As filed with the Securities and Exchange Commission on August 31, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THCG, INC.
(Exact name of registrant as specified in its charter)
Delaware 7320 87-0415597
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
650 Madison Avenue, 21st Floor
New York, New York 10022
(212) 223-0440
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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JOSEPH D. MARK
650 Madison Avenue, 21st Floor
New York, New York 10022
(212) 223-0440
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
PETER S. KOLEVZON, ESQ.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
(212) 715-9100
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), check the
following box. [X]
<PAGE>
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] _______
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed
Title of Shares Amount Maximum Proposed Maximum Amount of
to be Registered to be Offering Price Aggregate Registration
Registered Per Share (2) Offering Price Fee
(1)
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<S> <C> <C> <C> <C> <C>
Common Stock, par value $.01 per share 2,926,467 $4.000 $11,705,868 $3,091
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</TABLE>
(1) Consists of shares of common stock issuable upon (a) conversion of the
Registrant's series A convertible participating preferred stock (the
"Preferred Stock") and (b) exercise of a warrant to purchase 396,899
shares of common stock at $5.039 per share (the "Warrant"). This
Registration Statement shall also cover an indeterminate number of
additional shares of common stock as may be issuable upon conversion of
the Preferred Stock and exercise of the Warrant to prevent dilution
resulting from stock splits, stock combinations, stock dividends and other
similar transactions.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act, based on the average of
the high and low sales prices for THCG common stock as reported on the
Nasdaq National Market on August 25, 2000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
August 31, 2000
2,926,467 SHARES
[LOGO]
THCG, INC.
COMMON STOCK
The stockholder of THCG listed on page 16 of this prospectus is offering
and selling a total of 2,926,467 shares of our common stock under this
prospectus. We will not receive any of the proceeds from the sale of the shares
offered by the selling stockholder.
Our common stock is traded on the Nasdaq National Market under the symbol
"THCG." On August 29, 2000, the last sale price for our common stock, as
reported on the Nasdaq National Market, was $4.125 per share.
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Investing in our common stock involves certain risks. See "Risk
Factors" beginning on page 2.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
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The date of this prospectus is _____, 2000.
<PAGE>
TABLE OF CONTENTS
About THCG...................................................................1
Risk Factors.................................................................2
Forward-Looking Statements...................................................14
Use of Proceeds..............................................................15
Description of Capital Stock................................................15
Selling Stockholder.........................................................17
Plan of Distribution........................................................18
Legal Matters...............................................................19
Experts.....................................................................19
Where You Can Find More Information.........................................19
<PAGE>
SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. To understand this
offering fully, you should read the entire prospectus carefully, including "Risk
Factors" beginning on page 2. In addition, you should also read the documents we
have referred you to in "Where You Can Find More Information" on page 16 for
information about our company and our financial statements.
ABOUT THCG
We are an active Internet and technology accelerator providing V3 global
enterprise enhancing services -- a seamless integration of venture development,
venture banking and venture funding services--both to companies in which we
acquire direct or indirect equity interests as well as to third parties to which
we provide services for fees. We are penetrating new markets by developing our
international operations and by expanding our global coverage of the Internet
and technology sectors. We expect to complete our previously announced
acquisition of certain businesses operated by the Giza Group in Israel this
quarter.
Our venture partner companies and other equity holdings include advanced
technology and service companies, established "brick and mortar" companies
implementing an Internet-based strategy and global Internet-based businesses. By
providing our venture partner companies with our unique V3 services offerings,
we believe that we help our venture partner companies focus on their core
strengths, so that they may accelerate their development and bring their
products and services to market more rapidly.
Our goal is to build dominant Internet and technology businesses with a
global presence that are highly differentiated and have viable business models,
and to acquire equity interests in those businesses. To date, we have, and we
continue to acquire, equity interests in our partner companies through a venture
fund that is managed by one of our wholly-owned subsidiaries and in which we own
a 9.9% interest. On certain occasions, we have also acquired direct equity
interests in our partner companies. In the future, our venture funding strategy
is to acquire direct equity interests of at least 25% in our partner companies.
Although we do not intend to engage in short-term sales of our equity interests
in our partner companies, we hope to realize gains through the selective sale of
our equity interests over a period of time.
We seek to build our partner companies and to maximize the value of our
equity interest in them by providing venture development and venture banking
services to our partner companies and by promoting innovation and collaboration
among them. Our venture development services include strategic and management
consulting services, as well as business infrastructure and technology services.
Our venture banking services include general advisory services, capital raising
transactions, as well as advising our partner companies on private placements,
mergers, acquisitions, recapitalizations and refinancings. By providing these
venture development and venture banking services, together with our venture
funding activities, we believe we are able to provide critical services to our
partner companies at every stage of their development.
We believe that our ability to finance, build and advise our partner
companies in an integrated service offering that we term V3 differentiates us
from our competitors, who typically provide services designed to address more
short-term and specific needs of Internet and technology businesses. We also
believe that our global focus will further differentiate us from our competitors
who tend to have more regional or local focuses.
We are a Delaware corporation formerly known as Walnut Financial Services,
Inc. Our executive offices are located at 650 Madison Avenue, 21st Floor, New
York, New York 10022 through August 31, 2000, at which time we will move to 512
Seventh Avenue, 17th Floor, New York, New York 10018. Our phone number is (212)
223-0440. References in this prospectus to "THCG" or "us" or "our" mean THCG and
its subsidiaries on a consolidated basis, unless the context otherwise requires.
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<PAGE>
RISK FACTORS
You should be aware that there are various risks involved in an investment
in our common stock. Before investing in our common stock, you should carefully
consider the following risk factors and other information in this prospectus.
Risk Factors Affecting Our Business
Our business, as currently conducted, has a limited operating history, and it is
difficult to predict whether our business will be successful.
On November 1, 1999, we withdrew our election to be regulated as a
business development company under the Investment Company Act of 1940. At the
same time, we shifted our business focus from that of investing in securities to
that of an operating company actively engaged in providing venture funding,
venture development and/or venture banking services to both Internet and
technology businesses and partner companies, while actively participating in the
management, financing and operation of those companies. As a result, our
business, as currently conducted, has a limited operating history. Our prospects
must be considered in light of the risks and uncertainties frequently
encountered by companies expanding into new and rapidly evolving areas such as
the Internet and technology. Many of the risks, uncertainties, delays and
difficulties associated with providing venture funding, venture development
and/or venture banking services to and operating Internet and technology
businesses are beyond our control. We cannot assure our stockholders that we
will be successful in meeting the challenges and addressing the risks that we
face in this new and rapidly changing market.
Our business is capital intensive and we may not be able to secure additional
capital when we need it in the future to support our growth.
Our business is capital intensive. In the future, we expect periodically
to raise funds to acquire equity interests in and establish new partner
companies, to support our operations and expand our venture development and
venture banking services, and to support the operations and growth of our
partner companies. Our future capital requirements will depend in large part on
the number of partner companies in which we acquire equity interests and which
we establish, the amounts of capital we provide to these companies and the
timing of these payments. Our plans and the related capital requirements will be
dependent on various factors, such as developments in our markets and the
availability of acquisition and entrepreneurial opportunities. If we are
successful in selling additional equity securities, our then existing
stockholders may suffer significant dilution. However, we may not be able to
obtain financing on acceptable terms, or at all, when we need it. If we require,
but are unable to obtain, additional financing in the future on acceptable
terms, or at all, we will not be able to continue our business strategy, respond
to changing business or economic conditions, withstand adverse operating results
or compete effectively, and our business, financial condition and operating
results may be materially and adversely affected as a result.
