<PAGE> 1
$12,000
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
FROST HANNA CAPITAL GROUP, INC.
327 Plaza Real, Suite 319
Boca Raton, Florida 33432
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST ___, 1999
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of Frost Hanna Capital Group, Inc., a Florida corporation
("Frost Hanna"),will be held on August ___, 1999, commencing at _____ A.M.,
local time, at ______________________________________________ for the following
purposes:
1. The Merger. To approve and adopt an Agreement and Plan of Merger
dated as of May 27, 1999 (the "Merger Agreement"), among Frost Hanna, FHGB
Acquisition Corporation, a New York corporation and wholly-owned subsidiary of
Frost Hanna ("FHGB"), Gaines, Berland Inc., a New York corporation ("Gaines
Berland"), G-Trade Capital Corp., a New York corporation and wholly-owned
subsidiary of Gaines Berland ("G-Trade"), and Gaines Berland Holdings, Inc., a
Delaware corporation and wholly-owned subsidiary of Gaines Berland ("Holdings"),
pursuant to which (i) FHGB will be merged with and into Gaines Berland (the
"Merger") with Gaines Berland surviving the Merger and becoming a wholly-owned
subsidiary of Frost Hanna and (ii) each share of common stock of Gaines Berland,
par value $.01 per share ("Gaines Berland Common Stock"), that is issued and
outstanding at the effective time of the Merger, will be canceled and
extinguished and automatically converted (subject to certain adjustments) into
the right to receive 21,917 shares of common stock of Frost Hanna, par value
$.0001 per share ("Frost Hanna Common Stock"). As a result of the Merger, the
holders of Gaines Berland Common Stock will be issued an aggregate of up to
16,000,000 shares of Frost Hanna Common Stock and, as a consequence, will then
collectively hold up to approximately 85% of the then issued and outstanding
shares of Frost Hanna Common Stock. The currently issued and outstanding shares
of Frost Hanna Common Stock will not be converted or otherwise modified or
affected by the Merger and all of such shares will continue to be outstanding
following the Merger; however, such shares will constitute approximately 15% of
the then issued and outstanding shares of Frost Hanna Common Stock immediately
following the Merger. A copy of the Merger Agreement is attached as Exhibit A to
the accompanying Proxy Statement.
SHAREHOLDER APPROVAL AND ADOPTION OF THE MERGER WILL RESULT IN A CHANGE
OF THE MAJORITY EQUITY OWNERSHIP, THE BUSINESS AND MANAGEMENT OF FROST HANNA.
2. Name Change. To consider and vote upon a proposal to amend Frost
Hanna's Articles of Incorporation to change Frost Hanna's name to "G-Trade
Capital Holdings Corp."
3. Authorization to Issue Preferred Stock. To consider and vote upon a
proposal to amend Frost Hanna's Articles of Incorporation to provide for an
authorized class of preferred stock consisting of 2,000,000 shares, par value
$.0001 per share, with rights, preferences and designations of such shares to be
determined by Frost Hanna's Board of Directors after the Merger.
4. Election of Directors. To consider and vote upon a proposal to elect
six new members of Frost Hanna's Board of Directors, such members to constitute
the entire Board of Directors and to hold office commencing on the effective
date of the Merger and until the next annual meeting of shareholders.
5. 1999 Performance Equity Plan. To consider and vote upon a proposal
to approve the 1999 Performance Equity Plan to be utilized after the Merger.
<PAGE> 3
6. Annual Incentive Bonus Plan. To consider and vote upon a proposal to
approve the Annual Incentive Bonus Plan to be utilized after the Merger.
7. Special Performance Incentive Plan. To consider and vote upon a
proposal to approve the Special Performance Incentive Plan to be utilized after
the Merger.
8. Other Business. To transact any other business that may properly
come before the Special Meeting, or any adjournment or postponement thereof.
Approval of Proposals 2, 3, 4, 5, 6 and 7 will only be deemed to be
effective if Proposal 1 is approved.
The Board of Directors of Frost Hanna has fixed ________, 1999 as the
record date for the determination of shareholders entitled to notice of and to
vote at the Special Meeting. The affirmative vote of the holders of majority of
all of the outstanding Frost Hanna Common Stock entitled to vote at the Special
Meeting is necessary to approve and adopt the Merger. In the event, however,
that holders of 30% or more of the shares of Frost Hanna Common Stock issued in
Frost Hanna's initial public offering vote against approval and adoption of the
Merger Agreement, Frost Hanna will not consummate the Merger. Holders of Frost
Hanna Common Stock are not entitled to appraisal rights under Florida law but
will be entitled to certain redemption rights.
THE FROST HANNA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDED THAT THE SHAREHOLDERS OF FROST HANNA VOTE THEIR SHARES
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE OTHER PROPOSALS THAT
THE SHAREHOLDERS WILL BE REQUESTED TO CONSIDER AND VOTE UPON DESCRIBED IN THIS
PROXY STATEMENT. FROST HANNA'S DIRECTORS AND EXECUTIVE OFFICERS WHO PRESENTLY
OWN, IN THE AGGREGATE, APPROXIMATELY 43.2% OF THE ISSUED AND OUTSTANDING SHARES
OF FROST HANNA COMMON STOCK, HAVE AGREED, WITH RESPECT TO THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT, TO VOTE THEIR RESPECTIVE SHARES OF FROST
HANNA COMMON STOCK IN ACCORDANCE WITH THE VOTE OF THE MAJORITY OF THE SHARES OF
FROST HANNA COMMON STOCK WHICH ARE HELD BY NON-AFFILIATED FROST HANNA
SHAREHOLDERS (AS DEFINED HEREIN). AS OF THE DATE OF THIS PROXY STATEMENT, THERE
ARE 2,657,202 ISSUED AND OUTSTANDING SHARES OF FROST HANNA COMMON STOCK, OF
WHICH 1,181,536 SHARES ARE HELD BY NON-AFFILIATED FROST HANNA SHAREHOLDERS.
Whether or not you plan to attend the Special Meeting, please complete,
date and sign the accompanying proxy card and mail it promptly in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States, no later than _________, 1999. If you attend the Special Meeting, you
may vote your shares in person if you wish even if you previously returned your
proxy card.
---------------------------
Donald H. Baxter
Secretary
Boca Raton, Florida
, 1999
- -------------
<PAGE> 4
FROST HANNA CAPITAL GROUP, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST ___, 1999
This Proxy Statement is being furnished to the shareholders of Frost
Hanna Capital Group, Inc., a Florida corporation ("Frost Hanna"), in connection
with the solicitation of proxies by the Board of Directors of Frost Hanna from
holders of issued and outstanding shares of common stock of Frost Hanna, par
value $.0001 per share ("Frost Hanna Common Stock"), for use at the special
meeting of shareholders of Frost Hanna to be held on August __, 1999, at
____________, or any adjournment or postponement thereof (the "Special
Meeting"). This Proxy Statement and accompanying forms of proxy are first being
mailed to the shareholders of Frost Hanna on or about ____________, 1999.
The Special Meeting has been called to consider and vote on a proposal
to approve and adopt an Agreement and Plan of Merger dated as of May 27, 1999
(the "Merger Agreement"), among Frost Hanna, FHGB Acquisition Corporation, a New
York corporation and wholly-owned subsidiary of Frost Hanna ("FHGB"), Gaines,
Berland Inc., a New York corporation ("Gaines Berland"), G-Trade Capital Corp.,
a New York corporation and wholly-owned subsidiary of Gaines Berland
("G-Trade"), and Gaines Berland Holdings, Inc., a Delaware corporation and
wholly-owned subsidiary of Gaines Berland ("Holdings"), which provides, among
other things, (i) for the merger of FHGB with and into Gaines Berland (the
"Merger") with Gaines Berland surviving the Merger and becoming a wholly-owned
subsidiary of First Hanna and (ii) that each share of common stock, par value
$.01 per share, of Gaines Berland ("Gaines Berland Common Stock") that is issued
and outstanding at the effective time (the "Effective Time") of the Merger will
be canceled and extinguished and automatically converted (subject to certain
adjustments) into the right to receive 21,917 shares of Frost Hanna Common
Stock. As a result of the Merger, the holders of Gaines Berland Common Stock
will be issued an aggregate of up to 16,000,000 shares of Frost Hanna Common
Stock and, as a consequence, will then hold up to 85% of the then issued and
outstanding shares of Frost Hanna Common Stock. A copy of the Merger Agreement
is attached as Exhibit A to this Proxy Statement.
FOLLOWING THE CONSUMMATION OF THE MERGER, THE SHAREHOLDERS OF GAINES
BERLAND IMMEDIATELY PRIOR TO THE EFFECTIVE TIME WILL COLLECTIVELY HOLD UP TO 85%
OF ISSUED AND OUTSTANDING SHARES OF FROST HANNA AND IT IS EXPECTED THAT THE
PRINCIPAL EXECUTIVE OFFICERS OF GAINES BERLAND WILL BECOME THE PRINCIPAL
EXECUTIVE OFFICERS OF FROST HANNA.
Approval and adoption of the Merger Agreement requires (i) the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Frost Hanna Common Stock and (ii) that holders of less than 30% of the
shares of Frost Hanna Common Stock issued in Frost Hanna's initial public
offering ("IPO") vote against the approval and adoption of the Merger Agreement.
Holders of shares of Frost Hanna Common Stock issued in Frost Hanna's IPO are
sometimes referred to as "Non-Affiliated Frost Hanna Shareholders."
At the Special Meeting, the holders of Frost Hanna Common Stock also
will be requested (i) to consider and vote upon (A) a proposal to amend Frost
Hanna's Articles of Incorporation to change Frost Hanna's name to "G-Trade
Capital Holdings Corp." (B) a proposal to amend Frost Hanna's Articles of
Incorporation to provide for an authorized class of preferred stock consisting
of 2,000,000 shares, par value $.0001 per share (the "Preferred Stock"), with
rights, preferences and designations of such shares to be determined by the
Board of Directors, (C) a proposal to elect six members of Frost Hanna's Board
of Directors, such members to hold office commencing on the effective date of
the Merger and until the next annual meeting of shareholders, (D) a proposal to
approve the Frost Hanna 1999 Performance Equity Plan, (E) a proposal to approve
the Frost Hanna Annual Incentive Bonus Plan and (F) a proposal to approve the
Frost Hanna Special Performance Incentive Plan and (ii) to transact any other
business that may properly come before the Special Meeting, or any adjournment
or postponement thereof. Approval of the aforesaid proposals will only be deemed
to be effective if the Merger Agreement is approved and adopted. The plans
referred to in items (D), (E) and (F) above will only apply to those
<PAGE> 5
persons who are Gaines Berland employees and will not apply to any of the
officers or employees of Frost Hanna as of the date hereof.
THE FROST HANNA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDED THAT THE SHAREHOLDERS OF FROST HANNA VOTE THEIR SHARES
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE OTHER PROPOSALS THAT
THE SHAREHOLDERS WILL BE REQUESTED TO CONSIDER AND VOTE UPON DESCRIBED IN THIS
PROXY STATEMENT. FROST HANNA'S DIRECTORS AND EXECUTIVE OFFICERS WHO PRESENTLY
OWN, IN THE AGGREGATE, APPROXIMATELY 43.2% OF THE ISSUED AND OUTSTANDING SHARES
OF FROST HANNA COMMON STOCK, HAVE AGREED, WITH RESPECT TO THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT, TO VOTE THEIR RESPECTIVE SHARES OF FROST
HANNA COMMON STOCK IN ACCORDANCE WITH THE VOTE OF THE MAJORITY OF THE SHARES OF
FROST HANNA COMMON STOCK WHICH ARE HELD BY NON-AFFILIATED FROST HANNA
SHAREHOLDERS. AS OF THE DATE OF THIS PROXY STATEMENT, THERE ARE 2,657,202 ISSUED
AND OUTSTANDING SHARES OF FROST HANNA COMMON STOCK, OF WHICH 1,181,536 SHARES
ARE HELD BY NON-AFFILIATED FROST HANNA SHAREHOLDERS.
No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement, and if given
or made, such information or representations should not be relied upon as having
been authorized. This Proxy Statement does not constitute the solicitation of a
proxy, in any jurisdiction in which, or to or from any person to whom or from
whom it is unlawful to make such solicitation of a proxy solicitation. The
delivery of this Proxy Statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of Frost Hanna or Gaines Berland since the date of this Proxy
Statement. However, if any material change occurs during the period that this
Proxy Statement is required to be delivered, this Proxy Statement will be
amended and supplemented accordingly.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO FROST
HANNA AND ITS SUBSIDIARIES WAS PROVIDED BY THE MANAGEMENT AND BOARD OF DIRECTORS
OF FROST HANNA. ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO
GAINES BERLAND AND ITS SUBSIDIARIES WAS PROVIDED BY THE MANAGEMENT AND BOARD OF
DIRECTORS OF GAINES BERLAND. FROST HANNA ASSUMES NO RESPONSIBILITY FOR THE
ACCURACY OF SUCH INFORMATION. THE PRO FORMA FINANCIAL INFORMATION CONTAINED IN
THIS PROXY STATEMENT HAS BEEN PREPARED BY FROST HANNA AND INCLUDES HISTORICAL
FINANCIAL INFORMATION REGARDING GAINES BERLAND THAT WAS SUPPLIED BY GAINES
BERLAND.
IN CONNECTION WITH THE MERGER AND THE OTHER PROPOSALS DESCRIBED IN THIS
PROXY STATEMENT, SHAREHOLDERS OF FROST HANNA SHOULD BE AWARE OF THE RISKS WHICH
ARE SET FORTH UNDER THE CAPTION "" BEGINNING ON PAGE ____ OF THIS PROXY
STATEMENT.
The Frost Hanna Common Stock is quoted on the NASD OTC Bulletin Board
under the symbol "FHAN". The last reported low bid and high ask quotations for
the Frost Hanna Common Stock was $_______ and $______ per share, respectively,
on _______________, 1999, the most recent practicable trading day prior to the
date of this Proxy Statement, and $_______ and $_______ per share, respectively
on ______________, 1999, the last trading day preceding public announcement of
the proposed Merger.
The date of this Proxy Statement is __________, 1999
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Table of Contents..................................................................................................... i
Available Information................................................................................................. ii
Forward-Looking Statements............................................................................................ ii
Summary............................................................................................................... 1
Comparative Per Share Data............................................................................................ 8
Frost Hanna Selected Historical Financial Data........................................................................ 9
Gaines Berland Selected Historical Financial Data..................................................................... 10
Unaudited Pro Forma Financial Data.................................................................................... 11
Risk Factors.......................................................................................................... 12
The Special Meeting................................................................................................... 24
Proposal 1 Approval and Adoption of Merger Agreement.................................................................. 28
Proposal 2 Amendment of Articles of Incorporation..................................................................... 38
Proposal 3 Amendment of Frost Hanna's Articles of Incorporation
to Authorize Blank Check Preferred Stock................................................................... 39
Proposal 4 Election of Directors of Board of Directors................................................................ 41
Proposal 5 Approval of the the 1999 Performance Equity Plan.......................................................... 48
Proposal 6 Approval of the Annual Incentive Bonus Plan................................................................ 50
Proposal 7 Approval of the Special Performance Incentive Plan......................................................... 57
The Companies......................................................................................................... 60
Experts............................................................................................................... 63
Shareholder Proposals................................................................................................. 78
Other Matters......................................................................................................... 78
Index to Consolidated Financial Statements............................................................................ 78
</TABLE>
Exhibit A - Agreement and Plan of Merger
Exhibit B - Form of Amended Articles of Incorporation
Exhibit C - 1999 Performance Equity Plan
Exhibit D - Annual Incentive Bonus Plan
Exhibit E - Special Performance Incentive Plan
Exhibit F - Form of Employment Agreement for Principal Shareholders
Appendix A - Form of Proxy
Appendix B - Certain Statutory Provisions of the Florida Business Corporation
Act
i
<PAGE> 7
AVAILABLE INFORMATION
Frost Hanna is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith is required to file periodic reports, proxy statements and
other information with the Securities and Exchange Commission ("Commission").
Such reports include annual reports containing audited financial statements and
an opinion thereon by Frost Hanna's independent public accountants and quarterly
reports for the first three quarters of each fiscal year, containing unaudited
financial information. Such reports, proxy statements and other information can
be copied and inspected at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, certain of the
documents filed by Frost Hanna with the Commission are available through the
Commission's Electronic Data Gathering and Retrieval system ("EDGAR") at
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
The statements contained in this Proxy Statement that are not
historical acts are "forward-looking statements" (as such term is defined in the
Private Securities Litigation Reform Act of 1995), which can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should" or "anticipates" or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
Management of Frost Hanna wish to caution the reader that the forward-looking
statements referred to above and contained in this Proxy Statement regarding
matters that are not historical facts involve predictions. No assurance can be
given that the future results will be achieved as actual events or results may
differ materially as a result of risks facing Frost Hanna. Such risks include,
but are not limited to, changes in business conditions, changes in the financial
services industry and the general economy, competition, risks associated with
Frost Hanna's limited operating history, managing rapid growth (including that
resulting from the Merger), dependence on effective information systems, and
regulatory developments that could cause actual results to vary materially from
the future results indicated, expressed or implied in such forward-looking
statements. See "Risk Factors."
ii
<PAGE> 8
SUMMARY
The following is a summary of certain important terms of the proposed
Merger and related information discussed elsewhere in this Proxy Statement. This
summary does not purport to be complete and is qualified in its entirety by
reference to the more detailed information included in this Proxy Statement and
the exhibits hereto, including, but not limited to, the Merger Agreement
attached as Exhibit A hereto. Unless the context requires otherwise, as used in
this Proxy Statement, the term (i) "Frost Hanna" means Frost Hanna Capital
Group, Inc. and its consolidated subsidiaries and (ii) "Gaines Berland" means
Gaines, Berland Inc. and its consolidated subsidiaries.
THE SPECIAL MEETING
The Special Meeting will be held on August ___, 1999, commencing
at _____ A.M., local time, at ________________________________________. At such
meeting , the Frost Hanna Shareholders (as defined below) will be requested (i)
to consider and vote upon (A) a proposal to approve and adopt the Merger
Agreement, (B) a proposal to amend Frost Hanna's Articles of Incorporation to
change Frost Hanna's name to "G-Trade Capital Holdings Corp.", (C) a proposal to
amend Frost Hanna's Articles of Incorporation to provide for an authorized class
of 2,000,000 shares of Preferred Stock, with the rights, preferences and
designations of such shares to be determined by the Board of Directors, (D) a
proposal to elect six members of Frost Hanna's Board of Directors, such members
to hold office commencing on the effective date of the Merger and until the next
annual meeting of shareholders, (E) a proposal to approve the 1999 Performance
Equity Plan, (F) a proposal to approve the Annual Incentive Bonus Plan and (G) a
proposal to approve the Special Performance Incentive Plan (the proposals
described in clauses (B), (C), (D), (E), (F) and (G) are sometimes hereinafter
referred to herein as the "Other Proposals") and (ii) to transact such other
business that may properly come before the Special Meeting, or any adjournment
or postponement thereof. Approval of the Other Proposals will only be deemed
effective if the Merger Agreement is approved and adopted. The Frost Hanna Board
of Directors knows of no business that will be presented for consideration at
the Special Meeting other than the matters described in this Proxy Statement.
Copies of the Merger Agreement, the Form of the Amended Articles of
Incorporation of Frost Hanna, the 1999 Performance Equity Plan, the Annual
Incentive Bonus Plan and the Special Performance Incentive Plan are attached to
this Proxy Statement as Exhibits A, B, C, D and E, respectively.
The Board of Directors of Frost Hanna has fixed the close of business
on ________________ as the record date (the "Record Date") for the determination
of holders of Frost Hanna Common Stock entitled to notice of and to vote at the
Special Meeting (the "Frost Hanna Shareholders").
Holders of Frost Hanna Common Stock on the Record Date are entitled to
one vote for each share of Frost Hanna Common Stock held by them on any matter
that may properly come before the Special Meeting. The presence, either in
person or by proxy, of the holders of a majority of the outstanding shares of
Frost Hanna Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. The affirmative vote of the holders
of at least a majority of Frost Hanna Common Stock entitled to vote at the
Special Meeting is required pursuant to the terms of the Merger Agreement to
approve and adopt the Merger. The Merger Agreement also requires that less than
30% of Frost Hanna Common Stock held by Non-Affiliated Frost Hanna Shareholders
vote against approval of the Merger. The Other Proposals, other than Proposal 4
- -- Election of Directors of Frost Hanna, require the affirmative vote of a
majority of the shares of Frost Hanna Common Stock voting in person or by proxy
at the Special Meeting. The election of directors requires the vote of a
plurality of the shares so voting.
Frost Hanna's directors and executive officers and their respective
affiliates, collectively holding an aggregate of approximately 43.2% of the
outstanding shares of Frost Hanna Common Stock before giving effect to the
Merger, have agreed, with respect to the proposal to approve the Merger, to vote
their respective shares of Frost Hanna Common Stock in accordance with the vote
of the majority in interest of Non-Affiliated Frost Hanna Shareholders.
Consequently, if a majority of Frost Hanna Common Stock held and voted by
Non-Affiliated Frost Hanna Shareholders is voted in favor of the Merger, the
current directors and executive officers of Frost Hanna will vote their shares
of Frost Hanna Common Stock in favor of the Merger and the Other Proposals
described in this Proxy Statement.
<PAGE> 9
If the Merger is not approved by the affirmative vote of the holders of
at least a majority of Frost Hanna Common Stock entitled to vote at the Special
Meeting, or if so approved, 30% or more in interest of all Non-Affiliated Frost
Hanna Shareholders actually vote against approval of the Merger, the Merger
Agreement will be terminated and the proposed Merger abandoned.
THE MERGER
GENERAL. The Merger Agreement provides that FHGB will merge with and
into Gaines Berland, with Gaines Berland being the surviving corporation in the
Merger as a wholly-owned subsidiary of Frost Hanna, and the separate existence
of FHGB will cease. The Merger will become effective upon the filing of a
Certificate of Merger with the Secretary of State of the State of New York. It
is anticipated that such filing will be made within fifteen days after all of
the conditions precedent to the Merger Agreement have been satisfied or waived.
CONSIDERATION. Under the terms of the Merger Agreement, Gaines Berland
shareholders have the right to receive (subject to certain adjustments) 21,917
shares of Frost Hanna Common Stock in exchange for each share of Gaines Berland
Common Stock held by them at the Effective Time. Each share of FHGB's common
stock issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger, automatically be converted into one share of Frost Hanna
Common Stock. None of the shares of Frost Hanna Common Stock currently
outstanding will be converted or otherwise modified in the Merger and all of
such shares will continue to be outstanding capital stock of Frost Hanna after
the Effective Time.
REPRESENTATIONS, WARRANTIES AND COVENANTS. The Merger Agreement
contains customary reciprocal representations and warranties of Frost Hanna and
FHGB, on the one hand, and Gaines Berland on the other hand, relating to, among
other things: the accuracy of the information and financial statements provided,
certain accounting matters and the absence of false or misleading statements in
the Merger Agreement or in any documents delivered pursuant thereto. Pursuant to
the Merger Agreement, Frost Hanna and Gaines Berland also agreed that, during
the period from the date of the Merger Agreement until the satisfaction or
waiver of the conditions precedent to the obligations of Frost Hanna and Gaines
Berland set forth in the Merger Agreement ("Closing Date"), each of Frost Hanna
and Gaines Berland and their respective subsidiaries will conduct its business
in the ordinary and usual course and consistent with past practice and, except
as permitted by the Merger Agreement or as consented to in writing by the other
party, neither Frost Hanna nor Gaines Berland, nor any of their respective
subsidiaries, shall, among other things: (i) with certain exceptions, issue or
sell any shares of its capital stock or other securities to new employees who
were not affiliates of Gaines Berland or any of Gaines Berland's five principal
shareholders (the "Principal Shareholders") at the time the Merger Agreement
was signed; (ii) declare any dividend or other distribution with respect to its
capital stock; (iii) borrow any money, except that Gaines Berland, G-Trade and
Holdings may use the margin credit provided by their clearing broker in an
amount not to exceed the amount reflected in the Gaines Berland financial
statements for February 28, 1999 in the aggregate; (iv) make any capital
expenditures in excess of $100,000 in the aggregate; (v) grant any increase in
the compensation payable to its officers, directors or employees, other than
merit increases in the usual course of business; (vi) enter into any
transactions other than in the ordinary course of business or acquire the stock
or a substantial part of the business of any other entity; and (vii) make any
loans, advances or contributions to any entity, except for routine advances to
employees in the ordinary course of business, nor enter into or modify any
termination or severance arrangements.
Pursuant to the Merger Agreement, Frost Hanna has agreed that, during
the period from the date of the Merger Agreement until the Closing Date, except
as permitted by the Merger Agreement or consented to in writing by Gaines
Berland, Frost Hanna will, among other things: (i) use its reasonable efforts to
obtain approval for listing with the OTC electronic bulletin board the shares of
Frost Hanna Common Stock to be issued in the Merger (provided that to the extent
that Frost Hanna would meet the requirements for inclusion of the Frost Hanna
Common Stock on the NASDAQ Small Cap Market immediately after the Effective
Time, Frost Hanna and Gaines Berland will use their best efforts to file the
appropriate listing application with NASDAQ as soon as practicable); (ii) cause
all of its directors and officers to resign, effective the Effective Time; (iii)
cause its officers and directors to execute a general release in which they
release the Principal Shareholders of Gaines Berland of any personal liability
arising from the Merger Agreement; and (iv) obtain certain directors' and
officers' liability insurance with respect to certain periods prior to the
consummation of the
2
<PAGE> 10
transactions contemplated by the Merger Agreement which will, in significant
part, inure to the benefit of the existing directors and officers of Frost
Hanna, which presently does not maintain such insurance ("Closing").
Gaines Berland has also agreed that during the period from the date of
the Merger Agreement until the Closing Date, except as permitted by the Merger
Agreement or consented to in writing by Frost Hanna, Gaines Berland will, among
other things: (i) cause its Principal Shareholders to execute employment
agreements in the form attached hereto as Exhibit F (the "Employment
Agreements"), effective as of the Effective Time; and (ii) cause its Principal
Shareholders to execute a general release in which they release the officers and
directors of Frost Hanna from any personal liability arising from the Merger
Agreement.
CONDITIONS. The obligations of Frost Hanna, on the one hand, and Gaines
Berland, on the other hand, to effect the Merger are subject to certain
customary conditions, including, among others (i) that the Merger Agreement
shall have received the requisite shareholder approval, (ii) no preliminary or
permanent injunction or other order or decree by any federal or state court or
any action by any state or federal governmental agency preventing the
consummation of the Merger shall have been issued or taken and remain in effect
and (iii) all consents, orders and approvals legally required shall have been
obtained and be in effect at the Effective Time.
TERMINATION. The Merger Agreement may be terminated by Frost Hanna
and/or, as the case may be, Gaines Berland, under certain circumstances. If the
Merger Agreement is terminated by Gaines Berland because one or more of the
representations made by Frost Hanna in the Merger Agreement is not accurate or
because Frost Hanna has breached any covenant set forth in the Merger Agreement,
then Frost Hanna must pay Gaines Berland a fee equal to $250,000. If the Merger
Agreement is terminated by Frost Hanna because one or more of the
representations made by Gaines Berland in the Merger Agreement is not accurate
or because Gaines Berland has breached any covenant set forth in the Merger
Agreement, then Gaines Berland must pay Frost Hanna a fee equal to $250,000. If
the Merger Agreement is terminated by Gaines Berland because Frost Hanna fails
to obtain the required shareholder vote for the approval of the Merger due to
the fact that Frost Hanna's Board of Directors withdrew its recommendation for
the Merger in order to satisfy its fiduciary duty to its shareholders, Frost
Hanna must pay Gaines Berland a fee equal to $100,000.
REASONS FOR THE MERGER
In reaching its unanimous decision to approve and adopt the Merger
Agreement and to recommend that the Frost Hanna Shareholders vote to approve and
adopt the Merger Agreement, the Frost Hanna Board of Directors considered, among
other things, the following factors: (i) information with respect to the
financial condition, business, operations and prospects of Frost Hanna and
Gaines Berland, on both a historical and prospective basis, including
information reflecting the two companies on a pro forma combined basis; (ii) the
experience of the Gaines Berland principals in the brokerage business; (ii) the
overall growth of the brokerage industry based upon a review of the
publicly-available financial information of brokerage firms; (iv) the business
plan and operating strategies of Gaines Berland; and (v) the specific Frost
Hanna shareholder approval requirements for the Merger Agreement. The Board of
Directors did not secure an opinion of an independent investment banker or other
financial advisor as to the fairness of the Merger.
NO FAIRNESS OPINION
In evaluating the merits of the proposed transaction with Gaines
Berland, the Board of Directors of Frost Hanna did not obtain a fairness opinion
or any other valuation or analysis from an investment banker or other financial
advisor to the effect that the Merger would be fair from a financial point of
view to the Frost Hanna Shareholders. Accordingly, no third party has
independently analyzed the merits or basis of the terms of the Merger and there
can be no assurance that the terms of the Merger would be deemed by a third
party to be fair to Frost Hanna Shareholders.
3
<PAGE> 11
RECOMMENDATION OF THE FROST HANNA BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF FROST HANNA HAS DETERMINED THAT THE MERGER IS
IN THE BEST INTERESTS OF FROST HANNA AND THE FROST HANNA SHAREHOLDERS. THE BOARD
OF DIRECTORS OF FROST HANNA UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE
FROST HANNA SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE OTHER PROPOSALS PRESENTED AT THE SPECIAL MEETING.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As contemplated by the Merger Agreement, Frost Hanna has agreed to
cause the designees of Gaines Berland to be nominated for election as directors
of Frost Hanna. If elected, such nominees would comprise all of the members of
the Board of Directors of Frost Hanna after the consummation of Merger and,
consequently, would control the business and affairs of Frost Hanna. The Merger
Agreement also provides that Frost Hanna will obtain certain directors' and
officers' liability insurance with respect to certain periods prior to the
consummation of the transactions contemplated by the Merger Agreement which
will, in significant part, inure to the benefit of the existing directors and
officers of Frost Hanna, which presently does not maintain such insurance. At
the time the Merger Agreement was signed, the Principal Shareholders of Gaines
Berland signed a voting agreement pursuant to which, among other things, they
agreed to vote their shares of Gaines Berland Common Stock in favor of the
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Neither Frost Hanna nor Gaines Berland has requested or received an
opinion from tax counsel as to the federal income tax consequences of the Merger
on Frost Hanna or Gaines Berland or their respective shareholders. However,
Frost Hanna and Gaines Berland believe that the Merger will be treated as a
tax-free plan of reorganization for federal income tax purposes under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"). As a
consequence: (i) Frost Hanna will not recognize any gain or loss in the Merger;
and (ii) other than with respect to any redemption of Frost Hanna Common Stock
in connection with the Merger, the Frost Hanna Shareholders will not recognize
any gain or loss in the Merger.
Generally, subject to Section 302 of the Code regarding distributions
in redemption of stock and Section 318 of the Code regarding constructive
ownership of stock, the Redemption (as defined below) shall be treated as a
distribution in exchange for the shares redeemed, and gain or loss will be
recognized by the Redeeming Shareholders (as defined below) to the extent there
exists a difference between the Redemption Value (as defined below) (calculated
as $4.34 per share as of March 31, 1999) and the basis in the redeemed shares.
FEDERAL SECURITIES LAW AND OTHER RESTRICTIONS
The Frost Hanna Common Stock to be issued in the Merger is not being
registered under the Securities Act. Accordingly, the Frost Hanna Common Stock
to be received by the Gaines Berland shareholders upon consummation of the
Merger will be deemed "restricted securities" under Rule 144. Each shareholder
of Gaines Berland receiving shares of Frost Hanna Common Stock in the Merger
will enter into a lock-up agreement with Gaines Berland, pursuant to which each
such shareholder will agree with Gaines Berland to not sell, transfer or
otherwise dispose of any of the shares of Frost Hanna Common Stock received in
the Merger for two (2) years from the Effective Date (the "Lock-Up Agreements").
In addition, each of such shareholders, other than the Principal Shareholders,
will enter into a pledge agreement with Gaines Berland to pledge all shares of
Frost Hanna Common Stock received in the Merger as collateral to Gaines Berland
against any direct or indirect liabilities, costs and/or expenses incurred by
Gaines Berland as a result of the actions of such shareholder.
4
<PAGE> 12
ACCOUNTING TREATMENT
Frost Hanna and Gaines Berland believe that the Merger will be treated
as a capital transaction equivalent to the issuance of stock by Gaines Berland
for Frost Hanna's net monetary assets (Frost Hanna's net monetary assets were
approximately $5,106,000 as of March 31, 1999), accompanied by a
recapitalization of Gaines Berland.
EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses. The Merger Agreement also provides that Frost Hanna shall issue
150,000 restricted shares of Frost Hanna Common Stock to Harter Financial, Inc.
("Harter Financial"), a New York corporation in the business of providing
diversified consulting services relating to mergers and acquisitions, for
certain services provided in connection with the Merger.
DISSENTERS' RIGHTS
Holders of Frost Hanna Common Stock are entitled to dissenters' rights
under Florida law. See "The Special Meeting - Dissenters' Rights."
5
<PAGE> 13
REDEMPTION RIGHTS
Each Non-Affiliated Frost Hanna Shareholder as of the Record Date will
have the right until __________________ to offer his or her shares of Frost
Hanna Common Stock for redemption (the "Redemption") at a price equal to Frost
Hanna's liquidation value divided by the number of shares of Frost Hanna Common
Stock held by all Non-Affiliated Frost Hanna Shareholders (1,181,536 shares as
of the Record Date), calculated as of the Record Date (the "Redemption Value").
The Redemption Value is equal to its book value, as determined by Frost Hanna
and audited by its independent public accountants, calculated as of the Record
Date. The Redemption Value as of March 31, 1999 was $4.34 per share. If less
than 30% of the shares of Frost Hanna Common Stock held by Non-Affiliated Frost
Hanna Shareholders are voted against approval of the Merger and if such
Non-Affiliated Frost Hanna Shareholders also elected to have their shares of
Frost Hanna Common Stock redeemed, then, if the Merger is consummated, Frost
Hanna will, utilizing funds held in escrow, redeem shares of Frost Hanna Common
Stock at the Redemption Value from those Frost Hanna Shareholders who
affirmatively requested such redemption and who actually voted against approval
of the Merger. If 30% or more in interest of Frost Hanna Common Stock held by
Non-Affiliated Frost Hanna Shareholders vote against approval of the Merger, the
proposed Merger will be terminated, Frost Hanna will not proceed with the Merger
and will not redeem such shares.
DIRECTORS AND OFFICERS FOLLOWING THE MERGER
The six members of the Board of Directors of Frost Hanna designated by
Gaines Berland have been nominated for election as directors of Frost Hanna. If
such nominees are elected at the Special Meeting, they will constitute the
entire Board of Directors of Frost Hanna as of the Effective Time. In addition,
it is expected that, at the Effective Time, the current
6
<PAGE> 14
officers of Frost Hanna will resign and the principal executive officers of
Gaines Berland will become the principal executive officers of Frost Hanna.
THE COMPANIES
FROST HANNA. Frost Hanna was formed in February 1996 to seek to effect
a merger, exchange of capital stock, asset acquisition or other similar business
combination (a "Business Combination") with an acquired business (an "Acquired
Business") which Frost Hanna believes has growth potential. In connection with
its initial capitalization, Frost Hanna issued 1,557,000 shares of Frost Hanna
Common Stock to its officers, directors, and other shareholders at an average
price per share of $.14 for an aggregate sum of $216,613. On September 22, 1997,
Frost Hanna consummated the IPO, pursuant to which it offered and sold 1,100,202
shares of Frost Hanna Common Stock at a purchase price of $6.00 per share and
received net proceeds of approximately $5,587,053 (which amount is referred to
herein as the "Net Proceeds"). In addition, Frost Hanna issued warrants
("Underwriter's Warrants") to Cardinal Capital Management, Inc. (formerly known
as Community Investment Services, Inc.) ("Cardinal"), the underwriter of the IPO
to purchase 110,020 shares of Common Stock. Following the IPO, $4,560,069,
representing approximately 80% of the Net Proceeds (inclusive of interest earned
thereon), was placed in escrow pending the consummation of a Business
Combination. This escrowed portion of the Net Proceeds will be released to Frost
Hanna upon consummation of the Merger. The balance of the Net Proceeds, plus
interest earned to date and less net operating expenses through March 31, 1999,
was $5,124,578 as of March 31, 1999, of which $262,187 was held by Frost Hanna
and 4,862,391 was held in escrow. Frost Hanna's executive offices are located at
327 Plaza Real, Suite 319, Boca Raton, Florida 33432; its telephone number is
(561) 367-1085.
FHGB. FHGB is a newly formed New York corporation, all of the issued
and outstanding common stock of which is owned by Frost Hanna, and has not
conducted any significant business to date other than in connection with the
Merger Agreement. As a result of the Merger, FHGB will merge with and into
Gaines Berland with Gaines Berland surviving the Merger and, accordingly, the
separate existence of FHGB will cease.
GAINES BERLAND. Gaines Berland is a New York corporation formed in 1983
and provides investment banking, securities trading and brokerage and research
services, historically with an emphasis primarily on global energy markets and
energy companies and currently with a focus on a variety of industries and
companies. Gaines Berland's principal executive office is located at 1055
Stewart Avenue, Bethpage, New York and its telephone number is (516) 470-1000.
Gaines Berland occupies additional office space for its branch offices at 230
Park Avenue, New York, New York, 2449 Chestnut Street, San Francisco, California
and 800 East Cypress Creek Road, Suite 403, Ft. Lauderdale, Florida. Also,
Gaines Berland is currently seeking to lease approximately 20,000 square feet of
office space in New York City . Gaines Berland has indicated that the
approximate start-up cost for this location is expected to be approximately
$500,000. In addition, G-Trade, a newly formed subsidiary of Gaines Berland, has
leased its executive office at 2419 E. Commercial Boulevard, Ft. Lauderdale,
Florida, effective June 1, 1999. That location comprises approximately 2,470
square feet.
7
<PAGE> 15
COMPARATIVE PER SHARE DATA
The table below sets forth historical per share data of Frost Hanna and
Gaines Berland and pro forma combined per share data as if the Merger had been
completed for balance sheet purposes at the balance sheet date and for statement
of operations purposes at the beginning of the periods presented. The pro forma
combined information is based upon the historical financial statements of Frost
Hanna and Gaines Berland and is unaudited. The pro forma combined information is
presented for comparison purposes only and is not intended to predict Frost
Hanna's operating results and financial position following the consummation of
the Merger. Neither Frost Hanna nor Gaines Berland has ever paid any cash
dividends.
<TABLE>
<CAPTION>
As of or for
As of or for Year Three Months
Ended December 31, ended March 31,
Frost Hanna: 1998 1999
---- ----
<S> <C> <C>
Per share of Frost Hanna Common Stock:
Book value (Historical)................................................... $1.95 $1.93
Basic and diluted net loss (Historical)................................... $(.08) $(.02)
</TABLE>
<TABLE>
<CAPTION>
As of or for As of or for Nine
Fiscal Year Months Ended
Ended August 31, May 31,
Gaines Berland: 1998 1999
---- ----
<S> <C> <C>
Per share of Gaines Berland Common Stock:
Book value (Historical)................................................... $11,161(1) $12,237
Basic and diluted net income (Historical)................................ $ 675(1) $ 715
Book value (Pro Forma equivalent shares).................................. $ N/A $ 16(2)
Basic and diluted net income (Pro Forma equivalent shares)................ $ 603(2) $ 618(2)
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Combined: As of or for
As of or for Year Three Months
Ended Ended
December 31, March 31,
1998 1999
---- ----
<S> <C> <C>
Book value................................................................ N/A $0.74
Basic and diluted net (loss) income....................................... $(0.02) $0.03
</TABLE>
- --------
(1) Per share data is based on the then outstanding Common Stock of Gaines
Berland. Weighted average Common Stock is 521 for the fiscal year ended August
31, 1998.768 shares of Gaines Berland Common Stock were outstanding on August
31, 1998. Book value per share reflect stockholders' equity divided by the
number of shares of Gaines Berland Common Stock outstanding at the end of the
period. The historical financial statements have been adjusted to reflect
cash received subsequent to the report date for a material portion of the Gaines
Berland Common Stock subscribed for at August 31, 1998.
(2) Gaines Berland Pro Forma equivalent shares represent pro forma data
applied to the Conversion Ratio of 1 share of Common Stock of Gaines Berland
for 21,917 shares Common Stock of Frost Hanna.
8
<PAGE> 16
FROST HANNA SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical data information of Frost
Hanna. This information, which does not give effect to the Merger, should be
read in conjunction with the separate historical financial statements of Frost
Hanna and Gaines Berland and the unaudited pro forma combined financial
information reflecting the consummation of the Merger, which appear elsewhere in
this Proxy Statement. Historical data presented do not necessarily reflect the
future financial performance of Frost Hanna.
<TABLE>
<CAPTION>
Cumulative
Period from
Inception
(February 2,
Three Months Ended 1996) to
March 31, March 31,
-------------------------- -----------
1999 1998 1999
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
(In thousands except per share amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue ..................... $ -- $ -- $ --
Loss from operations ........ 121 105 1,051
Net income (loss) ........... (66) (39) (677)
Net income (loss) per share . (.02) (.01) (.33)
Weighted average number of
common shares outstanding 2,657 2,657 2,046
<CAPTION>
Cumulative
Period from
Year Ended Inception to
December 31, December 31,
---------------------------------- ------------
1998 1997 1996 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ..................... $ -- $ -- $ -- $ --
Loss from operations ........ 460 357 113 930
Net income (loss) ........... (259) (298) (112) (611)
Net income (loss) per share . (.08) (.17) (.08) (.31)
Weighted average number of
common shares outstanding 2,657 1,790 1,492 1,994
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31, December 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ......... $ 5,111 $ 5,175 $ 5,372 $ (61)
Total current assets .... 5,129 5,193 5,393 92
Total current liabilities 18 18 21 153
Common shares
outstanding ........ 2,657 2,657 2,657 1,492
Total stockholders'
equity ............. 5,126 5,193 5,393 (72)
</TABLE>
9
<PAGE> 17
GAINES BERLAND SELECTED HISTORICAL FINANCIAL DATA
Certain of the selected financial data presented below for each of the
three most recent fiscal years ended August 31, has been derived from Gaines
Berland's financial statements which were audited by Goldstein Golub Kessler LLP
("Goldstein Golub") for 1998 and by Lerner, Sipkin & Company ("Lerner, Sipkin")
for 1997 and 1996, each independent certified public accountants. This data
should be read in conjunction with Gaines Berland's Financial Statements,
related notes and other financial information included elsewhere in this Proxy
Statement. Historical data presented do not necessarily reflect the future
financial performance of Gaines Berland.
<TABLE>
<CAPTION>
Nine Months Ended
May 31 Fiscal Year Ended August 31
-------------------------------------------------------
1999 1998 1998 1997 1996
(unaudited) (unaudited)
------------------------------------------------------
(in thousands except share per share and Other Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues $45,583 $47,598 $57,895 $62,355 $39,944
Total expenses 44,538 46,233 57,108 54,879 38,896
Pre-tax income 1,045 1,365 787 7,476 1,048
Net income 542 683 352 4,178 448
Basic and diluted earnings
per common share 715 1,289 675 8,423 988
Weighted average shares
outstanding - basic and diluted 758 530 521 496 454
Balance Sheet Data
(at end of period)
Total assets 21,042 $19,838 $20,700 $6,276
Total liabilities (excluding
subordinated debt) 11,109 10,266 13,986 4,051
Subordinated debt 1,000 1,000 1,000 1,000
Shareholders' equity 8,933 8,572 5,714 1,225
Other Data:
Ratio of assets to
stockholders' equity 2.36 2.31 3.62 5.12
Return on average equity 7.58% 6.5% 120.4% 45.1%
Pre-tax return on average equity 14.7% 14.53% 215.5% 105.5%
Book value per share $12,237 $11,161(1) $10,660 $2,687
Registered representatives 251 233 270 114
</TABLE>
- -------------------------
(1) Reflects shareholders equity divided by the number of Gaines Berland shares
outstanding at the end of the period. The historical financial statements
have been adjusted to reflect cash received subsequent to the report date
for a material portion of the common stock subscribed for at August 31,
1998.
10
<PAGE> 18
UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited summary pro forma combined financial information gives
effect to the Merger as if the Merger was consummated as of March 31, 1999 for
balance sheet data and as of the beginning of the periods presented for
statement of operations data. The Merger will be accounted for as a capital
transaction with each share of Gaines Berland common stock that is issued and
outstanding at the effective time of the Merger being canceled and extinguished
in exchange for 21,917 shares of Frost Hanna Common Stock, not to exceed an
aggregate of 16,000,000 shares of Frost Hanna Common Stock, accompanied by a
recapitalization of Gaines Berland.
The summary pro forma combined statement of operations does not purport to be
indicative of the results which would have actually been achieved if the Merger
had been in effect as of the date and for the periods presented or which may be
obtained in the future. The summary pro forma combined statement of operations
should be read in conjunction with the unaudited pro forma combined financial
statements and notes thereto and with the historical financial statements of
Gaines Berland and Frost Hanna contained elsewhere herein.
<TABLE>
<CAPTION>
SUMMARY PRO FORMA COMBINED
STATEMENT OF OPERATIONS DATA:
(in thousands, except number of shares THREE MONTHS ENDED YEAR ENDED
and per share data) MARCH 31, 1999 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
Operating revenue ................................................... $ 15,112 $ 53,159
Operating expenses .................................................. 14,142 53,710
Net income (loss) ................................................... 531 (518)
Net income (loss) per common share .................................. .03 (.02)
Weighted average common shares ...................................... 18,807,202 18,807,202
</TABLE>
<TABLE>
<CAPTION>
SUMMARY PRO FORMA COMBINED
BALANCE SHEET DATA:
(in thousands, except per share data) MARCH 31, 1999
-------------
<S> <C>
Working capital ....................................... $ 1,419
Current assets ........................................ 20,680
Total assets .......................................... 33,264
Current liabilities ................................... 19,261
Total liabilities ..................................... 19,428
Stockholders' equity .................................. 13,836
Book value per share .................................. .74
</TABLE>
11
<PAGE> 19
RISK FACTORS
The consummation of the Merger and the business to be conducted by Frost
Hanna subsequent to the consummation of the Merger would involve certain
elements of risk, including, but not limited to, the factors discussed below. In
addition to the other information contained in this Proxy Statement, Frost Hanna
Shareholders should review carefully the following considerations regarding the
Merger and the business of Gaines Berland in deciding whether to vote in favor
of approval of the Merger.
PRIOR BANKRUPTCIES. Frost Hanna is the fourth public company formed by
Messrs. Frost and Hanna in the last approximately seven years with the goal of
acquiring an operating business, the identity of which was not known upon
completion of its initial public offering. The prior three companies each
acquired an operating business, but in two of the three cases, the companies
filed for bankruptcy after the respective acquisitions, and in the other case,
the entity into which the company was merged filed for bankruptcy. Messrs. Frost
and Hanna had significant roles in identifying the businesses acquired by such
entities. They similarly played significant roles in identifying Gaines Berland
as an acquisition candidate for Frost Hanna. While the Board of Directors of
Frost Hanna, including Messrs. Frost and Hanna, believes that the acquisition of
Gaines Berland is in the best interests of the Frost Hanna Shareholders, there
can be no assurance that the business of Frost Hanna, upon consummation of the
Merger, would be profitable or have a favorable impact on the market price of
the Frost Hanna Common Stock.
NO FAIRNESS OPINION. In evaluating the merits of the proposed transaction
with Gaines Berland, the Board of Directors of Frost Hanna did not obtain a
fairness opinion or any other valuation or analysis from an investment banker or
other financial advisor to the effect that the Merger would be fair from a
financial point of view to the Frost Hanna Shareholders. Accordingly, no third
party has independently analyzed the merits or basis of the terms of the Merger
and there can be no assurance that the terms of the Merger would be deemed by a
third party to be fair to Frost Hanna Shareholders.
NO REDRESS FOR MISREPRESENTATIONS BY GAINES BERLAND. If, after consummation
of the Merger, it were determined that Gaines Berland made misrepresentations in
the Merger Agreement, the Frost Hanna Shareholders would have no redress against
Gaines Berland or any individuals affiliated with Gaines Berland due to the fact
that under the terms of the Merger Agreement, no actions may be taken after the
Effective Time with respect to any representations or warranties made by Gaines
Berland, even if they turn out to be false, and no individual or entity other
than Gaines Berland made any representations, or undertook any obligations with
respect to representations by Gaines Berland in the Merger Agreement.
DILUTION. Current shareholders of Frost Hanna will incur an immediate
dilution in the net tangible book value. Calculated as of March 31, 1999, and
assuming no redemption of Frost Hanna shares the dilution in the net tangible
book value of Frost Hanna would be $1.19 per share. Assuming holders of 29.99%
(the maximum percentage of Common Stock that may be subject to redemption) of
the Non-Affiliated Frost Hanna Shareholders elect to redeem their shares, the
dilution in the net tangible book value of Frost Hanna would be $1.28 per share.
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the Merger,
approximately 18,807,202 shares of Frost Hanna Common Stock are expected to be
outstanding, including 150,000 shares which will be issued to Harter Financial
in connection with the Merger, but not including the Common Stock underlying the
Underwriter Warrants. All of the approximately 1,181,536 shares of Common Stock
held by Non-Affiliated Frost Hanna Shareholders are freely transferrable without
registration under the Securities Act and the remaining 1,475,666 shares of
Common Stock held by affiliated Frost Hanna Shareholders are eligible for sale
under Rule 144 promulgated under the Securities Act. Subsequent to the
consummation of the Merger, the shares of Common Stock owned by officers and
directors of Frost Hanna and currently held in escrow by American Stock Transfer
& Trust Company (362,000, 362,000, 300,000 and 100,000 shares owned each of by
Messrs. Frost, Hanna, Rosenberg and Baxter, respectively) will be delivered to
such
12
<PAGE> 20
individuals, giving them the opportunity, subject to certain legal restrictions
on resale, to sell their shares of Common Stock. The Merger Stock to be received
by the Gaines Berland shareholders upon consummation of the Merger has not been
registered under the Securities Act and, accordingly, will be deemed "restricted
securities" under Rule 144. Each shareholder of Gaines Berland receiving Frost
Hanna Common Stock in the Merger will enter into the Lock-Up Agreement. Such
shares cannot be offered or sold unless they are registered under the Securities
Act or an exemption from registration under the Securities Act is available,
such as provided under Rule 144. Cardinal has the right to require that Frost
Hanna register under the Securities Act the 110,020 shares of Frost Hanna Common
Stock underlying the Underwriter Warrants. In addition, a registration statement
covering shares of Frost Hanna Common Stock issuable upon exercise of options
granted under the 1999 Performance Equity Plan (assuming it is approved by the
Frost Hanna Shareholders) may be filed by Frost Hanna after the Merger. The
effect of filing such registration statements is that, subject to applicable
law, the shares registered thereunder, upon effectiveness of such registration
statements, and, where required, when properly issued by Frost Hanna, will be
freely tradeable securities. Sales of Frost Hanna Common Stock under Rule 144
or pursuant to a registration statement could have an adverse effect on the
price of the Frost Hanna Common Stock.
AUTHORIZATION OF PREFERRED STOCK. The Frost Hanna Shareholders are being
asked to consider and vote upon the Preferred Stock Amendment which, if
approved, would amend Frost Hanna's Articles of Incorporation to provide for an
authorized class of preferred stock, consisting of 2,000,000 shares, with the
rights, preferences and designations of such shares to be determined by the
Board of Directors of Frost Hanna, without shareholder approval. Accordingly, if
that amendment is approved, the Board of Directors of Frost Hanna will be
empowered, without shareholder approval, to issue the Preferred Stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of Common Stock. In the
event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging and delaying or preventing a change
of control of Frost Hanna, which could result in Frost Hanna Shareholders
receiving a premium for their shares, or otherwise be beneficial to the
shareholders of Frost Hanna. Although neither the current Board of Directors or
the nominees for election to the board (based on their representations to Frost
Hanna) have a present intention to issue any shares of the Preferred Stock,
there can be no assurances that Frost Hanna, will not do so in the future. See
"Proposal 3 - Amendment of Frost Hanna's Articles of Incorporation to Authorize
Blank Check Preferred Stock."
MARKET FLUCTUATIONS COULD ADVERSELY AFFECT GAINES BERLAND'S BUSINESSES. As
a securities broker-dealer, Gaines Berland's businesses are materially affected
by conditions in the financial markets and economic conditions generally, both
in the United States and elsewhere around the world. The equity and debt markets
in the United States and elsewhere have achieved record or near record levels
during the past few months, and Gaines Berland believes this favorable business
environment will not continue indefinitely. In the event of a market downturn,
Gaines Berland's business could be adversely affected in many ways, including
those described below. Gaines Berland's revenues are likely to decline in such
circumstances and, if Gaines Berland is unable to reduce expenses at the same
pace, its profit margins would erode.
GAINES BERLAND MAY INCUR SIGNIFICANT LOSSES FROM TRADING AND INVESTMENT
ACTIVITIES DUE TO MARKET FLUCTUATIONS AND VOLATILITY. Gaines Berland generally
maintains trading and investment positions in the equity markets. To the extent
that Gaines Berland owns assets, i.e., has long positions, in those markets, a
downturn in those markets could result in losses from a decline in the value of
those long positions. Conversely, to the extent that Gaines Berland has sold
assets that it does not own, i.e., has short positions, in any of those markets,
an upturn in those markets could expose Gaines Berland to potentially unlimited
losses as Gaines Berland attempts to cover its short positions by acquiring
assets in a rising market. Gaines Berland may from time to time have a trading
strategy consisting of holding a long position in one asset and a short position
in another, from which it expects to earn revenues based on changes in the
relative value of the two assets. If, however, the relative value of the two
assets changes in a direction or manner that Gaines Berland did not anticipate
or against which it is not hedged, Gaines Berland might realize a loss in those
paired positions. In addition, Gaines Berland maintains trading positions that
can be adversely affected by the level of volatility
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in the financial markets, i.e., the degree to which trading prices fluctuate
over a particular period, in a particular market, regardless of market levels.
INVESTMENT BANKING REVENUES MAY DECLINE IN ADVERSE MARKET OR ECONOMIC
CONDITIONS. Unfavorable financial or economic conditions would likely reduce the
number and size of transactions in which Gaines Berland provides underwriting,
mergers and acquisitions advisory and other services. Gaines Berland's
investment banking revenues, in the form of financial advisory and underwriting
fees, are directly related to the number and size of the transactions in which
Gaines Berland participates and would therefore be adversely affected by a
sustained market downturn.
POSSIBLE DECLINE IN REVENUES FROM COMMISSIONS IN A MARKET DOWNTURN. A
market downturn could lead to a decline in the volume of transactions that
Gaines Berland executes for its customers and, therefore, to a decline in the
revenues it receives from commissions and spreads.
MARKET RISK MAY INCREASE THE OTHER RISKS THAT GAINES BERLAND FACES. In
addition to the potentially adverse effects on Gaines Berland's businesses
described above, market risks could exacerbate other risks that Gaines Berland
faces. For example, if Gaines Berland incurs substantial trading losses, its
need for liquidity could rise sharply while its access to liquidity could be
impaired. In addition, in conjunction with a market downturn, Gaines Berland's
customers and counterparties could incur substantial losses of their own,
thereby weakening their financial condition and increasing Gaines Berland's
credit risk to them.
RISK MANAGEMENT POLICIES AND PROCEDURES MAY LEAVE GAINES BERLAND EXPOSED TO
UNIDENTIFIED OR UNANTICIPATED RISK. Gaines Berland's policies and procedures to
identify, monitor and manage risks may not be fully effective. Some methods of
managing risk are based upon the use of observed historical market behavior. As
a result, these methods may not predict future risk exposures, which could be
significantly greater than the historical measures indicate. Other risk
management methods depend upon evaluation of information regarding markets,
clients or other matters that is publicly available or otherwise accessible by
Gaines Berland. This information may not in all cases be accurate, complete,
up-to-date or properly evaluated. Management of operational, legal and
regulatory risk requires, among other things, policies and procedures to
properly record and verify a large number of transactions and events, and these
policies and procedures may not be fully effective.
RISK MANAGEMENT STRUCTURE. Gaines Berland seeks to monitor and control its
risk exposure through a variety of separate but complementary financial, credit,
operational and legal reporting systems. Gaines Berland believes that it
effectively evaluates and manages the market, credit and other risks to which it
is exposed. Nonetheless, the effectiveness of its ability to manage risk
exposure can never be completely or accurately predicted or fully assured. For
example, unexpectedly large or rapid movements or disruptions in one or more
markets or other unforeseen developments can have a material adverse effect on
its results of operations and financial condition. The consequences of these
developments can include losses due to adverse changes in inventory values,
decreases in the liquidity of trading positions, higher volatility in earnings,
increases in its credit risk to customers and counterparties and increases in
general systemic risk.
MARKET RISK. The potential for changes in the market value of Gaines
Berland's trading positions is referred to as "market risk." Gaines Berland's
trading positions result from underwriting, market-making and proprietary
trading activities.
The principal market risk to Gaines Berland relates to risks resulting from
exposures to changes in prices and volatilities of equity securities resulting
from a number of factors including, but not limited to, changes in interest
rates and general economic conditions in the United States and abroad.
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OPERATIONAL RISK. Gaines Berland may face reputational damage, financial
loss or regulatory risk in the event of an operational failure or error. A
systems failure or failure to enter a trade properly into its records may result
in an inability to settle transactions in a timely manner or a breach of
regulatory requirements. Settlement errors or delays may cause losses due to
damages owed to counterparties or movements in prices. These operational and
systems risks may arise in connection with its own systems or as a result of the
failure of an agent acting on its behalf.
LIQUIDITY RISK. Liquidity, i.e., ready access to funds, is essential to
Gaines Berland's business. If Gaines Berland is unable to meet its liquidity
needs, its business, operations and financial condition could be adversely
affected. Moreover, if Gaines Berland's ability to obtain financing or sell
assets were sufficiently impaired, the available cash required to meet payment
obligations on debt could be adversely affected.
GAINES BERLAND'S LIQUIDITY COULD BE ADVERSELY AFFECTED IF ITS ABILITY TO
SELL ASSETS IS IMPAIRED. If Gaines Berland were unable to borrow funds when
needed, it would need to liquidate assets in order to meet its maturing
liabilities. In certain market environments, such as times of market volatility
or uncertainty, overall market liquidity may decline. In a time of reduced
liquidity, Gaines Berland may be unable to sell some of its assets, or it may
have to sell assets at depressed prices, which could adversely affect its
results of operations and financial condition.
CREDIT RISK EXPOSES GAINES BERLAND TO LOSSES CAUSED BY FINANCIAL OR OTHER
PROBLEMS EXPERIENCED BY THIRD PARTIES. Gaines Berland is exposed to the risk
that third parties that owe it money, securities or other assets will not
perform their obligations. These parties include trading counterparties,
customers, clearing agents, exchanges, clearing houses and other financial
intermediaries as well as issuers whose securities Gaines Berland holds. These
parties may default on their obligations to Gaines Berland due to bankruptcy,
lack of liquidity, operational failure or other reasons. This risk may arise,
for example, from holding securities of third parties, executing securities
trades that fail to settle at the required time due to non-delivery by the
counterparty or systems failure by clearing agents, exchanges, clearing houses
or other financial intermediaries; and extending credit to clients through
bridge or margin loans or other arrangements.
Significant failures by third parties to perform their obligations to
Gaines Berland could adversely affect its revenue and perhaps its ability to
borrow in the credit markets. If severe enough, these developments could reduce
the amount of funds available to meet its payment obligations in a timely
manner. The following paragraphs describe the ways in which Gaines Berland
is exposed to these credit risks.
DEFAULTS BY A LARGE FINANCIAL INSTITUTION COULD ADVERSELY AFFECT FINANCIAL
MARKETS GENERALLY AND GAINES BERLAND SPECIFICALLY. The commercial soundness of
many financial institutions may be closely interrelated as a result of credit,
trading, clearing or other relationships between institutions. As a result,
concerns about, or a default by, one institution could lead to significant
liquidity problems or losses in, or defaults by, other institutions. This is
sometimes referred to as "systemic risk" and may adversely affect financial
intermediaries, such as clearing agencies, clearing houses, banks, securities
firms and exchanges, with which Gaines Berland interacts on a daily basis.
THE INFORMATION USED IN MANAGING CREDIT RISK MAY BE INACCURATE OR
INCOMPLETE. Although Gaines Berland regularly reviews its credit exposure to
specific clients and counterparties and to specific industries, countries and
regions that it believes may present credit concerns, default risk may arise
from events or circumstances that are difficult to detect, such as fraud. Gaines
Berland may also fail to receive full information with respect to the trading
risks of a counterparty. In addition, in cases where Gaines Berland is
responsible for credit extended by its clearing broker, Bear Stearns Securities
Corp., ("Bear Stearns") against collateral, Gaines Berland may find that it is
undersecured, for example, as a result of sudden declines in market values that
reduce the value of collateral.
YEAR 2000 COMPUTER ISSUE. The "year 2000 issue" arises from the widespread
use of computer programs that rely on two-digit date codes to perform
computations or decision-making functions. Many of these programs may fail due
to an inability to properly date codes beginning January 1, 2000. For example,
such programs may misinterpret
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"00" as the year 1900 rather than 2000. Consequently, on January 1, 2000,
computers that are not Year 2000 compliant may read the year as 1900. Systems
that calculate, compare or sort using the incorrect date may malfunction. The
Year 2000 problems described below could disrupt Gaines Berland's funding
administration process, resulting in late payments or the payment of wrong
amounts on its obligations. Because Gaines Berland is dependent, to a very
substantial degree, upon the proper functioning of its computer systems, a
failure of these systems to be Year 2000 compliant would have a material adverse
effect on Gaines Berland. Failure of this kind could, for example, cause
settlement of trades to fail, lead to incomplete or inaccurate accounting,
recording or processing of trades in securities, result in generation of
erroneous results or give rise to uncertainty about Gaines Berland's exposure to
trading risks and its need for liquidity. Such failure also could prevent Gaines
Berland from meeting its regulatory reporting or other compliance obligations.
If not remedied, potential risks include business interruption or shutdown,
financial loss, regulatory actions, reputational harm and legal liability.
Gaines Berland initiated a firm-wide program to address the "year 2000
issue" in order to prepare its computer systems and applications for properly
processing dates after December 31, 1999. Gaines Berland's program is proceeding
on schedule and it is Gaines Berland's expectation that it will have its
firm-wide year 2000 solution in place by approximately July 31, 1999. Gaines
Berland has completed its Form BD-Y2K in accordance with the NASD rules and
regulations and filed such form in a timely manner. All of Gaines Berland's
computer programs are provided by third party vendors and service providers.
Most of the programs were purchased after the year 2000 issue became widely
recognized. Gaines Berland has sought, and expects to receive, confirmation from
its third-party program and service providers that the year 2000 issue has been
appropriately managed. Bear Stearns, Gaines Berland's clearing firm, is Gaines
Berland's largest and most important computer services related vendor. Bear
Stearns has provided Gaines Berland with assurances that it expects to
appropriately manage the year 2000 issue on a timely basis. The year 2000 issue
creates risks for Gaines Berland from unforeseen problems in its own computer
systems, third-party vendors and service providers, and transaction
counterparties and from other third parties with whom Gaines Berland deals
worldwide. Gaines Berland is continuing to communicate with its third-party
vendors and service providers to determine the likely extent to which Gaines
Berland may be affected by third parties' year 2000 plans and target dates.
Gaines Berland has not yet received sufficient information from all parties
about their Year 2000 preparedness to assess the effectiveness of their efforts.
Moreover, in many cases, Gaines Berland is not in a position to verify the
accuracy or completeness of the information received from third parties and as a
result Gaines Berland is dependent on their willingness and ability to disclose,
and to address, their Year 2000 problems. In addition, in some international
markets in which Gaines Berland does business, the level of awareness and
remediation efforts relating to the Year 2000 issue may be less advanced than in
the United States.
If third parties with whom Gaines Berland interacts have Year 2000 problems
that are not remedied, problems could include the following:
- - in the case of vendors, disruption of important services upon which Gaines
Berland depends, such as telecommunications and electrical power;
- - in the case of third-party data providers, receipt of inaccurate or
out-of-date information that would impair Gaines Berland's ability to
perform critical data functions, such as pricing of securities or other
assets;
- - in the case of financial intermediaries, such as exchanges and clearing
agents, failed trade settlements, inability to trade in certain markets and
disruption of funding flows;
- - in the case of banks and other lenders, disruption of capital flows
potentially resulting in liquidity stress; and
- - in the case of counterparties and customers, financial and accounting
difficulties for those parties that expose Gaines Berland to increased
credit risk and lost business.
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In this regard, while Gaines Berland does not now expect material financial
exposure as a result of the year 2000 issue, there can be no guarantee that the
systems of other entities on which Gaines Berland relies will be remediated to
avoid year 2000 problems. Any failures to provide such remediation could have a
material adverse impact on Gaines Berland's ability to conduct business. In
particular, Gaines Berland does not have a contingency plan in place in the
event Bear Stearns is unable to provide clearing services to Gaines Berland, or
if general utility or telecommunications services fail as a result of the Year
2000 Computer Issue. In either of such events, Gaines Berland would be unable to
conduct its business until the problem was remediated. Any such suspension of
its business, if for more than a very brief period of time, would materially
adversely affect Gaines Berland. Based on information currently available,
Gaines Berland does not expect its year 2000 expenditures to date and over the
next year to be a material cost to Gaines Berland. If such costs turn out to be
material, that could have a material adverse financial effect on Gaines Berland.
DISRUPTION OR SUSPENSION OF ACTIVITY IN THE WORLD'S FINANCIAL MARKETS IS
ALSO POSSIBLE. Gaines Berland believes that uncertainty about the success of
remediation efforts generally may cause many market participants to reduce the
level of their market activities temporarily as they assess the effectiveness of
these efforts during a "phase-in" period beginning in late 1999. Gaines Berland
also believes that lenders are likely to take similar steps, which will result
in a reduction in available funding sources. Consequently, there may be a
downturn in customer and general market activity for a short period of time
before and after January 1, 2000. If this occurs, Gaines Berland's net revenues
may be adversely affected, possibly materially, depending on how long the
reduction in activity continues and how broadly it affects the markets. In
addition, Gaines Berland expects to reduce its own trading activities and the
size of its balance sheet in order to manage the number and type of transactions
that settle during this period and its related funding needs. This also could
reduce Gaines Berland's net revenues. Gaines Berland cannot predict the
magnitude of the impact that these kinds of reductions would have on its
businesses.
