As filed with the Securities and Exchange Commission on April __, 1999
Registration No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
AMERICA FIRST ASSOCIATES CORP.
(Name of Small Business Issuer in Its Charter)
Delaware 6211 11-324688
- ------------------------ ---------------------------- -----------------
(State of Incorporation) (Primary standard industrial I.R.S. employer
classification code) Identification No.
415 Madison Avenue, 3rd Floor
New York, New York 10017
(212) 644-8520
(Address and Telephone Number of Principal Executive Offices)
Joseph Ricupero, Chief Executive Officer
415 Madison Avenue, 3rd Floor
New York, New York 10017
(212) 644-8520
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If any of the securities being registered on this Form SB-2 are to be offered on
a continuous basis pursuant to Rule 415 under the Securities Act of 1933, please
check the following box. [x]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434, please
check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
The information contained in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
Maximum Maximum Amount of
Title of Each Class Amount Being Offering Price Aggregate Registration
of Securities Registered Per Security (1) Offering Price (1) Fee (3)
Being Registered
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, Par Value
$.001(2).......... 1,899,600 $(3) $1,900,000 $ 655
- -----------------------------------------------------------------------------------------------------------------
Common Stock, Par Value $.001
(4)......... 300,000 1.00 300,000 $ 104
- -----------------------------------------------------------------------------------------------------------------
Common Stock, Par Value $.001
(5)......... 99,600 2.50 249,000 $ 86
- -----------------------------------------------------------------------------------------------------------------
Common Stock, par value 3,200,400 5.00 16,002,000 $ 5,518
$.001(6)..........
- -----------------------------------------------------------------------------------------------------------------
Totals $18,451,000 $6,363(8)
=================================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457.
(2) Includes (i) 1,899,600 shares of Common Stock being sold by certain Selling
Shareholders (the "Selling Securityholders")
(3) For the purposes of calculating the registration fee, the Company has
assumed an offering price of $1.00
per Share.
(4) Represents the shares of Common Stock issuable upon exercise of Class A
Warrants being sold by the Selling Shareholders.
(5) Represents the shares of Common Stock issuable upon exercise of Class B
Warrants being sold by the Selling Shareholders.
(6) Represents the shares of Common Stock issuable upon exercise of Class C
Warrants being sold by the Selling Shareholders.
(7) Pursuant to Rule 457(g), no fee is payable thereon.
ii
<PAGE>
Cross Reference Sheet Pursuant to Rule 404 (a)
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
<TABLE>
Item in Form SB-2 Prospectus Caption
<S> <C>
1. Forepart of the Registration Statement and Outside Cover Page and Cover Page of Registration Statement
Front Cover of Prospectus
2. Inside Front and Outside Back Cover of Prospectus Continued Cover Page, Table of Contents
3. Summary Information and Risk Factors Prospectus, Summary, Risk Factors, Summary Financial
Information
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page, Underwriting, Risk Factors
6. Dilution Risk Factors, Dilution
7. Selling Securityholders Principal and Selling Stockholders
8. Plan of Distribution Cover Page, Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers Promoters and Certain Management
Control Persons
11. Security Ownership of Certain Beneficial Owners and Principal and Selling Shareholders
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Opinions, Experts
14. Disclosure of Commission Position on Securities Act Management and Item 24. Indemnification Officers
Liabilities and Directors
15. Organization Within Five Years Prospectus Summary, Business, Principal and Selling
Stockholder, Certain Relationships and Related
Transactions, Risk Factors
16. Description of Business Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operation Condition and Results of Operations
<PAGE>
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Not Applicable
Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants and Not Applicable
Financial Disclosure
</TABLE>
<PAGE>
Preliminary prospectus subject to completion, dated April , 1999
PROSPECTUS
AMERICA FIRST ASSOCIATES CORP.
1,899,600 Shares of Common Stock,
and 3,600,000 shares
of Common Stock underlying the Warrants
which may be sold from time to time
by the Selling Securityholders
This Prospectus provides information relating to us and shares of
Common Stock and warrants which we previously sold in two private placements. In
total, we sold 1,899,600 shares of common stock, 300,000 Class A Warrants,
99,600 Class B Warrants and 3,200,400 Class C Warrants. The Class A, Class B and
Class C Warrants allow the holders to acquire shares of common stock from us at
a price of $1.00 per share, $2.50 per share and $5.00 per share for a period of
three years commencing on the earlier of September 10, 1999 or the effective
date of this Prospectus.
The persons which acquired the shares and warrants from us are referred
to as the "Selling Securityholders." This prospectus will allow the Selling
Securityholders to publicly sell their shares of common stock and those which
they may acquire from the Company upon exercise of their warrants. We will not
receive any of the proceeds from the sales of common stock by the Selling
Securityholders, although we will receive proceeds from any exercise by the
Selling Securityholders of their warrants.
The Selling Securityholders, their transferees, pledgees and/or their
donees may offer or sell their common stock from time to time through ordinary
brokerage transactions in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices.
The Selling Securityholders, their pledgees and/or their donees, may be
deemed to be "underwriters" as defined in the Securities Act of 1933, as
amended. If any broker-dealers are used by the Selling Securityholders, their
pledgees and/or their donees, any commission paid to broker-dealers and, if
broker-dealers purchase any shares of common stock as principals, any profits
received by such broker-dealers on the resale of the shares may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Securityholders, their pledgees and/or their
donees, may be deemed to be underwriting commissions. All costs, expenses and
fees in connection with the registration of the Selling Securityholders' common
stock will be paid by us except for any commission paid to broker-dealers.
To the best of our knowledge, no underwriting arrangements have been
entered into by the Selling Securityholders. The distribution of the common
stock by Selling Securityholders', their pledgees and/or their donees, may be
effected in one or more transactions that may take place on the over-the-counter
market, including ordinary broker's transactions, privately-negotiated
transactions or through sales to one or more dealers for resale of such shares
as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Securityholders, their pledgees and/or their donees, in
connection with sales of their shares.
No public market currently exists for our common stock and we cannot
assure you that a market will develop or be sustained after completion of this
offering. We anticipate that our common stock will trade on the OTC Bulletin
Board under the symbol "AFAA."
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 6 OF
THIS PROSPECTUS. THESE SHARES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION. THESE ORGANIZATIONS HAVE NOT DETERMINED WHETHER THIS
PROSPECTUS IS COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
ABOUT THE OFFERING
Securities Offered: 1,899,600 Shares of Common Stock
and 3,6000,000 shares of Common Stock
underlying the Warrants which may
be sold from time to time by the
Selling Securityholders
Price Per Share: $(1)
Securities Outstanding
Prior to the Offering:
Common Stock 12,018,000 Shares
Warrants [2] 300,000 Class A Warrants,
99,600 Class B Warrants and
3,200,400 Class C Warrants
Securities Outstanding
After the Offering:
Common Stock 12,018,000 Shares
Warrants [2] 300,000 Class A Warrants,
99,600 Class B Warrants and
3,200,400 Class C Warrants
Use of Proceeds
We will only receive proceeds from this
Offering if some of the outstanding Warrants
are exercised. Any proceeds from the
exercise of Warrants will be used for our
net capital and working capital needs.
An investment in our Common Stock involves a high degree of risk.
Potential purchasers should not invest in our Common Stock unless they
Risk Factors can afford the risk of losing their entire investment.
Symbols (3)
OTC Bulletin Board Common Stock .........AFAA
(1) We do not know what price our Common Stock will trade at if and when the
Common Stock becomes listed on the OTC Bulletin Board.
(2) Our Warrants will not trade publicly.
(3) We intend to apply to list our common stock on the OTC Bulletin Board.
Quotation on the OTC Bulletin Board does not imply that a meaningful,
sustained market for our Common Stock will develop or if developed that it
will be sustained for any period of time.
2
<PAGE>
SUMMARY
BECAUSE THIS IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS (I) DOES NOT GIVE EFFECT TO THE EXERCISE OF ANY OF THE 3,600,000
WARRANTS ISSUED IN CONNECTION WITH OUR PRIOR PRIVATE PLACEMENTS. UNLESS THE
CONTEXT REQUIRES OTHERWISE, ALL REFERENCES IN THIS PROSPECTUS TO "AFTRADER,"
"WE," "OUR" AND "US" REFER TO AMERICA FIRST ASSOCIATES CORP. INFORMATION
CONTAINED IN OUR WEBSITE SHOULD NOT BE CONSIDERED PART OF THIS PROSPECTUS.
ABOUT US
General
America First Associates Corp. provides financial brokerage services to
experienced investors and small to mid-sized financial institutions through a
variety of communication mediums, including the Internet. We offer our clients
access to the securities markets via the Internet. In addition, as a result of
the technology we use, our brokers and our clients have access to the most
up-to-date electronic information on stocks, market indices, analysts' research
and news. We provide our clients the ability to execute orders over the Internet
or by telephone with one of our experienced brokers.
America First Associates Corp. was originally founded as a Delaware
corporation in 1995 as a traditional brokerage firm. When we began our brokerage
operations, we relied solely on registered representative (i.e. stockbrokers) to
open client accounts and to take buy and sell orders from clients. As technology
changed and the Internet gained in popularity, we decided to focus our efforts
on on-line trading. We installed computers and software in 1998 and began
on-line trading in 1998. We consistently analyze new communication technologies,
including the Internet, that will enable our brokers to better serve our
clients. We are determined to offer our clients, regardless of the communication
medium used, the simplest, most direct form of stock execution and the best
information we can deliver.
The Market
The financial services market has changed considerably over the last 25
years. In 1975 when commissions for securities transactions became deregulated,
the era of negotiated commissions began. The unbundling of brokerage services
from other financial services has permitted investors to pick and choose among
various financial providers for specific services. At the same time, individuals
have greater education, technical capabilities, access to information and
investment choices. Investors are also more self-reliant and value conscious
and, as a result, are managing their own money and are increasingly reluctant to
pay high fees to full-service retail brokers. As a result, discount brokerage
firms willing to accept stock trades for lower commissions have begun to
proliferate. However, many discount brokerage firms do not typically provide the
full breadth of products and services offered by full-service firms, such as
regular access to a broker willing to make recommendations or discuss possible
investments.
As a result of increased competition among brokerage firms, deep
discount brokerage firms which advertise very low commission rates also entered
the market. As a result of the growth of the Internet as a tool to obtain
information, online trading is now the fastest growing segment of the brokerage
industry and is expected to continue to grow significantly. In a report dated
March 11, 1999, Forrester Research, Inc., an independent research firm,
estimates that during 1998, the number of North American households investing
online nearly doubled, reaching just under 2.4 million by the start of 1999, and
that the number of households investing online will increase to 4.3 million by
the end of 2000. In addition, industry experts project that retail commissions
generated by the online trading market will grow from approximately $268
million, or 15% of the commissions generated by discount brokerage firms in
1996, to as much as $2.2 billion, or 60% of total discount brokerage
commissions, by 2001.
3
<PAGE>
Our Business Strategy
We believe that we have been successful in creating a high level of
service, through the use of technology, to provide experienced clients direct
access, through brokers and the Internet, to trade information and execution.
Our strategy is designed to ensure that the client obtains the best possible
access to relevant market information. We believe opportunities exist in the
financial services industry for a brokerage firm that is able to provide
experienced investors with the cost-savings created by (1) direct access to
professional trade executions, (2) access to up-to-date market information and
(3) the convenience of trading over the Internet. We call our trading system
"AFTrader" and our web address is www.AFTrader.com.
The Web Site Architecture for AFTrader works as follows: when a user
types in www.AFTrader.com they will go to the AFTrader Homepage on the Market
Touch Web(TM) server. From here, if the person is a customer of AFTrader, they
can log-in and view their balances, make a trade, visit the research sections of
the site, send e-mail to their online Advisor, get performance activities and
quotes on their favorite stocks. If the customer wants to read up on the market,
they can link to a server hosted by AFTrader, unaware that they have left the
Market Touch Web(TM) section of the site, and access AFTrader's special content
on financial information and charts.
Our goal is to become a leader in the financial services industry by
capitalizing on the changes occurring in the financial services industry and
providing our clients with specialized services for competitive, fully disclosed
commission rates. We intend to achieve our goal by:
- - targeting experienced investors and small to mid-sized financial
institutions who typically (1) execute more trades per year than other
categories of investors, (2) require access to market information, and (3)
require fast professional execution of their orders;
- - providing value to our clients at the lowest overall cost, including
direct access to our trading desk which enables them to realize the best
possible execution price;
- - providing our clients with value-added services, including access to
well-trained brokers and up-to-date market information;
- - creating technologically innovative solutions to satisfy client needs,
including efficient order execution directly over the Internet; and
providing our brokers with the tools to meet the needs of our clients.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following is a summary of our Financial Statements for the years
ended December 31, 1997 and 1998, and for the three-month period ended March 31,
1998 and March 31, 1999. This Summary should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements including the notes thereto included in
this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31 Quarter Ended March 31
----------------------- -----------------------
1997 1998 1998 1999
---------- -------- --------- ----------
Audited Audited Unaudited Unaudited
<S> <C> <C> <C> <C>
Revenues $828,253 $214,447 $120,024 $20,992
Employee compensation and benefits,
including health insurance 239,242 119,019 33,467 41,420
Occupancy and equipment rental 82,567 90,074 22,518 22,518
Other expenses 282,710 140,188 42,622 54,890
Net income (loss) per share 220,698 (135,436) 20,376 (98,161)
Net income (loss) per share after
giving effect to stock split (footnote 1) 220.70 (135.44) 20.38 (0.008)
Weighted average # of shares outstanding (footnote 1) 1,000 1,000 1,000 12,000,000
Balance Sheet Data:
Working capital 335,714 239,938 349,470 2,036,297
Total assets 516,162 303,251 520,927 2,064,812
Total liabilities 145,188 23,947 137,867 1,669
Stockholders' equity (footnote 1) 370,974 279,304 383,060 2,063,143
</TABLE>
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(1) Gives effect to the (i) sale of common stock during the Quarter ending
March 31, 1999 (3,136 shares in exchange for $1,900,000 and issuance of
16,000 shares to Joseph Ricupero, in exchange for $65,248 shareholders
contribution received October 1999 of which 136 shares were returned to
the Company for cancellation), (ii) 600 for 1 forward split on shares
outstanding for the Quarter ending March 31, 1999 (20,000 X 600 =
12,000,000 shares outstanding), (iii) increases the authorized number
of shares of common stock to 20,000,000.
5
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain important factors may affect our actual results and could cause
those results to differ materially from any forward-looking statements made in
this Prospectus or that are otherwise made by us or on our behalf.
"Forward-looking statements" are not based on historical facts and are typically
phrased using words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate" or "continue" and similar expressions or
variations.
RISK FACTORS
The shares offered are speculative and involve a high degree of risk.
You should carefully consider the following matters, as well as the other
information in this Prospectus, before investing.
Differences in actual results may be caused by factors such as those
discussed in the "Risk Factors" below as well as those discussed elsewhere in
this Prospectus.
We have a limited operating history upon which to evaluate our performance.
We only commenced doing business in November 1995. In addition, we only
began our on-line trading in 1998. Accordingly, we have only a limited operating
history upon which you can evaluate our prospects and future performance. You
should consider our prospects based on the risks, expenses and difficulties
frequently encountered in the operation of a new business in a rapidly evolving
industry characterized by intense competition.
Periods of declining prices and inactivity or uncertainty
in the market may harm our business.
The securities business is volatile and is directly affected by
national and international political and economic conditions, broad trends in
business and finance, and fluctuations in volume and price levels of securities
transactions, all of which are beyond our control. The securities business is
also subject to various other risks, including client default on commitments
(such as margin obligations), litigation, and employee's misconduct, errors and
omissions. Losses associated with these risks could harm our business. Several
current trends are also affecting the securities industry, including regulation
at federal and state levels, the emergence of numerous discount brokers,
increased use of technology, and a steady decrease in the commissions charged to
clients of discount brokerage services. Historically, when the stock market
suffers large declines (i.e., a "bear market") the level of individual investor
activity declines. We will likely be adversely affected during any long-term
bear market. A general decrease in trading activity in these markets could
adversely affect the level of trading by our clients. These trends and/or future
changes may harm our business.
We may not be able to keep up in a cost-effective way with this evolving market.
The market for brokerage services, particularly over the Internet, is
rapidly evolving. As a result, the level of demand for online brokerage services
is uncertain. Our offering of brokerage services over the Internet involves a
relatively new approach to securities trading. As a result, intensive marketing
and sales efforts may be necessary to educate prospective clients regarding the
uses and benefits of our brokerage services and products. If the market for
online brokerage services does not develop as we expect, our business may be
harmed.
6
<PAGE>
We may not be able to keep up in a cost-effective
way with rapid technological changes.
The market for brokerage services and, particularly, electronic
brokerage services over the Internet is characterized by rapid technological
change, changing client requirements, frequent service and product enhancements
and introductions, and emerging industry standards. The introduction of services
or products embodying new technologies and the emergence of new industry
standards can render existing services or products obsolete and unmarketable.
Our future success will depend, in part, on our ability to develop and use new
technologies, respond to technological advances, enhance our existing services
and products, and develop new services and products on a timely and
cost-effective basis. We cannot assure you that we will be successful in
pursuing new opportunities or will compete successfully in any new markets.
We depend on Joseph Ricupero and Joseph A. Genzardi
and the loss of any of their services could harm our business.
Our business is dependent upon a small number of key executive officers
and employees, principally Joseph Ricupero and Joseph A. Genzardi. The loss of
services of any of these individuals could harm our business. We have no
employment agreements with any of these officers, and we do not maintain "key
person" life insurance on the lives of any of these people. Competition for key
personnel and other highly qualified technical and managerial personnel is
intense. The loss of the services of any of the key personnel or the inability
to identify, hire, train and retain other qualified personnel in the future
could harm our business.
Intense competition from existing and new entities may
adversely affect our revenues and profitability.
The market for brokerage services and, particularly, electronic
brokerage services, is new, rapidly evolving, intensely competitive and has few
barriers to entry. We expect competition to continue and intensify in the
future. A number of our competitors have significantly greater financial,
technical, marketing and other resources than us. Some of our competitors also
offer a wider range of services and financial products than us and have greater
name recognition and more extensive client bases than us. These competitors may
be able to respond more quickly to new or changing opportunities, technologies,
and client requirements than us and may be able to undertake more extensive
promotional activities, offer more attractive terms to clients, and adopt more
aggressive pricing policies than us. Moreover, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties or may consolidate to enhance their services and products. We
cannot assure you that we will be able to compete effectively with current or
future competitors or that the competitive pressures faced by us will not harm
our business.
Profitability.
The market for brokerage services and, particularly, electronic
brokerage services, is new, rapidly evolving, intensely competitive and has few
barriers to entry. We expect competition to continue and intensify in the
future. A number of our competitors have significantly greater financial,
technical, marketing and other resources than us. Some of our competitors also
offer a wider range of services and financial products than us and have greater
name recognition and more extensive client bases than us. These competitors may
be able to respond more quickly to new or changing opportunities, technologies,
and client requirements than us may be able to undertake more extensive
promotional activities, offer more attractive terms to clients, and adopt more
aggressive pricing policies than us. Moreover, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties or may consolidate to enhance their services and products. We
cannot assure you that we will be able to compete effectively with current or
future competitors or that the competitive pressures faced by us will not harm
our business.
7
<PAGE>
We depend heavily on computer systems and system
failures could harm our business.
We rely heavily on various electronic mediums. We receive trade orders
using the Internet and telephone. In addition, we process trade orders through
U.S. Clearing Corp. (the "Clearing Firm"). These methods of trading are heavily
dependent on the integrity of the electronic systems supporting them. Heavy
stress placed on these systems during peak trading times could cause our systems
to operate at unacceptably low speeds or fail altogether. Any significant
degradation or failures of our computer systems, those of the Clearing Firm, or
any other systems in the trading process (e.g., online service providers, record
keeping and data processing functions performed by third parties and third-party
software such as Internet browsers) could cause clients to suffer delays in
trading. These delays could cause substantial losses for our clients and could
subject us to claims from clients for losses, including litigation claiming
fraud or negligence.
Employee misconduct is difficult to detect and could harm our business.
There have been a number of highly publicized cases involving fraud or
other misconduct by employees in the financial services industry in recent
years, and we run the risk that employee misconduct could occur. Misconduct by
employees could include binding us to transactions that exceed authorized limits
or present unacceptable risks, or hiding from us unauthorized or unsuccessful
activities. In either case, this type of misconduct could result in unknown and
unmanaged risks or losses. Employee misconduct could also involve the improper
use of confidential information, which could result in regulatory sanctions and
serious reputational harm. It is not always possible to deter employee
misconduct, and the precautions we take to prevent and detect this activity may
not be effective in all cases.
Any possible compromises of our systems or security could harm our business.
The secure transmission of confidential information over public
networks is a critical element of our operations. We rely on encryption and
authentication technology to provide the security and authentication necessary
to effect secure transmission of confidential information over the Internet. To
the best of our knowledge, to date, we have not experienced any security
breaches in the transmission of confidential information. Moreover, we
continually evaluate advanced encryption technology to ensure the continued
integrity of our systems. However, we cannot assure you that advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments will not result in a compromise of the technology or
other algorithms used by us and our vendors to protect client transaction and
other data. Any compromise of our systems or security could harm our business.
We rely very heavily on the clearing firm and termination of our agreement with
the clearing firm could harm our business.
Our clearing agreement may be terminated by either party upon 30 days
prior written notice. Termination of this agreement could harm our business.
Pursuant to our agreement, the Clearing Firm, on a fee basis, processes all
securities transactions for our account and the accounts of our clients.
Services of the Clearing Firm include billing and credit extension, control and
receipt, custody and delivery of securities, for which we pay a transaction
charge. We are dependent on the operational capacity and the ability of the
Clearing Firm for the orderly processing of transactions. In addition, by
engaging the processing services of a clearing firm, we are exempt from certain
capital reserve requirements and other complex regulatory requirements imposed
by federal and state securities laws. Moreover, we have agreed to indemnify and
hold the Clearing Firm harmless from certain liabilities or claims, including
claims arising from the transactions of our clients.