Our investments in our partner companies and other equity holdings are risky.
A portion of our assets include equity interests which we have directly
and indirectly acquired in our partner companies. As of August 15, 2000, one of
our venture funds had acquired interests in eight companies, with its equity
stakes in these companies ranging from 1.7% to 19.0%. In the future, we expect
to acquire direct equity interests of at least 25% in our partner companies.
Decreases in the value of our partner companies or other equity holdings will
have an adverse effect on our business, financial condition and operating
results. Even though we intend to be actively involved in the affairs of our
partner companies, because we own or will own less than a majority of the shares
of our partner companies, we may not be able to control the policies or
directions that these companies take. Furthermore, we will not be involved in
the affairs of the other companies in which we hold equity interests and we will
not be able to control the policies or directions that these companies take.
All of our partner companies and most of our other equity holdings are in
the early stages of development, and we cannot assure you that these companies
will be able to successfully achieve their business goals in a timely manner or
at all. Our strategy is to realize a return on our equity interests in these
companies by liquidating these investments through sales of equity or otherwise.
We cannot assure you that we will realize
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<PAGE>
any return on any of these investments. Moreover, the trading price of our
common stock may be adversely affected if we do not realize any return on these
investments, or if that return is lower than the market expects. The failure of
one or more of the companies in which we have invested, and the timing of any
dispositions of our investments in these companies, could have a material
adverse effect on our business, financial condition and operating results and on
the market price of our common stock.
We will not be able to successfully execute our business strategy if we are
deemed to be an investment company under the Investment Company Act of 1940.
We are not currently required to be registered under the Investment
Company Act. Generally, a company must register under the Investment Company Act
and comply with significant restrictions on operations and transactions if: (1)
its investment securities exceed 40% of its total assets, or (2) it holds itself
out as being "primarily engaged" in the business of investing, owning or holding
securities. At this time, less than 40% of our total assets are investment
securities. If, in the future, our investment securities exceed 40% of our total
assets, we believe that we will not be required to register under the Investment
Company Act because we believe that we are "primarily engaged" in a
non-investment company business through our wholly-owned subsidiaries and that
we do not otherwise meet the requirements for registering under the Investment
Company Act. However, if more than 40% of our total assets are investment
securities and we are no longer "primarily engaged" in a non-investment company
business through our wholly-owned subsidiaries, we believe that we may be
considered to be "primarily engaged" in a non-investment company business
through our majority-owned subsidiaries and controlled subsidiaries. We would
then promptly file with the Securities and Exchange Commission an exemptive
application under Section 3(b)(2) of the Investment Company Act to have the
Securities and Exchange Commission so declare. If we do not receive exemptive
relief, then we may be required to register under the Investment Company Act.
Registration under the Investment Company Act would be inconsistent with our
present business strategy and would have a material and adverse effect on our
business, financial condition and operating results. Moreover, we might be
subject to civil and criminal penalties for failure to register, certain of our
contracts might be voidable and a court-appointed receiver could take control of
our company and liquidate our business.
To avoid regulation under the Investment Company Act, we would have to
attempt to reduce our investment securities to less than 40% of our total
assets. This reduction could be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we were required to sell investment securities, we may have
to sell them sooner than we otherwise would. These sales may be at depressed
prices, and we may not realize anticipated benefits from, or may incur losses
on, these investments. Some investments may not be sold due to contractual or
legal restrictions or the inability to locate a suitable buyer. Moreover, we may
incur tax liabilities when we sell assets. We may also be unable to purchase
additional investment securities that may be important to our operating
strategy. If we decide to acquire non-investment security assets, we may not be
able to identify and acquire suitable assets and businesses.
If we are deemed to be, and required to register as, an investment
company, we will be forced to comply with the numerous and burdensome
substantive requirements of the Investment Company Act, including:
o limitations on our ability to borrow;
o limitations on our capital structure;
o restrictions on acquisition of equity interests in partner
companies;
o prohibitions on transactions with affiliates;
o restrictions on specific investments; and
o compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations.
If we were forced to comply with the rules and regulations of the
Investment Company Act, our operations would significantly change, and we would
be prevented from successfully executing our business strategy. As a result, our
business, financial condition and operating results would be materially and
adversely affected.
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<PAGE>
The price of our common stock has been volatile.
The market price of our common stock has been, and is likely to continue
to be, volatile, experiencing wide fluctuations. In recent years, the stock
market has experienced significant price and volume fluctuations which have
particularly affected the market prices of equity securities of many companies
providing Internet-and technology products and services. Some of these
fluctuations appear to be unrelated or disproportionate to the operating
performance of these companies. Future market movements may materially and
adversely affect the market price of our common stock.
Fluctuations in our financial performance could adversely affect the trading
price of our common stock.
Our operating results may fluctuate as a result of a variety of factors,
many of which are beyond our control, including:
o the number of our partner companies with which we have established
relationships and the size and scope of the venture funding, venture
development and/or venture banking services which we are engaged to
provide;
o reductions, cancellations or completions of major engagements to
provide venture funding services, venture banking and/or venture
development;
o the loss of significant partner companies or a change of scope in
the venture funding, venture development and/or venture banking
services that we are providing to them;
o the efficiency with which we utilize our professionals, plan and
manage our existing and new partner companies and manage our future
growth;
o variability in market demand for venture funding, venture
development and/or venture banking services;
o our ability to retain and attract qualified professionals;
o our ability to provide our venture funding, venture development
and/or venture banking services within the budgets established by
our partner companies;
o costs related to expansion of our business;
o fluctuations in the market value of equity interests in our partner
companies and our other equity holdings;
o significant acquisitions;
o increased competition; and
o general economic conditions.
As a result of these possible fluctuations, period-to-period comparisons
of our operating results may not be reliable indicators of future performance. A
significant percentage of our expenses, including those related to employee
compensation and facilities, are fixed. If the number of our partner companies
and the scope of the venture funding, venture development and/or venture banking
services that we provide to them decreases in any period, then our revenues and
operating results may also decrease. In some quarters, our operating results may
fall below the expectations of securities analysts and investors due to many
factors, including those described above. As a result, the trading price of our
common stock would likely decline, and the decline could be significant.
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<PAGE>
We are dependent on our ability to recruit, train and retain highly skilled and
experienced professionals who are in short supply.
Our ability to provide our partner companies with venture funding, venture
development and/or venture banking services depends in large part on our ability
to identify, hire, train and retain highly skilled and experienced professionals
who have industry specific expertise and who are proficient in a broad range of
technological and business skills. There is a shortage of these highly skilled
and experienced personnel and we must compete with other companies for this
limited pool of people. We may be unable to attract, train or retain qualified
personnel. Failure to do so could have a material adverse effect on our
business, financial condition and operating results.
We compete against other larger companies that may be better able to provide
Internet and technology businesses with the services that we offer.
We compete against numerous public companies such as CMGI, Inc., Internet
Capital Group, Inc., Rare Medium Group, Inc., Softbank Corp. and Divine
Interventures, Inc., as well as private companies such as Idealab!, that provide
some combination of the venture funding, venture development and venture banking
services which we provide. Many of these competitors have longer operating
histories, larger installed client bases, greater name recognition, more
experience and significantly greater financial, technical, marketing and other
resources than we do. We expect that competition from both private and public
companies in our markets will intensify. At any time, our current and potential
competitors could increase their resource commitments to our markets. Among
other adverse consequences, this competition may diminish our ability to
identify, attract and develop relationships with partner companies. As a result,
our business, financial condition and operating results could be materially and
adversely affected.
