As filed with the Securities and Exchange Commission on May 27, 1999
Registration No. 333-72385
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GLOBALNET FINANCIAL.COM, INC.
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(Name of Small Business Issuer in Its Charter)
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Delaware 7375 06-1489574
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(State or Jurisdiction of (Primary Standard (IRS Employer Identification Number)
Incorporation or Organization) Industrial Classification
Code Number)
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7280 W. Palmetto Park Road
Suite 202
Boca Raton, Florida 33433
(561) 417-8053
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(Address and Telephone Number of Principal Executive Offices)
7280 W. Palmetto Park Road, Suite 202, Boca Raton, Florida 33433
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(Address of principal place of business or intended principal place of business)
Ronald B. Koenig
Chairman of the Board of Directors,
GlobalNet Financial.com, Inc.
7280 W. Palmetto Park Road
Suite 202
Boca Raton, Florida 33433
(561) 417-8053
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(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|
<PAGE>
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. |_|
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of each Class Amount Maximum Aggregate Amount of
of Securities to be Offering Price Offering Registration
to be Registered Registered Per Share (1) Price(1) Fee
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Common Stock, $.001 par value 12,426,169 Shares $3.50 $43,491,591 $12,830.01
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 1,649,984 Shares $3.50 $6,599,936 $1,703.08
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Common Stock, $.001 par value 25,000 Shares $.375 $9,375 $2.76
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Common Stock, $.001 par value 25,000 Shares $.25 $6,250 $1.84
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Common Stock, $.001 par value 27,108,800 Shares $2.46 $66,686,664 $19,672.56
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Common Stock, $.001 par value 840,000 Shares $2.375 $1,995,000 $ 5,885.25
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Common Stock, $.001 par value 250,000 Shares $1.00 $2,250,000 $ 663.75
- ------------------------------------------------------------------------------------------------------------------------------
Total $42,836.01(2)
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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.
2 $26,221.56 was previously paid. Total amount due with this filing is
$16,614.45.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 27, 1999
PROSPECTUS
42,329,953 Shares
GlobalNet Financial.com, Inc.
The selling stockholders are offering for sale up to 42,329,953 shares
of common stock. We are registering the re-sale of the shares of common stock
pursuant to commitments to 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 $8,860,561 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 "GLBN". On May
17, 1999, the last reported bid price of the common stock was $3.50 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.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS
-----------------
The date of this Prospectus is May 27, 1999
<PAGE>
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TABLE OF CONTENTS
PAGE
<S> <C>
Summary..........................................................................................................1
Risk Factors.....................................................................................................7
Forward-Looking Statements......................................................................................14
Use Of Proceeds.................................................................................................15
Market For Common Equity........................................................................................15
Management's Discussion And Analysis Of Financial Condition And Results Of Operations...........................18
Business........................................................................................................21
Management......................................................................................................29
Principal Stockholders..........................................................................................35
Certain Transactions............................................................................................36
Selling Stockholders............................................................................................38
Description Of Securities.......................................................................................41
Plan Of Distribution............................................................................................44
Legal Matters...................................................................................................45
Experts.........................................................................................................46
Where You Can Find More Information.............................................................................46
</TABLE>
Unless the context requires otherwise, all references in this
Prospectus to "GlobalNet Financial.com, Inc.", "we", "our", "us" and "GlobalNet"
refer to GlobalNet Financial.com, Inc. and its subsidiaries.
<PAGE>
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 13,505,567 SHARES OF COMMON STOCK ISSUABLE
UPON THE EXERCISE OF OUTSTANDING OPTIONS UNDER OUR STOCK OPTION PLAN AS WELL AS
OTHER OUTSTANDING WARRANTS.
ABOUT US
OVERVIEW
We are a global multimedia provider of online financial information and
services to the investment community. Our U.S. based website,
www.microcap1000.com, operated through our subsidiary MicroCap1000.com, Ltd.
("MicroCap1000"), focuses on companies with a market capitalization of under
$500 million and is designed to be a leading source for information on the
MicroCap sector of the financial market. This website has nearly 165,000
registered users. Our first international site launched on April 28, 1999,
www.ukinvest.com, is operated by our subsidiary, UK-iNvest.com, Limited
("UK-iNvest"). This website was developed through an alliance with Freeserve
Limited, the United Kingdom's largest Internet Service Provider ("ISP") with
more than 1.1 million active accounts and a subsidiary of Dixons Group, plc, the
United Kingdom's largest electronics retailer. This site is the exclusive
provider of investment information on the financial markets within Freeserve's
money channel and provides information on a wide range of securities including
all publicly listed stocks and bonds.
Our goal is to be a worldwide provider of unique financial content and
financial services. We intend to achieve this goal by developing a series of
websites which will provide information on the major world markets. Once
developed, management believes these web sites will position GlobalNet as a
portal for worldwide market information and global investing. Such a portal
would enable subscribers to access information about all the different markets
throughout the world. Towards this end, GlobalNet is seeking to replicate the
model it created for UK-iNvest.com by establishing exclusive relationships with
ISP's and search engines and portals throughout the globe, leveraging its
expertise in providing unique content and investor services in partnership with
entities which have large subscriber bases.
The Company intends to leverage upon the traffic generated by our
sites, as well as those of our strategic partners, to provide financial
services, particularly on-line trading, to our viewers worldwide. As the initial
step in implementing this plan, we have entered into a letter agreement with GRO
Corporation ("GRO") of Houston, Texas, a NASD licensed broker/dealer which
provides on-line Electronic Direct Access Trading ("E-DAT") services to
institutional and individual accounts. Pursuant to this agreement we will
acquire an equity interest in GRO and provide on-line trading services on our
website and our affiliated website. GRO provides training and a system for
providing remote E-DAT and execution for their clients. Direct Access Trading
allows the customer to instantly enter and execute trades with stock exchanges,
market makers and Electronic Communication Networks ("ECNs"). Direct Access
Trading will complement our internet based financial content and analytical
tools. We anticipate expanding into other areas of online and E-DAT trading.
The closing of this transaction is subject to completion of due diligence,
documentation and NASD approval.
BUSINESS STRATEGY
Our revenue model has a number of components, including:
o payments from companies which want exposure on GlobalNet's and
affiliated sites;
o online trading revenues assuming GlobalNet's successful entrance into
this business outside of its investment in GRO;
o advertising revenues;
2
<PAGE>
o sponsorship revenues; and
o subscription fees.
We intend to utilize our U.S. and U.K. platforms to obtain, through
acquisitions, complementing companies and products that will provide realtime,
value-added e-commerce programs and financial investment information to online
users worldwide.
RECENT DEVELOPMENTS
We are aggressively pursuing alliances with and investments in or by
key on-line media, Internet and technology companies as well as pursuing
strategic acquisitions in order to accelerate our revenue generation abilities,
regular user base, page view growth and brand awareness. In this regard, we note
the following recent developments:
o STRATEGIC INVESTMENT BY FREESERVE LIMITED
In May 1999 Freeserve Limited ("Freeserve") expanded its alliance with
GLBN and purchased 8,382,669 shares of GLBN representing approximately
13% of GLBN's issued and outstanding common stock in exchange for
approximately $15.0 million. The transaction consisted of the exercise
of 2.0 million previously issued warrants at $1.0 and the purchase of
6,382669 new shares at $2.00. As part of the investment, Freeserve has
been granted an option to increase its holdings in GLBN to 19.9% at
$2.25 per share and will also designate one seat on GLBN's Board of
Directors.
o STRATEGIC INVESTMENT BY ITALIAN INVESTMENT CONSORTIUM
In April 1999, an investment consortium consisting of The De Agositini
Holding Group, Banco Commercial D'Italiana and Investitori Associate
purchased 2,500,000 shares of GLBN representing approximately 3.8% of
GLBN's issued and outstanding common stock in exchange for $5.0
million. De Agostini is involved internationally in consumer
publishing, with group annual sales of approximately US$1.5 billion.
Banco Commerciale Italiana is Italy's fifth-largest Italian bank.
Investitori Associati is the largest leveraged buyout firm in Italy.
Separately, GLBN and the Italian Consortium are in discussions
regarding a joint venture for the development of a website covering the
Italian Financial Marketplace.
o STRATEGIC INVESTMENT BY TELESCAN
In March 1999, we entered into various agreements with Telescan, Inc.
("TSCN"). As a result of these agreements TSCN currently owns 8% of
GlobalNet (9.9% at the time of the agreement). Under the terms of the
agreements, TSCN issued to GlobalNet 520,000 shares of its common
stock, which at the time of the transaction were valued at $10.3
million in exchange for 5,176,161 shares of GLBN common stock. In
addition, TSCN purchased a one year option from us for 25,000 shares of
TSCN's common stock to purchase such number of shares necessary to
increase TSCN's position to 19.9% of the then current shares
outstanding. The shares may be purchased at an exercise price of $3.75
per share. The option may be exercisable at any time and until March
30, 2000.
Telescan is an industry leader in providing Internet services,
innovative solutions for online technology and data retrieval tools.
Telescan's Wall Street City(R) financial supersite
(www.wallstreetcity.com) receives between 12 and 15 million page views
per
3
<PAGE>
month and provides a comprehensive suite of search tools, technical
analysis and financial data on the Internet.
In addition, we entered into a Licensing Services Agreement pursuant to
which the parties will license contents and services to each other and
each party will provide certain system operation services to the other
in connection with the license. This technology will include the stock
trading software currently being developed for TSCN by Trading
Technologies Corporation. MicroCap1000.com will provide an exclusive
online Investment Center dedicated to MicroCap and SmallCap market
sectors on TSCN's Wall Street City(R) (www.wallstreetcity.com)
financial supersite. The Center will include daily news articles and
interviews with Wall Street analysts, the MC1000 Index and stock and
investment information for Wall Street City subscribers.
o ALLIANCE WITH MOTLEY FOOL FOR THE U.S. AND U.K.
The Motley Fool (www.fool.co.uk and www.fool.com) will provide a broad
range of content on www.ukinvest.com and daily articles for
www.microcap1000.com. The content will include a daily mix of articles
with distinctive "Fool" branding. UK articles will be written by Motley
Fool writers in the UK and Europe.
o ALLIANCE WITH THESTREET.COM FOR THE U.S. AND U.K.
TheStreet.com and GlobalNet have entered into a Content License and
Distributing Agreement. Pursuant to the Agreement, TheStreet.com will
publish articles on a daily and weekly basis for MicroCap1000 and
UK-iNvest. These articles will appear on the websites and will include
links to TheStreet.com. In addition, we will create an article that,
subject to TheStreet.com's approval, will appear on TheStreet.com's
website. The column will also contain a hyperlink to our sites. This
article on TheStreet.com and our association with TheStreet.com will
increase awareness of our name and brand.
HISTORICALLY
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 nine months we have shifted our focus almost
exclusively to financial publishing activities.
Our financial publishing activities have yet to generate any meaningful
revenue. For the year ended December 31, 1998 we had a net loss of approximately
$3.0 million and an accumulated deficit of $6.3 million. For the three months
ended March 31, 1999 we had a net loss of approximately $2.0 million and an
accumulated deficit of $8.3 million at March 31, 1999. We anticipate losses to
continue until such time as our financial publishing activities generate
significant revenues.
Our executive offices are located at 7280 W. Palmetto Park Road, Suite
202, Boca Raton, Florida 33433. Our telephone number is (561) 417-8053.
ABOUT THE OFFERING
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Common Stock Offered by the 42,329,953 shares, of which 39,539,969 shares are
Selling Stockholders presently outstanding and 2,789,984 shares are
issuable upon exercise of warrants and options.
Common Stock Outstanding after the Offering 64,545,626 shares(1)
</TABLE>
4
<PAGE>
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<S> <C>
OTC Bulletin Board Trading Symbol GLBN
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 and options. If the warrants are
exercised, we will receive proceeds from the exercise
of the warrants. 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.
</TABLE>
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(1) Does not include (i) 8,726,000 shares of Common Stock reserved for issuance
upon exercise of options granted under the Company's 1998 Stock Option Plan;
(ii) 1,274,000 shares of Common Stock reserved for issuance upon exercise of
options available for future grant under the 1998 Stock Option Plan; (iii)
4,779,567 shares of Common Stock issuable upon the exercise of warrants and (iv)
options to purchase shares of GLBN such that, after giving effect to the shares
currently owned by TSCN and Freeserve, each would upon exercise of the option
then own 19.9% of the then outstanding shares of GLBN common stock.
5
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below are selected financial data for each of the periods
indicated. The selected financial data for the years ended December 31, 1998 and
1997 as well as the periods ended March 31, 1999 and March 31, 1998 has been
derived from our historical financial statements included elsewhere in this
Registration Statement. All of the information set forth below should be read in
conjunction with our 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
included in this Prospectus.
<TABLE>
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For the Years Ended For the Three Months
December 31, Ended March 31,
----------------------------------- ----------------------------------------
1998 1997 1999 1998
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<S> <C> <C> <C> <C>
Total revenue $1,281,347 $3,428,054 $225,966 $284,746
Total operating expenses 4,289,223 4,429,939 2,223,951 594,833
--------- --------- --------- -------
Net loss $(3,007,876) $(1,001,885) $(1,997,985) $(310,087)
Less cumulative preferred dividend 0 (29,624) 0 0
Net loss attributable to common
stockholders $(3,007,876) $(1,031,509) $(1,997,985) $(310,087)
Basic and diluted loss per common
share $(0.12) $(0.07) $(0.04) $(0.02)
Weighted average common shares
outstanding -basic and diluted 25,233,000 15,655,000 45,936,000 19,814,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
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<S> <C> <C>
Total Assets $3,505,010 $14,156,612
Total Liabilities $1,223,435 $776,357
Long-Term Debt $0 $0
Stockholders' Equity $2,281,575 $13,380,255
</TABLE>
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.
6
<PAGE>
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.
WE HAVE A LIMITED OPERATING HISTORY IN THE AREA OF ON-LINE FINANCIAL INFORMATION
SERVICES.
Our subsidiary MicroCap 1000.com, Ltd. only commenced operations in
October, 1998. Our subsidiary UK-iNvest.com Limited only commenced limited
operations in late April 1999 and is still in the start-up phase. Thus, 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 and 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.
WE WILL DEPEND 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 order to generate significant
Internet-based advertising revenue, we will likely depend on:
o advertising agencies, which exercise substantial control over the
placement of advertising for their clients;
o our ability to convince advertisers and advertising agencies of the
benefits of advertising on our Internet sites;
o our ability to retain, broaden and diversify our future base of
advertising customers;
o 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 rates in order to
attract and/or retain advertising customers, our business will be harmed.
THE INTERNET MAY NOT BE ACCEPTED AS AN ADVERTISING MEDIUM.
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
persuaded or able to do so, we cannot assure you, that they will find
Internet-based advertising to be more effective than advertising in traditional
media decide to advertise on our Internet site.
7
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WE WILL DEPEND ON CONTINUED GROWTH OF THE INTERNET.
Rapid growth in the use of and interest in the Internet is a recent
phenomenon. 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.
WE FACE INTENSE 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, Excite Money &
Investing and TheStreet.com, among others. These companies have significantly
greater resources than we do. Many, if not all, of these competitors also offer
a wider range of products and services than we do and 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.
THERE ARE 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
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.
MANAGEMENT HAS 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. There can
be no assurance that any such relationships will be developed, on a timely basis
or at all.
8
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WE DEPEND 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 the strategic ability to direct
user traffic, significantly affect traffic to our Internet site. We cannot
assure you 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.
REVENUES WILL BE UNPREDICTABLE.
As a result of our limited operating history and the emerging nature of
the Internet, including Internet-based advertising, 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.
MANAGEMENT HAS LIMITED EXPERIENCE IN NEW BUSINESS AREA.
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 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.
ACQUISITIONS AND VENTURES MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR
BUSINESS.
We may enter into 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.
TECHNOLOGICAL CHANGES MAY HARM OUR BUSINESS.
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. We cannot assure 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
harm our business. In addition, new Internet-based products, services or
enhancements offered by us may contain
9
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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.
WE MAY EXPERIENCE SYSTEM FAILURES.
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.
WE WILL HAVE TO PROTECT AGAINST 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. To the extent that
our activities 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 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.
WE MAY NOT BE ABLE TO PROTECT OUR 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.
THE SECURITIES BUSINESS IS VERY RISKY.
Our business is concentrated in the securities industry and,
particularly, providing information about the securities industry over the
Internet. The success of our business depends, in part, on continued interest in
the securities industry. The current level of interest in the securities
industry is extremely high as a result of a very positive stock market and the
economic climate in the U.S. and perceived buying opportunities in the foreign
markets. However, many factors, including economic downturns, market conditions
and the level and volatility of interest rates, may contribute to reduced levels
of interest or participation in financing and investment transactions, generally
resulting in lower revenues for businesses, such as ours.
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CONDUCTING BUSINESS IN FOREIGN MARKETS SUBJECTS US TO A NUMBER OF RISKS.
We are 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 intend to 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.
Our inability to find a joint venture partner could slow down our
anticipated growth. We intend to expand into foreign markets through joint
ventures with Internet service providers or others in the target market. We
cannot assure you we will be able to find a suitable partner, or, if found, that
the joint venture will be successful. If we do not find a suitable joint venture
partner, we may enter the foreign market without a partner, which would pose
additional risks.
WE WOULD BE LIABLE FOR INFORMATION RETRIEVED FROM THE INTERNET.
As a publisher and a distributor of content over the Internet, we face
potential liability for 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. 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.
U.S. AND FOREIGN GOVERNMENT REGULATIONS MAY IMPACT OUR BUSINESS.
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 and
on-line trading. 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 COULD IMPACT OUR BUSINESS.
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 our ability to pay dividends or to expand or even maintain levels of
business.
WE DEPEND ON KEY PERSONNEL AND DO NOT HAVE AGREEMENTS WITH THEM.
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; Stanley Hollander our President and Chief Executive Officer; Alan L.
Jacobs, our Executive Vice President; Michael Jacobs our Chief Operating
Officer; Jay Matulich our Senior Vice President; John Flanders our Chief
Technical Officer and Richard
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Hefter our Editor-in-Chief. 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.
EXERCISE OF WARRANTS AND OPTIONS WILL HAVE DILUTIVE EFFECT.
We currently have outstanding warrants and options to purchase
13,505,567 shares of common stock and are registering the re-sale of the shares
underlying 2,789,984 warrants and options. This will 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 these securities 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.
WE MAY HAVE SUBSTANTIAL SALES OF OUR COMMON STOCK WHICH COULD HAVE A NEGATIVE
EFFECT ON OUR STOCK PRICE.
Of our 64,545,626 shares outstanding, 58,950,821 are restricted shares
as that term is defined in Rule 144 promulgated under the Securities Act. Of
such 58,950,821 shares of common stock, 39,539,969 shares sold in this offering
will be freely tradable 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.
PROVISIONS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
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.
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<PAGE>
THERE HAS BEEN A LIMITED TRADING MARKET FOR OUR COMMON STOCK.
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.
OUR LISTING ON OTC BULLETIN BOARD SUBJECTS INVESTORS TO ADDITIONAL REGULATIONS.
Our 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. 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). 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.
WE MAY NOT MAINTAIN 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 (1) there is a current Prospectus relating to the securities
offered under an effective Registration Statement filed with the SEC, and (2)
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.
WE ANTICIPATE INCREASED OPERATING EXPENSES AND MAY EXPERIENCE LOSSES.
As of March 31, 1999, we had an accumulated deficit of $8.3 million.
Because of our limited operating history and the uncertain nature of the
rapidly-changing markets we serve, we believe the prediction of future results
of operations is difficult or impossible. In addition, we believe that
period-to-period comparisons of our operating results are not meaningful. You
should not rely on the results for any period as an indication of future
performance. In particular, although we experienced strong revenue growth during
1998, we do not believe that this level of revenue growth will be sustained in
future periods. We currently expect that our operating expenses will continue to
increase significantly as we expand our sales and marketing operations, continue
to develop and extend the GLBN brand, fund greater levels of product
development, develop and commercialize additional media properties, and acquire
complementary businesses and technologies. As a result, we may experience losses
on a quarterly and annual basis.
THE YEAR 2000 BUG COULD CAUSE OUR SOFTWARE PRODUCTS AND THOSE OF OUR SUPPLIERS
TO MALFUNCTION, WHICH PREVENT OR LIMIT ACCESS TO OUR ONLINE PROPERTIES AND COULD
BE COSTLY TO REMEDY.
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These
13
<PAGE>
date code fields will need to distinguish 21st century dates from 20th century
dates and, as a result, many companies' software and computer systems may need
to be upgraded or replaced in order to comply with such "Year 2000"
requirements.
We are currently assessing the Year 2000 issue and expect to complete
the program by the spring of 1999. We have not incurred material costs to date
in this process, and currently do not believe that the cost of additional
actions will have a material effect on our results of operations or financial
conditions. Although we currently believe that our systems are Year 2000
compliant in all material respects, our current systems and products may contain
undetected errors or defects with Year 2000 date functions that may result in
material costs. Although we are not aware of any material operational issues or
costs associated with preparing our internal systems for the Year 2000, we may
experience serious unanticipated negative consequences or material costs caused
by undetected errors or defects in the technology used in our internal systems.
FORWARD-LOOKING STATEMENTS
Some of the information in this Prospectus contains forward-looking
statements within the meaning of the federal securities laws. These statements
include, among others, website development plans, strategies, expectations
regarding competition and market acceptance of our products and the Internet as
a secure and reliable communications and commerce medium, and possible effects
of pending and future government regulation. Forward-looking statements
typically are identified by use of terms like "may," "will," "expect,"
"anticipate," "estimate" and similar words, although some forward-looking
statements are expressed differently. You should be aware that our actual
results could differ materially from those contained in the forward-looking
statements due to a number of factors, including our limited operating history
and operating losses, dependence on advertising revenues, inability to
effectively compete, economic conditions, unanticipated difficulties in product
development, inability to gain market acceptance and market share, ability to
manage growth, Internet security risks and uncertainty relating to the evolution
of the Internet as a medium for commerce, dependence on third party content
providers, dependence on our key personnel, Year 2000 problems and the impact of
future government regulation on our business. You should also consider carefully
the risks described in this prospectus or detailed from time to time in our
filings with the Securities and Exchange Commission.
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<PAGE>
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 approximately $8,860,561 from the
exercise of the warrants and options assuming all of the warrants and options
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.
We estimate we will spend $85,336 in registering the shares.
MARKET FOR COMMON EQUITY
Our common stock is currently quoted on the OTC Bulletin Board under
the symbol "GLBN". 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.
<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
<CAPTION>
1998 HIGH LOW
- ---- ---- ---
<S> <C> <C>
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
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C>
Quarter ended March 31, 1998 $3.96 $1.06
Quarter ended June 30, 1999 (through May 17, 1999) $4.56 $2.75
</TABLE>
On May 17, 1999, the last reported bid price of the common stock was
$3.56
As of May 17, 1999, there were approximately 436 holders of record of
the common stock.
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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 (1) the payment of dividends on any class of capital stock with
priority over the common stock, (2) applicable net capital requirements and (3)
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 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.
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CAPITALIZATION
The following table sets forth our capitalization at December 31, 1998
and March 31, 1999, and should be read in conjunction with the financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
<S> <C> <C>
Accounts payable and accrued expenses...................................................... $607,656 $165,578
Dividends payable - preferred stockholders................................................. 38,154 38,154
Dividends payable - common stockholders.................................................... 572,625 572,625
Deferred revenue........................................................................... 5,000 0
Total liabilities.................................................................. $1,223,435 $776,357
--------- -------
Stockholders' equity
Preferred stock, $.001 par value, 20,000,000
shares authorized, none outstanding........................................
Class B common stock - $.001 par value, 25,000,000
shares authorized, none outstanding........................................
Common stock, $.001 par value, 100,000,000
shares authorized; 44,337,896 issued at December 31, 1998 and $ 44,337 $52,634
52,634,457 shares at March 31, 1999(1).....................................
Additional paid-in capital.......................................................... 8,852,862 29,948,460
Accumulated deficit................................................................. (6,298,121) (8,259,110)
Unearned compensatory costs......................................................... (276,253) (8,408,729)
Accumulated other comprehensive income/(loss)....................................... (11,250) 114,000
Treasury stock (15,000 shares)...................................................... (30,000) (30,000)
Total stockholders' equity.......................................................... $2,281,575 $13,380,255
--------- ----------
Total capitalization................................................................ $2,281,575 $13,380,255
--------- ----------
</TABLE>
- --------------
(1) Does not include (i) 2,500,000 issued to an Italian Investment
Consortium in April, 1999 for gross proceeds of $5,000,000; (ii)
448,500 shares issued in connection with a private placement which
occurred in May, 1999 for gross proceeds of $897,000 and (iii)
8,382,669 shares issued in connection with the investment made by
Freeserve, Ltd. in May, 1999 for gross proceeds of $14,765,338 (iv)
675,000 shares issued to various consultants and (v) 25,000 shares
issued for the acquisition of UK-iNvest.com, Limited (formerly Capital
Growth Europe Limited).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a global multimedia provider of online financial information and
services to the investment community. Our U.S. based web-site,
www.microcap1000.com, operated through our subsidiary MicroCap1000.com, Ltd.
