<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
---------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21821
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Consolidated Capital of North America, Inc.
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(Exact name of small business issuer as specified in its charter)
Colorado 93-0962072
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
410 17th Street, Suite 400
Denver, Colorado 80202
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(Address of principal executive offices)
888-313-8051
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Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 47,609,399 shares of $.0001 per share
common stock as of November 10, 1998.
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE> 2
Consolidated Capital of North America, Inc.
Quarterly Report on Form 10-QSB for the
Quarter Ended September 30, 1998
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997 5
Consolidated Statements of Operations for the
nine months ended September 30, 1998 and 1997 6
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 7
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Current assets
Cash $ 133,655 $ 14,304
Accounts receivable, less allowance
for doubtful accounts of $256,687 and
$138,003 in 1998 and 1997, respectively 3,374,387 1,587,035
Inventories 3,634,494 1,193,208
Deferred loan costs 896,431 --
Prepaid expenses and other 493,092 32,879
----------- -----------
Total current assets 8,532,059 2,827,426
Property and equipment, net of
accumulated depreciation of $759,817
and $216,004 in 1998 and 1997, respectively 5,702,788 2,053,215
Goodwill, net of accumulated amortization of
$402,845 and $225,689 in 1998 and 1997,
respectively 1,956,162 2,133,013
Other assets 1,517,806 692,629
----------- -----------
Total assets $17,708,815 $ 7,706,283
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' September 30, December 31,
(DEFICIT) EQUITY 1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Current liabilities
Accounts payable $ 3,612,987 $ 3,872,397
Accrued liabilities 263,871 290,618
Current portion of long-term debt 388,608 320,738
Convertible notes payable to affiliates 2,000,000 --
Note payable to affiliates -- 225,000
Convertible notes - 10% 4,850,278 --
Convertible notes - 15% 1,000,000
Notes and loan payable 1,650,000 --
Other 28,770 61,545
------------ ------------
Total current liabilities 13,794,514 4,770,298
------------ ------------
Long-term liabilities
Long-term debt - net of current portion 6,133,154 2,928,133
Accrued interest 214,439 --
Accrued dividends 120,420 --
------------ ------------
Total long-term liabilities 6,468,013 2,928,133
------------ ------------
Redeemable Series C preferred shares 870,000 --
------------ ------------
Stockholders' (deficit) equity
Series A preferred shares, par value of $.01
per share, liquidation value of $1.00 per share:
Authorized 1,000,000 shares, 744,000 shares
issued and outstanding 744,000 744,000
Series B preferred shares, par value of $.01
per share, liquidation value of $1.00 per share:
Authorized 1,000,000 shares, 449,000 shares
issued and outstanding 449,000 449,000
Common shares, par value $.0001 per share:
Authorized - 50,000,000 shares, 24,622,387
and 15,922,121 shares outstanding, respectively 2,462 1,599
Additional paid-in capital 8,933,175 2,070,313
Accumulated deficit (13,552,349) (3,257,060)
------------ ------------
Total stockholders' (deficit) equity (3,423,712) 7,852
------------ ------------
Total liabilities and stockholders' (deficit) equity $ 17,708,815 $ 7,706,283
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 5,545,242 $ 4,164,102
Cost of goods sold 4,499,581 3,499,007
------------ ------------
Gross profit 1,045,661 665,095
------------ ------------
Operating expenses
Selling and shipping 209,767 281,853
General and administrative 1,459,185 445,046
Payroll and related benefits 805,402 466,399
Depreciation and amortization 212,603 128,403
------------ ------------
Total expenses 2,686,957 1,321,701
------------ ------------
Loss from operations (1,641,296) (656,606)
------------ ------------
Other income (expense)
Interest expense (1,820,937) (169,323)
Other 107,018 19,409
Termination of an acquisition (48,856) --
------------ ------------
(1,762,775) (149,914)
------------ ------------
Net loss (3,404,071) (806,520)
Preferred share dividends (48,840) --
------------ ------------
Loss applicable to common stockholders $ (3,452,911) $ (806,520)
============ ============
Basic and diluted loss per share $ (.16) $ (.05)
============ ============
Weighted average number of
common shares outstanding 21,181,132 15,817,882
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 15,908,469 $ 14,618,684
Cost of goods sold 13,360,890 12,068,261
------------ ------------
Gross profit 2,547,579 2,550,423
------------ ------------
Operating expenses
Selling and shipping 578,001 794,656
General and administrative 4,076,550 1,253,854
Payroll and related benefits 2,246,958 1,594,201
Depreciation and amortization 737,609 328,970
------------ ------------
Total expenses 7,639,118 3,971,681
------------ ------------
Loss from operations (5,091,539) (1,421,258)
------------ ------------
Other income (expense)
Interest expense (3,676,857) (397,319)
Other 230,427 87,076
Termination of an acquisition (995,403) --
------------ ------------
(4,441,833) (310,243)
------------ ------------
Net loss (9,533,372) (1,731,501)
Preferred share dividends (157,653) --
------------ ------------
(9,691,025) (1,731,501)
Discount attributable to conversion value of
preferred shares and warrants (761,917) --
------------ ------------
Loss applicable to common stockholders $(10,452,942) $ (1,731,501)
============ ============
Basic and diluted loss per share $ (.54) $ (.12)
============ ============
Weighted average number of
common shares outstanding 19,189,533 14,671,792
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(9,533,372) $(1,731,501)
Adjustments to reconcile net loss to net cash
used in operations:
Amortization and depreciation 737,609 328,970
Amortization of loan fees 1,168,288 --
Provision for doubtful accounts 72,684 --
Accrued interest 217,614 --
Gain on sale of assets -- (1,000)
Common shares issued for loan fees -- 149,567
Common shares issued for consulting fees 823,641
Value of options granted to non-employees 873 --
Discount attributable to conversion
value of convertible notes 1,631,944 --
Change in assets and liabilities:
Accounts receivable (283,069) 388,589
Inventories (284,774) 912,090
Prepaid expenses and other (255,676) (159,738)
Deferred loan costs and other assets 278,033 (187,463)
Accounts payable and accrued liabilities (200,315) 410,238
Other liabilities (61,228) 273,261
----------- -----------
Net cash (used in) provided by operating activities (5,687,748) 383,013
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (1,750,000) (939,197)
Purchase of property and equipment (424,532) (94,463)
Notes receivable from land sales -- 100,000
Purchase of certificate of deposit restricted -
against long-term obligations (250,000) --
----------- -----------
Net cash used in investing activities (2,424,532) (933,660)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 21,401,768 $ 931,731
Principal payments on long-term debt (22,278,308) (1,033,262)
Principal payments on note payable to former officer -- (285,000)
Proceeds from issuance of 10% convertible notes, net 4,445,127 --
Proceeds from issuance of 15% convertible notes, net 936,351 --
Payment of notes payable to affiliates (225,000) --
Proceeds from notes payable to affiliates -- 300,000
Proceeds from issuance of common stock -- 966,901
Short-term borrowings 1,714,286 --
Proceeds from issuance of redeemable preferred shares, net 1,859,640 --
Proceeds from sale of common stock purchase warrants 385,000 --
Dividends (7,233) --
------------ ------------
Net cash provided by financing activities 8,231,631 880,370
------------ ------------
NET INCREASE IN CASH 119,351 329,723
CASH AT BEGINNING OF PERIOD 14,304 26,937
------------ ------------
CASH AT END OF PERIOD $ 133,655 $ 356,660
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 746,118 $ 261,017
============ ============
NONCASH FINANCING ACTIVITIES:
Issuance of common stock for consulting fees $ 891,158 $ 864
============ ============
Issuance of common stock for loan cost $ 757,465 $ 201,101
============ ============
Issuance of common stock for business acquisitions $ 300,000 $ 74,479
============ ============
Issuance of common stock for settlement of a liability $ 296,842 $ --
============ ============
Cumulative dividends of preferred shares $ 150,420 $ --
============ ============
Conversion of Series C preferred shares $ 1,130,000 $ --
============ ============
Conversion of 10% convertible notes and accrued interest $ 118,175 $ --
============ ============
BUSINESS ACQUISITIONS:
Assets acquired $ 8,114,162 $ 9,039,474
Liabilities incurred or assumed (6,064,162) (8,099,413)
Common shares issued (300,000) (864)
------------ ------------
Cash used in business acquisitions $ 1,750,000 $ 939,197
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements of Consolidated Capital
of North America, Inc. (the "Company") include the accounts of the Company and
its wholly-owned subsidiaries, after elimination of all significant intercompany
transactions, accounts and profits. These statements include all adjustments
(consisting solely of normal recurring adjustments) which, in the opinion of
management, are necessary to fairly present the financial position of the
Company as of September 30, 1998 and the results of its operations and its cash
flows for the three and nine month periods then ended. The results of operations
for this interim period are not necessarily indicative of results to be expected
for the full year.
These interim financial statements should be read in conjunction with the
Summary of Significant Accounting Policies and other Notes to Financial
Statements included in the Company's annual audited financial statements for the
year ended December 31, 1997. Certain prior year amounts have been reclassified
to conform with the current period presentation.
2. BUSINESS ACTIVITIES
Prior to January 21, 1997, the Company's operations were exclusively in the real
estate business. On January 21, 1997, Consolidated Land & Cattle Company, a
subsidiary of the Company, merged with Angeles Acquisition Corp., a privately
held company. Angeles Acquisition Corp. survived the Merger and became a wholly
owned subsidiary of the Company. Prior to the merger Angeles Acquisition Corp.
had acquired Angeles Metal Trim Co. ("Angeles"). Angeles and its wholly-owned
subsidiary fabricate and sell steel framing materials for commercial and
residential structures.
On January 12, 1998, the Company through a wholly-owned subsidiary, purchased
substantially all of the assets of Capitol Metals Co., Inc. ("Old Capitol"), a
privately held steel processing and service center headquartered in Torrance,
California. Old Capitol filed for protection under Chapter 11 of the Bankruptcy
Code on October 7, 1997. The total consideration was approximately $8,100,000,
consisting of $336,000 in cash, $1,500,000 in promissory notes, $300,000 of
Common Shares of the Company (269,349 Common Shares), the assumption of an
outstanding note and interest of $626,000, the repayment of $4,764,000 of Old
Capitol's then existing senior debt and the assumption of approximately $574,000
of costs and expenses associated with the acquisition. The Company agreed to
include the Common Shares issued in connection with the acquisition of the
assets of Old Capitol in a registration statement which was filed with the
Securities and Exchange Commission on August 6, 1998. During February 1998,
Angeles Acquisition Corp. changed its corporate name to Capitol Metals Co.
("Capitol").
As of December 31, 1997 and September 30, 1998, the Company had a working
capital deficit of
9
<PAGE> 10
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
(unaudited)
$1,942,872 and $5,262,455, respectively and a net loss of $2,478,577 and
$9,533,372 for the year ended December 31, 1997 and for the nine months ended
September 30, 1998, respectively. The ability of the Company to successfully
carry out its business plan is dependent upon its ability to obtain sufficient
additional capital and to generate significant revenues through its existing
assets, including the Capitol assets.
The Company plans to raise additional working capital through private offerings
of debt and equity. There is no assurance that the Company will have sufficient
funds to execute its business plan of generate positive operating results.
Management believes that the funds on hand and raised in placements subsequent
to year end will be sufficient to fund its operating needs through at least
December 31, 1998.
With the acquisition of Angeles and Capitol, the Company intends to focus on the
steel frame building business, steel service center operations and complementary
businesses. Management believes that the acquisition of Capitol will provide the
Company with several advantages toward the accomplishment of its business
objective of achieving profitability. The Company has relocated the Los Angeles,
California operations of Angeles to the Torrance, California facility currently
used by Capitol. In addition to the long term reduction in facilities cost, this
relocation has allowed management to combine several previously duplicative
functions, creating efficiencies and cost savings. These functions include:
materials receiving, slitting operations, purchasing, accounting and other
administrative functions. Additionally, as the companies currently use several
common suppliers, the Company believes that the purchasing volume created by the
addition of Capitol may create reduced pricing for materials and services
utilized by Angeles and Capitol.
The pro forma effect on the statement of operations for the Company had the
Capitol acquisition taken place on January 1, 1997 would have been as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------------ -----------
<S> <C> <C>
Revenues $ 16,169,363 $32,175,519
Loss from operations $ (5,164,440) $(2,102,615)
Net loss $ (9,666,751) $(3,460,117)
Loss applicable to common stockholders $(10,586,321) $(3,460,117)
Basic and fully diluted loss per share $ (.55) $ (.21)
Weighted average number of Common
Shares outstanding 19,358,779 16,441,141
</TABLE>
10
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
(unaudited)
3. HANDEL AND BINHAD NOTES
The Company assumed the Handel Note in connection with the acquisition of
Capitol and during September 1998, this note, having an unpaid balance of
$300,000 was extended until February 12, 1999 with equal monthly installments of
$60,000 each, commencing October 12, 1998. The Company also issued notes for
$300,000 and $1,200,000, respectively to BINHAD, INC. (the "BINHAD NOTE") in
connection with the Capitol Acquisition. During November 1998, the unpaid
principal balance of $1,300,000 under these notes were combined into a single
note having a maturity of June 15, 2000 with payments commencing January 15,
1999.
4 LONG-TERM DEBT
During January 1998, the Company entered into a new financing arrangement with
Congress Financial Corporation (Western) ("Congress Financial"). The Company
incurred $8,100,000 of indebtedness from Congress Financial, of which $3,300,000
was utilized for the repayment of outstanding revolving and term indebtedness of
Angeles and $4,800,000 of which was utilized in connection with the acquisition
of Capitol. Congress Financial provided $1,400,000 and $3,300,000 in financing
under revolving lines of credit to Angeles and Capitol, respectively, and
provided $1,900,000 and $1,500,000 to Angeles and Capitol, respectively, in
financing under term loans. These loans are collectively referred to as the
"Congress Facility."
Under the Congress Facility, Angeles and Capitol can borrow up to a maximum of
$20 million. The revolving line of credit portion of the Congress Facility is
limited by the amount of eligible accounts receivable and inventory and requires
Angeles and Capitol to comply with certain financial and other non-financial
covenants, as defined in the agreement. The Congress Facility is available,
subject to support by the appropriate levels of assets and compliance with the
applicable financial and other non-financial covenants by both Angeles and
Capitol, to provide financing for general corporate purposes. The Company is in
compliance with these covenants. The revolving line of credit component of the
Congress Facility is due in January 2000. The term loans are to be repaid in 60
monthly installments commencing February 1, 1998. Amounts drawn under the
Congress Facility bear interest at a rate which is .75% per annum over the prime
rate announced by First Union National Bank for the interest period.
