filled by
appointment by the Board.
(b) Subject to the provisions of this Plan, the Committee
shall have the authority, in its sole discretion, to: (i) grant Options, (ii)
determine the exercise price per Share at which Options may be exercised, (iii)
determine the Optionees to whom, and time or times at which, Options shall be
granted, (iv) determine the number of Shares to be represented by each Option,
(v) determine the terms, conditions and provisions of each Option granted (which
need not be identical) and, with the consent of the holder thereof, modify or
amend each Option, (vi) defer (with the consent of the Optionee) or accelerate
the exercise date of any Option, and (vii) make all other determinations deemed
necessary or advisable for the administration of this Plan, including
re-pricing, canceling and regranting Options.
(c) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of this Plan. The Committee's
determinations and its interpretation and construction of any provision of this
Plan shall be final, conclusive and binding upon all Optionees and any holders
of any Options granted under this Plan.
9
<PAGE>
(d) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting of the Committee or (ii) without a meeting by the unanimous written
approval of the members of the Committee.
(e) No member of the Committee, or any Officer or Director of
the Company or its Subsidiaries, shall be personally liable for any act or
omission made in good faith in connection with this Plan.
14. INCENTIVE OPTIONS FOR 10% STOCKHOLDERS. Notwithstanding any other
provisions of this Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly or indirectly (through attribution under
Section 424(d) of the Code) at the date of grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or of
its Subsidiary) at the date of grant unless the exercise price of such Option is
at least 110% of the Fair Market Value of the Shares subject to such Option on
the date the Option is granted, and such Option by its terms is not exercisable
after the expiration of 10 years from the date such Option is granted.
15. INTERPRETATION.
(a) This Plan shall be administered and interpreted so that
all Incentive Stock Options granted under this Plan will qualify as Incentive
Stock Options under Section 422 of the Code. If any provision of this Plan
should be held invalid for the granting of Incentive Stock Options or illegal
for any reason, such determination shall not affect the remaining provisions
hereof, and this Plan shall be construed and enforced as if such provision had
never been included in this Plan.
(b) This Plan shall be governed by the laws of the State of
Florida.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan or affect the meaning
or interpretation of any part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
(e) Time shall be of the essence with respect to all time
periods specified for the giving of notices to the company hereunder, as well as
all time periods for the expiration and termination of Options in accordance
with Section 9 hereof (or as otherwise set forth in an option agreement).
16. AMENDMENT AND DISCONTINUATION OF THIS PLAN. Either the Board or the
Committee may from time to time amend this Plan or any Option without the
consent or approval of the stockholders of the Company; provided, however, that,
except to the extent provided in Section 9, no amendment or suspension of this
Plan or any Option issued hereunder shall substantially impair any Option
previously granted to any Optionee without the consent of such Optionee.
10
<PAGE>
17. TERMINATION DATE. This Plan shall terminate ten years after the
date of adoption by the Board of Directors.
11
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of our
report dated February 4, 1998 (with respect to Note H March 26, 1998 and Note N
March 28, 1998) on our audit of the financial statements of Capital Growth
Holdings, Ltd. (now known as MicroCap Financial Services.com, Inc.), a Delaware
corporation, as of December 31, 1997 and for the year ended December 31, 1997
and for the period February 26, 1996 (inception) through December 31, 1996.
Richard A. Eisner & Company, LLP
New York, New York
February 10, 1999
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 810,659 2,339,363
<SECURITIES> 1,261,556 530,399
<RECEIVABLES> 209,000 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 176,970
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 3,001,183 3,246,011
<CURRENT-LIABILITIES> 0 0
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0 0
3,398 0
<COMMON> 16,431 35,409
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,001,183 3,246,011
<SALES> 0 0
<TOTAL-REVENUES> 3,428,054 775,929
<CGS> 0 0
<TOTAL-COSTS> 0 0
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<LOSS-PROVISION> 0 0
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<INCOME-TAX> 0 0
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<EXTRAORDINARY> 0 0
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<NET-INCOME> (1,001,885) (1,206,422)
<EPS-PRIMARY> (.07) (.06)
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