Competition for venture funding services is intense.
In providing venture funding services, we compete directly against
traditional venture capital and private equity firms and public and private
companies with venture funds, and many of these competitors have significantly
greater experience and financial resources than we have. In addition to these
competitors, numerous public companies such as CMGI, Inc., Internet Capital
Group, Inc., Rare Medium Group, Inc., Softbank Corp. and Divine Interventures,
Inc., as well as private companies such as Idealab!, devote significant
resources to providing capital together with other resources to Internet and
technology companies. Additionally, corporate strategic investors, including
Fortune 500 and other significant companies, are developing Internet and
technology strategies and capabilities. Many of these competitors have
significantly greater financial resources and brand name recognition than we do,
and the barriers to entry for companies seeking to provide capital and other
resources to entrepreneurs and their emerging technology companies are minimal.
We expect that competition from both private and public companies with business
models similar to our own will intensify. Among other adverse consequences, this
competition may diminish the pool of potential investment opportunities and
raise the cost of making future investments. As a result, our business,
financial condition and operating results could be materially and adversely
affected .
Competition for venture development and venture banking services is intense.
The individual markets for venture development and venture banking
services are intensively competitive and characterized by an increasing number
of entrants because the barriers to entry in these markets are relatively low.
In providing venture development services, we compete directly against strategy
consulting, management consulting and technology development firms. In providing
venture banking services, we compete directly with other investment banking and
merchant banking firms which vary in size from small, privately-owned firms to
very large, publicly-held corporations. We also face increasing competition from
other sources, such as commercial banks, insurance companies and consulting
firms offering financial services.
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<PAGE>
Many of our current and potential competitors in the venture development
and venture banking markets have longer operating histories, larger installed
client bases, greater name recognition and more experience, and have
significantly greater financial, technical, marketing and other resources than
we do. As a result, our competitors may be more attractive partners to Internet
and technology businesses. In addition, our competitors may be able to respond
more quickly to changes in client needs, service more clients simultaneously and
undertake more extensive marketing campaigns. We cannot assure you that we will
be able to compete successfully against our current or future competitors or
that competitive pressures will not have a material adverse effect on our
business, financial condition and operating results.
We may fail to successfully establish partner companies or properly identify
partner companies in which to acquire equity interests and effectively complete
these transactions.
Our success depends on our ability to identify opportunities to acquire
equity interests in or establish partner companies that will become successful
in the future and to successfully negotiate the terms of any acquisitions we
make. Our management has sole and absolute discretion in identifying and
selecting partner companies in which to acquire equity interests or to
establish, and in structuring, negotiating, undertaking and divesting of equity
interests in, our partner companies. Our stockholders will not be able to
evaluate the merits of the acquisition of an interest in, or the establishment
of, any particular partner company before we make the acquisition or establish
the company. In addition, in making decisions to acquire equity interests in or
establish partner companies, we will rely, in part, on financial projections
developed by our management and the management of potential partner companies.
These projections will be based on assumptions and subjective judgments. The
actual results of our partner companies may differ significantly from these
projections. If we have established or acquired equity interests in partner
companies that fail to meet their projections or otherwise fail to generate
income, our business, financial condition and operating results could be
materially and adversely affected.
Even if we identify a company that complements our strategy, we may be
unable to acquire an interest in that company for many reasons, including:
o our inability to agree on the terms of an acquisition or to acquire an
interest of at least 25% in the company;
o a lack of capital to acquire an interest in the company; and
o incompatibility between us and management of the company.
The failure to acquire equity interests in potential partner companies
that we have identified could adversely affect our business, financial condition
and operating results.
We have potential conflicts of interest with our venture fund.
Some of our senior executive officers and directors have been actively
involved in the venture funding decisions of our venture fund, THCG Venture
Partners I. One of our directors and executive officers is the President and
Chief Executive Officer of the sole manager of THCG Venture Partners I, and
several of our officers and directors are indirect investors in THCG Venture
Partners I. Many of our officers are also actively involved in providing ongoing
venture funding, venture development and/or venture banking services to partner
companies in which THCG Venture Partners I has invested. These individuals may
have conflicting fiduciary duties to our stockholders and to the investors in
THCG Venture Partners I, including themselves in some cases. In addition, they
may have conflicts between our interests and their own indirect personal
financial interests in THCG Venture Partners I and our partner companies in
which THCG Venture Partners I has invested.
We have not adopted a conflicts of interest policy to govern these
situations.
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<PAGE>
Our acquisition strategy may result in increased expenses, difficulties in
integrating acquired companies and diversion of management's attention.
A key component of our growth strategy is to pursue acquisitions of
businesses that complement our business strategy. We expect the competition for
acquisition candidates to continue to increase. We cannot assure you that we
will be able to identify and compete successfully for attractive acquisition
candidates or complete acquisitions at reasonable purchase prices, in a timely
manner or at all.
Some of the other risks that we may encounter in our acquisition growth
strategy include:
o expenses and difficulties in identifying potential targets and the
costs associated with uncompleted acquisitions;
o expenses, delays and difficulties of integrating acquired companies
into our existing organization;
o diversion of management's attention;
o expenses of amortizing acquired companies' intangible assets;
o issuance of equity securities to pay for acquisitions that will
dilute existing stockholders;
o possible adverse impact on our financial condition due to the timing
of an acquisition; and
o expense of any undisclosed or potential financial and legal
liabilities of acquired companies.
If realized, any of these risks could have a material adverse effect on
our business, financial condition and operating results.
We may face difficulties managing our growth.
Our recent growth has required a great amount of our managerial and
operational resources. In the future, we intend to develop the infrastructure
necessary to implement our business strategy of acquiring equity interests in
additional partner companies and penetrating new markets by developing our
international operations, and by expanding our global coverage of the Internet
and technology industries. To manage this growth, our management must continue
to:
o improve our operational and financial systems, procedures and
controls;
o expand our information technology systems; and
o expand, train, retain and manage our employee base.
If our systems, procedures and controls are inadequate to support our
operations, our expansion would be impaired. Our inability to manage our growth
effectively could have a material adverse effect on our business, financial
condition and operating results.
We may have difficulty in managing our international operations and expansion,
which could adversely affect our operating results and business.
A key element of our strategy is to penetrate new markets by developing
our international operations and by expanding our global coverage of the
Internet and technology industries. We expect to complete the previously
announced acquisition of certain businesses operated by the Giza Group in Israel
in the third quarter of 2000. Our management may have difficulty in managing our
international operations because of distance, as well as language and cultural
differences. We also may be unable to market and operate our services
successfully in foreign markets.
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<PAGE>
Other risks related to international operations include:
o fluctuations in currency exchange rates;
o difficulties arising from staffing and managing foreign operations;
o state-imposed restrictions on the repatriation of funds;
o legal and regulatory requirements of different countries, such as
differing tax, intellectual property or labor laws; and
o potential political and economic instability.
If any of these risks materialize, we may not be able to successfully
promote our services or perform client engagements in international markets. As
a result, our growth and ability to compete effectively may be hindered and our
business, financial condition and operating results could be materially and
adversely affected.
Our success, and the success of our partner companies, depends on the continued
expansion of e-commerce.
Our success, and the success of our partner companies, depends on the
continued expansion of business-to-business and business-to-consumer e-commerce.