8
<PAGE>
Our success will depend heavily on the acceptance of online commerce and the
internet, of which there is no assurance.
Acceptance of our Internet trading technology will depend upon the
continued adoption of the Internet as a widely used medium for commerce and
communication. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as a
reliable network backbone, or timely development of complementary services and
products, such as high speed modems and high speed communication lines. The
Internet has experienced, and is expected to continue to experience, significant
growth in the number of users and amount of traffic. However, the Internet
infrastructure may not be able to support the demands placed on it by this
continued growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols to handle
increased levels of Internet activity or due to increased governmental
regulation. Moreover, critical issues concerning the commercial use of the
Internet, including security, reliability, cost, ease of use, accessibility and
quality of service, remain unresolved. These issues may negatively affect the
growth of Internet use or the attractiveness of commerce and communication on
the Internet. Our business will be materially harmed if critical issues
concerning the commercial use of the Internet are not favorably resolved, the
necessary infrastructure is not developed, or the Internet does not become a
viable commercial marketplace.
We extend credit to our clients and are subject to risks as a result.
We are subject to the risks inherent in extending credit to the extent
that we permit our clients to purchase securities on a "margin" basis. A portion
of our clients' securities activities are transacted on a margin basis (through
the clearing broker which we have agreed to indemnify), pursuant to which credit
is extended to the client and secured by cash and securities in the client's
account or "short sales" (I.E., the sale of securities not yet purchased). These
risks are exacerbated during periods of volatile markets in which the value of
the collateral held by us could fall below the amount borrowed by the client. If
margin requirements are not sufficient to cover losses, we may be required to
sell or buy securities at prevailing market prices and incur losses to satisfy
client obligations.
We are currently subject to securities regulation and failure to comply could
subject us to penalties or sanctions that could harm our business.
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. In addition, the Securities and
Exchange Commission ("SEC"), National Association of Securities Dealers, Inc.
("NASD") and other self-regulatory organizations, such as the various stock
exchanges and state securities commissions, require strict compliance with their
rules and regulations. Broker-dealers are subject to regulations covering all
aspects of the securities business, including sales methods, trade practices
among broker-dealers, use and safekeeping of clients' funds and securities,
capital structure, record keeping and the conduct of directors, officers and
employees. Failure to comply with any of these laws, rules or regulations could
result in censure, fine, the issuance of cease-and-desist orders or the
suspension or expulsion of a broker-dealer or any of its officers or employees,
any of which could harm our business.
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Potential governmental regulation of the internet and
online commerce could harm our business.
Due to the increasing popularity and use of the Internet and other
online services, various regulatory authorities are considering laws and/or
regulations with respect to the Internet or other online services covering
issues such as user privacy, pricing, content copyrights, and quality of
services. Furthermore, the growth and development of the market for online
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. Moreover, the
recent increase in the number of complaints by online traders could lead to more
stringent regulations of online trading firms and their practices by the SEC,
NASD and other regulatory agencies. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for our trading systems and services
and increase our cost of doing business. Moreover, the applicability to the
Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes and personal
privacy is uncertain and may take years to resolve. In addition, as our services
are available over the Internet in multiple states and foreign countries, and as
we have numerous clients residing in these states and foreign countries, these
jurisdictions may claim that our company is required to qualify to do business
as a foreign corporation in each state and foreign country. While our company is
registered as a broker-dealer in 42 states, including the District of Columbia,
we are qualified to do business as a foreign corporation in only a few states;
failure by our company to qualify as a broker-dealer in other jurisdictions or
as an out-of-state or "foreign" corporation in a jurisdiction where it is
required to do so could subject our company to taxes and penalties for the
failure to qualify. Our business could be harmed by any these new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business or the applications of existing laws
and regulations to the Internet and other online services.
We may conduct proprietary trading and any potential losses
would reduce our asset value and harm our business.
Although we do not actively engage in proprietary trading, we may from
time to time maintain an inventory of equity securities on both a long and short
basis. To the extent we have any long positions (i.e., own assets), a downturn
in these markets could result in a decline in the value of our positions
resulting in losses and reduced asset values. Conversely, to the extent we have
short positions (i.e., have sold assets we do not own), an upturn in those
markets could expose us to unlimited losses as we attempt to cover our short
position by acquiring assets in a rising market.
Failure to comply with net capital requirements could subject us to suspension
or revocation by the sec or expulsion by the NASD.
The SEC, the NASD and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities brokers. Failure to maintain the required net capital may subject a
firm to suspension or revocation of registration by the SEC and suspension or
expulsion by the NASD and other regulatory bodies and ultimately could require
our liquidation. In addition, a change in the net capital rules, the imposition
of new rules or any unusually large charge against net capital could limit our
operations that require the use of capital. A significant operating loss or any
unusually large charge against net capital could adversely affect our ability to
expand or even maintain our present levels of business, which could harm our
business.
We may need additional capital and may not be able to obtain it.
We currently anticipate that our available cash resources, combined
with the net proceeds from the Offering, will be sufficient to meet our
presently anticipated working capital and capital expenditure requirements for
the next 12 months. However, if we need to raise additional funds in order to
support further expansion, develop new or enhanced services and products,
respond to competitive pressures, acquire complementary businesses or
technologies or respond to unanticipated requirements, we cannot assure you that
additional financing will be available when needed on terms favorable to us.
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We rely heavily on our intellectual property but have
limited intellectual property protection.
Our success and ability to compete is dependent to a significant degree
on our proprietary technologies, ideas, know-how and other proprietary
information. We have no patents, no trademarks and no registered copyrights.
Notwithstanding the precautions we take to protect our intellectual property
rights, third parties may copy or otherwise obtain and use our proprietary
technology without authorization or otherwise infringe on our proprietary
rights. In addition, third parties may independently develop technologies and
ideas similar to ours. Policing unauthorized use of our intellectual property
rights and ideas may be difficult, particularly because it is difficult to
control the ultimate destination or security of information transmitted over the
Internet. In addition, the laws of foreign countries may afford inadequate
protection of intellectual property rights. Our business maybe harmed if we are
unable to protect our intellectual property rights.
Ownership of our common stock is concentrated with our
chief executive officer who can control the company.
Upon completion of this offering, our Chief Executive Officer will
beneficially own approximately 84% of our common stock. Accordingly, following
completion of this offering, management will be in a position to control us,
elect all directors, cause an increase in our authorized capital or our
dissolution or merger or sale of assets, and, generally, to direct our affairs.
Board has broad discretion in application of proceeds.
Management will have significant flexibility in the use of the proceeds
from the exercise of Warrants, if any. We intend to use the net proceeds from
the exercise of Warrants for net capital and working capital and general
corporate purposes. The failure of our management to apply the funds effectively
could harm our business.
No dividends have been paid and none are contemplated.
We have not paid any dividends on our common stock and do not presently
intend to. We anticipate that for the foreseeable future all earnings, if any,
will be retained for the operation and expansion of our business.
There was no prior public market for the securities
and there is the possibility of volatility of the stock price.
Prior to this offering, there has been no public market for our common
stock. It is anticipated that our common stock will be listed on the OTC
Bulletin Board; however, we cannot assure you that an active trading market will
develop or be sustained. The initial price of the common stock will be
determined by the broker filing the Form 211 with the NASD to initiate trading
of the common stock on the Bulletin Board and may not be indicative of the
actual value of the common stock and may bear no relationship to the price at
which the common stock will trade after it initially commences trading. The
market price of our common stock will be subject to wide fluctuations in
response to variations in operating results, general trends in our industry,
actions taken by competitors, the overall performance of the stock market and
other factors.
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There are many shares eligible for future sale and sales of
those shares could affect the market price negatively.
Upon completion of the offering, we will have approximately 12,018,000
shares of common stock outstanding. All of the 1,899,600 Shares being registered
hereunder, together with an additional 3,600,000 shares of common stock issuable
upon exercise of our outstanding Warrants will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
the "Securities Act"). In addition, up to 120,180 shares may be sold every three
months by persons who have held there shares for a period of at least one year
the Securities Act to the extent permitted by Rule 144 promulgated under the
Securities Act or any exemption under the Securities Act.). Future sales of a
substantial amount of common stock in the public market, or the perception that
future sales may occur, could adversely affect the market price of the common
stock prevailing from time to time in the public market.
Our securities will be subject us to the penny stock rules
which could affect the liquidity of the securities.
It is currently anticipated that our common stock will trade on the OTC
Bulletin Board. As a result, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, our securities.
In addition, trading in our securities will also be subject to the requirements
of certain rules promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-NASDAQ equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). These rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established clients and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by these requirements may
discourage broker-dealers from effecting transactions in our securities, which
could severely limit the market price and liquidity of our securities and the
ability of purchasers in this offering to sell their securities in the secondary
market.
Warrant holders may not be able to exercise warrants.
We intend to qualify the sale of the common stock in a limited number
of states. We will be prevented from issuing common stock in the states unless
an exemption from qualification is available or unless the issuance of common
stock upon exercise of the warrants is qualified. We may decide not to seek or
may not be able to obtain qualification of the issuance of the common stock in
all of the states in which the holders of the warrants reside. Further, a
current prospectus covering the common stock issuable upon exercise of the
warrants must be in effect before we may accept warrant exercises. We cannot
assure you that we will be able to have a prospectus in effect when this
Prospectus is no longer current.
We may not be prepared for the year 2000 and/or third-parties
on which we rely may not be prepared which could harm our business.
With the new millennium approaching, many institutions around the world
are reviewing and modifying their computer systems to ensure that they are Year
2000 compliant. The issue, in general terms, is that many existing computer
systems and microprocessors with data functions (including those in
non-information technology equipment and systems) use only two digits to
identify a year in the date field with the assumption that the first two digits
of the year are always "19." 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.
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Because we depend to a very substantial degree upon the proper
functioning of our computer systems, a failure of our systems to be Year 2000
compliant could harm our business. 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, currencies, commodities and
other assets, result in generation of erroneous results or give rise to
uncertainty about our exposure to trading risks and our need for liquidity. If
not remedied, potential risks include business interruption or shutdown,
financial loss, regulatory actions, reputational harm and legal liability.
In addition, we depend upon the proper functioning of third-party
computer and non-information technology systems. These parties include trading
counterparties, financial intermediaries such as stock and commodities
exchanges, depositories, clearing agencies, clearing houses and commercial banks
and vendors such as providers of telecommunication services and other utilities.
If third parties with whom we interact have Year 2000 problems that are not
remedied, the following problems could result:
- - in the case of vendors, in disruption of important services upon which we
depend, such as telecommunications and electrical power;
- - in the case of third-party data providers, in the receipt of inaccurate or
out-of-date information that would impair our ability to perform critical
data functions;
- - in the case of financial intermediaries such as exchanges and clearing
agents, in failed trade settlements, an inability to trade in certain
markets and disruption of funding flows;
- - in the case of banks and other lenders, in the disruption of capital flows
potentially resulting in liquidity stress; and
- - in the case of counterparties and customers, in financial and accounting
difficulties for those parties that expose us to increased credit risk and
lost business.
Disruption or suspension of activity in the world's financial markets
is also possible. In addition, 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. This in turn could
result in a general reduction in trading and other market activities (and lost
revenues) as well as reduced funding availability in late 1999 and early 2000.
We cannot predict the impact that any reduction would have on our business.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
Selling Securityholders. However, we may realize proceeds of up to $18,451,000
if all of the Warrants are exercised. In the event that any or all of the
warrants are exercised, we intend to use the proceeds for net capital, working
capital and general corporate purposes.
We may utilize the proceeds, if any, from the exercise of warrants for
different purposes. The foregoing represents our best estimate of the allocation
of the proceeds of the exercise of warrants based upon the current status of our
business. Our estimates may prove to be inaccurate, new programs or activities
may be undertaken which will require considerable additional expenditures or
unforeseen expenses may occur.
Based on currently proposed plans and assumptions relating to the
implementation of our business plans, we believe that cash on hand combined with
cash flow from operations will enable us to fund our planned operations for a
period of at least 12 months from the date of this Prospectus. However, we
cannot assure you we will realize cash flow from operations or that the cash
flow will be sufficient. If our plans change or our assumptions change or prove
to be inaccurate, we may find it necessary or desirable to seek additional
financing or curtail our operations. We cannot assure you that any additional
financing will be available to us on acceptable terms, or at all.
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DIVIDEND POLICY
We have not paid dividends on our common stock and do not intend to pay
dividends for the foreseeable future. We intend to retain any earnings to
finance the development and expansion of our business. Payment of dividends in
the future will be subject to the discretion of our Board of Directors and will
depend upon our ability to generate earnings, our need for capital and our
overall financial condition, and as legally permissible, among other factors.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999,
You should read this table in conjunction with our financial statements and the
notes included elsewhere in this Prospectus.
Actual
---------
Common Stock, $.001 par value,
20,000,000 shares authorized; 12,000
issued and outstanding.
12,000,000 shares at March 31, 1999 (1)
Additional Paid -in Capital 2,100,248
Retained Earnings (Deficit) (49,105)
Total Stockholders' Equity 2,063,143
Total Capitalization 2,063,143
- -----------------------------
(1) Does not include Shares of Common Stock issuable upon the exercise of the
Warrants and shares of Common Stock reserved for issuance under the
Company's Senior Management Plan, of which an option to purchase 500,000
shares have been granted by the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of the financial condition and results of
financial condition and the results of operation of the Company should be read
in conjunction with the Financial Statements and the related Notes and other
financial information included elsewhere in this Prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including but not
limited to, those set forth under Risk Factors and elsewhere in this Prospectus.
Overview
The company was established in February 1995 and has conducted its
operations as a fully disclosed brokerage firm registered with the SEC, the NASD
and 42 state securities divisions including the District of Columbia. We have
applications pending in the remaining states and expect to be registered in
every state by the third quarter of 1999. We are a full-service online financial
service firm targeting the rapid growth momentum of individual investors who
utilize the Internet for their personal investment objectives. We will continue
to provide quality service to our current customers while increasing brand
awareness and customer loyalty. To expand our business and operations, we plan
to strategically use the Internet to efficiently market and distribute our
services to potential customers. In addition, building brand awareness on a
national level to increase our customer base.
Results of Operations
Year ended December 31, 1998 compared to year ended December 31, 1997
Our total revenue for fiscal year ended December 31,1998 ("Fiscal
1998") was $214,467, a 74% decrease over the total revenue of $828,253 for
fiscal year ended December 31, 1997 ("Fiscal 1997"). The decrease in revenue was
the result of implementation of a new, low cost per trade, line of product
services offered via the Internet, a decrease in syndicate participation and an
inactive trading account.
Commissions net of clearing costs for Fiscal 1998 amounted to $73,998
compared to $221,908 for Fiscal 1997. In Fiscal 1997, we charged customers
higher commissions per transaction than in Fiscal 1998. Due to the competitive
nature of our industry we currently charge $14.95 per trade up to 5000 shares.
Our strategy utilizes the Internet to service clients at a lower cost per
transaction, thereby allowing us to charge customers $14.95 per trade and be
profitable. As the Internet grows, so shall we. Our focus will be to cost
effectively increase our client base through Internet marketing, which will
increase our transaction volume. As a result of a rapid increase in customer
applications, we expect transaction volume and commission revenue, net clearing
costs to increase substantially as we continue to grow.
Syndicate income for Fiscal 1998 was $16,346 compared to $256,996 for
Fiscal. The loss in syndicate income in 1998 was the result of not participating
in many syndicate deals. We expect syndicate revenue to increase in future
years. In addition, we expect to participate in more deals than in Fiscal 1998.
Trading gains for Fiscal 1998 was $94,976 compared to $318,320 for
Fiscal 1997. The decrease in trading gains was primarily attributed to inactive
trading throughout Fiscal 1998. Going forward, we do not plan to trade actively
in the market and assume trading revenue will not be part of our long-term plan.
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Internet and other income for Fiscal 1998, were $29,157 and $22,029 for
Fiscal 1997. This income should remain stable and will not be a part of our
long-term plan.
Our total expenses decreased from $604,519 for Fiscal 1997 to $349,281
for Fiscal 1998. This decrease of 42% in total expenses was the result to the
more efficient way of doing business over the Internet. In Fiscal 1998, we had a
net operating loss of ($135,436), which was mainly attributed to developing and
implementing the online trading website. The proper infrastructure was installed
and personnel trained to operate a full service online brokerage firm. Most of
Fiscal 1998 was a learning curve and most of our expenses for the implementation
of our website have already incurred. As we gain market share we should once
again become profitable in the foreseeable future.
Occupancy expense includes costs related to our leasing of office space
in New York City. Occupancy expense for Fiscal 1998 was $90,074 and $82,567 for
Fiscal 1997. We currently lease a 3000 square foot office and believe this to be
an ample amount of space for us to expand without needing additional space near
term. Although we currently do not have a signed lease, we feel confident our
rent will remain stable for the next two years.
Employee compensation and benefits including health insurance were
$83,739 and $35,280 for Fiscal 1998 and $212,424 and $26,818 for fiscal 1997.
The decrease in employee compensation has been attributed to the decrease in
commission revenues. We anticipate that employee compensation and health
insurance will increase as we grow internally as a result of needing to service
newly acquired clients.
Consulting and professional service expense in Fiscal 1998 amounted to
$18,840. In Fiscal 1997 it was $79,497. These fees encompass legal and
accounting fees associated with all aspects of maintaining a brokerage firm.
Fiscal 1997 legal expense included $63,000 consulting fee for a private
placement the Company completed. For fiscal 1999 we expect a moderated increase
in legal and accounting fees, most of which will be attributed to this
prospectus and registering these securities with the SEC.
Regulatory and registration fees are all fees associated with a
Broker/Dealer to be registered with the NASD and in all appropriate states. In
Fiscal 1998 regulatory and registration fees amounted to $14,717, compared to
$29,129 for Fiscal 1997. Although there was a decrease in 1998, we expect as our
customer base continues to grow, we will need to hire additional series 7
registered representatives to service them, therefore we expect a moderate
increase in registration fees.
Communication and data processing expenses in Fiscal 1998 decrease to
$10,940 from $57,693 in Fiscal 1997. The decrease in communication and data
processing expenses in Fiscal 1998 was the result of our expanding our firm into
an Internet brokerage firm whereby we mainly communicate with our clients
through e-mail, thus reducing communication costs. In addition, the decrease can
be attributed to the communication industry's lowering of their cost structures.
As we continue to grow we expect communication and data processing costs to
increase proportionately as more customer support are added.
Other expenses amounted to $47,061 for Fiscal 1998, and $49,346 for
Fiscal 1997. The primary sources of these expenses were for the design and
installation of the website. These expenses are one-time charges and will not
reoccur in the future.
Depreciation and Amortization primarily consists of depreciation of
property and equipment. Depreciation and Amortization for Fiscal 1997 and Fiscal
1998 was $6,731. As we continue to expand, we anticipate the purchase of
additional property and equipment, which will result in a slight increase in
depreciation and amortization expenses.
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Travel, entertainment and other administrative expenses amounted to
$15,432 in Fiscal 1998 and $35,220 for Fiscal 1997. We do not expect these
expenses to increase substantially, they should remain relatively stable.
Although Marketing Expense was non-existent in Fiscal 1998 and Fiscal
1997, to remain competitive, we expect a significant increase in marketing
expense for future growth and expansion. Our marketing expense for Fiscal 1999
will be associated with promoting our website and financial services to acquire
new online brokerage accounts. It is estimated that our marketing expense over
the next 12 months could reach $600,000.
Results of Operations
Quarter Ended March 31, 1999 and March 31, 1998
Total revenue for the quarter ended March 31, 1999 (first quarter 1999)
was $20,992 as compared to $120,024 in total revenue for the quarter ended March
31, 1998 (first quarter 1998). This decrease in revenue is attributed to the
difference in trading gains for that period. Trading gains for the first quarter
of 1999 was $7,251 compared to first quarter of 1998 of $110,365.
Our commission revenue increased over 372% from $4,097 for the first
quarter of 1998 to $9,188 for the first quarter of 1999. Going forward we expect
an increase in commission revenue due to a rapidly growing customer base and an
increase in trading volume.
Syndicate income, although recently non existent, is expected to
generate revenue for Fiscal 1999 and future years
Our total expenses for the first quarter of 1999 was $118,828 compared
to $98,607 for the first quarter of 1998. This increase in total expenses is
attributed to an increase in consulting and professional fees, regulatory and
registration fees, and communications and data processing fees.
For the first quarter of 1999, consulting and professional fees were
$19,849 compared to the first quarter of 1998 of $150. This large increase was
due to legal costs resulting in the completion of our private placement and
filing for registration of our securities with the SEC. We anticipate additional
legal and registration fees in the future.
Employee compensation and benefits, including health insurance for the
first quarter of 1999 were $32,934 and $8,486, respectively, and for the first
quarter of 1998 were $22,229 and $11,238, respectively. As we continue to grow
we will need additional employees to service our growing customer base,
therefore we anticipate an increase in employee compensation and benefit
expenses.
Occupancy and Equipment Rental for the first quarter of 1999 and 1998
were $22,518. Although we do not have a current lease, these cost are expected
to remain stable for the next two years.
Regulatory and Registration fees for the first quarter of 1999 were
$16,098 and $5,077 for the first quarter of 1998. This increase is attributed to
registering additional states and state regulatory fees for the states that we
are currently registered in. We anticipate an increase in regulatory and
registration fees due to the expected need of hiring additional series 7
registered representatives to service our increased customer base.
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Communication and data processing fees for the first quarter of 1999
was $6,355 and $1,729 for the first quarter of 1998. This increase is the result
of the installation of additional telephone lines, that needed to be installed
to increase our phone capabilities to service customers. We anticipate this
number to increase proportionately as we continue to acquire accounts.
Office supplies and expenses decreased from $3,424 for the first
quarter of 1998 to $1,175 for the first quarter of 1999. We expect only a slight
increase in office supplies and expenses in the future.
Travel and Entertainment for the first quarter of 1999 were $4,157 and
$10,576 for the first quarter of 1998. Although there was a substantial decrease
in travel and entertainment, we anticipate a moderate increase in Travel and
Entertainment costs for the future.
