UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NO. 001-12629
SEPTEMBER 24, 1999
OLYMPIC CASCADE FINANCIAL CORPORATION
(Exact Name of Registrant as specified in its charter)
DELAWARE 36-4128138
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
875 NORTH MICHIGAN AVENUE, SUITE 1560, CHICAGO, IL 60611
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 751-8833
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK $.02
PAR VALUE (Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K of this chapter is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
YES X NO
As of December 2, 1999, 1,295,004 shares of the Company's common stock were held
by non-affiliates, having an aggregate market value of $7,446,000. The number of
common shares outstanding as of December 2, 1999 was 1,698,617.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement filed with the Securities and Exchange
Commission ("SEC") in connection with the Company's Annual Meeting of
Shareholders to be held on March 8, 2000 (the "Company's 2000 Proxy Statement")
are incorporated by reference into Part III hereof.
<PAGE>
PART I
ITEM 1 - BUSINESS
(A) GENERAL
Except for historical information contained herin, report contains ceritan
forward-looking information that involves risks and uncertainties that could
cause results to differ materially, including changing market conditions and
other risks detailed in this annual report on form 10-K and other documents
filed by the Company with the Securities and Exchange Commission from thime to
time.
Olympic Cascade Financial Corporation, a De;aware corporation organized in 1997
("Olympic" or the "Company"), is a financial services organization, operating
through its two wholly-owned subsidiaries, National Securities Corporation, a
Washington corporation organized in 1947 ("National"), and WestAmerica
Investment Group, a California corporation organized in 1974 ("WestAmerica").
Olympic is committed to establishing a significant presence in the financial
services industry by providing financing options for emerging, small and middle
capitalization companies both in the United States and abroad through research,
financial advisory services and sales, and investment banking services for both
public offerings and private placements, and providing retail brokerage and
trade clearance operations.
In November 1996, the shareholders of National approved a restructuring whereby,
National's shareholders exchanged their shares on a one-for-one basis for shares
of Olympic resulting in National becoming a wholly-owned subsidiary of Olympic.
This restructuring became effective in February 1997, and accordingly, Olympic
is the successor Registrant to National.
In June 1997, the Company acquired all of the outstanding stock of WestAmerica,
a Scottsdale, Arizona based broker-dealer specializing in retail brokerage
services. WestAmerica was acquired for $443,000 in cash and an agreement that
provided for the payment of bonus compensation to certain brokers.
During fiscal year 1998, the Company redirected its focus on retail operations
by divesting its ownership in two of its subsidiaries, L.H. Friend, Weinress,
Franksen & Presson, Inc. ("Friend") and Travis Capital, Inc. ("Travis"). The
Company had acquired each subsidiary in fiscal year 1997.
National conducts a national securities brokerage business through its main
office in Seattle, Washington and in 43 other offices located in 20 states.
Additionally, National operates in several international cities. Its business
includes securities brokerage for individual and institutional clients,
market-making trading activities, asset management and corporate finance
services. National concentrates upon retail brokerage with an emphasis on
personalized service. National's operations, and its largest sales office, is
located in Seattle, Washington. The majority of National's transactions with the
public involve solicited trades and approximately 70% of these involve sales of
securities to customers.
WestAmerica, based in Scottsdale, Arizona, is a registered securities
broker-dealer providing primarily retail brokerage operations. The majority of
WestAmerica's transactions with the public involve solicited trades.
As of September 24, 1999, the Company and its subsidiaries had approximately 100
employees and 250 independent contractors. Of these totals, approximately 300
were registered representatives. Persons who have entered into independent
contractor agreements are not considered employees for purposes of determining
the Company's obligations for federal and state withholding, unemployment and
social security taxes. The Company's independent contractor arrangements conform
with accepted industry practice and therefore the Company does not believe there
is a material risk of an adverse determination from the tax authorities which
would have a significant effect on the Company's ability to recruit and retain
investment executives, or on the Company's current operations and financial
results of operations. No employees are covered by collective bargaining
agreements and the Company believes its relations are good with both its
employees and independent contractors.
The Company is engaged in a highly competitive business. With respect to one or
more aspects of its business, its competitors include member organizations of
the New York Stock Exchange, Inc. and other registered securities exchanges in
the United States and Canada, and members of the National Association of
Securities Dealers, Inc. ("NASD"). Many of these organizations have
substantially greater personnel and financial resources and more sales offices
than the Company. Discount brokerage firms affiliated with commercial banks
provide additional competition, as well as companies that provide electronic
on-line trading. In many instances, the Company is also competing directly for
customer funds with investment opportunities offered by real estate, insurance,
banking, and savings and loans industries.
The Company's business plan includes the growth of its retail brokerage business
and the introduction of online investing services. Management believes that
consolidation within the industry is inevitable. Concerns attributable to the
strength of the market and increased competition help explain the increasing
number of acquisition opportunities continuously introduced to the Company. The
Company is focused on maximizing the profitability of its existing operations,
while it continues to seek additional selective strategic acquisitions.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For a more detailed analysis of our results by segment see Item 7, "Management
Discussion and Analysis of Financial Condition and Results of Operation."
(C) BROKERAGE SERVICES
Brokerage services to retail clients are provided through the Company's sales
force of investment executives at National and WestAmerica.
NATIONAL SECURITIES CORPORATION
National is registered as a broker-dealer with the Securities and Exchange
Commission ("SEC") and licensed in 50 states, the District of Columbia and
Puerto Rico. National is also a member of the NASD, the Municipal Securities
Rulemaking Board ("MSRB") the Securities Investor Protection Corporation
("SIPC"), and the Chicago Stock Exchange ("CHX").
National is organized to meet the needs of its investment executives and their
clients. To foster individual service, flexibility and efficiency, and to reduce
fixed costs, investment executives at National act as independent contractors
responsible for providing their own office facilities, sales assistants,
telephone service, supplies and other items of overhead. Investment executives
are given broad discretion to structure their own practices and to specialize in
different areas of the securities market subject to supervisory procedures. In
addition, investment executives have direct access to research materials,
management, traders, and all levels of support personnel.
It is not National's policy to recommend particular securities to customers.
Recommendations to customers are determined by individual investment executives
based upon their own research and analysis, and subject to applicable NASD
customer suitability standards. Most investment executives perform fundamental
(as opposed to technical) analysis. Solicitations may be by telephone, seminars
or newsletters. Investment executives may request trading to acquire an
inventory position to facilitate sales to customers (subject to the investment
executive's own risk). Supervisory personnel review trading activity from
inventory positions to ensure compliance with applicable standards of conduct.
Salespersons in the brokerage industry are traditionally compensated on the
basis of set percentages of total commissions and mark-ups generated. Most
brokerage firms bear substantially all of the costs of maintaining their sales
forces, including providing office space, sales assistants, telephone service
and supplies. The average commission paid to the salespersons in the brokerage
industry generally ranges from 30% to 40% of total commissions generated.
Since National requires most of its investment executives to absorb their own
overhead and expenses, it is able to pay an average of 70% of commissions and
mark-ups generated by the investment executive. This arrangement also reduces
fixed costs and lowers the risk of operational losses for non-production.
National's operations include execution of orders, processing of transactions,
receipt, identification and delivery of funds and securities, custody of
customer securities, internal financial controls and compliance with regulatory
and legal requirements.
National's data processing is supplied by an independent vendor on a
time-sharing basis to process orders, reports, confirmations and statements as
well as to maintain the general ledger and files of customers, and other market
data. During the second and third quarter of fiscal 1999, National converted its
data processing system to a new third party vendor, BETA Systems Inc. This
conversion was completed and operational in the third quarter of fiscal 1999.
National utilizes other computer software, which is used for investment
executive payroll and telephone cost allocation, including word processing and
other office applications.
National clears approximately 92% of its own securities transactions and posts
its books and records daily, with the remaining 8% of the transactions clearing
through Bear Stearns Securities Corporation and Pershing. Periodic reviews of
controls are conducted, and administrative and operations personnel meet
frequently with management to review operating conditions. Operations personnel
monitor compliance with applicable laws, rules and regulations.
WESTAMERICA INVESTMENT GROUP
WestAmerica is registered as a broker-dealer with the SEC and is licensed in 36
states and the District of Columbia. WestAmerica is also a member of the NASD,
the MSRB and the SIPC. WestAmerica, offers traditional securities brokerage and
financial planning business and fee-based investment management business to its
retail clients.
Unlike National, the majority of WestAmerica's investment executives are
employees. As such the average commission payout is approximately 20-30% lower
than National's commission payout of approximately 70%. Since the commission
payout is much lower, WestAmerica provides office space, equipment, supplies and
other resources for its investment executives.
WestAmerica operates pursuant to the exemptive provisions of SEC Rule
15c3-3(k)(2)(ii) and clears all transactions with and for customers on a fully
disclosed basis.
WestAmerica has a clearing arrangement with Correspondent Services Corporation
("CSC"), a wholly-owned subsidiary of PaineWebber Incorporated. CSC provides
WestAmerica with back office support, transaction processing services on all
principal national securities exchanges and access to many other financial
services and products. This agreement with CSC allows WestAmerica to offer a
range of products and services that is generally offered only by firms that are
larger or have more capital.
(D) INVESTMENT BANKING
National provides corporate finance and investment banking services, including
underwriting the sale of securities to the public and arranging for the private
placement of securities with investors. National has expanded its corporate
finance operations to provide a broader range of financial and corporate
advisory services, including mergers and acquisitions, project financing,
capital structure and specific financing opportunities. National has
underwritten both equity securities and convertible corporate bonds as initial
or secondary public offerings.
National will manage, underwrite and sell shares of each underwriting. National
collects fees from the underwriting proceeds for providing these services,
including non-accountable expenses. Additionally, National participates as an
underwriter in the syndicate group of other underwritings, which it does not
manage. All of these activities require a substantial commitment of capital and
expose National to additional risk. Accordingly, National maintains a commitment
committee that reviews every proposed underwriting and must approve each
underwriting in order for it to proceed. Additionally, such activities are
periodically reviewed by members of the Board of Directors.
National's corporate finance department is headquartered in Chicago, Illinois.
This office includes investment executives, investment bankers and employees.
The office and the corporate finance department are under the direction of the
Company's Chairman, Steven A. Rothstein.
In fiscal 1998, WestAmerica was approved to engage in underwriting by the NASD,
and participated as an underwriter of one public offering.
(E) PRINCIPAL AND AGENCY TRANSACTIONS
The Company buys and maintains inventories in equity securities as a
"market-maker" for sale of those securities to other dealers and to customers
through National. The Company also maintains inventories in corporate and
municipal debt securities for sale to customers.
At National, a staff of six traders and assistants in its Seattle headquarters,
and two traders and assistants in its Spokane, Washington office, manage an
inventory of securities, and conduct market-making activities. As of September
24, 1999, National made a market in approximately 100 equity securities, the
majority of which were quoted on the NASDAQ stock market. This includes all
companies for which National managed or co-managed a public offering.
The Company's trading departments require a substantial commitment of capital.
Most principal transactions place the Company's capital at risk. Profits and
losses are dependent upon the skill of the traders, price movements, trading
activity and the size of inventories. Because the Company's trading activities
occasionally may involve speculative and thinly capitalized stocks, including
stabilizing the market for securities which it has underwritten, the Company
imposes position limits to reduce its potential for loss.
In executing customer orders to buy or sell a security in which the Company
makes a market, the Company may sell to or purchase from customers at a price,
which is substantially equal to the current inter-dealer market price plus or
minus a mark-up or mark-down. The Company may also act as agent and execute a
customer's purchase or sale order with another broker-dealer market-maker at the
best inter-dealer market price available and charge a commission. The Company
believes its mark-ups, mark-downs and commissions are competitive based on the
services it provides to its customers.
In executing customer orders to buy or sell listed and over-the-counter
securities in which it does not make a market, the Company generally acts as
agent and charges commissions which the Company believes are competitive, based
on the services the Company provides to its customers.
(F) ONLINE TRADING
The Company through NSCdirect (a division of National), is planning to commence
online investing services for its customers in the first quarter of calendar
year 2000. The Company has various third party vendor agreements in place to
develop, host and manage the website. The website is located at
www.nscdirect.com.
(G) SUPERVISION
The Securities Exchange Act of 1934, as amended, and the NASD Conduct Rules
require the Company's subsidiaries to supervise the activities of its investment
executives. As part of providing such supervision, the subsidiaries maintain an
Operations and Procedures Manual. Compliance personnel conduct inspections of
branch offices no less frequently than annually to review compliance with the
Company's procedures. A registered principal provides continuous supervision at
each of the Company's larger offices. The other offices (averaging two
investment executives per office) are not required by NASD rules to have a
registered principal on site and are therefore supervised by registered
principals of the subsidiaries. Traders and other personnel review each
investment executive's order tickets to ensure compliance with the NASD Conduct
Rules including mark-up guidelines.
ITEM 2 - PROPERTIES
The Company owns no real property. Its corporate headquarters are shared with
National in leased space in Chicago, Illinois and Seattle, Washington.
Additionally, through its subsidiaries, the Company leases office space in
Marietta, Georgia, Scottsdale, Arizona and Spokane, Washington. The branch
offices, which are run by independent contractors, are leased by those
contractors.
Leases expire at various times through July 2009. The Company believes the rent
at each of its locations is at current market rates. At current production
levels, the Company believes its leased space is suitable and adequate, however,
increased activity could require additional space to be leased.
ITEM 3 - LEGAL PROCEEDINGS
1. THE MAXAL TRUST, ET AL. V. NATIONAL SECURITIES CORPORATION ET AL., United
States District Court, Central District of California, Case No.
CV-97-4392 ABC (Shx). See disclosure in the Company's Form 10-Q for the
quarter ended December 31, 1998.
On February 16, 1999, the District Court dismissed the plaintiffs'
remaining claims against National in their entirety and granted
National's motion for summary judgment. A final judgment was issued by
the court on April 26, 1999. The plaintiffs filed a notice of appeal on
May 4, 1999.
2. COMPLETE MANAGEMENT, INC. National has been named together with others as
a defendant in several class action lawsuits filed against Complete
Management, Inc. Although, National has not yet been served in any of
these actions it intends to vigorously defend itself against any claims
that may be brought.
The Company is a defendant in various other arbitrations and administrative
proceedings, lawsuits and claims, which in the aggregate seek general and
punitive damages approximating $1,600,000. The Company believes that the
resolution of these matters will not have a material effect. These matters arise
out of the normal course of business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of fiscal year ended September 24, 1999.
ITEM 4(A)- EXECUTIVE OFFICERS OF REGISTRANT
The following sets forth the names, ages and positions of all executive officers
of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Steven A. Rothstein 49 Chairman, Chief Executive Officer and President
Chairman and Chief Executive Officer of National
Director of WestAmerica
Robert H. Daskal 58 Senior Vice President, Chief Financial Officer, Treasurer and Secretary
Secretary of National
Director of WestAmerica
Michael A. Bresner 55 President of National
David M. Williams 30 Corporate Controller and Chief Accounting Officer
Chief Operating Officer of National
Craig M. Gould 29 Vice-Chairman of Technology
Managing Director of National
</TABLE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on The NASDAQ SmallCap Market and The Chicago
Stock Exchange using the symbol NATS and OLY, respectively. As of September 24,
1999, the Company had approximately 900 shareholders, including those
shareholders holding stock in street name and trust accounts. Currently, there
are four market makers in the Company's stock, including National.
Delaware law authorizes the Board of Directors to declare and pay dividends with
respect to the Company's common stock either out of its surplus (as defined in
the Delaware Corporation Law) or, in case there is no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year; provided, however, that no dividend may be paid out of
net profits unless the Company's capital exceeds the aggregate amount
represented by the issued and outstanding stock of all classes having a
preference in the distribution of assets. As of this time, no shareholder holds
preferential rights in liquidation. The Company has never declared a cash
dividend, and does not presently foresee declaring one in the coming fiscal
year. The Company did, however, declare 5% stock dividends for all shareholders
of record on January 27, 1997, May 20, 1997, August 29, 1997 and December 8,
1997.
High and low closing bid quotations from September 27, 1997 to September 24,
1999 have been obtained from NASDAQ. The range of market prices for each quarter
of fiscal years ended September 24, 1999 and September 25, 1998 are as follows:
PERIOD HIGH LOW
September 26, 1998/December 31, 1998 $4.00 $0.88
January 1, 1999/March 26, 1999 $8.97 $1.25
March 27, 1999/June 25, 1999 $6.38 $2.31
June 26, 1999/September 24, 1999 $5.19 $2.75
September 27, 1997/December 31, 1997 $6.75 $4.37
January 1, 1998/March 27, 1998 $4.75 $3.88
March 28, 1998/June 26, 1998 $4.88 $3.75
June 27, 1998/September 25, 1998 $3.88 $1.38
The closing bid price of the Company's common stock on December 2, 1999, as
reported on the NASDAQ SmallCap Market, was $5.75 per share.
ITEM 6 - SELECTED FINANCIAL DATA
Set forth below is the historical financial data with respect to the Company for
the fiscal years ended 1999, 1998, 1997, 1996 and 1995. This information has
been derived from, and should be read in conjunction with, the audited financial
statements, which appear elsewhere in this report. All information is expressed
in thousands of dollars except per share information.
<TABLE>
<CAPTION>
FISCAL YEAR
1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 43,330 $ 45,694 $ 39,994 $ 34,899 $ 14,275
Net income (loss) after tax 118 (4,666) 101 1,735 257
Net income (loss) per common share 0.08 (3.12) 0.07 1.66 0.30
Total assets 86,697 73,116 63,774 57,955 41,891
Long-term obligations 2,150 2,770 - - -
Stockholders' equity 4,039 2,948 7,604 5,316 3,180
Cash dividends - - - - -
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
The private securities litigation reform act of 1995 provides a safe harbor for
forward-looking statements. This annual report contains certain statements of a
forward-looking nature relating to future events or future business performance.
Any such statements that refer to the Company's estimated or anticipated future
results or other non-historical facts are forwad-looking and reflect the
Company's current perspective of existing trends and information. These
statements involve risks and uncertainties that cannot be predicted or
quantified and, consequently, actual results may differ materially from
thoseexpressed or implied by such forward-looking statements. Such risks and
uncertainties include, among others, risks and uncertainties detailed in the
Company's registration statement on Form S-3 (REGISTRATION NO. 333-80247), filed
with the Securities and Exchange Commission on June 9, 1999, and the Company's
other Securities and Exchange Commission filings. Any forward-looking statements
comtained in or incorporated into this report speak only as of the dated of this
report. The Company undertakes no obligation to update publicly any such
forward-looking statement, whether as a result of new information, future events
or otherwise.
