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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1998
Commission File No. 0-21821
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
COLORADO 93-0962072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 17TH STREET, SUITE 400, DENVER, COLORADO 80202
(888) 313-8051
(Address of principal executive offices; issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Shares
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[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB: [ ]
Issuer's revenues for the most recent fiscal year: $20,291,655
The aggregate market value of the voting stock held by non-affiliates of
the issuer was approximately $11,934,891. THE AGGREGATE MARKET VALUE WAS BASED
UPON THE MEAN BETWEEN THE CLOSING BID AND ASKED PRICE FOR THE COMMON SHARES AS
REPORTED ON THE NASD ELECTRONIC BULLETIN BOARD AS OF MARCH 15, 1999.
As of March 15, 1999, there were 57,105,839 of the Issuer's Common Shares
outstanding.
Documents Incorporated by Reference:
None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT - FOR FISCAL YEAR ENDED
DECEMBER 31, 1998
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
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PART I
Item 1. Description of Business.........................................2
Item 2. Description of Property........................................14
Item 3. Legal Proceedings..............................................15
Item 4. Submission of Matters to a Vote
of Security Holders..........................................16
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters..........................................18
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operation.................22
Item 7. Financial Statements and Supplementary Data....................31
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................31
PART III
Item 9. Directors and Executive Officers...............................33
Item 10. Executive Compensation.........................................37
Item 11. Security Ownership of Certain
Beneficial Owners and Management.............................41
Item 12. Certain Relationships and
Related Transactions.........................................44
PART IV
Item 13. Exhibits and Reports on Form 8-K...............................50
SIGNATURE PAGE................................................................57
FINANCIAL STATEMENTS.........................................................F-1
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The Private Securities Litigation Reform Act of 1995 provides a "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 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 acquisitions, as well
as its current ongoing operations.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY OF THE COMPANY
Consolidated Capital of North America, Inc. (the "Company") was incorporated
under the laws of the State of Delaware on November 24, 1987. In March 1992, the
Company was reincorporated in the State of Colorado through the merger of the
Delaware corporation into a newly formed Colorado corporation.
The Company was originally organized to take advantage of potential business
opportunities made available to the Board of Directors. Commencing in 1989, the
Company investigated business opportunities in various industries and in 1991
the Company acquired an interest in a natural gas pipeline located in southeast
Kansas and northeast Oklahoma. The pipeline was operated by an independent third
party on behalf of the Company and its joint venture partner until May 1993,
when the pipeline was sold.
Commencing in 1994, the Company focused on real estate development and acquired
an interest in two entities participating in the real estate industry in
Colorado Springs, Colorado - the Northcrest Joint Venture and the Bear Star
Limited Liability Company ("Bear Star"). The Northcrest Joint Venture owns
undeveloped real estate east of Colorado Springs which has been zoned for single
family residential development. The Company owned a 53% interest in that entity
until such interest was sold in January 1997 prior to the Merger described
below. Bear Star was organized to develop and market partially developed real
estate west of Colorado Springs, which was zoned for single family homes. The
Company owned an 18.54% interest in that entity until such interest was sold in
April 1997. See "Narrative Description of Business - Former Real Estate
Development Business" for a description of the Northcrest Joint Venture, Bear
Star, and the other former real estate development interests of the Company.
On January 21, 1997, a subsidiary of the Company merged with Angeles Acquisition
Corp. ("Angeles Acquisition"), a privately held company, with Angeles
Acquisition surviving the merger as a wholly-owned subsidiary of the Company
(the "Merger"). Prior to the Merger, Angeles Acquisition had acquired Angeles
Metal Trim Co. ("Angeles"), which does business as Angeles Metal Systems. During
August 1997, the Company reorganized its subsidiaries and Angeles
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became a direct wholly-owned subsidiary of the Company. Angeles and its wholly
owned subsidiary, California Building Systems, Inc. ("CBS"), fabricate and sell
steel framing materials for commercial and residential structures. CBS has also
developed a low-cost complete steel frame housing structure. See "Narrative
Description of Business - Angeles Metal Trim Co. and Subsidiary" for a
description of the business of Angeles and CBS.
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 included the
Common Shares issued in connection with the acquisition of the assets of Old
Capitol in a registration statement filed with the Securities and Exchange
Commission in August 1998. Information on the acquisition of the assets of Old
Capitol, and the obligations incurred in connection with such acquisition
appears in note A to the Company's 1998 Financial Statements that are included
in this report. See also "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operation".
Effective December 31, 1998, the Company through its wholly-owned subsidiary,
TPSS Acquisition Corp. ("TPSS Acquisition"), purchased substantially all of the
assets and assumed certain liabilities of Toledo Pickling and Steel Sales, Inc.
("Toledo Pickling"), a privately held steel processing and service center,
headquartered in Toledo, Ohio. The transaction was accounted for using the
purchase method of accounting and the total consideration was approximately
$16,033,000, consisting primarily of the assumption of certain liabilities of
Toledo Pickling including: the amount due under the Restated Loan and Security
Agreement by and among Toledo Pickling, National Bank of Canada ("NBC") and
Finova Capital Corporation ("Finova") as to which the outstanding balance as of
December 31, 1998 was approximately $5,647,000 (the "Revolving Loan Agreement");
the liabilities and obligations under the Loan and Security Agreement by and
between Seller and Finova, the outstanding principal loan balance due
thereunder, as of December 31, 1998 was approximately $2,596,000 (the "Term Loan
Agreement"); accounts payable of approximately $7,328,000 and various other
liabilities of approximately $462,000 as of December 31, 1998. The Revolving
Loan Agreement and the Term Loan Agreement were assumed by TPSS Acquisition and
guaranteed by the Company and the former president and shareholder of Toledo
Pickling and were required to be refinanced or repaid by April 12, 1999. As of
April 12, 1999, these loans were not refinanced or repaid and the Company is
subject to penalties in the amount of $2,000 per day until these loans are
refinanced or repaid. The Company was not in compliance with certain covenants
under the Revolving Loan Agreement and Finova Term Loan Agreement as of December
31, 1998 and has not received waivers.
With the acquisitions of Angeles, Capitol, and TPSS Acquisition, the Company
intends to focus on the steel frame building business, steel service center
operations and complementary businesses. Management believes that the
acquisitions of Capitol and TPSS Acquisition will provide the Company with
several advantages toward the accomplishment of its business objective of
increasing the Company's profitability. During 1998, the Company relocated the
Los Angeles, California operations of Angeles to the Torrance, California
facility originally used solely by Capitol. In addition to the long term
reduction in facilities cost, this relocation allowed
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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, Angeles, Capitol and TPSS Acquisition use products and services
provided by common suppliers. The Company believes that the combined purchasing
volume created by the companies may create reduced pricing for materials and
services utilized by these entities.
The Company's business strategy is to increase its profitability through
expansion of its existing operations and acquisitions of businesses that are
strategically located or positioned to diversify or enhance the Company's
customer base, product range and geographic coverage. The Company is in
preliminary negotiations with potential acquisition candidates. In order to
facilitate the financing of these acquisitions, the Company has entered into an
engagement with an investment banking firm to act as its agent for the placement
of the Company's securities. No amounts are due to the investment banking firm
unless financing is successfully consummated. There can be no assurance that any
acquisition will be completed or that the Company will issue any securities.
NARRATIVE DESCRIPTION OF BUSINESS
Angeles Metal Trim Co. and Subsidiary
Products and Markets
Angeles is in the business of fabricating and selling light gauge steel framing
materials for commercial and residential structures. Angeles' products include
galvanized steel components, framing materials, studs, tracks, trusses and
joists for domestic and international markets. Angeles also provides technical
support, engineering and estimating services for specialized projects, primarily
in the residential housing market. CBS has also developed a proprietary low-cost
steel frame housing structure. Angeles has been supplying its steel framing
products to the commercial construction industry for over 40 years. The
commercial construction market segment represented approximately 91% of Angeles'
sales during 1998. Since 1992, Angeles has been developing the use of steel
framing for residential housing markets. The residential construction market
represented approximately 9% of Angeles' sales during 1998. While the use of
steel framing is not new in residential construction, the recent escalation and
volatility in lumber prices has caused widespread attention to be focused on the
advantages of building homes with steel. Management believes that the early
entry by Angeles into this growing market gives it a significant advantage over
its competitors in terms of designing and engineering products, training framers
and subcontractors, and developing relationships with builders.
Management believes that its sales to the residential construction market will
grow. Steel has a number of attractive qualities over lumber and concrete block
as a building material, including (i) steel's comparatively lower cost compared
to lumber, which is becoming increasingly scarce and expensive due to
environmental and other factors; (ii) steel's long life compared to lumber,
which rots and is susceptible to termites and other pests; (iii) steel's greater
structural integrity, which
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allows for greater consistency of quality, straightness and strength under
adverse conditions such as earthquakes; (iv) steel's faster construction time
with an experienced crew; (v) steel's pre-cut convenience and ease of assembly
with conventional tools; and (vi) steel's ability to be re-cycled. Where wood is
desired as an exterior material or trim, it can easily be mixed with steel. The
Company believes that the use of steel frames in residential construction will
continue to grow given the high cost of conventional framing and the numerous
positive attributes of steel framing.
In addition to selling light gauge steel framing materials and components for
residential structure, CBS also sells a pre-engineered low-cost steel frame
housing structure which it developed, known as Model 640. This product is a
pre-engineered 640 square foot steel framed basic structure which can be easily
customized to meet the differing requirements of a variety of customers. It is a
complete, steel framed housing structure that provides punch-outs for subsequent
plumbing and wiring. The materials can be delivered to a housing site for a
price of under $2,500.
The Model 640 was primarily designed for export. The Company has identified the
worldwide low-cost housing market as a significant market ready to experience
substantial growth. The need for affordable housing is mushrooming in
third-world countries, which are beginning to emerge economically, but still
have very under-developed housing infrastructures for their populations. The
Model 640 and customized versions of the Model 640 have been sold in the Pacific
Rim and there has been additional interest in Europe, South America and the Far
East.
Most of the steel utilized in the Model 640 is pre-cut and galvanized for
corrosion resistance for maximum durability, even in the most damp climates.
Models can be engineered to withstand winds up to 155 mph and each home can be
engineered to be earthquake resistant up to a seismic 4 rating. The Model 640 is
(i) designed to meet the requirements of most governmental agencies; (ii) wind,
earthquake, corrosion, termite and dry rot resistant; (iii) easy to build and
quickly assembled, even with semi-skilled labor; (iv) economic to ship; and (v)
available with flexible floor plans.
Manufacturing
Angeles' products are manufactured in accordance with customer specifications.
Most of Angeles' products comply with Angeles' certification by the
International Conference of Building Officials ("ICBO"). Angeles is the only
major steel roll forming company on the West Coast that has it's own ICBO
certification in addition to being ICBO certified through AMS' membership in the
Metal Stud Manufacturing Association.
All of Angeles' design, engineering, manufacturing and administration operations
are performed at the company's manufacturing facilities in Torrance, California
and Vancouver, Washington. Both manufacturing locations also conduct sales,
marketing and distribution. In addition, Angeles maintains marketing, sales and
distribution facilities in Tacoma, Washington and Sacramento, California. All of
Angeles' facilities are leased. See "Item 2. Description of Property".
Angeles is currently operating with one full shift and is equipped (but not
staffed) to run two shifts. Angeles owns all of its manufacturing and
engineering equipment.
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Angeles strives to provide its customers with fast, reliable delivery of its
products. Angeles manages inventory to respond quickly to customer needs.
Angeles purchases raw materials, which consist of full and slit steel coils, in
advance. Angeles distributes its commercial products on a truckload basis.
Residential products are also delivered by the truckload, to framing companies,
value added centers and to specific job sites. In some cases, trusses are
assembled at the company and in other cases they are assembled on site.
Marketing, Distribution and Customers
Unlike many of its competitors, Angeles primarily markets and sells its steel
products directly to building contractors rather than through wholesalers or
distributors. Angeles does however utilize distributors in the expanding Las
Vegas, Nevada and Phoenix, Arizona markets. As a result of transportation costs,
products are marketed and sold primarily in 13 western states. During 1998,
international sales were less than 1% of total sales, reflecting sales primarily
to Japan. The top ten customers of 1998 represented approximately 31% of sales
by Angeles, with no one customer representing more than 10% of sales.
Raw Materials and Supplies
Galvanized steel is the primary raw material utilized by Angeles and it
represents the majority of cost of goods sold. Sources for this steel are
numerous and the supply has been and is expected to remain sufficient to meet
Angeles' needs. USS Posco, a joint venture between U.S. Steel and the Pohang
Steel Company of Korea, has been the primary supplier of steel for Angeles. In
addition, Angeles has also maintained continuous and competitive purchasing
relationships with other companies in order to ensure an uninterrupted supply of
material.
Research and Development
Angeles has not incurred significant research and development expenditures in
the last two years.
Patents
Angeles holds a number of patents and trademarks on its products, none of which
is essential to the business. Management believes that Angeles' reputation, know
how and experience in the steel framing business is more important than its
patents and trademarks. Accordingly, Angeles relies upon trade secrets and other
unpatented proprietary information in its business.
Capitol Metals Co.
Background
In January 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
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center headquartered in Torrance, California. Old Capitol, which started
operating in 1946, grew to become one of the largest flat-rolled steel service
facilities in Southern California. Old Capitol experienced financial difficulty
due in part to insufficient working capital necessary to maintain adequate
inventory levels. On October 7, 1997, Old Capitol filed for protection under
Chapter 11 of the Bankruptcy Code. On November 26, 1997, the Bankruptcy Court
entered an order establishing the procedures for the sale of substantially all
of the assets of Old Capitol pursuant to the Asset Purchase Agreement dated
December 1, 1997 between Old Capitol and the Company. After the January 1998
acquisition, Angeles Acquisition changed its name to Capitol Metals Co.
("Capitol").
Management believes that the acquisition of Capitol provides the Company with
several advantages toward the accomplishment of its business objectives of
increasing the Company's profitability. The Company relocated the Los Angeles,
California operations of Angeles to the Torrance, California facility used by
Capitol. In addition to the long term reduction in facilities cost, this
relocation allows 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.
Products and Services
Capitol processes flat rolled carbon steel products, which include:
o Hot rolled steel
o Pickled and oiled steel
o Cold rolled steel
o Galvanized steel
o Aluminized steel
Capitol processes steel to the precise thickness, length, width, shape and
surface quality specified by its customers. Value-added processes provided by
Capitol include:
o Cutting to length - the cutting of steel into pieces and along
the width of a coil to create sheets or plates.
o Leveling - the flattening of steel to uniform tolerances for
proper machining.
o Slitting - the cutting of coiled steel to specified widths along
the length of the coil.
o Pickling - a chemical treatment to improve surface quality by
removing the surface oxidation and scale which develops on the
steel shortly after it is hot-rolled.
o Edge trimming - a process which removes a specified portion of
the outside edges of coiled steel to produce uniform width and
round or smooth edges.
Capitol is one of the larger flat rolled service facilities in Southern
California. Capitol owns and utilizes two slitting lines and the only toll coil
pickling line on the West Coast capable of handling 40,000-pound coils. This
line has capacity to process over 14,000 tons per month. Approximately 70% of
Capitol's 1998 revenues were derived from processed steel sales, and
approximately 30% were derived from steel processing services.
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On March 6, 1999 the Company commenced a fundamental restructuring of Capitol,
the purpose of which was to phase out a portion of the business which was not
profitable and focus solely on the toll pickling and slitting areas of business
where Capitol can generate profitability. The central focus of this change in
strategy is to have Capitol terminate its traditional position of buying and
selling steel for its own account (processed steel sales) and to concentrate
exclusively on processing the steel owned by outside third parties. Management
feels that Capitol was unable to compete effectively within its marketplace as a
traditional steel service center. The inability to secure favorable terms and
pricing from its suppliers placed Capitol Metals in the position of being at a
strong competitive disadvantage within its own market place.
In December 1998, management concluded that to serve as solely a processor of
steel would allow Capitol to effectively solicit from customers that had Capitol
not changed its focus, would otherwise had been competitors. Subsequent to this
restructuring, Capitol has received a significant amount of processing business
from its former competitors.
Due to the restructuring, Capitol has been able to eliminate nineteen positions
in business its manufacturing, sales, and administrative staff. This reduction
in staff is projected to save the company approximately $900,000 per year.
Management believes that Capitol's toll pickling line provides a significant
competitive advantage to the Company. In addition to providing the only pickling
service on the West Coast for 40,000 pound coils, Capitol is able to offer to
its pickling customers customized processing services for steel owned by such
customers as well as storage of such steel in Capitol's warehouse facility.
Capitol intends to capitalize on the trend of both primary steel producers and
end-users of steel products to reduce in-house processing and to outsource
processing and inventory management requirements. By providing these services,
as well as offering inventory management and just-in-time delivery services,
Capitol enables its customers to reduce material costs, enhance quality,
decrease capital required for raw materials inventory and processing equipment
and save time, labor and other expenses.
Manufacturing
Capitol's processing services are performed in accordance with customer
specifications. All processing and administrative operations are performed at
Capitol's facility in Torrance, California.
Capitol is currently operating with two full shifts and is equipped (but not
staffed) to run three full shifts. Capitol owns all of its manufacturing
equipment.
Capitol provides its customers with fast reliable delivery of its processed
products. Generally, Capitol distributes its products on a truckload basis.
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Marketing, Distribution and Customers
Capitol has over 200 active customers throughout the western states. Atwood
Mobile Products accounted for 10% of Capitol's business (after excluding Angeles
sales) in 1998. By category for 1998, the customers by industry were
approximately as follows:
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Description of Customers Percent of Sales
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Building and construction related 27
Service centers and trading companies 20
Specialty manufacturers 7
Automotive components and parts 10
Metal stamping and rollformers 16
Tube manufacturers 14
Miscellaneous 6
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TPSS Acquisition Corp.
Background
Effective December 31, 1998, the Company, through its wholly-owned subsidiary,
TPSS Acquisition Corp. ("TPSS Acquisition"), purchased substantially all of the
assets and assumed certain liabilities of Toledo Pickling, a privately-held
steel processing and service center, head-quartered in Toledo, Ohio, TPSS
Acquisition operates as a steel service center that provides value-added
services to pickle, slit, cut to length, level, shear, warehouse and distribute
flat-rolled steel. Old Toledo processed over 363,000 tons of steel in 1998, and
has the capacity to handle up to 606,000 tons of flat-rolled steel on an annual
basis. TPSS Acquisition is capable of supplying the most critical applications
for hot-rolled, hot-rolled pickled and oiled, hot rolled pickled and dry lubed,
high-strength/ low alloy, cold rolled and coated steel. In addition to its
processing capabilities, TPSS Acquisition has over 20 acres of warehousing space
that can store over 200,000 tons of steel (50,000 tons under roof). In addition
TPSS Acquisition has a long-term relationship with a blanking operation in
Toledo, Ohio that enables TPSS Acquisition to supply higher-value added,
processed steel products.
With over 300 customers in over 25 industries, TPSS Acquisition has a diverse
customer base and broad product mix primarily serving the midwestern and eastern
United States. Primary customers for TPSS Acquisition include appliance, metal
stamping, heavy truck and trailer, agricultural, tubing and automotive related
companies. No single customer accounts for more than 8% of the overall revenue
of TPSS Acquisition during 1998.
In addition to its higher value added processing capabilities, TPSS Acquisition
provides a number of quality control and technical services to its customers.
With an in-house laboratory TPSS Acquisition is able to perform a variety of
industry product/property tests from chemical analysis to physical properties
and hardness. TPSS Acquisition is currently in the process of being qualified
for ISO 9000 certification. The target date for certification is November 1999.
Product and Services
TPSS Acquisition sells and processes flat rolled carbon steel products, which
include:
o Hot rolled steel
o Pickled and oiled steel
o Pickled and dry lubed steel
o Cold rolled steel
o Galvanized steel
TPSS Acquisition processes steel to the precise thickness, length, width, shape,
temper and surface quality specified by its customers. Value-added processes
include:
o Leveling - the flattening of steel to uniform tolerances for
proper machining.
o Slitting - the cutting of coiled steel to specified widths along
the length of the coil.
o Pickling - a chemical treatment to improve surface quality by
removing the surface oxidation and scale which develops on the
steel shortly after it is hot-rolled.
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o Trimming - a process which removes a specified portion of the
outside edges of coiled steel to produce uniform width and round
or smooth edges.
o Shearing - a process that shears leveled sheets into smaller
rectangular dimensions.
o Blanking - the process in which flat rolled steel is stamped into
precise dimensional shapes (i.e. circular, oval, rectangular).
TPSS Acquisition is a full service steel warehouse servicing the carbon
flat-rolled market place in the Midwest. Among the services TPSS Acquisition
offers is an in-line continuous pickling process which removes rust and other
surface imperfections from the steel in order to make it meet critical surface
quality requirements necessary to meet customer specification. The pickling line
has a capacity of between 25,000 to 30,000 tons per month. In addition to the
pickling line, TPSS Acquisition also offers it's customers precision leveling on
it's two Herr-Voss leveling lines as well as the ability to slit wide master
coils of 72" width to customer required widths of down to 1".
Manufacturing
TPSS Acquisition's products and processing are manufactured in accordance with
customer specifications. All engineering, manufacturing and administrative
operations are performed at TPSS Acquisition's facility in Toledo, Ohio.
TPSS Acquisition is currently operating with three shifts on the pickle line,
one shift minimum in all other departments. Additional shifts are assigned as
warranted by demand. TPSS Acquisition owns all of its manufacturing, processing
and engineering equipment with the exception of two Herr-Voss leveling lines.
The Company has a purchase option for the two level lines and intends to
exercise this option during the second quarter of 1999. TPSS Acquisition ships
and receives steel via truckload and railcar.
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COMPETITION
Angeles
Competition in the steel frame industry is intense and Angeles competes with a
number of entities, some of which may have greater financial resources than
Angeles. Angeles competes against a number of other companies for sales in both
the commercial and residential steel framing markets. To the extent that steel
framing for residential housing becomes more widely accepted as an alternative
to conventional lumber and concrete construction, competition may increase.
Angeles competes for orders from its customers primarily on the basis of price,
quality, timely delivery, engineering capability and reliability. Most of
Angeles' orders are awarded by its customers on the basis of competitive
bidding. Angeles sells primarily on a direct basis to contractors and
sub-contractors, while it's manufacturing competitors sell primarily through
building material dealers. Angeles believes that it can better service customers
by selling products directly, rather than through dealers. Angeles does however
sell through building material dealers in the rapidly expanding Las Vegas,
Nevada and Phoenix, Arizona markets.
Capitol
The steel servicing industry is highly fragmented and competitive. Competition
is based on price, service, quality, availability of products and geographic
proximity. Capitol faces competition from national, regional and local
independent servicing centers, many of which may have greater resources than
Capitol. The Company believes that it will be able to compete more effectively
as a result of recent restructuring whereby the Company will focus exclusively
on the steel processing and servicing business. Management believes that
Capitol's toll pickling line provides a significant competitive advantage to the
Company. In addition to providing the only pickling service on the on the West
Coast for 40,000 pound coils, Capitol is able to offer to its pickling customers
customized processing services for steel owned by such customers as well as
storage of such steel in Capitol's warehouse facility.
TPSS Acquisition
The steel service center industry is extremely dense in the corridor between
Chicago and Cleveland. As many as 1400 steel distributors and warehouses operate
in Ohio, Michigan, Indiana and Illinois. There are 12 pickling lines currently
operating within a 200 mile radius of Toledo. The market segments driving this
region are automotive, steel tube, and appliance along with their respective
tiered suppliers.
TPSS Acquisition has a somewhat unique position with its ability to operate as a
service center and a toll processor. Tons shipped per month are nearly balanced
between steel sold and steel processed. Additionally, few other service centers
in North America have the capability of pickling, slitting, leveling and
shearing hot rolled steel under one roof.
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GOVERNMENT REGULATION
The operations of the Company are subject to extensive federal, state and local
laws and regulations, relating to the protection of human health and the
environment. Hazardous materials that the Company uses in its operations
primarily include lubricants, cleaning solvents and hydrochloric acid used in
its pickling operations. Management believes that the Company is in material
compliance with all applicable environmental concerns. The Company does not
anticipate any material expenditures to meet environmental requirements.
The Company's operations are also governed by laws and regulations relating to
workplace safety and worker health, principally the Occupational Health and
Safety Act and regulations thereunder, which among other requirements, establish
noise, dust and safety standards. Management believes that the Company is in
material compliance with applicable laws and regulations and does not anticipate
that future compliance with such laws and regulations will have a material
adverse effect on the results of operations or financial condition of the
Company.
The use of steel framing products in commercial and residential construction are
governed by local building codes. Over the past several years, local building
codes in a number of jurisdictions have been revised to provide for the use of
steel for residential construction in addition to the traditional wood framing.
Angeles anticipates no significant adverse effects of governmental regulations
related to the use of light gage steel in commercial and residential framing.
EMPLOYEES
At March 28, 1999, the Company had 75 full-time employees at Angeles, 28
full-time employees at Capitol, and 91 full-time employees at TPSS Acquisition.
The Company believes that its employee relations are good.
On May 1, 1998 Capitol entered into a contract, which expires on November 1,
2000, with the International Longshoremen and Warehousemen's Union Local No. 76
("ILWU"), which has been certified as the exclusive representative for 11
employees working in the Torrance, California facility as of March 28, 1999.
On March 22, 1999, TPSS Acquisition entered into a union contract representing
57 employees as of March 28, 1999. The contract expires on November 1, 2002.
Former Real Estate Development Business
From 1994 through the January 1997 Merger, the Company's operations were
exclusively in the real estate development business,. The real estate
development projects the Company was involved in during 1994 to January 1997
were known as the Northcrest Joint Venture, Golden Prairie Northcrest Joint
Venture, Columbine Home Sales, LLC, and Bear Star Limited Liability Company.
Prior to the Merger, the Company sold certain assets of the Company, including
the Company's interest in the Northcrest Joint Venture, to three executive
officers and directors
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<PAGE> 15
(the "Former Directors") of the Company (the "Asset Sale"). As part of the Asset
Sale, the Former Directors assumed all obligations of the Company existing prior
to the Merger. See "Item 12, Certain Relationships and Related Transactions" for
a description of the Asset Sale. During April 1997, the Company sold its
interest in Bear Star.
ITEM 2. DESCRIPTION OF PROPERTY
Executive Offices
The Company currently occupies office space at 410 17th Street, Suite 400,
Denver, Colorado 80202. The Company shares its Denver office, consisting of an
aggregate of 7,585 square feet, including office space, conference facilities
and reception area, with The Stone Pine Companies and other affiliated entities.
Stone Pine Atlantic, LLC ("SP Atlantic") and its affiliates provide
administrative, accounting, investor relations and investment banking services
to the Company pursuant to a Services Agreement (see Item 12 "Certain
Relationships and Related Transactions"). The Company also maintains executive
offices at Capitol, 20000 South Western Avenue, Torrance, California 90501
consisting of 20,000 square feet. During 1998, the Company moved the executive
offices at Angeles to Capitol. Management is of the opinion that the executive
office space in Denver and Torrance is adequate for the needs of the Company for
the foreseeable future.
Production Facilities
The principal production facilities, which are leased, consist of the following:
Angeles and Capitol
<TABLE>
<CAPTION>
Approximate
Location Square Footage Lease Term
-------- -------------- ----------
<S> <C> <C>
Torrance, California Buildings 340,000 01-13-98 through
(Corporate Headquarters, Manufacturing Land (14 Acres) 609,840 12-31-2006*
Plant, Warehouse, Land and Buildings)
</TABLE>
*Includes two three-year extension options.
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<PAGE> 16
The principal production facilities of Angeles, all of which are leased, consist
of the following:
<TABLE>
<CAPTION>
Approximate
Location Square Footage Lease Term
-------- -------------- ----------
<S> <C> <C>
Vancouver, Washington
(Plant, Offices, Warehouse, Land and Buildings 20,000 01-15-97 through
Buildings) Land 130,680 01-14-2000
Sacramento, California Buildings 11,500 Month to Month
(Warehouse and Office) Land 46,600
Tacoma, Washington Buildings 20,000 10-01-96 through
(Warehouse and Offices) Land 93,400 09-30-99
Vancouver, Washington Building 7,500 Month to Month
(Warehouse, Land and Building) Land 120,000
</TABLE>
The principal production facility of TPSS Acquisition, which are leased,
consists of the following:
Production Facility
<TABLE>
<CAPTION>
Approximate
Location Square Footage Lease Term
-------- -------------- ----------
<S> <C> <C>
Toledo, Ohio Plant, Office 1/12/99-12/31/03
and (Plus two 5 year options)
Manufacturing 162,000
Land (20 Acres) 871,200
</TABLE>
All of the Company's facilities are in good or excellent condition and are
adequate for its existing operations. During 1998, the Company relocated the Los
Angeles, California operations of Angeles to the Torrance, California facility
currently used by Capitol.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company or any subsidiary of the
Company is a party or to which the property of the Company or any subsidiary of
the Company is subject, is pending or is known by the Company to be contemplated
other than ordinary routine litigation incidental to the business of the
Company.
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<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the Company's security holders was held on December 1,
1998. The following proposals were voted upon and approved at the meeting.
1. Proposal for election of the following directors:
Class I (terms expire in 2001)
-----------------------------
Paul Bagley, Chairman
Thompson H. Rogers
<TABLE>
<CAPTION>
Paul Bagley:
Number Percentage of
Of Shares Outstanding Shares
--------- ------------------
<S> <C> <C>
For 17,296,106 72.8%
Against 5,000 *
Abstain *
</TABLE>
<TABLE>
<CAPTION>
Thompson H. Rogers:
Number Percentage of
Of Shares Outstanding Shares
--------- ------------------
<S> <C> <C>
For 17,930,256 72.8%
Against 750 *
Abstain 15,000 *
</TABLE>
2. Proposal to ratify the selection, by the Company's Board of
Directors, of Arthur Andersen LLP as the Company's certifying
accountants.
<TABLE>
<CAPTION>
Number Percentage of
Of Shares Outstanding Shares
--------- ------------------
<S> <C> <C>
For 17,939,106 72.8%
Against 7,000 *
Abstain 0 *
</TABLE>
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<PAGE> 18
3. Proposal to approve changes to Company's 1997 Stock Incentive Plan.
<TABLE>
<CAPTION>
Number Percentage of
Of Shares Outstanding Shares
--------- ------------------
<S> <C> <C>
For 11,612,597 47.2%
Against 59,500 *
Abstain 6,170 *
</TABLE>
4. Proposal to approve an amendment to the Company's Articles of
Incorporation to increase the number of authorized Common Shares to
200,000,000.
<TABLE>
<CAPTION>
Number Percentage of
Of Shares Outstanding Shares
--------- ------------------
<S> <C> <C>
For 17,836,086 72.4%
Against 94,850 *
Abstain 15,170 *
</TABLE>
* Less than 1%
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<PAGE> 19
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Shares are traded in the over-the-counter market and are
quoted in the OTC Bulletin Board maintained by the NASD under the symbol "CDNO".
The following table sets forth the range of high and low bid quotations as
reported by the NASD for the Common Shares of the Company for the periods
indicated. Quotations represent prices between dealers, do not include retail
markups, markdowns or commissions, and do not necessarily represent prices at
which actual transactions were effected.
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
1st Quarter....... $3.53 $0.63 $2.75 $1.50
2nd Quarter....... $2.34 $1.00 $3.00 $1.00
3rd Quarter....... $1.04 $0.28 $3.50 $1.50
4th Quarter....... $0.46 $0.13 $2.00 $1.00
</TABLE>
The number of record holders of Common Shares of the Company as of March 15,
1999 was 145.