There are no compensating balance requirements under either of these two
financing arrangements.
All of the accounts receivable, inventory, equipment and intangibles of Angeles
and Capitol have been pledged as security for the Congress Facility. The
Congress Facility has been guaranteed by the Company and California Building
Systems, Inc., a subsidiary of Angeles.
11
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
(unaudited)
5. SALE OF CONVERTIBLE NOTES
A. 10% Notes
The Company has issued and sold, in a private placement, an aggregate of $5.0
million of its 10% Convertible Notes (collectively, the "10% Notes") pursuant to
the terms of a Note Purchase Agreement between the Company and the purchasers of
the 10% Notes (the "Note Purchase Agreement"). The Company issued $2 million of
the 10% Notes on April 9, 1998, $1.5 million on April 16, 1998, $500,000 on June
9, 1998 and $1,000,000 on June 16, 1998. The proceeds from the issuance of the
10% Notes were used for working capital. Interest is payable on the principal of
the 10% Notes from the date of issuance at the rate of 10% per annum. The
interest is payable semi-annually on October 1 and April 1 commencing October 1,
1998, until the principal is paid in full. The maturity date of the 10% Notes is
April 9, 1999 (the "Maturity Date"). The Company has the right, at its sole
option, to pay any interest due on the 10% Notes in Common Shares of the Company
based on the arithmetic average of the closing bid and ask price of the
Company's Common Shares for the twenty trading days prior to the interest
payment due date (the "Interest Shares").
At any time after issuance and prior to the Maturity Date, the outstanding
principal amount of the 10% Notes, any and all accrued and unpaid interest
thereon, in whole or in increments of at least $20,000 of principal, may be
converted by the holder thereof into Common Shares of the Company (the
"Conversion Shares") at the Conversion Price equal to the lesser of (i) $1.75
per share of (ii) the following conversion prices: (x) on or after August 6,
1998 at a per share price equal to eighty percent (80%) of the arithmetic
average of the closing bid and ask prices of the Company's Common Shares for the
twenty trading days prior to the exercise date of such conversion and (y) on or
after October 5,1998 at a per share price equal to seventy-five (75%) of the
arithmetic average of the closing bid and ask prices of the Company's Common
Shares for each of the twenty trading days prior to the exercise date of the
such conversion. The conversion price is subject to adjustment under specified
antidilution provisions. As of September 30, 1998, the holders of the 10% Notes
have converted $115,000 of the 10% Notes and $3,175 of accrued interest into
347,011 Common Shares of the Company.
B. 15% Notes
During August and September 1998, the Company sold, in a private placement
$1,000,000 of its 15% Convertible Notes (the "15% Notes") pursuant to the terms
of a Note Purchase Agreement between the Company and the purchaser of the 15%
Notes. The Company issued $500,000 of the 15% Notes on August 28, 1998 and
$500,000 of the 15% Notes on September 15, 1998. The proceeds were used for
working capital. Interest is payable on the principal of the 15% Notes from the
date of issuance at the rate of 15% per annum. Interest and principal are due at
the maturity date of November 26, 1998 for the 15% Notes sold during August 1998
and December 14, 1998 for the 15% Notes sold during September
12
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
(unaudited)
1998. The purchaser of 15% Notes has the right, at its sole option, to receive
interest in Common Shares of the Company based upon a price equal to $.35 per
share. In addition, the Company issued 100,000 Common Shares for loan fees. The
Company may, at its election, extend the maturity dates for one additional
ninety-day period by giving notice to the purchaser of such extension at least
thirty (30) days prior to the maturity dates. These notes were redeemed in
connection with the issuance of the 18% Convertible Notes (See note 9).
6. DIVIDENDS
As of September 30, 1998, the Company has a liability for the dividends accrued
to the preferred shareholders for the Series A, Series B and Series C Preferred
Shares which amount to $66,960, $40,410 and $13,050, respectively. The dividends
for these Preferred Shares are considered as a noncurrent liability in the
amount of $120,420, as the Company does not intend to pay dividends in cash on
these shares in 1998. The dividends for the second quarter to the Series C
Preferred shareholders were paid in Common Shares of the Company valued at
$30,000.
7. REDEEMABLE SERIES C PREFERRED SHARES
As of September 30, 1998, the holders of the Series C Preferred Shares have
converted $1,130,000 of these preferred shares into 4,283,420 Common Shares of
the Company.
8. LOSS PER SHARE
Common share equivalents were not considered as they would be anti-dilutive and
had no impact on the loss per share for the nine month periods presented.
However, the impact under the treasury stock method of dilutive stock options
and warrants would have been 516,949 Common Shares for the nine months ended
September 30, 1998. There were no dilutive stock options or warrants for the
nine months ended September 30, 1997.
13
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
(unaudited)
9. SUBSEQUENT EVENTS
A. Sale of 18% Convertible Notes
On October 21, 1998 the Company issued and sold, in a private placement, an
aggregate of $1,568,900 of its 18% Convertible Notes (the "18% Notes"), pursuant
to the terms of a Note Purchase Agreement between the Company and the purchaser
of the 15% Notes. The 18% Notes were issued for $550,000 of cash plus the credit
of $1,018,900 toward the principal and accrued interest on the 15% Notes which
were redeemed contemporaneously with the issuance of the 18% Notes. The proceeds
were used for working capital. The sum of $18,900 shall be paid by the Company
on January 15, 1999 in cash or at the option of the noteholder in Common Shares
of the Company based upon a price of $.12 per share. Interest on the $1,550,000
shall be computed at the rate of 18% per annum and is to be paid on or before
January 19, 1999 (the "Maturity Date"). The Company may, at its election, extend
the Maturity Date for two additional ninety day periods by giving notice to the
noteholder of such extension at least thirty (30) days prior to the original or
extended Maturity Date, as applicable. The Company has issued to the noteholder
800,000 shares of its Common Stock as additional consideration in connection
with the issuance of the 18% Notes. In the event the Company extends the
Maturity Date of the 18% Notes, the Company shall issue to the noteholder
450,000 shares of the Company's Common stock (or a pro rata portion of such
shares in the event that less than $1,550,000 of its 18% Notes are outstanding
and held by the noteholder) for every ninety day period in which the 18% Notes
are outstanding after the initial Maturity Date.
B. Conversions
Since September 30, 1998 and through November 10, 1998, the holders of Series C
Preferred Shares have converted $870,000 of the Series C Preferred Shares into
4,491,864 of the Common Shares and the holders of 10% Notes have converted
$2,692,000 of the 10% Notes into 17,209,685 of the Common Shares.
C. Proposed Acquisition
The Company has entered into a letter of intent to acquire the assets of Toledo
Pickling and Steel Sales, Inc. ("TPSS") a privately held, Midwest-based steel
service center, for an estimated purchase price of $19.5 million. The purchase
will be financed through a combination of senior notes, the assumption of
existing indebtedness, cash and the issuance of a convertible preferred stock.
TPSS pickles, slits, levels and blanks hot rolled sheet coil. The consummation
of the transaction, which the Company expects to occur in November 1998, is
contingent upon certain closing conditions being met by the parties including
the execution of definitive agreements, completion of a review of the business
of TPSS and attainment of adequate financing to consummate the transaction.
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The results of operations for the nine month and three month periods ended
September 30, 1998 include the results of Angeles Metal Trim Co. ("Angeles") and
the results of Capitol Metals Co. ("Capitol") which was acquired on January 12,
1998. The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
During the third quarter of 1998, the Company reported net sales of $5,545,242
as compared with net sales for the third quarter of 1997 of $4,164,102. Net
sales in the third quarter included $1,588,235 of sales of Capitol and
$3,957,007 of sales of Angeles. Sales for Angeles decreased from $4,164,102 in
the third quarter of 1997 to $3,957,007 in the third quarter of 1998.
During the first nine months of 1998, the Company reported net sales of
$15,908,469 as compared with net sales for the first nine months of 1997 of
$14,618,684. Net sales during the nine months of 1998 included $5,819,340 of
sales of Capitol. Sales in the first nine months of 1998 for Angeles operation
decreased from $14,618,684 in the first nine months of 1997 to $10,089,129 in
the first nine months of 1998.
The decrease in net sales for Angeles was mainly a result of insufficient
working capital to purchase steel necessary to produce products during the third
quarter of 1998 and the first nine months of 1998. The Company expects that
revenues from Capitol and Angeles will increase during the remainder of the
fiscal year ending December 31, 1998.
Cost of goods sold for both entities amounted to $4,499,581 for the third
quarter in 1998 resulting in a gross margin of 19% of net sales. The gross
profit for Angeles for the three months ended September 30, 1997 amounted to
16%.
Cost of goods sold for both entities amounted to $13,360,890 for the first nine
months in 1998 resulting in a gross margin of 16% of net sales for this period.
The gross profit for Angeles amounted to 20% for the first nine months of 1998
or an increase of 3% as compared to the same period of 1997. The increase in
gross profit percentage of Angeles resulted mainly from the decrease in the cost
of steel. Capitol generated a gross profit of 7% for the first nine months of
1998.
Operating expenses increased by $1,365,256, to $2,686,957 for the third quarter
of 1998 from $1,321,701 in the third quarter of 1997. Operating expenses
increased by $3,667,437, to $7,639,118 for the nine months of 1998 from
$3,971,681 in the first nine months of 1997. The increase is primarily
attributable to general and administrative expenses from Capitol which were not
present in the comparable period in 1997. These expenses included facilities,
purchasing, accounting and administrative expenses related to Capitol. The
increase in operating expenses is also attributable to an increase in payroll
and related benefits with the addition of Capitol employees since January 12,
1998. The Company anticipates that the operating expenses will decrease as a
percentage of sales as the result of combining the operations of Angeles and
Capitol.
15
<PAGE> 16
Interest expense increased by $1,651,614 to $1,820,937 in the third quarter of
1998 as compared to $169,323 in the third quarter of 1997. Interest expense
increased by $3,279,538 to $3,676,857 for the first nine months of 1998 as
compared to $397,319 in the first nine months of 1997. This increase is the
result of the interest expense related to the various financing arrangements
entered into by the Company to provide working capital and the financing related
to the acquisition of Capitol. The third quarter of 1998 includes a noncash
charge of $936,588 and $1,631,944 for the nine months ended September 30, 1998
as a result of the computed discount attributable to the conversion value of the
10% convertible notes issued during the second quarter of 1998.
The Company reported a net loss for the three months ended September 30, 1998 of
$3,404,071 as compared to a net loss of $806,520 for the same period in 1997.
Including the dividends for preferred shares of $48,840, the Company reported a
loss for the three months ended September 30, 1998 of $3,452,911 ($.16 per
share).
The Company reported a net loss for the nine months ended September 30, 1998 of
$9,533,372 as compared to a net loss of $1,731,501 for the same period in 1997.
Including the discount attributable to the conversion value of preferred shares
and warrants of $761,917 and dividends of $157,653, the Company reported a loss
for the nine months ended September 30, 1998 of $10,452,942 ($.54 per share).
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Cash flows used in operations were $5,687,748 for the nine months ended
September 30, 1998 as compared to $383,013 provided by operations for the nine
months ended September 30, 1997. The increase in cash used in operations for the
nine months ended September 30, 1998 was a result of the larger loss in the
first nine months of 1998 compared to the same period of 1997. The acquisition
of Capitol in January 1998 resulted in the use of cash of approximately $2
million compared to approximately $.9 million in the same period for 1997. Cash
flows from financing activities for the first nine months of 1998 increased by
$7.4 million compared to the same period in 1997 because of cash needed for the
acquisition and operations. As of September 30, 1998, the Company had a working
capital deficit of $5,262,455, a stockholders' deficit of $3,423,712 and an
accumulated deficit of $13,552,349. See the Company's financial statements and
notes hereto, included elsewhere in this report, for detailed financial
information regarding the Company.
Since January 1997, the Company has primarily financed its operations with cash
available under its credit facilities and funds advanced under loan
arrangements, including certain loans from affiliated entities. The Company has
also financed its operations through the private placement of capital stock and
convertible securities, including $1,000,000 from sales of Common Shares in
January 1997, $2,000,000 from the March 1998 sale of Series C Preferred Shares
and $5,000,000 from the issuance of convertible notes in April and June 1998,
$1,000,000 from issuance of the 15% convertible notes in August and September
1998 and $550,000 from the issuance of the 18% convertible notes in October
1998.
During January 1998, the Company entered into a new financing arrangement with
Congress Financial. Congress Financial has provided $1,400,000 and $3,300,000 in
financing under revolving lines of credit
16
<PAGE> 17
to Angeles and Capitol, respectively, and provided $1,900,000 and $1,500,000 to
Angeles and Capitol, respectively, in financing under term loans. These loans
are collectively referred to as the "Congress Facility". Under the Congress
Facility, Angeles and Capitol can borrow up to a maximum of $20 million. The
revolving line of credit portion of the Congress Facility is limited by the
amount of eligible accounts receivable and inventory and requires Angeles and
Capitol to comply with certain financial and other non-financial convenants, as
defined in the agreement. The Congress Facility is available, subject to support
by the appropriate levels of assets and compliance with the applicable financial
and other non-financial covenants by both Angeles and Capitol, to provide
financing for general corporate purposes. The Company is in compliance with
these covenants. The revolving line of credit component of the Congress Facility
is due in January 2000. The term loans are to be repaid in 60 monthly
installments commencing February 1, 1998. Amounts drawn under the Congress
Facility bear interest at a rate which is .75% per annum over the prime rate
announced by First Union National Bank for the interest period. All of the
accounts receivable, inventory, equipment and intangibles of Angeles and Capitol
have been pledged as security for the Congress Facility. The Congress Facility
has been guaranteed by the Company and California Building Systems, Inc., a
subsidiary of Angeles.
The Company has issued and sold, in a private placement, an aggregate of $5.0
million of its 10% Convertible Notes (collectively, the "10% Notes") pursuant to
the terms of a Note Purchase Agreement between the Company and the purchasers of
the 10% Notes (the "Note Purchase Agreement"). The Company issued $2 million of
the 10% Notes on April 9, 1998, $1.5 million on April 16, 1998, $500,000 on June
9, 1998 and $1,000,000 on June 16, 1998. The proceeds from the issuance of the
10% Notes were used for working capital. Interest is payable on the principal of
the 10% Notes from the date of issuance at the rate of 10% per annum. The
interest is payable semi-annually on October 1 and Apri1 1 commencing October 1,
1998, until the principal is paid in full. The maturity date of the 10% Notes is
April 9, 1999 (the "Maturity Date"). The Company has the right at its sole
option, to pay any interest due on the 10% Notes in Common Shares of the Company
based on the arithmetic average of the closing bid and ask price of the
Company's Common Shares for the twenty trading days prior to the interest
payment due date (the "Interest Shares").