The e-commerce market is still in its early stages of development. If widespread
commercial use of the Internet by individuals and businesses does not continue
to expand, or if the Internet does not continue to develop as an effective
medium for the provision of products and services, our business, financial
condition and operating results, and those of our partner companies, will be
materially and adversely affected.
Factors that may adversely affect the expansion of the Internet and
e-commerce include:
o actual or perceived lack of security of information;
o congestion of Internet traffic or other usage delays;
o inconsistent quality of service;
o increases in Internet access costs;
o increases in government regulation of the Internet;
o uncertainty regarding intellectual property ownership;
o reluctance to adopt new business methods;
o costs associated with the obsolescence of existing infrastructure;
and
o economic viability of e-commerce models.
Governmental regulation of the Internet could adversely impact our business and
operations and the business and operations of our partner companies.
Currently, few laws or regulations are directly applicable to the
Internet. Due to the increasing popularity and use of the Internet, it is likely
that a number of new laws and regulations may be adopted at the local, state,
national or international levels with respect to the Internet, including
Internet laws regarding privacy, taxation, pricing, content, copyrights,
distribution and quality of products and services. The enactment of any new laws
or regulations, including international laws and regulations, could inhibit the
growth in use of the Internet and decrease the acceptance of the Internet as a
communications and commercial medium, which could in turn decrease the demand
for our services and those of our partner companies, or otherwise have a
material adverse effect on our business, financial condition and operating
results, and those of our partner companies.
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<PAGE>
The loss of executive management or other key personnel may adversely affect our
business and operations and our ability to compete effectively.
Our business and operations depend largely on the skills of our key
management and technical personnel. Many of our executive officers have recently
joined us, and many of our key personnel have worked together for a relatively
short period. If one or more members of our executive management or other key
personnel were unable or unwilling to continue in their present positions, these
persons would be very difficult to replace. In addition, if any of these persons
joined a competitor or formed a competing company, some of our clients might
choose to use the services of that competitor or new company instead of ours.
Furthermore, our clients or other companies seeking management talent may hire
some members of our executive management or other key personnel. This could
result in the loss of our client relationships or new business opportunities and
materially and adversely affect our ability to implement our business strategy.
Our partner companies could make business decisions that are not in our best
interests or that we do not agree with, which could impair the value of our
partner company interests.
Because neither we nor the venture fund in which we own a 9.9% interest
owns a majority voting interest in any of our partner companies or our other
equity holdings, we do not have complete control over any of them. While we plan
to acquire direct equity interests of at least 25% in our partner companies in
the future, we will continue to acquire less than majority voting interests in
most of our partner companies. Further, we may not maintain our current
ownership levels in our partner companies if we sell portions of our equity
interests or our partner companies issue additional equity to other parties.
Our ownership of equity interests over which we do not exercise complete
control involves additional risks that could cause our equity interests, and
therefore our business, financial condition and operating results to be
materially and adversely affected, including:
o management having economic or business interests or objectives that
are different than ours; and
o partner companies not taking our advice with respect to the
financial or operating difficulties that they encounter.
Our inability to control our partner companies completely could prevent us
from assisting them, financially or otherwise, or could prevent us from
liquidating our equity interests in them at a time or at a price that is
favorable to us. Additionally, to the extent we do not completely control them,
our partner companies may not act in ways that are consistent with our business
strategy and may compete with us or other partner companies. These factors could
hamper our ability to maximize returns on our equity interests, and cause us to
recognize losses on our equity interests in partner companies.
Failure to develop and strengthen the THCG brand could adversely affect our
business.
We believe that maintaining and strengthening the THCG brand is an
important aspect of attracting and maintaining clients. The importance of brand
recognition will increase as competition in the market for Internet and
technology services increases. Building a brand requires a successful marketing
effort and successful delivery of products and services to clients. A single
event involving client dissatisfaction could tarnish our perception as a whole
despite our efforts to maintain and strengthen the THCG brand name.
Consequently, the strategy adopted and expenses incurred by us may not result in
a stronger brand.
Ownership of our company is concentrated.
Joseph D. Mark and Adi Raviv, our co-chairmen and directors, each
beneficially owned approximately 17.5% of our outstanding common stock as of
August 14, 2000. As a result, Messrs. Mark and Raviv possess significant
influence over our company on business matters, including the election of
directors, the appointment of new management and the approval of any other
action requiring the approval of our stockholders. Greenwich Street Capital
Partners II, L.P. and certain of its affiliates ("GSCP") beneficially owned
approximately 35.7% of our outstanding common stock as of August 14, 2000. In
addition, pursuant to a voting agreement between us and
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GSCP, GSCP has the right to appoint one individual to our Board of Directors so
long as Greenwich Street Capital Partners is the holder of common stock or
warrants to purchase common stock which equal at least 5%, in the aggregate, of
our outstanding shares of common stock. Keith W. Abell, Co-President of
Greenwich Street Capital Partners, became a director on November 1, 1999.
The concentration of our share ownership may:
o delay or prevent a change in control of THCG;
o impede a merger, consolidation, takeover or other business
combination involving THCG; or
o discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of THCG.
The broker-dealer activities of our wholly-owned subsidiary, Tower Hill
Securities, are subject to extensive regulation.
Our wholly-owned subsidiary, Tower Hill Securities, is a registered
broker-dealer and a member of the National Association of Security Dealers, or
NASD. As a result, Tower Hill Securities' principals, registered representatives
and other associated persons must comply with applicable state securities laws,
rules and regulations, and with the rules of the NASD. Broker-dealers are
subject to extensive regulations which cover all aspects of the securities
business, including sales methods, trade practices, capital structure, record
keeping and conduct of directors, officers and employees. In addition, Tower
Hill Securities is required to maintain a minimum regulatory net capital and a
specified ratio of aggregate indebtedness to net capital. The failure to comply
with, or adverse changes in, the laws or regulations to which Tower Hill
Securities' business is subject, or adverse changes in the interpretation
thereof, could have a material adverse effect on the business, financial
condition and operating results of Tower Hill Securities and us, as its parent.
Conversion of the series A convertible participating preferred stock and
exercise of the related warrant may adversely affect our stockholders.
Our board has the authority to issue up to 4,995,000 shares of our
preferred stock and to determine the terms, including voting rights, of those
shares without any further vote or action by our stockholders. On August 2,
2000, we issued 5,000 shares of series A preferred stock to Castle Creek
Technology Partners LLC. Prior to December 29, 2000, the series A preferred
stock is convertible (subject to anti-dilution protections) into shares of our
common stock at a fixed price of $5.039 per share. Thereafter, the series A
preferred stock is convertible at a floating rate based on the market price of
our common stock, if lower than $5.039, subject to anti-dilution adjustment.
Therefore, the lower the market price of our common stock is at the time of
conversion, the greater number of shares of common stock the holder of the
series A preferred stock will receive upon conversion of the series A preferred
stock, up to a maximum of 2,529,568 shares of common stock. For additional
detail, please see the description of the series A preferred stock under
"Description of Capital Stock."
In addition, in connection with the issuance of the series A preferred
stock, we also issued to Castle Creek a warrant to purchase up to an additional
396,899 shares of our common stock. The warrant is exercisable at $5.039 per
share throughout its four year term.
To the extent the series A preferred stock is converted and this warrant
is exercised, a significant number of shares of our common stock may be sold
into the market, which could decrease the price of our common stock, encourage
short sales and substantially dilute the interest of other holders of our common
stock.. Short sales could place further downward pressure on the price of our
common stock. In that case, we would be required to issue an increasingly
greater number of shares of common stock upon future conversions of the series A
preferred stock of up to a maximum of 2,529,568 shares, sales of which would
continue to depress the price of our common stock.