The Company had the following number of Convertible Preferred Shares issued and
outstanding as of March 15, 1999: Series A 12% Convertible Preferred Shares,
1,000,000 authorized and 744,000 outstanding (the "Series A Preferred Shares");
Series B 12% B Convertible Preferred Shares, 1,000,000 authorized and 449,000
outstanding (the "Series B Preferred Shares"); Series C 6% Convertible Preferred
Shares, 200 authorized and no shares outstanding (the "Series C Preferred
Shares"); and Series D 8% Convertible Preferred Shares, 350 authorized and no
shares outstanding (the "Series D Preferred Shares"). The 200 Series C Preferred
Shares were issued in March 1998 and all were converted into Common Shares by
November 5, 1998. The Company expects to issue the Series D Preferred Shares in
1999 in connection with the settlement of certain obligations of TPSS
Acquisition.
Each Series A Preferred Share and each Series B Preferred Share is convertible
into one Common Share at the option of the holder of such shares. The Series D
Preferred Shares are convertible
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<PAGE> 20
into Common Shares of the Company at a conversion price per Series D Preferred
Share equal to $10,000 divided by 95% of the arithmetic average of the closing
bid prices for each of the five trading days prior to the exercise date of any
such conversion. The Series D Preferred Shares are convertible at the option of
the holder of such shares, at any time after the thirtieth day after the Common
Shares underlying the Series D Preferred Shares have been registered on a
Registration Statement with the Securities and Exchange Commission (the
"Registration Statement"). The Company intends to file the Registration
Statement during the second quarter of 1999.
The holders of the Series A Preferred Shares, Series B Preferred Shares and
Series D Preferred Shares are entitled to receive, prior and in preference to
any declaration or payment of any dividend on Common Shares of the Company,
dividends at the rate of, $0.12, $.012 and $800 per share, respectively, per
annum, payable quarterly in cash or at the option of the Company, in Common
Shares. The Company's Loan and Security Agreement with Congress Financial
Corporation ("Congress Financial") prohibits the payment of cash dividends on
the Common Shares.
No dividends on the Common Shares have been paid by the Company to date. The
Company currently intends to retain future earnings to fund the development and
growth of its business and, therefore, does not anticipate paying cash dividends
within the foreseeable future. Any future payment of dividends will be
determined by the Company's Board of Directors and will depend on the Company's
financial condition, results of operations and other factors deemed relevant by
its Board of Directors.
Recent Sales of Equity Securities
During the fiscal year ended December 31, 1998, the Company issued unregistered
equity securities in connection with the following transactions.
In January 1998, the Company issued to Paul Bagley 1,500,000 of the Company's
Common Shares in consideration of a loan made by Mr. Bagley to the Company in
January 1998 evidenced by a convertible promissory note of the Company
convertible into 1,750,000 Common Shares of the Company. Paul Bagley has agreed
to extend the maturity date to January 15, 2000 in exchange for warrants to
purchase 1,750,000 of the Company's Common Shares at $.20 per share.
The warrants will expire on March 6, 2004.
In January 1998, the Company issued 269,349 Common Shares to Binhad, Inc. as
partial consideration of the purchase of the assets of Old Capitol.
In March 1998, the Company issued to Stone Pine Atlantic, LLC ("SP Atlantic")
214,286 of the Company's Common Shares in consideration of a loan made by SP
Atlantic to the Company in March 1998 evidenced by a convertible promissory note
of the Company convertible into 250,000 Common Shares. SP Atlantic has agreed to
extend the maturity date to January 15, 2000 in exchange for warrants to
purchase 250,000 of the Company's Common Shares at $.20 per share. The warrants
will expire on March 6, 2004.
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<PAGE> 21
In March 1998, the Company issued to Christian W. Wolf, who was a director of
the Company at the time, 250,000 of the Company's Common Shares as consideration
in connection with a consulting arrangement between Mr. Wolf and the Company.
In April 1998, the Company issued to Trilogy Capital Group, Inc. ("Trilogy")
50,000 of the Company's Common Shares in satisfaction of certain obligations
owed by the Company to Trilogy.
The Company issued and sold, in a private placement, an aggregate of $5 million
of its 10% Convertible Notes (the "10% Notes"). The Company issued $2 million of
the 10% Notes on April 8, 1998, $1.5 million on April 16, 1998, $500,000 on June
10, 1998 and $1,000,000 on June 16, 1998. 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, on whole or 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 or (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
percent (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 such conversion. As of December 31, 1998, $2,827,000 of
principal amount of the 10% Notes and $242,692 of interest had been converted
into 18,365,332 Common Shares of the Company. Subsequent to December 31, 1998,
$173,000 of the 10% Notes was converted into 1,308,811 Common Shares. The
maturity date of the remaining 10% Notes of $2,000,000 has been extended to
January 15, 2000. In connection with such extension, in April 1999 the Company
has agreed to issue to the holders of the $2 million outstanding 10% Notes
warrants to purchase an aggregate of 2,000,000 Company Common Shares at $.20 per
share. The warrants expire on March 6, 2004. The Company has agreed to promptly
register the Common Shares underlying the warrants for resale by the
warrantholders.
In June 1998, the Company issued to MCM Capital Management, Inc. ("MCM"),
100,000 of the Company's Common Shares in satisfaction of certain obligations
owed by the Company to MCM.
In June 1998, the Company issued to International Investor Relations Group, Inc.
("IIRG"), 120,000 of the Company's Common Shares in satisfaction of certain
obligations owed by the Company for past services and future services to be
performed.
In August 1998, the Company issued to Capital Fund Leasing, LLC ("Capital Fund
Leasing") 100,000 of the Company's Common Shares in connection with the purchase
of $500,000 of the Company's 15% Convertible Notes by Capital Fund Leasing. In
September 1998, the Company issued to Capital Fund Leasing an additional 100,000
of the Company's Common Shares in connection with the purchase of an additional
$500,000 of the Company's 15% Convertible Notes. In October 1998, in connection
with the redemption of the 15% Convertible Notes and the issuance of 18%
Convertible Notes, the Company issued to Capital Fund Leasing 800,000 of the
Company's Common Shares. The $1,550,000 outstanding 18% Convertible Notes are
convertible into 12,916,667 Common Shares of the Company at $0.12 per share. In
connection with the repayment of $18,900 principal balance due January 15, 1999
of the 18% Convertible Notes and the extension of the maturity date of the
$1,550,000 of the 18% Convertible Notes from January 19, 1999 to April 19, 1999,
in January 1999 the Company issued to Capital Fund Leasing 607,500 of the
Company's Common Shares. In connection
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<PAGE> 22
with the second extension of the maturity date of the 18% Convertible Notes from
April 19, 1999 by July 18, 1999, in March 1999 the Company issued to Capital
Fund Leasing 450,000 of the Company's Common Shares. In connection with the
extension of the July 18, 1999 maturity date of the 18% Notes to January 15,
2000, in April 1999 the Company has agreed to issue to Capital Funding Leasing
warrants to purchase 1,550,000 Company Common Shares at $.20 per share. The
warrants will expire on March 6, 2004.
The Company issued 686,488 Common Shares to the holders of the Company's 10%
Convertible Notes in lieu of cash interest due and owing on the 10% Notes on
October 1, 1998. The Company will issue during April 1999, 436,444 Common Shares
to the holders of the 10% Notes in lieu of cash interest due and owing on April
1, 1999
In December 1998, the Company issued to SPIB Management, LLC ("SPIB Management")
95,455 of the Company's Common Shares in connection with the purchase of $75,000
principal amount of an 18% Convertible Notes by SPIB Management, (convertible
into 625,000 Common Shares of the Company). In connection with the extension of
the maturity date of this note, in April 1999, the Company agreed to issue to
SPIB Management 43,550 Common Shares and a warrant to purchase 75,000 Common
Shares at $.20 per share. The warrant will expire on March 6, 2004.
In January 1999, the Company issued to Security Income Trust LP ("SIT"), a
Company affiliated with a director of the Company, 1,000,000 of the Company's
Common Shares as additional consideration of the purchase of $1,250,000
principal amount of 18% Notes by SIT. In January 1999, the Company issued 75,000
common shares to a consultant for servicing rendered in 1998.
In February 1999, the Company issued to the U.S. Steel Group of USX Corporation
4,784,689 of the Company's Common Shares as partial consideration for the
settlement of certain obligations owed to USX Corporation by TPSS Acquisition.
There were no underwriters involved in any of the transactions described above.
The issuance of Securities above were deemed to be exempt from registration
under the Securities Act of 1933 by Section 4(2) thereof based on the investor's
suitability and/or representations furnished by the security holders.
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<PAGE> 23
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
INTRODUCTION
Prior to 1997, the Company's operations were exclusively in the real estate
business. During January 1997, a subsidiary of the Company merged with Angeles
Acquisition, a privately held company, with Angeles Acquisition surviving the
merger as a wholly-owned subsidiary of the Company. Prior to the merger, Angeles
Acquisition had acquired Angeles, for a total consideration of approximately
$4,300,000. Angeles and its wholly-owned subsidiary, CBS, fabricate and sell
steel framing materials for commercial and residential structures.
In the Merger, the Company issued 8,638,003 new Common Shares to the sole
stockholder of Angeles Acquisition. Immediately following the Merger, the
Company sold 5,496,911 Common Shares in a private transaction for an aggregate
purchase price of $1,000,000 (the "January 1997 Share Issuance").
On August 22, 1997, Angeles Acquisition transferred all of its assets,
consisting mainly of the shares of Angeles and all of its obligations, to the
Company, after which Angeles became a wholly-owned subsidiary of the Company. At
the date of transfer, the investment in Angeles amounted to $4,309,443, and
liabilities assumed included a note payable to Angeles in the amount of
$3,268,801, including accrued interest. The remaining liabilities included
accounts payable of $31,824 and a note payable to the Company of $1,000,000,
plus accrued interest of $8,818.
In January 1998, the Company, through its subsidiary, Angeles Acquisition,
acquired substantially all of Old Capitol's assets in a sale approved by the
U.S. Bankruptcy Court (the "Capitol Acquisition"). The purchase price of Old
Capitol's assets was approximately $8,100,000, consisting of $336,000 in cash,
$1,500,000 in promissory notes $300,000 in 269,349 Common Shares of the Company,
the assumption of an outstanding note and related interest of $626,000, the
repayment of $4,764,000 of Capitol's previously existing senior debt and the
assumption of approximately $574,000 of costs and expenses associated with the
acquisition. Simultaneously, Angeles Acquisition entered into a lease with Danat
Investment Company for the real property formerly used in the operations of Old
Capitol. During February 1998, Angeles Acquisition changed its corporate name to
Capitol Metals Co. ("Capitol"). Capitol, a wholly-owned subsidiary of the
Company, operates a steel service center, which provides pickling, slitting,
leveling, storage and other processing services to its customers.
In January 1998, in connection with the Capitol Acquisition, the Company assumed
an outstanding note in the amount of $600,000 and related interest of $26,000.
The Company then issued a new replacement note, which bears interest at a rate
of 10% per annum and is collateralized by substantially all the assets of
Capitol (subordinated to Congress Financial). As of
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<PAGE> 24
December 31, 1998, $180,000 was due and owing on this note. The note was paid in
full on March 30, 1999. Also, in connection with the Capitol Acquisition,
Capitol issued to the unsecured creditors of Old Capitol $1,500,000 in
promissory notes, bearing interest at 9% per annum. These notes were
restructured into one note of $1,300,000 in 1998 (the "Binhad Note"). During
April 1999, the unpaid principal of the Binhad note of $1,300,000 was refinanced
by a new note. The new note calls for a payment of $409,426 including accrued
interest due on April 30, 1999 with monthly payment from May 15, 1999 through
June 15, 2000 of $67,707 plus interest at 10%. The amount due Binhad has been
classified as current, as a result of the Company not being in compliance at
December 31, 1998 under the Congress loans.
In January 1998, in connection with the Capitol Acquisition, Capitol and Angeles
entered into a $20 million borrowing facility with Congress Financial, which
consists of revolving credit facilities, term loans, letter of credit facilities
and equipment facilities. The Company was not in compliance with certain
financial covenants of these loans as of December 31, 1998 and has not received
waivers and therefore all amounts due Congress are classified as current.
During January 1998, in connection with the Capitol Acquisition and the
transactions with Congress Financial, Paul Bagley, the Chairman and Chief
Executive Officer of the Company, loaned $1,500,000 to the Company. The loan is
evidenced by a convertible promissory note of the Company in the amount of
$1,750,000, with a 12% annual interest rate, payable monthly in arrears. The
maturity date has been extended through January 15, 2000. In connection with
such extension, in April 1999, the Company has agreed to issue to Mr. Bagley
warrants to purchase 1,750,00 Company Common Shares at $.20 per share. The
warrants until expire on March 6, 2004.
Effective December 31, 1998, the Company, through its wholly-owned subsidiary,
TPSS Acquisition, purchased substantially all of the assets and assumed certain
liabilities of Toledo Pickling, a privately held steel processing and service
center, headquartered in Toledo, Ohio. The transaction was accounted for using
the purchase method of accounting and the total consideration was approximately
$ 16,033,000, consisting primarily of the assumption of certain liabilities of
Toledo Pickling including the amount due under the Restated Loan and Security
Agreement by and among Toledo Pickling, National Bank of Canada ("NBC") and
Finova Capitol Corporation ("Finova") as to which the outstanding balance as of
December 31, 1998 was approximately $5,647,000 (the "Revolving Loan Agreement");
the liabilities and obligations under the Loan and Security Agreement by and
between Seller and Finova as to which the outstanding principal loan balance due
thereunder, as of December 31,1998 was approximately $2,596,000 (the "Term Loan
Agreement"); accounts payable of approximately $7,328,000 and various other
liabilities of approximately $462,000 as of December 31,1998. The Revolving Loan
Agreement and the Term Loan Agreement were assumed by TPSS Acquisition and
guaranteed by the Company and the former president and shareholder of Toledo
Pickling and were required to be refinanced or repaid by April 12, 1999. As of
April 12, 1999, these loans were not refinanced or repaid and the Company is
subject to penalties in the amount of $2,000 per day until these loans are
refinanced or repaid.
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<PAGE> 25
On March 6, 1999 the Company commenced a fundamental restructuring of Capitol,
the purpose of which was to phase out a portion of the business which was not
profitable and focus solely on the toll pickling and slitting areas of business
where Capitol can generate profitability. The central focus of this change in
strategy is to have Capitol terminate its traditional position of buying and
selling steel for its own account (processed steel sales) and to concentrate
exclusively on processing the steel owned by third parties. Management feels
that Capitol was unable to compete effectively within its marketplace as a
traditional steel service center. The inability to secure favorable terms and
pricing from its suppliers placed Capitol Metals in the position of being at a
strong competitive disadvantage within its own market place.
PLAN OF OPERATION
With the acquisitions of Angeles, Capitol and TPSS Acquisition, the Company
intends to focus on the steel frame building business, steel service center
operations and complementary businesses. Acquisition plans, capital needs and
plans to raise additional capital by the Company are described below under
"Liquidity, Capital Resources and Financial Condition".
A primary focus of 1998 was the integration of Angeles and Capitol. In addition
to the common secured loan facilities, the Company integrated several operating
functions. Angeles corporate offices were relocated to the Torrance facility
used by Capitol, as were Angeles Southern California manufacturing operations.
Management, purchasing and accounting personnel were integrated. Receiving and
slitting operations were combined. Common suppliers now support many operational
functions, including common information technology systems.
The Company's business strategy is to increase its profitability through
expansion of its existing operations and acquisitions of businesses that are
strategically located or positioned to diversify or enhance the Company's
customer base, product range and geographic coverage. The Company is in
preliminary negotiations with acquisition candidates. In order to facilitate the
financing of these acquisitions, the Company has entered into an engagement
agreement with an investment banking firm to act as its agent for the placement
of the Company's securities. No amounts are due to the investment banking firm
unless such financing is successfully consummated. There can be no assurance
that any acquisition will be completed or that the Company will issue any
securities.
The Company's Common Shares are currently traded on the NASD OTC Bulletin Board.
The Company intends to qualify for listing on the Nasdaq Stock Market or
American Stock Exchange as soon as possible. There is no assurance that the
Company will be able to obtain listing on the Nasdaq or American Stock Exchange.
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
For the year ended December 31, 1998, the Company had a net loss of $14,825,879
on net sales of $20,291,655 as compared to a net loss of $2,478,577 on net sales
of $16,989,478 for the year ended December 31, 1997. The loss in 1998 is a
result of an increase in the cost of goods sold, an increase in operating
expense, an increase in interest expense, an
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<PAGE> 26
increase in depreciation and amortization and expenses associated with the
termination of an acquisition in 1998, all as described further below. In
addition, the Company had insufficient working capital at Angeles and Capitol to
purchase inventory to generate steel sales volume necessary to cover these
expenses in 1998. The basic and diluted net loss per share amounted to $.65 for
1998 as compared to a $.17 loss per share for 1997.
The Company reported net sales of $20,291,655 during the year ended December 31,
1998, net sales increased by $3,302,000 or 19.4% from 1997. The reason for this
increase in sales was the acquisition of Capitol by the Company in January 1998,
which accounted for $7,235,848 of net sales in 1998. Net sales of Angeles
decreased from $16,989,478 to $13,055,807 due to insufficient funds to purchase
inventory. Cost of goods sold increased by $3,657,000 or 26.1% in 1998. This
disproportionate increase in cost of goods sold resulted in a smaller gross
profit percent of 12.9% in 1998 while in 1997, the gross profit percent was
17.5%. The primary reason for this decrease was the smaller gross margin on
steel sales generated by Capitol Metals subsidiary. In addition, as a result of
the Company's exit from the retail steel business, the Company incurred $289,862
in additional cost of sales to record the inventory at its net realizable value.
Gross profit percentage for Angeles was 18.3% in 1998, compared with 17.5% in
1997.
Operating expenses totaled $11,312,428 for the year ended December 31, 1998
including selling, general and administrative expenses of $6,033,930, payroll
and related benefit expenses of $3,880,587, depreciation and amortization of
$889,858 and impairment costs of $508,053. Operating expenses increased
$6,283,000 or 124.9% in 1998. This increase is attributed to the costs and
expenses incurred as a result of the acquisition and operation of Capitol
including an increase in rent expense of $750,000, an increase in depreciation
and amortization of $410,000, an increase in shipping and selling expenses of
$253,000, additional consulting and professional fees of $376,000, and other
general administrative costs of $558,000. Other increases in selling, general
and administrative costs not specifically attributable to Capitol include an
increase in shipping and selling expenses of $222,000 and an increase in general
and administrative costs of $470,000.
There was an increase of $1,819,000 or 88.3% in payroll and related benefits.
The primary reasons for the increase is the Capitol acquisition in early 1998,
which resulted in the addition of 49 employees along with three senior operating
executives to manage Capitol.
Another major component of the increase in operating costs in Fiscal 1998 is the
impairment costs the Company incurred in restructuring Capitol to no longer buy
and sell steel and carry inventory on hand. The primary business purpose will
now be to operate as a steel processing center. The amount of this charge in
1998 was $508,053 while in 1997, there were no impairment costs. The gross
profit of $2,613,589 was not sufficient to cover these operating expenses. As a
result, the Company incurred a loss from operations of $8,698,839.
Other expenses increased by $5,710,000 or 1,361% in 1998, primarily due to the
increase in interest expense of approximately $4,610,000 a large portion of
which was non-cash. This increase relates to the convertible financing that the
Company relied upon to finance its operations along with the additional new
borrowings incurred by Capitol. Additionally, during 1998 the Company incurred
significant costs in connection with the potential acquisition of a steel
processing company. This transaction
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<PAGE> 27
ultimately was not consummated and the Company wrote off costs of approximately
$1,007,000 in connection with this transaction. Other income, primarily scrap
sales, decreased $92,000 or 56% which was due to a decrease in scrap sales.
Effect of Inflation
Inflation did not have a significant effect on the operations of the Company
during the fiscal year ended December 31, 1998. However, in the steel business,
acquisition of steel is a major cost factor in the production process. As steel
prices rise and decline, management believes that proper selection, competition
of steel supply companies, timing of purchases and future sales price
adjustments should hopefully decrease any significant adverse effect on the
Company.
Seasonality
The Company distributes steel products to customers in a variety of industries,
including the construction, manufacturing and automotive industries. Because the
Company sells to a variety of customers in several industries, management does
not believe that the Company's operations are impacted by any material seasonal
trends. There can be no assurance however, that period-to-period fluctuations
will not occur in the future.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Financial Condition
During 1998 the Company reported a net loss of $14,825,879. This loss included
significant non cash and/or nonrecurring items including $2,062,373 in accretion
of discount on debt, $1,703,863 in amortization of loan cost, $1,007,288 in
charges related to an acquisition that was not consummated, $508,053 impairment
loss, inventory reserve of $289,862, depreciation and amortization of $889,858
interest paid in common shares of $242,692 and consulting fees paid in common
shares of $1,029,899, totaling $7,733,888.
As of December 31, 1998, the Company had negative working capital of $20,200,169
and a shareholders' deficit of $4,195,554. At December 31, 1998, the total
assets of the Company were $29,754,996, consisting of cash of $48,466, accounts
receivable of $6,853,720, inventories of $4,872,424, prepaid and other expenses
of $554,505, property and equipment of $12,387,793, net of accumulated
depreciation and amortization, deferred loan fees of $290,082 and other assets,
including goodwill, of $4,748,006. The total current liabilities of the Company
at December 31, 1998 were $32,819,366, consisting of $11,689,881 in accounts
payable, line of credit of $5,646,748, accrued liabilities of $547,111, current
portion of long-term debt of $7,505,509, $2,075,000 of convertible notes to
affiliates, $3,646,460 of convertible notes payable, capital lease obligations
of $193,895, other notes of $1,480,000 and other current liabilities of $34,762.
See the Company's consolidated financial statements, included elsewhere in this
report, for detailed financial information regarding the Company.
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<PAGE> 28
The consolidated financial statements of the Company have been prepared assuming
that the Company will continue as a going concern. The ability of the Company to
continue as a going concern is dependent upon its ability to obtain sufficient
additional capital and to generate sufficient revenues to sustain its
operations. The outcome of these activities cannot be determined at this time
and there is no assurance that the Company will have sufficient funds to execute
its business plan or generate positive operating results. These issues, among
others, raise substantial doubt about the ability of the Company to continue as
a going concern. The Company's consolidated financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of the liabilities that might
result should the Company be unable to continue as a going concern.
The Company plans to raise additional working capital through private offerings
of debt of equity.
Liquidity and Capital Resources
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,
$5,000,000 from the issuance of 10% convertible notes in April 1998 and June
1998, $1,000,000 from issuance of the 15% convertible notes in August and
September 1998, $550,000 from the issuance of the 18% convertible notes in
October 1998, $75,000 from the issuance of a 18% convertible note in December
1998 and $1,250,000 from the issuance of 18% notes in January 1999.
Cash Provided by Credit Facilities
During January 1998, the Company entered into a financing arrangement with
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 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 Bank Corporation for the
interest
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<PAGE> 29
period. The Company is not in compliance with these covenants as of December 31,
1998 and has not received waivers, and therefore all amounts due Congress are
classified as current. As a result of the covenant non-compliance, Congress
Financial is entitled to all of the remedies contained in the Congress Facility
agreements, including but not limited to acceleration of the Congress Facility.
On February 1, 1999, the Congress Facility was amended. The amendment provides,
among other things, for a temporary increase (from February 1, 1999 through
March 31, 1999) in interest rates from .75% to 1.75% per annum in excess of the
bank's prime rate. The amendment also provides for additional weekly principal
payments of $17,400 for a eight-week period starting February 1, 1999.
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 CBS.
Effective December 31, 1998, the Company through TPSS Acquisition purchased
substantially all of the assets of Toledo Pickling. The total consideration for
the purchase of Toledo Pickling was approximately $16,033,000 and consisted
primarily of the assumption of certain liabilities of Toledo Pickling including:
1) $5,647,000 of obligation under the Restated Loan and Security Agreement by
and among Toledo Pickling, National Bank of Canada ("NBC") and Finova Capital
Corporation ("Finova"), 2) $2,596,000 of obligations due Finova under the Term
Loan Agreement, 3) accounts payable of $7,328,000 and 4) certain liabilities and
obligations under certain leases and contracts. The Revolving Loan Agreement and
Finova Term Loan Agreement were assumed by TPSS Acquisition and guaranteed by
the Company and the former president and shareholder of Toledo Pickling and were
required to be refinanced or repaid by April 12, 1999. As of April 12, 1999,
these loans were not refinanced or repaid and the Company is subject to
penalties in the amount of $2,000 per day until these loans are refinanced or
repaid. The Company was not in compliance with certain covenants under the
Revolving Loan Agreement and Finova Term Loan Agreement as of December 31, 1998
and has not received waivers.
Cash Provided by Affiliated Entities
During 1998, the Company received cash from affiliated entities as follows:
During January 1998, in connection with the Capitol Acquisition and the
transactions with Congress Financial, Paul Bagley, the Chairman and Chief
Executive Officer of the Company, loaned $1,500,000 to the Company. The loan is
evidenced by a convertible promissory note of the Company (the "1998 Bagley
Note") in the amount of $1,750,000, with a 12% annual interest rate, payable
monthly in arrears. The maturity date has been extended through December 31,
1999. The Company has agreed to issue a warrant to purchase 1,750,000 Common
Shares at $.20 per share. The warrant will expire on March 6, 2004.
During March 1998, SP Atlantic loaned $214,286 to the Company. The loan is
evidenced by a convertible promissory note of the Company (the "SP Atlantic
Note") in the aggregate amount of $250,000, with a 12% annual interest rate,
payable monthly in arrears. The maturity date has been extended to January 15,
2000. The Company has agreed to issue warrants to purchase 250,000 Company
Common Shares at $.20 per share. The warrants will expire on March 6, 2004.
On December 7, 1998 SPIB Management purchased $75,000 principal amount of 18%
convertible notes from the Company. The notes were due on March 7, 1999. The
Company may at its election, extend the due date for two additional ninety-day
periods. For each ninety-day extension the Company has agreed to issue 21,775 of
its Common Shares. These notes may be
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<PAGE> 30
converted into Common Shares of the Company at the conversion price of $.12 per
share. The Company issued 95,455 of its Common Shares as the initial loan fee in
connection with these notes. The maturity date has been extended to January 15,
2000. The Company will issue 43,550 Common Shares for both ninety-day extension
plus warrants to purchase 75,000 Company Common Shares at $.20 per share. The
warrants will expire on March 6, 2004.
In January 1999, Security Income Trust L.P. ("SIT"), a company affiliated with a
director of the Company, purchased $1,250,000 principal amount of an 18%
convertible note from the Company. The Company issued 1,000,000 of its Common
Shares to SIT as additional consideration for the purchase of the note. The note
is due on July 10, 1999. The Company may, at its election, extend the maturity
of the note for two successive ninety-day periods. The interest on the Note is
to be paid on the maturity date of the note. In connection with and at the time
of the granting extension, the Company shall issue to SIT 1,000,000 Common
Shares.
Cash Provided by Private Placements
During Fiscal 1998, the Company raised additional capital through private
placements as follows:
During March 1998, the Company sold 200 shares of Series C Convertible Preferred
Shares at $10,000 per share for a total consideration of $2,000,000. As of
November 5, 1998, all of the Series C Convertible Preferred Shares were
converted into 8,775,284 Common Shares. The Series C Convertible Preferred
Shares were convertible into Common Shares of the Company commencing April 20,
1998, at a conversion price per Series C Preferred Share equal to $10,000
divided by the lesser of (x) $1.75 or (y) 75% of the arithmetic average of the
closing bid prices for each of the five trading days prior to the exercise date
of any such conversion. As part of this transaction, the Company issued Common
Stock Purchase Warrants to purchase 250,000 of the Company's Common Shares at a
price of $2.38 per share. The Warrants can be exercised any time until March 6,
2000. None of the Warrants have been exercised as of March 31, 1999.
In March 1998, the Company issued to two investors warrants to purchase
2,000,000 Common Shares (1 million exercisable at $1.00 per share and 1 million
at $.75 per share), expiring March 2001 and March 2000, respectively. The
warrants were issued in exchange for $385,000 of cash paid by SP Atlantic and
are currently exercisable.
The Company has issued and sold, in a private placement, an aggregate of $5.0
million of its 10% Convertible Notes ("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 8, 1998, $1.5 million on April 16, 1998, $500,000 on June 10, 1998 and
$1,000,000 on June 16, 1998. The original maturity date of the remaining 10%
Notes of $2 million has been extended to January 15, 2000. In connection with
such extension, in April 1999 the Company has agreed to issue to the holders of
the $2 million outstanding 10% Notes warrants to purchase an aggregate of
2,000,000 Company Common Shares at $.20 per share. The warrants will expire on
March 6, 2004. The Company has agreed to promptly register the Common Shares
underlying the warrants with the Securities and Exchange Commission. The
proceeds from the issuance of the 10% Notes were used for working capital. As of
December 31, 1998, $2,827,000
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<PAGE> 31
of the 10% Notes and $242,692 of interest had been converted into 18,365,332
shares of the Company's Common Stock.
In August 1998, Capital Fund Leasing, LLC ("Capital Fund Leasing") purchased
$500,000 of the Company's 15% Convertible Notes. In connection with such
investment, the Company issued 100,000 Common Shares to Capital Fund Leasing. In
September 1998, Capital Fund Leasing purchased an additional $500,000 of the
Company's 15% Convertible Notes. In connection with the purchase of such Notes,
the Company issued an additional 100,000 Common Shares to Capital Fund Leasing.
In October 1998, the 15% Convertible Notes were redeemed and 18% Convertible
Notes were issued. In connection therewith the Company issued to Capital Fund
Leasing 800,000 of the Company's Common Shares. The $1,550,000 outstanding 18%
Convertible Notes are convertible into 12,916,667 Common Shares of the Company
at $0.12 per share. In connection with the repayment of $18,900 principal
payment due January 15, 1999 of the 18% Convertible Notes and the extension of
the maturity date of the 18% Convertible Notes from January 19, 1999 to April
19, 1999, in January 1999 the Company issued to Capital Fund Leasing 607,500 of
the Company's Common Shares. In connection with the second extension of the
maturity date of the 18% Convertible Notes from April 19, 1999 by July 18, 1999,
in March 1999 the Company issued to Capital Fund Leasing 450,000 of the
Company's Common Shares. The July 18, 1999 maturity date of the 18% Notes has
been extended to January 15, 2000. In connection with such extension, in April
1999 the Company agreed to issue to Capital Fund Leasing warrants to purchase
1,550,000 Company Common Shares at $.20 per share. The warrants will expire on
March 6, 2004. The Company has agreed to promptly register the Common Shares
with the Securities and Exchange Commission.
The Company is currently working with potential investors to raise additional
funds for working capital and funds necessary to refinance secured debt
currently in default. The Company may be required to obtain additional lines of
credit for working capital purposes and make periodic public offerings or
private placements in order to meet its needs for such funds. While the Company
does not believe it will be restricted in financing its growth, there can be no
assurance that such sources of financing will be available to the Company in
sufficient amounts or on acceptable terms. Under such circumstances, the Company
expects to manage its growth within the financing available.
The Company also plans to engage in strategic acquisitions. As these investments
are identified and funds are needed to complete such acquisitions, additional
financing for such acquisitions will be necessary.
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<PAGE> 32
READINESS FOR YEAR 2000
The Company is in the process of upgrading its information systems. The new
systems, which were installed during 1998 and are currently being used by both
Capitol and Angeles, are designed to be year 2000 compliant. The Company intends
to implement this system for the TPSS Acquisition operations during 1999. The
new systems will provide management with better information on a more timely
basis. The costs of the Company's year 2000 compliance effort are being funded
with cash flows from operations. These costs are not expected to have a material
adverse effect on the Company's results of operations or cash flows.