At any time after issuance and prior to the Maturity Date, the outstanding
principal amount of the 10% Notes, any and all accrued and unpaid interest
thereon, in whole or in increments of at least $20,000 of principal, may be
converted by the holder thereof into Common Shares of the Company (the
"Conversion Shares") at the Conversion Price equal to the lesser of (i) $1.75
per share of (ii) the following conversion prices: (x) on or after August 6,
1998 at a per share price equal to eighty percent (80%) of the arithmetic
average of the closing bid and ask prices of the Company's Common Shares for the
twenty trading days prior to the exercise date of such conversion and (y) on or
after October 5,1998 at a per share price equal to seventy-five (75%) of the
arithmetic average of the closing bid and ask prices of the company's Common
Shares for each of the twenty trading days prior to the exercise date of the
such conversion. The conversion price is subject to adjustment under specified
antidilution provisions. As of September 30, 1998, holders of the 10% Notes have
converted $115,000 of 10% Notes and $3,175 of accrued interest into 347,011
Common Shares of the Company.
During August and September 1998, the Company sold, in a private placement
$1,000,000 of its 15% Convertible Notes (the "15% Notes") pursuant to the terms
of a Note Purchase Agreement between the Company and the purchaser of the 15%
Notes. The Company issued $500,000 of the 15% Notes on August 28, 1998 and
$500,000 of the 15% Notes on September 15, 1998. The proceeds were used for
17
<PAGE> 18
working capital. Interest is payable on the principal of the 15% Notes from the
date of issuance at the rate of 15% per annum. Interest and principal are due at
the maturity date of November 26, 1998 for the 15% Notes sold during August 1998
and December 14, 1998 for the 15% Notes sold during September 1998. The
purchaser of 15% Notes has the right, at its sole option, to receive interest in
Common Shares of the Company based upon a price equal to $.35 per share. In
addition the Company issued 100,000 Common Shares for loan fees. The Company
may, at its election, extend the maturity dates for one additional ninety-day
period by giving notice to the purchaser of such extension at least thirty (30)
days prior to the maturity dates. These notes were redeemed in connection with
the issuance of the 18% Convertible Notes (See note 9).
A registration statement was filed with Securities Exchange Commission on August
6, 1998. The Registration Statement relates to the sale by certain holders of
securities (the "Selling Shareholders") of the Company of an estimated
16,830,868 Common Shares of the Company including: (i) an estimated 7,895,470
Common Shares issuable upon conversion of $5,000,000 in principal amount of
10%Convertible Notes of the Company (the "Convertible Notes"), (ii) an estimated
631,644 Common Shares that may be issued as interest on the Convertible Notes at
the option of the Company in lieu of cash interest (the "Interest Shares"),
(iii) an estimated 4,311,294 Common Shares issuable upon conversion of 186
Series C Convertible Preferred Shares of the Company (the "Series C Shares"),
(iv) 2,450,000 Common Shares underlying Warrants of the Company (the
"Warrants"), and (v) 1,542,460 outstanding Common Shares (the "Outstanding
Shares"). Because the conversion price of the Convertible Notes and the Series C
Shares is related to the market price of the Common Shares at the time of
conversion and the issuance price of the Interest Shares is related to the
market price of the Common Shares at the time of issuance and because there may
be antidilution adjustments to the exercise price of the Convertible Notes, the
Series C Shares and the Warrants and antidilution adjustments to 269,349 of the
Outstanding Shares, the number of Common Shares which are subject to the
Registration Statement is indeterminate and the Registration Statement relates
to the resale by the Selling Shareholders of such entire indeterminate number of
Shares.
In connection with the acquisition of Capitol Metals, the Company assumed a note
payable, the Handel Note with a principal balance of $600,000. During September,
1998 the unpaid principal balance of the Handel Note of $300,000 was extended
through February 12, 1999 with monthly payments of $60,000 commencing October
12, 1998.
The Company also issued notes for $300,000 and $1,200,000, respectively to
BINHAD, Inc. (the "BINHAD NOTE") in connection with the Capitol Acquisition.
During November, 1998 the unpaid principal balance of $1,300,000 under these
notes were combined into a single note having a maturity of June 15, 2000 with
payments commencing January 15, 1999.
On October 21, 1998 the Company issued and sold, in a private placement, an
aggregate of $1,568,900 of its 18% Convertible Notes (the "18% Notes"), pursuant
to the terms of a Note Purchase Agreement between the Company and the purchaser
of the 15% Notes. The 18% Notes were issued for $550,000 of cash plus the credit
of $1,018,900 toward the purchase of the 15% Notes. The proceeds were used for
working capital. Accrued interest on the 15% Convertible Notes and principal
balance amounting to $1,018,900 was added to the outstanding 18% Notes. The sum
of $18,900 shall be paid by the Company on January 15, 1999 in cash or at the
option of the noteholder in Common Shares of the Company based upon a price of
$.12 per share. Interest on the $1,550,000 shall be computed at the rate of 18%
per annum and is to be paid on or before January 19, 1999 (the "Maturity Date").
The Company may, at its
18
<PAGE> 19
election, extend the Maturity Date for two additional ninety day periods by
giving notice to the noteholder of such extension at least thirty (30) days
prior to the original or extended Maturity Date, as applicable. The Company has
issued to the noteholder 800,000 shares of its Common Stock as additional
consideration. In the event the Company extends the Maturity Date of the 18%
Notes, the Company shall issue to the noteholder 450,000 shares of the Company's
Common stock (or a pro rata portion of such shares in the event that less than
$1,550,000 of its 18% Notes are outstanding and held by the noteholder) for
every ninety day period in which the 18% Notes are outstanding after the initial
Maturity Date.
Since September 30, 1998 and through November 10, 1998, the holders of Series C
Preferred Shares have converted $870,000 of the Series C Preferred Shares into
4,491,864 of Common Shares and the holders of the 10% Notes have converted
$2,692,000 of the 10% Notes into 17,209,685 of Common Shares.
The Company will be required to obtain additional lines of credit and make
periodic public offerings or private placements for working capital purposes in
order to meet the liquidity needs of the business. The Company believes that the
funds raised from the sale of the Series C Preferred Shares, the sale of the
Convertible Notes, operating cash flows of the Company, funds available under
the Congress Facility and funds raised in an equity offering will provide
adequate resources to fund ongoing operating requirements and future capital
expenditures for the next twelve months. There can be no assurances that
financing sources will be available to the Company in sufficient amounts or on
acceptable terms. Under such circumstances, the Company would expect to operate
the business within the financing available.
Readiness for Year 2000
The Company is in the process of upgrading its information systems. The new
systems, which have been installed and are currently being tested, are expected
to be operational by December 31, 1998 and will be used by both Capitol and
Angeles, and are designed to be compatible for the Year 2000 and beyond. The new
systems will also provide management with better information, on a more timely
basis. The costs of the Company's Year 2000 compliance efforts are being funded
with cash flows from operations. These costs have not had a material adverse
effect on the Company's results of operations or cash flows.
SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure About
Segments of an Enterprise and Related Information" are effective for fiscal
years beginning after December 15, 1997. The Company has complied with these
pronouncements and has determined there is no material impact for the nine
months ended September 30, 1998.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for certain forward-looking statements. Statements contained in this
report that are not historical facts are forward looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those stated in the forward-looking statements.
Factors that could cause actual results to differ
19
<PAGE> 20
materially include, among others: general economic conditions, changes in laws
and government regulations, fluctuations in demand for the Company's products,
the Company's ability to consummate strategic acquisitions and the Company's
ability to successfully finance any such future acquisitions, as well as its
current ongoing operations.
20
<PAGE> 21
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to be filed:
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
10.62 Form of Note Purchase Agreement dated August 28, 1998 by and between the
Company and the Purchaser of the 15% Notes (Exhibits and Schedules Omitted)
10.63 Form of 15% Convertible Note of the Company
10.64 Form of Note Purchase Agreement dated October 21, 1998 by and between the
Company and the Purchaser of the 18% Notes (Exhibits and Schedules Omitted)
10.65 Form of 18% Convertible Note of the Company
10.66 Employment Agreement dated as of September 1, 1998 between the Company
and Richard D. Bailey
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on September 8, 1998 to
report on the issuance of a credit facility proposal to the Company to
finance the acquisition by a subsidiary of the Company of substantially
all of the assets of privately held Toledo Pickling and Steel Sales,
Inc.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Consolidated Capital of North
America, Inc.
(Registrant)
Date: November 16, 1998 By:/s/ Richard D. Bailey
----------------------
Richard D. Bailey
President and Chief Operating
Officer
By:/s/ Carl Casareto
------------------------
Carl Casareto
Chief Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
10.62 Form of Note Purchase Agreement dated August 28, 1998 by and between the
Company and the Purchaser of the 15% Notes (Exhibits and Schedules Omitted)
10.63 Form of 15% Convertible Note of the Company
10.64 Form of Note Purchase Agreement dated October 21, 1998 by and between the
Company and the Purchaser of the 18% Notes (Exhibits and Schedules Omitted)
10.65 Form of 18% Convertible Note of the Company
10.66 Employment Agreement dated as of September 1, 1998 between the Company
and Richard D. Bailey
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.62
NOTE PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 28th day of August 1998,
between CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation (the
"Company") and ________________________________________ (the "Purchaser").
RECITAL
WHEREAS, the Company has authorized the issuance and sale of the
Company's 15% Convertible Notes up to an aggregate principal amount of
$2,000,000 having the terms set forth in Exhibit A attached hereto (the
"Notes"); and
WHEREAS, the Purchaser desires to purchase Notes in the principal
amount of $1,000,000;
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, the Company and the Purchaser agree as
follows:
1. PURCHASE AND SALE OF NOTES. Subject to the terms and conditions
contained in this Agreement, at the First Closing and Second Closing (as
hereinafter defined) the Purchaser shall purchase from the Company and the
Company shall sell to the Purchaser the Notes.
2. CLOSING.
2.1 Closing Dates. The closing of the purchase and sale of Notes in the
principal amount of $500,000 (the "First Closing") shall take place on August
27, 1998 or such other day as agreed to by the parties and the Closing of the
purchase and sale of a second tranche of Notes in the principal amount of
$500,000 (the "Second Closing") shall take place on September 15, 1998 or such
other day as agreed to by the parties. The Second Closing shall be conditioned
on the following: (i) the Purchaser shall have had an opportunity to inspect the
plant and facility of the Company in Torrance, California and shall be satisfied
with such inspection and (ii) there shall be no material negative change in the
financial condition of the Company as of the Second Closing date and the Chief
Financial Officer shall have delivered a certificate to the Purchaser certifying
the same.
2.2 Items to be Delivered to Purchaser. The following shall be
delivered by the Company to the Purchaser on each Closing Date:
(a) the Notes purchased by the Purchaser;
(b) a legal opinion of counsel to the Company acceptable to
the Purchaser;
<PAGE> 2
(c) a certificate of the secretary or an assistant secretary
of the Company certifying (i) an attached complete and correct copy of
its articles of incorporation, (ii) an attached complete and correct
copy of its bylaws, and (iii) an attached complete and correct copy of
resolutions duly adopted by its board of directors authorizing the
execution, delivery and performance of this Agreement and the Notes;
and
(d) 100,000 shares of Common Stock of the Company on each
Closing Date (the "Initial Loan Fee Shares").
2.3 Items to be Delivered to the Company. The following shall be
delivered by the Purchaser to the Company on the Closing Date:
(a) The purchase price by wire transfer to the account
designated by the Company.
2.4 Additional Loan Fee Shares. In the event the Company extends the
Maturity Date of the Notes as set forth in the Notes, the Company shall issue to
the Purchaser for each $500,000 in principal of Notes held by the Purchaser
50,000 shares of the Company's Common Stock (or a pro-rata portion of such
shares in the event that less than $500,000 of Notes are outstanding and held by
the Purchaser) for every ninety day period in which the Notes are outstanding
after the initial Maturity Date (the "Additional Loan Fee Shares"). The
Additional Loan Fee Shares and the Initial Loan Fee Shares are together referred
to as the "Loan Fee Shares").
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of the Company. The Company
represents and warrants that as of the date of this Agreement:
(a) Existence. The Company is a corporation duly organized and
in good standing under the laws of the State of Colorado and is duly
qualified to do business and is in good standing in all states where
such qualification is necessary, except for those jurisdictions in
which the failure to qualify would not, in the aggregate, have a
material adverse effect on the Company's financial condition, results
of operations or business.
(b) Authority. The execution and delivery by the Company of
this Agreement and the Notes (i) are within the Company's corporate
powers; (ii) are duly authorized by the Company's board of directors;
(iii) are not in contravention of the terms of the Company's
certificate of incorporation or bylaws; (iv) are not in contravention
of any law or laws; (v) except for the filing of a Form D Notice with
the Securities and Exchange Commission and any exemption filing related
thereto which may be required pursuant to applicable state securities
or "blue sky" laws, do not require any governmental consent,
registration or approval; (vi) do not contravene any contractual or
governmental restriction binding upon the Company; and (vii) will not
result in the imposition of any lien, charge, security interest or
encumbrance upon any property of the Company under
<PAGE> 3
any existing indenture, mortgage, deed of trust, loan or credit
agreement or other material agreement or instrument to which the
Company is a party or by which the Company or any of the Company's
property may be bound or affected.
(c) Binding Effect. This Agreement and the Notes have been
duly authorized, executed and delivered by the Company and constitute
the valid and legally binding obligation of the Company, enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(d) Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, par value $.0001
per share, 21,943,126 shares of which are issued and outstanding and
10,000,000 shares of Preferred Stock, par value $.01 per share, of
which the following Preferred Shares are authorized, issued and
outstanding: Series A Preferred Shares, par value $1.00 per share,
authorized 1,000,000 shares, 744,000 shares issued and outstanding;
Series B Preferred Shares, par value $1.00 per share, authorized
1,000,000 shares, 449,000 shares issued and outstanding; Series C
Preferred Shares, stated value $10,000 per share, authorized 200
shares, 139 shares issued and outstanding as of August 21, 1998. The
shares of common stock issuable upon conversion of the Notes (the
"Conversion Shares"), the shares of common stock issuable in lieu of
cash interest payments on the Notes (the "Interest Shares") and the
Loan Fee Shares (together the "Shares") have been duly and validly
authorized and reserved for issuance and, when issued and delivered in
accordance with the terms of this Agreement, will be duly and validly
issued, fully paid and non-assessable. The Company shall at all times
have authorized, reserved and set aside a sufficient number of Common
Shares for the conversion the Notes, for payment of interest on the
Notes and for issuance as Loan Fee Shares.