POSSIBLE EXPOSURE TO LITIGATION AS A RESULT OF YEAR 2000 PROBLEMS. Gaines
Berland may be exposed to litigation with its customers and counterparties as a
result of Year 2000 problems. For example, litigation could arise from problems
relating to its internal systems or to external systems on which it depends, as
well as from problems involving companies in which Gaines Berland's clients hold
investments or in which the funds Gaines Berland manages hold investments.
OTHER OPERATIONAL RISKS MAY DISRUPT GAINES BERLAND'S BUSINESSES, RESULT IN
REGULATORY ACTION OR LIMIT GROWTH. Gaines Berland faces operational risk arising
from mistakes made in the confirmation or settlement of transactions or from
transactions not being properly recorded, evaluated or accounted for. Gaines
Berland's businesses are highly dependent on its ability to process, on a daily
basis, a large number of transactions across numerous and diverse markets and
the transactions which Gaines Berland processes have become increasingly
complex. Consequently, Gaines Berland relies heavily on its financial,
accounting and other data processing systems. If any of these systems do not
operate properly or are disabled, Gaines Berland could suffer financial loss, a
disruption of businesses, liability to clients, regulatory intervention or
reputational damage. The inability of Gaines Berland's systems to accommodate an
increasing volume of transactions could also constrain its ability to expand its
businesses. In recent years, Gaines Berland has substantially upgraded and
expanded the capabilities of its data processing systems and other operating
technology, and expects that it will need to continue to upgrade and expand in
the future to avoid disruption of, or constraints on, operations.
RISK OF CURRENT ABSENCE OF INTERNET BROKERAGE SERVICE CAPABILITY.
Recently, a growing number of brokerage firms, including firms with
substantially more name recognition and financial and other resources than
Gaines Berland, have offered Internet brokerage services to their customers in
response to increased customer demand for such services. While Gaines Berland
intends to offer Internet brokerage services, there can be no assurance that
Gaines Berland will be able to offer Internet brokerage services that will be
appeal to its current or prospective customers or that any Internet brokerage
services conducted in the future by Gaines Berland will be profitable. A failure
by Gaines Berland to commence Internet brokerage services in the near future or
to attract customers to any Internet brokerage services that it commences could
have a material adverse effect on Gaines Berland.
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SIGNIFICANT COMPETITION. All aspects of Gaines Berland's business are
subject to significant competition. Gaines Berland competes directly with
national and regional full service broker-dealers and, to a lesser extent, with
discount brokers, dealers, investment banking firms, investment advisors, and
certain commercial banks. The financial services industry has become
considerably more concentrated as numerous securities firms have either eased
operations or have been acquired by or merged into other firms. Such mergers and
acquisitions have increased competition from these large firms, almost all of
which have significantly greater equity capital and financial and other
resources than Gaines Berland, including what Gaines Berland would have after
the Merger. With respect to retail brokerage activities, certain of the regional
firms with which Gaines Berland competes have operated in certain markets longer
than has Gaines Berland and have established long-standing client relationships.
In addition, Gaines Berland expects competition from commercial banks to
increase as a result of recent and anticipated legislative and regulatory
initiatives in the United States to remove or relieve certain restrictions on
commercial banks relating to the sale of securities.
Gaines Berland expects to face increasing competition from companies
offering electronic brokerage services, including through the Internet, which is
a rapidly developing industry. These competitors may have lower costs or provide
fewer services, and may offer certain customers more attractive pricing or other
terms than offered by Gaines Berland, including after the Merger. Gaines Berland
also anticipates competition from underwriters who attempt to effect public
offerings for emerging growth companies through new means of distribution,
including transactions effected using electronic media such as the Internet. In
addition, Gaines Berland's underwriting department may lose business as issuers
attempt to sell their securities directly to purchasers, including sales using
electronic media such as the Internet. To the extent that issuers and purchasers
of securities transact business without the assistance of financial
intermediaries such as Gaines Berland, Gaines Berland's operating results could
be adversely affected.
COMPETITION FOR PROFESSIONAL EMPLOYEES. From time to time, individuals
employed by Gaines Berland may choose to leave Gaines Berland to pursue other
opportunities and Gaines Berland has experienced losses of research, investment
banking and sales and trading professionals. The level of competition for key
personnel remains intense. There can be no assurance that losses of key
personnel due to such competition or otherwise will not occur in the future. The
loss of an investment banking, research, or sales and trading professional,
particularly a senior professional with a broad range of contacts in an
industry, could materially and adversely affect Gaines Berland's operating
results.
POSSIBLE LOSS OF KEY EMPLOYEES. The success of Gaines Berland depends on
several key employees. The loss of any key employee could materially and
adversely affect Gaines Berland. Gaines Berland has informed Frost Hanna that it
intends to enter into employment agreements with Joseph Berland, Richard
Rosenstock, Mark Zeitchick, Vincent Mangone and David Thalheim, to be effective
as of the Effective Time. The employment agreements will be for a term of five
years. Each of those employees will be entitled to participate in the Bonus
Plan, will be entitled to receive additional compensation through the Special
Performance Plan and will be granted certain stock options through the 1999
Performance Equity Plan, in each case, provided those plans are approved at the
Special Meeting. In addition, while Gaines Berland has indicated that these
employment agreements will contain various incentives, as well as
nonsolicitation provisions in favor of Gaines Berland, these provisions may be
insufficient to retain any or all of these persons in the employ of Gaines
Berland in light of the increasing competition for experienced professionals in
the securities industry, particularly if Gaines Berland's stock price were to
decline or fail to appreciate sufficiently to be a competitive source of a
portion of professional compensation.
RISK OF DECREASED REVENUES AND NET INCOME. For the fiscal years ended
August 31, 1998 and 1997, Gaines Berland had revenues of approximately
$57,895,000 and $62,355,000, respectively, and net income of approximately
$352,000 and $4,180,000, respectively. This reflects decreases in revenues and
net income for 1998 compared to 1997. For the nine months ended May 31, 1999 and
1998, Gaines Berland had revenues of approximately $45,583,000 and $47,598,000,
respectively, and net income of approximately $542,000 and $683,000,
respectively. This also represents decreases in revenues and net income from the
prior period. No assurance can be given that Gaines Berland will be able to
reverse this trend of decreases in revenues and net income. Gaines Berland's
securities business, by its nature, is subject to various risks and
contingencies, many of which are beyond Gaines Berland's ability to control.
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These risks and contingencies are discussed below. Further, the nature and
extent of Gaines Berland's underwriting, trading and market making activities,
and hence the volume and scope of Gaines Berland's business is directly affected
by Gaines Berland's available net capital.
LIMITATIONS ON TRADING AND MARKET-MAKING ACTIVITIES ON GAINES BERLAND'S
ABILITY WITH REGARD TO COMMON STOCK. Due to regulatory positions and
requirements of both the SEC and the NASD relating to the circumstances and
extent to which a registered broker/dealer and NASD member may engage in
market-making transactions in the securities of its parent, Gaines Berland does
not intend to engage in trading or market-making activities relating to Frost
Hanna Common Stock where it would speculate in, purchase or sell Frost Hanna
Common Stock for Gaines Berland's own account. The purpose and effect of such
limitation restricts Gaines Berland from being a factor in the determination of
the market or price of Frost Hanna Common Stock. Gaines Berland may, however,
execute transactions for its customers on an "agency basis" where it does not
acquire Frost Hanna Common Stock for its own trading account. Gaines Berland
will, however, earn usual and customary brokerage commissions in connection with
the execution of such brokerage transactions.
GOVERNMENT REGULATION. The securities industry in the United States is
subject to extensive and frequently changing federal and state laws and
substantial regulation under such laws by the SEC and various state agencies and
self-regulatory organizations, such as the NASDR and various stock exchanges.
Gaines Berland is registered as a broker/dealer with the SEC and is a member
firm of the NASD. Much of the regulation of broker/dealers has been delegated to
self-regulatory organizations, principally NASDR, the regulatory arm of the
NASD, which has been designated by the SEC as Gaines Berland's primary
regulatory agency. NASDR adopts rules, which are subject to approval by the SEC,
that govern its members and conducts periodic examinations of member firms'
operations. Securities firms are also subject to regulation by state securities
administrators in those states in which they conduct business. Gaines Berland is
registered as a broker/dealer in every state in the United States, the District
of Columbia and Puerto Rico.
Broker/dealers are subject to regulations which cover all aspects of the
securities business, including sales methods and supervision, trading practices
among broker/dealers, use and safekeeping of customers' funds and securities,
capital structure of securities firms, record keeping and the conduct of
directors, officers and employees. Additional legislation, changes in rules
promulgated by the SEC and self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker/dealers. The SEC,
self-regulatory organizations, and state securities commissions may conduct
administrative proceedings which can result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker/dealer, its
officers or employees. The principal purpose of regulation and discipline of
broker/dealers is the protection of customers and the integrity of the
securities markets.
NET CAPITAL REQUIREMENT. Gaines Berland is subject to SEC Rule 15c3-1
(the "Net Capital Rule"), which requires the maintenance of minimum net capital.
Gaines Berland computes its net capital under the aggregate indebtedness method
permitted by the Net Capital Rule, which requires that Gaines Berland maintain
minimum net capital which is the greater of 6-2/3% of aggregate indebtedness (as
defined in the Net Capital Rule) or $100,000, or an amount determinable based on
the market price and number of securities in which Gaines Berland is a market-
maker, not to exceed $1,000,000. At May 31, 1999, and August 31, 1998, Gaines
Berland had net capital of $4,900,637 and $1,807,781, respectively, which
exceeded its minimum net capital requirements of $366,782 and $492,003,
respectively, by $4,533,855 and $1,315,778, respectively. The Net Capital Rule
is designed to measure the general financial integrity and liquidity of a
broker/dealer. In computing net capital, various adjustments are made to net
worth which exclude assets not readily convertible into cash, and the
regulations require a conservative perspective of other assets such as a
broker/dealer's position in securities. The requirements of the Net Capital Rule
provide that a broker/dealer shall maintain a certain minimum level of net
capital and a certain ratio of net capital to aggregate indebtedness. The
particular levels vary in application depending upon the nature of the activity
undertaken by a firm. Compliance with the Net Capital Rule limits those
operations of broker/dealers which require the intensive use of their
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capital, such as underwriting commitments and principal trading activities, and
limits the ability of securities firms to pay dividends or make payments on
certain indebtedness, e.g., subordinated debt as it matures. A significant
operating loss or any charge against net capital could adversely effect the
ability of a broker/dealer to expand or, depending on the magnitude of the loss
or charge, maintain its then present level of business. The NASD may enter the
offices of a broker/dealer at any time, without notice, and calculate such
firm's net capital. In the event such calculation reveals a deficiency in net
capital, the NASD may immediately restrict or suspend certain or all of the
activities of a broker/dealer, including its ability to make markets. There can
be no assurance that Gaines Berland will be able to maintain adequate net
capital, or that its net capital will not fall below requirements established by
the SEC, and subject Gaines Berland to disciplinary action in the form of fines,
censure, suspension, expulsion, or the termination of business altogether.
CONTROL BY MANAGEMENT. The Principal Shareholders currently own in the
aggregate approximately 77.7% of the issued and outstanding common stock of
Gaines Berland, and, following the consummation of the Merger will own in the
aggregate approximately 12,426,939 shares of Frost Hanna Common Stock (or
approximately 66.6% of the issued and outstanding Frost Hanna Common Stock).
Accordingly, such persons will be able to directly control Frost Hanna, and, as
a result, indirectly control Gaines Berland, and will be able to appoint all of
the officers and directors and otherwise generally control the affairs and
operations of Frost Hanna and Gaines Berland.
RISKS OF PROPOSED EXPANSION. As discussed elsewhere in this Proxy
Statement, Gaines Berland intends, following consummation of the Merger, to
continue to expend substantial time and resources to, among other things,
continue the development of (i) its proposed wholesale trading operations to be
conducted through G-Trade, and (ii) its currently contemplated Internet
operations. As such operations are in their developmental stages, no assurances
can be given that Gaines Berland will successfully implement such operations, or
if so implemented, that such operations will be successful.
CERTAIN TERMS OF THE EMPLOYMENT AGREEMENTS. As discussed elsewhere in this
Proxy Statement, each of the Principal Shareholders will enter into employment
agreements with Frost Hanna and Gaines Berland upon consummation of the Merger
(collectively, the "Employment Agreements"). Pursuant to the terms of the
Employment Agreements, the Principal Shareholders will be entitled to receive,
among other items, severance payments upon, among other events, a "change of
control" (as defined therein), which could effectively prevent changes of
control of Frost Hanna, which changes of control could be beneficial to Frost
Hanna shareholders. In addition, at a future date, the Board of Directors (or
Compensation Committee if established following the Merger) may authorize
payments to persons under various compensation plans of Frost Hanna and Gaines
Berland (collectively, the "Plans"), based upon standards and goals established
by the Board of Directors (or Compensation Committee) which may include, but not
be limited to, revenues, net income or other financial targets as well as
brokerage commissions generated. No assurances can be given of any terms that
the Board of Directors (or Compensation Committee) may establish. Any such
payments, however, if made, could, among other items, reduce Frost Hanna's
consolidated net income and consolidated per share net income. See the forms of
employment agreement and the forms of the Plans attached to this Proxy
Statement as Exhibits C, D, E and F, respectively.
DEPENDENCE ON BEAR STEARNS. Gaines Berland effects its securities
transactions pursuant to an agreement with Bear Stearns as its clearing
broker-dealer. Bears Stearns also provides administrative and transaction
processing services to Gaines Berland (collectively, with the clearing services,
the "Bear Stearns Services"). If Gaines Berland's agreement with Bear Stearns
terminates for any reason, Gaines Berland would be required to immediately find
an alternate provider of the Bear Stearns Services in order to continue its
business as a broker-dealer. If Gaines Berland were unable to enter into an
agreement with another provider of the Bear Stearns Services, on terms that are
acceptable to Gaines Berland, immediately upon the termination of its clearing
agreement with Bear Stearns, the business of Gaines Berland would be materially
adversely effected. There can be no assurance that Gaines Berland would be able
to enter into an agreement with another provider of the Bear Stearns Services,
in the event of the termination of its agreement with Bear Stearns, immediately
upon such termination or otherwise.
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RISKS ASSOCIATED WITH FEDERAL AND STATE REGULATIONS. The securities
industry and the business of Gaines Berland is subject to extensive regulation
by the Commission, state securities regulators, and other governmental
regulatory authorities. Gaines Berland is also regulated by industry
self-regulatory organizations ("SROs"), including the NASD, the NYSE, the AMEX
and other securities exchanges. Compliance with many of the regulations
applicable to Gaines Berland involves a number of risks, particularly in areas
where applicable regulations may be subject to varying interpretation. The
requirements imposed by these regulators are designed to ensure the integrity of
the financial markets and to protect customers and other third parties who deal
with Gaines Berland. Consequently, these regulations often serve to limit Gaines
Berland's activities, including through net capital, customer protection and
market conduct requirements. In the event of noncompliance by Gaines Berland
with an applicable regulation, governmental regulators and SROs may institute
administrative or judicial proceedings that may result in censure, fine, civil
penalties (including treble damages in the case of insider trading violations),
the issuance of cease-and-desist orders, the deregistration or suspension of
Gaines Berland's broker-dealer activities, the suspension or disqualification of
its officers or employees, or other adverse consequences. The imposition of any
such penalties or other sanctions on Gaines Berland could have a material
adverse effect on Gaines Berland's operating results and financial condition.
The regulatory environment is also subject to change. Gaines Berland may be
adversely affected as a result of new or revised legislation or regulations
imposed by the Commission, other federal or state governmental regulatory
authorities, or SROs. Gaines Berland also may be adversely affected by changes
in the interpretation or enforcement of existing laws and rules by these
governmental authorities and SROs.
RISK OF LOSSES FROM UNDERWRITING AND TRADING. Gaines Berland's
underwriting, securities trading and market-making activities are conducted by
it as a principal and subjects its capital to significant risks, including
market, credit, counterparty, and liquidity risks. These activities often
involve the purchase, sale or short sale of securities as principal in markets
that may be characterized by relative illiquidity or that may be particularly
susceptible to rapid fluctuations in liquidity. Gaines Berland from time to time
has large position concentrations in securities of, or commitments to, a single
issuer, or issuers engaged in a specific industry, particularly as a result of
underwriting activities. In addition, the trend in all major capital markets,
for competitive and other reasons, toward larger commitments on the part of lead
underwriters means that, from time to time, an underwriter (including a
co-manager) may retain significant position concentrations in individual
securities.
RISK OF LOSSES ASSOCIATED WITH SECURITIES LAWS VIOLATIONS AND
LITIGATION. Many aspects of Gaines Berland's business will involve substantial
risks of liability. An underwriter is exposed to substantial liability under
federal and state securities laws, other federal and state laws, and court
decisions, including decisions with respect to underwriters' liability and
limitations on indemnification of underwriters by issuers. For example, a firm
that acts as an underwriter may be held liable for material misstatements or
omissions of fact in a prospectus used in connection with the securities being
offered or for statements made by its securities analysts or other personnel. In
recent years, there has been an increasing incidence of litigation involving the
securities industry, including class actions that seeks substantial damages.
Gaines Berland's underwriting activities will usually involve offerings of the
securities of smaller companies, which often involve a higher degree of risk and
are more volatile than the securities of more established companies. In
comparison with more established companies, such smaller companies are also more
likely to be the subject of securities class actions, to carry directors and
officers liability insurance policies with lower limits, or no such insurance,
and to become insolvent. Each of these factors increases the likelihood that an
underwriter of a smaller companies' securities will be required to contribute to
an adverse judgment or settlement of a securities lawsuit.
Gaines Berland has been named as a defendant in a class action lawsuit
relating to a secondary public offering of Mitcham Industries, Inc. ("Mitcham")
in which it served as an underwriter along with Jefferies & Company, Inc. and
Rauscher Pierce Refsnes, Inc. (the "Moskowitz Class Action"). The amount of
damages claimed is undeterminable at this time. Gaines Berland, along with the
other underwriters, has been indemnified by Mitcham pursuant to an underwriting
agreement executed in connection with that offering. However, that
indemnification is subject to certain qualifications, reservations and
limitations as provided in that underwriting agreement. In addition, while a
demand for
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indemnity has been made to Mitcham, no response thereto has yet been received
from Mitcham. Gaines Berland anticipates that additional securities class action
lawsuits naming Gaines Berland as a defendant may be filed from time to time in
the future, particularly if Gaines Berland increases its level of activity in
underwriting transactions. If the plaintiffs in the Moskowitz Class Action were
to successfully prosecute their claims against Gaines Berland or if Gaines
Berland were to settle such suits by making significant payments to the
plaintiffs, and, for any reason the aforesaid indemnification were not available
to Gaines Berland, Gaines Berland's operating results and financial condition
would be materially adversely affected. In addition, Gaines Berland's charter
documents allow indemnification of Gaines Berland's officers, directors, and
agents to the maximum extent permitted under New York law. Gaines Berland may be
the subject of indemnification assertions under these charter documents by
officers, directors, or agents of Gaines Berland who are or may become
defendants in litigation, including the Moskowitz Class Action.
In the normal course of business, Gaines Berland has been, and continues to
be the subject of numerous civil actions and arbitrations arising out of
customers complaints relating to its activities as a broker-dealer in
securities, as an employer and as a result of other business activities. In
general, the cases involve various allegations that employees of Gaines Berland
had mishandled customer accounts. The total amount sought from Gaines Berland in
pending and threatened claims is approximately $9,660,000, not including the
Moskowitz Class Action lawsuit.
On or about June 30, 1999, Gaines Berland entered into a consent order with
the State of Connecticut, Department of Banking (the "Consent Order"), wherein,
without admitting or denying any substantive acts or violations, Gaines Berland
agreed, among other things, that it would hire a consultant to review its
supervisory and employee procedures and make written recommendations for
implementation of additional procedures to insure compliance with securities
laws. For two years from the Consent Order, Gaines Berland is required to limit
its brokerage activities in the State of Connecticut to securities listed on the
New York Stock Exchange and the American Stock Exchange, Nasdaq National Market
securities, corporate debt securities, municipal securities, securities issued
by investment companies subject to regulation under the Investment Company Act
of 1940, United States securities and insurance products subject to regulation
by the Connecticut Insurance Commissioner. Such limitations do not apply to
accounts established prior to April 15, 1999 or to accounts of "accredited
investors", as defined under the Securities Act of 1933, as amended ("Accredited
Investors"). In addition, Gaines Berland paid a $20,000 administrative penalty,
$5,000 to reimburse state costs and $5,000 to that State's Investment Education
Fund.
On April 6, 1999, Alan Gaines, a former officer and principal
shareholder of Gaines Berland, filed an arbitration claim with the NASD against
Gaines Berland and several of its Principal Shareholders arising from the
termination of the business relationship between Mr. Gaines and Gaines Berland.
Mr. Gaines is seeking in excess of $2.5 million in damages. Gaines Berland and
the other respondents in this action intend to defend the arbitration
vigorously. While Gaines Berland believes that most of Mr. Gaines's allegations
are without basis, a ruling in favor of Mr. Gaines as to all or a substantial
amount of damages claimed by Mr. Gaines could materially adversely affect Gaines
Berland's operating results and financial condition.
Substantial civil liability or a significant regulatory action against
Gaines Berland could have a material adverse effect of Gaines Berland's results
of operations or cause significant reputational harm to Gaines Berland, which in
turn could materially adversely affect its business and results of operations.
DIVERSION OF MANAGEMENT ATTENTION. In addition to the financial costs and
risks relating to a litigation in which Gaines Berland is involved, the defense
of litigation can, divert the efforts and attention of Gaines Berland's
management and staff. The amount of time that management and other employees may
be required to devote in connection with the defense of litigation could be
substantial and might materially divert their attention from other
responsibilities. Securities class action litigation in particular is highly
complex and can extend for a protracted period of time, thereby consuming
substantial time and effort of management and substantially increasing the cost
of such litigation.
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RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. Over the past several years,
Gaines Berland has experienced significant growth in its business activities and
the number of its employees. Such growth has required and will continue to
require increased investments in management personnel, financial and management
systems and controls, and facilities, which, in the absence of parallel revenue
growth, of which there can be no assurance, would cause Gaines Berland's
operating margins to decline from current levels. In addition, as is common in
the securities industry, Gaines Berland will continue to be highly dependent on
the effective and reliable operation of its communications and information
systems. Gaines Berland believes that its current and anticipated future growth
will require implementation of new and enhanced communications and information
systems and training of its personnel to operate such systems. Any difficulty or
significant delay in the implementation or operation of existing or new systems
or the training of personnel could adversely affect Gaines Berland's ability to
manage growth.
LACK OF EXPERIENCE IN MANAGING A PUBLIC COMPANY. Upon the consummation of
the Merger, the current directors and officers of Gaines Berland would become
the directors and officers of Frost Hanna. None of those persons has experience
managing a publicly held company subject to the federal securities laws such as
Frost Hanna. Accordingly, as a result of this lack of experience, there can be
no assurance that Frost Hanna will have the internal experience needed to
effectively operate as a public Company or to comply with all applicable
securities laws.
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THE SPECIAL MEETING
PURPOSE OF MEETING
The Special Meeting will be held on _______________, 1999, commencing at
_____ A.M., local time, at ________________________________________. At such
meeting, holders of Frost Hanna Common Stock on the Record Date (the "Frost
Hanna Shareholders") will be requested (i) to consider and vote upon (A) a
proposal to approve and adopt the Merger Agreement, (B) a proposal to amend
Frost Hanna's Articles of Incorporation to change Frost Hanna's name to "G-Trade
Capital Holdings Corp.", (C) a proposal to amend Frost Hanna's Articles of
Incorporation to provide for an authorized class of 2,000,000 shares of
Preferred Stock, with the rights, preferences and designation of such shares to
be determined by the Board of Directors, (D) a proposal to elect six members of
Frost Hanna's Board of Directors, such members to hold office commencing on the
effective date of the Merger and until the next annual meeting of shareholders,
(E) a proposal to approve the 1999 Performance Equity Plan, (F) a proposal to
approve the Annual Incentive Bonus Plan and (G) a proposal to approve the
Special Performance Incentive Plan and (ii) to transact such other business that
may properly come before the Special Meeting, or any adjournment or postponement
thereof. Approval of the Other Proposals will only be deemed effective if the
Merger Agreement is approved and adopted. The Frost Hanna Board of Directors
knows of no business that will be presented for consideration at the Special
Meeting other than the matters described in this Proxy Statement. Copies of the
Merger Agreement, the Form of the Amended Articles of Incorporation of Frost
Hanna, the 1999 Performance Equity Plan, the Annual Incentive Bonus Plan and the
Special Performance Incentive Plan are attached to this Proxy Statement as
Exhibits A, B, C, D and E, respectively.
The Board of Directors of Frost Hanna has fixed the close of business on
________________ as the Record Date. As of the date of this Proxy Statement,
there are 2,657,202 shares of Frost Hanna Common Stock (held by 44 persons of
record) outstanding and entitled to vote.
VOTE REQUIRED
Frost Hanna Shareholders are entitled to one vote for each share of
Frost Hanna Common Stock held by them on any matter that may properly come
before the Special Meeting. Although applicable Florida law does not require
that Frost Hanna Shareholders approve the Merger, in accordance with certain
agreements entered into by Frost Hanna in connection with Frost Hanna's IPO and
the terms of the Merger Agreement, approval by the Frost Hanna Shareholders is
required to effectuate the Merger. The presence, either in person or by proxy,
of the holders of a majority of the outstanding shares of Frost Hanna Common
Stock entitled to vote at the Special Meeting is necessary to constitute a
quorum at the Special Meeting. The affirmative vote of the holders of at least a
majority of Frost Hanna Common Stock entitled to vote at the Special Meeting is
required pursuant to the terms of the Merger Agreement to approve and adopt the
Merger. The Merger Agreement also requires that less than 30% of the outstanding
Frost Hanna Common Stock held by Non-Affiliated Frost Hanna Shareholders vote
against approval of the Merger. Any abstentions and any broker non-votes will
have the same effect as a vote against the proposal to adopt and approve the
Merger. The Other Proposals, other than Proposal 4 -- Election of Directors of
Frost Hanna, described in the Proxy Statement require the affirmative vote of a
majority of the shares of Frost Hanna Common Stock voting in person or by proxy
at the Special Meeting. The election of directors requires the vote of a
plurality of the shares so voting. Accordingly, an abstention on these proposals
will have the same effect as a negative vote, but because shares held by brokers
will not be considered entitled to vote on matters as to which the brokers
withhold authority, broker non-votes will have no effect on the vote.
Frost Hanna's directors and executive officers and their respective
affiliates, collectively, holding an aggregate of approximately 43.2% of the
outstanding shares of Frost Hanna Common Stock before giving effect to the
Merger, have agreed, with respect to the proposal to approve and adopt the
Merger Agreement, to vote their respective shares of Frost Hanna Common Stock in
accordance with the vote of the majority of all Non-Affiliated Frost Hanna
Shareholders. Consequently, if a majority of outstanding Frost Hanna Common
Stock held and voted by Non-Affiliated Frost Hanna
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Shareholders are voted in favor of the Merger, the current directors and
executive officers of Frost Hanna will vote their shares of Frost Hanna Common
Stock in favor of the Merger and the Other Proposals.
If the Merger is not approved by the affirmative vote of the holders of at
least a majority of Frost Hanna Common Stock entitled to vote at the Special
Meeting, or if so approved, but 30% or more in interest of all Non-Affiliated
Frost Hanna Shareholders vote against approval of the Merger, the Merger
Agreement will be terminated and the proposed Merger abandoned.
PROXIES
If a Frost Hanna Shareholder attends the Special Meeting, he or she may
vote by ballot. However, many of the Frost Hanna Shareholders may be unable to
attend the Special Meeting. Therefore, the Board of Directors of Frost Hanna is
soliciting proxies so that each holder of Frost Hanna Common Stock on the Record
Date has the opportunity to vote on the proposals to be considered at the
Special Meeting. When a proxy card is returned properly signed and dated, the
shares represented thereby will be voted in accordance with the instructions on
the proxy card. If a Frost Hanna Shareholder does not return a signed proxy card
his or her shares will not be voted. Frost Hanna Shareholders are urged to mark
the box on the proxy card to indicate how their shares are to be voted. If a
Frost Hanna Shareholder (other than a broker which holds shares in street name
for its customers) returns a signed proxy card, but does not indicate how his or
her shares are to be voted, the shares represented by the proxy card will be
voted for approval and adoption of the Merger and the Other Proposals. If a
signed proxy card is returned by a Frost Hanna Shareholder and expressly
reflects an abstention upon any proposal or if a signed proxy card is returned
by a broker with no indication of how shares are to be voted, the shares
evidenced thereby will be counted towards the quorum necessary to convene the
Special Meeting, but will not be counted towards the requisite affirmative vote
upon such proposal. The proxy card also confers discretionary authority on the
individual appointed by the Board of Directors of Frost Hanna and named on the
proxy card to vote the shares represented thereby on any other matter that is
properly presented for action at the Special Meeting.
Any Frost Hanna Shareholder who executes and returns a proxy card may
revoke such proxy at any time before it is voted by (i) notifying in writing the
Secretary of Frost Hanna, at 327 Plaza Real, Suite 319, Boca Raton, Florida
33432; (ii) granting a subsequent proxy; or (iii) appearing in person and voting
at the Special Meeting. Attendance at the Special Meeting will not in and of
itself constitute revocation of the proxy.
SOLICITATION
Frost Hanna will bear all of the expenses in connection with printing and
mailing this Proxy Statement. The costs of solicitation of proxies also will be
borne by Frost Hanna. Frost Hanna will reimburse brokers, fiduciaries,
custodians and other nominees for reasonable out-of-pocket expenses incurred in
sending this Proxy Statement and other proxy materials to, and obtaining
instructions relating to such materials from, beneficial owners of Frost Hanna
Common Stock. Proxies may be solicited by directors, executive officers or
regular employees of Frost Hanna, without such person receiving additional
compensation, in person, by letter or by telephone, telegram or telefax.
DISSENTERS' RIGHTS
Holders of Frost Hanna Common Stock are entitled to dissenters' rights
under Sections 607.1301, 607.1302 and 607.1320 of the Florida Business
Corporation Act (the "FBCA"). All references in Sections 607.1301, 607.1302 and
607.1320 and in this summary to a "shareholder" are to the record holders of the
Frost Hanna Common Stock as to which dissenters' rights are duly asserted.
Holders of Frost Hanna Common Stock who follow the procedure set forth
in Section 607.1320 of the FBCA ("Section 607.1320") will be entitled to receive
payment of the "fair value" of such Frost Hanna Common Stock. FBCA defines "fair
value" to be the value of the Frost Hanna Common Stock as of the close of
business on the date prior to the date of shareholder approval of the Merger,
excluding any appreciation or depreciation in anticipation of the Merger, unless
exclusion would be inequitable.
Under Section 607.1320, if the Merger is consummated, shareholders who
dissent from the Merger may be entitled, if they comply with the provisions of
the FBCA regarding the rights of dissenting shareholders, to be paid the fair
value of their Frost Hanna Common Stock. This Proxy Statement shall constitute
such notice to the shareholders of Frost Hanna, and the Merger Agreement and the
applicable statutory provisions of the FBCA are attached to this Proxy Statement
as Exhibits A and Appendix B, respectively. The following discussion is not a
complete statement of the law pertaining to dissenters' rights under the FBCA
and is qualified in its entirety by reference to the full text of Sections
607.1301, 607.1302 and 607.1320 of the FBCA attached to this Proxy Statement.
Any shareholder who wishes to exercise such dissenters' rights or who wishes to
preserve his right to do so, should review the following discussion and Appendix
B carefully, because failure to timely and properly comply with the procedures
specified will result in the loss of dissenters' rights under the FBCA.
Each shareholder who wishes to assert dissenters' rights must (i)
deliver to Frost Hanna, before the taking of the vote on the Merger, a written
notice of his intent to demand payment for his Frost Hanna Common Stock if the
Merger is effectuated, and (ii) not vote his Frost Hanna Common Stock in favor
of the Merger Agreement. Because an executed proxy which does not contain voting
instructions will, unless revoked, be voted for adoption of the Merger
Agreement, a shareholder who votes by proxy and who wishes to exercise his
dissenters' rights must (i) vote against adoption of the Merger Agreement or
(ii) abstain from voting on adoption of the Merger Agreement. A vote against
adoption of the Merger Agreement, in person or by proxy, will not in and of
itself constitute a written notice of intent to demand payment for the Frost
Hanna Common Stock satisfying the requirements of Section 607.1320.
Only a holder of record of Frost Hanna Common Stock is entitled to
assert dissenters' rights for the Frost Hanna Common Stock registered in that
holders' name. A notice of intent to demand payment for Frost Hanna Common Stock
may be exercised by or on behalf of the holder of record, fully and correctly,
as his name appears on his stock certificates. If Frost Hanna Common Stock is
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the notice should be made in that capacity, and if the
Frost Hanna Common Stock is owned of record by more than one person, as in a
joint tenancy or tenancy in common, the notice should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a notice on behalf of a holder of record; however, the agent
must identify the record owner or owners and expressly disclose the fact that,
in executing the notice, the agent is acting as agent for such owner or owners.
A record holder, such as a broker, who holds Frost Hanna Common Stock as nominee
for several beneficial owners may exercise dissenters' rights with respect to
the Frost Hanna Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the Frost Hanna Common Stock held for
other beneficial owners. In such case, the notice should set forth the number of
shares of Frost Hanna Common Stock as to which dissenters' rights are sought.
Where no number of Frost Hanna Common Stock is expressly mentioned, the demand
will be presumed to cover all Frost Hanna Common Stock held in the name of the
record owner. Shareholders who hold their Frost Hanna Common Stock in brokerage
accounts or other nominee forms and who wish to exercise dissenters' rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a notice of intent to demand payment for such nominee's Frost
Hanna Common Stock.
Within ten days after the date of shareholder approval of the Merger
Agreement, Frost Hanna is required to give written notice of adoption of the
Merger Agreement to each shareholder who filed a notice of intent to demand
payment for his Frost Hanna Common Stock. Within twenty days after the giving of
such notice to him by Frost Hanna, any shareholder who elects to dissent must
file with Frost Hanna a notice of such election, stating his name and address,
the number of shares of Frost Hanna Common Stock as to which he dissents, and a
demand for payment of the fair value of his Frost Hanna Common Stock. Any
shareholder filing an election to dissent shall deposit his stock certificates
with Frost Hanna simultaneously with the filing of the election to dissent.
Within ten days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within ten days
after the Merger is effected, whichever is later (but in no case later than
ninety days from the date of shareholder approval of the Merger Agreement),
Frost Hanna shall make a written offer to each dissenting shareholder who has
made a demand as provided in Section 607.1320 to pay an amount Frost Hanna
estimates to be the fair value for such Frost Hanna Common Stock. The fair value
determined will reflect the value of the Frost Hanna Common Stock prior to the
Merger. Such notice and offer shall be accompanied by (i) a balance sheet of
Frost Hanna as of the latest available date, and (ii) a profit and loss
statement of Frost Hanna for the 12-month period ended on the date of such
balance sheet.
Any shareholder who has duly filed a notice of election to dissent in
compliance with Section 607.1320 will thereafter be entitled only to payment of
the fair value of his Frost Hanna Common Stock and will not be entitled to vote
or to exercise any other rights of a shareholder. A notice of election may be
withdrawn in writing by the shareholder at any time before an offer is made by
Frost Hanna to pay for his Frost Hanna Common Stock. Generally, after such
offer, no such notice of election may be withdrawn unless Frost Hanna consents
thereto.
If within thirty days after the making of such offer by Frost Hanna,
any shareholder accepts the same, payment for his Frost Hanna Common Stock will
be made within ninety days after the making of such offer or the consummation of
the Merger, whichever is later. Upon payment of the agreed value, the dissenting
shareholder will cease to have any interest in such Frost Hanna Common Stock.
If Frost Hanna fails to make an offer for the fair value of the Frost
Hanna Common Stock within the period specified above, or if it makes the offer
and any dissenting shareholder or shareholders fail to accept the same within
the period of thirty days thereafter, then Frost Hanna, within thirty days after
receipt of written demand from any dissenting shareholder given within sixty
days after the date of which the Merger was effected, shall, or at its election
at any time within such period of sixty days may, file an action in any court of
competent jurisdiction in Broward County, Florida requesting the fair value of
such Frost Hanna Common Stock to be determined. The court shall also determine
whether each dissenting shareholder, as to whom Frost Hanna requests the court
to make such determination, is entitled to receive payment for his Frost Hanna
Common Stock. If Frost Hanna fails to institute such a proceeding, any
dissenting shareholder may do so in the name of Frost Hanna. All dissenting
shareholders (whether or not resident of the State of Florida), other than
shareholders who have agreed with Frost Hanna as to the value of their Frost
Hanna Common Stock, shall be made parties to the proceeding. Frost Hanna must
pay to each dissenting shareholder the amount found to be due him within ten
days after final determination of the proceedings. Upon payment of the judgment,
the dissenting shareholders will cease to have any interest in such Frost Hanna
Common Stock.
Shareholders considering seeking dissenters' rights should be aware
that the fair value of their Frost Hanna Common Stock as determined under
Section 607.1320 could be more than, the same as, or less than the consideration
they would receive pursuant to the Merger Agreement if they did not seek to
demand payment of their Frost Hanna Common Stock. Any judicial determination of
the "fair value" of the Frost Hanna Common Stock can be based on numerous
considerations, including, but not limited to, the market value of the Frost
Hanna Common Stock prior to the Merger and the net asset value and earnings
value of Frost Hanna. The costs and expenses of any judicial proceeding will be
determined by the court and will be assessed against Frost Hanna, but all or any
part of such costs and expenses may be apportioned and assessed as the court
deems equitable against any or all of the dissenting shareholders who are
parties to the proceeding, to whom Frost Hanna has made an offer to pay for the
Frost Hanna Common Stock, if the court finds that the action of such
shareholders in failing to accept such offer was arbitrary, vexatious, or not in
good faith.
Failure to follow the steps required by Section 607.1320 for perfecting
dissenters' rights may result in the loss of such rights.
REDEMPTION RIGHTS
Each Non-Affiliated Frost Hanna Shareholder as of the Record Date will have
the right until __________________ to offer his or her shares of Frost Hanna
Common Stock for redemption (the "Redemption") at a price equal to Frost
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Hanna's liquidation value divided by the number of shares of Frost Hanna Common
Stock held by all Non-Affiliated Frost Hanna Shareholders (1,181,536 shares as
of the Record Date), calculated as of the Frost Hanna Record Date (the
"Redemption Value"). Frost Hanna's Redemption Value is equal to its book value,
as determined by Frost Hanna and audited by its independent public accountants,
calculated as of the Frost Hanna Record Date. The Redemption Value as of March
31, 1999 was $4.34 per share. If less than 30% of the shares of Frost Hanna
Common Stock held by Non-Affiliated Frost Hanna Shareholders are voted against
approval of the Merger and if such Non-Affiliated Frost Hanna Shareholders also
elected to have their shares of Frost Hanna Common Stock redeemed, then if the
Merger is consummated, Frost Hanna will, utilizing funds held in escrow, redeem
shares of Frost Hanna Common Stock at the Redemption Value from those Frost
Hanna Shareholders who affirmatively requested such redemption and who actually
voted against approval of the Merger. If 30% or more in interest of Frost Hanna
Common Stock held by Non-Affiliated Frost Hanna Shareholders vote against
approval of the Merger, the proposed Merger will be terminated, Frost Hanna will
not proceed with the Merger and will not redeem such shares.
A Non-Affiliated Frost Hanna Shareholder wishing to exercise his or her
redemption rights (i) must deliver to Frost Hanna, prior to or at the Special
Meeting but before the vote is taken on the Merger, a written objection to the
Merger (a "Notice of Election"), which shall include a notice of his or her
election to redeem his or her Frost Hanna Common Stock, his or her name and
residence address, the number of shares of Frost Hanna Common Stock which he or
she owns and demand for payment of the Redemptive Value of his or her shares of
Frost Hanna Common Stock (which Notice of Election must be in addition to and
separate from any vote (including by proxy) against the Merger); and (ii) must
vote against the Merger. A proxy directing such vote for an abstention with
respect to the proposal to approve the Merger, even if accompanied by a Notice
of Election, will not meet the requirements for exercise of the redemption
rights. A Non-Affiliated Frost Hanna Shareholder, who elects to redeem his or
her shares of Frost Hanna Common Stock may not redeem less than all of the
shares of Frost Hanna Common Stock beneficially owned by such Frost Hanna
Shareholder as of the Frost Hanna Record Date. Frost Hanna Shareholders who
timely file a Notice of Election and who vote their Frost Hanna Common Stock
against the Merger, are hereinafter referred to as "Redeeming Shareholders."
ALL NOTICES OF ELECTION SHOULD BE ADDRESSED TO FROST HANNA CAPITAL
GROUP, INC., 327 PLAZA REAL, SUITE 319, BOCA RATON, FLORIDA 33432, ATTENTION:
MARK J. HANNA.
At the Effective Time, each Redeeming Shareholder will cease to have any of
the rights of a Frost Hanna Shareholder, except the right to be paid the
Redemption Value for his or her shares of Frost Hanna Common Stock. To maintain
his or her position as a Redeeming Shareholder, each Frost Hanna Shareholder
must submit the certificate representing his or her shares of Frost Hanna Common
Stock to Frost Hanna or its transfer agent as noted below. A Notice of Election
may be withdrawn by a Frost Hanna Shareholder, with the written consent of
Frost Hanna, prior to 20 days following the Effective Time.
Within 10 days after the date on which the Frost Hanna Shareholders
approve the Merger, Frost Hanna will send written notice of such approval
("Notice of Approval of Merger"), including the Redemption Value, by certified
or registered mail to each shareholder of Frost Hanna who filed a Notice of
Election and who voted his shares against adoption of the Merger. Within 20 days
following the date of mailing of the Notice of Approval of Merger, Redeeming
Shareholders must submit certificates representing their shares of Frost Hanna
Common Stock to Frost Hanna or its transfer agent. Within 30 days following the
date of mailing of the Notice of Approval of Merger, Frost Hanna will pay each
Redeeming Shareholder who has submitted the certificates representing his or her
shares of Frost Hanna Common Stock to Frost Hanna or its transfer agent, the
Redemption Value for such shares. ANY REDEEMING SHAREHOLDER WHO FAILS TO SUBMIT
HIS OR HER CERTIFICATES REPRESENTING FROST HANNA COMMON STOCK WITHIN 20 DAYS
FOLLOWING THE DATE OF MAILING OF THE NOTICE OF APPROVAL OF MERGER SHALL LOSE HIS
OR HER REDEMPTION RIGHTS.
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EXCHANGE OF STOCK CERTIFICATES
At the Effective Time, the shareholders of Gaines Berland will exchange
certificates representing outstanding Gaines Berland Common Stock for
certificates representing Frost Hanna Common Stock.
Frost Hanna Shareholders will not be required to surrender certificates
evidencing shares of Frost Hanna Common Stock following the approval and
adoption of the Merger Agreement and the subsequent implementation of the
Merger.
NO FRACTIONAL SHARES
No certificates or scrip for fractional shares of Frost Hanna Common Stock
will be issued in connection with the Merger.
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PROPOSAL 1
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
BACKGROUND OF THE MERGER
Frost Hanna was formed in February 1996 to effect a Business Combination
with an Acquired Business which Frost Hanna believes has growth potential. Since
the formation of Frost Hanna, its executive officers have conducted a search for
an appropriate Acquired Business. During the period from the formation of Frost
Hanna through May, 1999, Frost Hanna's executive officers met with and conducted
analysis of approximately 15 prospective Acquired Businesses engaged in the
following industries: waste disposal, publishing, outpatient rehabilitation
services, pharmaceutical and home product manufacturing, television programming,
radio broadcasting, telecommunications, farming, psychiatric health care,
diagnostic imaging, airline, insurance, food services, gaming, dermatological
products and retail.
In evaluating each prospective Acquired Business, Frost Hanna's executive
officers considered, among other factors, all or a majority of the following:
- costs associated with effecting the Business Combination;
- equity interest, in and opportunity for control of the
Acquired Business;
- growth potential of the Acquired Business and the industry in
which it operates;
- experience and skill of management of, and availability of
additional necessary personnel for the Acquired Business;
- capital requirements of the Acquired Business;
- competitive position of the Acquired Business;
- stage of development of the product, process or service of the
Acquired Business;
- degree of current or potential market acceptance of the
product, process or service of the Acquired Business;
- proprietary features and degree of intellectual property or
other protection of the product, process or service of the
Acquired Business; and
- regulatory environment of the industry in which the Acquired
Business operates.
Each of the prospective Acquired Businesses considered by Frost Hanna
prior to its consideration of a transaction with Gaines Berland was rejected
either for failure of the Acquired Business to satisfy Frost Hanna with respect
to one or more of the factors listed above or the failure of the parties to
reach an agreement in principle.
In March 1999, Frost Hanna was introduced to Gaines Berland as a
possible merger candidate as a result of a telephone call from Harter Financial.
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Over the next several days, Messrs. Frost and Hanna received and
reviewed the most recent financial statements of Gaines Berland, consisting of
the statement of financial condition of Gaines Berland as of August 31, 1998,
and the related statements of income, changes in shareholders' equity, changes
in subordinated borrowing and cash flows for the year then ended and the report
thereon by Gaines Berland's independent auditors, Goldstein Golub, which were
filed by Gaines Berland with the Commission in accordance with Rule 17a-5 of the
Exchange Act. In addition to these financial statements, Messrs. Frost and Hanna
also reviewed the computation of Gaines Berland's net capital under Rule 15c3-1
set forth as supplementary information in the independent auditor's report.
During the next few weeks, Messrs. Frost and Hanna had numerous
telephone conversations and meetings with senior personnel of Gaines Berland at
the office of Gaines Berland in order for Messrs. Frost and Hanna to become
informed about the operations of Gaines Berland, including its capital
structure, market-making activities, the composition of its customer base and
its specific strategy for establishing trading services on the Internet.
In late April 1999, Mr. Frost visited Gaines Berland's principal office
in Bethpage, New York. During his visit, he met with Messrs. Berland,
Rosenstock, Thalheim, Zeitchick and Mangone, representatives of Gaines Berland,
to discuss, among other things, the history of Gaines Berland, its monthly
earnings since its formation in 1983, its day-to-day operations and policies
regarding the recruiting of traders and brokers. Mr. Frost also met with Messrs.
Pickard and Miller, the general counsel and chief compliance officer of Gaines
Berland, respectively, to among other things, review and discuss Gaines
Berland's supervisory policies, surveillance measures, and compliance policies.
Subsequent thereto, Messrs. Frost and Hanna held numerous telephone
conversations with Gaines Berland's officers and representatives to discuss
follow up questions regarding material aspects of Gaines Berland's operations.
At the same time, Frost Hanna's counsel proceeded to conduct an independent
investigation of Gaines Berland's operations, including a review of its material
contracts, employee matters (including employee benefits and employee
complaints), record of compliance with NASD and state regulations, and pending
and threatened legal proceedings. Frost Hanna's independent public accountants
were also retained by Frost Hanna to conduct a review of Gaines Berland's
financial condition.
On May 27, 1999, a meeting of the Board of Directors of Frost Hanna was
called and after detailed discussion, the Board of Directors unanimously agreed
to authorize Frost Hanna to enter into the Merger Agreement and resolved to
recommend to the Frost Hanna Shareholders that they vote to approve the Merger.
Subsequently the Board of Directors of Gaines Berland unanimously agreed to
enter into the Merger Agreement and Gaines Berland and Frost Hanna executed the
Merger Agreement and issued a press release concerning the transaction.
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The Board of Directors of Frost Hanna has determined that the Merger is
in the best interests of Frost Hanna and the Frost Hanna Shareholders and
unanimously recommends that the Frost Hanna Shareholders vote for approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
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In considering whether to approve and recommend the Merger to the Frost
Hanna Shareholders, the Board of Directors of Frost Hanna, which includes
several members with experience in the securities industry, considered a number
of factors. The material factors considered were:
(i) Information with respect to the financial condition, business,
operations and prospects of Frost Hanna and Gaines Berland, on both a historical
and prospective basis, including information reflecting the two companies on a
pro forma combined basis. See "Pro Forma Combined Financial Statements."
(ii) The experience of the Gaines Berland principals in the brokerage
business as described under "Management of Gaines Berland - Executive Officers
and Directors."
(iii) The overall growth of the brokerage industry based upon a review
of the publicly available financial information of brokerage firms.
(iv) The business plan and operating strategies of Gaines Berland as
described under the caption "Business of Gaines Berland."
(v) The fact that (a) the Merger Agreement requires the approval of a
majority of the outstanding Frost Hanna Common Stock entitled to vote at the
Frost Hanna Special Meeting, (b) the vote of the executive officers and
directors of Frost Hanna in the Merger is effectively neutralized by their
agreement to vote consistent with the vote of a majority of the Non-Affiliated
Frost Hanna Shareholders and (c) that each Non-Affiliated Frost Hanna
Shareholder will have certain redemption rights with respect to the Merger.
The Board of Directors of Frost Hanna did not assign relative weights
to the factors or determine that any factor was of particular importance.
Rather, the Board of Directors of Frost Hanna viewed its determination and
recommendation as being based on the totality of the information presented to it
and considered by it. The number of shares of Frost Hanna Common Stock to be
issued in the Merger was the result of arm's length negotiations among Messrs.
Hanna and Frost and Messrs. Rosenstock and Thalheim after consideration by the
Board of Directors of Frost Hanna of the financial position of Gaines Berland
and the prospects and growth potential of the business.
In evaluating the merits of the proposed transaction with Gaines
Berland, the Board of Directors of Frost Hanna did not obtain a fairness opinion
or any other valuation or analysis from an investment banker or other financial
advisor to the effect that the Merger would be fair from a financial point of
view to the Frost Hanna Shareholders. Accordingly, no third party has
independently analyzed the merits or basis of the terms of the Merger and there
can be no assurance that the terms of the Merger would be deemed by a third
party to be fair.
THE MERGER AGREEMENT
THE FOLLOWING SUMMARY DESCRIBES CERTAIN PROVISIONS OF THE MERGER
AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY TO THE COMPLETE TEXT OF THE
MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS EXHIBIT A TO THIS PROXY
STATEMENT.
GENERAL. The Merger Agreement provides that FHGB, the newly formed
wholly-owned subsidiary of Frost Hanna, will merge with and into Gaines Berland,
Gaines Berland will survive the Merger as a wholly-owned subsidiary of Frost
Hanna and the separate existence of FHGB will cease. The Merger will become
effective upon the filing of a Certificate of Merger with the Secretary of State
of New York. It is anticipated that such filing will take place within 15 days
after all the conditions sets forth in the Merger Agreement have been satisfied
or waived.
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CONSIDERATION. Each share of Gaines Berland Common Stock issued and
outstanding immediately prior to the Effective Time will be canceled and
extinguished and automatically converted (subject to certain adjustments
described below) into the right to receive 21,917 shares of Frost Hanna Common
Stock (the "Conversion Ratio"). In the event that shares of Gaines Berland
Common Stock are redeemed prior to the Effective Time pursuant to certain
existing shareholder agreements or Frost Hanna consents to the issuance of
additional shares of Gaines Berland Common Stock to certain new employees as
permitted by the Merger Agreement, then the Conversion Ratio shall be deemed
automatically modified to the nearest lowest whole number equal to the product
of (i) 21,917 and (ii) a fraction, the numerator of which is 730 and the
denominator of which is equal to the number of shares of Gaines Berland Common
Stock outstanding immediately prior to the Effective Time, assuming that none of
Gaines Berland's shareholders had exercised dissenters' rights. In no event
shall the aggregate number of shares issued to Gaines Berland's shareholders
exceed 16,000,000, less the number of shares of Frost Hanna Common Stock into
which Gaines Berland Common Stock would be converted into but for the exercise
of dissenters' rights by the holders of Gaines Berland Common Stock. In the
event that the Net Cash Assets of Frost Hanna are less than $4,500,000 at the
Effective Time, then Gaines Berland may elect to (i) terminate the Merger or
(ii) cause the Conversion Ratio to be adjusted to the nearest lower whole number
by multiplying it by a fraction, the numerator of which is $4,500,000 and the
denominator of which is the Net Cash Assets.
Each share of FHGB's common stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger, automatically be
converted into one share of the surviving corporation's common stock. None of
the shares of Frost Hanna Common Stock currently outstanding will be converted
or otherwise modified in the Merger and all of such shares will continue to be
outstanding capital stock of Frost Hanna after the Effective Time.
REPRESENTATIONS AND WARRANTIES OF FROST HANNA AND GAINES BERLAND. The
Merger Agreement contains customary reciprocal representations and warranties of
Frost Hanna and FHGB, on the one hand, and Gaines Berland on the other hand,
relating to, among other things: (i) organization and similar corporate matters;
(ii) capital structure; (iii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related
documentation; (iv) certain violations or conflicts; (v) certain material events
or changes; (vi) pending litigation; (vii) the accuracy of the information
provided; (viii) compliance with laws and material agreements; (ix) certain tax
matters; (x) the accuracy of the financial statements and certain accounting
matters; (xi) certain labor controversies; (xii) the validity of title to all
personal property and assets; (xiii) maintenance of insurance; (xiv) certain
related party transactions; (xv) third party guaranties; (xvi) the issuance of
warrants, options or other rights; (xvii) the presence or absence of certain
business practices; (xviii) any brokers in connection with the transactions
contemplated by the Merger Agreement; and (xix) absence of false or misleading
statements made in the Merger Agreement or in any documents delivered pursuant
thereto.
REPRESENTATIONS AND WARRANTIES OF GAINES BERLAND. The Merger Agreement
also contains certain representations and warranties which are specific to
Gaines Berland, relating to, among other things: (i) compliance with
broker-dealer registration requirements and regulatory rules; (ii) ensuring that
all of Gaines Berland's software and hardware is Year 2000 compliant; (iii) past
payment of all subscription receivables reflected on any of Gaines Berland's
financial statements; (iv) limitation on the ownership of securities in any
publicly-held company; and (vi) certain investment representations.
REPRESENTATIONS AND WARRANTIES OF FROST HANNA. The Merger Agreement
also contains certain representations and warranties which are specific to Frost
Hanna, relating to, among other things (i) that Frost Hanna has not engaged in
any other business other than to seek to effect a Business Combination and (ii)
the validity of the shares of Frost Hanna Common Stock to be issued to the
holders of Gaines Berland Common Stock.
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TERMINATION OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Frost Hanna and Gaines Berland set forth in the Merger Agreement
will terminate at the Effective Time of the Merger and will not survive the
Closing of the transactions contemplated by the Merger. Additionally, no
Principal Shareholder of Gaines Berland or other individual will be liable for
any breach of any representation or warranty of Gaines Berland under the Merger
Agreement. This means that the Frost Hanna Shareholders will not have recourse
against Gaines Berland or any individual in the event of any misrepresentations
by Gaines Berland in the Merger Agreement.
CERTAIN COVENANTS. Pursuant to the Merger Agreement, Frost Hanna and
Gaines Berland have agreed that, during the period from the date of the Merger
Agreement until the Closing Date, each of Frost Hanna and Gaines Berland and
their respective subsidiaries will conduct their business in the ordinary and
usual course and consistent with past practice and shall use its reasonable
efforts to (i) preserve the goodwill and business relationships with its
suppliers, customers and others and (ii) continuously maintain insurance
coverage substantially equal to the insurance coverage maintained on the date of
the Merger Agreement. Except as permitted by the Merger Agreement or as
consented to in writing by the other party, neither Frost Hanna nor Gaines
Berland, nor any of their respective subsidiaries, may, among other things,
subject to certain exceptions: (i) amend its Articles of Incorporation or
Bylaws; (ii) issue or sell any shares of its capital stock or other securities,
except that, with the prior written consent of Frost Hanna, Gaines Berland may
issue not more than 100 shares of Gaines Berland Common Stock to new employees
of Gaines Berland who are "accredited investors" (as defined in the Securities
Act of 1933 (the "Securities Act")) and who were not affiliates of Gaines
Berland or of any of Gaines Berland's Principal Shareholders at the time the
Merger Agreement was signed; (iii) redeem or otherwise acquire any shares of its
capital stock, except for redemptions of Gaines Berland Common Stock pursuant to
the terms of agreements with Gaines Berland shareholders existing on the date
the Merger Agreement was signed; (iv) declare any dividend or other distribution
with respect to its capital stock; (v) voluntarily sell or dispose of any of its
assets or property rights other than in the ordinary course of its business on
arms-length terms to non-affiliates; (vi) encumber any of its properties or
assets, except for liens not exceeding $100,000 in the aggregate; (vii) borrow
any money, except that Gaines Berland, G-Trade and Holdings may use the margin
credit provided by their clearing broker in an amount not to exceed the amount
reflected in the Gaines Berland financial statements for February 28, 1999 in
the aggregate; (viii) make any capital expenditures in excess of $100,000 in the
aggregate; (ix) grant any increase in the compensation payable to its officers,
directors or employees, other than merit increases in the usual course of
business; (x) enter into any agreements which would have been deemed material at
the time the Merger Agreement was signed, or terminate or amend any existing
material agreement; (xi) alter its accounting practices; (xii) enter into any
transactions other than in the ordinary course of business or acquire the stock
or a substantial part of the business of any other entity; (xiii) take or fail
to take any action which would render any of its representations or warranties
untrue or misleading or which would be a breach of any of its covenants under
the Merger Agreement; (xiv) cancel or waive any material debts or write off the
value of any assets or increase the reserve for uncollectible receivables,
except as required by generally accepted accounting principles or by law; (xv)
make any loans, advances or contributions to any entity, except for routine
advances to employees in the ordinary course of business, nor enter into or
modify any termination or severance arrangements; (xvi) take any action which
would be deemed to have a material adverse effect under the Merger Agreement;
(xvii) make any guaranty; (xviii) apply any of its assets to the payment,
discharge or satisfaction of any amount payable to or for the benefit of any
affiliate; (xix) waive any stock repurchase rights, accelerate, amend or change
the period to exercise options or restricted stock, or reprice options granted
under any employee, consultant, director or other stock plans or authorize cash
payments in exchange for any options granted under any such plans; (xx) grant
any severance or termination pay to any officer or employee except pursuant to
written agreements or policies which existed on the date the Merger Agreement
was signed, or adopt any new severance plan; (xxi) amend or adopt any Gaines
Berland Pension Plan, Gaines Berland Plan or Gaines Berland Welfare Plan (as
defined in the Merger Agreement); or (xxii) agree, to do any of the foregoing.
Pursuant to the Merger Agreement, Frost Hanna has agreed that, during
the period from the date of the Merger Agreement until the Closing Date, except
as permitted by the Merger Agreement or consented to in writing by Gaines
Berland, Frost Hanna will, among other things, (i) use its reasonable efforts to
obtain approval for listing with the NASD electronic bulletin board the shares
of Frost Hanna Common Stock to be issued in the Merger (provided that to the
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extent that Frost Hanna would meet the requirements for inclusion of the Frost
Hanna Common Stock on the NASDAQ Small Cap Market immediately after the
Effective Time, Frost Hanna and Gaines Berland will use their best efforts to
file the appropriate listing application with NASDAQ as soon as practicable.);
(ii) timely file all reports and other documents required to be filed by it with
the Commission under the Exchange Act; (iii) cause all of its directors and
officers to resign, effective the Effective Time of the Merger; (iv) cause all
employment agreements to which it is a party to be terminated; (v) use its
reasonable efforts to cause all demand registration rights with respect to its
securities to be terminated, if it can do so at no cost; (vi) cause its officers
and directors to execute a general release in which they release the Principal
Shareholders of Gaines Berland of any personal liability arising from the Merger
Agreement; (v) terminate the insurance policies insuring the lives of Messrs.
Frost and Hanna and owned by Frost Hanna or to which Frost Hanna is a
beneficiary, or to transfer such policies to the designees of such directors;
and (vi) obtain certain directors' and officers' liability insurance with
respect to certain periods prior to the Closing of the Merger.
Gaines Berland has also agreed that during the period from the date of
the Merger Agreement until the Closing Date, except as permitted by the Merger
Agreement or consented to in writing by Frost Hanna, Gaines Berland will, among
other things, (i) cause the Principal Shareholders to execute employment
agreements in the form attached hereto as Exhibit F (the "Employment
Agreements") effective as of the Effective Time; (ii) terminate the Gaines
Berland Retirement Trust Profit Sharing Plan (as defined in the Merger
Agreement) at a cost not to exceed $10,000 in the aggregate; (iii) cause each of
its shareholders to execute and deliver to Frost Hanna an investment intent
letter; (iv) cause all shareholder agreements to which it is a party to be
terminated; and (v) cause its Principal Shareholders to execute a general
release in which they release the officers and directors of Frost Hanna of any
personal liability arising from the Merger Agreement.
NO SOLICITATION OF OTHER TRANSACTIONS. The Merger Agreement provides
that Gaines Berland, Holdings and G-Trade, and their respective officers,
directors, representatives and agents will not solicit any proposal or offer to
acquire all or any substantial part of the business or capital stock of Gaines
Berland or any of its subsidiaries from any person other than Frost Hanna. The
Merger Agreement also provides for similar restrictions on Frost Hanna, FHGB and
their respective officers, directors, representatives and agents.
INDEMNIFICATION. The Merger Agreement provides that Frost Hanna will
indemnify each person who is presently, or who becomes prior to the Effective
Time of the Merger, an officer or director of Frost Hanna or FHGB against (i)
all claims arising out of the fact that such person is or was a director,
officer or employee of Frost Hanna or FHGB prior to or at the Effective Time of
the Merger and against (i) all claims arising out of the Merger Agreement, to
the extent permitted under Frost Hanna's Articles of Incorporation and Bylaws or
under the Florida Business Corporation law. Also, Frost Hanna is required to
maintain in effect for a period of six years after the Effective Time of the
Merger those provisions in its Articles of Incorporation and Bylaws regarding
indemnification of directors and officers and to carry directors' and officers'
liability insurance with respect to any claim arising from facts or events which
occurred at or before the Effective Time.
MUTUAL CONDITIONS TO THE MERGER. The consummation of the Merger is
subject to the satisfaction, of a number of mutual conditions, including: (i)
the Merger shall have been approved and adopted by each of the Frost Hanna
Shareholders and the Gaines Berland shareholders and no more than 30% of the
shares of Frost Hanna Common Stock held by Non-Affiliated Frost Hanna
Shareholders shall have voted against the Merger; (ii) no preliminary or
permanent injunction or other order or decree by any federal or state court or
any action by any state or federal governmental agency preventing the
consummation of the Merger shall have been issued or taken and remain in effect,
(iii) all consents, orders and approvals legally required shall have been
obtained and be in effect at the Effective Time and (iv) each of Gaines
Berland's Principal Shareholders and each of Frost Hanna's officers and
directors shall have executed and delivered general releases under which they
release each other personally. A copy of the Merger Agreement is attached hereto
as Exhibit A to this Proxy Statement.
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CONDITIONS PRECEDENT TO THE OBLIGATIONS OF GAINES BERLAND. The
obligations of Gaines Berland to consummate the transactions contemplated by the
Merger Agreement are subject to the satisfaction of the following conditions:
(i) the representations and warranties of Frost Hanna and FHGB in the Merger
Agreement or in any certificate or notice delivered pursuant to the Merger
Agreement shall be true and correct in all material respects as of the Closing
Date with the same force and effect as though made on and as of such date; (ii)
the covenants of Frost Hanna and FHGB in the Merger Agreement to be performed or
complied with on or prior to the Closing Date shall have been duly performed or
complied with in all material respects; (iii) Frost Hanna shall have received
all consents necessary to effectuate the transactions contemplated by the Merger
Agreement; (iv) Gaines Berland shall have received from legal counsel to Frost
Hanna an opinion letter, as to certain legal matters, dated the Closing Date;
(v) Frost Hanna shall have delivered to Gaines Berland a certificate executed by
its President, dated the Closing Date, certifying that the conditions specified
in subsections (i), (ii) and (iii) above have been fulfilled and certifying as
to such other matters as Gaines Berland may reasonably request; (vi) all of
Frost Hanna's officers and directors shall have resigned; (vii) Frost Hanna
shall have turned over to Gaines Berland all of its books and records and (viii)
all employment agreements to which Frost Hanna is a party shall have been
terminated.
In addition, if, at the Effective Time of the Merger, the amount of Net
Cash Assets of Hanna Frost is less than $4,500,000, then Gaines Berland may
elect to (i) terminate the transaction or (ii) cause the conversion ratio for
the Merger Stock to be adjusted to the nearest lower whole number by multiplying
it by a fraction, the numerator of which is $4,500,000 and the denominator of
which is the Net Cash Assets.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FROST HANNA AND FHGB. The
obligations of Frost Hanna and FHGB to consummate the transactions contemplated
by the Merger Agreement are subject to the satisfaction of the following
conditions: (i) the representations and warranties of Gaines Berland contained
in the Merger Agreement or in any certificate or notice delivered pursuant to
the Merger Agreement shall be true and correct in all material respects as of
the Closing Date with the same force and effect as though made on and as of such
date: (ii) the covenants of Gaines Berland contained in the Merger Agreement to
be performed or complied with on or prior to the Closing Date shall have been
duly performed or complied with in all material respects; (iii) certain
materially adverse events relating to Gaines Berland have not occurred since
February 28, 1999 and no event or condition shall have occurred which has
adversely affected or may reasonably be expected to have a adversely effect on
Gaines Berland; (iv) Gaines Berland shall have obtained all consents necessary
to complete the transactions contemplated by the Merger Agreement; (v) Frost
Hanna shall have received from Gaines Berland's legal counsel an opinion letter,
as to certain legal matters, dated the Closing Date, in form and substance
reasonably satisfactory to Frost Hanna; (vi) Gaines Berland, G-Trade and
Holdings shall have delivered to Frost Hanna a certificate executed by their
president, dated the Closing Date, certifying in such detail as Frost Hanna may
reasonably request, that the conditions specified in subsections (i), (ii) and
(iii) above have been fulfilled, and certifying the number of outstanding shares
of Gaines Berland Common Stock immediately prior to the Effective Time of the
Merger; (vii) Frost Hanna shall have received a letter dated as of each of the
date not more than three (3) days prior to the Effective Date of the Merger, the
date of mailing of this proxy statement and of the disclosure documents to be
provided to the shareholders of Gaines Berland in connection with the meeting of
its shareholders, and the date of the shareholders' meetings of Frost Hanna and
Gaines Berland, from Goldstein Golub Kessler LLP, independent auditors for
Gaines Berland addressed to Frost Hanna and in form and substance customary for
transactions of the type contemplated by the Merger Agreement and reasonably
satisfactory to Frost Hanna; (viii) all shareholders' agreements and similar
arrangements with respect to Gaines Berland Common Stock shall have been
terminated; (ix) employment agreements between Gaines Berland and each of Joseph
Berland, Richard Rosenstock, Mark Zeitchick, Vincent Mangone (all current
officers of Gaines Berland) and David Thalheim (a consultant to Gaines Berland)
shall have been executed and delivered; (x) the shareholders of Gaines Berland
shall not have duly exercised (and not withdrawn) dissenters' rights with
respect to three percent more of the outstanding Gaines Berland Common Stock and
(xi) each shareholder of Gaines Berland shall have executed and delivered to
Frost Hanna an investment intent letter stating in part that each is an
Accredited Investor and that each is acquiring Frost Hanna Common Stock for his
own account and not with a view towards resale thereof.