While the Year 2000 considerations are not expected to materially impact the
Company's internal operations, they may have a material effect on some of the
Company's suppliers, customers and financial institutions and thus indirectly
affect the Company. The Company will conduct a program, including soliciting
responses from major customers and suppliers, to ascertain the compliance status
of the companies with whom the Company conducts material business. A business
resumption contingency plan will be developed prior to year end containing
contingency plans addressing actions that would be taken if critical business
functions cannot be carried out in the normal manner upon entering the next
century due to system or suppliers failure.
ACCOUNTING PRONOUNCEMENTS
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income" and SFAS
No. 131 "Disclosure About Segments of an Enterprise and Related Information" in
the year ended December 31, 1998. These new pronouncements had no material
impact on the Company's consolidated financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements beginning on page F-1 are filed as part of this Annual
Report on Form 10-KSB and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Board of Directors of the Company appointed Grant Thornton LLP as the
Company's new certifying accountants to audit the Company's financial
statements, effective February 4, 1997. Grant Thornton LLP was not consulted
concerning the application of accounting principles to any specific transaction,
either completed or proposed or the type of audit opinion that might be rendered
on the Company's financial statements, nor was a written report provided to the
Company nor oral advice given by the new accountants regarding important factors
considered by the Company in reaching its decision as to any accounting,
auditing or financial reporting issue.
Grant Thornton was dismissed by vote of the Board of Directors, effective
January 21, 1998. This decision to change accountants was approved by the
members of the audit committee of the
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Board of Directors. The prior accountants' report on financial statements for
the fiscal year ended December 31, 1996 did not contain an adverse opinion or a
disclaimer of opinion; nor was it modified as to uncertainty, audit scope or
accounting principles. Prior to the dismissal of Grant Thornton LLP, there were
no disagreements between the Company and Grant Thornton LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
the former accountant would have caused it to make reference to the subject
matter of the disagreement in connection with its report. Furthermore, there
were no unresolved issues with the prior accountants.
On January 21, 1998, the Board of Directors of the Company appointed Arthur
Andersen LLP as the Company's new public accountants to audit the Company's
financial statements, effective for the year ended December 31, 1997. Arthur
Andersen LLP was not consulted concerning the application of accounting
principles to any specific transaction, either completed or proposed or the type
of audit opinion that might be rendered on the Company's financial statements,
nor was a written report provided to the Company nor oral advice given by the
new accountants regarding important factors considered by the Company in
reaching its decision as to any accounting, auditing or financial reporting
issue.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the current members of the Company's Board of Directors
(the "Board") and its executive officers is as follows:
<TABLE>
<CAPTION>
Directors and Executive Officers Age Position
- - -------------------------------- --- --------
<S> <C> <C>
Paul Bagley 56 Chairman of the Board and
Chief Executive Officer
Richard D. Bailey 41 President, Chief Operating
Officer and Director
Carl Casareto 40 Chief Financial Officer and
Director
L. Wayne Harber 45 Director
Donald R. Jackson 49 Director, Secretary and
Treasurer
John D. McKey, Jr. 55 Director
Thompson H. Rogers 45 Director
</TABLE>
Paul Bagley has served as a director of the Company since January 21, 1997, as
Chairman of the Board of Directors since November 17, 1997 and as Chief
Executive Officer since March 10, 1998. Mr. Bagley is a Managing Member of The
Stone Pine Companies (since 1994), a group of companies involved in investment
banking, asset management and merchant banking activities, and is Chairman and
Chief Executive Officer of FCM Fiduciary Capital Management Company (since
1989), an investment-related company. Mr. Bagley was Chief Executive Officer of
Laidlaw Holdings, Inc., an investment services company, from January 1995 until
November 1996. For more than twenty years prior to October 1988, Mr. Bagley was
engaged in investment banking activities with Shearson Lehman Hutton Inc. and
its predecessor, E.F. Hutton & Company Inc. Mr. Bagley served in various
capacities with Shearson and E.F. Hutton, including Executive Vice President and
Director, Managing Director, Head of Direct Investment Origination and Manager
of Corporate Finance. Mr. Bagley serves as Chairman of the Board of Directors of
Silver Screen Management, Inc. and International Film Investors, Inc., which
manage film portfolios. Mr. Bagley is also a director of Hollis-Eden
Pharmaceuticals, Inc. a publicly held company, LMC Corporation, a privately held
manufacturer of low ground pressure vehicles, and Hamilton Lane Private Equity
Fund, PLC, an Irish Stock Exchange listed investment partnership. Mr. Bagley
graduated from the University of California at Berkeley in 1965 with a BS degree
in Business and Economics and from Harvard Business School in 1968 with an MBA
in Finance.
Richard D. Bailey, a director of the Company since March 10, 1998, has served as
the President and Chief Operating Officer of the Company since August 11, 1998.
From April 15, 1994 to August 11, 1998 Mr. Bailey was the President of RDB
Capital Advisers, LLC, a privately held company involved in investment banking
activities. During 1995, Mr. Bailey acquired,
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restructured and subsequently sold the Rigging Company, a mail order
manufacturer of custom yacht rigging. From 1991 to 1995, he was a principal of
the New England Wire Company, a manufacturer of specialty shaped wire and cable
with primary applications in the defense, electronics, safety and consumer
products industries. From 1986 to 1991, Mr. Bailey was the Executive Vice
President of Pennsylvania Rolling Mills, Inc., a manufacturer of cold rolled
carbon strip steel, supplying the automotive, defense and building products
industries. Mr. Bailey holds a BA degree in Political Science from Providence
College and a MA degree in International Relations from Fairfield University.
Carl Casareto, a director of the Company since August 11, 1998, has served as
the Chief Financial Officer of the Company and each of its subsidiaries since
March 10, 1998. Mr. Casareto served as a financial consultant to the Company
from June 1997 until January 12, 1998. From October 1989 to April 1997, Mr.
Casareto was the Chief Financial Officer and Senior Vice President of Finance of
TELACU and Subsidiaries. TELACU is a Community Development Corporation managing
for profit subsidiaries involved in, real estate development, utility industry
construction, asset and real property management, retail and financing. From
December 1995 to April 1997, Mr. Casareto also served as President of Telalink
Corporation, a Los Angeles based subsidiary of TELACU, which was involved in the
fiber optics industry. From 1981 to 1989, Mr. Casareto was associated with the
accounting firm of Grant Thornton, where he served as the partner-in-charge of
Grant Thornton's Southern California tax practice. Mr. Casareto holds a BS
degree in accounting from Loyola Marymount University and is a certified public
accountant.
L. Wayne Harber, a director of the Company since January 21, 1997, is a Managing
Director of Hamilton Lane Advisors, a privately held investment advisory and
asset management firm which focuses exclusively on alternative investments
(since October 11, 1998). Mr. Harber was a Managing Director of The Stone Pine
Companies from 1994 to October 1, 1998. From 1990 to 1993, Mr. Harber was the
Senior Vice President of Marketing for Aegis Holdings Corporation, an asset
management and investment banking concern specializing in asset securitization
and structured finance. From 1980 to 1990, Mr. Harber was a Vice President and
National Sales Manager for Franchise Finance Corporation of America. Mr. Harber
holds a BS degree in Economics and English from the University of Tennessee.
Donald R. Jackson has served as the Secretary and Treasurer of the Company since
January 21, 1997 and a director of the Company since February 4, 1997. From
January 21, 1997 until March 10, 1998, Mr. Jackson also served as Chief
Financial Officer of the Company. Mr. Jackson is a Managing Director and Chief
Financial Officer of The Stone Pine Companies (since 1994) and is a Senior Vice
President, Treasurer and Chief Financial Officer of FCM Fiduciary Capital
Management Company. From January 1990 to June 1994, Mr. Jackson was a Corporate
Vice President with PaineWebber Incorporated, where he was involved in the
financial administration of various publicly and privately offered investment
programs. During 1989, Mr. Jackson was self-employed. Immediately prior to that
he was a First Vice President in the Direct Investments Group with Shearson
Lehman Hutton Inc. and its predecessor, E.F. Hutton & Company, Inc. From 1972 to
1986, Mr. Jackson was associated with the accounting firm of Arthur Andersen &
Co., serving as a partner from 1981 to 1986. Mr. Jackson is a director of LMC
Corporation, a
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<PAGE> 36
privately held manufacturing company. Mr. Jackson holds a BSBA degree in
accounting from the University of Denver and is a certified public accountant.
John D. McKey, Jr., a director of the Company since February 4, 1997, has been a
partner at the law firm of McCarthy, Summers, Bobko & McKey, P.A. since
September 1993, and from June 1986 to September 1993, was a partner at Kohl,
Bobko, McKey & Higgins, P.A. Mr. McKey is a director of Lithium Technology
Corporation.
Thompson H. Rogers has served as a director of the Company since January 21,
1997 and served as Chairman of the Board from January 21, 1997 until November
17, 1997. Mr. Rogers is a Managing Member of The Stone Pine Companies (since
1994), the Chairman of Affiliated Holdings, Inc., a private investment
management company (since 1985), and the Chief Investment Officer of Palmer
Capital Fund, a private investment fund. Prior thereto, Mr. Rogers was a Vice
President with US Bank. From 1995 to 1996, Mr. Rogers was the Chairman of New
York based, Laidlaw Holdings Asset Management, Inc. Mr. Rogers serves on the
Board of Directors of Pinnacle Bank of Omaha, located in Omaha, Nebraska;
Havelock Bank, located in Lincoln, Nebraska; Aspen Holdings Inc., an insurance
holding company; First Comp Insurance Company, an insurance holding company;
Hamilton Lane Advisors, Inc., an investment advisory and money management firm;
and VarsityBooks.com, an internet textbook company. Mr. Rogers also serves on
several not-for-profit boards and is a member of the Young Presidents
Organization.
The members of the Board are divided into three classes, with staggered terms.
The terms of Messrs. Bagley and Rogers expire in 2001, the terms of Messrs.
Harber and McKey expire in 1999 and the terms of Messrs. Bailey, Casareto and
Jackson expire in 2000. Officers of the Company serve at the pleasure of the
Board of Directors.
No family relationships exist between any of the officers and directors of the
Company.
Innovest Holdings, Ltd., which purchased Common Shares of the Company in January
1997, has the right to nominate two directors to the Board of Directors of the
Company or, in the alternative, has the right to be present at all Board
meetings. As of the date hereof no such directors have been nominated to the
Board.
Committees of the Board of Directors
The Board has five standing committees: an Executive Committee, an Audit
Committee and a Compensation Committee, a Mergers and Acquisition Committee and
a Financing Committee.
The Executive Committee of the Board was established during August 1997 and
currently consists of Messrs. Bagley and Jackson. The Executive Committee is
authorized to exercise all of the authority of the Board in the management of
the Company to the fullest extent permissible by the Colorado Business
Corporation Act.
The Audit Committee of the Board was established during February 1997 and
currently consists of Messrs. Bagley, Rogers and Jackson. The Audit Committee
provides general financial
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<PAGE> 37
oversight in financial reporting and the adequacy of the Company's internal
controls through periodic meetings with the Company's management and its
external auditors.
The Compensation Committee of the Board was established during February 1997 and
currently consists of Messrs. Rogers, Harber and Jackson. The Compensation
Committee administers the Company's 1997 Stock Incentive Plan, subject to the
review and oversight of the entire Board. The Compensation Committee also
provides general oversight in all employee personnel matters through periodic
meetings with the management of the Company.
The Mergers and Acquisition Committee was established during August 1998, and
currently consist of Messrs. Bagley, Bailey and Casareto. This Committee is
authorized to exercise all of the authority of the Board in connection with
mergers and acquisitions of the Company.
The Financing Committee was established during August 1998. Presently the
members of this Committee consist of Messrs. Bagley, Bailey and Casareto. This
Committee is authorized to exercise all of the authority of the Board in
connection with any financing transactions involving the Company or its
Subsidiaries.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of the Forms 3 and 4 furnished to the Company during
1997 and 1998 and written representations furnished to the Company, the Company
has not identified any director, officer or beneficial owner of more than ten
percent of its common stock who failed to file on a timely basis the forms
required by Section 16(a) of the Securities Exchange Act of 1934 for fiscal year
1997, other than those discussed in the following paragraph.
All Forms 3 and 4 that were required to be filed pursuant to the provisions of
Section 16(a) of the Exchange Act have been filed. However, some of the Forms 3
and /or 4 that were required to be filed by Messrs. Bagley (3), Bailey (1),
Casareto (2), DeGrassi (1), Harber (1), Martin (1) and Stone Pine Colorado, LLC
(2), Stone Pine Capital, LLC (2) and Stone Pine Atlantic Equities, LLC (2) were
not filed on a timely basis. (The number in parenthesis after each name
represents the number of required forms that were not filed on a timely basis.)
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<PAGE> 38
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services rendered to the Company and its subsidiaries
during 1998, 1997, and 1996 by each of the Named Executive Officers.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------------
Annual Compensation
--------------------------------------------------------
Securities
Name and Fiscal Other Annual Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)
- - ------------------ ---- --------- ------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. 1998 72,475 0 * 1,000,000 0
Bailey(1) 1997 0 0 0 0 0
1996 0 0 0 0 0
Carl 1998 108,226 0 * 750,000 0
Casareto(2) 1997 0 0 0 0 0
1996 0 0 0 0 0
</TABLE>
- - ----------------
(1) Mr. Bailey has been serving as President and Chief Operating Officer of the
Company since August 11, 1998.
(2) Mr. Casareto has been serving as Chief Financial Officer of the Company
since March 10, 1998.
* Did not receive perquisites or other personal benefits, securities, or
property having an aggregate value of greater than the lower of $50,000 or
10% of the total salary and bonus reported for such executive officer.
Option/SAR Grants in 1998
At the Annual Meeting of the Shareholders of the Company held on October 8,
1997, the Shareholders adopted the Company's 1997 Stock Incentive Plan (the
"Plan"). Under the terms of the Plan, the Company may grant employees of, or any
other individual providing services to, the Company and its subsidiaries stock
options, stock appreciation rights or stock awards. The Company has reserved
6,000,000 Common Shares for issuance pursuant to the Plan. At the Annual Meeting
of the Shareholders on December 1, 1998, the shareholders approved an increase
in shares reserved from 3,000,000 to 6,000,000 Common Shares for issuance
pursuant to the Plan. The exercise price of all stock options granted pursuant
to the Plan shall not be less than the fair market value of the Common Shares on
the date of grant. As of
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<PAGE> 39
December 31, 1998, options to acquire an aggregate of 2,887,250 Common Shares
were outstanding under the Plan. As of December 31, 1998, 1,170,000 Common
Shares had been granted as stock awards and no stock appreciation rights had
been granted under the Plan.
The Company does not offer its employees any long-term incentive plans, other
than stock options, stock appreciation rights or stock awards issued pursuant to
the Plan, nor does it offer any defined benefit or actuarial plans. The Company
does offer a 401(k) plan to employees.
The following table sets forth information concerning individual grants of stock
options during 1998 to Named Executive Officers.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base Expiration
Name Granted (#) in 1998 Price ($/Sh) Date
- - ----------------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Richard D. Bailey 1,000,000(1) 35% $0.34 09-01-08
Carl Casareto 200,000(2) 7% $1.22 01-12-08
Carl Casareto 400,000(3) 14% $2.08 03-10-08
Carl Casareto 150,000(4) 5% $0.14 12-23-08
----------
1,750,000
</TABLE>
(1) 250,000 of the options may be exercised starting on September 1, 1998 and
the balance of 750,000 options are vested subject to obtaining certain
financial goals by the Company at the rate of 250,000 options each year on
December 1, 1999, 2000 and 2001.
(2) 50,000 of the options may be exercised starting on January 12, 1998 and the
remaining options are vested at the rate of 50,000 options on January 12,
1999, 2000 and 2001.
(3) The options may be exercised at the rate of 80,000 options per year on
March 10, 1999, 2000, 2001, 2002 and 2003.
(4) The options may be exercised at the rate of 37,500 on December 23, 1998,
1999, 2000 and 2001. The vesting, starting December 23, 1999, is subject to
the Company obtaining certain financial goals.
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<PAGE> 40
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
As of December 31, 1998 the Company had not granted any SAR's. In addition, no
stock options were exercised during 1998. The following table sets forth
information concerning the value of unexercised stock options as of December 31,
1998.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares 12/31/98 (#) 12/31/98 ($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unexercisable Unexercisable
- - ----------------- --------------- -------- --------------- -------------
<S> <C> <C> <C> <C>
Richard D. Bailey 0 0 250,000/750,000 $ 0/$ 0
Carl Casareto 0 0 87,500/662,500 $750/$2,250
</TABLE>
COMPENSATION OF DIRECTORS
Directors receive no cash compensation for serving on the Company's Board of
Directors other than reimbursement for out-of-pocket expenses incurred in
attending meetings. On August 11, 1998, the Board of Directors approved the
issuance on September 1, 1998 of 50,000 vested non-statutory options to each
non-employee director, other than Mr. Bagley, the Chairman of the Board. The
options granted to the non-employee directors have an exercise price of $.34 and
a ten year term. The Board of Directors also approved the automatic grant of
50,000 options to each non-employee director of the Company (other than Mr.
Bagley) on April 15th of each year. Each automatic grant will have an exercise
price equal to fair market value on the date of grant as determined by the
Company's 1997 Stock Incentive Plan, provided the Company has positive EBITDA
for the preceding December 31 fiscal year ended. The options will have a term of
10 years measured from the grant date.
EMPLOYMENT AND CONSULTING AGREEMENTS
Richard D. Bailey currently serves as President and Chief Operating Officer of
the Company. Mr. Bailey was hired on August 11, 1998 and on September 1, 1998,
entered into a one year Employment Agreement. Mr. Bailey is also a director of
the Company whose term expires in the year 2000. The Employment Agreement shall
be automatically extended for one year commencing on the first anniversary of
the agreement unless Mr. Bailey or the Company shall have given written notice
to the other at least sixty days prior to the end of the term as defined in the
Employment Agreement. The Employment Agreement provides for an annual salary of
$200,000 and Mr. Bailey could be eligible to receive discretionary bonuses in
such amount and at such times as shall be determined by the Board of Directors
of the Company. As part of the consideration for services rendered under the
Employment Agreement, Mr. Bailey was granted 1,000,000 options with an exercise
price of $.34 per share to purchase Common Shares. Of the options granted,
250,000 options are currently vested with the balance vesting each year at the
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<PAGE> 41
rate of 250,000 options on December 1, 1999, 2000, and 2001, subject to the
Company obtaining certain financial goals.
SERVICES AGREEMENT
The Company entered into a Services Agreement (the "Services Agreement") with SP
Atlantic, effective as of February 1, 1997, pursuant to which SP Atlantic and
its affiliates provide administrative, accounting and investor relations
services to the Company and its subsidiaries as well as investment banking
services and assistance in merger and acquisition transactions, financing
transactions and stock offerings by the Company. In consideration for such
services, the Company is obligated to pay SP Atlantic $10,000 per month, plus
reimbursement for the cost of providing the administrative, accounting and
investor relations services. Messrs. Bagley, Harber, Jackson and Rogers,
directors and officers of the Company, have a financial interest in SP Atlantic.
In addition, Messrs. Bagley and Rogers are beneficial owners of approximately
24% and 15.57%, respectively, of the outstanding Common Shares.
The Services Agreement has a term of five years, and is subject to automatic
renewals of one year unless either party provides written notice of non-renewal
to the other party at least 90 days prior to the expiration of the initial or
any renewal term of the Services Agreement. SP Atlantic has the option to
terminate the Agreement at any time for any reason upon written notice. The
Company may terminate the Services Agreement at any time upon written notice;
however, in the event this provision is exercised by the Company, SP Atlantic
shall not receive less compensation and benefits that would otherwise be due to
it for the remainder of the term of the Services Agreement. The Company may
terminate the Services Agreement for cause, effective upon written notice, and
upon such a termination the Company shall be obligated to pay SP Atlantic fees
and any expense reimbursements due through the date of termination. "Cause" is
defined to mean that SP Atlantic has: (i) knowingly acted fraudulently in SP
Atlantic's relations with the Company, (ii) misappropriated or done material,
intentional damage to the property of the Company, (iii) willfully and
materially failed to follow a legal and reasonable order or directive by the
Chairman of the Board of Directors of the Company (which order or directive is
consistent with the provisions of the Services Agreement), or (iv) been grossly
negligent in the performance of its duties as provided for by the Services
Agreement.
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<PAGE> 42
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At December 31, 1998, the Company had outstanding 48,079,839 Common Shares, the
only class of voting securities outstanding. At March 15, 1999, the Company had
57,105,839 Common Shares outstanding.
At December 31, 1998 and March 15, 1999, the Company had outstanding 744,000
Series A Preferred Shares and 449,000 Series B Preferred Shares.
The following table reflects information concerning the ownership, as of March
15, 1999, of Common Shares by (i) each person who is known by the Company to be
a beneficial owner of more than 5% of the Common Shares; (ii) by all directors;
(iii) by each of the Named Executive Officers, and (iv) by all directors and
Named Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
Percent of
Name Number of Shares Voting Securities
---- ---------------- -----------------
<S> <C> <C>
Stone Pine Colorado, LLC(1) 8,020,503(2) 13.97%
Stone Pine Capital, LLC(1) 8,053,836(4) 14.03%
Stone Pine Atlantic Equities, LLC(1) 8,020,503(5) 13.97%
Paul Bagley(1)(10)(11) 14,625,410(12) 24.00%
Richard D. Bailey(10)(11)(13) 250,000(14) *
Thompson H. Rogers(1)(10) 9,064,502(15) 15.57%
W. Duke DeGrassi(1) 8,020,503(5) 13.97%
Carl Casareto(10)(11)(16) 217,500(17) *
L. Wayne Harber(1)(10) 50,000(18) *
Donald R. Jackson(1)(10)(11) 80,000(19) *
John D. McKey, Jr.(10)(19) 50,000(20) *
Capital Fund Leasing, LLC(21) 30,390,834(22) 41.91%
US Steel Group of USX Corporation (23) 14,354,067(24) 21.53%
All Directors and Executive Officers
as a group (7 persons) 15,347,910(25) 24.91%
</TABLE>
- - --------------------
(1) The address for each person is 410 17th Street, Suite 400, Denver, Colorado
80202.
(2) SP Colorado directly owns 6,231,867 of the Company's outstanding Common
Shares and 317,500 shares of the Company's Series B Preferred Shares, which
are convertible into 317,500 Common Shares. SP Colorado holds proxies to
vote 866,568 Common Shares (the "AHC Shares") which are owned by Atlantis
Holding Corp. and 604,568 Common Shares (the "Herstone Shares") that are
owned by Richard Herstone, until the earlier of a transfer of the AHC
Shares and the Herstone Shares and February 4, 2000. (The 6,231,867
outstanding Common Shares directly owned by SP Colorado, the 317,500 Common
Shares that would be received by SP Colorado if the Series B Preferred
Shares were converted, the AHC Shares and the Herstone Shares are
collectively referred to as the "SP Colorado Shares"). The following
persons are members of SP Colorado and each own
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<PAGE> 43
an equal voting interest in SP Colorado: SP Capital, Stone Pine Atlantic
Equities, LLC ("SP Equities") and Thompson H. Rogers. Paul Bagley and W.
Duke DeGrassi are the designated voting persons for SP Capital and SP
Equities, respectively. SP Colorado, SP Capital, SP Equities, Thompson H.
Rogers, Paul Bagley and W. Duke DeGrassi are referred to herein as the
"Stone Pine Reporting Persons". Each Stone Pine Reporting Person may be
deemed a member of a group that shares voting power over the AHC Shares and
the Herstone Shares and voting and dispositive power over the SP Colorado
Shares and accordingly may be deemed to beneficially own the SP Colorado
Shares, including the AHC Shares and the Herstone Shares.
(3) SP Atlantic directly owns 214,286 of the outstanding Common Shares, 131,500
of the Company's Series B Preferred Shares and a $250,000 Convertible Note
issued by the Company. The Series B Preferred Shares and the Note are
collectively convertible into 381,500 Common Shares. (The 214,286
outstanding Common Shares and the 381,500 Common Shares that would be
received if the Series B Preferred Shares and the Note were converted are
collectively referred to as the "SP Atlantic Shares"). Mr. Bagley is the
manager of SP Atlantic. As a result, Mr. Bagley may be deemed to
beneficially own the SP Atlantic Shares.
(4) This amount includes (i) 33,333 of the Company's outstanding Common Shares
directly owned by SP Capital (the "SP Capital Shares") and (ii) the SP
Colorado Shares (see (2)).
(5) This amount includes the SP Colorado Shares (see (2)).
(6) SP Financial directly owns 76,666 of the Company's outstanding Common
Shares and 360,000 of the Company's Series A Preferred Shares, which are
convertible into 360,000 Common Shares. (The 76,666 outstanding Common
Shares and the 360,000 Common Shares that would be received if the Series B
Preferred Shares were converted are collectively referred to as the "SP
Financial Shares"). Messrs. Bagley and Rogers are members of SP Financial
and may be deemed to beneficially own the SP Financial Shares.
(7) ERB directly owns 110,000 of the Company's outstanding Common Shares and
384,000 of the Company's Series A Preferred Shares, which are convertible
into 384,000 of Common Shares. (The 110,000 outstanding Common Shares and
the 384,000 Common Shares that would be received if the Series A Preferred
Shares were converted are collectively referred to as the "ERB Shares").
Messrs. Bagley and Rogers are members of ERB and may be deemed to
beneficially own the ERB Shares.
(8) SPIB Management, LLC ("SPIB Management") directly owns 128,788 of the
Company's outstanding Common Shares and a $75,000 Convertible Note
convertible into 625,000 Common Shares (the "SPIB Management Shares"). Mr.
Bagley is the manager of SPIB Management and may be deemed to beneficially
own the SPIB Management Shares.
(9) Security Income Trust L.P. ("SIT") directly owns 1,000,000 of the Company's
outstanding Common Shares (the "SIT Shares"). Mr. Bagley has the sole
voting and dispositive power of the SIT Shares and may be deemed to
beneficially own the SIT Shares.
(10) Director.
(11) Executive Officer.
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<PAGE> 44
(12) Mr. Bagley directly owns 1,533,334 of the Company's outstanding Common
Shares and a $1,750,000 Convertible Note issued by the Company, which is
convertible into 1,750,000 Common Shares. In addition, 5,000 of the
Company's outstanding Common Shares are held by Mr. Bagley's spouse and
3,000 of the Company's outstanding Common Shares are held in Mr. Bagley's
individual retirement account. (The above discussed 1,536,334 outstanding
Common Shares and the 1,750,000 Common Shares that would be received if the
Note was converted are collectively referred to as the "Bagley Shares").
This amount includes (i) the Bagley Shares, (ii) the SP Colorado Shares
(see (2)), (iii) the SP Atlantic Shares (see (3)), (iv) the SP Capital
Shares (see (4)), (v) the SP Financial Shares (see (6)), (vi) the ERB
Shares (see (7)), (vii) the SPIB Management Shares (see (8)) and the SIT
Shares (see (9)).
(13) The address for Mr. Bailey is 20000 South Western Avenue, Torrance,
California 90501.
(14) This amount represents 250,000 Common Shares that are represented by
currently exercisable stock options (the "Bailey Shares").
(15) This amount includes (i) 30,000 of the Company's outstanding Common Shares
directly owned by Mr. Rogers and 50,000 Common Shares that are represented
by currently exercisable Stock Options ("the Rogers Shares"), (ii) the SP
Colorado Shares (see (2)), (iii) the SP Capital Shares (see (4)), (iv) the
SP Financial Shares (see (6)), and (v) the ERB Shares (see (7)).
(16) The address for Mr. Casareto is 20000 South Western Avenue, Torrance,
California 90501.
(17) This amount represents 217,500 Common Shares that are represented by
currently exercisable stock options (the "Casareto Shares").
(18) This amount represents 50,000 Common Shares that are represented by
currently exercisable stock options (the "Harber Shares").
(19) This amount includes 75,000 Common Shares that are represented by currently
exercisable stock options and 5,000 Common Shares held in Mr. Jackson's
individual retirement account (the "Jackson Shares").
(20) This amount represents 50,000 Common Shares that are represented by
currently exercisable stock options (the "McKey Shares").
(21) The address for Capital Fund Leasing, LLC is 940 Ravenna Road, Unit 2,
Twinsburg, Ohio 44087.
(22) This amount includes 14,974,167 Common Shares and Common Shares underlying
a 10% Convertible Note of the Company convertible into 2,500,000 Common
Shares (at an assumed conversion price of $0.20 per share) and a 18%
Convertible Note of the Company convertible into 12,916,667 Common Shares
(at $0.12 per share).
(23) The address for USX is 600 Grant Street, Pittsburgh, Pennsylvania
15219-2749.
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<PAGE> 45
(24) This amount includes 4,784,689 Common Shares and 9,569,378 Common Shares
underlying a Convertible Note of the Company held by USX (convertible at
$0.209 per share).
(25) This amount includes (i) the SP Colorado Shares (see (2)), (ii) the SP
Atlantic Shares (see (3)), (iii) the SP Capital Shares (see (4)), (iv) the
SP Financial Shares (see (6)), (v) the ERB Shares (see (7)), (vi) the SPIB
Management Shares (see (8)), (vii) the SIT Shares (see (9) ), (viii) the
Bagley Shares (see (12)), (ix) the Bailey Shares (see (14)), (x) the Rogers
Shares (see (15)), (xi) the Casareto Shares (see (17)), (xii) the Harber
Shares (see (18)), and (xiii) the Jackson Shares (see (19)).
* Less than 1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the January 1997 Merger described herein, Raymond McElhaney, Bill
Conrad, and Ronald McGinnis, the sole executive officers and directors of the
Company (the "Former Directors"), purchased from the Company the following
assets of the Company (the "Asset Sale"): (i) the furniture and equipment of the
Company, (ii) 7,000 shares of common stock of American Educational Products,
Inc. including warrants to purchase additional shares of the common stock of
American Education Products, Inc., (iii) 37,500 shares of common stock of Gold
Capital Corporation, (iv) a Promissory Note receivable by and between the
Company and Glacier Valley Holding Corporation dated November 13, 1995 in the
principal amount of $18,000 (see "Item 1. Description of Business - Narrative
Description of Business - Former Real Estate Development Business - Glacier
Valley") and (v) the Company's interest in and to the Elite Note and the
Company's interest in the Northcrest Joint Venture (see "Item 1. Description of
Business - Narrative Description of Business - Former Real Estate Development
Business - The Northcrest Joint Venture").
The purchase price for the assets sold in the Asset Sale was $99,625 which
consideration consisted of (x) the cancellation of stock options held by the
Former Directors to acquire an aggregate of 455,454 shares of the common stock
of the Company at the exercise price of $.55 per share, (y) the relinquishment
of any interest in and to the salaries which were accrued for the accounts of
the Former Directors and any claim for future salaries pursuant to the
Employment Agreements between the Company and the Former Directors, in the
aggregate amount of $69,000, and the cancellation of such Employment Agreements
and (z) the assumption by the Former Directors of all debts, liabilities and
outstanding accounts of the Company which were outstanding prior to the Merger.
The following assets purchased by the Former Directors and included in the Asset
Sale were acquired during the last two years for the following purchase price:
(i) 7,000 shares of common stock of American Educational Products, Inc. and
warrants to purchase additional shares of common stock, $7,000, (ii) a
promissory note receivable from Glacier Valley Holding Corporation, $18,000, and
(iii) a 52% interest in the nonrecourse promissory note payable by Elite
Properties of America, $415,750, with a principal balance equal to $216,190 at
the time of sale.
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<PAGE> 46
The Company paid $80,000 in consideration of services provided by ICE in
connection with the Merger. ICE is the beneficial owner of approximately 8% of
the outstanding Common Shares.
The Company agreed to pay SP Colorado an acquisition structuring fee of $250,000
in connection with the Merger and the related transactions and delivered a
non-interest bearing promissory note for such amount ("the SP Colorado Note").