The Company's fiscal year 1999 resulted in net income of $118,000 or $.08 per
share diluted as compared to a net loss of $4,666,000 or $3.12 per share diluted
for fiscal year 1998. The Company's fiscal year 1999 resulted in decreases in
both revenues and expenses compared with the fiscal year 1998. These decreases
were primarily due to the sale of two subsidiaries, L.H. Friend, Weinress,
Franksen & Presson, Inc. ("Friend") and Travis Capital, Inc. ("Travis"), as the
Company continued its focus on retail operations, resulting in an increase in
retail commissions and net dealer inventory gains.
Revenues decreased $2,364,000 or 5% in the fiscal year 1999 to $43,330,000 from
$45,694,000 in the fiscal year 1998 and expenses decreased $7,768,000 or 15% to
$43,216,000 in the fiscal year 1999 from $50,984,000 in the fiscal year 1998.
Exclusive of Friend and Travis, revenues increased $5,174,000 or 14% from
$38,156,000 to $43,330,000 and expenses increased less than 1% or $407,000 in
the fiscal year 1999 from the fiscal year 1998.
Revenues decreased primarily due to the decrease in underwriting revenue as the
weak capital markets for initial public offerings by emerging growth companies
continued. For the fiscal year 1999, underwriting revenue decreased $8,267,000
or 77% to $2,459,000 from $10,726,000 in the fiscal year 1998. National
participated in four private placements raising $13 million in gross proceeds in
the fiscal year 1999. In the fiscal year 1998, National, through the management
of two underwritings and co-management of one underwriting with Friend, as well
as three successful private placements, generated $5,177,000 of underwriting
revenue. Friend managed its first underwriting during the first nine months of
fiscal 1998 and participated in several other
underwritings and private placements, generating $5,460,000 of underwriting
revenue. Exclusive of Friend and Travis, underwriting revenue decreased
$2,718,000 or 25% in the fiscal year 1999 compared with the fiscal year 1998.
Net dealer inventory gains increased $3,545,000, or 64%, to $9,057,000 from
$5,512,000 during the fiscal year 1999 compared with the fiscal year 1998.
Exclusive of Friend and Travis, net dealer inventory gains increased $4,397,000
or 80%. This increase is due to National's London office dramatically increasing
its business and the strength of the markets the past twelve months.
Although overall revenue decreased during the fiscal year 1999, commission
revenue increased $929,000, or 4%, to $24,565,000 from $23,636,000. Exclusive of
Friend and Travis, commission revenue increased $2,013,000, or 9%, during the
fiscal year 1999. This increase is due to favorable market conditions and the
addition of registered representatives.
Concurrent with the overall decrease in revenues, total expenses decreased
$7,768,000, or 15%, to $43,216,000 from $50,984,000 in the fiscal year 1998.
This decrease in expenses was anticipated due to decreases in revenues, and the
Company's efforts to reduce overhead costs. The most significant decreases were
salary expense, occupancy and other.
Salaries decreased $3,864,000, or 44%, to $4,882,000 from $8,746,000. Friend and
Travis had combined salary expense of $3,251,000 in the fiscal year 1998. The
remaining decrease in salary expense was $613,000 or 7% in the fiscal year 1999,
as management incurred salary reductions in an effort to reduce overhead
expenses. With the increased commission revenue and net dealer inventory gains,
overall commission expense increased $690,000 or 3% from $25,045,000 in the
fiscal year 1998 to $25,735,000 in the fiscal year 1999. Exclusive of Friend and
Travis, commission expense increased $3,698,000 in the fiscal year 1999 from the
fiscal year 1998. Overall, combined commissions and salaries as a percentage of
revenue decreased 3% to 71% from 74% in the fiscal year 1999 and 1998,
respectively.
As anticipated, with the sale of Friend and Travis expenses regarding
communications, occupancy, taxes, licenses and registration and other have
decreased from the fiscal year 1998 to the fiscal year 1999. Communications
expenses, mainly telephone, telequote and mailing decreased $789,000, or 41%, to
$1,133,000 from $1,922,000. Friend and Travis had combined communications
expenses of $344,000 in fiscal 1998. Occupancy expense, consisting mainly of
rent, office supplies and depreciation decreased $1,188,000, or 32%, to
$2,548,000 from $3,736,000. This decrease relates to the sale of the two
subsidiaries as well as National closing a branch office in New York and
subletting excess office space in Chicago. Taxes, licenses and registration
decreased $514,000, or 83%, to $106,000 from $620,000. This decrease was due
primarily to National receiving a refund of prior years' business operating
taxes totaling $330,000.
Finally, other expenses decreased $3,810,000, or 74%, to $1,319,000 from
$5,129,000 during the fiscal year 1999 and 1998, respectively. The largest
component of this decrease, totaling $2,521,000, relates to the write-down of
certain receivables and investments, including those relating to the disposition
of the two subsidiaries. Additionally, the other expenses relating to the sale
of the two subsidiaries and closure of a branch office in New York contributed
another $987,000 to this decrease.
Moving expenses and amortization combined were $300,000 more in the fiscal year
1998 compared with the fiscal year 1999. Amortization decreased due to the write
off of goodwill related to the sale of the two subsidiaries and the amortization
of a prepaid asset at WestAmerica that was recorded during fiscal 1997 as part
of the purchase price.
Interest expense, clearing fees and professional fees increased during the
fiscal year 1999 as compared with the fiscal year 1998. Interest expense
increased $924,000, or 33%, to $3,764,000 from $2,840,000. The main reason for
this increase is the increase in customer deposits, on which the Company pays
interest, and the interest on debt incurred in fiscal 1998. Interest expense was
offset by increased interest revenue of $1,177,000, or 27%, to $5,557,000 from
$4,380,000.
Clearing fees actually increased $208,000, or 13%, to $1,773,000 from
$1,565,000. Exclusive of Friend, clearing fees increased $589,000 due to the
increased volume of transactions including the London office of National.
Professional fees increased $575,000, or 42%, to $1,956,000 from $1,381,000.
After adjusting for professional fees paid at Friend and Travis, professional
fees increased $654,000, or 47%, during the fiscal year 1999 compared with the
fiscal year 1998 due to increased litigation that was substantially resolved
during the fiscal year 1999 (See Part I Item 3). Included in professional fees
is $524,000 relating to the settlement of three lawsuits during the fiscal year
1999, only $75,000 of which represented a cash payment.
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
During fiscal year 1998, the Company redirected its focus on retail operations
by divesting its ownership in two of its subsidiaries, Friend and Travis. The
Company had acquired each subsidiary in fiscal year 1997.
The Company's fiscal year 1998 resulted in a net loss of $4,666,000 or $3.12 per
share diluted as compared to net income of $101,000 or $.07 per share diluted
for fiscal year 1997. Revenues increased 14% in fiscal 1998 to $45,694,000 from
$39,994,000 in fiscal 1997; however, expenses increased 28% in fiscal 1998 to
$50,984,000 from $39,800,000 in fiscal 1997. This increase in expenses is due to
additional costs relating to the increased level of operations, operating losses
at the two former subsidiaries, losses related to the sale of these
subsidiaries, closure of two branch offices and the write-down and write-off of
certain receivables and investments.
The Company's fiscal 1998 results were impacted by the write down of certain
receivables and investments, totaling $2.5 million, including those relating to
the disposition of the two subsidiaries. Additionally, the Company incurred
operating losses of $950,000 relating to the two subsidiaries that were incurred
prior to their respective dispositions and losses relating to two closed branch
offices.
The Company recognizes deferred tax assets and liabilities based on the
difference between the financial statement carrying amounts and the tax basis of
assets and liabilities, using the effective tax rates in the years in which the
differences are expected to reverse. A valuation allowance related to deferred
tax assets is also recorded when, based on the weight of available evidence, it
is more likely than not that some or all of the deferred tax asset will not be
realized. The Company recorded a valuation allowance of $1.0 million in fiscal
1998.
During fiscal year 1998 the Company through National closed two large branch
offices in Melville, New York and in Southern California which it had opened the
previous year. In addition to operational losses from these offices, management
felt the type of business these offices produced, were different than its core
business. Due to weakness in corporate finance activities and the decline in the
stock market during the summer of 1998, management has restructured back to its
core retail brokerage business and significantly reduced fixed overhead costs.
During fiscal year 1998 commission revenue increased $6,140,000 or 35% to
$23,636,000 from $17,496,000 in 1997. National and WestAmerica were primarily
responsible for the increase in commission revenue. Inventory gains increased
$730,000 or 15% to $5,512,000 from $4,782,000. This increase was entirely due to
an increase at National of $915,000, which was greater than the total
consolidated increase.
Underwriting revenue decreased $2,111,000 or 16% to $10,726,000 in 1998 from
$12,837,000 in 1997. National's underwriting revenue decrease of $5,128,000 to
$5,178,000 in 1998 from $10,306,000 in 1997 was partially offset by Friend's
increase of $3,008,000 to $5,460,000 in 1998 from $2,452,000 in 1997. In 1998,
the Company managed four underwritings that totaled approximately $64 million of
gross proceeds raised, compared with eight underwritings in 1997 that totaled
approximately $161 million of gross proceeds raised.
The decrease in underwritings is due primarily to the weakened capital markets
from November 1997 through the 1998 fiscal year end. During that period, the
Company managed only one underwriting. Additionally, in December 1997, National
terminated its relationship with Ray Dirks
Research, a New York branch office. This negatively impacted National's
underwriting revenues and net income in fiscal 1998.
The overall increase in expenses was due in large part to increases in revenues.
The largest components of expense are (i) commission expense (ii) salaries and
benefits expense and (iii) other. Commission expense and salaries and benefits
expense varies directly with securities related revenues. In fiscal 1998 these
expenses totaled $33,791,000 or a 19% increase from $28,381,000 in 1997.
Commission expense increased $3,028,000 or 14% in 1998 from $22,017,000 in 1997
to $25,045,000. Commission expense as a percentage of commission related
revenues (commissions, inventory gains and underwriting fees), was approximately
63% in both 1998 and 1997. Conversely, employee compensation and benefits
increased $2,382,000 or 37% to $8,746,000 in 1998 from $6,364,000 in 1997
because certain commission salespeople with a lower payout also receive
salaries, as well as the increase in management, operating and administrative
salaries for Olympic and the additional subsidiaries. The additional salaries
for Olympic and the newly acquired subsidiaries totaled approximately $4,430,000
in 1998 an increase of $2,298,000 from $2,132,000 in fiscal 1997.
Interest expense increased $575,000 in 1998, or 25% to $2,840,000 from
$2,265,000 in 1997, primarily because of increased customer deposits, on which
the Company pays interest and the interest on debt incurred during fiscal 1998.
This expense was offset by the increased interest income of $605,000, or 16% to
$4,380,000 from $3,775,000. The Company realized record levels of net interest
income (interest income less interest expense) of $1,540,000 in 1998, a 2%
increase from the prior record levels reached a year earlier. The Company earns
the majority of this interest through National from its investments in U.S.
Government obligations and U.S. Government agency obligations and interest
received on customer margin debits. National earns a spread between what it pays
customers on free credit balances and what it earns investing these balances. As
a result of this spread, as the overall customer debits and credits increase,
the Company is able to earn more interest income.
With the additional subsidiaries the Company has acquired, and the additional
branch offices opened by National during the year, communications and occupancy
expenses increased $1,232,000 or 28% to $5,658,000 in fiscal 1998 from
$4,426,000 in fiscal 1997.
Clearing expenses increased $600,000 or 62% in 1998. These increases are
attributable to Friend and WestAmerica, which combined, accounted for a $467,000
increase to $821,000 in fiscal 1998 compared with $354,000 of clearing expenses
in fiscal 1997.
Finally, other expenses increased $2,829,000 or 123% to $5,129,000 in 1998 from
$2,300,000 in 1997. The largest component of this increase totaling $2,521,000,
relates to the write-down of certain receivables and investments, including
those relating to the disposition of the two subsidiaries.
Total other expenses for WestAmerica and Friend, combined, were $820,000 in 1998
compared with $465,000 in 1997. This increase of $355,000 was due to 12 months
and 11 months of operations for WestAmerica and Friend in fiscal 1998, compared
with 4 months and 7 months of operations in fiscal 1997, respectively.
Additionally, other expenses (net of write-downs and losses on dispositions) for
Olympic increased $237,000 or 56% to $662,000 in 1998 from $425,000 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As with most financial services firms, substantial portions of the Company's
assets are liquid, consisting mainly of cash or assets readily convertible into
cash. These assets are financed primarily by National's interest bearing and
non-interest bearing customer credit balances, other payables and equity
capital. Occasionally, National utilizes short-term bank financing to supplement
its ability to meet day-to-day operating cash requirements. Such financing has
been used to maximize cash flow and is regularly repaid. National has a
$3,000,000 revolving unsecured credit facility with Seafirst Bank and may borrow
up to 70% of the market value of eligible securities pledged through an
unrelated broker-dealer. These borrowings are short-term and have not extended
beyond a few days. At September 24, 1999 borrowings outstanding were $2,100,000.
This balance was repaid within three business days.
National, as a registered broker-dealer, is subject to the SEC's Uniform Net
Capital Rule 15c3-1, which requires the maintenance of minimum net capital.
National has elected to use the alternative standard method permitted by the
rule. This requires that National maintain minimum net capital equal to the
greater of $250,000 or 2% of aggregate debit items. At September 24, 1999,
National's net capital exceeded the requirement by $2,525,000.
WestAmerica, as a registered broker-dealer, is also subject to the SEC's Net
Capital Rule 15c3-1, which, under the standard method, requires that WestAmerica
maintain minimum net capital equal to the greater of $100,000 or 6 2/3% of
aggregate indebtedness. At September 30, 1999, WestAmerica's net capital
exceeded the requirement by $94,000.
Advances, dividend payments and other equity withdrawals from National or
WestAmerica are restricted by the regulations of the SEC, and other regulatory
agencies. These regulatory restrictions may limit the amounts that these
subsidiaries may dividend or advance to Olympic.
As of the fiscal year ended September 24, 1999, total assets were $86,697,000
compared to total assets of $73,116,000 as of the fiscal year September 25,
1998, which represents a 19% increase in total assets for the 12-month period.
As of fiscal year ended September 25, 1998, total assets were $73,116,000,
compared to total assets of $63,774,000 as of September 26, 1997, which
represents a 15% increase in total assets for the 12-month period.
The objective of liquidity management is to ensure the Company has ready access
to sufficient funds to meet commitments, fund deposit withdrawals and
efficiently provide for the credit needs of customers. Historically, cash flow
from operations and earnings has contributed significantly to liquidity.
The Company believes its internally generated liquidity, together with access to
external capital and debt resources will be sufficient to satisfy existing
operations. However, as the Company expands its operations, including its new
online trading services, or acquires other businesses, the Company will likely
require additional capital.
INFLATION
The Company believes that the effect of inflation on its assets, consisting of
cash, securities, office equipment, leasehold improvements and computers has not
been significant. Whereas inflation has not had a materially adverse impact on
the costs or the operations of the Company, inflation does have an effect on the
Company's business. Increases in inflation rates may be accompanied by increases
in interest rates, which may adversely affect short-term stock prices and,
thereby, adversely affect the Company's performance. However, in an inflationary
environment other corporate financing activities may become more readily
pursued, such as financial advisory services. It is therefore difficult to
predict the net impact of inflation on the Company.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS Nos. 130 and 131. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components.
SFAS No. 131 establishes standards for reporting about operating segments,
products and services, geographic areas, and major customers. The standards
become effective for fiscal years beginning after December 15, 1997.
Management adopted these standards in the year ended September 24, 1999.
In June 1999, The FASB issued SFAS NO. 133 which establishes standards for
accounting and reporting derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. Management adopted these standards in
the year ended September 24, 1999.
IMPACT OF THE YEAR 2000 ISSUE
The Company defines a system as Year 2000 compliant if it is capable of correct
identification, manipulation and calculation when processing data during the
year change from December 31, 1999 to January 1, 2000.
The Company is addressing the Year 2000 issue in the following two phases.
During phase one, completed in October 1998, the Company prepared an inventory
of all Information Technology ("IT") and non-IT systems, which are critical to
operations. The Company tested all of its internal IT systems and concluded that
not all systems were compliant under the above definition. The Company has
determined the remedies necessary to achieve Year 2000 compliance. The Company
finished testing and remediation by November 1999.
In phase two, the Company replaced hardware chips, software and entire
components in those systems deemed to be non-compliant. The Company completed
phase two in November 1999 for National and in June 1999 for WestAmerica. As
required by the NASD, National and WestAmerica completed and filed, in April
1999, Year 2000 readiness reports. Additionally, National was audited by the
NASD and completed all recommendations from the NASD audit in November 1999.
The majority of the Company's trade processing information is handled through a
third party vendor. In the first quarter of fiscal 1999, the Company negotiated
an agreement to change to BETA Systems, Inc. from its prior vendor. The Company
implemented this conversion at the end of March 1999. As part of this agreement,
BETA Systems, Inc. has represented to the Company that they will be Year 2000
compliant. Additionally, the Company initiated formal communications with all
other significant data processing and telecommunications vendors to determine
the extent to which the Company is vulnerable to those third parties failure to
remediate their own Year 2000 Issue. These vendors have represented to the
Company they will be compliant with the requirements of the Year 2000.
The Company has determined that material costs and resources will not be
required to modify or replace portions of its hardware and software so that its
computer systems will properly utilize dates beyond December 31, 1999. To date,
the Company has spent $160,000 and estimates it will spend less than $200,000 in
total regarding the Year 2000 issue.
The Company has developed a contingency plan for unanticipated Year 2000
exposure as part of its overall efforts to ensure that its systems are Year 2000
compliant on a timely basis. National has clearing arrangements with other
brokerage firms and if its internal systems incur Year 2000 problems, National
will clear its business through these other firms.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, even if the Company's systems and the Company's significant
vendors are compliant, the potential impact of the Year 2000 problem on the
securities industry as a whole could be material, as virtually every aspect of
the sales of securities and processing of transactions could be affected. Due to
the size of the problem facing the securities industry and the interdependent
nature of the business, the Company may be materially adversely affected by this
issue. IMPACT OF THE YEAR 2000 ISSUE (Continued)
The foregoing represents a Year 2000 readiness disclosure entitled to protection
as provided in the Year 2000 Information and Readiness Disclosure Act.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk arises from the fact that it engages in
proprietary trading and makes dealer markets in equity securities. Accordingly,
the Company may be required to maintain certain amounts of inventories in order
to facilitate customer order flow. The Company may incur losses as a result of
price movements in these inventories due to changes in interest rates, foreign
exchange rates, equity prices and other political factors. The Company is not
subject to direct market risk due to changes in foreign exchange rates. However,
the Company is subject to market risk as a result of changes in interest rates
and equity prices, which are affected by global economic conditions. The Company
manages its exposure to market risk by limiting its net long or short positions.
Trading and inventory accounts are monitored daily by management and the Company
has instituted position limits.