("MicroCap1000"), focuses on companies with a market capitalization of under
$500 million and is designed to be a leading source for information on the
MicroCap sector of the financial market. This Website has nearly 165,000
registered users. Our first international site, www.uk-invest.com's, operated by
our subsidiary, UK-iNvest.com, Limited ("UK-iNvest"). This website was developed
through an alliance with Freeserve Limited, the United Kingdom's largest and
fastest growing Internet Service Provider ("ISP") and a subsidiary of Dixons
Group, plc, the United Kingdom's largest electronics retailer. This site is the
exclusive provider of investment information of the financial market within
Freeserve's money channel and provides information on a wide range of securities
including all publicly listed stocks and bonds. However, the financial
statements attached and discussion below do not predominantly reflect those
activities.
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 nine months we have shifted our focus almost
exclusively to financial publishing activites. Therefore, the financial
statements attached and described below are not reflective of current operations
and cannot be indicative of future results. Among other differences, revenues
are anticipated to initially decrease and operating expenses are anticipated to
significantly increase as a result of such activities. We have added additional
personnel and incurred additional expenses consistent with the launch of a new
business.
We anticipate that our net loss will increase until such time as our
electronic publishing and other activities generate meaningful revenues. These
activities have not generated any revenue to date and there is no guarantee that
it will do so in the future.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1998
For the three months ended March 31, 1999 total revenues decreased
by $58,750 to $225,966 from $284,746 in the three months ended March 31, 1998.
The revenues generated in the first quarter's of both 1999 and 1998 resulting
primarily from activities of the Company's investment banking subsidiary,
International Capital Growth, Ltd. ("ICG") which acted as placement agent and
financial consultants for certain entities. The Company has shifted its focus
from ICG to financial publishing. Revenues generated in the first quarter
of 1999 result from the marking to market of ICG's portfolio of securities. The
value of the portfolio increased by $394,850 generating revenue of $194,513 for
the quarter ending March 31, 1999 compared to a loss of ($200,319) during the
same period in 1998. This was primarily the result of the increase in value of
one of the Company's portfolio positions, Common Stock of Worlds, Inc. The
Company anticipates liquidating ICG's portfolio during 1999. Revenues generated
from consulting fees decreased from $51,750 to $0. Interest income increased
by $5,177 to $11,418 as compared to $6,241 during the same quarter in 1998.
Our total operating expenses increased by $1,629,118, to $2,223,951 as
compared to $594,833 during the comparable quarter in 1998. This increase was
due to the shift in business focus and the start-up costs for our U.S. website
(www.microcap1000.com) and the Company's U.K. website (www.invest.com) and
subsequent website development fees.
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<PAGE>
FOR THE YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO DECEMBER 31, 1997
We generated $1,688,098 in revenues during the fiscal year ended
December 31, 1998 ("Fiscal 1998") compared to $3,743,051 during the fiscal year
ended December 31, 1997 ("Fiscal 1997"). All of such revenues were generated by
our investment banking subsidiary, International Capital Growth, Ltd. ("ICG"),
which acted as a placement agent and financial consultant for certain entities.
This decrease reflects a shift in business focus from ICG activities to
financial publishing. In addition, we earned interest income in the amount of
$30,309 during Fiscal 1998 as compared to $94,170 during Fiscal 1997. We
recognized $437,060 in net losses on ICG's securities portfolio during Fiscal
1998 as compared to $448,971 in net losses during Fiscal 1997. The decrease is
primarily due to the decline in the carrying value of our largest portfolio
position, common stock of First American Railways, Inc. On October 6, 1998,
First American Railways, Inc. filed for a Chapter 7 bankruptcy liquidation. We
acquired this security position as a result of providing investment banking
activities for First American Railways, Inc. We realized a $39,804 gain on
settlement of debt during Fiscal 1997.
Operating expenses for Fiscal 1997 were $4,289,223 compared to
$4,429,939 during Fiscal 1998. Operating expenses include general and
administrative expenses of $3,448,980 during Fiscal 1997 compared to $3,941,773
during Fiscal 1998. The increase was due to the shift in business focus and the
start up costs for our U.S. web site www.microcap1000.com and web site
development consulting fees. Commission expenses decreased from $859,844 during
Fiscal 1997 compared to $286,381 during Fiscal 1998. ICG, consummated fewer
private placement during 1998 due to the shift in business focus and therefore
paid fewer commissions. The recognition of the equity in the net loss of our
unconsolidated subsidiary, Capital Growth Europe, Limited ("CGE"), decreased
from $121,115 during Fiscal 1997 to $61,069 during Fiscal 1998.
As a result of the foregoing, we had a net loss of $3,007,876 during
Fiscal 1998 compared to a net loss of $1,001,885 during Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The implementation of the business plan is capital intensive as a
result of the costs incurred in launching financial oriented sites in new
countries. In order to reduce these costs, the company seeks to partner with and
receive investments from strategic investors. To this end, in May 1999, the
Company received an investment of approximately $15.0 million from its UK
partner Freeserve, Ltd. and $5.0 million from an Italian Investment Consortium
we are in discussions with to launch a financially oriented site in Italy.
On March 31, 1999 we acquired 545,000 shares of Common Stock of
Telescan, Inc. ("Telescan") which was received through a share exchange
agreement with telescan, which at March 31, 1999 was valued at $9,333,125.
Capital has been provided by the investments made by the initial
stockholder group and through private placements of our securities. In March
1997, we raised net proceeds of approximately $922,000 in a private placement of
549,496 shares of our Common Stock. During 1998, we raised net proceeds of
approximately $2,904,000 in a private placement of 23,248,400 shares. In
February 1999, we raised net proceeds of approximately $2,575,400 in a private
placement of 2,575,400 shares. In April 1999, we raised net proceeds of
approximately $4,650,000 in a private placement of 2,500,000 shares. In May 1999
we received $14,765,338 from Freeserve, Ltd. which represented the purchase of
6,382,669 shares of common stock at $2.00 per share and the exercise of a
warrant for 2,000,000 shares of common stock at $1.00 per share. In May, 1999 we
raised an additional $897,000 in a private placement of 448,500 shares of Common
Stock. The proceeds are being held for additional investment in MicroCap1000 and
UK-iNvest and other websites we anticipate launching as well as for working
capital.
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<PAGE>
VARIABILITY OF RESULTS
We anticipate that our future financial results will vary dramatically.
This is the result of the start-up and uncertain nature of MicroCap1000 and
UK-iNvest as well as the other web sites we anticipate launching.
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 our time-sensitive applications and business systems and our
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. An
assessment of the Year 2000 exposure has been made by us and the plans to
resolve the related issues are being implemented. We believes we will be able to
achieve Year 2000 compliance in a timely manner. We believe that we 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.
20
<PAGE>
BUSINESS
GENERAL
We are a global multimedia provider of online financial information and
services to the investment community. Our U.S. based website,
www.microcap1000.com, operated through our subsidiary MicroCap1000.com, Ltd.
("MicroCap1000"), focuses on companies with a market capitalization of under
$500 million and is designed to be a leading source for information on the
MicroCap sector of the financial market. This website has nearly 165,000
registered users. Our first international site launched on April 28, 1999,
www.ukinvest.com, is operated by our subsidiary, UK-iNvest.com, Limited
("UK-iNvest"). This website was developed through an alliance with Freeserve
Limited, the United Kingdom's largest Internet Service Provider ("ISP") with
more than 1.1 million active accounts and a subsidiary of Dixons Group, plc, the
United Kingdom's largest electronics retailer. This site is the exclusive
provider of investment information on the financial markets within Freeserve's
money channel and provides information on a wide range of securities including
all publicly listed stocks and bonds.
Our goal is to be a worldwide provider of unique financial content and
financial services. We intend to achieve this goal by developing a series of
websites which will provide information on the major world markets. Once
developed, management believes these web sites will position GlobalNet as a
portal for worldwide market information and global investing. Such a portal
would enable subscribers to access information about all the different markets
throughout the world. Towards this end, GlobalNet is seeking to replicate the
model it created for UK-iNvest.com by establishing exclusive relationships with
ISP's and search engines and portals throughout the globe, leveraging its
expertise in providing unique content and investor services in partnership with
entities which have large subscriber bases.
The Company intends to leverage upon the traffic generated by our
sites, as well as those of our strategic partners, to provide financial
services, particularly on-line trading, to our viewers worldwide. As the initial
step in implementing this plan, we have entered into a letter agreement with GRO
Corporation ("GRO") of Houston, Texas, a NASD licensed broker/dealer which
provides on-line Electronic Direct Access Trading ("E-DAT") services to
institutional and individual accounts. Pursuant to this agreement we will
acquire an equity interest in GRO and provide on-line trading services on our
website and our affiliated website. GRO provides training and a system for
providing remote E-DAT and execution for their clients. Direct Access Trading
allows the customer to instantly enter and execute trades with stock exchanges,
market makers and Electronic Communication Networks ("ECNs"). Direct Access
Trading will complement our internet based financial content and analytical
tools. We anticipate expanding into other areas of online and E-DAT trading.
The closing of this transaction is subject to completion of due diligence,
documentation and NASD approval.
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.
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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 may be
able to charge a subscription fee for users to access certain of their content.
Additionally, we believe 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 particularly regarding accessing investment information. Management
believed there were very few, if any, web sites that provided quality
information regarding the microcap 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. Since then, management has also noted that
there are also very few websites that offer information regarding international
financial markets. Moreover, many investors see buying opportunities in the
foreign markets and/or want to diversify their portfolios.
MICROCAP1000.COM
In October 1998, we fully launched our web site, www.microcap1000,
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, online Internet investor access
services and hosts the MC 1000 index, the only realtime index covering the
MicroCap sector. The web site has the following features:
o hosts a model portfolio which is up 34.5% for the year ending 1998 as
compared to +6.98% for DJIA and +10.33% for Nasdaq and down 6.65% for
the Russell 2000.
o Provides unique content consisting of news and analysis from well-known
Wall Street analysts and money managers specifically targeting
companies with market capitalizations of under $500 million.
o assists investors in information and ideas to make investment
decisions.
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:
o market capitalization of between $25 and $500 million;
o revenue in excess of $25 million;
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o net income in excess of $2.5 million;
o quarter over quarter earnings growth;
o liquidity measures; and
o management ownership measures.
Our goal with the 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. 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 our editorial staff. This
content includes:
o Microcaps on the Move: updated twice daily focussing on the sector's
performance
o Company News: highlights and performance on selected microcap companies
o Ideas and Trends: unique investment opportunities
o Interviews: questions and answers with money managers and analysts
o 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.
Currently, there are over 80 web sites which carry MicroCap1000.com's
content and/or index including but not limited to CBS Marketwatch, Lycos,
EarthLink, StockPoint, InfoBeat and Wall Street City.
UK-INVEST.COM
UK-iNvest.com was launched in April 1999. We have initiated our global
Internet expansion through an alliance with the UK's largest Internet service
provider, Freeserve Limited, a subsidiary of Dixon's Group, plc, the UK's
largest electronics retailer. The site can be reached through www.ukinvest.com
or by clicking on "Money" on Freeserve's home page located at www.freeserve.net.
Uk-iNvest.com is the exclusive provider of news and information. The site
provides potential investors information and services about all UK securities
within Freeserve's financial channel through its web site WWW.UK-INVEST.COM. The
web site has the following characteristics:
o Market Roundup: featuring a summary of the day's market highlights
o Stocks to Watch: updated hourly featuring top stock losers and gainers
o Company Focus: highlights and performance on selected companies
o Weekly Internet Report: focussing on the highlights and performance of
selected internet companies
o Small Cap Corner: highlights two new ideas in the SmallCap Sector
o Foolish Investing: Daily investing ideas from the Motley Fool
o Opportunities for commerce over the Internet, or E-commerce, including
premium pay data and tools packages
o The ability to effect brokerage transactions over the Internet
o 24-7 hired as advertising agency in the UK
Pursuant to the terms of the FreeServe Agreement, we made certain
payments and granted to FreeServe warrants to purchase shares of common stock
which warrants were subsequently exercised. If the Agreement is extended for an
additional two-year term (after the initial term of two years), we will be
required to make additional cash payments.
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RECENT DEVELOPMENTS
We are aggressively pursuing alliances with key on-line media, Internet
and technology companies as well as pursuing strategic acquisitions in order to
accelerate our revenue generation abilities, regular user base, page view growth
and brand awareness. In this regard, we note the following recent developments:
o STRATEGIC INVESTMENT BY FREESERVE LIMITED
In May 1999 Freeserve Limited ("Freeserve") expanded its alliance with
GLBN and purchased 8,382,669 shares of GLBN representing approximately
13% of GLBN's issued and outstanding common stock in exchange for
approximately $15.0 million. The transaction consisted of the exercise
of 2.0 million previously issued warrants at $1.0 and the purchase of
6,382669 new shares at $2.00. As part of the investment, Freeserve has
been granted an option to increase its holdings in GLBN to 19.9% at
$2.25 per share and will also designate one seat on GLBN's Board of
Directors.
o STRATEGIC INVESTMENT BY ITALIAN INVESTMENT CONSORTIUM
In April 1999, an investment consortium consisting of The De Agositini
Holding Group, Banco Commercial D'Italiana and Investitori Associate
purchased 2,500,000 shares of GLBN representing approximately 3.8% of
GLBN's issued and outstanding common stock in exchange for $5.0
million. De Agostini is involved internationally in consumer
publishing, with group annual sales of approximately US$1.5 billion.
Banco Commerciale Italiana is Italy's fifth-largest Italian bank.
Investitori Associati is the largest leveraged buyout firm in Italy.
Separately, GLBN and the Italian Consortium are in discussions
regarding a joint venture for the development of a website covering the
Italian Financial Marketplace.
o STRATEGIC INVESTMENT BY TELESCAN
In March 1999, we entered into various agreements with Telescan, Inc.
("TSCN"). As a result of these agreements TSCN currently owns 8% of
GlobalNet (9.9% at the time of the agreement). Under the terms of the
agreements, TSCN issued to GlobalNet 520,000 shares of its common
stock, which at the time of the transaction were valued at $10.3
million in exchange for 5,176,161 shares of GLBN common stock. In
addition, TSCN purchased a one year option from us for 25,000 shares of
TSCN's common stock to purchase such number of shares necessary to
increase TSCN's position to 19.9% of the then current shares
outstanding. The shares may be purchased at an exercise price of $3.75
per share. The option may be exercisable at any time and until March
30, 2000.
Telescan is an industry leader in providing Internet services,
innovative solutions for online technology and data retrieval tools.
Telescan's Wall Street City(R) financial supersite
(WWW.WALLSTREETCITY.COM) receives between 12 and 15 million page views
per month and provides the most comprehensive suite of search tools,
technical analysis and financial data on the Internet.
In addition, we entered into a Licensing Services Agreement pursuant to
which the parties will license contents and services to each other and
each party will provide certain system operation services to the other
in connection with the license. This technology will include the stock
trading software currently being developed for TSCN by Trading
Technologies Corporation. MicroCap1000.com will provide an exclusive
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online Investment Center dedicated to MicroCap and SmallCap market
sectors on TSCN's Wall Street City(R) (www.wallstreetcity.com)
financial supersite. The Center will include daily news articles and
interviews with Wall Street analysts, the MC1000 Index and stock and
investment information for Wall Street City subscribers.
o ALLIANCE WITH MOTLEY FOOL FOR THE U.S. AND U.K.
The Motley Fool (www.fool.co.uk and www.fool.com) will provide a broad
range of content on UK-iNvest and daily articles for MicroCap1000. The
content will include a daily mix of articles with distinctive "Fool"
branding. UK articles will be written by Motley Fool writers in the UK
and Europe.
o ALLIANCE WITH THESTREET.COM FOR THE U.S. AND U.K.
TheStreet.com and GlobalNet have entered into a Content License and
Distributing Agreement. Pursuant to the Agreement, TheStreet.com will
publish articles on a daily and weekly basis for MicroCap 1000 and
UK-iNvest. These articles will appear on the websites and will include
links to The Street.com. In addition, we will create articles that,
subject to TheStreet.com's approval, will appear on TheStreet.com's
website. The column will also contain a hyperlink to our sites. This
article on TheStreet.com and our association with TheStreet.com will
increase awareness of our name and brand.
BUSINESS STRATEGY
Our strategy is to be a leading provider of content on the World Wide
Web, specifically in the areas of business and finance. We have entered into
agreements to enable us to offer on-line execution capabilities such that
investors can instantly enter and execute trades with stock exchanges, market
makers and Electronic Communication Networks ("ECNs"). As a result, investors
utilizing direct access trading platforms do not necessarily have to buy at the
offer to sell at the bid. We anticipate offering the system on all our sites
worldwide for executions in U.S. stocks.
Our revenue model has a number of components and includes:
o payments from companies which want exposure on our sites and affiliates
sites;
o potential online trading revenues assuming our successful entrance into
this business;
o advertising revenues;
o sponsorship revenues; and
o subscription fees.
Management believes possibilities exist to segment certain proprietary
content areas on our web sites as subscription areas. We plan to offer this
proprietary content to subscribers for a fee. In connection with the fee paid
premium service, our 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 our web site increases, we 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 we do not currently have any advertisers or
sponsors, we expect that ultimately we will derive substantially all of our
revenues from the sale of advertising on our web site. Once we have a large
subscriber base, we will
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seek to establish advertising relationships with large corporations which wish
to have access to the demographic group visiting our 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. Our
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 to be able to market our subscriber base
to such companies, we must spend time developing our products and increasing our
subscriber base.
As of May 13, 1999, we had five MicroCap1000.com Directory
("Directory") clients and two MicroCap1000.com CEO CyberShow clients ("CEO
CyberShow'). Both the CEO CyberShow and the Directory are located in the
Investment Opportunity Center ("IOC") located on our website
(www.microcap1000.com). The IOC offers clients an opportunity to tell their
company's story to our users for a reasonable quarterly fee. All information is
publicly available and reviewed by the client for accuracy before publication on
the site. The quarterly service charge for the CEO CyberShow is $5,000 while the
quarterly service charge for the Directory is $2,500.
We intend to utilize the U.S. and U.K. platforms to obtain, through
acquisition, complementing companies and products that will provide realtime,
value-added E-commerce programs and financial investment information to online
users worldwide.
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
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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. 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 than 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 May 6, 1999, we had a total of 16 full-time employees and one
part-time employee. None of our employees are represented by a union and we have
not experienced any work stoppages. We believe our relations with our employees
is good.
DESCRIPTION OF PROPERTIES
GlobalNet, our 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 Capital Growth International, Ltd.
expiring in October 2111 for monthly rent of $2,467.50 which
payments are allocated among the entities. See "Certain
Transactions."
4. Approximately 1,669 square feet of office space at 16150
Arrowhead Fountains Center Drive, Suite 240, Peoria, Arizona,
for use by the Company and MicroCap1000 pursuant to a lease
held by MicroCap1000 expiring on April 23, 2002 for a monthly
rent of $3,164,14 which payments are allocated among the
entities.
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LEGAL PROCEEDINGS
ICG and three of our principals, Ronald Koenig, Stanley Hollander and
Jay Matulich, have been named as defendants in a lawsuit entitled MARTIN S.
STOLZOFF, ET AL. v. WASTE SYSTEMS INTERNATIONAL, INC., ET AL., No. 99-01664A
Superior Court, Middlesex County, Massachusetts. The Complaint was filed on
April 1, 1999 and asserts counts for common law fraud, negligent
misrepresentation and violation of the Massachusetts Blue Sky Laws in connection
with the purchase by plaintiffs of securities of a company called Waste Systems
International, Inc. ("WSI"). We acted as a financial consultant and placement
agent in connection with a private offering of WSI common stock in March 1995.
The Complaint alleges that the Defendants made a series fraudulent and negligent
misrepresentations to Plaintiffs during the period from January 1995 to February
1997. The Complaint further alleges that Plaintiffs purchased WSI securities and
thereafter declined to sell their existing WSI securities despite their
inclination to do so in reliance on the alleged misrepresentations. Plaintiffs
allege damages of approximately $990,000 plus prejudgment interest and punitive
damages. We deny Plaintiffs' allegations and intend to vigorously defend this
action.
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MANAGEMENT
DIRECTORS AND OFFICERS
Our officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
Ronald B. Koenig 65 Chairman of the Board of Directors
Stanley Hollander 61 Chief Executive Officer and President
Alan L. Jacobs 57 Executive Vice President and Director
Michael S. Jacobs 34 Senior Vice President, Secretary and Treasurer
Jay J. Matulich 44 Senior Vice President
N. Bulent Gultekin 51 Director
Christopher D. Jennings 45 Director
</TABLE>
Each director listed in the above table holds office until the next
annual meeting of stockholders 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 our Board of Directors.
There is no family relationship among any of the directors or executive
officers of GlobalNet or ICG except that Alan L. Jacobs and Michael S. Jacobs
are father and son, respectively.
RONALD B. KOENIG. Mr. Koenig is our Chairman of the Board of Directors.
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) 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 our President and Chief Executive
Officer. In addition, Mr. Hollander has served as Senior Vice President and a
Director of GlobalNet 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.
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ALAN L. JACOBS. Mr. Jacobs has served as our Executive Vice President
and a Director 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 our Senior Vice President,
Secretary and Treasurer 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 our Senior Vice President
since March 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.
CHRISTOPHER K. JENNINGS. Christopher D. Jennings has served as a
director of the Company since May 1999. Since April, 1998 Mr. Jennings has been
a Managing Director of Investment Banking of Friedman, Billings, Ramsey & Co. In
1995 Mr. Jennings served as a Managing Director of Cruttenden Roth Incorporated
("Cruttenden Roth"), an investment banking firm. From 1992 to 1994, Mr. Jennings
served as a Managing Director of investment banking at Sutro & Co., an
investment banking firm. From 1989 to 1992, Mr. Jennings served as a Senior
Managing Director at Maiden Lane Associates, Ltd., a private
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equity fund. Prior to 1989, Mr. Jennings served in various positions with, among
others, Dean Witter Reynolds, Inc. and Warburg Paribas Becker, Inc., both of
which are investment banking firms. Mr. Jennings serves as a member of the
Compensation Committee of the Board of Directors.
SIGNIFICANT EMPLOYEES
JOHN FLANDERS. Since October, 1998, Mr. Flanders has been our Chief
Technical Officer. From 1991 through 1992 John 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. Since February 11, 1999, Mr. Hefter has acted as our
Editor-in-Chief. 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 was 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
Our 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 our directors, officers and
controlling persons, we have 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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
services rendered in all capacities to certain officers of the Company for the
periods indicated.
31
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND POSITION FISCAL YEAR SALARY OPTIONS
<S> <C> <C> <C>
Ronald B. Koenig 1998 $200,000 1,420,000(4)
Chairman of the Board, Co-Chief 1997 $250,000 -----
Executive Officer and Director 1996(2) $ 48,076 -----
Stanley Hollander 1998 $196,000 1,420,000(4)
Co-Chief Executive Officer,
President and Director 1997 $263,000 -----
1996(2) $ 48,076 -----
Alan Jacobs 1998(3) $ 17,306 480,000(4)
Executive Vice President, Senior 1997 $225,000 -----
Managing Director and Director 1996(2) $ 43,269 -----
Michael Jacobs 1998 $150,000 900,000(4)
Senior Vice President, Secretary 1997 $150,000 250,000(1)
And Treasurer 1996(2) $ 32,588 -----
Jay J. Matulich 1998(4) $131,000 900,000(4)
Vice President 1997 $125,000 250,000(1)
1996(2) $ 24,038 -----
</TABLE>
- ---------------------
(1) Represents shares underlying stock options granted under the 1997 Stock
Option Plan which plan and options were terminated August 15, 1998.
(2) Covers the period from February 26, 1996 through December 31, 1996, our
fiscal year for such period.
(3) Covers the period from January 1, 1998 through January 31, 1998 prior
to Mr. Jacobs' temporary leave of absence commenced.
(4) Represents shares of common stock underlying stock options granted
under the 1998 Stock Option Plan.