During December 1997, the Company issued 317,500 Series B Preferred Shares to SP
Colorado in exchange for the forgiveness of the SP Colorado Note and $67,500 of
other obligations of the Company to SP Colorado. SP Colorado is the owner of
13.97% of the outstanding Common Shares and Messrs. Bagley, Harber, Jackson,
McKey and Rogers, directors and officers of the Company, have a financial
interest in SP Colorado.
The Company entered into a Services Agreement with SP Atlantic effective as of
February 1997. See "Item 10. Executive Compensation - Services Agreement" for a
discussion of the terms of the Services Agreement. During December 1997, the
Company issued 131,500 Series B Preferred Shares to SP Atlantic in exchange for
the forgiveness of $100,000 of fees due under the terms of the Services
Agreement and $31,500 of other indebtedness owed to SP Atlantic by the Company.
Messrs. Bagley, Harber, Jackson and Rogers, directors and officers of the
Company, have a financial interest in SP Atlantic.
During April 1997, ERB loaned $300,000 to Angeles, which loan was evidenced by a
12% promissory note payable to ERB (the "ERB Note"). As additional consideration
for such loan, (i) Angeles agreed to pay ERB a facility fee of $9,000, which was
added to the principal balance of the ERB Note, (ii) the Company issued 50,000
Common Shares to ERB upon such funding, and (iii) the Company agreed to issue
10,000 Common Shares on the first day of each month commencing July 1, 1997
until the ERB Note was repaid in full. During December 1997, the Company issued
384,000 Series A Preferred Shares to ERB in exchange for forgiveness of this
$309,000 loan and $75,000 of other indebtedness owed to ERB by the Company. The
Company issued a total of 110,000 Common Shares to ERB as additional
consideration for the ERB Note during its term.
During June 1997, SP Financial loaned $107,000 to Angeles, which loan was
evidenced by a 12% promissory note payable to SP Financial (the "SP Financial
Note"). As additional consideration for such loan, Angeles agreed to pay SP
Financial a commitment fee of $3,210, which was added to the principal balance
of the SP Financial Note, and the Company issued 16,666 Common Shares to SP
Financial. During December 1997, the Company issued 110,000 Series A Preferred
Shares to SP Financial in exchange for the forgiveness of $110,000 of the
principal balance of the SP Financial Note, with the $210 balance of the Note
being paid in cash.
During August 1997, SP Financial loaned $250,000 to the Company, which loan was
evidenced by a 12% promissory note payable to SP Financial (the "Second SP
Financial Note"). As additional consideration for such loan, the Company issued
60,000 Common Shares to SP Financial. During December 1997, the Company issued
250,000 Series A Preferred Shares to SP Financial in exchange for the
forgiveness of the $250,000 principal balance of the Second SP Financial Note.
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<PAGE> 47
During December 1997, SP Advisors loaned $75,000 to the Company, which loan was
evidenced by a 12% promissory note payable to SP Advisors (the "SP Advisors
Note"). As additional consideration for such loan, the Company issued 33,333
Common Shares to SP Advisors. The Company repaid the SP Advisors Note during
January 1998. Messrs. Bagley, Harber, Jackson and Rogers, directors and officers
of the Company, have a financial interest in SP Advisors.
During December 1997, SP Capital loaned $75,000 to the Company, which loan was
evidenced by a 12% promissory note payable to SP Capital (the "SP Capital
Note"). As additional consideration for such loan, the Company issued 33,333
Common Shares to SP Capital. The Company repaid the SP Advisors Note during
March 1998.
During December 1997, Mr. Bagley loaned $75,000 to the Company, which loan was
evidenced by a 12% promissory note payable to Mr. Bagley (the "Bagley Note"). As
additional consideration for such loan, the Company issued 33,334 Common Shares
to Mr. Bagley. The Company repaid the Bagley Note during March 1998. Mr. Bagley
is a director and officer of the Company and the beneficial owner of
approximately 24% of the outstanding Common Shares.
In January 1998, the Company issued to Christian W. Wolf, who was serving as
President and Chief Executive Officer of the Company at such time, options to
purchase 200,000 Common Shares at $1.22 per share. The options are currently
vested and have a ten year term.
In January 1998, the Company issued to Carl Casareto, who was appointed the
Chief Financial Officer of the Company in March 1998, options to purchase
200,000 Common Shares at $1.22 per share. Currently, 100,000 of the options are
vested and 50,000 of the options vest on January 12, 2000 and 2001,
respectively.
During January 1998, in connection with the acquisition of Capitol and the
transactions with Congress Financial, Mr. Bagley loaned an additional $1,500,000
to the Company. The loan is evidenced by a convertible promissory note of the
Company (the "Second Bagley Note") in the amount of $1,750,000, with a 12%
annual interest rate payable monthly in arrears. The Second Bagley Note is due
in one year or sooner in the event of a $25 million equity issuance by the
Company and is secured by a subordinate security interest in all of the assets
of the Company and its subsidiaries, effective upon the consent of Congress
Financial to such security interest or the refinancing or repayment of the
Congress Facility. The Second Bagley Note is convertible into 1,750,000 Common
Shares. As additional consideration for the loan, the Company issued 1,500,000
Common Shares to Mr. Bagley. The maturity date has been extended to December 31,
1998. In connection with such extension, in April 1999 the Company agreed to
issue warrants to purchase 1,750,000 Company Common Shares at $.20 per share.
The warrants will expire on March 6, 2004.
During March 1998, SP Atlantic loaned $214,286 to the Company. The loan is
evidenced by a convertible promissory note of the Company (the "SP Atlantic
Note") in the aggregate amount of $250,000, with a 12% annual interest rate
payable monthly in arrears. The SP Atlantic Note is due in one year or sooner in
the event of a $25 million equity issuance by the Company and is
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<PAGE> 48
secured by a subordinate security interest in all of the assets of the Company
and its subsidiaries, effective upon the consent of Congress Financial to such
security interest or the refinancing or repayment of the Congress Facility. The
SP Atlantic Note is convertible into 250,000 Common Shares. As additional
consideration for the loan, the Company issued 214,286 Common Shares to SP
Atlantic. The maturity date has been extended to January 15, 2000. In connection
with such extension, in April 1999 the Company agreed to issue warrants to
purchase 250,000 Company Common Shares at $.20 per share. The warrants will
expire on March 6, 2004.
During March 1998, the Company entered into an agreement with RDB Capital
Advisors, LLC ("RDB") pursuant to which the Company paid RDB $120,000 as
compensation for services rendered by RDB in arranging for the $2 million
purchase of the Company's Series C Preferred Shares by a group of investors. RDB
is owned by Mr. Bailey, a director of the Company.
During March 1998, the Company entered into a consulting arrangement with
Christian W. Wolf, a director of the Company at that time. Under the
arrangement, Mr. Wolf provided consulting services in connection with a
potential acquisition by the Company. Mr. Wolf received approximately $40,000,
plus 250,000 Common Shares as compensation for these services.
In March 1998, the Company issued to employees of the Company and employees of
related companies providing services to the Company, stock options to purchase a
total of 625,000 Common Shares at $2.08 per share. These 625,000 options
included 400,000 options granted to Carl Casareto, the Chief Financial Officer
of the Company and 100,000 options granted to Donald R. Jackson, the Secretary
and Treasurer of the Company. The options granted to Mr. Casareto vest over a
five-year period and options granted to Mr. Jackson vest over a four-year period
commencing on March 10, 1999.
In August 1998, the Company issued to Capital Fund Leasing, 100,000 of the
Company's Common Shares in connection with the purchase of $500,000 principal
amount of the Company's 15% Convertible Notes by Capital Fund Leasing. In
September 1998, the Company issued to Capital Fund Leasing an additional 100,000
of the Company's Common Shares in connection with the purchase of an additional
$500,000 principal amount of the Company's 15% Convertible Notes. In October
1998, in connection with the redemption of the 15% Convertible Notes and the
issuance of 18% Convertible Notes, the Company issued to Capital Fund Leasing
800,000 of the Company's Common Shares. The $1,550,000 outstanding 18%
Convertible Notes are convertible into 12,916,667 Common Shares at $0.12 per
share. In connection with the repayment of $18,900 principal balance due January
15, 1999 of the 18% Convertible Notes and the extension of the maturity date of
the $1,550,000 of the 18% Convertible Notes from January 19, 1999 to April 19,
1999, the Company issued to Capital Fund Leasing 607,500 of the Company's Common
Shares. In connection with the second extension of the maturity date of the
$1,550,000 of the 18% Convertible Notes from April 19, 1999 by July 18, 1999,
the Company issued to Capital Fund Leasing 450,000 of the Company's Common
Shares. In connection with the extension of the July 18, 1999 maturity date of
the 18% Notes to January 15, 2000, in April 1999, the Company agreed to issue to
Capital Fund Leasing warrants to purchase 1,550,000 Company Common Shares at
$.20 per share. Capital Fund Leasing also owns $500,000 of the Company's 10%
Notes. The original April 9, 1999 maturity date of the 10% Notes has been
extended to
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<PAGE> 49
January 15, 2000. In connection with such extension, in April 1999 the Company
agreed to issue to Capital Fund Leasing warrants to purchase an aggregate of
500,000 Company Common Shares at $.20 per share. The warrants will expire on
March 6, 2004. The Company has agreed to promptly register the Common Shares
underlying the warrants for resale by Capital Fund Leasing.
On September 1, 1998, the Company entered into an Employment Agreement with Mr.
Bailey, the President and Chief Operating Officer of the Company, which provides
for a one year renewable term and an annual salary of $200,000. As part of the
consideration for services rendered under the Employment Agreement, Mr. Bailey
was granted 1,000,000 options with an exercise price of $.34 per share to
purchase Common Shares of the Company under the 1997 Plan as amended subject to
shareholder approval of such amendment. 250,000 of the options vested on
September 1, 1998 and 250,000 of the options will vest on December 1 in 1999,
2000 and 2001 provided that certain financial and other objectives set forth in
the Employment Agreement are met.
On September 1, 1998, the Company granted to each non-employee director of the
Company (other than Mr. Bagley), Thompson H. Rogers, L. Wayne Harber, Donald R.
Jackson and John D. McKey, Jr., 50,000 vested non-statutory options with an
exercise price of $.34 and a ten year term. The Board of Directors also approved
the automatic grant of 50,000 options to each non-employee director of the
Company (other than Mr. Bagley) on April 15th of each year. Each automatic grant
will have an exercise price equal to fair market value on the date of grant as
determined by the Company's 1997 Stock Incentive Plan, provided the Company has
positive EBITDA for the preceding December 31 fiscal year ended. The options
will have a term of 10 years measured from the grant date.
In December 1998, the Company issued to employees of the Company stock options
to purchase a total of 576,000 Common Shares at $.14 per share. These 576,000
options included 150,000 options granted to Carl Casareto, the Chief Financial
Officer of the Company. Of the options granted to Mr. Casareto 37,500 vested on
December 23, 1998 and 37,500 vest on December 1, 1999, 2000 and 2001.
In December 1998, the Company issued to SPIB Management 95,455 of the Company's
Common Shares in connection with the purchase of $75,000 principal amount of 18%
Convertible Notes by SPIB Management (convertible into 625,000 Common Shares of
the Company). In April 1999, the Company has agreed to issue to SPIB Management
43,550 Common Shares in connection with the extension of the maturity date of
the 18% Convertible Notes. SPIB Management agreed to an additional extension of
the maturity date to January 15, 2000. In connection with such extension, in
April 1999 the Company agreed to issue warrants to purchase 75,000 Company
Common Shares at $.20 per share.The warrants will expire on March 6, 2004.
In January 1999, the Company issued to Security Income Trust L.P. ("SIT"), a
company which Mr. Bagley is affiliated with, 1,000,000 of the Company's Common
Shares as partial consideration of the purchase of $1,250,000 principal amount
of 18% Notes by SIT.
-48-
<PAGE> 50
Messrs. Bagley and Rogers who are directors of the Company, have a financial
interest in SP Colorado, SP Atlantic, ERB, SP Financial, SP Advisors, SP Capital
and SPIB Management. Mr. McKey, a director of the Company, has a financial
interest in SP Colorado. Messrs. Harber and Jackson who are directors of the
Company, have a financial interest in SP Colorado, SP Atlantic, SP Advisors and
SPIB.
In February 1999, in connection with the settlement of certain obligations owed
to the U.S. Steel Group of USX Corporation (USX") by Toledo Pickling and Steel
Sales, the Company issued and paid to USX (i) 4,784,689 of the Company's Common
Shares, (ii) a convertible promissory note in the principal amount of $2 million
convertible into 9,569,378 of the Company's Common Shares, and (iii) a cash
payment of $166,363.
The Company believes that the transactions described above were fair to the
Company and were as favorable to the Company as those which it might have
obtained from non-affiliated third parties, given the circumstances under which
such transactions were proposed and effectuated.
-49-
<PAGE> 51
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following documents are filed herewith or incorporated herein
by reference as exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- ------------
<C> <S>
3.1(1) Articles of Incorporation of the Company.
3.2(2) Articles of Amendment to Articles of Incorporation, dated as of
December 31, 1997 (Setting Forth Terms of Series A Preferred Stock
and Series B Preferred Stock).
3.3(3) Articles of Amendment to Articles of Incorporation, dated as of March
9, 1998 (Setting Forth Terms of Series C Preferred Stock).
3.4 Articles of Amendment to Articles of Incorporation, dated as of
December 4, 1998 (Increasing Number of Authorized Shares)
3.5 Articles of Amendment to Articles of Incorporation, dated as of
January 14, 1999 (Setting Forth Terms of Series D Preferred Stock)
3.6(4) By-Laws Revised and Amended, as of August 26, 1997.
4.1(3) Form of Warrant to Purchase 1,000,000 Common Shares at $1.00.
4.2(3) Form of Warrants to Purchase 1,000,000 Common Shares at $.75.
4.3(3) Form of Warrants to Purchase 250,000 Common Shares at $2.38.
4.4(5) Form of Warrants to Purchase 20,000 Common Shares at $2.00.
4.5 Form of Warrants to Purchase 1,000,000 Common Shares at $.16.
4.6 Form of Warrants to Purchase 1,000,000 Common Shares at $.16-$.36.
10.1(6) Services Agreement, dated as of February 1, 1997, between the Company
and Stone Pine Atlantic, LLC.
10.2(4) Consolidated Capital of North America, Inc. 1997 Stock Incentive
Plan.
10.3(4) Form of Incentive Stock Option Agreement for Grants to Employees.
10.4(4) Form of Non-Qualified Stock Option Agreement for Grants to Employees.
</TABLE>
-50-
<PAGE> 52
<TABLE>
<C> <S>
10.5(4) Form of Non-Qualified Stock Option Agreement for Grants to
Non-Employees.
10.6(7) Asset Purchase Agreement, dated as of December 1, 1997, between the
Company and Capitol Metals Co., Inc. (Exhibits and Schedules
omitted).
10.7(7) First Amendment to Asset Purchase Agreement, dated as of January 8,
1998, among Binhad, Inc. (formerly known as Capitol Metals Co.,
Inc.), the Company and Angeles Acquisition Corp.
10.8(7) Assignment and Bill of Sale, dated January 9, 1998, from Binhad, Inc.
(formerly known as Capitol Metals Co., Inc.) to Angeles Acquisition
Corp.
10.9(7) Secured Promissory Note, dated January 12, 1998, in the principal
amount of $1,200,000, from the Company and Angeles Acquisition Corp.,
to Binhad, Inc. (formerly known as Capitol Metals, Inc.).
10.10(7) Secured Promissory Note, dated January 12, 1998, in the principal
amount of $300,000, from the Company and Angeles Acquisition Corp.,
to Binhad, Inc. (formerly known as Capitol Metals Co., Inc.).
10.11(7) Security Agreement, dated January 8, 1998, between Binhad, Inc.
(formerly known as Capitol Metals Co., Inc.) and Angeles Acquisition
Corp.
10.12(7) Registration Agreement, dated as of January 6, 1998, between Binhad,
Inc. (formerly known as Capitol Metals Co., Inc.) and the Company.
10.13(7) Assignment and Assumption Agreement, dated as of January 8, 1998,
among the Company, Binhad, Inc. (formerly known as Capitol Metals
Co., Inc.) and Angeles Acquisition Corp.
10.14(7) Note Secured by Collateral Security Agreement, dated January 12,
1998, by and between the Company and Angeles Acquisition Corp., and
Nat and Evelyn Handel, Trustees of the Nat and Evelyn Handel Family
Trust.
10.15(7) Collateral Security Agreement, dated January 12, 1998, by and between
Angeles Acquisition Corp. and Nat and Evelyn Handel, Trustees of the
Nat and Evelyn Handel Family Trust.
10.16(2) Loan Agreement, dated as of December 31, 1997, between the Company
and Stone Pine Advisors, LLC.
10.17(2) Promissory Note, dated as of December 31, 1997, in the principal
amount of $75,000 from the Company to Stone Pine Advisors, LLC.
10.18(2) Loan Agreement, dated as of December 31, 1997, between the Company
and Stone Pine Capital, LLC.
</TABLE>
-51-
<PAGE> 53
<TABLE>
<C> <S>
10.19(2) Promissory Note, dated as of December 31, 1997, in the principal
amount of $75,000 from the Company to Stone Pine Capital, LLC.
10.20(2) Loan Agreement, dated as of December 31, 1997, between the Company
and Paul Bagley.
10.21(2) Promissory Note, dated as of December 31, 1997, in the principal
amount of $75,000 from the Company to Paul Bagley.
10.22(2) Agreement, dated as of December 31, 1997, between the Company and
Stone Pine Financial Group, LLC relating to the issuance of Series A
Preferred Shares.
10.23(2) Agreement, dated as of December 31, 1997, between the Company and ERB
Acquisition Group, LLC relating to the issuance of Series A Preferred
Shares.
10.24(2) Agreement, dated as of December 31, 1997, between the Company and
Stone Pine Colorado, LLC relating to the issuance of Series B
Preferred Shares.
10.25(2) Agreement, dated as of December 31, 1997, between the Company and
Stone Pine Atlantic, LLC relating to the issuance of Series B
Preferred Shares.
10.26(2) Convertible Note, dated as of January 9, 1998, in the principal
amount of $1,750,000 from the Company to Paul Bagley.
10.27(2) Convertible Note, dated as of March 3, 1998, in the principal amount
of $250,000 from the Company to Stone Pine Atlantic, LLC.
10.28(3) Offshore Securities Subscription Agreement for 6% Convertible
Preferred Shares - Series C, dated March 6, 1998 (Exhibits and
Schedules omitted).
10.29(2) Loan Agreement, dated January 9, 1998, by and between Congress
Financial Corporation (Western), Angeles Metal Trim Co. and Angeles
Acquisition Corp.
10.30(2) Secured Promissory Note, dated January 9, 1998, in the original
principal amount of $1,943,000, from Angeles Metal Trim Co. to
Congress Financial Corporation (Western).
10.31(2) Secured Promissory Note, dated January 9, 1998, in the original
principal amount of $200,000 from Angeles Acquisition Corp. to
Congress Financial Corporation (Western).
10.32(2) Secured Promissory Note, dated January 9, 1998, in the original
principal amount of $1,500,000 from Angeles Acquisition Corp. to
Congress Financial Corporation (Western).
10.33(2) Guarantee, dated January 9, 1998 executed by the Company Angeles
Metal Trim Co. and California Building Systems, Inc. in favor of
Congress Financial Corporation (Western) with respect to Angeles
Acquisition Corp. notes.
</TABLE>
-52-
<PAGE> 54
<TABLE>
<C> <S>
10.34(2) Guarantee, dated January 9, 1998 executed by the Company, Angeles
Acquisition Corp. and California Building Systems, Inc. in favor of
Congress Financial Corporation (Western) with respect to Angeles
Metal Trim Co. notes.
10.35(2) Lease Agreement, dated January 12, 1998, by and between Danat
Investment Company and the Company (Re: property at 20000 South
Western Avenue, Torrance , California).
10.36(2) Subordination, Nondisturbance and Attornment Agreement, dated January
12, 1998, by and among the Company, Angeles Acquisition Corp., Danat
Investment Company and Aid Association for Lutherans.
10.37(2) Mortgage Agreement, dated January 12, 1998, executed by Aid
Association for Lutherans in favor of Congress Financial Corporation
(Western) with respect to premises at 20000 S. Western Avenue,
Torrance, California (Exhibits omitted).
10.38(2) Agreement, dated as of March 3, 1998, by and between RDB Capital
Advisors, LLC, Richard D. Bailey, Stone Pine Investment Banking, LLC
and the Company.
10.39(8) Agreement between Company and Christian W. Wolf effective March 10,
1998.
10.40(8) Form of Note Purchase Agreement between the Company and the
Purchasers of 10% Convertible Notes (Exhibits and Schedules Omitted).
10.41(8) Form of 10% Convertible Note due April 9, 1999.
10.42(8) Agreement between the Company and Jeffrey R. Leach effective April
29, 1998.
10.43(5) Amendment to 10% Convertible Note due April 9, 1999.
10.44(9) 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).
10.45(9) Form of 15% Convertible Note of the Company.
10.46(9) 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).
10.47(9) Form of 18% Convertible Note of the Company.
10.48(9) Employment Agreement dated as of September 1, 1998 between the
Company and Richard D. Bailey.
10.49(10) Asset Purchase Agreement dated as of December 31, 1998 by and between
Toledo Pickling and TPSS Acquisition [Schedules and Exhibits
Omitted].
</TABLE>
-53-
<PAGE> 55
<TABLE>
<C> <S>
10.50(10) Assignment and Bill of Sale dated as of January 12, 1999 from Toledo
Pickling to TPSS Acquisition.
10.51(10) Assumption Agreement dated as of January 12, 1999 by and between and
Toledo Pickling and TPSS Acquisition.
10.52(10) Employment and Noncompetition Agreement dated as of January 12, 1999
between TPSS Acquisition and William Ciralsky.
10.53(10) Equipment Purchase Agreement dates as of January 12, 1999 by and
among TPSS Acquisition and William Ciralsky and Nancy Ciralsky.
[Exhibits Omitted]
10.54(10) Unconditional and Continuing Guaranty of the Company dated as of
January 12, 1999 with respect to the Unconditional and Continuing
Guaranty July 6, 1998, issued by William Ciralsky in favor or Toledo
Blank, Inc. [Exhibit A Omitted]
10.55(10) Indemnification Agreement dated as of January 12, 1999 by TPSS
Acquisition to William Ciralsky.
10.56(10) Lease dated as of January 12, 1999 by and between Cambell Investors,
as lessor, and TPSS Acquisition, as lessee [real property located at
1149 Cambell Road, Toledo, Ohio].
10.57(10) Consent to Assignment to Equipment Lease Agreement dated as of
January 12, 1999 of Equipment Lease Agreement between Toledo Pickling
and William Ciralsky and Nancy Ciralsky dated as of June 1, 1998
[Herr-Voss .50 inch maximum level line].
10.58(10) Consent to Assignment to Equipment Lease Agreement Dated as of
January 12, 1999 of the Equipment Lease Agreement between Toledo
Pickling and William Ciralsky dated as of June 1, 1998 [Herr-Voss .25
inch maximum level line].
10.59(10) Equipment Lease Agreement dated as of June 1, 1998 between Toledo
Pickling and William Ciralsky and Nancy Ciralsky [Herr-Voss .50 inch
maximum level line].
10.60(10) Equipment Lease Agreement dated as of June 1, 1998 between Toledo
Pickling and William Ciralsky [Herr-Voss .25 inch maximum level
line].
10.61(11) Assumption and Consent Agreement dated as of January 12, 1999 among
Toledo Pickling, TPSS Acquisition and Finova. [Exhibits Omitted]
10.62(11) Secured Promissory Note A dated as of January 12, 1999 between TPSS
Acquisition, Toledo Pickling and Finova in the principal amount of
$2,307,692.
10.63(11) Secured Promissory Note B dated as of January 12, 1999 between TPSS
Acquisition, Toledo and Finova in the principal amount of $333,332.
</TABLE>
-54-
<PAGE> 56
<TABLE>
<C> <S>
10.64(11) Assumption and Consent Agreement dated as of January 12, 1999 among
Toledo Pickling, TPSS Acquisition, NBC and Finova. [Exhibits Omitted]
10.65(11) Credit Note dated as of January 12, 1999 by and between TPSS
Acquisition, Toledo Pickling and NBC in the principal amount of
$5,130,000.
10.66(11) Credit Note dated as of January 12, 1999 by and between TPSS
Acquisition, Toledo Pickling, NBC and Finova in the principal amount
of $3,870,000.
10.67(11) Guaranty of the Company dated as of January 12, 1999 in favor of NBC
and Finova.
10.68(10) Note Purchase Agreement dated January 11, 1999 by and between the
Company and Security Income Trust, LP.
10.69(10) 18% Note dated January 11, 1999 issued by the Company to Security
Income Trust, L.P. in the principal amount of $1,250,000.
10.70 Commitment Fee Agreement dated as of December 31, 1999 between the
Company and Innovest Holdings, Ltd. and Accpac Holdings, Ltd.
[Exhibits omitted]
10.71 Agreement dated January 29, 1999 by and between the Company and the
U.S. Steel Group of USX Corporation.
10.72 Promissory Note dated as of January 29, 1999 in the principal amount
of $2,000,000 from the Company to the U.S. Steel Group of USX
Corporation.
16.1(12) Letter from Kish Leake & Associates, P.C., dated February 5, 1997,
regarding change of certifying accountant.
16.2(13) Letter from Grant Thornton LLP, dated January 28, 1998, regarding
change of certifying accountant.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers LLP
27. Financial Data Schedule.
</TABLE>
(1) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997.
(3) Incorporated by reference from the Company's Report on Form 8-K, dated
March 18, 1998.
-55-
<PAGE> 57
(4) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
(5) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1998.
(6) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996.
(7) Incorporated by reference from the Company's Report on Form 8-KA, filed on
January 29, 1998.
(8) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1998.
(9) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1998.
(10) Incorporated by reference from the Company's Report on Form 8-K filed on
January 27, 1999.
(11) Incorporated by reference from the Company's Report on Form 8-KA, filed on
February 12, 1999.
(12) Incorporated by reference from the Company's Report on Form 8-K filed on
February 7, 1997.
(13) Incorporated by reference from the Company's Report on Form 8-KA, filed on
January 30, 1998.
The Company filed a Current Report on Form 8-K on September 18, 1998 to report
the receipt of a $25 million credit facility proposal to finance the acquisition
of the assets of Toledo Pickling and Steel Sales, Inc.
The Company filed a Current Report on Form 8-K on January 27, 1999, as amended
on February 12, 1999, to report the acquisition of the assets of Toledo Pickling
and Steel Sales, Inc.
-56-
<PAGE> 58
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigning, thereunto
duly authorized.
CONSOLIDATED CAPITAL OF NORTH
AMERICA, INC.
Date: April 15, 1999 By: /s/ Richard D. Bailey
--------------------------------------
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul Bagley Director April 15, 1999
- - ------------------------
Paul Bagley
/s/ Carl Casareto Chief Financial Officer and Director April 15, 1999
- - ------------------------ (Principal Financial and Accounting
Carl Casareto Officer)
/s/ Donald R. Jackson Director April 15, 1999
- - ------------------------
Donald R. Jackson
/s/ Richard D. Bailey President, Chief Operating Officer April 15, 1999
- - ------------------------ and Director
Richard D. Bailey
/s/ L. Wayne Harber Director April 15, 1999
- - ------------------------
L. Wayne Harber
/s/ John D. McKey Jr. Director April 15, 1999
- - ------------------------
John D. McKey Jr.