Credit risk represents the amount of accounting loss the Company could incur if
counterparties to its proprietary transactions fail to perform and the value of
any collateral proves inadequate. Although credit risk relating to various
financing activities is reduced by the industry practice of obtaining and
maintaining collateral, the Company maintains more stringent requirements to
further reduce its exposure. The Company monitors its exposure to counterparty
risk on a daily basis by using credit exposure information and monitoring
collateral values. The Company maintains a credit committee, which reviews
margin requirements for large or concentrated accounts and sets higher
requirements or requires a reduction of either the level of margin debt or
investment in high-risk securities or, in some cases, requiring the transfer of
the account to another broker-dealer.
The Company monitors its market and credit risks daily through internal control
procedures designed to identify and evaluate the various risks to which the
Company is exposed. There can be no assurance, however, that the Company's risk
management procedures and internal controls will prevent losses from occurring
as a result of such risks.
The following table shows the quoted market values of the Company's securities
owned ("long"), securities sold but not yet purchased ("short") and net
positions as of September 24, 1999:
LONG SHORT NET
Corporate stocks $294,000 $134,000 $ 160,000 (long)
Stock options $ 4,000 $ 5,000 $ 1,000 (short)
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS
See part IV, Item 14(a)(1) for a list of financial statements filed as part of
this Report.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
Olympic Cascade Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Olympic Cascade Financial Corporation and Subsidiaries as of September 24,
1999 and September 25, 1998 and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Olympic Cascade
Financial Corporation and Subsidiaries as of September 24, 1999 and September
25, 1998, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/S/Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
November 29, 1999
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Olympic Cascade Financial Corporation
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity, and cash flows of Olympic Cascade Financial Corporation
and subsidiaries for the year ended September 26, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Olympic Cascade Financial Corporation and subsidiaries for the year ended
September 26, 1997, in conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
Seattle, Washington
November 14, 1997
F-1A
<PAGE>
<TABLE>
<CAPTION>
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 24, September 25,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
CASH, subject to immediate withdrawal .......................... $ 384,000 $ 551,000
CASH, CASH EQUIVALENTS AND SECURITIES .......................... 41,416,000 27,348,000
DEPOSITS ....................................................... 1,679,000 2,024,000
RECEIVABLES:
Customers ................................................. 38,038,000 39,680,000
Brokers and dealers ....................................... 2,342,000 826,000
Other ..................................................... 976,000 315,000
Refundable federal income tax ............................. -- 654,000
SECURITIES HELD FOR RESALE, at market .......................... 298,000 235,000
FIXED ASSETS, net .............................................. 1,176,000 1,292,000
GOODWILL, net .................................................. 45,000 61,000
OTHER ASSETS ................................................... 343,000 130,000
------------ ------------
$ 86,697,000 $ 73,116,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
PAYABLES:
Customers ................................................. $ 67,158,000 $ 60,548,000
Brokers and dealers ....................................... 7,581,000 1,714,000
SECURITIES SOLD, BUT NOT YET PURCHASED, at market .............. 139,000 73,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND
OTHER LIABILITIES ......................................... 3,167,000 2,073,000
REVOLVING CREDIT LINE .......................................... 2,100,000 2,700,000
NOTES PAYABLE .................................................. 1,648,000 1,948,000
CAPITAL LEASES PAYABLE ......................................... 865,000 1,112,000
------------ ------------
82,658,000 70,168,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 100,000 shares authorized,
none issued and outstanding ............................ -- --
Common stock, $.02 par value, 6,000,000 shares authorized,
1,694,595 and 1,463,007 shares issued and outstanding .. 34,000 29,000
Additional paid-in capital ................................ 6,375,000 5,407,000
Accumulated Deficit ....................................... (2,370,000) (2,488,000)
------------ ------------
4,039,000 2,948,000
------------ ------------
$ 86,697,000 $ 73,116,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
OLYMPIC CASCADE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
-------------
September 24, September 25, September 26,
1999 1998 1997
------------ ------------ -------------
REVENUES:
<S> <C> <C> <C>
Commissions ................................................................. $ 24,565,000 $ 23,636,000 $ 17,496,000
Net dealer inventory gains .................................................. 9,057,000 5,512,000 4,782,000
Underwriting ................................................................ 2,459,000 10,726,000 12,837,000
Interest and dividends ...................................................... 5,557,000 4,380,000 3,775,000
Transfer fees and clearance services ........................................ 869,000 735,000 620,000
Other ....................................................................... 823,000 705,000 484,000
------------ ------------ -------------
43,330,000 45,694,000 39,994,000
------------ ------------ -------------
EXPENSES:
Commissions ................................................................. 25,735,000 25,045,000 22,017,000
Employee compensation and related expenses .................................. 4,882,000 8,746,000 6,364,000
Occupancy and equipment costs ............................................... 2,548,000 3,736,000 2,927,000
Interest .................................................................... 3,764,000 2,840,000 2,265,000
Clearance fees .............................................................. 1,773,000 1,565,000 965,000
Communications .............................................................. 1,133,000 1,922,000 1,499,000
Taxes, licenses, registration ............................................... 106,000 620,000 874,000
Professional fees ........................................................... 1,956,000 1,381,000 589,000
Other operating expenses .................................................... 1,319,000 5,129,000 2,300,000
------------ ------------ -------------
43,216,000 50,984,000 39,800,000
------------ ------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES ................................................ 114,000 (5,290,000) 194,000
BENEFIT (PROVISION) FOR INCOME TAXES ............................................. 4,000 624,000 (93,000)
----------- ------------ -------------
NET INCOME (LOSS) ................................................................ $ 118,000 $ (4,666,000) $ 101,000
============ ============ =============
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic ....................................................................... $ 0.08 $ (3.12) $ 0.08
============ ============ =============
Diluted ..................................................................... $ 0.08 $ (3.12) $ 0.07
============ ============ =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic ....................................................................... 1,563,499 1,496,634 1,195,403
============ ============ =============
Diluted ..................................................................... 1,563,499 1,496,634 1,425,119
============ ============ =============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 24, 1999, SEPTEMBER 25, 1998 AND
SEPTEMBER 26, 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained
-------------------------- Paid-In Earnings
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, September 28, 1996 ........................ 845,248 $ 17,000 $ 1,825,000 $ 3,474,000 $ 5,316,000
Exercise of stock options, including
$78,000 income tax benefit .................. 153,978 3,000 719,000 -- 722,000
Stock dividends ............................... 174,979 4,000 1,041,000 (1,045,000) --
Common stock issuance in
connection with acquisitions ................ 270,000 5,000 1,460,000 -- 1,465,000
Net income .................................... -- -- -- 101,000 101,000
----------- ----------- ----------- ----------- -----------
BALANCE, September 26, 1997 ........................ 1,444,205 29,000 5,045,000 2,530,000 7,604,000
Exercise of stock options ..................... 2,012 -- 8,000 -- 8,000
Stock dividends ............................... 72,299 1,000 351,000 (352,000) --
Original issue discount ....................... -- -- 307,000 -- 307,000
Treasury stock ................................ (55,509) (1,000) (304,000) -- (305,000)
Net loss ...................................... -- -- -- (4,666,000) (4,666,000)
----------- ----------- ----------- ----------- -----------
BALANCE, September 25, 1998 ........................ 1,463,007 29,000 5,407,000 (2,488,000) 2,948,000
Exercise of stock options ..................... 82,613 2,000 297,000 -- 299,000
Exercise of stock warrants .................... 5,000 -- 20,000 -- 20,000
Issuance of common stock and warrants
in lawsuit settlement and payment of expenses 145,000 3,000 618,000 -- 621,000
Options issued to consultants ................. -- -- 38,000 -- 38,000
Treasury stock ................................ (1,025) -- (5,000) -- (5,000)
Net income .................................... -- -- -- 118,000 118,000
----------- ----------- ----------- ----------- -----------
BALANCE, September 24, 1999 ........................ 1,694,595 $ 34,000 $ 6,375,000 $(2,370,000) $ 4,039,000
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
--------------------------------------------
September 24, September 25, September 26,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ 118,000 $ (4,666,000) $ 101,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization ................................... 408,000 716,000 498,000
Issuance of common stock in lawsuit settlement .................. 501,000 - -
Issuance of common stock in payment of expenses ................. 120,000 - -
Compensation related to issuance of stock options ............... 38,000 - -
Loss (gain) on sale of subsidiaries ............................. (5,000) 1,114,000 -
Loss on disposal of fixed assets ................................ - - 2,000
Deferred income tax benefit ..................................... (2,000) 6,000 (45,000)
Gain on foreign currency translation ............................ - - (43,000)
Changes in assets and liabilities:
Decrease (increase) in cash, cash equivalents and securities (14,068,000) 3,586,000 2,071,000
Decrease (increase) in deposits ............................. 345,000 (732,000) (515,000)
Increase in receivables ..................................... (535,000) (16,379,000) (6,900,000)
Decrease (increase) in federal income tax receivable ........ 654,000 (57,000) (948,000)
Decrease (increase) securities held for resale .............. (63,000) 1,831,000 1,350,000
Increase in other assets .................................... (211,000) (413,000) (439,000)
Increase in payables ........................................ 12,477,000 11,682,000 2,105,000
Increase (decrease) in securities sold, but not yet purchased 66,000 (974,000) (290,000)
Increase (decrease) in accounts payable, accrued expenses
and other liabilities ................................... 1,195,000 (320,000) 1,181,000
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .................. 1,038,000 (4,606,000) (1,872,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ........................................ (276,000) (371,000) (1,313,000)
Sale of fixed assets ............................................ - 124,000 -
Purchase of goodwill ............................................ - -- (83,000)
Proceeds from sale of subsidiary ................................ - 500,000 -
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .................. (276,000) 253,000 (1,396,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock ........................................ - - 724,000
Exercise of stock options ....................................... 319,000 8,000 644,000
Borrowings (repayments) on line of credit ....................... (600,000) 2,700,000 -
Proceeds from notes payable ..................................... - 1,925,000 1,805,000
Payments on capital lease ....................................... (348,000) (108,000) -
Payments on notes payable ....................................... (300,000) (600,000) (1,653,000)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .................. (929,000) 3,925,000 1,520,000
------------ ------------ ------------
DECREASE IN CASH ..................................................... (167,000) (428,000) (1,748,000)
CASH, beginning of year .............................................. 551,000 979,000 2,727,000
------------ ------------ ------------
CASH, end of year .................................................... $ 384,000 $ 551,000 $ 979,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest .................................................... $ 3,727,000 $ 2,783,000 $ 2,265,000
============ ============ ============
Income taxes ................................................ $ - $ - $ 1,117,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Tax effect of common stock issued and stock options
exercised ............................................... $ - $ - $ 78,000
============ ============ ============
Warrants issued as a discount on notes payable .............. $ - $ 307,000 $ -
============ ============ ============
Redemption and retirement of capital stock .................. $ 5,000 $ 305,000 $ -
============ ============ ============
Assets under capital lease .................................. $ - $ 1,180,000 $ -
============ ============ ============
Acquisitions of subsidiaries:
Fair value of assets acquired ............................... - - 1,596,000
Liabilities assumed ......................................... - - 855,000
----------- ------------ ------------
Common stock issued ......................................... $ - $ - $ 741,000
============ ============ ============
</TABLE>
See notes to consolidatd financial statements.
F-5
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 1999, SEPTEMBER 25, 1998 AND SEPTEMBER 27, 1997
1. ORGANIZATION:
OLYMPIC CASCADE FINANCIAL CORPORATION ("OLYMPIC" OR THE "COMPANY") is a
diversified financial services organization, operating through its two wholly
owned subsidiaries, National Securities Corporation ("National") and WestAmerica
Investment Group ("WestAmerica"). Olympic is committed to establishing a
significant presence in the financial services industry by providing financing
options for emerging, small and middle capitalization companies through
institutional research and sales and investment banking services for both public
offerings and private placements, and also provides retail brokerage and trade
clearance operations.
During the year ended September 25, 1998, the Company sold its interests in both
L.H. Friend, Weinress, Frankson & Persson, Inc. ("Friend") and Travis Capital,
Inc. ("Travis").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Olympic and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
B. ESTIMATES - The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C. ACCOUNTING METHOD - Customer security transactions and the related commission
income and expense are recorded on a settlement date basis. The Company's
financial condition and results of operations using the settlement date basis
are not materially different from that of the trade date basis. Revenue from
consulting services and investment banking activities is recognized as the
services are performed.
D. FIXED ASSETS - Fixed assets are stated at cost. Depreciation is calculated
using the straight line method based on the estimated useful lives of the
related assets, which range from three to five years.
E. FISCAL YEAR - The Company has a fifty-two or fifty-three week year, ending on
the last Friday in September.
F-6
<PAGE>
F. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the
Company defines cash as cash subject to immediate withdrawal. Cash, cash
equivalents and securities as discussed in Note 4 are not considered a change in
cash for this purpose.
G. INCOME TAXES - The Company recognizes deferred tax assets and liabilities
based on the difference between the financial statements carrying amounts and
the tax basis of assets and liabilities, using the effective tax rates in the
years in which the differences are expected to reverse. A valuation allowance
related to deferred tax assets is also recorded when it is probable that some or
all of the deferred tax asset will not be realized.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS - Substantially all of the Company's
financial statements are carried at fair value. Assets, including cash, cash
equivalents and securities, deposits, certain receivables, securities held for
resale and other assets, are carried at fair value or contracted amounts which
approximate fair value. Similarly, liabilities, including certain payables,
securities sold but not yet purchased and notes payable are carried at fair
value or contracted amounts approximating fair value.
I. EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per common share is based
upon the net income (loss) for the year divided by the weighted average number
of common shares outstanding during the year. Diluted earnings (loss) per common
share assumes that all common stock equivalents have been converted to common
shares using the treasury stock method. All shares used in the basic and diluted
calculations have been restated to show the effect of the stock dividends as
described in Note 14.
J. IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews long-lived assets for
impairment whenever circumstances and situations change such that there is an
indication that the carrying amounts may not be recovered. At September 24, 1999
the Company believes that there has been no impairment of its long-lived assets.
K. STOCK BASED COMPENSATION - The Company accounts for stock transactions in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees".
In accordance with Statement of Financial Standards No. 123, "Accounting for
Stock Based Compensation" the Company has adopted the pro forma disclosure
requirements of Statement No. 123.
F-7
<PAGE>
L. CONCENTRATIONS OF CREDIT RISK - The Company is actively involved in
securities underwriting, brokerage, distribution and trading. These and other
related services are provided on a national basis to a large and diversified
group of clients and customers, including corporations, governments, financial
institutions and individual investors. The Company's exposure to credit risk
associated with the non-performance by these customers and counterparties in
fulfilling their contractual obligations can be directly impacted by volatile or
illiquid trading markets which may impair the ability of customers and
counterparties to satisfy their obligations to the Company.
Substantially all of the securities held for the exclusive benefit of customers,
pursuant to SEC Rule 15c3-3, consist of issues by the U.S. Government or federal
agencies. The Company's most significant counterparty concentrations are other
brokers and dealers, commercial banks, institutional clients and other financial
institutions. This concentration arises in the normal course of the Company's
business.
3. CORPORATE RESTRUCTURING AND ACQUISITIONS AND DISPOSALS
CORPORATE RESTRUCTURING - In November 1996, the Company's stockholders approved
a restructuring whereby National's stockholders exchanged their shares of common
stock on a one-for-one basis for shares of common stock of the Company resulting
in National becoming a wholly owned subsidiary of the Company. The restructuring
became effective in February 1997 and was accounted for as a pooling of
interests.
ACQUISITIONS - In March 1997, the Company acquired all of the outstanding stock
of Friend, a Southern California based broker-dealer, specializing in investment
banking, institutional brokerage, research and trading activities for middle
market companies. Friend was acquired in exchange for 250,000 unregistered
shares of the Company's common stock valued at $1,375,000 and $1,000,000 in
cash. The Company recorded this transaction under the purchase method of
accounting and has recorded goodwill of $1,300,000 for the purchase price and
direct costs in excess of the net fair value of the assets acquired.
Effective August 31, 1998, the Company sold its investment in Friend to an
investment group led by the subsidiary's management in exchange for $500,000 and
the redemption of 55,509 shares of the Company's common stock issued in the
purchase. The Company wrote off goodwill and receivables of approximately
$1,334,000. The Company recorded a loss on the transaction of approximately
$900,000.
In June 1997, the Company acquired all of the outstanding stock of WestAmerica,
a Scottsdale, Arizona based broker-dealer specializing in retail brokerage
services. WestAmerica was acquired for $443,000 in cash and an agreement that
provides for the payment of bonus compensation to certain brokers. The Company
recorded this transaction under the purchase method of accounting and recorded
goodwill of $83,000 for the purchase price and direct costs in excess of the net
fair value of the assets acquired.
F-8
<PAGE>
In June 1997, the Company acquired all of the outstanding stock of Travis, a
Salt Lake City, Utah based broker-dealer focusing on private placement of
securities for emerging and middle market companies in the U.S. and
internationally. Travis was acquired in exchange for 20,000 unregistered shares
of the Company's common stock valued at $90,000. The Company recorded this
transaction under the purchase method of accounting and recorded goodwill of
$45,000 for the purchase price and direct costs in excess of the net fair value
of the assets acquired.
Effective January 1, 1998, the Company sold its investment in Travis to Travis &
Company in exchange for a note receivable of $281,000 which is included in other
assets. The Company wrote off unamortized goodwill of $40,000, recorded a gain
of approximately $97,000 and subsequent to the sale recorded a corresponding
allowance on the note receivable of $216,000. Under the terms of the note, the
Company collected approximately $66,000, through September 24, 1999 and received
1,025 shares of the Company's common stock.
The operating results of these acquired companies are included in the
consolidated statement of operations from their respective acquisition dates
through their dates of disposition. Goodwill resulting from the WestAmerica
acquisition is being amortized over five years.
4. CASH, CASH EQUIVALENTS AND SECURITIES
Cash, cash equivalents, and securities have been segregated in special reserve
bank accounts for the exclusive benefit of customers under Rule 15c3-3 of the
Securities and Exchange Commission and consist of:
<TABLE>
<CAPTION>
September 24, September 25,
1999 1998
----------------------- ---------------------
United States Government
<S> <C> <C>
obligations $ 40,521,000 $ 24,547,000
Reverse repurchase agreements - 2,530,000
Cash 895,000 271,000
----------------------- ---------------------
$ 41,416,000 $ 27,348,000
======================= =====================
</TABLE>
The United States Government obligations mature at various dates through June
2028 and are stated at current market values. The reverse repurchase agreements
are carried at cost, which approximates market value. The Company purchases
these obligations at fixed, variable and adjustable interest rates in order to
reduce exposure to interest rate changes.
F-9
<PAGE>
5. CUSTOMER RECEIVABLES AND PAYABLES
The Company seeks to protect itself from the risks associated with customer
activities by requiring customers to maintain margin collateral in compliance
with regulatory and its own internal guidelines, which are more stringent than
regulatory margin requirements. Margin levels are monitored daily and additional
collateral must be deposited as required. Where customers cannot meet collateral
requirements, the Company will liquidate underlying financial instruments
sufficient to bring the accounts in compliance.