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TERMINATION. The Merger Agreement may be terminated: (i) by mutual
consent of the parties, (ii) by Frost Hanna or Gaines Berland if the Closing has
not occurred on or prior to October 31, 1999; (iii) by Gaines Berland at any
time in its sole discretion if any of the representations or warranties of Frost
Hanna or FHGB in the Merger Agreement are not in all material respects true and
accurate or if Frost Hanna or FHGB breaches in any material respect any covenant
contained in the Merger Agreement; (iv) by Frost Hanna at any time in its sole
discretion if any of the representations or warranties of Gaines Berland in the
Merger Agreement are not in all material respects true and accurate or if Gaines
Berland breaches in any material respect any covenant contained in the Merger
Agreement; (v) by Frost Hanna if Gaines Berland fails to obtain the required
vote of its shareholders at a meeting of shareholders duly convened therefor or
at any adjournment thereof; or (vi) by Frost Hanna or Gaines Berland if Frost
Hanna fails to obtain the required vote of its shareholders at a meeting of
shareholders duly convened therefor or any adjournment thereof; provided,
however, that the right to terminate the Merger Agreement under subsections (v)
and (vi) will not be available to Frost Hanna, Gaines Berland, Holdings or
G-Trade where the failure to obtain shareholder approval of such party was
caused by the act or failure to act of such party and such act or failure to act
constitutes a material breach by such party of the Merger Agreement; provided,
further, that the right to terminate the Merger Agreement under subsection (vi)
not be available to Gaines Berland if any of its Principal Shareholders signing
a voting agreement requiring a vote in favor of the Merger fails to vote in
favor of the Merger and the transactions contemplated thereby at the meeting of
Gaines Berland's, Holdings' and G-Trade's shareholders.
EFFECT OF TERMINATION. If the Merger Agreement is terminated by either
Frost Hanna or Gaines Berland as provided above, the Merger Agreement shall
become void and there will be no further obligations on the part of any of
Frost Hanna or Gaines Berland, unless such termination arises from the
intentional or willful breach of the Merger Agreement. However, the failure by
the board of directors of either Frost Hanna or Gaines Berland to recommend that
its shareholders approve the transactions contemplated by the Merger Agreement
would not be deemed an intentional or willful breach if the board of directors
believes in good faith and upon advice of counsel that such a breach was
necessary for it to fulfill its fiduciary interests to its shareholders. In the
event of a termination of the Merger Agreement, the exclusive remedy of
Frost Hanna, Gaines Berland and G-Trade (except in the case of willful or
intentional breaches) shall be as set forth below. Despite the termination of
the Merger Agreement, the respective obligations of Frost Hanna, Gaines Berland
and G-Trade regarding confidentiality and various miscellaneous provisions (such
as governing law, assignments) would continue in effect.
TERMINATION FEE. If the Merger Agreement is terminated by Gaines
Berland because one or more of the representations made by Frost Hanna or FHGB
in the Merger Agreement is not accurate or because Frost Hanna or FHGB has
breached any covenant set forth in the Merger Agreement, then Frost Hanna must
pay Gaines Berland a fee equal to $250,000. If the Merger Agreement is
terminated by Frost Hanna because one or more of the representations made by
Gaines Berland in the Merger Agreement is not accurate or because Gaines Berland
has breached any covenant set forth in the Merger Agreement, then Gaines Berland
must pay Frost Hanna a fee equal to $250,000. If the Merger Agreement is
terminated by Gaines Berland because Frost Hanna fails to obtain the required
shareholder vote for the approval of the Merger due to the fact that Frost
Hanna's Board withdrew its recommendation for the Merger in order to satisfy its
fiduciary duty to its shareholders, Frost Hanna must pay Gaines Berland a fee
equal to $100,000.
AMENDMENT AND WAIVER. At any time prior to the Effective Time, Gaines
Berland or Frost Hanna may: (i) extend the time for the performance of any of
the obligations or other acts to be performed by any other party pursuant to the
Merger Agreement; (ii) agree to amend any term, condition or covenant to be
complied with or performed by the other party under the Merger Agreement; and
(iii) waive compliance with any of the agreements of any other party or
conditions precedent to their respective obligations contained in the Merger
Agreement.
Subject to applicable law, the Merger Agreement may be amended at any
time before or after its approval by the Frost Hanna Shareholders by the written
agreement of Gaines Berland and Frost Hanna. Under applicable law, neither
Gaines Berland nor Frost Hanna may amend the Merger Agreement subsequent to
obtaining approval of their respective shareholders if such amendments would:
(i) alter or change the consideration to be received in exchange for shares of
such
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<PAGE> 43
corporation; (ii) alter or change any term of the Articles of Incorporation of
Frost Hanna following the Merger; or (iii) alter or change any of the terms and
conditions of the Merger Agreement if such alteration or change would adversely
affect the Frost Hanna Shareholders.
ACCOUNTING TREATMENT
Frost Hanna and Gaines Berland believe that the Merger will be treated
as a capital transaction equivalent to the issuance of stock by Gaines Berland
for Frost Hanna's net monetary assets (Frost Hanna's net monetary assets were
approximately $5,106,000 as of March 31, 1999), accompanied by a
recapitalization of Gaines Berland.
EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses. The Merger Agreement also provides that Frost Hanna will issue 150,000
restricted shares of Frost Hanna Common Stock to Harter Financial.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As contemplated by the Merger Agreement, Frost Hanna has agreed to
cause Joseph Berland, Richard Rosenstock, Mark Zeitchick, Vincent Mangone,
Steven Rosen and Benjamin Pelton (Messrs. Berland and Rosenstock are presently
members of the Board of Directors of Gaines Berland) to be nominated for
election as directors of Frost Hanna, with such election to become effective at
the Effective Time. The designees of Gaines Berland would comprise all of the
members of the Board of Directors of Frost Hanna after the consummation of
Merger and, consequently, would control the business and affairs of Frost Hanna.
The Merger Agreement also provides that Frost Hanna will obtain certain
directors' and officers' liability insurance with respect to certain periods
prior to the consummation of the transactions contemplated by the Merger
Agreement which will, in significant part, inure to the benefit of the existing
directors and officers of Frost Hanna, which presently does not maintain such
insurance. At the time the Merger Agreement was signed, the Principal
Shareholders of Gaines Berland signed a voting agreement pursuant to which,
among other things, they agreed to vote their shares of Gaines Berland Common
Stock in favor of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Neither Frost Hanna nor Gaines Berland has requested or received an
opinion from tax counsel as to the federal income tax consequences of the Merger
on Frost Hanna or Gaines Berland or their respective shareholders. However,
Frost Hanna and Gaines Berland believe that the Merger will be treated as a
tax-free plan of reorganization for federal income tax purposes under Section
368 of the Code. As a consequence: (i) Frost Hanna will not recognize any gain
or loss in the Merger and (ii) other than with respect to the Redemption, the
Frost Hanna Shareholders will not recognize any gain or loss in the Merger.
Generally, subject to Section 302 of the Code regarding distributions
in redemption of stock and Section 318 of the Code regarding constructive
ownership of stock, the Redemption shall be treated as a distribution in
exchange for the shares redeemed, and gain or loss will be recognized by the
Redeeming Shareholders to the extent there exists a difference between the
Redemption Value (calculated as $4.34 per share as of March 31, 1999) and the
basis in the redeemed shares.
THE TAX DISCUSSION SET FORTH ABOVE IS BASED UPON PRESENT LAW. EACH
FROST HANNA SHAREHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND
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<PAGE> 44
EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL LAW OR OTHER TAX LAWS.
FEDERAL SECURITIES LAW AND OTHER RESTRICTIONS
The Frost Hanna Common Stock to be issued in the Merger is not being
registered under the Securities Act. Accordingly, the Frost Hanna Common Stock
to be received by the Gaines Berland shareholders upon consummation of the
Merger will be deemed "restricted securities" under Rule 144. Such shares cannot
be offered or sold unless such shares are registered under the Securities Act or
an exemption from the registration requirements thereunder is available. Such
shares are not subject to any contractual restrictions on transfer and can be
registered under the Securities Act if the new Board of Directors of Frost Hanna
so determines after consummation of the Merger. However, each shareholder of
Gaines Berland receiving shares of Frost Hanna Common Stock in the Merger will
enter into a Lock-Up Agreement pursuant to which each such shareholder will
agree with Gaines Berland to not sell, transfer or otherwise dispose of any of
the shares of Frost Hanna Common Stock received in the Merger for two (2) years
from the Effective Date. In addition, each of such shareholders, other than the
Principal Shareholders, will enter into a pledge agreement with Gaines Berland
to pledge all shares of Frost Hanna Common Stock received in the Merger as
collateral to Gaines Berland against any direct or indirect liabilities, costs
and/or expenses incurred by Gaines Berland as a result of the actions of such
shareholder.
DIRECTORS AND OFFICERS FOLLOWING THE MERGER
The six members of the Board of Directors of Frost Hanna designated by
Gaines Berland have been nominated for election as directors of Frost Hanna. If
such nominees are elected at the Special Meeting, at the Effective Time, the
current officers of Frost Hanna will resign and such nominees will constitute
the entire Board of Directors of Frost Hanna as of the Effective Time. In
addition, it is expected that the principal executive officers of Gaines Berland
will become the principal executive officers of Frost Hanna.
FILINGS REQUIRED TO BE MADE PRIOR TO THE MERGER
Frost Hanna will be required to make certain blue sky filings with
various states, Gaines Berland will be required to make certain regulatory
filings with the NASD and certain states, and a filing for the listing of Frost
Hanna's Common Stock to be issued in the Merger is required to be made.
NO FAIRNESS OPINION
In evaluating the merits of the proposed transaction with Gaines
Berland, the Board of Directors of Frost Hanna did not obtain a fairness opinion
or any other valuation or analysis from an investment banker or other financial
advisor to the effect that the Merger would be fair from a financial point of
view to the Frost Hanna Shareholders. Accordingly, no third party has
independently analyzed the merits or basis of the terms of the Merger and there
can be no assurance that the terms of the Merger would be deemed by a third
party to be fair to Frost Hanna Shareholders.
RECOMMENDATION OF THE FROST HANNA BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF FROST HANNA HAS DETERMINED THAT THE MERGER IS
IN THE BEST INTERESTS OF FROST HANNA AND THE FROST HANNA SHAREHOLDERS. THE BOARD
OF DIRECTORS OF FROST HANNA UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE
FROST HANNA SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE OTHER PROPOSALS PRESENTED AT THE SPECIAL MEETING.
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<PAGE> 45
PROPOSAL 2
AMENDMENT OF ARTICLES OF INCORPORATION TO CHANGE THE NAME OF FROST HANNA
The Board of Directors is seeking the approval of an amendment to Frost
Hanna's Articles of Incorporation (the "Name Change Amendment") to change the
name of Frost Hanna, effective upon consummation of the Merger, to "G-Trade
Capital Holdings Corp." (the "Name Change"). Even if Frost Hanna's Shareholders
approve the Name Change Amendment, the effectiveness of the Name Change
Amendment is contingent upon the approval of the Merger (Proposal 1).
The Board of Directors approved the Name Change Amendment on _______,
1999, subject to the approval of the Frost Hanna Shareholders.
The Board of Directors believes that, upon consummation of the Merger,
the Name Change would be appropriate to reflect Frost Hanna's post-Merger
holding company structure.
Assuming that the Name Change is approved, the nominees for director of
Frost Hanna have indicated that they plan to implement a change of name in the
manner that will be most cost efficient. Accordingly, the change in corporate
name will not affect the validity or transferability of stock certificates
presently outstanding, and Frost Hanna Shareholders will not be required to
exchange stock certificates to reflect the new name. Shareholders should keep
the certificates they hold now, which would continue to be valid, and should not
send them to us or our transfer agent. Stock certificates issued in the future
would bear Frost Hanna's new name.
APPROVAL OF THE NAME CHANGE AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF SHARES OF COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE SPECIAL
MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION CHANGING THE NAME OF
FROST HANNA, EFFECTIVE UPON THE CONSUMMATION OF THE MERGER, TO G-TRADE CAPITAL
HOLDINGS CORP.
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PROPOSAL 3
AMENDMENT OF FROST HANNA'S ARTICLES OF INCORPORATION
TO AUTHORIZE BLANK CHECK PREFERRED STOCK
The Board of Directors is seeking the approval of the Frost Hanna
Shareholders of an amendment to Frost Hanna's Articles of Incorporation (the
"Preferred Stock Amendment"), to provided for an authorized class of preferred
stock, consisting of 2,000,000 shares, par value $.0001 per share ("Preferred
Stock"). Even if the Frost Hanna Shareholders approve the Preferred Stock
Amendment, the effectiveness of the Preferred Stock Amendment is contingent upon
the approval of the Merger (Proposal 1).
As amended, Article III of Frost Hanna's Articles of Incorporation
would read as follows:
ARTICLE III - CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue is one hundred and two million (102,000,000) shares,
of which one hundred million (100,000,000) shares shall be "Common
Stock", par value $.0001 per share, and of which two million
(2,000,000) shares shall be "Preferred Stock", par value $.0001 per
share. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of the Corporation's Articles of
Incorporation, as amended, to provide for the issuance of shares of
Preferred Stock in one or more series by adoption of amendments to the
Articles of Incorporation, to establish from time to time the number of
shares to be included in such series and to fix the designation, voting
powers, preferences and relative participating, optional or other
special rights of the shares of the shares of each of such series, and
the qualifications, limitations or restrictions thereof. The Board of
Directors may authorize the issuance of stock to such persons upon such
terms and for such consideration in cash, property or services as the
Board of Directors may determine and as may be allowed by law. The just
valuation of such property or services shall be fixed by the Board of
Directors. All such stock when issued shall be fully paid and exempt
from assessment."
The Board of Directors approved the Preferred Stock Amendment on May
27, 1999, subject to the approval of the Frost Hanna Shareholders.
The proposed amendment would vest in the Board of Directors the
authority to designate one or more series of Preferred Stock, including a total
of up to 2,000,000 outstanding shares of Preferred Stock, and to determine the
designations, preferences and limitations of each such series, including, but
not limited to, (i) the number of shares, (ii) dividend rights, (iii) voting
rights, (iv) conversion privileges, (v) redemption provisions, (vi) sinking fund
provisions and (vii) rights upon liquidation, dissolution or winding up of Frost
Hanna. Such provisions are often referred as a "blank check" provisions, as they
give the Board of Directors the flexibility, at any time or from time to time,
without further shareholder approval, to create one or more series of preferred
stock. If the proposed amendment is approved by the shareholders, it will become
effective upon filing and recording a certificate of amendment to Frost Hanna's
Articles of Incorporation.
The Board of Directors believes that the Preferred Stock Amendment
would provide Frost Hanna with the flexibility to address future financing needs
by authorizing the Board of Directors, without shareholder approval, to create
series of Preferred Stock customized to meet the needs of any particular
transaction and prevailing market conditions. The Preferred Stock Amendment
would also allow Frost Hanna to issue Preferred Stock for other corporate
purposes such as to raise capital, implement joint ventures or to make
acquisitions. In addition, while the Preferred
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Stock Amendment is not designed to deter or prevent a change in control of Frost
Hanna, under certain circumstances, the Board of Directors could use the
Preferred Stock to create voting impediments or otherwise frustrate persons
seeking to effect a takeover or otherwise gain control of Frost Hanna, and
thereby protect the continuity of Frost Hanna's management. Frost Hanna could
also privately place shares of the Preferred Stock with purchasers who might
favor the Board of Directors in opposing a hostile takeover bid, although Frost
Hanna has no present intention to do so. Therefore, the Preferred Stock may
discourage a proposed acquisition of Frost Hanna at a premium over the market
price of the Common Stock and may adversely affect the market price of, and
other rights of the holders of, the Common Stock. Frost Hanna is not aware of
any attempt to effect a change in control or takeover of Frost Hanna. In
addition, the issuance of additional Preferred Stock at below market rates would
dilute the value of the Common Stock. Also, the issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. No
Preferred Stock currently is outstanding and Frost Hanna has no present plans to
issue any shares of Preferred Stock.
If any series of Preferred Stock authorized by the Board provides for
dividends, such dividends, when and as declared by the Board of Directors out of
any funds legally available therefore, may be cumulative and may have a
preference over the Common Stock as to the payment of such dividends. In
addition, if any series of Preferred Stock authorized by the Board so provides,
in the event of any dissolution, liquidation or winding up of Frost Hanna,
whether voluntary or involuntary, the holders of each such series of the then
outstanding Preferred Stock may be entitled to receive, prior to the
distribution of any assets or funds to the holders of Common Stock, a
liquidation preference established by the Board of Directors, together with all
accumulated and unpaid dividends. Depending upon the consideration paid for
Preferred Stock, the liquidation preference of Preferred Stock and other
matters, the issuance of Preferred Stock could therefore result in a reduction
in the assets available for distribution to the holders of Common Stock in the
event of liquidation of Frost Hanna. The Frost Hanna Shareholders do not have
any preemptive rights to acquire Preferred Stock or any other securities of
Frost Hanna.
APPROVAL OF THE PREFERRED STOCK AMENDMENT REQUIRES THE AFFIRMATIVE VOTE
OF A MAJORITY OF THE SHARES OF COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE
SPECIAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" ADOPTION OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION AUTHORIZING
2,000,000 SHARES OF BLANK CHECK PREFERRED STOCK.
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PROPOSAL 4
ELECTION OF DIRECTORS OF FROST HANNA
The Board of Directors of Frost Hanna currently consists of six
members: Richard B. Frost, Mark J. Hanna, Donald H. Baxter, Marshal E.
Rosenberg, Ph.D., Robert J. Escobio, Jr., and Alan Freeman. The term of office
expires at the next annual meeting of shareholders of Frost Hanna. Pursuant to
the Merger Agreement, these directors would resign as of the Effective Time. The
six nominees listed below have been nominated by the Board of Directors of Frost
Hanna pursuant to the recommendation of Gaines Berland as candidates for
election as directors of the Board to serve commencing as of the Effective Time
of the Merger and until the next annual meeting of shareholder and until their
respective successors have been elected and qualified. Even if the Frost Hanna
Shareholders elect the listed nominees as directors, if the Merger (Proposal 1)
is not consummated, that election would not become effective and the current
directors of Frost Hanna would remain as directors. Nominees have been mutually
agreed upon by Frost Hanna and Gaines Berland. The term of office of these
directors will expire at the next annual meeting of stockholders of Frost Hanna.
The following table sets forth the names, ages (as of the date of the
Special Meeting) and positions of the current directors and officers of Frost
Hanna.
<TABLE>
<CAPTION>
Name Age Position with Frost Hanna
- ---- --- -------------------------
<S> <C> <C>
Richard B. Frost 50 Chairman of the Board, Chief Executive Officer
Mark J. Hanna 51 President
Donald H. Baxter 55 Vice-President
Marshal E. Rosenberg, Ph.D. 62 Vice-President
Alan Freeman 58 Treasurer
Robert J. Escobio, Jr. 44 --
</TABLE>
Richard B. Frost has been the Chief Executive Officer and Chairman of
The Board of Directors of Frost Hanna since its inception. Mr. Frost was the
Chief Executive Officer and Chairman of the Board of Directors of Frost Hanna
Mergers Group, Inc., a company formed to seek to acquire an operating business
("Frost Hanna Mergers"), from October 1993 until Frost Hanna Mergers consummated
a business combination with Pan American World Airways, Inc. (the business
combination is hereafter referred to as the "Pan Am Business Combination" and
the resulting company as "Pan Am") in September 1996. Mr. Frost remained a
member of the Pan Am Board of Directors until April 21, 1997. On February 26,
1998, Pan Am filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court. Mr. Frost was the Chief Executive Officer and Chairman of the
Board of Directors of Frost Hanna Acquisition, Inc., a company formed to seek to
acquire an operating business ("Frost Hanna Acquisition"), from April 1993 until
Frost Hanna Acquisition consummated a business combination with Kids Mart, Inc.
in January 1996 (the business combination is hereafter referred to as the "Kids
Mart Business Combination" and the resulting company as "Kids Mart"), at which
time Mr. Frost resigned from such positions. On January 10, 1997, Kids Mart
filed for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court. From June 1992 to May 1994, Mr. Frost held similar positions at Frost
Hanna Halpryn Capital Group, Inc., a company formed to seek to acquire an
operating business ("Frost Hanna Halpryn"), until such company's business
combination with Sterling Healthcare Group, Inc. and certain of its affiliates
(the "Sterling Business Combination").
Mark J. Hanna has been the President and a member of the Board of
Directors of Frost Hanna since its inception. Mr. Hanna was the President and a
member of the Board of Directors of Frost Hanna Mergers from October 1993 until
the Pan Am Business Combination in September 1996, Mr. Hanna remained a member
of the Pan Am Board of Directors until April 21, 1997. On February 26, 1998, Pan
Am filed for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court. Mr. Hanna was the President and a member of the Board of Directors of
Frost Hanna
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Acquisition from April 1993 until January 1996, whereupon Mr. Hanna resigned
from such positions following the Kids Mart Business Combination. On January 10,
1997, Kids Mart filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court. Mr. Hanna held similar positions at Frost Hanna Halpryn from
June 1992 until the Sterling Business Combination in May 1994.
Donald H. Baxter has been Vice President, Secretary and a member of the
Board of Directors of Frost Hanna since its inception. Mr. Baxter was the Vice
President, Secretary and a member of the Board of Directors of Frost Hanna
Mergers from October 1993 until the Pan Am Business Combination in September
1996. Mr. Baxter was the Vice President, Secretary and a member of the Board of
Directors of Frost Hanna Acquisition from April 1993 until the Kids Mart
Business Combination in January 1996. During the past five years, Mr. Baxter has
been the President of Baxter Financial Corporation, an investment advisory firm,
and President and Chairman of the Board of Directors of the Philadelphia Fund
and Eagle Growth, mutual funds which are registered under the Investment Company
Act of 1940. Mr. Baxter serves on the Board of Directors of Sunol Molecular
Corporation which is located in Miami, Florida.
Marshal E. Rosenberg, Ph.D., has been a member of the Board of
Directors of Frost Hanna since its inception. Dr. Rosenberg was the Vice
President, Treasurer and a member of the Board of Directors of Frost Hanna
Mergers from October 1993 until the Pan Am Business Combination in September
1996. Dr. Rosenberg was the Vice President, Treasurer and a member of the Board
of Directors of Frost Hanna Acquisition from April 1993 until the Kids Mart
Business Combination in January 1996. Dr. Rosenberg was a director of Frost
Hanna Halpryn from June 1992 until shortly following the Sterling Business
Combination when he resigned in December 1994. During the past five years, Dr.
Rosenberg has been the President, Chairman of the Board of Directors and sole
shareholder of The Marshal E. Rosenberg Organization, Inc., Miami, Florida, a
firm engaged in the sale of life, health and disability insurance. Dr. Rosenberg
is an investor in numerous private enterprises, engaged in, among other things,
real estate development and retail sales. He served as a member of the Board of
Directors and member of the Executive Committee of the former Intercontinental
Bank, Miami, Florida. In addition, Dr. Rosenberg is a member of the faculty at
the University of Miami School of Business.
Robert J. Escobio, Jr. has been a member of the Board of Directors
since June, 1998. Mr. Escobio was appointed to the Board of Directors pursuant
to the Underwriter's Agreement with Cardinal in connection with Frost Hanna's
IPO. Mr. Escobio has been a financial consultant with Cardinal since September
1996 and presently serves as its Senior Vice President and Managing Director.
Mr. Escobio is currently a member of the Board of Directors of Cardinal. From
September 1991 until he joined Cardinal, Mr. Escobio was a financial consultant
and a First Vice President-International with Smith Barney in Miami, Florida.
Alan Freeman has been a member of the Board of Directors since July
1998. Mr. Freeman has been a partner in the accounting firm of Freeman, Buzyner
& Gero in Miami, Florida since 1991 and is currently its Managing Partner. Mr.
Freeman was formerly a partner with Deloitte & Touche L.L.P. Mr. Freeman also
serves as a member of the Board of Directors and the Chairman of the Audit
Committee for Hemisphere National Bank and served as a member of the board of
directors and Chairman of the Audit Committee for Allstate Financial Corporation
from approximately November 1996 until May 1998.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors receive no
compensation for serving on the board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. Officers are appointed by
the Board of Directors and serve at the discretion of the Board.
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<PAGE> 50
The following table sets forth the names and ages (as of the date of
the Special Meeting) of the nominees for directors of Frost Hanna and the
position held by such nominees with Gaines Berland.
<TABLE>
<CAPTION>
Name Age Current Position with Gaines Berland
- ---- --- ------------------------------------
<S> <C> <C>
Joseph Berland 59 Chairman of the Board, Chief Executive Officer; Director
Richard J. Rosenstock 47 President, Director
Mark Zeitchick 34 Executive Vice President
Vincent Mangone 34 Executive Vice President
Steven A. Rosen 53 __
Benjamin D. Pelton 48 __
</TABLE>
Unless authority is withheld, the proxies solicited by the Board of
Directors of Frost Hanna will be voted for the election of these nominees. An
abstention with respect to the election of Frost Hanna's directors will not be
counted either in favor of, or in opposition to, the election of the nominees.
In the case of other proposals submitted for shareholder approval, an abstention
will effectively count as a vote cast against such proposals. In case any of the
nominees become unavailable for election to the Board of Directors of Frost
Hanna, an event which is not anticipated, the persons named as proxies, or their
substitutes, shall have full discretion and authority to vote for any other
candidate designed by Frost Hanna, Gaines Berland or by their mutual agreement,
as the case may be. The six nominees for director of Frost Hanna, their current
positions with Gaines Berland (which are subject to change upon consummation of
the Merger), and their business background are set forth below.
JOSEPH BERLAND, 59 years old, is the co-founder of Gaines Berland. He
has served as Chairman of the Board and Chief Executive Officer of Gaines
Berland since October 1983.
RICHARD ROSENSTOCK, 47 years old, joined Gaines Berland in 1986. He has
served as a Director of Gaines Berland since January 1994. He has served as
Executive Vice President of Gaines Berland from January 1994 and in May 1998
became President of Gaines Berland. He has served as Managing Director from
September 1996 until August 1997 and since August 1997 has served as Senior
Managing Partner of Gaines Berland.
MARK ZEITCHICK, 34 years old, joined Gaines Berland as a registered
representative in October 1993. From September 1995 until August 1997, Mr.
Zeitchick has served as Executive Vice President of Gaines Berland. Since
November 1993, Mr. Zeitchick has served as Executive Managing Partner of Gaines
Berland.
VINCENT MANGONE, 34 years old, joined Gaines Berland as a registered
representative in October 1993. From September 1995 until August 1997, Mr.
Mangone has served as Executive Vice President of Gaines Berland. Since November
1993, Mr. Zeitchick has served as Executive Managing Partner of Gaines Berland.
BENJAMIN D. PELTON, 48 years old, will become a member of the Board of
Directors of Frost Hanna following the Merger. Mr. Pelton is an attorney and has
been a Partner with the Law Firm of Pelton, Ballard, Young, Demsky, Baskin &
O'Malie, P.C. in Arlington, Virginia since 1978.
STEVEN A. ROSEN, 53 years old, will become a member of the Board of
Directors of Frost Hanna following the Merger. For more than the prior five (5)
years, Mr. Rosen has been the owner and senior officer of Unique Dental Care
("UDC"), a corporation which operates a multi-professional dental practice in
which he practices dentistry.
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THE AFFIRMATIVE VOTE OF THE HOLDERS OF A PLURALITY OF THE SHARES OF FROST HANNA
COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE FROST HANNA SPECIAL MEETING IS
REQUIRED TO ELECT EACH DIRECTOR. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR ALL THE NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1998, the Board of Directors held one meeting which was attended
by all directors.
The Board of Directors does not presently have an Executive Committee,
an Audit Committee, a Compensation Committee or a Nominating Committee. However,
all members of the Board of Directors participate in the management of the
business and affairs Frost Hanna. In addition, all members of the Board of
Directors participate in the selection of independent certified public
accountants, the evaluation of the fee arrangement and scope of the audit, the
review of the financial statements and report of the independent certified
public accountant and the review of Frost Hanna's internal accounting procedures
and controls.
DIRECTOR COMPENSATION
Directors receive no compensation for serving on the Board of Directors
other than reimbursement of reasonable expenses incurred in attending meetings.
KEY-MAN INSURANCE
Frost Hanna has obtained $1,000,000 "key man" policies insuring each of
the lives of Messrs. Frost and Hanna. There can be no assurances that such "key
man" insurance will be maintained at reasonable rates, if at all. The loss,
incapacity or unavailability of any of Messrs. Frost or Hanna at the present
time or in the foreseeable future, before a qualified replacement was obtained,
could have a material adverse effect on Frost Hanna's operations. In connection
with the purchase of such policies, The Marshal E. Rosenberg Organization, of
which Dr. Rosenberg is an officer and director and the sole shareholder,
received commissions of approximately $5,624 in 1998, $4,464 in 1997 and $2,700
in 1996. No further commissions are contemplated to be earned in connection with
the purchase of such "key man" life insurance policies.
Pursuant to the terms of the Merger Agreement, these "key man" life
insurance policies will be terminated or transferred to Messrs. Frost and Hanna
prior to the consummation of the Merger, and Frost Hanna would have no
obligations to make premium payments thereunder after the Effective Time of the
Merger.
CONFLICTS OF INTEREST
None of Frost Hanna's key personnel are required to commit their full
time to the affairs of Frost Hanna and, accordingly, such personnel may have
conflicts of interest in allocating management time among various business
activities. Messrs. Frost and Hanna, the Chief Executive Officer and President
of Frost Hanna, respectively, devote approximately 50% of their working time to
the affairs of Frost Hanna, while Messrs. Baxter and Rosenberg, the Vice
President, Secretary and Vice President, Treasurer, respectively, devote
approximately 10% of their working time to the affairs of Frost Hanna. Certain
of these key personnel may in the future become affiliated with entities,
including other "blank check" companies, engaged in business activities similar
to those intended to be, or which may be, conducted by Frost Hanna. Among other
things, Dr. Rosenberg is an investor in numerous private enterprises, engaged
in, among other things, real estate development and retail sales, which business
interests may conflict with those of an Acquired Business.
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In the course of their other business activities, including private
investment activities, Messrs. Frost, Hanna, Baxter, Dr. Rosenberg, Freeman and
Escobio may become aware of investment and business opportunities which may be
appropriate for presentation to Frost Hanna as well as the other entities with
which they are affiliated. Such persons may have conflicts of interest in
determining to which entity a particular business opportunity should be
presented. In general, officers and directors of corporations incorporated under
the laws of the State of Florida are required to present certain business
opportunities to such corporations. Accordingly, as a result of multiple
business affiliations, Messrs. Frost, Hanna, Baxter, and Dr. Rosenberg may have
similar legal obligations relating to presenting certain business opportunities
to the various entities upon which they serve as directors. In addition,
conflicts of interest may arise in connection with evaluations of a particular
business opportunity by the Board of Directors with respect to the foregoing
criteria. There can be no assurances that any of the foregoing conflicts will be
resolved in favor of Frost Hanna. In order to minimize potential conflicts of
interest which may arise from multiple corporate affiliations, each of Messrs.
Frost, Hanna, Baxter, and Dr. Rosenberg have agreed to present to Frost Hanna
for its consideration, prior to presentation to any other entity, any Acquired
Business candidate which is appropriate for Frost Hanna to consider and which
Acquired Business candidate participates in an industry dissimilar to any of the
industries to which such individuals have corporate affiliations. Frost Hanna
has agreed not to consider Business Combinations with entities owned or
controlled by officers, directors, greater than 10% shareholders of Frost Hanna
or any person who directly or indirectly controls, is controlled by or is under
common control with Frost Hanna. Frost Hanna may consider Business Combinations
with entities owned or controlled by persons other than those persons described
above. There can be no assurances that any of the foregoing conflicts will be
resolved in favor of Frost Hanna.
Pursuant to an agreement among each of Messrs. Frost, Hanna, Baxter and
Dr. Rosenberg and Frost Hanna, such persons will not (i) actively negotiate for
or otherwise consent to the disposition of any portion of their Frost Hanna
Common Stock at a per share price different than that offered with respect to
the shares held by other shareholders of Frost Hanna as a condition to, or in
connection with a Business Combination or (ii) cause any securities of Frost
Hanna to be sold by any officers, directors, greater than 10% shareholders or
persons who may be deemed promoters of Frost Hanna except as may otherwise be
made in certain permitted market transactions without affording all shareholders
of Frost Hanna a similar opportunity. Frost Hanna may not borrow funds to be
used directly or indirectly to (i) purchase any shares of Frost Hanna's Common
Stock owned by management of Frost Hanna; or (ii) make payments to Frost Hanna's
promoters, management or their affiliates or associates.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To Frost Hanna's knowledge, for the fiscal year ended December 31,
1998, no person who was a director, officer or beneficial owner of more than ten
percent of Frost Hanna's outstanding Common Stock or any other person subject to
Section 16 of the Exchange Act failed to file on a timely basis, reports
required by Section 16(a) of the Exchange Act except, that Mr. Escobio
inadvertently failed to file a Form 3 within ten (10) days after his appointment
to the Board of Directors.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following summary compensation table
sets forth information concerning compensation for services in all capacities
awarded to, earned by or paid to Richard B. Frost, the Chief Executive Officer
and Chairman of the Board of Directors, and Mark J. Hanna, President of Frost
Hanna. No other person employed by Frost Hanna earned in excess of $100,000
during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Other Annual
Name and Compensation
Principal Position Year (1) Salary ($) (1) (2)
- ---------------------- --------------- -------------- -------------------
<S> <C> <C> <C>
Richard B. Frost 1998 120,000 12,000
Chairman of the 1997 70,000 7,000
Board and Chief 1996 80,000 8,000
Executive Officer
Mark J. Hanna 1998 120,000 12,000
President 1997 70,000 7,000
1996 80,000 8,000
</TABLE>
(1) Frost Hanna was incorporated in February 1996. Pursuant to their
Employment Agreements, Messrs, Frost and Hanna were paid monthly
salaries and their monthly non-accountable expense allowances from
Frost Hanna's inception through October, 1996. Messrs. Frost and Hanna
agreed to waive the payment of all salary and expense allowance from
November, 1996 through April, 1997.
(2) Represents $1,000 per month paid to each of Messrs. Frost and Hanna as
a non-accountable expense allowance.
EMPLOYMENT AGREEMENTS. Frost Hanna has entered into three-year
employment agreements, effective as of September 30, 1996, with Richard B.
Frost, Chief Executive Officer, and Mark J. Hanna, President. The employment
agreements provide for annual base salaries of $120,000, and $1,000 monthly
non-accountable expense allowances. In the event Frost Hanna requires in excess
of 20% of the Net Proceeds for operations, Messrs. Frost and Hanna have
undertaken to waive their salaries until the consummation of a Business
Combination. The Escrow Fund (including any interest earned thereon) may not be
used to pay salaries or benefits to Mr. Frost or Mr. Hanna under those
employment agreements. The term of the employment agreements will be
automatically extended for an additional one-year period unless either party
notifies the other of its intention not to extend the term of the employment
agreement at least 30 days before the date of renewal. The Merger Agreement
provides that the employment agreements will be terminated prior to the
consummation of the Merger. The employment agreements also provide for
termination upon the consummation of a Business Combination. Under the
employment agreements, if Messrs. Frost or Hanna terminate their employment
agreement prematurely due to a failure by Frost Hanna to comply with its
obligations under the employment agreement, then Messrs. Frost and Hanna will
continue to be paid their based salary of $120,000 for one full year or for the
full unexpired term of the employment agreement, whichever is shorter.
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CERTAIN REIMBURSEMENT OF EXPENSES. All officers and directors of Frost
Hanna receive accountable reimbursement for any reasonable business expenses
incurred in connection with activities on behalf of Frost Hanna. The Escrow Fund
(including any interest earned thereon) may not be used to reimburse Frost
Hanna's officers and directors for expenses incurred by such persons on behalf
of Frost Hanna. No funds (including any interest earned thereon) may be
disbursed from the Escrow Fund for reimbursement of expenses. Other than the
foregoing, there is no limit on the amount of such reimbursable expenses, and
there will be no review of the reasonableness of such expenses by anyone other
than the Board of Directors, all of the members of which are officers.
ABSENCE OF OTHER PAYMENTS. None of Frost Hanna's executive officers or
directors or their respective affiliates may receive any consulting or finder's
fees in connection with a Business Combination. Further, other than pursuant to
the employment agreements with Messrs. Frost and Hanna, none of such persons
will receive any other payments or assets, tangible or intangible, unless
received by all other shareholders on a proportionate basis.
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<PAGE> 55
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of June 30, 1999, and as adjusted to
give effect to the Merger, certain information regarding the beneficial
ownership of Frost Hanna Common Stock by (i) each director and executive officer
of Frost Hanna; (ii) all officers and directors of Frost Hanna as a group and
(iii) each person known by Frost Hanna to be the owner of more than five percent
of the outstanding Frost Hanna Common Stock. The address for the directors and
executive officers of Frost Hanna is the address of Frost Hanna, 327 Plaza Real,
Suite 319, Boca Raton, FL 33432.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
Name and Address of of Beneficial Common Stock Percentage of Common Stock
Beneficial Owner (1) Ownership (2) Owned (3) Owned after Merger (4)
- -------------------- ------------- --------- ----------------------
<S> <C> <C> <C>
Richard B. Frost 362,000 13.6% 1.9%
Mark J. Hanna 362,000 13.6% 1.9%
Marshal E. Rosenberg, Ph.D.(5) 300,000 11.3% 1.6%
Donald H. Baxter 100,000 3.8% *
Robert J. Escobio, Jr. 2,000 * *
Alan Freeman (6) 22,000 * *
All Officers and Directors as a 1,148,000 43.2% 6.1%
Group (6 persons)
Charles M. Fernandez
c/o Continucare Corp.
100 S.E. 2nd Street, 36th Floor *
Miami, Florida 33131 150,000 5.6%
Phillip Frost, M.D. (7) 177,666 6.6%
c/o IVAX Corporation
4400 Biscayne Boulevard 0
Miami, Florida 33137
</TABLE>
* Represents less than 1%.
(1) The shares of Frost Hanna Common Stock owned by all of the executive
officers and directors of Frost Hanna have been placed in escrow with
American Stock Transfer & Trust Company, as escrow agent, until the
occurrence of a Business Combination. During such escrow period, such
executive officers and directors will not be able to sell, or otherwise
transfer, their respective shares of Frost Hanna Common Stock, but will
retain all other rights as shareholders of Frost Hanna, including,
without limitation, the right to vote such shares of Frost Hanna Common
Stock.
(2) Unless otherwise noted, all persons named in the table have sole voting
and investment power with respect to all shares of Frost Hanna Common
Stock beneficially owned by them.
(3) Assumes no exercise of the Underwriter Warrants to purchase 110,020
shares of Frost Hanna Common Stock.
(4) Assumes (i) 16,000,000 shares of Frost Hanna Common Stock are issued to
the Gaines Berland shareholders; and (ii) 150,000 shares of Frost Hanna
Common Stock are issued to Harter Financial in the Merger.
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<PAGE> 56
(5) Does not include 35,000 shares of Frost Hanna Common Stock owned by
Donald Rosenberg, Dr. Rosenberg's brother, of which Dr. Rosenberg
disclaims any beneficial ownership.
(6) Includes 5,000 shares of Frost Hanna Common Stock owned by Jomaric,
Inc., a Florida corporation of which Mr. Freeman is the president and
sole shareholder and 10,000 shares of Frost Hanna Common Stock owned by
NAFA Equities, Inc., a Florida corporation of which Mr. Freeman's wife
is the president and sole shareholder. Mr. Freeman disclaims beneficial
ownership of all such shares.
(7) These shares of Frost Hanna Common Stock are owned by one or more of
Dr. Frost, Frost-Nevada Corporation or Frost-Nevada, Limited
Partnership. The shares of Frost Hanna Common Stock and record
ownership of the shares may be transferred from time to time among any
of Dr. Frost or those entities. Dr. Frost is the sole limited partner
of Frost-Nevada, Limited Partnership and the sole shareholder, an
officer and a director of Frost-Nevada Corporation, the general partner
of Frost-Nevada, Limited Partnership.
Messrs. Frost, Hanna, Baxter, Freeman, Escobio and Dr. Rosenberg may be
deemed to be "promoters" of Frost Hanna, as such terms are defined under the
federal securities laws.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last two years prior to the date hereof, there were no
transactions between Frost Hanna and any of its officers and/or directors which
individually involved $60,000 or more, other than the employment agreements
described above.
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PROPOSAL 5
APPROVAL OF THE 1999 PERFORMANCE EQUITY PLAN
INTRODUCTION
The Board of Directors of Frost Hanna is seeking the approval of the
Frost Hanna Shareholders of the 1999 Performance Equity Plan (the "Equity
Plan"). Even if the Frost Hanna Shareholders approve the Equity Plan, the
effectiveness of the Equity Plan is contingent upon the approval by the Frost
Hanna Shareholders of the Merger (Proposal 1).
The Equity Plan is intended to comply with the regulations issued under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), to
ensure that any compensation paid under the Equity Plan would be deductible by
Frost.
The purpose of Equity Plan is to enable Frost Hanna to offer to those
key employees, officers, directors and consultants who have made or who have the
potential for making important contributions to Frost Hanna and its subsidiaries
an opportunity to acquire an ownership interest in Frost Hanna.
Under the Equity Plan, Participants (as defined below) can be granted a
variety of long term incentives, including incentive stock options and
non-qualified stock options, stock reload options, stock appreciation rights,
grants of restricted stock and deferred stock and other stock-based awards. The
recipients and the terms of award made under the Equity Plan are determined by
the Compensation Committee (as defined below), but an award recipient may not be
granted more than 300,000 shares of the Frost Hanna Common Stock in any one
year. Each award granted under the Equity Pan shall be subject to the terms of
an agreement setting forth the terms of the award to be executed by Frost Hanna
and the Participant receiving the award (an "Award Agreement").
The Board of Directors of Frost Hanna approved the Equity Plan on May
27, 1999. The Equity Plan will become effective upon the approval of the Frost
Hanna Shareholders. The Equity Plan will remain in effect until no other awards
may be granted and all awards granted are no longer outstanding (except that
grants of incentive stock options, discussed below, may only be made during the
ten-year period following the effective date). As of the date of this Proxy
Statement no awards have been issued under the Equity Plan; however, the
Employment Agreements which are proposed to be entered into between Frost Hanna,
Gaines Berland and each of the Principal Shareholders immediately following the
Merger, provide that upon the Effective Date, each of such persons will be
granted stock options to purchase 100,000 shares of Frost Hanna Common Stock
under the Equity Plan. The exercise price of the stock options under the Equity
Plan will be the fair market value of the stock at the time the stock options
are granted.
The following summary describes the principal features of the Equity
Plan. This summary is qualified in its entirety by reference to specific
provisions of the Equity Plan, a copy of which is attached as Exhibit C to this
Proxy Statement.
GENERAL
ADMINISTRATION OF PLAN. The Equity Plan will be administered by a
committee to be designated by the Board of Directors to administer the Equity
Plan ("Compensation Committee"). Each member of the Compensation Committee will
be a "non-employee director" as defined in Rule 16b-3 promulgated under the
Exchange Act and an "outside director" as defined in regulations issued under
Section 162(m) of the Code.
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<PAGE> 58
ELIGIBILITY FOR AWARDS. Awards under the Equity Plan may be made to key
employees, officers, directors and consultants who are deemed to have rendered
or be able to render significant services to Frost Hanna or its subsidiaries and
who are deemed to have contributed or to have the potential for contributing to
the success of Frost Hanna (each such individuals, a "Participant").
FROST HANNA COMMON STOCK AVAILABLE FOR ISSUANCE. A total of 3,000,000
shares of Frost Hanna Common Stock have been reserved and are available for
grant under the Equity Plan. Shares of Frost Hanna Common Stock that are awarded
under the Equity Plan may be either treasury shares or authorized but unissued
shares. Shares of Frost Hanna Common Stock reserved for issuance pursuant to
stock options that cease to be subject to such options, and any shares of stock
subject to other awards that are forfeited or otherwise terminated will be made
available for future award grants under the plan.
Under the Equity Plan, in the event of a change in the shares of Frost
Hanna Common Stock as a result of a stock split, reverse stock split, stock
dividend payable on shares of Frost Hanna Common Stock, combination or exchange
of shares, or other extraordinary event occurring after the grant of an award,
the Compensation Committee may determine whether such change equitably requires
adjusting the terms of the award or the aggregate number of shares reserved for
issuance under the Equity Plan.
TYPES OF AWARDS
STOCK OPTIONS. Under the Equity Plan, the Compensation Committee may
award to Participants stock options that (i) are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code
("Incentive Stock Options") or (ii) options that are not intended to be so
qualified ("Non-Qualified Options"). Incentive Stock Options may only be awarded
to employees of Frost Hanna and its subsidiaries. To the extent that any stock
option intended to qualify as an Incentive Stock Option does not so qualify, it
shall constitute a separate Non-Qualified Option.
The Compensation Committee will fix the term of each stock option,
except that an Incentive Stock Option may be granted only within the ten-year
period commencing from the effective date of the Equity Plan and may only be
exercised within ten years from the date of grant, or five years from the date
of grant in the case of a Participant who at the time the stock option is
granted owns more than 10% of the total combined voting power of all classes of
voting stock of Frost Hanna (a "10% Shareholder").
The exercise price of stock options granted under the Equity Plan will
be determined by the Compensation Committee at the time of the grant, but in no
event will such price be less than the fair market value of the underlying Frost
Hanna Common Stock on the last trading day preceding the date the stock option
is granted. However, the exercise price of an Incentive Stock Option granted to
a 10% Shareholder will not be less than 110% of the fair market value of the
shares on the last trading day preceding the date the stock option is granted.
The number of shares covered by Incentive Stock Options which may be exercised
by Participants in any year cannot have an aggregate fair market value in excess
of $100,000, measured at the date of grant.
The Compensation Committee will determine when stock options will
become exercisable and the terms and conditions thereof. Any requirement that
options be exercised in installments may be waived in whole or in part by the
Compensation Committee.
Payment of the exercise price may be made in cash, or in shares of
Frost Hanna Common Stock owned by the Participant, partly in cash and partly in
such shares, or otherwise, as reflected in the applicable Award Agreement. A
Participant has no rights as a stockholder with respect to the shares of Frost
Hanna Common Stock underlying stock option granted under the Equity Plan until
such shares are issued upon exercise of the stock option.
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Stock options may not be assigned or transferred by a Participant
except by will or by the laws of descent and distribution, and during the
lifetime of a Participant, such stock options may only be exercisable by such
person.
If the employment of a Participant who is an employee of Frost Hanna or
a subsidiary of Frost Hanna is terminated by reason of such Participant's death
or disability, any stock option held by such Participant will become fully
vested and may be exercised by such disabled Participant, or by the legal
representative or legatee of such deceased Participant, as the case may be, for
a period of one year (or such greater or lesser period as may be specified by
the Compensation Committee in the grant) from the date of the death or
disability, or until the expiration of the exercise period for the stock option,
which ever is shorter.
Unless otherwise provided in the grant of a stock option, if a
Participant's employment with Frost Hanna or any of its subsidiaries is
terminated for any reason other than due to death or disability, such
Participant's stock option will automatically terminate. However, if such
Participant's employment is terminated without cause or due to retirement on or
after the age of 65, then the portion of such stock option which has vested as
the date of termination may be exercised for three months after termination or
for the balance of the stock option's exercise period, which ever is shorter.
STOCK RELOAD OPTION. The Compensation Committee may grant to a
Participant (concurrently with the grant of an Incentive Stock Option, and at or
after the time of grant in the case of a Non-Qualified Option) an option
covering a number of shares up to the amount of shares of Frost Hanna Common
Stock held by the Participant for at least six months and used to pay all or
part of the exercise price of an option, and any shares withheld by Frost Hanna
as payment for withholding taxes. Any such stock reload option will have an
exercise price equal to the fair market value of the Frost Hanna Common Stock as
of the date of grant of the stock reload option. Unless otherwise provided in
the grant therefor, a stock reload option may be exercised commencing one year
after it is granted and shall expire on the date of expiration of the stock
option to which the reload option is related.
STOCK APPRECIATION RIGHTS. Under the Equity Plan, the Compensation
Committee may grant stock appreciation rights to Participants who have received
stock options. A stock appreciation right is the right to receive from Frost
Hanna upon surrender of all or part of the related stock option, without a cash
payment to Frost Hanna, a number of shares of Frost Hanna Common Stock equal to
the excess of the fair market value of the number of shares for which the stock
appreciates right is exercised over the exercise price of the related share of
stock option. In the case of an Incentive Stock Option, a stock appreciation
right may only be granted simultaneously with the grant of the underlying
Incentive Stock Option. In the case of Non-Qualified Options, a stock
appreciation right may be granted at or after the time of the grant of the
underlying Non-Qualified Option. A stock appreciation right will terminate upon
termination or exercise of the related stock option. Upon exercise of a stock
appreciation right, the underlying stock option will be deemed to have been
exercised, and the related shares of Frost Hanna Common Stock will no longer be
available for issuance under the Equity Plan.
RESTRICTED STOCK. The Compensation Committee may award shares of Frost
Hanna Common Stock which are subject to such restrictions as the Compensation
Committee may determine in addition to, or in lieu of, other awards granted to
Participants under the Equity Plan. The Compensation Committee will determine at
the time of the award, the period during which such award may be subject to
forfeiture and the vesting schedule of such shares. A Participant will have the
right to restricted stock granted to such Participant and to receive dividend
payments in the form of cash or cash equivalents. However, during such time as
the restricted stock is subject to forfeiture and until the restricted stock is
fully vested, Frost Hanna will retain custody of the stock certificate
representing the restricted shares and will retain custody of all distributions
(other than payment of dividends in cash or in cash equivalents) made or
declared with respect to such restricted stock. If the Participant breaches the
terms or conditions set forth in the Equity Plan or in the Award Agreement
pertaining to such award, or if the restricted stock otherwise does not vest in
the Participant, then the Participant will forfeit the award of restricted stock
and any distributions which were retained by Frost Hanna related to such
restricted stock.
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DEFERRED STOCK. The Compensation Committee may award shares of Frost
Hanna Common Stock to be received at the end of a specified deferral period and
upon satisfaction of any other applicable restrictions, terms and conditions
provided for in the grant of such award. Any such deferred stock that does not
vest shall be forfeited to Frost Hanna. A Participant will not have any rights
as a Frost Hanna Shareholder by virtue of the award of such deferred stock until
the expiration of the applicable deferral period and the issuance by Frost Hanna
of a stock certificate evidencing the award of such deferred stock. A
Participant may request that the Compensation Committee defer issuance of an
award of deferred shares for an additional specified period, subject to certain
conditions.
OTHER STOCK-BASED AWARDS. The Compensation Committee may award other
stock-based awards in addition to, or in lieu of, other awards granted to
Participants under the Equity Plan. These other stock-based awards are payable
in, valued in, or otherwise based on, or related to, shares of Frost Hanna
Common Stock. These other stock-based awards may be in the form of the right to
purchase shares of Frost Hanna Common Stock which are not subject to any
restrictions or conditions, convertible or exchangeable debentures or other
rights convertible into shares of Frost Hanna Common Stock, as well as awards
valued by reference to the value of securities of, or the performance of, a
specified Frost Hanna subsidiary.
OTHER PROVISIONS
ACCELERATED VESTING AND EXERCISABILITY OF AWARDS. If any "person" (as
is defined in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as referred in Rule 13d-3 under the Exchange Act), directly
or indirectly, of Frost Hanna securities representing 25% or more of the
combined voting power of Frost Hanna's then outstanding voting securities in one
or more transactions, and the Board of Directors of Frost Hanna does not
authorize or approve such acquisition, then the vesting periods with respect to
options and awards granted and outstanding under the Equity Plan will be
accelerated and will immediately vest, and the respective Participants of such
options and awards will have the immediate right to purchase and/or receive all
shares of Frost Hanna Frost Hanna Common Stock subject to such options and
awards in accordance with the terms set forth in the Equity Plan and in the
corresponding Award Agreements.
WITHHOLDING TAXES. Frost Hanna may withhold, or require Participants to
remit to Frost Hanna, an amount sufficient to satisfy any federal, state or
local withholding tax requirements associated with awards under the Equity Plan.
If permitted by the Compensation Committee, tax withholding may be settled with
shares Frost Hanna Frost Hanna Common Stock, including shares that are part of
the award that gives rise to the withholding requirement.
AMENDMENT AND TERMINATION. The Board of Directors of Frost Hanna has
the right to amend, suspend or discontinue any provision of the Equity Plan,
provided that no such action may adversely affect awards previously granted
between a Participant and Frost Hanna without such Participant's consent.
HOLDING PERIOD AND FORFEITURES. For a period of six months after the
date of any award under the Equity Plan, a Participant may not dispose of any
(i) derivative security (as defined in Rule 16a-1 under the Exchange Act) issued
to such Participant under the Equity Plan; or (ii) Frost Hanna Common Stock
purchased or granted pursuant to an award under the Equity Plan. If a
Participant's employment with Frost Hanna or a subsidiary of Frost Hanna is
terminated for any reason and within eighteen months such person accepts
employment with any competitor of, or otherwise engages in competition with,
Frost Hanna, the Compensation Committee may require that such person return to
Frost Hanna the economic value of any award which was obtained by such person
during the period beginning six months prior to the date such person's
employment with Frost Hanna was terminated. If a Participant is terminated for
cause, the Compensation Committee may require that such person return to Frost
Hanna the economic value of any award which was obtained by such person during
the six month period. The shares of Frost Hanna Frost Hanna Common Stock
available for award under the Equity Plan have not been registered under the
Securities Act, and Frost Hanna is not required to so register such stock.
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CERTAIN FEDERAL TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the Equity Plan. The discussion is based on current provisions
of the Code, the Treasury regulations promulgated thereunder, and administrative
and judicial interpretations thereof as in effect on the date of this Proxy
Statement. The summary does not purport to be complete, and does not discuss the
tax consequences of a Participant's death or any foreign, state or local tax
consequences of participation in the Equity Plan.
In general, the grant of an option will not be a taxable event to the
recipient and it will not result in a deduction to Frost Hanna. The tax
consequences associated with the exercise of an option and the subsequent
disposition of shares of Frost Hanna Common Stock acquired on the exercise of
such option depend on whether the option is an Incentive Stock Option or a
Non-Qualified Option.
FEDERAL INCOME TAX TREATMENT OF INCENTIVE STOCK OPTIONS. A Participant
will not recognize taxable income on the grant or the exercise of Incentive
Stock Options (although the exercise of an Incentive Stock Option can increase
such person's alternative minimum tax liability because the difference between
the fair market value of the shares of Frost Hanna Common Stock acquired on
exercise of such option and the exercise price will be included in such person's
alternative minimum taxable income). A Participant will recognize taxable income
if and when such Participant disposes of the shares of Frost Hanna Common Stock
acquired under an Incentive Stock Option. If the disposition occurs more than
two years after the grant of the Incentive Stock Option and more than one year
after the shares of Frost Hanna Common Stock are transferred to such person on
exercise of the Incentive Stock Options ( the "Incentive Stock Options Holding
Period"), such person will recognize capital gain (or loss) equal to the excess
(or deficiency) of the amount realized from disposition of the shares of Frost
Hanna Common Stock less such person's tax basis in the shares of Frost Hanna
Common Stock. A Participant's tax basis in the shares of Frost Hanna Common
Stock generally is the amount such person paid on exercise of the Incentive
Stock Options. The capital gain (or loss) will be long-term or short-term
depending on the length of time the Participant held the shares of Frost Hanna
Common Stock.
If shares of Frost Hanna Common Stock acquired under an Incentive Stock
Option are disposed of before the expiration of the Incentive Stock Options
Holding Period (a "Disqualifying Disposition"), a Participant generally will
recognize as ordinary income, in the year of the Disqualifying Disposition, an
amount equal to the excess of the fair market value of the shares of Frost Hanna
Common Stock on the date of exercise over the exercise price paid by the
Participant. Any additional gain will be treated as long-term or short-term
capital gain depending on the length of time the Participant held the shares of
Frost Hanna Common Stock.
A special rule applies to a Disqualifying Disposition of shares of
Frost Hanna Common Stock where the amount realized on the disposition is less
than the fair market value of the shares of Frost Hanna Common Stock on the date
of exercise of the Incentive Stock Option. In that event, the Participant
generally will recognize as ordinary income the difference between the amount
realized on the disposition of the shares of Frost Hanna Common Stock and the
exercise price paid by the Participant.
The foregoing discussion assumes that the Participant exercises the
Incentive Stock Option while the Participant is an employee of Frost Hanna or
within three months of termination of employment. The three-month period is
extended (i) to one year if the Participant terminates employment as a result of
a total or permanent disability and (ii) indefinitely if the termination is
caused by the Participant's death. If the Participant exercises an Incentive
Stock Option outside of these time limits, the Participant's tax consequences
will be the same as described for Non-Qualified Options.
FEDERAL INCOME TAX TREATMENT OF NON-QUALIFIED OPTIONS. A Participant
will not recognize taxable income on the grant of a Non-Qualified Option. On the
exercise of a Non-Qualified Option, a Participant will recognize
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as ordinary income an amount equal to the excess of the fair market value of the
shares of Frost Hanna Common Stock acquired over the exercise price paid by the
Participant. A Participant's tax basis in the shares of Frost Hanna Common Stock
acquired upon the exercise of a Non-Qualified Option is the amount paid for the
shares of Frost Hanna Common Stock plus any amount included in income with
respect to the exercise. Any gain or loss that a Participant recognizes on a
subsequent disposition of shares of Frost Hanna Common Stock acquired upon the
exercise of a Non-Qualified Option generally will be long-term or short-term
capital gain or loss depending on the length of time the Participant held the
shares of Frost Hanna Common Stock. The amount of the gain (or loss) will equal
the excess (or deficiency) of the amount realized on the subsequent disposition
less the Participant's tax basis in the share of Frost Hanna Common Stock.
In the case of a Participant who is an employee of Frost Hanna, the
ordinary income such a Participant is required to recognize on the exercise of a
Non-Qualified Option will constitute wages for withholding and employment tax
purposes. Accordingly, depending on the terms of a particular award, Frost Hanna
will be required to either withhold from wages, or obtain payment from the
Participant of, the amount of required withholding and employment taxes. In
addition, Frost Hanna will be allowed a tax deduction in the amount of income
recognized by such Participant, provided such amount constitutes an ordinary and
necessary business expense to Frost Hanna and such expense is reasonable.
The foregoing discussion assumes that the Participant pays the exercise
price in cash. Special rules apply to a Participant who exercises an Incentive
Stock Option or a Non-Qualified Option by paying the exercise price, in whole or
in part, by the transfer of shares of Frost Hanna Common Stock the Participant
already owns.
FEDERAL INCOME TAX TREATMENT OF STOCK APPRECIATION RIGHTS. No income
will be recognized by a Participant in connection with the grant of a share
appreciation right. When the share appreciation right is exercised, the
Participant generally will be required to include as a taxable ordinary income
in the year of exercise an amount equal to the sum of the amount of cash
received and the fair market value of any shares of Frost Hanna Common Stock
received on the exercise. In the case of a recipient who is also an employee of
Frost Hanna, any income recognized on exercise of a share appreciation right
will constitute wages for withholding and employment tax purposes. Frost Hanna
or, if the Participant is an employee of a subsidiary of Frost Hanna, such
subsidiary will be entitled to a tax deduction in the amount of income
recognized by such Participant, provided such amount constitutes an ordinary and
necessary business expense to Frost Hanna and such expense is reasonable. If the
recipient receives shares of Frost Hanna Common Stock upon the exercise of a
share appreciation right, any gain or loss on the subsequent sale of such shares
will be treated in the same manner as discussed above with respect to
Non-Qualified Options.
FEDERAL INCOME TAX TREATMENT OF OTHER AWARDS. Awards granted under the
Equity Plan that are settled in cash or in shares of Frost Hanna Common Stock
that are either transferable or not subject to a substantial risk of forfeiture
are taxable as ordinary income in an amount equal to the cash or fair market
value of the shares received. Awards granted under the Equity Plan that are
settled in shares of Frost Hanna Common Stock that are subject to restrictions
as to transferability or subject to a substantial risk of forfeiture are taxable
as ordinary income in an amount equal to the fair market value of the shares
received at the first time such shares become transferable or not subject to a
substantial risk of forfeiture, whichever occurs earlier, unless the Participant
makes an election under Section 83(b) of the Code. If a Section 83(b) election
is made, the Participant must include in income the value of the shares as of
the date the shares are transferred to such Participant.
SPECIAL RULES. Special rules may apply to a Participant who is subject
to Section 16(b) of the Securities Exchange Act (generally directors, officers
and 10% Shareholders). Certain additional special rules apply if the exercise
price for an option is paid in shares previously owned by the Participant rather
than in cash.
LIMIT ON DEDUCTIBILITY. Section 162(m) of the Code generally limits the
deductible amount of annual compensation paid (including, unless an exception
applies, compensation otherwise deductible in connection with
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<PAGE> 63
awards granted under the Equity Plan) by a public company to a "covered
employee" to no more than $1 million. Frost Hanna currently intends to structure
stock options and other awards granted under the Equity Plan to comply with an
exception to nondeductibility under Section 162(m) of the Code.
In the event the Frost Hanna Shareholders do not approve the Equity
Plan, it will not become effective.
TO BE ADOPTED, THIS PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE SHARES OF FROST HANNA COMMON STOCK PRESENT IN PERSON OR BY PROXY
AT THE SPECIAL MEETING. THE BOARD OF DIRECTORS OF FROST HANNA BELIEVES THAT THE
APPROVAL OF THE 1999 PERFORMANCE EQUITY PLAN IS IN THE BEST INTEREST OF FROST
HANNA AND THE FROST HANNA SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL.
BENEFITS UNDER EQUITY PLAN. Frost Hanna is unable currently to determine the
dollar value of the 100,000 stock options to be granted under each of the
Employment Agreements because the exercise price thereof is not currently known.
Frost Hanna is also unable to determine the dollar value or the number of any
other stock options or other awards that will be received as a result of the
Equity Plan by Frost Hanna's executive officers or other officers, employees or
directors who are not executive officers, because awards are to be made by the
Compensation Committee on a discretionary basis.
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<PAGE> 64
PROPOSAL 6
APPROVAL OF THE ANNUAL INCENTIVE BONUS PLAN
INTRODUCTION
The Board of Directors of Frost Hanna is seeking the approval of the
Frost Hanna Shareholders of Frost Hanna's Annual Incentive Bonus Plan (the
"Bonus Plan"). Even if the Frost Hanna Shareholders approve the Bonus Plan, the
effectiveness of the Bonus Plan is contingent upon the approval by the Frost
Hanna Shareholders of the Merger (Proposal 1).
The Bonus Plan is a performance-based compensation plan for the
executive officers of Frost Hanna. Under the Bonus Plan, participants generally
will be paid performance-based bonus compensation only if certain performance
targets are met.
The purpose of the Bonus Plan is to promote the success of Frost Hanna
by providing to participating executives bonus incentives that qualify as
performance-based compensation within the meaning of Section 162(m) of the Code.
As a consequence of the qualification of the amounts paid under the Bonus Plan
as performance-based compensation under Section 162(m) of the Code, the
provisions of the Code which would otherwise limit deductibility by Frost Hanna
of certain executive compensation in excess of $1,000,000 should not be
applicable to any amounts paid under the Bonus Plan as described below under
"Federal Tax Issues".
The Board of Directors of Frost Hanna approved the Bonus Plan on May
27, 1999. The Bonus Plan will become effective upon the approval of the Frost
Hanna Shareholders. As of the date of this Proxy Statement, no payments have
been made under the Bonus Plan.
The following summary describes the principal features of the Bonus
Plan. This summary is qualified in its entirety by reference to the specific
provisions of the Bonus Plan, a copy of which is attached as Exhibit D to this
Proxy Statement.
GENERAL
ELIGIBLE EXECUTIVES. For each fiscal year or years of Frost Hanna
(each, a "Performance Period"), with respect to which a Performance Target (as
defined below) will be set by the Compensation Committee, the Bonus Plan will
cover key employees (including any officers) of Frost Hanna who are (or in the
opinion of the Compensation Committee may become during the applicable
Performance Period) "executive officers" (as defined in Rule 3b-7 under the
Exchange Act) and who are selected by the Compensation Committee to participate
(each, a "Participant") in the Bonus Plan. For each Performance Period, the
Compensation Committee shall determine those executives who will participate in
the Bonus Plan at the time the Business Criteria (as defined below) and
Performance Targets are set. The Principal Shareholders are currently expected
to be eligible to participate in the Bonus Plan.
ESTABLISHMENT AND AMOUNT OF BONUSES. Each Participant may receive a
cash payment or payment opportunity ("Bonus") if and only if the Performance
Target established by the Compensation Committee relative to the applicable
Business Criteria is attained. The specific Performance Target with respect to
the Business Criteria for any Participant for a Performance Period must be
established by the Compensation Committee (i) in advance of the deadlines
applicable under Section 162(m) of the Code and (ii) while the performance
relating to the Performance Target remains substantially uncertain within the
meaning of Section 162(m) of the Code. The Compensation Committee shall provide,
in terms of an objective formula or standard for each Participant, the method of
computing the specific amount that will represent the maximum amount of Bonus
payable to such Participant.
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<PAGE> 65
As used in the Bonus Plan, the term (i) "Performance Target" means the
specific objective goal or goals that are set in writing by the Compensation
Committee for a Participant for the Performance Period in respect of any one or
more of the Business Criteria and (ii) "Business Criteria" means any one or any
combination of financial measures of Frost Hanna's performance, including Annual
Return to Shareholders, Total Revenue, Net Income, Net Income before Taxes, Net
Income before Nonrecurring Items, Return on Equity, Return on Equity before
Taxes, Return on Assets, EPS, EBITDA or EBITDA before Nonrecurring Items (each
as defined in the Bonus Plan).