/s/ Thompson H. Rogers Director April 15, 1999
- - ------------------------
Thompson H. Rogers
</TABLE>
<PAGE> 59
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.................. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997............................................... F-5
Consolidated Statements of Shareholders' (Deficit) Equity for the Years
Ended December 31, 1998 and 1997......................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997............................................... F-8
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1998 and 1997............................................... F-11
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consolidated Capital of North America, Inc.:
We have audited the accompanying consolidated balance sheets of Consolidated
Capital of North America, Inc. (a Colorado corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' (deficit) equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital of North America, Inc. and subsidiaries as of December 31, 1998 and 1997
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has a working capital deficit and a shareholders' deficit that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Los Angeles, California
April 15, 1999
F-2
<PAGE> 61
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 48,466 $ 14,304
Accounts receivable less allowance
for doubtful accounts of $ 217,468 and
$138,003 in 1998 and 1997, respectively 6,853,720 1,587,035
Inventories 4,872,424 1,193,208
Deferred loan costs 290,082 --
Prepaid expenses and other 554,505 32,879
----------- -----------
Total current assets 12,619,197 2,827,426
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $ 733,522
and $216,004 in 1998 and 1997, respectively 11,512,793 2,053,215
PROPERTY AND EQUIPMENT HELD FOR SALE 875,000 --
GOODWILL, net of accumulated amortization
of $461,795 and $225,995 in 1998 and
1997, respectively 3,217,002 2,133,013
OTHER ASSETS 1,531,004 692,629
----------- -----------
$29,754,996 $ 7,706,283
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE> 62
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31, 1998 and 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 11,689,881 $ 3,872,397
Line of credit 5,646,748 --
Accrued liabilities 547,111 290,618
Current portion of long-term debt 7,505,509 320,738
Current portion of capital lease obligations 193,895 --
Convertible notes payable to affiliates 2,075,000 --
Notes payable to affiliates -- 225,000
10% convertible notes payable 2,173,000 --
18% convertible notes payable 1,473,460 --
Current portion of other notes payable 1,480,000 --
Other 34,762 61,545
------------ ------------
Total current liabilities 32,819,366 4,770,298
------------ ------------
LONG-TERM LIABILITIES
Capital lease obligations, net of current portion 663,216 --
Long-term debt, less current portion -- 2,928,133
Accrued interest and other 317,266 --
Accrued dividends on preferred shares 150,702 --
------------ ------------
Total long-term liabilities 1,131,184 2,928,133
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes I and J)
SHAREHOLDERS' (DEFICIT) EQUITY
Series A preferred shares, par value of $.01
per share; liquidation value of $1.00 per share;
1,000,000 shares authorized; 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;
1,000,000 shares authorized; 449,000 shares
issued and outstanding 449,000 449,000
Common shares, par value $.0001 per share;
200,000,000 shares authorized; 48,079,839
and 15,992,121 shares issued and outstanding
at December 31, 1998 and 1997, respectively 4,808 1,599
Additional paid-in capital 13,451,494 2,070,313
Accumulated deficit (18,844,856) (3,257,060)
------------ ------------
Total shareholders' (deficit) equity (4,195,554) 7,852
------------ ------------
$ 29,754,996 $ 7,706,283
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE> 63
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
NET SALES $ 20,291,655 $ 16,989,478
COST OF GOODS SOLD 17,678,066 14,021,110
------------ ------------
Gross profit 2,613,589 2,968,368
------------ ------------
OPERATING EXPENSES
Selling, general and administrative expenses 6,033,930 2,526,463
Payroll and related benefits 3,880,587 2,061,144
Depreciation and amortization 889,858 441,999
Loss on impairment 508,053 --
------------ ------------
Total operating expenses 11,312,428 5,029,606
------------ ------------
Loss from operations (8,698,839) (2,061,238)
------------ ------------
OTHER INCOME (EXPENSES)
Interest expense (5,193,069) (582,713)
Termination of an acquisition (1,007,288) --
Other 73,317 165,374
------------ ------------
(6,127,040) (417,339)
------------ ------------
NET LOSS (14,825,879) (2,478,577)
Dividends on preferred shares (193,442) --
------------ ------------
(15,019,321) (2,478,577)
Discount attributable to conversion
of preferred shares (761,917) --
------------ ------------
Loss applicable to common shareholders $(15,781,238) $ (2,478,577)
============ ============
Basic and diluted net loss per share $ (.65) $ (.17)
============ ============
Weighted average number of common
shares outstanding 24,276,337 14,980,423
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE> 64
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Number of Shares
--------------------------- Preferred Shares Additional
Common Preferred Common --------------------------- Paid-in
Shares Shares Shares Series A Series B Capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1,570,541 -- $ 157 $ -- $ -- $ 855,756
Sale of common shares through a
private placement, net of expenses 5,496,911 -- 550 -- -- 966,351
Merger with Angeles Acquisition
Corp 8,638,003 -- 864 -- -- --
Issuance of common shares
for loan fees 286,666 -- 28 -- -- 248,206
Issuance of preferred shares in
exchange for debt and services:
Series A -- 744,000 -- 744,000 -- --
Series B -- 449,000 -- -- 449,000 --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 15,992,121 1,193,000 1,599 744,000 449,000 2,070,313
Conversion of 10% convertible
notes payable 18,365,332 -- 1,837 -- -- 3,067,855
Conversion of redeemable Series
C preferred shares 8,775,284 -- 877 -- -- 1,999,123
Issuance of common shares for:
Loan fees 2,809,741 -- 281 -- -- 894,604
Consulting fees 1,540,000 -- 154 -- -- 1,721,496
Settlement of an amount
due to an attorney 270,000 -- 27 -- -- 296,815
Business acquisition 269,349 -- 27 -- -- 299,973
Payment of dividends on
preferred shares 58,012 -- 6 -- -- 35,501
<CAPTION>
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
Balance at January 1, 1997 $ (778,483) $ 77,430
Sale of common shares through a
private placement, net of expenses -- 966,901
Merger with Angeles Acquisition
Corp -- 864
Issuance of common shares
for loan fees -- 248,234
Issuance of preferred shares in
exchange for debt and services:
Series A -- 744,000
Series B -- 449,000
Net loss (2,478,577) (2,478,577)
----------- -----------
Balance at December 31, 1997 (3,257,060) 7,852
Conversion of 10% convertible
notes payable -- 3,069,692
Conversion of redeemable Series
C preferred shares -- 2,000,000
Issuance of common shares for:
Loan fees -- 894,885
Consulting fees -- 1,721,650
Settlement of an amount
due to an attorney -- 296,842
Business acquisition -- 300,000
Payment of dividends on
preferred shares -- 35,507
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE> 65
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY-CONTINUED
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Number of Shares
--------------------------- Preferred Shares Additional
Common Preferred Common --------------------------- Paid-in
Shares Shares Shares Series A Series B Capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost of issuance of redeemable Series C
preferred shares -- -- $ -- $ -- $ -- $ (140,362)
Dividends on preferred shares -- -- -- -- -- (193,442)
Sale of warrants -- -- -- -- -- 385,000
Discount attributable to conversion value
of redeemable Series C preferred shares -- -- -- -- -- 761,917
Value of options granted to non-employees -- -- -- -- -- 45,233
Discount attributable to conversion value
of 10% convertible notes payable -- -- -- -- -- 1,666,666
Discount attributable to conversion value
of redeemable Series C preferred shares -- -- -- -- -- --
Value of warrants issued for acquisition
costs -- -- -- -- -- 49,655
Discount attributable to conversion value
of convertible note payable to
an affiliate -- -- -- -- -- 39,063
Discount attributable to conversion value
of 18% convertible notes payable -- -- -- -- -- 452,084
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31,1998 48,079,839 1,193,000 $ 4,808 $ 744,000 $ 449,000 $13,451,494
=========== =========== =========== =========== =========== ===========
<CAPTION>
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
Cost of issuance of redeemable Series C
preferred shares $ -- $ (140,362)
Dividends on preferred shares -- (193,442)
Sale of warrants -- 385,000
Discount attributable to conversion value
of redeemable Series C preferred shares -- 761,917
Value of options granted to non-employees -- 45,233
Discount attributable to conversion value
of 10% convertible notes payable -- 1,666,666
Discount attributable to conversion value
of redeemable Series C preferred shares (761,917) (761,917)
Value of warrants issued for acquisition
costs -- 49,655
Discount attributable to conversion value
of convertible note payable to
an affiliate -- 39,063
Discount attributable to conversion value
of 18% convertible notes payable -- 452,084
Net loss (14,825,879) (14,825,879)
------------ -----------
Balance at December 31,1998 $(18,844,856) $(4,195,554)
============ ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
<PAGE> 66
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,825,879) $ (2,478,577)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization and depreciation 889,858 441,999
Loss on impairment 508,053 --
Amortization of loan fees 1,703,863 --
Provision for doubtful accounts 51,246 45,017
Loss (gain) on sale of assets 82,861 (1,000)
Common shares issued for consulting fees earned 1,029,899 --
Value of options granted to non-employees 45,233 --
Management fees paid in preferred shares -- 168,000
Discount attributable to conversion value of convertible
notes payable 2,062,373 --
Common shares issued for loan costs and interest 242,692 223,234
Change in assets and liabilities, net of effects from the
business acquisitions:
Accounts receivable 869,940 853,904
Inventories 1,442,230 780,931
Prepaid expenses and other current assets (437,585) (599,564)
Deferred loan costs and other assets (390,911) --
Accounts payable and accrued liabilities 657,591 559,648
Other liabilities 170,692 41,545
------------ ------------
Net cash (used in) provided by operating activities (5,897,844) 35,137
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in business acquisitions (1,750,000) (966,901)
Purchase of property and equipment (62,692) (117,667)
Proceeds from sale of assets 89,500 70,000
Purchase certificate of deposit restricted
against long-term debt (250,000) --
------------ ------------
Net cash used in investing activities (1,973,192) (1,014,568)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 26,274,701 720,000
Principal payments on long-term debt (28,063,191) (1,462,807)
Principal payments on other notes payable (620,000) --
Proceeds from notes payable to affiliates -- 1,000,000
Principal payment on note payable to former officer -- (285,000)
Proceeds from issuance of common shares,
net of related costs -- 966,901
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-8
<PAGE> 67
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Principal payments on capital lease obligations $ (38,005) $ --
Proceeds from issuance of 10% convertible notes payable 5,000,000 --
Payments on notes payable to affiliates (225,000) --
Proceeds from issuance of convertible notes payable to affiliates 1,789,286 --
Proceeds from issuance of 18% convertible notes payable 1,550,000 --
Proceeds from issuance of redeemable Series C preferred
shares, net 1,859,640 --
Proceeds from sale of warrants 385,000 --
Payments of dividends (7,233) --
----------- -----------
Net cash provided by financing activities 7,905,198 939,094
----------- -----------
CASH FROM ACQUIRED ENTITY -- 27,704
----------- -----------
NET INCREASE (DECREASE) IN CASH 34,162 (12,633)
CASH AT BEGINNING OF YEAR 14,304 26,937
----------- -----------
CASH AT END OF YEAR $ 48,466 $ 14,304
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 1,065,296 $ 338,065
=========== ===========
Cash paid for income taxes $ 3,200 $ --
=========== ===========
NON-CASH FINANCING ACTIVITIES:
Preferred shares issued for retirement of debt $ -- $ 1,193,000
=========== ===========
Issuance of common shares for:
Loan fees (see Note G) $ 133,664 $ --
=========== ===========
Consulting fees (see Note E) $ 691,751 $ --
=========== ===========
Settlement of an amount due to an attorney $ 296,842 $ --
=========== ===========
Business acquisition (see Note A) $ 300,000 $ --
=========== ===========
Payment of dividends on preferred shares $ 35,507 $ --
=========== ===========
Conversion of redeemable Series C preferred shares $ 2,000,000 $ --
=========== ===========
Conversion of 10% convertible notes payable and
accrued interest $ 3,069,692 $ --
=========== ===========
Issuance of warrants for acquisition costs $ 49,655 $ --
=========== ===========
Debt incurred for capital lease obligations $ 670,957 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-9
<PAGE> 68
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
BUSINESS ACQUISITIONS:
Capitol Metals Co. in 1998 and Angeles Metal Systems, Inc.
in 1997, respectively
Assets acquired $ 8,114,162 $ 9,067,178
Liabilities incurred or assumed (6,064,162) (8,099,413)
Common shares issued (300,000) (864)
------------ ------------
Cash used in business $ 1,750,000 $ 966,901
============ ============
TPSS Acquisition Corp.
Assets acquired $ 14,713,453 $ --
Liabilities incurred or assumed (16,033,242) --
------------ ------------
Excess liabilities assumed $ (1,319,789) $ --
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-10
<PAGE> 69
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
NOTE A - BUSINESS AND GOING CONCERN
1. Business
--------
Consolidated Capital of North America, Inc., a Colorado corporation (the
"Company"), was organized in 1987. During 1997, the Company sold all of its
real estate investments. With the 1997 acquisition of Angeles Metal Trim
Co. ("Angeles") and the 1998 acquisitions of substantially all of the
assets of Capitol Metals Co., Inc. ("Old Capitol"), and Toledo Pickling and
Steel Sales, Inc. ("Toledo Pickling"), the Company intends to focus on the
steel frame building business, steel service center operations and
complementary businesses.
On January 21, 1997, Consolidated Land & Cattle Company, an inactive
subsidiary of the company, merged with Angeles Acquisition Corp ("Angeles
Acquisition"), a privately-held company. Angeles Acquisition survived the
merger and is a wholly-owned subsidiary of the Company. As part of the
merger, the Company issued 8,638,003 common shares to the sole shareholder
of Angeles Acquisition. The shares were recorded at the shareholder's basis
in the entity. Concurrent with the merger, the Company sold 5,496,911
common shares in a private transaction, for an aggregate purchase price of
$1,000,000. Prior to the merger, Angeles Acquisition acquired Angeles for
approximately $4,300,000, including fees and expenses. Angeles incurred
indebtedness of approximately $4,300,000, which was used in connection with
this acquisition. A portion of the proceeds from the indebtedness was used
to repay the outstanding balance of $900,000 under Angeles' line of credit.
The transaction was accounted for using the purchase method of accounting.
The allocation of the purchase price resulted in an excess purchase price
over fair value of net assets acquired of $2,384,904. This amount represent
goodwill and is being amortized over 10 years. The results of operations
for Angeles are included in the accompanying statements of operations from
the date of acquisition.
On January 12, 1998, the Company, through a wholly-owned subsidiary,
purchased substantially all of the assets of 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 in
269,349 common shares of the Company, 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 assets of
Old Capitol in a registration statement, which was filed with the
Securities and Exchange Commission on August 6, 1998. In February 1998,
Angeles Acquisition changed its corporate name to Capitol Metals Co.
("Capitol").
Effective December 31, 1998, the Company, through its wholly-owned
subsidiary, TPSS Acquisition Corp. ("TPSS Acquisition"), purchased
substantially all of the assets and assumed certain liabilities of Toledo
Pickling, a privately-held steel processing and service center,
headquartered in Toledo, Ohio.
The transaction was accounted for using the purchase method of accounting
and the total consideration was approximately $16,033,000, consisting
primarily of the assumption of certain liabilities of Toledo Pickling
including: the assumption of $5,647,000 due under the Restated Loan and
Security Agreement by and among Toledo Pickling, National Bank of Canada
("NBC") and Finova Capital Corporation ("Finova") (the "Revolving Loan
Agreement"), $2,596,000 under the Loan and Security Agreement by and
between Seller and Finova (the "Term Loan Agreement"),
F-11
<PAGE> 70
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
accounts payable of approximately $7,328,000 and various other liabilities
of approximately $462,000 as of December 31, 1998. The Revolving Loan
Agreement and the Term Loan Agreement were assumed by TPSS Acquisition
required to be refinanced or repaid on April 12, 1999 (see Note G).
The purchase price was allocated as of December 31, 1998 as follows:
<TABLE>
<S> <C>
Accounts receivable $ 4,606,000
Inventories 2,900,000
Other current assets 22,000
Property and equipment 6,905,000
Goodwill 1,320,000
Deposits and other assets 280,000
------------
$ 16,033,000
============
</TABLE>
The pro forma effect on the statement of operations for the Company had the
Capitol, Toledo Pickling and Angeles acquisitions taken place on January 1,
1997 would have been as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $ 95,878,212 $ 141,787,514
Loss from operations $ (9,565,068) $ (5,149,338)
Net Loss $ (18,321,596) $ (9,226,198)
Loss applicable to common
shareholders $ (19,276,955) $ (9,226,198)
Basic and diluted loss
per share $ (.79) $ (.55)
Weighted average number
of common shares
outstanding 24,445,583 16,749,772
</TABLE>
2. Going Concern
-------------
The Company had a working capital deficit of $20,200,169 and a
shareholders' deficit of $4,195,554 as of December 31, 1998 and incurred a
net loss of $14,825,879 for the year ended December 31, 1998. The ability
of the Company to continue as a going concern is dependent upon its ability
to obtain sufficient additional capital and to generate sufficient revenues
to sustain its operations.
The Company plans to raise additional working capital through private
offerings of debt and equity. The outcome of these activities cannot be
determined at this time and there is no assurance that the Company will
have sufficient funds to execute its business plan or generate positive
operating results. These issues, among others, raise substantial doubt
F-12
<PAGE> 71
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
about the ability of the Company to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of the liabilities that
might result should the Company be unable to continue as a going concern.
Management believes that the Company will be able to generate sufficient
funds to sustain its operations through March 31, 2000.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, TPSS Acquisition (as of December 31,
1998), Capitol and Angeles and Angeles' wholly-owned subsidiary, California
Building Systems, Inc. All significant intercompany accounts and
transactions have been eliminated.
2. Inventories
Inventories are stated at the lower of cost (which approximates first-in,
first-out basis) or market.
3. Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided using principally the straight-line method over estimated
useful lives ranging from one to twenty years. Leasehold improvements are
amortized over the lives of the respective leases or the service lives of
the improvements, whichever is shorter.
Long-lived assets to be held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of any assets may not be recoverable (see Note L).
4. Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of the net assets acquired, and is being amortized over ten
years on a straight-line basis. The Company periodically evaluates the
carrying value and the remaining useful life of its goodwill, and will
adjust the carrying value and related amortization period, if appropriate
(see Note L).
5. Other Assets
Other assets include deferred financing costs and deferred acquisition
costs. Deferred financing costs are amortized over the life of the related
loan. Costs incurred for unsuccessful acquisitions are expensed
immediately.
6. Income Taxes
The Company accounts for income taxes using the asset and liability method
in accordance with Statement of Financial Accounting Standards No. 109
("SFAS No. 109") "Accounting for Income Taxes".
F-13
<PAGE> 72
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
7. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
8. Concentrations of Risk
The Company purchases its raw materials from a few vendors, which
potentially subjects the Company to a concentration of supplier risk.
Although its purchases of raw materials are currently concentrated with a
few key suppliers, management believes that other suppliers could provide
similar services and comparable terms. A change in suppliers, however,
could cause delays in manufacturing and shipping and a possible loss of
sales, which could adversely affect operating results.
The majority of the Company's sales are to customers in the commercial
construction market. An adverse change in the financial condition of the
market could cause a loss of sales, which could adversely affect operating
results.
9. Basic Net Loss Per Share
Basic loss per share in the accompanying consolidated financial statements
is calculated in accordance with SFAS No. 128. SFAS No. 128 requires basic
earnings per share be calculated based on weighted average number of common
shares outstanding for the period without giving effect to outstanding
common share equivalents, while diluted earnings per share considers the
effect of common share equivalents on weighted average number of common
shares outstanding.
Common share equivalents were not considered as they would be
anti-dilutive. The impact under the treasury stock method of dilutive stock
options and warrants would have been 3,117,873 and 19,231 common shares for
the years ended December 31, 1998 and 1997, respectively.
10. Financial Instruments
The carrying amounts of the Company's accounts receivable, accounts payable
and short-term debt approximated fair value as of December 31, 1998 and
1997, because of their relatively short maturity.
11. New Financial Accounting Pronouncements
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosure About Segments of an Enterprise and Related
Information" in the year ended December 31, 1998. These new pronouncements
had no material impact on the Company's consolidated financial statements.
12. Reclassifications
Certain items in the 1997 consolidated financial statements have been
reclassified to conform with 1998 presentation.
F-14
<PAGE> 73
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
NOTE C - INVENTORIES
Inventories consisted of the following amounts at:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- ----------
<S> <C> <C>
Raw materials and
supplies $ 657,722 $ 387,747
Finished goods 4,214,702 805,461
----------- ----------
$ 4,872,424 $1,193,208
=========== ==========
</TABLE>
NOTE D - RELATED PARTY TRANSACTIONS
In 1997, the Company borrowed approximately $1,000,000 from various
affiliated entities. Interest and loan fees to these entities for 1997
amounted to $298,382, of which $248,234 was paid by issuing 286,666 shares
of the Company's common shares. The fair value of the shares was determined
by the Board of Directors of the Company. The balance of $50,148 was paid
or accrued in 1997. On December 31, 1997, the Company issued to these same
entities 744,000 shares of its Series A preferred shares and 449,000 shares
of its Series B preferred shares in exchange for the retirement of
$1,025,000 of these loans and payment of $168,000 in management fees.
Notes payable to affiliates as of December 31, 1997 included three notes in
the amount of $75,000 each, which bore interest at the rate of 12% per
annum and were due March 31, 1998. These loans were repaid during 1998.
During 1997, the Company entered into a five-year agreement with an
affiliated entity to provide administrative, accounting, investment banking
and investor relations services as defined in the agreement. Fees for these
services were $192,500 for the year ended December 31, 1997. The Company
issued 168,000 shares of Series B preferred shares valued at $168,000 and
the remaining portion was paid in cash. The fees for these services in 1998
amounted to $210,000. Of this amount, $37,500 was outstanding as of
December 31, 1998 and was subsequently paid.
During 1998, the Company entered into various loan agreements with
affiliated entities. In connection with these loans, the Company issued
common shares to these affiliated entities as loan fees (see Note G).
The Company leases the Toledo Pickling facility from a real estate
partnership in which the former President and shareholder of Toledo
Pickling has a 50% interest. The agreement provides for monthly payments,
which are negotiated annually and range from $23,000 to $32,000. The lease
expires in May 1999 and provides the Company with options to renew the
lease for two additional terms of five years each.
The Company also leases other equipment directly from the former President
and shareholder of Toledo Pickling. Monthly payments range from $41,000 to
$51,000, and the lease agreement expires in 2003.
F-15
<PAGE> 74
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
NOTE E - SHAREHOLDERS' (DEFICIT) EQUITY
1. Preferred Shares
The Company has various classes of preferred shares: Series A, Series B,
Series C and Series D. Both the Series A and B shares (i) have 1,000,000
authorized shares, (ii) are entitled to a cumulative $0.12 per annum
dividend, and (iii) a liquidation preference of $1.00 per share, plus any
accumulated but unpaid dividends. The dividends are payable quarterly, in
cash or at the option of the Company, in common shares. The Series A shares
have a priority in liquidation over the Series B shares.
The Company has the right to redeem both the Series A and B shares at any
time for an amount equal to their liquidation preference amount. In
addition, both the Series A and B shares are convertible, at the option of
the holders, into common shares, on a share for share basis. Both the
Series A and B shares are nonvoting.
During March 1998, the Company sold 200 shares of its newly authorized
Series C Preferred shares at $10,000 per share for a total consideration of
$2,000,000. In connection with the purchase of the preferred shares, the
Company issued warrants to purchase up to 250,000 common shares at $2.38
per share. The warrants can be exercised any time until March 6, 2000. In
addition, the Company paid $120,000 to a company owned by a director of the
Company, for services rendered in connection with arranging for the Series
C funding. During 1998, the holders of the Series C preferred shares have
converted the entire issue of $2,000,000 into 8,775,284 common shares of
the Company. In addition, the Company issued 58,012 common shares for
dividends earned totaling $35,507, which is shown as a non-cash financing
activity in the accompanying consolidated statement of cash flows.
The Series D 8% convertible preferred shares have a stated value of $10,000
per share with an authorized amount of 350 shares and are entitled to a
cumulative $800 per annum dividend, a liquidation preference of $10,000 per
share, plus any accumulated but unpaid dividend and shall rank equally with
Series A, B, and C preferred shares in liquidation. This Series is
convertible, at the option of the holders, at any time after the thirtieth
day after the common shares underlying this Series have been registered
with the Securities and Exchange Commission at the rate of $10,000 divided
by 95% of average of the closing bid prices for each of the five trading
days prior to exercise date of any such conversion. There were no Series D
preferred shares issued as of December 31, 1998.
2. Common Shares
On January 21, 1997, Consolidated Land & Cattle Company (an inactive
subsidiary of the Company) merged with Angeles Acquisition Corp. Angeles
Acquisition Corp. survived the merger and is a wholly owned subsidiary of
the Company (see note A). In January 1997, the Company issued 8,638,003
common shares to the sole shareholder of Angeles Acquisition Corp. at the
shareholder's basis in the entity.
In January 1997, the Company sold 5,496,911 common shares in a private
transaction for an aggregate purchase price of $966,901. During 1998, the
Company issued 18,365,332 common shares to certain holders of the 10%
convertible notes, in exchange for debt of $2,827,000 and interest of
$242,692. Also, during 1998, all of the Series C preferred shares were
converted into 8,775,284 common shares. During 1998, the Company issued
620,000 common shares, totaling $891,159, for future consulting services
which are being amortized over the service period with the unamortization
portion at December 31, 1998 shown as a non-cash financing activity in the
accompanying consolidated statements of cash flows. At December 31, 1998,
the unamortized portion of these costs totaling approximately $691,751 are
shown in other assets in the accompanying consolidated balance sheets. In
addition, the
F-16
<PAGE> 75
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
Company issued 920,000 common shares totaling $830,491 for consulting
services previously rendered in 1998. Also, the Company issued 2,809,741
common shares totaling $894,885 for loan fees in connection with the notes
payables to affiliates, the 10% convertible notes payable, and the 18%
convertible notes payable, the unamortized portion of which is shown as a
non-cash financing activity in the accompanying consolidated statements of
cash flows. At December 31, 1998, the unamortized portion of these deferred
loan costs totaled $133,664 and is shown as deferred loan costs in the
accompanying consolidated balance sheets. Other common shares issued during
1998 included 270,000 shares for legal services accrued at December 31,
1997, 269,349 for the acquisition of Capitol and 58,012 in lieu of cash
payment of dividends on Series A and B preferred shares.
3. 1997 Stock Incentive Plan
At the annual meeting of the shareholders of the Company held on October 8,
1997, the Shareholders adopted the Company's 1997 Stock Incentive plan (the
"1997 Plan"). Under the terms of the 1997 Plan, the Company may grant
employees or consultants and advisors for services rendered to the Company,
stock options, stock appreciation right or stock awards. The Company
reserved 3,000,000 common shares in 1997 for issuance under the 1997 Plan,
which was increased to 6,000,000 common shares at the annual shareholders'
meeting held on December 1, 1998. The exercise price of options granted
under the 1997 Plan shall not be less than the fair market value of the
common shares on the date of grant. As of December 31, 1998, options to
acquire an aggregate of 2,887,250 common shares were outstanding under the
1997 Plan. As of December 31, 1998, 1,170,000 common shares had been
granted as stock awards under the 1997 Plan and no stock appreciation
rights had been granted. The 1997 Plan expires on August 22, 2007.
<TABLE>
<CAPTION>
Number of Weighted Average Exercise
Shares Exercise Price Price Per Shares
--------- ---------------- ---------------
<S> <C> <C> <C>
Outstanding at 12/31/96 -- -- --
Granted 500,000 $ 2.00 $ 2.00
Exercised -- -- --
Cancelled -- -- --
--------- ------ ------
Outstanding at 12/31/97 500,000 $ 2.00 $ 2.00
Granted 2,891,000 $ .83 $ .14 - $ 2.08
Exercised -- -- --
Cancelled (503,750) $ 2.00 $ 2.00 - $ 2.08
--------- ------ ---------------
Outstanding at 12/31/98 2,887,250 $ .83 $ .14 - $ 2.08
========= ====== ===============
</TABLE>
F-17
<PAGE> 76
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
The following table summarizes the information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Remaining Weighted
Number Exercise Life of the Number Average
Price Exercisable Price Options (years) Vested Exercise Price
- - ----- ----------- -------- --------------- ------ ---------------
<S> <C> <C> <C> <C> <C>
$0.14 576,000 $0.14 10 37,500 $0.14
$0.34 1,200,000 $0.34 9.7 450,000 $0.34
$1.00 50,000 $1.00 9.6 -- $1.00
$1.22 400,000 $1.22 9 250,000 $1.22
$2.08 661,250 $2.08 9.2 -- $2.08
----------- -------
2,887,250 737,500
=========== =======
</TABLE>
At December 31, 1997 none of the options granted had vested.
In accordance with provisions of SFAS No. 123, the Company applies APB
Opinion 25 and related interpretations in accounting for its employee stock
option plan and, accordingly, does not recognize compensation expense for
options issued to employees. If the Company had elected to recognize
compensation expense based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net loss and basic and diluted
net loss per share would have increased to the pro forma amounts indicated
in the table below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net loss attributable to common
shareholders - as reported $(15,781,239) $(2,478,577)
Net loss attributed to common
shareholders - pro forma $(15,937,515) $(2,548,577)
Basic and diluted net loss per
share as reported $ (.65) $ (.17)
Basic and diluted net loss per
share-pro forma $ (.66) $ (.17)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to December 31, 1995, the resulting pro forma
compensation expense may not be representative of the cost to be expected
in future years. Selling, general and administration expenses included
approximately $45,000 in 1998 and none in 1997, respectively, for options
issued to non-employees in accordance with SFAS No. 123. SFAS No. 123
requires the accounting for stock-based compensation programs to be
reported within the financial statements on a fair value method for
non-employees. In determining the charge to operations for non-employee
stock options, the Company applied a valuation model which relies on
several highly subjective assumptions, including expected stock price
volatility and estimated date of opinion exercise. Because changes in the
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models may not necessarily provide a
reliable single measure of the fair value of its options.
F-18
<PAGE> 77
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
The fair value of each option granted to employees and non-employees is
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 47% 142%
Weighted average risk free interest rate 5% 6%
Weighted average expected life of options 5 years 5 years
Weighted average fair value of options $0.07 $1.81
</TABLE>
4. Issuance of Warrants
In March 1998, the Company issued warrants to purchase 2,000,000 common
shares, 1,000,000 exercisable at $1.00 per share and the remaining
1,000,000 at $.75 per share, expiring March 2001 and March 2000,
respectively, both in excess of fair market value. The warrants were issued
in exchange for $385,000 of cash paid by a related party.
On December 31, 1998, the Company issued two warrants to purchase 2,000,000
common shares, 1,000,000 exercisable at a fair market value of $.16 per
share, expiring January 31, 2002, and the remaining 1,000,000 exercisable
at a fair market value of $.16 per share until January 31, 2000, at $.24
per share until January 31, 2001 and at $.36 per share until January 31,
2002 at which time the warrant expire. These warrants were issued to third
parties in consideration for their efforts in connection with the Toledo
Pickling acquisition. The value of these warrants, $49,655, was recorded as
deferred acquisition costs for Toledo Pickling as of December 31, 1998. In
February 1999, the second warrant was exercised at $.16 per share for
1,000,000 common shares of the Company. In February 1999, one of these
parties also received 250,000 common shares as an additional consideration
for services rendered in connection with the Toledo Pickling acquisition.
NOTE F - BUSINESS SEGMENT
The Company conducts its business within one business segment which is
defined as being a steel service provider and related services.
The Company had approximately $86,000 and $228,000 of sales to customers
located in foreign countries for the year ended December 31, 1998 and 1997,
respectively. In addition, the Company does not have operations located in
foreign countries.
NOTE G - NOTES PAYABLE
1. Long-Term Debt
On January 15, 1997, the Company entered into a credit facility with a
lender and borrowed approximately $2,800,000. This credit facility was due
on December 15, 1998 and bore interest at a rate of 2% per annum over the
lender's LIBOR-Rate. The balance outstanding at December 31, 1997 was
approximately $2,116,000. Interest expense was approximately $203,000 in
1997.
F-19
<PAGE> 78
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
On January 17, 1997, the Company also borrowed $1,400,000 from a financial
institution at an interest rate of 9.78%, payable in forty-eight
installments, with the final payment due on February 17, 2001. The balance
outstanding at December 31, 1997 was approximately $1,132,000. Interest
expense was approximately $115,000 in 1997.
On January 12, 1998, both of the above discussed loans were repaid in
connection with the establishment of a new financing facility with Congress
Financial Corporation ("Congress Financial"). The new facility consists of
$3,443,000 in term loans, payable $57,384 per month, through January 2003,
and revolving lines of credit as determined as a percentage of eligible
accounts receivable and eligible inventories expiring January 2000, less
certain reserves as defined in the new agreement. The maximum borrowing
permitted under the new credit facility is $20,000,000, as defined in the
agreement. Interest is payable monthly at the bank's prime rate plus 0.75%
per annum (8.50% at December 31, 1998). All the advances under the new
facility are collateralized by all of the assets of Angeles and Angeles
Acquisition (Capitol) and are also guaranteed by the Company and California
Building Systems, Inc., a subsidiary of Angeles. At December 31, 1998,
$2,252,342 was outstanding under the term loan and $2,657,276 under the
line of credit. Interest expense was approximately $594,000 in 1998.
The new financing facility contains a number of financial and other
non-financial covenants for both Angeles and Capitol and cross default
provisions with the Company's other notes payable of $180,000 and
$1,300,000 outstanding at December 31, 1998. Angeles and Capitol are not in
compliance with these new covenants as of December 31, 1998 and have not
received waivers, and therefore all amounts due Congress Financial are
classified as current. The Congress Financial loan agreements were amended
on February 1, 1999 and provides, among other things, for a temporary
increase (from February 1, 1999 through March 31, 1999) in interest rates
from .75% to 1.75% per annum in excess of the bank's prime rate. Also, this
amendment provides for additional weekly principal payments of $17,400 for
a eight-week period starting February 1, 1999.
In connection with the Toledo Pickling acquisition, the Company assumed two
term loans with Finova. The first Finova term loan with an outstanding
balance of $2,276,254 at December 31, 1998 bears interest at 10.5% per
annum and is due on December 31, 2000. The second Finova term loan with the
outstanding balance of $319,443 at December 31, 1998 bears interest at 11%
per annum and is due on December 1, 2000. Each of the term loans contains
restrictive covenants and cross default provisions similar to those
included in Toledo Pickling's line of credit agreement and is secured by
Toledo Pickling's machinery and equipment and is guaranteed by the Company
and the former President and shareholder of Toledo Pickling. At December
31, 1998, Toledo Pickling was not in compliance with these covenants and
has not received waivers. The loan balances were not refinanced or repaid
on the maturity date of April 12, 1999. The Company is subject to penalties
in the amount of $2,000 per day until the loans are refinanced.
2. Line of Credit
In connection with the Toledo Pickling acquisition, the Company assumed
outstanding borrowings of $5,646,748 under a line of credit with NBC and
Finova. Under the financing arrangements with NBC and Finova, a line of
credit is available to Toledo Pickling for borrowing up to $23 million as
defined. Toledo Pickling is entitled to borrow up to 85% and 65% of its
qualified accounts receivable and inventory, respectively, or the available
line, whichever is less. At December 31, 1998, Toledo Pickling had no
additional borrowings available under its line of credit agreement. The
obligation, which is repayable on demand, is secured by the accounts
receivable and inventory of Toledo Pickling and guaranteed by the Company
and the former President and shareholder of Toledo Pickling in the amount
of $2.5 million plus all amounts outstanding on the line of credit over $18
million. Interest on the line of credit is calculated at 9.75% per annum
and is payable monthly. The line of credit contains certain financial and
other covenants including a
F-20
<PAGE> 79
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
minimum net worth requirement and a minimum ratio of liabilities to net
worth, as well as certain restrictions on capital expenditures, dividends
and officers' compensation. At December 31, 1998, Toledo Pickling was not
in compliance with certain provisions of the covenants and has not received
waivers. The line of credit balance was not refinanced or repaid on the
maturity date of April 12, 1999. The Company is subject to penalties in the
amount of $2,000 per day until the balance is refinanced or repaid.