Exposure to credit risk is affected by the markets for financial instruments,
which can be volatile and may impair the ability of clients to satisfy their
obligations to the Company. Credit limits are established and closely monitored
for customers and broker-dealers engaged in transactions deemed to be
credit-sensitive.
Included in amounts payable to customers are balances in accounts of officers
and directors totaling $109,000 at September 24, 1999 and $466,000 at September
25, 1998 respectively.
6. BROKER-DEALER RECEIVABLES AND PAYABLES
Amounts receivable from and payable to brokers and dealers include:
<TABLE>
<CAPTION>
September 24, September 25,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Due from clearing organization $ 1,231,000 $ 314,000
Deposits paid for securities borrowed 720,000 99,000
borrowed
borrowed
borrowed
Commissions receivable 327,000 278,000
Interest and dividends 5,000 -
Securities failed to deliver 59,000 135,000
---------------------- ----------------------
Total receivable $ 2,342,000 $ 826,000
====================== ======================
Due to clearing organization $ 6,819,000 $ 1,345,000
Securities failed to receive 762,000 369,000
----------------------
Total payable $ 7,581,000 $ 1,714,000
====================== ======================
</TABLE>
Securities borrowed are recorded at the amount of cash collateral advanced or
received. The Company monitors the market value of securities borrowed and
loaned on a daily basis and obtains additional collateral from counterparties as
necessary.
The Company has receivables and payables for financial instruments sold to and
purchased from broker-dealers. The Company is exposed to risk of loss from the
inability of broker-dealers to pay for purchases or to deliver financial
instruments sold, in which case the Company would have to sell or purchase the
financial instruments at prevailing market prices.
F-10
<PAGE>
7. SECURITIES HELD FOR RESALE
Securities held for resale and securities sold, but not yet purchased consist of
the following:
<TABLE>
<CAPTION>
September 24, 1999 September 25, 1998
------------------------------------- ------------------------------------
Securities Sold , But Securities Sold, But
Held For Not Yet Held For Not Yet
Resale Purchased Resale Purchased
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Corporate
stocks $ 294,000 $ 134,000 $ 230,000 $ 46,000
U.S.
Government
obligations - - - 27,000
Corporate
obligations - - 5,000 -
Stock
options 4,000 5,000 - -
----------------- ---------------- ---------------- -----------------
$ 298,000 $ 139,000 $ 235,000 $ 73,000
================= ================ ================ =================
</TABLE>
Securities held for resale and securities sold, but not yet purchased are
recorded at fair value. Fair value is generally based upon quoted market prices.
If quoted market prices are not available, or if liquidating the Company's
position is reasonably expected to impact market prices, fair value is
determined based upon other relevant factors, including dealer price quotations,
price activity of similar instruments and pricing models. Pricing models
consider the time value and volatility factors underlying the financial
instruments and other economic measurements.
Securities sold, but not yet purchased commit the Company to deliver specified
securities at predetermined prices. The transactions may result in market risk
since, to satisfy the obligation, the Company must acquire the securities at
market prices, which may exceed the values reflected on the Consolidated
Statement of Financial Condition.
F-11
<PAGE>
8. FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
September 24, September 25,
1999 1998
-------------------- ----------------------
<S> <C> <C>
Office machines $ 320,000 $ 274,000
Furniture and fixtures 561,000 679,000
Electronic equipment 383,000 916,000
Leasehold improvements 935,000 55,000
Assets under capital leases 1,180,000 1,180,000
-------------------- ----------------------
3,379,000 3,104,000
Less accumulated depreciation and
amortization 2,203,000 1,812,000
-------------------- ----------------------
$ 1,176,000 $ 1,292,000
==================== ======================
</TABLE>
In April 1998 and June 1998, the Company entered into sale and leaseback
agreements with an outside funding company. As part of the agreement the Company
sold certain fixed assets to the funding company for $930,000 and $250,000 in
April and June, respectively, and agreed to lease these assets back over a
forty-eight month period. The Company recorded no gain or loss and has recorded
this transaction as a capital lease.
The following is a schedule of assets under capital leases:
<TABLE>
<CAPTION>
<S> <C>
Office machines $ 180,000
Furniture and fixtures 512,000
Electronic equipment 352,000
Leasehold improvements 136,000
-------------------
1,180,000
Less accumulated depreciation and amortization 368,000
-------------------
$ 812,000
===================
</TABLE>
F-12
<PAGE>
The following is a schedule by years of future minimum lease payments under
these capital leases together with the present value of the net minimum lease
payments as of September 24, 1999:
Fiscal year ended
2000 $ 340,000
2001 340,000
2002 357,000
Total minimum lease payments 1,037,000
Less: Amount representing taxes 62,000
----------------
Net minimum lease payments 975,000
Less amount representing interest 110,000
----------------
Present value of net minimum lease payments $ 865,000
================
9. LINE OF CREDIT
National has an unsecured line of credit of up to $3,000,000. The line is
subject to renewal in January 2000. Borrowings bear interest at the bank's prime
rate which is approximately 8.50% at September 24, 1999. Interest is payable
monthly. At September 24, 1999, the Company has $2,100,000 in outstanding
borrowings on the line of credit.
10. NOTES PAYABLE
In November 1997, the Company executed two promissory notes totaling $925,000.
The notes bear interest at 6% and 8% with the principal to be repaid in 24
monthly installments commencing on December 31, 2000. In connection with the
notes, warrants for the purchase of 126,000 shares at an exercise price of $5.36
per share of the Company's common stock were issued. The warrants were valued at
$120,000 and have been recorded as a discount to the notes.
In January 1998, the Company executed a promissory note for $1,000,000. This
note bears interest at 8% and the principal is to be repaid in 24 monthly
installments commencing on December 31, 2000. In connection with the note,
warrants for the purchase of 157,500 shares at an exercise price of $5.34 per
share of the Company's common stock were issued. The warrants were valued at
$157,500 and have been recorded as a discount to the note.
F-13
<PAGE>
The following is a schedule by years of debt maturity as of September 24,
1999:
Fiscal year ended
2001 $ 802,000
2002 963,000
2003 160,000
1,925,000
Less: discount on notes (277,000)
------------------
$ 1,648,000
==================
11. FEDERAL INCOME TAX
The income tax benefit (provision) consists of:
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------------------------------------------
September 24, September 25, September 26,
1999 1998 1997
----------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Current federal
income tax $ 8,000 $ 626,000 $ (56,000)
Deferred federal
income tax - (2,000) 45,000
Current state
income tax (4,000) - (82,000)
----------------------- ---------------------- ---------------------
$ 4,000 $ 624,000 $ (93,000)
======================= ====================== =====================
</TABLE>
F-14
<PAGE>
The income tax benefit (provision) varies from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
September 24, September 25, September 26,
1999 1998 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Statutory federal
rate $ (39,000) $ 1,852,000 $ (66,000)
State income
taxes, net of
federal income
tax benefit (4,000) - (54,000)
Losses for
which no benefit
is provided - (1,230,000) -
Tax benefit of
net operating
losses 47,000 - -
Other - 2,000 27,000
--------------------- --------------------- ---------------------
$ 4,000 $ 624,000 $ (93,000)
===================== ===================== =====================
</TABLE>
The Company has net operating loss (NOL) carryforwards for Federal income tax
purposes of approximately $1,700,000, substantially all of which expires in
2018.
Significant components of the Company's deferred tax assets are as follows at
September 24, 1999, September 25, 1998 and September 26, 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- --------------
<S> <C> <C> <C>
Net Operating losses $ 578,000 $ 1,017,000 $ 34,000
Other 125,000 41,000 11,000
------------------ ----------------- --------------
Total 703,000 1,058,000 45,000
Valuation allowance (662,000) (1,017,000) -
Total deferred tax asset $ 41,000 $ 41,000 $ 45,000
================== ================= ==============
</TABLE>
F-15
<PAGE>
12. COMMITMENTS
EMPLOYMENT AGREEMENTS - During fiscal 1999 the Company entered into
employment agreements with five executive officers. Four of such
agreements are for a term of three years expiring in June 2002 at
an annual salary aggregating $960,000. The agreements provide for
payment of one year's salary upon severance of employment by the
Company and of two years salary if the Company or executive elects
to terminate employment after the occurrence of a change in control
of the Company, as defined. The other agreement is for a term of
four years expiring in June 2003 at an annual salary of $350,000
plus incentive compensation, as defined, not to exceed $50,000.
Such agreement provides for the same compensation terms in the
event of termination of employment.
LEASES - As of September 24, 1999, the Company is committed under
operating leases for future minimum lease payments as follows:
FISCAL YEAR ENDING
2000 $ 1,418,000
2001 1,605,000
2002 1,325,000
2003 1,109,000
THEREAFTER 911,000
---------------
$ 6,368,000
Rental expense for operating leases for the years ended September 24,
1999, September 25, 1998, and September 26, 1997 was $933,000,
$1,661,000 and $1,113,000, respectively.
UNDERWRITINGS - During fiscal 1999, the Company participated in
underwriting securities for private placements, initial and secondary
public offerings. At September 24, 1999, the Company has no
outstanding commitments relating to underwriting transactions.
13. CONTINGENCIES
In May 1997, a minority stockholder of Olympic commenced a lawsuit
alleging that the Company breached its fiduciary duties to the
plaintiff and that the proxy statement by which the Company and
Olympic effected their merger was materially false and misleading. In
June 1999, the litigation was settled whereby the plaintiff received
25,000 shares of common stock of Olympic, and a warrant to purchase
50,000 shares of Olympic common stock at $4.00 per share. The warrant
expires on May 25, 2004.
In June 1997, a Trust and three individuals, commenced a lawsuit
against Olympic and National, the action against Olympic was
subsequently dismissed. The plaintiffs alleged the defendants'
failure to purchase securities from them constitutes, among other
things, breach of contract, securities rule violations and fraud. In
February 1999, the District Court dismissed plaintiffs' claims
against National Securities in their
F-16
<PAGE>
entirety and granted National Securities motion for summary
judgement. A final judgement was issued by the court in April 1999.
The plaintiffs filed a notice of appeal in May 1999.
In September 1997, a corporation commenced a lawsuit against the
Company alleging breach of contract on an alleged promise to raise
capital for the plaintiff through an initial public offering of
stock. In February 1999, the litigation was settled whereby the
plaintiff received 40,000 shares of common stock of Olympic.
In October 1998, a corporation commenced a lawsuit against the
Company relating to the unsuccessful effort to complete an initial
public offering of the plaintiff's stock. In June 1999, the
litigation was settled whereby the plaintiff received 50,000 shares
of common stock of Olympic, a warrant to purchase 20,000 shares of
Olympic common stock at $4.00 per share, and cash payments totaling
$75,000. The warrant expires on June 3, 2004.
The Company has been named together with others as a defendant in
several class action lawsuits filed against an unrelated third party
in 1999. The Company has not yet been served in any of these actions
The Company is a defendant in various other arbitrations and
administrative proceedings, lawsuits and claims which in the
aggregate seek general and punitive damages approximating $1,600,000.
These matters arise out of the normal course of business.
The Company intends to vigorously defend itself in these actions, and
in any event, does not believe these actions singularly or combined
would have a material adverse effect on the Company's financial
statements or business operations.
14. STOCKHOLDERS' EQUITY
STOCK OPTIONS - The Company's stock option plans provide for the
granting of stock options to certain key employees, directors and
investment executives. Generally, options outstanding under the
Company's stock option plan are granted at prices equal to or above
the market value of the stock on the date of grant, vest either
immediately or ratably over up to five years, and expire five years
subsequent to award.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued by the FASB and, if
fully adopted, changes the methods for recognition of cost on plans
similar to those of the Company. Had compensation cost for the
Company's stock option plans been determined base upon the fair value
at the grant date for awards under these plans consistent with the
methodology prescribed under SFAS 123, the Company's net income and
earnings per share would have been reduced by approximately $705,000,
or $.45 per share in 1999, $761,000, or $0.51
F-17
<PAGE>
per share in 1998, $779,000, or $0.54 per share in 1997. The fair
value of the options granted during 1999, 1998, and 1997 is estimated
as $946,000, $1,153,000, and $960,000, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Volatility 144.00% 63.87% 63.39%
Risk-free interest rate 5.00% 6.17% 6.31%
Expected life 5 years 5 years 5 years
</TABLE>
A summary of the status of the Company's stock options is presented
below:
<TABLE>
<CAPTION>
Weighted
Average
Price
Per
Authorized Granted Available Share
------------------ ---------------- --------------- -------------
Balance,
<S> <C> <C> <C> <C>
September 27, 1996 807,357 639,068 168,289 $ 3.60
Creation of new plan 538,126 - 538,126 -
Granted - 303,739 (303,739) $ 5.79
Exercised (161,677) (161,677) - $ 3.41
------------------ ---------------- ---------------
Balance,
September 26, 1997 1,183,806 781,130 402,676 $ 4.88
Granted - 148,500 (148,500)
Exercised (2,012) (2,012) - $ 3.73
Forfeitures (161,640) (161,340) -
------------------ ---------------- ---------------
Balance,
September 25, 1998 1,020,454 766,278 254,176 $ 4.84
Creation of new plan 500,000 - 500,000
Granted - 425,500 (425,500)
Exercised (82,613) (82,613) - $ 3.62
Forfeitures (40,643) (40,643) - $ -
------------------ ---------------- ---------------
Balance,
September 24, 1999 1,397,198 1,068,522 328,676 $ 4.65
================== ================ ===============
</TABLE>
The following table summarizes information about stock options
outstanding at September 24, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - ----------------------------------------------------- ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONT. LIFE PRICES EXERCISABLE PRICES
- - ----------------- ----------------- --------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
$3.39-3.73 290,214 1.96 $ 3.58 290,214 $ 3.58
$4.00-4.69 476,038 4.24 $ 4.37 246,904 $ 4.15
$5.36-5.64 163,356 2.91 $ 5.29 159,497 $ 5.42
$7.12 138,914 2.38 $ 7.12 138,914 $ 7.12
----------------- ----------------
1,068,522 835,529
================= ================
</TABLE>
STOCK WARRANTS - During 1997, the Company issued 33,075 stock
warrants with an exercise price of $4.76 per share expiring five
years from the award date to the lender. The warrants were valued at
$20,000, net of tax benefit, which has been recorded as a discount on
the note payable. Such note was paid in 1998 and, accordingly, the
discount was amortized to operations.
In addition, stock warrants were issued in conjunction with notes
issued by the Company in November 1997 and January 1998 (see Note
10). In 1999 the Company issued stock warrants in conjunction with
lawsuit settlements (see Note 13).
STOCK DIVIDENDS - On December 22, 1997, the Company declared a 5%
stock dividend to all common shareholders. The stock dividend
increased the number of issued and outstanding shares by 72,299.
During fiscal year 1997, the Company declared three 5% stock
dividends to all common stockholders. The stock dividends were issued
on January 27, 1997, May 30, 1997 and September 10, 1997. The stock
dividends in 1997 increased the number of issued and outstanding
shares by 174,979. All references in the accompanying financial
statements to the number of stock options and warrants, and earnings
per share have been restated to reflect the dividends.
F-18
<PAGE>
15. NET CAPITAL REQUIREMENTS
National, as a registered broker-dealer is subject to the SEC's
Uniform Net Capital Rule 15c3-1, which requires the maintenance of
minimum net capital. National has elected to use the alternative
standard method permitted by the rule. This requires that National
maintain minimum net capital equal to the greater of $250,000 or 2%
of aggregate debit items. At September 24, 1999, National's net
capital exceeded the requirement by $2,525,000.
WestAmerica, as a registered broker-dealer is also subject to the
SEC's Net Capital Rule 15c3-1, which, under the standard method,
requires that each company maintain minimum net capital equal to the
greater of $100,000 or 6 2/3% of aggregate indebtedness. At September
24, 1999, WestAmerica's net capital exceeded the requirement by
$94,000.
Advances, dividend payments and other equity withdrawals from
National or WestAmerica are restricted by the regulations of the SEC,
and other regulatory agencies. These regulatory restrictions may
limit the amounts that these subsidiaries may dividend or advance to
the Company.
16. EMPLOYEE BENEFITS
THE Company's subsidiaries have defined 401(k) profit sharing plans
which cover substantially all of their employees. Under the terms of
the plans, employees can elect to defer up to 25% of eligible
compensation, subject to certain limitations, by making voluntary
contributions to their respective plans. Each company's annual
contributions are made at the discretion of the respective Board of
Directors. During the fiscal years September 24, 1999 and September
25, 1998, the Company made no such contributions. During fiscal year
September 26, 1997, the Company charged $53,000 to operations in
connection with the plans.