Depreciation and Amortization costs for the first quarter of 1999 and
1998 were $1,683. The need for additional computers is dependent on the firm's
growth. Therefore, as we continue to expand and purchase additional hardware our
depreciation and amortization expense will increase.
Other Expenses for the first quarter of 1999 was $5,573 and $19,983 for
the first quarter of 1998. The majority of other expenses for the first quarter
of 1998 were charges related to the implementation of the website. We do not
expect Other Expenses to have a substantial increase for the future.
Liquidity and Capital Resources
Since inception, we have financed our operation primarily through the
sole shareholder of the company. As of March 1999, a private placement offering,
in the amount of $1,882,000 was completed. We believe that the cash proceeds
from this offering, together with the existing cash balances will be sufficient
to meet anticipated cash requirements for at least twelve months following the
date of this prospectus. We may nonetheless, seek additional financing to
support our activities during the next eighteen months or thereafter. There can
be no assurance, however, that additional capital will be available to us on
reasonable terms, if at all, when needed or desired.
Net cash used in operating activities for Fiscal 1998 was $19,746 and
$220,347 for Fiscal 1997.
Cash and cash equivalents, including deposits with clear broker at
March 31, 1999 were $2,013,884, compared to $477,189 for March 31, 1998.
Working capital at March 31, 1999 was $2,036,297, compared to $349,470
in March 31, 1998.
Total liabilities at March 31, 1999 were $1,669, all attributed to a
short position in the trading account, as compared to $137,867 for March 31,
1998.
The Company is currently operating with no other liabilities.
Pursuant to the SEC's net capital rule, we are currently required to
maintain net capital of $100,000 and a ratio of aggregate indebtedness to net
capital (the "net capital ratio") not to exceed 15 to 1. As of March 31, 1999,
our net capital ration was .00 to 1. At March 31, 1999, we had net capital of
$2,032,685, which was $1,192,685 in excess of our minimum required net capital.
Net Cash provided by operating activities for March 31, 1999 was
$1,971,583. This was attributed to issuance of common stock of $1,882,000 and an
operating loss of $98,161.
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Net cash used in operating activities for December 31, 1998 was $1,736.
This was because of a net loss of $135,436, shareholder contributions of $65,248
and shareholder distribution of $21,482.
Net cash provided by operations activities for December 31, 1997 were
$21,565. This was because net income was $220, 698 and shareholders distribution
was $198,782.
We anticipate that our total expenditures will be approximately
$1,200,000 during the next twelve months from the date of this prospectus. Based
upon our current plans and assumptions relating to our business plan, we
anticipate 50% of this expense to go toward marketing our financial service
oriented website, which will increase the number of users capable of accessing
our system. Other expenditures will include but will not be limited to, employee
compensation, benefits and insurance; occupancy and equipment rental;
communications and data processing; and expansion of our network and
infrastructure.
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Year 2000 Readiness
We have conducted an assessment of the Year 2000 issue and the
potential effect it will have on us and our business. We have determined that we
will not be required to materially modify or replace our information and
non-information technology systems to properly recognize and utilize dates
beyond December 31, 1999. We presently believe that with modifications
previously made to existing software, conversions to new software and
replacement of some hardware, the Year 2000 issue will be satisfactorily
resolved in our own systems. However, even if these changes are successful,
failure of third parties, to which we are financially or operationally linked,
to address their own system problems could have a material adverse effect on us.
Furthermore, the investing and trading patterns of clients may be affected by
Year 2000 issues as clients become concerned about the Year 2000 issue and the
effect it will have on the U.S. and international stock markets and the
securities industry generally.
Changes in these patterns may harm our business.
We continue to monitor and review the Year 2000 issue and, as
appropriate, modify or replace the software (and replace some hardware) in our
computer systems in our main and branch offices. We continue to monitor our own
internal systems to prepare for Year 2000 compliance. Our testing is expected to
involve major market participants, including competing firms and financial
intermediaries, such as stock exchanges and clearing agencies that are prominent
in the U.S. We have also initiated communications with counter-parties,
intermediaries and vendors with whom we have important financial and operational
relationships to determine the extent to which they are vulnerable to the Year
2000 issue. We have not yet received sufficient information from these parties
about their remediation plans to predict the outcome of their efforts.
To date, Year 2000 readiness has cost us an estimated $5,000 (including
upgrades to existing systems) and is not expected to cost any additional sums to
complete. Any additional costs will be expensed as incurred. We cannot assure
you that these estimates will be correct; actual results could differ materially
from our plans.
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BUSINESS
Overview
America First Associates Corp. provides financial brokerage services to
experienced investors and small to mid-sized financial institutions through a
variety of communication mediums, including the Internet. We advertise our
services under the name "AFTrader" and we are identified as AFTrader on our web
site. While we concentrate on allowing our clients to trade on-line over the
Internet, we also accept telephone orders from clients for securities
transactions. One of the unique features of our service is that a broker is
assigned to each account to assist the client with any questions or needs. We
believe that this service adds a personalized touch that other on-line brokerage
firms lack.
As a result of the technology we use, our brokers and our clients have
access to the most up-to-date electronic information on stocks, market indices,
analysts' research and news.
We were originally founded as a Delaware corporation in 1995 as a
traditional brokerage firm. When we began our brokerage operations, we relied
solely on registered representative (ie. stockbrokers) to open client accounts
and to take buy and sell orders from clients. As technology changed and the
Internet gained in popularity, we decided to focus our efforts on on-line
trading. We installed computers and software in 1998 and began on-line trading
in 1999. We consistently analyze new communication technologies, including the
Internet, that will enable our brokers to better serve our clients. We are
determined to offer our clients, regardless of the communication medium used,
the simplest, most direct form of stock execution and the best information we
can deliver.
The Market
The financial services industry has changed considerably over the last
25 years. Before 1975, all stock exchanges required brokers to charge fixed
minimum commissions for trades of listed stock. Under pressure from Congress,
the Department of Justice and the SEC, in 1975, these policies were changed,
which allowed for negotiated commissions and the unbundling of investment
services. The unbundling of brokerage services from other financial services has
permitted investors to pick and choose among various financial providers for
specific services. All of these developments brought about the advent and
proliferation of the discount brokerage firm, which could separate financial
advisory services from execution services, and could execute trades at a lower
cost than a full-service broker.
As a result, discount brokerage firms willing to accept stock trades
for lower commissions have begun to proliferate. Like full service brokerage
firms, discount brokerage firms are covered by the government sponsored
Securities Investor Protection Corporation ("SIPC") that insures accounts up to
$100,000 in cash and up to $400,000 in other assets. Unlike full service
brokerage firms, however, many discount brokerage firms do not typically provide
the full breadth of products and services offered by full-service firms, such as
regular access to a broker willing to make recommendations or discuss possible
investments, elaborate research reports or access to initial public offerings.
As a result of increased competition among brokerage firms, deep
discount brokerage firms who advertise very low commission rates also entered
the market. These firms generally provide very little, if any, services and
merely effect trades for an extremely low price. However, many of these firms
either (1) sell the order received from their clients to another brokerage firm
that makes a market in the stock being traded, or (2) charge the client a
mark-up or mark-down.
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<PAGE>
At the same time, the use of the Internet as a tool for obtaining
information, communicating and effecting commerce is also changing the financial
services industry. The Internet provides investors with a wealth of information
about investing, including stock picks, technical charts, analysis and financial
corporate news. As a result, investors are more self-reliant and value
conscious, are managing their own money and are increasingly reluctant to pay
high fees to full-service retail brokers. This has led to significant growth in
online investing and the entry into the market of electronic or online trading
which has experienced phenomenal growth since the Internet "e-brokerages" were
introduced in 1994.
As a result of the growth of the Internet as a tool to obtain
information, online trading is now the fastest growing segment of the brokerage
industry and is expected to continue to grow significantly. In a report dated
March 11, 1999, Forrester Research, Inc., an independent research firm,
estimates that during 1998, the number of North American households investing
online nearly doubled, reaching just under 2.4 million by the start of 1999 and
that the number of households investing online will increase to 4.3 million by
the end of 2000. In addition, industry experts project that retail commissions
generated by the online trading market will grow from approximately $268
million, or 15% of the commissions generated by discount brokerages in 1996, to
as much as $2.2 billion, or 60% of total discount brokerage commissions, by
2001. Customers at the biggest online brokerage firms average 30 to 40 trades
per year, four to five times the number of trades per account executed at
traditional full-service brokerage firms. We believe that we are positioned to
service financially sophisticated and technologically capable brokerage
customers. The marketplace is demanding lower commissions, better trade
executions, access to more information and the convenience of 24-hour account
monitoring.
Our Business
General Financial Brokerage Services
We provide financial brokerage services to experienced investors,
including both individuals and small to mid-sized institutions (such as hedge
funds, money managers, mutual funds and pension funds). To support the
investment services provided to these investors, we effect transactions in
equity securities strictly on an agency basis for our clients. This means that
we always charge only an agreed upon commission and never earn income from
marking up or marking down our clients' stock orders. Our retail sales division
consists of 7 registered representatives of which 3 are registered principals.
Our retail customer accounts are carried on a "fully disclosed" basis by the
Clearing Firm, pursuant to a clearing agreement. This agreement provides that
our clients' securities positions and credit balances carry $100 million for
security positions and $100,000 for cash balances that is supplemental to
standard SIPC protection. All customer credit balances are subject to immediate
withdrawal from the Clearing Firm, at the discretion of the client.
We pride ourselves on effecting equity transactions only on an agency
basis as opposed to on a principal basis, meaning, we act as the agent for our
clients directly in the market. The opposite of an agency trade in the brokerage
industry is considered a principal trade. When performing a transaction on a
principal basis, brokerage firms are permitted to accept a client's order to
purchase, immediately purchase the securities in the market for the firm, and
then sell the securities to the client for a mark-up. Notwithstanding that, we
will not specifically preclude effecting transactions on a principal basis where
a client demands that we do so.
We also provide our clients with direct access to our trading desks
which are online directly with the various stock exchanges and institutional
buyers and sellers via various electronic crossing networks. Our brokers are
committed to using their trading desks to obtain for our clients the fastest
execution of their order at the best possible price at the time the order is
given. In addition, as a result of the technology we use, we can access the most
up-to-date electronic news information and research reports.
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<PAGE>
Given the trend towards communicating, obtaining information, and
effecting transactions through electronic means, we are committed to serving the
changing needs of our clients. As a result, we have a team of well-trained
registered brokers available to assist our clients by telephone or the Internet.
Brokers are available from 8:30 AM to 5:00 PM EST Monday through Friday.
Internet-Based Brokerage Services
Through our Internet site, our clients currently have on-line access to
their account information. This electronic access enables our clients to review
the securities positions in their portfolio, confirm their buying power and
margin balances (if applicable), obtain stock quotes, enter orders for
execution, and review their recent trading activity. In addition to providing
information for their particular account, we also provide our clients, via the
Internet, pertinent market information regarding timely analysts' reports,
relevant earnings reports sorted by those companies that exceeded earnings
expectations and those that fell below expected earnings. We also provide our
clients with information about the overnight markets and the futures markets,
stocks that are trading before the market opens, and major company news through
the Internet.
We intend to use the Internet in various ways to help expand our
business. First, we intend to use the Internet to help our existing brokers
serve our clients better. The Internet will help our brokers disseminate
information to clients simultaneously, thereby allowing our brokers to
efficiently serve more clients. Second, we intend to use the Internet to serve
an ever growing number of investors who want to make 100% of their trading and
investment decisions on their own. Prior to providing this service, based upon
express representations and qualifications of prospective clients, we
pre-qualify these prospective clients to help ensure they are capable of making
their own trading and investing decisions.
We have a strong commitment to technology and are continually reviewing
the software and technology that enables our brokers and clients to more
efficiently use the Internet. A portion of the net proceeds of this offering
will be used to complete this upgrade.
Our Business Strategy
We believe that we have been successful in creating a high level of
service in the financial services industry by using technology to provide
experienced clients direct access, through brokers and the Internet, to a
trading desk which goes directly to the source and avoids the middleman to
obtain the best possible execution price (i.e., a "Wall Street style trading
desk"). Our strategy is designed to ensure that the client obtains the best
possible execution price and access to relevant market information. We believe
that opportunities exist in the financial services industry for a company that
is able to provide experienced investors with the overall cost-savings created
by (1) direct access to professional trade executions, (2) access to up-to-date
market information, and (3) the convenience of trading over the Internet. Our
basic philosophy is to provide our brokers and clients the best execution prices
along with the most relevant market information and investment research. We
consistently analyze new technologies and communication mediums, including the
Internet, that will enable our brokers to better serve our clients. We are
determined to offer our clients, regardless of the communication medium used,
the simplest, most direct form of stock execution.
The Web Site Architecture for AFTrader works as follows; when a user
types in www.AFTrader.com they will go to the AFTrader Homepage on the Market
Touch Web(TM) server. From here, if the person is a customer of AFTrader, they
can log-in and view their balances, make a trade, visit the research sections of
the site, send e-mail to their online Advisor, get performance activities and
quotes on their favorite stocks. If the customer wants to read up on the market,
they can link to a server hosted by AFTrader, unaware that they have left the
Market Touch Web(TM) section of the site, and access AFTrader's special content
financial information and charts.
Our goal is to become a leader in the financial services industry and
build market share by capitalizing on the changes occurring in the financial
services industry and providing our clients with specialized services for
competitive, fully disclosed commission rates. We intend to achieve our goal by:
24
<PAGE>
- - targeting experienced investors and small to mid-sized financial
institutions who typically (1) execute more trades per year than other
categories of investors, (2) require access to market information, and (3)
require fast execution of their orders;
- - providing value to our clients at the lowest overall cost, including direct
access to our trading desk which enables them to realize the best possible
execution price;
- - providing our clients with value-added services, including access to
well-trained brokers and up-to-date market information;
- - creating technologically innovative solutions to satisfy client needs,
including efficient trading directly over the Internet; and
- - providing our brokers with the tools to serve the needs of our experienced
clients.
Providing value to our clients at the best possible price. Direct access to our
trading desk enables our clients to realize the best possible execution price.
We primarily utilize electronic execution systems that enable money managers,
professional traders, large institutions and investors the ability to trade
efficiently. We pass on the savings realized from the electronic execution
systems directly to its clients.
Providing our clients with value-added services. In addition to providing our
clients with lower overall costs for effecting trades, we also provide our
clients with some of the products and services provided by full-service firms,
including access to a pool of well-trained brokers and the most current
electronic news information and research reports. Most discount and online
brokerage firms do not have a staff of well-trained brokers readily available to
assist clients if they need investment advice. Our brokers are also available by
telephone in the event of electronic systems failures. We believe our team of
well-trained brokers offers our clients more than just execution services. We
provide our clients and brokers with electronic research and electronic news
from an ever-growing database of news vendors to enable them to make better
informed business decisions. As the Internet expands, research and market news
become available 24 hours per day.
Creating technologically innovative solutions to satisfy clients' needs. We are
actively reviewing additional technologies to service the rapidly evolving
financial services industry. We are also exploring other solutions to improve
our products and services to satisfy our clients' needs. We believe that a
demand exists for a brokerage firm that can provide experienced traditional
retail brokers with the technology to directly execute their own clients'
orders. We also believe that significant demand exists from experienced brokers
who want more market information to better serve clients. We have found that
even though clients have access to more information via the Internet, the
majority of clients still desire the assistance of an experienced broker to help
guide their investment decisions.
Strategic relationships. We currently utilize the services of U.S. Clearing
Corp. (the "Clearing Firm") for all custody and clearing issues associated with
brokerage transactions. We realize the following benefits from our relationship
with the Clearing Firm:
- - quality safekeeping and protection on entire net equity (cash and
securities) on all accounts;
- - ability to participate in a large database of no-load mutual funds; and
- - professional and prompt handling of institutional and managed accounts.
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<PAGE>
Sales and Marketing
As evidence that a demand exists for our services, to date we have
experienced significant growth in obtaining new customer accounts since the
commencement of our conversion to electronic trading, all without a formal
marketing program. However, following the completion of our recent private
placements, in which we raised total proceeds of approximately $1,900,000, we
have commenced marketing efforts to increase our presence and name brand
recognition to attract new clients. Most of our marketing efforts are being
effected on-line and are being directed at internet users . We intend to expand
our market share through, among other things, advertising on our own and other
Web sites and a public relations program. From time to time, we may choose to
increase spending on advertising to target specific groups of investors or to
decrease advertising expenditures in response to market conditions.
Initially, we intend to focus our marketing efforts on online
advertising through popular Websites such as, Marketwatch.com, Marketguide.com
and Hoovers.com.
Competition
The market for discount brokerage services, and particularly electronic
brokerage services, is new, rapidly evolving and intensely competitive and has
few barriers to entry. We expect competition to continue and intensify in the
future. We encounter direct competition from numerous other brokerage firms,
many of which provide electronic brokerage services which we currently do not
provide. These competitors include discount brokerage firms like Charles Schwab
& Co., Inc., Quick & Reilly, Inc. and E*Trade Group, Inc. We also encounter
competition from established full-commission brokerage firms as well as
financial institutions, mutual fund sponsors and other organizations, some of
which provide electronic brokerage services.
We believe that the principal competitive factors affecting the market
for our brokerage services are speed and accuracy of order execution, price and
reliability of trading systems, quality of client service, amount and timeliness
of information provided, ease of use, and innovation. Based on management's
experience and the number of accounts opened to date, we believe that we
presently compete effectively with respect to each of these factors.
A number of our competitors have significantly greater financial,
technical, marketing and other resources. Some of our competitors also offer a
wider range of services and financial products and have greater name recognition
and more extensive client bases. These competitors may be able to respond more
quickly to new or changing opportunities, technologies, and client requirements,
and may be able to undertake more extensive promotional activities, offer more
attractive terms to clients, and adopt more aggressive pricing policies.
Moreover, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties or may
consolidate to enhance their services and products. We expect that new
competitors or alliances among competitors will emerge and may acquire
significant market share.
There can be no assurance that we will be able to compete effectively
with current or future competitors or that the competitive pressures we face
will not harm our business.
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<PAGE>
Government Regulation
Broker-Dealer Regulation
The securities industry is subject to extensive regulation under
federal and state law. The SEC is the federal agency responsible for
administering the federal securities laws. In general, broker-dealers are
required to register with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). We are a broker-dealer registered with the SEC.
Under the Exchange Act, every registered broker-dealer that does business with
the public is required to be a member of and is subject to the rules of the
NASD. The NASD has established Conduct Rules for all securities transactions
among broker-dealers and private investors, trading rules for the
over-the-counter markets, and operational rules for its member firms. The NASD
conducts examinations of member firms, investigates possible violations of the
federal securities laws and its own rules, and conducts disciplinary proceedings
involving member firms and associated individuals. The NASD administers
qualification testing for all securities principals and registered
representatives for its own account and on behalf of the state securities
authorities.
We are also subject to regulation under state law. We are currently
registered as a broker-dealer in 42 states including the District of Columbia.
We have applications pending with the remaining 8 continental states and expect
to be registered in every state (except Puerto Rico) by June 1999. An amendment
to the federal securities laws prohibits the states from imposing substantive
requirements on broker-dealers which exceed those imposed under federal law. The
recent amendment, however, does not preclude the states from imposing
registration requirements on broker-dealers that operate within their
jurisdiction or from sanctioning these broker-dealers for engaging in
misconduct.
Net Capital Requirements; Liquidity
As a registered broker-dealer and member of the NASD, we are subject to
the Net Capital Rule. The Net Capital Rule, which specifies minimum net capital
requirements for registered brokers-dealers, is designed to measure the general
financial integrity and liquidity of a broker-dealer and requires that at least
a minimum part of its assets be kept in relatively liquid form. In general, net
capital is defined as net worth (assets minus liabilities), plus qualifying
subordinated borrowings and certain discretionary liabilities, and less certain
mandatory deductions that result from excluding assets that are not readily
convertible into cash and from valuing conservatively certain other assets.
Among these deductions are adjustments (called "haircuts"), which reflect the
possibility of a decline in the market value of an asset prior to disposition.
Failure to maintain the required net capital may subject a firm to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NASD and other regulatory bodies and ultimately could require the firm's
liquidation. The Net Capital Rule prohibits payments of dividends, redemption of
stock, the prepayment of subordinated indebtedness and the making of any
unsecured advance or loan to a shareholder, employee or affiliate, if the
payment would reduce the firm's net capital below a certain level.
The Net Capital Rule also provides that the SEC may restrict for up to
20 business days any withdrawal of equity capital, or unsecured loans or
advances to shareholders, employees or affiliates ("capital withdrawal") if the
capital withdrawal, together with all other net capital withdrawals during a
30-day period, exceeds 30% of excess net capital and the SEC concludes that the
capital withdrawal may be detrimental to the financial integrity of the
broker-dealer. In addition, the Net Capital Rule provides that the total
outstanding principal amount of a broker-dealer's indebtedness under certain
subordination agreements, the proceeds of which are included in its net capital,
may not exceed 70% of the sum of the outstanding principal amount of all
subordinated indebtedness included in net capital, par or stated value of
capital stock, paid in capital in excess of par, retained earnings and other
capital accounts for a period in excess of 90 days.
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<PAGE>
A change in the Net Capital Rule, the imposition of new rules or any
unusually large charge against net capital could limit those of our operations
that require the intensive use of capital, such as the financing of client
account balances, and also could restrict our ability to pay dividends, repay
debt and repurchase shares of our outstanding stock. A significant operating
loss or any unusually large charge against net capital could adversely affect
our ability to expand or even maintain our present levels of business, which
could harm our business.
We are a member of SIPC which provides, in the event of the liquidation
of a broker-dealer, protection for clients' accounts up to $500,000, subject to
a limitation of $100,000 for claims for cash balances. Our clients are carried
on the books and records of the Clearing Firm. The Clearing Firm has obtained
$100 million of insurance for security positions and $100,000 for cash balances
for the benefit of our clients' accounts that is supplemental to SIPC
protection.