We currently pay 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, GlobalNet'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 GlobalNet
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. In October, 1998,
Mr. Jacobs rejoined GlobalNet. Other than as set forth above, none of our
executive officers or directors received any salary or wages or other
compensation from us during the last three completed fiscal years.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants
of stock options made during Fiscal 1998 to any of the Named Executive Officers:
32
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED PRICE EXPIRATION
NAME OPTIONS IN FISCAL YEAR PER SHARE DATE
- ---------------------------- ---------------------- -------------------- ----------------- -----------------------
<S> <C> <C> <C> <C>
Ronald Koenig 1,420,000 20.19% $.375 October 20, 2008
Stanley Hollander 1,420,000 20.19% $.375 October 20, 2008
Alan L. Jacobs 480,000 6.8% $.375 October 20, 2008
Michael S. Jacobs 250,000 3.55% $.25 August 20, 2008
Michael S. Jacobs 650,000 9.24% $.375 October 20, 2008
Jay J. Matulich 250,000 3.55% $.25 August 20, 2008
Jay J. Matulich 650,000 9.24% $.375 October 20, 2008
</TABLE>
AGGREGATED OPTION EXERCISE IN FISCAL YEAR
ENDED DECEMBER 31, 1998
AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
UNDERLYING VALUE OF
UNEXERCISED OPTIONS UNEXERCISED
--------------------------------- --------------------
NAME EXERCISABLE UNEXERCISABLE IN-THE-MONEY OPTIONS
----------- ------------- --------------------
<S> <C> <C> <C>
Ronald Koenig 710,000 710,000 $528,950
Stanley Hollander 710,000 710,000 $528,950
Alan L. Jacobs 240,000 240,000 $178,800
Michael S. Jacobs 450,000 450,000 $350,875
Jay J. Matulich 450,000 450,000 $350,875
Bulent Gultekin 20,000 20,000 $14,900
</TABLE>
1998 STOCK OPTION PLAN. Effective August 15, 1998, the Board of
Directors and a majority of our stockholders adopted the 1998 Stock Option. We
believe such a plan is desirable in order to attract and retain executive
officers, other key employees and directors and to further our growth and
profitability. 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. 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 GlobalNet. 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
33
<PAGE>
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 GlobalNet 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.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our capital stock as of May 17, 1999, by (i) any person
who is known to us to be the beneficial owner of more than five percent of our
capital stock; (ii) each director; (iii) our chief executive officer during the
last completed fiscal year; (iv) each officer; and (v) all current directors and
officers as a group. Except as noted below, each person has sole voting and
investment power with respect to all shares of capital stock listed as owned by
such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY OUTSTANDING(2)
OWNER(1) OWNED
<S> <C> <C>
Ronald B. Koenig.................................... 3,782,270(4) 5.83%
Stanley Hollander.................................... 3,957,270(5)(3) 6.08%
Alan L. Jacobs...................................... 2,711,626(8) 4.21%
Hollander Family Partnership LP...................... 3,957,270(5)(3) 6.08%
Michael S. Jacobs................................... 927,000(6) 1.43%
Jay J. Matulich..................................... 916,000(7) 1.41%
N. Bulent Gultekin.................................. 8,000(9) .031%
Christopher K. Jennings.............................. 300,000(13) .23%
All directors and executive officers.................
as a group (6 persons)(7)(10)........................ 11,926,166(7)(10) 18.56%
5% OR GREATER HOLDERS
Freeserve, Ltd. 8,382,669(14) 19.9%
Maylands Avenue
Hemel Hempstead HP27TG
Telescan, Inc. 5,176,161(11) 19.9%
5959 Corporate Drive
Suite 2000
Houston, TX 77036
Dion R. Friedland 8,625,000(12) 13.45%
28 Sloane Street
Flat #8
London SW1X9NE
United Kingdom
</TABLE>
- -------------
(1) Each beneficial owner for which an address is not listed has an address
c/o GlobalNet Financial.com, Inc. 7280 W. Palmetto Park Road, Suite
202, Boca Raton, FL 33433.
(2) Based on a total of 64,545,626 shares of common stock outstanding.
(3) Stanley Hollander, our President and Chief Executive Officer, may be
deemed to be the beneficial owner of our shares, held by Hollander
Family Partnership LP. Other than such holdings, Mr. Hollander owns no
capital stock of GlobalNet.
(4) Consists of 3,072,270 shares of common stock and options exercisable to
purchase 710,000 shares of common stock which are currently vested. Mr.
Koenig holds options to purchase a total of 1,420,000 shares of common
stock which vest at the rate of 50% of the total grant immediately and
50% at the first anniversary of the date of the grant, October 20,
1998.
(5) Consists of 2,997,270 shares of common stock and options exercisable to
purchase 960,000 shares of common stock which are currently vested. Mr.
Hollander holds options to purchase a
35
<PAGE>
total of 1,920,000 shares of common stock which vest at the rate of 50%
of the total grant immediately and 710,000 on October 29, 1999 and
250,000 on January 4, 2000.
(6) Consists of 747,000 shares of common stock and options exercisable to
purchase 450,000 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 50% of the total grant immediately and
50% at the first anniversary of the date of the grant, October 20,
1998.
(7) Consists of 736,000 shares of common stock and options exercisable to
purchase 450,000 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 50% of the total grant immediately and
50% at the first anniversary of the date of the grant, October 20,
1998.
(8) Consists of 2,615,626 shares of common stock and options exercisable to
purchase 240,000 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 50% of the total grant immediately and
50% at the first anniversary of the date of the grant, October 20,
1999.
(9) Consists of stock options exercisable to purchase 20,000 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 50% of the total grant immediately and 50% at the first
anniversary of the date of the grant, October 20, 1998.
(10) Consists of 10,177,166 shares of common stock and stock options
exercisable to purchase shares of common stock.
(11) Warrant to purchase shares of GLBN such that, after giving effect to
the 5,176,161 shares currently owned by TSCN, TSCN would upon exercise
of the warrant then own 19.9% of the then outstanding shares of GLBN
Common Stock.
(12) Represents shares held by investment funds for which Mr. Friedland
makes the investment and voting decisions.
(13) Consists of stock options exercisable to purchase 150,000 shares of
common stock that are currently vested. Mr. Jennings holds options to
purchase a total of 300,000 shares of common stock which vest at the
rate of 50% of the total grant immediately and 50% at the first
anniversary of the date of grant, April 16, 1999.
(14) Warrant to purchase shares of GLBN such that, after giving effect to
the 8,382,669 shares currently owned by Freeserve, Freeserve would upon
exercise of the warrant then own 19.9% of the then outstanding shares
of GLBN Common Stock.
CERTAIN TRANSACTIONS
We require that all material transactions with affiliates be made on
terms that are no less favorable to us than those that can be obtained from
unaffiliated third parties. Such transactions are approved by a majority of our
independent directors.
On March 14, 1997, we issued an aggregate of 2,906 additional shares of
common stock to certain stockholders and former officers in exchange for the
release by such individuals of obligations owed to them from us 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 GlobalNet, in connection with
such issuance, recorded a gain of $39,804.
On March 26, 1997, we loaned $200,000 to an entity controlled by
Messrs. Ronald B. Koenig and Stanley Hollander, two of our 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. The note was repaid on April 9, 1998.
On March 27, 1997, we completed a private offering (the "Private
Offering") of our 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 us of $1,236,366, was offered and
36
<PAGE>
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
GlobalNet and ICG. Several of the officers and directors of GlobalNet and ICG
are also officers and directors of CGI. Additionally, the beneficial holders of
100% of the membership interests in CGI beneficially held 23.25% of our
outstanding capital stock, 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 GlobalNet and ICG, and Stanley Hollander, Senior Vice
President and a Director of GlobalNet 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 7.13%
and 6.99% of the outstanding capital stock of the Company, respectively.
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 are consummated.
During the fiscal year ended December 31, 1997, we 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 our director
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 our disinterested directors. The Company has subsequently reacquired
Capital Growth Europe for a total purchase price of $43,000 as well as 25,000
shares of Common Stock of GLBN. The name of Capital Growth Europe has been
changed to UK-iNvest.com Limited.
On December 31, 1998, we granted 100,000 shares of common stock to its
former CEO of MicroCap1000.com, Ltd. upon termination of employment
37
<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 May 10,
1999.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF NUMBER OF
COMMON STOCK SHARES TO
PRIOR TO BE OWNERSHIP OF COMMON
OWNERSHIP REGISTERED STOCK AFTER
NAME OF SELLING STOCKHOLDER SHARES(1) PERCENTAGE(1) REGISTERED OFFERING
<S> <C> <C> <C> <C>
Freeserve Ltd. 8,382,669 13.07% 8,382,669 0
Giant Trading Inc. 2,520,000 3.93% 2,520,000 0
Rosebud Capital Growth Fund 2,050,000(5) 3.19% 2,050,000 0
Limited
Freeserve Limited 2,000,000 3.12% 2,000,000 0
Robert S. London 1,912,500(5) 2.98% 1,912,500 0
Rush & Co. 1,835,000(5) 2.86% 1,835,000 0
Fontenelle LLC 1,600,000 2.49% 1,600,000 0
Alan Gaines 1,600,000 2.49% 1,600,000 0
Cameo Trust Corporation 1,367,500(5) 2.13% 1,367,500 0
Kingston Comercio Internacional LDA 1,250,000 1.95% 1,250,000 0
De Agostini Holding Lugano
Branch 1,250,000 1.95% 1,250,000 0
Archdream Limited 1,220,400 1.90% 1,220,400 0
Cass & Co. Magnum US Equity 1,200,000 1.87% 1,200,000 0
Fund
Cass & Co. Magnum Capital 1,120,000 1.74% 1,120,000 0
Growth Fund
Bradley Properties SA 1,000,000 1.56% 1,000,000 0
Salahi Ozturk 900,000 1.40% 900,000 0
Interactive Marketing, Inc. 840,000 1.31% 840,000 0
Banca Del Gottardo 833,800(5) 1.30% 833,800 0
Cass & Co. Magnum Turbo
Growth Fund 800,000 800,000 0
Cass & Co. Magnum Edge Fund 800,000 1.24% 800,000 0
Joseph A. Bauer 675,000(5) 1.24% 675,000 0
Cass & Co. Magnum
Opportunity Fund 640,000 1.05% 640,000 0
Cass & Co. Magnum Tech Fund 520,000 * 520,000 0
Unity Venture Capital
Associates, Ltd. 500,000 * 500,000 0
Irv Freiberg(2) 425,000 * 425,000 0
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF NUMBER OF
COMMON STOCK SHARES TO
PRIOR TO BE OWNERSHIP OF COMMON
OWNERSHIP REGISTERED STOCK AFTER
NAME OF SELLING STOCKHOLDER SHARES(1) PERCENTAGE(1) REGISTERED OFFERING
<S> <C> <C> <C> <C>
Robert B. Prag 400,000 * 400,000 0
Cass & Co. Magnum Global
Equity Fund 400,000 * 400,000 0
Napier Brown Holdings 287,500(5) * 287,500 0
Magnum Growth Fund LP 240,000 * 240,000 0
CyberJunction 225,000 * 225,000 0
Twice International S.A. 220,000 * 220,000 0
Vane Clayton 200,000 * 200,000 0
Richard A. Kunin MD Profit 200,000 * 200,000 0
Sharing Plan
Paul T. Mannion, Jr. 200,000 * 200,000 0
Marvin Shiller 200,000 * 200,000 0
Gloria Stasior 200,000 * 200,000 0
Frank J. Nigro, III 200,000 * 200,000 0
Edgeport Nominees Limited 170,000(5) * 170,000 0
Wellness and Prevention
Marketing
LLC 160,000 * 160,000 0
SF Consulting Co 160,000 * 160,000 0
Magnum Low Volatility Fund
LP 160,000 * 160,000 0
Joseph Matulich & Lillian
Matulich 160,000 * 160,000 0
American Financial 160,000 * 160,000 0
Communications
American Financial
Communications 150,000 * 150,000 0
Republic National Bank of New
York 150,000(5) * 150,000 0
Mark L. Friedman 125,000 * 125,000 0
Harvey R. Brice 125,000(5) * 125,000 0
Fairnoon Management Ltd. 125,000(5) * 125,000 0
S. Greenberg Sep. Prop. Trust 120,000 * 120,000 0
David Greenberg IRA Rollover 120,000 * 120,000 0
Matthew Stasior 100,000 * 100,000 0
Gems Opportunity Fund 100,000(5) * 100,000 0
Gary Fischoff(2) 100,000 * 100,000 0
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF NUMBER OF
COMMON STOCK SHARES TO
PRIOR TO BE OWNERSHIP OF COMMON
OWNERSHIP REGISTERED STOCK AFTER
NAME OF SELLING STOCKHOLDER SHARES(1) PERCENTAGE(1) REGISTERED OFFERING
<S> <C> <C> <C> <C>
Devrim AKA 100,000 * 100,000 0
P.G. Ridgwell 75,000(5) * 75,000 0
Corner Bank, Ltd. 75,000 * 75,000 0
RNB (France) Monaco 50,000 * 50,000 0
Kimberly A. Goguen 50,000 * 50,000 0
Richard Golob 40,000 * 40,000 0
David Christensen 40,000 * 40,000 0
Stolzoff Family Trust dtd 2/5/95 37,500(5) * 37,500 0
Vital Miljo AS 30,931(5)
James C. Gale 30,000 * 30,000 0
Alan Mandel 30,000 * 30,000 0
Susan Greenberg 25,000(5) * 25,000 0
Monique MacLaren 25,000 * 25,000 0
Luciano R. Nicasio 25,000(5) * 25,000 0
Lisa Taylor 25,000 * 25,000 0
Leonard Block 25,000 * 25,000 0
John Booth 25,000 * 25,000 0
Gary Barnett 25,000(5) * 25,000 0
Edgar Astaire 25,000 * 25,000 0
Anthony Hopenhajm 25,000(5) * 25,000 0
Saracen International
Incorporated 25,000(5) * 25,000 0
Evert A. Bruckner Family Trust 24,000 * 24,000 0
UA dtd Dec. 10, 1993
Chad L. Kiefer 24,000 * 24,000 0
Pyramid Partners, LP 17,500(5) * 17,500 0
Robert Zelinka 16,625(5) * 16,625 0
Luke Bruckner 16,000 * 16,000 0
Christopher M. Stevens 16,000 * 16,000 0
Shelby Developments Limited 12,500(5) * 12,500 0
Michael Ralby 12,500(5) * 12,500 0
Mamimu Ltd. 12,500(5) * 12,500 0
Edward Haymes 12,500 * 12,500 0
Allen M. Rudnick IRA R/O 12,500(5) * 12,500 0
Lynn-Rose Saltzman 10,000 * 10,000 0
Michael Crowl 9,600 * 9,600 0
Eurocapital, Ltd. 9,287(5) * 9,287 0
Asher Plaut and Evelyn Plaut
JTWROS 6,250(5) * 6,250 0
Craig Blumberg 6,250(5) * 6,250 0
Brill Securities, Inc. 3,813(5) * 3,813 0
Pellet Investments 1,828(5) * 1,828 0
</TABLE>
40
<PAGE>
- -------------
* Less than 1%
(1) Unless otherwise indicated, each stockholder 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.
(5) These share amounts include up to aggregate of 1,649,984 shares which
may be issued to certain selling stockholders upon the exercise of
Warrants.
DESCRIPTION OF SECURITIES
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 our 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 our funds legally
available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up, 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
41
<PAGE>
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
We currently have 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 us at $.05 per Redeemable Warrant on 30 days' notice, provided that (i)
certain securities are registered under the Securities Act and applicable state
blue sky laws, (ii) a current Prospectus is then available for the sale of such
securities, and (iii) the closing bid price for the common stock as reported by
Nasdaq, the OTC Bulletin Board, or such other market on which the common stock
is then traded equals or exceeds $6.00 for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption.
The Redeemable Warrants are not exercisable or redeemable unless, at
the time of the exercise or redemption, we have 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 we have 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 stockholders.
CONSULTING WARRANTS
We 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 us. Of the 250,000 Consulting Warrants, 52,083 vested
on a pro rata basis based upon the period of time that such consulting services
were provided to us 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 us 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
42
<PAGE>
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
our Employee Stock Option Plan, we have a total of 3,090,000 warrants
outstanding as follows:
AMOUNT EXERCISE PRICE EXPIRATION
31,250 1.00 October 23, 2003
218,750 1.00 October 23, 2003
840,000 2.375 February 8, 2002
2,000,000 $4.56 April 28, 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 GlobalNet 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 we shall indemnify our
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 us to grant such rights to our employees and agents. We
believe that these provisions will assist us in attracting and retaining
qualified individuals to serve as directors, officers and employees.
We are subject to the provisions of Section 203 of the Delaware GCL, an
anti-takeover law. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is, or the transaction in which the person became an interested
stockholder was, approved in a prescribed manner or certain other exceptions
apply. For purposes of Section 203, a "business combination" is defined broadly
to include a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associated, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American
Securities Transfer & Trust, Inc., Lakewood, Colorado.
43
<PAGE>
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, our wholly-owned subsidiary, 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.
We 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 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.
44
<PAGE>
We have agreed that we will bear all costs, expenses and fees in
connection with the registration or qualification of the Shares under federal
and state securities laws. We 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
We have 64,545,626 shares of common stock outstanding. Of these shares,
the 39,539,969 shares sold in this offering will be freely tradable 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. The
remaining 25,005,657 shares 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 GlobalNet, 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 552,644 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
GlobalNet 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 GlobalNet, a stockholder who is not an affiliate of GlobalNet at the time of
sale and has not been an affiliate at any time during the 90 days prior to the
sale would be entitled to sell the shares immediately without compliance with
the foregoing requirements under Rule 144, other than the requirements as to the
availability of current public information about us.
Prior to this offering, there has been only a limited public market for
the common stock. We can not make 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 our 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.
45
<PAGE>
EXPERTS
The financial statements of GlobalNet Financial.com, Inc. (formerly
known as MicroCap Financial Services.com, Inc.) as of December 31, 1998 and for
years ended December 31, 1998 and 1997 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 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: GlobalNet Financial.com, Inc., 7280 West Palmetto Park
Road, Suite 202, Boca Raton, Florida 33433, telephone number (561) 417-8053.
46
<PAGE>
Contents
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS
Independent auditors' report......................................... F-2
Balance sheet as of December 31, 1998................................ F-3
Statements of operations for the years
ended December 31, 1998 and 1997.................................... F-4
Statements of changes in stockholders' equity for the years
ended December 31, 1998 and 1997.................................... F-5
Statements of cash flows for the years
ended December 31, 1998 and 1997.................................... F-6
Notes to financial statements........................................ F-7
Balance sheet as of March 31, 1999 (unaudited)....................... F-19
Statements of operations for the three months
ended March 31, 1999 and 1998 (unaudited)........................... F-20
Consolidated statement of comprehensive loss......................... F-20
Statements of cash flows for the three months
ended March 31, 1999 and 1998 (unaudited)........................... F-21
Notes to financial statements (unaudited)............................ F-22
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
GlobalNet Financial.Com, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of GlobalNet
Financial.com, Inc. (formerly Microcap Financial Services.Com, Inc.) and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 1998 and 1997. 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 GlobalNet
Financial.com, Inc. (formerly Microcap Financial Services.Com, Inc.) and
subsidiaries as of December 31, 1998, and the consolidated results of their
operations and their consolidated cash flows for the years ended December 31,
1998 and 1997 in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 5, 1999
With respect to Note N
April 13, 1999
F-2
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Notes A and B)
ASSETS
Current assets:
Cash and cash equivalents (Note C[8]) $1,941,774
Restricted cash (Note L[1]) 104,664
Due from broker 44,930
Securities owned at market value
(cost $551,000) (Note C[6]) 552,719
Securities not readily marketable,
at fair value (cost $1,217,525) 132,492
Prepaid expenses 61,438
----------
Total current assets 2,838,017
Furniture, fixtures, equipment, and leasehold improvements
(net of accumulated depreciation of $57,890)
(Notes C[1] and D) 290,113
Licensing and promotion agreements, net of accumulated
amortization of $26,459 (Note E) 354,726
Other assets 22,154
----------
$3,505,010
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 607,656
Deferred revenue 5,000
Dividends payable - preferred stockholders 38,154
Dividends payable - common stockholders 572,625
----------
Total current liabilities 1,223,435
----------
Commitments and other matters (Notes I, J, L and N)
STOCKHOLDERS' EQUITY (NOTES A, F, G, H, AND N)
Preferred stock - $.001 par value;
20,000,000 shares authorized, none outstanding
Class B common stock - $.001 par value;
25,000,000 shares authorized, none outstanding
Common stock - $.001 par value; 100,000,000 shares
authorized; 44,337,896 shares issued 44,337
Additional paid-in capital 8,852,862
Accumulated deficit (6,298,121)
Unearned compensatory costs (276,253)
Accumulated other comprehensive loss (11,250)
Treasury stock - at cost (15,000 common shares) (30,000)
----------
2,281,575
----------
$3,505,010
==========
See notes to financial statements
F-3
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
DECEMBER 31,
---------------------------
1998 1997
- --------------------------------------------------------------------------------
Revenue (Notes B, C[6] and C[9]):
Consulting fees $ 405,071 $ 359,914
Private placement fees 1,283,027 3,383,137
Net realized and unrealized loss on marketable
and not readily marketable securities (437,060) (448,971)
Gain on debt settlement 39,804
Interest income 30,309 94,170
----------- -----------
1,281,347 3,428,054
----------- -----------
Operating expenses:
Commission 286,381 859,844
General and administrative 3,941,773 3,448,980
Equity in loss of unconsolidated affiliate
and write-down of advance
(net gain on sale of $3,931) 61,069 86,115
Write-down of advances to unconsolidated affiliate 35,000
----------- -----------
4,289,223 4,429,939
----------- -----------
Net loss (3,007,876) (1,001,885)
----------- -----------
Less cumulative preferred dividend (29,624)
----------- -----------
Net loss attributable to common stockholders $(3,007,876) $(1,031,509)
=========== ===========
Basic and diluted loss per common share
(Note C[4]) $(0.12) $(.07)
======= ======
Weighted average number of common shares
outstanding - basic and diluted (Note C[4]) 25,233,000 15,655,000
=========== ===========
See notes to financial statements
F-4
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTES A AND B)
<TABLE>
<CAPTION>
SERIES A SERIES B
CLASS B CONVERTIBLE CONVERTIBLE
COMMON STOCK COMMON STOCK PREFERRED PREFERRED ADDITIONAL
--------------------- -------------------- ------------------ ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 2,549,000 $3,088,260 11,349,666 $334,803 4,001,334 $560,187 1,080,000 $226,800
Consulting expense
attributable $35,417
to warrants
(Note G)
Dividends declared
Recapitalization
resulting from the
acquisition of
Microcap Financial
Services.Com, Inc. 297,094 (46,322)
Issuance of
common stock
(Note F[4]) 549,496 922,075
Collection of
subscription
Receivable
Issuance of common stock
to settle debt
(Note I) 2,906 6,539
June 1997, exchange of
shares of no par
shares for $.001 par
value shares (4,013,476) (323,453) 4,336,929
Conversion of
Series A and B
preferred
stock into Class B
common stock (Note F[1]) 5,081,334 5,081 (4,001,334) (560,187) (1,080,000) (226,800) 781,906
Purchase of
common stock
(Note F[6])
Net loss
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1997 3,398,496 3,398 16,431,000 16,431 0 0 0 0 5,107,930
Sale of common stock
(Note F[4]) 23,248,400 23,248 2,880,692
Collection of
subscription
receivable
Shares issued
to acquire
securities
(Note F[6]) 1,000,000 1,000 135,000
Value of options
issued as
compensation
to consultants 247,000
Value of
warrants issued
to consultant
(Note F[6]) 117,500
Value of stock
issued to a
former employee
(Note F[6]) 100,000 100 124,900
Value of stock
issued to
consultant
(Note F[6]) 160,000 160 239,840
Conversion of
Class B common stock 16,431,000 16,431 (16,431,000) (16,431)
Dividends declared
Net loss
Other comprehensive loss
Unrealized loss
on securities
(Note F[6])
Comprehensive loss
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1998 44,337,896 $44,337 0 $ 0 0 $ 0 0 $0 $8,852,862
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
UNEARNED OTHER
COMPENSATORY COMPREHENSIVE ACCUMULATED COMPREHENSIVE SUBSCRIPTION TREASURY STOCK
COSTS LOSS DEFICIT LOSS RECEIVABLE SHARES AMOUNT TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 $ (718,616) $ (55,600) $3,435,834
Consulting expense
attributable
to warrants
(Note G) 35,417
Dividends declared (805,083) (805,083)
Recapitalization
resulting from the
acquisition of
Microcap Financial
Services.Com, Inc. (46,322)
Issuance of
common stock
(Note F[4]) 922,075
Collection of
subscription
Receivable 2,000 2,000
Issuance of common stock
to settle debt
(Note I) 6,539
June 1997, exchange of
shares of no par
shares for $.001 par
value shares 0
Conversion of
Series A and B
preferred
stock into Class B
common stock (Note F[1]) 0
Purchase of
common stock
(Note F[6]) 15,000 $(30,000) (30,000)
Net loss (1,001,885) (1,001,885)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1997 (2,525,584) (53,600) 15,000 (30,000) 2,518,575
Sale of common stock
(Note F[4]) 2,903,940
Collection of
subscription
receivable 53,600 53,600
Shares issued
to acquire
securities
(Note F[6]) 136,000
Value of options
issued as
compensation
to consultants 247,000
Value of
warrants issued
to consultant
(Note F[6]) $(96,253) 21,247
Value of stock
issued to a
former employee
(Note F[6]) 125,000
Value of stock
issued to
consultant
(Note F[6]) (180,000) 60,000
Conversion of
Class B common stock (764,661) 0
Dividends declared
Net loss $(3,007,876) (3,007,876) (764,661)
Other comprehensive loss (3,007,876)
Unrealized loss
on securities
(Note F[6]) (11,250) $(11,250) (11,250)
Comprehensive loss $(3,019,126)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1998 $(276,253) $(6,298,121) $(11,250) $0 15,000 $ (30,000) $2,281,575
====================================================================================================================================
</TABLE>
F-5
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
---------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,007,876) $(1,001,885)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 142,576 63,486
Equity in loss of unconsolidated affiliate 65,000 121,115
and write-down of advances
Compensation to consultants and former 453,247
employee paid with stock and options
Valuation of warrants for consulting 35,417
Change in unrealized depreciation of 438,261 633,802
securities
Realized gains on securities (1,201) (184,831)
Gain on sale of unconsolidated affiliate (3,931)
Gain on debt settlement (39,804)
Compensation paid with securities 283,432
Receipt of securities in payment of fees (187,500) (1,583,141)
Loss on disposal of fixed assets 46,286
Accrued interest (9,000)
Changes in:
Due from broker 228,201 (273,131)
Prepaid expenses and other assets (462,777) (2,000)
Accounts payable and accrued expenses 428,405 128,251
Deferred revenue (69,038) 74,038
----------- -----------
Net cash used in operating activities (1,976,633) (1,707,965)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (128,727) (266,811)
Proceeds from sale of securities 516,015 273,132
Proceeds from sale of unconsolidated affiliate 3,931
Loans to affiliates (225,000)
Repayment of loan from affiliates 209,000 25,000
Investment in securities (64,480) (563,950)
Investment in restricted cash (2,330) (2,334)
----------- -----------
Net cash provided by (used in)
investing activities 533,409 (759,963)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 2,903,940 924,075
and preferred stock
Proceeds from the subscription receivable 53,600
Cash acquired in recapitalization 21
Dividends paid (383,201) (575,764)
Purchase of treasury stock (30,000)
----------- -----------
Net cash provided by financing
activities 2,574,339 318,332
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,131,115 (2,149,596)
Cash and cash equivalents at beginning of period 810,659 2,960,255
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,941,774 $ 810,659
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
TRANSACTIONS:
Common stock issued to settle debt $ 45,343
Dividends declared but not paid $ 572,625 $ 229,319
Common stock issued to acquire securities $ 136,000
Other comprehensive income - unrealized loss $ 11,250
See notes to financial statements
F-6
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - THE CORPORATION
GlobalNet Financial.com, Inc. (the "Company" or "GLBN") formerly Microcap
Financial Services.Com, Inc., prior to that Capital Growth Holdings, Ltd. and
prior to that Galt Financial Corporation, was incorporated in the State of
Colorado on June 15, 1987. On March 14, 1997, GLBN, 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 GLBN 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 GLBN
in the transaction while ICG's historical accumulated deficit was carried
forward. In 1997, after the recapitalization, a Colorado corporation, was merged
into a Delaware corporation, Capital Growth Holdings, Ltd. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, ICG and the wholly owned subsidiary of ICG, Microcap1000.Com Ltd.