17. FINANCIAL INFORMATION - OLYMPIC CASCADE FINANCIAL CORPORATION
Olympic was formed on February 6, 1997. The following Olympic (parent
company only) financial information should be read in conjunction
with the other notes to the consolidated financial statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
OLYMPIC CASCADE FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
ASSETS
September 24, September 25,
1999 1998
---------- ----------
<S> <C> <C>
Cash, subject to immediate withdrawal .................... $ 15,000 $ 8,000
Receivable from subsidiaries ............................. 197,000 14,000
Other receivables ........................................ 50,000 53,000
Capital leases ........................................... 812,000 1,078,000
Investment in subsidiaries ............................... 5,757,000 5,355,000
Other assets ............................................. 87,000 30,000
---------- ----------
$ 6,918,000 $ 6,538,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities . $ 110,000 $ 271,000
Payable to subsidiaries .................................. 256,000 259,000
Capital lease payable .................................... 865,000 1,112,000
Note payable ............................................. 1,648,000 1,948,000
---------- ----------
2,879,000 3,590,000
---------- ----------
Stockholders' equity ..................................... 4,039,000 2,948,000
---------- ----------
$ 6,918,000 $ 6,538,000
========== ==========
</TABLE>
F-20
<PAGE>
OLYMPIC CASCADE FINANCIAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
February 6, 1997
Fiscal Year Ended Fiscal Year Ended (Inception) to
September 24, 1999 September 25, 1998 September 26, 1997
------------------------- ------------------------- -----------------------
<S> <C> <C> <C>
Operating expenses $ 624,000 $ 2,609,000 $ 696,000
Other income (expenses)
Gain on foreign currency translation - - 43,000
Interest and other income 20,000 151,000 -
Gain (loss) on investment in subsidiaries 717,000 (1,094,000) (159,000)
Gain (loss) on sale of investments 5,000 (1,114,000) -
------------------------- ------------------------- -----------------------
Net income (loss) before income tax 118,000 (4,666,000) (812,000)
------------------------- ------------------------- -----------------------
Income tax benefit - - 270,000
------------------------- ------------------------- -----------------------
$ 118,000 $ (4,666,000) $ (542,000)
========================= ========================= =======================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
OLYMPIC CASCADE FINANCIAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FORMATION, February 6, 1997 ........................ -- $ -- $ -- $ -- $ 0
Common Stock issued in
connection with acquisitions .................. 1,203,930 24,000 7,648,000 -- 7,672,000
Exercise of stock options, including
$25,000 income tax benefit .................... 109,175 2,000 472,000 -- 474,000
Stock dividends ............................... 131,100 3,000 701,000 (704,000) 0
Net loss ...................................... -- -- -- (542,000) (542,000)
------------ ------------ ------------ ------------ ------------
BALANCE, September 26, 1997 ........................ 1,444,205 29,000 8,821,000 (1,246,000) 7,604,000
------------ ------------ ------------ ------------ ------------
Exercise of stock options, including
income tax benefit ............. 2,012 -- 8,000 -- 8,000
Stock dividends ............................... 72,299 1,000 351,000 (352,000) 0
Stock redemption .............................. (55,509) (1,000) (304,000) -- (305,000)
Original discount on notes payable ............ -- -- 307,000 -- 307,000
Net loss ...................................... -- -- -- (4,666,000) (4,666,000)
------------ ------------ ------------ ------------ ------------
BALANCE, September 25, 1998 ........................ 1,463,007 29,000 9,183,000 (6,264,000) 2,948,000
------------ ------------ ------------ ------------ ------------
Exercise stock options ........................ 82,613 2,000 297,000 0 299,000
Exercise stock warrants ....................... 5,000 0 20,000 0 20,000
Treasury stock ................................ (1,025) 0 (5,000) 0 (5,000)
Issuance of common stock in legal settlements
and payment of services .................... 145,000 3,000 498,000 0 501,000
Warrants issued in conjunction with legal settlements -- 0 120,000 0 120,000
Options issued to consultants ................. -- 0 38,000 0 38,000
Net income .................................... -- 0 0 118,000 118,000
------------ ------------ ------------ ------------ ------------
BALANCE, September 24, 1999 ........................ 1,694,595 $ 34,000 $ 10,151,000 $ (6,146,000) $ 4,039,000
============ ============ ============ ============ ============
</TABLE>
* Additional paid-in capital and retained earnings for the parent company
differ from consolidated amounts due to accounting for the merger with
National using the pooling of interests method in the consolidated
financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
OLYMPIC CASCADE FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
Period from
February 6, 1997
For Year Ended For Year Ended (Inception) to
September 24, September 25, September 26,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .................................... $ 118,000 $(4,666,000) $ (542,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) from operating activities
Gain on foreign currency translation ............ -- -- (43,000)
Loss on investment in subsidiaries .............. 232,000 1,094,000 159,000
Gain (loss) on sale of subsidiaries ............. (5,000) 1,114,000 --
Issuance of common stock in lawsuit settlement .. 501,000 -- --
Issuance of common stock in payment of expenses . 120,000 -- --
Compensation related to issuance of stock options 38,000 -- --
Depreciation and amortization ................... 285,000 169,000 --
Changes in assets and liabilities ............... (720,000) 1,196,000 632,000
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......... 569,000 (1,093,000) 206,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries ..................... -- -- (443,000)
Capital contributions to subsidiaries ........... (233,000) (135,000) (1,177,000)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ....................... (233,000) (135,000) (1,620,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options ....................... 319,000 8,000 474,000
Proceeds from notes payable ..................... -- 1,925,000 1,805,000
Payments on capital lease ....................... (348,000) (108,000) --
Payments on note payable ........................ (300,000) (600,000) (854,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ......... (329,000) 1,225,000 1,425,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH ............................. 7,000 (3,000) 11,000
CASH BALANCE
Beginning of year ............................... 8,000 11,000 --
----------- ----------- -----------
End of year ..................................... $ 15,000 $ 8,000 $ 11,000
=========== =========== ===========
</TABLE>
F-23
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On August 26, 1998 Moss Adams LLP resigned as principal accountant to audit the
Registrant's financial statements.
The reports of Moss Adams LLP on the Registrant's financial statements for the
fiscal years ended September 26, 1997 and September 27, 1996 did not contain an
adverse opinion or a disclaimer of opinion, or a qualification or modification
as to uncertainty, audit scope or accounting principles.
In connection with its audits for the Registrant's two most recent fiscal years
and through August 26, 1998 there were no disagreements with Moss Adams LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
During the Registrant's fiscal years ended September 26, 1997 and September 27,
1996 and through August 26, 1998 there were no reportable events.
The Registrant engaged Feldman Sherb Horowitz & Co., P.C. as its independent
accountant as of August 31, 1998. During the Registrant's two most recent fiscal
years, and through August 31, 1998, the Registrant did not consult with Feldman
Sherb Horowitz & Co., P.C. as to either the application of accounting principles
to a specified transaction, either completed or proposed or the type of audit
opinion that might be rendered on the Registrant's financial statements and the
Registrant did not consult with Feldman Sherb Horowitz & Co., P.C. as to any
matter that was either the subject of a disagreement or reportable event.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item will be included in the Company's 2000
Proxy Statement and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item will be included in the Company's 2000
Proxy Statement and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in the Company's 2000
Proxy Statement and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Company's 2000
Proxy Statement and is incorporated herein by reference.
ITEM 14 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II Item 8:
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Financial Statements
Statements of Financial Condition, September 24, 1999 and September 25, 1998
Statements of Operations, Years Ended September 24, 1999, September 25, 1998 and
September 26, 1997
Statements of Changes in Stockholders' Equity, Years ended September 24, 1999,
September 25, 1998 and September 26, 1997
Statements of Cash Flows, Years ended September 24, 1999, September 25, 1998 and
September 26, 1997
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because they are not applicable or
have been included in footnotes to the consolidated financial statements.
(B) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the fourth quarter ended
September 24, 1999.
(C) EXHIBITS
See Exhibit Index
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OLYMPIC CASCADE FINANCIAL CORPORATION
(Registrant)
DATE: DECEMBER 20, 1999 BY: /S/STEVEN A. ROTHSTEIN
------------------------ --------------------------------------------
Steven A. Rothstein, Chairman,
Chief Executive Officer and President
DATE: DECEMBER 20, 1999 BY: /S/ROBERT H. DASKAL
------------------------ --------------------------------------------
Robert H. Daskal, Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
DATE: DECEMBER 20, 1999 BY: /S/DAVID M. WILLIAMS
------------------------ --------------------------------------------
David M. Williams
Chief Accounting Officer and
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
DATE: DECEMBER 20, 1999 BY: /S/STEVEN A. ROTHSTEIN
------------------------ --------------------------------------------
Steven A. Rothstein, Chairman,
Chief Executive Officer and President
DATE: DECEMBER 20, 1999 BY: /S/GARY A. ROSENBERG
------------------------ --------------------------------------------
Gary A. Rosenberg, Director
DATE: DECEMBER 20, 1999 BY: /S/JAMES C. HOLCOMB, JR.
------------------------ --------------------------------------------
James C. Holcomb, Jr., Director
DATE: DECEMBER 20, 1999 BY: /S/D.S. PATEL
------------------------- --------------------------------------------
D.S. Patel, Director
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Incorporation, previously filed on Form S-4 in
November 1996 and hereby incorporated by reference.
3.2 The Company's Bylaws, previously filed on Form S-4 in November
1996 and hereby incorporated by reference.
10.1 Office lease, Chicago, Illinois, previously filed as Exhibit
10.27 to Form 10-K in December 1996 and hereby incorporated by
reference.
10.2 Office lease, Spokane Washington, previously filed as Exhibit
10.28 to Form 10-K in December 1996 and hereby incorporated by
reference.
10.3 Amended office lease, Chicago, Illinois, previously filed as
Exhibit 10.29 to Form 10-K in December 1996 and hereby
incorporated by reference.
10.4 Purchase agreement between shareholders of Friend and the
Company, previously filed as Exhibit 10.30 to Form 10-K in
December 1997 and hereby incorporated by reference.
10.5 Purchase agreement between shareholders of WestAmerica and the
Company, previously filed as Exhibit 10.31 to Form 10-K in
December 1997 and hereby incorporated by reference.
10.6 Purchase agreement between shareholders of Travis and the
Company, previously filed as Exhibit 10.32 to Form 10-K in
December 1997 and hereby incorporated by reference.
10.7 Borrowing agreement between Seattle-First National Bank and the
Company, previously filed as Exhibit 10.33 to Form 10-K in
December 1998 and hereby incorporated by reference.
10.8 Note payable agreement, previously filed as Exhibit 10.34 to Form
10-K in December 1998 and hereby incorporated by reference.
10.9 Note payable agreement, previously filed as Exhibit 10.35 to Form
10-K in December 1998 and hereby incorporated by reference.
10.10 Note payable agreement, previously filed as Exhibit 10.36 to Form
10-K in December 1998 and hereby incorporated by reference.
10.11 Sales agreement between Friend and the Company, previously filed
as Exhibit 10.37 to Form 10-K in December 1998 and hereby
incorporated by reference.
10.12 1996 Stock Option Plan, previously filed as Exhibit 4.1 on Form
S-8 in February 1999 and hereby incorporated by reference.
10.13 1997 Stock Option Plan, previously filed as Exhibit 4.2 on Form
S-8 in February 1999 and hereby incorporated by reference.
10.14 1999 Stock Option Plan, previously filed as Exhibit 4.3 on Form
S-8 in February 1999 and hereby incorporated by reference.
10.15* Employment contract dated July 1999.
10.16* Employment contract dated July 1999.
10.17* Employment contract dated July 1999.
10.18* Employment contract dated July 1999.
10.19* Employment contract dated July 1999.
10.20 Office lease, Seattle, Washington.
11. Computation of Earnings per Share.
16.1 Change in Certifying Accountant, previously filed on Form 8-K in
August 1998 and hereby incorporated by reference.
21. Subsidiaries of Registrant.
23.1 Consent of Feldman Sherb Erhlich & Co., P.C., previously filed on
Form S-8 in February 1999 and Forms S-3 in May 1999 and June 1999
and hereby incorporated by reference.
23.2 Consent of Moss Adams LLP, previously filed on Form S-8 in
February 1999 and Forms S-3 in May 1999 and June 1999 and hereby
incorporated by reference.
23.3 Consent of Camhy Karlinsky & Stein LLP, previously filed on Forms
S-3 in May 1999 and June 1999 and hereby incorporated by
reference.
24. Power of Attorney, previously filed on Forms S-3 in May 1999 and
June 1999.
27. Financial Data Schedule.
*Compensatory agreements
<TABLE>
<CAPTION>
EXHIBIT 11
OLYMPIC CASCADE FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Basic
September 24, September 25, September 26,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) ......................................... $ 118,000 ($4,666,000) $ 101,000
=========== =========== ===========
Weighted average number of common
shares outstanding during the year .................. 1,563,499 1,496,634 1,195,403
=========== =========== ===========
Basic earnings per share .................................. $ 0.08 ($ 3.12) $ 0.08
=========== =========== ===========
Diluted
Weighted average number of common
shares outstanding during the year ................... 1,563,499 1,496,634 1,195,403
Add common equivalent shares upon exercise of stock options * * 229,716
----------- ----------- -----------
Weighted average number of shares used
in calculation of primary earnings per share ......... 1,563,499 1,496,634 1,425,119
=========== =========== ===========
Diluted earnings per share ................................ $ 0.08 ($ 3.12) $ 0.07
=========== =========== ===========
* No effect given to common stock equivalents, as their effect would be
anti-dilutive.
</TABLE>
LEASE EXTENSION AGREEMENT
THIS AGREEMENT MADE AND ENTERED INTO AS OF THE 3RD DAY OF JULY BY AND
BETWEEN SEAFO, INC., A DELAWARE CORPORATION ("LANDLORD") AND NATIONAL SECURITIES
CORPORATION, A WASHINGTON CORPORATION ("Tenant").
WITNESSETH
A. Landlord or its predecessor in interest, and tenant or its predecessor in
interest, have heretofore entered into that certain lease dated January 31,
1989, for Premises (the "Premises") as described as suite(s) or room(s)
2200, initially containing approximately 23,391 square feet in the building
(the "Property") known as 1001 Fourth avenue plaza, located at 1001 Fourth
avenue, Seattle, Washington 98154 which lease has heretofore been amended
or assigned by instruments dated; February 23, 1994, February 28, 1996 and
August 16, 1996 (collectively, the "Lease").
*NOTE: The parties herby acknowledge and agree that the rentable area of the
premises is 25,250 square feet, 6,937 RSF located on the 21st, 16,421 RSF
located on the 22nd floor 1,892 RSF located on the 30TH floor, and the rentable
area of the Property is 677,949 square feet.
B. THE LEASE BY ITS TERMS SHALL EXPIRE ON JUNE 30, 1999 ("Prior Expiration
Date") and the parties desire to extend the Lease, all on the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual terms and conditions herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
1. EXTENSION. The term of the lease is herby extended from the prior
expiration date so as to expire on June 30, 2004, (which extended period shall
be referred to herein as the "Extended Term" and which extended expiration date
shall be referred to herein as the "Extended Expiration Date"), unless sooner
terminated in accordance with its terms.
2. BASE OR MINIMUM RENT. All erms and conditions contained in the lease
shall continue to apply with full force and effect during the aformentioned
extended term, except as amended herin and except that the base or minium
monthly rent shall be increased to the monthly ammount of $62,073.00.
3. RENT ADJUSTMENT. It is understood and agreed that any terms and
provisions in the Lease concerning rent adjustments shall remain in full force
and effect, including without limitation any provisions relating to increases or
escalations based on increases in any consumer or wholesale price index, or
similar index ("CPI"), real estate taxes, utility or other charges, or operating
expenses, except that:
(A) The base year or stop level for operating expenses shall be 1999 .
------------------------------------------------------------
(B) The base year or stop level for real estate taxes shall be 1999 .
--------------------------------------------------------------------
(C) The base date for CPI increases shall be N/A .
Under no circumstances shall Tenant be entitled to any free rent period,
construction allowance, tenant improvements or other work to the Premises, or
any other such economic incentives that may have been provided to Tenant in
connection with entering the Lease.
4. CANCELLATION OPTION. Tenant shall have the one time right to cancel this
Lease, effective December 31, 2001, by sending Landlord at least six (6) months
advance written notice accompanied by a certified or cashier's check in the
amount of $372,438.00.
5. NONRECOURSE TO LANDLORD. Any alleged liability of Landlord or of
Landlord's trustees, beneficiaries, shareholders, officers, directors,
employees, agents, advisors, or consultants (collectively the "Alleged
Responsible Parties") to Tenant or to Tenant's partners, employees, agents,
guests or invitees or to any other person or entity claiming by, through or
under Tenant (collectively the "Claimants") on account of any alleged loss,
harm, claim or demand, including without limitation any of such related to
attorneys' fees, court costs or to claims or demands of indemnification, which
is related to, arises out of, or is in connection with this Lease or any of its
Riders, Agreements, Exhibits or other addenda (the "Claims"), shall be limited
to the interest of Landlord in the Building and the rental proceeds thereof.
Claimants agree to look solely to Landlord's interest and the rental proceeds
thereof for the recovery or satisfaction of any judgment obtained against the
Alleged Responsible Parties and the Alleged Responsible Parties shall not be
personally liable on such judgment and Claimants shall have no recourse
personally against any of them. The limitations of liability contained in this
paragraph shall apply equally to all present and future Alleged Responsible
Parties and to its and their heirs, successors, transferees and assigns. Under
no circumstances, including without limitation circumstances of gross
negligence, willful misconduct, fraud or any other act or omission to act will
any Alleged Responsible Parties be personally liable to Claimants for Claims.
6. INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS. Tenant shall maintain
during the Term comprehensive (or commercial) general liability insurance
including premises operations, products/completed operations and contractual
liability coverage with limits of not less than $3,000,000 combined single limit
for personal injury, bodily injury or death, or property damage or destruction
(including loss of use thereof) for any one occurrence. Tenant shall also
maintain during the Term worker compensation/Employers liability insurance as
required by statute, and primary, noncontributory, "all-risk" property damage
insurance covering Tenant's improvements, personal property, business records,
fixtures and equipment, for damage or other loss caused by fire or other
casualty or cause including, but not limited to, vandalism and malicious
mischief, theft, water damage of any type, including sprinkler leakage, bursting
or stoppage of pipes, explosion, business interruption, Boiler and machinery and
other insurable risks in amounts not less than the full insurable replacement
value of such property and full insurable value of such other interest of Tenant
(subject to $1,000.00 maximum deductible). Landlord shall, as part of Operating
Expenses, maintain during the Term comprehensive (or commercial) general
liability insurance, with limits of not less than $1,000,000 combined single
limit for personal injury, bodily injury or death, or property damage or
destruction (including loss of use thereof) for any one occurrence. Landlord
shall also, as part of Operating Expenses, maintain during the Term worker
compensation insurance as required by statute, and primary, non-contributory,
extended coverage or "all-risk" property damage insurance, in an amount equal to
at least ninety percent (90%) of the full insurable replacement value of the
Property (exclusive of the costs of excavation, foundations and footings, and
such risks required to be covered by Tenant's insurance, and subject to
reasonable deductible amounts), or such other amount necessary to prevent
Landlord from being a co-insured, and such other coverage as Landlord shall deem
appropriate or that may be required by any Holder (as defined in Article 25).
Tenant shall provide Landlord with certificates evidencing such coverage (and,
with respect to liability coverage, showing Landlord, Jones Lang Wootton Realty
Advisors and property manager as additional insureds) prior to the Commencement
Date, which shall state that such insurance coverage may not be changed or
canceled without at least thirty (30) days' prior written notice to Landlord,
and shall provide renewal certificates to Landlord at least thirty (30) days
prior to expiration of such policies. Landlord may periodically, but not more
often than every five years, require that Tenant reasonably increase the
aforementioned coverage. Except as provided to the contrary herein, any
insurance carried by Landlord or Tenant shall be for the sole benefit of the
party carrying such insurance. Any insurance policies hereunder may be "blanket
policies". All insurance required hereunder shall be provided by responsible
insurers and Tenant's insurer shall be reasonably acceptable to Landlord and
have a minimum Best's rating of A-V.I. By this Article, Landlord and Tenant
intend that their respective property loss risks shall be borne by responsible
insurance carriers to the extent above provided, and Landlord and Tenant hereby
agree to look solely to, and seek recovery only from, their respective insurance
carriers in the event of a property loss to the extent that such coverage is
agreed to be provided hereunder. The parties each hereby waive all rights and
claims against each other for such losses, and waive all rights of subrogation
of their respective insurers, provided such waiver of subrogation shall not
affect the right of the insured to recover thereunder. The parties agree that
their respective insurance policies are now, or shall be, endorsed such that
said waiver of subrogation shall not affect the right of the insured to recover
thereunder, so long as no material additional premium is charged therefor.
Furthermore, if Tenant hires a contractor or subcontractor said contractors'
general liability insurance will name Landlord, Jones Lang Wootton Realty
Advisors and property manager as additional insureds.