Our series A preferred stock is entitled to priority over the common stock
in any liquidation of THCG and we may not pay dividends on the common stock nor
may we purchase common stock without first obtaining the approval of two-thirds
of the holders of the series A preferred stock.
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The issuance of other preferred stock or additional common stock may adversely
affect our stockholders.
The voting and other rights of the holders of our common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
other preferred stock that may be issued in the future. Similarly, our board may
issue additional shares of common stock without any further vote or action by
stockholders, which would have the effect of diluting common stockholders. An
issuance could occur in the context of a public or private offering of shares of
common stock or preferred stock or in a situation in which the common stock or
preferred stock is used to acquire the assets or stock of another company. An
issuance of common stock or preferred stock could have the effect of delaying,
deferring or preventing a change in control.
Anti-takeover provisions could make a third-party acquisition of our company
difficult.
We are a Delaware corporation. The Delaware General Corporation Law
contains provisions that could make it more difficult for a third party to
acquire control of us. In addition, we have a classified board of directors,
with board members serving staggered three-year terms. The existence of a
classified board could make it more difficult for a third party to acquire
control of us.
Shares eligible for future sale could cause our stock price to decline.
The market price of our common stock could decline as a result of future
sales of substantial amounts of our common stock, or the perception that such
sales could occur. Furthermore, certain of our existing stockholders have the
right to require us to register their shares, which may facilitate their sale of
shares in the public market.
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Risk Factors Affecting Our Partner Companies
Our partner companies' growth depends on their ability to retain their key
personnel.
Although we offer management guidance and support to our partner
companies, the growth of our partner companies will depend on their ability to
attract and retain their own senior management personnel. As they expand, our
partner companies will also need to continue to hire additional technical,
marketing, financial and other key personnel, unless they rely on us or third
parties to provide these services. A shortage in the availability of required
personnel could limit the ability of our partner companies to grow, sell their
products and services and launch new products and services.
Many of our partner companies may grow rapidly and may be unable to manage their
growth.
We expect many of our partner companies to grow rapidly. Rapid growth
often places considerable operational, managerial and financial strain on a
business. To successfully manage their rapid growth, our partner companies must:
o rapidly improve, upgrade and expand their business infrastructures;
o deliver products and services on a timely basis;
o maintain levels of service expected by clients and customers;
o maintain adequate levels of liquidity; and
o expand and upgrade their technology, transaction processing systems
and network hardware or software or find third parties to provide
these services.
Our business, financial condition and operating results will be materially
and adversely affected if our partner companies are unable to successfully
manage their growth. In addition, many of our partner companies have only
recently begun to develop their financial reporting systems, procedures and
controls. As a result, these companies may not be able to provide us with their
financial results on a timely basis, making it difficult for us to monitor these
companies and assess our financial position.
If we are unable or unwilling to provide our partner companies with the
significant additional financing they will need, our equity interests in them
may be diluted or they may fail.
Most of our current partner companies are, and we expect that our future
partner companies will be, in the early stages of their development. Our partner
companies will require significant amounts of additional capital to compete
successfully, meet their business objectives and produce revenues and profits.
We may not be able to accurately predict these capital needs, and we may decide
not to provide the additional capital that our partner companies require or we
may not be given the opportunity to provide it. If our partner companies receive
capital from other sources, our ownership interest in them may be diluted. If
our partner companies are unable to obtain additional capital, they may fail and
their failure could have a material adverse effect on our business, financial
condition and operating results.
Our partner companies face intense competition in their product and service
markets, and if they cannot compete effectively, they will fail.
Competition for Internet and technology products and services is intense.
As the market for e-commerce grows, we expect that competition will intensify.
Barriers to entry are minimal, and competitors can offer products and services
at a relatively low cost. Furthermore, our partner companies' competitors may
develop Internet and technology products or services that are superior to, or
have greater market acceptance than, the solutions offered by our partner
companies. Many of our partner companies' competitors have greater brand
recognition and greater financial, marketing and other resources than our
partner companies. This may place our partner companies at a disadvantage in
responding to their competitors' pricing strategies, technological advances,
advertising campaigns,
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strategic partnerships and other initiatives. If our partner companies are
unable to compete successfully, they will fail and their failure may have a
material adverse effect on our business, financial condition and operating
results.
Our partner companies may fail if they do not adapt to the rapidly changing
e-commerce marketplaces.
If our partner companies fail to adapt to the rapid changes in technology
and customer and supplier demands, they may not generate revenues or become or
remain profitable. The e-commerce market is characterized by:
o rapidly changing technology;
o evolving industry standards;
o frequent new product and service introductions;
o shifting distribution channels; and
o changing customer demands.
Our future success will depend on our partner companies' ability to adapt
to this rapidly evolving marketplace. They may not be able to adapt their
products and services adequately or economically, develop new products and
services or establish and maintain effective distribution channels for their
products and services and other communication channels. Our partner companies'
businesses will also depend on the efficient and uninterrupted operation of
their computer and communications hardware systems to enable them to
continuously provide their products and services over the Internet. If our
partner companies are unable to meet these challenges, they may be unable to
sell their products and services and generate revenues. Therefore, their
businesses may become or remain unprofitable which, in turn, will have a
material adverse effect on our business, financial condition and operating
results.
Our partner companies may not be able to attract a loyal base of customers to
their web sites or develop relationships with distribution partners, which will
negatively affect their ability to generate revenues.
Our success is related to the ability of our partner companies to deliver
compelling Internet content, products or services to their targeted customers.
Internet users can freely navigate and instantly switch among a large number of
web sites. Many of these web sites offer original content, products or services,
which may make it difficult for our partner companies to distinguish the
content, products or services on their web sites sufficiently to attract a loyal
base of users. If any partner company fails to differentiate itself from other
Internet industry participants, the value of its brand name could decline, and
its prospects for future growth would diminish. In addition, our partner
companies will need to develop relationships with entities, such as Internet
service providers, Internet portals and e-commerce web sites, typically called
distribution partners, that can guide or deliver customers to visit our partner
companies' web sites or acquire products or services from them. There is intense
competition for these distribution partners. Accordingly, maintaining a strong
base of distribution partners may be difficult and costly for our partner
companies.
Our partner companies may be at a competitive disadvantage if they are unable to
protect their proprietary rights or if they infringe on the proprietary rights
of others, and any related litigation could be time consuming and costly.
Because many of our partner companies operate or will operate their
businesses through web sites and rely on hardware and software to conduct
e-commerce, proprietary rights, particularly in the form of trade secrets,
copyrights and patents, will be critical to the success and competitive position
of most of our partner companies.
The actions that our partner companies take to protect their proprietary
rights may be inadequate. In addition, effective copyright and trademark
protection may be unenforceable or limited in certain countries and our partner
companies may be unable to control the dissemination of their content and
products and use of their services due to the global nature of the Internet. A
substantial majority of our partner companies license content and
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technology which they include in their product or service offerings from third
parties, and they could become subject to infringement actions as a result. In
addition, third parties may claim that our partner companies have violated their
intellectual property rights. For example, companies have recently brought
claims regarding alleged infringement of patent rights relating to methods of
doing business over the Internet. To the extent that any of our partner
companies violates a patent or other intellectual property right of a third
party, it may be prevented from operating its business as planned, and it may be
required to pay damages, to obtain a license, if available, to use the patent or
other right or to use a non-infringing method, if possible, to accomplish its
objectives. Any of these claims, with or without merit, could subject our
partner companies to costly litigation and the diversion of their technical and
management personnel. If our partner companies incur costly litigation and their
personnel are not effectively deployed, the expenses and losses incurred by them
will increase, and their profits, if any, will decrease.