("MCAP 1000"). All significant intercompany transactions and balances have been
eliminated.
NOTE B - NATURE OF BUSINESS
The Company and its subsidiaries have three reportable segments. The Company
operates a broker/dealer and internet web-site. The Company generates revenues
by acting as a placement agent in private financings and as a financial
consultant to various companies. Two customers accounted for approximately 33%
and 38% of the Company's consulting and private placement fees earned during the
year ended December 31, 1998. The Company's wholly owned subsidiary, MCAP 1000
provides comprehensive, internet-based electronic publishing of unique content
on the MicroCap sector, generated by analysts and money managers ("MC1000
Gurus"); internet investor access for public companies; and broadcasts over the
internet through video-streamed netcasts of various financial programs. The
Company also maintains their proprietary MicroCap1000 Index, a real-time index
following the stock performance of 1000 companies with market capitalizations of
between $25 million and $500 million. During the year ended December 31, 1998,
MCAP 1000 incurred approximately $863,000 of expenses which are included in
general and administrative expenses.
Information with respect to reportable segments follows:
DECEMBER 31, 1998
--------------------------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
--------- ------------- -------- ----------
Revenues from external $1,683,098 $ 5,000 $1,688,098
customers
Interest revenue $ 13,444 16,865 30,309
Depreciation and 104,117 38,459 142,576
amortization
Equity in loss of
unconsolidated
affiliate, net 65,000 65,000
Segment loss (695,806) (1,453,582) (858,488) (3,007,876)
Significant noncash items:
Unrealized depreciation
of securities 11,250 438,261 449,511
Compensation paid with
stock, warrants
and options 81,247 372,000 453,247
Segment assets 2,073,139 890,863 541,008 3,505,010
Expenditures for
long-lived assets 284 128,443 128,727
F-7
<PAGE>
B. NOTE B - NATURE OF BUSINESS (CONTINUED)
DECEMBER 31, 1997
--------------------------------------------
CORPORATE BROKER/DEALER TOTAL
--------- ------------- ----------
Revenues from external customers $3,734,051 $3,734,051
Interest revenue $ 20,200 73,970 94,170
Depreciation and amortization 63,486 63,486
Equity in loss of unconsolidated 121,115 121,115
affiliate, net
Segment loss (35,913) (965,972) (1,001,885)
Significant noncash items:
Unrealized depreciation of (633,802) (633,802)
securities
Compensation paid with 283,432 283,432
securities
Segment assets 209,000 2,792,183 3,001,183
Expenditures for long-lived assets 266,811 266,811
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] 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 three to seven years. Leasehold improvements
are amortized over the lesser of the economic useful life of the
improvement or the term of the lease.
[2] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[3] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash and cash equivalents, due from broker,
restricted cash, accounts payable and accrued expenses approximate their
fair value because of the short maturity of those instruments.
[4] NET LOSS PER COMMON SHARE:
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 in 1997 was adjusted to reflect cumulative dividends on
preferred shares outstanding.
F-8
<PAGE>
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] COMPREHENSIVE LOSS:
The Company adopted Statement of Financial Accounting Standards
"SFAS No. 130" "Reporting Comprehensive Income" in the year ended
December 31, 1998. SFAS 130 requires presentation of comprehensive income
(net income plus all other changes in net assets from non owner sources)
and its components.
[6] VALUATION OF SECURITIES:
Securities held by GLBN are classified as available-for-sale and are
recorded at their market value. Unrealized gains and losses on securities
held by GLBN are recorded as other comprehensive income.
Unrealized gains and losses on securities held by ICG are recognized as
operating income or loss in the statement of operations. 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 of each security, 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.
Included in securities owned at market value is the common stock of
Worlds, Inc. The carrying amount of the investment in Worlds, Inc.
is $427,969. Worlds, Inc. is subject to the reporting requirements
of the U.S. Securities and Exchange Commission.
Unaudited summarized financial information of Worlds, Inc.
(a development stage enterprise) is as follows:
DECEMBER 31,
1998
-----------
(UNAUDITED)
Current assets $1,693,766
Noncurrent assets 214,246
Current liabilities 1,012,887
Noncurrent liabilities 1,875,018
F-9
<PAGE>
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[6] VALUATION OF SECURITIES: (CONTINUED)
TWELVE MONTHS
ENDED
DECEMBER 31,
1998
-----------
(UNAUDITED)
Income statement data:
Net revenues $ 29,110
Gross loss (169)
Operating loss before
extraordinary item (2,821,228)
Net loss (2,648,681)
[7] INVESTMENT IN AND ADVANCES TO AN UNCONSOLIDATED AFFILIATE:
The Company had a 50% equity interest in an unconsolidated affiliate,
Capital Growth (Europe) Limited ("CGE") which the Company accounted for
using the equity method of accounting. On May 19, 1998, the investment
was sold for $3,931.
[8] CASH EQUIVALENTS:
The Company considers all liquid short-term investments with original
maturities of three months or less to be cash equivalents.
[9] 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.
[10] STOCK-BASED COMPENSATION:
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS 123 encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has elected to continue to account for its
stock-based compensation plans using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25 whereby compensation cost
for stock options is measured as the excess, if any, of the quoted market
price of the Company's common stock at the date of grant over the amount
and employee must pay to acquire the stock.
F-10
<PAGE>
NOTE D - FURNITURE, FIXTURES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At December 31, 1998, fixed assets consist of the following:
Furniture and fixtures $ 89,802
Equipment 30,695
Software 108,000
Leasehold improvements
(located in Europe) 119,506
---------
348,003
Less accumulated depreciation 57,890
---------
Net $290,113
NOTE E - LICENSING AND PROMOTION AGREEMENTS
Licensing and promotion agreements are being amortized on a straight-line basis
over the 1 and 2 year term of the related agreements.
NOTE F - 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 were 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 had 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 therefor.
[2] CLASS B COMMON STOCK:
The holders of the Class B common stock were entitled to one vote per
share. The Class B common stock, which was junior in priority with respect
to dividends to the common stock, converted into common stock on a
one-for-one basis on December 31, 1998.
F-11
<PAGE>
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[3] DIVIDEND:
In March 1997, the Board of Directors declared an annual dividend as
modified of $.225 per share of common stock, for the calendar years ended
1998 and 1997, accruing as of January 1, 1997, payable commencing June 30,
1997, and on a quarterly basis thereafter, to be paid after payment of
any dividends due on all classes of stock with priority over common 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] PRIVATE PLACEMENT:
On December 7, 1998, the Company completed a private offering of its common
stock at $.125 per share. The Company issued a total of 23,248,400 shares
of common stock, which yielded net proceeds of approximately $2,904,000.
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 I). 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 exerciseable to
purchase one share at $4.00 per share (subject to adjustment) through March
2000.
[5] 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.
[6] NONCASH TRANSACTIONS:
In October 1998, the Company issued 250,000 five-year warrants with an
exercise option of $1.00 per warrant for consulting services for a period
of two years. These warrants which vest immediately were valued at their
fair value of $.47 per warrant using the Black-Scholes pricing model with
the following assumptions: interest rate 8.47%, dividend yield of 0%,
volatility factor of .75 and an average expected life of five years. The
unearned portion of the agreement of $96,253 is recorded as deferred
compensatory costs.
In November of 1998, the Company issued 1,000,000 shares of common stock
for 2,500,000 shares of common stock of Atlantic Caspian Resources, a
public company in Great Britain. The Company valued the transaction at the
fair value of the shares received of $.0544 per share on the date of the
exchange. The securities are classified as available for sale and are
included in securities owned at market value. The Company has reported an
unrealized loss on the stock of Atlantic Caspian Resources in the amount
of $11,250, which is classified as other comprehensive loss in the
financial statements.
In December of 1998, the Company issued 160,000 shares of common stock for
consulting services. The shares were valued at their fair market value of
$1.50 on the date the agreement was executed. The unearned portion of the
consulting agreement is recorded as deferred compensatory costs.
In December of 1998, the Company issued 100,000 shares of common stock to
a former employee. The shares were valued at their fair market value
of $1.25 on the date the shares were issued.
F-12
<PAGE>
1. NOTE G - 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 had 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, combination 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 1997 private placement (Note
F[4]). Each warrant is exerciseable into common stock at a price of $4.00 per
share at any time prior to redemption through March 2000.
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 $35,417 in 1997 based on the fair value of the warrant
($.68 per warrant). The fair value of these warrants was estimated using the
Black-Scholes pricing model with the following assumptions: interest rate of
5.92%, dividend yield of 0%, volatility factor of .30 and average expected life
of three 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 years ended
December 31, 1998 and 1997 are as follows:
WEIGHTED WEIGHTED
YEAR ENDED AVERAGE YEAR ENDED AVERAGE
DECEMBER 31, EXERCISE DECEMBER 31, EXERCISE
1998 PRICE 1997 PRICE
-------- -------- -------- --------
Outstanding at
beginning of period 1,689,567 $3.94 1,875,000 $3.73
Granted or exchanged 250,000 1.00 1,899,984 3.74
Expired or exchanged (2,085,417) 3.57
---------- ----------
Outstanding at
end of period 1,939,567 3.56 1,689,567 3.94
========= =========
Exercisable at
end of period 1,939,567 1,689,567 3.94
========= =========
Weighted average
remaining months
of contractual life
at year end 13 22
====== ======
F-13
<PAGE>
NOTE H - STOCK OPTION PLAN
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 nonqaulified stock options. Options granted
under the 1997 Plan are exerciseable 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 exchange
of shares referred to in Note A, ICG option holders exchanged 635,000 options
for options under the 1997 Plan.
On August 15, 1998, the Company terminated the 1997 Plan.
On October 29, 1998, the Company adopted a stock option plan (the "1998
Plan") subject to stockholder approval for granting options to purchase up to
10,000,000 shares of common stock, pursuant to which employees, consultants,
independent contractors, officers and directors are eligible to receive
incentive and/or nonqualified 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 owing 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. Options issued to employees and directors vest
20% on the date of issuance and 80% on the anniversary date of the grant.
Options issued to consultants vest immediately.
Stock option activity under the 1997 Plan and 1998 Plan is summarized as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
---------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
Options outstanding at
beginning of year 635,000 $2.00 660,000 $2.00
Granted or exchanged 6,781,000 0.37 635,000 2.00
Exercised
Cancelled (635,000) 2.00 (660,000) 2.00
---------- ---------
Options outstanding
at end of year 6,781,000 0.37 635,000 2.00
========== =========
Options exercisable
at end of year 1,981,000 211,667
========== =========
F-14
<PAGE>
NOTE H - STOCK OPTION PLAN (CONTINUED)
The following table presents information relating to stock options
outstanding at December 31, 1998.
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE
--------------------------------------------- ----------------------
WEIGHTED
RANGE WEIGHTED AVERAGE WEIGHTED
OF AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE LIFE IN EXERCISE
PRICE SHARES PRICE YEARS SHARES PRICE
------ --------- ----- ----- --------- -----
$ .25 775,000 $.25 1.78 375,000 $.25
$ .375 5,850,000 .375 3.51 1,450,000 .375
$ .81 156,000 .83 2.36 156,000 .83
--------- ---------
$1.25
6,781,000 .37 3.29 1,981,000 .39
========== ==========
At December 31, 1998, 3,219,000 options were available for grant under the
1998 Plan. In addition, the Company must issue 550,000 options to certain
consultants which vest when certain milestones are achieved.
The weighted average fair value at date of grant for options granted during
1998 was $.17 per option. No options were granted in 1997. The fair value of
options at date of grant was estimated using the Black-Scholes option pricing
model utilizing the following assumptions:
1998
-------------
Risk-free interest rates 4.01% to 5.24%
Expected option life in years 2 to 5
Expected stock price volatility 75%
Expected dividend yield 0%
Had the Company elected to recognize compensation cost based on the fair
value of the options at the date of grant as prescribed by SFAS No. 123, net
loss in 1998 and 1997 would have been approximately $3,314,000 and $1,185,000 or
$(.13) and $(.08), respectively, per basic and diluted loss per share.
On January 4, 1999, the Company issued 1,025,000 stock options to certain
employees.
NOTE I - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998 the Company paid consulting fees of
$234,000 to two stockholders of the Company.
Capital Growth International LLC ("CGI"), a company owned by certain of the
ICG directors, utilizes space at the Company's offices without charge. Such
space was not considered significant for the years ended December 31, 1998 and
1997. During the year ended December 31, 1998, the Company received net
consulting fees of $23,000 from CGI.
In March 1997, an aggregate of $46,343 of notes and accrued interest due to
stockholder 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.
F-15
<PAGE>
NOTE I - RELATED PARTY TRANSACTIONS (CONTINUED)
In March 1997, the Company loaned $200,000 at an interest rate of 6% per
annum 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 and the related interest was repaid
on April 9, 1998.
On September 15, 1997, the Company loaned $25,000 to CGI which was repaid
on October 2, 1997 without interest.
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 F[4].)
NOTE J - NET CAPITAL REQUIREMENTS
ICG is subject to the Securities 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 percent of aggregate indebtedness or
$5,000. At December 31, 1998, ICG had net capital of $33,709 which was in
$18,657 in excess of its required net capital.
NOTE K - EXEMPTION FROM RULE 15C3-3
ICG is exempt from the reserve requirement of the Securities Exchange
Commission's Rule 15c3 -3 pursuant to Section 15c3-3(k)(2)(ii).
NOTE L - 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.
F-16
<PAGE>
NOTE L - COMMITMENTS (CONTINUED)
[2] LEASES:
The Company is obligated for annual minimum rentals under leases for
office space as follows:
YEAR ENDING
DECEMBER 31,
------------
1999 $ 98,000
2000 92,000
2001 24,000
---------
$ 214,000
Rent expense was approximately $250,000 and $259,000 for the years ended
December 31, 1998 and 1997, 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 years
ended December 31, 1998 and 1997 was approximately $15,000 and $21,000,
respectively.
NOTE M - PROVISION FOR TAXES
At December 31, 1998, the Company and its subsidiary had available for
federal income tax purposes net operating loss and capital loss carryforwards of
approximately $2,791,000 and $338,000, respectively. The net operating loss
carryforwards expire from 2011 through 2018. The capital loss carryforward
expires in 2003. 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 value attributable to
warrants/options not currently deductible for tax purposes. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit of $1,116,000, capital loss benefit of $128,000 and the benefit of
$664,000 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
$1,124,000 and $394,000 in 1998 and 1997, respectively.
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
December 31, 1998 as a result of changes in stockholder ownership interests
during 1998. Accordingly, the Company would be subject to a significant annual
limitation on the utilization of its net operating losses.
F-17
<PAGE>
NOTE N - SUBSEQUENT EVENTS
On January 7, 1999, the Company issued 275,000 shares of common stock in
lieu of payment of $327,000 for services rendered by a consultant during the
year ended December 31, 1998.
On January 27, 1999, the Company entered into a content supply agreement.
Upon execution of the agreement, the Company granted 2,000,000 warrants to
purchase common stock at an exercise price of $1.00 per warrant for a term of
three years and paid $207,250. The Company valued these warrants at
approximately $4,007,000.
On February 9, 1999, the Company granted 840,000 options to purchase common
stock to a consultant. The consultant will receive an additional 840,000 options
throughout the term of the agreement. The Company valued these warrants at
approximately $921,000.
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.
The Company sold 2,325,400 shares of common stock on February 10, 1999 in a
series of private placements yielding net proceeds of approximately $2,325,400.
On March 31, 1999, the Company entered into a stock exchange agreement with
Telescan, Inc. ("TSCN"). The agreement provides for the exchange of 5,176,161
unregistered shares of the Company's common stock, for 520,000 unregistered
shares of TSCN's common stock. In addition, the Company entered into a stock
option agreement with TSCN. The agreement provides TSCN a one year option to
increase its ownership in the Company to 19.9% by acquiring additional shares at
a purchase price of $3.75. In consideration thereof, the Company received 25,000
shares of TSCN common stock. The option is exercisable through March 30, 2000.
In the event that there is a change in control as defined, the Company is
required to redeem the option for cash in an amount equal to the number of
unexercised options multiplied by the difference between the exercise price and
consideration received by the Company's stockholders in connection with the
change in control.
Also, the Company entered into a service agreement with TSCN. TSCN will
provide information and design services to the Company's internet sites for a
term of two years. The agreement provides for the issuance of 1,577,491
(included in 5,176,161 above) shares of the Company's common stock to TSCN for
these services as they are provided.
On April 1, 1999, a complaint was filed in which ICC was named, in which it
was named as a co-defendant to a lawsuit alleging damages of $990,000 plus
interest and punitive damages, with respect to certain investments made by the
plaintiffs in a company called Waste Systems International, Inc. ("WSI"), for
which ICG acted as a financial consultant and placement agent in connection with
a private offering. The plaintiffs allege that the defendants made numerous
fraudulent and negligent misrepresentations to the plaintiffs, that the
plaintiffs invested in WSI based on those fraudulent and negligent
misrepresentations to the plaintiffs, that the plaintiffs invested in WSI based
on those fraudulent and negligent misrepresentations and that the
misrepresentations were the direct and proximate cause of injuries suffered by
the plaintiffs. Management believes that the claims against ICG are without
merit and is vigorously opposing those claims, however, the outcome is presently
underminable. In the opinion of management any potential liability with respect
to this litigation will not materially affect the Company's financial position
of results of operations.
On April 13, 1999, the Company acquired all of the outstanding shares of
CGE for approximately $43,000 and $25,000 unregistered shares of the Company's
Common Stock.
F-18
<PAGE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
A S S E T S
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Assets:
Cash and cash equivalents ........................................ 2,555,304 1,941,774
Restricted cash .................................................. 105,111 104,664
Due from broker .................................................. 44,930 44,930
Securities owned at market value ................................. 890,774 552,719
Securities not readily marketable, at fair value ................. 9,447,343 132,492
Prepaid Expenses ................................................. 389,447 61,438
------------ -----------
TOTAL CURRENT ASSETS ............................................. 13,432,909 2,838,017
Furniture, fixtures, equipment, and leasehold improvements ....... 266,228 290,113
Licensing and promotion agreements ............................... 450,337 354,726
Other Assets ..................................................... 7,138 22,154
------------ -----------
TOTAL ASSETS ..................................................... $ 14,156,612 $ 3,505,010
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses ............................ $ 165,578 $ 607,656
Dividends payable - preferred stockholders ....................... 38,154 38,154
Dividends payable - common stockholders .......................... 572,625 572,625
Deferred revenue ................................................. 0 5,000
------------ -----------
Total Liabilities ................................................ 776,357 1,223,435
Stockholders' equity:
Preferred Stock - $.001 par value; 20,000,000 shares
authorized, none outstanding ................................. 0 0
Class B Common Stock - $.001 par value; 25,000,000
authorized, none outstanding ................................. 0 0
Common Stock - $.001 par value, 100,000,000 shares authorized;
52,634,457 issued; 44,337,896 issued
as of 3/31/99 and 12/31/98, respectively ..................... 52,634 44,337
Additional Paid in Capital ............................................ 29,948,460 8,852,862
Accumulated Deficit ................................................... (8,296,110) (6,298,121)
Unearned compensatory and licensing costs ............................. (8,408,729) (276,253)
Accumulated other comprehensive loss .................................. 114,000 (11,250)
Treasury Stock (15,000 Shares) ........................................ (30,000) (30,000)
------------ -----------
Total stockholders' equity ....................................... 13,380,255 2,281,575
T O T A L ........................................................ $ 14,156,612 $ 3,505,010
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-19
<PAGE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Consulting fees ......................................... 0 $ 51,750
Advertising and MC1000 revenue .......................... 20,017 0
Private placement fees .................................. 0 427,074
Net realized and unrealized gain(loss) on marketable
and not readily marketable securities .............. 194,531 (200,319)
Interest income ......................................... 11,418 6,241
------------ ------------
Total revenue ................................................ $ 225,966 $ 284,746
------------ ------------
Operating expenses
General and administrative .............................. 2,223,951 574,833
Write-Down of advances to unconsolidated affiliate ...... 0 20,000
------------ ------------
Total operating expenses ........................... 2,223,951 594,833
Net loss ..................................................... $ (1,997,985) $ (310,087)
============ ============
Basic and diluted loss per share ............................. $ (0.04) $ (0.02)
============ ============
Weighted average common shares outstanding - basic and diluted
loss per share ............................................... 45,936,000 19,814,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED STATEMENT OF
COMPREHENSIVE LOSS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net Loss $(1,997,985) $(310,087)
Other Comprehensive Income:
Unrealized gain on available for sale securities 125,250
----------- ---------
Comprehensive Loss $(1,872,735) $(310,087)
=========== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-20
<PAGE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. (1,997,986) (310,087)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ....................................... 137,385 14,929
Equity In loss of unconsolidated affiliate and write-down of advances 0 20,000
Compensation to consultants paid with stock and options ............. 736,333 0
Change in unrealized depreciation of securities ..................... (194,531) 200,319
Receipt of securities in payment of fees ............................ 0 (187,500)
Changes in:
Due from broker ................................................. 0 136,987
Prepaid expenses and other assets ............................... (522,107) 2,000
Accounts payable and accrued expenses ........................... (115,517) (47,551)
Deferred revenues ............................................... (5,000) (10,096)
---------- --------
Net cash (used in) operating activities ................... (1,961,423) (180,999)
---------- --------
Cash flows from investing activities:
Proceeds from sale of securities .......................................... 0 135,970
Investment in restricted cash ............................................. (447) (675)
---------- --------
Net cash (used in) investing activities ................... (447) (135,295)
---------- --------
Cash flows from financing activities:
Proceeds from the issuance of common stock ................................ 2,575,400
Dividends paid ............................................................ 0 (191,165)
---------- --------
Net cash provided by (used in) financing activities ....... 2,575,400 (191,165)
========== ========
Net increase (decrease) in cash and cash equivalents ........................... 613,530 (236,869)
Cash and cash equivalents at beginning of period ............................... 1,941,774 810,659
---------- --------
Cash and cash equivalents at end of period ..................................... 2,555,304 573,790
========== ========
</TABLE>
Noncash Transactions: See Note 9 with respect to settlement of certain
obligations by issuance of securities and share exchange transaction with
Telescan, Inc.
SEE NOTES TO FINANCIAL STATEMENTS
F-21
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of GlobalNet Financial.com, Inc. (the
"Company" or "GLBN") 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.
(2) THE CORPORATION
GlobalNet Financial.com, Inc. (the "Company" or "GLBN") formerly Microcap
Financial Services.com, Inc., prior to that Capital Growth Holdings, Ltd. and
prior to that Galt Financial Corporation, was incorporated in the State of
Colorado on June 15, 1987. On March 14, 1997, GLBN, 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 GLBN 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 GLBN
in the transaction while ICG's historical accumulated deficit was carried
forward. In 1997, after the recapitalization, a Colorado corporation, was merged
into a Delaware corporation, Capital Growth Holdings, Ltd. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, ICG and the wholly owned subsidiary of ICG, Microcap1000.Com Ltd.
("MCAP 1000"). All significant intercompany transactions and balances have been
eliminated.