7. PARKING AGREEMENT. See attached Parking Agreement for additional Lease
provisions.
8. Extension Fee: Landlord will provide to National Securities Corporation,
at its sole expense an extension fee equal to $44,187.50, to be paid upon lease
execution.
9. NONDISCLOSURE. We are submitting this Lease Extension Agreement on the
condition that Tenant not discuss any of the matters set forth in the Lease
Extension and Amendment Agreement or disseminate or distribute any information
concerning the terms, details or conditions hereof to any person, firm or entity
without obtaining the express written approval of Landlord.
10. WHOLE AGREEMENT. This Agreement sets forth the entire agreement between
the parties with respect to the matters set forth herein. There have been no
additional oral or written representations or agreements. As extended and
amended herein, the Lease between the parties shall remain in full force and
effect. In case of any inconsistency between the provisions of the Lease and
this Agreement, the latter provisions shall govern and control. Under no
circumstances shall this Agreement be deemed to grant any right to Tenant to
further extend the Lease, and any options to extend or renew contained in the
Lease are hereby deleted.
11. NO OFFER. This Agreement shall not be binding until executed and
delivered by both parties.
Note: The following are attached hereto and made a part of this Extension
Agreement dated July 3, 1999: Parking Agreement and Storage Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LANDLORD: SEAFO, INC.
a Delaware corporation
BY:
ITS:
TENANT: NATIONAL SECURITIES CORPORATION
a Washington corporation
BY:
ITS:
<PAGE>
LANDLORD ACKNOWLEDGMENT
STATE OF NEW YORK }
}ss.:
COUNTY OF KINGS }
I certify that I know or have satisfactory evidence that
__________________________________ is the person who appeared before
me, and said person acknowledged that (he/she) signed this instrument,
on oath stated that (he/she) was authorized to execute the instrument
and acknowledged it as the _______________________________ of Seafo,
Inc. to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument. Dated: ____________________
-----------------------------------------
Notary Public in and for the State of New York
(seal or stamp)
Name Printed: __________________________
My commission expires: ___________________
TENANT ACKNOWLEDGMENTS
INDIVIDUAL
STATE OF: }
} ss.:
COUNTY OF: }
I, the undersigned, as Notary Public in and for the County and State
aforesaid, do hereby certify that _____________________________,
personally known to me to be the same person whose name is subscribed
to the foregoing instrument, appeared before me this day in person and
acknowledged that (he/she) signed the said instrument as his/her free
and voluntary act, for the uses and purposes therein set forth. GIVEN
under my hand and official seal this _____ day of ________________,
19____.
-----------------------------------------
Notary Public
Name Printed: __________________________
My commission expires: ___________________
CORPORATION
STATE OF: }
} ss.:
COUNTY OF: }
On this the ______ day of _______________, 19____, before me a Notary
Public duly authorized in and for the said County in the State
aforesaid to take acknowledgments personally appeared
______________________________________ known to me to be the
__________________________ of
___________________________________________, one of the corporations
described in the foregoing instrument, and acknowledged that as such
officer, being authorized so to do (he/she) executed the foregoing
instrument on behalf of said corporation by subscribing the name of
such corporation by himself/herself as such officer, as his/her free
and voluntary act, and as the free and voluntary act of said
corporation, for the uses and purposes therein set forth. IN WITNESS
WHEREOF, I hereunto set my hand and official seal.
----------------------------------------- Notary Public
Name Printed: __________________________
My commission expires: ___________________
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is made as of July 1, 1999, by and between Olympic
Cascade Financial Corporation, a Delaware corporation (the "Company") and Robert
H. Daskal, an individual ("Executive").
A. The Company and Executive are parties to an Employment Agreement
dated as of January 1, 1997 (the "Agreement"), pursuant to which the Company
employs Executive as its Senior Vice President and Chief Financial Officer,
based in the Company's executive offices in Chicago, Illinois; and
B. The Company and Executive desire to amend certain provisions of the
Agreement, as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions set forth below, the parties agree as follows:
1. TERM OF AGREEMENT. Section 2 of the Agreement is hereby deleted in its
entirety and replaced with the ----------------- following:
"The term of this Agreement shall be for a period of three (3) years
commencing on July 1, 1999, unless terminated earlier pursuant to
Section 7 below."
2. BASE SALARY. Section 3.1 of the Agreement is hereby deleted in its entirety
and replaced with the following:
"For all services rendered by Executive under this Agreement, and
commencing July 1, 1999, the Company shall pay to Executive a base
salary ("Base Salary") of $240,000 per annum. The Base Salary is
subject to increases from time to time at the discretion of the Board
of Directors of the Company."
3. CONFLICTING ACTIVITIES. Section 4.3 of the Agreement is hereby deleted in
its entirety and replaced with the following:
"4.3 CONFLICTING ACTIVITIES. For the term of this Agreement or until
Executive's employment hereunder terminates, whichever occurs first,
Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or
anticipated future business of the Company, in a manner consistent with
the best interest of the Company and with his duties under this
Agreement. If Executive becomes aware of a business opportunity during
the performance of his Company duties, through the use of the Company's
property or information, or under circumstances that would reasonably
lead Executive to believe that the business opportunity was intended by
the offeror to be offered to the Company, he shall first offer such
opportunity to the Company. Should the Chief Executive Officer of the
Company, on behalf of the Company, not exercise its right to pursue
this business opportunity within a reasonable period of time, not to
exceed thirty (30) days, Executive may develop the business opportunity
for himself; provided, however, that such development may in no way
conflict or interfere with the duties owed by Executive to the Company
under this Agreement. Further, Executive may develop such business
opportunities only on his own time, and may not use any service,
personnel, equipment, supplies, facility, or trade secrets of the
Company in their development. As used herein, the term "business
opportunity" shall not include business opportunities involving
investment in publicly traded stocks, bonds or other securities, or
other investments of a personal nature.
4. SEVERANCE. Section 6 of the Agreement is hereby deleted in its entirety and
replaced with the following: ---------
"So long as this Agreement is in effect, and except as would be
inconsistent with Section 7, upon termination of Executive's
employment, Executive or Executive's designees or heirs shall be
entitled to a lump sum payment equal to one year of Executive's Base
Salary as then in effect (the "Severance Payment").
5. CHANGE OF CONTROL. Section 7.1 of the Agreement shall be amended by adding a
new subsection (e) and a new subsection (f) immediately following Section
7.1(d), as follows:
"(e) Executive's employment hereunder may be terminated by the Company
or by Executive at any time within ninety (90) days after the
occurrence of a Change in Control (as defined below). Upon such
termination:
(i) the Company shall pay to Executive as a lump-sum payment an amount equal to
two (2) years' Base Salary in effect at the time of termination;
(ii) the Company shall provide Executive with a continuation of health insurance
coverage, existing office space and existing secretarial and telephone
services, in each case for a period of eighteen (18) months after the date
of termination; and
(iii)all stock options issued by the Company to Executive shall immediately
vest and become exercisable for a period of at least two (2) years after
the date of termination, notwithstanding any provision to the contrary in
the Company's stock option plan or in any stock option agreement between
the Company and Executive.
For purposes of this Agreement, a "Change in Control" shall mean the
occurrence of any of the following events:
(x) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (collectively, a "person") of Beneficial ownership (as
such term is defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of twenty-five percent
(25%) or more of the then outstanding shares of common stock
of the Company or National Securities Corporation
(collectively, the "Outstanding Common Stock"); provided,
however, that the following shall not constitute a Change of
Control: (i) any acquisition by an Underwriter (as such term
is defined in Section 2(11) of the Securities Act of 1933, as
amended) for the purpose of making a public offering; or (ii)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or National
Securities Corporation or any corporation controlled by the
Company or National Securities Corporation;
(y) the sale or liquidation of all or substantially all of
the assets of the
Company or National Securities Corporation; or
(z) any transaction or series of transactions which result
in Steven A. Rothstein directly or indirectly owning
less than ten percent (10%) of the Outstanding Common
Stock.
(f) Notwithstanding anything contained herein, or in any other
agreement between the Company and Executive, or benefit or
compensation plan under which the Executive participates, to the
contrary, in the event that any amounts due Executive under this
Section 7.1, or under any other plan or program of the Company or
other agreement between the Company and Executive, constitute
"parachute payments," within the meaning of section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and the
amount of such parachute payments, when reduced by the federal
excise taxes due and owing on such parachute payments, if any, is
less than the amount Executive would receive if he were paid only
three (3) times his "base amount," as that term is defined in
section 280G of the Code, then, in lieu of all payments hereunder
which are parachute payments, Executive shall be paid, in cash,
an amount equal to three (3) times his base amount less one
dollar ($1.00). The determinations to be made with respect to
this Section 7.1(f) shall be made by an independent auditor
jointly selected by the parties."
6. NONCOMPETE. Section 8 of the Agreement is hereby amended by deleting the
first sentence of such Section and replacing it with the following:
"Executive covenants and agrees that during the terms of his employment
hereunder and for a period of one (1) year thereafter (the
"Noncompetition Period"), Executive shall not, directly or indirectly
recruit, solicit or otherwise induce any customer, officer or employee
of the Company or its affiliates, or any independent contractor
associated with the Company or its affiliates, to discontinue such
relationship with the Company or its affiliates."
7. GOVERNING LAW. Section 9.3 of the Agreement is hereby deleted in its entirety
and replaced with the following:
"This Agreement is made under and shall be construed in accordance with
the laws of the State of Illinois, without regard to conflict of laws
principles. The Company and Executive hereby consent and agree to be subject to
the jurisdiction of the federal and state courts of the State of Illinois
sitting in Chicago, Illinois, in any suit, action or proceeding arising out of
this Agreement or the transactions contemplated hereby."
8. AFFECT ON AGREEMENT. Except as set forth in this Amendment, the Agreement and
each of the parties' respective obligations thereunder shall remain in full
force and effect, and shall not be waived, modified, superseded or otherwise
affected by this Amendment. This Amendment is not to be construed as a release,
waiver or modification of any of the terms, conditions, covenants, rights or
remedies set forth in the Agreement, except as specifically set forth herein.
9. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
10. GOVERNING LAW. This Amendment is made under and shall be construed in
accordance with the laws of the State of Illinois, without regard to conflict of
laws principles.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
OLYMPIC CASCADE FINANCIAL CORPORATION
By:________________________________
Its:________________________________
EXECUTIVE
- - ------------------------------------
Robert H. Daskal
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is made as of July 1, 1999, by and among Olympic Cascade
Financial Corporation, a Delaware corporation (the "Company"), National
Securities Corporation, a Washington corporation and a wholly-owned subsidiary
of the Company ("National") and Steven A. Rothstein, an individual
("Executive").
A. The Company, National and Executive are parties to an Employment
Agreement dated as of April 1, 1998 (the "Agreement"), pursuant to which each of
the Company and National employ Executive as its Chairman and Chief Executive
Officer, based in the Company's executive offices in Chicago, Illinois; and
B. The Company, National and Executive desire to amend certain
provisions of the Agreement, as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions set forth below, the parties agree as follows:
1. TERM OF AGREEMENT. Section 2 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"The term of this Agreement shall be for a period of three (3) years
commencing on July 1, 1999, unless terminated earlier pursuant to
Section 7 below."
2. CONFLICTING ACTIVITIES. Section 4.3 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"4.3 CONFLICTING ACTIVITIES. For the term of this Agreement or until
Executive's employment hereunder terminates, whichever occurs first,
Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or
anticipated future business of the Company and National, in a manner
consistent with the best interest of the Company and National and with
his duties under this Agreement. If Executive becomes aware of a
business opportunity during the performance of his duties hereunder,
through the use of the property or information of the Company or
National, or under circumstances that would reasonably lead Executive
to believe that the business opportunity was intended by the offeror to
be offered to the Company or National, he shall first offer such
opportunity to the Company or National, as the case may be. Should the
Board of Directors of the Company or National, as the case may be, not
exercise its right to pursue this business opportunity within a
reasonable period of time, not to exceed thirty (30) days, Executive
may develop the business opportunity for himself; provided, however,
that such development may in no way conflict or interfere with the
duties owed by Executive to the Company and National under this
Agreement. Further, Executive may develop such business opportunities
only on his own time, and may not use any service, personnel,
equipment, supplies, facility, or trade secrets of the Company or
National in their development. As used herein, the term "business
opportunity" shall not include business opportunities involving
investment in publicly traded stocks, bonds or other securities, or
other investments of a personal nature.
3. SEVERANCE. Section 5 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"So long as this Agreement is in effect, and except as would be
inconsistent with Section 7, upon termination of Executive's
employment, Executive or Executive's designees or heirs shall be
entitled to a lump sum payment equal to one year of Executive's Base
Salary as then in effect (the "Severance Payment"). Notwithstanding any
other provision of this Agreement to the contrary, for purposes of this
Section 5, all compensation payable pursuant to Section 3 of this
Agreement shall be accrued to the date of termination of employment."
4. CHANGE OF CONTROL. Section 7.1 of the Agreement shall be amended by adding a
new subsection (e) and a new subsection (f) immediately following Section
7.1(d), as follows:
"(e) Executive's employment hereunder may be terminated by the Company
or by Executive at any time within ninety (90) days after the
occurrence of a Change in Control (as defined below). Upon such
termination:
(i) the Company shall pay to Executive as a lump-sum payment an amount
equal to two (2) years' Base Salary in effect at the time of
termination;
(ii) the Company shall provide Executive with a continuation of health
insurance coverage, existing office space and existing secretarial and
telephone services, in each case for a period of eighteen (18) months
after the date of termination; and
(iii) all stock options issued by the Company and National to Executive shall
immediately vest and become exercisable for a period of at least two
(2) years after the date of termination, notwithstanding any provision
to the contrary in the Company's stock option plan or in any stock
option agreement between the Company and/or National and Executive.
For purposes of this Agreement, a "Change in Control" shall mean the
occurrence of any of the following events:
(x) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (collectively, a "person") of Beneficial ownership (as
such term is defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of twenty-five percent
(25%) or more of the then outstanding shares of common stock
of the Company or National (collectively, the "Outstanding
Common Stock"); provided, however, that the following shall
not constitute a Change of Control: (i) any acquisition by an
Underwriter (as such term is defined in Section 2(11) of the
Securities Act of 1933, as amended) for the purpose of making
a public offering; or (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or National or any corporation controlled by the
Company or National;
(y) the sale or liquidation of all or substantially all of
the assets of the
Company or National; or
(z) any transaction or series of transactions which
result in Steven A. Rothstein directly or indirectly owning
less than ten percent (10%) of the Outstanding Common Stock,
other than as a result of a transaction or series of
transactions involving the direct or indirect voluntary sale,
transfer or other disposition of common stock of the Company
by Steven A. Rothstein.
(f) Notwithstanding anything contained herein, or in any other
agreement between the Company, National and Executive, or benefit or
compensation plan under which the Executive participates, to the
contrary, in the event that any amounts due Executive under this
Section 7.1, or under any other plan or program of the Company or
National or other agreement between the Company, National and
Executive, constitute "parachute payments," within the meaning of
section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and the amount of such parachute payments, when reduced by the
federal excise taxes due and owing on such parachute payments, if any,
is less than the amount Executive would receive if he were paid only
three (3) times his "base amount," as that term is defined in section
280G of the Code, then, in lieu of all payments hereunder which are
parachute payments, Executive shall be paid, in cash, an amount equal
to three (3) times his base amount less one dollar ($1.00). The
determinations to be made with respect to this Section 7.1(f) shall be
made by an independent auditor jointly selected by the parties."
5. GOVERNING LAW. Section 9.3 of the Agreement is hereby deleted in its entirety
and replaced with the following:
"This Agreement is made under and shall be construed in accordance with
the laws of the State of Illinois, without regard to conflict of laws
principles. The Company, National and Executive hereby consent and
agree to be subject to the jurisdiction of the federal and state courts
of the State of Illinois sitting in Chicago, Illinois, in any suit,
action or proceeding arising out of this Agreement or the transactions
contemplated hereby."
6. AFFECT ON AGREEMENT. Except as set forth in this Amendment, the Agreement and
each of the parties' respective obligations thereunder shall remain in full
force and effect, and shall not be waived, modified, superseded or otherwise
affected by this Amendment. This Amendment is not to be construed as a release,
waiver or modification of any of the terms, conditions, covenants, rights or
remedies set forth in the Agreement, except as specifically set forth herein.
7. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
8. GOVERNING LAW. This Amendment is made under and shall be construed in
accordance with the laws of the State of Illinois, without regard to conflict of
laws principles.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
OLYMPIC CASCADE FINANCIAL CORPORATION NATIONAL SECURITIES CORPORATION
By:________________________________ By:________________________________
Its:________________________________ Its:_________________________________
EXECUTIVE
- - ------------------------------------
Steven A. Rothstein
OLYMPIC CASCADE FINANCIAL CORPORATION
NATIONAL SECURITIES CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective this 1st day
of July, 1999, by and among NATIONAL SECURITIES CORPORATION, a Washington
corporation (the "Company"), OLYMPIC CASCADE FINANCIAL CORPORATION, a Delaware
corporation ("Olympic") and CRAIG GOULD, an individual ("Executive").
RECITALS
A. The Company and Olympic desire to be assured of the association and
services of Executive for the Company and Olympic.
B. Executive is willing and desires to be employed by the Company and
Olympic, and the Company and Olympic are willing to employ Executive, upon
the terms, covenants and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive as "Vice President of
Corporate Finance," and Olympic hereby employs Executive as "Vice Chairman of
Technology," subject to the supervision and direction of the Chief Executive
Officer and Board of Directors of the Company and Olympic, respectively. This
Agreement supersedes any earlier Employment Agreement among the parties.
2. TERM. The term of this Agreement shall be for a period of time commencing on
the date hereof, and terminating on June 30, 2002, unless terminated earlier
pursuant to Section 6 below.
3. COMPENSATION; REIMBURSEMENT.
3.1 BASE SALARY. For all services rendered by Executive under this Agreement,
the Company shall pay Executive a base salary ("Base Salary") of $120,000 per
annum. The Base Salary is subject to increases from time to time at the
discretion of the Board of Directors of the Company.
3.2 ADDITIONAL BENEFITS. In addition to the Base Salary, Executive shall be
entitled to all other benefits of employment now or hereafter provided to the
other executives of the Company, its operating divisions or subsidiaries,
including but not limited to individual health insurance, life insurance and
on-premises parking.
3.3 BONUSES. It is contemplated that from time to time Executive will be paid
bonuses based upon the Company's and Executive's performance, in the sole
discretion of the Company.
3.4 CONTINUING OBLIGATIONS. All of the Company's compensation obligations under
this Section shall continue through the term of this Agreement.
3.5 REIMBURSEMENT. Executive shall be reimbursed for all reasonable
out-of-pocket business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement.
The reimbursement of Executive's business expenses shall be upon weekly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. SCOPE OF DUTIES.