Additional Regulation
Due to the increasing popularity and use of the Internet and other
online services, various regulatory authorities are considering laws and/or
regulations with respect to the Internet or other online services covering
issues such as user privacy, pricing, content copyrights, and quality of
services. In addition, the growth and development of the market for online
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. Moreover, the
recent increase in the number of complaints by online traders could lead to more
stringent regulations of online trading firms and their practices by the SEC,
NASD and other regulatory agencies. Furthermore, the applicability to the
Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes and personal
privacy is uncertain and may take years to resolve. Finally, as our services are
available over the Internet in multiple states and foreign countries, and as we
have numerous clients residing in these states and foreign countries, these
jurisdictions may claim that our company is required to qualify to do business
as a foreign corporation in each such state and foreign country. While our
company is currently registered as a broker-dealer in 42 states including the
District of Columbia, we are qualified to do business as a foreign corporation
in only a few states; failure by our company to qualify as a broker-dealer in
other jurisdictions or as an out-of-state or "foreign" corporation in a
jurisdiction where it is required to do so could subject our company to taxes
and penalties for the failure to qualify. Our business could be harmed by any
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business or the
applications of existing laws and regulations to the Internet and other online
services.
Employees
We currently have 11 full-time employees, of which 7 are registered
representatives and 2 of which are in management. No employee is covered by a
collective bargaining agreement or is represented by a labor union. We consider
our employee relations to be excellent. We also have entered into independent
contractor arrangements with other individuals on an as-needed basis to assist
with programming and developing proprietary technologies.
Facilities
Our principal executive offices are located in an approximately 3,000
square foot facility at 415 Madison Avenue, New York, New York 10017. This
facility is occupied on a month to month basis without a lease, at a current
annual rent of approximately $90,000.
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<PAGE>
Legal Proceedings
We are not a party to any material proceedings.
MANAGEMENT
The following table sets forth the names, ages and positions held with
respect to each Director and Executive Officer:
Name Age Position with the Company
------ --- -------------------------
Joseph Ricupero 40 Chief Executive Officer,
Secretary and Director
Joseph A. Genzardi 38 President
Joseph Ricupero - Chief Executive Officer, Secretary, Director and Financial
Operations Officer - Series 7, 24, 27, 63
Mr. Ricupero is the founder of America First Associates Corp. and is
its Chief Executive Officer, Secretary and a Director. Until March 1999, Mr.
Ricupero was also the President of America First Associates Corp. Mr. Ricupero
has over 14 years of investment banking, brokerage, and trading experience. He
has held positions with some of the securities industry leading firms, including
Shearson Lehman. Mr. Ricupero has had hands on experience in numerous facets of
the securities industry. As an investment banker, Mr. Ricupero was actively
involved in analyzing, structuring, and placing a number of corporate finance
deals including IPOs, private placements, and mergers and acquisitions mainly in
the technology and information services field.
Mr. Ricupero serves in a compliance supervisory capacity to ensure and
enforce all regulatory agency rules as well as overseeing all trading activity
at America First Associates Corp. Mr. Ricupero is educated on all the current
regulations regarding trading procedure integration of the SEC order handling
rules.
Mr. Ricupero graduated from the State University of New York at Buffalo
with a Bachelor of Science Degree in Finance and a Masters Degree in Business
Administration in Accounting and Finance. He also holds General Principal and
Financial Operations Principal licenses with the NASD.
Joseph A. Genzardi - President, Series 7, 24, 63
Mr. Genzardi has been the President of America First Associates Corp.
Since March 1999. Mr. Genzardi has over ten years experience in the securities
industries as an individual and an institutional registered representative. From
1995 to 1997 Mr. Genzardi was Director of the Private Client Group and
institutional sales at Brookehill Equities, Inc., a NASD member firm. While at
Brookehill he managed accounts for both European and domestic institutions as
well as high net worth investors. He also analyzed, structured, and raised
capital for both private and public offerings, primarily in the technology and
pharmaceutical fields.
Between 1989 and 1995 he held positions of Managing Director of
Landenburg, Thalmann & Co. Inc., a 110 year old investment bank, and Senior Vice
President of Investments at Shearson Lehman Brothers.
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<PAGE>
Mr. Genzardi began his career as a Senior Engineer for Abbott
Transistor Labs, a California based military electronics company. Mr. Genzardi
graduated from The University of Rhode Island with a Bachelor of Science Degree
in Mechanical Engineering and is also a registered General Principal with the
NASD.
Directors hold their offices until the next annual meeting of our
shareholders and until their successors have been duly elected and qualified or
their earlier resignation, removal from office or death. There are currently no
committees of the Board of Directors. Upon consummation of this offering, we
intend to establish audit and compensation committees, each consisting of a
majority of non-employee directors.
Officers serve at the pleasure of the Board of Directors and until the
first meeting of the Board of Directors following the next annual meeting of our
shareholders and until their successors have been chosen and qualified.
Director s' Compensation
We do not currently pay our directors any fees for attending Board
meetings.
Limitation on Liability of Directors
As permitted by Delaware law, our Articles of Incorporation contain an
article limiting the personal liability of directors. The Articles of
Incorporation provide that each of our directors shall not be personally liable
for monetary damages for a breach of fiduciary duty as director except for
liability (i) for any breach of the director's duty of loyalty, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under the Delaware Business Corporation Act, which
prohibits the unlawful payment of dividends or the repurchase or redemption of
stock, or (iv) for any transaction from which the director derived an improper
personal benefit. This article is intended to afford directors additional
protection, and limit their potential liability, from suits alleging a breach of
duty of care by a director.
Executive Compensation
No officer or executive officer received annual compensation which
exceeded $100,000 during the fiscal year ended December 31, 1998.
Employment Agreements
We do not have any employment agreements with any of our employees.
1999 Stock Option Plan
In April 1999, we adopted the Company's 1999 Stock Option Plan ("The
Plan"). The Board believes that the Plan is desirable to attract and retain
executives and other key employees of outstanding ability. Under the Plan,
options to purchase an aggregate of not more than 5,000,000 shares of Common
Stock may be granted from time to time to our key employees, officers,
directors, advisors and independent consultants. As at the date of the this
Prospectus, 500,000 Options have been granted, 250,000 to Joseph A. Genzardi and
250,000 to Neil H. Kalb, which Options are exercisable at $1.00 per share for a
period of three years from the date of grant. No other Options have been granted
to any other party.
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<PAGE>
The Board of Directors is charged with administration of the Plan. The
Board is generally empowered to interpret the Plan, prescribe rules and
regulations relating thereto, determine the terms of the option agreements,
amend them with the consent o the optionee, determine the employees to whom
options are to be granted, and determine the number of shares subject to each
option and the exercise price thereof. The per share exercise price for
incentive stock options ("ISOs") will not be less than 100% fair market value of
a share of the Common Stock on the date the option is granted (110% of fair
market value on the date of grant of an ISO if the optionee owns more than 10%
of our Common Stock.
Options will be exercisable for a term determined by the Board which
will not be less than one year. Options may be exercised only while the original
grantee has a relationship with us or a subsidiary of ours which confers
eligibility to be granted options or up to ninety (90) days after termination at
the sole discretion of the Board. In the event of certain basic changes to the
Company, including a change in control of the Company (as defined in the Plan)
in the discretion of the Board, each option may become fully and immediately
exercisable. ISOs are not transferable other than by will or the laws of descent
and distribution. Options may be exercised during the holder's lifetime only by
the holder, his or her guardian or legal representative.
Options granted pursuant to the Plan may be designated as ISOs, and are
intended to have the tax benefits provided under Section 421 and 422A of the
Internal Revenue Code of 1986. Accordingly, the benefits provides that the
aggregate fair market value (determined at the time an ISO is granted) of the
Common Stock subject to ISOs exercisable for the first time by an employee
during any calendar year (under all of our plans) may not exceed $100,000. The
Board may modify, suspend or terminate the Plan; provided, however, that certain
material modifications affecting the Plan must be approved by the shareholders,
and any change in the Plan that may adversely affect an optionee's rights under
an option previously granted under the Plan requires the consent of the
optionee.
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<PAGE>
PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth certain information at April 19, 1999
with respect to the beneficial ownership of Common Stock and Warrants by (i)
each person known by us to be the owner of 5% or more of our outstanding Common
Stock; (ii) by each Selling Securityholder; (iii) by each officer and director;
and (iv) by all officers and directors as a group. Except as otherwise indicated
below, each named beneficial owner has sole voting and investment power with
respect to the shares of Common Stock listed.
<TABLE>
<CAPTION>
Shares of Common Warrants Owned Shares of Common Warrants Owned
Name (3) Stock Owned Prior Prior to Stock Owned After Offering
to Offering Offering After Offering (1)(2) (1)(2)
----------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Joseph Ricupero 10,118,400 0 10,118,400 0
Joseph A. Genzardi 0 250,000 0 250,000
Neil Kalb 0 250,000 0 250,000
Randano Financing Corp. 200,000 300,000 0 0
Patril Holding 200,000 300,000 0 0
Fairchild Formations, Ltd. 300,000 825,000 0 0
Executive Fund, Inc. 375,000 562,500 0 0
Equivest Premier Holdings, Ltd. 250,000 375,000 0 0
Windermere Fund, Inc. 375,000 562,500 0 0
Whitney Asset Management Company, 107,000 160,500 0 0
Inc.
The Devonshire Fund 25,000 37,500 0 0
Hyman Schwartz 50,000 450,000 0 0
All Officers and Directors as a 10,118,400 500,000 10,118,400 500,000
Group (2 persons)
</TABLE>
- ------------------------------------
(1) Assumes the sale of all of the shares and warrants owned by the Selling
Securityholders.
(2) Does not include the sale of 18,000 shares and 27,000 warrants which are
being sold in our private placement; the sale of those securities is
expected to close in May 1999.
(3) The business address of all directors and executive officers is c/o the
Company, 415 Madison Avenue, New York 10017.
32
<PAGE>
CERTAIN TRANSACTIONS
Between February 1999 and April 1999 we offered and sold an aggregate
of 1,899,600 shares of our common stock and 3,600,000 Warrants in two private
placements. In one of our private placements we offered and sold 3,000 Units at
a price of $600 per Unit. Each Unit consisted of 1 share of stock and one
Warrant exercisable at a price of $5.00. Of the 3,000 Units offered and sold, we
closed on the sale of 2,982 Units; the sale of the remaining 18 Units will close
in May 1999. In the other private placement, we offered and sold 2 Units at a
price of $50,000 per Unit. Each of those Units consisted of 83 shares of stock
and a total of 750 Warrants, of which 250 were Class A Warrants, 83 were Class B
Warrants and 417 Class C Warrants.
In March 1999, the Company issued 16,000 shares (9,600,000 Shares post
split) to our Chief Executive Officer in exchange for $65,248 shareholder
contribution received in October 1998.
In March 1999, our Chief Executive Officer returned 136 shares (81,600
Shares post split) to the Company for cancellation. No compensation was paid by
us for the return of such shares.
In March 1999, we amended our Certificate of Incorporation to increase
our authorized capital from 20,000 shares of common stock, $.01 par value to
20,000,000 shares of common stock, $.001 par value. In connection with our
amendment, we forward split our shares on a 600-for-1 basis so that each holder
of a share and each holder of a warrant received 600 shares or 600 warrants for
each share or warrant held.
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
20,000,000 shares of common stock, par value $0.001 per share, 12,018,000 of
which will be outstanding.
Common Stock
Each holder of common stock on the applicable record date is entitled
to receive the dividends declared by the Board of Directors out of funds legally
available therefor, and, in the event of liquidation, to share pro rata in any
distribution of our assets after payment or providing for the payment of
liabilities.
Each holder of common stock is entitled to one vote for each share held
of record on the applicable record date on all matters presented to a vote of
shareholders, including the election of directors. Holders of common stock have
no cumulative voting rights or preemptive rights to purchase or subscribe for
any stock or other securities, and there are no conversion rights or redemption
or sinking fund provisions with respect to this stock. All outstanding shares of
common stock are, and the shares of common stock offered hereby will be, when
issued, fully paid and nonassessable.
Warrants
Each of the 300,000 Class A Warrants, 99,600 Class B Warrants and
3,200,400 Class C Warrants allow the holders to acquire shares of common stock
from us at a price of $1.00 per share, $2.50 per share and $5.00 per share for a
period of three years commencing on the earlier of September 10, 1999 or the
effective date of this Prospectus. The exercise price and number of shares of
common stock or other securities issuable on exercise of the warrants are
subject to adjustment in certain circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or consolidation.
However, the warrants are not subject to adjustment for issuances of common
stock at prices below the exercise price of the warrants. Reference is made to
the Warrant Agreement (which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part) for a complete description of the
terms and conditions of the Warrants.
33
<PAGE>
Transfer Agent
The transfer agent for our common stock is Continental Stock Transfer &
Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 12,018,000 shares of
common stock outstanding. Of these shares, the 1,899,600 shares of common stock
being registered under this Registration Statement will be freely tradable
without restriction under the Securities Act. The remaining 10,118,400 shares of
common stock will be "restricted securities" as defined in Rule 144 and will
become eligible for public sale subject to the restrictions of Rule 144
commencing one year from their issuance. All of the 10,118,400 restricted shares
have been owned by Joseph Ricupero for a period of greater than one year.
Accordingly, the shares owned by Mr. Ricupero may be eligible for sale under
Rule 144.
In general, under Rule 144, if a period of at least one year has
elapsed since the later of the date the "restricted shares" (as that phrase is
defined in Rule 144) were acquired from us and the date they were acquired from
an "affiliate" of ours, as that term is defined in Rule 144 (an "Affiliate"),
then the holder of the restricted shares (including an Affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of 1% of the then outstanding shares of the common stock or the average
weekly reported volume of trading of the common stock during the four calendar
weeks preceding the sale. The holder may only sell the shares through
unsolicited brokers' transactions or directly to market makers. Sales under Rule
144 are also subject to certain requirements pertaining to the manner of the
sales, notices of the sales and the availability of current public information
concerning us. An Affiliate may sell shares not constituting restricted shares
in accordance with the foregoing volume limitations and other requirements but
without regard to the one-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted shares were acquired from us and the
date they were acquired from an Affiliate, as applicable, a holder of these
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above.
We can make no predictions as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
common stock in the public market, or the perception that these sales may occur,
could adversely affect prevailing market prices.
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Selling Securityholders have advised the Company that sales of the
Selling Securityholders' Securities may be effected from time to time by
themselves, their pledgees and/or their donees, in transactions (which may
include block transactions) in the over-the-counter market, in negotiated
transactions, through the writing of options on the Selling Securityholders'
Securities, or a combination of such methods of sale, at fixed prices that may
be changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Securityholders, their pledgees and/or their donees, may
effect such transactions by selling the Selling Securityholders' Securities
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of Selling Securityholders' Securities for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
34
<PAGE>
The Selling Securityholders, their pledgees and/or their donees, and
any broker-dealers that act in connection with the sale of the Selling
Securityholders' Securities as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the Selling Securityholders'
Securities as principals might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Securityholders' Securities
being registered on behalf of the Selling Securityholders are restricted
securities while held by the Selling Securityholders and the resale of such
securities by the Selling Securityholders is subject to the prospectus delivery
and other requirements of the Act. The Selling Securityholders, their pledgees
and/or their donees, may agree to indemnify any agent, dealer or broker- dealer
that participates in transactions involving sales of the Selling
Securityholders' Securities against certain liabilities, including liabilities
arising under the Securities Act. We will not receive any proceeds from the sale
of the Selling Securityholders' Securities by the Selling Securityholders. Sales
of the Selling Securityholders' Securities by the Selling Securityholders, or
even the potential of such sales, would likely have an adverse effect on the
market price of our common stock.
At the time a particular offer of any securities is made by or on
behalf of the Selling Securityholders, to the extent required, a prospectus
supplement will be distributed which will set forth the number of shares being
offered and the terms of the offering, including the names or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
shares purchased from the Selling Securityholders and any discounts, commissions
or concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereto, any person engaged in distribution of our
common stock offered by this Prospectus may not simultaneously engage in
market-making activities with respect our securities during the applicable
"cooling off" period prior to the commencement of such distribution. In
addition, the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation, Regulation M and Rule 10b-7, in connection with transactions in the
securities, which provisions may limit the timing of purchases and sales of our
securities by the Selling Securityholders.
The following table sets forth certain information with respect to
persons for whom we are registering the Selling Securityholders' Securities for
resale to the public. We will not receive any of the proceeds from the sale of
the Selling Securityholders' Securities. Beneficial ownership of the Selling
Securityholders' Securities by such Selling Securityholders after the Offering
will depend on the number of Selling Securityholders' Shares sold by each
Selling Securityholder. The securities held by the Selling Securityholders are
restricted securities while held by such Selling Securityholders and the resale
of such securities by the Selling Securityholders is subject to prospectus
delivery and other requirements of the Act. The Selling Securityholders'
Securities offered by the Selling Securityholders are not being underwritten.
LEGAL MATTERS
Lampert, Lampert & Ference, New York, New York will give an opinion
regarding the validity of the common stock offered under this Prospectus.
35
<PAGE>
EXPERT
The statements of our financial condition as of December 31, 1997 and
December 31, 1998 and the related statements of operations, changes in
shareholders' equity and cash flows for the years then ended included in this
Prospectus and incorporated by reference in the Registration Statement, have
been audited by, Kaufmann, Gallucci & Company, LLC, independent auditors, as
stated in their report appearing herein and incorporated by reference in the
Registration Statement, and are included and incorporated by reference in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement containing this
Prospectus and encompassing any amendments thereto on Form SB-2 pursuant to the
Securities Act with respect to the common stock being offered in this offering.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
of which are omitted as permitted by SEC rules and regulations. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete; with respect to any contract,
agreement or other document filed as an exhibit to the Registration Statement,
please refer to the exhibit for a more complete description of the matter
involved, and each statement shall be deemed qualified in its entirety by
reference to the Registration Statement and to the financial statements,
schedules and exhibits filed as a part thereof.
The Registration Statement filed by us with the SEC can be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Regional Offices of the SEC located in the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of those filings can be obtained from
the SEC's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates and may also be obtained from the
website that the SEC maintains at http://www.sec.gov. You may also call the SEC
at 1-800-SEC-0330 for more information.
As of the date of this Prospectus, we will become subject to the
reporting requirements of the Exchange Act and, in accordance therewith, will
file reports, proxy statements and other information with the Commission. These
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission set forth above, and copies of
these material can be obtained from the Commission's Public Reference Section at
prescribed rates. We intend to furnish our shareholders with annual reports
containing audited financial statements and any other periodic reports we deem
appropriate or as may be required by law.
36
<PAGE>
America First Associates Corp.
Financial Statements
Years ended December 31, 1998 and 1997
and
For the First Quarter ended March 31, 1999 and 1998
Contents
Report of Independent Auditors..................................... F-2
Statement of Financial Condition .................................. F-3
Statement of Operation ............................................ F-4
Statement of Changes in Stockholders' Equity ...................... F-5
Statement of Cash Flow ............................................ F-6
Notes to Financial Statements ..................................... F-7
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholder of
America First Associates Corp.
We have audited the accompanying statements of financial condition of
America First Associates Corp. as of. December 31, 1998 and 1997 and the related
statements of operations, changes in shareholders' equity, and cash flow for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 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 America First
Associates Corp. as of December 31, 1998 and 1997, and the results of its
operations for the years then ended in conformity with generally accepted
accounting principles.
Kaufmann & Company, P.C.
(now Kaufmann, Gallucci & Company LLP)
New York, New York
February 20, 1998 as to
financial statements dated December 31, 1997
January 29, 1999 as to
financial statements dated December 31, 1998
F-2
<PAGE>
America First Associates Corp.
Statement of Financial Condition
For Year Ended December 31, 1998 and
1997, and For the Quarter ended March 31, 1999
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998 December 31, 1997
Unaudited Audited Audited
----------- ------------- -----------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents (including cash at clearing broker)................ $ 1,962,090 $ 192,447 $289,343
Receivable from clearing broker.............................................. - 6,058 7,455
Deposit with clearing broker................................................. 51,794 51,378 52,082
Securities owned, at market or fair value.................................... 24,082 14,002 132,022
Office furniture and equipment, net of accumulated depreciation 6,839 7,504 10,164
and amortization of $8,123, $7,458 in 1999, 1998 and 1997, respectively ..
Organizational costs, net of accumulated amortization 5,089 6,107 10,178
$15,268; $14,250; $10,178, in 1999, 1998, and 1997 respectively............
Prepaid expenses............................................................. - 10,837 -
Other assets................................................................. 14,918 14,918 14,918
------------ ----------- ---------
Total Assets................................................................. $ 2,064,812 $ 303,251 516,162
============ =========== =========
Liabilities and shareholder's equity
Liabilities:
Accounts payable and accrued expenses..................................... $ - $ 13,090 $ 45,400
Payable to shareholders'.................................................. - - 90,248
Cash overdraft............................................................ - 9,611 7,875
Securities sold, not yet purchased........................................ 1,669 1,246 1,250
Income tax payable........................................................ - - 415
Long term liabilities..................................................... - - -
------------ ----------- ---------
Total Liabilities............................................................ $ 1,669 $ 23,947 $145,188
Commitments
Shareholders' equity:
Common stock, $.01 par value, 20,0000 shares authorized,
1,000 shares issued and outstanding as of
December 31, 1998 and 1997.
Common stock, $.001 par value 20,000,000
shares authorized 12,000,000
Issued and outstanding as of March 31, 1999........................... 12,000 10 10
Additional paid-in capital................................................... 2,100,248 230,238 164,990
Retained earnings............................................................ (49,105) 49,056 205,974
------------ ----------- ---------
Total shareholders' equity................................................... 2,063,143 279,304 370,974
------------ ----------- ---------
Total liabilities and shareholders' equity................................... $ 2,064,812 $ 303,251 $516,162
============ =========== =========
</TABLE>
F-3
<PAGE>
America First Associates Corp.