(e) SEC Documents. The Company has furnished the Purchaser
with a true and complete copy of the Company's Report on Form 8-K filed
on January 27, 1998, as amended on January 29, 1998 and March 27, 1998,
Report on Form 8-K filed on January 28, 1998 as amended on January 29,
1998, Report on Form 8-K filed on March 18, 1998, Report on Form 8-K
filed on May 1, 1998, Report on Form 8-K filed on August 5, 1998, the
Company's Form 10-KSB for the fiscal year ended December 31, 1997, Form
10-QSB for the quarterly period ended March 31, 1998, Form 10-QSB for
the quarterly period ended June 30, 1998, and the Registration
Statement on Form SB-2 (No. 333-60761) (the "Disclosure Documents").
Except as disclosed in the Disclosure Documents, since December 31,
1997 the Company has not incurred any material liability except in the
ordinary course of its business consistent with past practice and there
has not been any change in the business, financial condition or results
of operations of the Company which has had a material adverse effect on
the Company. Since January 1, 1997, the Company has filed with the
Securities and Exchange Commission (the "SEC") all documents required
to be filed pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated
thereunder. As of their respective filing dates, the Disclosure
Documents complied in all material
<PAGE> 4
respects with the requirements of the Exchange Act, and the rules and
regulations of the SEC thereunder applicable to such Disclosure
Documents, and the Disclosure Documents did not contain any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the
Disclosure Documents (the "Financial Statements") comply as to form in
all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto.
The Financial Statements are accurate, complete and have been prepared
in accordance with the books and records of the Company and in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be
indicated in the notes thereto and fairly present (subject, in the case
of the unaudited statements, to normal, recurring audit adjustments
that are not material) the consolidated financial position of the
Company as at the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended.
(f) Litigation. There is neither pending nor, to the Company's
knowledge and belief, threatened any action, suit, proceeding or claim,
or any basis therefor, to which the Company is or may be named as a
party or its property is or may be subject other than routine
litigation in the ordinary course of business or which calls into
question any of the transactions contemplated by this Agreement.
(g) Securities Matters. Subject to the accuracy of the
representations of the Purchaser set forth in Section 3.2 hereof, the
offer, sale and issuance of the Notes and the Shares as contemplated by
this Agreement are exempt from the registration requirements of the
Securities Act of 1933 as amended (the "Securities Act"). The Company
has complied and will comply with all applicable state "blue sky" or
securities laws in connection with the offer, sale and issuance of the
Notes and the Shares as contemplated by this Agreement. The Company
agrees that on or after October 1, 1998 it will, within thirty (30)
days of the Purchaser's written request for such and at the Company's
cost, make appropriate registration filings under the Securities Act
(either as a new registration statement or as a post-effective
amendment to the Registration Statement on Form SB-2 (333-60761) to
cause the outstanding Shares and any Shares that may be issued to
become registered thereunder and the Company agrees that it will use
its best efforts to cause such registration to be declared effective as
soon as possible. Purchaser shall have one such demand registration
right.
<PAGE> 5
3.2 Representations and Warranties of the Purchasers. Each Purchaser
represents and warrants that as of the date of the execution of this
Agreement:
(a) Authorization. This Agreement constitutes a valid and
legally binding obligation of such Purchaser.
(b) Investment Representations (i) The Purchaser has received
and reviewed the Company's Disclosure Documents and the Purchaser or
the Purchaser's designated representatives have concluded a
satisfactory due diligence investigation of the Company and have had an
opportunity to review the documents provided by the Company and to have
all of their questions related thereto satisfactorily answered.
(ii) The Purchaser acknowledges that the Notes and
the Shares are speculative and involve a high degree of risk
and the Purchaser represents that it is able to sustain the
loss of the entire amount of its investment.
(iii) The Purchaser (or its members and/or officers)
has previously invested in unregistered securities and has
sufficient financial and investing expertise to evaluate and
understand the risks of the Notes and the Shares.
(iv) The Purchaser has received from the Company, and
is relying on, no representations (except as set forth in this
Agreement) or projections with respect to the Company's
business and prospects.
(v) The Purchaser is an "accredited investor" within
the meaning of Regulation D under the Securities Act.
(vi) The Purchaser is acquiring the Notes and the
Shares for investment purposes only without intent to
distribute the same, and acknowledges that the Notes and the
Shares have not been registered under the Securities Act and
applicable state securities laws, and accordingly, constitute
"restricted securities" for purposes of the Securities Act and
such state securities laws.
(vii) The Purchaser acknowledges that it will not be
able to transfer the Notes and the Shares except upon
compliance with the registration requirements of the
Securities Act and applicable state securities laws or
exemptions therefrom.
(viii) The certificates and/or instruments evidencing
the Notes and the Shares will contain a legend to the
foregoing effect.
<PAGE> 6
4. MISCELLANEOUS.
4.1 Confidentiality. (a) The Purchaser agrees to keep confidential any
and all non-public information delivered or made available to the Purchaser by
the Company except for disclosures, as necessary, made by the Purchaser to the
Purchaser's officers, directors, employees, agents, counsel and accountants each
of whom shall be notified by the Purchaser of this confidentiality covenant and
for whom the Purchaser shall be liable in the event of any breach of this
covenant by any such individual or individuals; provided, however, that nothing
herein shall prevent the Purchaser from disclosing such information (a) upon the
order of any court or administrative agency, (b) upon the request or demand of
any regulatory agency or authority having jurisdiction over the Purchaser, (c)
which has been publicly disclosed or (d) to any of its members provided that any
such members agree in writing (with a copy provided to the Company) to be bound
by confidentiality provisions in form and substance substantially as are
contained herein. In the event of a mandatory disclosure as described in clause
(a) and/or (b) of the preceding sentence, the Purchaser shall promptly notify
the Company in writing of any applicable order, request or demand for such
information, cooperate with the Company if and to the extent that the Company
elects to seek an appropriate protective order or other relief from such order,
request, or demand, and disclose only the minimal amount of information
ultimately required to be disclosed. The Purchaser shall not use for its own
benefit, nor permit any other person to use for such person's benefit, any of
the Company's non-public information including, without limitation, in
connection with the purchase and/or sale of the Company's securities.
(b) The Company shall in no event disclose non-public
information to the Purchaser, advisors to or representatives of the
Purchaser unless prior to disclosure of such information the Company
marks such information as "Non-Public Information - Confidential" and
provides the Purchaser, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information
for review. The Company may, as a condition to disclosing any
non-public information hereunder, require the Purchaser's advisors and
representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Purchaser.
(c) Nothing herein shall require the Company to disclose
non-public information to the Purchaser or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any Purchasers who purchase stock
in the Company in a public offering, to money managers or to securities
analysts.
4.2 Legends. To the extent applicable, each note, certificate or other
document evidencing the Notes to be purchased and sold pursuant to this
Agreement and any Shares issued shall be endorsed with the legends set forth
below, and the Purchaser on behalf of itself and each holder of the Notes
covenants that, except to the extent such restrictions are waived by the
Company, it shall not transfer the Notes or Shares without complying with the
restrictions on transfer described in the legends endorsed on such note or
certificate:
(a) The following legend under the Securities Act:
<PAGE> 7
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY
AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY ACCEPTABLE TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) If required by the authorities of any state in connection
with the issuance or sale of the Note or the Shares, the legend
required by such state authority.
4.3 Costs and Expenses. The Company shall reimburse Purchaser for its
reasonable travel expenses and its legal fees and expenses in connection with
the purchase of the Notes up to a maximum of $15,000. The Company shall be
responsible for all of its fees and expenses in connection with this
transaction.
4.4 Assignability; Successors. The provisions of this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of the parties hereto.
4.5 Survival. All agreements, covenants, representations and warranties
made by the Company or by the Purchaser herein shall survive the execution and
delivery of this Agreement.
4.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
4.7 Counterparts: Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. The descriptive
headings in this Agreement are inserted for convenience of reference only and
shall not affect the construction of this Agreement.
4.8 Entire Agreement, Amendments. This Agreement and the Exhibits
contain the entire understanding of the parties with respect to the subject
matter hereof, and supersede all other representations and understandings, oral
or written, with respect to the subject matter hereof. No amendment,
modification, alteration, or waiver of the terms of this Agreement or consent
required under the terms of this Agreement shall be effective unless made in a
writing, which makes specific reference to this Agreement and which has been
signed by the Company and each Purchaser. Any such amendment, modification,
alteration, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
<PAGE> 8
4.9 Notices. All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given or
made when delivered in hand, deposited in the mail, or sent by facsimile, with
confirmation (if sent by facsimile on a non-business day, receipt shall be
deemed to have occurred on the next succeeding business day). Communications or
notices shall be delivered personally or by certified or registered mail,
postage, or by facsimile and addressed as follows, unless and until either of
such parties notifies the other in accordance with this Section of a change of
address:
if to the Company Consolidated Capital of North America, Inc.
410 17th Street, Suite 400
Denver, Colorado 80202
Att: Secretary
Tel: (303) 446-2188
Fax: (303) 446-5972
with copies to: Gallagher, Briody & Butler
212 Carnegie Center, Suite 402
Princeton, New Jersey 08540
Att: Thomas P. Gallagher
Tel: (609) 452-6000
Fax: (609) 452-0090
if to the Purchaser:
-----------------------------------
-----------------------------------
-----------------------------------
with copies to:
-----------------------------------
-----------------------------------
-----------------------------------
4.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
4.11 Maximum Interest. It is expressly stipulated and agreed to be the
intent of the Company and the Purchaser at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Purchaser to contract
for, charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any
<PAGE> 9
loan or advance hereunder, or if acceleration of the maturity of the Note
results in the Company's having paid any interest in excess of that permitted by
law, then it is the Company's and the Purchaser's express intent that all excess
cash amounts theretofore collected by Purchaser be credited on the principal
balance of the Note (or if the Note has been or would thereby be paid in full,
refunded to the Company), and the provisions of this Agreement immediately be
deemed reformed and the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new document, so as to comply with
the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder. The right to accelerate maturity of the Note
does not include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and the Purchaser does not intend to
collect any unearned interest in the event of acceleration.
4.12 Right of First Refusal. Subject to the terms and conditions
specified in this paragraph 4.12 the Company hereby grants to the Purchaser a
right of first refusal with respect to any sale by the Company or any of its
subsidiaries of any non-metals companies, divisions, subsidiaries or product
lines, whether through the sale of securities or assets but excluding any sale
of all or substantially all of the Company's securities or assets (a "Non-Metals
Sale") during the six month period commencing on the First Closing (the "Right
of First Refusal Period"). Each time the Company proposes to enter into a
Non-Metals Sale during the Right of First Refusal Period, the Company shall
first give the Purchaser the right of first refusal with respect to such
Non-Metals Sale in accordance with the following provisions:
(a) The Company shall deliver a notice pursuant to Section 4.9
to the Purchaser in the event that a third party has indicated an
interest in entering into a Non-Metals Sale and the Company shall give
the Purchaser the same opportunity to conduct a due diligence review as
the potential purchaser.
(b) After the completion of any such due diligence period, the
Company shall deliver a notice pursuant to Section 4.9 ("Sale Notice")
to the Purchaser stating (i) its bona fide intention to enter into a
Non-Metals Sale with the third party and (ii) the terms and conditions
of the Non-Metals Sale.
(c) Within thirty (30) days after mailing of the Notice, the
Purchaser may elect to enter into the Non-Metals Sale with the Company,
at the price and on the terms specified in the Notice.
(d) The Company may, during the 120-day period following the
expiration of the period provided in subsection 4.12(c) hereof, enter
into a Non-Metals Sale to any person or persons upon terms no more
favorable to the offeree than, those specified in the Notice. If the
Company does not consummate the proposed Non-Metals Sale within such
period, the right provided hereunder shall be deemed to be revived and
such transaction shall not be entered into unless first re-offered to
the Purchaser in accordance herewith. IN WITNESS WHEREOF, this
Agreement has been duly executed as of the day and year first above
written.
<PAGE> 10
CONSOLIDATED CAPITAL
OF NORTH AMERICA, INC,
By:
---------------------------------------
Richard Bailey
President and Chief Operating Officer
PURCHASER
By:
---------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.63
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. , 1998
------- ------------
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
15% CONVERTIBLE NOTE
FOR VALUE RECEIVED, Consolidated Capital of North America, Inc., a
Colorado corporation (the "Company") hereby promises to pay to the order of
having an address at _____________________________ (the Holder"), or registered
assigns, on or before _____________ (the "Maturity Date" [90 days from the date
of issuance]), the principal sum of __________________________ Dollars
($___________), and to pay interest from the date hereof on the principal sum
remaining unpaid at the rate of 15% per annum based on a 365-day year, such
interest to accrue from the date hereof and to be payable on the Maturity Date
together with the whole amount of the principal hereof. Principal and interest
shall be payable in lawful money of the United States of America at the
principal office of the Holder or at such other place as the Holder may
designate from time to time in writing to the Company. Notwithstanding the
foregoing, the Holder shall have the right, at its sole option, to receive
interest due in Common Shares of the Company based on a price equal to $.35 per
share (the "Interest Shares").
The Company may, at its election, extend the Maturity Date for one
additional ninety-day period by giving notice to the Holder of such extension at
least thirty (30) days prior to the Maturity Date. Any further extensions of the
Maturity Date shall require the consent of the Holder.
This Note is one of an authorized issue of $2,000,000 aggregate amount
of 15% Convertible Notes of the Company (collectively, the "Notes") issued
pursuant to a Note Purchase Agreement dated as of August __, 1998 between the
Company and the Holder (the "Note Purchase Agreement"). The Holder of this Note
is entitled to the benefits of the Note Purchase Agreement and to enforce the
agreements of the Company contained therein. Capitalized terms used herein and
not otherwise defined shall have the meaning ascribed thereto in the Note
Purchase Agreement.
<PAGE> 2
1. PREPAYMENT. The Company may prepay and redeem the Notes, at the
election of the Company, upon not less than 10 days' notice, at any time as a
whole only and not in part, at a price equal to the outstanding principal of the
Notes together with accrued interest to the redemption date.