Concerns regarding security of transactions or the transmissions of confidential
information over the Internet or through other means of communication, or
security problems experienced by our partner companies may prevent them from
expanding their businesses or subject them to legal exposure.
If a partner company does not offer sufficient security features in its
online and m-commerce product and service offerings, its products and services
may not gain market acceptance, and it could be exposed to legal liability.
Despite the measures that may be taken by our partner companies, the
infrastructure of each of them will be potentially vulnerable to physical or
electronic break-ins, viruses or similar problems. If a person circumvents the
security measures of our partner companies, that person could misappropriate
proprietary information or cause interruptions in the operations of the partner
company. Security breaches that result in access to confidential information
could damage the reputation of any one of our partner companies and expose it to
a risk of loss or liability. All of our partner companies will be required to
make significant expenditures, either for internal development efforts or
payments to us or other third parties providing security-related services, to
protect against or remedy security breaches. Additionally, as e-commerce becomes
more widespread, our partner companies' customers may become more concerned
about security. If our partner companies are unable to adequately address these
concerns, they may be unable to sell their products and services.
FORWARD-LOOKING STATEMENTS
This prospectus contains a number of forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Specifically, all statements other than
statements of historical facts included in this prospectus, or incorporated
herein by reference, regarding our financial position, business strategy and
plans and objectives of management for future operations are forward-looking
statements. These forward-looking statements are based on the beliefs of
management, as well as assumptions made by and information currently available
to management. When used in this prospectus, including the information
incorporated by reference, the words anticipate, believe, estimate, expect, may,
will, continue, intend and plan and words or phrases of similar import, as they
relate to our financial position, business strategy and plans, or objectives of
management, are intended to identify forward-looking statements. These
cautionary statements reflect our current view regarding future events and are
subject to risks, uncertainties and assumptions related to various factors which
include but may not be limited to those listed under the heading "Risk Factors"
and other cautionary statements in this prospectus and in the information
incorporated herein by reference.
Although we believe that our expectations are reasonable, we cannot assure
you that our expectations will prove to be correct. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described in this prospectus as anticipated, believed,
estimated, expected, intended or planned. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements.
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USE OF PROCEEDS
The selling stockholder will receive all of the net proceeds from the sale
of common stock offered by this prospectus, and we will receive none of these
proceeds.
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 50,000,000 shares of common stock, par value
$0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per
share. The following description of our capital stock does not purport to be
complete and is subject to and qualified by our certificate of incorporation and
bylaws, particularly the certificate of designations of the series A convertible
participating preferred stock, which have been filed as exhibits to the
registration statement of which this prospectus is a part and are hereby
incorporated by reference in this prospectus, and the applicable laws of the
State of Delaware.
Common Stock
On August 14, 2000, a total of 12,654,169 shares of common stock were
outstanding, not including the shares being offered by the selling stockholder
under this prospectus.
The holders of common stock are entitled to one vote for each share so
held and are entitled to notice of any stockholders meeting and to vote upon any
matters as provided in our bylaws or as may be provided by law. Except for and
subject to those rights expressly granted to holders of preferred stock, and
except as may be provided by the laws of the State of Delaware, the holders of
common stock have all other rights of stockholders, including, without
limitation, (i) the right to receive dividends, when, as and if declared by our
board, and (ii) in the event of any distribution of assets upon a liquidation or
otherwise, the right to receive all the assets and funds of THCG remaining after
the payment to the holders of the preferred stock of the specific amounts to
which they are entitled.
Preferred Stock
The board has the authority, without further action by the stockholders,
to issue up to 4,995,000 shares of preferred stock in one or more series and to
designate the rights, preferences, privileges and restrictions of each series.
We currently have one series of preferred stock authorized, issued and
outstanding, the series A convertible participating preferred stock. We have no
current plans to issue any additional shares of common stock.
Series A Convertible Participating Preferred Stock
General
On August 2, 2000, we issued a total of 5,000 shares of our series A
preferred stock, stated value $1,000.00 per share, and a related warrant to the
selling stockholder, Castle Creek Technology Partners LLC, in a private
placement.
Premium
A premium is payable quarterly on the series A preferred stock on the last
business day of each calendar quarter in an amount equal to 8% per annum of the
stated value of the series A preferred stock; however, if the registration
statement of which this prospectus is a part is not declared effective prior to
November 10, 2000, the premium will increase to 10% per annum. The premium is
payable in cash until the registration statement is declared effective and
thereafter, if the conditions described in the certificate of designations are
satisfied, the premium is payable, at our election, in cash, in additional
shares of common stock (valued at a price per share equal to the market price,
as defined in the certificate of designations, of the common stock on the date
the premium is paid) or in additional shares of series A preferred stock valued
at its stated value.
Conversion
Conversion by the Holder. Subject to the limitations described below, the
series A preferred stock is convertible at any time and from time to time at the
option of the holder into a number of shares of our common
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stock determined by dividing the applicable conversion price into the sum of the
stated value of the series A preferred stock and any accrued but unpaid premium.
Subject to anti-dilution protections, the conversion price is fixed at $5.039
until December 29, 2000. Thereafter, the conversion price will be the lower of
$5.039 per share or 90% of the average of the closing bid prices on the five (5)
days which constitute the lowest five consecutive day average closing bid price
of our common stock during the twenty-two (22) consecutive trading days
immediately preceding, but not including, the date of conversion. The series A
preferred stock is convertible into a maximum of 2,529,568 shares of common
stock. This maximum limit is reached when the market price of our common stock
is $2.196 per share. Even if the market price of our common stock falls below
$2.196 per share, we are never required to issue more than 2,529,568 shares of
common stock upon conversion of the series A preferred stock. Unless previously
converted by the holder, the series A preferred stock automatically converts
into common stock on August 2, 2003.
Forced Conversion by THCG. We may cause, provided specific conditions are
satisfied, the automatic conversion of the then outstanding shares of series A
preferred stock, unless a bankruptcy or other similar event exists at that time
and a holder elects otherwise. The conditions to cause this automatic conversion
include, among others: (a) we have timely honored all notices of conversion with
respect to the series A preferred stock, unless a holder has not been damaged by
such a failure or, if damaged, has been fully compensated therefor, (b) all of
the underlying common stock is covered by an effective registration statement,
(c) pursuant to that registration statement, the resale of the underlying common
stock can be effected at all times during the twenty (20) trading days prior to
the effective date of conversion, (d) we have satisfied certain liquidity
conditions for the twenty (20) immediately preceding business days, (e) we have
not failed to remove a legend at the request of a holder if required to do so
pursuant to a securities purchase agreement between us and the selling
stockholder, unless the holder has not been damaged by such a failure or, if
damaged, has been fully compensated; (f) we have not violated any of our
material obligations under the securities purchase agreement, a related
registration rights agreement, the related warrant or the terms of the series A
preferred stock (which violations remain uncured), and (g) the closing bid price
of our common stock for each of the ten (10) preceding consecutive trading days
is greater than two hundred percent (200%) of the then-effective conversion
price of the series A preferred stock.
Limits on Conversion. The total number of shares of common stock issuable
upon conversion of the series A preferred stock may not exceed 2,529,568 shares.