Statement of Operations
For the Years Ended December 31, 1998 and 1997
and
For the Quarter Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Year ended December 31 First Quarter Ended March
----------------------- -------------------------
1998 1997 1999 1998
--------- -------- --------- ---------
Audited Audited Unaudited Unaudited
<S> <C> <C> <C> <C>
Revenues:
Commissions, net of clearing costs $ 73,988 $ 221,908 $ 9,188 $ 4,097
Syndicate income ................. 16,346 265,996 -- --
Trading gains, net ............... 94,976 318,320 7,251 110,365
Interest and other income ........ 29,157 22,029 4,552 5,562
--------- --------- --------- ---------
Total Revenues ...................... 214,467 828,253 20,992 120,024
Expenses:
Employee compensation and benefits 83,739 212,424 32,934 22,229
Occupancy and equipment rental ... 90,074 82,567 22,518 22,518
Insurance ........................ 35,280 26,818 8,486 11,238
Office supplies and expenses ..... 26,467 25,094 1,175 3,424
Consulting and professional fees . 18,840 79,497 19,849 150
Travel and entertainment ......... 15,432 35,220 4,157 10,576
Regulatory and registration fees . 14,717 29,129 16,098 5,077
Communications and data processing 10,940 57,693 6,355 1,729
Depreciation and amortization .... 6,731 6,731 1,683 1,683
Other expenses ................... 47,061 49,346 5,573 19,983
--------- --------- --------- ---------
Total expenses ...................... 349,281 604,519 118,828 98,607
--------- --------- --------- ---------
Income (loss) before income taxes ... (134,804) 223,734 (97,836) 21,417
Provision for income taxes .......... 632 3,036 325 1,047
--------- --------- --------- ---------
Net income (loss) ................... $(135,436) $ 220,698 $ (98,161) $ 20,370
========= ========= ========= =========
</TABLE>
F-4
<PAGE>
America First Associates Corp.
Statement of Changes in Shareholders' Equity
For Year Ended December 31, 1998 and 1997
and
For the Quarter Ended March 31, 1999
<TABLE>
<CAPTION>
Common Paid-in Retained Shareholder's
Stock Capital Earnings Equity
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
December 31, 1997
Balance, January 1, 1997 $ 10 $ 164,990 $ 184,058 $ 349,058
Net income 220,698 220,698
Shareholder distribution (198,782) (198,782)
-------------- ------------- ------------ ------------
Balance, December 31, 1997 $ 10 $ 164,990 205,974 370,974
============== ============== ============= =============
December 31, 1998
Balance, January 1, 1998 $ 10 $ 164,990 205,974 370,974
Shareholder contribution 65,248 65,248
Net loss (135,436) (135,436)
Shareholder distribution (21,482) (21,482)
-------------- ------------- ------------ ------------
Balance, December 31, 1998 $ 10 $ 230,238 $ 49,056 $ 279,304
============== ============== ============= =============
March 31, 1999, Unaudited
Balance, December 31, 1998 $ 10 $ 230,238 $ 49,056 $ 279,304
Issuance of common stock 11,990 1,870,010 1,882,000
Net loss (98,161) (98,161)
-------------- ------------- ------------ ------------
Balance, March 31, 1999 $ 12,0000 $ 2,100,248 $ (49,105) 2,063,143
============== ============== ============= =============
</TABLE>
F-5
<PAGE>
America First Associates Corp.
Statement of Cash Flows
For the Period Ended March 31,
1999 and Year Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
Unaudited Audited Audited
<S> <C> <C> <C>
Cash flows from operating activities $ (98,161) $ (135,436) $ 220,698
Net income (loss)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 1,682 6,731 6,731
Changes in assets and liabilities:
(Increase) Decrease in operating assets:
Receivable from clearing organization 198,505 98,293 184,593
Deposit with clearing organization (416) 704 (1,421)
Securities owned (10,080) 118,020 (132,022)
Prepaid expenses 10,837 (10,837) --
Other assets (117) --
Increase (decrease) in operating liabilities:
Payable to shareholder -- (25,000) 90,248
Securities sold, not yet purchased 423 (4) (79,375)
Income taxes payable -- (415) (2,685)
Accounts payable and accrued expenses (13,090) (32,310) (68,452)
----------- ----------- -----------
Net cash used in operating activities 89,583 19,746 220,347
Cash flows from financing activities
Issuance of common stock 1,882,000 -- --
Shareholder distribution -- (21,482) (198,782)
----------- ----------- -----------
Net cash provided by financing activities 1,882,000 (21,482) (198,782)
----------- ----------- -----------
Net increase (decrease) in cash 1,971,583 (1,736) 21,565
Cash (overdraft) at January 1, 1999, 1998, and 1997 (9,611) (7,875) (29,440)
----------- ----------- -----------
Cash and cash equivalents at March 31, 1999 and year ended $ 1,961,972 $ (9,611) $ (7,875)
December 31, 1998 and 1997
=========== =========== ===========
Supplemental cash flow disclosure:
Income tax payments $ 325 $ 1,047 $ 3,036
Interest payments - - 6,731
Other non-cash transactions:
Capitalization of payable to shareholder $ - $ 65,248 $ -
</TABLE>
F-6
<PAGE>
America First Associates Corp.
Notes to Financial Statements
Years ended December 31, 1998 and 1997
1. Organization and Nature of Business
America First Associates Corp. ("the Company") was incorporated in the
State of Delaware on February 23, 1995, and received authorization to engage in
the general business of a broker or dealer in securities and began operations
during November, 1995. The Company is a member of the National Association of
Securities Dealers and is registered with the Securities and Exchange
Commission.
The Company clears all securities transactions through its clearing
broker on a fully-disclosed basis, and accordingly operates under the exemptive
provisions of SEC Rulec3-3 (k)(2)(ii).
2. Significant Accounting Policies
Securities Transactions, Revenues, and Related Expenses:
Securities transactions (and related commission revenues and expenses)
are recorded on a settlement date basis, generally the third business day
following the transaction date, except for options which are on a one day
settlement basis. Revenues and expenses would not be materially different if
reported on a trade date basis.
Securities Owned and Sold, Not Yet Purchased:
Securities owned and money market funds are stated at quoted market
values with the resulting unrealized gains reflected in the statement of
operations.
Securities sold and not yet purchased represent an obligation of the
Company to deliver specific equity securities. To satisfy this obligation, the
Company must acquire the securities at the prevailing market prices in the
future, which may differ from the market value reflected on the statement of
financial condition and may result in a gain or loss to the Company.
Property and Equipment:
Office furniture and equipment are depreciated on a straight line basis
over their estimated useful lives.
Organizational Costs:
Deferred organizational costs consists of expenses relating to the
formation of the Company. Prior to January 1, 1999, these costs were being
amortized over a 60 month period. In January 1999, the Company is required to
adopt Statement of Position 98-5 "Reporting on the costs of start-up activities"
which will result in the expense, effective January 1999, of the remaining
balance of $6,107.
F-7
<PAGE>
3. Significant Accounting Policies - (Continued)
Use of Estimates:
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Receivable from and Deposit with Clearing Organization:
The receivable from clearing organization primarily represents a net
amount due between securities purchased and sold and commissions receivable due
to the Company for customer trades.
As stated above, the Company records securities transactions on a
settlement date basis. Further, the Company has agreed to indemnify its clearing
broker for losses that the clearing broker may sustain from customer accounts
introduced by the Company. Should a customer not fulfill his obligation on a
trade date transaction, the Company may be required to buy or sell securities at
prevailing market prices in the future on behalf of its customers. Subsequent to
the balance sheet dates, all unsettled trades were settled with no resulting
liability to the Company.
Income Taxes:
For income tax purposes as of December 31, 1998 and 1997, the
shareholder elected that the Company be treated as an "S" corporation under
Subchapter S of the Internal Revenue Code and as a Small Business Corporation
under New York Corporate Tax Law.
Accordingly, no provision has been made for Federal and State income
taxes since the net income or loss of the Company is to be included in the tax
returns of the individual shareholders. However, New York State imposes a
franchise tax based upon the difference between the maximum tax, which ever is
greater. For 1998 and 1997, the New York State tax provision consisted of a
minimum tax of $325.
New York City Administrative Code does not recognize S Corporation
status. The provision for estimated New York City taxes of $300 and $2,711 is
reflected in the financial states at December 31, 1998 and 1997, respectively.
4. Commitments
The Company leases office space under a sublease agreement expiring
June 30, 1998. Annual rent payments were $90,072 and $82,567 for the years ended
December 31, 1998 and 1997, respectively.
F-8
<PAGE>
5. Net Capital Requirement
The Company is subject to the Securities and Exchange Commission
Uniform Net Capital rule (SEC rule 15c3-1) which requires the maintenance of
minimum net capital and requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1. At December 31, 1998 and
1997, the Company had net capital of $236,592 and $222,687, which was $136,592
and $122,687, respectively, in excess of its required net capital of $100,000.
The Company's net capital ratio was .09 to 1 and .65 to 1 at December 31, 1998
and 1997, respectively.
Since all customer transactions are cleared through another
broker-dealer on a fully-disclosed basis, the Company is not required to
maintain a separated bank account for the exclusive benefit of customers or to
segregate customer securities in accordance with rule 15c3-3 of the Securities
and Exchange Commission.
6. Concentration of Credit Risk:
As a securities broker, the Company will be engaged in buying and
selling securities for a diverse group of institutional and individual
investors. The Company introduces these transactions for clearance to another
broker/dealer on a fully disclosed basis.
The Company's exposure to credit risk associated with nonperformance of
customers in fulfilling their contractual obligations pursuant to securities
transactions can be directly impacted by volatile trading markets which may
impair customer's ability to liquidated the collateral at an amount equal to the
original contracted amount. The agreement between the Company and its clearing
broker provides that the Company is obligated to assume any exposure related to
such nonperformance by its customers. The company seeks to control the
aforementioned risks by requiring customers to maintain margin collateral in
compliance with various regulatory requirements and the clearing brokers
internal guidelines. The Company monitors its customers activity by reviewing
information it receives from its clearing broker on a daily basis, and requiring
customers to deposit additional collateral, or reduce positions when necessary.
7. Subsequent Events (Unaudited)
For income tax purposes as of February 28, 1999, the shareholders have
elected that the Company be treated as a "C" corporation under the Internal
Revenue code and as a Small Business Corporation under New York Corporate Tax
Law.
In March 1999, the Board of Directors approved the issuance of 3,136
shares of the Company's common stock in a private placement offering. The common
stock was issued at a price of $600 per share (total gross proceeds of
$1,882,000). During this period, 16,000 shares were issued to Joseph Ricupero,
in exchange for $65,248 shareholder contribution received in October 1998, of
which 136 shares were returned to the Company. Subsequent to the issuance of
common stock, the board of directors agreed to amend the Company's certificate
of incorporation to, (i) a 600 to 1 forward split on 20,000 shares outstanding,
and (ii) increase the authorized number of shares of common stock to 20,000,000.
F-9
<PAGE>
No dealer, salesman or any other person has AMERICA FIRST ASSOCIATES CORP.
been authorized to give any information or
to make any representations other than those
contained in this prospectus in connection 1,899,600 Shares of Common
with the offering contained herein, and if Stock, and 3,600,000 shares
given or made, such information or of Common Stock underlying
representations must not be relied upon. the Warrants which may be sold
This prospectus does not constitute an offer from time to time by the
to sell or a solicitation of an offer to buy Selling Securityholders.
any of the securities offered hereby in any
state to any person to whom it is unlawful
to make such an offer. The delivery of this
prospectus at any time does not imply that
the information stated is correct as of any
time subsequent to the date hereof.
--------------------------
TABLE OF CONTENTS
Page
ADDITIONAL INFORMATION ...............
PROSPECTUS SUMMARY ...................
RISK FACTORS .........................
DIVIDEND POLICY ......................
-------------------
DILUTION ............................. PROSPECTUS
-------------------
USE OF PROCEEDS ......................
CAPITALIZATION .......................
BUSINESS ............................
MANAGEMENT ..........................
PRINCIPAL STOCKHOLDERS ..............
DESCRIPTION OF SECURITIES ...........
SHARES ELIGIBLE FOR
FUTURE SALE ..........................
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS ................
UNDERWRITING .........................
LEGAL OPINIONS .......................
EXPERTS .............................
INDEX TO FINANCIAL STATEMENTS ........ F-1
Until , 1999 (90 days after the date of this
prospectus) all dealers effecting
transactions in the registered securities,
whether or not participating in this
distribution, may be required to deliver a
prospectus. This is in addition to the
obligation of dealers to deliver a
prospectus when acting as underwriters and
with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers.
As permitted under the Delaware Corporation Law, the Company's
Certificate of Incorporation and By-laws provide for indemnification of a
director or officer under certain circumstances against reasonable expenses,
including attorneys fees, actually and necessarily incurred in connection with
the defense of an action brought against him by reason of his being a director
or officer. In addition, the Company's charter documents provide for the
elimination of directors' liability to the Company or its stockholders for
monetary damages except in certain instances of bad faith, intentional
misconduct, a knowing violation of law or illegal personal gain.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to any charter,
provision, by-law, contract, arrangement, statute or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person of the Company in connection with
the Securities being registered pursuant to this Registration Statement, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
by such court of such issue.
Item 25. Other Expenses of Issuance and Distribution
SEC Registration Fee $ 6,363
Printing and Engraving 8,000(1)
Legal Fees 40,000(1)
Accounting 2,000(1)
Transfer Agent and Warrant Agent Fees 2,500(1)
Blue Sky Fee Expenses 10,000(1)
Miscellaneous 1,137(1)
Total $ 70,000
=============
- ------------------------
(1) Estimated.
Item 26. Recent Sales of Unregistered Securities.
The following issuance of shares of Common Stock were exempt from
registration under the Securities Act, in reliance upon the exemption afforded
by Section 4(2) of the Securities Act for transactions not involving a public
offering. All certificates evidencing such sales bear an appropriate restrictive
legend.
<PAGE>
We effected a private placement offering in March - May, 1999. We sold
a total of 1,899,600 shares of common stock and 3,600,000 Warrants for aggregate
consideration of $1,900,000. Item 27. Exhibits.
The following exhibits are being filed with this Registration Statement
on Form SB-2.
3.1 - Certificate of Incorporation of the Company and Amendment thereto.
3.2 - By-Laws of the Company.
4.1 - Specimen Common Stock Certificate.
4.2 - Specimen Warrant Certificate.
4.3 - Form of Warrant Agreement between the Company and Continental
Stock Transfer & Trust Company.
5.0 - Opinion of Lampert & Lampert.
10.1 - The Company's Senior Management Incentive Plan.
10.2 - Clearing Agreement
23.1 - Consent of Kaufmann, Gallucci & Company, LLC
23.2 - Consent of Lampert, Lampert & Ference, Esqs., is contained in
their opinion filed as exhibit 5.0 to this Registration Statement.
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a Post-Effective Amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
Post-Effective Amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement, including
but not limited to any addition or deletion of a managing Underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act, each such Post-Effective Amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of Post-Effective Amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company, pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue. See Item 24.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in New York, New York on the day of April, 1999.
AMERICA FIRST ASSOCIATES CORP.
By: /s/ Joseph Ricupero
-------------------
Joseph Ricupero, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Joseph Ricupero
- ----------------------
Joseph Ricupero Chief Executive Officer, Secretary
and Director 04/08/99
(Principal Executive Officer and
Principal Financial Officer
/s/ Joseph A. Genzardi
- ----------------------
Joseph A. Genzardi President 04/08/99
State of Delaware
Office of the Secretary of State
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "AMERICA FIRST ASSOCIATES CORP.", FILED IN THIS OFFICE ON THE
TWENTY-SECOND DAY OF FEBRUARY, A.D. 1995, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
---------------------------
Edward J. Freel, Secretary of State
2481621 8100 AUTHENTICATION: 7416710
DATE: 02-22-95
950039396
CERTIFICATE OF INCORPORATION
OF
AMERICA FIRST ASSOCIATES CORP.
I, the undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby declare and certify as
follows:
1. The name of the Corporation is AMERICA FIRST ASSOCIATES CORP.
(hereinafter referred to as the "Corporation").
2. The registered office of the Corporation in Delaware is to be
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
in Delaware is The Corporation Trust Company.
3. The nature of the Corporation's business and the purposes for which
the corporation has been formed are, to act as a broker, dealer, investor or
trader in securities, including options thereon; to act as an investment
adviser; to deal in any manner with futures or forward contracts; to act as a
commodity introducing broker or futures commission merchant; to act as a
commodity trading adviser; and to engage in any other lawful act or activity for
which a corporation may be organized under the General Corporation Law of the
State of Delaware; and to do all things necessary or appropriate or related to
any of the foregoing purposes.
4. The total number of shares of capital stock which the Corporation
shall have the authority to issue is 20,000 shares designated Common Stock, par
value $.01 par value per share.
5. The name and address of the sole incorporator is as follows:
Name Address
---- -------
Stephanie G. Senzer Lehman & Eilen
50 Charles Lindbergh Boulevard
Suite 505
Uniondale, New York 11553
6. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The number of directors of the Corporation shall be such as, from time to
time, shall be fixed by, or in the manner provided in the Corporation's By-Laws.
Election of directors need not be by ballot unless the By-Laws so provide,
(b) The Board of Directors shall have power without the assent or vote of the
stockholders to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation as provided in the By-Laws of the Corporation; to authorize and
cause to be executed mortgages and liens upon all or any part of the property of
the Corporation; to determine the use and disposition of any surplus or net
profits; and to fix the times for the declaration and payment of dividends;
(c) The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the Corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and binding upon the Corporation and upon all the
stockholders as though it has been approved or ratified by every stockholder of
the Corporation, whether or not the contract- or act would otherwise be open to
legal attack because of directors' interest, or for any other reason; and
(d) in addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things an may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this Certificate and to any by-laws from time to time made by the
stockholders; provided, however, that no by-law so made shall invalidate any
prior act of the directors which would have been valid if such by-law had not
been made.
7. (a) The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
2
<PAGE>
(b) The Corporation, to the fullest extent permitted by Section 145 of
the General Corporation Law of the State of Delaware, as the same may be amended
and supplemented, shall indemnify any and all persons whom it shall have power
to indemnify under said Section from and against any and all of the expenses,
liabilities or other matter referred to in or covered by said Section, and the
indemnification provided for therein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity whole holding such
office, and shall continue as to a person who base ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(c) Any modification of this Paragraph 7 by the stockholders of the
corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such appeal or modification.
IN WITNESS WHEREOF, I have set my hand and seal this 21st day of
February, 1995
/s/ Stephanie G. Senzer
----------------------
Stephanie G. Senzer, Sole Incorporator
3
<PAGE>
U.S. DEPARTMENT OF STATE 162 WASHINGTON AVE.
DIVISION OF CORPORATIONS AND STATE RECORDS ALBANY, NY 12231
RECEIPT
================================================================================
ENTITY NAME: AMERICA FIRST ASSOCIATES CORP.
DOCUMENT TYPE: APPLICATION AUTHORITY (FOR BUSINESS)
SERVICE COMPANY: CT CORPORATION SYSTEM SERVICE CODE 07
================================================================================
????: 02/23/1995 ***** CASH #: 950223000430 FILM #:
?????? FOR PROCESS
- --------------------
[SEAL]
REGISTERED AGENT
- -----------------
================================================================================
FILER FEES 25.00 PAYMENTS 25.00
- ----- ---- ---------
LEHMAN & EILEN FILING 0.00 CASH: 0.00
50 CHARLES LINDBERGH BLVD. TAX 0.00 CHECK 0.00
CERT 0.00 BILLED 25.00
UNIONDALE, NY 11553-3600 COPIES 0.00
HANDLING 25.00
REFUND: 0.00
-------
================================================================================
- -1025 (11/89)
BY-LAWS
OF
AMERICA FIRST ASSOCIATES CORP.
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
be held for the election of Directors at such date, time and place either within
or without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may be
called at any time by the Chairman or the Board, if any, the Vice Chairman of
the Board, if any, or the President to be held at such date, time and place
either within or without the State of Delaware as may be stated in the notice of
the meeting. A special meeting of stockholders shall be called by the Secretary
upon the written request, stating the purpose of the meeting, to stockholders
who together own of record a majority of the outstanding shares of each class of
stock entitled to vote at such meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written of the meeting shall be
given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
<PAGE>
Section 1.5. Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum. For purposes of the foregoing, two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum the stockholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 1.4 of these by-laws until a
quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to the Corporation or to another Corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman of the Board by the President, or in the absence of the President
by a Vice President, or in absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. If the
certificate of incorporation provides for more or less than one vote for any
share on any matter, every reference in these by-laws to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A stockholder may revoke any proxy which is not
2
<PAGE>
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for the election of
directors a plurality of the votes cast shall be sufficient to elect. With
respect to other matters, unless otherwise provided by law or by the certificate
of incorporation or these by-laws, the affirmative vote of the holders of a
majority of the shares of all classes of stock present in person or represented
by proxy at the meeting and entitled to vote on the subject matter shall be the
act of the stockholders, provided that (except as otherwise required by law or
by the certificate of incorporation) the Board of Directors may require a larger
vote upon any such matter. Where a separate vote by class is required, the
affirmative vote of the holders of a majority of the shares of each class
present in person or represented by proxy at the meeting shall be the act of
such class, except as otherwise provided by law or by the certificate of
incorporation or these by-laws.
Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board is necessary, shall
be the day on which the first written consent is expressed; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
3
<PAGE>
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 1.10. Consent of Stockholders in Lieu of Meeting. Any action
required by law to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without: prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board shall consist of one or more members, the number
thereof to be determined from time to time by the Board. Directors need not be
stockholders.
Section 2.2. Election; Term of Office, Resignation; Removal, Vacancies.