2. CONVERSION. (a) From time to time and at any time after the date
hereof and prior to payment in full, the outstanding principal amount of this
Note, and all accrued and unpaid interest thereon, in whole or in increments of
at least $20,000 of principal, may be converted by the Holder into Common Shares
of the Company (the "Conversion Shares") at the Conversion Price equal to $.35
per share.
(b) In order to effect the conversion of all or part of the
Note, the Holder shall issue a notice of conversion substantially in
the form attached hereto (the "Notice of Conversion") which may be by
facsimile and surrender the Note for conversion if the Note is not
already in possession of the Company. Each conversion of all or any
portion of the Note will be deemed to have been effected as of the
close of business on the date on which the Note has been surrendered at
the principal office of the Company. At such time as such conversion
has been effected, to the extent that any portion of the Note is
converted, the rights of the Holder with respect to such portion of the
Note shall cease and the Holder shall be deemed to have become the
holder of record of the shares of Conversion Shares represented
thereby.
(c) No fractional Common Shares shall be issued upon
conversion of the Note. In lieu of any fractional share to which the
holder would otherwise be entitled, the Company shall round up to the
nearest whole Common Share. In the case of a dispute as to the
calculation of the Conversion Price, the parties hereto agree to
arbitrate the same in an office of the American Arbitration Association
in Denver, Colorado utilizing its commercial arbitration rules with an
arbitrator selected by the parties or in the event that they are unable
to do so by the American Arbitration Association.
(d) Within ten days after a conversion has been effected, the
Company will deliver to the Holder:
(i) a certificate or certificates representing the
number of Conversion Shares issuable by reason of conversion
in the name of the Holder and in such denomination or
denominations as the Holder has specified; and
(ii) a new Note representing any principal balance
which was not converted into Conversion Shares in connection
with such conversion; all other terms and conditions of the
Note will remain in full force and effect.
(e) The issuance of certificates for Conversion Shares upon
conversion of the
<PAGE> 3
Note and/or interest will be delivered by the Company within ten days
of the date of conversion or the interest payment due date and will be
made without charge to the Holder for any issuance tax in respect
thereof or other cost incurred by the Company in connection with such
conversion and the related issuance of Conversion Shares. In the event
the certificates are not delivered within such ten day period, the
Company shall pay to the Holder a penalty of $250 per day in cash for
each day thereafter until the date such certificates are delivered to
the Holder.
(f) The Company shall at all times have authorized, reserved
and set aside a sufficient number of Common Shares for the conversion
of all shares with respect to the Note and interest then outstanding.
(g) The Conversion Price in effect at any time and the number
and kind of securities purchasable upon the exercise of the Note shall
be subject to adjustment from time to time upon the happening of
certain events as follows after the date hereof and through and
including the Maturity Date:
(i) In case the Company shall (1) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (2) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (3) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Conversion Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock immediately prior to
such action. Such adjustment shall be made each time any event
listed above shall occur.
(ii) Whenever the Conversion Price is adjusted
pursuant to Subsection (i) above, the number of Conversion
Shares purchasable upon conversion of the Note shall
simultaneously be adjusted by multiplying the number of
Conversion Shares initially issuable upon conversion of the
Note by the Conversion Price in effect on the date hereof and
dividing the product so obtained by the Conversion Price, as
adjusted.
(iii) All calculations under this Section 2(g) shall
be made to the nearest cent or to the nearest one-hundredth of
a share, as the case may be.
(iv) Whenever the Conversion Price is adjusted, as
herein provided, the Company shall promptly cause a notice
setting forth the adjusted Conversion Price and adjusted
number of Conversion Shares issuable upon exercise of the Note
to be mailed to the Holder, at its last address appearing in
the Company's register. The Company may retain a firm of
independent certified public
<PAGE> 4
accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) to make any
computation required by this Section 2(g). In the case of a
dispute as to the adjustment of the Conversion Price, the
parties hereto agree to arbitrate the same in an office of the
American Arbitration Association in Denver, Colorado utilizing
its commercial arbitration rules with an arbitrator selected
by the parties or in the event that they are unable to do so,
by the American Arbitration Association.
(h) In the event of a merger, reorganization, recapitalization
or similar event of or with respect to the Company (a "Corporate
Change") (other than a Corporate Change in which all or substantially
all of the consideration received by the holders of the Company's
equity securities upon such Corporate Change consists of cash or assets
other than securities issued by the acquiring entity or any affiliate
thereof), this Note shall be convertible at the option of the Holder
into such class and type or securities as the holder would have
received had the Holder converted the Note immediately prior to such
Corporate Change, as appropriately adjusted to equitably reflect the
Conversion Price and any stock dividend, stock split or share
combination of the Common Stock after such corporate event.
3. REGISTRATION. The Company shall maintain at its principal office a
register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the registered
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. No transfer of a Note shall be
valid unless the registered holder or his or its duly appointed attorney request
such transfer to be made on such register, upon surrender thereof for exchange
as hereinafter provided, accompanied by an instrument in writing, in form and
execution reasonably satisfactory to the Company. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Company. The registered
holder of a Note shall be that person or entity in whose name the Note has been
so registered by the Company. A registered holder shall be deemed the owner of a
Note for all purposes, and the Company shall not be affected by any notice to
the contrary.
4. TRANSFER AND EXCHANGE. Subject to compliance with the restrictions
on transfer set forth in the Note Purchase Agreement, the registered holder of
any Note or Notes may, prior to maturity, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Within a reasonable
time after notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than applicable transfer taxes, if
any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes dated the date to which interest has been paid on, and for
the unpaid principal amount of, the Note or Notes so surrendered, containing the
same provisions and subject to the same terms and conditions as the Note or
Notes so surrendered. Subject to the restrictions on transfer set forth in the
Note Purchase Agreement, each new Note shall be made payable to such person or
entity, as the registered holder of such surrendered Note or Notes may
designate. Notes issued upon any transfer or exchange shall be only in
authorized denominations, which shall be $20,000.
<PAGE> 5
5. REPLACEMENT. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Note and, if requested by the
Company in the case of any such loss, theft or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor, in the amount of
the unpaid principal of such Note, and dated the date to which interest has been
paid, in lieu of such lost, stolen, destroyed or mutilated Note.
6. DEFAULT. The Company shall be in default under this Note upon the
occurrence of: (i) any of the events specified in Section 6(a) hereof and the
failure to cure such default within five (5) days after receipt of written
notice thereof from the Holder; (ii) any of the events specified in Section 6(b)
hereof and the failure to cure such default within ten (10) days after receipt
of written notice thereof from the Holder; or (iii) any of the events specified
in Section 6(c) hereof (any of the foregoing being an "Event of Default"):
(a) Failure to make any principal or interest payment
required under this Note on the due date of such payment;
(b) Any material default, breach or misrepresentation shall
occur under the terms and provisions of the Note Purchase Agreement; or
(c) Insolvency of, business failure of, or an assignment for
the benefit of creditors by or the filing of a petition under
bankruptcy, insolvency or debtor's relief law, or for any readjustment
of indebtedness, composition or extension by the Company, or commenced
against the Company which is not discharged within sixty (60) days.
7. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default:
(a) specified in clause (c) of Section 6, then the Note shall
be automatically accelerated and immediately due and payable at the
option of Holder, without notice or demand, and said amount shall
accrue interest from the date of default at the rate of twenty percent
(20%) per annum;
(b) specified in clauses (a) or (b) of Section 6, then the
Holder may declare the Note immediately accelerated, due and payable
and said amount shall accrue interest from the date of default at the
rate of twenty percent (20%) per annum; and
(c) the Holder shall have all of the rights and remedies, at
law and in equity, by statute or otherwise, and no remedy herein
conferred upon the Holder is intended to be exclusive of any other
remedy and each remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law,
in, equity, by statute or otherwise.
<PAGE> 6
8. CHANGES; PARTIES. This Note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall inure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
9. WAIVER OF PRESENTMENT. The Company hereby waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
10. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to
be the intent of the Company and Holder at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Holder to contract for,
charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of this Note or the indebtedness
hereunder or if any prepayment by the Company results in the Company's having
paid any interest in excess of that permitted by law, then it is the Company's
and Holder's express intent that all excess cash amounts theretofore collected
by Holder be credited on the principal balance of this Note (or if this Note has
been or would thereby be paid in full, refunded to the Company), and the
provisions of this Note immediately be deemed reformed and the amounts
thereafter collectible hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder. The
right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Holder does not intend to collect any unearned interest in the
event of acceleration.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Company has executed this Note as of the day
and year set forth above.
CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
By:
-------------------------------------
Richard Bailey
President and Chief Operating Officer
<PAGE> 7
NOTICE OF CONVERSION
TO: CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
The undersigned, the holder of the foregoing Note, hereby surrenders
such Note for conversion into shares of Common Shares of Consolidated Capital of
North America, Inc. to the extent of $_______ unpaid principal amount of such
Note, and requests that the certificates for such shares be issued in the name
of, and delivered to, _______________, whose address is
___________________________.
Dated:_____________
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Note)
------------------------------
(Address)
<PAGE> 1
EXHIBIT 10.64
NOTE PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 21st day of October 1998,
between CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation (the
"Company") and _______________________________________ (the "Purchaser").
RECITAL
WHEREAS, on August 28, 1998 the Purchaser purchased the Company's 15%
Convertible Notes in an aggregate principal amount of $500,000 (the "August
Notes");
WHEREAS, on September 15, 1998 the Purchaser purchased the Company's
15% Convertible Notes in an aggregate principal amount of $500,000 (the
"September Notes");
WHEREAS, the Company has authorized the issuance and sale of the
Company's 18% Convertible Notes up to an aggregate principal amount of
$2,000,000 having the terms set forth in Exhibit A attached hereto (the
"Notes"); and
WHEREAS, the Purchaser desires to purchase, and the Company desires to
issue, the Notes on the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, the Company and the Purchaser agree as
follows:
1. PURCHASE AND SALE OF NOTES. Subject to the terms and conditions
contained in this Agreement, at the Closing (as hereinafter defined) the
Purchaser shall purchase from the Company and the Company shall sell to the
Purchaser the Notes for $1,550,000 (the "Loan Amount") which shall be disbursed
as follows:
(a) $550,000.00 via wire transfer to Company's designated
account (not later than the next business day after the date hereof);
(b) $500,000.00 will be credited, as of the date hereof,
toward the principal balance of the August Note; and
(c) $500,000.00 will be credited, as of the date hereof,
toward the principal balance of the September Note.
Accrued and unpaid interest on the August Note and the September Note,
in the total amount of $18,900, shall be added to the Loan Amount and the
aggregate amount of the Notes to be issued to the Purchaser shall equal
$1,568,900.00. The sum of $18,900 shall be paid by the
<PAGE> 2
Company on January 15, 1999 in cash or at the option of the Purchaser in Common
Shares of the Company based on a price equal to $0.12 per share (the "January
Shares"). The remaining balance of the Notes shall be paid at the Maturity Date
set forth in the Notes.
2. CLOSING.
2.1 Closing Date. The closing of the purchase and sale of the Notes
(the "Closing") shall take place on October 21, 1998 or such other day as agreed
to by the parties (the "Closing Date").
2.2 Items to be Delivered to Purchaser. The following shall be
delivered by the Company to the Purchaser on the Closing Date:
(a) the Notes purchased by the Purchaser;
(b) a legal opinion of counsel to the Company acceptable
to the Purchaser;
(c) a certificate of the secretary or an assistant secretary
of the Company certifying that there has been no amendment or
modification to the Company's articles of incorporation or bylaws since
September 15, 1998 and attaching a complete and correct copy of
resolutions duly adopted by its board of directors authorizing the
execution, delivery and performance of this Agreement and the Notes;
(d) a certificate of the Chief Financial Officer of the
Company certifying that there has been no material negative change in
the financial condition of the Company since September 15, 1998;
(e) 700,000 shares of Common Stock of the Company (the
"Initial Loan Fee Shares"); and
(f) 100,000 shares of Common Stock of the Company which are
issuable as Additional Loan Fee Shares under the terms of the August
28, 1998 Loan Agreement (the "August Additional Loan Fee Shares").
2.3 Items to be Delivered to the Company. The following shall be
delivered by the Purchaser to the Company on the Closing Date:
(a) The purchase price by wire transfer to the account
designated by the Company; and
(b) The August Notes and the September Notes for cancellation.
2.4 Additional Loan Fee Shares. In the event the Company extends the
Maturity Date of the Notes as set forth in the Notes, the Company shall issue to
the Purchaser 450,000 shares of the Company's Common Stock (or a pro-rata
portion of such shares in the event that less than
<PAGE> 3
$1,550,000 of the Notes are outstanding and held by the Purchaser on any
extension date) for every ninety day period in which the Notes are outstanding
after the initial Maturity Date (the "October Additional Loan Fee Shares"). The
August Additional Loan Fee Shares, the October Additional Loan Fee Shares and
the Initial Loan Fee Shares are together referred to as the "Loan Fee Shares").
2.5 Termination of August 28, 1998 Loan Agreement. Effective as of the
Closing, the August Note, the September Note and the related Loan Agreements
shall terminate and have no further force or effect.
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of the Company. The Company
represents and warrants that as of the date of this Agreement:
(a) Existence. The Company is a corporation duly organized and
in good standing under the laws of the State of Colorado and is duly
qualified to do business and is in good standing in all states where
such qualification is necessary, except for those jurisdictions in
which the failure to qualify would not, in the aggregate, have a
material adverse effect on the Company's financial condition, results
of operations or business.
(b) Authority. The execution and delivery by the Company of
this Agreement and the Notes (i) are within the Company's corporate
powers; (ii) are duly authorized by the Company's board of directors;
(iii) are not in contravention of the terms of the Company's
certificate of incorporation or bylaws; (iv) are not in contravention
of any law or laws; (v) except for the filing of a Form D Notice with
the Securities and Exchange Commission and any exemption filing related
thereto which may be required pursuant to applicable state securities
or "blue sky" laws, do not require any governmental consent,
registration or approval; (vi) do not contravene any contractual or
governmental restriction binding upon the Company; and (vii) will not
result in the imposition of any lien, charge, security interest or
encumbrance upon any property of the Company under any existing
indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which the Company is a party or by
which the Company or any of the Company's property may be bound or
affected.