In addition, the terms of the series A preferred stock and the related warrant
provide that they are convertible or exercisable only to the extent that the
number of shares of our common stock issuable upon conversion or exercise,
together with the number of shares of our common stock then owned by the holder,
would not exceed 4.9% of the then outstanding shares of our common stock as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. The 4.9% limitation does not prevent any holder from
converting its series A preferred stock or exercising the warrant into 4.9% of
our then outstanding common stock, subsequently selling its shares of our common
stock, and then converting the series A preferred stock or exercising the
warrant into an additional number of shares of our common stock that does not
exceed 4.9% of our then outstanding common stock. Thus, the total number of
shares of common stock potentially issuable to the selling stockholder upon the
conversion of the series A preferred stock and exercise of the warrant, in the
aggregate, may exceed 4.9% of our outstanding common stock.
Maturity Date
Subject to our satisfaction of certain conditions regarding liquidity and
our issuance of common stock free of restrictive legends, the series A preferred
stock matures on August 2, 2003, at which time the shares automatically convert
into shares of common stock in accordance with the terms of an optional
conversion as described above, unless a bankruptcy or other similar event exists
at that time and a holder elects otherwise.
Liquidation
In the event of our liquidation, the holders of series A preferred stock
will be entitled to receive a liquidation preference before any amounts are paid
to holders of our common stock. The liquidation preference is an amount equal to
the stated value plus a premium of 8% per annum from August 2, 2000 through the
date of
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liquidation. If, however, the registration statement of which this
prospectus is a part is not declared effective prior to November 10, 2000, the
premium will increase to 10% per annum.
Redemption
We have the right, provided specific conditions are satisfied, to redeem
for cash all the then outstanding shares of series A preferred stock for an
optional redemption amount described below. The conditions to our right to
redeem the series A preferred stock include, among others: (a) we have timely
honored all notices of conversion with respect to the series A preferred stock,
unless a holder has not been damaged by such a failure or, if damaged, has been
fully compensated therefor, (b) all of the underlying common stock is covered by
an effective registration statement, (c) pursuant to that registration
statement, the resale of the underlying common stock can be effected at all
times during the twenty (20) trading days prior to the effective date of
redemption, (d) we have satisfied certain liquidity conditions for the twenty
(20) immediately preceding business days, and (e) we have not failed to remove a
legend at the request of a holder if required to do so pursuant to a prior
securities purchase agreement, unless such holder has not been damaged by such a
failure or, if damaged, has been fully compensated.
The "optional redemption amount" is, if the effective date of redemption
is (a) on or prior to October 31, 2000, the greater of (x) one hundred and ten
percent (110%) of the stated value plus accrued but unpaid amounts due and (y)
the benefit of the bargain (as defined below); (b) after October 31, 2000, but
on or before January 29, 2001, the greater of (x) one hundred fifteen percent
(115%) of the stated value plus accrued but unpaid amounts due and (y) the
benefit of the bargain; and (c) after January 29, 2001, the greater of (x) one
hundred twenty percent (120%) of the stated value plus accrued but unpaid
amounts due and (y) the benefit of the bargain. The "benefit of the bargain"
means (i) the number of shares of common stock issuable upon full conversion
times (ii) the closing bid price on the trading day immediately before the
effective date of redemption less the conversion price on that date.
In order to redeem the series A preferred stock, we must redeem all
then-outstanding shares of the series A preferred stock and we must have the
full amount of the optional redemption amount in cash, immediately available
credit facilities or through other similar financial arrangements
Voting Rights
The holders of series A preferred stock have no right to vote, except as
otherwise provided by law, However, each holder of series A preferred stock is
entitled to receive prior notification of a meeting of the stockholders,
including copies of any information sent to the stockholders. To the extent that
the holder of series A preferred stock are entitled by law to vote on any matter
as a class, the affirmative vote of a majority of the series A preferred stock
is required to approve the matter. To the extent that the holders of series A
preferred stock are entitled by law to vote together with the holders of common
stock, each holder of series A preferred stock is entitled to a number of votes
equal to the number of shares of common stock into which the series A preferred
stock is then convertible.
Rights in the Event of Merger or Consolidation
If we enter into (i) a consolidation or merger with any other corporation
or entity (other than a consolidation or merger in which THCG is the surviving
entity and less than twenty percent (20%) of our common stock is issued), (ii)
the conversion or reclassification of all of the outstanding shares of our
common stock, or (iii) a sale of substantially all of our assets, the holders of
the series A preferred stock are entitled to receive written notification of the
transaction no sooner than ten (10) and no later than five (5) days prior to the
consummation of the transaction. At the holder's option, the holder is entitled
to receive anti-dilution adjustments or the equivalent in cash.
Registration Rights
The holders of series A preferred stock are entitled to have the
underlying shares of common stock registered by us. We have agreed to keep the
registration statement, of which this prospectus is a part, effective until the
earlier of (a) the date on which all of the shares of common stock issuable upon
conversion of the series A preferred stock and exercise of the related warrant
have been sold and (b) the date on which all these shares of
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common stock may be immediately sold to the public without registration and
without restriction as to the number of shares that may be sold.
SELLING STOCKHOLDER
On August 2, 2000, we issued 5,000 shares of series A convertible
participating preferred stock (the "Preferred Stock") and a related warrant (the
"Warrant") in a private placement to the selling stockholder, Castle Creek
Technology Partners LLC. The gross proceeds of the offering were $5,000,000.
The Warrant expires on August 2, 2004 and entitles the holder to purchase
up to 396,899 shares of common stock at a fixed exercise price of $5.039 per
share throughout the term of the Warrant (subject to anti-dilution protections).
If the market price of the common stock is greater than 200% of the then fixed
exercise price of the Warrant for at least 10 consecutive days and if certain
other conditions are met, we may cause the Warrant to be automatically exercised
for common stock.
The selling stockholder is offering and selling all of the shares of
common stock that it acquires upon conversion of the Preferred Stock and the
Warrant, a total of up to 2,926,467 shares of common stock (subject to
anti-dilution protections), under this prospectus. The selling stockholder does
not beneficially own any shares of common stock in addition to those to be
received upon conversion of the Preferred Stock and exercise of the Warrant. The
selling stockholder will not own any shares of common stock after the completion
of the offering (assuming that all of the shares offered by the selling
stockholder are sold).
Information with respect to share ownership has been provided by the
selling stockholder. The shares offered under this prospectus may be offered
from time to time, in whole or in part, by the selling stockholder or its
transferees. The selling stockholder has not been an officer, director or
employee of THCG for the past three years.
PLAN OF DISTRIBUTION
We are registering the shares of common stock offered by this prospectus
on behalf of the selling stockholder. As used herein, "selling stockholders"
includes pledgees, donees, distributees, transferees or other successors in
interest selling shares received from the selling stockholder after the date of
this prospectus. We will pay all expenses of registration of the shares offered
hereby, other than commissions, discounts and concessions of underwriters,
dealers or agents. Brokerage commissions and similar selling expenses, if any,
attributable to the sale of the shares will be borne by the selling
stockholders. We will not receive any of the proceeds from the sale of the
shares by the selling stockholders.
The shares may be sold from time to time by the selling stockholders.
Sales of the shares may be made in one or more types of transactions (which may
include block transactions) on one or more exchanges, in the over-the-counter
market, in negotiated transactions, through put or call options transactions
relating to the shares, through short sales of the shares, or a combination of
these methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. These transactions may or may not involve brokers or dealers.