3. Convertible Notes Payable to Affiliates
During January 1998, in connection with the acquisition of Capitol and the
transactions with Congress Financial, a related party loaned an additional
$1,500,000 to the Company. The loan is evidenced by a convertible
promissory note of the Company (the "Note") in the amount of $1,750,000,
with a 12% annual interest rate payable monthly in arrears. The Note is due
in one year or sooner in the event of a $25 million equity issuance by the
Company and is secured by a subordinate security interest in all of the
assets of the Company and its subsidiaries, effective upon the consent of
Congress Financial. The Note is convertible into 1,750,000 common shares.
As additional consideration for the loan,the Company issued 1,500,000
common shares to the related party. The value of the shares, $600,000, is
accounted for as additional interest expense over the life of the loan.
Interest expense on the Note was approximately $1,040,000 in 1998, of which
$588,493 represents amortization of the value of the common shares.
During March 1998, an affiliate loaned $214,286 to the Company. The loan is
evidenced by a convertible promissory note of the Company (the "Promissory
Note") in the aggregate amount of $250,000, with a 12% annual interest
payable monthly in arrears. The Promissory Note is due in one year or
sooner in the event of $25 million equity issuance by the Company and is
secured by a subordinate security interest in all of the assets of the
Company and its subsidiaries, effective upon the consent of Congress
Financial to such security interest or the refinancing or repayment of the
loan from Congress Financial. The Promissory Note is convertible into
250,000 common shares. As additional consideration for the loan, the
Company issued 214,286 common shares to the affiliate. The value of these
shares, $85,714, is accounted for as additional interest expense over the
life of the loan. Interest expense on the Promissory Note was approximately
$126,000 in 1998, of which $71,389 represents amortization of the value of
the common shares.
On December 7, 1998 an affiliate loaned $75,000 to the Company. The loan is
evidenced by a convertible promissory note of the Company. The note is due
on March 7, 1999 with interest at 18% per annum. The Company may at its
election, extend the due date for two additional ninety-day periods in
exchange for 21,775 Common Shares for each ninety-day period. This note may
be converted into common shares of the Company at the conversion price of
$.12 per share, which was below the fair market value of the Company's
common shares as of December 7, 1998. The value of the discounted
conversion feature, $39,063, was accounted for as additional interest
expense in the year ended December 31, 1998. The Company issued 95,455 of
its common shares as the initial loan fee in connection with this loan.
4. 10% Convertible Notes Payable
The Company has issued and sold, in private placements, an aggregate of
$5,000,000 of its 10% convertible notes payable (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 $2,000,000 of the 10% Notes on April 9,
1998, $1,500,000 on April 16, 1998, $500,000 on June 10, 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 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").
F-21
<PAGE> 80
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
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 or (ii) one of 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 conversion date and
(y) on or after October 5, 1998 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 the twenty trading days prior to conversion
date. The conversion price is subject to adjustment under specified
anti-dilution provisions. As of December 31, 1998, the holders of the 10%
Notes have converted $2,827,000 of the 10% Notes and $242,692 of interest
into 18,365,332 common shares of the Company, which are included in the
accompanying statements of cash flows as non-cash financing activities. The
value of the discounted conversion feature, $1,666,666, was accounted for
as additional interest expense in the year ended December 31, 1998.
Interest expense was approximately $2,435,000 in 1998, including the
$1,666,666.
5. 18% Convertible Notes Payable
On October 21, 1998 the Company issued and sold, in a private placement, an
aggregate of $1,568,900 of its 18% convertible notes payable (the "18%
Notes"), pursuant to the terms of a Note Purchase Agreement between the
Company and the purchaser of the 15% convertible notes payable. The 18%
Notes were issued to refinance the principal and accrued interest on the
15% convertible notes payable, which had also been issued during 1998. 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 days periods by giving notice to the noteholder of such extension at
least thirty days prior to the original or extended Maturity Date, as
applicable. The Company has issued to the noteholder 800,000 common shares
as additional consideration in connection with the issuance of the 18%
Notes. In connection with the repayment of $18,900 balance due January 15,
1999 and the extension of the maturity date of $1,550,000 of the 18% Notes
from January 19, 1999 to April 19, 1999, the Company issued to Capital Fund
Leasing 607,500 common shares in January 1999. In addition, the Company
also issued Capital Fund Leasing 450,000 common shares in March 1999 to
further extend the Maturity Date from April 19, 1999 to July 18, 1999. In
April 1999, the maturity date was further extended to January 15, 2000.
Interest expense was approximately $535,000 in 1998.
6. Other Notes Payable
In January 1998, in connection with the Capitol acquisition, the Company
assumed an outstanding note in the amount of $600,000 and related interest
of $26,000. The Company then issued a new replacement note, which bears
interest at the rate of 10% per annum and is collateralized by
substantially all the assets of Capitol (subordinated to Congress
Financial). As of December 31, 1998, approximately $180,000 was outstanding
on this note, which was paid in full on March 30, 1999. Also, in connection
with the Capitol acquisition, Capitol issued to the unsecured creditors of
Old Capitol $1,500,000 in promissory notes, bearing interest at 9% per
annum. During April 1999, the unpaid principal of the Binhad notes of
$1,300,000 was combined into
F-22
<PAGE> 81
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
a single note. The note calls for a payment of $409,426 including accrued
interest due on April 30, 1999 with monthly payment from May 15, 1999
through June 15, 2000 of $67,707 plus interest at 10% per annum. Since the
Congress Financial loans agreement contain cross default provisions with
the Binhad Note, the amount due of the Binhad Note has been classified as
current at December 31, 1998 as a result of the Company's non-compliance
with the covenants under the Congress Financial loan agreements.
NOTE H - INCOME TAXES
Deferred taxes are determined based on the estimated future tax effects of
difference between the financial statements and the basis of assets and
liabilities under the provisions of the enacted tax laws.
The tax effects of temporary differences that give rise to net deferred
taxes at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets (liabilities): 1998 1997
----------- -----------
<S> <C> <C>
Allowance for bad debts $ 86,627 $ 55,201
Reserve for inventory 95,548 40,000
Net operating loss carryforward 6,300,345 1,664,954
Inventory capitalization -- 56,497
Depreciation and amortization (17,017) 62,794
Provision for write-down of assets 202,380 --
Others 131,068 15,200
----------- -----------
Total deferred tax assets 6,798,951 1,894,646
Valuation allowance for deferred tax assets (6,798,951) (1,894,646)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
A valuation allowance was established because of the uncertainty that the
deferred tax asset will be realized.
At December 31, 1998 the Company had net operating loss carryforwards of
approximately $17.2 million and $7.7 million for federal and state income
tax purposes, which will and expire through 2013. Due to the additional
common shares issued in 1998 and 1997 and a change in ownership, pursuant
to Section 382 of the Internal Revenue Code, the Company's utilization of
its net operating loss carryforwards will be subject to an annual
limitation.
NOTE I - COMMITMENTS
1. Leases
The Company leases its plant facilities under various operating lease
agreements.
Total rent expense under operating lease agreements for the years ended
December 31, 1998 and 1997 was approximately $1,165,000 and $348,000,
respectively. In addition to the lease payments, the Company is responsible
for property taxes.
F-23
<PAGE> 82
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
The following is a schedule of future minimum lease payments under
operating and capital leases for facilities and equipment. Certain of these
leases are with affiliated entities.
<TABLE>
<CAPTION>
Year Ending
December 31, Operating Capital
------------ ----------- ----------
<S> <C> <C>
1999 $ 1,619,771 $ 246,180
2000 1,281,697 207,295
2001 428,682 207,295
2002 423,006 202,910
2003 423,006 143,189
----------- ----------
$ 4,176,162 1,006,869
==========
Less: Interest (149,758)
----------
857,111
Less: Current portion (193,895)
----------
$ 663,216
==========
</TABLE>
2. Employment Contract
During 1997, the Company entered into a one-year employment contract with
the President of one of its subsidiaries. The contract provides for annual
compensation of $84,000 plus bonuses and the issuance of 500,000 stock
options. The contract was terminated on May 27, 1998 and the stock options
were canceled.
Effective September 1, 1998, the Company entered into a one-year employment
agreement with the current President and Chief Operating Officer at the
Company. The agreement provides for annual compensation of $200,000 plus
bonuses and the issuance of 1,000,000 stock options. These stock options
are subject to a four-year vesting period if certain performance level are
achieved and is being accounted for under variable plan accounting.
3. Deferred Compensation
Toledo Pickling has established a deferred compensation arrangement with an
officer. Portions of the deferred compensation arrangement are funded
through life insurance policies. The amount accrued at December 31, 1998 of
$100,000 represents the portion of the deferred compensation assumed by
TPSS Acquisition. The aggregate cash surrender values of the life insurance
policies relating to the deferred compensation arrangement amounted to
$276,679 at December 31, 1998 and are included in other assets in the
accompanying consolidated balance sheets.
NOTE J - CONTINGENCIES
The Company is a party to various pending or threatened legal proceedings
arising in the ordinary course of its business. Management believes, based
upon the information currently available, that any liabilities that may
result from these legal proceedings will not have a material effect on the
Company's financial condition as presented in the accompanying consolidated
financial statements.
NOTE K - TERMINATION OF AN ACQUISITION
During April 1998, the Company entered into a letter of intent to acquire
Form Tech Steel, Inc. ("Form Tech") a privately held, Midwest-based steel
service center. During July 1998, the company withdrew it offer to purchase
Form
F-24
<PAGE> 83
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
Tech. Capitalized cost incurred to that date amounted to $1,007,288, which
included common shares issued for consulting fees having a value of
$477,625, deposit of $200,000, outside accounting fees of $48,000,
estimated penalty to convertible noteholders of $97,250 related to the
delay in filing a registration statement as a result of the potential
acquisition and various other expenses amounting to $184,413 have been
expensed in the accompanying consolidated statements of operations.
NOTE L - SUBSEQUENT EVENTS
The Company received a $1,250,000 loan from Security Income Trust L.P.
("SIT"), a privately-held company controlled by a director and officer of
the Company. The loan is evidence by a promissory note of the Company dated
January 11, 1999, with an 18% annual rate of interest payable in arrears
together with the principal on July 10, 1999. The Company issued 1,000,000
common shares to SIT as additional consideration for purchasing the note.
The Company may, at its option, extend the maturity date of the note for
two successive ninety-day periods. In connection with and at the time of
each such extension, the Company shall issue to SIT 1,000,000 shares of
common shares of the Company in consideration for such extension.
Subsequent to December 31, 1998, the noteholders for the $1,750,000,
$250,000, $75,000 notes payable to various affiliated entities extended the
payment dates through January 15, 2000 (see Note G). As consideration for
extending these maturity dates, the Company has agreed to issue warrants to
purchase 1,750,000, 250,000 and 75,000 common shares of the Company,
respectively, at $.20 per share. The warrants will expire on March 6, 2004.
In April 1999, the Company has also agreed to issue to the holder of the
$75,000 note payable, an additional 43,550 common shares in connection with
the extension of the maturity (see Note G).
Subsequent to December 31, 1998, Capitol decided to discontinue its steel
retail sales business. The Company plans to sell the property and equipment
related to its retail sales business. Consequently, the carrying values of
property and equipment and goodwill related to the retail sales business
were written down to their estimated net realizable values in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." The amount of the impairment
write-down of such assets totaled $508,053, while an additional $289,862 of
inventory reserves were charged to cost of goods sold for the year ended
December 31, 1998. The $508,053 consisted of a write-down of property and
equipment of approximately $276,000 and write down of goodwill of
approximately $232,000.
In connection with the recent acquisition of TPSS Acquisition, 4,784,689
common shares were issued during January 1999 to U.S. Steel Group of USX
Corporation ("USX") in satisfaction of debt of $1,000,000. The Company also
issued a promissory note to USX in the amount of $2,000,000, with interest
at 8% per annum, payable quarterly in the amount of $166,667 including
principal and interest beginning on March 1, 1999. The note is due in full
on December 1, 2001. The holder of this note may at any time prior to
maturity convert the principal amount hereof remaining outstanding into the
Company's common share at the conversion ratio of $.209 of principal for
one common share, or an aggregate of 9,569,378 shares. Also, the Company
made a cash payment of $166,363 on February 1, 1999 and made the first
payment due on March 1, 1999 on the promissory note.
Subsequent to December 31, 1998, the Company issued 75,000 common shares to
a consultant for services rendered in 1998. The value of these shares was
accrued at December 31, 1998.
Subsequent to December 31, 1998, $173,000 of the 10% Notes was converted
into 1,308,811 common shares. The maturity date of the remaining 10% Notes
of $2 million has been extended to January 15, 2000. In connection with
such extension, in April 1999 the Company has agreed to issue to the
holders of the $2 million outstanding 10% Notes
F-25
<PAGE> 84
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and December 31, 1997
warrants to purchase an aggregate of 2,000,000 common shares at $.20 per
share. The warrants expire on March 6, 2004. The Company has agreed to
promptly register the Common Shares underlying the warrants with the
Securities and Exchange Commission. In April 1999, 436,444 Common Shares
will be issued to the holders of the 10% notes for interest due on April 1,
1999.
Subsequent to December 31, 1998 the noteholder for $1,550,000 of the
Convertible 18% notes payable extended the payment date through January 15,
2000 (see Note G). In connection with such extension, in April 1999 the
Company has agreed to issue to a Capital Fund Leasing warrants to purchase
1,550,000 common shares at $.20 per share. The warrants will expire on
March 6, 2004. The Company has agreed to promptly register the common
shares underlying the warrant.
In connection with the repayment of $18,900 balance due January 15, 1999
and the extension of the maturity date of $1,550,000 of the 18% Notes from
January 19, 1999 to April 19, 1999, the Company issued to the holder of the
18% Notes 607,500 common shares in January 1999. In addition, the Company
also issued the holder of the 18% Notes 450,000 common shares in March 1999
to further extend the maturity date was further extended to January 15,
2000.
F-26
<PAGE> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- ------------
<C> <S>
3.1(1) Articles of Incorporation of the Company.
3.2(2) Articles of Amendment to Articles of Incorporation, dated as of
December 31, 1997 (Setting Forth Terms of Series A Preferred Stock
and Series B Preferred Stock).
3.3(3) Articles of Amendment to Articles of Incorporation, dated as of March
9, 1998 (Setting Forth Terms of Series C Preferred Stock).
3.4 Articles of Amendment to Articles of Incorporation, dated as of
December 4, 1998 (Increasing Number of Authorized Shares)
3.5 Articles of Amendment to Articles of Incorporation, dated as of
January 14, 1999 (Setting Forth Terms of Series D Preferred Stock)
3.6(4) By-Laws Revised and Amended, as of August 26, 1997.
4.1(3) Form of Warrant to Purchase 1,000,000 Common Shares at $1.00.
4.2(3) Form of Warrants to Purchase 1,000,000 Common Shares at $.75.
4.3(3) Form of Warrants to Purchase 250,000 Common Shares at $2.38.
4.4(5) Form of Warrants to Purchase 20,000 Common Shares at $2.00.
4.5 Form of Warrants to Purchase 1,000,000 Common Shares at $.16.
4.6 Form of Warrants to Purchase 1,000,000 Common Shares at $.16-$.36.
10.1(6) Services Agreement, dated as of February 1, 1997, between the Company
and Stone Pine Atlantic, LLC.
10.2(4) Consolidated Capital of North America, Inc. 1997 Stock Incentive
Plan.
10.3(4) Form of Incentive Stock Option Agreement for Grants to Employees.
10.4(4) Form of Non-Qualified Stock Option Agreement for Grants to Employees.
</TABLE>
<PAGE> 86
<TABLE>
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10.5(4) Form of Non-Qualified Stock Option Agreement for Grants to
Non-Employees.
10.6(7) Asset Purchase Agreement, dated as of December 1, 1997, between the
Company and Capitol Metals Co., Inc. (Exhibits and Schedules
omitted).
10.7(7) First Amendment to Asset Purchase Agreement, dated as of January 8,
1998, among Binhad, Inc. (formerly known as Capitol Metals Co.,
Inc.), the Company and Angeles Acquisition Corp.
10.8(7) Assignment and Bill of Sale, dated January 9, 1998, from Binhad, Inc.
(formerly known as Capitol Metals Co., Inc.) to Angeles Acquisition
Corp.
10.9(7) Secured Promissory Note, dated January 12, 1998, in the principal
amount of $1,200,000, from the Company and Angeles Acquisition Corp.,
to Binhad, Inc. (formerly known as Capitol Metals, Inc.).
10.10(7) Secured Promissory Note, dated January 12, 1998, in the principal
amount of $300,000, from the Company and Angeles Acquisition Corp.,
to Binhad, Inc. (formerly known as Capitol Metals Co., Inc.).
10.11(7) Security Agreement, dated January 8, 1998, between Binhad, Inc.
(formerly known as Capitol Metals Co., Inc.) and Angeles Acquisition
Corp.
10.12(7) Registration Agreement, dated as of January 6, 1998, between Binhad,
Inc. (formerly known as Capitol Metals Co., Inc.) and the Company.
10.13(7) Assignment and Assumption Agreement, dated as of January 8, 1998,
among the Company, Binhad, Inc. (formerly known as Capitol Metals
Co., Inc.) and Angeles Acquisition Corp.
10.14(7) Note Secured by Collateral Security Agreement, dated January 12,
1998, by and between the Company and Angeles Acquisition Corp., and
Nat and Evelyn Handel, Trustees of the Nat and Evelyn Handel Family
Trust.
10.15(7) Collateral Security Agreement, dated January 12, 1998, by and between
Angeles Acquisition Corp. and Nat and Evelyn Handel, Trustees of the
Nat and Evelyn Handel Family Trust.
10.16(2) Loan Agreement, dated as of December 31, 1997, between the Company
and Stone Pine Advisors, LLC.
10.17(2) Promissory Note, dated as of December 31, 1997, in the principal
amount of $75,000 from the Company to Stone Pine Advisors, LLC.
10.18(2) Loan Agreement, dated as of December 31, 1997, between the Company
and Stone Pine Capital, LLC.
</TABLE>
<PAGE> 87
<TABLE>
<C> <S>
10.19(2) Promissory Note, dated as of December 31, 1997, in the principal
amount of $75,000 from the Company to Stone Pine Capital, LLC.
10.20(2) Loan Agreement, dated as of December 31, 1997, between the Company
and Paul Bagley.
10.21(2) Promissory Note, dated as of December 31, 1997, in the principal
amount of $75,000 from the Company to Paul Bagley.
10.22(2) Agreement, dated as of December 31, 1997, between the Company and
Stone Pine Financial Group, LLC relating to the issuance of Series A
Preferred Shares.
10.23(2) Agreement, dated as of December 31, 1997, between the Company and ERB
Acquisition Group, LLC relating to the issuance of Series A Preferred
Shares.
10.24(2) Agreement, dated as of December 31, 1997, between the Company and
Stone Pine Colorado, LLC relating to the issuance of Series B
Preferred Shares.
10.25(2) Agreement, dated as of December 31, 1997, between the Company and
Stone Pine Atlantic, LLC relating to the issuance of Series B
Preferred Shares.
10.26(2) Convertible Note, dated as of January 9, 1998, in the principal
amount of $1,750,000 from the Company to Paul Bagley.
10.27(2) Convertible Note, dated as of March 3, 1998, in the principal amount
of $250,000 from the Company to Stone Pine Atlantic, LLC.
10.28(3) Offshore Securities Subscription Agreement for 6% Convertible
Preferred Shares - Series C, dated March 6, 1998 (Exhibits and
Schedules omitted).
10.29(2) Loan Agreement, dated January 9, 1998, by and between Congress
Financial Corporation (Western), Angeles Metal Trim Co. and Angeles
Acquisition Corp.
10.30(2) Secured Promissory Note, dated January 9, 1998, in the original
principal amount of $1,943,000, from Angeles Metal Trim Co. to
Congress Financial Corporation (Western).
10.31(2) Secured Promissory Note, dated January 9, 1998, in the original
principal amount of $200,000 from Angeles Acquisition Corp. to
Congress Financial Corporation (Western).
10.32(2) Secured Promissory Note, dated January 9, 1998, in the original
principal amount of $1,500,000 from Angeles Acquisition Corp. to
Congress Financial Corporation (Western).
10.33(2) Guarantee, dated January 9, 1998 executed by the Company Angeles
Metal Trim Co. and California Building Systems, Inc. in favor of
Congress Financial Corporation (Western) with respect to Angeles
Acquisition Corp. notes.
</TABLE>
<PAGE> 88
<TABLE>
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10.34(2) Guarantee, dated January 9, 1998 executed by the Company, Angeles
Acquisition Corp. and California Building Systems, Inc. in favor of
Congress Financial Corporation (Western) with respect to Angeles
Metal Trim Co. notes.
10.35(2) Lease Agreement, dated January 12, 1998, by and between Danat
Investment Company and the Company (Re: property at 20000 South
Western Avenue, Torrance , California).
10.36(2) Subordination, Nondisturbance and Attornment Agreement, dated January
12, 1998, by and among the Company, Angeles Acquisition Corp., Danat
Investment Company and Aid Association for Lutherans.
10.37(2) Mortgage Agreement, dated January 12, 1998, executed by Aid
Association for Lutherans in favor of Congress Financial Corporation
(Western) with respect to premises at 20000 S. Western Avenue,
Torrance, California (Exhibits omitted).
10.38(2) Agreement, dated as of March 3, 1998, by and between RDB Capital
Advisors, LLC, Richard D. Bailey, Stone Pine Investment Banking, LLC
and the Company.
10.39(8) Agreement between Company and Christian W. Wolf effective March 10,
1998.
10.40(8) Form of Note Purchase Agreement between the Company and the
Purchasers of 10% Convertible Notes (Exhibits and Schedules Omitted).
10.41(8) Form of 10% Convertible Note due April 9, 1999.
10.42(8) Agreement between the Company and Jeffrey R. Leach effective April
29, 1998.
10.43(5) Amendment to 10% Convertible Note due April 9, 1999.
10.44(9) 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).
10.45(9) Form of 15% Convertible Note of the Company.
10.46(9) 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).
10.47(9) Form of 18% Convertible Note of the Company.
10.48(9) Employment Agreement dated as of September 1, 1998 between the
Company and Richard D. Bailey.
10.49(10) Asset Purchase Agreement dated as of December 31, 1998 by and between
Toledo Pickling and TPSS Acquisition [Schedules and Exhibits
Omitted].
</TABLE>
<PAGE> 89
<TABLE>
<C> <S>
10.50(10) Assignment and Bill of Sale dated as of January 12, 1999 from Toledo
Pickling to TPSS Acquisition.
10.51(10) Assumption Agreement dated as of January 12, 1999 by and between and
Toledo Pickling and TPSS Acquisition.
10.52(10) Employment and Noncompetition Agreement dated as of January 12, 1999
between TPSS Acquisition and William Ciralsky.
10.53(10) Equipment Purchase Agreement dates as of January 12, 1999 by and
among TPSS Acquisition and William Ciralsky and Nancy Ciralsky.
[Exhibits Omitted]
10.54(10) Unconditional and Continuing Guaranty of the Company dated as of
January 12, 1999 with respect to the Unconditional and Continuing
Guaranty July 6, 1998, issued by William Ciralsky in favor or Toledo
Blank, Inc. [Exhibit A Omitted]
10.55(10) Indemnification Agreement dated as of January 12, 1999 by TPSS
Acquisition to William Ciralsky.
10.56(10) Lease dated as of January 12, 1999 by and between Cambell Investors,
as lessor, and TPSS Acquisition, as lessee [real property located at
1149 Cambell Road, Toledo, Ohio].
10.57(10) Consent to Assignment to Equipment Lease Agreement dated as of
January 12, 1999 of Equipment Lease Agreement between Toledo Pickling
and William Ciralsky and Nancy Ciralsky dated as of June 1, 1998
[Herr-Voss .50 inch maximum level line].
10.58(10) Consent to Assignment to Equipment Lease Agreement Dated as of
January 12, 1999 of the Equipment Lease Agreement between Toledo
Pickling and William Ciralsky dated as of June 1, 1998 [Herr-Voss .25
inch maximum level line].
10.59(10) Equipment Lease Agreement dated as of June 1, 1998 between Toledo
Pickling and William Ciralsky and Nancy Ciralsky [Herr-Voss .50 inch
maximum level line].
10.60(10) Equipment Lease Agreement dated as of June 1, 1998 between Toledo
Pickling and William Ciralsky [Herr-Voss .25 inch maximum level
line].
10.61(11) Assumption and Consent Agreement dated as of January 12, 1999 among
Toledo Pickling, TPSS Acquisition and Finova. [Exhibits Omitted]
10.62(11) Secured Promissory Note A dated as of January 12, 1999 between TPSS
Acquisition, Toledo Pickling and Finova in the principal amount of
$2,307,692.
10.63(11) Secured Promissory Note B dated as of January 12, 1999 between TPSS
Acquisition, Toledo and Finova in the principal amount of $333,332.
</TABLE>
<PAGE> 90
<TABLE>
<C> <S>
10.64(11) Assumption and Consent Agreement dated as of January 12, 1999 among
Toledo Pickling, TPSS Acquisition, NBC and Finova. [Exhibits Omitted]
10.65(11) Credit Note dated as of January 12, 1999 by and between TPSS
Acquisition, Toledo Pickling and NBC in the principal amount of
$5,130,000.
10.66(11) Credit Note dated as of January 12, 1999 by and between TPSS
Acquisition, Toledo Pickling, NBC and Finova in the principal amount
of $3,870,000.
10.67(11) Guaranty of the Company dated as of January 12, 1999 in favor of NBC
and Finova.
10.68(10) Note Purchase Agreement dated January 11, 1999 by and between the
Company and Security Income Trust, LP.
10.69(10) 18% Note dated January 11, 1999 issued by the Company to Security
Income Trust, L.P. in the principal amount of $1,250,000.
10.70 Commitment Fee Agreement dated as of December 31, 1999 between the
Company and Innovest Holdings, Ltd. and Accpac Holdings, Ltd.
[Exhibits omitted]
10.71 Agreement dated January 29, 1999 by and between the Company and the
U.S. Steel Group of USX Corporation.
10.72 Promissory Note dated as of January 29, 1999 in the principal amount
of $2,000,000 from the Company to the U.S. Steel Group of USX
Corporation.
16.1(12) Letter from Kish Leake & Associates, P.C., dated February 5, 1997,
regarding change of certifying accountant.
16.2(13) Letter from Grant Thornton LLP, dated January 28, 1998, regarding
change of certifying accountant.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers LLP
27. Financial Data Schedule.
</TABLE>
(1) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997.
(3) Incorporated by reference from the Company's Report on Form 8-K, dated
March 18, 1998.
<PAGE> 91
(4) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
(5) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1998.
(6) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996.
(7) Incorporated by reference from the Company's Report on Form 8-KA, filed on
January 29, 1998.
(8) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1998.
(9) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1998.
(10) Incorporated by reference from the Company's Report on Form 8-K filed on
January 27, 1999.
(11) Incorporated by reference from the Company's Report on Form 8-KA, filed on
February 12, 1999.
(12) Incorporated by reference from the Company's Report on Form 8-K filed on
February 7, 1997.
(13) Incorporated by reference from the Company's Report on Form 8-KA, filed on
January 30, 1998.
The Company filed a Current Report on Form 8-K on September 18, 1998 to report
the receipt of a $25 million credit facility proposal to finance the acquisition
of the assets of Toledo Pickling and Steel Sales, Inc.
The Company filed a Current Report on Form 8-K on January 27, 1999, as amended
on February 12, 1999, to report the acquisition of the assets of Toledo Pickling
and Steel Sales, Inc.
<PAGE> 1
Exhibit 3.4
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is Consolidated Capital of North America,
Inc. (the "Corporation").
SECOND: The following amendment to the Articles of Incorporation was adopted
on December 1, 1998, as prescribed by the Colorado Business Corporation Act, in
the manner marked with an X below:
[ ] No Common Shares have been issued or Directors Elected - Action by
Incorporators
[ ] No Common Shares have been issued but Directors Elected - Action by
Directors
[X] Such amendment was adopted by the board of directors where Common Shares
have been issued.
[X] Such amendment was adopted by a vote of the shareholders. The number of
Common Shares voted for the amendment was sufficient for approval.
If these amendments are to have a delayed effective date, please list that
date:
-------------------
(not to exceed ninety (90) days from the date of filing)
THIRD: The Corporation's Articles of Incorporation are hereby amended to
amend and restate the first paragraph of Section 1 of ARTICLE IV as follows:
Section 1. Authorized Capital. The total number of shares of all
classes which the Corporation shall have authority to issue is 210,000,000
of which 10,000,000 shall be Preferred Shares, par value $.01 per share,
and 200,000,000 shall be Common Shares, par value $.0001 per share, and the
designations, preferences, limitations and relative rights of the shares of
each class are as set forth in the following paragraphs.
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
its authorized officer as of December 4, 1998.
[Corporate Seal] CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
By: /s/ Donald R. Jackson
-----------------------
Donald R. Jackson
Secretary and Treasurer
2
<PAGE> 1
EXHIBIT 3.5
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Seller adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the Corporation is Consolidated Capital of North America,
Inc. (the "Corporation").
SECOND: The following amendment to the Articles of Incorporation was adopted
on December 1, 1998, as prescribed by the Colorado Business Corporation Act, in
the manner marked with an X below:
[ ] No Common Shares have been issued or Directors Elected - Action by
Incorporators
[ ] No Common Shares have been issued but Directors Elected - Action by
Directors
[X] Such amendment was adopted by the board of directors where Common Shares
have been issued.
[ ] Such amendment was adopted by a vote of the shareholders. The number of
Common Shares voted for the amendment was sufficient for approval.
THIRD: ARTICLE IV of the Corporation's Articles of Incorporation is hereby
amended as follows:
Section 6. Series D Preferred Shares
A. Designation and Authorized Number. One series of Preferred Shares,
designated "Series D 8% Convertible Preferred Shares" and hereinafter called
(the "Series D Preferred Shares") is hereby provided for, which shares shall
have the rights, privileges and preferences set forth below. The stated value of
the Series D Preferred Shares shall be $10,000 per share (the "Stated Value").
The number of shares constituting the Series D Preferred Shares shall be Three
Hundred Fifty (350).
B. Defined Terms.
(1) The term "Dividend Parity Stock" as used herein shall be deemed to mean
all shares of Series A Preferred Shares, Series B Preferred Shares and Series C
Preferred Shares of
<PAGE> 2
the Corporation which shall rank equally to the Series D Preferred Shares as to
the payment of dividends. The term "Liquidation Parity Stock" as used herein
shall be deemed to mean all shares of Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares of the Corporation which shall
rank equally to the Series D Preferred Shares as to distribution of assets upon
liquidation.
(2) The term "Dividend Junior Stock" as used herein shall be deemed to mean
the Common Shares and all other stock of the Corporation ranking junior to the
Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares
and Series D Preferred Shares as to the payment of dividends. The term
"Liquidation Junior Stock" as used herein shall be deemed to mean the Common
Shares and all other stock of the Corporation ranking junior to the Series A
Preferred Shares, the Series B Preferred Shares, Series C Preferred Shares and
the Series D Preferred Shares as to distribution of assets upon liquidation.