(c) Binding Effect. This Agreement and the Notes have been
duly authorized, executed and delivered by the Company and constitute
the valid and legally binding obligation of the Company, enforceable in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(d) Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, par value $.0001
per share, 24,622,387 shares of which are issued and outstanding and
10,000,000 shares of Preferred Stock, par value $.01 per share, of
which the following Preferred Shares are authorized, issued and
<PAGE> 4
outstanding as of October 1, 1998: Series A Preferred Shares, par value
$1.00 per share, authorized 1,000,000 shares, 744,000 shares issued and
outstanding; Series B Preferred Shares, par value $1.00 per share,
authorized 1,000,000 shares, 449,000 shares issued and outstanding;
Series C Preferred Shares, stated value $10,000 per share, authorized
200 shares, 87 shares issued and outstanding. The shares of common
stock issuable upon conversion of the Notes (the "Conversion Shares"),
the shares of common stock issuable in lieu of cash interest payments
on the Notes (the "Interest Shares"), the Loan Fee Shares and the
January Shares (together the "Shares") have been duly and validly
authorized and reserved for issuance and, when issued and delivered in
accordance with the terms of this Agreement, will be duly and validly
issued, fully paid and non-assessable. The Company shall at all times
have authorized, reserved and set aside a sufficient number of Common
Shares for the conversion the Notes, for payment of interest on the
Notes and for issuance as Loan Fee Shares and as January Shares.
(e) SEC Documents. The Company has furnished the Purchaser
with a true and complete copy of the Company's Report on Form 8-K filed
on January 27, 1998, as amended on January 29, 1998 and March 27, 1998,
Report on Form 8-K filed on January 28, 1998 as amended on January 29,
1998, Report on Form 8-K filed on March 18, 1998, Report on Form 8-K
filed on May 1, 1998, Report on Form 8-K filed on August 5, 1998,
Report on Form 8-K filed on September 18, 1998, the Company's Form
10-KSB for the fiscal year ended December 31, 1997, Form 10-QSB for the
quarterly period ended March 31, 1998, Form 10-QSB for the quarterly
period ended June 30, 1998, and the Registration Statement on Form SB-2
(No. 333-60761) and the Proxy Statement dated October 16, 1998 (the
"Disclosure Documents"). Except as disclosed in the Disclosure
Documents, since December 31, 1997 the Company has not incurred any
material liability except in the ordinary course of its business
consistent with past practice and there has not been any change in the
business, financial condition or results of operations of the Company
which has had a material adverse effect on the Company. Since January
1, 1997, the Company has filed with the Securities and Exchange
Commission (the "SEC") all documents required to be filed pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations promulgated thereunder. As of their
respective filing dates, the Disclosure Documents complied in all
material respects with the requirements of the Exchange Act, and the
rules and regulations of the SEC thereunder applicable to such
Disclosure Documents, and the Disclosure Documents did not contain any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the
Disclosure Documents (the "Financial Statements") comply as to form in
all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto.
The Financial Statements are accurate, complete and have been prepared
in accordance with the books and records of the Company and in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be
indicated in the notes thereto and fairly present (subject, in the case
of the unaudited statements, to normal, recurring audit adjustments
that are not
<PAGE> 5
material) the consolidated financial position of the Company as at the
dates thereof and the consolidated results of its operations and cash
flows for the periods then ended.
(f) Litigation. There is neither pending nor, to the Company's
knowledge and belief, threatened any action, suit, proceeding or claim,
or any basis therefor, to which the Company is or may be named as a
party or its property is or may be subject other than routine
litigation in the ordinary course of business or which calls into
question any of the transactions contemplated by this Agreement.
(g) Securities Matters. Subject to the accuracy of the
representations of the Purchaser set forth in Section 3.2 hereof, the
offer, sale and issuance of the Notes and the Shares as contemplated by
this Agreement are exempt from the registration requirements of the
Securities Act of 1933 as amended (the "Securities Act"). The Company
has complied and will comply with all applicable state "blue sky" or
securities laws in connection with the offer, sale and issuance of the
Notes and the Shares as contemplated by this Agreement. The Company
agrees that on or after January 1, 1999 it will, within thirty (30)
days of the Purchaser's written request for such and at the Company's
cost, make appropriate registration filings under the Securities Act to
cause the Shares and the 200,000 Common Shares issued in connection
with the August Note and the September Note to become registered
thereunder and the Company agrees that it will use its best efforts to
cause such registration to be declared effective as soon as possible.
Purchaser shall have one such demand registration right.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
represents and warrants that as of the date of the execution of this
Agreement:
(a) Authorization. This Agreement constitutes a valid and
legally binding obligation of such Purchaser.
(b) Investment Representations (i) The Purchaser has received
and reviewed the Company's Disclosure Documents and the Purchaser or
the Purchaser's designated representatives have concluded a
satisfactory due diligence investigation of the Company and have had an
opportunity to review the documents provided by the Company and to have
all of their questions related thereto satisfactorily answered.
(ii) The Purchaser acknowledges that the Notes and
the Shares are speculative and involve a high degree of risk
and the Purchaser represents that it is able to sustain the
loss of the entire amount of its investment.
(iii) The Purchaser (or its members and/or officers)
has previously invested in unregistered securities and has
sufficient financial and investing expertise to evaluate and
understand the risks of the Notes and the Shares.
(iv) The Purchaser has received from the Company, and
is relying on, no representations (except as set forth in this
Agreement) or projections with respect to the Company's
business and prospects.
<PAGE> 6
(v) The Purchaser is an "accredited investor" within
the meaning of Regulation D under the Securities Act.
(vi) The Purchaser is acquiring the Notes and the
Shares for investment purposes only without intent to
distribute the same, and acknowledges that the Notes and the
Shares have not been registered under the Securities Act and
applicable state securities laws, and accordingly, constitute
"restricted securities" for purposes of the Securities Act and
such state securities laws.
(vii) The Purchaser acknowledges that it will not be
able to transfer the Notes and the Shares except upon
compliance with the registration requirements of the
Securities Act and applicable state securities laws or
exemptions therefrom.
(viii) The certificates and/or instruments evidencing
the Notes and the Shares will contain a legend to the
foregoing effect.
4. MISCELLANEOUS.
4.1 Confidentiality. (a) The Purchaser agrees to keep confidential any
and all non-public information delivered or made available to the Purchaser by
the Company except for disclosures, as necessary, made by the Purchaser to the
Purchaser's officers, directors, employees, agents, counsel and accountants each
of whom shall be notified by the Purchaser of this confidentiality covenant and
for whom the Purchaser shall be liable in the event of any breach of this
covenant by any such individual or individuals; provided, however, that nothing
herein shall prevent the Purchaser from disclosing such information (a) upon the
order of any court or administrative agency, (b) upon the request or demand of
any regulatory agency or authority having jurisdiction over the Purchaser, (c)
which has been publicly disclosed or (d) to any of its members provided that any
such members agree in writing (with a copy provided to the Company) to be bound
by confidentiality provisions in form and substance substantially as are
contained herein. In the event of a mandatory disclosure as described in clause
(a) and/or (b) of the preceding sentence, the Purchaser shall promptly notify
the Company in writing of any applicable order, request or demand for such
information, cooperate with the Company if and to the extent that the Company
elects to seek an appropriate protective order or other relief from such order,
request, or demand, and disclose only the minimal amount of information
ultimately required to be disclosed. The Purchaser shall not use for its own
benefit, nor permit any other person to use for such person's benefit, any of
the Company's non-public information including, without limitation, in
connection with the purchase and/or sale of the Company's securities.
(b) The Company shall in no event disclose non-public
information to the Purchaser, advisors to or representatives of the
Purchaser unless prior to disclosure of such information the Company
marks such information as "Non-Public Information - Confidential" and
provides the Purchaser, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information
for review. The
<PAGE> 7
Company may, as a condition to disclosing any non-public information
hereunder, require the Purchaser's advisors and representatives to
enter into a confidentiality agreement in form reasonably satisfactory
to the Company and the Purchaser.
(c) Nothing herein shall require the Company to disclose
non-public information to the Purchaser or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any Purchasers who purchase stock
in the Company in a public offering, to money managers or to securities
analysts.
4.2 Legends. To the extent applicable, each note, certificate or other
document evidencing the Notes to be purchased and sold pursuant to this
Agreement and any Shares issued shall be endorsed with the legends set forth
below, and the Purchaser on behalf of itself and each holder of the Notes
covenants that, except to the extent such restrictions are waived by the
Company, it shall not transfer the Notes or Shares without complying with the
restrictions on transfer described in the legends endorsed on such note or
certificate:
(a) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY
AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY ACCEPTABLE TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) If required by the authorities of any state in connection
with the issuance or sale of the Note or the Shares, the legend
required by such state authority.
4.3 Costs and Expenses. The Company shall reimburse Purchaser for its
reasonable legal fees and expenses in connection with the purchase of the Notes
up to a maximum of $7,900. The Company shall be responsible for all of its fees
and expenses in connection with this transaction.
4.4 Assignability; Successors. The provisions of this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of the parties hereto.
4.5 Survival. All agreements, covenants, representations and warranties
made by the Company or by the Purchaser herein shall survive the execution and
delivery of this Agreement.
<PAGE> 8
4.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
4.7 Counterparts: Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. The descriptive
headings in this Agreement are inserted for convenience of reference only and
shall not affect the construction of this Agreement.
4.8 Entire Agreement, Amendments. This Agreement and the Exhibits
contain the entire understanding of the parties with respect to the subject
matter hereof, and supersede all other representations and understandings, oral
or written, with respect to the subject matter hereof. No amendment,
modification, alteration, or waiver of the terms of this Agreement or consent
required under the terms of this Agreement shall be effective unless made in a
writing, which makes specific reference to this Agreement and which has been
signed by the Company and each Purchaser. Any such amendment, modification,
alteration, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
4.9 Notices. All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given or
made when delivered in hand, deposited in the mail, or sent by facsimile, with
confirmation (if sent by facsimile on a non-business day, receipt shall be
deemed to have occurred on the next succeeding business day). Communications or
notices shall be delivered personally or by certified or registered mail,
postage, or by facsimile and addressed as follows, unless and until either of
such parties notifies the other in accordance with this Section of a change of
address:
if to the Company Consolidated Capital of North America, Inc.
410 17th Street, Suite 400
Denver, Colorado 80202
Att: Secretary
Tel: (303) 446-2188
Fax: (303) 446-5972
with copies to: Gallagher, Briody & Butler
212 Carnegie Center, Suite 402
Princeton, New Jersey 08540
Att: Thomas P. Gallagher
Tel: (609) 452-6000
Fax: (609) 452-0090
if to the Purchaser:
------------------------------------
------------------------------------
------------------------------------
<PAGE> 9
with copies to:
------------------------------------
------------------------------------
------------------------------------
4.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
4.11 Maximum Interest. It is expressly stipulated and agreed to be the
intent of the Company and the Purchaser at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Purchaser to contract
for, charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of the Note results in the
Company's having paid any interest in excess of that permitted by law, then it
is the Company's and the Purchaser's express intent that all excess cash amounts
theretofore collected by Purchaser be credited on the principal balance of the
Note (or if the Note has been or would thereby be paid in full, refunded to the
Company), and the provisions of this Agreement immediately be deemed reformed
and the amounts thereafter collectible hereunder reduced, without the necessity
of the execution of any new document, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder. The right to accelerate maturity of the Note does not include the
right to accelerate any interest which has not otherwise accrued on the date of
such acceleration, and the Purchaser does not intend to collect any unearned
interest in the event of acceleration.
4.12 Right of First Refusal. Subject to the terms and conditions
specified in this paragraph 4.12 the Company hereby grants to the Purchaser a
right of first refusal with respect to any sale by the Company or any of its
subsidiaries of any non-metals companies, divisions, subsidiaries or product
lines, whether through the sale of securities or assets but excluding any sale
of all or substantially all of the Company's securities or assets (a "Non-Metals
Sale") during the six month period commencing on the Closing (the "Right of
First Refusal Period"). Each time the Company proposes to enter into a
Non-Metals Sale during the Right of First Refusal Period, the Company shall
first give the Purchaser the right of first refusal with respect to such
Non-Metals Sale in accordance with the following provisions:
(a) The Company shall deliver a notice pursuant to Section 4.9
to the Purchaser in the event that a third party has indicated an
interest in entering into a Non-Metals Sale and the Company shall give
the Purchaser the same opportunity to conduct a due diligence review as
the potential purchaser.
(b) After the completion of any such due diligence period, the
Company shall
<PAGE> 10
deliver a notice pursuant to Section 4.9 ("Sale Notice") to the
Purchaser stating (i) its bona fide intention to enter into a
Non-Metals Sale with the third party and (ii) the terms and conditions
of the Non-Metals Sale.
(c) Within thirty (30) days after mailing of the Notice, the
Purchaser may elect to enter into the Non-Metals Sale with the Company,
at the price and on the terms specified in the Notice.
(d) The Company may, during the 120-day period following the
expiration of the period provided in subsection 4.12(c) hereof, enter
into a Non-Metals Sale to any person or persons upon terms no more
favorable to the offeree than, those specified in the Notice. If the
Company does not consummate the proposed Non-Metals Sale within such
period, the right provided hereunder shall be deemed to be revived and
such transaction shall not be entered into unless first re-offered to
the Purchaser in accordance herewith.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
CONSOLIDATED CAPITAL
OF NORTH AMERICA, INC,
By:
-----------------------------
Name:
Title:
PURCHASER
By:
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.65
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. , 1998
---- -------------
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
18% CONVERTIBLE NOTE
FOR VALUE RECEIVED, Consolidated Capital of North America, Inc., a
Colorado corporation (the "Company") hereby promises to pay to the order of
_______________ having an address at _______________________________ (the
Holder"), or registered assigns, the principal sum of One Million Five Hundred
Sixty Eight Thousand, Nine Hundred Dollars ($1,568,900.00), and to pay interest
from the date hereof on $1,550,000 or such lesser amount outstanding at the rate
of 18% per annum based on a 365-day year, such interest to accrue from the date
hereof. Principal (i) in the amount of $18,900.00 shall be paid on January 15,
1999 and (ii) in the amount of $1,550,000.00, and interest accrued from the date
hereof on such amount, shall be paid on or before January 19, 1999 (the
"Maturity Date"). The Holder shall have the right, at its sole option, to
receive the $18,900.00 on January 15, 1999 in cash or in Common Shares of the
Company based on a price equal to $0.12 per share (the "January Shares").
The Company may, at its election, extend the Maturity Date for the
repayment of the $1,550,000 due on January 19, 1999 for two additional
ninety-day periods by giving notice to the Holder of such extensions at least
thirty (30) days prior to the original or extended Maturity Date, as applicable.