While the degree of the achievement of a Performance Target will
determine the maximum Bonus potentially payable to each Participant (subject to
the maximum limit of $2 million for any Participant during any fiscal year), the
Compensation Committee will have the discretion to determine whether all or any
portion of a Participant's Bonus will be paid and the specific amount, if any,
of a Bonus to be paid to each Participant. In addition, the Compensation
Committee may at any time establish additional terms and conditions with respect
to the payment of Bonuses (including, but not limited to, the achievement of
other financial, strategic or individual goals, which may be objective or
subjective) as it may deem desirable in carrying out the purposes of the Bonus
Plan. The Compensation Committee will not have the discretion to increase the
maximum amount of Bonus to be paid to any Participant or award a Bonus if the
applicable Performance Target has not been met.
In the event of a Change of Control (as defined in the Bonus Plan) of
Frost Hanna prior to the end of a Performance Period, the Performance Target for
such Performance Period shall be deemed to have been attained and the applicable
Bonus shall be paid as if the full Performance Period had been completed.
ADMINISTRATION OF ANNUAL INCENTIVE BONUS PLAN. The Bonus Plan will be
administered by the Compensation Committee, which will consist of at least two
members of the Board of Directors who are "outside directors" within the meaning
of Section 162(m) of the Code. The Compensation Committee will have the
authority to construe and interpret the Bonus Plan, to establish and administer
Performance Targets and the responsibility of determining participation in the
Bonus Plan and the amount of the Bonuses payable under the Bonus Plan. Any
decision made or action taken by the Compensation Committee arising out of or in
connection with the creation, amendment, construction, administration,
interpretation and effect of the Bonus Plan will be in the absolute discretion
of the Compensation Committee and will be conclusive and binding upon all
persons. The Compensation Committee will also have the authority to accelerate a
Bonus (after the attainment of the applicable Performance Targets) and to waive
restrictive conditions for a Bonus (including any forfeiture conditions, but not
Performance Targets) in such circumstances as it deems appropriate.
AMENDMENT, SUSPENSION OR TERMINATION OF ANNUAL INCENTIVE BONUS PLAN.
The Board of Directors or the Compensation Committee generally may, from time to
time, amend, suspend or terminate, in whole or in part, the Bonus Plan; provided
that no amendment, suspension or termination of the Bonus Plan will in any
manner affect any Bonus previously granted pursuant to the Bonus Plan without
the consent of the Participant to whom the Bonus was granted. Notwithstanding
the foregoing, no amendment to the Bonus Plan may be effective without the
approval of the Board of Directors or the Frost Hanna Shareholders if such
approval is necessary to comply with the applicable provisions of Section 162(m)
of the Code.
FEDERAL TAX ISSUES. Section 162(m) of the Code limits the deductibility
of compensation in excess of $1,000,000 to certain employees of publicly-held
companies (the "Million Dollar Cap"). One exception to the Million Dollar Cap is
available for "performance-based compensation" (as such term is defined under
Section 162(m) of the Code). In order for the payment of a Bonus to a
Participant to be within this exception to the Million Dollar Cap, a number of
requirements must be satisfied, including the establishment of performance goals
by a committee of two or more "outside" members of the Board of Directors,
disclosure to the Frost Hanna Shareholders of the material terms of the
performance-based compensation arrangement under which the Bonus is to be paid,
and approval by the Frost Hanna Shareholders of the arrangement. Additional
rules apply to the ongoing administration of such an arrangement in order for
compensation payments to qualify as performance-based.
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<PAGE> 66
The Bonus Plan is intended to pay compensation only upon the attainment
of the Performance Targets established by the Compensation Committee. If the
Bonus Plan is put into effect in accordance with its terms and with the approval
of the Frost Hanna Shareholders, and the Bonus Plan is and continues to be
administered in accordance with the provisions set forth in the Bonus Plan, the
payments of the Bonuses under the Bonus Plan should be "performance-based
compensation" that is exempt from the Million Dollar Cap.
NEW PLAN BENEFITS
Because the Performance Targets, Business Criteria and related Bonuses
for Performance Periods have not yet been established by the Compensation
Committee, amounts payable under the Bonus Plan are not determinable.
IN THE EVENT THE FROST HANNA SHAREHOLDERS DO NOT APPROVE THE ANNUAL
INCENTIVE BONUS PLAN, IT WILL NOT BECOME EFFECTIVE.
TO BE ADOPTED, THIS PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE SHARES OF FROST HANNA COMMON STOCK PRESENT IN PERSON OR BY PROXY
AT THE SPECIAL MEETING. THE BOARD OF DIRECTORS OF FROST HANNA BELIEVES THAT THE
APPROVAL OF THE ANNUAL INCENTIVE BONUS PLAN IS IN THE BEST INTEREST OF FROST
HANNA AND THE FROST HANNA SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL.
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<PAGE> 67
PROPOSAL 7
APPROVAL OF THE SPECIAL PERFORMANCE INCENTIVE PLAN
INTRODUCTION
The Board of Directors of Frost Hanna is seeking the approval of the
Frost Hanna Shareholders of Frost Hanna's Special Performance Incentive Plan
(the "Incentive Plan"). Even if the Frost Hanna Shareholders approve the
Incentive Plan, the effectiveness of the Incentive Plan is contingent upon the
approval by the Frost Hanna Shareholders of the Merger (Proposal 1).
The Incentive Plan is a performance-based compensation plan for the
executive officers of Frost Hanna. Under the Incentive Plan, participants will
be paid compensation based on a fixed percentage of commissions generated by
individuals and/or business units over a defined period provided that certain
performance standards are realized.
The purpose of the Incentive Plan is (i) to enhance Frost Hanna's
ability to retain executives, (ii) to link the compensation opportunity of Frost
Hanna's executives with special performance measures, and (iii) to qualify the
Special Performance Incentive Plan as a performance-based compensation program
within the meaning of Section 162(m) of the Code. As a consequence of the
qualification of the amounts paid under the Incentive Plan as performance-based
compensation under Section 162(m) of the Code, the provisions of the Code which
would otherwise limit deductibility by Frost Hanna of certain executive
compensation in excess of $1,000,000 should not be applicable to any amounts
paid under the Incentive Plan as described under "Federal Tax Issues".
The Board of Directors of Frost Hanna approved the Incentive Plan on
May 27, 1999. The Incentive Plan will become effective upon the approval of the
Frost Hanna Shareholders. As of the date of this Proxy Statement, no payments
have been issued under the Incentive Plan.
The following summary describes the principal features of the Incentive
Plan. This summary is qualified in its entirety by reference to the specific
provisions of the Incentive Plan, a copy of which is attached as Exhibit E to
the Proxy Statement.
GENERAL
ELIGIBLE EXECUTIVES. For each fiscal year or years of Frost Hanna
(each, a "Plan Period"), with respect to which the Special Performance Incentive
(as defined below) is set by the Compensation Committee of Frost Hanna's Board
of Directors, the Incentive Plan will cover key employees (including any
officers) of Frost Hanna who are (or in the opinion of the Compensation
Committee may become during the applicable Plan Period) "executive officers" (as
defined in Rule 3b-7 under the Exchange Act) and who are selected by the
Compensation Committee to participate (each, a "Participant") in the Incentive
Plan. For each Plan Period, the Compensation Committee shall determine those
executives who will participate in the Incentive Plan at the time the Special
Performance Incentive is set. The Principal Shareholders are currently expected
to be eligible to participate in the Incentive Plan.
ESTABLISHMENT AND AMOUNT OF SPECIAL PERFORMANCE INCENTIVE. Each
Participant will receive a Special Performance Incentive relative to certain
Commissions (as defined below) generated in the Plan Period. The specific
Special Performance Incentive for any Participant for a Plan Period must be
established by the Compensation Committee (i) in advance of the deadlines
applicable under Section 162(m) of the Code and (ii) while the Commissions used
as a basis for the Special Performance Incentive remain substantially uncertain
within the meaning of Section 162(m) of the Code. The Compensation Committee
shall provide, in terms of an objective formula or standards for each
Participant, the method of computing the specific amount that will represent the
maximum amount of Special
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<PAGE> 68
Performance Incentive payable to such Participant (subject to a maximum limit of
$5.0 million for any Participant during any fiscal year).
As used in the Incentive Plan, the term (i) "Commission" means all
compensation and/or fees based on sales dollars, commission revenue, trading
income, and/or other criteria as defined by the Compensation Committee but
excludes compensation from base salary and (ii) "Special Performance Incentive"
means a fixed percentage, as determined by the Compensation Committee, of
Commissions generated by certain individuals and/or business units over the Plan
Period.
In the event of a Change of Control (as defined in the Incentive Plan)
of Frost Hanna prior to the end of a Plan Period, the Special Performance
Incentive for such Plan Period shall be deemed to have been attained and the
Special Performance Incentive shall be paid as if the full Plan Period had been
completed.
ADMINISTRATION OF INCENTIVE PLAN. The Incentive Plan will be
administered by the Compensation Committee, which will consist of at least two
members of the Board of Directors who are "outside directors" within the meaning
of Section 162(m) of the Code. The Compensation Committee will have the
authority to construe and interpret the Incentive Plan, the responsibility of
determining participation in the Incentive Plan, and the amount of the Special
Performance Incentive under the Incentive Plan. Any decision made or action
taken by the Compensation Committee arising out of or in connection with the
creation, amendment, construction, administration, interpretation and effect of
the Incentive Plan will be in the absolute discretion of the Compensation
Committee and will be conclusive and binding upon all persons.
AMENDMENT, SUSPENSION OR TERMINATION OF INCENTIVE PLAN. The Board of
Directors or the Compensation Committee generally may, from time to time, amend,
suspend or terminate, in whole or in part, the Incentive Plan; provided that no
amendment, suspension or termination of the Incentive Plan will in any manner
affect any amounts based on the Special Performance Incentive previously paid
pursuant to the Incentive Plan without the consent of the Participant to whom
the Special Performance Incentive was paid. Notwithstanding the foregoing, no
amendment to the Incentive Plan may be effective without the approval of the
Board of Directors or the Frost Hanna Shareholders if such approval is necessary
to comply with the applicable provisions of Section 162(m) of the Code.
FEDERAL TAX ISSUES. Section 162(m) of the Code limits the deductibility
of compensation in excess of $1,000,000 to certain employees of publicly-held
companies (the "Million Dollar Cap"). One exception to the Million Dollar Cap is
available for "performance-based compensation" (as such term is defined under
Section 162(m) of the Code). In order for the payment of a Special Performance
Incentive to a Participant to be within this exception to the Million Dollar
Cap, a number of requirements must be satisfied, including the establishment of
performance goals by a committee of two or more "outside" members of the Board
of Directors, disclosure to the Frost Hanna Shareholders of the material terms
of the performance-based compensation arrangement under which the Special
Performance Incentive is to be paid, and approval by the Frost Hanna
Shareholders of the arrangement. Additional rules apply to the ongoing
administration of such an arrangement in order for compensation payments to
qualify as performance-based.
The Incentive Plan is intended to pay compensation only upon the
attainment of the Special Performance Incentive established by the Compensation
Committee. If the Incentive Plan is put into effect in accordance with its terms
with the approval of the Frost Hanna Shareholders, and the Incentive Plan is and
continues to be administered in accordance with the provisions set forth in the
Incentive Plan, the payments of the Special Performance Incentive under the
Incentive Plan should be "performance-based compensation" that is exempt from
the Million Dollar Cap.
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<PAGE> 69
NEW PLAN BENEFITS
Because the Special Performance Incentive and the related amounts
payable for Plan Periods have not yet been established by the Compensation
Committee, amounts payable under the Incentive Plan are not determinable.
IN THE EVENT THE FROST HANNA SHAREHOLDERS DO NOT APPROVE THE SPECIAL
PERFORMANCE INCENTIVE PLAN, IT WILL NOT BECOME EFFECTIVE.
TO BE ADOPTED, THIS PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE SHARES OF FROST HANNA COMMON STOCK PRESENT IN PERSON OR BY PROXY
AT THE SPECIAL MEETING. THE BOARD OF DIRECTORS OF FROST HANNA BELIEVES THAT THE
APPROVAL OF THE SPECIAL PERFORMANCE INCENTIVE PLAN IS IN THE BEST INTEREST OF
FROST HANNA AND THE FROST HANNA SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL.
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THE COMPANIES
BUSINESS OF FROST HANNA
Frost Hanna was formed in February 1996 to seek to effect a merger,
exchange of capital stock, asset acquisition or other similar Business
Combination with an Acquired Business which Frost Hanna believes has growth
potential. In connection with its initial capitalization, Frost Hanna issued
1,557,000 shares of its Common Stock, par value $.001 per share, to its
officers, directors, and other shareholders at an average price per share of
$.14 for an aggregate sum of $216,613. On September 22, 1997, Frost Hanna's
Registration Statement on Form SB-2 was declared effective by the Commission.
Pursuant to the Registration Statement, Frost Hanna, in its initial public
offering of securities, offered and sold 1,100,202 shares of Common Stock, at a
purchase price of $6.00 per share (the "IPO") and received net proceeds of
5,587,053, after the payment of all expenses of the IPO (the "Net
Proceeds"). In addition, Frost Hanna issued Underwriter Warrants to purchase
110,020 shares of Common Stock.
Following the consummation of the IPO, eighty percent (80%) of the Net
Proceeds, or $4,560,069, was delivered to Fiduciary Trust International of the
South, as Escrow Agent, to be held in escrow by such firm, pending the
consummation of a Business Combination and will be released to Frost Hanna upon
consummation of the Merger. The balance of the Net Proceeds is currently held by
Frost Hanna, less operating expenses to date.
Frost Hanna's executive offices are located at 327 Plaza Real, Suite
319, Boca Raton, Florida 33432; its telephone number is (561) 367-1085.
EMPLOYEES
As of the date hereof, Frost Hanna's employees consist of (i) its
officers, of whom Messrs. Frost and Hanna each devote approximately 50% of their
working time to the affairs of Frost Hanna and Messrs. Baxter and Rosenberg each
devote approximately 10% of their working time to the affairs of Frost Hanna,
and (ii) an officer manager.
LEGAL PROCEEDINGS
Frost Hanna is not presently a party to any material litigation, nor,
to the knowledge of management, is any such litigation presently threatened.
DESCRIPTION OF PROPERTY
Frost Hanna currently maintains, at a cost of approximately $3,400 per
month, its executive offices in 1,445 square feet of office space located at 327
Plaza Real, Suite 319, Boca Raton, Florida 33432, pursuant to a Lease Agreement
with Crocker Downtown Development Associates. Frost Hanna considers this space
adequate for its current operations. Prior to the Closing of the Merger, Frost
Hanna will prepay through February 28, 2000 the rent payments outstanding on its
Lease Agreement. In the opinion of Frost Hanna, this property is adequately
covered by insurance.
Frost Hanna does not own any parcels of real property and does not own
any tangible personal property.
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COMMON STOCK MARKET INFORMATION
The Frost Hanna Common Stock is traded in the NASD OTC market under the
symbol "FHAN." The IPO took place on September 22, 1997 at a price of $6.00 per
share. The Frost Hanna Common Stock commenced trading in the final week of
October 1997. The following table shows the reported low bid and high bid
quotations for the Frost Hanna Common Stock for the periods indicated below. The
high and low bid prices for the periods indicated are inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. These quotations have been obtained from the
National Quotations Bureau, LLC.
<TABLE>
<CAPTION>
LOW BID HIGH ASK
(PER SHARE) (PER SHARE)
----------- -----------
<S> <C> <C>
1997
Fourth Quarter (3) $ 5.25 $ 5.55
1998
First Quarter $ 5.125 $ 5.625
Second Quarter $ 3.815 $ 5.50
Third Quarter $ 1.25 $ 4.125
Fourth Quarter $ 1.125 $ 3.125
1999
First Quarter $ 2.3125 $ 2.75
Second Quarter
</TABLE>
- -------------------------
3 No bid or ask prices were reported in the third quarter of 1997.
On July ___, 1999, the low bid and high ask prices for the Frost Hanna
Common Stock were $____. and $____, respectively.
SHAREHOLDERS
The number of holders of record of the Frost Hanna Common Stock as of
June 29, 1999 was 44 (including nominees holding shares on behalf of beneficial
owners).
DIVIDENDS
Frost Hanna has not paid or declared any dividends on the Frost Hanna
Common Stock since its inception and does not contemplate paying any dividends
in the foreseeable future. The payment of future dividends, if any, will be at
the discretion of the Frost Hanna Board of Directors after taking into account
various factors, including our financial condition, operating results, current
anticipated cash needs as well as other factors that the Board of Directors may
deem relevant.
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BUSINESS OF GAINES BERLAND
INTRODUCTION
Gaines Berland is primarily engaged as a retail and institutional
securities brokerage firm. Gaines Berland is a registered broker/dealer with the
Securities and Exchange Commission (the "SEC"), a member of the National
Association of Securities Dealers, Inc. (the "NASD"), the Municipal Securities
Rule Making Board ("MSRB"), and the Securities Investor Protection Corporation
("SIPC"). Gaines Berland's business activities consist primarily of retail sales
and trading of listed and OTC equity securities, options and mutual funds as
well as investment banking and research services. Gaines Berland earns
commissions and markups/markdowns from individual and institutional securities
transactions and market making activities. All securities transactions are
cleared through Bear Stearns Securities Corp. ("Bear Stearns"), Gaines Berland's
clearing firm on a fully disclosed basis. In this capacity, Bear Stearns is
authorized to hold customer securities and funds and to administer certain of
the back office functions for Gaines Berland. These functions include settlement
of trades, confirmations, statements, tax filings, funds and receipts and
deliveries. Gaines Berland also intends to engage in "wholesale" market-making
and trading operations through G-Trade, its wholly-owned subsidiary. In this
capacity, Gaines Berland through G-Trade will primarily effect transactions with
securities professionals and institutional customers.
Gaines Berland is currently licensed as a broker/dealer in 50 states,
the District of Columbia, and the Commonwealth of Puerto Rico. As of May 31,
1999, Gaines Berland had approximately 251 registered representatives and has
approximately 41,000 retail and institutional customer accounts.
SOURCES OF REVENUES
The following table reflects Gaines Berland's various sources of
revenues and the percentage of total revenues for its last fiscal year ended
August 31, 1998 and for the nine months ended May 31, 1999. Revenues from agency
transactions in securities for individual customers of Gaines Berland as well as
revenues from transactions in securities for individual customers where Gaines
Berland acted in a principal capacity are shown as commissions. Principal
transactions include profits from market making and other trading activities.
<TABLE>
<CAPTION>
Fiscal Nine Months
Year Ended Ended
August 31, 1998 May 31, 1999
----------------------------------- ------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Unaudited)
<S> <C> <C> <C> <C>
Commissions............................... $ 48,407,000 83.6% $ 41,122,000 90.2%
Principal Transactions.................... $ 3,618,000 6.2% $ 2,654,000 5.8%
Interest and Other Income(1).............. $ 1,075,000 1.9% $ 687,000 1.5%
Investment Banking(2)..................... $ 4,795,000 8.3% $ 1,120,000 2.5%
Total Revenues............................ $ 57,895,000 100.0% $ 45,583,000 100.0%
</TABLE>
(1) "Other Income" consists primarily of rental income and dividends.
(2) Investment banking revenues consists of commissions, selling
commissions, consulting fees and income from underwriting
participation activities and placement agent fees.
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RETAIL COMMISSION BUSINESS
Most of Gaines Berland's revenues are generated from commissions.
Gaines Berland charges commissions to its individual and institutional clients
for executing buy and sell orders of securities on national and regional
exchanges and in the OTC market. When Gaines Berland receives a buy or sell
order for a security in which it makes a market it may act as a principal and
purchase from, or sell to, its customers the desired security on a disclosed
basis at a price set in accordance with applicable securities regulations. As of
May 31, 1999, Gaines Berland employed a total of 251 registered representatives
and serviced approximately 41,000 customer accounts.
INVESTMENT BANKING ACTIVITIES
Gaines Berland's investment banking revenues are principally derived
from managing or co-managing public offerings of equity securities as well as
fees from providing investment banking and corporate finance consulting
services. In the corporate finance area, Gaines Berland has been active as an
underwriter or selling group member in over 150 public equity transactions since
1994. Participation as a managing underwriter or in an underwriting syndicate or
a selling group involves both economic and regulatory risks. An underwriter may
incur losses if it is unable to resell the securities it is committed to
purchase, or if it is forced to liquidate its commitment at less than the
purchase price. In addition, under the federal securities laws, other laws and
court decisions with respect to underwriters' liabilities and limitations on the
indemnification of underwriters by issuers, an underwriter is subject to
substantial potential liability for misstatements or omissions of material
factors in prospectuses and other communications with respect to such offerings.
Acting as a managing underwriter increases these risks. Underwriting commitments
constitute a charge against net capital and Gaines Berland's ability to make
underwriting commitments may be limited by the requirement that it must at all
times be in compliance with the Net Capital Rule.
MARKET MAKING
Gaines Berland acts as both principal and agent in the execution of its
customers' orders in the over-the-counter market. Gaines Berland buys, sells and
maintains an inventory of various securities in order to "make a market" in
those securities. In executing customer orders for over-the-counter securities
in which it does not make a market, Gaines Berland charges a commission and acts
as agent between its customers and an unaffiliated market-maker. However, when
the buy or sell order is in a security in which Gaines Berland makes a market,
Gaines Berland may act as principal and purchase securities from or sell
securities to its customers, which includes the permissible mark-up or mark-down
from the current market price, in accordance with applicable regulations.
Trading profits or losses depend upon the skills of the employees
engaged in market making activities, the capital allocated to positions in
securities and the general trends of prices in the securities markets. Trading
as principal requires the commitment of capital and creates an opportunity for
profits and risk of loss due to market fluctuations. Gaines Berland may take
both long (ownership) and short (borrowing shares to effect sales of such
shares) positions in those securities in which it makes a market. As of May 31,
1999, Gaines Berland made markets in approximately 190 securities.
INVESTMENT ACTIVITIES
Gaines Berland also seeks to realize investment gains by purchasing,
selling and holding securities for its own account on a daily basis. Gaines
Berland trades as principal in domestic equity and equity-related securities
both on exchanges and in the over-the-counter market. Gaines Berland also
engages for its own account in the arbitrage of securities. Gaines Berland's
arbitrage activities involve purchasing securities at discounts from the value
that Gaines Berland believes will be realized upon a later sale of those
securities. Gaines Berland is required to commit the capital
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necessary for use in these investment activities. The amount of such capital to
be committed at any particular time will vary according to market, economic and
financial factors, including the other aspects of the Company's business.
Additionally, in connection with its investment banking activities, Gaines
Berland from time to time receives warrants that entitle it to purchase
securities of the corporate issuers for which Gaines Berland raises capital or
provides advisory services.
RESEARCH SERVICES
Gaines Berland's research activities which historically were focused
primarily on the energy industry, now also include the review and analysis of
general market conditions, many other industry groups and companies; the
issuance of in-depth written reports of companies, with recommendations on
specific actions to buy, sell or hold; the furnishing of information to retail
and institutional customers; and responses to inquiries from customers and
account executives. Gaines Berland's research staff follows companies and
prepares reports regarding a number of industries and corporations. Gaines
Berland also utilizes the services of Bear Stearns to provide research and
analysts' reports.
WHOLESALE TRADING ACTIVITIES
G-Trade, Gaines Berland's wholly-owned subsidiary, is in the process of
obtaining regulatory approval and taking other steps necessary to launch its
proposed wholesale trading operations. G-Trade intends to hire traders who will
make markets in more than 1,000 securities. Gaines Berland will provide G-Trade
with its initial funding, which is currently estimated at $1,500,000 through
capital infusions and subordinated loans. Certain of the administrative and
compliance department personnel of G-Trade will be provided by personnel of
Gaines Berland who also will be registered representatives of G-Trade. G-Trade's
principal office will be maintained at the principal office of Gaines Berland in
Bethpage, New York. G-Trade intends to maintain an office of supervisory
jurisdiction in Ft. Lauderdale, Florida where G-Trade's market making activities
will be maintained. G-Trade will also execute trades for institutional investors
and accredited investors. As the operations of G-Trade are in their
developmental stages, no assurance can be given that G-Trade will successfully
engage in wholesale market making activities or that its activities will be
profitable.
INTERNET STRATEGY
Gaines Berland is currently exploring expanding its operations through
the use of the Internet. The activities that Gaines Berland is considering
engaging in through the Internet include, but are not limited to, offering to
customers online brokerage services and research as well as conducting public
offerings of securities over the Internet. No assurances can be given when, if
ever, Gaines Berland will establish any such operations, the costs involved or
whether, if such operations are commenced, they would be successful.
MONEY MANAGEMENT
Gaines Berland is currently considering expanding its operations to
include money management. No assurances can be given when, if ever, it will
enter into such business, or if it does enter into such business, that it will
be successful.
COMPETITION
Gaines Berland encounters intense competition in all aspects of its
business and competes directly with many other securities firms for clients, as
well as registered representatives. A significant number of such competitors
offer their customers a broader range of financial services and have
substantially greater resources than Gaines Berland. National retail firms such
as Merrill Lynch Pierce Fenner & Smith Incorporated, Salmon Smith Barney, Inc.
and Morgan Stanley/Dean Witter dominate the industry; however, Gaines Berland
also competes with numerous regional and local firms. In addition, a number of
firms offer discount brokerage services to individual retail customers and
generally effect
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transactions at substantially lower commission rates on an "execution only"
basis, without offering other services such as investment recommendations and
research. Moreover, there is substantial commission discounting by full-service
broker/dealers competing for institutional and individual brokerage business.
Additionally, the recent emergence of online trading has further intensified the
competition for brokerage customers. Gaines Berland currently does not offer any
online trading services to customers. The continued expansion of discount
brokerage firms and online trading could adversely effect Gaines Berland's
retail business. Other financial institutions, notably commercial banks and
savings and loan associations, offer customers some of the same services and
products presently provided by securities firms. In addition, certain large
corporations have entered the securities industry by acquiring securities firms.
While it is not possible to predict the type and extent of competing services
which banks and other institutions ultimately may offer to customers, Gaines
Berland may be adversely effected to the extent those services are offered on a
large scale basis. Gaines Berland competes through its advertising and
recruiting programs for registered representatives interested in joining Gaines
Berland.
ADMINISTRATION, OPERATIONS, TRANSACTION PROCESSING AND CUSTOMER ACCOUNTS
Gaines Berland currently uses the services of Bear Stearns as its
clearing agent on a fully disclosed basis. Bear Stearns processes all securities
transactions and maintains customer accounts on a fee basis. Customer accounts
are protected through the SIPC for up to $500,000, of which coverage for cash
balances is limited to $100,000. In addition, all customer accounts are fully
protected by an Excess Securities Bond issued by the Travelers Casualty & Surety
Company providing protection for the account's entire net equity (both cash and
securities). The services of Bear Stearns include billing, credit control,
receipt, and custody and delivery of securities. Bear Stearns provides
operational support necessary to process, record, and maintain securities
transactions for Gaines Berland's brokerage activities. Bear Stearns provides
these services to Gaines Berland and its customers at a total cost which is less
than it would cost Gaines Berland to process such transactions on its own. Bear
Stearns also lends funds to Gaines Berland's customers through the use of margin
credit. These loans are made to customers on a secured basis, with Bear Stearns
maintaining collateral in the form of saleable securities, cash or cash
equivalents. Under the terms of the clearing agreement, Gaines Berland
indemnifies Bear Stearns for any loss on these credit arrangements. In fiscal
1998, and in the nine (9) months ended May 31, 1999, net interest earned by
Gaines Berland from margin credit activity totaled $558,000 and $401,000,
respectively.
GOVERNMENT REGULATION
The securities industry is subject to extensive and constantly evolving
federal and state regulations promulgated by the SEC and various state agencies,
as well as self-regulatory organizations such as the NASD. The principal purpose
of such regulations is the protection of customers and the securities markets
rather than the protection of creditors and shareholders of broker/dealers. The
SEC is the federal agency charged with the administration of the federal
securities laws. Much of the regulation of broker/dealers, however, has been
delegated to self-regulatory organizations, principally the NASD and the
national securities exchanges. These self-regulatory organizations adopt rules
(subject to approval by the SEC) which govern the industry and conduct periodic
examinations of member broker/dealers. Securities firms are also subject to
regulation by state securities commissions in the states in which they are
registered. Gaines Berland is registered with, and subject to the state
securities commissions in 50 states, the District of Columbia and the
Commonwealth of Puerto Rico.
The regulations to which broker/dealers are subject cover all aspects
of the securities industry, including sales methods, trading practices among
broker/dealers, capital structure of securities firms, record keeping and the
conduct of directors, officers, employees and registered representatives.
Additional legislation, changes in rules promulgated by the SEC and by
self-regulatory bodies or changes in the interpretation or enforcement of
existing laws and rules often directly affect the method of operation and
profitability of broker/dealers. The SEC and the self-regulatory bodies may
conduct administrative proceedings which can result in censure, fine, suspension
or expulsion of a broker/dealer, its officers, employees or registered
representatives.
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NET CAPITAL REQUIREMENTS
As a registered broker/dealer and member of the NASD, Gaines Berland is
subject to the SEC's Net Capital Rule which is designed to measure the general
financial integrity and liquidity of a broker/dealer.
Net capital is defined as the net worth of a broker/dealer subject to
certain adjustments, and computed pursuant to the "aggregate indebtedness
method." Aggregate Indebtedness is the total of certain liabilities of a
broker/dealer arising from or in connection with any transaction whatsoever, and
includes, among other things, money borrowed, money payable against securities
loaned and securities "failed to receive," the market value of securities
borrowed to the extent to which no equivalent value is paid or credited. For
broker/dealers using this method, the Net Capital Rule requires that the ratio
of aggregate indebtedness, as defined, to net capital, as defined, not exceed 15
to 1, and imposes restrictions on operations as described below. In computing
net capital, various adjustments to net worth are made with a view to excluding
assets which are not readily convertible into cash and making a conservative
statement of other assets, such as a firm's position in securities. Compliance
with the Net Capital Rule limits those operations of securities firms which
require the intensive use of their capital, such as underwriting commitments and
principal trading activities, and limits the ability of securities firms to pay
dividends.
In addition to the above requirements, funds invested as equity capital
may not be withdrawn, nor may any unsecured advances or loans be made to any
stockholder of a registered broker/dealer, if, after giving effect to such
withdrawal, advance or loan and to any other such withdrawal, advance or loan as
well as to any scheduled payments of subordinated debt which are scheduled to
occur within six months, the net capital of the broker/dealer would fail to
equal 120% of the minimum dollar amount of net capital required or the ratio of
aggregate indebtedness to net capital would exceed 10 to 1. Further, any funds
invested in the form of subordinated debt generally must be invested for a
minimum term of one year and repayment of such debt may be suspended if the
broker/dealer fails to maintain certain minimum net capital levels. For example,
scheduled payments of subordinated debt are suspended in the event that the
ratio of aggregate indebtedness to net capital of the broker/dealer would exceed
12 to 1 or its net capital would be less than 120% of the minimum dollar amount
of net capital required.
At May 31, 1999, Gaines Berland had net capital of $4,900,637 which was
$4,533,855 in excess of required net capital, and its ratio of aggregate
indebtedness to net capital was 1.12 to 1. Failure to maintain the required net
capital may subject a firm to suspension or expulsion by the NASD, the
Commission and other regulatory bodies and ultimately may require its
liquidation. The Net Capital Rule also prohibits payments of dividends,
redemption of stock and the prepayment or payment in respect of principal or
subordinated indebtedness if net capital, after giving effect to the payment,
redemption or repayment, would be less than the specified percent (120%) of the
minimum net capital requirement. Compliance with the Net Capital Rule could
limit those operations of Gaines Berland's brokerage subsidiaries that require
the intensive use of capital, such as underwriting and trading activities, and
also could restrict Gaines Berland's ability to withdraw capital from its
operating subsidiaries, which in turn could limit Gaines Berland's ability to
pay dividends, repay debt and redeem or purchase shares of its outstanding
capital stock.
EMPLOYEES
As of May 31, 1999, Gaines Berland had approximately 251 registered
representatives. In addition, Gaines Berland employs 280 other employees in the
area of operations, compliance, accounting and administration. There is
intensive competition among securities firms for executives with extensive
securities industry experience. To a large degree, Gaines Berland's future
success will depend upon its continuing ability to hire and train highly skilled
executives. Gaines Berland considers its relations with its employees to be
satisfactory.
PROPERTIES
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Gaines Berland's principal executive office is located at 1055 Stewart
Avenue, Bethpage, New York, where Gaines Berland occupies approximately 92,400
square feet under a lease expiring in May 2007 at an annual rent of $1,532,160,
with certain annual escalation clauses. Gaines Berland also leases approximately
2,470 square feet in Ft. Lauderdale, Florida pursuant to a lease expiring May
31, 2001 at an annual rent of $43,200, with certain annual escalation clauses.
Such space will be used for G-Trade's proposed wholesale trading operations.
Gaines Berland occupies approximately 4,000 square feet at 230 Park Avenue, New
York City as a branch office under a month-to-month lease at a monthly rate of
$13,604. Gaines Berland also occupies space for its branch office in San
Francisco, California under a month-to-month lease at a monthly rate of $1,000.
MARKET INFORMATION
There is no public trading market for the Gaines Berland Common Stock.
SHAREHOLDERS
There were 42 holders of record of Gaines Berland Common Stock as of
June 30, 1999.
DIVIDENDS
Gaines Berland has never paid or declared any dividends on the Gaines
Berland Common Stock.
CHANGE IN ACCOUNTANTS
Gaines Berland retained Goldstein Golub as its new independent
accountants to audit its financial statements as of August 31, 1998. The
decision to change accounting firms from Lerner, Sipkin to Goldstein Golub was
made by the Board of Directors of Gaines Berland. During the fiscal years ended
August 31, 1996 and 1997, respectively, and through the date of termination
(September 25 1998), there were no disagreements with Lerner Sipkin on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. Additionally, Gaines Berland has not had any
disagreements with Lerner Sipkin on these matters at any prior time.
LEGAL PROCEEDINGS
Gaines Berland's business involves substantial risks of liability,
including exposure to liability under federal and state securities law in
connection with the underwriting or distribution of securities and claims by
dissatisfied customers. Gaines Berland does not presently maintain an errors and
omissions insurance policy insuring it against these risks. In the normal course
of Gaines Berland's business, Gaines Berland from time to time is involved in
lawsuits and arbitrations brought by its customers. Certain pending litigation
is discussed above under "Risk Factors - Risk Associated with Securities Laws,
Violations and Litigation." It is the opinion of management that the resolution
of all proceedings presently pending should not have a material adverse effect
on the consolidated financial condition of Gaines Berland.
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MANAGEMENT OF GAINES BERLAND
EXECUTIVE OFFICERS AND DIRECTORS
After the Merger, the executive officers of Frost Hanna and Gaines
Berland will consist of four out of the six persons nominated for election as
directors of Frost Hanna at the Special Meeting and Diane Chillemi. Information
with respect to these four nominees is set forth above under "Proposal 4 -
Election of Directors of Frost Hanna." Information regarding Ms. Chillemi is
described below.
Set forth below is a table indicating the positions currently held with
Gaines Berland by the aforesaid persons and the positions to be held by such
individuals upon consummation of the Merger.
<TABLE>
<CAPTION>
CURRENT POSITION WITH POSITION WITH FROST
NAME AGE GAINES BERLAND HANNA AFTER MERGER
- -------------------------- -------- -------------------------- ----------------------------
<S> <C> <C> <C>
Joseph Berland 59 Chairman of the Board, Chairman of the Board,
Chief Executive Officer Chief Executive Officer,
and Director Director
Richard J. Rosenstock 47 President, Director President, Chief
Operating Officer,
Director
Mark Zeitchick 34 Executive Vice President Executive Vice President,
Director
Vincent Mangone 34 Executive Vice President Executive Vice President,
Director
Diane Chillemi 41 Chief Financial Officer Chief Financial Officer
</TABLE>
OFFICERS AND KEY EMPLOYEES
Brief descriptions of the positions and backgrounds of the senior
officers of Gaines Berland are set forth above under "Proposal 4 - Election of
Directors of Frost Hanna." Brief descriptions of the backgrounds of Gaines
Berland's Chief Financial Officer and certain key employees are set forth below.
DIANE CHILLEMI, 41 years old, joined Gaines Berland in February 1997 as
its Director of Finance. Since July 1997, she served as its Chief Financial
Officer. She served as an accounting Manager at CT Legal Information Services
from March 1996 until February 1997, and as a Financial Services Manager with
Darby Group Co., Inc., a manufacturer and distributor of generic drugs and
medical supplies, from July 1984 until March 1996.
KEY EMPLOYEES
DAVID THALHEIM, 44 years old, has been the President of Imperial
International Group, Inc. ("Imperial") since January 1991, which has rendered
consulting services to Gaines Berland since 1993. Presently, Imperial primarily
provides consulting services to Gaines Berland. From 1977 through 1990, Mr.
Thalheim served as Vice President and then President of Thalheim Expositions,
Inc., one of the largest independent trade show and exposition management
companies in the United States.
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MICHAEL AVELLA, 45 years old, joined Gaines Berland as its Chief
Compliance Officer in March 1994 and from May 1995 until the present time he has
been the Chief Operating Officer and the Senior Vice President of Information
Technology of Gaines Berland.
EMPLOYMENT AGREEMENTS
Gaines Berland and Frost Hanna will, immediately following the Merger,
enter into five-year employment agreements with each of Messrs. Berland,
Rosenstock, Zeitchick, Mangone and Thalheim pursuant to which such persons will
be employed as the Chief Executive Officer, President, Executive Vice President,
Executive Vice President and Administrator, respectively, of such entities (the
"Employment Agreements"). Pursuant to the Employment Agreements, each such
person will devote their full business time to Gaines Berland and Frost Hanna
and receive an annual base salary of $120,000, subject to periodic increases at
the discretion of the Board of Directors of Frost Hanna or any compensation
committee established thereby (the "Compensation Committee"). The Employment
Agreements include certain confidentiality provisions and non-compete and
restrictive covenant clauses for up to two (2) years if any such person
terminates his employment for "reason" (as defined) or if his employment is
terminated without "cause" (as defined). The Employment Agreements also provide
that in the event of a "change of control" (as defined) of Gaines Berland or of
Frost Hanna, such person shall be entitled to receive a severance payment equal
to all compensation due him under the remaining term of his Employment Agreement
in a lump sum payment. The Employment Agreements also provide that each person
is entitled to certain insurance and other benefits, that Frost Hanna must
maintain no less than $5,000,000 of directors' and officers' liability insurance
during the term and for six (6) years following the term and that upon the
Effective Date of the Merger each of such persons shall be granted stock options
to purchase 100,000 shares of Common Stock under Frost Hanna's 1999 Equity
Performance Plan on such terms and conditions as set forth in such plan. The
exercise price of such stock options will be valued at the fair market value of
a share of Frost Hanna Common Stock at the time such options are granted. Such
persons also will be entitled to participate in Frost Hanna's Special
Performance Incentive Plan and the Annual Incentive Bonus Plan, all on the terms
and conditions set forth in such plans. A form of the Employment Agreements and
the Plans are attached hereto as Exhibits C, D, E and F, respectively.
LOCK-UP AGREEMENTS
Each shareholder of Gaines Berland receiving shares of Frost Hanna
Common Stock in the Merger will enter into a Lock-Up Agreement pursuant to which
each such shareholder will agree with Gaines Berland to not sell, transfer or
otherwise dispose of any of the shares of Frost Hanna Common Stock received in
the Merger for two (2) years from the Effective Date. In addition, each of such
shareholders, other than the Principal Shareholders, will enter into a pledge
agreement with Gaines Berland to pledge all shares of Frost Hanna Common Stock
received in the Merger as collateral to Gaines Berland against any direct or
indirect liabilities, costs and/or expenses incurred by Gaines Berland as a
result of the actions of such shareholder.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FROST HANNA
Frost Hanna was formed in February 1996 to seek to effect a Business
Combination with an Acquired Business. In connection with its initial
capitalization, Frost Hanna issued 1,557,000 shares of its common stock to its
officers, directors, and other shareholders for an aggregate sum of $216,613. On
September 22, 1997, Frost Hanna's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended (the "Registration Statement"), was declared
effective by the Commission. Pursuant to the Registration Statement, Frost Hanna
offered and sold 1,100,202 shares of common stock in the IPO (the "Net
Proceeds") at a purchase price of $6.00 per share and received net proceeds of
approximately $5,587,053 after the payment of all expenses of the IPO (the "Net
Proceeds"). In addition, Frost Hanna issued the Underwriter Warrants to Cardinal
to purchase 110,020 shares of Common Stock. The offering was a "blank check"
offering. Up to the time that Frost Hanna entered into the Merger Agreement, the
only activities undertaken by Frost Hanna have been efforts to identify an
appropriate Acquired Business candidate.
LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION
Following the consummation of the IPO, eighty percent (80%) of the Net
Proceeds ($4,560,069) (the "Escrow Fund"), were delivered to Fiduciary Trust
International of the South, as Escrow Agent, to be held in escrow by such firm,
until the earlier of (i) written notification by Frost Hanna of its need for all
or substantially all of the Escrow Fund for the purpose of implementing a
Business Combination; or (ii) the exercise by certain shareholders of redemption
rights which will be offered at the time Frost Hanna seeks shareholder approval
of any potential Business Combination. As of March 31, 1999, there was
$4,862,391 in the Escrow Fund. The Escrow Fund is currently invested in United
States government-backed short-term securities.
As of March 31, 1999 and December 31, 1998, respectively, Frost Hanna
had cash and cash equivalents of $262,187 and $358,499, restricted short-term
investments of $4,862,391 and $4,816,700, property and equipment of $15,844 and
$17,669 and prepaid expenses of $4,253 and $17,725. As of March 31, 1999 and
December 31, 1998, respectively, Frost Hanna had total liabilities of $18,306
and $17,878 and total shareholders' equity of $5,126,369 and $5,192,715.
Other than the Escrow Fund, Frost Hanna, as of March 31, 1999 and
December 31, 1998, respectively, had $262,187 and $358,499 in cash,
substantially all of which was received from the Offering (other than interest
income earned thereon) (the "Operating Funds"). As of May 31, 1999 the Operating
Funds consisted of $184,597. It is estimated that whether or not the Merger is
consummated, the expenses that Frost Hanna has incurred in connection with this
transaction will exceed such amount. Accordingly, if the Merger is not
consummated, Frost Hanna will not have any funds with which to conduct future
operations, making it difficult for Frost Hanna to identify and effect a
Business Combination with an appropriate Acquired Business. In the event the
Merger is not consummated, Frost Hanna will need to either commence liquidation
proceedings or obtain financing sufficient to fund operations until another
potential Business Combination is identified.
Pursuant to employment agreements, Frost Hanna pays to each of Mr.
Richard Frost, Chief Executive Officer and Chairman of the Board of Directors of
Frost Hanna, and Mr. Mark Hanna, President of Frost Hanna, $10,000 monthly for
salary and $1,000 monthly each for Messrs. Frost's and Hanna's non-accountable
expense allowance.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GAINES BERLAND
BUSINESS
Gaines Berland is engaged in the securities brokerage and trading
business and provides investment banking and research services. Gaines Berland's
business activities consist primarily of retail sales and trading of listed and
OTC equity securities, options and mutual funds as well as investment banking
and research services. Gaines Berland earns commissions and markups/markdowns
from individual and institutional securities transactions and market making
activities. All securities transactions are cleared through Bear Stearns. Gaines
Berland was incorporated in the State of New York in August 1983.
Results of any individual period should not be considered
representative of future profitability. A significant portion of the Gaines
Berland's expenses is fixed and does not vary with market activity. Substantial
fluctuations could occur in the Gaines Berland's revenues and net income from
period to period.
NINE MONTHS ENDED MAY 31,1999 VS. NINE MONTHS ENDED MAY 31,1998
Net income for the nine months ended May 31, 1999, was $542,000 as
compared to $683,000, for the nine months ended May 31, 1998. Pretax income
decreased by $320,000, or 23% due to expenses incurred in connection with a
proposed merger transaction that was not consummated (the "Terminated
Transaction").
REVENUES
Total revenues decreased by $2,015,000, or 4.2%, to $45,583,000 for the
nine months ended May, 1999, primarily as a result of decreases in commissions
and investment banking.
Commission revenues decreased by $319,000, or .8%. The slight decrease
reflects a 42.7% decrease in the average commission per customer trade, which
was offset by an increase in the volume of commission-producing transactions.
Investment banking revenues decreased by $1,598,000, or 59%. Gaines
Berland did not participate in any underwritings where it acted as a manager or
co-manager during the nine months ended May, 1999, while it participated in four
public offerings for its investment banking clients raising approximately $141
million in fiscal 1998.
Principal transactions increased by $12,000, or .5% in the first nine
months of fiscal 1999.
Interest income decreased by $43,000, or 6.3%, primarily due to lower
average cash balances maintained and lower interest rates during the nine months
ended May 1999.
Other revenues decreased by $67,000, or 61%, primarily due to a
decrease in consulting activities from which Gaines Berland derives fees.
EXPENSES
Total expenses for the nine months ended May 31, 1999 were $44,538,000,
a 3.7% decrease compared to the nine months ended May 31, 1998 for the reasons
described below. Total expenses as a percentage of revenues increased from 97.1%
to 97.7%.
Compensation and benefits expense decreased $2,837,000 or 8.4%. The
decrease is due primarily to the elimination of investment banking personnel and
the reduction in bonuses due to the firm's decreased profitability.
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Occupancy and equipment expense decreased by $354,000 or 16.9%. The
decrease is due to the closing of Gaines Berland's 712 Fifth Avenue office and
the expiration of the lease for 6900 Jericho Turnpike, Syosset, New York.
Communications expense increased by $134,000, or 7.7%. This increase
was primarily caused by an increase in news service expenses.
Brokerage, clearing and exchange fees decreased by $72,000, or 4.8%
resulting from new lower fee rates negotiated with Bear Stearns.
Business development expense decreased by $401,000, or 37.7%. This
decrease was attributable to a reduction in travel & entertainment expense of
$215,000 and a decrease in advertising of $185,000 during the nine months ended
May 31, 1999 as compared to the same period in 1998.
Professional fees increased by $682,000, or 221 %. This increase was
attributable to increased legal expenses incurred related to the Terminated
Transaction, the creation of Gaines Berland's new subsidiary, G-Trade, and
litigation expenses.
Loss on disposal of fixed assets was a one time charge of $257,000 in
the nine months ending May 31, 1999.
Other expenses increased by $896,000 or 15.6%, primarily due to the
settlement of several arbitrations relating to customer complaints.
YEAR ENDED AUGUST 31, 1998 VS. YEAR ENDED AUGUST 31, 1997
Net income for the year ended August 31, 1998 was $352,000 as compared
to $4,178,000 for the year ended August 31, 1997. The significant reduction in
earnings in the current year was attributable to the deteriorating climate for
energy companies, which resulted in substantial decreases in revenue for Gaines
Berland.
REVENUES
Total revenues decreased by $4,460,000, or 7.2%, to $57,895,000 for the
fiscal year, primarily as a result of decreases in commissions, principal
transactions and other revenues.
Commission revenues decreased by $3,444,000, or 6.6%. The decrease
reflects deteriorating market conditions in the energy marketplace (an area in
which Gaines Berland specialized at the time) throughout the year, causing a 27%
decrease in the average commission per transaction.
Investment banking revenues increased by $1,514,000, or 46%. Gaines
Berland acted as manager or co-manager in four public offerings for its
investment banking clients, raising approximately $141 million in fiscal 1998,
an increase from fiscal 1997, during which Gaines Berland raised $36 million
through three public offerings. The increase in size of the transactions in the
current year reflected the increased activity in the overall market during this
period.
Revenues from principal transactions decreased by $2,603,000, or 42%.
This decrease was primarily attributable to the fact that fiscal 1997 included
$4.8 million of appreciation on the sale of underwriters purchase options. Such
revenue was not present in fiscal 1998. This drop in revenue, however, was
partially offset by an increase of $2,197,000 in market-making activity in
fiscal 1998 compared to fiscal 1997.
Interest income increased by $148,000, or 19%, primarily due to higher
cash balances maintained during fiscal 1998.
75
<PAGE> 83
Other revenues decreased by $75,000, or 34%, primarily due to decreases
in Gaines Berland's consulting activities for which it derives fees.
EXPENSES
Total expenses for fiscal 1998 were $57,108,000, a 4.1% increase over
fiscal 1997 for the reasons described below. Total expenses as a percentage of
revenues increased from 88% to 99%.
Compensation and benefit expense decreased $776,000 or 1.9%. These
expenses are primarily variable as commissions to brokers are paid as a
percentage of commission revenues generated. This decrease in variable expense
is consistent with the decrease in commission revenues.
Occupancy and equipment expense increased by $821,000 or 40%. This
increase was caused by Gaines Berland's move to larger facilities in April
1997.
Communications expense increased by $210,000, or 9.1%. This increase
was primarily caused by services needed for increased institutional trading,
investment banking and research departments during fiscal 1998.
Brokerage, clearing and exchange fees increased by $366,000, or 23%.
This increase was primarily caused by an 18% increase in the number of customer
trades processed.
Business development expense decreased by $19,000, or 1.2%. This
decrease was attributable to a reduction in travel during fiscal 1998 as
compared to fiscal 1997.
Professional fees decreased by $101,000, or 18%. This decrease was a
result of the employment by Gaines Berland of in-house counsel, which reduced
the need for outside legal services.
Other expenses increased by $1,728,000 or 30.8% primarily due to the
settlement of several arbitrations with customers and the addition or increases
to various insurance coverages including director and officer liability and
employment practices liability insurance.
LIQUIDITY AND CAPITAL RESOURCES
Approximately 80% of Gaines Berland's assets at May 31, 1999 were
highly liquid, consisting primarily of cash and cash equivalents, securities
inventories, and receivables from its clearing broker, all of which fluctuate
depending upon the levels of customer business and trading activity. Receivables
from broker/dealers, which are primarily from Gaines Berland's clearing broker,
are paid rapidly. As a securities dealer, Gaines Berland may carry significant
levels of trading inventories to meet customer needs. Gaines Berland's inventory
of securities is readily marketable; however, holding large blocks of the same
security may limit liquidity and prevent realization of full market value for
the securities. A less significant portion of Gaines Berland's total assets are
fixed assets. Gaines Berland's total assets or the individual components of
total assets may vary significantly from period to period because of changes
relating to customer demand, economic and market conditions and proprietary
trading strategies.
Gaines Berland is subject to the Net Capital Rule. As such, Gaines
Berland is subject to certain restrictions on the use of capital and its related
liquidity. As of May 31, 1999, Gaines Berland had net capital of $4,900,637,
which was $4,533,855 in excess of its minimum net capital requirement of
$366,782.
76
<PAGE> 84
Gaines Berland's overall capital and funding needs are continually
reviewed to ensure that its capital base can support the estimated needs of its
business units. These reviews take into account business needs as well as
regulatory capital requirements of the subsidiaries. Gaines Berland has
committed to provide G-Trade with its initial funding, which is currently
estimated at $1,500,000, through capital infusions and subordinated loans.
Gaines Berland also anticipates expending approximately $500,000 to establish an
office in New York City. These capital expenditures are expected to be funded
out of Gaines Berland's working capital. Gaines Berland believes that its cash
generated from operations is sufficient to satisfy the cash required to operate
its business.
YEAR 2000 COMPUTER ISSUE
Gaines Berland initiated a firm-wide program to address the "Year 2000
Computer Issue" in order to prepare its computer systems and applications for
properly processing dates after December 31, 1999. Gaines Berland's program is
proceeding on schedule and it is Gaines Berland's expectation that it will have
its firm-wide Year 2000 solution substantially in place by approximately July
31, 1999.
All of Gaines Berland's computer programs are provided by third party
vendors and service providers. Most of the programs were purchased after the
Year 2000 Computer Issue became widely recognized. Gaines Berland has sought,
and expects to receive confirmation from its third-party program and service
providers that the Year 2000 Computer Issue has been appropriately managed. Bear
Stearns, Gaines Berland's clearing firm, is Gaines Berland's largest and most
important computer service related vendor. Bear Stearns has installed a new
system to appropriately manage the Year 2000 Computer Issue for Gaines Berland.
In addition, Bear Stearns has provided confirmation to Gaines Berland of its
compliance with the Year 2000 Computer Issue.
Gaines Berland has also assessed its state of readiness regarding
non-information technology systems for compliance with the Year 2000 Computer
Issue. None of such systems are critical to the operation of Gaines Berland's
business. Gaines Berland has identified two such systems which require
remediation and has already brought one of such systems into compliance. The
remediation of these systems is not expected to require a material expenditure
of funds.
The Year 2000 Computer Issue creates risk for Gaines Berland from
unforeseen problems in its own computer systems, third-party vendors and service
providers, and from third parties with whom Gaines Berland deals worldwide.
Gaines Berland is continuing to communicate with its third-party vendors and
service providers to determine the likely extent to which Gaines Berland may be
affected by third parties' year 2000 plans and target dates. In this regard,
while Gaines Berland does not now expect material financial exposure as a result
of the Year 2000 problem, there can be no assurance that the systems of other
entities on which Gaines Berland relies will be remediated on a timely basis, or
that a failure to remediate by another party, would not have a material adverse
effect on Gaines Berland. Such failures could have a material impact on Gaines
Berland's ability to conduct business. In particular, Gaines Berland does not
have a contingency plan in place in the event Bear Stearns is unable to provide
clearing services to Gaines Berland, or if general utility or telecommunications
services fail as a result of the Year 2000 Computer Issue. In either of such
events, Gaines Berland would be unable to conduct its business until the problem
was remediated. Any such suspension of its business, if for more than a very
brief period of time, would materially adversely affect Gaines Berland.
Based on information currently available, Gaines Berland does not
expect its Year 2000 expenditures for computer systems and non-information
technology systems, in the aggregate, for fiscal 1998 and over the next two
years to exceed $50,000. The expected costs of the Year 2000 program are based
on management's current estimates; however, actual results could differ
materially from those plans.
77
<PAGE> 85
OTHER MATTERS
As of the date of this Proxy Statement, the Frost Hanna Board of
Directors knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement. If any other
matters shall properly come before the Special Meeting, or any adjournments or
postponements thereof, and be voted upon, the enclosed proxies will be deemed to
confer discretionary authority on the individuals named as proxies therein to
vote the shares represented by such proxies as to any such matters. The person
named as proxies intend to vote or not to vote in accordance with the
recommendation of the management of Frost Hanna.
INDEPENDENT AUDITORS
Representatives of Arthur Andersen LLP and Goldstein Golub Kessler LLP
will be present at the Special Meeting and will have the opportunity to make a
statement if they desire to do so, and they are expected to be available to
respond to appropriate questions from Frost Hanna Shareholders.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Frost Hanna provides all shareholders with the opportunity, under
certain circumstances, to participate in the governance of Frost Hanna by
submitting proposals that they believe merit consideration at the next annual
meeting of shareholders, to be held on or about January 3, 2000. To enable
management to analyze and respond adequately to proposals and to prepare
appropriate proposals for presentation in Frost Hanna's proxy statement for the
next annual meeting of shareholders, any such proposal should be submitted to
Frost Hanna no later than September 19, 1999, to the attention of its Chairman
of the Board, at its principal place of business in Boca Raton, Florida or, if
the Merger is consummated, at such other principal place of business of Frost
Hanna. Shareholders may also, under that they wish to be considered by the Board
of Directors as nominees for directors.
By Order of the Board of Directors,
Donald H. Baxter
Secretary
78
<PAGE> 86
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
PAGE
----
Introduction to Unaudited Pro Forma Combined
Condensed Financial Information...................................... P-2
Unaudited Pro Forma Combined Condensed Balance
Sheet as of March 31, 1999........................................... P-3
Unaudited Pro Forma Combined Condensed Statement
of Operations for the three month period ended
March 31, 1999....................................................... P-4
Unaudited Pro Forma Combined Condensed
Statement of Operations for the year ended
December 31, 1998.................................................... P-5
Notes to Unaudited Pro Forma Combined Condensed
Financial Information................................................ P-6
P-1
<PAGE> 87
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
INTRODUCTION
The following unaudited pro forma combined condensed balance sheet as of March
31, 1999 and the unaudited pro forma combined condensed statements of operations
for the three months ended March 31, 1999 and the year ended December 31, 1998
give effect to the merger transaction pursuant to which Gaines Berland will
become a wholly-owned subsidiary of Frost Hanna (the "Merger"). The unaudited
pro forma combined condensed financial statements are based on the estimates and
assumptions set forth in the notes to such statements. This information should
be read in conjunction with the historical financial statements and notes
thereto of Frost Hanna and Gaines Berland which are included elsewhere in this
Proxy Statement. The unaudited pro forma financial data are provided for
comparative purposes only and do not purport to be indicative of the results
which actually would have been obtained if the Merger had been effected on the
date indicated or of those results which may be obtained in the future.
The Merger will be accounted for as a capital transaction with each share of
Gaines Berland common stock that is issued and outstanding at the effective time
of the Merger being canceled and extinguished in exchange for approximately
22,000 shares of Frost Hanna Common Stock, not to exceed an aggregate of
16,000,000 shares of Frost Hanna Common Stock, accompanied by a recapitalization
of Gaines Berland.
The pro forma adjustments are described in the accompanying notes to unaudited
pro forma combined financial statements. The unaudited pro forma combined
condensed financial statements assume the Merger had occurred (i) at the
beginning of each of the respective periods for the purpose of the unaudited pro
forma combined condensed statements of operations for the three months ended
March 31, 1999 and the year ended December 31, 1998 and (ii) as of March 31,
1999 for the purposes of the unaudited pro forma combined condensed balance
sheet.
P-2
<PAGE> 88
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1999
(in thousands)
<TABLE>
<CAPTION>
FROST GAINES PRO FORMA
HANNA BERLAND(a) ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 262 $ 71 $ -- $ 333
Restricted short term investments 4,862 -- -- 4,862
Receivable from Brokers -- 15,485 -- 15,485
-------- -------- -------- --------
Total current assets 5,124 15,556 -- 20,680
SECURITIES LONG - at market -- 8,387 -- 8,387
PROPERTY, NET 16 2,915 -- 2,931
OTHER ASSETS 4 1,262 -- 1,266
-------- -------- -------- --------
TOTAL ASSETS $ 5,144 $ 28,120 $ -- $ 33,264
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Securities short - at market $ $ 11,050 $ -- $ 11,050
Subordinated loan -- 1,000 -- 1,000
Commissions payable -- 3,600 -- 3,600
Income taxes payable -- 523 -- 523
Accrued expenses 18 3,070 -- 3,088
-------- -------- -------- --------
Total current liabilities 18 19,243 -- 19,261
-------- -------- -------- --------
OTHER -- 167 -- 167
-------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock -- -- 2 (b) 2
Additional paid - in capital 5,803 3,125 (2)(b) 8,226
(677)(c)
(23)(d)
Retained earnings (677) 5,608 677 (c) 5,608
Less: subscription receivable -- (23) 23 (d) --
-------- -------- -------- --------
Total stockholders' equity 5,126 8,710 -- 13,836
-------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 5,144 $ 28,120 $ -- $ 33,264
======== ======== ======== ========
</TABLE>
P-3
<PAGE> 89
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
FROST GAINES PRO FORMA
HANNA BERLAND(a) ADJUSTMENTS COMBINED
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Commission income $ -- $ 14,276 $ -- $ 14,276
Trading profit -- 539 -- 539
Dividend & interest -- 245 55(d) 300
Other revenue, net -- (3) -- (3)
------------ ------------ ----------- ------------
Total revenues -- 15,057 55 15,112
------------ ------------ ----------- ------------
EXPENSES:
Salary expense 66 9,809 -- 9,875
General and administrative 55 4,212 -- 4,267
------------ ------------ ----------- ------------
Total expenses 121 14,021 -- 14,142
------------ ------------ ----------- ------------
INTEREST INCOME 55 -- (55)(d) --
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAX (66) 1,036 -- 970
PROVISION FOR INCOME TAX -- 439 -- 439
------------ ------------ ----------- ------------
NET (LOSS) INCOME $ (66) $ 597 $ -- $ 531
============ ============ =========== ============
NET (LOSS) INCOME PER
COMMON SHARE $ (0.03) $ 805.67 $ 0.03
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 15,999,259(b)
OUTSTANDING 2,657,202 741 150,000(f) 18,807,202
============ ============ =========== ============
</TABLE>
P-4
<PAGE> 90
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
FROST GAINES PRO FORMA
HANNA BERLAND(a) ADJUSTMENTS COMBINED
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Commission income $ -- $ 44,989 $ -- $ 44,989
Trading profit -- 2,233 -- 2,233
Dividend & interest -- 819 259 (e) 1,078
Other revenue, net -- 4,859 -- 4,859
------------ ------------ ----------- ----------
Total revenues -- 52,900 259 53,159
------------ ------------ ----------- ----------
EXPENSES:
Salary expense 264 36,326 -- 36,590
General and administrative 196 16,924 -- 17,120
------------ ------------ ----------- ----------
Total expenses 460 53,250 -- 53,710
------------ ------------ ----------- ----------
INTEREST INCOME 259 -- (259)(e) --
LOSS BEFORE BENEFIT FOR
INCOME TAX (201) (350) -- (551)
BENEFIT FOR INCOME TAX -- (33) -- (33)
------------ ------------ ----------- ----------
NET LOSS $ (201) $ (317) $ -- $ (518)
============ ============ =========== ==========
NET INCOME (LOSS) PER
COMMON SHARE $ (0.08) $ (512.12) $ (0.02)
============ ============ ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 15,999,381(b)
OUTSTANDING 2,657,202 619 150,000(f) 18,807,202
============ ============ =========== ==========
</TABLE>
P-5
<PAGE> 91
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
(a) Represents Gaines Berland's balance sheet as of April 30, 1999 and for
the three month period then ended and twelve month period ended
January 31, 1999.
(b) To reflect the issuance of an aggregate of no more than 16,000,000
shares of Frost Hanna common stock in exchange for approximately 740
shares of Gaines Berland common stock as if each of the non-affiliated
Frost Hanna Shareholders approved the Merger. If less than 30% of
non-affiliated Frost Hanna Shareholders vote against approval of the
Merger and if the Merger is consummated, Frost Hanna will utilize funds
held in escrow and redeem such shares at their Redemption Value.
(c) To eliminate Frost Hanna's accumulated deficit.
(d) To eliminate Gaines Berland's common stock subscription receivable.
(e) To reclassify Frost Hanna's interest income from non-operating income
to operating revenue.
(f) To reflect the issuance of 150,000 shares of Frost Hanna common stock
to Harter Financial, Inc. for certain services provided in connection
with the Merger. No expense associated with the issuance of these
shares is included in the unaudited pro forma combined condensed
statements of operations.
P-6
<PAGE> 92
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE REGISTRANT
FROST HANNA CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY):
Report of Independent Certified Public Accountants (Arthur Andersen LLP).................................... F-3
Balance Sheets at December 31, 1998 and 1997................................................................ F-4
Statements of Operations for the years ended December 31, 1998 and 1997 and for
the cumulative period from inception (February 2, 1996) to
December 31, 1998......................................................................................... F-5
Statements of Stockholders' Equity for the years ended December 31, 1998 and
1997 and for the cumulative period from inception (February 2, 1996) to
December 31, 1998......................................................................................... F-6
Statements of Cash Flows for the years ended December 31, 1998 and 1997 and for
the cumulative period from inception (February 2, 1996) to
December 31, 1998......................................................................................... F-7
Notes to Financial Statements............................................................................... F-8
Condensed Balance Sheet at March 31, 1999 (unaudited)....................................................... F-13
Condensed Statements of Operations for the three month periods ended March 31,
1999 and 1998 and for the cumulative period from inception (February 2, 1996)
to March 31, 1999 (unaudited)............................................................................. F-14
Condensed Statements of Cash Flows for the three month periods ended March 31,
1999 and 1998 and for the cumulative period from inception (February 2, 1996)
to March 31, 1999 (unaudited)............................................................................. F-15
Notes to Condensed Financial Statements (unaudited)......................................................... F-17
BUSINESS TO BE ACQUIRED
GAINES BERLAND, INC.:
Independent Auditor's Report (Goldstein Golub Kessler LLP).................................................. F-23
Independent Auditor's Report (Lerner, Sipkin & Company)..................................................... F-24
</TABLE>
F-1
<PAGE> 93
<TABLE>
<S> <C>
Statements of Financial Condition as of
August 31, 1998 and 1997 and May 31, 1999 (unaudited)..................................................... F-25
Statements of Income for years ended August 31, 1998
and 1997 and the nine months ended
May 31, 1999 (unaudited) ................................................................................. F-26
Statements of Changes in Stockholders'
Equity for the three years ended
August 31, 1998........................................................................................... F-27
Statement of Changes in Stockholders' Equity
for the nine months ended May 31, 1999.................................................................... F-28
Statements of Cash Flows for years ended August 31, 1998 and 1997 and the nine
months ended May 31, 1999 (unaudited)..................................................................... F-29
Notes to Financial Statements............................................................................... F-31
</TABLE>
F-2
<PAGE> 94
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Frost Hanna Capital Group, Inc.:
We have audited the accompanying balance sheets of Frost Hanna Capital Group,
Inc. (a Florida corporation in the development stage) as of December 31, 1998
and 1997, and the related statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1998 and 1997 and the cumulative
period from inception (February 2, 1996) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Frost Hanna Capital Group, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1998 and 1997 and for the cumulative
period from inception (February 2, 1996) to December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
March 11, 1999.
F-3
<PAGE> 95
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including interest bearing amounts of $ 358,499 $ 776,067
$345,468 and $745,048 in 1998 and 1997, respectively
Prepaid expenses 17,725 8,015
Restricted short-term investments 4,816,700 4,608,759
----------- -----------
Total current assets 5,192,924 5,392,841
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,636 and $2,810 in 1998 and 1997, respectively 17,669 21,084
----------- -----------
Total assets $ 5,210,593 $ 5,413,925
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 17,878 $ 20,750
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 6 and 8)
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares
authorized, 2,657,202 shares issued and outstanding 266 266
Additional paid-in capital 5,803,400 5,803,400
Deficit accumulated during development stage (610,951) (410,491)
----------- -----------
Total stockholders' equity 5,192,715 5,393,175
----------- -----------
Total liabilities and stockholders' equity $ 5,210,593 $ 5,413,925
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these balance sheets.