Each director shall hold office until the annual meeting of stockholders next
succeeding his or her election and until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any director may
resign at any time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance or such resignation shall be necessary to make it effective. Any
4
<PAGE>
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors; except that, if the certificate of incorporation provides for
cumulative voting and less than the entire Board is to be removed, no director
may be removed without cause if the votes cast against his or her removal would
be sufficient to elect him or her if then cumulatively voted at an election of
the entire Board, or, if there be classes of directors, at an election of the
class of directors of which he or &he is a part. Whenever the holders of any
class or series of stock are entitled to elect one or more directors by the
provisions of the certificate of incorporation, the Provisions of the preceding
sentence shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
Unless otherwise provided in the certificate of incorporation or these by-laws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by all of the stockholders having the
right to vote as a single class or from any other cause may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director. Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by the
sole remaining director so elected.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may he held at such paces within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
Section 2.5. Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this by-law shall
constitute presence in person at such meeting.
5
<PAGE>
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors two-thirds of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number in case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall attend.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in their absence
by a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section. 2.9. Compensation of Directors. The Board of Directors shall
have the authority to fix the compensation of
directors.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in place
6
<PAGE>
of any such absent or disqualified member. Any such the resolution of the Board,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of dissolution,
removing or indemnifying directors or amending these by-laws; and, unless the
resolution expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business in the absence or a provision by the Board
or a provision in the rules of such committee to the contrary, a majority of the
entire authorized number of members of such committee shall constitute a quorum
for the transaction of business, the vote of a majority of the members present
at a meeting at the time of such vote if a quorum is then present shall be the
act of such committee, and in other respects each committee shall conduct its
business in the same manner as the Board conducts its business pursuant to
Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Officers; Election. As soon as practicable, after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board and a Vice Chairman of the Board. The Board
may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person.
Section 4.2. Term of office; Resignation; Removal; Vacancies. Except as
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until the first meeting of the Board
after the annual meeting of stockholders next succeeding his or her election,
and until his or her successor is elected and qualified or until his or
7
<PAGE>
her earlier resignation or removal. Any officer may resign at any time upon
written notice to the Board or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. The Board may remove any officer with or
without cause at any time. Any such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation, but the
election of an officer shall not of itself create contractual rights. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
Board at any regular or special meeting.
Section 4.3. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he or she shall be present and shall have and may exercise such powers
as may, from time to time, be assigned to him or her by the Board and as may be
provided by law.
Section 4.4. Vice Chairman of the Board. In the absence of the Chairman
of the Board, the Vice Chairman of the Board, if any, shall preside all meetings
of the Board of Directors and of the stockholders at which he or she shall be
present and shall have and may exercise such powers as may, from time to time,
be assigned to him or her by the Board and as may be provided by law.
Section 4.5. President. In the absence of the Chairman of the Board and
Vice Chairman of the Board, the President shall preside at all meetings of the
Board of Directors and of the stockholders at which he or she shall be present.
The President shall be the chief executive officer and shall have general charge
and supervision of the business of the Corporation and in general, shall perform
all duties incident to the office of president of a corporation and such other
duties as may, from time to time, be assigned to him or her by the Board or as
may be provided by law.
Section 4.6. Vice Presidents. The Vice President or Vice Presidents, at
the request or in the absence of the President or during the President's
inability to act, shall perform the duties of the President, and when so acting
shall have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties; or if such determination is not
made by the Board, the President may make such determination; otherwise any of
the Vice Presidents may perform any of such duties. The Vice President or Vice
Presidents shall have such other powers and shall perform such other duties as
may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
8
<PAGE>
Section 4.7. Secretary. The Secretary shall have the duty to record the
proceedings of the meetings of the stockholders, the Board of Directors ana any
committees in a book to be kept for that purpose, shall see that all notices are
duly given in accordance with the provisions of these by-laws or as required by
law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.8. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or cause
to be kept full and accurate records of receipts and disbursements in books of
the Corporation, shall render to the President and to the Board, whenever
requested, an account of the financial condition of the Corporation, and, in
general, shall perform all the duties incident to the office of treasurer of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.9. Other Officers. The other officers, if any, of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security for
the faithful performance of his or her duties.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
certifying the number of shares owned by such holder in the Corporation if such
certificate is manually signed by one officer or manually countersigned by a
transfer agent or by a registrar, any other signature on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
9
<PAGE>
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year end of the Corporation shall
be December 31.
Section 6.2. Seal. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may approved from time to time by the Board of Directors. The corporate
seal may be used by causing or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
10
<PAGE>
Section 6.4.1. Indemnification of Directors, Officers and Employees.
The Corporation shall indemnify to the full extent authorized by law any person
made or threatened to be made a party to any action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. For
purposes of this by-law, the term "Corporation" shall include any predecessor of
the Corporation and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger; the term
"other enterprise shall include any corporation, partnership, joint venture,
trust or employee benefit plan; service "at the request of the Corporation"
shall include service as a director, officer or employee of the Corporation
which imposes duties on, or involves services by, such director, officer or
employee with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to an employee
benefit plan shall be deemed to he indemnifiable expenses; and action by a
person with respect to an employee benefit plan which such person reasonably
believes to be in the interest of the participants and beneficiaries of such
plan shall be deemed to be action not opposed to the best interests of the
Corporation.
Section 6.5. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable, solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
11
<PAGE>
Section 6.6. Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
12
NUMBER SHARES
AF
AMERICA FIRST ASSOCIATES CORP.
INCORPORATED UNDER THE LAWS CUSIP
OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
OF THE PAR VALUE OF $.001 PER SHARE OF
AMERICA FIRST ASSOCIATES CORP., transferable on the books of the Corporation by
the holder hereof in person or by duly authorized Attorney, upon surrender of
this Certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
AMERICA FIRST ASSOCIATES CORP.
CORPORATE SEAL
1995 DELAWARE
PRESIDENT CHIEF EXECUTIVE OFFICER
[LANDSCAPED]
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT
AND REGISTRAR
By: /s/ Joseph Ricupero
------------------------
Joseph Ricupero
AUTHORIZED OFFICER
(SEE REVERSE SIDE)
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUEST THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - ___________ Custodian _____________
(Cust) (Minor)
under Uniform Gifts to Minors Act_________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
- --------------------------------------------------------------------------------
_______________________________________________ Shares of the capital stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _______________________________________________________ Attorney to
transfer the said stock on the books of the within named Corporation, with full
power of substitution in the premises.
DATED _______________________________
<PAGE>
- ------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY AN ELIGIBLE
INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF
1934) WHICH MAY INCLUDE A COMMERCIAL BANK, TRUST COMPANY OR SAVINGS ASSOCIATION,
CREDIT UNION OR MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK
EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE.
VOID AFTER , 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
NUMBER CLASS A WARRANTS
WA
AMERICA FIRST ASSOCIATES CORP.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of AMERICA FIRST ASSOCIATES CORP., a
Delaware corporation (the "Company"), at any time after _________________, 2001
and the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of Continental Stock Transfer and
Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $1.00, times the number of warrants exercised (the
"Purchase Price"), in lawful money of the United States of America in cash or by
official bank or certified check made payable to America First Associates Corp.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________________,
1999, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
Each warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
____________, 2001, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
<PAGE>
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Date:
AMERICA FIRST ASSOCIATES CORP.
CORPORATE SEAL
DELAWARE 1995
PRESIDENT CHIEF EXECUTIVE OFFICER
[LANDSCAPED]
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
AS WARRANT AGENT
By: /s/ Joseph Ricupero
------------------------
Joseph Ricupero
AUTHORIZED OFFICER
(SEE REVERSE SIDE)
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants.
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
________________________ Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
---------------------------------------------------------
(please insert taxpayer identification
or other identyifying number)
and be delivered to
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of; and delivered to, the Registered Holder
at the address stated below.
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(Address)
---------------------------------------------------------
(Date)
---------------------------------------------------------
(Taxpayer Identification Number)
<PAGE>
SIGNATURE GUARANTEED
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfer unto
---------------------------------------------------------
(please insert taxpayer identification
or other identying number
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
- ----------------------------------------------------Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
---------------------------------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THIS ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
VOID AFTER , 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
NUMBER CLASS B WARRANTS
WB
AMERICA FIRST ASSOCIATES CORP.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class B Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of AMERICA FIRST ASSOCIATES CORP., a
Delaware corporation (the "Company"), at any time after _________________, 2001
and the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of Continental Stock Transfer and
Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $2.50, times the number of warrants exercised (the
"Purchase Price"), in lawful money of the United States of America in cash or by
official bank or certified check made payable to America First Associates Corp.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________________,
1999, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
Each warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
____________, 2001, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
<PAGE>
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Date:
AMERICA FIRST ASSOCIATES CORP.
CORPORATE SEAL
DELAWARE 1995
PRESIDENT CHIEF EXECUTIVE OFFICER
[LANDSCAPED]
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
AS WARRANT AGENT
By: /s/ Joseph Ricupero
------------------------
Joseph Ricupero
AUTHORIZED OFFICER
(SEE REVERSE SIDE)
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants.
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
________________________ Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
---------------------------------------------------------
(please insert taxpayer identification
or other identyifying number)
and be delivered to
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of; and delivered to, the Registered Holder
at the address stated below.
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(Address)
---------------------------------------------------------
(Date)
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(Taxpayer Identification Number)
<PAGE>
SIGNATURE GUARANTEED
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfer unto
---------------------------------------------------------
(please insert taxpayer identification
or other identying number
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
- ----------------------------------------------------Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
---------------------------------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THIS ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
VOID AFTER , 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
NUMBER CLASS C WARRANTS
WC
AMERICA FIRST ASSOCIATES CORP.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class C Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of AMERICA FIRST ASSOCIATES CORP., a
Delaware corporation (the "Company"), at any time after _________________, 2001
and the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of Continental Stock Transfer and
Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $5.00, times the number of warrants exercised (the
"Purchase Price"), in lawful money of the United States of America in cash or by
official bank or certified check made payable to America First Associates Corp.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________________,
1999, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
Each warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
____________, 2001, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and the exercise price of the Warrants is less than the
market price of the Common Stock. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
<PAGE>
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Date:
AMERICA FIRST ASSOCIATES CORP.
CORPORATE SEAL
DELAWARE 1995
PRESIDENT CHIEF EXECUTIVE OFFICER
[LANDSCAPED]
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
AS WARRANT AGENT
By: /s/ Joseph Ricupero
------------------------
Joseph Ricupero
AUTHORIZED OFFICER
(SEE REVERSE SIDE)
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants.
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
________________________ Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
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(please insert taxpayer identification
or other identyifying number)
and be delivered to
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of; and delivered to, the Registered Holder
at the address stated below.
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(Address)
---------------------------------------------------------
(Date)
---------------------------------------------------------
(Taxpayer Identification Number)
<PAGE>
SIGNATURE GUARANTEED
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfer unto
---------------------------------------------------------
(please insert taxpayer identification
or other identying number
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
- ----------------------------------------------------Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
---------------------------------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THIS ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
AMERICA FIRST ASSOCIATES CORP.
and
CONTINENTAL STOCK TRANSFER & TRUST, COMPANY
WARRANT
WARRANT AGREEMENT
Dated as of , 1999
AGREEMENT dated as of , 1999, between AMERICA FIRST ASSOCIATES CORP., a
Delaware corporation (hereinafter called the Company), and CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, a New York corporation, as Warrant and Transfer Agent
(hereinafter called the "Warrant Agent"). --
WHEREAS, the Company has issued a total of 300,000 Class A Warrants
(the "Class A Warrants"), 99,600 Class B Warrants (the "Class B Warrants") and
3,200,400 Class C Warrants (the "Class C Warrants")(collectively the
"Warrants"). The Class A, Class B and Class C Warrants allow the holders to
acquire shares of common stock from the Company at a price of $1.00 per share,
$2.50 per share and $5.00 per share, respectively, for a period of three years
commencing on the earlier of September 10, 1999 or the effective date of its
Registration Statement; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act for the Company in accordance with the instructions
hereinafter in this Agreement set forth, and the Warrant Agent hereby accepts
such appointment.
Section 2. Form of Warrants. The text of the Warrants and of the form
of election to purchase shares as is printed on the reverse thereof as now
outstanding, is substantially as set forth respectively in Exhibit A attached
hereto. The per share Warrant Price and the number of shares issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, all as hereinafter provided. The Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the present or any
future President or Vice President of the Company, under its corporate seal,
affixed or in facsimile, attested by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
1
<PAGE>
The Warrants will be dated as of the date of issuance by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of Warrants. Upon the initial
issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as Warrant Agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. Warrants may be so
countersigned, however, by the Warrant Agent (or by its successor as warrant
agent) and be delivered by the Warrant Agent, notwithstanding that the persons
whose manual or facsimile signatures appear thereon as proper officers of the
Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer,
from time to time, any outstanding Warrants upon the books to be maintained by
the Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be delivered by the Warrant Agent. Warrants so canceled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Common Shares.
Section 5. Rights of Redemption by Company. The Warrants are not
redeemable by the Company at any time.
2
<PAGE>
Section 6. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of a Class A, Class B and Class C Warrants
shall have the right to acquire one share of common stock from the Company at a
price of $1.00 per share, $2.50 per share and $5.00 per share, respectively, for
a period of three years commencing on the earlier of September 10, 1999 or the
effective date of its Registration Statement. The Company shall issue and sell
to such registered holder of Warrants the number of fully paid and
non-assessable shares of Common Stock specified in such Warrants, upon surrender
to the Company at the office of the Warrant Agent of such Warrants, with the
form of election to purchase duly filled in and signed, and upon payment to the
order of the Company for the Warrant exercise price, determined in accordance
with Sections 10 and 11 herein, for the number of shares in respect of which
such Warrants are then exercised. Payment of such Warrant Price shall be made in
cash or by certified check or bank draft or postal or express money order,
payable in United States Dollars to the order of the Company. No adjustment
shall be made for any dividends on any Common Shares issuable upon exercise of
any Warrant. Subject to Section 7, upon such surrender of Warrants, and payment
of the Warrant Price as aforesaid, the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
registered holder of such Warrants and in such name or names as such registered
holder may designate, a certificate or certificates for the largest number of
whole Common Shares so purchased upon the exercise of such Warrants. The Company
shall not be required to issue any fraction of a Share of Common Stock or make
any cash or other adjustment as provided in Section 12 herein, in respect of any
fraction of a Common Share otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Shares as of the date of the surrender of such Warrants and
payment of the Warrant Price as aforesaid and provided, however, that if at the
date of surrender of such Warrants and payment of such Warrant Price, the
transfer books for the Common Shares or other class of stock purchasable upon
the exercise of such Warrants shall be closed, the certificates for the Shares
in respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall be opened and until such date the Company shall
be under no duty to deliver any certificate for such shares; provided further,
however, that the aforesaid transfer books, unless otherwise required by law or
by applicable rule of national securities exchange, shall not be closed at any
one time for a period longer than 20 days. The rights of purchase represented by
the Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for only part of the Shares
specified therein and, in the event that any Warrant is exercised in respect of
less than all of the Shares specified therein at any time prior to the date of
expiration of the Warrant, a new Warrant or Warrants will be issued to such
registered holder for the remaining number of shares specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section during the warrant exercise period, and the Company, whenever
requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose.
The Warrants will not be exercisable unless, at the time of the
exercise, the Company has a current registration statement covering the shares
of Common Stock issuable upon exercise of the Warrants or such shares have been
registered, qualified or deemed to be exempt under Federal Securities Laws and
the securities laws of the state of residence of the exercising holder of the
Warrants.
Section 7. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Shares issuable upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue or delivery of any certificates for Common Shares in a name other
than that of the registered holder of Warrants in respect of which such Shares
are issued, and in such case, neither the Company nor the Warrant Agent shall be
required to issue or deliver any certificate for Common Shares or any Warrant
until the person requesting the same has paid to the Company the amount of such
tax or has established to the Company's satisfaction that such tax has been
paid.
3
<PAGE>
Section 8. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may, it its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant(s),
or in lieu of substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction of such Warrant, and indemnity, if requested,
also satisfactory to them. Applicants for such substitute Warrants shall also
comply with such other reasonable regulations and pay such reasonable charges as
the Company or the Warrant Agent may prescribe.
Section 9. Reservation of Common Shares. There have been reserved, and
the Company shall at all times keep reserved, out of the authorized and unissued
Common Shares, a number of Shares sufficient to provide for the exercise of the
rights of purchase represented by the Warrants, and the Transfer Agent for the
Common Shares and every subsequent transfer agent for any Shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
to reserve such number of authorized and unissued Shares as shall be requisite
for such purpose. The Company agrees that all Common Shares issued upon exercise
of the Warrants shall be, at the time of delivery of the certificates for such
Common Shares, validly issued and outstanding, fully paid and non-assessable and
listed on any national security exchange upon which the other Common Shares are
then listed. The Company will keep a copy of this Agreement on file with the
Transfer Agent for the Common Shares and with every subsequent transfer agent
for any Shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time such Transfer Agent for
stock certificates required to honor outstanding Warrants. The Company will
supply such Transfer Agent with duly executed stock certificates for such
purpose. All Warrants surrendered in the exercise of the rights thereby
evidenced shall be canceled by the Warrant Agent and shall thereafter be
delivered to the Company, and such canceled Warrants shall constitute sufficient
evidence of the number of Common Shares which have been issued upon the exercise
of such Warrants. Promptly after the date of expiration of the Warrants, the
Warrant Agent shall certify to the Company the total aggregate amount of
Warrants then outstanding, and thereafter no Common Shares shall be subject to
reservation in respect to such Warrants which shall have expired.
Section 10. Warrant Price. The Class A, Class B and Class C Warrants
allow the holders to acquire shares of common stock from the Company at a price
of $1.00 per share, $2.50 per share and $5.00 per share, respectively. No
fractional Shares shall be issued for the Warrants.
Section 11. Adjustments. Subject and pursuant to the provisions of this
Section 11, the Warrant Price and number of Common Shares subject to this
Warrant shall be subject to adjustment from time to time as hereinafter set
forth.
4
<PAGE>
(A) If the Company shall at any time subdivide its outstanding Common
Shares by recapitalization, reclassification, split-up thereof, or other such
issuance without additional consideration, the Warrant Price immediately prior
to such subdivision shall be proportionately decreased and, if the Company shall
at any time combine the outstanding Common Shares by recapitalization,
reclassification or combination thereof, the Warrant Price immediately prior to
such combination shall be proportionately increased. Any such adjustment to the
Warrant Price shall become effective at the close of business on the record date
for such subdivision or combination.
(B) In the event that prior to any Warrant's expiration date the
Company adopts a resolution to merge, consolidate, or sell all or substantially
all of its assets, each Warrant holder upon the exercise of his Warrant will be
entitled to receive the same treatment as the holder of any other Share of
Common Stock. In the event the Company adopts a resolution for the liquidation,
dissolution, or winding up of the Company's business, the Company will give
written notice of such adoption of a resolution to the registered holders of the
Warrants. Thereupon, all liquidation and dissolution rights under the Warrants
will terminate at the end of thirty (30) days from the date of the notice to the
extent not exercised within those thirty (30) days.
(C) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash, or assets with respect to or in
exchange for Common Stock, then as a condition of such reorganization,
reclassification, consolidation, merger or sale, the Company or such successor
or purchasing corporation, as the case may be, shall execute with the Warrant
Agent a Supplemental Warrant Agreement providing that each registered holder of
a Warrant shall have the right thereafter and until the expiration date to
exercise such Warrant for the kind and amount of stock securities, cash, or
assets receivable upon such reorganization, reclassification, consolidation,
merger or sale by a holder of the number of Shares of Common Stock for the
purchase of which such Warrant might have been exercised immediately prior to
such reorganization, reclassification, consolidation, merger or sale, subject to
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 11.
(D) In case at any time the Company shall declare a dividend or make
any other distribution upon any stock of the Company payable in Common Stock,
then such Common Stock issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(E) Upon any adjustment of the Warrant Price as hereinabove provided,
the number of Common Shares issuable upon exercise of this Warrant shall be
changed to the number of Shares determined by dividing (i) the aggregate Warrant
Price payable for the purchase of all Shares issuable upon exercise of this
Warrant immediately prior to such adjustment by (ii) the Warrant Price per Share
in effect immediately after such adjustment.
5
<PAGE>
(F) No adjustment in the Warrant Price shall be required under Section
11 hereof, unless such adjustment would require an increase or decrease in such
price of at least $.01 provided, however, that any adjustments which by reason
of the foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount of any
subsequent adjustment; and provided further, however, that in case the Company
shall at any time subdivide or combine the outstanding Common Shares or issue
any additional Common Shares as a dividend, said amount of $.001 per Share shall
forthwith be proportionately increased in the case of a combination or decreased
in the case of a subdivision or stock dividend so as to appropriately reflect
the same.
(G) On the effective date of any new Warrant Price the number of Shares
as to which any Warrant may be exercised shall be increased or decreased so that
the total sum payable to the Company on the exercise of such Warrant shall
remain constant.
(H) The form of Warrant need not be changed because of any change
pursuant to this Article, and Warrants issued after such change may state the
same Warrant Price and the same number of shares as is stated in the Warrants
initially issued pursuant to this Agreement. However, the Company may at any
time in its sole discretion (which shall be conclusive) make any change in the
form of Warrant that the Company may deem appropriate and that does not affect
the substance thereof; and any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise, may
be in the form as so changed.
Section 12. Fractional Interest. The Company shall not be required to
issue fractions of Common Shares on the exercise of Warrants or any cash or
other adjustment in respect of such fractions of Common Shares. If any fraction
of a Common Share would, except for the provisions of this Section 12, be
issuable on the exercise of any Warrant (or specified portions thereof), the
Company shall issue the largest number of whole shares of Common Stock to which
the Warrant Certificate is entitled. All calculations under this Section 12
shall be made to the nearest whole Share.
Section 13. Notices to Warrantholders.
(A) Upon any adjustment of the Warrant Price and the number of Shares
issuable on exercise of a Warrant, then and in each such case the Company shall
give written notice thereof to the Warrant Agent, which notice shall state the
Warrant Price resulting from such adjustment and the increase of decrease, if
any, in the number of Shares purchasable at such price upon the exercise of a
Warrant, setting forth in reasonable detail the method of calculations and the
facts upon which such calculation is based. The Company shall also publish such
notice once in two Authorized Newspapers. For the purpose of this Agreement, an
Authorized Newspaper shall mean a newspaper customarily published on each
business day, in one or more morning editions or one or more evening editions,
or both (and whether or not it shall be published in Saturday and Sunday
editions or on holidays), printed in the English language and of general
circulation in the Borough of Manhattan, City and State of New York. Failure to
give or publish such notice, or any defect therein, shall not affect the
legality or validity of the subject adjustments.