Any further extensions of the Maturity Date shall require the consent of the
Holder.
In the event of the extension(s) of the Maturity Date, the Holder may
demand interest to be paid on the unpaid principal sum through the date of
extension. The Holder shall have the right, at its sole option, to receive
interest due in Common Shares of the Company based on a price equal to $.12 per
share (the "Interest Shares") within five days of demand or to receive cash
interest within 30 days after the payment of interest has been demanded.
This Note is one of an authorized issue of $2,000,000 aggregate amount
of 18% Convertible Notes of the Company (collectively, the "Notes") issued
pursuant to a Note Purchase
<PAGE> 2
Agreement dated as of October 21, 1998 between the Company and the Holder (the
"Note Purchase Agreement"). The Holder of this Note is entitled to the benefits
of the Note Purchase Agreement and to enforce the agreements of the Company
contained therein. Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed thereto in the Note Purchase Agreement. All payments
shall be paid in lawful money of the United States of America at the principal
office of the Holder or at such other place as the Holder may designate from
time to time in writing to the Company.
1. PREPAYMENT. The Company may prepay and redeem the Notes, at the
election of the Company, upon not less than 10 days' notice, at any time as a
whole only and not in part, at a price equal to the outstanding principal of the
Notes together with accrued interest to the redemption date.
2. CONVERSION. (a) From time to time and at any time after the date
hereof and prior to payment in full, the outstanding principal amount of this
Note, and all accrued and unpaid interest thereon, in whole or in increments of
at least $20,000 of principal, may be converted by the Holder into Common Shares
of the Company (the "Conversion Shares") at the Conversion Price equal to $.12
per share.
(b) In order to effect the conversion of all or part of the
Note, the Holder shall issue a notice of conversion substantially in
the form attached hereto (the "Notice of Conversion") which may be by
facsimile and surrender the Note for conversion if the Note is not
already in possession of the Company. Each conversion of all or any
portion of the Note will be deemed to have been effected as of the
close of business on the date on which the Note has been surrendered at
the principal office of the Company. At such time as such conversion
has been effected, to the extent that any portion of the Note is
converted, the rights of the Holder with respect to such portion of the
Note shall cease and the Holder shall be deemed to have become the
holder of record of the shares of Conversion Shares represented
thereby.
(c) No fractional Common Shares shall be issued upon
conversion of the Note. In lieu of any fractional share to which the
holder would otherwise be entitled, the Company shall round up to the
nearest whole Common Share. In the case of a dispute as to the
calculation of the Conversion Price, the parties hereto agree to
arbitrate the same in an office of the American Arbitration Association
in Denver, Colorado utilizing its commercial arbitration rules with an
arbitrator selected by the parties or in the event that they are unable
to do so by the American Arbitration Association.
(d) Within ten days after a conversion has been effected, the
Company will deliver to the Holder:
(i) a certificate or certificates representing the
number of Conversion Shares issuable by reason of conversion
in the name of the Holder and in such denomination or
denominations as the Holder has specified; and
(ii) a new Note representing any principal balance
which was not
<PAGE> 3
converted into Conversion Shares in connection with such
conversion; all other terms and conditions of the Note will
remain in full force and effect.
(e) The issuance of certificates for Conversion Shares upon
conversion of the Note and/or interest will be delivered by the Company
within ten days of the date of conversion or the interest payment due
date and will be made without charge to the Holder for any issuance tax
in respect thereof or other cost incurred by the Company in connection
with such conversion and the related issuance of Conversion Shares. In
the event the certificates are not delivered within such ten day
period, the Company shall pay to the Holder a penalty of $250 per day
in cash for each day thereafter until the date such certificates are
delivered to the Holder.
(f) The Company shall at all times have authorized, reserved
and set aside a sufficient number of Common Shares for the conversion
of all shares with respect to the Note and interest then outstanding.
(g) The Conversion Price in effect at any time and the number
and kind of securities purchasable upon the exercise of the Note shall
be subject to adjustment from time to time upon the happening of
certain events as follows after the date hereof and through and
including the Maturity Date:
(i) In case the Company shall (1) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (2) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (3) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Conversion Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock immediately prior to
such action. Such adjustment shall be made each time any event
listed above shall occur.
(ii) Whenever the Conversion Price is adjusted
pursuant to Subsection (i) above, the number of Conversion
Shares purchasable upon conversion of the Note shall
simultaneously be adjusted by multiplying the number of
Conversion Shares initially issuable upon conversion of the
Note by the Conversion Price in effect on the date hereof and
dividing the product so obtained by the Conversion Price, as
adjusted.
(iii) All calculations under this Section 2.3(g)
shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
(iv) Whenever the Conversion Price is adjusted, as
herein provided, the
<PAGE> 4
Company shall promptly cause a notice setting forth the
adjusted Conversion Price and adjusted number of Conversion
Shares issuable upon exercise of the Note to be mailed to the
Holder, at its last address appearing in the Company's
register. The Company may retain a firm of independent
certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the
Company) to make any computation required by this Section
2.3(g). In the case of a dispute as to the adjustment of the
Conversion Price, the parties hereto agree to arbitrate the
same in an office of the American Arbitration Association in
Denver, Colorado utilizing its commercial arbitration rules
with an arbitrator selected by the parties or in the event
that they are unable to do so, by the American Arbitration
Association.
(h) In the event of a merger, reorganization, recapitalization
or similar event of or with respect to the Company (a "Corporate
Change") (other than a Corporate Change in which all or substantially
all of the consideration received by the holders of the Company's
equity securities upon such Corporate Change consists of cash or assets
other than securities issued by the acquiring entity or any affiliate
thereof), this Note shall be convertible at the option of the Holder
into such class and type or securities as the holder would have
received had the Holder converted the Note immediately prior to such
Corporate Change, as appropriately adjusted to equitably reflect the
Conversion Price and any stock dividend, stock split or share
combination of the Common Stock after such corporate event.
3. REGISTRATION. The Company shall maintain at its principal office a
register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the registered
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. No transfer of a Note shall be
valid unless the registered holder or his or its duly appointed attorney request
such transfer to be made on such register, upon surrender thereof for exchange
as hereinafter provided, accompanied by an instrument in writing, in form and
execution reasonably satisfactory to the Company. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Company. The registered
holder of a Note shall be that person or entity in whose name the Note has been
so registered by the Company. A registered holder shall be deemed the owner of a
Note for all purposes, and the Company shall not be affected by any notice to
the contrary.
4. TRANSFER AND EXCHANGE. Subject to compliance with the restrictions
on transfer set forth in the Note Purchase Agreement, the registered holder of
any Note or Notes may, prior to maturity, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Within a reasonable
time after notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than applicable transfer taxes, if
any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes dated the date to which interest has been paid on, and for
the unpaid principal amount of, the Note or Notes so surrendered, containing the
same provisions and subject to the
<PAGE> 5
same terms and conditions as the Note or Notes so surrendered. Subject to the
restrictions on transfer set forth in the Note Purchase Agreement, each new Note
shall be made payable to such person or entity, as the registered holder of such
surrendered Note or Notes may designate. Notes issued upon any transfer or
exchange shall be only in authorized denominations, which shall be $20,000.
5. REPLACEMENT. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Note and, if requested by the
Company in the case of any such loss, theft or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor, in the amount of
the unpaid principal of such Note, and dated the date to which interest has been
paid, in lieu of such lost, stolen, destroyed or mutilated Note.
6. DEFAULT. The Company shall be in default under this Note upon the
occurrence of: (i) any of the events specified in Section 6(a) hereof and the
failure to cure such default within five (5) days after receipt of written
notice thereof from the Holder; (ii) any of the events specified in Section 6(b)
hereof and the failure to cure such default within ten (10) days after receipt
of written notice thereof from the Holder; or (iii) any of the events specified
in Section 6(c) hereof (any of the foregoing being an "Event of Default"):
(a) Failure to make any principal or interest payment
required under this Note on the due date of such payment;
(b) Any material default, breach or misrepresentation shall
occur under the terms and provisions of the Note Purchase Agreement; or
(c) Insolvency of, business failure of, or an assignment for
the benefit of creditors by or the filing of a petition under
bankruptcy, insolvency or debtor's relief law, or for any readjustment
of indebtedness, composition or extension by the Company, or commenced
against the Company which is not discharged within sixty (60) days.
7. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default:
(a) specified in clause (c) of Section 6, then the Note shall
be automatically accelerated and immediately due and payable at the
option of Holder, without notice or demand, and said amount shall
accrue interest from the date of default at the rate of twenty percent
(20%) per annum;
(b) specified in clauses (a) or (b) of Section 6, then the
Holder may declare the Note immediately accelerated, due and payable
and said amount shall accrue interest from the date of default at the
rate of twenty percent (20%) per annum; and
(c) the Holder shall have all of the rights and remedies, at
law and in equity,
<PAGE> 6
by statute or otherwise, and no remedy herein conferred upon the Holder
is intended to be exclusive of any other remedy and each remedy shall
be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law, in, equity, by statute
or otherwise.
8. CHANGES; PARTIES. This Note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall inure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
9. WAIVER OF PRESENTMENT. The Company hereby waives presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
10. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to
be the intent of the Company and Holder at all times to comply with the
applicable law governing the maximum rate of interest payable on or in
connection with all indebtedness and transactions hereunder (or applicable
United States federal law to the extent that it permits Holder to contract for,
charge, take, reserve or receive a greater amount of interest). If the
applicable law is ever judicially interpreted so as to render usurious any
amount of money or other consideration called for hereunder, or contracted for,
charged, taken, reserved or received with respect to any loan or advance
hereunder, or if acceleration of the maturity of this Note or the indebtedness
hereunder or if any prepayment by the Company results in the Company's having
paid any interest in excess of that permitted by law, then it is the Company's
and Holder's express intent that all excess cash amounts theretofore collected
by Holder be credited on the principal balance of this Note (or if this Note has
been or would thereby be paid in full, refunded to the Company), and the
provisions of this Note immediately be deemed reformed and the amounts
thereafter collectible hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder. The
right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Holder does not intend to collect any unearned interest in the
event of acceleration.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF COLORADO WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
<PAGE> 7
IN WITNESS WHEREOF, the Company has executed this Note as of the day
and year set forth above.
CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
By:
-------------------------------------
Richard Bailey
President and Chief Operating Officer
<PAGE> 8
NOTICE OF CONVERSION
TO: CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
The undersigned, the holder of the foregoing Note, hereby surrenders
such Note for conversion into shares of Common Shares of Consolidated Capital of
North America, Inc. to the extent of $_______ unpaid principal amount of such
Note, and requests that the certificates for such shares be issued in the name
of, and delivered to, _______________, whose address is
___________________________.
Dated:_____________
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Note)
------------------------------
(Address)
<PAGE> 1
EXHIBIT 10.66
EMPLOYMENT AGREEMENT
AGREEMENT effective as of September 1, 1998, by and between
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation having an
address at 410 17th Street, Suite 400, Denver, Colorado 80202 ("Corporation")
and RICHARD D. BAILEY ("Executive").
W I T N E S S E T H
WHEREAS, the Corporation wishes to employ Executive, and Executive is
willing to accept such employment, on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein. the parties hereto agree as follows:
1. Employment and Term. Subject to the terms and conditions of this
Agreement, the Corporation agrees to employ Executive, and Executive hereby
accepts employment by the Corporation, for a period of one year (the "Term")
commencing on the date first written above; provided, however, that this
Agreement and the Term of Executive's employment with the Corporation hereunder
shall automatically be extended for one year commencing on the first anniversary
of this Agreement and on each successive one year anniversary after the first
anniversary unless Executive or the Corporation shall have given written notice
to the other at least sixty (60) days prior to the end of the Term that the Term
shall expire at the end of the initial Term or extended Term, as applicable. For
purposes of this Agreement, the "Term" of this Agreement shall mean the initial
term of this Agreement and (cumulatively) any and all one year extensions of the
initial term of this Agreement. In the event of the exercise of any of the
one-year extensions of this Agreement, Executive's salary and other compensation
for the extension year shall be negotiated in good faith; and in the event that
agreement is not reached by the beginning of the one-year extension period, then
all of the terms of this Agreement in effect immediately prior to the
commencement of the one-year extension shall be continued for the
then-commencing year.
2. Duties. During the Term, Executive shall serve as the President and
Chief Operating Officer of the Corporation or in such other capacity or
capacities as may be determined by the Board of Directors of the Corporation. If
requested by the Board of Directors of the Corporation, Executive shall also
serve, without additional compensation, as an officer or director of any
subsidiary, affiliate or joint venture of the Corporation. Executive shall
perform such duties and services as are incidental to the positions he holds or
as he may, from time to time, be requested to hold by the Board of Directors of
the Corporation. The Executive will devote his time, attention, skill, and
energy to the business of the Corporation, will use his best efforts to promote
the success of the Corporation's business, and will cooperate fully with the
<PAGE> 2
Board of Directors in the advancement of the best interests of the Corporation.
Nothing in this Section 2, however, will prevent the Executive from engaging in
additional activities in connection with personal investments and community
affairs that are not inconsistent with the Executive's duties under this
Agreement to the extent such activities do not violate Section 9 of this
Agreement.
3. Base Salary. During the Term, the Corporation shall pay to
Executive, in equal installments no less frequently than twice per month (or at
such other intervals as are in effect from time to time for other executive
officers of the Corporation), a base salary at the rate of $200,000 per year.
4. Issuance of Stock Options. As part of the consideration for services
hereunder on the date hereof, Executive shall be granted 1,000,000 options to
purchase common shares of the Corporation (the "Options") under the
Corporation's 1997 Stock Incentive Plan with an exercise price per share equal
to the mean between the highest bid and lowest asked price on September 1, 1998.
The Options shall vest as follows:
(a) 250,000 options shall vest on September 1, 1998.
(b) 250,000 options shall vest on December 1, 1999 provided that
the following objectives are met:
(i) For the fiscal quarter ended September 30, 1999, the
Corporation has revenues of $18.75 million or greater;
(ii) For the fiscal quarter ended September 30, 1999, the
Corporation has positive EBITDA; and
(iii) As of December 1, 1999, the Corporation is in compliance
with all financing covenants contained in any financing agreements.