C. Dividends. (1) The holders of record of the Series D Preferred Shares
shall be entitled to receive, out of any assets legally available for the
purpose, prior and in preference to any declaration or payment of any dividend
on any Dividend Junior Stock, dividends at the rate of $800 per share per annum
payable annually (when, as and if declared by the Board of Directors out of its
funds legally available for such purpose) on the first day of November of each
year, commencing November 1, 1999, to the holders of record on such date. Such
dividends shall be cumulative. The dividends shall be paid in cash or at the
option of the Corporation, dividends shall be paid in Common Shares of the
Corporation based on the average of the closing bid price of the Corporation's
Common Shares for the five consecutive trading days preceding the interest
payment due date.
(2) Dividends shall accrue from the date of original issue of the Series D
Preferred Shares. Dividends which are not paid in full on any dividend payment
date will cumulate without interest until such accumulated dividends shall have
been declared and paid. Any declaration of dividends may be for a portion, or
all, of the then accumulated dividends. Any accumulated dividends which are not
paid will continue to cumulate in the manner described above.
(3) Unless full cumulative dividends on outstanding Series D Preferred
Shares have been paid, no dividend or other distribution shall be declared or
paid on any Dividend Junior Stock and no amount shall be set aside or applied to
the redemption, purchase or other acquisition of any Dividend Junior Stock.
D. Liquidation Preference.
(1) Series D Preferred Shares. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of Series D Preferred Shares shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of any Liquidation Junior Stock an amount per share equal to (i) $10,000
for each outstanding Series D Preferred Share and (ii) all accumulated but
unpaid dividends, if any, on each such Series D Preferred Share. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Liquidation Parity Stock shall be
<PAGE> 3
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Liquidation Parity Stock in proportion to the number of shares of
such stock owned by each such holder.
(2) Remaining Assets. After the distributions described in Section D(1)
have been paid, the remaining assets of the Corporation available for
distribution to shareholders shall be distributed among the holders of any
Liquidation Junior Stock pro rata based on the number of shares of any
Liquidation Junior Stock.
(3) Treatment of Mergers, etc. Neither a consolidation, merger or share
exchange by the Corporation with or into any other corporation or corporations,
or a sale, conveyance or disposition of all or substantially all of the assets
of the Corporation shall be deemed to be a liquidation, dissolution or winding
up within the meaning of this Section D.
E. Conversion. The holders of the Series D Preferred Shares shall have
conversion rights as follows (the "Conversion Rights"):
(1) Conversion Rights. All Series D Preferred Share shall be convertible,
at the option of the holders of such shares, at any time after the thirtieth
(30th) day after the Common Shares underlying the Series D Preferred Shares have
been registered on a Registration Statement with the Securities and Exchange
Commission, at the office of the Corporation or any transfer agent for the
Series D Preferred Shares, into the number of fully paid and nonassessable
Common Shares of the Corporation at the conversion price per Series D Preferred
Share equal to $10,000 divided by ninety Five Percent (95%) of the arithmetic
average of the closing bid prices for each of the five trading days prior to the
exercise date of any such conversion.
(2) Mechanics of Conversion. (i) No fractional shares of Common Stock shall
be issued upon conversion of the Series D Preferred Shares. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall round up to the nearest whole share. In the case of a dispute
as to the calculation of the Conversion Rate, the Corporation's calculation
shall be deemed conclusive absent manifest error. In order to convert Series D
Preferred Shares into full shares of Common Stock, the holder shall surrender
the certificate or certificates therefor, duly endorsed, by either overnight
courier or 2-day courier, to the office of the Corporation for the Series D
Preferred Shares, and shall give written notice to the Corporation at such
office that the holder elects to convert the same, the number of shares of
Series D Preferred Shares so converted and a calculation of the Conversion Rate
(with an advance copy of the certificate(s) and the notice by facsimile);
provided, however, that the Corporation shall not be obligated to deliver
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such Series D Preferred Shares are delivered to
the Corporation as provided above, or the holder notifies the Corporation that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates.
<PAGE> 4
(ii) The Corporation shall use reasonable efforts to cause to be
issued and delivered within two (2) business days after delivery to the
Corporation of such Series D Preferred Shares, or after such agreement and
indemnification, to such holder of Series D Preferred Shares at the address of
the holder on the stock books of the Corporation, a certificate or certificates
for the number of shares of Common Stock to which he shall be entitled as
aforesaid. The date on which notice of conversion is given (the "Date of
Conversion") shall be deemed to be the date set forth in such notice of
conversion provided the original Series D Preferred Shares to be converted are
received by the Corporation within five (5) business days thereafter and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the original Series D
Preferred Shares to be converted are not received by the Corporation within five
(5) business days after the Conversion, the notice of conversion shall become
null and void.
(3) Conversion Price Adjustments. The closing bid price used to determine
the Conversion Price shall be appropriately adjusted to reflect, as deemed
equitable and appropriate by the Corporation, any stock dividend, stock split or
share combination of the Common Stock. In the event of a merger, reorganization,
recapitalization or similar event of or with respect to the Corporation (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), the Series
D Preferred Shares shall be convertible into such class and type or securities
as the Holder would have received had the Holder converted the Series D
Preferred Shares 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.
(4) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its authorized but unissued Common
Shares solely for the purpose of effecting the conversion of the Series D
Preferred Shares such number of its Common Shares as shall from time to time be
sufficient to effect the conversion of all outstanding Series D Preferred
Shares; and if at any time the number of authorized but unissued Common Shares
shall not be sufficient to effect the conversion of all then outstanding Series
D Preferred Shares, in addition to such other remedies as shall be available to
the holder of such Series D Preferred Shares, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purposes.
F. Corporate Events. In the event of (i) any declaration by the Corporation
of a record date of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than cash dividend) or other distribution or (ii) any capital reorganization of
the Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to any
other Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series D Preferred Shares at least 20
<PAGE> 5
days prior to the record date specified therein, a notice specifying (A) the
date on which any such record is to be declared for the purpose of such dividend
or distribution and a description of such dividend or distribution, (B) the date
on which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective
and (C) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) will receive for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution or winding up.
G. Voting Rights. (1) The Holders of the Series D Preferred Shares shall
not have any voting rights except as set forth below or as otherwise from time
to time required by law.
(2) To the extent that under Colorado law the vote of the holders of the
Series D Preferred Shares, voting separately as a class, is required to
authorize a given action of the Corporation, the affirmative vote or consent of
the holders of at least a majority of the outstanding Series D Preferred Shares
shall constitute the approval of such action by the class. To the extent that
under Colorado law the holders of the Series D Preferred Shares are entitled to
vote on a matter with holders of Common Stock voting together as one class, each
Series D Preferred Shares shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of stockholders as the date as of which
the Conversion Price is calculated. Holders of the Series D Preferred Shares
shall be entitled to notice of all shareholder meetings or written consents with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and applicable statutes.
H. Protective Provisions. So long as the Series D Preferred Shares are
outstanding, the Corporation shall not take any action that would impair the
rights of the holders of the Series D Preferred Shares set forth herein and
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority in aggregate principal
amount of the Series D Preferred Shares then outstanding:
(1) Alter or change the rights, preferences or privileges of the Series D
Preferred Shares so as to affect adversely the Series D Preferred Shares.
(2) Create any new class or series of stock which ranks prior to the Series
D Preferred Shares with respect to dividends other than the Dividend Party
Stock, without the express written permission of the holders of the Series D
Preferred Shares for a period of not to exceed 90 days from the date of issuance
of the Series D Preferred Shares.
I. Status of Converted Stock. In the event any Series D Preferred Shares
shall be converted pursuant to Section D hereof, the shares so converted shall
be canceled and shall not be reissuable by the Corporation.
<PAGE> 6
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its authorized officer as of January 14, 1999.
[Corporate Seal] CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
By: /s/ Donald R. Jackson
---------------------
Donald R. Jackson
Secretary
<PAGE> 1
EXHIBIT 4.5
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ("WARRANTS") AND THE UNDERLYING
WARRANT SHARES ("WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE WARRANTS AND WARRANT SHARES
MAY NOT BE OFFERED OR SOLD TO ANY U.S. PERSON, THE WARRANTS MAY NOT BE EXERCISED
IN THE UNITED STATES (EXCEPT AS PERMITTED BY REGULATION S), AND THE WARRANT
SHARES MAY NOT BE DELIVERED IN THE UNITED STATES BY THE ORIGINAL HOLDER OF ANY
SUBSEQUENT HOLDER, UNLESS, IN EACH CASE, THE OFFER AND SALE OF THE WARRANTS AND
WARRANT SHARES HAS BEEN REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE, AS EVIDENCED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY.
WARRANTS TO PURCHASE COMMON STOCK NO. 20
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation (the
"Company") hereby grants to ________________ (and each subsequent transferee,
the "Holder") One Million (1,000,000) warrants (the "Warrants") for the purchase
of shares of the Company's Common Stock, par value $0.0001 per share (the
"Common Stock"), with each whole Warrant entitling the Holder to purchase one
share of Common Stock (each a "Warrant Share" and collectively the "Warrant
Shares"), subject to adjustment as provided in Section 8 hereof, on the terms
and subject to the conditions set forth herein.
1. TERM. The Warrants may be exercised, in whole or in part, at any time
and from time to time from the date hereof until 5:00 p.m. Eastern Time on
January 31, 2002 (the "Exercise Period").
2. EXERCISE PRICE. The initial exercise price of each whole Warrant shall
be $0.16 (the "Exercise Price"). The Exercise Price shall be subject to
adjustment as provided in Section 5 hereof.
3. EXERCISE OF WARRANTS. The Warrants are exercisable on the terms set
forth herein at any time during the Exercise Period by the surrender of this
certificate to the Company at its principal office together with the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder,
accompanied by payment in full, in immediately available funds, of the amount of
the aggregate Exercise Price of the Warrant Shares being purchased upon such
exercise. In lieu of cash payment, the Holder may pay up to $75,000 of the
Exercise Price by the Warrant Exercise Credit issued by the Company to the
Holder pursuant to the Commitment Fee Agreement effective as of December 31,
1998 by and between the Company, the Holder and the other lenders set forth
therein. The Holder shall be deemed the record owner of such Warrant Shares as
of and from the close of business on the date on which this certificate is
surrendered together with the completed Notice of Exercise and payment in full
as required above (the "Exercise Date"). The Company agrees that the Warrant
Shares so purchased shall be issued promptly thereafter. It shall be a condition
to the exercise of the Warrants that the Holder or any transferee hereof certify
to the Company, at the time of exercise, either that the Holder is not a U.S.
person (as defined in Regulation S under the Securities Act of 1933, as amended
(the "Securities Act")) and that the Warrants are not being
<PAGE> 2
exercised on behalf of a U.S. person, or to provide an opinion of counsel
satisfactory to the Company that the offer and sale of the Warrants and the
Warrant Shares to be delivered upon exercise thereof has been registered under
the Securities Act or that an exemption from the registration requirements of
the Securities Act is available. It shall be a further condition to the exercise
of the Warrants that the Warrants may not be exercised in the United States and
the Warrant Shares may not be delivered in the United States absent registration
under the Securities Act or available exemption from registration, unless
otherwise permitted by Regulation S.
4. WARRANTS CONFER NO RIGHTS OF STOCKHOLDER. The Holder shall not have
any rights as a stockholder of the Company with regard to the Warrant Shares
prior to the Exercise Date.
5. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon the exercise of the Warrants
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise 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 Exercise
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 issued and outstanding
immediately prior to such action. Such adjustment shall be made each time any
event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsection (a) above, the number of Shares purchasable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product so obtained
by the Exercise Price, as adjusted pursuant to subsection (a) above.
(c) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to the Holder, at its last address appearing in the Warrant 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 5.
6. TRANSFER. The Holder may from time to time request the Company in
writing to transfer the Warrants to any other person or entity. Upon any
registration of transfer, the Company
2
<PAGE> 3
shall deliver a new Warrant or Warrants to the persons entitled thereto. The
Warrants may be exchanged at the option of the Holder thereof for Warrants of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Warrant Shares upon surrender to the Company
or its duly authorized agent.
7. INVESTMENT REPRESENTATION. Neither the Warrants nor the Warrant Shares
issuable upon the exercise of the Warrants have been registered under the
Securities Act or any state securities laws. The Holder acknowledges by
acceptance of this certificate that, as of the date of this Warrant and at the
time of exercise, (a) the Holder has acquired the Warrants or the Warrant
Shares, as the case may be, for investment and not with a view to distribution;
and either (b) the Holder has a pre-existing personal or business relationship
with the Company or its executive officers, or by reason of the Holder's
business or financial experience the Holder has the capacity to protect the
Holder's own interests in connection with the transaction; or (c) the Holder is
an accredited investor as that term is defined in Rule 5019a) of Regulation D
under the Securities Act. The Holder, by acceptance of this certificate,
consents to the placement of a restirctive legend (the "Legend") on the
certificates representing any Warrant Shares that are purchased upon exercise of
the Warrants during the applicable restricted period under Regulation S or any
other applicable restricted period under the Securities Act (the "Restricted
Period"). The Legend shall be in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SHARES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR UNDER ANY STATE SECURITIES LAWS ("STATE LAWS") OR ANY SECURITIES
LAWS OF JURISDICTIONS OUTSIDE OF THE UNITED STATES, AND MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A "U.S. PERSON,"
AS THAT TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, EXCEPT
(1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FIELD UNDER THE
SECURITIES ACT COVERING THE SECURITIES, OR (2) UPON DELIVERY TO THE COMPANY
OF AN OPINION OF U.S. COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
THE SECURITIES MAY BE TRANSFERRED WITHOUT REGISTRATION PURSUANT TO (A) RULE
144, RULE 144A, OR REGULATION S PROMULGATED UNDER THE SECURITIES ACT OR (B)
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT.
Upon the issuance of the Warrant Shares the Company will notify the
transfer agent of the date of expiration of the Restricted Period. Upon delivery
to the Company of an opinion of U.S. Counsel reasonably satisfactory to the
Company that the securities may be transferred without registration pursuant to
Regulation S the Company shall instruct the transfer agent to effectuate the
removal of the Legend from the certificate(s) representing the Shares upon the
expiration of the Restricted Period.
3
<PAGE> 4
8. RESERVATION OF SHARES. The Company agrees that, at all times during
the Exercise Period, the Company will have authorized and reserved, for the
exclusive purpose of issuance and delivery upon exercise of the Warrants, a
sufficient number of shares of its Common Stock to provide for the issuance of
the Warrant Shares.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF CERTIFICATE. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any certificate representing the Warrants or the
Warrant Shares (referred to herein as the "original certificate"), and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to the Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the original
certificate if mutilated, the Company will make and deliver a new certificate of
like tenor in lieu of the original certificate.
10. GENERAL. This certificate shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts
between Colorado residents entered into and to be performed entirely within the
State of Colorado. The headings herein are for purposes of convenience and
reference only and shall not be used to construe or interpret the terms of this
certificate. The terms of this certificate may be amended, waived, discharged or
terminated only by a written instrument signed by both the Company and the
Holder. All notices and other communications from the Company to the Holder
shall be mailed by first-class registered or certified mail, postage pre-paid,
to the address furnished to the Company in writing by the last Holder who shall
have furnished an address to the Company in writing.
Dated as of: December 31, 1998
CONSOLIDATED CAPITAL OF NORTH
AMERICA, INC.
By:
---------------------------
(Authorized Signature)
---------------------------
(Name and Title)
4
<PAGE> 5
NOTICE OF EXERCISE
Dated ,
--------------- -------
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _______ shares of Common Stock and hereby makes payment
of ____________________ in payment of the actual exercise price thereof.
--------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------------
(Please typewrite or print in block letters)
Signature
-----------------------------------
--------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________________________ hereby sells,
assigns and transfer unto
Name
--------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ______________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Dated ,
--------------- --------
Signature
----------------------------
Signature Guaranteed
- - ------------------------
<PAGE> 1
EXHIBIT 4.6
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ("WARRANTS") AND THE UNDERLYING
WARRANT SHARES ("WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE WARRANTS AND WARRANT SHARES
MAY NOT BE OFFERED OR SOLD TO ANY U.S. PERSON, THE WARRANTS MAY NOT BE EXERCISED
IN THE UNITED STATES (EXCEPT AS PERMITTED BY REGULATIONS), AND THE WARRANT
SHARES MAY NOT BE DELIVERED IN THE UNITED STATES BY THE ORIGINAL HOLDER OR ANY
SUBSEQUENT HOLDER, UNLESS, IN EACH CASE, THE OFFER AND SALE OF THE WARRANTS AND
WARRANT SHARES HAS BEEN REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE, AS EVIDENCED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY.
WARRANTS TO PURCHASE COMMON STOCK NO. 21
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation (the
"Company") hereby grants to _________________ (and each subsequent transferee,
the "Holder") One Million (1,000,000) warrants (the "Warrants") for the purchase
of shares of the Company's Common Stock, par value $0.0001 per share (the
"Common Stock"), with each whole Warrant entitling the Holder to purchase one
share of Common Stock (each a "Warrant Share" and collectively the "Warrant
Shares"), subject to adjustment as provided in Section 8 hereof, on the terms
and subject to the conditions set forth herein.
1. TERM. The Warrants may be exercised, in whole or in part, at any time
and from time to time from the date hereof until 5:00 p.m. Eastern Time on
January 31, 2002 (the "Exercise Period").
2. EXERCISE PRICE. Subject to adjustment as provided in Section 5 hereof,
the exercise price of each whole Warrant shall be (the "Exercise Price"):
<TABLE>
<CAPTION>
Exercise Period Exercise Price
--------------- --------------
<S> <C>
2/1/99-1/31/00 $.16
2/1/00-1/31/01 $.24
2/1/01-1/31/02 $.36
</TABLE>
3. EXERCISE OF WARRANTS. The Warrants are exercisable on the terms set
forth herein at any time during the Exercise Period by the surrender of this
certificate to the Company at its principal office together with the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder,
accompanied by payment in full, in immediately available funds, of the amount of
the aggregate Exercise Price of the Warrant Shares being purchased upon such
exercise. The
<PAGE> 2
Holder shall be deemed the record owner of such Warrant Shares as of and from
the close of business on the date on which this certificate is surrendered
together with the completed Notice of Exercise and payment in full as required
above (the "Exercise Date"). The Company agrees that the Warrant Shares so
purchased shall be issued promptly thereafter. It shall be a condition to the
exercise of the Warrants that the Holder or any transferee hereof certify to the
Company, at the time of exercise, either that the Holder is not a U.S. person
(as defined in Regulation S under the Securities Act of 1933, as amended (the
"Securities Act")" and that the Warrants are not being exercised on behalf of a
U.S. person, or to provide an opinion of counsel satisfactory to the Company
that the offer and sale of the Warrants and Warrant Shares to be delivered upon
exercise thereof has been registered under the Securities Act or that an
exemption from the registration requirements of the Securities Act is available.
It shall be a further condition to the exercise of the Warrants that the
Warrants may not be exercised in the United States and the Warrant Shares may
not be delivered in the United States absent registration under the Securities
Act or available exemption from registration, unless otherwise permitted by
Regulation S.
4. WARRANTS CONFER NO RIGHTS OF STOCKHOLDER. The Holder shall not have
any rights as a stockholder of the Company with regard to the Warrant Shares
prior to the Exercise Date.
5. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon the exercise of the Warrants
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise 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 Exercise
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 issued and outstanding
immediately prior to such action. Such adjustment shall be made each time any
event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsection (a) above, the number of Shares purchasable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product so obtained
by the Exercise Price, as adjusted pursuant to subsection (a) above.
(c) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares
2
<PAGE> 3
issuable upon exercise of each Warrant to be mailed to the Holder, at its last
address appearing in the Warrant 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 5.
6. TRANSFER. The Holder may from time to time request the Company in
writing to transfer the Warrants to any other person or entity. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the persons entitled thereto. The Warrants may be exchanged at the option of the
Holder thereof for Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares upon surrender to the Company or its duly authorized agent.
7. INVESTMENT REPRESENTATION. Neither the Warrants nor the Warrants
Shares issuable upon the exercise of the Warrants have been registered under the
Securities Act or any state securities laws. The Holder acknowledges by
acceptance of this certificate that, as of the date of this Warrant and at the
time of exercise, (a) the Holder has acquired the Warrants or the Warrant
Shares, as the case may be, for investment and not with a view to distribution;
and either (b) the Holder has a pre-existing personal or business relationship
with the Company or its executive officers, or by reason of the Holder's
business or financial experience the Holder has the capacity to protect the
Holder's own interests in connection with the transaction; or (c) the Holder is
an accredited investor as that term is defined in Rule 501(a) of Regulation D
under the Securities Act. The Holder, by acceptance of this certificate,
consents to the placement of a restrictive legend (the "Legend") on the
certificates representing any Warrant Shares that are purchased upon exercise of
the Warrants during the applicable restricted period under Regulation S or any
other applicable restricted period under the Securities Act (the "Restricted
Period"). The Legend shall be in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SHARES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR UNDER ANY STATE SECURITIES LAWS ("STATE LAWS") OR ANY SECURITIES
LAWS OF JURISDICTIONS OUTSIDE OF THE UNITED STATES, AND MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A "U.S. PERSON,"
AS THAT TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, EXCEPT
(1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE
SECURITIES ACT COVERING THE SECURITIES, OR (2) UPON DELIVERY TO THE COMPANY
OF AN OPINION OF U.S. COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
THE SECURITIES MAY BE TRANSFERRED WITHOUT REGISTRATION PURSUANT TO (A) RULE
144, RULE 144A, OR REGULATION S PROMULGATED UNDER THE SECURITIES ACT OR (B)
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT.
3
<PAGE> 4
Upon the issuance of the Warrant Shares the Company will notify the
transfer agent of the date of expiration of the Restricted Period. Upon delivery
to the Company will notify the transfer agent of the date of expiration pursuant
to Regulation S the Company shall instruct the transfer agent to effectuate the
removal of the Legend from the certificate(s) representing the Shares upon the
expiration of the Restricted Period.
8. RESERVATION OF SHARES. The Company agrees that, at all exclusive
purpose times during the Exercise Period, the Company will have authorized and
reserved, for the of issuance and delivery upon exercise of the Warrants, a
sufficient number of shares of its Common Stock to provide for the issuance of
the Warrant Shares.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF CERTIFICATE. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any certificate representing the Warrants or the
Warrant Shares (referred to herein as the "original certificate"), and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to the Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the original
certificate if mutilated, the Company will make and deliver a new certificate of
like tenor in lieu of the original certificate.
10. GENERAL. This certificate shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts
between Colorado residents entered into and to be performed entirely within the
State of Colorado. The headings herein are for purposes of convenience and
reference only and shall not be used to construe or interpret the terms of this
certificate. The terms of this certificate may be amended, waived, discharged or
terminated only by a written instrument signed by both the Company and the
Holder. All notices and other communications from the Company to the Holder
shall be mailed by first-class registered or certified mail, postage pre-paid,
to the address furnished to the Company in writing by the last Holder who shall
have furnished an address to the Company in writing.
Dated as of: December 31, 1998
CONSOLIDATED CAPITAL OF NORTH
AMERICA, INC.
By:
---------------------------
(Authorized Signature)
---------------------------
(Name and Title)
4
<PAGE> 5
NOTICE OF EXERCISE
Dated ,
--------------- -------
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _______ shares of Common Stock and hereby makes payment
of ____________________ in payment of the actual exercise price thereof.
--------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------------
(Please typewrite or print in block letters)
Signature
-----------------------------------
--------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________________________ hereby sells,
assigns and transfer unto
Name
--------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ______________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Dated ,
--------------- --------
Signature
----------------------------
Signature Guaranteed
- - ------------------------
<PAGE> 1
EXHIBIT 10.70
THE OFFER AND SALE OF THE SECURITIES REFERRED TO IN THIS AGREEMENT (THE
"OFFERING") HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND SUCH SHARES ARE
BEING OFFERED AND SOLD IN RELIANCE ON THE EXEMPTION FROM THE SECURITIES
REGISTRATION AND QUALIFICATION REQUIREMENTS OF THE ACT AND SUCH LAWS OFFERED BY
REGULATION S (PROMULGATED UNDER THE ACT). ACCORDINGLY, THE SECURITIES MAY NOT BE
TRANSFERRED OR RESOLD WITHOUT REGISTRATION AND QUALIFICATION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM SUCH REGISTRATION AND
QUALIFICATION UNDER THE ACT AND SUCH LAWS IS THEN AVAILABLE. THE OFFER AND SALE
OF THE SECURITIES EFFECTED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THE OFFERING.
COMMITMENT FEE AGREEMENT
THIS COMMITMENT FEE AGREEMENT ("Agreement") effective as of December 31,
1998 between CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation
(the "Company") and the entities set forth on Schedule I hereto (each, a
"Lender" and collectively the "Lenders").
RECITAL
WHEREAS, the Lenders provided a standby commitment of $1,000,000 to the
Company (the "Commitment"); and
WHEREAS, the Company has agreed to reimburse the Lenders for the expenses
of the Lender relating to the Commitment and to pay a commitment fee 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 Lenders agree as
follows:
1. COMMITMENT FEE. In consideration of providing the Commitment, the
Company shall issue to the Lenders set forth on Schedule I hereto and in the
denominations set forth on Schedule I hereto (a) Warrants to purchase 1,000,000
shares of the Company's Common Stock par value $.0001 per share (the "Common
Stock") having the terms set forth in Exhibit A attached hereto
<PAGE> 2
(the "Exhibit A Warrants") and (b) Warrants to purchase 1,000,000 shares of
Common Stock having the terms set forth in Exhibit B attached herein (the
"Exhibit B Warrants"). The Exhibit A Warrants and the Exhibit B Warrants are
collectively referred to herein as the "Warrants."
2. EXPENSE REIMBURSEMENT. The Company shall compensate the Lenders for
expenses relating to the Commitment by (a) providing a credit in the amount of
$75,000 (the "Warrant Exercise Credit") which may be used by the holder of the
Exhibit A Warrant solely as the consideration for purchasing Warrant Shares (as
such terms is defined in Section 3.1 (d)) as set forth in the Exhibit A Warrant
and (b) 250,000 shares of Common Stock of the Company (the "Compensation
Shares").
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of the Company. The Company represents
and warrants that:
(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 Warrants (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) 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 Warrants 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 as of
December 28, 1998 consists of 200,000,000 shares of Common Stock, par value
$.0001 per share, 47,984,384 shares of which were issued and outstanding on
December 28, 1998 and 10,000,000 shares of Preferred Stock, par value $.01
per share, of which the following Preferred Shares were authorized, issued
and outstanding on December 28, 1998; Series A Preferred Shares, par value
$1.00 per share, authorized 1,000,000 shares, 744,000
2
<PAGE> 3
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, 0 shares issued and outstanding; Series D Preferred
Shares, stated value of $10,000 per share, authorized 350 shares, 0 shares
issued and outstanding; and Series E Preferred Shares, stated value $10,000
per share, authorized 140 shares, 0 shares issued and outstanding. The
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") and the Compensation Shares are not subject to preemption rights
and 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 and shall be
free of any and all encumbrances, claims, security interests or any other
rights or interests of third parties whatsoever. The Company shall at all
times have authorized, reserved and set aside a sufficient number of shares
of Common Stock for the exercise of the Warrants. The Compensation Shares
and the Warrant Shares are sometimes collectively referred to herein as the
"Shares". The Warrants and the Shares are sometimes collectively referred
to herein as the "Securities."
(e) SEC Documents. The Company has furnished the Lender 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, Report on Form 8-K filed on January 27, 1999, 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, Form 10-QSB for the quarter ended
September 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, and except in
connection with the acquisition of Toledo Pickling Steel and Sales, Inc.,
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
3
<PAGE> 4
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) Conflict with Other Agreements; Approvals. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with or (i) result in
any violation of, or default (with or without notice of lapse of time, or
both) under, or giver rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest or other encumbrance on
assets (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation") pursuant to
any provision of the Articles of Incorporation or By-laws or any
organizational document of the Company or (ii) result in any Violation of
any loan or credit agreement, note, mortgage, indenture, lease benefit plan
or other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") or any other third party is required by or with
respect to the Company in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby.
(h) Securities Matters. (i) Subject to the accuracy of the
representations of the Lender set forth in Section 3.2 hereof, the offer,
sale and issuance of the Securities as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act of 1933 as
amended (the "Securities Act") pursuant to Regulation S as promulgated
under the Securities Act.
(ii) The Company is a "Domestic Issuer" and a "Reporting Issuer,"
as such terms are defined by Rule 902 of Regulation S. The Company has
registered its Common Stock pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
requirements of either Section 13(a) or 15(d) of the Exchange Act. The
Company's Common Stock trades on the OTC Bulletin Board under the
symbol CDNO.
4
<PAGE> 5
(iii) The Company has not offered the Securities to any person in
the United States, any identifiable group of U.S. citizens abroad, or
to any U.S. Person.
(iv) At the time the buy order was originated, the Company and/or
its agents reasonably believed Lender was outside the United States
and was not a U.S. Person.
(v) The Company and/or its agents reasonably believe that the
sale of the Securities has not been prearranged with a Lender in the
United States.
(vi) The Company has not conducted any "directed selling efforts"
with respect to the Securities nor has Lender conducted any general
solicitation (as that term is used in Regulation D under the
Securities Act) with respect to the Securities.
(vii) The Company will issue one or more Certificates
representing the Securities in the name of Company with the following
restrictive legend set forth below (the "Restrictive Legend") in such
denominations to be specified by the Lender:
"The Securities represented by this Certificate have not
been registered under the United States Securities Act of
1933 (the "Act") and may not be sold, transferred, pledged
or otherwise hypothecated by the original holder of the
Securities or any subsequent holder unless (a) they are
covered by a registration statement or a post-effective
amendment thereto under the Act, (b) they are covered by an
exemption available under Regulation S promulgated under the
Act, or (c) in the opinion of counsel for Company, which
opinion shall be reasonably acceptable to the Company, such
sale, transfer, pledge or hypothecation is otherwise exempt
from the provisions of Section 5 of the Act."
3.2 Representations and Warranties of each Lender . Each Lender represents
and warrants that:
(a) Authorization. This Agreement constitutes a valid and legally
binding obligation of the Lender.
(b) Investment Representations (i) The Lender is not a "U.S.
Person" as defined by Rule 902 of Regulation S, was not organized
under the laws of any U.S. jurisdiction, and was not formed for the
purpose of investing in securities not registered under the Securities
Act.
(ii) The Lender is not a "distributor" as defined by Rule 902 of
Regulation S.
5
<PAGE> 6
(iii) At the time the purchase order for this transaction was
originated, the Lender was physically outside of the United States and
such purchase order was not the result of directed selling efforts by
the Company in the United States.
(iv) No offer to purchase the Securities was made by the Lender
while in the United States.
(v) The Lender is purchasing the Securities for its own account
for investment purposes and not with a view towards distribution.
(vi) The Lender acknowledges and agrees that the offer and sale
of the Securities by the Company has not been registered under the
Securities Act and agrees that all subsequent offers and sales of the
Securities will be made (i) outside the United States in compliance
with Rule 903 or Rule 904 of Regulations S, (ii) pursuant to
registration of the Securities under the Securities Act, or (iii)
pursuant to an exemption from such registration. The Lender
understands the conditions of the exemption from registration afforded
by Regulation S and Section 4(1) of the Securities Act and
acknowledges that there can be no assurance that it will be able to
rely on either exemption. Furthermore, the Lender will not resell the
Securities to U.S. Persons or within the United States until after the
end of the applicable restricted period under Regulation S or any the
applicable restricted period under the Securities Act (the "Restricted
Period") other than pursuant to registration of the Securities under
the Securities Act or pursuant to an exemption from such registration.
(vii) The Lender agrees that, at all times after the execution of
this Agreement by the Lender and prior to the expiration of the
Restricted Period, it will keep its purchase of the Securities
confidential, except as required by law and except as necessary in the
ordinary course of Lender's business.