F-4
<PAGE> 96
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Cumulative
Period From
Inception
For the Year Ended (February 2, 1996)
December 31, to December 31,
------------------------------ ------------------
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
----------- ----------- -----------
EXPENSES:
Officers' salaries 264,000 110,000 451,000
General and administrative 195,681 246,703 478,693
----------- ----------- -----------
Total operating expenses 459,681 356,703 929,693
INTEREST INCOME 259,221 58,656 318,742
----------- ----------- -----------
Net loss $ (200,460) $ (298,047) $ (610,951)
=========== =========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.08) $ (0.17) $ (.31)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,657,202 1,789,735 1,994,367
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
F-5
<PAGE> 97
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 2, 1996)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
-------------------------- Paid-In Development
Shares Amount Capital Stage Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sale of common stock to promoters 1,124,000 $ 112 $ -- $ -- $ 112
Sale of common stock 368,000 37 183,963 -- 184,000
Net loss for the period from inception
(February 2, 1996) to December 31, 1996 -- -- -- (112,444) (112,444)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1996 1,492,000 149 183,963 (112,444) 71,668
Sale of common stock 145,000 15 72,486 -- 72,501
Initial public offering of common stock, net 1,100,202 110 5,586,943 -- 5,587,053
Redemption of common stock (Note 7) (80,000) (8) (39,992) -- (40,000)
Net loss for the year ended December 31, 1997 -- -- -- (298,047) (298,047)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1997 2,657,202 266 5,803,400 (410,491) 5,393,175
Net loss for the year ended December 31, 1998 -- -- -- (200,460) (200,460)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1998 2,657,202 $ 266 $ 5,803,400 $ (610,951) $ 5,192,715
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-6
<PAGE> 98
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Cumulative
Period
From
Inception
For the Year Ended (February 2,
December 31, 1996) to
------------------------------ December 31,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (200,460) $ (298,047) $ (610,951)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation 1,826 2,598 4,636
Interest on restricted short-term investments (207,941) (48,690) (256,631)
Write-off of deferred registration costs -- 35,000 35,000
Changes in assets and liabilities:
Increase in prepared expenses (9,710) (8,015) (17,725)
(Decrease) increase in accrued expenses (2,872) 6,632 17,878
Decrease in accrued officers' salaries -- (44,000) --
----------- ----------- -----------
Net cash used in operating activities (419,157) (354,522) (827,793)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of restricted short-term investments -- (4,560,069) (4,560,069)
Capital expenditures -- (20,714) (23,894)
Reimbursement for destroyed equipment 1,589 -- 1,589
----------- ----------- -----------
Net cash provided by (used in) investing activities 1,589 (4,580,783) (4,582,374)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net -- 5,659,554 5,843,666
Redemption of common stock -- (40,000) (40,000)
Proceeds from officer loans -- 75,000 75,000
Payment of officer loans -- (75,000) (75,000)
Deferred registration costs -- -- (35,000)
----------- ----------- -----------
Net cash provided by financing activities -- 5,619,554 5,768,666
----------- ----------- -----------
Net (decrease) increase in cash (417,568) 684,249 358,499
CASH AND CASH EQUIVALENTS, beginning of period $ 776,067 $ 91,818 $ --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 358,499 $ 776,067 $ 358,499
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-7
<PAGE> 99
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. GENERAL
Frost Hanna Capital Group, Inc. (the "Company") was formed on February
2, 1996 to seek to effect a merger, exchange of capital stock, asset acquisition
or similar business combination (a "Business Combination") with an operating or
development stage business (an "Acquired Business"). The Company is currently in
the development stage and all efforts of the Company to date have been limited
to organizational activities.
As further discussed in Note 3, on October 16, 1997, the Company
consummated an initial public offering of its securities (the "Offering").
The Offering was a "blank check" offering. Blank check offerings are
characterized by an absence of substantive disclosures related to the use of the
net proceeds of the offering. Although substantially all of the net proceeds of
the Offering are intended to be utilized to effect a Business Combination, the
net proceeds are not being designated for any one specific purpose. Moreover,
since the Company had not identified an acquisition target, investors in the
Offering had virtually no substantive information available for advance
consideration of any Business Combination.
Upon completion of the Offering, 80% of the net proceeds therefrom were
placed in an interest bearing escrow account (the "Escrow Fund"), subject to
release upon the earlier of (i) written notification by the Company of its need
for all or substantially all of the Escrow Fund for the purpose of implementing
a Business Combination, or (ii) the exercise by certain shareholders of the
Redemption Offer (as hereinafter defined). Any interest earned on the Escrow
Fund shall remain in escrow and be used by the Company either (i) following a
Business Combination in connection with the operations of an Acquired Business
or (ii) in connection with the distribution to the shareholders through the
exercise of the Redemption Offer or the liquidation of the Company. In the event
the Company requires in excess of 20% of the net proceeds for operations,
Messrs. Richard B. Frost, Chief Executive Officer and Chairman of the Board of
Directors; and Mark J. Hanna, President and Director, have undertaken to waive
their salaries prospectively until the consummation by the Company of a Business
Combination. Investors' funds may be escrowed for an indefinite period of time
following the consummation of the Offering. Further, there can be no assurances
that the Company will ever consummate a Business Combination. In the event of
the exercise of the Redemption Offer, investors may only recoup a portion of
their investment. The Company currently has no plans in the event a Business
Combination is not consummated by a certain date.
The Company, prior to the consummation of any Business Combination,
will submit such transaction to the Company's shareholders for their approval.
In the event, however, that the holders of 30% or more of the shares of the
Company's common stock sold in the Offering which are outstanding vote against
approval of any Business Combination, the Company will not consummate such
Business Combination. The shares of common stock sold in the Offering may
sometimes be referred to as the "Public Shares" and the holders (whether current
or future) of the Public Shares are referred to as "Public Shareholders". All of
the officers and directors of the Company, who owned in the aggregate
approximately 43.6% of the common stock outstanding as of December 31, 1998 and
1997, have agreed to vote their respective shares of common stock in accordance
with the vote of the majority of the Public Shares with respect to any such
Business Combination.
F-8
<PAGE> 100
At the time the Company seeks shareholder approval of any potential
Business Combination, the Company will offer (the "Redemption Offer") to each of
the Public Shareholders who vote against the proposed Business Combination and
affirmatively request redemption, for a twenty (20) day period, to redeem all,
but not a portion of, their Public Shares, at a per share price equal to the
Company's liquidation value on the record date for determination of shareholders
entitled to vote upon the proposal to approve such Business Combination (the
"Record Date") divided by the number of Public Shares. The Company's liquidation
value will be equal to the Company's book value, as determined by the Company,
calculated as of the Record Date. In no event, however, will the Company's
liquidation value be less than the Escrow Fund, inclusive of any net interest
income thereon. If the holders of less than 30% of the Public Shares held by
Public Shareholders elect to have their shares redeemed, the Company may, but
will not be required to, proceed with such Business Combination. If the Company
elects to so proceed, it will redeem the Public Shares, based upon the Company's
liquidation value, from those Public Shareholders who affirmatively requested
such redemption and who voted against the Business Combination. However, if the
holders of 30% or more of the Public Shares held by Public Shareholders vote
against approval of any potential Business Combination, the Company will not
proceed with such Business Combination and will not redeem such Public Shares.
If the Company determines not to pursue a Business Combination, even if the
Public Shareholders of less than 30% of the Public Shares vote against approval
of the potential Business Combination, no Public Shares will be redeemed.
As a result of its limited resources, the Company will, in all
likelihood, have the ability to effect only a single Business Combination.
Accordingly, the prospects for the Company's success will be entirely dependent
upon the future performance of a single business.
The Company is in the development stage, has had no revenues to date
and is entirely dependent upon the proceeds of the Offering to commence
operations relating to selection of a prospective Acquired Business. The Company
will not receive any revenues, other than interest income, until, at the
earliest, the consummation of a Business Combination. In the event that the
proceeds of the Offering prove to be insufficient for purposes of effecting a
Business Combination, the Company will be required to seek additional financing.
In the event no Business Combination is identified, negotiations are incomplete
or no Business Combination has been consummated, and all of the proceeds of the
Offering other than the Escrow Fund have been expended, the Company currently
has no plans or arrangements with respect to the possible acquisition of
additional financing which may be required to continue the operations of the
Company. Furthermore, there is no assurance that the Company will be able to
successfully effect a Business Combination.
The accompanying information has been prepared to conform with Rule 419
of the Securities and Exchange Commission, which was adopted to strengthen the
regulation of securities offered by "blank check" companies. A blank check
company is defined as (a) a development stage company that has no specific
business plan or has indicated that its business plan is to engage in a merger
or acquisition with an unidentified company and (b) a company which issues
securities that, among other things, (i) are not quoted in the NASDAQ system,
or, (ii) in the case of a company which has been in continuous operation for
less than three years, has net tangible assets of less than $5,000,000. Although
the Company is a "blank check" company, it does not believe that Rule 419 is
applicable to it in view of the fact that its net tangible assets exceed
$5,000,000. Accordingly, investors in the Offering did not and do not receive
the substantive protection provided by Rule 419.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE> 101
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of
three months or less as of the date of purchase to be cash equivalents. As of
December 31, 1998, the balance in the Escrow Fund was $4,816,700, at amortized
cost which approximated fair value. The Escrow Fund is currently invested in
United States government-backed short-term securities. The Company intends to
hold the securities in the Escrow Fund to maturity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard ("SFAS") No. 107,
"Disclosures About Fair Value of Financial Instruments," requires disclosure of
the fair value of certain financial instruments. Cash and cash equivalents,
restricted short-term investments and accrued expenses are reflected in the
financial statements at their approximate fair value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets ranging from 3 to 5 years.
INCOME TAXES
The Company is in a loss position for both financial reporting and tax
purposes. The Company follows SFAS No. 109, "Accounting for Income Taxes", which
requires, among other things, recognition of future tax benefits measured at
enacted rates attributable to deductible temporary differences between financial
statement and income tax bases of assets and liabilities and to tax net
operating loss carryforwards to the extent that realization of said benefits is
more likely than not. The only item giving rise to such a deferred tax asset or
liability is the loss carryforward as a result of the operating loss incurred
for the period from inception (February 2, 1996) to December 31, 1998. However,
due to the uncertainty of the Company's ability to generate income in the
future, the deferred tax asset has been fully reserved.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" which is required to be adopted
in fiscal 1998. This statement establishes standards to reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in financial statements and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
statements of financial position. Comprehensive income is defined as the change
in equity during the financial reporting period of a business enterprise
resulting from nonowner sources. The Company has adopted SFAS 130. There is no
impact from SFAS 130 as net income is equal to comprehensive income for all
years presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which is required to be adopted in
fiscal 1998. This statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments
including, among other things, a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. The Company does not
have operations for 1998. Accordingly, adoption of this standard will not have a
material impact or require additional disclosure.
In February 1998, SFAS 132 was issued by the FASB establishing
accounting and reporting standards for pensions and other postretirement
benefits. The Company does not have any pensions or other postretirement
benefits. Accordingly, adoption of this standard will not affect the Company's
financial position or results of operations.
In June 1998, SFAS 133 was issued by the FASB establishing accounting
and reporting standards for derivative instruments and hedging activities. The
Company does not have any derivative instruments or use any hedging activities.
Accordingly, adoption of this standard will not affect the Company's financial
position or results of operations.
F-10
<PAGE> 102
3. PUBLIC OFFERING OF SECURITIES
In the Offering, which closed on October 16, 1997, the Company sold to
the public 1,100,202 shares of its common stock, at a price of $6 per share. Net
proceeds of the offering was $5,587,053.
In connection with the Offering, the Company has sold to the
underwriter, at an aggregate price of $110, warrants (the "Underwriter Options")
to purchase up to 110,020 shares of the Company's common stock at an exercise
price of $9.90 per share. The Underwriter Options are exercisable for a period
of four years commencing October 16, 1998.
The Company has accounted for the Underwriter Options issued in 1997 in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", which
applies to transactions with non-employees. In accordance with SFAS No. 123, the
issuance of the Underwriter Options was recorded as a cost of the Offering.
4. COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock. As of December 31, 1998, there is a minimum
of 97,232,778 authorized but unissued shares of common stock available for
issuance (after appropriate reserves for the issuance of common stock upon full
exercise of the Underwriter Options). The Company's Board of Directors has the
power to issue any or all of the authorized but unissued common stock without
shareholder approval. The Company currently has no commitments to issue any
shares of common stock other than as described in the Offering, however; the
Company will, in all likelihood, issue a substantial number of additional shares
in connection with a Business Combination. To the extent that additional shares
of common stock are issued, dilution of the interests of the Company's
shareholders participating in the Offering may occur.
5. RELATED-PARTY TRANSACTIONS
The Company has obtained $1,000,000 "key man" term policies insuring
each of the lives of Messrs. Frost and Hanna. In connection with the purchase of
such policies, The Marshal E. Rosenberg Organization, Inc., a firm affiliated
with Dr. Rosenberg, a Vice President, Treasurer and Director of the Company
received payments of approximately $5,624 and $4,464 during 1998 and 1997.
The Company uses the accounting firm of Freeman, Buzyner, & Gero for
its general accounting and bookkeeping services. Alan Freemen, managing partner,
was elected to the Board of Directors of the Company in July 1998. The Company
has paid Freeman, Buzyner, & Gero $5,000 in both 1998 and 1997 for accounting
services.
During 1997, certain directors of the Company made unsecured,
noninterest bearing loans totaling $75,000 to the Company for operating
expenses. These loans were repaid in 1997 from the proceeds of the Offering.
6. COMMITMENTS AND CONTINGENCIES
The Company entered into employment agreements with Messrs. Frost and
Hanna commencing on September 15, 1996 and requiring monthly salaries of $10,000
each plus monthly nonaccountable expense allowances of $1,000 each. The deferred
amounts due to Messrs. Frost and Hanna for the period from inception (February
2, 1996) to the date of closing of the public offering were paid upon the
closing.
The Company shall reimburse its officers and directors for any
accountable reasonable expenses incurred in connection with activities on behalf
of the Company. There is no limit on the amount of such reimbursable expenses,
and there will be no review of the reasonableness of such expenses by anyone
other than the Board of Directors, all of the members of which are officers.
Commencing on January 15, 1997, the Company moved its executive offices
to a new location pursuant to a three-year lease agreement at an approximate
cost per month of $3,291.
F-11
<PAGE> 103
7. REDEMPTION OF COMMON STOCK
In June 1997, the Company redeemed, at the original purchase price,
80,000 shares of its common stock from a third party.
8. SUBSEQUENT EVENT (UNAUDITED)
The Company is in proceedings to obtain stockholders approval to adopt
an Agreement and Plan of Merger dated as of May 27, 1999 (the "Merger
Agreement") among the Company, FHGB Acquisition Corporation ("FHGB"), a New York
corporation and wholly-owned subsidiary of the Company and Gaines Berland, Inc.,
a New York corporation, G-Trade Capital Corp., a New York corporation and
wholly-owned subsidiary of Gaines Berland, and Gaines Berland Holdings, Inc., a
Delaware corporation and wholly-owned subsidiary of Gaines Berland
(collectively, "Gaines Berland").
The Merger Agreement provides that FHGB will merge with and into Gaines
Berland, with Gaines Berland being the surviving corporation in the transaction
(the "Merger") as a wholly-owned subsidiary of the Company, and the separate
existence of FHGB will cease. The Merger will become effective upon the filing
of a Certificate of Merger with the Secretary of State of the State of New York.
It is anticipated that such filing will be made within fifteen days after all of
the conditions precedent to the Merger Agreement have been satisfied or waived.
Under the terms of the Merger Agreement, Gaines Berland shareholders
have the right to receive (subject to certain adjustments) 21,917 shares of the
Company's common stock in exchange for each share of Gaines Berland common stock
(the "Common Stock Conversion") held by them at the effective date of the Merger
(the "Effective Date"), not to exceed 16,000,000 shares of the Company's common
stock. Each share of FHGB's common stock issued and outstanding immediately
prior to the Effective Date shall, by virtue of the Merger, automatically be
converted into one share of the Company's common stock. None of the shares of
the Company's common stock currently outstanding will be converted or otherwise
modified in the Merger and all of such shares will continue to be outstanding
capital stock of the Company after the Effective Date.
The Merger Agreement may be terminated by the Company and/or Gaines
Berland under certain circumstances. If the Merger Agreement is terminated by
Gaines Berland because one or more of the representations made by the Company in
the Merger Agreement is not accurate or because the Company has breached any
covenant set forth in the Merger Agreement, then the Company must pay Gaines
Berland a fee equal to $250,000. If the Merger Agreement is terminated by the
Company because one or more of the representations made by Gaines Berland in the
Merger Agreement is not accurate or because Gaines Berland has breached any
covenant set forth in the Merger Agreement, then Gaines Berland must pay the
Company a fee equal to $250,000. If the Merger Agreement is terminated by Gaines
Berland because the Company fails to obtain the required shareholder vote for
the approval of the Merger due to the fact that the Company`s Board of Directors
withdrew its recommendation for the Merger in order to satisfy its fiduciary
duty to its shareholders, the Company must pay Gaines Berland a fee equal to
$100,000.
In the event that the net Escrow Fund of the Company is less than
$4,500,000 at the Effective Date, then Gaines Berland may elect to (i) terminate
the Merger or (ii) determine a new Common Stock Conversion ratio to be adjusted
to the nearest lower whole number by multiplying it by a fraction, the number of
which is $4,500,000 and the denominator of which is the net Escrow Fund.
At a pending special meeting of the Company's stockholders, the
stockholders will be requested (i) to consider and vote upon (A) a proposal to
amend the Articles of Incorporation to charge the Company's name to "G-Trade
Capital Holdings Corp.", (B) a proposal to amend the Company's Articles of
Incorporation to provide for an authorized class of preferred stock consisting
of 2,000,000 shares, par value $.0001 per share, with rights, preferences and
designations of such shares to be determined by the Board of Directors, (C) a
proposal to elect six members of the Company's Board of Directors, such members
to hold office commencing on the Effective Date of the Merger and until the next
annual meeting of stockholders, (D) a proposal to approve the Frost Hanna 1999
Performance Equity Plan, (E) a proposal to approve the Frost Hanna Annual
Incentive Bonus Plan and (F) a proposal to approve the Frost Hanna Special
Performance Incentive Plan and
F-12
<PAGE> 104
(ii) to transact any other business that may properly come before the special
meeting, or any adjournment or postponement thereof. Approval of the aforesaid
proposals will only be deemed to be effective if the Merger is consummated.
The Merger Agreement provides that, whether or not the Merger is
consummated, all expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses. The Merger Agreement also provides that the Company shall issue
150,000 restricted shares of the Company's common stock to Harter Financial,
Inc., a New York corporation in the business of providing diversified consulting
services related to mergers and acquisitions, for certain services provided in
connection with the Merger.
F-13
<PAGE> 105
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including interest
bearing amounts of $232,640 in 1999 and
$345,468 in 1998 $ 262,187 $ 358,499
Restricted short-term investments 4,862,391 4,816,700
Prepaid expenses 4,253 17,725
----------- -----------
Total current assets 5,128,831 5,192,924
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $6,064 in 1999 and $4,239 in 1998 15,844 17,669
----------- -----------
Total assets $ 5,144,675 $ 5,210,593
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 18,306 $ 17,878
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5 and 6)
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000
shares authorized, 2,657,202 shares
issued and outstanding in 1999 and 1998 266 266
Additional paid-in capital 5,803,400 5,803,400
Deficit accumulated during development stage (677,297) (610,951)
----------- -----------
Total stockholders' equity 5,126,369 5,192,715
----------- -----------
Total liabilities and stockholders' equity $ 5,144,675 $ 5,210,593
=========== ===========
</TABLE>
The accompanying notes to condensed financial statements are in integral
part of these balance sheets.
F-14
<PAGE> 106
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the
Cumulative
Period From
Inception
For the Three Months Ended (February 2,
March 31, 1996) to
------------------------------ March 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
----------- ----------- -----------
EXPENSES:
Officers' salaries 66,000 66,000 517,000
General and administrative 54,975 38,896 533,668
----------- ----------- -----------
Total operating expenses 120,975 104,896 1,050,668
----------- ----------- -----------
INTEREST INCOME 54,629 65,593 373,371
----------- ----------- -----------
Net loss $ (66,346) $ (39,303) $ (677,297)
=========== =========== ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.02) $ (0.01) $ (0.33)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,657,202 2,657,202 2,046,241
=========== =========== ===========
</TABLE>
The accompanying notes to condensed financial statements are an integral
part of these balance sheets.
F-15
<PAGE> 107
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the
Cumulative
Period From
Inception
For the Three Months Ended (February
March 31, 2, 1996) to
------------------------------ March 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (66,346) $ (39,303) $ (677,297)
Adjustments to reconcile net loss to net cash used
in operating activities-
Depreciation 1,825 1,826 6,461
Interest accretion on restricted short-term
investments (45,691) (50,776) (302,322)
Write-off of deferred registration costs -- -- 35,000
Loss on disposal of fixed assets -- 1,589 1,589
Changes in assets and liabilities:
Increase in prepaid expenses 13,472 -- (4,253)
Increase in accrued expenses 428 420 18,306
----------- ----------- -----------
Net cash used in operating activities (96,312) (86,244) (922,516)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of restricted short-term investments -- -- (4,560,069)
Capital expenditures -- -- (23,894)
----------- ----------- -----------
Net cash used in investing activities -- -- (4,583,963)
----------- ----------- -----------
</TABLE>
(Continued)
F-16
<PAGE> 108
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
For the
Cumulative
Period From
Inception
For the Three Months Ended (February 2,
March 31, 1996) to
------------------------------ March 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net $ -- $ -- $ 5,843,666
Redemption of common stock -- -- (40,000)
Proceeds from officer loans -- -- 75,000
Payment of officer loans -- -- (75,000)
Deferred registration costs -- -- (35,000)
----------- ----------- -----------
Net cash provided by financing activities -- -- 5,768,666
----------- ----------- -----------
Net (decrease) increase in cash (96,312) (86,244) 262,187
CASH AND CASH EQUIVALENTS, beginning of period 358,499 776,067 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 262,187 $ 689,823 $ 262,187
=========== =========== ===========
</TABLE>
The accompanying notes to condensed financial statements are an integral
part of these statements.
F-17
<PAGE> 109
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. GENERAL
Frost Hanna Capital Group, Inc. (the "Company") was formed on February
2, 1996 to seek to effect a merger, exchange of capital stock, asset acquisition
or similar business combination (a "Business Combination") with an operating or
development stage business (an "Acquired Business"). The Company is currently in
the development stage and all efforts of the Company to date have been limited
to organizational activities.
As further discussed in Note 3, on October 16, 1997, the Company
consummated an initial public offering of its securities (the "Offering").
The Offering was considered a "blank check" offering. Blank check
offerings are characterized by an absence of substantive disclosures related to
the use of the net proceeds of the offering. Although substantially all of the
net proceeds of the Offering are intended to be utilized to effect a Business
Combination, the net proceeds are not being designated for any one specific
purpose. Moreover, since the Company has not yet identified an acquisition
target, investors in the Offering will have virtually no substantive information
available for advance consideration of any Business Combination.
Upon completion of the Offering, 80% of the net proceeds therefrom were
placed in an interest bearing escrow account (the "Escrow Fund"), subject to
release upon the earlier of (i) written notification by the Company of its need
for all or substantially all of the Escrow Fund for the purpose of implementing
a Business Combination, or (ii) the exercise by certain shareholders of the
Redemption Offer (as hereinafter defined). Any interest earned on the Escrow
Fund shall remain in escrow and be used by the Company either (i) following a
Business Combination in connection with the operations of an Acquired Business
or (ii) in connection with the distribution to the shareholders through the
exercise of the Redemption Offer or the liquidation of the Company. In the event
the Company requires in excess of 20% of the net proceeds for operations,
Messrs. Richard B. Frost, Chief Executive Officer and Chairman of the Board of
Directors; and Mark J. Hanna, President and Director, have undertaken to waive
their salaries prospectively until the consummation by the Company of a Business
Combination. Investors' funds may be escrowed for an indefinite period of time
following the consummation of the Offering. Further, there can be no assurances
that the Company will ever consummate a Business Combination. In the event of
the exercise of the Redemption Offer, investors may only recoup a portion of
their investment. The Company currently has no expectation with regard to the
Company's plans in the event a Business Combination is not consummated by a
certain date.
The Company, prior to the consummation of any Business Combination,
will submit such transaction to the Company's shareholders for their approval.
In the event, however, that the holders of 30% or more of the shares of the
Company's common stock sold in the Offering which are outstanding vote against
approval of any Business Combination, the Company will not consummate such
Business Combination. The shares of common stock sold in the Offering may
sometimes be referred to as the "Public Shares" and the holders (whether current
or future) of the Public Shares are referred to as "Public Shareholders". All of
the officers and directors of the Company, who owned in the aggregate
approximately 43.6% of the common stock outstanding prior to the Offering, have
agreed to vote their respective shares of common stock in accordance with the
vote of the majority of the Public Shares with respect to any such Business
Combination.
At the time the Company seeks shareholder approval of any potential
Business Combination, the Company will offer (the "Redemption Offer") to each of
the Public Shareholders who vote against the proposed Business Combination and
affirmatively request redemption, for a twenty (20) day period, to redeem all,
but not a portion of, their Public Shares, at a per share price equal to the
Company's liquidation value on the record date for determination of shareholders
entitled to vote upon the proposal to approve such Business Combination (the
"Record Date") divided by the number of Public Shares. The Company's liquidation
value will be equal to the Company's book value, as determined by the Company,
calculated as of the Record Date. In no event, however, will the Company's
liquidation value be less than the Escrow Fund, inclusive of any
F-18
<PAGE> 110
net interest income thereon. If the holders of less than 30% of the Public
Shares held by Public Shareholders elect to have their shares redeemed, the
Company may, but will not be required to, proceed with such Business
Combination. If the Company elects to so proceed, it will redeem the Public
Shares, based upon the Company's liquidation value, from those Public
Shareholders who affirmatively requested such redemption and who voted against
the Business Combination. However, if the holders of 30% or more of the Public
Shares held by Public Shareholders vote against approval of any potential
Business Combination, the Company will not proceed with such Business
Combination and will not redeem such Public Shares. If the Company determines
not to pursue a Business Combination, even if the Public Shareholders of less
than 30% of the Public Shares vote against approval of the potential Business
Combination, no Public Shares will be redeemed.
As a result of its limited resources, the Company will, in all
likelihood, have the ability to effect only a single Business Combination.
Accordingly, the prospects for the Company's success will be entirely dependent
upon the future performance of a single business.
The Company is in the development stage, has had no revenues to date
and is entirely dependent upon the proceeds of the Offering to commence
operations relating to selection of a prospective Acquired Business. The Company
will not receive any revenues, other than interest income, until, at the
earliest, the consummation of a Business Combination. In the event that the
proceeds of the Offering prove to be insufficient for purposes of effecting a
Business Combination, the Company will be required to seek additional financing.
In the event no Business Combination is identified, negotiations are incomplete
or no Business Combination has been consummated, and all of the proceeds of the
Offering other than the Escrow Fund have been expended, the Company currently
has no plans or arrangements with respect to the possible acquisition of
additional financing which may be required to continue the operations of the
Company. Furthermore, there is no assurance that the Company will be able to
successfully effect a Business Combination.
The accompanying information has been prepared to conform with Rule 419
of the Securities and Exchange Commission, which was adopted to strengthen the
regulation of securities offered by "blank check" companies. A blank check
company is defined as (a) a development stage company that has no specific
business plan or has indicated that its business plan is to engage in a merger
or acquisition with an unidentified company and (b) a company which issues
securities that, among other things, (i) are not quoted in the NASDAQ system,
or, (ii) in the case of a company which has been in continuous operation for
less than three years, has net tangible assets of less than $5,000,000. Although
the Company is a "blank check" company, it does not believe that Rule 419 is
applicable to it in view of the fact that its net tangible assets exceed
$5,000,000. Accordingly, investors in the Offering did not and do not receive
the substantive protection provided by Rule 419. Additionally, there can be no
assurance that the United States Congress will not enact legislation which will
prohibit or restrict the sale of securities of "blank check" companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
In management's opinion, the accompanying unaudited interim financial
statements of the Company contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of March 31, 1999, and the results of operations for the three months
ended March 31, 1999 and 1998 and cash flows for the three months ended March
31, 1999 and 1998. The results of operations for the three months ended March
31, 1999 are not necessarily indicative of the results of operations or cash
flows which may be reported for the remainder of 1999.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-19
<PAGE> 111
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is defined as the
change in equity during the financial reporting period of a business enterprise
resulting from nonowner sources. The Company has adopted SFAS 130. There is no
impact from SFAS 130 as net income is equal to comprehensive income for all
years presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments including, among other things, a measure of segment profit or
loss, certain specific revenue and expense items, and segment assets. Adoption
of this standard did not have a material impact or require additional
disclosure.
In February 1998, SFAS 132 was issued by the FASB establishing
accounting and reporting standards for pensions and other postretirement
benefits. The Company does not have any pensions or other postretirement
benefits. Accordingly, adoption of this standard will not affect the Company's
financial position or results of operations.
In June 1998, SFAS 133 was issued by the FASB establishing accounting
and reporting standards for derivative instruments and hedging activities. The
Company does not have any derivative instruments or use any hedging activities.
Accordingly, adoption of this standard will not affect the Company's financial
position or results of operations.
3. PUBLIC OFFERING OF SECURITIES
In the Offering, which closed on October 16, 1997, the Company sold to
the public 1,100,202 shares of its common stock, at a price of $6 per share. Net
proceeds totaled $5,587,053.
In connection with the Offering, the Company has sold to the
underwriter, at an aggregate price of $110, warrants (the "Underwriter Options")
to purchase up to 110,020 shares of the Company's common stock at an exercise
price of $9.90 per share. The Underwriter Options are exercisable for a period
of four years commencing October 16, 1998.
The Company has accounted for the Underwriter Options issued in 1997 in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", which
applies to transactions with non-employees. In accordance with SFAS No. 123, the
issuance of the Underwriter Options was recorded as a cost of the Offering.
4. COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock. As of March 31, 1998, there is a minimum of
97,232,778 (unaudited) authorized but unissued shares of common stock available
for issuance (after appropriate reserves for the issuance of common stock upon
full exercise of the Underwriter Options). The Company's Board of Directors has
the power to issue any or all of the authorized but unissued common stock
without shareholder approval. The Company currently has no commitments to issue
any shares of common stock other than as described in the Offering; however, the
Company will, in all likelihood, issue a substantial number of additional shares
in connection with a Business Combination. To the extent that additional shares
of common stock are issued, dilution of the interests of the Company's
shareholders participating in the Offering may occur.
In June 1997, the Company redeemed, at the original purchase price,
80,000 shares of its common stock from a third party.
F-20
<PAGE> 112
5. COMMITMENTS AND CONTINGENCIES
The Company entered into employment agreements with Messrs. Frost and
Hanna commencing on September 15, 1996 and requiring monthly salaries of $10,000
each plus monthly nonaccountable expense allowances of $1,000 each. The deferred
amounts due to Messrs. Frost and Hanna for the period from inception (February
2, 1996) to the date of closing of the public offering were paid upon the
closing.
The Company shall reimburse its officers and directors for any
accountable reasonable expenses incurred in connection with activities on behalf
of the Company. There is no limit on the amount of such reimbursable expenses,
and there will be no review of the reasonableness of such expenses by anyone
other than the Board of Directors, all of the members of which are officers.
Commencing on January 15, 1997, the Company moved its executive offices
to a new location pursuant to a three-year lease agreement at an approximate
cost per month of $3,291.
6. SUBSEQUENT EVENT
The Company is in proceedings to obtain stockholders approval to adopt
an Agreement and Plan of Merger dated as of May 27, 1999 (the "Merger
Agreement") among the Company, FHGB Acquisition Corporation ("FHGB"), a New York
corporation and wholly-owned subsidiary of the Company and Gaines Berland, Inc.,
a New York corporation, G-Trade Capital Corp., a New York corporation and
wholly-owned subsidiary of Gaines Berland, and Gaines Berland Holdings, Inc., a
Delaware corporation and wholly-owned subsidiary of Gaines Berland
(collectively, "Gaines Berland").
The Merger Agreement provides that FHGB will merge with and into Gaines
Berland, with Gaines Berland being the surviving corporation in the transaction
(the "Merger") as a wholly-owned subsidiary of the Company, and the separate
existence of FHGB will cease. The Merger will become effective upon the filing
of a Certificate of Merger with the Secretary of State of the State of New York.
It is anticipated that such filing will be made within fifteen days after all of
the conditions precedent to the Merger Agreement have been satisfied or waived.
Under the terms of the Merger Agreement, Gaines Berland shareholders
have the right to receive (subject to certain adjustments) 21,917 shares of the
Company's common stock in exchange for each share of Gaines Berland common stock
held (the Common Stock Conversions") by them at the effective date of the Merger
(the "Effective Date"), not to exceed 16,000,000 shares of the Company's common
stock. Each share of FHGB's common stock issued and outstanding immediately
prior to the Effective Date shall, by virtue of the Merger, automatically be
converted into one share of the Company's common stock. None of the shares of
the Company's common stock currently outstanding will be converted or otherwise
modified in the Merger and all of such shares will continue to be outstanding
capital stock of the Company after the Effective Date.
The Merger Agreement may be terminated by the Company and/or Gaines
Berland under certain circumstances. If the Merger Agreement is terminated by
Gaines Berland because one or more of the representations made by the Company in
the Merger Agreement is not accurate or because the Company has breached any
covenant set forth in the Merger Agreement, then the Company must pay Gaines
Berland a fee equal to $250,000. If the Merger Agreement is terminated by the
Company because one or more of the representations made by Gaines Berland in the
Merger Agreement is not accurate or because Gaines Berland has breached any
covenant set forth in the Merger Agreement, then Gaines Berland must pay the
Company a fee equal to $250,000. If the Merger Agreement is terminated by Gaines
Berland because the Company fails to obtain the required shareholder vote for
the approval of the Merger due to the fact that the Company`s Board of Directors
withdrew its recommendation for the Merger in order to satisfy its fiduciary
duty to its shareholders, the Company must pay Gaines Berland a fee equal to
$100,000.
In the event that the net Escrow Fund of the Company is less than
$4,500,000 at the Effective Date, then Gaines Berland may elect to (i) terminate
the Merger or (ii) determine a new Common Stock Conversion ration to be adjusted
to the nearest lower whole number by multiplying it by a fraction, the number of
which is $4,500,000 and the denominator of which is the net Escrow Fund.
F-21
<PAGE> 113
At a pending special meeting of the Company's stockholders, the
stockholders will be requested (i) to consider and vote upon (A) a proposal to
amend the Articles of Incorporation to charge the Company's name to "G-Trade
Capital Holdings Corp.", (B) a proposal to amend the Company's Articles of
Incorporation to provide for an authorized class of preferred stock consisting
of 2,000,000 shares, par value $.0001 per share, with rights, preferences and
designations of such shares to be determined by the Board of Directors, (C) a
proposal to elect six members of the Company's Board of Directors, such members
to hold office commencing on the Effective Date of the Merger and until the next
annual meeting of stockholders, (D) a proposal to approve the Frost Hanna 1999
Performance Equity Plan, (E) a proposal to approve the Frost Hanna Annual
Incentive Bonus Plan and (F) a proposal to approve the Frost Hanna Special
Performance Incentive Plan and (ii) to transact any other business that may
properly come before the special meeting, or any adjournment or postponement
thereof. Approval of the aforesaid proposals will only be deemed to be effective
if the Merger is consummated.
The Merger Agreement provides that, whether or not the Merger is
consummated, all expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses. The Merger Agreement also provides that the Company shall issue
150,000 restricted shares of the Company's common stock to Harter Financial,
Inc., a New York corporation in the business of providing diversified consulting
services related to mergers and acquisitions, for certain services provided in
connection with the Merger.
F-22
<PAGE> 114
GOLDSTEIN GOLUB KESSLER LLP
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Gaines, Berland Inc.
We have audited the accompanying statement of financial condition of Gaines,
Berland Inc. as of August 31, 1998, and the related statements of income,
changes in stockholders' equity, changes in subordinated borrowing, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our 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 financial statements referred to above present fairly, in
all material respects, the financial position of Gaines, Berland Inc. as of
August 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 7, 1998
1185 Avenue of the Americas Suite 500 New York, NY 10036-2602
TEL 212 372 1800 FAX 212 372 1801 www.ggk.com
F-23
<PAGE> 115
Lerner, Sipkin & Company
Certified Public Accountants
40 Rector Street, Suite 1620
New York, NY 10006
Telephone (212) 571-0064 Facsimile (212) 571-0074
INDEPENDENT AUDITORS' REPORT
To the Officers and Directors of
Gaines, Berland Inc.
6900 Jericho Turnpike
Syosset, NY 11791
Gentlemen:
We have audited the accompanying statement of financial condition of Gaines,
Berland Inc. as of August 31, 1997, and the related statements of income (loss),
changes in stockholders' equity, and cash flows for the year then ended and the
year ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gaines, Berland Inc. as of
August 31, 1997, and the results of its operations and its cash flows for the
year then ended and the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The information contained in the accompanying
schedules is presented for purposes of additional analysis and is not a required
part of the basic financial statements, but is supplementary information
required by Rule 17a-5 of the Securities and Exchange Commission. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, the information is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ Lerner, Sipkin & Co., CPAs
-------------------------------------
Lerner, Sipkin & Co., CPAs
Certified Public Accountants (NY)
New York, NY
October 28, 1997
F-24
<PAGE> 116
GAINES, BERLAND INC.
Statements of Financial Condition
<TABLE>
<CAPTION>
August 31,
------------------------------- May 31,
1998 1997 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash $ 513,000 $ 227,000 $ 50,000
Receivable from clearing broker 9,433,000 9,580,000 11,611,000
Securities owned, at market value 2,537,000 7,305,000 5,464,000
Stock subscriptions receivable 3,193,000 - -
Loan receivable 359,000 378,000 294,000
Office furniture, equipt. & leaseholds 3,039,000 2,990,000 2,586,000
Deferred tax assets 550,000 - 736,000
Other assets 214,000 220,000 301,000
------------ ------------ ------------
Total assets $ 19,838,000 $ 20,700,000 $ 21,042,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Securities sold, not yet purchased, at market value $ 2,886,000 $ 6,198,000 $ 5,608,000
Commissions payable 900,000 3,000,000 1,885,000
Income taxes payable 2,334,000 2,725,000 569,000
Note Payable 833,000 - 83,000
Accrued expenses and other liabilities 3,313,000 2,063,000 2,964,000
------------ ------------ ------------
10,266,000 13,986,000 11,109,000
Subordinated liabilities 1,000,000 1,000,000 1,000,000
------------ ------------ ------------
Total liabilities 11,266,000 14,986,000 12,109,000
------------ ------------ ------------
Stockholders' equity:
Common - - -
$.01 stated value; 1,000 shares authorized; 782, 664 and 730
issued, respectively; 768, 536 and 730 shares outstanding,
respectively
Additional paid-in capital 3,295,000 1,002,000 3,114,000
Retained earnings 5,277,000 4,925,000 5,819,000
Less: Subscription receivable - - -
Treasury stock-cost - (213,000) -
------------ ------------ ------------
Total Stockholders' equity 8,572,000 5,714,000 8,933,000
------------ ------------ ------------
Total liabilities & stockholders' equity $ 19,838,000 $ 20,700,000 $ 21,042,000
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 117
GAINES, BERLAND INC.
Statements of Income
<TABLE>
<CAPTION>
Year Ended August 31, Nine months ended May 31,
----------------------------- -----------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Commissions $48,407,000 $51,851,000 $41,122,000 $41,441,000
Investment banking 4,795,000 3,281,000 1,120,000 2,718,000
Principal transactions 3,618,000 6,221,000 2,654,000 2,642,000
Interest 927,000 779,000 644,000 687,000
Other 148,000 223,000 43,000 110,000
----------- ----------- ----------- -----------
Total revenues 57,895,000 62,355,000 45,583,000 47,598,000
----------- ----------- ----------- -----------
EXPENSES:
Compensation and benefits 40,500,000 41,276,000 30,956,000 33,793,000
Occupancy and equipment 2,852,000 2,031,000 1,741,000 2,095,000
Communications 2,506,000 2,296,000 1,873,000 1,739,000
Brokerage, clearing and exchange fees 1,948,000 1,582,000 1,418,000 1,490,000
Business development 1,505,000 1,524,000 664,000 1,065,000
Professional fees 465,000 566,000 990,000 308,000
Loss on disposal of fixed assets 0 0 257,000 0
Other 7,332,0000 5,604,000 6,639,000 5,743,000
----------- ----------- ----------- -----------
Total expenses 57,108,000 54,879,000 44,538,000 46,233,000
----------- ----------- ----------- -----------
Income before provision for income taxes 787,000 7,476,000 1,045,000 1,365,000
Provision for income taxes 435,000 3,298,000 503,000 682,000
----------- ----------- ----------- -----------
Net income $ 352,000 $ 4,178,000 $ 542,000 $ 683,000
=========== =========== =========== ===========
Net income per common share $ 675 $ 8,423 $ 715 $ 1,289
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 118
GAINES, BERLAND INC.
Statements of Changes in Stockholders' Equity
For the Three Years Ended August 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
----------------- Paid-in Retained ------------------
Shares Amount Capital Earnings Shares Amount TOTAL
------ ------ ---------- ---------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1995 579 $ -- $ 676,000 $ 299,000 (128) (213,000) 762,000
Net income -- -- -- 448,000 -- -- 448,000
Sale of stock 5 -- 15,000 -- -- -- 15,000
---- ------ ---------- ---------- ----- --------- ---------
Balance at August 31, 1996 584 -- 691,000 747,000 (128) (213,000) 1,225,000
Net income -- -- -- 4,178,000 -- -- 4,178,000
Purchase and retirement of stock (10) -- (37,000) -- -- -- (37,000)
Sale of stock 90 -- 348,000 -- -- -- 348,000
---- ------ ---------- ---------- ----- --------- ---------
Balance at August 31, 1997 664 -- 1,002,000 4,925,000 (128) (213,000) 5,714,000
Net income -- -- -- 352,000 -- -- 352,000
Purchase of treasury stock -- -- -- -- (104) (1,234,000) (1,234,000)
Sale of stock 118 -- 2,508,000 -- 232 1,447,000 3,955,000
---- ------ ---------- ---------- ----- --------- ---------
Balance at August 31, 1998 782 $ 8 $3,510,000 $5,277,000 -- -- 8,787,000
==== ====== ========== ========== ===== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 119
GAINES, BERLAND INC.
Statement of Changes in Stockholders' Equity
For the Nine Months Ended May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
----------------- Paid-in Retained ------------------
Shares Amount Capital Earnings Shares Amount TOTAL
------ ------ ---------- ---------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1998 782 $ 8 $3,510,000 $5,277,000 -- -- $8,787,000
Net income 542,000 542,000
Purchase and retirement of
stock (38) (238,000) (238,000)
Cancellation of Stock
subscriptions (19) (215,000) (215,000)
Sale of stock 5 57,000 57,000
---- ------ ---------- ---------- ----- --------- ----------
Balance at May 31, 1999 730 3,114,000 5,819,000 -- -- 8,933,000
==== ====== ========== ========== ===== ========= ==========
</TABLE>
See accompanying notes to Financial Statements
F-28
<PAGE> 120
GAINES, BERLAND INC.
Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended August 31,
-------------------------- Nine months ended
1998 1997 May 31, 1999
----------- ----------- -----------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 352,000 $ 4,178,000 $ 542,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 553,000 588,000 447,000
Deferred income taxes (2,512,000) - (186,000)
Loss on disposal of fixed assets - - 257,000
Decrease (increase) in operating assets:
Receivable from clearing broker 147,000 (5,055,000) (2,178,000)
Securities owned, at market value 4,768,000 (6,753,000) (2,927,000)
Loan receivable 19,000 175,000 65,000
Other assets 6,000 (462,000) (87,000)
(Decrease) increase in operating liabilities:
Securities sold, not yet purchased, at market value (3,312,000) 6,022,000 2,722,000
Commissions payable (2,100,000) 55,000 985,000
Income taxes payable 1,571,000 2,396,000 (1,765,000)
Accrued expenses and other liabilities 1,250,000 1,462,000 (349,000)
----------- ----------- -----------
Net cash provided by (used in) operating activities 742,000 2,606,000 (2,474,000)
----------- ----------- -----------
Cash flows form investing activities:
Purchase of fixed assets (602,000) (2,814,000) (258,000)
Sale of fixed assets - - 7,000
----------- ----------- -----------
Net cash used in investing activities (602,000) (2,814,000) (251,000)
----------- ----------- -----------
Cash flows from financing activities:
Sale of common stock 547,000 348,000 57,000
Subscriptions received - - 3,193,000
Purchase of common stock - - (238,000)
Purchase of treasury stock (401,000) (37,000) -
Repayment of Note (750,000)
----------- ----------- -----------
Net cash provided by financing activities 146,000 311,000 2,262,000
----------- ----------- -----------
Net increase (decrease) in cash 286,000 103,000 (463,000)
Cash at beginning of year 227,000 124,000 513,000
----------- ----------- -----------
Cash at end of year $ 513,000 $ 227,000 $ 50,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the years, and the nine months for:
Interest $ 1,706,000 $ 150,000 $ 2,011,000
Income Taxes $ 1,366,000 $ 907,000 $ 2,448,000
</TABLE>
See accompanying notes to Financial Statements.
F-29
<PAGE> 121
See accompanying notes to financial statements.
F-30
<PAGE> 122
GAINES, BERLAND INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Principal Business Activity
Gaines, Berland Inc. ("Gaines Berland") is a broker-dealer registered under the
Securities and Exchange Commission (the "SEC") and is a member of the National
Association of Securities Dealers, Inc. (the "NASD"). Gaines Berland is engaged
in the securities, brokerage and trading business and provides investment
banking and research services.
2. Significant Accounting Policies
Gaines Berland records transactions in securities and related revenue and
expenses on a trade-date basis.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require the use of estimates by management.
Office furniture, equipment and leasehold improvements are stated at cost, net
of accumulated depreciation and amortization of $1,788,000, $1,341,000 and
$788,000 at May 31, 1999 and August 31, 1998 and 1997, respectively.
Depreciation on office furniture and equipment is provided on a straight-line or
cost-recovery basis using estimated useful lives of 3 to 10 years. Leasehold
improvements are amortized over the lesser of the economic useful life of the
improvement or the term of the lease.
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
The results of operations for the nine month periods ended May 31, 1999 and 1998
are not necessarily indicative of the results of operations expected for the
years ended August 31, 1999 and 1998. The financial statements included herein
should be read in conjunction with the financial statements and notes thereto
for the years ended August 31, 1998 and 1997.
The accompanying unaudited interim consolidated financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair statement of the results of the interim period.
3. Securities Owned and Securities Sold, Not Yet Purchased
Securities owned and securities sold, not yet purchased, at May 31, 1999, August
31, 1998 and 1997 consist of:
<TABLE>
<CAPTION>
9 months Years Ended August 31,
Ended May 31, 1999 1998 1997
------------------------- ----------------------------------------------------------------
(Unaudited)
Securities Sold Securities Sold Securities Sold,
Securities Not Yet Securities Not Yet Securities Not Yet
Owned Purchased Owned Purchased Owned Purchased
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Equities 949,000 $6,598,000 $685,000 $2,852,000 $5,522,000 $6,047,000
Warrants 4,515,000 10,000 1,852,000 34,000 1,783,000 151,000
---------- --------- ---------- ---------- ---------- ----------
$5,464,000 5,608,000 $2,537,000 $2,886,000 $7,305,000 $6,198,000
========== ========= ========== ========== ========== ==========
</TABLE>
Securities owned, traded on a national exchange are valued at the bid price.
Securities sold, not yet purchased, traded on a national exchange are valued at
the ask price. The resulting unrealized gains and losses are reflected in
revenue.
Subsequent market fluctuations may require purchasing the securities sold, not
yet purchased, at prices that differ from the market value reflected on the
statement of financial condition.
F-31
<PAGE> 123
Warrants received by Gaines Berland as a part of its underwriting activities do
not have a readily available public market and have been valued at fair value
using methods determined in good faith by management, after consideration of all
pertinent information. Because of inherent uncertainty in the valuation of these
warrants, management's estimate of fair value may differ from the values that
would have been used had a ready market existed, and the differences could be
material.
4. Receivable from Clearing Broker and Concentration of Credit Risk
The clearing and depository operations for Gaines Berland's and customers'
securities transaction are provided by one broker pursuant to a clearance
agreement.
At May 31, 1999, August 31, 1998 and August 31, 1997, all of the securities
owned and securities sold, not yet purchased, and the amount receivable from
clearing broker reflected on the statement of financial condition are security
positions with and amounts receivable from this clearing broker.
Gaines Berland does not carry accounts for customers or perform custodial
functions related to customers' securities. Gaines Berland introduces all of its
customer transactions, which are not reflected in these financial statements, to
its clearing broker, which maintains the customers' accounts and clears such
transactions.
Gaines Berland has agreed to indemnify its clearing broker for losses that it
may sustain from the customer accounts introduced by Gaines Berland. As of May
31, 1999, August 31, 1998 and August 31, 1997, there were no unsecured amounts
owed to the clearing broker by these customers in connection with normal margin,
cash and delivery against payment transactions.
Gaines Berland maintains cash in bank deposit accounts which, at times, may
exceed federally insured limits. Gaines Berland has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
on cash.
5. Note Payable
As a part of a buy-out agreement with one of Gaines Berland's stockholders,
Gaines Berland signed a promissory note in the amount of $1,000,000 maturing
June 30, 1999. The promissory note is payable in 12 equal monthly installments
and bears no interest.
Because of its short-term nature, the fair value of the note payable
approximates its carrying amount.
6. Income Taxes
Deferred income tax benefits result from the net effect of unrealized
appreciation on securities positions and the accrual of settlements.
The provision (benefit) for income taxes for the nine months ended May 31, 1999
and years ended August 31, 1998 and 1997 consists of:
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED AUGUST 31,
ENDED MAY 31, ---------------------------
1999 1998 1997
---------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Current:
Federal $ 500,000 $ 2,195,000 $ 969,000
State and local 181,000 752,000 367,000
---------- ------------ ------------
Total current 681,000 2,947,000 1,336,000
---------- ------------ ------------
Deferred:
Federal (130,000) (1,804,000) 1,400,000
State and local (48,000) (708,000) 562,000
---------- ------------ ------------
Total deferred (178,000) (2,512,000) 1,962,000
---------- ------------ ------------
</TABLE>
F-32
<PAGE> 124
<TABLE>
<S> <C> <C> <C>
Total $ 503,000 $ 435,000 $ 3,298,000
========== ============ ============
</TABLE>
The provision (benefit) for income taxes for the nine months ended May 31,
1999 and the years ended August 31, 1998 and 1997 differs from the amount
computed using the federal statutory rate of 34% as a result of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED, YEAR ENDED AUGUST 31,
MAY 31 1999 ----------------------------------------
(unaudited) 1998 1997
-------------------------- ------------------ ------------------
<S> <C> <C> <C>
Tax (benefit) at federal statutory rate 34% 34% 34%
State income taxes 9 9 9
Other 5 12 1
-------------------------- ------------------ ------------------
48% 55% 44%
========================== ================== ==================
</TABLE>
The net deferred tax assets and liabilities at May 31, 1999, August 31, 1998 and
August 31, 1997 are comprised as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED AUGUST 31,
----------------------------------
MAY 31, 1999 1998 1997
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Unrealized gains on securities $(12,000) $ (30,000) $ (1,962,000)
Temporary Differences 748,000 580,000 --
--------------- --------------- ---------------
Total deferred tax (liability) asset $ 736,000 $ 550,000 $ (1,962,000)
=============== =============== ===============
</TABLE>
7. Net Capital Requirement
As a registered broker-dealer, Gaines Berland is subject to the SEC's Uniform
Net Capital Rule 15c3-1 (the "Net Capital Rule"), which requires the maintenance
of minimum net capital. Gaines Berland computes its net capital under the
aggregate indebtedness method permitted by rule 15c3-1, which requires that
Gaines Berland maintain minimum net capital, as defined, of the greater of
6-2/3% of aggregate indebtedness, as defined, or $100,000, or an amount
determined based on the market price and number of securities in which Gaines
Berland is a market-maker, not to exceed $1,000,000.
At May 31, 1999, and 1998, Gaines Berland had net capital, as defined of
$4,900,637 and $3,037, 952, which exceeded its minimum net capital requirements
of $366,782 and $408,500 by $4,533,855 and $2,629,452, respectively.
At August 31, 1998 and 1997, Gaines Berland had net capital, as defined, of
$1,807,781 and $3,739,225, which exceeded its minimum net capital requirements
of $492,003 and $388,607 by $1,315,778 and $3,350,618, respectively.
8. Profit-Sharing Plan
Gaines Berland is a sponsor of a defined contribution profit-sharing plan for
its eligible employees. Contributions to the plan, if any, are determined by the
employer and come out of its current accumulated profits not to exceed the
amount permitted under the Internal Revenue Code as a deductible expense. Gaines
Berland made no contribution to the plan for the nine months ended May 31, 1999
and the years ended August 31, 1998 and 1997.
9. Subordinated Borrowing
The subordinated borrowing has been approved by the NASD for inclusion in
computing Gaines Berland's net capital pursuant to the Net Capital Rule. This
loan, which matures on July 22, 1999, has been established with a stockholder of
Gaines Berland and bears interest at a rate of 7-7/8% per annum, resulting in
interest expense of $60,000 for the nine months ended May 31, 1999 and $80,000
for each of the years ended August 31, 1998 and 1997.
F-33
<PAGE> 125
Based on borrowing rates currently available to Gaines Berland for loans with
similar terms and average maturities, the fair value of the subordinated
borrowing approximates the carrying amount.
10. Commitments and Contingencies
Gaines Berland leases office space at several locations including Bethpage, NY,
which is leased for a period of ten years expiring May 30, 2007. Gaines Berland
occupies additional office space for its branches in California and Florida
under month-to-month leases. The minimum annual rent payments for these leases
are as follows:
<TABLE>
<CAPTION>
Year Ending August 31,
<S> <C>
1999 $ 1,357,000
2000 1,270,000
2001 1,302,000
2002 1,335,000
2003 1,368,000
Thereafter 5,439,000
----------------
$ 12,071,000
================
</TABLE>
The leases contain provisions for escalations based on increases in certain
costs incurred by the lessor. Gaines Berland has the option to renew one of
these leases for an additional three-year period. Rent expense was $1,998,000
and $1,444,000 for the years ended August 31, 1998 and 1997, respectively.
Gaines Berland has been named as defendant in certain legal actions in the
ordinary course of business. At May 31, 1999 and August 31, 1998 and 1997,
Gaines Berland had accrued $1,800,000 and $1,400,000 and $650,000, respectively,
for settlement of such legal proceedings.
11. Financial Instruments
Gaines Berland's activities include the purchase and sale of warrants. Warrants
give the buyer the right to purchase securities at a specific price until a
specified expiration date. These financial instruments are used to conduct
trading activities and manage market-risk.
Gaines Berland may receive warrants as part of its underwriting activities for
initial public offerings (see Note 3).
Such transactions may result in credit exposure in the event the counterparty to
the transaction is unable to fulfill its contractual obligations. Substantially
all of the warrants are traded on national exchanges, which can be subject to
market risk in the form of price fluctuations.
The following summarizes warrants held at August 31, 1998:
<TABLE>
<CAPTION>
AVERAGE MARKET
NOTIONAL AMOUNT MARKET VALUE VALUE FOR THE YEAR
--------------- ------------ ------------------
<S> <C> <C> <C>
Assets $33,620,000 $1,852,000 $2,988,000
Liabilities 218,000 34,000 6,000
</TABLE>
Net revenue from principal transactions consists of equity activities.
12. Earnings Per Common Share
F-34
<PAGE> 126
In March 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). This
statement changes the calculation and presentation of earnings per common shares
(EPS). The new presentation consists of basic EPS, which includes no dilution
and is computed by dividing net income by the weighted-average number of common
shares outstanding for the period, and diluted EPS, which is similar to the
previously disclosed fully diluted EPS. SFAS 128 will result in basic EPS
results higher than EPS as calculated under the previous method. All earnings
per share amounts for all periods have been presented, and where appropriate,
restated to conform to the SFAS 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED AUGUST 31, 1998
-----------------------------------------
MAY 31, 1999 MAY 31, 1998 1998 1997 1996
------------ ------------ --------- ---------- ---------
(Unaudited)
----------
<S> <C> <C> <C> <C> <C>
Numerator for basic and diluted EPS:
Net income $ 542,000 $ 683,000 $ 352,000 $ 4,178,000 $ 448,000
Denominator for basic and diluted EPS:
Weighted-average common shares 758 530 521 496 454
Basic and diluted EPS $ 715 $ 1,289 $ 675 $ 8,423 $ 987
</TABLE>
F-35
<PAGE> 127
INDEX OF EXHIBITS AND APPENDICES
EXHIBIT A Agreement and Plan of Merger
EXHIBIT B Form of Articles of Amendment to Articles of Incorporation
EXHIBIT C 1999 Performance Equity Plan
EXHIBIT D Annual Incentive Bonus Plan
EXHIBIT E Special Performance Incentive Plan
EXHIBIT F Form of Employment Agreement with Principal Shareholders
APPENDIX A Form of Proxy
APPENDIX B Certain Statutory Provisions of the Florida Business
Corporation Act
<PAGE> 128
EXHIBIT "A"
AGREEMENT AND PLAN OF MERGER
As of May 27, 1999
among
FROST HANNA CAPITAL GROUP, INC.
and
FHGB ACQUISITION CORPORATION
and
GAINES, BERLAND INC.
and
G-TRADE CAPITAL CORP.
and
GAINES BERLAND HOLDINGS, INC.
<PAGE> 129
INDEX OF HEADINGS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
Definitions...........................................................................................................1
ARTICLE II
The Merger............................................................................................................5
2.1 The Merger...................................................................................................5
2.2 Effect of the Merger.........................................................................................5
2.3 Articles of Incorporation; Bylaws............................................................................5
2.4 Directors and Officers.......................................................................................5
2.5 Effect on Capital Stock......................................................................................5
2.5.1 Conversion of Gaines Berland Common Stock........................................................5
2.5.2 Capital Stock of FHGB............................................................................6
2.5.3 Adjustments to Conversion Ratio..................................................................6
2.6 Surrender of Certificates....................................................................................6
2.6.1 Exchange Agent...................................................................................6
2.6.2 Frost Hanna to Provide Frost Hanna Common Stock..................................................6
2.6.3 Conversion Procedures............................................................................6
2.6.4 Distributions With Respect to Unexchanged Shares.................................................7
2.6.5 Transfers of Ownership...........................................................................7
2.6.6 Required Withholding.............................................................................7
2.6.7 No Liability.....................................................................................7
2.7 No Further Ownership Rights in Gaines Berland Common Stock..................................................7
2.8 Lost, Stolen or Destroyed Certificates......................................................................7
2.9 Classes of Stock Entitled to Vote on Merger.................................................................8
2.10 Former Name of Gaines Berland...............................................................................8
ARTICLE III
Representations and Warranties of Gaines Berland......................................................................8
3.1 Organization.................................................................................................8
3.2 Authorization; Enforceability................................................................................8
3.3 No Violation or Conflict.....................................................................................8
3.4 Consent of Governmental Authorities..........................................................................9
3.5 Financial Statements.........................................................................................9
3.6 Compliance with Laws.........................................................................................9
3.7 Legal Proceedings...........................................................................................10
3.8 Brokers.....................................................................................................10
3.9 Absence of Material Adverse Changes.........................................................................10
3.10 Articles of Incorporation, Bylaws and Minute Books..........................................................11
3.11 Capitalization..............................................................................................11
3.12 Rights, Warrants, Options...................................................................................11
3.13 Properties..................................................................................................12
3.14 Governmental Authorizations.................................................................................12
3.15 Insurance...................................................................................................13
</TABLE>
-i-
<PAGE> 130
<TABLE>
<S> <C>
3.16 Employment Matters.........................................................................................13
(a) Labor Unions....................................................................................13
(b) Employment Policies.............................................................................13
(c) Employment Agreements...........................................................................13
(d) Employee Benefit Plans..........................................................................13
(e) Personnel.......................................................................................14
(f) Labor Practices.................................................................................14
3.17 Material Agreements........................................................................................15
3.18 List of Accounts...........................................................................................16
3.19 Inventory of Securities....................................................................................16
3.20 Related Party Transactions.................................................................................16
3.21 Tax Matters................................................................................................16
3.22 Guaranties.................................................................................................17
3.23 Absence of Certain Business Practices......................................................................17
3.24 Proxy Statement and Disclosure Documents...................................................................17
3.25 Broker-Dealer Registration; Regulatory Issues..............................................................17
3.26 Year 2000 Problems.........................................................................................19
3.27 Investment Representations.................................................................................19
3.28 Subscription Receivables; Energy Fund......................................................................19
3.29 Disclosure.................................................................................................19
ARTICLE IV
Representations and Warranties of Frost Hanna and FHGB...............................................................20
4.1 Organization................................................................................................20
4.2 Authorization; Enforceability...............................................................................20
4.3 No Violation or Conflict....................................................................................20
4.4 Consent of Governmental Authorities.........................................................................20
4.5 Financial Statements; Commission Reports....................................................................21
4.6 Compliance with Laws........................................................................................21
4.7 Legal Proceedings...........................................................................................22
4.8 Brokers.....................................................................................................22
4.9 Absence of Material Adverse Changes.........................................................................22
4.10 Articles of Incorporation, Bylaws and Minute Books..........................................................22
4.11 Capitalization..............................................................................................22
4.12 Rights, Warrants, Options...................................................................................22
4.13 Properties..................................................................................................23
4.14 Governmental Authorizations.................................................................................23
4.15 Insurance...................................................................................................23
4.16 Employment Matters..........................................................................................23
(a) Labor Unions....................................................................................23
(b) Employment Policies.............................................................................23
(c) Employment Agreements...........................................................................23
(d) Employee Benefit Plans..........................................................................24
(e) Personnel.......................................................................................24
(f) Labor Practices.................................................................................24
4.17 Material Agreements.........................................................................................24
4.18 List of Accounts............................................................................................25
4.19 Business....................................................................................................25
4.20 Related Party Transactions..................................................................................25
4.21 Tax Matters.................................................................................................25
4.22 Guaranties..................................................................................................26
4.23 Validity of Frost Hanna Common Stock........................................................................26
</TABLE>
-ii-
<PAGE> 131
<TABLE>
<S> <C>
4.24 Absence of Certain Business Practices...............................................................26
4.25 Proxy Statements....................................................................................26
4.26 Disclosure..........................................................................................26
ARTICLE V
Covenants............................................................................................................26
5.1 Interim Operations of Frost Hanna and Gaines Berland........................................................27
5.2 Access......................................................................................................28
(a) Frost Hanna Access..............................................................................28
(b) Gaines Berland Access...........................................................................28
5.3 Confidentiality.............................................................................................28
5.4 Notification................................................................................................29
5.5 Consent of Governmental Authorities and Others..............................................................29
5.6 Reasonable Efforts..........................................................................................29
5.7 No Other Negotiations.......................................................................................29
5.8 Cooperation.................................................................................................30
5.9 Shareholder Approval........................................................................................30
5.10 Public Statements...........................................................................................30
5.11 Commission Filings..........................................................................................30
5.12 Listing.....................................................................................................30
5.13 Employment Agreements.......................................................................................30
5.14 No Securities Transactions..................................................................................30
5.15 Old Gaines Berland Plan.....................................................................................31
5.16 Investment Intent Letters...................................................................................31
5.17 Name Change.................................................................................................31
5.18 Resignations................................................................................................31
5.19 Shareholders' Agreements....................................................................................31
5.20 Employment Agreements.......................................................................................31
5.21 Demand Registration Rights..................................................................................31
5.22 Releases....................................................................................................31
5.23 Life Insurance..............................................................................................31
ARTICLE VI
Additional Agreements................................................................................................31
6.1 Investigation; Notices......................................................................................31
6.2 Survival of the Representations and Warranties..............................................................31
6.3 Securities Activities.......................................................................................32
6.4 Voting Agreement............................................................................................32
6.5 Tax-Free Reorganization.....................................................................................32
6.6 Indemnification; Insurance..................................................................................32
6.7 Further Assurances..........................................................................................33
6.8 Frost Hanna Amendment to Articles of Incorporation..........................................................33
6.9 Use of Name.................................................................................................33
ARTICLE VII
Closing; Conditions Precedent; Termination...........................................................................33
7.1 Closing.....................................................................................................33
7.2 Mutual Conditions Precedent.................................................................................33
(a) Governmental Consents...........................................................................33
(b) No Litigation...................................................................................33
</TABLE>
-iii-
<PAGE> 132
<TABLE>
<S> <C>
(c) Shareholder Approval............................................................................34
(d) Releases........................................................................................34
7.3 Conditions Precedent to the Obligations of Gaines Berland...................................................34
(a) Representations and Warranties True.............................................................34
(b) Covenants Performed.............................................................................34
(c) Consents........................................................................................34
(d) Opinion of Counsel..............................................................................34
(e) Certificate of Frost Hanna......................................................................34
(f) Minimum Cash....................................................................................34
(g) Resignations....................................................................................34
(h) Records.........................................................................................34
(i) Employment Agreements...........................................................................34
7.4 Conditions Precedent to the Obligations of Frost Hanna and FHGB.............................................35
(a) Representations and Warranties True.............................................................35
(b) Covenants Performed.............................................................................35
(c) No Material Adverse Change......................................................................35
(d) Consents........................................................................................35
(e) Opinion of Counsel..............................................................................35
(f) Certificate of Gaines Berland, G-Trade and Holdings.............................................35
(g) Auditor's Letters...............................................................................35
(h) Shareholders' Agreements........................................................................35
(i) Employment Agreements...........................................................................35
(j) Dissenters' Rights..............................................................................35
(k) Investment Intent Letters.......................................................................36
7.5 Termination; Termination Fee................................................................................36
ARTICLE VIII
Miscellaneous........................................................................................................37
8.1 Notices.....................................................................................................37
8.2 Entire Agreement............................................................................................37
8.3 Assignment..................................................................................................37
8.4 Waiver and Amendment........................................................................................37
8.5 No Third Party Beneficiary..................................................................................37
8.6 Severability................................................................................................37
8.7 Expenses....................................................................................................38
8.8 Headings....................................................................................................38
8.9 Counterparts; Construction..................................................................................38
8.10 Litigation; Prevailing Party................................................................................38
8.11 Injunctive Relief...........................................................................................38
8.12 Remedies Cumulative.........................................................................................38
8.13 Participation of Parties; Construction: Independent Counsel.................................................38
8.14 Governing Law...............................................................................................38
8.15 Jurisdiction and Venue......................................................................................38
LIST OF SCHEDULES..........................................................................................................42
LIST OF EXHIBITS...........................................................................................................44
</TABLE>
- iv -
<PAGE> 133
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into as of May
27, 1999, among Frost Hanna Capital Group, Inc., a Florida corporation ("Frost
Hanna"), FHGB Acquisition Corporation, a New York corporation ("FHGB'), Gaines,
Berland Inc., a New York corporation ("Gaines Berland"), G-Trade Capital Corp.,
a New York corporation ("G-Trade"), and Gaines Berland Holdings, Inc., a
Delaware corporation which is a wholly-owned subsidiary of Gaines Berland
("Holdings").