4.1 ASSIGNMENT OF DUTIES. Executive shall have such duties as may be assigned to
him from time to time by the Company's or Olympic's Chief Executive Officer and
Board of Directors commensurate with his experience and responsibilities in the
position for which he is employed pursuant to Section 1 above. Such duties shall
be exercised subject to the control and supervision of the Boards of Directors
of the Company and Olympic.
4.2 EXECUTIVE'S DEVOTION OF TIME. Executive hereby agrees to devote his full
time, abilities and energy to the faithful performance of the duties assigned to
him and to the promotion and forwarding of the business affairs of the Company
and Olympic, and not to divert any business opportunities from the Company or
Olympic to himself or to any other person or business entity. Executive shall be
entitled to not less than three (3) weeks of paid vacation and not less than two
(2) weeks of paid sick leave during each fiscal year of the Company.
4.3 CONFLICTING ACTIVITIES. For the term of this Agreement or until Executive's
employment hereunder terminates, whichever occurs first, Executive hereby agrees
to promote and develop all business opportunities that come to his attention
relating to current or anticipated future business of the Company and Olympic,
in a manner consistent with the best interest of the Company and Olympic and
with his duties under this Agreement. If Executive becomes aware of a business
opportunity during the performance of his duties hereunder, through the use of
the property or information of the Company or Olympic, or under circumstances
that would reasonably lead Executive to believe that the business opportunity
was intended by the offeror to be offered to the Company or Olympic, he shall
first offer such opportunity to the Company or Olympic, as the case may be.
Should the Chief Executive Officer of the Company or Olympic, as the case may
be, on behalf of the Company or Olympic, not exercise its right to pursue this
business opportunity within a reasonable period of time, not to exceed thirty
(30) days, Executive may develop the business opportunity for himself; provided,
however, that such development may in no way conflict or interfere with the
duties owed by Executive to the Company and Olympic under this Agreement.
Further, Executive may develop such business opportunities only on his own time,
and may not use any service, personnel, equipment, supplies, facility, or trade
secrets of the Company or Olympic in their development. As used herein, the term
"business opportunity" shall not include business opportunities involving
investment in publicly traded stocks, bonds or other securities, or other
investments of a personal nature.
5. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS. Other than in the
performance of his duties hereunder, Executive agrees not to disclose, either
during the term of his employment by the Company and Olympic or at any time
thereafter, to any person, firm or corporation any information concerning the
business affairs, the trade secrets or the customer lists or similar information
of the Company or Olympic. Any technique, method, process, technology or
customer compilation or list used by the Company or Olympic shall be considered
a "trade secret" for the purposes of this Agreement. Notwithstanding the
foregoing, the names and other information relating to the retail brokerage
customers of Executive who have been assigned Executive's A/E number shall not
be considered as "confidential information" for purposes of this Section 5 or
any other provision of this Agreement.
6. SEVERANCE. So long as this Agreement is in effect, and except as would be
inconsistent with Section 7, upon termination of Executive's employment,
Executive or Executive's designees or heirs shall be entitled to a lump sum
payment equal to one year of Executive's Base Salary as then in effect (the
"Severance Payment").
7. TERMINATION.
7.1 BASES FOR TERMINATION.
(a) Executive's employment hereunder may be terminated at any time by
mutual agreement of the parties.
(b) Executive's employment hereunder shall automatically terminate on the last
day of the month in which Executive dies. If Executive becomes permanently
disabled and is unable to perform the essential duties defined in Section 4
hereof (the "Duties") with or without accommodation, then Executive's employment
hereunder may be terminated. "Permanent disability" as used herein shall mean
mental or physical disability or both, evidenced by:
(i) a consecutive six month period of time during which Executive is unable to
perform the Duties with or without accommodation; and
(ii) medical documentation from Executive's attending physician or a duly
licensed independent physician selected by the Company's Board of Directors,
stating that Executive is physically and/or mentally disabled from performing
the essential Duties with or without accommodation and that the disabling
condition is permanent and will not substantially change or improve.
(c) Executive may terminate his or her employment hereunder by giving the
Company and Olympic 30 days prior written notice, which termination shall be
effective on the 30th day following such notice.
(d) Executive's employment may not be terminated by the Company and Olympic
against his will without a finding, by an impartial third person or panel, of
fraud, theft or defalcation.
(e) Executive's employment hereunder may be terminated by the Company and
Olympic or by Executive at any time within ninety (90) days after the occurrence
of a Change in Control (as defined below). Upon such termination:
(i) the Company shall pay to Executive as a lump-sum payment an amount equal to
two (2) years' Base Salary in effect at the time of termination;
(ii) the Company shall provide Executive with a continuation of health insurance
coverage, existing office space and existing secretarial and telephone services,
in each case for a period of eighteen (18) months after the date of termination;
and
(iii) all stock options issued by the Company and Olympic to Executive shall
immediately vest and become exercisable for a period of at least two (2) years
after the date of termination, notwithstanding any provision to the contrary in
the Company's or Olympic's stock option plan or in any stock option agreement
between the Company, Olympic and Executive.
For purposes of this Agreement, a "Change in Control" shall mean the occurrence
of any of the following events:
(x) the acquisition by any individual, entity or group
(within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (collectively, a "person") of Beneficial ownership (as such
term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of twenty-five percent (25%) or more of the then outstanding shares
of common stock of the Company or Olympic (collectively, the "Outstanding Common
Stock"); provided, however, that the following shall not constitute a Change of
Control: (i) any acquisition by an Underwriter (as such term is defined in
Section 2(11) of the Securities Act of 1933, as amended) for the purpose of
making a public offering; or (ii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or Olympic or any
corporation controlled by the Company or Olympic;
(y) the sale or liquidation of all or substantially all of
the assets of the
Company or Olympic; or
(z) any transaction or series of transactions which result
in Steven A. Rothstein
directly or indirectly owning less than ten percent (10%) of the Outstanding
Common Stock.
(f) Notwithstanding anything contained herein, or in any other agreement between
the Company or Olympic and Executive, or benefit or compensation plan under
which the Executive participates, to the contrary, in the event that any amounts
due Executive under this Section 7.1, or under any other plan or program of the
Company or Olympic or other agreement between the Company or Olympic and
Executive, constitute "parachute payments," within the meaning of section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), and the amount of
such parachute payments, when reduced by the federal excise taxes due and owing
on such parachute payments, if any, is less than the amount Executive would
receive if he were paid only three (3) times his "base amount," as that term is
defined in section 280G of the Code, then, in lieu of all payments hereunder
which are parachute payments, Executive shall be paid, in cash, an amount equal
to three (3) times his base amount less one dollar ($1.00). The determinations
to be made with respect to this Section 7.1(f) shall be made by an independent
auditor jointly selected by the parties.
8. NONCOMPETE. Executive covenants and agrees that during the term of his
employment hereunder and for a period of one (1) year thereafter (the
"Noncompetition Period"), Executive shall not, directly or indirectly recruit,
solicit or otherwise induce any customer, officer or employee of the Company or
Olympic, or independent contractor associated with the Company or Olympic, to
discontinue such relationship with the Company or Olympic. During the
Noncompetition Period, Executive shall hold in confidence and shall not disclose
to anyone, or use or otherwise exploit for his own benefit or the benefit of any
person or entity, any confidential or proprietary information of the Company or
Olympic, including, without limitation, customer and vendor lists, financial
statements and information, trade secrets or marketing arrangements and plans,
unless directed to do so by order of any court; provided, however, that the
terms of this Section 8 shall not restrict Executive with respect to any Company
or Olympic customer who has been assigned Executive's A/E number.
9. MISCELLANEOUS.
9.1 TRANSFER AND ASSIGNMENT. This Agreement is personal as to Executive and
shall not be assigned or transferred by Executive without the prior written
consent of the Company and Olympic. This Agreement shall be binding upon and
inure to the benefit of all of the parties hereto and their respective permitted
heirs, personal representatives, successors and assigns.
9.2 SEVERABILITY. Nothing contained herein shall be construed to require the
commission of any act contrary to law. Should there by any conflict between any
provisions hereof and any present or future statute, law, ordinance, regulation,
or other pronouncement having the force of law, the latter shall prevail, but
the provision of this Agreement affected thereby shall be curtailed and limited
only to the extent necessary to bring it within the requirements of the law, and
the remaining provisions of this Agreement shall remain in full force and
effect.
9.3 GOVERNING LAW. This Agreement is made under and shall be construed in
accordance with the laws of the State of Illinois, without regard to conflict of
laws principles. The Company, Olympic and Executive hereby consent and agree to
be subject to the jurisdiction of the federal and state courts of the State of
Illinois sitting in Chicago, Illinois, in any suit, action or proceeding arising
out of this Agreement or the transactions contemplated hereby.
9.4 COUNTERPARTS. This Agreement may be executed in several counterparts and all
documents so executed shall constitute one agreement, binding on all of the
parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts. 9.5 ENTIRE AGREEMENT. This Agreement
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof and supersedes all prior oral or written
agreements, arrangements, and understandings with respect thereto. No
representation, promise, inducement, statement or intention has been made by any
party hereto that is not embodied herein, and not party shall be bound by or
liable for any alleged representation, promise, inducement or statement not so
set forth herein.
9.6 MODIFICATION. This Agreement may be modified, amended, superseded, or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation, or waiver.
9.7 ATTORNEYS' FEES AND COSTS. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
9.8 WAIVER. The waiver by either of the parties, express or implied, of any
right under this Agreement or any failure to perform under this Agreement by the
other party, shall not constitute or be deemed as a waiver of any other right
under this Agreement, or of any other failure to perform under this Agreement by
the other party, whether of a similar or dissimilar nature.
9.9 CUMULATIVE REMEDIES. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one of such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
9.10 HEADINGS. The section and other headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
9.11 NOTICES. Any notice under this Agreement must be in writing, may be
telecopied, sent by express 24-hour guaranteed courier, or hand-delivered, or
may be served by depositing the same in the United States mail, addressed to the
party to be notified, postage-prepaid and registered or certified with a return
receipt requested. The addresses of the parties for the receipt of notice shall
be as follows:
If to the Company or Olympic:
National Securities Corporation
875 North Michigan Avenue
Suite 1560
Chicago, Illinois 60611
Attn: Steven A. Rothstein
If to the Executive: Craig Gould
875 North Michigan Avenue
Suite 1560
Chicago, Illinois 60611
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
NATIONAL SECURITIES CORPORATION
By: _______________________________
Steven A. Rothstein, Chairman
OLYMPIC CASCADE FINANCIAL CORPORATION
By: _______________________________
Steven A. Rothstein, Chairman
EXECUTIVE
-----------------------------------
Craig Gould
NATIONAL SECURITIES CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective this 1st day
of July, 1999, by and between NATIONAL SECURITIES CORPORATION, a Washington
corporation (the "Company") and DAVID M. WILLIAMS, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and
services of Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and
the Company is willing to employ Executive, upon the terms, covenants and
conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive as "Corporate Controller and
Chief Operating Officer," subject to the supervision and direction of the
Company's President and Board of Directors. This Agreement
supersedes any earlier Employment Agreement between the parties.
2. TERM. The term of this Agreement shall be for a period of time commencing on
the date hereof and terminating on June 30, 2002, unless terminated earlier
pursuant to Section 6 below.
3. COMPENSATION; REIMBURSEMENT.
3.1 BASE SALARY. For all services rendered by Executive under this Agreement,
the Company shall pay Executive a base salary ("Base Salary") of $90,0000 per
annum through August 31, 1999, increasing to $120,000 per annum on September 1,
1999. The Base Salary is subject to increases from time to time at the
discretion of the Board of Directors of the Company.
3.2 ADDITIONAL BENEFITS. In addition to the Base Salary, Executive shall be
entitled to all other benefits of employment now or hereafter provided to the
other executives of the Company, its operating divisions or subsidiaries,
including but not limited to individual health insurance, life insurance and
on-premises parking. The Company shall reimburse Executive for all reasonable
costs associated with (i) his move to the Seattle area; and (ii) maintaining
licensure as a Certified Public Accountant in the State of Washington,
including, but not limited to, annual dues and the costs of meeting continuing
education requirements. Additionally, the Company will provide air travel to
Chicago four (4) times per year for Executive or one (1) member of Executive's
family.
3.3 BONUSES. It is contemplated that from time to time Executive will be paid
bonuses based upon the Company's and Executive's performance, in the sole
discretion of the Company.
3.4 CONTINUING OBLIGATIONS. All of the Company's compensation obligations under
this Section shall continue through the term of this Agreement.
3.5 REIMBURSEMENT. Executive shall be reimbursed for all reasonable
out-of-pocket business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement.
The reimbursement of Executive's business expenses shall be upon weekly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4. SCOPE OF DUTIES.
4.1 ASSIGNMENT OF DUTIES. Executive shall have such duties as may be assigned to
him from time to time by the Company's Chief Executive Officer, President and
Board of Directors commensurate with his experience and responsibilities in the
position for which he is employed pursuant to Section 1 above. Such duties shall
be exercised subject to the control and supervision of the Board of Directors of
the Company.
4.2 EXECUTIVE'S DEVOTION OF TIME. Executive hereby agrees to devote his full
time, abilities and energy to the faithful performance of the duties assigned to
him and to the promotion and forwarding of the business affairs of the Company,
and not to divert any business opportunities from the Company to himself or to
any other person or business entity. Executive shall be entitled to not less
than three (3) weeks of paid vacation and not less than two (2) weeks of paid
sick leave during each fiscal year of the Company.
4.3 CONFLICTING ACTIVITIES. For the term of this Agreement or until Executive's
employment hereunder terminates, whichever occurs first, Executive hereby agrees
to promote and develop all business opportunities that come to his attention
relating to current or anticipated future business of the Company, in a manner
consistent with the best interest of the Company and with his duties under this
Agreement. If Executive becomes aware of a business opportunity during the
performance of his Company duties, through the use of the Company's property or
information, or under circumstances that would reasonably lead Executive to
believe that the business opportunity was intended by the offeror to be offered
to the Company, he shall first offer such opportunity to the Company. Should the
Chief Executive Officer of the Company, on behalf of the Company, not exercise
its right to pursue this business opportunity within a reasonable period of
time, not to exceed thirty (30) days, Executive may develop the business
opportunity for himself; provided, however, that such development may in no way
conflict or interfere with the duties owed by Executive to the Company under
this Agreement. Further, Executive may develop such business opportunities only
on his own time, and may not use any service, personnel, equipment, supplies,
facility, or trade secrets of the Company in their development. As used herein,
the term "business opportunity" shall not include business opportunities
involving investment in publicly traded stocks, bonds or other securities, or
other investments of a personal nature.
5. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS. Other than in the
performance of his duties hereunder, Executive agrees not to disclose, either
during the term of his employment by the Company or at any time thereafter, to
any person, firm or corporation any information concerning the business affairs,
the trade secrets or the customer lists or similar information of the Company.
Any technique, method, process, technology or customer compilation or list used
by the Company shall be considered a "trade secret" for the purposes of this
Agreement. Notwithstanding the foregoing, the names and other information
relating to the retail brokerage customers of Executive who have been assigned
Executive's A/E number shall not be considered as "confidential information" for
purposes of this Section 5 or any other provision of this Agreement.
6. SEVERANCE. So long as this Agreement is in effect, and except as would be
inconsistent with Section 7, upon termination of Executive's employment,
Executive or Executive's designees or heirs shall be entitled to a lump sum
payment equal to one year of Executive's Base Salary as then in effect (the
"Severance Payment").
7. TERMINATION.
7.1 BASES FOR TERMINATION.
(a) Executive's employment hereunder may be terminated at any time by mutual
agreement of the parties.
(b) Executive's employment hereunder shall automatically terminate on the last
day of the month in which Executive dies. If Executive becomes permanently
disabled and is unable to perform the essential duties defined in Section 4
hereof (the "Duties") with or without accommodation, then Executive's employment
hereunder may be terminated. "Permanent disability" as used herein shall mean
mental or physical disability or both, evidenced by:
(i) a consecutive six month period of time during which Executive is unable to
perform the Duties with or without accommodation; and
(ii) medical documentation from Executive's attending physician or a duly
licensed independent physician selected by the Company's Board of Directors,
stating that Executive is physically and/or mentally disabled from performing
the essential Duties with or without accommodation and that the disabling
condition is permanent and will not substantially change or improve.
(c) Executive may terminate his or her employment hereunder by giving the
Company 60 days prior written notice, which termination shall be effective on
the 60th day following such notice.
(d) Executive's employment may not be terminated by the Company against his will
without a finding, by an impartial third person or panel, of fraud, theft or
defalcation.
(e) Executive's employment hereunder may be terminated by the Company or by
Executive at any time within ninety (90) days after the occurrence of a Change
in Control (as defined below). Upon such termination:
(i) the Company shall pay to Executive as a lump-sum payment an amount equal to
two (2) years' Base Salary in effect at the time of termination;
(ii) the Company shall provide Executive with a continuation of health insurance
coverage, existing office space and existing secretarial and telephone services,
in each case for a period of eighteen (18) months after the date of termination;
and
(iii) all stock options issued by the Company to Executive shall immediately
vest and become exercisable for a period of at least two (2) years after the
date of termination, notwithstanding any provision to the contrary in the
Company's stock option plan or in any stock option agreement between the Company
and Executive.
For purposes of this Agreement, a "Change in Control" shall mean the occurrence
of any of the following events:
(x) the acquisition by any individual, entity or group
(within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (collectively, a "person") of Beneficial ownership (as such
term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of twenty-five percent (25%) or more of the then outstanding shares
of common stock of the Company or Olympic Cascade Financial Corporation
(collectively, the "Outstanding Common Stock"); provided, however, that the
following shall not constitute a Change of Control: (i) any acquisition by an
Underwriter (as such term is defined in Section 2(11) of the Securities Act of
1933, as amended) for the purpose of making a public offering; or (ii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or Olympic Cascade Financial Corporation or any
corporation controlled by the Company or Olympic Cascade Financial Corporation;
(y) the sale or liquidation of all or substantially all of
the assets of the
Company or Olympic Cascade Financial Corporation; or
(z) any transaction or series of transactions which result
in Steven A. Rothstein
directly or indirectly owning less than ten percent (10%) of the Outstanding
Common Stock.
(f) Notwithstanding anything contained herein, or in any other agreement between
the Company and Executive, or benefit or compensation plan under which the
Executive participates, to the contrary, in the event that any amounts due
Executive under this Section 7.1, or under any other plan or program of the
Company or other agreement between the Company and Executive, constitute
"parachute payments," within the meaning of section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and the amount of such parachute
payments, when reduced by the federal excise taxes due and owing on such
parachute payments, if any, is less than the amount Executive would receive if
he were paid only three (3) times his "base amount," as that term is defined in
section 280G of the Code, then, in lieu of all payments hereunder which are
parachute payments, Executive shall be paid, in cash, an amount equal to three
(3) times his base amount less one dollar ($1.00). The determinations to be made
with respect to this Section 7.1(f) shall be made by an independent auditor
jointly selected by the parties.