(viii) The Lender understands that the Securities are being
offered and sold to it in reliance on specific provisions of United
States Federal and States securities laws and that the Company is
relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the
Lender set forth herein in order to determine the applicability of
such provisions. Accordingly, the Lender agrees to notify the Company
of any events which would cause the representations and warranties of
the Lender to be untrue or breached at any time after the execution of
this Agreement by the Lender and prior to the expiration of the
Restricted Period.
(ix) All offering documents received by the Lender include
statements to the effect that the Securities have not been registered
under the Securities Act and may not be offered or sold in the United
States or to U.S. Persons during the Restricted Period unless pursuant
to registration of the Securities under the Securities Act or pursuant
to an exemption from such registration.
6
<PAGE> 7
(x) The Company did not attempt to, and did not induce Lender to
purchase the Securities.
(xi) The Lender agrees to hold the Company and its directors,
officers and controlling persons and their respective heirs,
representatives, successors and assigns harmless and to indemnify them
against all liabilities, costs and expenses incurred by them as a
result of any misrepresentation made by the Lender contained herein or
any sale or distribution of the Securities by the Lender in violation
of applicable federal and state securities laws. This indemnification
agreement shall survive the closing of this transaction.
(xii) The Lender has received and reviewed the Company's
Disclosure Documents and the Lender or the Lender'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.
(xiii) The Lender acknowledges that the Securities are
speculative and involve a high degree of risk and the Lender
represents that it is able to sustain the loss of the entire amount of
its investment.
(xiv) The Lender (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
Securities.
(xv) The Lender 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.
(xvi) The Lender acknowledges and agrees not to engage in any
hedging transactions involving the Securities unless such transactions
comply with the Securities Act.
4. Registration under the Securities Act of 1933.
4.1 Registration of Shares. The Company shall promptly prepare and file
with the SEC a registration statement on or before March 31, 1999, which
registration statement shall include the Shares, and shall thereafter use its
best efforts to have such registration statement declared effective as soon as
possible and shall ensure that such registration statement remains effective
until the earlier of the date on which all the Shares are sold or three years
after the initial effective date (the "Effective Period"). The Company shall
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective throughout the Effective
Period and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of the Shares whenever the Lender shall desire to
sell or otherwise dispose of the same in whole or in part.
7
<PAGE> 8
4.2 Participation in Registered Offerings ("Piggyback Rights" for Shares).
If the Company at any time after the date of this Agreement and prior to the
third anniversary of the date of this Agreement proposes or is required to
register any of its shares or other equity securities for public sale for cash
under the Securities Act (other than on Forms S-4 or S-8), it will at each such
time or times give written notice to each Lender of its intention to do so. Upon
the written request of any Lender given within twenty (20) days after receipt of
any such notice, the Company shall use its best efforts to cause to be included
in such registration any Shares held by such Lender or Shares obtainable upon
conversion of the Warrants and requested to be registered under the Securities
Act and any applicable state securities laws; provided, that if the managing
underwriter (if any) advises that less than all of the shares to be registered
should be offered for sale so as not materially and adversely to affect the
price or salability of the offering being registered by the Company, the Lender
(but not the Company to the extent it desires to include shares for its own
account) shall reduce the number of its shares to be included in the
registration statement as required by the underwriter to the extent requisite to
permit the sale or other disposition (in accordance with the intended method of
disposition thereof as aforesaid) by the prospective seller or sellers of the
securities so registered. The registration requested pursuant to this Section
4.2 is referred to herein as the "Piggyback Registration". The Lenders
registration rights more fully set forth in subsection 4.1 hereof are in
addition to their "Piggyback Registration" rights. Nothing in this subsection
will provide any underwriter of the Company's Common Stock with any veto or
other rights under subsection 4.1 hereof.
4.3 Obligations of each Lender. It shall be a condition precedent to the
obligation of the Company to register any Shares pursuant to this Section 4 that
each Lender shall furnish to the Company such information regarding the Shares
held and the intended method of disposition thereof and any other information
concerning the Lender as the Company shall reasonably request and as shall be
required in connection with the registration statement to be filed by the
Company. If after a registration statement becomes effective the Company advises
the Lenders that the Company considers it appropriate to amend or supplement the
applicable registration statement, each Lender shall suspend further sales of
the Shares until the Company advises such Lender that such registration
statement has been amended or supplemented.
4.4 Registration Proceedings. Whenever the Company is required by the
provisions of this Section 4 to effect the registration of the Shares under the
Securities Act, the Company shall:
(i) Prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective;
(ii) Prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective;
(iii) Furnish to each Lender and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, preliminary
8
<PAGE> 9
prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public
offering of such securities;
(iv) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
Blue Sky Laws of such jurisdictions as each Lender may reasonably
request within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(v) Notify each Lender, promptly after it shall receive notice
thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) Notify each Lender promptly of any request by the SEC for
the amending or supplementing of such registration statement or
prospectus or for additional information; and
(vii) Prepare and promptly file with the SEC and promptly notify
each Lender of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct
any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities
Act, any event shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. Notwithstanding
any provision herein to the contrary, the Company shall not be
required to amend, supplement, or update a prospectus contained in any
registration statement if to do so would result in an unduly
burdensome expense to the Company.
4.5 Expenses. With respect to the inclusion of the Shares in a
registration statement pursuant to this Section 4, all registration expenses,
fees, costs and expenses of and incidental to such registration, inclusion and
public offering in connection therewith shall be borne by the Company; provided,
however, that each Lender shall bear its own professional fees and pro rata
share of the underwriting discount and commissions (if such Shares are included
in an underwritten offering). The fees, costs and expenses of registration to be
borne by the Company shall include, without limitation, all registration,
filing, printing expenses, fees and disbursements of counsel and accountants for
the Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company and/or selling security holders
are required to bear such fees and disbursements), and all legal fees and
disbursements and other expenses of complying with state securities or Blue Sky
Laws of any jurisdiction in which the securities to be offered are to be
registered or qualified.
9
<PAGE> 10
4.6 Indemnification of the Lender. Subject to the conditions set forth
below, in connection with any registration of the Shares pursuant to this
Section 4, the Company agrees to indemnify and hold harmless each Lender, any
underwriter for the Company or acting on behalf of the Company and each person,
if any, who controls such Lender, within the meaning of Section 15 of the
Securities Act, as follows:
(i) Against any and all loss, claim, damage and expense
whatsoever arising out of, based upon or resulting from (including,
but not limited to, any and all expense whatsoever reasonably incurred
in investigating, preparing or defending any litigation, commenced or
threatened, or any claim whatsoever based upon) any untrue or alleged
untrue statement of a material fact contained in any preliminary
prospectus (if used prior to the effective date of the registration
statement), the registration statement or the prospectus (as from time
to time amended and supplemented), or in any application or other
document executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify
the Company's securities under the securities laws thereof, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or any other violation of applicable federal or state
statutory or regulatory requirements or limitations relating to action
or inaction by the Company in the course of preparing, filing, or
implementing such registered offering; provided, however, that the
indemnity agreement contained in this section shall not apply to any
loss, claim, damage, liability or action arising out of or based upon
any untrue or alleged untrue statement or omission made in reliance
upon and in conformity with any information furnished in writing to
the Company by or on behalf of the Lender expressly for use in
connection therewith or arising out of any action or inaction of the
Lender ;
(ii) Subject to the proviso contained in Subsection (i) above,
against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of
any litigation, commenced or threatened, or of any claim whatsoever
based upon any untrue statement or omission (including, but not
limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing or defending against any such litigation or
claim) if such settlement is effected with the written consent of the
Company; and
(iii) In no case shall the Company be liable under this indemnity
agreement with respect to any claim made against such seller,
underwriter or any such controlling person unless the Company shall be
notified, by letter or by facsimile confirmed by letter, of any action
commenced against such persons, promptly after such person shall have
been served with the summons or other legal process giving information
as to the nature and basis of the claim. The failure to so notify the
Company, if prejudicial in any material respect to the Company's
ability to defend such claim, shall relieve the Company from its
liability to the indemnified person under this Section 4, but only to
the extent that the Company was prejudiced. The failure to so notify
the Company shall not relieve the Company from any liability which it
may have
10
<PAGE> 11
otherwise than on account of this indemnity agreement. The Company
shall be entitled to participate at its own expense in the defense of
any suit brought to enforce any such claim, but if the Company elects
to assume the defense, such defense shall be conducted by counsel
chosen by it, provided such counsel is reasonably satisfactory to the
sellers or controlling persons, defendants in any suit so brought. In
the event the Company elects to assume the defense of any such suit
and retain such counsel, the sellers, underwriter or controlling
persons, defendants in the suit, shall, after the date they are
notified of such election, bear the fees and expenses of any counsel
thereafter retained by them, as well as any other expenses thereafter
incurred by them in connection with the defense thereof; provided,
however, that if the sellers, underwriter or controlling persons
reasonably believe that there may be available to them any defense or
counterclaim different than those available to the Company or that
representation of such sellers, underwriters or controlling persons by
counsel for the Company presents a conflict of interest for such
counsel, then such sellers, underwriter and controlling person shall
be entitled to defend such suit with counsel of their own choosing and
the Company shall bear the fees, expenses and other costs of such
separate counsel.
5. MISCELLANEOUS.
5.1 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.
5.2 Survival. All agreements, covenants, representations and warranties
made by the Company or by the Lender herein shall survive the execution and
delivery of this Agreement.
5.3 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.
5.4 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.
5.5 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 the Lender. Any such amendment, modification, alteration, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
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<PAGE> 12
5.6 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 Lender: c/o Jones, Day, Reavis & Pogue
555 West Fifth Street, Suite 4600
Angeles, California 90013-1025
Att: Shivbir S. Grewal, Esq.
Tel: 213-489-3939
Fax: 213-243-2539
5.7 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.
12
<PAGE> 13
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: /s/ Richard Bailey
--------------------------------------
Richard Bailey
President and Chief Operating Officer
INNOVEST HOLDINGS, LTD.
By:
--------------------------------------
Name:
Title:
ACCPAC HOLDINGS, LTD.
By:
--------------------------------------
Name:
Title:
13
<PAGE> 14
Schedule I
<TABLE>
<CAPTION>
Lender Warrants to be Issued
------ ---------------------
<S> <C>
Innovest Holdings, Ltd. 1,000,000 - Exhibit A Warrants
Accpac Holdings, Ltd. 1,000,000 - Exhibit B Warrants
</TABLE>
<TABLE>
<CAPTION>
Lender Shares to be Issued
------ -------------------
<S> <C>
Innovest Holdings, Ltd. 250,000
</TABLE>
14
<PAGE> 1
EXHIBIT 10.71
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 29th day of January, 1999,
between Consolidated Capital of North America, Inc., a Colorado corporation (the
"Company") and U.S. Steel Group of USX Corporation (the "Creditor").
RECITAL
WHEREAS, the Company has entered into an agreement pursuant to which the
Company will acquire substantially all of the assets and a majority of the
liabilities of Toledo Pickling and Steel Sales, Inc. ("TPSS");
WHEREAS, the Creditor is owed $3,166,362.88 (the "Debt") by TPSS;
WHEREAS, the Creditor and the Company desire to enter into this Agreement
pursuant to which the Company will issue to the Creditor Common Shares and a
Promissory Note of the Company, and make a cash payment to the Creditor, as set
forth in this Agreement in exchange for the cancellation of the Debt;
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, the Company and the Creditor agree as
follows:
1. SETTLEMENT OF DEBT.
1.1 CONSIDERATION TO BE ISSUED BY THE COMPANY. Subject to the terms and
conditions contained in this Agreement, the Company agrees to issue and pay to
the Creditor at the Closing (as herein defined), and the Creditor agrees to
accept at the Closing, in full satisfaction and cancellation of the Debt: (i)
Commons Shares of the Company with a market value of $1 million (the "Common
Shares"); (ii) a three-year convertible promissory note in the principal amount
of $2 million having the terms set forth in Exhibit A (the "Note"); and (iii) a
cash payment of $166,362.88 (the "Cash Payment").
1.2 Common Shares to be Issued
(a) The number of Common Shares to be issued to the Creditor at the
Closing based on the average of the closing bid and ask prices of the Company's
Common Shares for the ten trading days prior to the closing of the acquisition
of TPSS on January 12, 1999 of $.209 per share, shall be 4,784,689.
(b) Until registered under the Securities Act of 1933, as amended (the
"Securities Act"), the Common Shares will constitute "restricted securities" for
the purposes of the Securities Act and may not be sold, except upon compliance
with the registration requirements of the Securities Act and applicable state
securities laws or an exemption therefrom. The
<PAGE> 2
certificates evidencing the Common Shares shall include a legend to the
foregoing effect as set forth in paragraph 3.2(b) hereof.
(c) The Creditor will be prohibited from selling any of the Common Shares
within twelve months from the Closing, except if such sale is in accordance with
Regulation 204.011 of the Pennsylvania Securities Act of 1972 ("Registration
204.011"). The Creditor shall execute and deliver a Statement in the form
attached hereto as Exhibit B at the Closing. The Creditor represents and
warrants that it will not sell any of the Common Shares in violation of
Regulation 204.011. Stop transfer instructions regarding the restriction will be
issued to the transfer agent for the Company's stock, and an additional legend
in substantially the form set forth in Paragraph 3.2(b) hereof will be placed on
the back of the certificate issued to the Creditor.
2. CLOSING
2.1 Closing Date. The closing of the issuance of the Common Shares, the
Note and the Cash Payment and the cancellation of the Debt (the "Closing") is
conditioned on the closing of the acquisition of TPSS by the Company. The
Closing shall take place on January 29, 1999.
2.2 Closing Deliveries. At the Closing the Company shall deliver to the
Creditor a stock certificate for the Common Shares issued in the name of the
Creditor, the Note and the Cash Payment, In addition, the Company shall deliver
the following:
(a) A legal opinion of counsel to the Company as set forth in
Paragraph 5;
(b) A certificate of the secretary or an assistant secretary of the
Company attaching a complete and correct copy of the certificate of
incorporation, the bylaws and the resolutions duly adopted by its board of
directors authorizing the execution, delivery and performance of this Agreement
and the Notes; and certifying that such documents are currently in effect and
there has been no amendment or modification to the Company's articles of
incorporation or bylaws since the date thereof as reflected on the respective
copy and that the resolutions have not been rescinded or modified since the date
of adoption; and
(c) A certificate of the Chief Financial Officer of the Company
certifying that there has been no material adverse change in the financial
condition of the Company since September 30, 1998.
Upon delivery of the Common Shares, the Note and the Cash Payment, the Debt
shall be canceled in full.
3. REPRESENTATION AND WARRANTIES.
3.1 Representations and Warranties of the Company. The Company represents
and warrants that as of the date of this Agreement:
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<PAGE> 3
(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 (i) is within the Company's corporate powers; (ii) is duly authorized
by the Company' board of directors; (iii) is not in contravention of the terms
of the Company's certificate of incorporation or bylaws; (iv) is not in
contravention of any law or laws; (v) except for any filing which may be
required pursuant to applicable state securities of "blue sky" laws, do not
require any governmental consent, registration or approval; (vi) does 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 or 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 has been duly authorized, extended
and delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its 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 as of
January 25, 1999 consists of 200,000,000 shares of Common Stock, par value
$.0001 per share, 51,071,150 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, 0 shares issued and outstanding; Series D Preferred
Shares, stated value of $10,000 per share, authorized 350 shares, o shares
issued and outstanding, and Series E Preferred Shares, stated value $10,000 per
share, authorized 140 shares, 0 shares issued and outstanding. Since January 25,
1999, no additional shares of Common Stock or Preferred Stock have been issued
other than the Common Shares issued to the Creditor at Closing provided however,
up to 350 Series D Preferred Shares and 140 Series B Preferred Shares are
authorized for issuance to certain creditors and shareholders of Toledo pickling
and Steel Sales, Inc. As of the Closing, the Common Shares will duly and validly
authorized and when issued and delivered in accordance with the terms of this
Agreement, will duly and validly issued, fully paid and non-assessable.
(e) SEC Documents. The Company has furnished the Creditor 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
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<PAGE> 4
filed on May 1, 1998, Report on Form8-K filed on August 5, 1998, Report on Form
8-K filed on September 18, 1998, Report on Form 8-K filed on January 27, 1999,
the Company's Form 10-KSB for the fiscal year ended December 31, 1997, Form
10-QSB for the quarterly periods ended March 31, June 30, and September 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 practices, 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 omit 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
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 which may have a material adverse affect on the
financial position of the Company or which calls into question any of the
transactions contemplated by this Agreement. There are no governmental
proceedings pending or threatened under state or federal environmental laws
requiring disclosure under the Exchange Act.
(g) Securities Matters. Subject to the accuracy of the
representations of the Creditor set forth in Section 3.2 hereof, the offer, sale
and issuance of the Common Shares as contemplated by this Agreement are exempt
from the registration requirements under the Securities Act. The Company has
complied and will comply with all applicable state securities laws in connection
with the offer, sale and issuance of the Common Shares as contemplated by this
Agreement.
3.2 Representation and Warranties of the Creditor. The Creditor represents
and warrants that as of the date of the execution of this Agreement:
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<PAGE> 5
(a) Authorization. This Agreement constitutes a valid and legally
binding obligation of such Creditor.
(b) Investment Representations.
(i) The Creditor has received the Company's Disclosure Documents
and the Creditor's designated representatives have had an opportunity to review
the documents provided by the Company and to ask all questions of management of
the Company.
(ii) The Creditor acknowledges that the Common Shares and the
Note are speculative and involve a high degree of risk.
(iii) The Creditor (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 Common Shares.
(iv) The Creditor 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 Creditor is an "accredited investor" within the meaning
of Regulation D under the Securities Act.
(vi) The Creditor is acquiring the Common Shares for investment
purposes only without intent to distribute the same, and acknowledges that the
Common 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 securities laws.
(vii) The Creditor acknowledges that it will not be able to
transfer the Common Shares except upon compliance with registration requirements
of the Securities Act and applicable state securities laws or exemption
therefrom.
(viii) The certificates and/or instruments evidencing the Common
Shares will contain the following legends:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, AN EXEMPTION THEREFROM OR
COMPLIANCE WITH RULE 144 PROMULGATED THEREUNDER. THE SHARES REPRESENTED BY THIS
STOCK CERTIFICATE SHALL NOT BE SOLD UNTIL JANUARY 29, 2001, EXCEPT IN ACCORDANCE
WITH REGULATION 204.011 OF THE PENNSYLVANIA SECURITIES ACT OF 1972.
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<PAGE> 6
4. OTHER AGREEMENTS OF THE COMPANY.
The Company agrees that on or after thirty (30) days from the closing
it will, within thirty (30) days of the Creditor's written request for such and
at the Company's cost, file a Registration Statement with the Securities and
Exchange Commission under the Securities Act to cause the Common Shares as well
as the shares of Common Stock issuable upon conversion of the Note to become
registered thereunder for resale by the Creditor (the "Registration Statement")
and the Company agrees that it will use its best efforts to cause such
Registration Statement to be declared effective. The Creditor shall have on such
demand registration right. The Company also agrees to qualify the sale of all
shares of Common Stock under such state securities laws as may be required in
connection with the sale of shares of Common Stock by the Creditor.
5. CONDITIONS TO THE CREDITOR'S OBLIGATIONS.
The company shall provide as if the date of Closing in form and
substance satisfactory to the Creditor, an opinion of counsel to the Company to
the effect that:
(a) 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) The execution and delivery by the Company of this Agreement (i) is
within the Company's corporate powers: (ii) is duly authorized by the Company's
board of directors; (iii) is not in contravention of the terms of the Company's
certificate of incorporation or bylaws; (iv) is not in contravention of any law
or laws; (v) except for any filing which may be required pursuant to applicable
state securities of "blue sky" laws, do not require any governmental consent,
registration or approval; (vi) does 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) This Agreement has been duly authorized, executed and delivery by the
Company and constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(d) The authorized capital stock of the Company as of January 25, 1999
consists of 200,000,000 shares of Common Stock, par value $.0001 per share,
51,071,150 share 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
-6-
<PAGE> 7
share, authorized 200 shares, 0 shares issued and outstanding; Series D
Preferred Shares, stated value of $10,000 per share, authorized 350 shares, 0
shares issued and outstanding; and Series E Preferred Shares, stated value
$10,000 per share, authorized 140 shares, 0 shares issued and outstanding. Since
January 25, 1999, no additional shares of Common Stock or Preferred Stock have
been issued other than the Common Shares issued to the Creditor at Closing,
provided, however, up to 350 Series D Preferred Shares and 140 Shares Series E
Preferred Shares are authorized for issuance to certain creditors and
shareholders of Toledo Pickling and Steel Sales, Inc.
(e) Since January 1, 1997, the Disclosure Documents (other than the
Registration Statement on Form SB-2 (File No. 333-60761) constitute all
documents required to be filed with the SEC 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 compiled 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 omit 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.
(f) There is neither pending nor, to such counsel'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 which may have a material adverse effect on the financial position of
the Company or which calls into question any of the transactions contemplated by
this Agreement. There are no governmental proceedings pending or threatened
under state or federal environmental laws requiring disclosure under the
Exchange Act.
(g) Subject to the accuracy of the representations of the Creditor set
forth in Section 3.2 hereof, the offer, sale and issuance of the Common Shares
as contemplated by this Agreement are exempt from the registration requirements
under the Securities Act. The Company has complied with all applicable state
securities laws in connection with the offer, sale and issuance of the Common
Shares as contemplated by the Agreement.
6. MISCELLANEOUS.
6.1 Confidentiality.
(a) The Creditor agrees to keep confidential any and all non-public
information delivered or made available to the Creditor by the Company and
identified as confidential, except for disclosures, as necessary, made by the
Creditor to the Creditor's officers, directors, employees, agents, counsel and
accountants each of whom shall be notified by the Creditor of this
confidentiality covenant and for whom the Creditor 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 Creditor 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 Creditor, (c) which has been publicly disclosed, or (d) to any of its
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<PAGE> 8
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 Creditor 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 disclosure only the minimal amount of
information ultimately required to be disclosed. The Creditor 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
Creditor, advisors to or representatives of the Creditor unless prior to
disclosure of such information the Company marks such information as "Non-Public
Information-Confidential" and provides the Creditor, 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 Creditor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Creditor.
6.2 Default and Rights and Remedies. Upon the occurrence to default, the
Creditor shall have the rights and remedies set forth in the Note and the rights
and remedies available to the Creditor under applicable law.
6.3 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.
6.4 Survival. All agreements, covenants, representations and warranties
made by the Company or by the Creditor herein shall survive the execution and
delivery of this Agreement.
6.5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE LAWS
OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT GIVING EFFECT TO THE PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAWS.
6.6 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.
6.7 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
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<PAGE> 9
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 such Creditor. Any such
amendment, modification, alteration, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
6.8 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
Attn: Secretary
Tel: (303) 446-2188
Fax: (303) 446-5972
with copies to: Gallagher, Briody & Butler
212 Carnegie Center, Suite 402
Princeton, New Jersey 08540
Attn: Thomas P. Gallagher
Tel: (609) 452-6000
Fax: (609) 452-0090
if to the Creditor: Treasurer
U.S. Steel Group of USX Corporation
600 Grant Street
Pittsburgh, Pennsylvania 15219-2749
6.9 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 he remaining provisions of this Agreement.
10.10 Recision. Pursuant to Section 207(m) of the Pennsylvania Securities
Act of 1972, the following notice is provided to the Creditor:
"EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM
REGISTRATION BY SECTION 203(d), DIRECTLY FROM THE
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<PAGE> 10
ISSUER OR AFFILIATE OF THE ISSUER, SHALL HAVE THE RIGHT TO WITHDRAW HIS
ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE SELLER, UNDERWRITER (IF ANY)
OR ANY OTHER PERSON WITHIN 2 BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE
ISSUER OF HIS WRITTEN BINDING CONTRACT OF PURCHASE OR, IN THE CASE OF A
TRANSFACTION IN WHICH THERE IS NO BINDING CONTRACT OF PURCHASE, WITHIN 2
BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING
OFFERED. YOUR WITHDRAW WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON AND
YOU MAY RECEIVE A FULL REFUND OF ALL MONIES PAID BY YOU. TO ACCOMPLISH THIS
WITHDRAW, YOU NEED ONLY SEND A LETTER OR TELEGRAM TO THE ISSUER INDICTING YOUR
INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED
PRIOR TO THE END OF THE AFORMENTIONED SECOND BUSINESS DAY. IF YOU ARE SENDING A
LETTER, IT IS PRUDENT TO SEND IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ASSURE THAT ITS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED.
SHOULD YOU MAKE THE REQUEST ORALLY, YOU SHOULD ASK FOR WRITTEN CONFIRMATION THAT
YOUR REQUEST HAS BEEN RECEIVED."
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above, as confirmed by signatory below. Facsimile signature of this
Agreement shall be binding on all parties hereto. Signature of Issuer:
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
By: /s/ Richard Bailey
-------------------------------------
Richard Bailey
President and Chief Operating Officer
Signatory of Creditor:
U.S. Steel Group
Of USX Corporation
600 Grant Street
Pittsburgh, PA 15219-2749
By: /s/ Torrance F. O'Connor
---------------------------------
Torrance F. O'Connor
Treasurer of U.S. Steel Group
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<PAGE> 1
EXHIBIT 10.72
PROMISSORY NOTE
$2,000,000 January 29, 1999
FOR VALUE RECEIVED, the undersigned, Consolidated Capital of North America,
Inc., a Colorado corporation (the "Company"), promises to pay to the U.S. Steel
Group of USX Corporation ("Creditor"), at 600 Grant Street, Pittsburgh,
Pennsylvania 15219-2749, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America, the principal
amount of $2,000,000 as described herein. This Note delivered in connection with
the Agreement dated January 29, 1999 between the Company and the Creditor (the
"Agreement"). The Company further promises to pay interest (computed on the
basis of a year consisting of 365 days) on the principal balance of this
Promissory Note (this "Note") outstanding from time to time at the rate of 8.0%
per annum.
Interest on this Note shall be payable quarterly in arrears on the 1st day
of March, June, September and December beginning on March 1, 1999 (each an
"Interest Payment Date"). The principal of this Note and accrued and unpaid
interest hereon shall be due and payable in quarterly installments in the amount
of $166,666.67 on each Interest Payment Date with the final balance of
$166,666.63 due in full on December 1, 2001.
The Company shall have the option at any time to prepay, without penalty,
the whole or a part of the principal of this Note upon 10 days prior written
notice. All prepayments shall be applied first to accrued and unpaid interest
and then to principal.
CONVERSION.
The holder of the Note may at any time prior to the Maturity hereof,
convert the principal amount hereof remaining outstanding into the Company's
Common Stock, par value $.0001 per share, at the conversion ratio of $.209 of
principal for one share of Common Stock, or an aggregate of 9,569,378 shares
(except that, if the Company has given notice of an intent to prepay the Note,
the right to convert shall terminate at the close of business on the second
business day prior to the day fixed for such repayment). The Note may be
converted in part in a minimum amount of $100,000 or a multiple thereof. To
convert the Note, the holder must surrender it at the office of the Company,
together with a written instrument of transfer in a form satisfactory to the
Company, properly completed and executed and with a written notice of
conversion. If less than the total amount of principal is converted, a new Note
will be issued for the balance.
If the Company at any time pays to the holders of its Common Stock a
dividend in Common Stock, the number of shares of common stock issuable upon the
conversion of this Note shall be proportionally increased, effective at the
close of business on the record date for determination of the holders of the
Common Stock entitled to the dividend.
<PAGE> 2
If the company at any time subdivides or combines in a larger or smaller
number if shares its outstanding shares of Common Stock, then the number of
shares of Common Stock issuable upon the conversion of this Note shall be
proportionally increased in the case of a subdivision and decreased in the case
of a combination, effective in either case at the close of business on the date
that the subdivision or combination becomes effective.
If the Company is recapitalized, consolidated with or merged into any other
corporation, or sells or conveys to any other corporation all or substantially
all of its property as an entity, provision shall be made as part of the terms
of the recapitalization, consideration, merger, sale, or conveyance so that the
holder of this Note may receive, in lieu of the Common Stock otherwise issuable
to them upon conversion hereof, at the same conversion ratio, the same kind and
amount of securities or assets as may be distributable upon the
recapitalization, consolidation, merger, sale, or conveyance with respite to the
Common Stock.
EVENTS OF DEFAULT.
The Company shall be in default under this Note upon the occurrence of: (I)
any of the events specified in Clause (a) hereof and the failure to cure such
default within five (5) days; (ii) any of the events specified in Clause (b)
hereof and the failure to cure such default within then (10) days after receipt
of written notice thereof from the Holder, or (iii) any of the events specified
in Clause (c) hereof (any of the foregoing being an "Event of Default"):
(d) Failure to make any principal or interest payment required under
this Note on the due date of such payment;
(e) Any materiel default, breach or misrepresentation shall occur
under the terms and provisions of the Note Purchase Agreement; or
(f) 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 readjustments of
indebtedness, composition or extension by the Company, or commenced against
the Company which is not discharged within sixty (60) days.
REMEDIES UPON EVENT OF DEFAULT.
Upon the occurrence of an Event of Default:
(d) Specified in Clause (c) of the Events of Default, then the Note
shall be automatically accelerated and immediately due and payable at the
option the 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;
(e) Specified in Clause (a) or (b) of the Events of Default, 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
<PAGE> 3
(f) 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.
If any required payment under this Note is not paid when due, the amount of
such payment shall bear interest after such due date at a rate which is five
percent (5.0%) per annum in excess of the otherwise applicable rate of interest.
The Note is fully transferable by Creditor without the consent of or notice
to the Company.
It is expressly stipulated and agreed to be the intent of the Company and
Creditor 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 Creditor 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 Creditor's express intent that
all excess cash amounts theretofore collected by Creditor 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 Creditor does not intend
to collect any unearned interest in the event of acceleration.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
a Colorado corporation
BY: /s/ RICHARD D. BAILEY
-------------------------------------
Richard D. Bailey
President and Chief Operating Officer
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated April 15, 1999 on Consolidated Capital of North America, Inc.
included in this Form 10-KSB, into the Company's previously filed Registration
Statement on Form S-8 (File No. 333-50273).
/s/ Arthur Andersen, LLP
Los Angeles, California
April 15, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of reference in the Registration
Statement on Form S-8 (No. 333-50273) of Consolidation Capital of North America,
Inc. of our report dated December 5, 1997, except as to Note 14, which is as of
February 10, 1999, relating to the financial statements of Toledo Pickling &
Steel Sales, Inc., which appears in the Current Report on Form 8-K/A of
Consolidated Capital of North America, Inc. dated February 12, 1999.
/s/ PricewaterhouseCoopers, LLP
PricewaterhouseCoopers LLP
Toledo Ohio
February 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-KSB
for the year ended December 31, 1998. Balance Sheets, Statements of Operations,
Cash Flows and Notes to Statements and is qualified in its entirety by reference
to such Financial Statements, Balance Sheets, Statements of Operations,
Statements of Cash Flow for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 48,466
<SECURITIES> 0
<RECEIVABLES> 7,071,188
<ALLOWANCES> 217,468
<INVENTORY> 4,872,424
<CURRENT-ASSETS> 12,619,197
<PP&E> 13,121,315
<DEPRECIATION> 733,522
<TOTAL-ASSETS> 29,754,996
<CURRENT-LIABILITIES> 32,819,366
<BONDS> 0
0
1,193,000
<COMMON> 4,808
<OTHER-SE> (5,393,362)
<TOTAL-LIABILITY-AND-EQUITY> 29,754,996
<SALES> 20,291,655
<TOTAL-REVENUES> 20,291,655
<CGS> 17,678,066
<TOTAL-COSTS> 17,678,066
<OTHER-EXPENSES> 12,195,153
<LOSS-PROVISION> 51,246
<INTEREST-EXPENSE> 5,193,069
<INCOME-PRETAX> (14,825,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,825,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,825,879)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