(3) NATURE OF BUSINESS
The Company and its subsidiaries have three reportable segments. The Company
operates a broker/dealer and an internet web-site. The Company generates
revenues by acting as a placement agent in private financings and as a financial
consultant to various companies. The Company's wholly owned subsidiary, MCAP
1000 provides comprehensive, internet-based electronic publishing of unique
content on the MicroCap sector, generated by analysts and money managers
("MC1000 Gurus"); internet investor access for public companies; and broadcasts
over the internet through video-streamed netcasts of various financial programs.
The Company also maintains their proprietary MicroCap1000 Index, a real-time
index following the stock performance of 1000 companies with market
capitalizations of between $25 million and $500 million.
F-22
<PAGE>
Information with respect to reportable segments follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers 0 0 20,017 20,017
- ----------------------------------------------------------------------------------------------------------------------------
Interest revenue 10,476 942 0 11,418
- ----------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 0 5,034 132,351 137,385
- ----------------------------------------------------------------------------------------------------------------------------
Segment (loss) income 629,448 68,878 (1,437,415) (1,997,985)
- ----------------------------------------------------------------------------------------------------------------------------
SIGNIFICANT NONCASH ITEMS:
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized gain of securities 0 194,531 0 194,531
- ----------------------------------------------------------------------------------------------------------------------------
Compensation paid with securities 333,458 0 362,875 696,333
- ----------------------------------------------------------------------------------------------------------------------------
Segment assets 11,427,839 1,329,090 1,399,683 14,156,612
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MARCH 31, 1998
- ----------------------------------------------------------------------------------------------------------
CORPORATE BROKER/DEALER TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from external customers 0 284,746 284,746
- ----------------------------------------------------------------------------------------------------------
Interest revenue 428 5,813 6,241
- ----------------------------------------------------------------------------------------------------------
Depreciation and amortization 0 14,929 14,929
- ----------------------------------------------------------------------------------------------------------
Segment loss (17,007) (293,080) (310,087)
- ----------------------------------------------------------------------------------------------------------
SIGNIFICANT NONCASH ITEMS:
- ----------------------------------------------------------------------------------------------------------
Unrealized gain of securities 0 (200,319) (200,319)
- ----------------------------------------------------------------------------------------------------------
Segment assets 263,601 2,178,683 2,442,284
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(3) VALUATION OF SECURITIES
Securities held by GLBN are classified as available-for-sale and are recorded at
their market value. Unrealized gains and losses on securities held by GLBN are
recorded as other comprehensive income.
Unrealized gains and losses on securities held by ICG, a registered
broker/dealer, are recognized as operating income or loss in the statement of
operations. 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 of each security, 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.
Included in securities owned at market value is the Common Stock of Worlds, Inc.
and Telescan, Inc. The carrying amount of the investment in Worlds, Inc. at
March 31, 1999 was $622,500 and the carrying amount of the investment in
Telescan, Inc. at March 31, 1999 was $9,333,125. (See Note 9.) Both Worlds,
Inc. and Telescan, Inc. are subject to the reporting requirements of the U.S.
Securities and
F-23
<PAGE>
Exchange Commission.
Unaudited summarized financial information of Worlds, Inc. (a development stage
enterprise) is as follows:
- ---------------------------------------------------------------
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Current assets $ 957,606
- ---------------------------------------------------------------
Noncurrent assets 378,246
- ---------------------------------------------------------------
Current liabilities 1,091,465
- ---------------------------------------------------------------
Noncurrent liabilities 1,852,518
- ---------------------------------------------------------------
Income Statement:
- ---------------------------------------------------------------
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Net Revenues $ 35,177
- ---------------------------------------------------------------
Gross profits 13,713
- ---------------------------------------------------------------
Operating loss before
extraordinary item (628,238)
- ---------------------------------------------------------------
Net loss (628,238)
- ---------------------------------------------------------------
Unaudited summarized financial information of Telescan, Inc. is as follows:
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Current assets $ 26,533,000
- ---------------------------------------------------------------
Noncurrent assets 8,011,000
- ---------------------------------------------------------------
Current liabilities 7,104,000
- ---------------------------------------------------------------
Noncurrent liabilities 342,000
- ---------------------------------------------------------------
Income Statement:
- ---------------------------------------------------------------
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Net Revenues $ 3,428,000
- ---------------------------------------------------------------
Gross profits 452,000
- ---------------------------------------------------------------
Operating loss before
extraordinary item (872,000)
- ---------------------------------------------------------------
Net loss (872,000)
- ---------------------------------------------------------------
(4) 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, September 30, 1998 and December 31, 1998 dividend
payments. The Company recognizes such payments as an obligation.
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 21, 1997.
(5) 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.
F-24
<PAGE>
(6) 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 March 31, 1999, ICG had net capital of $1,038,540 which was $1,028,756 in
excess of its required net capital.
(7) 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).
(8) COMMITMENTS
The Company has issued a letter of credit in the amount of $100,000 to secure
future rent payments and leasehold improvements at the London office of Capital
Growth Europe. The letter of credit is secured by a money market account.
(9) STOCKHOLDER EQUITY TRANSACTIONS DURING QUARTER ENDED MARCH 31, 1999
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 the year ended
December 31, 1998.
On January 27, 1999, the Company entered into a content supply agreement. Upon
execution of the agreement, the Company granted 2,000,000 warrants to purchase
Common Stock at an exercise price of $1.00 per warrant for a term of three years
and paid $207,250. The Company valued these warrants at approximately
$4,007,000.
On February 9, 1999, the Company granted 840,000 options to purchase Common
Stock to a consultant. The consultant will receive an additional 840,000 options
throughout the term of the agreement. The Company valued these warrants at
approximately $921,000.
On March 23, 1999 the Company entered into an agreement with a consultant to
provide investor and public relation services. In connection therewith, the
Company granted 150,000 shares of Common Stock which were valued at their fair
value of $1.40 per share.
The fair market value of Common Stock, options and warrants issued in connection
with the above agreements will be recorded as expense over the term of the
related agreements.
The Company sold 2,575,400 shares of Common Stock in February 1999 in a series
of private placements yielding net proceeds of approximately $2,575,400.
On March 29, 1999, the Company issued 120,000 shares in lieu of a discount for
certain services provided by a consultant. The transaction was recorded at
$40,000 representing the amount of the discount.
On March 31, 1999, the Company entered into a stock exchange agreement with
Telescan, Inc. ("TSCN"). The agreement provides for the exchange of 5,176,161
unregistered shares of the Company's Common Stock, for 520,000 unregistered
shares of TSCN's Common Stock. In addition, the Company entered into a stock
option agreement with TSCN. The agreement provides TSCN a one year option to
increase its ownership in the Company to 19.9% by acquiring additional shares at
a purchase price of $3.75. In consideration thereof, the Company received 25,000
shares of TSCN Common Stock. The option is exercisable through March 30, 2000.
In the event that there is a change in control as defined, the Company is
required to redeem the option for cash in an amount equal to the number of
unexercised options multiplied by the difference between the exercise price and
consideration received by the
F-25
<PAGE>
Company's stockholders in connection with the change in control.
Also, the Company entered into a service agreement with TSCN. TSCN will provide
information and design services to the Company's internet sites for a term of
two years. The agreement provides for the issuance of 1,577,491 (included in
5,176,161 above) shares of the Company's Common Stock to TSCN for these services
as they are provided.
(10) SUBSEQUENT EVENTS
The Company recorded the transaction with TSCN at $17.125 per share, the fair
value of the stock received on the date of the exchange. The fair value was then
allocated to the services to be provided, the option and securities issued.
On April 13,1999, the Company acquired all of the outstanding shares of CGE for
approximately $43,000.00 and $25,000 unregistered shares of the Company's Common
Stock.
In April 1999 the Company granted 450,000 shares of Common Stock to a consultant
to provide financial and investor services for one year. The company valued
these shares at $1,237,500 representing the fair value at the date of grant
which will be charged to expense over the term of the agreement.
On May 14, 1999, the Company sold 448,500 shares of Common Stock in a private
placement resulting in net proceeds of approximately $897,500.
In April 1999 the Company raised proceeds of $5,000,000 in a private placement
of 2,500,000 shares.
In May 1999 the Company received $14,765,338 from Freeserve, Ltd. which
represented the purchase of 6,832,669 shares of Common Stock at $2.00 per share
and the exercise of a warrant for 2,000,000 shares of Common Stock at $1.00 per
share. (See Note 9). In addition, the Company granted Freeserve, Ltd. an option
to increase its ownership to 19.9% of the fully diluted number of shares of
Common Stock outstanding. T he option is exercisable at $2.25 per share and
expires on October 2001.
(11) LITIGATION
On April 1, 1999, ICG was served with a complaint, in which it was named as a
co-defendant to a lawsuit alleging damages of $990,000 plus interest and
punitive damages, with respect to certain investments made by the plaintiffs in
a company called Waste Systems International, Inc. ("WSI"), for which ICG acted
as a financial consultant and placement agent in connection with a private
offering. The plaintiffs allege that the defendants made numerous fraudulent and
negligent misrepresentations to the plaintiffs, that the plaintiffs invested in
WSI based on those fraudulent and negligent misrepresentations and that the
misrepresentations were the direct and proximate cause of injuries suffered by
the plaintiffs. Management believes that the claims against ICG are without
merit and is vigorously opposing those claims, however, the outcome is presently
undeterminable. In the opinion of management any potential liability with
respect to this litigation will not materially affect the Company's financial
position or results of operations.
F-26
<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 $42,836
Legal fees and expenses $7,500
Accounting fees and expenses $30,000
Miscellaneous $5,000
-------
Total $85,336
=======
All amounts except the Securities and Exchange Commission registration
fee are estimated. $26,221.01 of the Securities and Exchange Commission
registration fee was previously sent to the Securities and Exchange Commission
on February 12, 1999 at the time of our previous registration statement filed on
February 12, 1999.
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 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
II-2
<PAGE>
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.
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 a February 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.
In March 1999, we entered into various agreements with Telescan, Inc.
("TSCN"). As a result of these agreements TSCN currently owns 9.9% of GlobalNet.
Under the terms of the agreements, TSCN issued to GlobalNet 520,000 shares of
its common stock, which at the time of the transaction were valued at $10.3
million in exchange for 5,176,161 of our shares. In addition, TSCN purchased a
one year option from us for 25,000 shares of TSCN's common stock to purchase
such number of shares necessary to increase TSCN's position to 19.9% of the then
current shares outstanding.
The Company issued 2,500,000 shares in a April 1999 private offering
which yielded aggregate gross proceeds of $5,000,000.
The Company gross proceeds of $14,765,337 in a private transaction with
FreeServe, Ltd. which included the exercise of Freeserve's Warrant to purchase
2,000,000 shares of Common Stock of GLBN at $1.00 per share.
ITEM 27.--EXHIBITS
(a) The following is a list of Exhibits filed herewith as part of the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NO.
<S> <C>
2.1 Agreement Concerning the Exchange of Securities of International Capital Growth,
Ltd. for Securities of Galt Financial Corporation Dated January 7, 1997(1)
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(1)
3.1 Certificate of Incorporation of the Company, as amended(1)
3.2 By-Laws of the Company(1)
4.1 Form of common stock certificate(2)
4.2 Form of Redeemable common stock Purchase Warrant(2)
4.3 Form of Redeemable Class B common stock Purchase Warrant(2)
5.1 Opinion of Broad and Cassel (to be filed by Amendment)
5.2 Content Supply Agreement between Freeserve Limited and MicroCap Financial Services.com,
Inc.(to be filed by Amendment)
10.1 Intentionally Deleted
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.2 Intentionally Deleted
10.3 Intentionally Deleted
10.4 Lease Agreement, as amended, regarding 2425 Olympic Boulevard, Santa Monica, CA dated October
21, 1997(2)
10.5 Lease Agreement regarding 7280 W. Palmetto Park Road, Suite 202, Boca Raton, Florida(3)
10.6 1998 Stock Option Plan(3)
10.7 Lease Agreement regarding 16150 N. Arrowhead Fountain Center Drive, Peoria, Arizona
23.1 Subsidiaries of the Company(1)
23.2 Consent of Richard A. Eisner & Company, LLP
27.2 Financial Data Schedule(1)
</TABLE>
(1) Filed herewith as an exhibit of the same number to the Company's Form
8-K dated March 14, 1997 and incorporated herein by reference.
(2) Filed as an exhibit of the same number to the Company's Registration
Statement on Form SB-2 (SEC File No. 333-37879) and incorporated herein
by reference.
(3) Filed as an exhibit of the same number to the Company's Registration
Statement on Form SB-2 (SEC File No. 333-72385)
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.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling p-erson 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 ___ day of May, 1999.
By: /S/ RONALD B. KOENIG
--------------------------------------
Ronald B. Koenig
Chairman of the Board of Directors and
Co-Chief Executive Officer
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:
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/S/ RONALD B. KOENIG Chairman of the Board of Directors May ___, 1999
- ------------------------------------------ and Co-Chief Executive Officer
Ronald B. Koenig
/S/ STANLEY HOLLANDER President and Co-Chief Executive May ___, 1999
- ------------------------------------------ Officer
Stanley Hollander
/S/ MICHAEL S. JACOBS Chief Operating Officer, Secretary May ___, 1999
- ------------------------------------------ and Treasurer
Michael S. Jacobs
/S/ ALAN L. JACOBS Executive Vice President and May ___, 1999
- ------------------------------------------ Director
Alan L. Jacobs
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.7 Lease Agreement regarding 6150 N. Arrowhead Fountain Center
Drive, Peoria, Arizona
23.2 Consent of Richard A. Eisner & Company, LLP
EXHIBIT 10.7
LEASE AGREEMENT
ARROWHEAD FOUNTAIN CENTER
SEC BELL ROAD AND LOOP 101
PEORIA, ARIZONA
<PAGE>
LEASE AGREEMENT
ARROWHEAD FOUNTAIN CENTER
SEC BELL ROAD AND LOOP 101
PEORIA, ARIZONA
Table of Contents
ARTICLE 1: PREMISES 1
ARTICLE 2: TERM 3
ARTICLE 3: RENT 5
ARTICLE 4: ADDITIONAL RENT/EXPENSE STOP 6
ARTICLE 5: PARKING 8
ARTICLE 6: RENT TAX AND PERSONAL PROPERTY TAXES 9
ARTICLE 7: PAYMENT OF RENT/LATE CHARGES 9
ARTICLE 8: SECURITY DEPOSIT 9
ARTICLE 9: CONSTRUCTION OF THE PREMISES 10
ARTICLE 10: ALTERATIONS 10
ARTICLE 11: FIXTURES/PERSONAL PROPERTY 11
ARTICLE 12: LIENS 11
ARTICLE 13: USE OF PREMISES/RULES AND REGULATIONS 11
ARTICLE 14: RIGHTS RESERVED BY LANDLORD 13
ARTICLE 15: QUIET ENJOYMENT 14
ARTICLE 16: MAINTENANCE AND SANITATION 14
ARTICLE 17: UTILITIES AND JANITORIAL SERVICES 15
ARTICLE 18: ENTRY AND INSPECTION 16
ARTICLE 19: ACCEPTANCE OF THE PREMISES, LIABILITY INSURANCE AND
INDEMNIFICATION OF LANDLORD 16
<PAGE>
ARTICLE 20: CASUALTY INSURANCE 17
ARTICLE 21: DAMAGE AND DESTRUCTION OF PREMISES 19
ARTICLE 22: EMINENT DOMAIN 20
ARTICLE 23: ASSIGNMENT AND SUBLETTING 20
ARTICLE 24: SALE OF PREMISES OR ASSIGNMENT BY LANDLORD 21
ARTICLE 25: SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT 21
ARTICLE 26: RIGHT TO CURE 22
ARTICLE 27: ESTOPPEL CERTIFICATES 22
ARTICLE 28: DEFAULT AND CONDITIONAL LIMITATIONS 23
ARTICLE 29: TENANT'S RECOURSE 25
ARTICLE 30: FORCE MAJEURE 26
ARTICLE 31: SURRENDER OF PREMISES 26
ARTICLE 32: HOLDING OVER 26
ARTICLE 33: GENERAL PROVISIONS 26
ARTICLE 34: NOTICES 28
ARTICLE 35: BROKERAGE COMMISSIONS 28
ii
<PAGE>
This LEASE AGREEMENT ("Lease") is made and entered into as of April
23rd, 1999, by and between:
ARROWHEAD FOUNTAINS PARTNERS LLC, c/o Koll Development Company, 2777
East Camelback Road, Suite 375, Phoenix, Arizona 85016, hereinafter
referred to as "Landlord", and
MicroCap1000.com, Ltd, of Delaware, 7280 Palmetto Park Road, Suite 202,
Boca Raton, Florida 33433, hereinafter referred to as "Tenant",
WITNESSETH: In consideration of the rents, covenants and agreements given and
exchanged herein, Landlord leases to Tenant, and Tenant leases and accepts from
Landlord, the office space described in Section 1.1, hereinafter referred to as
the "Premises".
All covenants, agreements, terms and conditions between Landlord and Tenant with
respect to the Premises are contained in this Lease and the following two (2)
exhibits attached hereto and incorporated into the Lease by this reference:
Exhibit A - Floor plan of the Office Building, known as Arrowhead Fountain
Office Building, Peoria, Arizona, referred to herein as the "Building".
Exhibit B - Building Standard Work Letter.
ARTICLE 1: PREMISES
1.1 The Premises are located on the second floor of the Building as shown on
Exhibit A in the project known as Arrowhead Fountain Office Building (the
"Project"). The Rentable Area of the Premises has been estimated to be One
Thousand Six Hundred Sixty Nine (1,669) square feet based on a Load Factor (as
defined in Section 1.2(c)) of Twelve and Four Tenths percent (12.4%), and a
Usable Area of One Thousand Four Hundred Eighty Five (1,485) square feet;
provided, however, if the Usable Area or the Load Factor should be greater or
less, as a result of design or construction of the Building, the Premises, other
premises or Interior Common Facilities (as defined in Section 1.2(a), the
Rentable Area of the Premises set forth in this Section 1.1 shall be adjusted
accordingly.
1.2 As used in this Lease:
(a) Rentable Area means:
(i) With respect to the Building, the sum of the total area of all
floors in the Building computed by measuring to the outside finished surface of
the dominant portion of permanent outside building walls. Rentable Area includes
Interior Common Facilities but excludes major vertical penetrations (for
example, stairwells, elevator shafts and vertical ducts) and their enclosing
walls, underground parking areas and exterior balconies.
(ii) With respect to the Premises, the Usable Area of the Premises
multiplied by the sum of a) one hundred percent (100%) and b) the Load Factor.
<PAGE>
No deductions from Rentable Area shall be made for columns or projections
necessary to the Building.
(b) Usable Area means:
(i) With respect to the Building, the aggregate of the area of all of
the premises or space of the Building occupiable by tenants of the Building
whether or not actually occupied with each such area of the premises or space
being computed by the same method used for computing the Usable Area of the
Premises.
(ii) With respect to the Premises, the Usable Area means the area of
the Premises (occupiable by Tenant whether or not actually occupied) computed by
measuring to the finished surface of the office side of corridor walls, to the
midpoint of demising walls and to the outside surface of the dominant portion of
permanent outside walls (other than corridor walls). No deductions from Usable
Area shall be made for columns or projections within the Premises.
(c) Load Factor means a percentage equal to the Rentable Area of the
Building divided by the aggregate Usable Area of all premises and occupiable
space in the Building, less one hundred (100).
(d) Interior Common Facilities means lobbies, corridors, hallways, elevator
foyers, restrooms, mail rooms, mechanical and electrical rooms, janitor closets
and other similar facilities used by tenants or for the benefit of tenants on a
nonexclusive basis. Interior Common Facilities excludes major vertical
penetrations and their enclosing walls, underground parking areas and exterior
balconies.
(e) The floor area of mechanical penthouses shall not be used in the
calculation of Rentable or Usable Area under this Lease.
1.3 Landlord reserves the right to change the Building, the number of floors,
the arrangement and location of the Interior Common Facilities in the Building
and the shape, location, levels, arrangement and dimensions of the Common Areas
as defined in Section 4.1(d), including space reservations in the Automobile
Parking Area (as defined herein), and to construct other buildings or
improvements within the Project. Landlord further reserves the right to change
the shape, dimensions and size of the Premises, provided, however, that no
material changes shall be made to the Premises without the prior written
approval of the Tenant. If the Tenant does not approve of any such material
change, Tenant's sole remedy shall be to cancel this Lease by written notice
thereof within ten (10) days after receipt of Landlord's notification of such
proposed change, and to surrender Tenant's right to possession of the Premises
to Landlord within thirty (30) days after Tenant's written notice of election,
pursuant to Article 31 of this Lease. Upon such surrender, any security deposit
and prepaid rent, if any, paid by Tenant shall be refunded to the Tenant
(provided Tenant is not in default under this Lease), and the Landlord shall
thereupon be released from any further obligations and liabilities to Tenant
under this Lease. Landlord further reserves the right to relocate the Premises
to another location of substantially equivalent size and location in the
Building provided such relocation does not increase the Minimum Monthly Rent or
other costs payable by Tenant under this Lease. If Landlord elects to move
Tenant, Landlord shall build out or renovate the new location with leasehold
improvements at the new location substantially equal to leasehold improvements
constructed or to be constructed on the original Premises
2
<PAGE>
pursuant to Exhibit B hereof ("Leasehold Improvements") and Landlord will pay
Tenant's reasonable costs of moving to the new location, including incidental
costs such as reprinting stationery and new signage.
1.4 Landlord reserves and excepts from the Premises the right of access in,
over, under and upon the Premises as may be reasonably necessary or advisable
for maintenance, repair or construction of the Building or other portions of the
Building, including the right to install, maintain, use and replace pipes, duct
work, conduits, utility lines and wires through ceiling plenum areas, column
space, partitions and in or beneath floor slabs.
ARTICLE 2: TERM
2.1 The term of this Lease ("Lease Term") shall be for a period of Thirty Six
(36) months, plus the remainder of any partial calendar month in which the Lease
Term commences.
2.2 Subject to any adjustments under Article V of Exhibit B. the Lease Term
shall commence on that date upon which Landlord notifies Tenant (or the date
Tenant has actual notice) that Landlord's construction obligations under this
Lease have been substantially completed and that the Premises are ready for
occupancy, with or without actual entry by Tenant (the "Commencement Date").
2.3 Within thirty (30) days after Tenant takes possession of the Premises, both
parties agree to execute a written memorandum setting forth the Commencement
Date, the Minimum Monthly Rent, the date on which this Lease expires
("Expiration Date"), and the stipulated Rentable Area as adjusted under Section
1.2. By executing such memorandum, Tenant accepts the terms therein as binding
and conclusive. If Tenant fails to execute such memorandum within such thirty
(30) day period, then Tenant hereby appoints Landlord as its attorney-in-fact to
execute the memorandum on Tenant's behalf, and the terms therein shall be
binding and conclusive.
2.4 Notwithstanding the above definition of Lease Term, which is used to define
the period following construction of improvements during which Tenant shall pay
Rent (as hereinafter defined), this Lease shall be deemed a lease of real
property effective upon the date of this Lease, regardless of the date of entry
onto the Premises by Tenant.
2.5 If for any reason Landlord cannot deliver possession of the Premises to
Tenant on the Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or the
obligations of Tenant hereunder or extend the Lease Term hereof, but in such
case Tenant shall not be obligated to pay Rent until possession of the Premises
is tendered to Tenant; provided, however, that if Landlord shall not have
delivered possession of the Premises within thirty (30) days from the
Commencement Date, Tenant may, at Tenant's option, by notice in writing to
Landlord within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder. If Tenant occupies
the Premises prior to the Commencement Date, such occupancy shall be subject to
all provisions hereof, such occupancy shall not change the Expiration Date, and
Tenant shall pay Rent for such period as provided herein. Notwithstanding the
foregoing, Tenant may not cancel this Lease if failure to deliver possession
within thirty (30) days from the Commencement Date is caused
3
<PAGE>
by the Tenant's delays or failure to cooperate with the contractor, space
planner, leasing agent or Landlord, or caused by any reason outside of
Landlord's control.
ARTICLE 3: RENT
3.1 Tenant covenants and agrees to pay to Landlord, without deduction, setoff,
prior notice or demand, for the use and occupancy of the Premises the "Minimum
Monthly Rent" set forth below, the Additional Rent set forth in Article 4
hereof, all sums due under Articles 5, 6 and 17 hereof and all other amounts due
the Landlord under this Lease (collectively the Rent). The Minimum Monthly Rent
shall be payable in advance on the first day of each and every calendar month
during the Lease Term. If the Commencement Date occurs on a date other than the
first day of a calendar month, the Minimum Monthly Rent for that month shall be
prorated on a per diem basis and shall be paid to Landlord on the Commencement
Date.
(a) For each month during a time period set forth in column I below, the
Minimum Monthly Rent shall be an amount equal to the mathematical product
obtained by multiplying one twelfth (1/12) of the amount set forth in column 11
below opposite such time period by the Rentable Area of the Premises.
<TABLE>
<S> <C> <C>
I II III
Time Period Annual amount of Minimum Monthly amount of
Monthly Rent per square foot Minimum Monthly Rent
of Rentable Area of the based on 1,669 square
Premises feet of Rentable Area of
Commencement Date $22.75 $3,164.14
through the 36th full
month of the Lease Term
</TABLE>
ARTICLE 4: ADDITIONAL RENT/EXPENSE STOP
4.1 As used in this Lease:
(a) The "Expense Stop" shall be Six and 25/100 Dollars ($6.25) per square
foot of Rentable Area.