PRELIMINARY STATEMENTS
Gaines Berland is a privately-held securities brokerage and trading firm
which provides investment banking and research services and is engaged in the
institutional and retail sale of securities, G-Trade is a wholly-owned
subsidiary of Gaines Berland which is a broker in formation and Holdings is a
newly-formed subsidiary of Gaines Berland which has not conducted any
operations.
Frost Hanna is a public company that was formed to seek to effect a merger
or other business combination with an operating or development-stage company.
Frost Hanna, Gaines Berland, G-Trade and Holdings believe that it is
in their respective best interests and in the best interests of their respective
shareholders for FHGB to merge with and into Gaines Berland, all upon the terms
and subject to the conditions of this Agreement.
AGREEMENT
In consideration of the preliminary statements and the respective
covenants, representations and warranties contained in this Agreement, the
parties agree as set forth below.
I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the meanings indicated below:
"Affiliate" has the meaning specified in Rule 144 promulgated by the
Commission under the Securities Act.
"Agreement" means this Agreement and Plan of Merger, together with all
exhibits and schedules referred to herein.
"Certificate of Merger" has the meaning set forth in Section 2.1.
"CERCLA" has the meaning set forth in Section 3.6(b) of this Agreement.
"Certificates" has the meaning set forth in Section 2.6.3.
"Closing" has the meaning set forth in Section 7.1 of this Agreement.
"Closing Date" has the meaning set forth in Section 7.1 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
A-1
<PAGE> 134
"Consent" means any consent, approval, waiver or authorization of, or any
registration, qualification, designation, declaration or filing with any Person.
"Conversion Ratio" has the meaning set forth in Section 2.5.1.
"Effective Date" has the meaning set forth in Section 7.1.
"Effective Time" has the meaning set forth in Section 7.1.
"Employment Agreements" has the meaning specified in Section 5.13.
"Environmental Laws" means all Laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, Laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or industrial, toxic
or hazardous substances or wastes into the environment, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
"ERISA" has the meaning set forth in Section 3.16(d) of this Agreement.
"Exchange Agent" has the meaning set forth in Section 2.6.1.
"Florida BCA" means the Business Corporation Act of the State of Florida,
as amended.
"FHGB Common Stock" means the common stock of FHGB, par value, $.0001 per
share.
"Frost Hanna Common Stock" means the common stock of Frost Hanna, par
value $.0001 per share.
"Frost Hanna Commission Reports" has the meaning specified in Section 4.5.
"Frost Hanna Financial Statements" has the meaning specified in Section
4.5.
"Frost Hanna Material Adverse Effect" has the meaning set forth in Section
4.1 of this Agreement.
"Frost Hanna Material Agreements" has the meaning set forth in Section
4.17 of this Agreement.
"Frost Hanna Proxy Statement" means the proxy statement to be provided to
the shareholders of Frost Hanna in connection with the meeting of its
shareholders contemplated hereby.
"Frost Hanna Related Party" and "Frost Hanna Related Parties" have the
meanings set forth in Section 4.20 of this Agreement.
"G-Trade Common Stock" means the common stock of G-Trade, no par value.
"Gaines Berland Common Stock" means the common stock of Gaines Berland,
par value $.01 per share.
"Gaines Berland Disclosure Document" means the disclosure materials to be
provided to the shareholders of Gaines Berland in connection with the meeting of
its shareholders contemplated hereby.
"Gaines Berland Financial Statements" has the meaning set forth in Section
3.5 of this Agreement.
"Gaines Berland Intellectual Property" has the meaning set forth in
Section 3.13(b) of this Agreement.
A-2
<PAGE> 135
"Gaines Berland Material Adverse Effect" has the meaning set forth in
Section 3.1 of this Agreement.
"Gaines Berland Material Agreements" has the meaning set forth in Section
3.17 of this Agreement.
"Gaines Berland Pension Plan" has the meaning set forth in Section 3.16(d)
of this Agreement.
"Gaines Berland Plans" has the meaning set forth in Section 3.16(d) of
this Agreement.
"Gaines Berland Related Party" and "Gaines Berland Related Parties" have
the meanings set forth in Section 3.20.
"Gaines Berland Welfare Plan" has the meaning set forth in Section 3.16 of
this Agreement.
"Governmental Authority" means any federal, state, municipal, local,
foreign or other judicial, arbitral, governmental or regulatory authority or
organization, body, entity, agency or instrumentality, or any political
subdivision thereof.
"Guaranty" means, as to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees the
indebtedness, liabilities or obligations of others, directly or indirectly, in
any manner, including agreements to purchase such indebtedness, liabilities or
obligations, or to supply funds to or in any manner invest in others, or to
otherwise assure the holder of such indebtedness, liabilities or obligations
against loss, or any "keep well" or similar arrangement.
"Holdings Common Stock" means the common stock of Holdings, par value
$.001 per share.
"Holdings Preferred Stock" means the preferred stock of Holdings, par
value $.001 per share.
"Intangible Property" means, as to any Person, all foreign and domestic
trademarks, trademark rights, trade names, trade dress, trade name rights,
service marks, brands and copyrights (or pending registrations and applications
therefor) owned, used or controlled by such Person, and all other intellectual
property and proprietary rights, including trade secrets, technology, know-how
and other information owned, held or used by such Person.
"IRS" means the Internal Revenue Service or any successor agency.
"Knowledge" or "known" means, with respect to any representation or
warranty or other statement in this Agreement qualified by the knowledge of any
party, that such party has made a reasonable investigation as to the matters
that are the subject of such representation, warranty or other statement. Where
reference is made to the knowledge of any party, such reference shall mean the
knowledge of the officers and directors of such party and their respective
Subsidiaries, all of whom shall be deemed to have conducted the investigation
required by this definition. The "knowledge" of all of the Principal
Shareholders shall be imputed to Gaines Berland.
"Law" means each and every law, ordinance, statute, common law,
regulation, judgment, directive, ruling, order and other legal requirement of
any Governmental Authority, self-regulatory organization or other entity,
including, but not limited to, those relating to securities and broker-dealers.
"Merger" has the meaning set forth in Article II of this Agreement.
"NASD" means National Association of Securities Dealers, Inc.
"New York BCL" mean the New York Business Corporation Law, as amended.
"Old Gaines Berland Plan" has the meaning specified in Section 5.15.
"Order" means any judgment, injunction, notice, suit, decree or order of
any Governmental Authority, court, ordinance, entity, arbitral entity or
self-regulatory organization.
"PBGC" has the meaning set forth in Section 3.16(d) of this Agreement.
A-3
<PAGE> 136
"Permit" means any consent, authorization, approval registration,
qualification, filing, franchise, certificate, license or permit of any
Governmental Authority, self-regulatory organization or other Person.
"Person" means any natural person, corporation, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or Governmental Authority or any other entity.
"Principal Shareholders" shall mean the individuals whose names are set
forth on Schedule 1.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SRO Reports" means, as to a Person, all forms, reports, statements and
documents required to be filed by a Person with NASD, any stock exchange or any
other self-regulatory organizations since January 1, 1995.
"Subsidiary" of any Person means any Person, whether or not capitalized,
in which such Person owns, directly or indirectly, an equity interest of 50% or
more, or any Person which may be controlled, directly or indirectly, by such
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Tax" means any federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer,
transportation, transportation excise, registration, value added, documentary
stamp, excise, natural resources, severance, stamp, occupation, premium,
windfall profit, environmental, customs, duties, real property, personal
property, capital stock, social security, unemployment, disability, payroll,
license, employee or other withholding, or other tax or governmental charge, of
any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing; the foregoing shall include any
transferee or secondary liability for a Tax and any liability assumed by
agreement or arising as a result of being (or ceasing to be) a member of any
affiliated group (or being included (or required to be included) in any tax
return relating thereto).
"Termination Date" has the meaning set forth in Section 7.5 of this
Agreement.
"Voting Agreement" has the meaning set forth in Section 6.4 of this
Agreement.
II
THE MERGER
2.1 THE MERGER. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and the applicable provisions of
applicable Law, FHGB shall be merged with and into Gaines Berland (the
"Merger"), the separate corporate existence of FHGB shall cease and Gaines
Berland shall continue as the surviving corporation. Gaines Berland as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation". Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a Certificate
of Merger, substantially in the form of Exhibit G, with the Secretary of State
of the State of New York in accordance with the relevant provisions of the New
York BCL ("Certificate of Merger").
2.2 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement and the applicable provisions
of New York Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Gaines Berland and FHGB shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Gaines Berland and FHGB shall become
the debts, liabilities and duties of the Surviving Corporation.
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2.3 ARTICLES OF INCORPORATION; BYLAWS.
2.3.1 At the Effective Time, the Articles of
Incorporation of Gaines Berland, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by Law and such Articles
of Incorporation of the Surviving Corporation.
2.3.2 The Bylaws of Gaines Berland, as in effect
immediately prior to the Effective Time, shall be, at the Effective Time,
the Bylaws of the Surviving Corporation until thereafter amended.
2.4 DIRECTORS AND OFFICERS. The initial directors of the
Surviving Corporation shall be the directors of Gaines Berland immediately prior
to the Effective Time, until their respective successors are duly elected or
appointed and qualified. The initial officers of the Surviving Corporation shall
be the officers of Gaines Berland immediately prior to the Effective Time, until
their respective successors are duly appointed.
2.5 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of the parties, or the holders of
any of the following securities, the following shall occur:
2.5.1 Conversion of Gaines Berland Common Stock. Each
share of Gaines Berland Common Stock issued and outstanding immediately
prior to the Effective Time, will be canceled and extinguished and
automatically converted (subject to Section 2.5.3) into the right to
receive 21,917 shares of Frost Hanna Common Stock ("Conversion Ratio")
upon surrender of the certificate representing such share of the Gaines
Berland Common Stock in the manner provided herein (or in the case of a
lost, stolen or destroyed certificate, upon delivery of an affidavit (or
other indemnity required by the Exchange Agent) in the manner provided
herein); provided, however, that in the event that shares of Gaines
Berland Common Stock are redeemed after the date hereof pursuant to the
terms of agreements with shareholders in effect on the date hereof or
Frost Hanna consents to the issuance of additional shares of Gaines
Berland Common Stock pursuant to Section 5.1(ii), then the Conversion
Ratio shall be deemed automatically modified to the nearest lower whole
number equal to the product of (i) 21,917 and (ii) a fraction, the
numerator of which is 730 and the denominator of which is equal to the
number of shares of Gaines Berland Common Stock outstanding immediately
prior to the Effective Time, assuming that none of Gaines Berland's
shareholders had exercised dissenters' rights; provided, further,
notwithstanding anything to the contrary set forth herein, in no event
shall the aggregate number of shares issuable under this Section 2.5.1
exceed 16,000,000, less the number of shares of Frost Hanna Common Stock
into which Gaines Berland Common Stock would be converted into but for the
exercise of dissenters' rights by the holders of Gaines Berland Common
Stock. Subject to applicable terms, if any shares of Gaines Berland Common
Stock outstanding immediately prior to the Effective Time are unvested or
are subject to a repurchase option, risk of forfeiture or other condition
under any applicable restricted stock purchase agreement or other
agreement with Gaines Berland, then the shares of Frost Hanna Common
Stock issued in exchange for such shares of Gaines Berland Common Stock
will also be unvested to the same extent and subject to the same
repurchase option, risk of forfeiture or other condition, as applicable,
and the certificates representing such shares of Frost Hanna Common Stock
may accordingly be marked with appropriate legends.
2.5.2 Capital Stock of FHGB. Each share of FHGB Common
Stock issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger, automatically be converted into one
validly issued, fully paid and nonassessable share of Common Stock of the
Surviving Corporation. Each certificate evidencing ownership of shares of
FHGB Common Stock shall evidence ownership of such shares of capital stock
of the Surviving Corporation.
2.5.3 Adjustments to Conversion Ratio. Subject to Section
7.3(f), notwithstanding anything to the contrary set forth herein, if the
amount of cash and cash equivalents of Frost Hanna less the amount of
liabilities of Frost Hanna plus any amounts paid or payable to NASDAQ for
Small Cap listing fees by Frost Hanna plus any director's and officer's
insurance premiums paid or payable by Frost Hanna (all calculated in
accordance with generally accepted accounting principles) at the Effective
Time ("Net Cash Assets") is less than $4,500,000, then the Conversion
Ratio shall be automatically adjusted to the nearest lower whole number by
multiplying it by a fraction, the numerator of which is 4,500,000 and the
denominator of which is the Net Cash Assets.
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2.6 SURRENDER OF CERTIFICATES.
2.6.1 Exchange Agent. American Stock Transfer & Trust
Company, Frost Hanna's transfer agent, shall act as the exchange agent
(the "Exchange Agent") in the Merger.
2.6.2 Frost Hanna to Provide Frost Hanna Common Stock.
Promptly after the Effective Time, Frost Hanna shall make available to the
Exchange Agent for exchange in accordance with this Article II, the shares
of Frost Hanna Common Stock issuable pursuant hereto in exchange for
outstanding shares of Gaines Berland Common Stock.
2.6.3 Conversion Procedures. Promptly after the Effective
Time, Frost Hanna shall cause the Exchange Agent to mail to each holder of
record (as of the Effective Time) a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
outstanding shares of Gaines Berland Common Stock whose shares were
converted into the right to receive shares of Frost Hanna Common Stock in
the Merger, (i) a letter of transmittal in customary form (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Frost Hanna may reasonably specify ) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Frost Hanna Common Stock. Upon surrender of
Certificates for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Frost Hanna, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be entitled
to receive in exchange therefor certificates representing the number of
whole shares of Frost Hanna Common Stock into which their shares of Gaines
Berland Common Stock were converted at the Effective Time in accordance
with the Conversion Ratio, and the Certificates so surrendered shall
forthwith be canceled. Until so surrendered, outstanding Certificates will
be deemed from and after the Effective Time, for all corporate purposes to
evidence only the ownership of the number of full shares of Frost Hanna
Common Stock into which such shares of Gaines Berland Common Stock shall
have been so converted. All certificates issued as a result of the
conversion of Gaines Berland Common Stock in the Merger representing Frost
Hanna Common Stock will bear restrictive legends to the effect that the
shares represented by such certificates have not been registered under the
Securities Act and can only be transferred in compliance therewith.
2.6.4 Distributions With Respect to Unexchanged Shares.
No dividends or other distributions declared or made after the date of
this Agreement with respect to Frost Hanna Common Stock with a record date
after the Effective Time will be paid to the holders of any unsurrendered
Certificates with respect to the shares of Frost Hanna Common Stock
represented thereby (subject to Section 2.8) until the holders of record
of such Certificates shall surrender such Certificates in accordance with
this Section 2.6 (subject to Section 2.8). Subject to applicable Law,
following surrender of any such Certificates, the Exchange Agent shall
deliver to the record holders thereof, without interest, certificates
representing whole shares of Frost Hanna Common Stock issued in exchange
therefor.
2.6.5 Transfers of Ownership. If certificates
representing shares of Frost Hanna Common Stock are to be issued in a name
other than that in which the Certificates surrendered in exchange therefor
are registered, it will be a condition of the issuance thereof that the
Certificates so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the persons requesting such exchange
will have paid to Frost Hanna or any agent designated by it any transfer
or other taxes required by reason of the issuance of certificates
representing shares of Frost Hanna Common Stock in any name other than
that of the registered holder of the Certificates surrendered, or
established to the satisfaction of Frost Hanna or any agent designated by
it that such tax has been paid or is not payable.
2.6.6 Required Withholding. Each of the Exchange Agent,
Frost Hanna and the Surviving Corporation shall be entitled to deduct and
withhold from any consideration payable or otherwise deliverable pursuant
to this Agreement to any holder or former holder of Gaines Berland Common
Stock such amounts as may be required to be deducted or withheld therefrom
under the Code or under any provision of state, local or foreign tax law
or under any other applicable Law. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all purposes under
this Agreement as having been paid to the person to whom such amounts
would otherwise have been paid.
2.6.7 No Liability. Notwithstanding anything to the
contrary, neither the Exchange Agent, Frost Hanna, the Surviving
Corporation nor any party hereto shall be liable to a holder of shares of
Frost Hanna Common Stock or Gaines Berland
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Common Stock for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
2.7 NO FURTHER OWNERSHIP RIGHTS IN GAINES BERLAND COMMON STOCK.
All shares of Frost Hanna Common Stock issued upon the surrender for exchange of
shares of Gaines Berland Common Stock in accordance with the terms hereof shall
be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Gaines Berland Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Gaines Berland Common Stock which were outstanding immediately prior to the
Effective Time. If after the Effective Time Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
2.8 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Frost Hanna Common Stock into which the shares of
Gaines Berland Common Stock represented by such Certificates were converted;
provided, however, that Frost Hanna may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Frost
Hanna Common Stock, require the owner of such lost, stolen or destroyed
Certificates to indemnify Frost Hanna against any claim that may be made against
Frost Hanna, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
2.9 CLASSES OF STOCK ENTITLED TO VOTE ON MERGER. With respect to
both FHGB and Gaines Berland, the only class of stock of the constituent
corporations entitled to vote on the Merger is FHGB Common Stock and Gaines
Berland Common Stock.
2.10 FORMER NAME OF GAINES BERLAND. Gaines Berland was
incorporated in the State New York on September 23, 1983 under the name "Gaines,
Berland, Shaffer & Silvershein Inc." On May 25, 1984, Gaines Berland filed a
certificate of amendment to its certificate of incorporation to change its name
to "Gaines, Berland Inc."
III
REPRESENTATIONS AND WARRANTIES OF GAINES BERLAND
In order to induce Frost Hanna and FHGB to enter into this Agreement and
to consummate the transactions contemplated hereby, Gaines Berland, makes the
representations and warranties set forth below to Frost Hanna and FHGB.
3.1 ORGANIZATION. Each of Gaines Berland, and its Subsidiaries is
a corporation duly organized, validly existing and in good standing under the
Laws of its state of incorporation. Each of Gaines Berland and its Subsidiaries
is duly qualified to transact business as a foreign corporation in all
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
results of operations, assets, liabilities, prospects or business of Gaines
Berland and its Subsidiaries on a consolidated basis (a "Gaines Berland Material
Adverse Effect"). Each jurisdiction in which Gaines Berland or any of its
Subsidiaries is qualified to transact business as a foreign corporation or
licensed to do business as a broker-dealer is listed on Schedule 3.1. Each of
Gaines Berland and its Subsidiaries has the corporate authority to (i) own or
lease and operate its properties and (ii) conduct its business as presently
conducted. Each of Gaines Berland and its Subsidiaries has the corporate
authority to execute, deliver and perform this Agreement. G-Trade is a broker in
formation, which has filed (or will file) all necessary items with the
Commission, NASD and other Governmental Authorities and self-regulatory
organizations for it to become a licensed broker-dealer. G-Trade is an
newly-formed company, which has never engaged in any business activity other
than seeking to obtain all necessary Consents and Permits to become a registered
broker-dealer. Holdings is a newly formed company, which has never engaged in
any business activity.
3.2 AUTHORIZATION; ENFORCEABILITY. Subject to the receipt of
shareholder approval by the shareholders of Gaines Berland, the execution,
delivery and performance of this Agreement by Gaines Berland and its
Subsidiaries and the consummation by them of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action
on the part of Gaines Berland and its Subsidiaries. This Agreement has been duly
executed and delivered by Gaines Berland and its Subsidiaries, and constitutes
the legal, valid and binding obligations of Gaines Berland and its Subsidiaries,
enforceable against them in accordance with their terms, except to the extent
that their enforcement is limited by bankruptcy, insolvency, reorganization or
other Laws relating to or affecting the enforcement of creditors' rights
generally or by general principles of equity.
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3.3 NO VIOLATION OR CONFLICT. The execution, delivery and
performance of this Agreement by Gaines Berland and its Subsidiaries and the
consummation by them of the transactions contemplated hereby and thereby: (i) do
not and will not violate or conflict with any provision of Law or any Order
specifically naming Gaines Berland, or any of its Subsidiaries or any Principal
Shareholder, or any provision of Gaines Berland's or any of its Subsidiaries'
Articles or Certificate of Incorporation or Bylaws; and (ii) do not and will
not, with or without the passage of time or the giving of notice, (a) result in
the breach of, or constitute a default, cause the acceleration of performance,
permit the unilateral modification or termination of, or require any Consent
under, or result in the creation of any lien, charge or encumbrance upon any
property or assets of Gaines Berland or any of its Subsidiaries or pursuant to,
any material instrument or agreement to which any of them is a party or by which
any of them or their respective properties may be bound or affected; or (b)
result in any violation, suspension, revocation, impairment, forfeiture or
nonrenewal of any Permit or Consent.
3.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Except as set forth on
Schedule 3.4, and other than in connection with the New York BCL, no Consent or
Permit from, of or with any Governmental Authority or self-regulatory
organization is required to be made or obtained by Gaines Berland or any of its
Subsidiaries or any Principal Shareholder in connection with the execution,
delivery or performance by them of this Agreement or the consummation by them of
the transactions contemplated hereby. There is no unresolved objection to the
Merger made by any Governmental Authority or self-regulatory organization.
3.5 FINANCIAL STATEMENTS. Gaines Berland has previously delivered
to Frost Hanna, a true and complete copy of the balance sheets of Gaines Berland
for the fiscal years ended August 31, 1998, 1997, 1996, 1995 and 1994, and the
statements of income, cash flows and retained earnings of Gaines Berland for the
fiscal years then ended, including any related notes, audited for the 1998,
1997, 1996, 1995 and 1994 fiscal years by Gaines Berland's independent certified
public accountants pursuant to their audit of the financial records of Gaines
Berland, and the balance sheets of Gaines Berland as of February 28, 1999, and
the statements of income, cash flows and retained earnings of Gaines Berland for
the three-month period ended February 28, 1999 (collectively, the "Gaines
Berland Financial Statements"). Except as indicated on Schedule 3.5, the Gaines
Berland Financial Statements: (i) have been prepared in accordance with the
books of account and records of Gaines Berland, which books and records have
been maintained in a consistent manner; (ii) fairly present in all material
respects Gaines Berland's and its Subsidiaries' financial condition, assets,
liabilities, equity and the results of their operations at the dates and for the
periods specified in those statements; and (iii) have been prepared in
accordance with generally accepted accounting principles (except for a lack of
footnotes with respect to unaudited financial statements) consistently applied
with prior periods. Other than as disclosed by the Gaines Berland Financial
Statements dated February 28, 1999 or specifically noted on Schedule 3.17,
neither Gaines Berland nor any of its Subsidiaries has any liabilities,
commitments or obligations (which reasonably could be expected to be material to
Gaines Berland and its Subsidiaries on a consolidated basis) of any nature
whatsoever, whether accrued, contingent or otherwise (other than nonmaterial
liabilities, commitments or obligations incurred since February 28, 1999 in the
ordinary course of business consistent with past practices to Persons other than
Affiliates of Gaines Berland) or any unrealized or anticipated losses (which
reasonably could be expected to be material to Gaines Berland and its
Subsidiaries on a consolidated basis) from any commitments of Gaines Berland or
any of its Subsidiaries, and, to Gaines Berland's knowledge, there is no
reasonable basis for assertion against Gaines Berland or any of its Subsidiaries
of any such liability, commitment, obligation or loss. Except as set forth on
Schedule 3.5, to Gaines Berland's knowledge, there is no basis for assertion
against Gaines Berland any of its Subsidiaries of any claim, liability,
commitment or obligation of any nature, whether absolute, accrued or contingent,
and whether due or to become due, which is not included, disclosed or noted in
the Gaines Berland Financial Statements which could be, individually or in the
aggregate, material. G-Trade and Holdings have no liabilities of any nature,
whether accrued, contingent or otherwise, except for liabilities not exceeding
$100,000 in the aggregate. Except as set forth on Schedule 3.5, G-Trade and
Holdings have no assets in excess of $100,000 in the aggregate.
3.6 COMPLIANCE WITH LAWS.
(a) Except as previously disclosed in writing,
each of Gaines Berland and its Subsidiaries and their respective
officers, directors and employees and the Principal Shareholders
are, and during the past six years have been, in compliance with
all Laws and Orders applicable to Gaines Berland and its
Subsidiaries and their respective businesses and properties.
Except as previously disclosed in writing, neither Gaines Berland
nor any of its Subsidiaries nor any of the Principal Shareholders
nor any of there Affiliates has received notification from any
Governmental Authority or self-regulatory organization asserting
that any of them may not (or questioning or investigating whether
any of them may not) be in material compliance with or may have
violated any Law or Order, or threatening to revoke any Consent
or Permit, and neither Gaines Berland nor any of its Subsidiaries
nor any of their respective officers, directors or employees is
subject to any agreement or consent decree or Order with any
Governmental Authority or self-regulatory
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organization arising out of previously asserted violations nor is
there any factual basis for any of the foregoing. Frost Hanna has
been furnished with true and correct copies of all records of
inspections, audits and reports of any of Gaines Berland's or its
Subsidiaries' businesses or and properties during the last three
years under applicable Laws or conducted by insurance companies,
self-regulatory organizations, consultants or other Persons; and
all deficiencies noted therein have been corrected. Frost Hanna
has been furnished with true and correct copies of all
correspondence and other filings made to or received from any
Governmental Authority or self-regulatory organization regarding
Gaines Berland or any of its Subsidiaries within the last three
years.
(b) Without limiting the generality of Section
3.6(a), there are, with respect to Gaines Berland and its
Subsidiaries, no past or present material violations of any
Environmental Laws, releases of any material into the
environment, actions, activities, circumstances, conditions,
events, incidents or contractual obligations which may give rise
to any common law or other legal liability, including, without
limitation, liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and
the rules and regulations promulgated thereunder ("CERCLA"), or
similar Laws.
3.7 LEGAL PROCEEDINGS. Except as previously disclosed in writing,
neither Gaines Berland nor any of its Subsidiaries (and to Gaines Berland's
knowledge none of its officers, directors or employees) nor any of the Principal
Shareholders is, a party to any pending or, to the knowledge of Gaines Berland,
threatened, legal, administrative or other proceeding, arbitration or
investigation relating to Gaines Berland's or any of its Subsidiaries'
businesses or the securities business, and Gaines Berland has no knowledge of
any set of facts which could reasonably be expected to result in any legal,
administrative or other proceeding, arbitration or investigation involving any
of them. Except as previously disclosed in writing, neither Gaines Berland nor
any of its Subsidiaries (and to Gaines Berland's knowledge, none of its
officers, directors or employees) is subject to any Order of any court, judicial
entity, arbitral entity, self-regulatory organization or Governmental Authority.
Each of Gaines Berland and its Subsidiaries and their respective officers,
directors and employees is in compliance with the terms of each Order set forth
on Schedule 3.7. None of the items set forth on Schedule 3.7 could, individually
or in the aggregate, reasonably be expected to have a Gaines Berland Material
Adverse Effect. Gaines Berland is of the reasonable belief, after consultation
with counsel, and based upon Gaines Berland's reasonable belief as to how a
court would apply the law to the facts, that the final resolution of the
arbitration matter styled Gaines v. Gaines Berland et al. will not result in any
material liability to Gaines Berland.
3.8 BROKERS. Except as otherwise set forth on Schedule 3.8,
neither Gaines Berland nor any of its Subsidiaries has employed any financial
advisor, broker or finder and none has incurred and none will incur any
broker's, finder's, investment banking or similar fees, commissions or expenses
to any other party in connection with the transactions contemplated by this
Agreement.
3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth on
Schedule 3.9, or otherwise expressly disclosed herein, from August 31, 1998 to
the date hereof: (i) each of Gaines Berland and its Subsidiaries has conducted
its businesses in the ordinary and usual course consistent with past practices;
(ii) there has been no occurrence which could reasonably be expected to cause or
have a Gaines Berland Material Adverse Effect; (iii) neither Gaines Berland nor
any of its Subsidiaries has engaged or agreed to engage in any of the actions
described in Section 5.1 (except subsections (xiii) and (xvi) thereof).
3.10 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. True and
complete copies of the Articles or Certificates of Incorporation, as amended to
date, Bylaws, as amended to date, and minute books of Gaines Berland and its
Subsidiaries have been delivered by Gaines Berland to Frost Hanna. Such
documents contain complete and accurate records in all material respects and
have embodied therein copies of minutes of all meetings and actions by written
consent of the incorporators, boards of directors (and committees thereof) and
shareholders of such entities from the date of incorporation to the date hereof;
and such items accurately reflect all material actions taken by such Persons.
3.11 CAPITALIZATION. The authorized capital stock of Gaines
Berland consists solely of 1,000 shares of Gaines Berland Common Stock and
100,000 shares of preferred stock, par value $10.00 per share. The authorized
capital stock of G-Trade consists of 200 shares of G-Trade Common Stock. The
authorized capital stock of Holdings consists of 1,000,000 shares of Holdings
Common Stock and 1,000,000 shares of Holding Preferred Stock. None of such
preferred stock is issued and outstanding. There are 730 shares of Gaines
Berland Common Stock issued and outstanding, which are legally and beneficially
owned by the parties set forth on Schedule 3.11 hereto. There are 100 shares and
100 shares, respectively, of G-Trade Common Stock and Holdings Common Stock
issued and outstanding, all of which are legally and beneficially owned by
Gaines Berland. The Principal Shareholders own in the
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aggregate 567 shares of Gaines Berland Common Stock, and Gaines Berland owns 100
and 100 shares of G-Trade Common Stock and Holdings Common Stock, respectively,
free and clear of any liens, charges, encumbrances, shareholders' agreements
(except those referenced on Schedule 3.11, which shall be terminated prior to
the Effective Time), voting agreements, rights of first refusal, voting trusts
or other restrictions of any nature whatsoever, and a vote of such shares in
favor of the Merger and the transactions contemplated hereby would be sufficient
for shareholder approval thereof. Except as set forth on Schedule 3.11, to
Gaines Berland's knowledge, no Gaines Berland Common Stock owned by any Person
other than a Principal Shareholder is subject to any lien, charge, encumbrance,
shareholders' agreement, voting agreement, right of first refusal, voting trust
or other restriction. All shares of Gaines Berland's and each of its
Subsidiaries' outstanding capital stock have been duly authorized, are validly
issued and outstanding, and are fully paid and nonassessable. No securities
issued by Gaines Berland or any of its Subsidiaries from the date of
incorporation to the date hereof were issued in violation of any statutory or
common law preemptive rights. There are no dividends which have accrued or been
declared but are unpaid on the capital stock of Gaines Berland or any of its
Subsidiaries. All Taxes (including documentary stamp taxes) required to be paid
in connection with the issuance by Gaines Berland or any of its Subsidiaries of
their capital stock have been paid. All authorizations required to be obtained
from or registrations required to be effected with any Person in connection with
the issuances of securities by Gaines Berland, and each of its Subsidiaries from
their respective dates of incorporation to the date hereof have been obtained or
effected and all securities of Gaines Berland and its Subsidiaries have been
issued in accordance with the provisions of all applicable securities and other
Laws. G-Trade and Holdings are Gaines Berland's only Subsidiaries; and neither
Holdings nor G-Trade has any Subsidiaries. Except as set forth on Schedule 3.11,
neither Gaines Berland nor any of its Subsidiaries has any equity investment in
any other corporation, association, partnership, joint venture or other entity,
except for marketable securities of publicly-held companies held in the ordinary
course of its brokerage business.
3.12 RIGHTS, WARRANTS, OPTIONS. There are no outstanding: (i)
securities or instruments convertible into or exercisable for any of the capital
stock or other equity interests of Gaines Berland or any of its Subsidiaries or
to which Gaines Berland or any of its Subsidiaries is a party; (ii) options,
warrants, subscriptions or other rights to acquire capital stock or other equity
interests of Gaines Berland or any of its Subsidiaries issued by Gaines Berland
or any of its Subsidiaries or any other Person; or (iii) commitments, agreements
or understandings of any kind to which Gaines Berland or any of its Subsidiaries
is a party, including employee benefit arrangements, relating to the issuance or
repurchase (except pursuant to existing agreements with shareholders) by Gaines
Berland or any of its Subsidiaries of any capital stock or other equity
interests of Gaines Berland or any of its Subsidiaries, any such securities or
instruments convertible into or exchangeable for capital stock or other equity
interests of Gaines Berland or any of its Subsidiaries or any such options,
warrants or rights.
3.13 PROPERTIES.
(a) Gaines Berland has valid title to all
properties, interests in properties and assets (real and
personal) as reflected in the balance sheets of Gaines Berland as
of February 28, 1999 or acquired after February 28, 1999 (except
properties, interests in properties and assets sold or otherwise
disposed of since February 28, 1999, in the ordinary course of
business to Persons other than Affiliates of Gaines Berland), and
all of its other properties, interests in properties and assets
(real and personal), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except
the lien of current Taxes not yet due and payable and liens which
are not in the aggregate material. Schedule 3.13(a) lists all
such liens and the properties and assets encumbered. None of
Gaines Berland or its Subsidiaries own any real property.
Schedule 3.13(a) lists each piece of real property leased or
utilized by Gaines Berland or any its Subsidiaries, including the
owner or lessee thereof, the location thereof and the use to
which it is put by Gaines Berland and/or any of its Subsidiaries.
The facilities and equipment of Gaines Berland and its
Subsidiaries necessary to the operations of their business are in
good operating condition and repair sufficient for the operation
of their businesses as presently conducted. Gaines Berland has
delivered to Frost Hanna a true and correct copy of all leases
under which it or its Subsidiaries occupy real property. All of
such leases are valid, subsisting and in full force and effect
and all amounts due thereunder have been paid. There has been no
material default under any such lease or any waiver, indulgence
or postponement of performance. Gaines Berland and its
Subsidiaries enjoy peaceful and undisturbed possession under such
leases, none of which contain provisions which would materially
impair or adversely affect their ability to operate their
businesses as operated in the past or contemplated to be operated
in the future. The continuation, validity and effectiveness of
such leases will not be materially adversely effected by the
transactions contemplated hereby. Except for those assets leased
or licensed by Gaines Berland or its Subsidiaries and listed on
Schedule 3.13(a), Gaines Berland or its Subsidiaries own all
assets used in their business.
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(b) Gaines Berland or one of its Subsidiaries
owns, is licensed to use or is otherwise entitled to use, all
material patents, trademarks, trade names, service marks,
copyrights and applications for any of the foregoing, together
with all other technology, know-how, tangible or intangible
proprietary information or material and formulae used in or
necessary to their businesses (the "Gaines Berland Intellectual
Property"). Except as set forth on Schedule 3.13(b), no
royalties, license fees or similar payments are payable in
connection with the use of the Gaines Berland Intellectual
Property. Schedule 3.13(b) lists all patents, trademarks, trade
names, service marks, copyrights and applications included in the
Gaines Berland Intellectual Property. Except as disclosed on
Schedule 3.13(b), no claims have been asserted in writing to
Gaines Berland or any of its Subsidiaries or, to the knowledge of
Gaines Berland, otherwise asserted or threatened, by any Person
(i) to the effect that the Gaines Berland Intellectual Property
associated or utilized in connection with the provision of
services or the sale or use of any product or process as now used
or offered by Gaines Berland or any of its Subsidiaries infringes
on any intellectual property rights of any other Person, (ii)
against the use by Gaines Berland or any of its Subsidiaries of
any of the Gaines Berland Intellectual Property or (iii)
challenging or questioning the validity or effectiveness of any
of the Gaines Berland Intellectual Property. All granted and
issued patents and all registered trademarks and copyrights
listed on Schedule 3.13(b) are valid and subsisting.
3.14 GOVERNMENTAL AUTHORIZATIONS. Gaines Berland and its
Subsidiaries and their respective officers, directors and employees have in full
force and effect, and have in the past at all times had in full force and
effect, all Consents and Permits required under applicable Law or by
self-regulatory organizations for the ownership of their properties and
operation of their businesses, free from unreasonable restrictions, including,
but not limited to, those Consents and Permits necessary to enable them to sell
securities in any jurisdiction in which any of them operates. Except as set
forth on Schedule 3.14, none of the transactions contemplated hereby could
reasonably be expected to have an adverse effect on the status of any such
Permit or Consent or require Gaines Berland or any of its Subsidiaries or their
Affiliates to obtain any additional Consent or Permit to continue to operate the
business of Gaines Berland and its Subsidiaries as presently conducted. True and
complete copies of all correspondence between Gaines Berland and its
Subsidiaries and the Commission and all self-regulatory organizations since
January 1, 1996 has been made available to Frost Hanna. A true and complete list
of all such Consents and Permits is set forth on Schedule 3.14. There has at all
times been compliance with all such Permits and Consents, except for
non-compliance which has been, or is in the process of being, cured at a cost
which is not material and without restrictions which are material.
3.15 INSURANCE. Schedule 3.15 sets forth a list and description
of all insurance policies existing as of the date hereof providing insurance
coverage of any nature to Gaines Berland or any of its Subsidiaries. All such
policies are in full force and effect and are enforceable in accordance with
their terms, free of any right of termination on the part of any insurance
carrier. Except as set forth on Schedule 3.15, no claims have been made under
any such policy.
3.16 EMPLOYMENT MATTERS.
(a) Labor Unions. None of the employees of
Gaines Berland or any of its Subsidiaries is represented by any
labor union, and neither Gaines Berland nor any of its
Subsidiaries is subject to any labor or collective bargaining
agreement. None of the employees of Gaines Berland or any of its
Subsidiaries is known by Gaines Berland to be engaged in
organizing any labor union or other employee group that is
seeking recognition as a bargaining unit. Gaines Berland and its
Subsidiaries have not experienced any strike, work stoppage or
labor disturbance with any group of employees, and to Gaines
Berland's knowledge, no set of facts exists which could
reasonably be expected to lead to any of the foregoing events.
(b) Employment Policies. Except as set forth on
Schedule 3.16(b), Gaines Berland has provided to Frost Hanna, and
FHGB, all of Gaines Berland's and its Subsidiaries' employee
policies (written or otherwise), employee manuals or other
written statements of rules or policies concerning employment.
(c) Employment Agreements. Except as set forth
on Schedule 3.16(c), there are no employment, consulting,
severance or indemnification arrangements, agreements, or
understandings between Gaines Berland or any of its Subsidiaries
and any officer, director, consultant or employee. Except as set
forth on Schedule 3.16(c), the terms of employment or engagement
of all employees, agents, consultants and professional advisors
of Gaines Berland or any of its Subsidiaries are such that their
employment or engagement may be terminated by not more than two
weeks' notice given at any time without liability for payment of
compensation or damages and neither Gaines Berland nor any of its
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Subsidiaries has entered into any agreement or arrangement for
the management of its business or any part thereof other than
with its directors or employees.
(d) Employee Benefit Plans. Schedule 3.16(d)
sets forth a complete list of all pension, retirement, stock
purchase, stock bonus, stock ownership, stock option, profit
sharing, savings, medical, disability, hospitalization,
insurance, deferred compensation, bonus, incentive, welfare or
any other employee benefit plan, policy, agreement, commitment,
arrangement or practice currently or previously maintained by
Gaines Berland or its Subsidiaries for any of their directors,
officers, consultants, employees, former employees, or spouses or
dependents of employees or former employees (the "Gaines Berland
Plans"). Schedule 3.16(d) also identifies each Gaines Berland
Plan which constitutes an "employee pension benefit plan"
("Gaines Berland Pension Plan") or an "employee welfare benefit
plan" ("Gaines Berland Welfare Plan"), as such terms are defined
in the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder
("ERISA"). True and accurate copies of all Gaines Berland Plans,
together with the most recent annual reports and summary plan
descriptions, have been furnished to Frost Hanna and in the case
of any unwritten Gaines Berland Plan, a written description has
been furnished to Frost Hanna. No Gaines Berland Plans is a
"multiemployer plan," as such term is defined in ERISA, or is
subject to Title IV of ERISA. No Gaines Berland Plan is or was a
defined benefit plan as defined in Section 3(35) of ERISA or a
pension plan subject to the funding standards of Section 302 of
ERISA or Section 412 of the Code. Gaines Berland has the right to
amend or terminate, without the consent of any other person, each
Gaines Berland Plan, except as proscribed by law. The termination
of the Old Gaines Berland Plan has not and will not result in any
cost, expense or liability to Gaines Berland in excess of $10,000
in the aggregate.
Each Gaines Berland Pension Plan has been determined by the IRS to be
qualified under Section 401(a) of the Code, and each such plan remains so
qualified; and, no facts or circumstances exist which could result in the
revocation of such qualification. Each Gaines Berland Welfare Plan which is
intended to meet the requirements for tax-favored treatment under Subchapter B
of Chapter 1 of the Code to Gaines Berland's knowledge meets such requirements.
Each Gaines Berland Plan has been administered in accordance with its terms and
the Code, and each Gaines Berland Pension Plan and Gaines Berland Welfare Plan
has been administered in accordance with ERISA. With respect to each Gaines
Berland Plan, all reports, returns and similar documents required to be filed
with any governmental agency or distributed to any participant have been duly or
timely filed or distributed. No facts or circumstances exist which might give
rise to any liability of Gaines Berland or any of its Subsidiaries to the
Pension Benefit Guaranty Corporation or any successor agency (the "PBGC") or
which could reasonably be anticipated to result in any claims being made against
Gaines Berland, Frost Hanna or any Subsidiary thereof by the PBGC. No facts or
circumstances exist which might give rise to any liability of any Gaines Berland
Plan, Gaines Berland, Frost Hanna or any Subsidiary thereof to any other Person.
Gaines Berland has paid all amounts required under applicable Law, any Gaines
Berland Pension Plan and any Gaines Berland Welfare Plan to be paid as a
contribution to each Gaines Berland Pension Plan and Gaines Berland Welfare Plan
through the date hereof. Gaines Berland set aside adequate reserves to meet
contributions which are not yet due under any Gaines Berland Pension Plan or
Gaines Berland Welfare Plan. Neither Gaines Berland, any of its Subsidiaries nor
any other Person has engaged in any transaction or taken any other action with
respect to any Gaines Berland Plan which would subject Gaines Berland, Frost
Hanna or any Subsidiary thereof to: (i) any Tax, penalty or liability for
prohibited transactions under ERISA or the Code; (ii) any Tax under Code
Sections 4971, 4972, 4976, 4977 or 4979; or (iii) a penalty under ERISA Sections
502(c) or 502(l). None of Gaines Berland or any of its Subsidiaries, or any
director, officer or employee of Gaines Berland or any of its Subsidiaries, to
the extent it or he is a fiduciary with respect to any Gaines Berland Pension
Plan or Gaines Berland Welfare Plan, has breached any of its or his
responsibilities or obligations imposed upon fiduciaries under ERISA or the Code
or which could result in any claim being made under, by or on behalf of any
Gaines Berland Pension Plan or Gaines Berland Welfare Plan or any participant or
beneficiary thereof. Each Gaines Berland Welfare Plan which is a group health
plan within the meaning of Code Section 5000(b)(1) complies in all material
respects with and in each and every case has complied in all material respects
with the applicable requirements of Code Section 4980B and Part 6 of Title I of
ERISA and the Health Insurance Portability and Accountability Act of 1996. No
Gaines Berland Welfare Plan is a multi-employer welfare arrangement as defined
in Section 3(40) of ERISA. The consummation of the transactions contemplated by
this Agreement will not entitle any individuals to severance, separation or
termination pay, or similar benefits, and will not accelerate the time of
payment or vesting or increase the amount of compensation due to any individual.
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(e) Personnel. Schedule 3.16(e) sets forth the
names of all directors and officers of Gaines Berland and each of
its Subsidiaries. Except as disclosed in the Gaines Berland
Financial Statements, there are no material sums due to any of
Gaines Berland's or any of its Subsidiary's employees.
(f) Labor Practices. No unfair labor practice
complaints have been filed against Gaines Berland or any of its
Subsidiaries, and neither Gaines Berland nor any of its
Subsidiaries has received any notice or communication reflecting
any intention or threat to make or file such a complaint. No
person has made any claim, and to the knowledge of Gaines
Berland, there is no basis for any claim against Gaines Berland
or any of its Subsidiaries arising out of any Law relating to
discrimination, employment practices or employee complaints of
illegal activity. Neither Gaines Berland nor either of its
Subsidiaries has terminated any employee nor does either have any
plans to terminate any employee which could give rise to
liability under the Worker Adjustment and Retraining Notification
Act.
3.17 MATERIAL AGREEMENTS.
(a) Schedule 3.17 sets forth a list of all
written and oral agreements, arrangements or commitments
(collectively, the "Gaines Berland Material Agreements") to which
either Gaines Berland or any of its Subsidiaries is a party or by
which it or any of their respective assets are bound which are
material to the financial position or results of operations of
Gaines Berland and its Subsidiaries on a consolidated basis,
including, but not limited to: (i) contract, commitment,
agreement or relationship resulting in a commitment or potential
commitment for expenditure or other obligation or potential
obligation, or which provides for the receipt or potential
receipt, involving in excess of $100,000, or series of related
contracts, commitments, agreements or relationships that in the
aggregate give rise to rights or liabilities exceeding such
amount; (ii) contract or commitment for the employment or
retention of any employee, consultant or agent or any other type
of contract with any employee, consultant or agent providing for
annual payments in excess of $100,000; (iii) indenture, mortgage,
promissory note, loan agreement, guarantee or other agreement or
commitment relating to the borrowing of money, encumbrance of
assets or guaranty of any obligation; (iv) licensing or royalty
agreements or agreements providing for other similar rights or
agreements with third parties relating to the supply or use of
products or materials or any intellectual property; (v) any plan
of a type referenced in Section 3.16; (vi) agreements which
restrict Gaines Berland or any of its Subsidiaries from engaging
in any line of business or from competing with any other Person
anywhere in the world; (vii) arrangements for the sale of any of
the assets, property or rights of Gaines Berland or any of its
Subsidiaries, except for agreements to sell products or services
in the ordinary course of business consistent with past
practices; (viii) agreement, contract or arrangement with any
Affiliate of Gaines Berland or any of its Subsidiaries or any
Affiliate of any officer, director or employee of Gaines Berland
or any of its Subsidiaries; (ix) guaranty of the obligations of
any third party; (x) any indemnification, contribution or similar
agreement or arrangement pursuant to which Gaines Berland or any
of its Subsidiaries may be required to make or is entitled to
receive any indemnification or contribution to or from any other
Person except to the extent provided in the Articles of
Incorporation or Bylaws of Gaines Berland; (xi) agreement with
any self-regulatory organization and clearing agreement; (xii)
contract regarding the purchase or sale of Gaines Berland or any
of its Subsidiaries' securities; or (xiii) any other contract,
agreement or instrument which cannot be terminated without
penalty to Gaines Berland and/or its Subsidiaries upon the
provision of not greater than 30 days notice. True and complete
copies of all Gaines Berland Material Agreements have been
delivered to Frost Hanna.
(b) Except as set forth on Schedule 3.17, all
Gaines Berland Material Agreements have been entered into on an
"arms-length" basis with parties who are not Affiliates of Gaines
Berland. The Gaines Berland Material Agreements are each in full
force and effect and are the valid and legally binding
obligations of Gaines Berland or the applicable Subsidiary which
is a party to same and, to Gaines Berland's knowledge, have not
been materially breached by any of the other parties thereto and
are valid and binding obligations of the other parties thereto.
Neither Gaines Berland nor any of its Subsidiaries is in default
under its Articles or Certificate of Incorporation or Bylaws or
in material default or alleged material default under any
Material Agreement to which it is a party, and no event has
occurred which with the giving of notice or lapse of time or both
would constitute such a default. Except as set forth on Schedule
3.17, the continuation, validity and effectiveness of each Gaines
Berland Material Agreement under the current terms thereof will
in no way be affected by the consummation of the transactions
contemplated hereby and all of such items will inure to the
benefit of Frost Hanna (as the parent of the surviving
corporation in the Merger). Either Gaines Berland or one of its
Subsidiaries has performed all the obligations required to be
performed by it to date and is not in
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material default or alleged to be in material default in any
respect under any agreement, lease, contract, commitment,
instrument or obligation required to be listed or described on
any schedule to this Agreement, and there exists no event,
condition or occurrence which, after notice or lapse of time, or
both, would constitute such a default by it or, to the best of
its knowledge, any other party to any of the foregoing.
3.18 LIST OF ACCOUNTS. Schedule 3.18 sets forth, as of the date
hereof: (i) the name and address of each bank or other institution in which
Gaines Berland or any of its Subsidiaries maintains an account (cash, securities
or other) or safe deposit box; (ii) the name and phone number of the contact
person at such bank or institution; (iii) the account number of the relevant
account and a description of the type of account; and (iv) the persons
authorized to transact business in such accounts.
3.19 INVENTORY OF SECURITIES. Except as set forth on Schedule
3.19, neither Gaines Berland nor its Subsidiaries, as of the date hereof, has
any ownership positions (long, short or otherwise) in the securities of any
publicly-held company valued in excess of $100,000.
3.20 RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
3.20, no director, officer, shareholder or employee of Gaines Berland or any of
its Subsidiaries or any Principal Shareholder (individually a "Gaines Berland
Related Party" and collectively the "Gaines Berland Related Parties") or any
Affiliate of any Gaines Berland Related Party: (i) owns (or during the past
three years has owned), directly or indirectly, any interest in any Person which
is a competitor or potential competitor of Gaines Berland, or a supplier or
potential supplier of Gaines Berland, except for the ownership of not more than
4.9% of the outstanding stock of any company listed by a national stock exchange
or the NASDAQ stock market or the OTC bulletin board, (ii) owns (or during the
past three years has owned), directly or indirectly, in whole or in part, any
material property, asset (other than cash) or right, real, personal or mixed,
tangible or intangible, which is associated with or necessary in the operation
of the business of Gaines Berland; or (iii) has (or during the past three years
has had) an interest in or is (or during the past three years has been),
directly or indirectly, a party to any contract, agreement, lease or arrangement
pertaining or relating to Gaines Berland.
3.21 TAX MATTERS.
(a) Except as set forth on Schedule 3.21(a), all
federal, state, local and foreign Tax returns and Tax reports, if
any, required to be filed with respect to the business or assets
of Gaines Berland and its Subsidiaries have been filed with the
appropriate Governmental Authorities in all jurisdictions in
which such returns and reports are required to be filed; all of
the foregoing as filed are true, correct and complete, and
reflect accurately all liability for Taxes of Gaines Berland and
its Subsidiaries for the periods for which such returns relate;
and all amounts shown as owing thereon have been paid. None of
such returns or reports have been audited by any Governmental
Authority.
(b) All Taxes, if any, payable by Gaines Berland
or its Subsidiaries or relating to or chargeable against any of
their assets, revenues or income have been fully paid by such
date or provided for by adequate reserves in the Gaines Berland
Financial Statements, and available to Gaines Berland and all
similar items due through the Closing will have been fully paid
by that date or provided for by adequate reserves on the books of
Gaines Berland and its Subsidiaries, which reserves shall remain
available to Gaines Berland, through the Closing.
(c) None of Gaines Berland or any of its
Subsidiaries will have any liability with respect to any such
Taxes including, but not limited to, interest and/or penalties,
in excess of the amount so paid or the reserves so established on
the books of Gaines Berland and its Subsidiaries. Neither Gaines
Berland nor any of its Subsidiaries is delinquent in the payment
of any Tax. No deficiencies for any Tax have been asserted
against Gaines Berland or any of its Subsidiaries with respect to
any Taxes which have not been paid, settled or adequately
provided for and there exists no basis for the making of any such
deficiency, assessment or charge.
(d) Neither Gaines Berland nor any of its
Subsidiaries has waived any restrictions on assessment or
collection of taxes or consented to the extension of any statute
of limitations relating to federal, state, local or foreign
taxation.
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3.22 GUARANTIES. Except as set forth on Schedule 3.22, neither
Gaines Berland nor any of its Subsidiaries is a party to any Guaranty.
3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. No employee or agent
of Gaines Berland or any of its Subsidiaries, and no officer or director or
Principal Shareholder of Gaines Berland or any of its Subsidiaries and no other
Person acting at the direction of any of the foregoing or associated or
Affiliated with Gaines Berland or any of its Subsidiaries, and no other Person
for whom Gaines Berland or any of its Subsidiaries may be responsible, acting
alone or together, has (i) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from any customer, supplier, trading
company, shipping company, governmental employee or other Person with whom
Gaines Berland or any of its Subsidiaries has done business directly or
indirectly, or (ii) directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, trading company, shipping company,
governmental employee or other Person who is or may be in a position to help or
hinder the business of Gaines Berland and any of its Subsidiaries (or assist
Gaines Berland or any of its Subsidiaries in connection with any actual or
proposed transaction), in either event which (a) may subject Gaines Berland or
any of its Subsidiaries to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, or (b) if not given, may have an adverse
effect on the results of operations, assets, business, operations or prospects
of Gaines Berland or any of its Subsidiaries or may lead to suit or penalty in
any private or governmental litigation or proceeding. None of the foregoing
Persons has, directly or indirectly, offered, paid, or agree to pay to any
Person or solicited, received or agreed to receive from any such Person,
directly or indirectly, any money or anything of value for the purpose or with
the intent of (i) obtaining or maintaining business for Gaines Berland or any of
its Subsidiaries, (ii) facilitating the purchase or sale of any product or
service, or (iii) avoiding the imposition of any fine or penalty, in any manner
which is in violation of any applicable Law.
3.24 PROXY STATEMENT AND DISCLOSURE DOCUMENTS. None of the
information relating to Gaines Berland or any of its Subsidiaries included in
the Frost Hanna Proxy Statement or the Gaines Berland Disclosure Document at the
respective times that they are mailed to Frost Hanna's and Gaines Berland's
shareholders and at the times the Frost Hanna and Gaines Berland shareholders'
meetings take place to approve the Merger (subject, if required, to a reasonable
period of time for the parties hereto to take such action necessary to
supplement or amend such documents), contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All information in such documents relating to Gaines Berland,
including any amendments thereto, will comply with, and the Gaines Berland
Disclosure Document shall be distributed to Gaines Berland's shareholders in
accordance with applicable Laws and Gaines Berland's Articles of Incorporation
and Bylaws.
3.25 BROKER-DEALER REGISTRATION; REGULATORY ISSUES.
(a) Except as set forth on Schedule 3.25, Gaines
Berland is registered as a broker-dealer with the Commission and
the New York Bureau of Securities, and is a member in good
standing of the NASD, and G-Trade has made (or will make) all
filings necessary to apply therefor.
(b) Gaines Berland has filed all Form BDs
(including all amendments thereto) required to be filed with the
Commission, each of which has complied with the Exchange Act, as
amended, each as in effect on the date so filed. Gaines Berland
has heretofore furnished to Frost Hanna correct and complete
copies of such Form BDs (including all amendments thereto). None
of such Form BDs contained, when filed, any untrue statement of
material fact required to be stated or incorporated by reference
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Except to the extent amended or superseded by a subsequent filing
with the Commission (a copy of which has been provided to Frost
Hanna prior to the date hereof), none of the Form BDs (including
all amendments thereto) contains any untrue statement of a
material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. All copies of such Form BDs (including all amendments
thereto) required to be filed with any state have been filed in a
timely manner. Gaines Berland is not subject to the Investment
Advisors Act of 1940.
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(c) Gaines Berland has filed all SRO Reports
required to be filed with any self-regulatory organizations since
January 1, 1995, each of which has complied with the rules of the
self-regulatory organization, each as in effect on the date so
filed. Gaines Berland has heretofore furnished to Frost Hanna
correct and complete copies of the SRO Reports. None of the SRO
Reports contained, when filed, any untrue statement of material
fact required to be stated or incorporated by reference therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except
to the extent revised or superseded by a subsequent filing with
the self-regulatory organization (a copy of which has been
provided to Frost Hanna prior to the date thereof), none of the
SRO Reports contains any untrue statement of a material fact or
omits to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) Gaines Berland has registered as a
broker-dealer in each jurisdiction in which such registration has
been required since January 1, 1995. Gaines Berland has filed or
caused to be filed all forms, reports, statements, and documents
(including all Form U-4s on behalf of registered representatives)
required to be filed with any state since January 1, 1995. Any
such forms, reports, statements, and documents are accurate in
all material respects.
(e) True and correct copies of all DRP's with
respect to Gaines Berland personnel have been made available to
Frost Hanna. A true and correct copy of all audits, inspections
and reports of, and correspondence from and to, all self
regulatory organizations within the last three years with respect
to Gaines Berland have been made available to Frost Hanna. A true
and complete copy of Gaines Berland's focus reports for the last
three fiscal years has been made available to Frost Hanna, as
well as a true and complete copy of the compliance manuals of
Gaines Berland. Such focus reports have been prepared and filed
in compliance with all NASD rules and regulations. True and
complete copies of Gaines Berland's clearing agreement, NASD
restriction letter, form of customer agreement, and agreements
concerning discretionary accounts have been made available to
Frost Hanna. Set forth on Schedule 3.25 is a list of all audits,
citations relating to the business of Gaines Berland, complaints
and or pending disciplinary proceedings and known regulatory
proceedings relating to Gaines Berland or its personnel. Schedule
3.25 also sets forth a true and complete list of all branch
offices of Gaines Berland and their addresses and dates of
commencement of operations. Schedule 3.25 also sets forth a list
of all SIPC claims since January 1, 1996. Gaines Berland obtained
all necessary Permits and Consents from NASD and all Governmental
Authorities to operate such branch offices.
(f) All customer complaints reportable pursuant
to NASD Notice to Members 95-81 (including all amendments thereto
and NASD interpretations thereof) ("95-81") which have been made
against Gaines Berland or its registered representatives in
writing since January 1, 1996, have been reported in accordance
with 95-81, all such complaints are set forth in Schedule 3.25,
and copies of each such complaint have been made available to
Frost Hanna. Except as noted on Schedule 3.25 none of such
complaints which have been disposed of currently requires any
payment or other action to be made by Gaines Berland. Gaines
Berland is in compliance with all net capital rules and all net
capital regulations of NASD and the Commission.
(g) To the best of Gaines Berland's knowledge,
the reserves set forth in the Gaines Berland Financial Statements
as of February 28, 1999, are reasonably expected to be adequate
and sufficient to satisfy all liabilities, contingent or
otherwise, with respect to any and all filed, pending, known
customer complaints ("Customer Complaints"), including any and
all regulatory proceedings, investigations or actions, whether
pending or known. There are no known threatened Customer
Complaint, regulatory proceedings, investigations or actions
which individually or in the aggregate could reasonably be
expected to have a material impact on such reserves. Gaines
Berland has no current intention to cause Frost Hanna to go
private, or to have or cause its capital stock to become delisted
from any exchange or any inter-dealer quotation system, or to
become liquidated or dissolved after the Effective Time.
(h) To the best of Gaines Berland's knowledge,
Gaines Berland has complied with all material restrictions on the
operation of its business set forth in any NASD restriction
letter, as amended. To the best of Gaines Berland's knowledge,
Gaines Berland has complied with all the material terms
prescribed in its compliance manuals and written supervisory
manuals.
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3.26 YEAR 2000 PROBLEMS. To Gaines Berland's knowledge, all Year
2000 Problems (as defined below) with respect to the internal systems of Gaines
Berland and its Subsidiaries have been (or, prior to December 31, 1999, will be)
corrected, remediated and resolved, except where the failure to do so could not
reasonably be expected to have a Gaines Berland Material Adverse Effect,
individually or in the aggregate. "Year 2000 Problems" shall mean, with respect
to Gaines Berland and its Subsidiaries, limitations on the capacity or readiness
of any of their Year 2000 Date-Sensitive Systems/Components to accurately
accept, create, manipulate, short, sequence, calculate, compare or output
calendar date information with respect to calendar year 1999 or any subsequent
calendar year beginning on or after January 1, 2000 (including leap year
computations), including, without limitation, exchanges of information among
Year 2000 Date-Sensitive Systems/Components of Gaines Berland and its
Subsidiaries and exchanges of information among them and Year 2000
Date-Sensitive Systems/Components of third parties and functionality of
peripheral interfaces, firmware and embedded microchips. "Year 2000
Date-Sensitive System/Component" shall mean, as to any Person, any system
software, network software, applications software, data base, computer file,
embedded microchip, firmware or hardware that accepts, creates, manipulates,
sorts, sequences, calculates, compares or outputs calendar-related data
accurately, such systems and components shall include, without limitation,
mainframe computers, file server/client systems, computer workstations, routers,
hubs, other network-related hardware, and other computer-related software,
firmware or hardware and information processing and delivery systems of any kind
and telecommunications systems and other communications processors, security
systems, alarms, elevators and HVAC systems. Gaines Berland has completed its
Form BD-Y2K in accordance with NASD rules and regulations and the instructions
thereto, and filed such Form in a timely manner; the information contained
therein is true, correct and complete; and a true, correct and complete copy
thereof has been provided to Frost Hanna.
3.27 INVESTMENT REPRESENTATIONS. Each of the shareholders of
Gaines Berland has had (or prior to the meeting of Gaines Berland's shareholders
contemplated hereby will have) both the opportunity to ask questions of and
receive answers from the officers and directors of Gaines Berland, and Frost
Hanna with respect to the transactions contemplated hereby and the business of
the parties hereto, and to receive such additional information as they have
requested with respect thereto. Each shareholder of Gaines Berland has
represented that he is an "Accredited Investor" within the meaning of Regulation
D promulgated under the Securities Act and that he is a sophisticated investor;
and Gaines Berland has no reasonable basis to believe that any such
representation is not true. The name of each legal and beneficial owner of
interests in the shares of Gaines Berland is set forth on Schedule 3.27 and,
except as set forth on Schedule 3.27, each such owner is a bona fide resident of
the State of New York. Each shareholder of Gaines Berland has been provided with
a copy of this Agreement and the Commission filings referred to herein.
3.28 SUBSCRIPTION RECEIVABLES; ENERGY FUND. All subscription
receivables which have ever been reflected on any Gaines Berland Financial
Statement have subsequently been paid in full or otherwise satisfied to Gaines
Berland. Gaines Berland Energy Fund, L.P. will be terminated, liquidated and
dissolved, all at no cost, liability or expense to Gaines Berland or any
Subsidiary, and it is not engaged in any business activities.
3.29 DISCLOSURE. No representation or warranty of Gaines Berland contained
in this Agreement or the schedules hereto, and no certificate or notice
furnished by or on behalf of Gaines Berland or any of its Subsidiaries to Frost
Hanna or its agents pursuant to this Agreement, contains or will contain any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading. None
of the Principal Shareholders or any executive officer or director of Gaines
Berland or any of its Subsidiaries has been the subject of any of the events
referenced in Section 401(f) of Regulation S-K.
IV
REPRESENTATIONS AND WARRANTIES OF FROST HANNA AND FHGB
In order to induce Gaines Berland to enter into this Agreement and to
consummate the transactions contemplated hereby, Frost Hanna and FHGB jointly
and severally make the representations and warranties set forth below to Gaines
Berland.
4.1 ORGANIZATION. Each of Frost Hanna and FHGB is a corporation
duly organized, validly existing and in good standing under the Laws of its
state of incorporation. Each of Frost Hanna and FHGB is duly qualified to
transact business as a foreign corporation in all jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the financial condition, results of operations,
assets, liabilities, prospects or business of Frost Hanna and FHGB on a
consolidated basis (a "Frost Hanna Material Adverse Effect"). Each jurisdiction
in which Frost Hanna or FHGB is qualified to transact business as a foreign
corporation is listed on Schedule 4.1.
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Each of Frost Hanna and FHGB has the corporate authority to (i) own or lease and
operate its properties and (ii) conduct its business as presently conducted.
Each of Frost Hanna and FHGB has the corporate authority to execute, deliver and
perform this Agreement.
4.2 AUTHORIZATION; ENFORCEABILITY. Subject to the receipt of
shareholder approval, the execution, delivery and performance of this Agreement
by Frost Hanna and FHGB and the consummation by Frost Hanna and FHGB of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of Frost Hanna and FHGB. This Agreement has been
duly executed and delivered by Frost Hanna and FHGB and constitutes the legal,
valid and binding obligations of them, enforceable against them in accordance
with their terms, except to the extent that their enforcement is limited by
bankruptcy, insolvency, reorganization or other Laws relating to or affecting
the enforcement of creditors' rights generally or by general principles of
equity.
4.3 NO VIOLATION OR CONFLICT. Except as set forth on Schedule
4.3, the execution, delivery and performance by Frost Hanna and FHGB of this
Agreement and the consummation by Frost Hanna, and FHGB of the transactions
contemplated hereby; (i) do not and will not violate or conflict with any
provision of Law or any Order specifically naming Frost Hanna or any of its
Subsidiaries, or any provision of Frost Hanna's or FHGB's Articles of
Incorporation or Bylaws; and (ii) do not and will not, with or without the
passage of time or the giving of notice, (a) result in the breach of, or
constitute a default, cause the acceleration of performance, permit the
unilateral modification or termination of, or require any Consent under, or
result in the creation of any lien, charge or encumbrance upon any property or
assets of Frost Hanna or any of its Subsidiaries pursuant to, any material
instrument or agreement to which Frost Hanna or any of its Subsidiaries is a
party or by which Frost Hanna or any of its Subsidiaries or their respective
properties may be bound or affected; or (b) result in any violation, suspension,
revocation, impairment, forfeiture or nonrenewal of any Permit or Consent.
4.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Other than in connection
with the Florida BCA, the New York BCL, the Exchange Act, the Securities Act of
1933, as amended ("Securities Act"), and the state securities Laws of any
jurisdiction, no Consent or Permit from, of or with any Governmental Authority
is required to be made by Frost Hanna or FHGB in connection with the execution,
delivery or performance by Frost Hanna or FHGB of this Agreement or the
consummation by Frost Hanna or FHGB of the transactions contemplated hereby.
There is no unresolved objection to the Merger made by any Governmental
Authority or self-regulatory organization.