6
<PAGE>
(B) In case at any time:
(a) the Company shall pay any dividends payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give written notice
and publish the same in the manner set forth in Section 13 of the date on which
(i) the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale dissolution,
liquidation or winding up, as the case may be. Such notice shall be given and
published at least 30 days prior to the action in question and not less than 30
days prior to the record date or the date on which the Company's transfer books
are closed in respect thereof. Failure to give or publish such notice, or any
defect therein, shall not affect the legality or validity of any of the matters
set forth in this Section 13 inclusive.
(C) The Company shall cause copies of all financial statements and
reports, proxy statements and other documents as it shall send to its
stockholders to be sent by first class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing on the Warrant register as of the record date for the
determination of the stockholders entitled to such documents.
7
<PAGE>
Section 14. Disposition of Proceeds on Exercise of Warrants.
(A) The Warrant Agent shall forward promptly to the Company, with
respect to Warrants exercised, the funds which will be deposited in a special
account in a bank designated by the Company for the benefit of the Company, for
the purchase of Common Shares through the exercise of such Warrants.
(B) The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours.
Section 15. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation or company which may succeed to the business of the Warrant
Agent by any merger or consolidation or otherwise to which the Warrant Agent
shall be a party, shall be the successor to the Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, provided that such corporation would be eligible for
appointment as a successor Warrant Agent under the provisions of Section 17 of
this Agreement. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement, any of the Warrants shall have
been countersigned but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the original Warrant Agent and deliver such
Warrants so countersigned; and in case at that time any of the Warrants shall
not have been countersigned, any successor to the Warrant Agent may countersign
such Warrants either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrants shall have
the full force provided in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and in case at that time any of the
Warrants shall have not been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name; and in all such
cases such Warrants shall have the full force provided in the Warrants and in
this Agreement.
Section 16. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(A) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(B) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
(C) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with opinion or the advice of such counsel.
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<PAGE>
(D) The Warrant Agent shall incur no liability or responsibility to the
Company or to the holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate or other papers,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
(E) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the Warrant
Agent's negligence, willful misconduct or bad faith.
(F) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights or
interests may appear.
(G) The Warrant Agent and any stockholder, director, officer, partner
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and free as though it were not Warrant Agent
under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(H) The Warrant Agent shall act hereunder solely as an agent and not in
a ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, willful misconduct or bad faith.
9
<PAGE>
(I) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform nay duty hereunder, either itself or by or
through its attorneys, agents, officer or employees, and the Warrant Agent shall
not be answerable or accountable for any act, default, neglect or misconduct of
any such attorneys, agents, officers or employees or for any loss to the Company
resulting from such neglect or misconduct, provided reasonable care had been
exercised in the selection and continued employment thereof.
(J) Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its president or a vice president, or its secretary or an assistant
secretary or its treasurer or an assistant treasurer (unless other evidence in
respect thereof be herein specifically prescribed); and any resolution of the
Board of Directors may be evidenced to the Warrant Agent by a copy thereof
certified by the secretary or an assistant secretary of the Company.
Section 17. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to holders at their addresses appearing on the Warrant register, of such
resignation, specifying a date when such resignation will take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and by like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, shall be a bank or trust company or an active Transfer Agent,
in good standing, incorporated under the laws of the State of New York or of the
United States of America. After appointment, the successor Warrant Agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
all canceled Warrants, records and property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Failure to file or mail any notice provided for in this Section
17 however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.
Section 18. Identity of Transfer Agent. Forthwith upon the appointment
of any Transfer Agent for the Common Shares or of any subsequent transfer Agent
for Common Shares or other shares of the Company's capital stock issuable upon
the exercise of the rights of purchase represented by the Warrants, the Company
will file with the Warrant Agent a statement setting forth the name and address
of such Transfer Agent. The Warrant Agent hereby acknowledges that it is, at the
time of execution hereof, the Transfer Agent, and waives any statement required
herein with respect thereto.
10
<PAGE>
Section 19. Notices. Any notice pursuant to this Agreement to be given
or made by the Warrant Agent or by the registered holder of any Warrant to the
Company shall be sufficiently given or made if sent by first class mail, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
Americas First Associates Corp.
415 Madison Avenue, 3rd Floor
New York, New York 10017
Any notice pursuant to this Agreement to be given or made by the
Company or by the registered holder of any Warrant to or on the Warrant Agent
shall be sufficiently given or made if sent by first class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10002
Attn: Compliance Department
Section 20. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which shall not adversely
affect the interests of the holders of Warrants.
Section 21. Successors. All the covenants and provisions of this
Agreement by and for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 22. New York Contract. This Agreement shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State.
Section 23. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants, any legal or equitable
right, remedy or claim under this Agreement, but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
11
<PAGE>
Section 24. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall be considered an original.
Section 25. Effectiveness. This Agreement shall be deemed binding and
therefore in effect as of, and subject to, the date the Offering Statement is
qualified by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AMERICA FIRST ASSOCIATES CORP.
By:__________________________________
Joseph Genzardi, President
(Seal)
Attest:
______________________________
Joseph Ricupero, Secretary
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY.
By:_____________________________________
12
May 4, 1999
Securities and Exchange Commission
Washington D.C. 20549
Re: America First Associates Corp.
Registration Statement on Form SB-2
File No. 333
Ladies and Gentlemen:
We have acted as counsel to America First Associates Corp. (the
"Registrant") with respect to the above Registration Statement on Form SB-2,
relating to the registration of 1,899,600 shares of Common Stock and 3,600,000
shares underlying Class A, Class B and Class C Common Stock Purchase Warrants
(collectively the "Warrants") to be sold from time to time by the Selling
Securityholders. In connection therewith, we have examined the Certificate of
Incorporation and By-Laws of the Registrant, as amended through the date hereof,
and such other materials as we deem pertinent. Based upon the foregoing, it is
our opinion that:
1. The 1,899,600 shares of Common Stock have been paid for and are
legally issued, fully paid and non-assessable.
2. The shares of Common Stock, when issued and paid for in accordance
with the terms of the Warrants, will be legally issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the Prospectus constituting
a part thereof, and in any amendment thereto.
Very truly yours,
AMERICA FIRST ASSOCIATES CORP.
INCENTIVE STOCK OPTION PLAN
1. Purpose
The purpose of Incentive Stock Option Plan (the "Plan") of America
First Associates Corp. (the "Company") is to advance the interests of the
Company by providing stock ownership opportunities to certain key employees and
consultants (including officers and directors) who contribute significantly to
the long term performance of the Company. In addition the Plan is intended to
enhance the ability of the Company to attract and retain individuals of superior
managerial ability and to motivate such key employees to exert their best
efforts towards future progress and profitability of the Company.
2. Administration
a. Administration. The administration and operation of the
Plan shall be supervised by the Board of Directors of the Company (the "Board").
The Board shall have the authority, consistent with the provisions of the Plan,
to determine the Options to be granted under the Plan; to interpret the Plan and
any Option granted under the Plan; to adopt, amend and rescind rules and
regulations for the administration of the Plan and the Options granted under the
Plan; and to make all determinations in connection therewith which may be
necessary or advisable. The day-to-day administration of the Plan shall be
carried out by such officers and employees of the Company as shall be designated
from time to time by board.
b. Interpretation. The interpretation and construction by the Board of
any provisions of the Plan or the Board under any provision of the Plan or any
such award shall be final and conclusive.
c. Limitation on Liability. Neither the Board nor any Director shall be
liable for any act, omission, interpretation, construction or determination made
in connection with the Plan in good faith, and the Directors shall be entitled
to indemnification and reimbursement by the Company in respect of any claim,
loss, damage or expense (including counsel fees) arising therefrom to the full
extent permitted by law and under any directors and officers liability insurance
coverage which may be in effect from time to time.
3. Shares subject to Options Under the Plan
a. Limitation on Number of Shares. The shares subject to Options and
authorized for issuance upon the exercise of stock options granted pursuant to
this Plan ("Option Shares"), shall be shares of the Company's authorized but
unissued common stock, par value $.001 per share ("Common Stock"), and shares,
if any of such Common Stock held as treasury stock by the Company. The number of
Option Shares as to which options may be granted under and issued pursuant to
the Plan shall not exceed 5,000,000 shares of Common Stock.
b. Adjustments of Aggregate Number of Shares. The aggregate number of
shares stated in Section 3a shall be subject to appropriate adjustment, from
time to time, in accordance with the provisions of Sections 4c(8) and (9). In
the event of a change in the Common Stock of the Company which is limited to a
change in the designation thereof or to a change in the par value thereof, or
from par value to no par value, without increase or decrease in the number of
issued shares, the shares resulting from any such change shall be deemed to be
Common Stock within the meaning of the Plan.
<PAGE>
4. Stock Options
a. Eligibility. The individuals who shall be eligible to receive stock
options under the Plan shall be such key employees (including officers and
directors) of the Company as the board from time to time shall determine as
provided below.
b. Grants of Options. The board, at any time and from time to time
before December 31, 2000, may authorize the granting of Options to any
individual eligible to receive the same. Subject to the provisions of this
Section 4, the Board may grant Options designed to qualify as "Incentive Stock
Options" under the Internal Revenue Code to employees eligible to receive the
same. The term "Incentive Stock Option" shall mean any Option, or portion
thereof, which is intended to qualify as an incentive stock option under Section
422A of the Internal Revenue Code of 1986, as it may be hereafter amended (the
"Code"). The aggregate Market Value Per Share (as defined in Section 4c(4)
below) on the date of grant of the Common Stock for which any eligible
individual may be granted Incentive Stock Options under the Plan (and any other
incentive stock options which may be issued under any stock option plan which
may be maintained by the Company) in any calendar year may not exceed the sum of
(i) $100,000.
c. Terms of Options. Options granted pursuant to this Plan shall be
evidenced by agreements ("Stock Option Agreements"). References herein to Stock
Option Agreements shall include, to the extent applicable, any agreements so
amending Stock Option Agreements. Stock Option Agreements shall Comply with and
be subject to the following terms and conditions and may contain such other
provisions, consistent with the terms of this Plan, as the Board shall deem
advisable.
(1) Medium of Payment. Upon exercise of an Option, the option price
shall be payable to the company in United States Dollars in cash or by certified
check, bank draft of money order of the Company.
(2) Number of Shares. Each Stock Option Agreement shall state the total
number of Option Shares which are subject to the Option.
(3) Option Price. The Option Price for each Option Share shall be not
less than the "Market Value Per Share" on the date of the granting of the Option
and, in the case of any Option granted to any person who owns more than 10% of
the outstanding Common Stock of the Company, the Option price on such Option
shall not be less that 110% of the Market Value Per Share on the date of
granting of the Option.
2
<PAGE>
(4) Market Value Per Share. The Market Value Per Share as of any
particular date shall be the closing bid price for shares of Common Stock as
reported by the quotation service covering the Common Stock on such date (or if
such date shall not be on a business day, then the next preceding date which
shall be a business day); or, if no sale takes place on such date, then the
average of the closing bid and closing offer price on the last date on which the
Common Stock last traded;
and if no prices have been quoted for thirty (30) consecutive days, then such
value as shall be determined by such method as the Board shall deem to reflect
the fair market value on such date.
(5) Term. The term of each Option shall be determined by the Board at
the date of grant; provided, however, that each Option shall expire not more
than ten years from the date the Option is granted.
(6) Date of Exercise. Each Stock Option Agreement shall state that the
Option granted therein may not be exercised in whole or in part for any period
or periods of time specified in such Agreement or otherwise as specified by the
Board. Except as may be so specified, any Option may be exercised in whole at
any time or in part from time to time during its term; provided, however, that
no Option or portion thereof may be exercisable until at least one year after
the date of grant of such Option. Each Stock Option Agreement for an Incentive
Stock Option shall further provide that such Incentive Stock Option shall not be
exercised while there is outstanding with respect to the Optionee any incentive
stock option (as defined in Section 422a of the Code) to purchase stock of the
Company which was granted before the granting of such Incentive Stock Option.
For purposes of this subsection (6), an Incentive Stock Option shall be treated
as outstanding until it is exercised in full or expires by reason of lapse of
time.
(7) Termination of Employment. In the event that an Optionee's
employment (or engagement as officer or director, if not an employee) by the
Company or any of its Subsidiaries shall terminate, the Optionee's Option shall
terminate immediately, except as hereinafter provided in this subsection (7).
The Board, in its sole discretion, may determine that an Optionee's Options, to
the extent exercisable immediately prior to such termination of employment, may
remain exercisable for a designated period of time not to exceed 90 days after
such termination of employment. If any termination of employment is due to
retirement with the consent of the Company, the Optionee shall have the right,
subject to the provisions of subsections (5) and (6) above, to exercise his
Option at any time within the thirty-six month period after such retirement to
the extent that the Option was entitled to exercise the same immediately prior
to such retirement. Retirement by an Optionee on or after the Optionee's normal
retirement date in accordance with the provisions of the retirement plan of the
Company or one of its Subsidiaries under which the Optionee is then covered
shall be deemed to be retirement with the consent of the Company and whether an
authorized leave of absence or absence on military or government service or for
other reasons shall constitute a termination of employment for the purposes of
the Plan shall be determined by the board. If an Optionee shall die while
entitled to exercise an Option, the Optionee's estate, personal representative,
or beneficiary, as the case may be, shall have the right, subject to the
provisions of subsections (5) and (6) above, to exercise the Option at any time
within thirty-six months from the date of the Optionee's death (but in no event
more than thirty-six months from the date of the Optionee's retirement with the
consent of the Company), to the extent that the Optionee was entitled to
exercise the same immediately prior to the Optionee's death.
3
<PAGE>
(8) Recapitalization. The aggregate number of shares stated in Section
3a, the number of Option Shares to which each outstanding Option relates, and
the Option price in respect of each such Option shall all be proportionately
adjusted for any increase of decrease in the number of issued shares of Common
stock resulting from a subdivision or consolidation of shares of other capital
adjustments, or the payment of a stock dividend or other increase of decrease in
such shares, effected without receipt of consideration by the Company, provided,
however, that any fractional shares resulting from any such adjustment shall be
eliminated.
(9) Merger or Consolidation. After a merger of one or more corporations
into the Company, or after a consolidation of the Company and one or more
corporations, in which the Company shall be the surviving or resulting
corporation, an Optionee shall, at the same cost, be entitled upon the exercise
of an Option, to receive (subject to any required action be stockholders) such
securities of the surviving or resulting corporation as the board of directors
of such corporation, in its sole discretion and without liability to any person,
shall determine to be equivalent, as nearly as practicable, to the nearest whole
number and class of shares of stock or other securities, to the Option Shares
which were then subject to such Option, and such shares of stock or other
securities shall, after such merger or consolidation, be deemed to be Option
shares for all purposes of the Plan and of the Option granted under the Plan;
provided, however, that anything herein contained to the contrary
notwithstanding, upon the dissolution or liquidation of the Company, or a merger
or consolidation in which the Company is not the surviving or resulting
corporation, every Option outstanding hereunder shall terminate, except to the
extent that the surviving or resulting corporation may, in its absolute and
uncontrollable discretion, issue substituted options.
(10) Optionee's Agreement. If, at the time of the exercise of any
Option, in the opinion of the Company's counsel, it is necessary or desirable,
in order to comply with any then applicable laws or regulations relating to the
sale of securities, that the Optionee exercising the Option shall agree to hold
any Option Shares issued to the Optionee for investment and without any present
intention to resell or distribute the same and to dispose of such shares only in
compliance with such laws and regulations, the Optionee will, upon the request
of the Company, and as a condition to issuance to him of Option Shares, execute
and deliver to the Company an agreement to such effect.
d. Effect of Exercise of Options. The right of an Optionee to exercise
an Option shall terminate to the extent that such Option is exercised.
4
<PAGE>
e. Options In Substitution for Stock Option Granted by Other
Corporation. Options may be granted under the Plan from time to time in
Substitution for stock options held by employees of corporations who become key
employees of the Company as a result of a merger or consolidation of the
employing corporation with the Company, or the acquisition by the Company of the
assets of the employing corporation, or the acquisition by the Company of stock
of the employing corporation with the result that such employing corporation
becomes a subsidiary.
f. Application of Funds. The proceeds received by the Company from the
sale of Option Shares pursuant to Options will be used for general corporate
purposes.
5. Withholding for Taxes
Any issuance of Options or Option Shares under the Plan shall not be
made until appropriate arrangements have been made for the payment of any
amounts which may be required to be withheld or paid with respect thereto under
all present or future federal, state and local tax and other laws and
regulations which may be in effect as of the date of each such payment.
6. Amendment and Termination
The Board may from time to time and at any time after, amend, suspend,
discontinue of terminate this Plan and any awards granted hereunder; provided,
however, that no such action of the Board may, without the approval of the
stock-holders of the Company, alter the provisions of the Plan so as to (i)
increase the maximum number of shares of Common Stock which may be issued under
the Plan (except as provided in Section 3b; (ii) change the class of persons
eligible to receive Options under the Plan, (iii) extend beyond ten years the
maximum term of Options granted under the Plan or extend the term of the Plan;
or (iv) decrease, directly or indirectly (by cancellation and substitution or
Options or otherwise), the Option Price applicable to any Option; provided,
however, that the provisions of this clause (iv) shall not prevent the granting
to any person holding an Option of an additional Option exercisable at a lower
option price.
7. Preemption By Applicable Laws and Regulations
Anything in the Plan or any Option or other agreement entered into
pursuant to the Plan to the contrary notwithstanding, if, at any time specified
herein or therein for the making of a determination or issue or other
distribution of shares of Common Stock, any law, regulation or requirement of
any governmental authority having jurisdiction shall require either the Company
or the Optionee to take any action in connection with any such determination,
issuance or distribution, the issue or distribution of such shares or the making
of such determination, as the case may be, shall be deferred until such action
shall have been taken.
5
<PAGE>
8. Miscellaneous
a. No Employment Contract. Nothing contained in the plan shall be
construed as conferring upon any Optionee the right to continue in the employ of
the Company.
b. Employment with subsidiaries. Employment by the Company for the
purposes of this Plan shall be deemed to include employment by, and to continue
during any period in which and employee is in the employment of any Subsidiary.
c. No Rights As A Stockholder. An Optionee shall have no rights as a
stockholder with respect to Option Shares covered by the Optionee's Option until
the date of the issuance of such shares to the Optionee and only after such
shares are fully paid. No adjustment will be made for dividends or other
distributions or right for which the record date is prior to the date of such
issuance.
d. No Right to Corporate Assets. Nothing contained in the Plan shall be
construed as giving an employee, the employee's beneficiaries or any other
person any equity or interest of any kind in any assets of the Company or a
fiduciary relationship of any kind between the Company and any such person.
e. No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company from taking any corporate action which
is deemed by the Company to be appropriate or in its best interest, whether or
not such action would have an adverse effect on the Plan or any Option made
under the Plan. No employee, beneficiary or other person shall have any claim
against the Company as result of any such action.
f. Non-Assignability. Neither an employee nor an employee's beneficiary
shall have the power or right to sell, exchange, pledge, transfer, assign or
otherwise encumber or dispose of such employee's of beneficiary's interest in
the Plan or in any Option; nor shall such interest be subject to seizure for the
payment of an employee's or beneficiary's debts, judgements, alimony, or
separate maintenance or be transferable by operation of law in the event of an
employee's or beneficiary's bankruptcy or insolvency. The Company's obligations
under the Plan are not assignable or transferable except to a corporation which
acquires all or substantially all of the assets of the Company or to any
corporation into which the Company may be merged or consolidated.
g. Other Benefit Plans. No awards or payments under the Plan shall be
taken into account in determining any benefits under any retirement,
profit-sharing or other plan maintained by the Company.
h. Governing Law, Construction. All rights and obligations under the
Plan shall be governed by and the Plan shall construed in accordance with, the
laws of the State of New York. Titles and headings to Sections herein are for
purposes of reference only, and shall in no way limit, define or otherwise
affect the meaning or interpretation of any provisions of the Plan.
6
U.S.Clearing
Member New York Stock Exchange
April 2, 1997
America First Associates Corp.
415 Madison Avenue, 3rd Floor
New York, NY 10017
Gentlemen:
We understand that you, America First Associates Corp. ("AFX') propose
to offer all individuals who desire to establish an account with you a facility
pursuant to which customers through such account may purchase and sell
securities. We are a registered broker-dealer and a member firm of the New York
Stock Exchange, Inc. ("NYSE") and other national securities exchanges. You
propose that this facility would be made available through customer accounts
("Accounts") which would be opened with us by you as agent for each of your
customers. You agree that all your Accounts, both customer and proprietary,
whether cash, margin or delivery vs. payment will be introduced to U.S. Clearing
Corp. ("USCC"). All orders to buy or sell securities, whether equity or debt,
and including options, are to be placed with, effected by, and cleared through
USCC on a fully disclosed basis. It is agreed and understood that all dealings
between us are pursuant to applicable rules of the NYSE, Securities and Exchange
Commission ("SEC"), the National Association of Securities Dealers, Inc.,
("NASD"), and such other designated examining authority having primary
jurisdiction for our two firms. It is also agreed and understood that you are,
and during the term of this Agreement will remain, a duly registered
broker-dealer in good standing and properly licensed under the SEC, the NASD,
and applicable state regulations and that you will register both the firm and
your account executives in the respective states in which you intend to transact
business. If such registration or licensing as a broker-dealer is to be
terminated, you agree to notify us in writing promptly after you have first
become aware of such facts.
This letter sets forth our Agreement with respect to the Accounts to be
established by us for the securities transactions of , and custodial services
for, your customers and yourselves.
We hereby agree as follows:
1. Customer Accounts
You will obtain from each customer desiring to establish an Account the
personal information concerning the Account which we may require in the format
necessary to input to our computer system. You will also have your
representative obtain from the customer a customer information statement in the
form previously agreed to by us which information statement shall contain but
which is not limited to, an explanation of the customer's investment objectives.