(b) "Direct Costs" means and includes:
(1) Those expenses paid or incurred by Landlord (whether directly or
through independent contractors) for managing, maintaining, operating and
repairing the Project, Building, the Common Areas and the personal property used
in conjunction therewith, and the land upon which the Project, Building and
Common Areas are located, including, but not limited to, the cost of utilities,
supplies, insurance, amortization (over the reasonable life of the item) of the
cost of installation of capital investment items which are installed primarily
for the purpose of reducing Direct Costs or which may be required by any
governmental authority; janitorial services; compensation (including employment
taxes, similar government
4
<PAGE>
charges and fringe benefits) of all persons who perform duties in connection
with the operation, maintenance and repair of the Project, Building, Common
Areas and the land upon which the Project, Building and Common Areas are
situated; management fees, legal and accounting expenses; security expenses,
landscaping services, window cleaning, trash removal, elevator and escalator
maintenance, equipment and tools used in the maintenance and operation of the
Building, the rental value of any office space in the Building used as an office
for the property manager of the Project, Building and the Common Areas, and any
other expense or charges whether or not hereinabove described which, in
accordance with consistently applied generally accepted accounting and
management principles would be considered an expense of managing, maintaining,
operating or repairing the Project, Building and Common Areas and the land upon
which they are located; and
(2) All assessments of any kind, including but riot limited to,
assessments pursuant to any agreements affecting the Building or the Project,
impositions, taxes, fees, including license fees, and other governmental or
quasi-governmental levies and charges of any and every kind, ordinary or
extraordinary, foreseen or unforeseen, assessed or imposed upon or with respect
to the ownership of, or other taxable interest attributable to, the Project,
Building, Common Areas and land upon which they are- located and any
improvements, fixtures, equipment and other property of Landlord, real or
personal, located in or used in connection with the operation of the Project,
Building, the Common Areas and the land upon which they are located and any tax
which shall be imposed on any interest therein or excise in substitution for
taxes commonly known as real estate taxes.
(c) Direct Costs shall not include:
(1) Income, estate and inheritance taxes levied against Landlord.
(2) Taxes paid by any tenant as described in Section 6.2 hereof.
(3) Depreciation, capital investment items (except as provided in
Section 4.1(b)(1)) and debt service.
(4) Costs of leasing space in the Building, including leasing
commissions and leasehold improvement costs.
(5) The cost of utilities separately metered to any tenant or resulting
from Excess Consumption under Article 17 and billed directly to that tenant.
(6) The cost of special services provided to any tenant and billed
directly to that tenant.
(7) Repairs and maintenance paid by proceeds of insurance or from
tenants.
(d) "Common Areas" means all areas both interior and exterior provided by
Landlord for the common or joint use and benefit of the occupants of the
Project, and the Building, their employees, agents, customers, and other
invitees including but not limited to the Automobile Parking Area (whether
spaces are assigned, reserved or not) as defined in Article 5 of this Lease,
public restroom facilities, landscaped areas, plaza decks, driveways, walkways,
exterior lighting, ramps, drainage facilities, traffic controls, sidewalks,
building entrances, lobbies and hallways, mechanical rooms, elevator shafts and
stairways accessways, loading docks,
5
<PAGE>
ramps, drives, platforms, common pipes, conduits, wires and appurtenant
equipment serving the Building.
(e) "Operating Year" means the year beginning January 1 and ending December
31. The first Operating Year shall be the Operating Year in which the
Commencement Date occurs.
(f) "Tenant's Pro Rata Share" means a fraction, the numerator of which is
the Rentable Area of the Premises and the denominator of which is the Rentable
Area of the Building.
(g) "Excess Costs" means Direct Costs in excess of the Expense Stop.
4.2 Commencing on the Commencement Date and thereafter with respect to each full
or partial Operating Year during the Lease Term, Tenant shall pay Landlord an
amount equal to Tenant's Pro Rata Share of Excess Costs. As soon as possible
after the Commencement Date, Landlord shall provide Tenant with a written
statement setting forth the Landlord's estimate of Direct Costs for the
remainder of the current Operating Year and for the second Operating Year.
Within one hundred twenty (120) days after the end of each Operating Year after
the second Operating Year, Landlord shall provide Tenant with a written
statement of Landlord's estimate of Direct Costs for the next succeeding
Operating Year. If Landlord's estimate of Direct Costs for any Operating Year
(including any partial Operating Year) exceeds the Expense Stop, Tenant agrees
to pay Landlord, in addition to and concurrently with each payment of the
Minimum Monthly Rent for such Operating Year (or with respect to the remainder
of the Operating Year, concurrently with each payment of Minimum Monthly Rent),
an amount equal to one-twelfth (1/12th) of Tenant's Pro Rata Share of Excess
Costs. Notwithstanding the foregoing, during any Operating Year Landlord may
provide Tenant with a revised estimate of the Excess Costs for the Operating
Year. If the revised estimate of Excess Costs exceeds Landlord's original
estimate of Excess Costs for that Operating Year, Tenant agrees to pay Landlord,
for the remainder of the Operating Year, in addition to and concurrently with
the Minimum Monthly Rent and in addition to the amounts payable under the
preceding sentence, Tenant's Pro Rata Share of the excess divided by the number
of remaining months in the Operating Year.
4.3 Within approximately one hundred twenty (120) days after the end of each
Operating Year after the first Operating Year, Landlord shall provide Tenant
with a statement showing the actual Direct Costs for the preceding Operating
Year and any adjustments to be made as a result thereof. If Tenant's Pro Rata
Share of the actual Excess Costs paid or incurred by Landlord during such
Operating Year exceeds the estimates of Excess Costs paid by Tenant during the
same Operating Year, Tenant shall pay Landlord the excess at the time the next
succeeding payment of Minimum Monthly Rent is payable. If Tenant's estimated
payments of Excess Costs for the Operating Year have exceeded Tenant's Pro Rata
Share of Excess Costs during such Operating Year, Landlord shall apply the
excess against the next installments of Tenant's Pro Rata Share of Excess Costs.
4.4 The determination and statement of Direct Costs shall be made by Landlord
and a copy of such statements shall be made available to Tenant upon demand.
6
<PAGE>
4.5 Notwithstanding anything in this Lease to the contrary, no failure by
Landlord to give notices or statements of Direct Costs within the time specified
shall waive Landlord's right to require payment by Tenant of Direct Costs in
excess of the Expense Stop.
ARTICLE 5: PARKING
5.1 Landlord agrees to operate and maintain or cause to be maintained and
operated an "Automobile Parking Area" during the Lease Term for the benefit and
use of tenants, customers, patrons and employees of tenants of the Building. The
cost of maintenance, operation, repair and management of the Automobile Parking
Area whether paid by or allocated to Landlord shall be included in the Direct
Costs set forth in Article 4 above. Nothing contained herein shall be deemed to
create liability upon Landlord for any damage to motor vehicles of tenants,
customers, patrons or employees or from loss of property from within such motor
vehicles.
5.2 Tenant covenants and agrees at all times during the Lease Term to lease one
(1) covered reserved parking space in the Automobile Parking Area. Subject to
availability, Tenant may from time to time convert unreserved spaces to reserved
spaces. Landlord shall have the right to reserve and assign parking spaces for
other tenants of the Building or to designate parking rights on an unreserved,
non-exclusive basis. Tenant covenants and agrees to pay for each space in
addition to and concurrently with the Minimum Monthly Rent the parking fees
being charged by Landlord, as adjusted by Landlord from time to time and in
Landlord's sole discretion. During the first year of the Lease Term following
the Rent Commencement Date, the parking space fees shall be Thirty Five and
No/100 Dollars ($35.00) per space per month for covered reserved spaces and Zero
and No/100 Dollars ($0.00) per space per month for unreserved parking spaces.
5.3 Landlord shall have the right to establish and from time to time change,
alter and amend, and to enforce against all users of the Automobile Parking
Area, reasonable rules and regulations (including the exclusion of parking from
designated areas and the assignment of spaces to tenants) as may be deemed
necessary and advisable for the proper and efficient operation and maintenance
of said Automobile Parking Area including, without limitation, the hours during
which the Automobile Parking Area shall be open for use.
5.4 Landlord may establish such reasonable charges as Landlord deems appropriate
for the use of the Automobile Parking Area by persons who have not leased space
in the Building. Landlord may establish a system whereby these persons may
present validations issued by tenants in lieu of payment of the parking charges.
If Tenant wishes to provide Tenant's customers, patrons and invitees with
validations as part of the validation system, Tenant agrees to pay Landlord, as
additional rent, those charges established by Landlord for use of the validation
system and to comply with such system and all rules and regulations established
by Landlord for Tenant's use and the use of Tenant's customers, patrons and
invitees of the validation.
ARTICLE 6: RENT TAX AND PERSONAL PROPERTY TAXES
6.1 Tenant covenants and agrees to pay to Landlord, in addition to, and
simultaneously with, any other amounts payable to Landlord under this Lease, a
sum equal to the aggregate
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of any municipal, county, state or federal excise, sales, use or transaction
privilege taxes now or hereafter legally levied or imposed against or on account
of any or all amounts payable under this Lease by Tenant or the receipts thereof
by Landlord (except taxes which are commonly referred to as income, estate, or
inheritance taxes).
6.2 Tenant shall pay, prior to delinquency, all taxes and assessments levied
upon fixtures, furnishings, equipment and personal property placed on the
Premises by Tenant. If any or all of Tenant's fixtures, furnishings, equipment
or personal property shall be assessed and taxed with the Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property of the Tenant, Tenant shall reimburse
Landlord for such assessment and taxes within ten {10) days after delivery to
Tenant by Landlord of a statement in writing setting forth the amount of such
assessment and taxes applicable to the Tenant's property.
ARTICLE 7: PAYMENT OF RENT/LATE CHARGES
7.1 Tenant shall pay the Rent and all other charges herein specified to Landlord
at the address set forth on page one of this Lease, or to another person or at
another address as Landlord shall from time to time designate in writing.
7.2 Any payment of Rent, due and payable from Tenant to Landlord under the terms
of this Lease not received within five (5) days after the due date (the
"Delinquency Date") thereof shall be subject to a one-time late charge of five
percent (5%) of the delinquent amount.
7.3 Any payment of Rent, due and payable from Tenant to Landlord not received by
the Delinquency Date shall bear interest from the date due at the rate equal to
the greater of: (a) eighteen percent (18%) per annum or, (b) a variable per
annum rate equal to the Prime Rate (base rate on corporate loans at large U.S.
money center commercial banks) announced daily in the Wall Street Journal plus
four percent (4%).
ARTICLE 8: SECURITY DEPOSIT
8.1 Tenant shall, upon delivery of this Lease, deposit with Landlord the sum of
Three Thousand One Hundred Sixty-Four and 14/100 ($3,164.14)'as security for the
full and faithful performance of each and every term, provision, covenant and
condition of this Lease.
8.2 If Tenant defaults in any of the terms, provisions, covenants and conditions
of this Lease, Landlord may, but need not, use, apply, or retain the whole or
any part of this security deposit not as liquidated damages but to cure the
default or to compensate the Landlord for any and all damages sustained by
Landlord and a result of said default or for any other sum which Landlord may
spend or be required to spend by reason of Tenant's default. If any portion of
said security deposit is so used or applied, Tenant shall, within five (5) days
after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount. Should Tenant
fully and faithfully comply with all of the terms, provisions, covenants, and
conditions of this Lease, the security deposit or any balance thereof shall be
returned to Tenant or, at the option of Landlord, to the last assignee of
Tenant's interest in this Lease within ten (10) days after the Expiration Date
and surrender of the Premises by Tenant. Landlord's rights with reference to the
security. deposit shall be
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in addition to and shall not preclude any other rights, remedies, or recoveries
available to Landlord by law or under the terms of this Lease.
8.3 Tenant agrees that in case the Landlord shall sell or exchange Landlord's
interest in the Premises during the Lease Term, Landlord may pay the deposit to
any subsequent owner and in that event, Tenant hereby releases Landlord from all
liability for the return of such deposit. Landlord shall not be required to
maintain such funds in a segregated account, but may deposit such funds in any
general account of Landlord, provided that such commingling shall in no way
affect Landlord's obligations to Tenant regarding such funds under this
paragraph. Tenant shall not be entitled to any interest on the security deposit.
ARTICLE 9: CONSTRUCTION OF THE PREMISES
9.1 Landlord shall construct Tenant's Leasehold Improvements, as defined in
Exhibit B. in accordance with plans and specifications prepared by Landlord's
Architect. The respective obligations, covenants and agreements of Landlord and
Tenant to construct the Premises including the division of responsibilities and
procedures for design and construction and for payment of costs and expenses are
more specifically set forth in Exhibit B.
9.2 Prior to the Commencement Date, any work performed by Tenant or its agents
("Tenant's Work"), or any fixtures or personal property moved onto the Premises,
shall be at Tenant's own risk and neither Landlord nor Landlord's agents or
contractors shall be responsible to Tenant for damage or destruction of Tenant's
Work or Tenant's property including damage or destruction occasioned by
Landlord's own negligence. Tenant agrees to indemnify, defend and hold Landlord
harmless against any and all claims or arising from Tenant's use of the
Premises, or the conduct of its business or from any activity work done,
permitted or suffered by the Tenant on or about the Premises, the Building, the
Project or the Commons Areas. This indemnification shall survive the termination
of this Lease.
ARTICLE 10: ALTERATIONS
After completion of Landlord's construction obligations under Article
9, Tenant shall not make, or cause to be made any further additions to, or
alterations of the Premises, or any part thereof, without the prior written
consent of Landlord. As a condition to Landlord giving such consent, Tenant must
provide Landlord with detailed plans and specifications of the proposed
improvements prior to commencement of any such work. As a further condition to
giving such consent, Landlord may require Tenant to provide Landlord, at
Tenant's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half (1~/~) times the estimated cost (as determined by Landlord) of
such improvements to insure Landlord against any liability for mechanics' and
materialmen's liens and to insure completion of the work.
ARTICLE 11: FIXTURES/PERSONAL PROPERTY
All trade fixtures, signs, merchandise or other personal property not
permanently affixed to the Premises shall remain the property of Tenant and may
be removed by Tenant not later than the Expiration Date, provided that Tenant is
not then in default under this Lease.
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Tenant shall promptly repair, at its own expense, any damages occasioned by such
removal. All millwork, built-in appliances, wall covering, floor covering,
window coverings, electrical and plumbing fixtures and conduits, lighting and
other special fixtures that may be placed upon, installed in or attached to the
Premises by Tenant shall, at the Expiration- Date or earlier termination of this
Lease for any reason, be the property of Landlord and remain upon and be
surrendered with the Premises, without disturbance, molestation or injury unless
designated by Landlord to be removed.
ARTICLE 12: LIENS
Tenant shall keep the Premises, the Building, the Project and the
property on which they are situated free from any liens arising out of work
performed, material furnished or obligations incurred due to Tenant's actions or
the failure of Tenant to comply with any law excluding, however, security
interests in Tenant's personal property. If any such lien does attach against
the Premises, the Building or the Project and Tenant does not discharge the lien
or post bond (which under law would prevent foreclosure or execution under the
lien) within ten (10) days after demand by Landlord, Landlord may, without
waiving its rights and remedies based upon such breach of Tenant and without
releasing Tenant of any of its obligations hereunder, take any action necessary
to discharge the lien. Tenant shall pay Landlord upon demand for or on account
of any cost or expense (including reasonable attorney's fees) incurred by
Landlord by reason of attachment or discharge of such lien and shall indemnify
Landlord against any liability arising out of attachment of such lien.
ARTICLE 13: USE OF PREMISES/RULES AND REGULATIONS
13.1 Tenant shall use the Premises solely for general office use and shall not
use or permit the Premises to be used for any other purpose or purposes except
with the prior written consent of Landlord.
13.2 Tenant shall comply with all statutes, ordinances, rules, regulations and
orders of all municipal, state and federal authorities now in force or which may
hereafter be in force pertaining to the use of the Premises, including such laws
governing the storage or disposal of hazardous wastes and protection of the
environment. Tenant shall not use or permit the Premises to be used in whole or
in part for any purpose or use in violation of any of the laws, ordinances,
regulations or rules of any public authority at any time applicable thereto.
13.3 Tenant shall not:
(a) commit, or suffer to be committed, any waste upon the Premises;
(b) engage in any activity which will increase the existing premium rate of
insurance on the Premises or cause a cancellation of any insurance policy or
permit to remain in or about the Premises any article that may be prohibited by
standard form fire insurance policies:
(c) use the Premises for or carry on or permit any offensive, unlawful,
noisy, or dangerous trade, business, manufacture or occupation, or any nuisance
or anything against public policy, or interfere with the business of or disturb
the quiet enjoyment of any other tenant in the Building;
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(d) use the exterior of the roof or walls of the Premises or Building for
any purpose.
(e) without Landlord's prior written consent, cause or permit any Hazardous
Material to be generated, produced, brought upon,-used, stored, treated or
disposed of in or about the Premises or the Building, whether by Tenant, its
invitees, agents, employees, contractors or sublessees. "Hazardous Material"
means any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances, "hazardous
wastes", "infectious wastes", hazardous materials" or "toxic substances" now or
subsequently regulated under any applicable federal, state or local laws or
regulations including, without limitation, oil, petroleum-based products,
paints, solvents, lead, cyanide, DOT, printing inks, acids, pesticides, ammonia
compounds, and other chemical products, asbestos, PCBs and similar compounds,
and including any different products and materials which are subsequently found
to have adverse effects on the environment or the health and safety of persons.
Landlord shall be entitled to take into account such factors or facts as
Landlord may in its good faith business judgment determine to be relevant in
determining whether to grant, condition or withhold consent to Tenant's proposed
activity with respect to Hazardous Material. Tenant shall indemnify, defend and
hold Landlord harmless from any and all actions (including without limitation,
remedial or enforcement actions of any kind, administrative or judicial
proceedings, and orders or judgments arising out of or resulting therefrom,
costs, claims, damages (including, without limitation, punitive damages),
expenses (including, without limitation, attorneys', consultants' and experts'
fees, court costs and amounts paid in settlement of any claims or actions),
fines, forfeitures or other civil, administrative or criminal penalties,
injunctive or other relief (whether or not based upon personal injury, property
damage, contamination of, or adverse effects upon, the environment, water tables
or natural resources), liabilities or losses (economic or other) arising from
the storage, use, treatment or disposition of permitted Hazardous Material by
Tenant, its agents, employees, contractors, sublessees or invitees. This
Indemnification shall survive the termination of the Lease. In no event shall
Landlord be required to consent to the installation or use of any storage tanks
in, on or under the Premises or the Building. With respect to the generation,
production, use, storage, treatment or disposal of permitted Hazardous Material
in or about the Premises by Tenant, its agents, employees, contractors,
sublessees or invitees, then, in addition to any other requirements or
conditions that Landlord may impose in connection with such consent (1) Tenant
promptly shall deliver to Landlord copies of all permits, approvals, filings,
reports and other information reasonably required by Landlord reflecting the
legal and proper generation production, use, storage, treatment or disposal of
all permitted Hazardous Materials generated, used, stored, treated or removed
from the Premises and, upon Landlord's request, copies of all hazardous waste
manifests relating thereto, and (2) upon expiration or earlier termination of
this Lease, Tenant shall cause all Hazardous Materials arising out of or related
to the use or occupancy of the Premises by Tenant or its agents, affiliates,
customers, employees, business associates or assigns to be removed from the
Premises and the Building and transported for use, storage or disposal in
accordance with all applicable laws, regulations and ordinances and Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord of the same.
13.4 Tenant shall faithfully observe and comply with Landlord's rules and
regulations, all parking regulations established in accordance with Article 5,
and all modifications of and additions thereto from time to time put into effect
by Landlord. Landlord shall not be responsible to Tenant for the non-performance
of any other tenant or occupant of the Building.
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ARTICLE 14: RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, exercisable without notice
and without liability to Tenant for damage or injury to property, persons or
business and without effecting an eviction, constructive or actual, or
disturbance of Tenant's use or possession of the Premises and without giving
rise to any claim for setoff or abatement of rent:
(a) To change the Building's name or street address.
(b) To install, affix and maintain any and all signs on the exterior
and interior of the Building.
(c) To designate and approve, prior to installation, all types of
window shades, blinds, drapes, awnings, window ventilators and other similar
equipment, and to control all internal lighting that may be visible from the
exterior of the Building.
(d) To control all sources from which Tenant may obtain ice, drinking
water, towels, toilet supplies, shoe shining, catering, food and beverages
(including vending machines), or the like or other services on the Premises and
in general, to reserve to Landlord the right to control any business and any
services in or to the Building and its tenants.
(e) To retain at all times, and to use in appropriate instances, keys
to all doors within and into the Premises. No locks shall be changed or added
without the prior written consent of Landlord.
(f) To decorate and to make repairs, alterations, additions, changes or
improvements, whether structural or otherwise, in and about the Building, or any
part thereof, and for such purposes to enter upon the Premises and during the
continuance of any of said work to temporarily close doors, entryways, public
space and corridors in the Building, to interrupt or temporarily suspend
Building services and facilities and to change the arrangement and location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets, or other Interior Common Facilities, all without abatement of rent or
affecting any of Tenant's obligations under this Lease, so long as the Premises
are reasonably accessible.
(g) To have and retain a paramount title to the Premises free and clear
of any act of Tenant.
(h) To grant to anyone the exclusive right to conduct any business or
render any service in or to the Building, provided such exclusive right shall
not operate to exclude Tenant from the use expressly permitted herein.
(i) To approve the weight, size and location of safes and other heavy
equipment and articles in and about the Premises and the Building, and to
require all such items and furniture and similar items to be moved into and out
of the Building and Premises only at such times and in such manner as Landlord
shall direct in writing. Movement of Tenant's property into or out of the
Building and within the Building is entirely at the risk and responsibility of
Tenant and shall be conducted pursuant to Building rules and regulations.
(j) To have access for tenants of the Building to any mail chutes
located on the Premises according to rules Of the United States Postal Service.
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(k) To take all such reasonable measures and use best efforts as
Landlord may deem advisable for the security of the Building and its occupants,
including without limitation, the evacuation of the Building for cause,
suspected cause, or for drill purposes, the temporary denial of access to the
Building, and the restriction of access to the Building at times other than
normal business hours. Landlord assumes no liability for criminal acts.
Reservation of the rights set forth in this Article shall impose no obligation
or duty upon Landlord to exercise said rights.
ARTICLE 15: QUIET ENJOYMENT
Landlord covenants that upon Tenant's paying the Rent arid keeping and
performing all of the terms, covenants and conditions of this Lease, Landlord
will do nothing that will prevent Tenant from peaceably and quietly enjoying,
holding and occupying the Premises during the Lease Term. This covenant shall
not extend to any disturbance, act or condition brought about by any other
tenant in the Building and shall be subject to the rights of Landlord set forth
in this Lease. Tenant agrees this Lease shall be subordinate to any Easements,
Covenants, Conditions and Restrictions or any amendments thereto hereafter
imposed upon the property upon which the Building is located. This subordination
provision shall be self- operative, however, Tenant agrees to execute and
deliver such further instruments necessary to subordinate this Lease to the lien
of Easements, Covenants, Conditions and Restrictions or amendments hereafter
imposed by Landlord.
ARTICLE 16: MAINTENANCE AND SANITATION
16.1 Subject to Articles 21 and 22 and Tenant's obligations under Sections 16.2
and 16.3, Landlord covenants to maintain the Building in good and tenantable
condition and repair. Tenant hereby waives all rights to make repairs at the
expense of Landlord. Landlord's maintenance and repair costs under this Section
16.1 will be deemed a Direct Cost. The foregoing notwithstanding, Landlord shall
not be liable to Tenant for failure to make repairs as required herein unless
Tenant has previously notified Landlord, in writing, of the need for such
repairs and Landlord has failed to commence said repairs within fifteen (15)
days following receipt of Tenant's written notification. Landlord shall have no
obligation to alter, remodel, improve, renovate, decorate or paint the Premises
except as set forth in Exhibit B.
16.2 If Landlord would be required to perform any maintenance or make any
repairs under Section 16.1 because of: (a) modifications to the roof, walls,
foundation and floor of the Building from that set forth in Landlord's plans and
specifications which are required by Tenant's design for improvements,
alterations and additions; (b) installation of Tenant's improvements, fixtures
or equipment; (c) Tenant's or Tenant's employees' or customers' negligence or
wrongful act; or, (d) Tenant's failure to perform any agreements contained in
this Lease, Landlord may perform the maintenance or repairs and Tenant shall pay
Landlord the cost thereof plus a reasonable amount for Landlord's overhead upon
receipt of a statement from Landlord. Landlord's costs under this Section shall
not be a Direct Cost for purposes of Article 4.
16.3 Tenant covenants and agrees to;
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(a) pay Landlord, Landlord's cost of maintenance and repair, including
additional janitorial costs, of any Non-Building Standard Improvements and
Non-Building Standard materials and finishes, as defined in Exhibit B. and
special leasehold improvements in excess of or in addition to Building Standard,
as defined in Exhibit B.
(b) pay Landlord, Landlord's cost of repair or replacement of all
ceiling and wall finishes (including painting) and floor or window coverings
which require repair or replacement during the Lease Term. Landlord's costs
under this Section 16.3 will not be deemed a Direct Cost.