4.5 FINANCIAL STATEMENTS; COMMISSION REPORTS. Except as set forth
on Schedule 4.5, the financial statements of Frost Hanna included in the Frost
Hanna Commission Reports (the "Frost Hanna Financial Statements"), as of the
dates thereof, and for the periods covered thereby: (i) have been prepared in
accordance with the books of account and records of Frost Hanna; (ii) fairly
present in all material respects Frost Hanna's financial condition, assets,
liabilities and equity as of the dates thereof; and (iii) have been prepared in
accordance with generally accepted accounting principles consistently applied.
Other than as disclosed by the Frost Hanna Financial Statements dated March 31,
1999 or on Schedule 4.5, neither FHGB nor Frost Hanna has any liabilities,
commitments or obligations (which reasonably could be expected to be material to
Frost Hanna and FHGB on a consolidated basis) of any nature whatsoever, whether
accrued, contingent or otherwise (other than nonmaterial liabilities,
commitments or obligations incurred since March 31, 1999 in the ordinary course
of business consistent with past practices to Persons other than Affiliates of
Frost Hanna) or any unrealized or anticipated losses (which reasonably could be
expected to be material to Frost Hanna) from any commitments of Frost Hanna,
and, to Frost Hanna's knowledge, there is no reasonable basis for assertion
against Frost Hanna of any such liability, commitment, obligation or loss. Any
supporting schedules included in the Frost Hanna Commission Reports present
fairly, in all material respects, the information required to be stated therein.
Such Frost Hanna Financial Statements and supporting schedules: (i) were prepare
in accordance with Regulation S-X promulgated by the Commission; (ii) present
fairly in all material respects the financial condition of Frost Hanna and the
results of operations as at and for the respective periods then ended; and (iii)
except as otherwise noted in the Frost Hanna Commission Reports, were prepared
in conformity with generally accepted accounting principals applied on a
consistent basis. To the extent any such Frost Hanna Financial Statements and
supporting schedules are audited, they were audited by independent public
accountants within the meaning of the rules promulgated by the Commission. Frost
Hanna has heretofore furnished or made available to Gaines Berland entire and
complete copy of each report (the "Frost Hanna Commission Report") filed by
Frost Hanna with the Commission pursuant to the Securities Exchange Act of 1934,
as amended ("Exchange Act") since its inception. None of the Frost Hanna
Commission Reports, as of the dates they were respectively filed with the
Commission, contained any untrue statement of a Material fact or omitted to
state or material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
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4.6 COMPLIANCE WITH LAWS.
(a) Each of Frost Hanna and FHGB is in
compliance with all Laws and Orders applicable to it or its
properties. Neither Frost Hanna nor FHGB has received
notification from any Governmental Authority asserting that it
may not be in compliance with or may have violated any of the
Laws which said Governmental Authority enforces, or threatening
to revoke any Consent or Permit, and neither Frost Hanna nor FHGB
is subject to any agreement or consent decree with any
Governmental Authority arising out of previously asserted
violations. Gaines Berland has been furnished with true and
correct copies of all records of inspections and reports of any
of Frost Hanna's or FHGB's businesses or properties since
incorporation under applicable Laws or conducted by insurance
companies, consultants or other Persons; and all deficiencies
noted therein have been corrected. Gaines Berland has been
furnished with true and correct copies of all correspondence and
other filings made to or received from any Governmental Authority
regarding Frost Hanna or FHGB since their incorporation.
(b) There are, with respect to Frost Hanna and
FHGB, no past or present violations of any Environmental Laws,
releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents or
contractual obligations which may give rise to any common law or
other legal liability, including, without limitation, under
CERCLA or similar state or local laws.
4.7 LEGAL PROCEEDINGS. Except as set forth on Schedule 4.7,
neither Frost Hanna nor FHGB is, nor since incorporation has been, a party to
any pending or, to the knowledge of Frost Hanna, threatened, legal,
administrative or other proceeding, arbitration or investigation, and Frost
Hanna has no knowledge of any set of facts which could reasonably be expected to
result in any legal, administrative or other proceeding, arbitration or
investigation involving Frost Hanna or FHGB. Except as set forth on Schedule
4.7, neither Frost Hanna nor FHGB is subject to any Order of any court or
Governmental Authority. Each of Frost Hanna and FHGB is in compliance with the
terms of each Order set forth on Schedule 4.7. None of the items set forth on
Schedule 4.7 could, individually or in the aggregate, reasonably be expected to
have a Frost Hanna Material Adverse Effect.
4.8 BROKERS. Except as set forth on Schedule 4.8, neither Frost
Hanna nor FHGB has employed any financial advisor, broker or finder and none has
incurred and none will incur any broker's, finder's, investment banking or
similar fees, commissions or expenses to any other party in connection with the
transactions contemplated by this Agreement.
4.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth on
Schedule 4.9, from March 31, 1999 to the date hereof: (i) each of Frost Hanna
and FHGB has conducted its businesses in the ordinary and usual course
consistent with past practices; (ii) there has been no occurrence which is
reasonably likely to cause Frost Hanna Material Adverse Effect; and (iii)
neither Frost Hanna nor FHGB has engaged or agreed to engage in any of the
actions described in Section 5.1 (except subsections (xiii) and (xvi) thereof).
4.10 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. True and
complete copies of the Articles of Incorporation, as amended to date, Bylaws, as
amended to date, and minute books of Frost Hanna and FHGB have been delivered by
Frost Hanna to Gaines Berland. Such documents books contain complete and
accurate records in all material respects and have embodied therein copies of
minutes of all meetings and actions by written consent of the incorporators,
boards of directors (and committees thereof) and shareholders of such entities
from the date of incorporation to the date hereof; and such items accurately
reflect all material actions taken by such Persons.
4.11 CAPITALIZATION. As of the date hereof, the authorized
capital stock of Frost Hanna consists of 100,000,000 shares of Frost Hanna
Common Stock, of which 2,657,202 shares are issued and outstanding. All shares
of Frost Hanna's and FHGB's outstanding capital stock have been duly authorized,
are validly issued and outstanding, and are fully paid and nonassessable. No
securities issued by Frost Hanna or FHGB from the date of its incorporation to
the date hereof were issued in violation of any statutory or common law
preemptive rights. There are no dividends which have accrued or been declared
but are unpaid on the capital stock of Frost Hanna or FHGB. All Taxes (including
documentary stamp taxes) required to be paid in connection with the issuance by
Frost Hanna or FHGB of Frost Hanna's and FHGB's capital stock have been paid.
All authorizations required to be obtained from or registrations required to be
effected with any Person in connection with the issuances of securities by Frost
Hanna and FHGB from their respective dates of incorporation to the date hereof
have been obtained or effected and all securities of Frost Hanna and FHGB have
been issued in accordance with the provisions of all applicable securities and
other Laws. The authorized capital stock of FHGB consists
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of 100 shares of FHGB Common Stock, all of which are issued and outstanding and
owned by Frost Hanna, free and clear of all liens, charges, claims or
encumbrances. FHGB is Frost Hanna's sole Subsidiary. Neither Frost Hanna nor
FHGB has any equity investment in any other corporation, association,
partnership, joint venture or other entity. Except as set forth on Schedule
4.11, Frost Hanna has granted no registration rights with respect to Frost Hanna
Common Stock.
4.12 RIGHTS, WARRANTS, OPTIONS. Except as set forth on Schedule
4.12, there are no outstanding: (i) securities or instruments convertible into
or exercisable for any of the capital stock or other equity interests of Frost
Hanna or FHGB or any other Person issued by Frost Hanna or FHGB or to which
Frost Hanna or FHGB is a party; (ii) options, warrants, subscriptions or other
rights to acquire capital stock or other equity interests of Frost Hanna or FHGB
issued by Frost Hanna or FHGB; or (iii) commitments, agreements or
understandings of any kind to which Frost Hanna or FHGB is a party, including
employee benefit arrangements, relating to the issuance or repurchase by Frost
Hanna or FHGB of any capital stock or other equity interests of Frost Hanna or
FHGB, any such securities or instruments convertible into or exchangeable for
capital stock or other equity interests of Frost Hanna or any such options,
warrants or rights.
4.13 PROPERTIES. Frost Hanna and FHGB have valid title to all
properties, interests in properties and assets as reflected in the consolidated
balance sheet of Frost Hanna as of March 31, 1999 or acquired after March 31,
1999 (except properties, interests in properties and assets sold or otherwise
disposed of since March 31, 1999 in the ordinary course of business to Persons
other than Affiliates of Frost Hanna), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except the lien of
current Taxes not yet due and payable. Frost Hanna and FHGB own no real
property. Schedule 4.13 lists each piece of real property leased by Frost Hanna.
The facilities and equipment of Frost Hanna and FHGB necessary to the operations
of their business are in good operating condition and repair sufficient for the
operation of the business as presently conducted. Except for those assets leased
or licensed by Frost Hanna or FHGB and listed on Schedule 4.13, Frost Hanna or
FHGB own all assets used in their business.
4.14 GOVERNMENTAL AUTHORIZATIONS. Frost Hanna and FHGB have in
full force and effect all Consents and Permits required under applicable Law for
the ownership of their properties and operation of their businesses as presently
operated free from unreasonable restrictions. Except as set forth on Schedule
4.14, none of the transactions contemplated hereby could reasonably be expected
to have an adverse effect on the status of any such Permit. None of the
transactions contemplated hereby could reasonably be expected to have an adverse
effect on the status of any such Permit or Consent or require Frost Hanna or its
Affiliates to obtain any additional Consent or Permit to continue to operate its
business as previously conducted. A true and complete list of all such Consents
and Permits is set forth on Schedule 4.14. There has at all times been
compliance with all such Permits and Consents.
4.15 INSURANCE. Schedule 4.15 sets forth a list and description
of all insurance policies existing as of the date hereof providing insurance
coverage of any nature to Frost Hanna and FHGB. All such policies are in full
force and effect and are enforceable in accordance with their terms, free of any
right of termination on the part of any insurance carrier. No claims have been
made on any such policies.
4.16 EMPLOYMENT MATTERS.
(a) LABOR UNIONS. None of the employees of Frost
Hanna or FHGB is represented by any labor union, and neither
Frost Hanna or FHGB is subject to any labor or collective
bargaining agreement. None of the employees of Frost Hanna or
FHGB is known by Frost Hanna to be engaged in organizing any
labor union or other employee group that is seeking recognition
as a bargaining unit. Frost Hanna and FHGB have not experienced
any strike, work stoppage or labor disturbance with any group of
employees, and to Frost Hanna's knowledge, no set of facts exists
which could reasonably be expected to lead to any of the
foregoing events.
(b) EMPLOYMENT POLICIES. Frost Hanna has
provided to Gaines Berland all of Frost Hanna's and FHGB's
employee policies (written or otherwise), employee manuals or
other written statements of rules or policies concerning
employment.
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(c) EMPLOYMENT AGREEMENTS. Except as set forth
on Schedule 4.16(c), there are no employment, consulting,
severance or indemnification arrangements, agreements, or
understandings between Frost Hanna or FHGB and any officer,
director, consultant or employee. Except as set forth on Schedule
4.16(c), the terms of employment or engagement of all employees,
agents, consultants and professional advisors of Frost Hanna and
FHGB are such that their employment or engagement may be
terminated by not more than two weeks' notice given at any time
without liability for payment of compensation or damages and
neither Frost Hanna nor FHGB has entered into any agreement or
arrangement for the management of its business or any part
thereof other than with its directors or employees.
(d) EMPLOYEE BENEFIT PLANS. Frost Hanna has no
pension, retirement, stock purchase, stock bonus, stock
ownership, stock option, profit sharing, savings, medical,
disability, hospitalization, insurance, deferred compensation,
bonus, incentive, welfare or any other employee benefit plan,
policy, agreement, commitment, arrangement or practice currently
or previously maintained by Frost Hanna or FHGB for any of their
directors, officers, consultants, employees or former employees.
Frost Hanna has no plan which constitutes an "employee pension
benefit plan" or an "employee welfare benefit plan", as such
terms are defined in ERISA.
(e) PERSONNEL. Schedule 4.16(e) sets forth the
names of all directors and officers of Frost Hanna and FHGB.
Except as disclosed in the Frost Hanna Financial Statements,
there are no material sums due to any of Frost Hanna or FHGB
employees.
(f) LABOR PRACTICES. No unfair labor practice
complaints have been filed against Frost Hanna or FHGB, and
neither Frost Hanna nor FHGB has received any notice or
communication reflecting any intention to make or file such a
complaint. No person has made any claim, and to the knowledge of
Frost Hanna or FHGB, there is no basis for any claim against
Frost Hanna or FHGB arising out of any law relating to
discrimination or employment practices.
4.17 MATERIAL AGREEMENTS.
(a) Schedule 4.17 sets forth a list of all
written and oral agreements, arrangements or commitments
(collectively, the "Frost Hanna Material Agreements") to which
either Frost Hanna or FHGB is a party or by which it or any of
their respective assets are bound which are material to the
financial position or results of operations of Frost Hanna and
FHGB on a consolidated basis including, but not limited to: (i)
contract, commitment, agreement or relationship resulting in a
commitment or potential commitment for expenditure or other
obligation or potential obligation, or which provides for the
receipt or potential receipt, involving in excess of $25,000, or
series of related contracts, commitments, agreements or
relationships that in the aggregate give rise to rights or
liabilities exceeding such amount; (ii) contract or commitment
for the employment or retention of any employee, consultant or
agent or any other type of contract with any employee, consultant
or agent providing for annual payments in excess of $25,000;
(iii) indenture, mortgage, promissory note, loan agreement,
guarantee or other agreement or commitment relating to the
borrowing of money, encumbrance of assets or guaranty of any
obligation; (iv) licensing or royalty agreements or agreements
providing for other similar rights or agreements with third
parties relating to the supply or use of products or materials or
any intellectual property; (v) any plan of a type referenced in
Section 4.16; (vi) agreements which restrict Frost Hanna or FHGB
from engaging in any line of business or from competing with any
other Person anywhere in the world; (vii) agreements or
arrangements for the sale of any of the assets, property or
rights of Frost Hanna or FHGB, except for agreements to sell
products or services in the ordinary course of business
consistent with past practices; (viii) agreement, contract or
arrangement with any Affiliate of Frost Hanna or FHGB or any
Affiliate of any officer, director or employee of Frost Hanna or
FHGB; (ix) guaranty of the obligations of any third party; (x)
any indemnification, contribution or similar agreement or
arrangement pursuant to which Frost Hanna or FHGB may be required
to make or is entitled to receive any indemnification or
contribution to or from any other Person except to the extent
provided in the Articles of Incorporation or Bylaws of Frost
Hanna; or (xi) any other contract, agreement or instrument which
cannot be terminated without penalty to Gaines Berland and its
Subsidiaries, upon the provision of not greater than 30 days
notice.
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(b) Except as set forth on Schedule 4.17, all
Frost Hanna Material Agreements have been entered into on an
"arms-length" basis with parties who are not Affiliates of Frost
Hanna. The Frost Hanna Material Agreements are each in full force
and effect and are the valid and legally binding obligations of
Frost Hanna or FHGB and, to Frost Hanna's knowledge, have not
been breached by any of the other parties thereto and are valid
and binding obligations of the other parties thereto. Neither
Frost Hanna nor FHGB is in default under its Articles of
Incorporation or Bylaws or in default or alleged default under
any Frost Hanna Material Agreement to which it is a party, and no
event has occurred which with the giving of notice or lapse of
time or both would constitute such a default. Except as set forth
on Schedule 4.17, the continuation, validity and effectiveness of
each Frost Hanna Material Agreement under the current terms
thereof will in no way be affected by the consummation of the
transactions contemplated hereby and all of such items will inure
to the benefit of Frost Hanna (as the parent of the surviving
corporation in the Merger). Frost Hanna has performed all the
obligations required to be performed by it to date and is not in
default or alleged to be in default in any respect under any
agreement, lease, contract, commitment, instrument or obligation
required to be listed or described on any schedule to this
Agreement, and there exists no event, condition or occurrence
which, after notice or lapse of time, or both, would constitute
such a default by it, or, to the best of its knowledge, any other
party to any of the foregoing.
4.18 LIST OF ACCOUNTS. Schedule 4.18 sets forth, as of the date
hereof: (i) the name and address of each bank or other institution in which
Frost Hanna or FHGB maintains an account (cash, securities or other) or safe
deposit box; (ii) the name and phone number of the contact person at such bank
or institution; (iii) the account number of the relevant account and a
description of the type of account; and (iv) the persons authorized to transact
business in such accounts.
4.19 BUSINESS. Frost Hanna and FHGB have not engaged in any
business other than to seek to effect a business combination.
4.20 RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
4.20, no director, officer, shareholder or employee of Frost Hanna or FHGB
(individually a "Frost Hanna Related Party" and collectively the "Frost Hanna
Related Parties") or any Affiliate of any Frost Hanna Related Party: (i) owns,
directly or indirectly, any interest in any Person which is a competitor or
potential competitor of Frost Hanna, or a supplier or potential supplier of
Frost Hanna, except for the ownership of not more than 2% of the outstanding
stock of any company listed by a national stock exchange or the NASDAQ stock
market; (ii) owns, directly or indirectly, in whole or in part, any material
property, asset (other than cash) or right, real, personal or mixed, tangible or
intangible, which is associated with or necessary in the operation of the
business of Frost Hanna, as presently conducted; or (iii) has an interest in or
is, directly or indirectly, a party to any contract, agreement, lease or
arrangement pertaining or relating to Frost Hanna.
4.21 TAX MATTERS.
(a) All federal, state, local and foreign Tax
returns and Tax reports, if any, required to be filed with
respect to the business or assets of Frost Hanna and FHGB have
been filed with the appropriate Governmental Authorities in all
jurisdictions in which such returns and reports are required to
be filed; all of the foregoing as filed are true, correct and
complete, and reflect accurately all liability for Taxes of Frost
Hanna and FHGB for the periods for which such returns relate; and
all amounts shown as owing thereon have been paid. None of such
returns or reports have been audited by any Governmental
Authority. Neither Frost Hanna nor FHGB has filed any Tax
extension.
(b) All Taxes, if any, payable by Frost Hanna
and FHGB or relating to or chargeable against any of their
assets, revenues or income have been fully paid by such date or
provided for by adequate reserves in the Frost Hanna Financial
Statements and all similar items due through the Closing will
have been fully paid by that date or provided for by adequate
reserves on the books of Frost Hanna and FHGB, which reserves
shall remain available through the Closing.
(c) None of Frost Hanna or FHGB will have any
liability with respect to any such Taxes including, but not
limited to, interest and/or penalties, in excess of the amount so
paid or the reserves so established on the books of Frost Hanna
and FHGB. Neither Frost Hanna nor FHGB is delinquent in the
payment of any Tax. No deficiencies for any Tax have been
asserted against Frost Hanna or FHGB with respect to any Taxes
which have not been paid, settled or adequately provided for and
there exists no basis for the making of any such deficiency,
assessment or charge.
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(d) Neither Frost Hanna nor FHGB has waived any
restrictions on assessment or collection of taxes or consented to
the extension of any statute of limitations relating to federal,
state, local or foreign taxation.
4.22 GUARANTIES. Neither Frost Hanna nor FHGB is a party to any
Guaranty.
4.23 VALIDITY OF FROST HANNA COMMON STOCK. The Frost Hanna Common
Stock to be issued in the Merger will, when issued in accordance with this
Agreement, be validly issued, fully paid and non-assessable.
4.24 ABSENCE OF CERTAIN BUSINESS PRACTICES. No employee or agent
of Frost Hanna or FHGB, and no officer or director of Frost Hanna or FHGB, and
no other Person acting at the direction of any of the foregoing or associated or
Affiliated with Frost Hanna or FHGB, and no other Person for whom Frost Hanna or
FHGB may be responsible, acting alone or together, has (i) received, directly or
indirectly, any rebates, payments, commissions, promotional allowances or any
other economic benefits, regardless of their nature or type, from any customer,
supplier, trading company, shipping company, governmental employee or other
Person with whom Frost Hanna or FHGB has done business directly or indirectly,
or (ii) directly or indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, trading company, shipping company,
governmental employee or other Person who is or may be in a position to help or
hinder the business of Frost Hanna and FHGB (or assist Frost Hanna or FHGB in
connection with any actual or proposed transaction), in either event which (a)
may subject Frost Hanna or FHGB to any damage or penalty in any civil, criminal
or governmental litigation or proceeding, or (b) if not given, may have an
adverse effect on the results of operations, assets, business, operations or
prospects of Frost Hanna or FHGB or may lead to suit or penalty in any private
or governmental litigation or proceeding.
4.25 PROXY STATEMENTS; DISCLOSURE DOCUMENT. None of the
information relating to Frost Hanna and FHGB included in the Frost Hanna Proxy
Statement or the Gaines Berland Disclosure Document (except as to the extent
such information relates to Gaines Berland or any of its Subsidiaries) at the
respective times that such documents are mailed to Gaines Berland's and Frost
Hanna's shareholders and at the time the Gaines Berland and Frost Hanna
shareholders meetings take place (subject, if required, to a reasonable period
of time for the parties hereto to take such action necessary to supplement or
amend such documents), contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Such documents,
including any amendments thereto, with respect to information pertaining to
Frost Hanna, will comply with, and the Frost Hanna Proxy Statement will be
distributed to Frost Hanna's shareholders in accordance with all applicable Laws
and its Articles of Incorporation and Bylaws.
4.26 DISCLOSURE. No representation or warranty of Frost Hanna or
FHGB contained in this Agreement or the schedules hereto, and no certificate or
notice furnished by or on behalf of Frost Hanna to Gaines Berland or their
agents pursuant to this Agreement, contains or will contain any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading.
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V
COVENANTS
During the period from the date of this Agreement to the Closing Date,
each of the parties, as applicable, agrees to perform the covenants set forth
below.
5.1 INTERIM OPERATIONS OF FROST HANNA AND GAINES BERLAND. Each of
Frost Hanna and Gaines Berland shall, and shall cause their respective
Subsidiaries to, operate their respective businesses only in the ordinary and
usual course consistent with past practices and shall use its reasonable efforts
to (a) preserve intact its business organization and the goodwill of its
customers, suppliers, employees and others having business relations with it and
(b) continuously maintain insurance coverage substantially equivalent to the
insurance coverage in existence on the date hereof. Except for entering into new
leases for real property and building and improving new offices at newly leased
premises, the sale of certain artwork owned by Gaines Berland, the distributions
of warrants to Principal Shareholders (which warrants were issued to Gaines
Berland from companies for which Gaines Berland acted as advisor, placement
agent or underwriter), and the funding of Gaines Berland's Subsidiaries'
operations in accordance with the terms hereof, or as otherwise expressly
contemplated herein or set forth on Schedule 5.1, without the written consent of
the other (which shall not be unreasonably withheld), neither Frost Hanna nor
Gaines Berland shall, or shall or cause or permit any of its respective
Subsidiaries to: (i) except as expressly contemplated hereby, amend its Articles
or Certificate of Incorporation or Bylaws; (ii) issue, sell or authorize for
issuance or sale, shares of any class of its securities (including, but not
limited to, by way of stock split or dividend) or any subscriptions, options,
warrants, rights or convertible securities, except the issuance of not more than
100 shares of Common Stock to new employees of Gaines Berland who are accredited
investors and who are not currently Affiliates of Gaines Berland or any
Principal Shareholder in a manner which is lawful, does not adversely impact
Frost Hanna's shareholders and which could not result in liability to Gaines
Berland or Frost Hanna, and with the prior written consent of Frost Hanna (which
consent shall not be unreasonably withheld); (iii) redeem, purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock or any option,
warrant or other right to purchase or acquire any such shares, except for
redemptions of Gaines Berland Common Stock pursuant to the terms of agreements
with shareholders existing on the date hereof; (iv) declare or pay any dividend
or other distribution (whether in cash, stock or other property) with respect to
its capital stock; (v) voluntarily sell, transfer, surrender, abandon or dispose
of any of its assets or property rights (tangible or intangible), other than in
the ordinary course of business on arms-length terms to non-Affiliates
consistent with past practices; (vi) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien, charge or
encumbrance of any kind, except liens for Taxes not currently due or liens not
exceeding $100,000 in the aggregate; (vii) except for the use of margin credit
provided by its clearing broker in the case of Gaines Berland or its
Subsidiaries, create, incur or assume any liability or indebtedness for borrowed
money (including purchase money financing), except in the case of Gaines
Berland, in an amount not to exceed the amount reflected in the Gaines Berland
Financial Statements for February 28, 1999 in the aggregate; (viii) make or
commit to make any capital expenditures in excess of $100,000 in the aggregate;
(ix) grant any increase in the compensation payable or to become payable to
directors, officers or employees, other than merit increases to officers and
employees in the ordinary course of business consistent with past practices; (x)
enter into any agreement, arrangement or commitment that, if it existed on the
date hereof, would be a Frost Hanna Material Agreement or a Gaines Berland
Material Agreement, as the case may be, or amend or terminate any of same or any
existing Frost Hanna Material Agreement or Gaines Berland Material Agreement, as
the case may be; (xi) alter the manner of keeping its books, accounts or
records, or change in any manner the accounting practices therein reflected;
(xii) enter into any commitment or transaction other than in the ordinary course
of business consistent with past practices or acquire the stock or a substantial
part of the business of any other Person; (xiii) take or omit to take any action
which would render any of its representations or warranties untrue or misleading
or which would be a breach of any of its covenants; (xiv) cancel or waive any
material debts, claims or rights or write off the value of any assets or
accounts receivable or increase the reserve for uncollectible receivables,
except as required by generally accepted accounting principles or by Law; (xv)
make any loans, advances or capital contributions to any Person, except routine
advances to employees in the ordinary course of their business in non-material
amounts or enter into or modify any termination or severance arrangement with
any employee or consultant; (xvi) take any action (other than entering into this
Agreement and consummating the transactions contemplated hereby) which could
reasonably be expected to have a Frost Hanna Material Adverse Effect, in the
case of Frost Hanna and its Subsidiaries, or a Gaines Berland Material Adverse
Effect, in the case of Gaines Berland and its Subsidiaries; (xvii) make any
Guaranty; (xviii) apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate (except for salary and
benefits as currently in effect and except in accordance with existing
agreements and arrangements which have been disclosed to the other parties in
writing); or (xix) waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any
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options granted under any of such plans; (xx) grant any severance or termination
pay to any officer or employee except pursuant to written agreements
outstanding, or policies existing, on the date hereof and as previously
disclosed on a schedule hereto, or adopt any new severance plan; (xxi) amend or
adopt any Gaines Berland Pension Plan, Gaines Berland Plan, or Gaines Berland
Welfare Plan; or (xxii) agree, whether in writing or otherwise, to do any of the
foregoing.
5.2 ACCESS.
(a) Frost Hanna Access. Frost Hanna shall: (i)
afford to Gaines Berland and its agents and representatives
reasonable access to the properties, books, records and other
information of Frost Hanna and FHGB, provided that such access
shall be granted upon reasonable notice and at reasonable times
during normal business hours in such a manner as to not
unreasonably interfere with normal business operations; (ii) use
its reasonable efforts to cause Frost Hanna's personnel, without
unreasonable disruption of normal business operations, to assist
Gaines Berland in its investigation of Frost Hanna and FHGB
pursuant to this Section 5.2(a); and (iii) furnish promptly to
Gaines Berland all information and documents concerning the
business, assets, liabilities, properties and personnel of Frost
Hanna and FHGB as Gaines Berland may from time to time reasonably
request. In addition, from the date of this Agreement until the
Closing Date, Frost Hanna shall cause one or more of its officers
to confer on a regular basis with officers of Gaines Berland and
to report on the general status of its ongoing operations.
(b) Gaines Berland Access. Gaines Berland shall:
(i) afford to Frost Hanna and its agents and representatives
reasonable access to the properties, books, records and other
information of Gaines Berland and its Subsidiaries, provided that
such access shall be granted upon reasonable notice and at
reasonable times during normal business hours in such a manner as
to not unreasonably interfere with normal business operations;
(ii) use its reasonable efforts to cause Gaines Berland's and its
Subsidiaries' personnel, without unreasonable disruption of
normal business operations, to assist Frost Hanna in its
investigation of Gaines Berland and its Subsidiaries pursuant to
this Section 5.2(b); and (iii) furnish promptly to Frost Hanna
all information and documents concerning the business, assets,
liabilities, properties and personnel of Gaines Berland and its
Subsidiaries as Frost Hanna may from time to time reasonably
request. In addition, from the date of this Agreement until the
Closing Date, Gaines Berland shall cause one or more of its
officers to confer on a regular basis with officers of Frost
Hanna and to report on the general status of its ongoing
operations. Every two weeks, Gaines Berland shall provide Frost
Hanna with a summary of all complaints reportable under 95-81
against Gaines Berland or any of its Subsidiaries, or their
respective officers, directors or employees.
5.3 CONFIDENTIALITY. Except as otherwise required by Law or in
the performance of obligations under this Agreement, any confidential or
proprietary information received by a party or its advisors from any other party
shall be kept confidential and shall not be used or disclosed for any purpose
other than in furtherance of the transactions contemplated by this Agreement.
The obligation of confidentiality shall not extend to information which (i) is
or becomes generally available to the public other than as a result of a
disclosure by a party (or an Affiliate thereof) in violation of this Agreement,
(ii) was in the possession of a party prior to its receipt from such other
party, (iii) becomes available to a party on a nonconfidential basis from a
source other than a party to this Agreement, provided such source is not in
violation of a confidentiality agreement with the party providing such
information or (iv) is required to be disclosed by Law or any applicable rules
of any stock exchange or the NASDAQ stock market. Upon termination of this
Agreement, each party shall, upon request, promptly return or destroy any
confidential information received from the other party. The covenants of the
parties contained in this Section 5.3 shall survive any termination of this
Agreement.
5.4 NOTIFICATION. Each party to this Agreement shall promptly
notify the other parties in writing of the occurrence, or threatened occurrence,
of: (i) any event that, with the lapse of time or notice or both, would
constitute a breach of this Agreement by such party; (ii) any event that would
cause any representation or warranty made by such party in this Agreement to be
false or misleading in any respect; and (iii) any event which would have been
required to be disclosed herein had such event occurred on or prior to the date
of this Agreement. The updating of any schedule pursuant to this Section 5.4
shall not be deemed to release any party for the breach of any representation,
warranty or covenant hereunder or of any other liability arising hereunder. If
any event or circumstance with respect to Gaines Berland or any Principal
Shareholder should occur or exist which would be required to be described in an
amendment or supplement to the Frost Hanna Proxy Statement or the Gaines Berland
Disclosure Document, or which would cause either such document to contain any
untrue statement of a material fact or omit to state a fact necessary to make
the statements contained therein not misleading, Gaines Berland shall promptly
notify Frost Hanna of such event or circumstance.
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5.5 CONSENT OF GOVERNMENTAL AUTHORITIES AND OTHERS. Each of the
parties agrees to file, submit or request (and to cause its Affiliates to file,
submit or request) promptly after the date of this Agreement and to prosecute
diligently any and all Consents, Permits and Orders required to be filed or
submitted to any Governmental Authorities and to seek to resolve any objections
raised by any Governmental Authorities or self-regulatory organizations,
including those specified in Sections 3.4 and 4.4. Each of Gaines Berland, and
Frost Hanna shall promptly make available to the other such information as each
of them may reasonably request relating to its business, assets, liabilities,
properties and personnel as may be required by each of them to prepare and file
or submit such applications and notices and any additional information requested
by any Governmental Authority, and shall update by amendment or supplement any
such information given in writing. Each of Gaines Berland, and Frost Hanna
represents and warrants to the other that such information, as amended or
supplemented, shall be true and not misleading.
5.6 REASONABLE EFFORTS. Subject to the terms and conditions of
this Agreement, each of the parties shall use its reasonable efforts in good
faith to take or cause to be taken as promptly as practicable all reasonable
actions that are within its control to cause to be fulfilled: (i) those
conditions precedent to its obligations to consummate the Merger; and (ii) those
actions upon which the conditions precedent to the other party's obligations to
consummate the Merger are dependent. The parties shall use reasonable efforts to
obtain all Consents required in connection with the consummation of the
transactions contemplated by this Agreement.
5.7 NO OTHER NEGOTIATIONS. Except for the transactions
contemplated by this Agreement, unless and until this Agreement shall have been
terminated as provided herein, neither Gaines Berland nor any of its
Subsidiaries nor Frost Hanna shall (nor shall any of them permit any of their
officers, directors, agents, Subsidiaries or Affiliates to): directly or
indirectly solicit, encourage, initiate or participate in any negotiations or
discussions with respect to any offer or proposal to acquire all or any
significant portion of their business, properties or capital stock, whether by
merger, purchase of assets, strategic alliance or otherwise, or to sell any
capital stock or debt of them or their Subsidiaries in a public offering or
otherwise. In the event any party shall receive any such offer or proposal, it
shall promptly inform the others as to any such offer. In addition, none of such
parties shall provide other third parties with information to evaluate such a
proposed transaction, unless doing so is reasonably believed to be necessary to
satisfy the fiduciary duties of their respective Boards of Directors.
5.8 COOPERATION. The parties will cooperate with each other and
shall take all reasonable actions required to be taken under any applicable
state blue sky or securities laws to permit the issuance of the Frost Hanna
Common Stock pursuant to the Merger. The Frost Hanna Proxy Statement and the
Gaines Berland Disclosure Document shall be in form and substance reasonably
acceptable to the parties. The parties shall provide to one another written
information about themselves necessary for such documents to be prepared in
compliance with applicable law.
5.9 SHAREHOLDER APPROVAL. Each of Frost Hanna and Gaines Berland
agrees that it will take such action as may be necessary to duly and lawfully
call, notice, solicit proxies and convene as promptly as practicable a special
meeting of its respective shareholders for the purposes of (i) duly obtaining
any shareholder approvals required in connection with the transactions
contemplated hereby, (ii) in the case of Frost Hanna, amending Frost Hanna's
Articles of Incorporation to change its name to gbiNet, Inc., (iii) in the case
of Frost Hanna, electing the persons referenced on Schedule 5.9 as directors of
Frost Hanna, effective as of the Effective Time, (iv) in the case of Frost
Hanna, amending Frost Hanna's Articles of Incorporation to add blank check
preferred stock in accordance with the Articles of Amendment attached hereto as
Exhibit A, and (v) in the case of Frost Hanna, to adopt the 1999 Performance
Equity Plan, the Annual Incentive Bonus Plan and the Special Performance
Incentive Plan (substantially in the form of Exhibit J). Each of Frost Hanna and
Gaines Berland agrees that its Board of Directors shall recommend in the Frost
Hanna Proxy Statement and the Gaines Berland Disclosure Document, respectively,
and otherwise that its shareholders approve the transactions contemplated hereby
and advise its shareholders that it has approved the Merger and the transactions
contemplated hereby and otherwise use its best efforts to obtain such approvals.
Each of Frost Hanna and Gaines Berland agrees that its Board of Directors shall
not withdraw, modify or change any such recommendation or recommend any other
transaction to its shareholders for approval.
5.10 PUBLIC STATEMENTS. The parties have agreed to the form of a
press release to be issued on the date hereof, a copy of which is attached as
Exhibit H. None of the parties hereto will issue any other public announcement
and/or press release concerning this Agreement without the prior written consent
of the other parties, which consents shall not be unreasonably withheld, except
as required by Law or the rules and regulations of NASD.
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5.11 COMMISSION FILINGS. Frost Hanna shall timely file all
reports and other documents required to be filed by it with the Commission under
the Exchange Act (including a Form 8-K) from the date of this Agreement to the
Effective Date.
5.12 LISTING. Frost Hanna shall use its reasonable efforts as
soon as reasonably practicable to obtain, prior to the Effective Time, approval
for listing with NASD electronic bulletin board, the shares of Frost Hanna
Common Stock to be issued in the Merger. To the extent Frost Hanna would meet
the requirements for inclusion of the Frost Hanna Common Stock on the NASDAQ
Small Cap Market immediately after the Effective Time, the parties shall use
their best efforts to file the appropriate listing application with NASDAQ as
soon as reasonably practicable; provided, however, that any fees paid to NASDAQ
shall not be counted against the $4,500,000 threshold.
5.13 EMPLOYMENT AGREEMENTS. Gaines Berland shall cause each of
the Principal Shareholders to execute an Employment Agreement (including a
non-compete provision), effective as of the Effective Time, in the form of
Exhibit B hereto ("Employment Agreements").
5.14 NO SECURITIES TRANSACTIONS. Neither Gaines Berland nor any
of its Subsidiaries nor any Principal Shareholder shall engage in any
transactions involving the securities of Frost Hanna prior to the consummation
of the Merger, except that, after full dissemination of the transactions
contemplated hereby, Gaines Berland may act as agent for customers who place
unsolicited orders for Frost Hanna Common Stock, and Gaines Berland shall use
its best efforts to cause each of its officers, directors and employees not to
engage in any such restricted transaction.
5.15 OLD GAINES BERLAND PLAN. The Gaines Berland Retirement Trust
Profit Sharing Plan ("Old Gaines Berland Plan") shall be terminated as soon as
possible without cost, expense or liability to Gaines Berland, in excess of
$10,000 in the aggregate.
5.16 INVESTMENT INTENT LETTERS. Gaines Berland shall cause each
of its shareholders to execute and deliver to Frost Hanna an investment intent
letter in the form of Exhibit C.
5.17 NAME CHANGE. Immediately after the Effective Time, Frost
Hanna shall change its name to gbiNet, Inc.
5.18 RESIGNATIONS. Frost Hanna shall cause all of its officers
and directors to resign, effective the Effective Time.
5.19 SHAREHOLDERS' AGREEMENTS. Gaines Berland shall cause all
shareholders' agreements and similar arrangements with respect to Gaines Berland
Common Stock to be terminated prior to the Effective Time.
5.20 EMPLOYMENT AGREEMENTS. Frost Hanna shall cause all
employment agreements to which it is a party to be terminated.
5.21 DEMAND REGISTRATION RIGHTS. Frost Hanna shall use its
reasonable efforts to cause all demand registration rights with respect to its
securities to be terminated, if it can do so without cost or expense.
5.22 RELEASES. Gaines Berland shall cause the Principal
Shareholders and Frost Hanna shall cause its officers and directors to execute
the general releases ("Releases"), substantially in the form of Exhibit I.
5.23 LIFE INSURANCE. All insurance policies insuring the lives of
directors of Frost Hanna owned by Frost Hanna or as to which Frost Hanna is the
beneficiary shall be terminated or transferred to the designees of such
directors, so that Frost Hanna shall have no obligations to make premium
payments thereunder after the Effective Time.
VI
ADDITIONAL AGREEMENTS
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6.1 INVESTIGATION; NOTICES. The representations, warranties,
covenants and agreements set forth in this Agreement shall not be affected or
diminished in any way by the receipt of any notice pursuant to Section 5.4 or by
any investigation (or failure to investigate) at any time by or on behalf of the
party for whose benefit such representations, warranties, covenants were made.
All statements contained herein or in any schedule, certificate, exhibit, list
or other document delivered pursuant hereto shall be deemed to be
representations and warranties for purposes of this Agreement.
6.2 SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties set forth in this Agreement shall
terminate at the Effective Time and shall not survive the Closing. No Principal
Shareholder shall be liable for any breach of any representation or warranty
herein by Gaines Berland.
6.3 SECURITIES ACTIVITIES. Gaines Berland agrees that no party to
any Employment Agreement shall engage in any action to the extent such party
would be prohibited from doing so under such Employment Agreement.
6.4 VOTING AGREEMENT. Each of the Principal Shareholders are,
concurrently with the execution and delivery hereof, executing and delivering a
Voting Agreement (the "Voting Agreement"), in the form of Exhibit D, pursuant to
which they will vote their Gaines Berland Common Stock in favor of the Merger.
6.5 TAX-FREE REORGANIZATION. The parties intend that the Merger
be a tax-free plan of reorganization in accordance with Section 368 of the Code,
and shall not take any position on any tax return inconsistent therewith.
6.6 INDEMNIFICATION; INSURANCE.
6.6.1 Frost Hanna shall, from and after the Effective
Time, indemnify, defend and hold harmless each person who is now, or who
becomes prior to the Effective Time, an officer or director of Frost Hanna
or FHGB against (i) all losses, claims, damages, costs, expenses,
liabilities or judgments or amount that are paid in settlement with the
express written approval of the indemnifying party (which approval shall
not be withheld unreasonably) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising
in whole or in part out of the fact that such person is or was a director,
officer or employee of Frost Hanna or FHGB, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities"), and (ii) all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining
to this Agreement or the transactions contemplated by this Agreement, in
each case to the full extent provided under the Articles of Incorporation
and Bylaws of Frost Hanna as in effect as of the date hereof or permitted
under the Florida BCA, to indemnify directors and officers.
6.6.2 For a period of six years after the Effective Date,
Frost Hanna shall, subject to applicable law, keep in effect provisions in
its Articles of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification of the directors and
officers of Frost Hanna to the fullest extent permitted under the Florida
BCA, which provision shall not be amended except as required by applicable
law or except to make changes permitted by law that would enlarge the
right of indemnification.
6.6.3 For a period of six years after the Effective Time,
Frost Hanna shall cause to be maintained in effect one or more policies of
directors' and officers' liability insurance with respect to any claim,
action, suit, proceeding or investigation arising from facts or events
which occurred at or before the Effective Time, and such policy or
policies shall be with a carrier or carriers satisfactory to the parties
intended to be benefitted thereby, and with the limits, deductibles and
other characteristics no less favorable than those set forth on Schedule
6.6. Such policies shall be no less favorable to the insureds than the
policies acquired after the date of this Agreement for the benefit of
officers and directors of Frost Hanna. Any and all such policies shall be
issued by reasonably satisfactory insurance carriers, shall have no
uncustomary exclusions, and shall otherwise be in form and substance
satisfactory to those persons who are officers and directors of Frost
Hanna as of the date hereof. The premiums for such six-year period shall
be paid immediately after Closing and shall not be subtracted or counted
in calculating the minimum cash or cash equivalents required to be held as
a condition to Gaines Berland's obligations to close the transactions
contemplated hereby pursuant to Section 7.3(f).
6.6.4 The provisions of this Section 6.6 are intended for
the benefit of, and shall be enforceable by, each party indemnified
pursuant to this Section 6.6 and his or her heirs and representatives.
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6.7 FURTHER ASSURANCES. The parties hereto shall deliver any and
all other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and provisions
of this Agreement.
6.8 FROST HANNA AMENDMENT TO ARTICLES OF INCORPORATION.
Immediately after the Effective Time, Frost Hanna will amend its Articles of
Incorporation as contemplated hereby.
6.9 USE OF NAME. After the Effective Time, none of the Principal
Shareholders shall establish or otherwise be associated with, as owner, partner,
shareholder, employee or otherwise, any entity engaged in any aspect of the
securities business which utilizes the name "Gaines" or "Berland" or any
variation thereof, or grant any other Person the right to do so; provided,
however, notwithstanding anything to the contrary provided in this Agreement or
elsewhere, Joseph Berland will be permitted to us the name "Berland" or any
variation of "Berland" in connection with (i) the securities business so long as
it is in connection with Gaines Berland or so long as it is in furtherance of
the business of an organization with no more than five employees or independent
contractors or (ii) any business other than the securities business.
VII
CLOSING; CONDITIONS PRECEDENT; TERMINATION
7.1 CLOSING. Upon the terms and subject to the conditions hereof,
the consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Gusrae, Kaplan & Bruno, 120 Wall
Street, New York, New York, as promptly as practicable and in any event within
15 days after the satisfaction or waiver of the conditions precedent to the
obligations of the parties set forth in this Article VII (the "Closing Date"),
or on such other date and at such other place as may be agreed to by the
parties. At the Closing, the parties shall deliver to each other such customary
documents as may be specified, or required to satisfy the conditions set forth,
in Sections 7.2, 7.3 and 7.4, and such other documents and instruments as each
party may reasonably request from the other parties. On the Closing Date, the
parties shall cause to be filed a Certificate of Merger with the Secretary of
State of the State of New York. The Closing shall be effective at 5:00 P.M.,
Eastern Time, on the date (the "Effective Date") such Certificate of Merger are
filed ("Effective Time"). All proceedings to be taken and all documents to be
executed at the Closing shall be deemed to have been taken, delivered and
executed simultaneously, and no proceeding shall be deemed taken nor documents
deemed executed or delivered until all have been taken, delivered and executed.
7.2 MUTUAL CONDITIONS PRECEDENT. The respective obligations of
the parties to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Governmental Consents. All Consents required
by Governmental Authorities and self-regulatory organizations for
the consummation of the transactions contemplated by this
Agreement shall have been obtained without any material
conditions, and neither the Commission nor any self-regulatory
organization shall have raised any unresolved objection to the
Merger. All of such Consents shall have been obtained without the
imposition of any conditions which would materially adversely
affect Frost Hanna's ability to operate Gaines Berland or any of
its Subsidiaries or business units following the Closing.
(b) No Litigation. No litigation, arbitration or
other proceeding shall be pending or, to the knowledge of the
parties, threatened by or before any court, arbitration panel or
Governmental Authority; no Law shall have been enacted after the
date of this Agreement; and no judicial or administrative
decision shall have been rendered; in each case, which enjoins,
prohibits or materially restricts, or seeks to enjoin, prohibit
or materially restrict, the consummation of the transactions
contemplated by this Agreement.
(c) Shareholder Approval. Each of Frost Hanna
and Gaines Berland shall have obtained the approval of their
respective shareholders required for the consummation of the
transactions contemplated therein; and the approval of Frost
Hanna's shareholders shall be the shareholder approval required
in Frost Hanna's prospectus, dated September 22, 1997.
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(d) Releases. Each of the Releases shall have
been executed and delivered.
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF GAINES BERLAND.
The obligations of Gaines Berland to consummate the transactions contemplated by
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Representations and Warranties True. The
representations and warranties of Frost Hanna and FHGB contained
in this Agreement or in any certificate or notice delivered
pursuant to this Agreement shall be true and correct in all
material respects (except for representations and warranties
which are by their terms qualified by materiality, which shall be
true and correct in all respects after giving effect to the
materiality qualifications contained in such representations and
warranties) as of the Closing Date with the same force and effect
as though made on and as of such date, except to the extent that
such representations and warranties by their terms are
specifically made as of an earlier date.
(b) Covenants Performed. The covenants of Frost
Hanna and FHGB contained in this Agreement to be performed or
complied with on or prior to the Closing Date shall have been
duly performed or complied with in all material respects.
(c) Consents. Frost Hanna shall have received
all Consents necessary to effectuate the transactions
contemplated herein, all of which shall have been obtained
without the imposition of any materially adverse terms or
conditions.
(d) Opinion of Counsel. Gaines Berland shall
have received from Akerman, Senterfitt & Eidson, P.A., legal
counsel to Frost Hanna, an opinion letter, dated the Closing
Date, in form and substance reasonably satisfactory to Gaines
Berland, with respect to the matters set forth on Exhibit E.
(e) Certificate of Frost Hanna. Frost Hanna
shall have delivered to Gaines Berland a certificate executed by
its President, dated the Closing Date, certifying in such detail
as Gaines Berland may reasonably request (i) that the conditions
specified in Sections 7.3(a), (b) and (c) above have been
fulfilled and (ii) as to such other matters as Gaines Berland may
reasonably request.
(f) Minimum Cash. Frost Hanna shall have enough
cash and cash equivalent so that no adjustment to the Conversion
Ratio shall be necessary under Section 2.5.3.
(g) Resignations. All of Frost Hanna's officers
and directors shall have resigned.
(h) Records. Frost Hanna shall have turned over
to Gaines Berland all of its books and records.
(i) Employment Agreements. All employment
agreements to which Frost Hanna is a party shall have been
terminated.
7.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FROST HANNA AND
FHGB. The obligations of Frost Hanna and FHGB to consummate the transactions
contemplated by this Agreement are subject to the satisfaction at or prior to
the Closing of the following conditions:
(a) Representations and Warranties True. The
representations and warranties of Gaines Berland and the
Principal Shareholders contained in this Agreement or in any
certificate or notice delivered pursuant to this Agreement shall
be true and correct in all material respects (except for
representations and warranties which are by their terms qualified
by materiality, which shall be true and correct in all respects
after giving effect to the materiality qualifications contained
in such representations and warranties) as of the Closing Date
with the same force and effect as though made on and as of such
date, except to the extent such representations and warranties by
their terms are specifically made as of an earlier date.
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(b) Covenants Performed. The covenants of Gaines
Berland and the Principal Shareholders contained in this
Agreement to be performed or complied with on or prior to the
Closing Date shall have been duly performed or complied with in
all material respects.
(c) No Material Adverse Change. There has been
no Gaines Berland Material Adverse Effect since February 28, 1999
and no event or condition shall have occurred which has adversely
affected or may reasonably be expected to have a Gaines Berland
Material Adverse Effect.
(d) Consents. Gaines Berland shall have obtained
all Consents necessary to complete the transactions contemplated
herein, all of which shall have been obtained without the
imposition of any materially adverse terms or conditions.
(e) Opinion of Counsel. Frost Hanna shall have
received from Gusrae, Kaplan & Bruno, Gaines Berland's counsel,
an opinion letter, dated the Closing Date, in form and substance
reasonably satisfactory to Frost Hanna, with respect to the
matters set forth in Exhibit F.
(f) Certificate of Gaines Berland, G-Trade and
Holdings. Gaines Berland, G-Trade and Holdings shall have
delivered to Frost Hanna a certificate executed by their
President, dated the Closing Date, certifying in such detail as
Frost Hanna may reasonably request, that the conditions specified
in Sections 7.4(a), (b) and (c) above have been fulfilled, and
certifying the number of outstanding shares of Gaines Berland
Common Stock immediately prior to the Effective Time.
(g) Auditor's Letters. Frost Hanna shall have
received a letter dated as of the date not more than three (3)
days prior to the Effective Date, the date of mailing of the
Frost Hanna Proxy Statement and the Gaines Berland Disclosure
Document by Frost Hanna and Gaines Berland as contemplated herein
and the date of the shareholders' meetings of Frost Hanna and
Gaines Berland, from Goldstein Golub Kessler LLP, auditors for
Gaines Berland addressed to Frost Hanna and in form and substance
customary for transactions of the type contemplated hereby and
reasonably satisfactory to Frost Hanna.
(h) Shareholders' Agreements. All shareholders'
agreements and similar arrangements with respect to Gaines
Berland Common Stock shall have been terminated.
(i) Employment Agreements. Each of the
Employment Agreements shall have been executed and delivered.
(j) Dissenters' Rights. The shareholders of
Gaines Berland shall not have duly exercised (and not withdrawn)
dissenters' rights with respect to 3% or more of the outstanding
Gaines Berland Common Stock .
(k) Investment Intent Letters. Each Shareholder
of Gaines Berland shall have executed and delivered an investment
intent letter in the form of Exhibit C.
7.5 TERMINATION; TERMINATION FEE. This Agreement and the
transactions contemplated hereby may be terminated prior to the Closing: (i) at
any time by mutual consent of the parties; (ii) by Frost Hanna or Gaines Berland
if the Closing has not occurred on or prior to October 31, 1999 (the
"Termination Date"), provided the failure of the Closing to occur by such date
is not the result of the failure of the party seeking to terminate this
Agreement to perform or fulfill any of its obligations hereunder; (iii) by
Gaines Berland at any time in its sole discretion if any of the representations
or warranties of Frost Hanna or FHGB in this Agreement are not in all material
respects true and accurate or if Frost Hanna or FHGB breaches in any material
respect any covenant (including, but not limited to, covenants under Section
5.9) contained in this Agreement, provided that if such misrepresentation or
breach is curable, it is not cured prior to October 31, 1999, or such other date
as the parties may agree in writing; (iv) by Frost Hanna at any time in its sole
discretion if any of the representations or warranties of Gaines Berland in this
Agreement are not in all material respects true and accurate or if Gaines
Berland breaches in any material respect any covenant (including, but not
limited to, covenants under Section 5.9) contained in this Agreement, provided
that if such misrepresentation or breach is curable, it is not cured prior to
October 31, 1999, or such other date as the parties may agree in writing; (v) by
Frost Hanna if Gaines Berland fails to obtain the required vote of its
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shareholders at a meeting of shareholders duly convened therefor or at any
adjournment thereof; or (vi) by Frost Hanna or Gaines Berland if Frost Hanna
fails to obtain the required vote of its shareholders at a meeting of
shareholders duly convened therefor or at any adjournment thereof; provided,
however, that the right to terminate this Agreement under subsections (v) and
(vi) shall not be available to Frost Hanna, Gaines Berland, Holdings or G-Trade
where the failure to obtain shareholder approval of such party was caused by the
act or failure to act of such party and such act or failure to act constitutes a
material breach by such party of this Agreement; provided, further, that the
right to terminate this Agreement under subsection (vi) shall not be available
to Gaines Berland if any Person signing a Voting Agreement fails to vote in
favor of the Merger and the transactions contemplated hereby at the meeting of
Gaines Berland's, Holdings' and G-Trade's shareholders. If this Agreement is
terminated pursuant to this Section 7.5, written notice thereof shall promptly
be given by the party electing such termination to the other party and, subject
to the expiration of the cure periods provided in clauses (iii) and (iv) above,
if any, this Agreement shall terminate without further actions by the parties
and, except as provided in this Section 7.5, no party shall have any further
obligations under this Agreement; provided that any termination of this
Agreement pursuant to this Section 7.5 shall not relieve any party from any
liability for any intentional or willful breach or violation hereof; provided,
further that a breach of Section 5.9 shall not be deemed an intentional or
willful breach if the Board of Directors believed in good faith and upon advise
of counsel that such a breach was necessary for it to fulfill its fiduciary
interests of its shareholders. In the event of a termination of this Agreement,
the exclusive remedy of the parties hereunder (except for willful or intentional
breaches) shall be as set forth in this Section 7.5. Notwithstanding the
termination of this Agreement, the respective obligations of the parties under
Sections 5.3, and Article VIII shall survive the termination of this Agreement.
In the event this Agreement is terminated by Gaines Berland pursuant to
Section 7.5(iii), Frost Hanna shall promptly, but in no event later than ten
business days after the date of such termination, pay to Gaines Berland,
Holdings and G-Trade a fee equal to $250,000 in immediately available funds. In
the event this Agreement is terminated by Frost Hanna pursuant to Section
7.5(iv), Gaines Berland, Holdings and G-Trade shall promptly, but in no event
later than ten business days after the date of such termination, pay to Frost
Hanna a fee equal to $250,000 in immediately available funds. In the event this
Agreement is terminated by Gaines Berland pursuant to Section 7.5(vi) after
Frost Hanna's Board of Directors withdrew its recommendation to its shareholders
to approve the Merger because it believed that it was required to do so to
satisfy its fiduciary duties to its shareholders, then Frost Hanna shall
promptly, but in no event later than 10 days after such termination, pay to
Gaines Berland a fee of $100,000 in immediately available funds. The parties
acknowledge that the provisions set forth in this Section 7.5 are an integral
part of the transactions contemplated by this Agreement, that without such
provisions the parties would not have entered into this Agreement and that the
above-referenced fees are liquidated damages and not penalties, are intended to,
among other things, compensate the parties for expenses incurred in connection
herewith.
VIII
MISCELLANEOUS
8.1 NOTICES. Any notice or other communication under this
Agreement shall be in writing and shall be delivered personally or sent by
prepaid overnight courier with guaranteed next day delivery to the parties at
the addresses set forth below their names on the signature pages of this
Agreement (or at such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given when actually received or in the case of delivery by overnight
service with guaranteed next day delivery, the next day or the day designated
for delivery. A copy of any notices delivered to Frost Hanna shall also be sent
to Teddy D. Klinghoffer, Esq., Akerman, Senterfitt & Eidson, P.A., One Southeast
Third Avenue, Miami, Florida 33131. A copy of any notices delivered to Gaines
Berland shall also be delivered to Martin Kaplan, Esq., Gusrae, Kaplan & Bruno,
120 Wall Street, New York, New York 10005.
8.2 ENTIRE AGREEMENT. This Agreement contains every obligation
and understanding among the parties relating to the subject matter hereof and
merge all prior discussions, negotiations and agreements, if any, between them,
and none of the parties shall be bound by any representations, warranties,
covenants, or other understandings, other than as expressly provided or referred
to herein.
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8.3 ASSIGNMENT. This Agreement may not be assigned by any party
without the written consent of the other party. Subject to the preceding
sentence, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, personal representatives,
legal representatives, and permitted assigns.
8.4 WAIVER AND AMENDMENT. Any representation, warranty, covenant,
term or condition of this Agreement which may legally be waived, may be waived,
or the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof may
be amended by the parties hereto at any time. Any such waiver, extension or
amendment shall be evidenced by an instrument in writing executed on behalf of
the appropriate party by a person who has been authorized by its Board of
Directors to execute waivers, extensions or amendments on its behalf. No waiver
by any party hereto, whether express or implied, of its rights under any
provision of this Agreement shall constitute a waiver of such party's rights
under such provisions at any other time or a waiver of such party's rights under
any other provision of this Agreement. No failure by any party hereto to take
any action against any breach of this Agreement or default by another party
shall constitute a waiver of the former party's right to enforce any provision
of this Agreement or to take action against such breach or default or any
subsequent breach or default by such other party.
8.5 NO THIRD PARTY BENEFICIARY. Except as set forth in Section
6.6, nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any Person other than the parties hereto and
their respective successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
8.6 SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement shall be declared invalid, void or
unenforceable, the remainder of the provisions of this Agreement shall remain in
full force and effect, and such invalid, void or unenforceable provision shall
be interpreted as closely as possible to the manner in which it was written.
8.7 EXPENSES. All expenses (including, without limitation, legal
fees and expenses, investment banking fees, fees and expenses of accountants)
incurred by Gaines Berland, Holdings and G-Trade in connection with the
transactions contemplated hereby will be borne by Gaines Berland , Holdings and
G-Trade and all expenses (including, without limitation, legal fees and
expenses, investment banking fees, fees and expenses of accountants) incurred by
Frost Hanna or FHGB in connection with the transactions contemplated hereby will
be borne by Frost Hanna, except that Harter Financial shall be issued 150,000
restricted shares of Frost Hanna Common Stock.
8.8 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.9 COUNTERPARTS; CONSTRUCTION. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. Any telecopied
version of any manually executed signature page shall be deemed a manually
executed original. Each provision of this Agreement shall be independent of all
other provisions, and no provision shall limit any other provision.
8.10 LITIGATION; PREVAILING PARTY. In the event of any litigation
with regard to this Agreement, the prevailing party shall be entitled to receive
from the non-prevailing party and the non-prevailing party shall pay upon demand
all reasonable fees and expenses of counsel for the prevailing party.
8.11 INJUNCTIVE RELIEF. It is possible that remedies at law may
be inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
8.12 REMEDIES CUMULATIVE. No remedy made available by any of the
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity.
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8.13 PARTICIPATION OF PARTIES; CONSTRUCTION: INDEPENDENT COUNSEL.
The parties hereto acknowledge that this Agreement and all matters contemplated
herein, have been negotiated among all parties hereto and their respective legal
counsel and that all such parties have participated in the drafting and
preparation of this Agreement from the commencement of negotiations at all times
through the execution hereof. This Agreement shall be construed and interpreted
without regard to presumption or other rule or interpretation against the party
who may have had primary responsibility for drafting this Agreement. Each of the
Principal Shareholders has been represented by his own independent legal counsel
in connection with the transactions contemplated hereby.
8.14 GOVERNING LAW. This Agreement has been entered into and
shall be construed and enforced in accordance with the Laws of the State of New
York without reference to the choice of Law principles thereof.
8.15 JURISDICTION AND VENUE. This Agreement shall be subject to
the exclusive jurisdiction of the courts of the City, County and State of New
York which shall be the exclusive jurisdiction and venue for disputes, actions
or lawsuits arising out of or relating to this Agreement or the transactions
contemplated hereby. The parties to this Agreement agree that any breach of any
term or condition of this Agreement shall be deemed to be a breach occurring in
the City, County and State of New York by virtue of a failure to perform an act
required to be performed in the City, County and State of New York and
irrevocably and expressly agree to submit to the jurisdiction of the courts of
the City, County and State of New York for the purpose of resolving any disputes
among the parties relating to this Agreement or the transactions contemplated
hereby. The parties irrevocably waive, to the fullest extent permitted by Law,
any objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in the City, County and
State of New York, and further irrevocably waive any claim that any suit, action
or proceeding brought in the City, County and State of New York has been brought
in an inconvenient forum.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
FROST HANNA CAPITAL GROUP, INC.
By:________________________________________
Name:___________________________________
Title:__________________________________
Address: 327 Plaza Real
Boca Raton, FL 33432
FHGB ACQUISITION CORPORATION
By:________________________________________
Name:___________________________________
Title:__________________________________
Address: 327 Plaza Real
Boca Raton, FL 33432
GAINES, BERLAND INC.
By:________________________________________
Name:___________________________________
Title:__________________________________
Address: 1055 Stewart Avenue
Beth Page, NY 11714
G-TRADE CAPITAL CORP.
By:________________________________________
Name:___________________________________
Title:__________________________________
Address: 1055 Stewart Avenue
Beth Page, NY 11714
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GAINES BERLAND HOLDINGS, INC.
By:________________________________________
Name:___________________________________
Title:__________________________________
Address: 1055 Stewart Avenue
Beth Page, NY 11714
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<PAGE> 169
LIST OF SCHEDULES
SCHEDULE DESCRIPTION
- -------- -----------
1 List of Principal Shareholders
3.1 Qualification
3.4 Consents of Governmental Authorities
3.5 Financial Statements
3.7 Legal Proceedings
3.8 Brokers
3.9 Material Adverse Changes
3.11 Capitalization
3.13(a) Liens
3.13(b) Intellectual Property
3.14 Governmental Authorizations
3.15 Insurance Policies
3.16(b) Employment
3.16(c) Employment
3.16(d) Plans
3.16(e) Personnel
3.17 Material Agreements
3.18 Accounts
3.19 Inventory of Securities
3.20 Related Party Transactions
3.21(a) Taxes
3.22 Guaranties
3.25 Broker-Dealer
3.27 Investment Intent
4.1 Qualification
4.3 No Violation or Conflict
4.5 Financial Statements
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SCHEDULE DESCRIPTION
- -------- -----------
4.7 Legal Proceedings
4.8 Brokers
4.9 Material Adverse Changes
4.11 Capitalization
4.12 Options
4.13 Properties
4.14 Consents and Permits
4.15 Insurance
4.16(c) Employment Agreements
4.16(e) Directors and Officers
4.17 Material Agreements
4.18 Accounts
4.20 Related Party Transactions
5.1 Interim Operations
5.9 Directors
6.6 Indemnification and Insurance
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<PAGE> 171
LIST OF EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
A Articles of Amendment
B Form of Employment Agreement
C Form of an Investment Intent Letter
D Form of Voting Agreement
E Form of Opinion of Counsel from Akerman, Senterfitt
& Eidson, P.A.
F Form of Opinion of Counsel from Gusrae, Kaplan & Bruno
G Certificate of Merger
H Form of a Press Release
I Form of General Releases
J Plans
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<PAGE> 172
EXHIBIT "B"
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
FROST HANNA CAPITAL GROUP, INC.
Pursuant to the provisions of Section 607.1003 of the Florida Business
Corporation Act, the Articles of Incorporation of FROST HANNA CAPITAL GROUP,
INC., a Florida corporation (the "Corporation"), as heretofore amended are
hereby further amended as follows:
1. Articles I and III shall be deleted in their entireties and new
Articles I and III shall be added read as follows:
"ARTICLE 1 - NAME
The name of the Corporation is "G-Trade Capital Holdings Corp."
(the "Corporation").
ARTICLE III - CAPITAL STOCK
The aggregate number of shares which the Corporation shall have
the authority to issue is one hundred and two million
(102,000,000) shares, of which one hundred million (100,000,000)
shares shall be "Common Stock", par value $.0001 per share, and
of which two million (2,000,000) shares shall be "Preferred
Stock", par value $.0001 per share. The Board of Directors is
authorized, subject to limitations prescribed by law and the
provisions of the Corporation's Articles of Incorporation, as
amended, to provide for the issuance of shares of Preferred Stock
in one or more series by adoption of amendments to the Articles
of Incorporation, to establish from time to time the number of
shares to be included in such series and to fix the designation,
voting powers, preferences and relative participating, optional
or other special rights of the shares of the shares of each of
such series, and the qualifications, limitations or restrictions
thereof. The Board of Directors may authorize the issuance of
stock to such persons upon such terms and for such consideration
in cash, property or services as the Board of Directors may
determine and as may be allowed by law. The just valuation of
such property or services shall be fixed by the Board of
Directors. All such stock when issued shall be fully paid and
exempt from assessment."
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<PAGE> 173
2. The foregoing amendments were duly adopted and approved by the
shareholders and directors of the Corporation at a meeting on ____________, 1999
and ___________, 1999, respectively. The number of votes cast for the amendment
was sufficient for approval.
Dated: _______________, 1999 FROST HANNA CAPITAL GROUP, INC.
By:_______________________________
Mark J. Hanna, President
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<PAGE> 174
EXHIBIT "C"
Approved by Board of Directors on ______ 1999
Approved by Shareholders on ________ 1999
Frost Hanna Capital Group, Inc.
1999 Performance Equity Plan
ARTICLE I
PURPOSE: DEFINITIONS.
1.1 Purpose. The purpose of the Frost Hanna Capital Group, Inc. (the
"Company") 1999 Performance Equity Plan (the "Plan") is to enable the Company to
offer to its key employees, officers, directors and consultants whose past,
present and any potential contributions to the Company and its Subsidiaries have
been, are or will be important to the success of the Company, an opportunity to
acquire a proprietary interest in the Company. The various types of long-term
incentive awards which may be provided under the Plan will enable the Company to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below.
(a) "Agreement" means the agreement between the Company and the
Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board or
any other committee of the Board, which Board may designate to administer the
Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, no par
value per share.
(f) "Company" means Frost Hanna Capital Group, Inc., a
corporation organized under the laws of the State of Florida.
(g) "Deferred Stock" means Stock to be received, under an award
made pursuant to Section 9 below, at the end of a specified deferral period.
(h) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 13.1
below.
(j) "Fair Market Value," unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on the last trading day preceding the date of grant of an award
hereunder, as reported by the exchange or Nasdaq, as the case may be: (ii) if
the Common Stock is not listed on a national securities exchange or quoted on
the Nasdaq National Market or
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<PAGE> 175
Nasdaq SmallCap Market, but is traded in the over-the-counter market, the
closing bid price for the Common Stock on the last trading day preceding the
date of grant of an award hereunder for which such quotations are reported by
the OTC Bulletin Board or the National Quotation Bureau, Incorporated or similar
publisher of such quotations; and (iii) if the fair market value of the Common
Stock cannot be determined pursuant to clause (i) or (ii) above, such price as
the Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under the
Plan.