The selling stockholders may effect these transactions by selling their
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. These broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling stockholders and/or
the purchasers of shares for whom these broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling stockholders and any broker-dealers that act in connection
with the sale of the shares might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. Consequently, any
commissions received by these broker-dealers and any profit on the resale of the
shares sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act of 1933. We have
agreed to indemnify the selling stockholders against certain liabilities,
including liabilities arising under the Securities Act of 1933. The selling
stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act of 1933.
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<PAGE>
The selling stockholders will be subject to the prospectus delivery
requirements of the Securities Act of 1933. We have informed the selling
stockholders that the anti-manipulative provisions of Regulation M under the
Exchange Act of 1934 may apply to them.
The selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that Rule.
We have agreed to keep the registration statement, of which this
prospectus is a part, effective until the earlier of (a) the date on which all
of the shares of common stock issuable upon conversion of the Preferred Stock
and exercise of the Warrant have been sold and (b) the date on which all these
shares of common stock may be immediately sold to the public without
registration and without restriction as to the number of shares that may be
sold.
LEGAL MATTERS
Certain legal matters in connection with the shares of common stock
offered by this prospectus have been passed upon for us by Kramer Levin Naftalis
& Frankel LLP, New York, New York.
EXPERTS
Arthur Andersen, LLP, independent public accountants, audited our
consolidated financial statements as of December 31, 1999 and for the year then
ended, which are included in Amendment No. 1 on Form 10-K/A to our Annual Report
on Form 10-K for the year ended December 31, 1999 incorporated by reference in
this prospectus and elsewhere in this registration statement, as indicated in
their report with respect thereto. These documents are incorporated by reference
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
Cohen & Schaeffer, P.C., independent public accountants, audited our
Hambro America Securities, Inc.'s financial statements as of December 31, 1998
and March 31, 1998 and for the nine months and year, respectively, then ended,
and audited the consolidated financial statements of Mercury Coast Inc. as of
December 28, 1999 and for the period from March 11, 1999 (inception) to December
28, 1999 incorporated by reference in this prospectus and elsewhere in this
registration statement, as indicated in their reports with respect thereto.
These documents are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), until the registration statement of which this
prospectus is a part is no longer effective:
The following documents are incorporated by reference into this
prospectus:
o Annual Report on Form 10-K for the fiscal year ended December 31,
1999;
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<PAGE>
o Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, filed August 31, 2000
pursuant to Section 13 or 15(d) of the Exchange Act;
o Current Report on Form 8-K, filed January 6, 2000 pursuant to
Section 13 or 15(d) of the Exchange Act;
o Financial statements of Hambro America Securities, Inc. as of March
31, 1998 and for the year then ended and as of December 31, 1998 and
for the nine months then ended, together with the reports thereon
dated May 20, 1998 and January 26, 1999, respectively, of Cohen &
Schaeffer, P.C., and the unaudited pro forma combined financial
information of THCG, Inc. included in our Current Report on Form
8-K/A, filed January 14, 2000 pursuant to Section 13 or 15(d) of the
Exchange Act;
o Current Report on Form 8-K/A, filed March 13, 2000 pursuant to
Section 13 or 15(d) of the Exchange Act;
o Registration Statement on Form 10, filed pursuant to Section 12(g)
of the Exchange Act, which contains a description of our common
stock, including any amendment or report filed for the purpose of
updating such description;
o Quarterly Reports on Form 10-Q, for the quarters ended March 31,
2000 and June 30, 2000.
o Current Report on Form 8-K, filed April 6, 2000 pursuant to Section
13 or 15(d) of the Exchange Act;
o Current Report on Form 8-K, filed May 17, 2000 pursuant to Section
13 or 15(d) of the Exchange Act; and
o Current Report on Form 8-K, filed August 3, 2000 pursuant to Section
13 or 15(d) of the Exchange Act.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following addresses:
If prior to September 1, 2000:
Corporate Secretary
THCG, Inc.
650 Madison Avenue, 21st Floor
New York, New York 10022
Telephone number: (212) 223-0440
If on or after September 1, 2000:
Corporate Secretary
THCG, Inc.
512 Seventh Avenue, 17th Floor
New York, New York 10018
Telephone number: (212) 223-0440
You should rely on the information incorporated by reference or provided
in this prospectus or any prospectus supplement. We have not authorized anyone
else to provide you with different information. The selling stockholders will
not make an offer of these shares in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any supplement
is accurate as of any date other than the date on the front of those documents.
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<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make representations other than those contained in this
prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by us or the selling stockholders.
Neither the delivery of this prospectus nor any sale hereunder shall, under any
circumstances, create an implication that the information herein is correct as
of any time subsequent to its date. This prospectus does not constitute an offer
or solicitation by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
2,926,467 SHARES
[LOGO]
THCG, INC.
COMMON STOCK
PROSPECTUS
__________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement will be as
follows:
Total
SEC registration fee (actual) .........................................$ 3,091
Accounting fees and expenses .........................................$ 15,000
Legal fees and expenses...............................................$ 25,000
Printing and engraving expenses.......................................$ 20,000
Miscellaneous expenses................................................$ 10,000
Total...........................................................$ 73,091
========
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") permits a
corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they will have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification will be made if such person will
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought will determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payment of unlawful dividends or unlawful
stock purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
The Registrant's Certificate of Incorporation and By-laws provide for the
indemnification of directors and officers of the Registrant to the fullest
extent permitted by the DGCL.
The Registrant maintains liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers of the Registrant.
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<PAGE>
Item 16. Exhibits
Exhibit No..Description
5 Opinion of Kramer Levin Naftalis & Frankel LLP.
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of Cohen & Schaeffer, P.C.
23.2 Consent of Kramer Levin Naftalis & Frankel LLP (contained in the opinion
filed as Exhibit 5 hereto).
24.1 Power of Attorney (contained on the signature page of this Registration
Statement).
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
i. To include any prospectus required by Section 10(a)(3) of
the Securities Act;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
iii. To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that clauses (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
such clauses is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on August 31, 2000.
THCG, INC.
By: /s/ Joseph D. Mark
---------------------
Name: Joseph D. Mark
Title: Co-Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Joseph D. Mark and Adi Raviv, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully for all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title(s) Date
/s/ Joseph D. Mark Co-Chairman, Chief August 31, 2000
------------------------
Joseph D. Mark Executive Officer
(Principal Executive
Officer) and Director
Co-Chairman and Chief August 31, 2000
/s/ Adi Raviv
------------------------
Adi Raviv Financial Officer
(Principal Financial and
Accounting Officer) and
Director
Director August 31, 2000
--------------------------
Keith Abell
/s/ Gene E. Burleson Director August 31, 2000
------------------------
Gene E. Burleson
/s/ Burton W. Kanter Director August 31, 2000
------------------------
Burton W. Kanter
/s/ Joel S. Kanter Director August 31, 2000
-------------------------
Joel S. Kanter
/s/ Henry Klein Director August 31 , 2000
-------------------------
Henry Klein
Director August 31, 2000
-----------------------
Evan Marks
<PAGE>
/s/ Larry Smith Director August 31, 2000
-------------------------
Larry Smith
Director August 31, 2000
-------------------------
Stanley B. Stern
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
5 Opinion of Kramer Levin Naftalis & Frankel LLP.
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of Cohen & Schaeffer, P.C.
23.2 Consent of Kramer Levin Naftalis & Frankel LLP (contained in the
opinion filed as Exhibit 5 hereto).
24.1 Power of Attorney (contained on the signature page of this
Registration Statement).