ARTICLE 17: UTILITIES AND JANITORIAL SERVICES
17.1 Landlord agrees to furnish to the Premises during normal business hours,
and subject to the rules and regulations of the Building, electricity suitable
for the intended use of the Premises, heat and air conditioning required in
Landlord's judgment for normal use and occupation of the Premises, and
janitorial services for the Premises and Common Facilities. "Normal business
hours" shall be Monday through Friday, 7:00 AM to 6:00 PM, and Saturday, 8:00 AM
to 12:00 Noon. Landlord further agrees to furnish hot and cold water to those
areas provided for general use of all tenants in the Building. Subject to
Tenant's payment for Excess Consumption, Landlord agrees to make electricity,
heat, air conditioning and elevator service available to the Premises on a
twenty-four t24) hour a day, seven (7) day a week basis. Subject to Landlord's
maintenance and repair obligations, Tenant may have access to the Premises
twenty-four (24) hours a day during each day of the year.
17.2 As used in this Article 17, "Excess Consumption" means (i) the consumption
of electrical current in excess of five (5) watts per square foot of Usable Area
of the Premises (excluding electricity used for heating, ventilation and air
conditioning) including water, and compressed air (if compressed air is
furnished by Landlord) in excess of that which would be provided to the Premises
were the Premises to be built out with Building Standard Improvements only and
used as general office space; and (ii) heating, ventilation and air conditioning
during times other than Monday through Friday, 7:00 AM to 6:00 PM, and Saturday,
8:00 AM to 1:00 PM. Tenant will not, without the written consent of Landlord,
use any apparatus, device or equipment in the Premises, or use heating,
ventilation or air conditioning which will in any way result in Excess
Consumption or connect, except through existing electrical outlets, water pipes,
ducts or airpipes (if any) in the Premises, any apparatus, or device, for the
purposes of using electric current, water, heating, cooling or air. If Tenant
shall require water, heating, cooling, air or electric current which will result
in Excess Consumption, Tenant shall first procure the consent of Landlord to the
use thereof, and Landlord may cause separate meters to be installed to measure
Excess Consumption or establish another basis for determining the amount of
Excess Consumption. Landlord's installation of after hours air conditioning
override controls and cost monitoring equipment in or for the Premises will be
deemed to be Landlord's consent to the use of after hours heating, ventilation
and air conditioning. Landlord may disable such controls upon Tenant's default
in payment for such Excess Consumption. Tenant covenants and agrees to pay for
the cost of the Excess Consumption based on Landlord's cost, plus any additional
expense incurred in installing meters or keeping account of the Excess
Consumption, at the same time as payment of the Minimum Monthly Rent is made.
Tenant further agrees to pay Landlord the cost, if any, to upgrade existing
mechanical, electrical, plumbing and air facilities, if required to provide
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Excess Consumption, upon receipt of a statement therefor. Excess Consumption
costs will not be a Direct Cost for purposes of Article 4.
17.3 Landlord shall not be liable in damages or otherwise in the event of
any-failure or interruption of any utility or service supplied to the Premises
or Building by a regulated utility or municipality and no such failure shall
entitle Tenant to terminate this Lease.
ARTICLE 18: ENTRY AND INSPECTION
18.1 Landlord and Landlord's agents shall have the right to enter into and upon
the Premises at all reasonable times for the purpose of inspecting the Premises;
performing Landlord's maintenance and repair obligations under this Lease;
maintaining or making repairs, alterations, or additions to any other portion of
the Building, including the erection and maintenance of such scaffolding,
canopy, fences and props as may be required; posting notices of nonliability for
alterations, additions or repairs, or of the availability of the Premises for
lease or sale; or exhibiting the Premises to potential tenants, lenders or
purchasers. Tenant shall permit Landlord, at any time within one hundred fifty
(150) days prior to the expiration of the Lease Term, to place upon the Premises
any usual or ordinary "For Lease" signs.
18.2 If Tenant shall not be personally present to open and permit an entry into
said Premises, at any time, when for any reason an entry therein shall be
necessary, Landlord or Landlord's agents and contractors may use a master key to
enter, without rendering Landlord or such agents liable therefor, and without in
any manner affecting the obligations and covenants of this Lease. Landlord shall
be permitted to take any action under this Article without any abatement of rent
and without any liability to Tenant for any loss of occupancy or quiet enjoyment
of the Premises thereby occasioned, nor shall such action by Landlord be deemed
an actual or constructive eviction.
18.3 Landlord or its agents shall not be liable for (i) any damage to any
property entrusted to employees of the Building or Project; (ii) loss or damage
to any property by theft or otherwise; (iii) any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain which may leak from any part of the Building or from
the pipes, appliances, or plumbing work therein or from the roof, street, or
subsurface or from any other place or resulting from dampness or any other cause
whatsoever. Landlord or its agents shall not be liable for interference with
light or other incorporeal hereditaments, nor shall Landlord be liable for any
latent defect in the Premises or in the Building. Tenant shall give prompt
notice to Landlord in case of fire or accidents in the Premises or in the
Building or of defects therein or in fixtures or equipment.
ARTICLE 19: ACCEPTANCE OF THE PREMISES, LIABILITY INSURANCE AND
INDEMNIFICATION OF LANDLORD
19.1 All merchandise, furniture, floor and wall covering and all personal
property and fixtures belonging to Tenant and all persons claiming by or through
Tenant which may be on the Premises shall be at Tenant's sole risk. Tenant
hereby waives all claims against Landlord for loss, injury or damage to all
persons and property in the Building or on the Premises or the Common Areas from
theft, fire, water, gas or otherwise, including sprinkler leakage or
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bursting pipes. Subject to completion of Landlord's construction obligations
under Exhibit B and the correction of "punch list" items resulting from such
construction, Tenant accepts the Premises "as is" and Landlord makes no warranty
as to the condition of the Premises.
19.2 Tenant shall indemnify, defend and hold Landlord and Landlord may agree
harmless from all claims arising from Tenant's use of the Premises or the
conduct of its business or from any activity, work or thing done, permitted or
suffered by Tenant in or about the Premises, the Building, the Project, or the
Common Area. Tenant shall further indemnify, defend and hold Landlord and
Landlord's may agree harmless from all claims arising from any breach or default
in the performance of any obligation to be performed by Tenant under the terms
of this Lease, or arising from any act, neglect, fault or omission of Tenant or
of its agents or employees, and from and against all costs, attorneys' fees,
expenses and liabilities incurred in or about such claim or any action or
proceeding brought thereon. In case any action or proceeding shall be brought
against Landlord and Landlord may agree by reason of any such claim, Tenant,
upon notice from Landlord, shall defend the same at Tenant's expense by counsel
approved in writing by Landlord. Tenant, as a material part of the consideration
to Landlord, hereby assumes all risk of damage to property or injury to person
in, upon or about the Premises from any cause whatsoever except that which is
caused solely by the gross negligence or willful misconduct of Landlord or its
employees in the operation and maintenance of the Premises, the Building or the
Project. Tenant hereby waives all its claims in respect thereof against
Landlord. This indemnification shall survive the termination of the Lease.
Neither Landlord nor any partner, director, officer, agent or employee of
Landlord shall be liable to Tenant or its partners, directors, officers,
contractors, agents, employees, invitees, sublessees or licensees, 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 solely caused
by or solely resulting from the gross negligence or willful misconduct of
Landlord or its employees in the operation or maintenance of the Premises, the
Building, or the Project without contributory negligence on the part of Tenant
or any of its sublessees or licensees or its or their employees, agents or
contractors, or any other lessees or occupants of the Building or Project.
Further, neither Landlord nor any partner, director, officer, agent, or employee
of Landlord shall be liable (i) for any such damage caused by other lessees or
persons in or about the Building or Project, or caused by quasi-public work; or
(ii) for consequential damages arising out of any loss of the use of the
Premises of any equipment of facilities therein by Tenant or any person claiming
through or under Tenant.
19.3 Unless the Claim (as defined below) is subject to the waiver set forth in
Section 20.3, Tenant agrees to indemnify, defend and hold Landlord and
Landlord's Mortgagee harmless against all Claims against Landlord or the
Mortgagee arising from: Tenant's possession, use, maintenance or repair of the
Premises; any act or omission of Tenant or Tenant's invitees, contractors,
subtenants, agents or employees including acts occurring on the Premises or the
Common Areas, irrespective of the insurance carried by Landlord under Section
19.5; or any default of Tenant under this Lease.
19.4 Upon taking possession of the Premises and thereafter during the Lease
Term, Tenant shall, at Tenant's sole cost and expense j maintain comprehensive
liability insurance, including, without limitation, premises/operations
liability, products-completed operations, contractual liability and automobile
(including non-owned and hired automobile) coverage, against Claims for personal
injury, death, or property damage occurring in, upon, or about the Premises. The
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limits of liability of such insurance shall not be less than Two Million Dollars
($2,000,000) combined single limit and $5,000,000 of umbrella coverage or in
such higher amounts as Landlord may require. All such policies of insurance
shall endorse Landlord (including Landlord's property manager and partners and
affiliated business entities comprising Landlord) and the Mortgagee as
additional insureds or loss payees with respect to legal liability or Claims
caused by, arising out of, or resulting directly or indirectly from Tenant's
occupancy of the Premises and operations on or related to the Premises, Building
or Common Areas. Tenant's liability insurance shall be primary with respect to
any liability or Claim arising out of occupancy of the Premises by Tenant or
Tenant's business, and any insurance carried by Landlord under Section 19.5
shall be noncontributory, unless the Claim arises from Landlord's gross
negligence and willful misconduct and then only to the extent of Landlord's
proportionate fault.
19.5 Tenant's insurance shall be maintained with an insurance company qualified
to do business in the state in which the Premises are located and having a
current A.M. Best manual rating of at least A-XII or better. Tenant's insurance
policies will contain endorsements stating that the insurance will not be
cancelled nor will the carrier fail to renew or materially change the policy
without first giving Landlord thirty (30) days written notice. Before entry into
the Premises and before expiration of any policy, Tenant shall provide Landlord
with evidence that Tenant maintains workman's compensation insurance and that
the other requirements of this article have been met and that the applicable
premiums or renewal premiums have been paid.
19.6 During the entire Lease Term, Landlord agrees to maintain public liability
insurance against Claims for personal injury, death, or property damage
occurring on the Common Areas. The limits of liability of such insurance shall
be in such amounts as Landlord shall determine but shall be at least equal to
the limits required to be maintained by Tenant. The cost of the public liability
and property damage insurance on the Common Areas shal! be a Direct Cost under
Article 4.
19.7 Landlord shall not be responsible or liable to Tenant for any Claim for
loss or damage caused by the acts or omissions of any persons occupying any
space adjacent to or adjoining the Premises.
19.8 As used in this Article, "Claim" means any claim (including a claim based
upon imputed negligence), suit, proceeding, action, cause of action,
responsibility, liability, demand, judgment and execution.
ARTICLE 20: CASUALTY INSURANCE
20.1 Tenant shall maintain fire and extended coverage insurance (full
replacement value, One Thousand Dollars ($ 1,000.00) maximum deductible) for
loss, injury or damage from theft, vandalism, malicious mischief, fire, water,
gas or otherwise, including sprinkler leakage or bursting pipes with a business
interruption endorsement, on merchandise, personal property, equipment and trade
fixtures owned or used by Tenant and other property which Tenant may remove on
the Expiration Date. Tenant shall not maintain insurance on any structural
portion of the Premises, roof, demising or interior walls or floors. In event of
violation of this obligation, Tenant agrees all proceeds of Tenant's insurance
policies, except proceeds related
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to Tenant's personal property or improvements supplied by Tenant, will be held
in trust for the benefit of Landlord.
20.2 Landlord shall maintain fire and full extended coverage insurance (-all
risk") including vandalism and malicious mischief, sprinkler leakage damage and
flood and boiler explosion endorsements throughout the Lease Term on the
Building (excluding Tenant's trade fixtures and personal property) and may name
the holder of a mortgage or deed of trust and any ground lessor as additional
insured. Landlord may elect to self-insure any- component comprising the Common
Areas. At Landlord's option, the policy of insurance may include a business
interruption insurance endorsement for loss of rents. The cost of the insurance
obtained under this Section shall be a Direct Cost under Article 4 of this
Lease. If, however, during the Lease Term premiums for fire and extended
coverage insurance are or may be calculated by rating the premises of individual
tenants within the Building and it is determined that the rate for the Premises,
due to Tenant's special fixtures, Non-Building Standard Improvements, business
or otherwise, is in excess of the rate attributable to the premises having the
lowest rate, Tenant agrees to pay Landlord the difference between the premium
attributable to the Premises and that premium which would be attributable to the
Premises were the Premises rated at the lowest rate. If the Building is rated as
a whole and it is determined that the premium, due to Tenant's special fixtures,
Non-Building Standard Improvements or business, is in excess of the premium
which would have been charged, but for Tenant's fixtures, improvements or
business, Tenant agrees to pay Landlord such excess. Tenant shall have no rights
in said policy procured by Landlord under this Section and shall not be entitled
to be named as insured thereunder.
20.3 Tenant hereby waives any right of recovery from Landlord, and Landlord's
agents, officers and employees, and Landlord hereby waives any right of recovery
from Tenant and Tenant's agents, officers or employees, for any loss or damage
(including consequential loss) resulting from any of the perils insured against
by either's fire and extended coverage insurance policy. Neither Landlord nor
Tenant shall be liable to the other or to any insurance company insuring the
other party (by way of subrogation or otherwise) for any loss or damage to any
building, structure or other tangible property; or any resulting loss of income,
or losses under worker's compensation laws and benefits, even though such loss
or damage might have been occasioned by the negligence of such party, its agents
or employees, if any such loss or damage is covered by insurance benefitting the
party suffering such loss or damage or was required to be covered by insurance
pursuant to this Lease. Each party agrees to obtain from its respective
insurance carrier an endorsement or other coverage such that the waiver
contained in this Section 20.3 shall not void any insurance policy.
ARTICLE 21: DAMAGE AND DESTRUCTION OF PREMISES
21.1 In the event of (a) fire or other casualty damage to the Premises or the
Building during the Lease Term which requires repairs to either the Premises or
the Building, or (b) the Premises or Building being declared unsafe or unfit for
occupancy by any authorized public authority for any reason other than Tenant's
act, use or occupation, which declaration requires repairs to either the
Premises or the Building, Landlord shall commence to make said repairs within
sixty (60) days of written notice by Tenant of the necessity therefor. The
Minimum Monthly Rent shall be proportionately reduced from the date of such
damage or declaration, based upon the extent to which such damage or declaration
and the making of such repairs shall interfere with the business carried on by
Tenant in the Premises.
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21.2 Landlord's obligation to repair the Premises shall, however, be subject to
the following. If:
(a) during the last year of the Lease Term any portion of the Premises or
the Building is damaged as a result of fire or any other insured casualty; or,
(b) at any time the Premises is damaged to the extent of twenty-five
percent (25%) or more of replacement value; or,
(c) the Premises or the Building are damaged or destroyed as a result of a
casualty not insured against; or,
(d) the Building shall be damaged or destroyed by fire or other cause to
the extent of twenty percent of more of the Building's replacement value,
Landlord shall have the right, to be exercised by notice in writing to Tenant
given within ninety (90) days from said occurrence, to cancel and terminate this
Lease. Upon notice to Tenant, the Lease Term shall expire automatically upon the
third (3rd) day after such notice is given, and Tenant shall vacate the Premises
and surrender the same to Landlord. If Landlord elects to terminate this Lease
under this Section, all rents shall be prorated as of the date of damage or
destruction and Landlord shall be released from liability or obligation to
Tenant. If Landlord, however, elects to make said repairs, and provided Landlord
uses due diligence in making said repairs, this Lease shall continue in full
force and effect and the Minimum Monthly Rent shall be proportionately reduced
as provided in Section 21.1.
21.3 With respect to any destruction (including any destruction necessary in
order to make repairs) which Landlord is obligated to repair or may elect to
repair under the terms of this Article, Tenant waives any statutory or other
right Tenant may have to terminate this Lease as a result of such destruction
and no such destruction shall annul or void this Lease.
21.4 The provisions of this Article shall supersede the obligations of Landlord
to make repairs under Section 16.1 of the Lease. Landlord shall not be obligated
to make repairs to the extent that the cost thereof exceeds the insurance
proceeds or to the extent such repairs would exceed Building Standard as defined
in Exhibit B.
21.5 Unless the Lease is terminated under this Article, upon substantial
completion of Landlord's restoration obligations, the Minimum Monthly Rent shall
be restored to the amount which would have been in effect but for the damage or
destruction.
ARTICLE 22: EMINENT DOMAIN
22.1 As used in this Article, "Taking" means a taking of or damage to the
Premises or Building or any part thereof by exercise of the power of eminent
domain, condemnation or sale under the threat of or in lieu of eminent domain or
condemnation.
22.2 If the whole of the Building or the whole of the Premises shall be acquired
by a Taking, or if the whole of the Automobile Parking Area is acquired by a
Taking then this Lease shall terminate as of the date of taking of possession by
the Taking authority.
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22.3 If more than ten percent (10%) Of the value of the Building is acquired by
a Taking, whether or not any portion of the Premises is so taken, Landlord shall
have the right to terminate this Lease as of the date of such Taking by giving
Tenant ninety (90) days written notice of Landlord's intent to terminate this
Lease.
22.4 If more than twenty-five percent (25%) of the Premises is acquired in a
Taking, either Landlord or Tenant may terminate this Lease upon notice to the
other within ninety (90) days prior to taking of possession. If less than
twenty-five percent (25%) of the Premises is acquired in a Taking and the award
received is sufficient to restore the Premises, subject to Section 22.3,
Landlord shall promptly restore the Premises to a condition comparable to its
condition at the time of such condemnation less the portion acquired in the
Taking, this Lease shall continue in full force and effect with respect to that
part not acquired, and the Minimum Monthly Rent shall be reduced in the
proportion that the rental value of the Premises after the taking bears to the
rental value before the Taking.
22.5 Notwithstanding Section 22.2, if any part of the Automobile Parking Area
shall be acquired by a Taking, Landlord shall have the right to provide
substitute parking facilities and this Lease shall continue in full force and
effect unless a governmental entity forces the closing of the Building. If a
closing is required, this Lease shall terminate on the date of closing.
22.6 In the event of a Taking as hereinbefore provided, whether whole or
partial, the Tenant shall not be entitled to any part of the award, as damages
or otherwise for diminution in value of the leasehold, reversion or fee, and
Landlord is to receive the full amount of such award. Tenant hereby expressly
waives any right or claim to any part thereof. Tenant shall have no claim
against Landlord for the value of the unexpired Lease Term if the Lease is
terminated under this Article. Although all damages in the event of any
condemnation are to belong to the Landlord, Tenant shall have the right to claim
and recover from the condemning authority, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in Tenant's
own right on account of any damage to Tenant's business by reason of the
condemnation and for or on account of any cost or loss to which Tenant might be
put in removing Tenant's merchandise, furniture, trade fixtures and equipment.
22.7 If this Lease is terminated partially or in total under this Article, all
rents shall be prorated as of the date of Taking including refunds for amounts
paid in advance by Tenant.
ARTICLE 23: ASSIGNMENT AND SUBLETTING
23.1 Tenant shall not transfer or assign this Lease, or any interest therein,
and shall not sublet or allow any other person to occupy or use of the Premises
or any part thereof, or any right or privilege appurtenant thereto, including
spaces in the Automobile Parking Area, without Landlord's prior written consent
which will not be unreasonably withheld. Consent by Landlord to one assignment,
subletting, occupation or use by another person shall not be deemed to be a
consent to any subsequent assignment, subletting, occupation or use by another
person. Neither this Lease nor any interest therein shall be assignable, as to
the interest of Tenant, by operation of law, without prior written consent of
Landlord. Any attempted transfer, assignment or subletting without the prior
written consent of Landlord shall be void at Landlord's option and shall
constitute a default under this Lease. AII sums and consideration received by
Tenant from its subtenants
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or assignees in excess of the Minimum Monthly Rental rent payable to Landlord
under this Lease shall be paid to Landlord.
If Tenant is a corporation, an unincorporated association, a partnership, or a
limited liability company, unless listed an a national stock exchange, the
transfer, assignment or hypothecation of any stock or interest in such
corporation, association, partnership, or limited liability company in the
aggregate in excess of fifty percent t50%) shall be deemed an assignment of this
Lease.
23.2 If Tenant, with Landlord's prior written approval, assigns this Lease or
sublets the Premises, and the assignee or sublessee maintains the liability
insurance coverage required by Section 19.3, Tenant shall be relieved of such
obligation but no other obligation under this Lease. Tenant agrees to pay
Landlord reasonable legal fees incurred in connection with the processing of any
documents necessary to give consent. In the event of default by any assignee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
or pursuing any remedies against said assignee or successor.
23.3 The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to Landlord of any or all such
subleases or subtenancies.
ARTICLE 24: SALE OF PREMISES BY LANDLORD
In the event of any sale of the Building or the property upon which the
Building is located or assignment of this Lease by Landlord, Landlord shall be
and is hereby entirely freed and relieved of all liability under any and all of
Landlord's covenants and obligations contained in or derived from this Lease or
arising out of any act, occurrence or omission occurring after such sale or
assignment; and the assignee or purchaser, at such sale or any subsequent sale
of the Premises or assignment of this Lease, shall be deemed, without any
further agreement between the parties and only such assignee or purchaser, to
have assumed and agreed to carry out any and all of the covenants and
obligations of Landlord under this Lease.
ARTICLE 25: SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT
Tenant's interest under this Lease shall be subordinate to all terms of the
lien of any ground lease, deed of trust, mortgage or security agreement
(hereinafter collectively referred to as "Mortgage") now or hereafter placed on
the Landlord's interest in the Premises, the Building or on the land upon which
the Building is located and any amendments thereto. If Landlord has not obtained
permanent financing for the Building having a term of at least fifteen (15)
years at the time of execution of this Lease, Tenant agrees to reasonable
amendments to this Lease as may be requested by a lender who proposes to fund
permanent financing provided the amendment does not increase Tenant's monetary
obligations under this Lease. Tenant further consents to an assignment of
Landlord's interest in this Lease to Landlord's lender as required under such
financing. If the Premises or the Building is sold pursuant to default on the
Mortgage, or pursuant to a transfer in lieu of foreclosure, Tenant shall, at the
Mortgage holder's or purchaser's election, not disaffirm this Lease but shall
attorn
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to the Mortgage holder or purchaser, and if so requested, enter into a new lease
for the remainder of the Lease Term. This Article shall be self-operative,
however, Tenant agrees to execute and deliver, within ten (10) days after
request by Landlord, such further instruments necessary to subordinate this
Lease to a lien of any Mortgage, to acknowledge the consent to assignment and to
affirm the attornment provisions set forth herein.
ARTICLE 26: RIGHT TO CURE
In the event of breach, default, or noncompliance under this Lease by
Landlord, Tenant shall, before exercising any right or remedy available to it,
give Landlord written notice of the claimed breach, default, or noncompliance.
If prior to its giving such notice Tenant has been notified in writing (by way
of Notice of Assignment of Rents and Leases, or otherwise) of the address of a
lender which has furnished financing secured by a Mortgage, as defined in
Article 25, on the Premises or the Building, concurrently with giving the
aforesaid notice to Landlord, Tenant shall also give notice by certified mail to
such lender. For the thirty (30) days following such notice (or such longer
period of time as may be reasonably required to cure a matter which, due to its
nature, cannot reasonably be remedied within thirty (30) days), Landlord shall
have the right to cure the breach, default, or noncompliance involved. If
Landlord has failed to cure a default within said period, any such lender shall
have an additional thirty (30) days within which to cure the same or, if such
default cannot be cured within that period, such additional time as may be
necessary if within such thirty (30) day period said lender has commenced and is
diligently pursuing the actions or remedies necessary to cure the breach,
default, or noncompliance involved (including, but not limited to, commencement
and prosecution of proceedings to foreclose or otherwise exercise its rights
under its mortgage or other security instrument, if necessary to effect such
cure), in which event this Lease shall not be terminated by Tenant so long as
such actions or remedies are being diligently pursued by said lender.
ARTICLE 27: ESTOPPEL CERTIFICATES
Tenant agrees at any time and from time to time upon request by the
Landlord, to execute, acknowledge and deliver to Landlord a statement within ten
(10) business days of demand in writing certifying (a) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating such
modifications), (b) the dates to which the Minimum Monthly Rent and other
charges have been paid in advance, if any, (c) Tenant's acceptance and
possession of the Premises, (d) the commencement of the Lease Term, (e) the rent
provided under the Lease, and (f) that Landlord is not in default under this
Lease (or if Tenant claims such default, the nature thereof), (9) that Tenant
claims no offsets against the Rent, and (h) such other information as shall be
reasonably necessary to establish the status of the tenancy created by this
Lease. It is intended that any such statement delivered pursuant to this Article
may be relied upon by any prospective purchaser, Mortgage holder or assignee of
any Mortgage holder of the Premises or the Building. Tenant's failure to deliver
such statement within such time shall be conclusive upon Tenant (i) that this
Lease is in full force and effect, without modification except as may be
represented by Landlord, (ii) that there are no uncured defaults in Landlord's
performance, (iii) that not more than one month's Minimum Monthly Rent has been
paid in advance, and (iv) that Landlord is irrevocably constituted as Tenant's
attorney in fact to issue such statement.