(c) 250,000 options shall vest on December 1, 2000 provided that
the following objectives are met:
(i) For the fiscal quarter ended September 30, 2000, the
Corporation has revenues of $37.5 million or greater;
(ii) For the fiscal quarter ended September 30, 2000, the
Corporation has EBITDA of $1.25 million or greater;
(iii) As of December 1, 2000, the Corporation is in compliance
with all financing covenants contained in any financing agreements; and
(iv) As of December 1, 2000, the Corporation's common shares
have been listed for trading on the NASDAQ Small Cap Market or another
larger market.
<PAGE> 3
(d) 250,000 options shall vest on December 1, 2001 provided that
the following objectives are met:
(i) For the fiscal quarter ended September 30, 2001, the
Corporation has revenues of $50 million or greater;
(ii) For the fiscal quarter ended September 30, 2001, the
Corporation has EBITDA of $2.5 million or greater;
(iii) As of December 1, 2000, the Corporation is in compliance
with all financing covenants contained in any financing agreements; and
(iv) As of December 1, 2000, the Corporation has completed an
underwritten secondary offering of its securities.
The Options may be exercisable by Executive for a period of ten years
from the date of grant, subject to the provisions of Section 7 of this
Agreement. The terms of the Options shall be set forth in an Option Agreement
between the Corporation and Executive (the "Option Agreement"). The Executive
shall be entitled to retain and exercise any Options that vest on the December
1st immediately following the expiration of the initial or any extended term of
this Agreement, as applicable (the "Expiration Date"), on such December 1st
provided the forgoing vesting conditions are met notwithstanding the fact that
the term of this Agreement shall be expired as of the Expiration Date. The
Executive shall have no rights to any Options scheduled to vest after the
December 1st immediately subsequent to the Expiration Date. The Executive shall
also be entitled to the Options upon a termination of employment to the extent
provided in Section 7 of this Agreement.
5. Additional Benefits.
(a) Executive shall be eligible to receive discretionary bonuses in
such amounts and at such times as shall be determined by the Board of Directors
of the Corporation or any applicable committee of the Board.
(b) The Executive will be permitted to participate in such pension,
profit sharing, stock bonus, stock option, deferred compensation, life
insurance, hospitalization, major medical and other benefit plans of the
Corporation that may be in effect from the time, to the extent the Executive is
eligible under the terms of those plans.
(c) During the Term, Executive shall be entitled to three weeks of
vacation, and in addition thereto such personal days, sick leave and other
similar benefits in accordance with the policies of the Corporation from time to
time in effect for executives of comparable expertise and authority.
(d) Executive agrees that the Corporation may obtain key man life
insurance with respect to Executive, and in connection therewith, agrees to
submit to all reasonable and customary examinations by the provider of such life
insurance.
<PAGE> 4
(e) Executive shall be entitled to reimbursement for all normal and
reasonable travel, entertainment and other expenses necessarily incurred by him
in the performance of his duties hereunder. Executive shall be entitled to
reimbursement of reasonable moving expenses upon his submittal of detailed
written vouchers and subject to the prior approval of such expenses by the
Compensation Committee of the Corporation or the Chairman of the Corporation.
Executive shall have the use of a corporate American Express Card for payment of
necessary business expenses. Executive shall submit on a timely basis such
itemized accounts of all business expenses, together with such vouchers or
receipts for individual expense items, as the Corporation may from time to time
require under its established policies and procedures.
(f) During the Term, the Corporation shall provide Executive, for
Executive's use, a late model automobile suitable to the status of an executive
of the Corporation and shall pay the attendant costs related thereto, including,
but not limited to, insurance, repairs, lease payments and other related
expenses, including gasoline.
(g) To the extent the Corporation provides Officer and Director
Liability Insurance to its officers, Executive shall be entitled to be covered
by such insurance.
6. Rights of Termination.
(a) For Cause. The Corporation shall have the right, at any time
effective upon notice to Executive, to terminate this Agreement and Executive's
employment hereunder for "cause" (as hereinafter defined). For purposes of this
Agreement, "cause" means: (1) the Executive acting fraudulently in his relations
with the Corporation, (2) the Executive misappropriating or doing material,
intentional damage to the property of the Corporation, (3) the substantial
breach or continuous neglect by the Executive of his employment obligations
under this Agreement, or willful misconduct by the Executive in the performance
of such obligations which occurs or persists after notice and an opportunity to
cure, (4) any material breach by Executive of any of the terms of this
Agreement, (5) the Executive being convicted of a felony, or (6) the Executive's
failure to act in the best interest of the Corporation or breach of his
fiduciary duties to the Corporation.
(b) Disability; Death. In the event of Executive's permanent and total
disability as determined under the Corporation's long-term disability program
or, if no such program has been adopted, the continuous absence of Executive for
120 consecutive days or 180 days or more during any twelve month period due to
physical or mental illness or incapacity, the Corporation shall have the right
to terminate this Agreement and Executive's employment hereunder upon 30 days'
prior written notice. In the event that Executive is able to and recommences
rendering services and performing his duties hereunder within such 30-day notice
period, Executive shall be reinstated and such notice shall be without further
force or effect. If Executive dies during the Term, this Agreement shall
terminate immediately upon his death.
<PAGE> 5
7. Effects of Termination.
(a) In the event that Executive's employment is terminated pursuant to
Section 6(a) hereof, (i) Executive's employment hereunder shall immediately
cease, (ii) the Corporation shall pay to Executive his accrued and unpaid
salary, accrued vacation time and expense reimbursement through the date of
termination in accordance with the Corporation's usual procedures and (iii) all
then non-exercisable options held by Executive shall immediately and
automatically terminate.
(b) In the event that Executive's employment is terminated pursuant to
Section 6(b) hereof, (i) Executive's employment hereunder shall cease in
accordance with Section 6(b), (ii) the Corporation shall pay to Executive his
accrued and unpaid salary, accrued vacation time and expense reimbursement
through the date of termination in accordance with the Corporation's usual
procedures, (iii) all then exercisable options shall become exercisable as set
forth in the Option Agreement, (iv) all then non-exercisable options that would
vest as of the 1st of December after the date of termination shall remain
outstanding and shall vest if the conditions set forth in Section 4 of this
Agreement are met on such December 1st and thereafter such options shall be
exercisable for the period set forth in the Option Agreement and (v) in the
event of the death of Executive, any and all options (whether vested or
unvested) shall be transferred in accordance with Executive's will.
(c) In the event that Executive's employment hereunder is terminated by
the Corporation other than pursuant to Section 6(a) or (b), then: (i) Executive
shall be entitled to receive, and the Corporation shall continue to pay to
Executive, the annual salary specified in Section 3 for the remainder of the
Term, (ii) Executive shall be entitled, during the period during which such
severance payment is being paid, to receive all benefits under the Corporation's
medical insurance, disability insurance, life insurance and other benefit plans
as are then in effect for executives of the Corporation, (iii) all then
exercisable options shall become exercisable as set forth in the Option
Agreement and (iv) all then non-exercisable options that would vest as of the
1st of December after the date of termination shall remain outstanding and shall
vest if the conditions set forth in Section 4 of this Agreement are met on such
December 1st and thereafter such options shall be exercisable for the period set
forth in the Option Agreement.
(d) In the event that Executive's employment hereunder is terminated by
Executive, then: (i) the Corporation shall pay to Executive his accrued and
unpaid salary, accrued vacation time and expense reimbursement through the date
of termination in accordance with the Corporation's usual procedures and (ii)
all then non-exercisable options shall immediately and automatically terminate
upon such termination of employment.
(e) Executive's obligations pursuant to Sections 8 and 9 hereof shall
survive any termination of this Agreement for any reason whatsoever.
8. Confidentiality.
(a) Executive understands and acknowledges that as a result of
Executive's employment with the Corporation, and involvement with the business
of the Corporation, he is or shall necessarily become informed of, and have
access to, confidential information of the
<PAGE> 6
Corporation including, without limitation, inventions, patents, patent
applications, trade secrets, technical information, know-how, plans,
specifications, marketing plans and information, pricing information, identity
of customers and prospective customers and identity of suppliers, and that such
information, even though it may have been or may be developed or otherwise
acquired by Executive, is the exclusive property of the Corporation to be held
by Executive in trust and solely for the Corporation's benefit. Executive shall
not at any time, either during or subsequent to his employment hereunder,
reveal, report, publish, transfer or otherwise disclose to any person,
corporation or other entity, or use, any of the Corporation's confidential
information, without the written consent of the Corporation's Board of
Directors, except for use on behalf of the Corporation in connection with the
Corporation's business, and except for such information which legally and
legitimately is or becomes of general public knowledge from authorized sources
other than Executive.
(b) Upon the termination of his employment with the Corporation for any
reason, Executive shall promptly deliver to the Corporation all drawings,
manuals, letters, notes, notebooks, reports and copies thereof and all other
materials, including, without limitation, those of a secret or confidential
nature, relating to the Corporation's business which are in Executive's
possession or control. The Corporation shall reimburse Executive for any packing
or moving costs reasonably incurred by Executive in connection with the
foregoing delivery.
For purposes of this Section 8 and Section 9, the term "Corporation" includes
the Corporation and any other predecessor corporation, and affiliates
(including, without limitation, distributors, licensees, franchisees.
subsidiaries and joint ventures).
9. Non-Competition.
(a) Executive agrees that, during the Term, he shall not, anywhere in
North America, directly or indirectly:
(i) engage, directly or indirectly, as an independent
contractor or otherwise, in any activity for or on behalf of any person
or entity in a competitive line of business to that carried on by the
Corporation or any company affiliated with the Corporation during the
term of his employment therewith;
(ii) solicit or attempt to solicit business of any customers
of the Corporation (including prospective customers solicited by the
Corporation) for products or services the same or similar to those
offered, sold, produced or under development by the Corporation during
the term of his employment therewith or dealt in by Executive during
his employment with the Corporation;
(iii) otherwise divert or attempt to divert from the
Corporation any business whatsoever;
(iv) solicit or attempt to solicit for any business endeavor
any employee of the Corporation;
<PAGE> 7
(v) interfere with any employment relationship or other
business relationship between the Corporation and any other individual,
person, or other entity;
(vi) use the name of the Corporation or a name similar
thereto; or
(vii) render any services as an officer, director, employee,
partner, consultant or otherwise to, or have any interest as a
stockholder, partner, lender or otherwise in, any person which is
engaged in activities which, if performed by Executive would violate
this Section 9.
The foregoing shall not prevent Executive from purchasing or owning up to five
(5) % of the voting securities of any corporation, the securities of which are
publicly-traded.
(b) Executive agrees that during the Term and ending three years after
the termination of his employment with the Corporation for any reason, he shall
not, directly or indirectly:
(i) solicit or attempt to solicit for any business endeavor
any employee of the Corporation; or
(ii) interfere with any employment relationship between the
Corporation and any other individual.
10. Remedies and Survival. Because the Corporation does not have an
adequate remedy at law to protect its interest in its trade secrets, privileged,
proprietary or confidential information and similar commercial assets, or its
business from Executive's competition, the Corporation shall be entitled to
injunctive relief, in addition to such other remedies and relief that would, in
the event of a breach or a threatened breach of the provisions of Sections 8 or
9, be available to the Corporation. The Corporation shall not be required to
plead or prove the inadequacy of damages. The provisions of Sections 8 and 9 and
this Section 10 shall survive any termination of Executive's employment with the
Corporation for any reason whatsoever.
11. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to its subject matter, merges
and supersedes any prior or contemporaneous agreements or understandings with
respect to its subject matter, and shall not be modified or terminated except by
another agreement in writing executed by the Corporation and Executive. Failure
of a party to enforce one or more of the provisions of this Agreement or to
require at any time performance of any of the obligations hereof shall not be
construed to be a waiver of such provisions by such party nor to in any affect
the validity of this Agreement or such party's right thereafter to enforce any
provision of this Agreement, nor to preclude such party from taking any other
action at any time which it would legally be entitled to take.
12. Severability. If any provision of this Agreement is held to be
invalid or unenforceable by any court or tribunal of competent jurisdiction, the
remainder of this Agreement shall not be affected by such judgment, and such
provision shall be carried out as
<PAGE> 8
nearly as possible according to its original terms and intent to eliminate such
invalidity or unenforceability.
13. Successors and Assigns. Neither party shall have the right to
assign this personal Agreement, or any rights or obligations hereunder, without
the consent of the other party; provided, however, that upon the sale or
transfer of all or substantially all of the assets and business of the
Corporation to another party, or upon the merger or consolidation of the
Corporation with, or acquisition of the Corporation by, another corporation or
entity, this Agreement shall inure to the benefit of, and be binding upon, both
Executive and the party purchasing such assets, business and goodwill, or
surviving such merger or consolidation or acquiring the Corporation, as the case
may be, in the same manner and to the same extent as though such other party
were the Corporation. Subject to the foregoing, this Agreement shall inure to
the benefit of, and bind, the parties hereto and their legal representatives,
heirs, successors and assigns.
14. Communications. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given at the
time when mailed in any United States post office enclosed in a registered or
certified postage-paid envelope and addressed as set forth at the beginning of
this Agreement, or to such other address as any party may specify by notice to
the other parties, or delivered by Federal Express or a similar overnight
courier to such address; provided, however, that any notice of change of address
shall be effective only upon receipt.
15. Construction; Counterparts. The headings contained in this
Agreement are for convenience only and shall in no way restrict or otherwise
affect this construction of the provisions hereof. References in this Agreement
to Sections are to the sections of this Agreement. This Agreement may be
executed in multiple counterparts, each of which shall be an original and all of
which together shall constitute one and the same instrument.
16. Governing Law. This Agreement shall be governed by the laws of the
State of Colorado.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first set forth above.
CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
By: /s/ Paul Bagley
------------------------------------
Paul Bagley
Chairman and Chief Executive Officer
EXECUTIVE:
By: /s/ Richard D. Bailey
------------------------------------
Richard D. Bailey
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 133,655
<SECURITIES> 0
<RECEIVABLES> 3,631,074
<ALLOWANCES> 256,687
<INVENTORY> 3,634,494
<CURRENT-ASSETS> 8,532,059
<PP&E> 6,462,605
<DEPRECIATION> 759,817
<TOTAL-ASSETS> 17,708,815
<CURRENT-LIABILITIES> 13,794,514
<BONDS> 6,468,013
870,000
1,193,000
<COMMON> 2,462
<OTHER-SE> 8,933,175
<TOTAL-LIABILITY-AND-EQUITY> 17,708,815
<SALES> 15,908,469
<TOTAL-REVENUES> 15,908,469
<CGS> 13,320,890
<TOTAL-COSTS> 13,360,890
<OTHER-EXPENSES> 7,619,118
<LOSS-PROVISION> 20,000
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