8. NONCOMPETE. Executive covenants and agrees that during the term of his
employment hereunder and for a period of one (1) year thereafter (the
"Noncompetition Period"), Executive shall not, directly or indirectly recruit,
solicit or otherwise induce any customer, officer or employee of the Company, or
independent contractor associated with the Company, to discontinue such
relationship with the Company. During the Noncompetition Period, Executive shall
hold in confidence and shall not disclose to anyone, or use or otherwise exploit
for his own benefit or the benefit of any person or entity, any confidential or
proprietary information of the Company, including, without limitation, customer
and vendor lists, financial statements and information, trade secrets or
marketing arrangements and plans, unless directed to do so by order of any
court; provided, however, that the terms of this Section 8 shall not restrict
Executive with respect to any Company customer who has been assigned Executive's
A/E number.
9. MISCELLANEOUS.
9.1 TRANSFER AND ASSIGNMENT. This Agreement is personal as to Executive and
shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
9.2 SEVERABILITY. Nothing contained herein shall be construed to require the
commission of any act contrary to law. Should there by any conflict between any
provisions hereof and any present or future statute, law, ordinance, regulation,
or other pronouncement having the force of law, the latter shall prevail, but
the provision of this Agreement affected thereby shall be curtailed and limited
only to the extent necessary to bring it within the requirements of the law, and
the remaining provisions of this Agreement shall remain in full force and
effect.
9.3 GOVERNING LAW. This Agreement is made under and shall be construed in
accordance with the laws of the State of Illinois, without regard to conflict of
laws principles. The Company and Executive hereby consent and agree to be
subject to the jurisdiction of the federal and state courts of the State of
Illinois sitting in Chicago, Illinois, in any suit, action or proceeding arising
out of this Agreement or the transactions contemplated hereby.
9.4 COUNTERPARTS. This Agreement may be executed in several counterparts and all
documents so executed shall constitute one agreement, binding on all of the
parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts. 9.5 ENTIRE AGREEMENT. This Agreement
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof and supersedes all prior oral or written
agreements, arrangements, and understandings with respect thereto. No
representation, promise, inducement, statement or intention has been made by any
party hereto that is not embodied herein, and not party shall be bound by or
liable for any alleged representation, promise, inducement or statement not so
set forth herein.
9.6 MODIFICATION. This Agreement may be modified, amended, superseded, or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation, or waiver.
9.7 ATTORNEYS' FEES AND COSTS. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
9.8 WAIVER. The waiver by either of the parties, express or implied, of any
right under this Agreement or any failure to perform under this Agreement by the
other party, shall not constitute or be deemed as a waiver of any other right
under this Agreement, or of any other failure to perform under this Agreement by
the other party, whether of a similar or dissimilar nature.
9.9 CUMULATIVE REMEDIES. Each and all of the several rights and remedies
provided in this Agreement, or by law or in equity, shall be cumulative, and no
one of them shall be exclusive of any other right or remedy, and the exercise of
any one of such rights or remedies shall not be deemed a waiver of, or an
election to exercise, any other such right or remedy.
9.10 HEADINGS. The section and other headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
9.11 NOTICES. Any notice under this Agreement must be in writing, may be
telecopied, sent by express 24-hour guaranteed courier, or hand-delivered, or
may be served by depositing the same in the United States mail, addressed to the
party to be notified, postage-prepaid and registered or certified with a return
receipt requested. The addresses of the parties for the receipt of notice shall
be as follows:
If to the Company:
National Securities Corporation
875 North Michigan Avenue
Suite 1560
Chicago, Illinois 60611
Attn: Steven A. Rothstein
If to the Executive: David M. Williams
875 North Michigan Avenue
Suite 1560
Chicago, Illinois 60611
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
NATIONAL SECURITIES CORPORATION
By: _______________________________
Steven A. Rothstein, Chairman
EXECUTIVE
-----------------------------------
David M. Williams
NATIONAL SECURITIES CORPORATION
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective as of this
1st day of July, 1999, by and between NATIONAL SECURITIES CORPORATION, a
Washington corporation (the "Company") and MICHAEL A. BRESNER, an individual
("Executive").
RECITALS
A. The Company desires to be assured of the association and services of
Executive for the Company.
B. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive as "President" subject to
the supervision and direction of the Company's Chief Executive Officer and Board
of Directors. This Agreement supersedes any earlier Employment Agreement between
the parties.
2. TERM. The term of this Agreement shall be for a period of time commencing on
the date hereof, and terminating on June 30, 2003, unless terminated earlier
pursuant to Section 6 below. The term of Executive's employment shall be
automatically extended without further action by either party for additional one
(1) year periods unless written notice of either party's intention not to extend
has been given to the other party hereto at least three (3) months prior to the
expiration of the then effective term.
3. COMPENSATION; REIMBURSEMENT.
3.1 BASE SALARY AND INCENTIVE COMPENSATION.
a. For all services rendered by Executive under this
Agreement, the Company shall pay Executive a base
salary ("Base Salary") of $350,000 per annum. The
Base Salary is subject to increases from time to time
at the discretion of the Board of Directors of the
Company.
b. Additionally, the Company shall pay Executive
incentive compensation on an annual basis ("Incentive
Compensation") equal to seven and one-half percent (7
1/2%) of the Company's annual income from operations
before income tax, for each fiscal year commencing
with the fiscal year ending September 2000. Provided
however, the Incentive Compensation payable hereunder
shall not exceed $50,000 for each fiscal year.
3.2 ADDITIONAL BENEFITS AND COMPENSATION. In addition to the Base Salary and
Incentive Compensation, Executive shall be entitled to all other benefits of
employment now or hereafter provided to the other executives of the Company, its
operating divisions or subsidiaries, including but not limited to individual
health insurance, life insurance and on-premises parking. "Additional
compensation" shall include underwriters warrants, equity participations and
shares of investment banking deals. A pool shall be established equal to five
(5) to fifteen (15) percent of the total of such "additional compensation" for
all investment banking deals concluded under the "Olympic Cascade" umbrella, and
Executive shall be allocated at least one-third (1/3) of such pool.
3.3 BONUSES. It is contemplated that from time to time Executive will
be paid bonuses based upon the Company's and Executive's performance, in the
sole discretion of the Company.
3.4 CONTINUING OBLIGATIONS. All of the Company's compensation
obligations under this Section shall continue through the term of this
Agreement.
3.5 REIMBURSEMENT. Executive shall be reimbursed for all reasonable
out-of-pocket business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement.
The reimbursement of Executive's business expenses shall be upon weekly
presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses. In addition, Executive shall be
entitled to $20,000 in non-accountable travel expenses (airline tickets, hotels,
car rentals, etc.)
annually.
3.6 RELOCATION EXPENSE. The Company and the Executive agree that the Executive
shall be required to relocate his residence to Seattle, Washington within a
reasonable time from the commencement of the Employment Term. This relocation
will be subject to the following relocation expense reimbursements: (a)
reasonable moving expenses and closings costs, at cost; (b) real estate
commission on the sale of Executive's current home; and (c) Executive's
reasonable expenses to, from, and in Seattle, until such relocation is
completed.
4. SCOPE OF DUTIES.
4.1 ASSIGNMENT OF DUTIES. Executive shall have such duties as may be
assigned to him from time to time by the Company's Chief Executive Officer and
Board of Directors commensurate with his experience and responsibilities in the
position for which he is employed pursuant to Section 1 above. Such duties shall
be exercised subject to the control and supervision of the Board of Directors of
the Company. Executive' duties shall include full profit and loss
responsibility, and he shall be responsible for the day-to-day activities of the
Company, including the hiring and firing of subordinate employees.
4.2 EXECUTIVE'S DEVOTION OF TIME. Executive hereby agrees to devote his
full time, abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or to any other person or business entity. Executive shall be entitled
to not less than three (3) weeks of paid vacation and not less than two (2)
weeks of paid sick leave during each fiscal year of the Company.
4.3 CONFLICTING ACTIVITIES. For the term of this Agreement or until
Executive's employment hereunder terminates, whichever occurs first, Executive
hereby agrees to promote and develop all business opportunities that come to his
attention relating to current or anticipated future business of the Company, in
a manner consistent with the best interest of the Company and with his duties
under this Agreement. If Executive becomes aware of a business opportunity
during the performance of his Company duties, through the use of the Company's
property or information, or under circumstances that would reasonably lead
Executive to believe that the business opportunity was intended by the offeror
to be offered to the Company, he shall first offer such OPPORTUNITY TO THE
COMPANY. SHOULD THE CHIEF EXECUTIVE OFFICER OF THE COMPANY, ON behalf of the
Company, not exercise its right to pursue this business opportunity within a
reasonable period of time, not to exceed thirty (30) days, Executive may develop
the business opportunity for himself; provided, however, that such development
may in no way conflict or interfere with the duties owed by Executive to the
Company under this Agreement. Further, Executive may develop such business
opportunities only on his own time, and may not use any service, personnel,
equipment, supplies, facility, or trade secrets of the Company in their
development. As used herein, the term "business opportunity" shall not include
business opportunities involving investment in publicly traded stocks, bonds or
other securities, or other investments of a personal nature.
5. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS. Other than in the
performance of his duties hereunder, Executive agrees not to disclose, either
during the term of his employment by the Company or at any time thereafter, to
any person, firm or corporation any information concerning the business affairs,
the trade secrets or the customer lists or similar information of the Company.
Any technique, method, process, technology or customer compilation or list used
by the Company shall be considered a "trade secret" for the purposes of this
Agreement. Notwithstanding the foregoing, the names and other information
relating to the retail brokerage customers of Executive who have been assigned
Executive's A/E number shall not be considered as "confidential information" for
purposes of this Section 5 or any other provision of this Agreement.
6. SEVERANCE. So long as this Agreement is in effect, and except as would be
inconsistent with Section 7, upon termination of Executive's employment,
Executive or Executive's designees or heirs shall be entitled to a lump sum
payment equal to two (2) years of Executive's Base Salary as then in effect (the
"Severance Payment").
7. TERMINATION.
7.1 BASES FOR TERMINATION.
(a) Executive's employment hereunder may be terminated at
any time by mutual agreement of the parties.
(b) Executive's employment hereunder shall automatically
terminate on the last day of the month in which
Executive dies. If Executive becomes permanently
disabled and is unable to perform the essential duties
defined in Section 4 hereof (the "Duties") with or
without accommodation, then Executive's employment
hereunder may be terminated. "Permanent disability" as
used herein shall mean mental or physical disability or
both, evidenced by:
(i) a consecutive six month period of time during which Executive is
unable to
perform the Duties with or without accommodation; and
(ii) medical documentation from Executive's attending physician or a
duly licensed
independent physician selected by the Company's Board of Directors, stating that
Executive is physically and/or mentally disabled from performing the essential
Duties with or without accommodation and that the disabling condition is
permanent and will not substantially change or improve.
(c) Executive may terminate his or her employment hereunder
by giving the Company thirty (30) DAYS PRIOR WRITTEN
NOTICE, WHICH TERMINATION SHALL BE EFFECTIVE ON THE
THIRTIETH (30TH) day following such notice.
(d) Executive's employment may not be terminated by the
Company against his will unless he is convicted of a
felony involving fraud, theft or defalcation involving
his activities at the Company. If executive is
terminated without cause, as defined herein, he shall
be entitled to receive twenty-four (24) months of base
compensation payable as follows: (a) $100,000 cash upon
termination and (b) $700,000 in twenty-four (24) equal
monthly installments. If the Company fails to make a
monthly installment, which is not cured within (3)
business days after written notice, then the entire
remaining amount owed to the Executive shall be payable
immediately.
(e) Executive's employment hereunder may be terminated by
the Company or by Executive at any time within ninety
(90) days after the occurrence of a Change in Control
(as defined below). Upon such termination:
(i) the Company shall pay to Executive as a lump-sum payment an
amount equal to
two (2) years Base Salary in effect at the time of termination;
(ii) the Company shall provide Executive with a continuation of health
insurance
coverage, existing office space and existing secretarial and telephone services,
in each case for a period of eighteen (18) months after the date of termination;
and
(iii)all stock options issued by the Company to Executive shall
immediately vest
and become exercisable for a period of at least two (2) years after the date of
termination, notwithstanding any provision to the contrary in the Company's
stock option plan or in any stock option agreement between the Company and
Executive.
For purposes of this Agreement, a "Change in Control" shall mean the occurrence
of any of the following events:
(x) the acquisition by any individual, entity or group
(within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (collectively, a "person") of Beneficial ownership (as such
term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of twenty-five percent (25%) or more of the then outstanding shares
of common stock of the Company or Olympic Cascade Financial Corporation
(collectively, the "Outstanding Common Stock"); provided, however, that the
following shall not constitute a Change of Control: (i) any acquisition by an
Underwriter (as such term is defined in Section 2(11) of the Securities Act of
1933, as amended) for the purpose of making a public offering; or (ii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company;
(y) the sale or liquidation of all or substantially all of
the assets of the
Company, or Olympic Cascade Financial Corporation; or
(z) any transaction or series of transactions which result
in Steven A. Rothstein
directly or indirectly owning less than ten percent (10%) of the Outstanding
Common Stock.
(f) Notwithstanding anything contained herein, or in any other
agreement between the Company and Executive, or benefit or compensation plan
under which the Executive participates, to the contrary, in the event that any
amounts due Executive under this Section 7.1, or under any other plan or program
of the Company or other agreement between the Company and Executive, constitute
"parachute payments," within the meaning of section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and the amount of such parachute
payments, when reduced by the federal excise taxes due and owing on such
parachute payments, if any, is less than the amount Executive would receive if
he were paid only three (3) times his "base amount," as that term is defined in
section 280G of the Code, then, in lieu of all payments hereunder which are
parachute payments, Executive shall be paid, in cash, an amount equal to three
(3) times his base amount less one dollar ($1.00). The determinations to be made
with respect to this Section 7.1(f) shall be made by an independent auditor
jointly selected by the parties.
8. NONCOMPETE. Executive covenants and agrees that during the term of his
employment hereunder and for a period of one (1) year thereafter (the
"Noncompetition Period"), Executive shall not, directly or indirectly recruit,
solicit or otherwise induce any customer, officer or employee of the Company, or
independent contractor associated with the Company, to discontinue such
relationship with the Company. During the Noncompetition Period, Executive shall
hold in confidence and shall not disclose to anyone, or use or otherwise exploit
for his own benefit or the benefit of any person or entity, any confidential or
proprietary information of the Company, including, without limitation, customer
and vendor lists, financial statements and information, trade secrets or
marketing arrangements and plans, unless directed to do so by order of any
court; provided, however, that the terms of this Section 8 shall not restrict
Executive with respect to any Company customer who has been assigned Executive's
A/E number.
9. MISCELLANEOUS.
9.1 TRANSFER AND ASSIGNMENT. This Agreement is personal as to Executive
and shall not be assigned or transferred by Executive without the prior written
consent of the Company. This Agreement shall be binding upon and inure to the
benefit of all of the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns.
9.2 SEVERABILITY. Nothing contained herein shall be construed to
require the commission of any act contrary to law. Should there by any conflict
between any provisions hereof and any present or future statute, law, ordinance,
regulation, or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
9.3 GOVERNING LAW. This Agreement is made under and shall be construed
in accordance with the laws of the State of Illinois, without regard to conflict
of laws principles. The Company and Executive hereby consent and agree to be
subject to the jurisdiction of the federal and state courts of the State of
Illinois sitting in Chicago, Illinois, in any suit, action or proceeding arising
out of this Agreement or the transactions contemplated hereby.
9.4 COUNTERPARTS. This Agreement may be executed in several
counterparts and all documents so executed shall constitute one agreement,
binding on all of the parties hereto, notwithstanding that all of the parties
did not sign the original or the same counterparts.
9.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, arrangements, and
understandings with respect thereto. No representation, promise, inducement,
statement or intention has been made by any party hereto that is not embodied
herein, and not party shall be bound by or liable for any alleged
representation, promise, inducement or statement not so set forth herein.
9.6 MODIFICATION. This Agreement may be modified, amended, superseded,
or canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
party or parties to be bound by any such modification, amendment, supersession,
cancellation, or waiver.
9.7 ATTORNEYS' FEES AND COSTS. In the event of any dispute arising out
of the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
9.8 WAIVER. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement, or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
9.9 CUMULATIVE REMEDIES. Each and all of the several rights and
remedies provided in this Agreement, or by law or in equity, shall be
cumulative, and no one of them shall be exclusive of any other right or remedy,
and the exercise of any one of such rights or remedies shall not be deemed a
waiver of, or an election to exercise, any other such right or remedy.
9.10 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.11 NOTICES. Any notice under this Agreement must be in writing, may
be telecopied, sent by express 24-hour guaranteed courier, or hand-delivered, or
may be served by depositing the same in the United States mail, addressed to the
party to be notified, postage-prepaid and registered or certified with a return
receipt requested. The addresses of the parties for the receipt of notice shall
be as follows:
If to the Company:
National Securities Corporation
875 North Michigan Avenue
Suite 1560
Chicago, Illinois 60611
Attn: Steven A. Rothstein
If to the Executive: Michael A. Bresner
At his then home address, currently:
229 Linden Avenue
Wilmette, Illinois 60691
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
NATIONAL SECURITIES CORPORATION
By: _______________________________
Steven A. Rothstein, Chairman
EXECUTIVE
-----------------------------------
Michael A. Bresner
EXHIBIT 21
OLYMPIC CASCADE FINANCIAL CORPORATION
Subsidiaries of the Registrant
September 24, 1999
Percentage
of Voting
State of Securities
SUBSIDIARY NAME INCORPORATION OWNED
National Securities Corporation Washington 100%
WestAmerica Investment Group California 100%
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
STATEMENT OF FINANCIAL CONDITION AND STATEMENT OF OPERATIONS
</LEGEND>
<CIK> 0001023844
<NAME> OLYMPIC CASCADE FINANCIAL CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-24-1999
<PERIOD-START> SEP-26-1998
<PERIOD-END> SEP-24-1999
<EXCHANGE-RATE> 1000
<CASH> 384
<RECEIVABLES> 40,636
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<PP&E> 1,176
<TOTAL-ASSETS> 86,697
<SHORT-TERM> 2,440
<PAYABLES> 77,906
<REPOS-SOLD> 0
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<INSTRUMENTS-SOLD> 139
<LONG-TERM> 2,173
0
0
<COMMON> 34
<OTHER-SE> 4,005
<TOTAL-LIABILITY-AND-EQUITY> 86,697
<TRADING-REVENUE> 9,057
<INTEREST-DIVIDENDS> 5,557
<COMMISSIONS> 24,565
<INVESTMENT-BANKING-REVENUES> 2,459
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 3,764
<COMPENSATION> 30,617
<INCOME-PRETAX> 114
<INCOME-PRE-EXTRAORDINARY> 114
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