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ARTICLE 2S: DEFAULT AND CONDITIONAL LiMITATIONS
28.1 Any of the following shall constitute a default under this Lease:
(a) if Tenant fails to pay any installment of the Rent herein provided or
any other sum required by this Lease to be paid to Landlord, or any part thereof
as and when due; or
(b) if Tenant fails to observe or perform any of the covenants or
conditions as set forth in Articles 12, 19, or 20 hereof on its part agreed to
be performed;
(c) if Tenant fails to perform any other covenants or conditions'' on its
part agreed to be performed and such failure to perform continues for ten (10)
days after notice of such failure from Landlord to Tenant; or
(d) if a petition or proceeding under the federal Bankruptcy Act or any
amendment thereto is filed or commenced by or against Tenant or any guarantor of
this Lease, and if against Tenant, said proceedings shall not be dismissed
within sixty (60) days following commencement thereof; or
(e) if Tenant is adjudged insolvent, makes an assignment for the benefit of
its creditors or enters into an arrangement with its creditors; or
(f) if a writ of attachment or execution is levied on the leasehold estate
hereby created and is not released or satisfied within sixty (60) days
thereafter, or
(g) if a receiver is appointed in any proceeding or action to which Tenant
is a party with authority to take possession or control of the Premises or the
business conducted thereon by Tenant or the property of any guarantor of this
Lease and such receiver is not discharged within a period of thirty (30) days
after his appointment; or
(h) Tenant abandons or vacates the Premises. Abandonment shall he presumed
if the Premises are not occupied by at least two (2) employees of Tenant four
(4) days a week, six (6) hours a day.
28.2 Upon a default by Tenant as defined in Section 28.1 Landlord, or Landlord's
agents and employees shall have the right and option to:
(a) prosecute and maintain an action or actions, as often as Landlord deems
advisable, for collection of rent, other charges and damages as the same accrue,
without entering into possession and without terminating this Lease. No judgment
obtained shall constitute a merger or otherwise bar prosecution of subsequent
actions for rent and other charges and damages as they accrue. Tenant agrees to
pay Landlord all costs of collection of past due rent, including court costs and
attorney's fees.
(b) immediately or at any time thereafter reenter and take possession of
the Premises and remove Tenant, Tenant's agents, any subtenants, licensees,
concessionaires, or invitees and any or all of their property from the Premises.
Reentry and removal may be effected by summary proceedings or any other action
or proceedings at law, by force or otherwise. Landlord shall not be liable in
any way in connection with any action taken under
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this paragraph. No action taken, commenced or prosecuted by Landlord, no
execution on any judgment and no act or forbearance on the part of Landlord in
taking or accepting possession of the Premises shall be construed as an election
to terminate this Lease unless Landlord expressly exercises this option under
Section 28.2(c). - -
Upon taking possession of the Premises Landlord may from time to tinge, without
termination of this Lease relet the Premises or any part thereof as agent for
Tenant for such rental terms and conditions (which may be for a term extending
beyond the Lease Term) as Landlord, in its sole discretion, may deem advisable,
with the right to make alterations and repairs to said Premises required for
reletting. The rents received by Landlord from such reletting shall be applied
first to the payment of any costs of reletting and second to the payment of rent
or other costs due and unpaid under this Lease. The residue, if any, shall be
held by Landlord and applied in payment of future rent as the same may become
due and payable under this Lease. If the rents received from such reletting
during any month are insufficient to reimburse Landlord for any costs of
reletting or rent due and payable, Tenant shall pay any deficiency to Landlord.
Such deficiency shall be calculated and paid monthly. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter, elect to
terminate this Lease for such previous breach.
(c) elect to terminate this Lease by written notice to Tenant. Upon such
termination, Tenant agrees to immediately surrender possession of the Premises.
If Tenant fails or refuses to surrender the Premises, Landlord may take
possession in accordance with Section (b) above. If Landlord terminates this
Lease, Tenant shall have no further interest in this Lease or in the Premises,
however, Tenant shall remain liable to Landlord for all damages Landlord may
sustain by reason of Tenant's default, including without limitation (1 ) the
cost of reletting the Premises, and (2) either (i) an amount equal to the rent
which, but for termination of this Lease, would have been payable by Tenant
during the remainder of the Lease Term, less any proceeds from reletting the
Premises; or (ii) an amount equal to the present worth (immediately prior to
termination) of the rent which, but for termination of this Lease, would have
been payable during the remainder of the Lease Term, less the then reasonable
rental value of the Premises, which amount shall be payable to Landlord upon
demand. Rent which would have been payable for the remainder of the Lease Term,
shall be calculated on the basis of the Minimum Monthly Rent and additional rent
payable by Tenant at the time of default plus any future increases which are
determinable at the time of calculation.
(d) obtain the appointment of a receiver in any court of competent
jurisdiction, and the receiver may take possession of any personal property
belonging to the Tenant and used in the conduct of the business of the Tenant
being carried on in the Premises. Tenant agrees that the entry upon the Premises
or possession of said personal property by said receiver shall not constitute an
eviction of the Tenant from the Premises or any portion thereof, and the Tenant
hereby agrees to hold the Landlord safe and harmless from any claim of any
character by any person arising out of or in any way connected with the entry by
said receiver in taking possession of the Premises and/or said personal
property.
28.3 As used in this Article "costs of reletting" means any reasonable costs
necessary to collect past due rent, take possession of the Premises and lease
the Premises to another tenant, including, but not limited to:
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(a) legal costs and expenses of collecting past due rent and recovery of
the Premises including court costs and attorney's fees,
(b) brokerage and advertising costs for leasing, --
(c) costs and expenses of alterations, repairs and improvements,
(d) indebtedness other than minimum rent due from Tenant to Landlord under
this Lease,
(e) costs of protecting the Premises, and
(f) removal and storage of Tenant's property.
28.4 No act or conduct of the Landlord, whether consisting of reentry, taking
possession or reletting the Premises or obtaining appointment of a receiver or
accepting the keys to the Premises, or otherwise, prior to the expiration of the
Lease Term shall be deemed to be or constitute an acceptance of the surrender of
the Premises by the Landlord or an election to terminate this Lease unless
Landlord exercises its election under Section 28.2(c) of this Lease. Such
acceptance or election by Landlord shall only be effected, and must be
evidenced, by written acknowledgment of acceptance of surrender or notice of
election to terminate signed by Landlord.
28.5 In addition to any statutory lien for rent in Landlord's favor, Landlord
shall have, and Tenant hereby grants to Landlord, a continuing security interest
for all rent and other sums of money becoming due under this Lease from Tenant,
and for the performance of all other obligations of Tenant under this Lease, in
all personal property of Tenant located on the Premises. In the event of a
default under this Lease, Landlord shall have, in addition to any other remedies
provided in this Lease or by law, all rights and remedies of a creditor under
the Arizona Uniform Commercial Code. Any statutory lien for rent is not hereby
waived, the express contractual lien herein granted being in addition and
supplementary thereto.
ARTICLE 29: TENANT'S RECOURSE
Anything in this Lease to the contrary notwithstanding, Tenant agrees that
it shall look solely to the estate and property of Landlord in the land and
buildings comprising the Building, subject to prior rights of any mortgagee of
the Building or any part thereof, for the collection of any judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default or breach by Landlord under this Lease, and no other procedures for the
satisfaction of Tenant's remedies. Neither Landlord, nor any partner thereof or
therein nor any of their respective heirs, successors or assigns, shall have any
personal liability of any kind or nature, directly or indirectly under or in
connection with this Lease.
ARTICLE 30: FORCE MAJEURE
Landlord shall have no liability whatsoever to Tenant on account of (1 )
the inability of Landlord to fulfill, or delay in fulfilling, any of Landlord's
obligations under this Lease by reason of acts of God, civil disorder, strike,
other labor trouble, governmental preemption of priorities
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or other controls in connection with a national or other public emergency, or
shortages of fuel, supplies or labor resulting therefrom or any other cause,
whether similar or dissimilar to the above beyond Landlord's reasonable control;
or (2) any failure or defect in the supply, quantity or character of electricity
or water furnished to the Premises, by reason of any requirement, act or
omission of the public utility or others furnishing the Project with electricity
or water, or for any other reason, whether similar of dissimilar to the above,
beyond Landlord's reasonable control. If this Lease specifies a time period for
performance of an obligation of Landlord, that time period shall be extended by
the periods of any delay in Landlord's performance caused by any of the events
of force majeure described above.
ARTICLE 31: SURRENDER OF PREMISES
At the Expiration Date or earlier termination date, Tenant shall surrender
the Premises in good order and condition, reasonable wear and tear and casualty
damage excepted, and shall deliver all keys to Landlord. Before surrendering the
Premises, Tenant shall remove all of its personal property and trade fixtures
and such alterations or additions to the Premises made by Tenant as may be
specified for removal by Landlord, and shall repair any damage caused by such
property or the removal thereof. If Tenant fails to remove its personal property
and fixtures upon the Expiration Date, the same shall, at Landlord's election,
be deemed abandoned and shall become the property of Landlord. Tenant shall
further surrender to Landlord any Automobile Parking Area cards issued under
Article 5. The delivery of keys to any employee of Landlord or to Landlord's
agent or any employee thereof shall not be sufficient to constitute a
termination of this Lease or a surrender of the Premises.
ARTICLE 32: HOLDING OVER
If Tenant, with Landlord's consent, shall hold over after the Expiration
Date, or any extension thereof, Tenant shall become a tenant on a week-to-week
basis at a minimum weekly rent of fifty percent (50%) of the Minimum Monthly
Rent payable during the last year of the Lease Term, which rental shall be
payable in advance on the first day of such holdover period and on the first day
of each week thereafter, upon all the terms, covenants and conditions herein
specified.
ARTICLE 33: GENERAL PROVISIONS
33.1 This Lease shall be construed in accordance with the laws of the State of
Arizona. Venue for resolution of any dispute arising under this Lease shall be
Maricopa County, Arizona.
33.2 If Tenant is composed of more than one person or entity, then the
obligations of such entities or parties shall be joint and several.
33.3 If any term, covenant, condition or provision of this Lease is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions hereof shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
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<PAGE>
33.4 The various headings and numbers herein and the grouping of the provisions
of this Lease into separate articles and sections are for the purpose of
convenience only and shall not be considered a part hereof.
33.5 Time is of the essence of this Lease.
33.6 If either party initiates legal proceedings to enforce any right or
obligation under this Lease or to obtain relief for the breach of any covenant
hereof, the party ultimately prevailing in such proceedings shall be entitled to
recover from the other party the costs of such proceedings, including reasonable
attorneys' fees as determined- by the court and not by a jury. If Landlord is
involuntarily made a party defendant to any litigation concerning this Lease or
the Premises by reason of any act or omission of Tenant, Tenant shall indemnify
and hold Landlord harmless from all liability by reason thereof, including
Landlord's reasonable costs and attorneys' fees.
33.7 This Lease, and all Exhibits attached hereto, set forth all the covenants,
promises, agreements, conditions or undertakings, either oral or written,
between the Landlord and Tenant. No subsequent alteration, amendment, change or
addition to this Lease shall be binding upon Landlord or Tenant unless reduced
to writing and signed by both parties.
33.8 Subject to Article 23, the covenants herein contained shall apply to and
bind the heirs, successors, executors, administrators and assigns of all the
parties hereto.
33.9 No covenant, term or condition of this Lease shall be waived except by
written waiver of Landlord, and the forbearance or indulgence by Landlord in any
regard whatsoever shall not constitute a waiver of the covenant, term or
condition to be performed by Tenant to which the same shall apply, and until
complete performance by Tenant of such covenant, term or condition, Landlord
shall be entitled to invoke any remedy available under this Lease or by law
despite such forbearance or indulgence. The waiver by Landlord of any breach or
term, covenant or condition hereof shall apply to and be limited to the specific
instance involved and shall not be deemed to apply to any other instance or to
any subsequent breach of the same or any other term, covenant or condition
hereof. Acceptance of rent by Landlord during a period in which Tenant is in
default in any respect other then payment of rent shall not be deemed a waiver
of the other default. Any payment made in arrears shall be credited to the
oldest amount outstanding and no contrary application will waive this right.
33.10 The use of a singular term in this Lease shall include the plural and the
use of the masculine, feminine or neuter genders shall include all others.
33.11 Except as provided in Exhibit B. Section 2.3, Tenant shall not place any
signs upon the Premises, Building or Common Areas without Landlord's prior
written consent.
33.12 Tenant shall not record this Lease without Landlord's prior written
consent and such recordation shall, at the option of Landlord, constitute a
non-curable default of Tenant hereunder. Tenant shall, upon request of Landlord,
execute, acknowledge, and deliver to Landlord a "short form" memorandum of this
Lease for recording purposes.
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ARTICLE 34: NOTICES
Wherever in this Lease it is required or permitted that notice or demand be
given or served by either party to or on the other, such notice or demand shall
be given-or served and shall not be deemed to have been duly given or served
unless in writing and delivered personally or forwarded by certified mail,
return receipt requested, if to Landlord, at the address set forth on page one
of this Lease; and if to Tenant, (a) until the Commencement Date, at the address
on page one; and (b) following the Commencement Date, at the Premises.
Either party may change such address by written notice by certified mail to the
other. Service of any notice or demand shall be deemed completed forty-eight
(48) hours after deposit thereof in the United States Postal Service or, if
delivered in person, upon receipt thereof.
ARTICLE 35: BROKER'S COMMISSIONS
Tenant represents and warrants that there are no claims for brokerage
commissions or finder's fees in connection with this Lease (excepting
commissions or fees approved or authorized in writing by Landlord). Tenant
agrees to indemnify Landlord against and hold it harmless from all liabilities
arising from such claim, including any attorneys' fees connected therewith.
IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day
and year first above written.
ARROWHEAD FOUNTAINS PARTNERS LLC, a
Delaware limited liability company
By:
----------------------------------
Its:
LANDLORD
MICROCAP FINANCIAL SERVICES,
a ____________ corporation
By: /s/ [ILLEGIBLE]
----------------------------------
Its:
TENANT
28
<PAGE>
STATE OF ARIZONA )
: ss
County of Maricopa )
The foregoing instrument was acknowledged before me this _____ day of
___________, 1999, by _____________________________________________________of
Arrowhead Fountains Partners LLC, a Delaware limited liability company, on
behalf of the company.
_____________________________________
My Commission Expires: Notary Public
______________________
29
<PAGE>
STATE OF FLORIDA )
: ss
County of PALM BEACH )
The foregoing instrument was acknowledged before me this 28 day of
April, 1999, by [ILLEGIBLE] of Microcap Financial Services, a Delaware
corporation, on behalf of the corporation.
/s/ JOHN L. DELISA
------------------------------------
My Commission Expires: Notary Public
Nov. 11, 2000 [SEAL]
30
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EXHIBIT B
BUILDING STANDARD WORKLETTER
BUILDING STANDARD SHELL AND ALLOWANCE
This Exhibit B sets forth the respective obligations of, and the procedures to
be followed by, Landlord and Tenant in the design and construction of those
improvements which will prepare the Premises for Tenant's use and occupancy
("Leasehold Improvements"), including the payment of design and construction
costs.
I. DEFINITIONS
1.0 As used in the Lease and this Exhibit B:
1.0.1 The term "Building Standard Improvements" refers to those
improvements set forth in Section 3.4 of this Exhibit.
1.0.2 The term "Building Standard" refers to those brands, designs,
finishes or techniques selected by Landlord for construction of the Building
Standard Improvements.
1.0.3 The term "non-Building Standard" means brands, designs, finishes
and techniques other than those selected by Landlord.
1.0.4 The term "non-Building Standard Improvements" means improvements
to the Premises in addition to those improvements set forth in Section 3.4 of
this Exhibit
1.0.5 "Usable Area" is defined in Section 1.2(b) of the Lease.
1.0.6 "Load Factor" is defined in Section 1.2(c) of the Lease.
1.0.7 "Rentable Area" is defined in Section 1.2(a) of the Lease.
II. GENERAL PROCEDURES FOR PREPARING PLANS AND SPECIFICATIONS
2.0 Landlord's Space Planner has prepared a "Space Plan" for the Premises,
which Space Plan has been approved by the Tenant. The Space Plan includes:
2.0.1 Approximate location of all partitions, doors, electrical and
telephone outlets and switches, and special requirements for electrical and
telephone circuits.
2.0.2 Type and color of wall and floor covering.
2.0.3 Details of all millwork, corridor entrances, water and drain
supply requirements and non-Building Standard electrical outlets.
2.0.4 Information on non-Building Standard Improvement HVAC
requirements (special heat generating equipment).
<PAGE>
2.0.5 Weight and location of exceptionally heavy equipment.
2.0.6 Dimensions of all equipment to be built in.
2.0.7 Keying schedule.
2.0.8 Lighting arrangement.
2.1 All non-Building Standard Improvements or work desired by Tenant shall
in Landlord's opinion, equal or exceed the quality established by the Building
Standard Improvements as listed herein.
2.2 Any changes, modifications or alterations of or to the Space Plan,
drawings and specifications requested by Tenant shall be subject to Landlords
written approval. Any additional charges, expenses or costs, including
Landlord's architect's fees, incurred by Landlord in approving said changes,
modifications or alterations shall be paid by Tenant.
2.3 One entrance door to the Premises will bear the Tenant's designated
name and suite number; the Tenant will also be listed in the building directory.
The door signs and directory entries shall be in Landlord's Building Standard
format and purchased by the Landlord from a graphics fabricator designated by
Landlord.
III. LANDLORD'S OBLIGATIONS TO CONSTRUCT AND PAY FOR IMPROVEMENTS
3.0 Section 3.3 contains a general description of the Building
construction, and limitations of same, which will be provided by Landlord at
Landlord's expense. Selection of structural systems, materials and finishes will
be by Landlord. A detailed description of Landlord's construction is set forth
in Landlord's plans and specifications for the Building which are available for
review by Tenant and Tenant's architect or engineer.
3.1 [Intentionally omitted.]
3.2 Landlord's construction and standard finishes are designed for normal
office use. Any reference to construction by Landlord to Code requirements shall
be deemed to mean applicable building Code requirements for normal office use.
3.3 Landlord shall provide a Shell Office Building to contain the Premises
as hereinafter set forth:
3.3.1 All structural wall, floor and roof support systems to support
office floor live loads including partitions, ceilings, etc., of seventy (70)
pounds per square foot.
3.3.2 All exterior glass, wall finishes and weather protection systems.
3.3.3 Common toilet facilities, per Code, common lobbies, foyers,
stairs and elevators.
3.3.4 Automobile parking facilities including paving, lighting and
mechanical ventilation of parking structure.
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3.3.5 Central plant heating and air conditioning with main supply to
tenant suites, including heat pumps at tenant suites. Low pressure air handling
(distribution duct work, diffusers and vents and associated controls and
devices) is not included.
3.3.6 Main electrical service to Building and distribution of
electrical power from main service to main electrical room on each floor.
3.3.7 Main fire sprinkler piping with heads established on a
predetermined pattern.
3.3.8 Window Covering: Building Standard architecture! miniblinds on
all exterior windows.
3.3.9 Public Corridor Partitions: Building Standard, 5/8" thick, gypsum
board and base molding attached to corridor side of 2-112" metal studs on 24"
centers with acoustic insulation built from floor to deck above. Tenant side
gypsum board, base and finish is not included.
3.4 The Building Standard Improvements set forth in Sections 3.4.1 through
3.4.14 are those leasehold improvements normally necessary to allow tenants to
take occupancy of premises for general office purposes. Landlord's Building
Standard Improvements are set forth below for the purpose of establishing the
leasehold improvements which would ordinarily be supplied by Landlord.
3.4.1 Public Corridor Partitions: Building Standard, 5/8" thick, gypsum
board attached to Tenant side of corridors, finish and base molding in the
amount of one linear foot per sixty (60) square feet of Usable Area contained
within the Premises. Stud wall and corridor side finish is included in the
Building Shell.
3.4.2 Non-Public Partitions: Building Standard, 5;8" thick ceiling high
gypsum board attached to each side of 2-1/2" metal studs on 24" centers, in the
amount of one linear foot per ten (10) square feet of Usable Area contained
within the Premises. Non-public partitions will be furnished with Building
Standard base molding on both sides.
3.4.3 Entry Door, Frame and Hardware: Building Standard, 8'-4" solid
core UL 20 minute wood door and UL 20 minute aluminum door frames with
self-closer, stainless steel lever handle passage set, deadlock, ball bearing
hinges and door stop. Entry doors shall be located where shown on the plans
described in Section 2.1 of this Exhibit B in the amount of one door per tenant
suite.
3.4.4 Interior Doors, Frames and Hardware: Building Standard, 8'-4"
aluminum frames, solid core wood doors and hardware, in the amount of one door
per three hundred (300) square feet of Usable Area contained within the
Premises. Hardware shall include lever handle passage sets, hinges and door
stops for openings on all interior doors.
3.4.5 Painting: All wall surfaces, covered with one eggshell enamel
latex finish coat in colors selected by Tenant from Building Standard paint
selection, limited to one color in each suite.
3
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3.4.6 Ceiling: Building Standard, 2'x 2' acoustical tile on
mechanically suspended exposed grid system, as required throughout Premises.
3.4.7 Lighting: Building Standards 2'x 4', recessed fluorescent deep
cell parabolic lighting fixture, in the amount of one par eighty (80) square
feet of Usable Area contained within the Premises, and including single pole
switches in the amount of one per three hundred (300) net square feet.
3.4.8 Electrical Services: Building Standard, electrical facilities
sufficient for a connected load of 5 watts general use and lighting overhead
fluorescent lighting per square foot of Usable Area within the Premises plus
facilities sufficient to operate heating, ventilating and air conditioning
equipment.
3.4.9 Duplex Electrical Outlets: Building Standard, wall mounted duplex
electrical outlets (120 volts) in the amount of one per one hundred twenty-five
(125) square feet of Usable Area contained within the Premises.
3.4.10 Telephone Outlets: Building Standard, roughed-in electrical
provisions for wall mounted telephone outlets in the amount of one per two
hundred (200) square feet of Usable Area contained within the Premises.
3.4.11 Finished Floors (Tenant's Spaces): Building Standard carpeting
in colors selected by Tenant from Landlord's Building Standard selection and
limited to one color.
3.4.12 Heating, Ventilating and Air Conditioning: Building Standard,
including electrical supply and low pressure air handling (distribution duct
work, diffusers and vents). Air diffusers in the amount of one linear foot of
diffuser per two hundred (200) square feet of Usable Area contained within the
Premises.
3.4.13 Interior Wall Finish: Install gypsum wallboard finish on
interior side of exterior walls.
3.4.14 Sprinkler System: Standard grid system per Code and Landlord's
plans. Modifications (additions, relocations, raising or lowering) of standard
system to accommodate Tenant's requirements are to be done by Landlord's fire
sprinkler contractor at Tenant's expense and in accordance with underwriters
requirements.
IV. CONSTRUCTION OF TENANT'S LEASEHOLD IMPROVEMENTS
4.1 So long as Tenant is not in default under the Lease, Landlord agrees to
construct Tenant's Leasehold Improvements in accordance with the Space Plan
agreed to by Landlord and Tenant under Article II, to Building Standard and
using all Building Standard materials.
4.2 All mechanical, structural, electrical or plumbing modifications to the
Building required by Tenant shall be performed by Landlord's contractor or
contractors approved by Landlord at Tenant's cost.
4
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V. COMPLETION OF LEASEHOLD IMPROVEMENTS
5.1 Landlord agrees to obtain any Certificate of Occupancy required by the
local building department or other governmental agency.
5.2 The term "Substantial Completion" or "Substantially Complete. as used
in this Exhibit B or in the Lease means that state of completion of the Premises
which will allow Tenant to begin Tenant's occupation of the Premises without
material interference from Landlord's contractor or material delay caused by
Landlord's failure to have completed Landlord's work under Section 3.4 of this
Exhibit.
5.3 Notwithstanding any time period established herein for the submission
and approval of Tenant's plans or for the construction of improvements, the
Lease Term and Tenant's obligation to pay rent shall commence as set forth in
Section 2.2 of the Lease; provided, however, if the Commencement Date is
determined under Section 2.2 of the Lease by the date of Substantial Completion,
the Commencement Date will be accelerated so as to be one (1) day earlier than
the date of completion for each day Substantial Completion is delayed by reason
of:
5.3.1 Tenant's request for non-Building Standard materials, finishes or
installations or non-Building Standard Improvements, including planning,
procurement and construction delays.
5.3.2 Tenant's changes in Space Plan or drawings, plans and
specifications.
5.3.3 Delays to Landlord's contractor caused by Tenants contractor,
including the performance (or nonperformance) of any construction work by a
person, firm or corporation employed by Tenant and the completion of said work
by said person, firm or corporation.
5
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement on Form SB-2
Amendment No. 1 of our report dated February 5, 1999 (with respect to Note N,
April 13, 1999) on our audit of the financial statements of GlobalNet
Financial.com, Inc., (formerly Microcap Financial Services.com, Inc.) as of
December 31, 1998 and for the years ended December 31, 1998 and 1997. We also
consent to the reference to our firm under the caption "Experts" in the
Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
May 26, 1999