(l) "Incentive Stock Option" means any Stock Option intended to
be and designated as an "incentive stock option" within the meaning of Section
422 of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment
with the Company of any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 10
below, that is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
(p) "Parent" means any present or future parent corporation of
the Company, as such term is defined in section 424(e) of the Code.
(q) "Plan" means the Frost Hanna Capital Group, Inc. 1999
Performance Equity Plan, as hereinafter amended from time to time.
(r) "Restricted Stock" means Stock, received under an award made
pursuant to Section 8 below, that is subject to restrictions under said Section
8.
(s) "SAR Value" means the excess of the Fair Market Value (on the
exercise date) of the number of shares for which the Stock Appreciation Right is
exercised over the exercise price that the participant would have otherwise had
to pay to exercise the related Stock Option and purchase the relevant shares.
(t) "Stock" means the Common Stock of the Company, no par value
per share.
(u) "Stock Appreciation Right" means the right to receive from
the Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the exercise price of the Stock Option.
(v) "Stock Option" or "Option" means any option to purchase
shares of Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under Section
6.3 below, as a result of the payment of the exercise price of a Stock Option
and/or the withholding tax related thereto in the form of Stock owned by the
Holder or the withholding of Stock by the Company.
(x) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of the
Code.
ARTICLE II
ADMINISTRATION.
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<PAGE> 176
2.1 Committee Membership. The Plan shall be administered by the Board or
a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
The Committee members, to the extent possible, shall be "non-employees" as
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
2.2 Powers of Committee. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) To select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder.
(b) To determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price or other consideration, such as other
securities of the Company or other property, any restrictions or limitations,
and any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine).
(c) To determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder.
(d) To determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan.
(e) To permit a Holder to elect to defer a payment under the Plan
under such rules and procedures as the Committee may establish, including the
crediting of interest on deferred amounts denominated in cash and of dividend
equivalents on deferred amounts denominated in Stock.
(f) To determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder shall be deferred
which may be either automatic or at the election of the Holder.
(g) To substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 12 below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 12 below, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive Stock
Options (including, but not limited to, Stock Reload Options or Stock
Appreciation Rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
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ARTICLE III
STOCK SUBJECT TO PLAN.
3.1 Number of Shares. The total number of shares of Common Stock reserved
and available for distribution under the Plan shall be 3,000,000 shares. Shares
of Common Stock under the Plan may consist, in whole or in part, of authorized
and unissued shares or treasury shares. If any shares of Stock that have been
granted pursuant to a Stock Option cease to be subject to a Stock Option, or if
any shares of Stock that are subject to any Stock Appreciation Right, Restricted
Stock, Deferred Stock award, Reload Stock Option or Other Stock-Based Award
granted hereunder are forfeited or any such award otherwise terminates without a
payment being made to the Holder in the form of Stock, such shares shall again
be available for distribution in connection with future grants and awards under
the Plan. Only net shares issued upon a stock-for-stock exercise (including
stock used for withholding taxes) shall be counted against the number of shares
available under the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
change in the shares of Common Stock of the Company as a whole occurring as the
result of a stock split, reverse stock split, stock dividend payable on shares
of Common Stock, combination or exchange of shares, or other extraordinary or
unusual event occurring after the grant of an Award, the Committee shall
determine, in its sole discretion, whether such change equitably requires an
adjustment in the terms of any Award or the aggregate number of shares reserved
for issuance under the Plan. Any such adjustments will be made by the Committee,
whose determination will be final, binding and conclusive.
ARTICLE IV
ELIGIBILITY.
Awards may be made or granted to key employees, officers, directors and
consultants who are deemed to have rendered or to be able to render significant
services to the Company or its Subsidiaries and who are deemed to have
contributed or to have the potential to contribute to the success of the
Company. No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant.
ARTICLE V
REQUIRED SIX-MONTH HOLDING PERIOD.
A period of not less than six months must elapse from the date of grant of
an award under the Plan (i) before any disposition of a Holder of a derivative
security (as defined in Rule 16a-1 promulgated under the Exchange Act) issued
under this Plan, or (ii) before any disposition by a Holder of any Stock
purchased or granted pursuant to an award under this Plan.
ARTICLE VI
STOCK OPTIONS.
6.1 Grant and Exercise. Stock Options granted under the Plan may be of
two types (i) Incentive Stock Options, and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options and which may be
granted alone or in addition to other awards granted under the Plan. To the
extent that any Stock Option intended to qualify as an Incentive Stock Option
does not so qualify, it shall constitute a separate Nonqualified Stock Option.
An Incentive Stock Option may be granted only within the ten year period
commencing from the Effective Date and may only be exercised within ten years of
the date of grant (or five years in the case of an Incentive Stock Option
granted to an optionee ("10% Shareholder") who, at the time of grant, owns Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
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6. Terms and Conditions. Stock Options granted under the Plan shall
be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may not be less than 100% of the Fair Market Value of the
Stock as defined above; provided, however, that the exercise price of an
Incentive Stock Option granted to a 10% Shareholder shall not be less than 110%
of the Fair Market Value of the Stock.
(b) Option Term. Subject to the limitations in Section 6.1 above,
the term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to each terms and conditions as shall be determined by
the Committee and as set forth in Section 11 below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment, exercise
and waiting period provisions are applicable in a particular case, Stock Options
may be exercised in whole or in part at any time during the term of the Option,
by giving written notice of exercise to the Company specifying the number of
shares of Stock to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, which shall be in cash or, if provided in the
Agreement, either in shares of Stock (including Restricted Stock and other
contingent awards under this Plan) or party in cash and party in such Stock, or
such other means which the Committee determines are consistent with the Plan's
purpose and applicable law. Cash payments shall be made by wire transfer,
certified or bank check or personal check, in each case payable to the order of
the Company; provided, however, that the Company shall not be required to
deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Subject to the
terms of the Agreement, the Committee may, in its sole discretion, at the
request of the Holder, delivery upon the exercise of a Nonqualified Stock Option
a combination of shares of Deferred Stock and Common Stock; provided, however,
that, notwithstanding the provisions of Section 9 of the Plan, such Deferred
Stock shall be fully vested and not subject to forfeiture. A Holder shall have
none of the rights of a Shareholder with respect to the shares subject to the
Option until such shares shall be transferred to the Holder upon the exercise of
the Option.
(e) Transferability. Except as may be set forth in the Agreement,
no Stock Option shall be transferable by the Holder other than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the Holder's lifetime, only by the Holder.
(f) Termination by Reason of Death. If a Holder's employment by
the Company or a Subsidiary terminates by Reason of Death, any Stock Option held
by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's employment
by the Company or any Subsidiary terminates by Reason of Disability, any Stock
Option held by such Holder unless otherwise determined by the Committee at the
time of grant and set forth in the Agreement, shall be fully vested and may
thereafter be exercised by the Holder for a period of one year (or such other
greater or lesser period as the Committee may specify at the time of grant) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section 14.3
below, and unless otherwise determined by the Committee at the time of grant and
set forth in the Agreement, if a Holder is an employee of the Company or a
Subsidiary at the time of grant and if such Holder's employment by the Company
or any Subsidiary terminates for any reason other than Death or Disability, the
Stock Option shall thereupon automatically terminate, except that if the
Holder's employment is terminated by the Company or a Subsidiary without cause
or due to Normal Retirement, then the portion of such Stock Option which has
vested on the date of
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termination of employment may be exercised for the lesser of three months after
termination of employment or the balance of such Stock Option's term.
(i) Additional Incentive Option Limitation. In the case of an
Incentive Stock Option, the aggregate Fair Market Value of Stock (determined at
the time of grant of the Option) with respect to which Incentive Stock Options
become exercisable by a Holder during any calendar year (under all such plans of
the Company and its Parent and Subsidiary) shall not exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may, at any
time, in its sole discretion, offer to buy out a Stock Option previously
granted, based upon such terms and conditions as the committee shall establish
and communicate to the Holder at the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder.
14.3 Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Nonqualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for a least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price equal to the Fair Market Value as of the
date of the Stock Reload Option grant. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and shall expire on the date of expiration of the Option to which the
Reload Option is related.
ARTICLE VII
STOCK APPRECIATION RIGHTS.
7.1 Grant and Exercise. The committee may grant Stock Appreciation
Rights to participants who have been or are being granted Options under the Plan
as a means of allowing such participants to exercise their Options without the
need to pay the exercise price in cash. In the case of a Nonqualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Nonqualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
7.2 Terms and Conditions. Stock Appreciation Rights shall be subject
to the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as shall be determined by the Committee and as set forth in the
Agreement, subject to the limitations, if any, imposed by the Code, with respect
to related Incentive Stock Options.
(b) Termination. A Stock Appreciate Right shall terminate and
shall no longer be exercisable upon the termination or exercise of the related
Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of Option Shares equal to the SAR
Value divided by the exercise price of the Option.
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Right shall not affect the number of shares of Stock available
under awards under the Plan. The number of shares available for awards under the
Plan will, however, be reduced by the number of shares of Stock acquirable upon
exercise of the Stock Option to which such Stock Appreciation Right relates.
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ARTICLE VIII
RESTRICTED STOCK.
8.1 Grant. Shares of Restricted Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which grants or
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture ("Restricted Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
awards.
8.2 Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Notes until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restricted Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeitures. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the satisfaction of
any other applicable restrictions, terms and conditions (i) all or part of such
Restricted Stock shall become vested in accordance with terms of the Agreement,
subject to Section 11 below, and (ii) any Retained Distributions with respect to
such Restricted Stock shall become vested to the extent that the Restricted
Stock related thereto shall have become vested, subject to Section 11 below. Any
such Restricted Stock and Retained Distributions that do not vest shall be
forfeited to the Company and the Holder shall not thereafter have any rights
with respect to such Restricted Stock and Retained Distributions that shall have
been so forfeited.
ARTICLE IX
DEFERRED STOCK.
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9.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period (the "Deferral Period") during which, and
the conditions under which, receipt of the shares will be deferred, and all
other terms and conditions of the awards.
9.2 Terms and Conditions. Each Deferred Stock award shall be subject
to the following terms and conditions.
(a) Certificates. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 9.2(d) below, where
applicable), share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred Stock
shall not have any rights of a Shareholder by virtue of such award until the
expiration of the applicable Deferral Period and the issuance and delivery of
the certificates representing such Stock. The shares of Stock issuable upon
expiration of the Deferral Period shall not be deemed outstanding by the Company
until the expiration of such Deferral Period and the issuance and delivery of
such Stock to the Holder.
(c) Vesting; Forfeitures. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all or part of such Deferred
Stock shall become vested in accordance with the terms of the Agreement, subject
to Section 11 below. Any such Deferred Stock that does not vest shall be
forfeited to the Company and the Holder shall not thereafter have any rights
with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and the
Committee may at any time defer the receipt of an award (or an installment of an
award) for an additional specified period or until a specified event
("Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
ARTICLE X
OTHER STOCK-BASED AWARDS.
10.1 Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
10.2 Eligibility for Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such other stock-based awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
10.3 Terms and Conditions. Each Other Stock-Based Award shall be
subject to such terms and conditions as may be determined by the Committee and
to Section 11 below.
ARTICLE XI
ACCELERATED VESTING AND EXERCISABILITY.
If any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act), is or becomes the "beneficial owner" (as referred to in Rule
13-3) under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities in one or more transactions, and the Board does not
authorize or otherwise approve such acquisition, then, the vesting periods of
any and all Options and other Awards granted and outstanding under
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the Plan shall be accelerated and all such Options and Awards will immediately
and entirely vest, and the respective holders thereof will have the immediate
right to purchase and/or receive any and all Common Stock subject to such
Options and awards on the terms set forth in this Plan and the respective
agreements respecting such Options and Awards.
ARTICLE XII
AMENDMENT AND TERMINATION.
The Board may at any time, and from time to time, amend, alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
ARTICLE XIII
TERM OF PLAN.
13.1 Effective Date. The Plan shall be effective as of _______ 1999
(the "Effective Date"), subject to the approval of the Plan by the Company's
shareholders within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's shareholders and no
awards shall vest or otherwise become free or restrictions prior to such
approval.
13.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.
ARTICLE XIV
GENERAL PROVISIONS.
14.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within ten (10) days after the Agreement has been delivered to the
Holder for his or her execution.
14.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
14.3 Employees:
(a) Engaging in Competition With the Company. In the event a
Holder's employment with the Company or a Subsidiary is terminated for any
reason whatsoever, and within eighteen (18) months after the date thereof such
Holder accepts employment with any competitor of, or otherwise engages in
competition with, the Company, the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any award
which was realized or obtained by such Holder at any time during the period
beginning on that date which is six (6) months prior to the date of such
Holder's termination of employment with the Company.
(b) Termination for Cause. The Committee may, in the event of a
Holder's employment with the Company or a Subsidiary is terminated for cause,
annul any award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award which was realized or obtained by such
Holder at any time during the period beginning on that date which is six (6)
months prior to the date of such Holder's termination of employment with the
Company.
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(c) No Right of Employment. Nothing contained in the Plan or in
any ward hereunder shall be deemed to confer upon any Holder who is an employee
of the Company or any Subsidiary any right to continued employment with the
Company or any Subsidiary, nor shall it interfere in any way with the right of
the Company or any Subsidiary to terminate the employment of any Holder who is
an employee at any time.
14.4 Investment Representations. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the Holder is
acquiring the shares for investment without a view to distribution thereof.
14.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional Incentive
arrangements as it may deemed desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specified cases.
14.6 Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee, tax withholding or payment obligations may be settled with
Common Stock, including Common Stock that is part of the award that gives rise
to the withholding requirement. The obligations of the Company under the Plan
shall be conditioned upon such payment or arrangements and the Company or the
Holder's employer (if not the Company) shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the Holder from the Company or any Subsidiary.
14.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
14.8 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan nor or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
14.9 Non-Transferability. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
14.10 Applicable Laws. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the Securities Act
of 1933, as amended, and (ii) the rules and regulations of any securities
exchange on which the Stock may be listed.
14.11 Conflicts. If any of the terms or provisions of the Plan or an
Agreement (with respect to Incentive Stock Options) conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of said
Section 422 of the Code. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provision of the Plan, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
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14.12 Non-Registered Stock. The shares of Stock to be distributed under
this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Stock on a national securities
exchange.
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EXHIBIT "D"
ANNUAL INCENTIVE BONUS PLAN
ARTICLE I
PURPOSE OF PLAN
The purpose of the Plan is to promote the success of the Company by
providing to participating executives of the Company bonus incentives that
qualify as performed-based compensation within the meaning of Section 162(m) of
the Code.
ARTICLE II
DEFINITIONS AND TERMS
2.1 Accounting Terms. Except as otherwise expressly provided or the
context otherwise requires, financial and accounting terms are used as defined
for purposes of, and shall be determined in accordance with, generally accepted
accounting principles, as from time to time in effect, as applied and reflected
in the audited consolidated financial statements of the Company, prepared in the
ordinary course of business.
2.2 Specific Terms. The following words and phrases as used herein shall
have the following meanings unless a different meaning is plainly required by
the context.
"Annual Return To Shareholders" means the Company's return to shareholders
as represented by share price appreciation plus dividends paid on one share of
stock during any Year during a Performance Period.
"Base Salary" in respect of any Performance Period means the aggregate
base annualized salary of a Participant from the Company and all affiliates of
the Company at the time the Participant is selected to participate for that
Performance Period, exclusive of any commissions or other actual or imputed
income from any Company provided benefits or perquisites, but prior to any
reductions for salary deferred pursuant to any deferred compensation plan or for
contributions to a plan qualifying under Section 401(k) of the Code or
contributions to a cafeteria plan under Section 125 of the Code.
"Bonus" means a cash payment or payment opportunity as the context
requires.
"Business Criteria" means any one or any combination of Annual Return to
Shareholders, Total Revenue, Net Income, Net Income before Taxes, Net Income
before Nonrecurring Items, Return on Equity, Return on Equity before Taxes,
Return on Assets, EPS, EBITDA, or EBITDA before Nonrecurring Items.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board of Directors or
any successor committee which will administer the Plan in accordance with
Section 3 and Section 162(m) of the Code.
"Company" means Frost Hanna Capital Group, Inc. and its consolidated
subsidiaries, and any successor, whether by merger, ownership of all or
substantially all of its assets or otherwise.
"EBITDA" for any Year means the consolidated income before interest,
taxes, depreciation and amortization of the Company as reflected in the
Company's audited consolidated financial statements for the Year.
"EBITDA Before Nonrecurring Items" means for any Year EBITDA of the
Company before any extraordinary or unusual one-time nonrecurring expenses or
other charges as reflected in the Company's audited consolidated financial
statements for the Year.
"Effective Date" means the date this Plan is approved by shareholders.
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"EPS" for any Year means diluted earnings per share of the Company, as
reported in the Company's audited consolidated financial statements for the
Year.
"Executive" means a key employee (including any officer) of the Company
who is (or in the opinion of the Committee may become during the applicable
Performance Period) an "executive officer" as defined in Rule 3b-7 under the
Securities Exchange Act of 1934.
"Net Income" for any Year means the consolidated net income of the
Company, as reported in the Company's audited consolidated financial statements
for the Year.
"Net Income Before Taxes" means for any year the consolidated income
before taxes as reflected in the Company's audited consolidated financial
statements for the Year.
"Net Income Before Nonrecurring Items" means for any Year the Net Income
of the Company before any extraordinary or unusual one-time nonrecurring
expenses or other charges as reflected in the Company's audited consolidated
financial statements for the Year.
"Participant" means an Executive selected to participate in the Plan by
the Committee.
"Performance Period" means the Year or Years with respect to which the
Performance Targets are set by the Committee.
"Performance Target(s)" means the specific objective goal or goals (which
may be cumulative and/or alternative) that are timely set in writing by the
Committee for each Executive for the Performance Period in respect of any one or
more of the Business Criteria.
"Plan" means the Annual Incentive Bonus Plan for Executives of the
Company, as amended from time to time.
"Return on Assets" for any Year means Net Income divided by the average of
the total assets of the Company at the end of the fiscal quarters of the Year,
as reported in the Company's audited consolidated financial statements for the
Year.
"Return on Equity" for any Year means the Net Income divided by the
average of the shareholders equity of the Company at the end of each of the
fiscal quarters of the Year, as reported in the Company's audited consolidated
financial statements for any Year.
"Return on Equity Before Taxes" for any Year means the Net Income before
Taxes divided by the average of the shareholders equity of the Company at the
end of each of the fiscal quarters of the Year, as reported in the Company's
audited consolidated financial statements for any Year.
"Section 162(m)" means Section 162(m) of the Code, and the regulations
promulgated thereunder, all as amended from time to time.
"Total Revenue" for any Year means the Company's total revenue from
commissions and trading income, net interest and dividend income, underwriting
fees, and other income, as reported in the Company's audited consolidated
financial statements for the Year.
"Year" means any one or more fiscal years of the Company commencing on or
after ________________ 1999 that represent(s) the applicable Performance Period
and end(s) no later than _________________.
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ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 The Committee. The Plan shall be administered by the Committee, which
shall consists of at least two (2) members of the Board of Directors of the
Company, duly authorized by the Board of Directors of the Company to administer
the Plan, who (i) are not eligible to participate in the Plan, and (ii) are
"outside directors" within the meaning of Section 162(m).
3.2 Powers of the Committee. The Committee shall have the sole authority
to establish and administer the Performance Target(s) and the responsibility of
determining from among the Executives those persons who will participate in and
receive Bonuses under the Plan and, subject to Sections 4 and 5 of the Plan, the
amount of such Bonuses and shall otherwise be responsible for the administration
of the Plan, in accordance with its terms. The Committee shall have the
authority to construe and interpret the plan (except as otherwise provided
herein) and any agreement or other document relating to any Bonus under the
Plan, may adopt rules and regulations governing the administration of the Plan,
and shall exercise all other duties and powers conferred on it by the Plan, or
which are incidental or ancillary thereto. For each Performance Period, the
Committee shall determine, at the time the Business Criteria and the Performance
Target(s) are set, those Executives who are selected as Participants in the
Plan.
3.3 Requisite Action. A majority (but not fewer than two) of the members
of the Committee shall constitute a quorum. The vote of a majority of those
present at a meeting at which a quorum is present or the unanimous written
consent of the Committee shall constitute action by the Committee.
3.4 Express Authority (and Limitations on Authority) to Change Terms and
Conditions of Bonus. Without limiting the Committee's authority under other
provisions of the Plan, but subject to any express limitations of the Plan and
Section 5.8, the Committee shall have the authority to accelerate a Bonus (after
the attainment of the applicable Performance Target(s)) and to waive restrictive
conditions for a bonus (including any forfeiture conditions, but not Performance
Target(s)), in such circumstances as the Committee deems appropriate. In the
case of any acceleration of a bonus after the attainment of the applicable
Performance Target(s), the amount payable shall be discounted to its present
value using an interest rate equal to Moody's Average Corporate Bond Yield for
the month preceding the month in which such acceleration occurs.
ARTICLE IV
BONUS PROVISIONS
4.1 Provisions for Bonus. Each Participant may receive a Bonus if and
only if the Performance Target(s) established by the Committee, relative to the
applicable Business Criteria, are attained. The applicable Performance Period
and Performance Target(s) shall be determined by the Committee consistent with
the terms of the Plan and Section 162(m). Notwithstanding the fact that the
Performance Target(s) have been attained, the Committee may determine that the
Company may pay a Bonus of less than the amount determined by the formula or
standard established pursuant to Section 4.2 or may pay no Bonus at all, unless
the Committee otherwise expressly provides by written contract or other written
commitments.
4.2 Selection of Performance Target(s). The specific Performance
Target(s) with respect to the Business Criteria must be established by the
Committee in advance of the deadlines applicable under Section 162(m) and while
the performance relating to the Performance Target(s) remains substantially
uncertain within the meaning of Section 162(m). At the time the Performance
Target(s) are selected, the Committee shall provide, in terms of an objective
formula or standard for each Participant, and for any person who may become a
Participant after the Performance Target(s) are set, the method of computing the
specific amount that will represent the maximum amount of Bonus payable to the
Participant if the Performance Target(s) are attained, subject to Sections 4.1,
4.3, 4.7, 5.1 and 5.8.
4.3 Maximum Individual Bonus. Notwithstanding any other provision hereof,
no Executive shall receive a Bonus under the Plan for any Year in excess of $5
million.
4.4 Selection of Participants. For each Performance Period, the Committee
shall determine, at the time the Business Criteria and the Performance Target(s)
are set, those Executives who will participant in the Plan.
4.5 Effect of Mid-Year Commencement of Service. To the extent compatible
with Sections 4.2 and 5.8, if an Executive commences employment with the Company
after the adoption of the Plan and the Performance Target(s) are established for
a Performance Period, the Committee may grant a bonus for that Performance
Period that is proportionately adjusted based on the period of actual service
during such Performance Period.
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4.6 Accounting Changes. Subject to Section 5.8, if, after the Performance
Target(s) are established for a Performance Period, a change occurs in the
applicable accounting principles or practices, the amount of the bonuses paid
under this Plan for such Performance Period shall be determined without regard
to such change.
4.7 Committee Discretion to Determine Bonuses. The Committee has the sole
discretion to determine the standard or formula pursuant to which each
Participant's Bonus shall be calculated (in accordance with Section 4.2),
whether all or any portion of the amount so calculated will be paid, and the
specific amount (if any) to be paid to each Participate, subject in all cases to
the terms, conditions and limits of the Plan and of any other written commitment
authorized by the Committee. In addition to the establishment of Performance
Target(s) as provided in Section 4.2, the Committee may at any time establish
additional conditions and terms of payment of Bonuses (including, but not
limited to, the achievement of other financial, strategic or individual goals,
which may be objective or subjective) as it may deemed desirable in carrying out
the purposes of the Plan and may take into account such other factors as it
deems appropriate in administering any aspect of the Plan. The Committee may
not, however, increase the maximum amount permitted to be paid to any individual
under Section 4.2 or 4.3 of the Plan or award a bonus under this Plan if the
applicable Performance Target(s) have not been satisfied.
4.8 Committee Certification. No Participant shall receive any payment
under the Plan unless the Committee has certified, by resolution or other
appropriate action in writing that the amount thereof has been accurately
determined in accordance with the terms, conditions and limits of the Plan and
that the Performance Target(s) and any other material terms previously
established by the Committee or set forth in the Plan were in fact satisfied.
4.9 Time of Payment. Any Bonuses granted by the Committee under the Plan
shall be paid as soon as practicable following the Committee's determination
under this Section 4 and the certification of the committee's findings under
Section 4.8.
4.10 Form of Payment. Payment of the Participant's Bonus for any Plan
Year shall be made in cash, subject to applicable withholding requirements.
4.11 Change in Control. Notwithstanding any other provisions of the Plan
to the contrary (i) if a "Change in Control" of the Company (as defined in this
Section 4.11) shall occur following a Performance Period as to which the
Committee has determined the actual Bonuses to be paid (but such Bonuses have
not yet been paid), such Bonuses shall be paid immediately in cash, (ii) if a
Change in Control shall occur following a Performance Period as to which the
Committee has not yet determined the actual Bonuses to be paid, such Bonuses
shall be immediately determined and paid in cash, and (iii) if a change in
Control shall occur during a Performance Period as to which target bonuses have
been established (the actual Bonuses to be paid have not yet been determined),
such Performance Period shall be deemed to have been completed, the target
levels of performance set forth under the respective Performance Targets shall
be deemed to have been attained, and the Bonus so determined for each
Participant assuming that the full Performance Period had been completed. This
bonus shall be paid immediately in cash to each Participant for whom a target
Bonus for such Performance Period was established.
For purposes of this Section 4.11, a Change in Control of the Company
shall occur upon the first to occur of the following:
(i) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing more than twenty-five (25%) percent of
the combined voting power of the Company is acquired by any "person," as defined
in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of shares of Common Stock of the Company), or
(ii) the shareholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation or to sell or
otherwise dispose of all or substantially all of its assets, or adopt a plan of
liquidation, or
(iii) during any period of three consecutive years as of the Effective
Date of the Plan, individuals who at the beginning of such period were members
of the Board cease for any reason to constitute at least a majority thereof
(unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of
such period or whose election or nomination was previously so approved).
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ARTICLE V
GENERAL PROVISIONS
5.1 No Right to Bonus or Continued Employment. Neither the establishment
of the Plan nor the provision for or payment of any amounts hereunder nor any
action of the Company (including, for purposes of this Section 5.1, any
predecessor or subsidiary), the Board of Directors of the Company or the
Committee in respect of the Plan, shall be held or construed to confer upon any
person any legal right to receive, or any interest in, a Bonus or any other
benefit under the Plan, or any legal right to be continued in the employ of the
Company unless otherwise provided by the Committee by contract or agreement. The
Company expressly reserves any and all rights to discharge an Executive in its
sole discretion, without liability of any person, entity or governing body under
the plan or otherwise. Notwithstanding any other provision hereof and
notwithstanding the fact that the Performance Target(s) have been attained
and/or the individual maximum amounts pursuant to Section 4.2 have been
calculated, the Company shall have no obligation to pay any Bonus hereunder nor
to pay the maximum amount so calculated, unless the Committee otherwise
expressly provides by written contract or other written commitment.
5.2 Discretion of the Company, Board of Directors and Committee. Any
decision made or action taken by the Company or by the Board of Directors of the
Company or by the Committee arising out of or in connection with the creation,
amendment, construction, administration, interpretation and effect of the Plan
shall be within the absolute discretion of such entity and shall be conclusive
and binding upon all persons. No member of the Committee shall have any personal
liability for actions taken or omitted under the Plan by the member or any other
person.
5.3 Absence of Liability. A member of the Board of Directors of the
Company or a member of the Committee of the Company or any officer of the
Company shall not be personally liable for any act or inaction hereunder,
whether of commission or omission.
5.4 No Funding of Plan. The Company shall not be required to fund or
otherwise segregate any cash or any other assets which may at any time be paid
to Participants under the Plan. The Plan shall constitute an "unfunded" plan of
the Company. The Company shall not, by any provisions of the Plan, be deemed to
be a trustee of any property, and any obligations of the Company to any
Participant under the Plan shall be those of a debtor and any rights of any
Participant or former Participant shall be limited to those of a general
unsecured creditor.
5.5 Non-Transferability of Benefits and Interests. Except as expressly
provided by the Committee, no benefit payable under the Plan shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action shall be void and no such
benefit shall be in any manner liable for or subject to debts, contracts,
liabilities, engagements or torts of any Participant or former Participant. This
Section 5.5 shall not apply to an assignment of a contingency or payment due
after the death of the Executive to the deceased Executive's legal
representative or beneficiary.
5.6 Law to Govern. All questions pertaining to the construction,
regulation, validity and effect of the provisions of the Plan shall be
determined in accordance with the internal laws of the State of New York.
5.7 Non-Exclusivity. Subject to Section 5.8, the Plan does not limit the
authority of the Company, the Board of Directors of the Company or the
Committee, or any subsidiary of the Company, to grant awards or authorize any
other compensation under any other plan or authority, including, without
limitation, awards or other compensation based on the same Performance Target(s)
used under the plan. In addition, Executives not selected to participate in the
Plan may participate in other plans of the Company.
5.8 Section 162(m) Conditions; Bifurcation of Plan. It is the intent of
the Company that the Plan and Bonuses paid hereunder satisfy and be interpreted
in a manner, that, in the case of Participants who are or may be persons whose
compensation is subject to Section 162(m), satisfies any applicable requirements
as performance-based compensation. Any provision, application or interpretation
of the Plan inconsistent with this intent to satisfy the standards in Section
162(m) of the Code shall be disregarded. Notwithstanding anything to the
contrary in the Plan, the provisions of the Plan may at any time be bifurcated
by the Board of Directors of the Company or the Committee in any manner so that
certain provisions of the Plan or any Bonus intended (or required in order) to
satisfy the applicable requirements of Section 162(m) are only applicable to
persons whose compensation is subject to Section 162(m).
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ARTICLE VI
AMENDMENTS, SUSPENSION OR TERMINATION OF THE PLAN
Except as otherwise expressly agreed to in writing by the Committee, the
Board of Directors of the Company or the Committee may, from time to time amend,
suspend or terminate, in whole or in part, the Plan, and if suspended or
terminated, may reinstate, any or all of the provisions of the Plan; provided no
amendment, suspension or termination of the Plan shall in any manner affect any
Bonus theretofore granted pursuant to the Plan (whether or not the applicable
Performance Target(s) have been attained) without the consent of the Participant
to whom the Bonus was granted. Notwithstanding the foregoing, no amendment may
be effective without Board of Directors of the Company and/or shareholder
approval if such approval is necessary to comply with the applicable rules under
Section 162(m) of the Code.
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EXHIBIT "E"
SPECIAL PERFORMANCE INCENTIVE PLAN
ARTICLE I
PURPOSE OF PLAN
The purposes of this Plan are to enhance the Company's ability to retain
executives, link their compensation opportunity with special performance
measures, and qualify as a performance-based compensation program within the
meaning of Section 162(m) of the Code.
ARTICLE II
DEFINITIONS AND TERMS
2.1 Accounting Terms. Except as otherwise expressly provided or the
context otherwise requires, financial and accounting terms are used as defined
for purposes of, and shall be determined in accordance with, generally accepted
accounting principles, as from time to time in effect, as applied and reflected
in the audited consolidated financial statements of the Company, prepared in the
ordinary course of business.
2.2 Specific Terms. The following words and phrases as used herein shall
have the following meanings unless a different meaning is plainly required by
the context.
"Base Salary" in respect of any Plan Period means the aggregate base
annualized salary of a Participant from the Company and all affiliates of the
Company at the time the Participate is selected to participate for that Plan
Period, exclusive of any commissions or other actual or imputed income from any
Company-provided benefits or perquisites, but prior to any reductions for salary
deferred pursuant to any deferred compensation plan or for contributions to a
plan qualifying under Section 401(k) of the Code or contributions to a cafeteria
plan under Section 125 of the Code.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commission" means all compensation and/or fees based on sales dollars,
commission revenue, trading income, and/or other criteria as defined by the
Committee but excludes compensation from base salary.
"Committee" means the Compensation Committee of the Board of Directors or
any successor committee which will administer the Plan in accordance with
Section 3 and Section 162(m) of the Code.
"Company" means Gaines, Berland Inc. and its consolidated subsidiaries,
and any successor, whether by merger, ownership of all or substantially all of
its assets or otherwise.
"Effective Date" means the date this Plan is approved by shareholders.
"Executive" means a key employee (including any officer) of the Company
who is (or in the opinion of the Committee may become during the applicable Plan
Period) an "executive officer" as defined in Rule 3b-7 under the Securities
Exchange Act of 1934.
"Participant" means an Executive selected to participate in the Plan by
the Committee.
"Plan" means the Special Performance Incentive Plan, as amended from time
to time.
"Plan Period" means the Year or Years with respect to which the Special
Performance Incentive is set by the Committee.
"Section 162(m)" means Section 162(m) of the Code, and the regulations
promulgated thereunder, all as amended from time to time.
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"Special Performance Incentive" is a fixed percentage, as determined by
the Committee, of commissions generated by certain individuals and/or business
units over the Plan Period.
"Year" means any one or more fiscal years of the Company commencing on or
after ________________ 1999 that represent(s) the applicable Plan Period and
end(s) no later than _________________.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 The Committee. The Plan shall be administered by the Committee, which
shall consists of at least two (2) members of the Board of Directors of the
Company, duly authorized by the Board of Directors of the Company to administer
the Plan, who (i) are not eligible to participate in the Plan, and (ii) are
"outside directors" within the meaning of Section 162(m).
3.2 Powers of the Committee. The Committee shall have the sole authority
to establish and administer the Plan and the responsibility of determining from
among the Executives those persons who will participate in and receive the
Special Performance Incentive under the Plan and, subject to Sections 4 and 5 of
the Plan, the amount of such Special Performance Incentive and shall otherwise
be responsible for the administration of the Plan, in accordance with its terms.
The Committee shall have the authority to construe and interpret the Plan
(except as otherwise provided herein) and any agreement or other document
relating to any Special Performance Incentive under the Plan, may adopt rules
and regulations governing the administration of the Plan, and shall exercise all
other duties and powers conferred on it by the Plan, or which are incidental or
ancillary thereto. For each Plan Period, the Committee shall determine those
Executives who are selected as Participants in the Plan.
3.3 Requisite Action. A majority (but not fewer than two) of the members
of the Committee shall constitute a quorum. The vote of a majority of those
present at a meeting at which a quorum is present or the unanimous written
consent of the Committee shall constitute action by the Committee.
ARTICLE IV
SPECIAL PERFORMANCE INCENTIVE PROVISIONS
4.1 Provisions for Special Performance Incentive. Each Participant will
receive a Special Performance Incentive relative to certain Commissions
generated in the Plan Period. The applicable Special Performance Incentive,
Commissions and Plan Period shall be determined by the committee consistent with
the terms of the Plan and Section 162(m). The Committee may determine that the
Company may pay a Special Performance Incentive of less than the amount
determined by the formula or standard established pursuant to Section 4.2 or may
pay no Special Performance Incentive at all, unless the Committee otherwise
expressly provides by written contract or other written commitment.
4.2 Selection of Special Performance Incentive. The specific Special
Performance Incentive must be established by the Committee in advance of the
deadlines applicable under Section 162(m) and while commissions used as a basis
for the Special Performance Incentive remain substantially uncertain within the
meaning of Section 162(m). At the time the Special Performance Incentive is
determined, the Committee shall provide, in terms of an objective formula or
standard for each Participant, and for any person who may become a Participant
after the Special Performance Incentive is set, the method of computing the
specific amount that will represent the maximum amount of Special Performance
Incentive payable to the Participant, subject to Sections 4.1, 4.3, 4.7, 5.1 and
5.8.
4.3 Maximum Payments to Individuals. Notwithstanding any other provision
hereof, no Executive shall receive payments based on the Special Performance
Incentive under the Plan for any Year in excess of $5 million.
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4.4 Selection of Participants. For each Plan Period, the Committee shall
determine, at the time the Special Performance Incentive is set, those
Executives who will participate in the Plan.
4.5 Effect of Mid-Year Commencement of Service. To the extent compatible
with Sections 4.2 and 5.8, if an Executive commences employment with the Company
after the adoption of the Plan, the Committee may adjust payments based on the
Special Performance Incentive for that Plan Period that proportionately reflects
the period of actual service during such Plan Period.
4.6 Accounting Changes. Subject to Section 5.8, if, after the Special
Performance Incentive percentage is established for a Plan Period, a change
occurs in the applicable accounting principles or practices, the amount paid
based on the Special Performance Incentive under this Plan for such Plan Period
shall be determined without regard to such change.
4.7 Committee Discretion to Determine Special Performance Incentive. The
Committee has the sole discretion to determine the standard or formula pursuant
to which each Participant's payments from the Special Performance Incentive
shall be calculated (in accordance with Section 4.2), subject in all cases to
the terms, conditions and limits of the Plan and of any other written commitment
authorized by the Committee. The Committee may not, however, increase the
maximum amount permitted to be paid to any individual under Section 4.2 or 4.3
of the Plan or award a Special Performance Incentive under this Plan.
4.8 Committee Certification. No Participant shall receive any payment
under the Plan unless the Committee has certified, by resolution or other
appropriate action in writing that the amount thereof has been accurately
determined in accordance with the terms, conditions and limits of the Plan and
that any other material terms previously established by the Committee or set
forth in the Plan were in fact satisfied.
4.9 Time of Payment. Any Special Performance Incentive to be paid by the
Committee under the Plan shall be paid as soon as practicable following the
Committee's determination under this Section 4 and the certification of the
Committee's findings under Section 4.8.
4.10 Form of Payment. Payment of the Participant's Special Performance
Incentive for any Plan Year shall be made in cash, subject to applicable
withholding requirements.
4.11 Change in Control. Notwithstanding any other provisions of the Plan
to the contrary (i) if a "Change in Control" of the Company (as defined in this
Section 4.11) shall occur following a Plan Period as to which the Committee has
determined the actual amount to be paid based on the Special Performance
Incentive (but such amounts have not yet been paid), such amount shall be paid
immediately in cash, (ii) if a Change in Control shall occur following a Plan
Period as to which the Committee has not yet determined the actual Special
Performance Incentive to be paid, such Special Performance Incentive shall be
immediately determined and paid in cash, and (iii) if a change in Control shall
occur during a Plan Period as to which Special Performance Incentive has been
established (but the actual Special Performance Incentive to be paid have not
yet been determined), such Plan Period shall be deemed to have been completed,
and the amounts based on the Special Performance Incentive so determined for
each Participant assuming that the full Plan Period had been completed. This
Special Performance Incentive shall be paid immediately in cash to each
Participant for whom the Special Performance Incentive for such Plan Period was
established.
For purposes of this Section 4.11, a Change in Control of the Company
shall occur upon the first to occur of the following:
(i) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing more than twenty-five (25%) percent of
the combined voting power of the Company is acquired by any "person," as defined
in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of shares of the Company's Common Stock), or
(ii) the shareholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation or to sell or
otherwise dispose of all or substantially all of its assets, or adopt a plan of
liquidation, or
(iii) during any period of three consecutive years as of the Effective
Date of the Plan, individuals who at the beginning of such period were members
of the Board cease for any reason to constitute at least a majority thereof
(unless the election, or the nomination
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for election by the Company's shareholders, of each new director was approved by
a vote of at least a majority of the directors then still in office who were
directors at the beginning of such period or whose election or nomination was
previously so approved).
ARTICLE V
GENERAL PROVISIONS
5.1 No Right to Special Performance Incentive or Continued Employment.
Neither the establishment of the Plan nor the provision for or payment of any
amounts hereunder nor any action of the Company (including, for purposes of this
Section 5.1, any predecessor or subsidiary), the Board of Directors of the
Company or the Committee in respect of the Plan, shall be held or construed to
confer upon any person any legal right to receive, or any interest in, a Special
Performance Incentive or any other benefit under the Plan, or any legal right to
be continued in the employ of the Company unless otherwise provided by the
Committee by contract or agreement. The Company expressly reserves any and all
rights to discharge an Executive in its sole discretion, without liability of
any person, entity or governing body under the plan or otherwise.
Notwithstanding any other provision hereof, the Company shall have no obligation
to pay any Special Performance Incentive hereunder nor to pay the maximum amount
so calculated, unless the Committee otherwise expressly provides by written
contract or other written commitment.
5.2 Discretion of the Company, Board of Directors and Committee. Any
decision made or action taken by the Company or by the Board of Directors of the
Company or by the Committee arising out of or in connection with the creation,
amendment, construction, administration, interpretation and effect of the Plan
shall be within the absolute discretion of such entity and shall be conclusive
and binding upon all persons. No member of the Committee shall have any personal
liability for actions taken or omitted under the Plan by the member or any other
person.
5.3 Absence of Liability. A member of the Board of Directors of the
Company or a member of the Committee of the Company or any officer of the
Company shall not be personally liable for any act or inaction hereunder,
whether of commission or omission.
5.4 No Funding of Plan. The Company shall not be required to fund or
otherwise segregate any cash or any other assets which may at any time be paid
to Participants under the Plan. The Plan shall constitute an "unfunded" plan of
the Company. The Company shall not, by any provisions of the Plan, be deemed to
be a trustee of any property, and any obligations of the Company to any
Participant under the Plan shall be those of a debtor and any rights of any
Participant or former Participant shall be limited to those of a general
unsecured creditor.
5.5 Non-Transferability of Benefits and Interests. Except as expressly
provided by the Committee, no benefit payable under the Plan shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action shall be void and no such
benefit shall be in any manner liable for or subject to debts, contracts,
liabilities, engagements or torts of any Participant or former Participant. This
Section 5.5 shall not apply to an assignment of a contingency or payment due
after the death of the Executive to the deceased Executive's legal
representative or beneficiary.
5.6 Law to Govern. All questions pertaining to the construction,
regulation, validity and effect of the provisions of the Plan shall be
determined in accordance with the internal laws of the State of New York.
5.7 Non-Exclusivity. Subject to Section 5.8, the Plan does not limit the
authority of the Company, the Board of Directors of the Company or the
Committee, or any subsidiary of the Company, to grant awards or authorize any
other compensation under any other plan or authority, including, without
limitation, awards or other compensation based on the same Performance Target(s)
used under the Plan. In addition, Executives not selected to participate in the
Plan may participate in other plans of the Company.
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5.8 Section 162(m) Conditions; Bifurcation of Plan. It is the intent of
the Company that the Plan and Special Performance Incentive paid hereunder
satisfy and be interpreted in a manner, that, in the case of Participants who
are or may be persons whose compensation is subject to Section 162(m), satisfies
any applicable requirements as performance-based compensation. Any provision,
application or interpretation of the Plan inconsistent with this intent to
satisfy the standards in Section 162(m) of the Code shall be disregarded.
Notwithstanding anything to the contrary in the Plan, the provisions of the Plan
may at any time be bifurcated by the Board of Directors of the Company or the
Committee in any manner so that certain provisions of the Plan or any Special
Performance Incentive intended (or required in order) to satisfy the applicable
requirements of Section 162(m) are only applicable to persons whose compensation
is subject to Section 162(m).
ARTICLE VI
AMENDMENTS, SUSPENSION OR TERMINATION OF THE PLAN
Except as otherwise expressly agreed to in writing by the Committee, the
Board of Directors of the Company or the Committee may, from time to time amend,
suspend or terminate, in whole or in part, the Plan, and if suspended or
terminated, may reinstate, any or all of the provisions of the Plan; provided no
amendment, suspension or termination of the Plan shall in any manner affect any
amounts based on the Special Performance Incentive theretofore paid pursuant to
the Plan without the consent of the Participant to whom the Special Performance
Incentive was paid. Notwithstanding the foregoing, no amendment may be effective
without Board of Directors of the Company and/or shareholder approval if such
approval is necessary to comply with the applicable rules under Section 162(m)
of the Code.
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EXHIBIT "F"
FORM OF EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the day of ___________, 1999, by and
among GAINES, BERLAND INC., a New York corporation, having its principal place
of business at 1055 Stewart Avenue, Bethpage, New York 11714 (the "Company"),
FROST HANNA CAPITAL GROUP, INC., a Florida corporation having its principal
place of business at 327 Plaza Real, Suite 319, Boca Raton, Florida 33432
("Parent") and _______________ ("Executive").
WHEREAS, the Company is registered as a broker/dealer pursuant to Section
15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and a
member of the National Association of Securities Dealers, Inc. ("NASD") and is
principally engaged as a full service broker/dealer;
WHEREAS, the Executive is currently employed as the ____________ of the
Company;
WHEREAS, Parent desires that the Company continues to employ Executive in
such capacity and further desires that such employment be pursuant to a written
employment agreement;
WHEREAS, Executive is willing to continue his employment with the Company,
all in accordance with the terms, conditions, and provisions hereinafter set
forth.
NOW, THEREFORE, in consideration of the promises and mutual
representations, covenants, and agreements set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree effective upon the Acquisition as
follows:
1. TERM: The term of this Agreement shall be for a period of five (5)
years commencing on the date of this Agreement (the "Effective Date"), subject
to earlier termination as provided herein.
2. EMPLOYMENT:
(i) Subject to the terms and conditions and for the compensation
hereinafter set forth, the Company hereby agrees to employ Executive for and
during the term of this Agreement. Executive is hereby employed by the Company
as its ___________. The Executive's powers and duties shall be those of an
executive nature which are appropriate for an ___________ in accordance with the
Company's By-Laws; and Executive does hereby accept such employment and agrees
to devote his full business time to the performance of his duties upon the
conditions hereinafter set forth. Executive shall report to the Board of
Directors of the Company. The Company shall not require Executive to be employed
in any location other than the metropolitan New York area unless he consents in
writing to such location. The Executive also shall serve as the _______________
of the Parent.
(ii) During the term of this Agreement, Executive shall be furnished
with office space and facilities commensurate with his position and adequate for
the performance of his duties; the Executive also shall be provided with the
perquisites customarily associated with the position of ______________ of the
Company.
3. COMPENSATION:
(i) SALARY: During the term of this Agreement, the Company agrees to
pay Executive, and Executive agrees to accept, an annual salary of not less than
One Hundred and Twenty Thousand Dollars ($120,000) per year, payable in
accordance with the Company's policies, for services rendered by Executive
hereunder.
(ii) INCREASES: The annual salary is subject to periodic increases at
the discretion of the Compensation Committee of the Parent (or Board of
Directors in lieu thereof), with such increases to take effect no later than on
each anniversary date of this Agreement.
(iii) BONUS: The Executive shall be entitled to participate in the
Company's Annual Incentive Bonus Plan (the "Bonus Plan"), to the extent and on
the terms and conditions set forth in the Bonus Plan.
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(iv) OVERRIDE: Pursuant to the Special Performance Incentive Plan (the
"Special Performance Plan") of Gaines, Berland Inc., the Executive shall be
entitled to receive an Override (as defined in the Special Performance Plan)
which shall be paid and shall be on the terms and conditions set forth in the
Special Performance Plan.
(v) INTENTION TO COMPLY WITH SECTION 162(M): The Parent, the Company
and the Executive intend that this Agreement and all compensation payable by the
Company with respect to the Executive's employment with the Company qualify for
deductibility by the Company under Section 162(m) of the Internal Revenue Code
of 1986, as amended, ("Section 162(m)") and the Department of the Treasury
regulations promulgated thereunder (the "Code"), as in force at all relevant
times.
(vi) COMPENSATION COMMITTEE: The Compensation Committee shall be
comprised solely of two or more outside directors, within the intent of the
applicable Department of the Treasury regulations under Section 162(m), as in
force at all relevant times.
(vii) STOCK OPTIONS: Upon the Effective Date, the Parent shall grant to
the Executive from the Parent's 1999 Performance Equity Plan (the "Stock Option
Plan") stock options (the "Stock Options"), to purchase 100,000 shares of Common
Stock at a purchase price equal to the Fair Market Value (as defined in the
Stock Option Plan) on the Effective Date, with vesting of such stock options to
occur in annual installments commencing on the Effective Date in the greatest
amount allowable under Section 422 of the Code. The Executive also shall be
entitled to such other Stock Options as the Compensation Committee shall so
grant at any future date.
4. EXPENSES: The Company shall reimburse Executive for all reasonable and
actual business expenses incurred by him in connection with his service to the
Company, the Parent and/or any direct and/or indirect subsidiaries of such
entities upon submission by him of appropriate vouchers and expense account
reports.
5. BENEFITS:
(i) INSURANCE: The Company shall maintain family medical insurance for
the Executive. In addition, Executive and his dependents shall be entitled to
participate in such other benefits as may be extended to active executive
employees of the Parent and/or the Company and their dependents including but
not limited to pension, retirement, profit-sharing, 401(k), stock option, bonus
and incentive plans, group insurance, hospitalization, medical or other benefits
made available by the Company to its employees generally.
(ii) VACATION: Executive shall be entitled to take up to four (4) weeks
of paid vacation annually at a time mutually convenient to the Company and
Executive. Any such vacation time not used by Executive in any one year shall
accumulate to his benefit in the succeeding years.
(iii) DIRECTOR AND OFFICER LIABILITY INSURANCE: During the term of this
Agreement, the Parent shall obtain and maintain adequate officer and director
liability insurance in such amounts as the Board of Directors shall so determine
(which in no event shall be less than $5,000,000) and the Executive shall be
covered at all times by such policy in all of his capacities with the Company
and the Parent. In addition, for a period of six (6) years after the termination
of Executive's employment with the Company and/or the Parent (for cause, without
cause, for reason or no reason, voluntarily of involuntarily), the Parent shall
cause to be maintained in effect one or more policies of directors' and
officers' liability insurance with respect to any claim, action, suit,
proceeding or investigation arising from facts or events which occurred during
the Executive's employment with the Company and/or Parent and such policy or
policies shall be with a carrier or carriers satisfactory to the parties
intended to be benefited thereby, and with the limits, deductibles and other
characteristics no less favorable than those in place on the date the Executive
ceased being an employee/director of the Company and/or the Parent. Any and all
such policies shall be issued by leading insurance carriers, shall have no
uncustomary exclusions, and shall otherwise be in form and substance
satisfactory to those persons who are officers and directors of the Company as
of the date hereof. The provisions of this Section 5(C) shall survive any
termination of this Agreement and/or any termination of the Executive's
employment with the Company.
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<PAGE> 198
6. RESTRICTIVE COVENANTS:
(i) Executive recognizes and acknowledges that the Company, through the
expenditure of considerable time and money, has developed and will continue to
develop in the future information concerning customers, clients, marketing,
business and operational methods of the Company and its customers or clients,
contracts, financial or other data, technical data or any other confidential or
proprietary information possessed, owned or used by the Company, and that the
same are confidential and proprietary, and are "confidential information" of the
Company. In consideration of his continued employment by the Company hereunder,
Executive agrees that he will not, without the consent of the Board of
Directors, make any disclosure of confidential information now or hereafter
possessed by the Company, the Parent and/or any of their current or future,
direct or indirect subsidiaries (collectively, the "Group"), to any person,
partnership, corporation or entity either during or after the term hereunder,
except to employees of the Group and to others within or without the Group, as
the Executive may deem necessary in order to conduct the Group's business and
except as may be required pursuant to any court order, judgment or decision from
any court of competent jurisdiction. The foregoing shall not apply to
information which is in the public domain on the date hereof; which, after it is
disclosed to Executive by the Group, is published or becomes part of the public
domain through no fault of Executive; which is known to Executive prior to
disclosure thereof to him by the Group as evidenced by his written records; or,
after Executive is no longer employed by the Group, which is thereafter
disclosed to Executive in good faith by a third party which is not under any
obligation of confidence or secrecy to the Group with respect to such
information at the time of disclosure to him. The provisions of this Section 6
shall continue in full force and effect notwithstanding termination of
Executive's employment under this Agreement or otherwise.
(ii) Except if the Executive's employment pursuant to this Agreement is
terminated by the Executive for Reason (as defined in section 7(D) hereof), or
by the Company without Cause (as defined in Section 7(C) hereof), for a period
commencing on the date of termination and ending (i) twelve (12) months
thereafter (the "One Year Termination Date"), the Executive shall neither
directly and/or indirectly (a) solicit, hire and/or contact any prior or then
current employee of the Company and/or the Parent nor any of their respective
direct and/or indirect subsidiaries (collectively, the "Applicable Entities"),
nor (b) solicit or transact any business with any prior or then current customer
and/or client of the Applicable Entities; and (ii) twelve (12) months following
the One Year Termination Date and within a 200 mile radius of any office of any
of the Applicable Entities, the Executive shall neither directly and/or
indirectly (a) solicit, hire and/or contact any prior or then current employee
of the Applicable Entities, nor (b) solicit nor transact any business with any
prior or then present client and/or customer of the Applicable Entities. In
addition, the Executive shall not attempt (directly and/or indirectly), to do
anything either by himself or through others that he is prohibited from doing
pursuant to this Section 6.
(iii) Executive acknowledges that the restrictive covenants (the
"Restrictive Covenants") contained in this Section 6 are a condition of his
continued employment and are reasonable and valid in geographical and temporal
scope and in all other respects. If any court determines that any of the
Restrictive Covenants, or any part of any of the Restrictive Covenants, is
invalid or unenforceable, the remainder of the Restrictive Covenants and parts
thereof shall not thereby be affected and shall be given full effect, without
regard to the invalid portion. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or enforceable because of
the geographic or temporal scope of such provision, such court shall have the
power to reduce the geographic or temporal scope of such provision, as the case
may be, and, in its reduced form, such provision shall then be enforceable.
(iv) If Executive breaches, or threatens to breach, any of the
Restrictive Covenants, the Company, in addition to and not in lieu of any other
rights and remedies it may have at law or in equity, shall have the right to
injunctive relief; it being acknowledged and agreed to by Executive that any
such breach or threatened breach would cause irreparable and continuing injury
to the Company and that money damages would not provide an adequate remedy to
the Company.
7. TERMINATION:
(i) DEATH: In the event of Executive's death ("Death") during the term
of his employment, Executive's designated beneficiary, or in the absence of such
beneficiary designation, his estate shall be entitled to payment of Executive's
salary from date of death to the expiration of one (1) year thereafter. In
addition, Executive's beneficiary and/or dependents shall be entitled, for the
same one year period to continuation, at the Company's expense, of such benefits
as are then being provided to them under Section 5(A) hereof, and any additional
benefits as may be provided to dependents of the Company's executive officers in
accordance with the terms of the Company's policies and practices.
(ii) DISABILITY:
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(i) In the event Executive, by reason of physical or mental
incapacity, shall be disabled ("Disability") for a period of at least six
(6) consecutive months, the Company shall have the option at any time
thereafter to terminate Employee's employment hereunder for disability.
Such termination will be effective thirty (30) days after the Board gives
written notice of such termination to Executive, unless Executive shall
have returned to the performance of his duties prior to the effective date
of the notice. Except as otherwise expressly provided herein, all
obligations of the Company hereunder shall cease upon the effectiveness of
such termination, provided that such termination shall not affect or impair
any rights Executive may have under any policy of long term disability
insurance or benefits then maintained on his behalf by the Company. In
addition, for a period of one (1) year following termination of Executive's
employment for disability, Executive and his dependents, as the case may
be, shall continue to receive the benefits set forth under subparagraph
5(A) hereof, as well as such benefits as are extended to the Company's
active executive employees and their dependents during such period.
(ii) "Incapacity" as used herein shall mean the inability of the
Executive due to physical or mental illness, injury or disease
substantially to perform his normal duties as _____________________.
Executive's salary as provided for hereunder shall continue to be paid
during any period of incapacity prior to and including the date on which
Executive's employment is terminated for disability.
(iii) BY THE COMPANY FOR CAUSE:
(i) The Company shall have the right, before the expiration of
the term of this Agreement, to terminate the Executive's employment
hereunder and to discharge Executive for cause (hereinafter "Cause"), and
all compensation to Executive shall cease to accrue upon discharge of
Executive for Cause. For the purposes of this Agreement, the term "Cause"
shall mean (i) Executive's conviction of a felony; (ii) the alcoholism or
drug addiction of Executive: (iii) gross negligence or willful misconduct
of Executive in connection with his duties hereunder; or (iv) the continued
and willful failure by Executive to substantially and materially perform
his material duties hereunder.
(ii) If the Company elects to terminate Executive employment for
Cause under (C)(i) above, such termination shall be effective fifteen (15)
days after the Company gives written notice of such termination to
Executive. In the event of a termination of Executive's employment for
Cause in accordance with the provisions of 7(C)(i), the Company shall have
no further obligation to the Executive, except for the payment of all
compensation which has accrued through the date of such termination and not
paid and any other benefits to which he or his dependents may be entitled
by law and/or except as otherwise provided herein.
(iv) BY EXECUTIVE FOR REASON:
Executive shall have the right to terminate his employment at any time for
"good reason" (herein designated and referred to as "Reason"). The term Reason
shall mean (i) the Company's failure or refusal to perform any obligations
required to be performed in accordance with this Agreement after a reasonable
notice and an opportunity to cure same; and (ii) a Change in Control of the
Company and/or the Parent, as defined herein, occurs.
(v) SEVERANCE: In the event Executive's employment hereunder shall be
terminated by the Executive for Reason or by the Company for other than Cause,
Death or Disability: (1) the Executive shall receive as severance pay in a lump
sum no later than sixty (60) days following such termination, an amount equal to
the sum of (i) the salary the Executive would have received for the remaining
term of this Agreement had there been no termination, (ii) all accrued Override
payments earned as of the date of such termination, and (iii) the bonus paid to
the Executive under the Bonus Plan for the year immediately preceding the year
in which such termination of the Executive occurs times the remaining number of
years of the Agreement had there been no termination of the Executive, provided,
however, that in no event shall such lump sum payment be less than the prior
year's aggregate salary, Override and bonus; and (2) the Executive's (and his
dependents') participation in any and all life, disability, medical and dental
insurance plans shall be continued, or equivalent benefits provided to him or
them by the Company, at no cost to him or them, for a period of two years from
the termination.
(vi) RESIGNATION WITHOUT REASON: The Executive may voluntarily resign
his employment with the Company upon thirty (30) days' written notice to the
Company without any liability to the Executive. In the event Executive resigns
without reason prior
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<PAGE> 200
to the expiration of this Agreement, he shall receive only any unpaid fixed
salary through such resignation date and such benefits to which he and his
dependents are entitled by law.
(vii) EXTENSION OF BENEFITS: Any extension of benefits following the
termination of employment provided for herein shall be deemed to be in addition
to, and not in lieu of, any period for the continuation of benefits provided for
by law, either at the Company's, Executive or his dependents' expense.
(viii) CHANGE IN CONTROL: For purposes hereof, a Change in Control
shall be deemed to have occurred (i) if there has occurred a "change in control"
as such term is used in Item 1 (a) of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended, at the date hereof ("Exchange Act") or (ii) if
there has occurred a change in control as the term "control" is defined in Rule
12b-2 promulgated under the Exchange Act, provided, however, that
notwithstanding anything to the contrary provided herein or elsewhere, no
"Change of Control" shall occur if the Board of Directors of the Parent shall
have approved the Change of Control prior to the effective date of any such
"Change of Control."
8. INDEMNIFICATION: Except for actions taken by the Executive which are
determined by an arbitration panel (as provided in Section 15 hereof) in a final
non-appealable decision to constitute either willful misconduct or gross
negligence, the Company and the Parent hereby jointly and severely indemnify and
hold Executive harmless to the extent of any and all claims, suits, proceedings,
damages, losses or liabilities incurred by Executive and arising out of any acts
or decisions done or made in the authorized scope of his employment hereunder.
Parent and the Company hereby jointly and severely agree to pay all expenses,
including reasonable attorneys' fees and expenses (of the attorney or firm
chosen by the Executive), actually incurred by Executive (when such expenses are
incurred) in connection with the investigation of any such matter, the defense
of any such action, suit or proceeding and in connection with any appeal thereon
including the cost of settlements. Nothing contained herein shall entitle
Executive to indemnification by Parent and the Company in excess of that
permitted under applicable law. The obligations of the Company and the Parent
set forth herein shall survive any termination of this Agreement and/or the
Executive's employment with the Company.
9. WAIVER: No delay or omission to exercise any right, power or remedy
accruing to either party hereto shall impair any such right, power or remedy or
shall be construed to be a waiver of or an acquiescence to any breach hereof. No
waiver of any breach hereof shall be deemed to be a waiver of any other breach
hereof theretofore or thereafter occurring. Any waiver of any provision hereof
shall be effective only to the extent specifically set forth in the applicable
writing. All remedies afforded to either party under this Agreement, by law or
otherwise, shall be cumulative and not alternative and shall not preclude
assertion by either party of any other rights or the seeking of any other rights
or remedies against the other party.
10. GOVERNING LAW: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without regard to the principles
of conflicts of law and the actual domiciles of the parties hereto.
11. NOTICES: All notices, demands or other communications required or
permitted to be given in connection with this Agreement shall be given in
writing, shall be transmitted to the appropriate party by hand delivery, by
certified mail, return receipt requested, postage prepaid or by overnight
carrier and shall be addressed to a party at such party's address shown on the
first page hereof. A party may designate by written notice given to the other
parties a new address to which any notice, demand or other communication
hereunder shall thereafter be given. Each notice, demand or other communication
transmitted in the manner described in this Section 11 shall be deemed to have
been given and received for all purposes at the time it shall have been (i)
delivered to the addressee as indicated by the return receipt (if transmitted by
mail), the affidavit of the messenger (if transmitted by hand delivery or
overnight carrier) or (ii) presented for delivery during normal business hours,
if such delivery shall not have been accepted for any reason.
12. ASSIGNMENTS: This Agreement shall be binding upon and inure to the
benefit of the parties hereto and each of their respective successors, assigns,
heirs and legal representatives; provided, however, that Executive may not
assign or delegate his obligations, responsibilities and duties hereunder except
as may otherwise be expressly agreed to in writing by the parties hereto;
provided, further that notwithstanding anything to the contrary provided herein
or elsewhere, and subject to compliance by the parties to all applicable laws,
rules and regulations, the Executive may assign all or any portion of his
compensation under this Agreement to an entity controlled by the Executive.
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<PAGE> 201
13. MISCELLANEOUS: This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them with respect to the subject matter hereof. No
modification or addition hereto or waiver or cancellation of any provision shall
be valid except by a writing signed by the party to be charged therewith.
14. SEVERABILITY: The parties agree that if any of the covenants,
agreements or restrictions contained herein are held to be invalid by any court
of competent jurisdiction, the remainder of the other covenants, agreements
restrictions and parts thereof herein contained shall be severable so not to
invalidate any others and such other covenants, agreements, restrictions and
parts thereof shall be given full effect without regard to the invalid portion.
15. ARBITRATION: Any and all disputes, controversies, or differences,
whether arising or commenced during or subsequent to the term hereof, which may
arise between the parties directly and/or indirectly out of or in relation to or
in connection with this Agreement, or for the breach of this Agreement, shall be
settled by arbitration in New York City, New York before three arbitrators under
the commercial arbitration rules of the American Arbitration Association then in
effect. Each of the arbitrators shall be appointed by the American Arbitration
Association. Such arbitration shall be final and binding and shall be limited to
an interpretation and application of the provisions of this Agreement and any
related agreements or documents. Any arbitral award shall be enforceable in any
court, wherever located, having jurisdiction over the party against whom the
award was rendered. In addition, with respect to any such arbitration or
enforcement proceedings, the losing party thereto shall bear all of its and the
winning parties' attorneys' fees and expenses, court costs, and all other costs
and expenses reasonably associated with such arbitration or enforcement
proceedings (i.e., travel, lodging, telecommunications charges).
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
FROST HANNA CAPITAL GROUP, INC.
By:_______________________________________
Name:
Title:
GAINES, BERLAND INC.
By:_______________________________________
Name:
Title:
__________________________________________
_______________________________, EXECUTIVE
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<PAGE> 202
Appendix A
PROXY
FROST HANNA CAPITAL GROUP, INC.
SPECIAL MEETING OF SHAREHOLDERS -- _____________, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Frost Hanna Capital Group, Inc. ("Frost
Hanna") hereby appoints Richard B. Frost and Mark J. Hanna, and each of them,
the undersigned's proxies, with full power of substitution, to vote all shares
of Common Stock, par value $.0001 per share, of Frost Hanna which the
undersigned would be entitled to vote if personally present at the Special
Meeting of Shareholders to be held on _____________, 1999 at ________ local
time, at __________________________ (the "Special Meeting") and at any
adjournments or postponements thereof, to the same extent and with the same
power as if the undersigned was personally present at said meeting or such
adjournments or postponements thereof and, without limiting the generality of
the power hereby conferred, the proxy nominees named above and each of them are
specifically directed to vote as indicated below.
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR APPROVAL OF PROPOSALS 1, 2, 3, 5, 6 AND 7 AND FOR THE
ELECTION OF EACH OF THE NOMINEES LISTED IN ITEM 4.
If there are amendments or variations to the matters proposed at the
meeting or at any adjournments or postponements thereof, or if any other
business properly comes before the meeting, this proxy confers discretionary
authority on the proxy nominees named herein and each of them to vote on such
amendments, variations or other business.
(Continued, and to be signed and dated on the other side.)
<PAGE> 203
1. Approval of the Merger with Gaines, Berland, Inc.
_________ _________ _________
For Against Abstain
2. Change of the name of Frost Hanna to "G-Trade Capital Holdings Corp."
_________ _________ _________
For Against Abstain
3. Amendment of Frost Hanna's Articles of Incorporation to provide for an
authorized class of preferred stock consisting of 2,000,000 shares, with the
rights, preferences and designation of such shares to be determined by Frost
Hanna's Board of Directors.
_________ _________ _________
For Against Abstain
4. Election of six directors to serve until the next Annual Meeting of
Shareholders.
Nominees: Joseph Berland
Richard J. Rosentock
Mark Zeitchick
Vincent Mangone
Steven A. Rosen
Benjamin D. Pelton
[ ] FOR each nominee listed (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
5. Approval of the 1999 Performance Equity Plan.
_________ _________ _________
For Against Abstain
6. Approval of the Annual Incentive Bonus Plan.
_________ _________ _________
For Against Abstain
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7. Approval of the Special Performance Incentive Plan.
_________ _________ _________
For Against Abstain
8. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournment of
postponement thereof.
The undersigned acknowledges receipt of the accompanying Notice of Special
Meeting of Shareholders and the Proxy Statement for the ______________, 1999
special meeting.
Dated: __________, 1999
________________________________________
Signature of Stockholder(s)
________________________________________
Print Name(s) Here
(Please sign exactly as name or names
appear hereon. Full title of one signing
in representative capacity should be
clearly designated after signature.
Names of all joint holders should be
written even if signed by only one.)
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENVELOPE PROVIDED.
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