You will make such information statement available to us for our permanent
records upon our request. You will also be responsible for notifying each
customer desiring to establish an Account with us of the existence of this
Agreement and of the allocation of the functions that will affect the Account.
26 BROADWAY - NEW YORK, NEW YORK 10004-1798 - (212) 747-1400
<PAGE>
You will be completely and solely responsible for all Compliance,
Supervisory and Internal Audit functions as they relate to your officers,
partners, employees, agents, associates and introduced customer and proprietary
Accounts. Upon our request you will promptly provide USCC with a complete copy
of your most recent audit report as prepared by the NYSE, SEC, NASD and/or any
other designated examining authority having primary jurisdiction for your firm.
You will be responsible for complying with the NASD's Rules of Fair
Practice, those of the Options Clearing Corporation, and to the applicable rules
of such other designated examining authority having primary jurisdiction for our
two firms. You agree that you will be familiar with all the applicable option
rules and that you will qualify, appoint and maintain a Senior Registered
Options Principal ("SROP") whose responsibilities will include ensuring that the
options rules are observed, suitability standards area applied and due diligence
exercised in the approval of customer Accounts for options transactions. Through
your SROP you agree to approve the customer information and option agreements
and to ensure that each customer has been furnished with the current risk
disclosure document prior to the initial options transactions.
You are solely responsible for the supervisory review of any Accounts
over which your officers, partners, employees, or agents have discretionary
authority as pursuant to the applicable rules of the NYSE, NASD, SEC or such
other designated examining authority having primary jurisdiction for our two
firms. You will furnish us with properly executed power of attorney forms for
discretionary Accounts handled by you or any other third parties. You hereby
agree to indemnify and hold USCC harmless against all losses, costs or expenses
including reasonable attorney's fees, suffered or incurred by us directly or
indirectly as a result of any liabilities or claims alleging the exercise by you
or your partners, officers or employees, or agents of discretionary authority
over Accounts.
You acknowledge that you are familiar with Rules 405 and 721 of the
NYSE and the applicable rules of the NASD which require you to adequately "know
your customer", his/her investment objectives and to observe the suitability
requirements of such rules. You will follow the guidelines of such rules in the
introduction of customers to us for the purpose of our opening Accounts and you
are to accept no Account until you have completed the customer information
statement and made credit reference checks and have exercised due diligence to
learn, and on a continuing basis to know, the essential facts with respect to
each customer who desires to establish an Account. You also warrant that each
Account shall not be such as to come under any prohibition referred to in Rule
407 of the NYSE (Accounts for employees of the NYSE, brokerage firms or banks,)
nor will such accounts you open be in violation of the rules of the NASD, SEC,
or such other designated examining authority having primary jurisdiction for our
two firms, and no customer who establishes and Account shall be a minor or such
person as comes within the prohibitions of law. You shall herewith indemnify
USCC from any and all claims alleging the unsuitability of transactions effected
in introduced Accounts, claims of "churning" (excessive trading), and/or
misrepresentation or fraud.
You, as the introducing firm, agree to establish and maintain a program
of supervision and compliance consistent with applicable requirements of the
NYSE, SEC, NASD, and/or any other designated examining authority having primary
jurisdiction for your firm. You represent that one or more of your officers have
been delegated with supervisory responsibility for all of your accounts and
employees and you have established and implemented written supervisory
procedures to ensure that the conduct of Accounts introduced to USCC comply with
applicable federal, state and self-regulatory laws, requirements and rules. You
shall also be responsible and you agree to indemnify USCC for any loss,
liability, damage, expense or claim which our firm may incur because of the
failure or neglect of your organization or its officer, managers, and designees
to adequately discharge their supervisory responsibilities.
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You warrant and indemnify USCC against loss resulting from any legal
action or claim arising from the improper conversion of customer securities or
funds through theft, fraud or deception, which actions were committed by anyone
in your employ, your customers, or anyone otherwise affiliated with you.
You warrant the proper and legal ownership of all moneys and securities
introduced to USCC for credit to any Account established for your customers or
yourselves.
We will give no investment advice and will not be held responsible for
the investment results of any transaction arising from any advice given by you
to your clients. You shall be responsible to supervise and review orders and
transactions of your customers, and any claims or charges made by any client
alleging the failure to supervise your employees' actions and customer accounts
shall be your responsibility to make amends. Nothing in this agreement shall be
construed to be a joint venture or partnership of any kind between your firm and
USCC.
Upon our request you will make available to us, prior to the execution
of this Agreement, a complete run of current statements for the Accounts of your
customers.
We reserve the absolute right to reject any customer, an Account or any
transaction, and to refuse to establish any Account which you may tender to us,
if in our opinion such action is necessary for our protection. No action taken
by us or any of our employees, including, without limitation, clearing a trade
forwarded to us by you on behalf of a customer shall constitute acceptance of
any such customer or Account until we have been furnished with such Account
documentation and until the Account has been accepted as required by Rules 405
and 721 and our internal procedures- USCC's right to refuse to accept or to
reject Accounts shall be a continuing one and is not restricted by the passage
of time. Reasons for rejecting or expelling Accounts shall include, but not be
limited to, any evidence of illegal activity, stock or price manipulation, a
history implying credit unworthiness, reneges on transactions, the subject of
securities investigations, violations or convictions, improper margin or
securities concentration (on margin) or any other reason which is deemed
sufficient or necessary by us for USCC's own protection.
2. SEC's Financial Responsibility Considerations
In accordance with the Securities and Exchange Commission's ("SEC") Net
Capital Rule (Rule 15C3-1) and for the purposes of the Securities Investor
Protection Act and the SEC's financial responsibility rules, the introducing
firm's customers (your customers) are treated as customers of the clearing firm
(U.S. Clearing Corp.) and not of the introducing firm.
Account statements of activity for your introduced Accounts are issued
and forwarded directly by USCC.
Your introduced clients are notified, in language contained on their
account statements, that USCC provides for the safeguarding of funds and
securities while in the possession of USCC. In addition, they are informed that
their inquiries regarding positions and balances, on their account statements,
may be addressed to USCC with a telephone number provided, to the attention of
the Client Services Department.
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3. Execution of Orders. Settlement
Upon receiving a buy or sell order for an Account from a customer, your
personnel will transmit the details of such order electronically to us using
procedures and formats with which we will supply you. We will endeavor to
reasonably comply with the customer order and execute the transaction. If no
instructions are given, we will use our best efforts to obtain "best execution."
For orders involving over-the-counter securities we will assume the risk for the
dealers with whom we execute transactions. Upon our receipt of notification of
the execution of the customer order we will confirm the relevant details of such
execution to your representative and will generate for you electronically
confirmations of the transaction. We, or you as our agent will print such
confirmation on a form approved by us and send it to the customer. USCC shall
not be liable for loss caused directly or indirectly by the cessation, delay,
malfunction or interruption in telecommunications systems, order transmission
facilities or of any electronic, automated or computer assisted equipment. In
addition, USCC shall not be responsible for the failures or mistakes of
operators of such equipment who are not our employees. We shall not be liable
for loss resulting from the interruption of services caused by governmental
rulings, regulatory restrictions, suspensions of trading or interference's which
are beyond our control.
In the event that on settlement date of any customer transaction
involving a sale, the relevant securities have not been received by us, we will
take such actions as are necessary and in conformity with securities industry
practices to fulfill our obligations to the brokers and dealers involved in such
transactions. Errors in execution of orders will be corrected by us as soon as
practicable after we are notified by you or such errors are discovered by our
employees. In the case of purchases or sales of securities in an Account, you
will be financially liable for such transactions until the client has
satisfactorily made settlement with the necessary cleared funds and/or
securities.
In keeping with Rule 440c of the NYSE, you agree not to enter any
orders to sell short on behalf of your customers or yourselves, until you have
obtained specific prior approval from the USCC Stock Loan Department that the
relevant stock, or other securities, can be borrowed in order to complete the
transaction. All orders to sell short must be so designated at the time the
order is placed. In addition, you also agree that on all of your trading and
other firm proprietary Accounts payment will be made in full by settlement date.
You agree to assume sole responsibility for any loss incurred in transactions
with firms with which you deal on a principal basis giving up USCC for
clearance.
Notwithstanding anything in this Agreement to the contrary, we may
refuse on prompt notice to you to accept any Account or to effect any
transaction which, in our sole discretion, we believe will be contrary to our
obligations under Law or regulations thereunder, or as a member of the NYSE or
any other exchange of which we are a member.
4. Responsibility for Customers
You shall be responsible to ensure that all securities sold by
customers will be delivered to us by settlement date in compliance with
Securities and Exchange Commission ("SEC") and industry regulations and that
cash amounts payable by customers will be paid by such customers by settlement
date. You shall arrange for timely settlement of "delivery versus payment"
transactions in accordance with Rule 3 87 of the NYSE or such other rules and
procedures as may be directed by the NYSE and American Stock Exchange ("AMEX").
We reserve the right to give prior oral or written notice to you or to
any customer for whom we have established an Account of failure to make timely
settlement and our intentions to take remedial action. In the event of such
notice, you will cooperate with us in taking such steps as may be appropriate to
ensure that such customer fulfills his obligations.
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In all Accounts, including Margin Accounts, you shall be responsible
for customer transactions and maintenance margin calls until actual and complete
payment and settlement have been received by us, and in the case of checks
representing such payments received by us, you shall be responsible until the
funds received have actually been credited to us by our bank. We agree to use
diligence in depositing such checks promptly.
Without limitation you, as the introducing firm, agree to assume any
and all liabilities and losses incurred in connection with any check-writing
privilege and/or credit or debit card services extended by a service provider to
your introduced accounts and customers through USCC. Such liabilities include,
but are not limited to, losses and claims resulting from loss, theft fraud,
overdrafts, unauthorized withdrawals or charges and misappropriations.
5. Participation's in Underwritings / Special Requirements
You agree to the following procedures which must be complied with in,
order to participate in Initial Public Offerings (IPO's):
a) Approval must be granted in advance of any participation in an underwriting
where involvement is either as a Manager, Co - Manager, part of the Selling
Group or simply participating in selling the securities in the initial
distribution.
b.) At the very earliest a preliminary prospectus (`Red Herring") must be
forwarded to USCC's Director of Operations (Frank McGinnis) together with
details concerning the size of your commitment, expected price and the names of
all brokerage firms which are known to be participants.
c.) In order to participate and takedown shares in an underwriting, you as the
Correspondent must have at least $250,000 in net capital. Your Good Faith
Deposit must be increased so that it will represent no less than 30% of your
commitment (take-down).
d.) You must indicate whether or not you intend to be a market maker in the
secondary market with respect to the securities which are part of the public
distribution.
e.) You are not to proceed with your IPO participation unless and until the
Director of Operations of USCC has specifically granted his approval and
indicated the size of the commitment granted. Such approvals must be received
either by fax or wire and they are to be retained as part of your records.
Any requests for exceptions to the above, must be submitted in writing
with all pertinent details included to USCC's Chief Financial Officer ( Joel
Hirstreet).
6. Commissions
For each securities purchase or sale initiated by a customer and
transmitted to us for execution and clearing, the confirmation information
generated by us as contemplated by "Section 3" hereof will contain a commission
charge in accordance with the schedule you have instructed us to use. You may
from time to time request changes in the commissions to be charged and we will
make such changes within 45 days, provided that we shall not be required to make
any change that is not compatible with our computer system. On the settlement
date for any securities transaction, the commissions payable by the customer
will be paid to us. We will hold all commissions until the month-end settlement
between us contemplated by "Section 9" hereof
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Custodial Services
We shall have custody of all securities in the Accounts and shall cause
such securities to be registered in our name or the name of our nominee or the
names of nominees of any depositories used by us. However, we will not be
responsible for any cash or securities delivered by any customer to you, your
employees or agents until such cash or securities are physically (or
electronically) delivered to us. Upon proper instructions from you we will
receive in securities free from other brokers and entities for Accounts or make
deliveries, unless we have determined that to comply with such instructions will
cause us financial harm, in which case we reserve the right to be selective in
following such instructions.
Consistent with practices generally used in the securities industry, we
will maintain accurate stock records and other records, and diligently perform
all services required in connection with acting as custodian for securities in
the Accounts of customers including the following: (a) collection of dividends
and interest; (b) transmittal of proxy materials and other shareholder
communications and voting upon the instructions of customer; (c) transmittal and
handling, of tenders or exchanges pursuant to tender offers and exchange offers;
and, (d) handling of exercises or expirations of rights and warrants and of
redemption's. You and we shall each be responsible for preparing and filing the
reports required by the governmental and self regulatory authorities which have
respective jurisdiction over us and each of us will provide the other with such
information as may be required for preparation of such reports. Upon receipt of
proper instructions from a customer through you, we will make such transfers of
securities or of Accounts as may be reasonably requested.
You will be responsible for acting diligently in ensuring that
unregistered, restricted and control securities, owned or introduced by your
clients or yourselves, will be sold only pursuant to the applicable securities
regulations and in accordance with the rules set forth by the SEC regarding,
such securities. You shall be responsible for obtaining all the necessary forms
and documentation required and associated with the proper sale and clearance of
unregistered, restricted and control securities and, to see to it that the
proper regulatory filings have been accomplished. You will be liable for any
resultant loss which may occur, which is not satisfied by your client and which
involves corrective action which we deem necessary in order to correct any
improper sale of such securities. We are not required to make payments on sales
of such securities until the certificates have been transferred into good
deliverable form. You are obliged to inform us of the existence of any
unregistered, restricted or control stock before such securities are introduced
in any Account of yours or your customers.
8. Customer Statements
We will generate on our equipment and provide to each customer for whom
we have established an Account a statement of his/her Account to comply with the
rules of the NYSE and the other regulatory agencies which govern us. We will
also provide to each customer who has an Account with us such statement of
financial condition and other notices or information as we shall be required by
law to provide to our customers. We will be responsible for preparing and
providing to each Account the information necessary for Form 1099 of the
Internal Revenue Service.
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9. Fees and Compensation
All commissions collected by us in regards to Accounts of customers
shall be payable to you net of the fees payable to us, as set forth herein,
after taking into consideration any outstanding obligations due USCC, as defined
in this Agreement. a) Clearing Fees: For each securities transaction in an
Account we will charge you on a 44 per ticket basis" based upon an actual number
of tickets per trading day for all customers. For the purposes of this Agreement
a "ticket' shall mean an order which results in a confirmation to such customer
or Account. At the end of each month we will compute the actual number of
tickets per trading day for such month and charge you according to the following
schedule:
Equity Transactions: (Clearing and Execution)
Listed Securities: (Price per ticket up to 1,999 shares, thereafter plus
floor brokerage, at I cents per share.)
Avg. Trades per Day Price per Ticket
0-50 $20.00
51-100 $19.00
101 and above $18.00
OTC Securities:
Avg. Trades per Day Price per Ticket
0-50 $20.00
51-100 $19.00
101 and above $18.00
Fixed Income: Price per Ticket
Muni Bonds $25.00
Government Bonds $25.00
Corp Bonds $25.00**
**(plus $1.00 per bond execution, maximum ticket charge $75.00)
Principal Trades: $6.00 per ticket
Mutual Funds: (Clearing and Execution)
Fund/SERV Eligible $25.00
Non Fund/SERV Eligible $35.00
Options: $15.00 per ticket plus execution schedule below.
Premium Per Contract
Under $1.00 $0.75
$1.00 - $3.99 $1.35
$4.00 - $6.99 $1.95
$7.00 and Above $2.35
Trade Cancellations and Rebills. We will charge $5.00 for each trade
confirmation generated from cancellations and rebills when the total number of
cancellations accumulates and reaches 5% of your total volume of trades within a
given monthly period. Once this limit has been reached, these charges will be
retroactive and will be applied to each trade confirmation generated in
connection with a trade correction for the monthly period, and not only to those
corrections that exceed the 5% level.
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c) Partial Deliveries. Charges associated with interest expense on unmatched or
partial deliveries vs. payment are passed along to you.
d) This Agreement shall also cover all of the addenda referred to in Exhibit
"A".
e) Accounting: Within 10 days after the end of each month we will deliver to you
a written statement of the amount of commissions earned and the aggregate amount
of our clearing fees. Simultaneously with delivering such statement we will pay
you any net amount owing to you. If with respect to any such statement any
amounts are disputed, all undisputed amounts will be paid as prescribed above
and disputed amounts will be set aside for resolution by research or
negotiations between us.
10. Allocation of Responsibility
Errors, misunderstandings or controversies, except those specifically
otherwise covered in this Agreement, between customers or us and you, your
agents, or your employees, which shall arise out of the acts or omission of you,
your agents or employees, shall be your responsibility and liability and shall
be adjusted accordingly. We will be responsible for the acts of our employees
and we will take such reasonable actions as may be necessary or appropriate and
consistent with sound business practices of the securities industry to correct
or adjust errors, misunderstandings or controversies arising out of the acts or
omissions of our employees, providing that your client has not been unduly
enriched, in which case you will be responsible for making every reasonable
effort to resolve the problem.
11. Indemnification
You agree to indemnify and hold harmless USCC, its officers, employees
and corporate affiliates, from and against all claims, demands, liabilities,
losses, expenses and costs (including legal fees and expenses, arbitration costs
and awards relating to USCC's defense of any such claims), alleging any
fraudulent illegal or wrongful actions of your officers, employees, agents or
customers. Without in anyway limiting the foregoing, this indemnity clause shall
apply to the sale of stolen or misappropriated securities, unregistered,
restricted or control stock (which were sold in violation of the securities laws
and regulations), transactions involving the illegal use of inside information
and to all transactions requiring corrective action, at risk, or involve the
need to make offers of rescission. You will indemnify and hold us harmless
against any losses brought about by the default in payment of funds by or
delivery of securities to you or us from, any customer for any Account and will
pay all costs or expenses, including reasonable attorney's fees, suffered or
incurred by us directly or indirectly in our efforts to collect any such funds
or securities due us. You shall be responsible and agree to indemnify USCC for
any loss or expense including interest incurred by USCC due to the failure of
any of your accounts to: pay for securities purchased; promptly deliver
securities sold; deposit sufficient margin at any time that same is requested or
to remit dividends, stock splits, rights, over-deliveries of securities,
excessive disbursements of funds, or any other valid charges imposed on the
Account by USCC.
You will also indemnify and hold us harmless against all losses, costs
or expenses, including reasonable attorney's fees, suffered or incurred by us
directly or indirectly as a result of any allegations claiming the exercise by
you, your agents or your employees, of any discretionary authority (either
authorized or unauthorized) over an Account.
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Without limitation you agree to indemnify USCC and hold it harmless
from any and all claims, causes of action, suits, judgments, expenses, damages
and liabilities, including, but not limited to reasonable attorney's fees, court
costs and disbursements that may arise as a result of the acts and omissions of
your employees, agents and customers in connection with USCC making available to
your customers check-writing privileges and/or credit or debit card services.
You shall be responsible for establishing proper ownership of funds and
securities introduced to customer accounts and for our guarantee of signatures
of customers, except in those instances where we or our employees have been
negligent in the guarantee of signatures. You shall accept the responsibility
for responding to customer complaints and you shall promptly give us written
notice of any threat of action or commencement of litigation against you
involving an Account.
We will indemnify and hold you harmless against all losses, costs or
expenses, including reasonable attorneys fees, suffered or incurred by you
directly or indirectly as a result of our negligence in failing to perform our
execution or clearing obligations or our duties as custodian, as contemplated by
this Agreement.
If an error, misunderstanding, controversy or failure shall result in
the bringing of an action or proceeding against us or you, as the case may be,
by a customer or third party, for which we or you shall claim indemnification
here under, the indemnified party shall notify the other and, if requested, at
its own cost and expense the indemnifying party will defend any such action or
proceeding. No indemnified party shall be entitled to settle any such action or
proceeding without the prior notification of the party against whom
indemnification is to be sought. Nothing in this Section shall be construed to
preclude you from making any claim against us which you may have, or us from
making any claim against you which we may have, arising out of a failure to
perform obligations under this Agreement. Neither we nor you shall be precluded
from claiming or commencing an action for contribution to any amounts you or we
may be required to pay to a customer or a third party.
12. Margin Accounts
In all Accounts which are margin accounts you shall be responsible for
your clients satisfying the initial margin requirements for each transaction
until such initial margin has been received by us in acceptable form and for
satisfying all maintenance margin calls as required by USCC. You will be
responsible for customers paying off any deficiencies in all Accounts, which are
unsecured or inadequately margined, and for securing customer payment of debits
resulting from customer defaults. We shall be responsible for determining what
is adequate and proper margin maintenance in any Account which is a margin
account. It is understood that Accounts shall be required to maintain a minimum
margin maintenance percentage that may be changed from time to time in
accordance with market conditions. We shall endeavor to notify your customers
immediately and promptly provide us with adequate protection either in cash or
securities. In the event that satisfactory margin is not provided within the
time specified by us, we shall be at liberty to take such action as we may in
our judgment deem best.
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We reserve the right to refuse any transaction in any Account which is
a margin account after the initial transaction when in our opinion the past
history of such Account will not justify the risk of executing such new
transactions before the actual receipt of the necessary margin. If at any time
an officer, manager, or employee of your firm requests that we refrain from
contemplated actions such as "sell-outs", "buy-ins" or the sending of margin
notices, and USCC complies with such request either in full or in part, you
agree to indemnify USCC for any loss including interest and reasonable
attorney's fees which may occur as a result of our complying with this request.
Notwithstanding the foregoing, if through the action of the SEC, a
court of competent jurisdiction, or other regulatory body, trading is halted in
securities held by Accounts introduced by you the loss suffered as a result
shall be borne by the customer and you shall guarantee the collection of any
resultant margin or cash Account deficiency.
13. Interest Profit and Charges
Interest profit earned on debit balances in Accounts will be
proprietary to and fully retained by USCC. Neither you nor your customer will
receive interest for any credit balances which any Accounts may from time to
time leave on deposit at USCC. You may be charged interest at the call rate on
any securities delivered to and paid for by USCC which must be redelivered by
draft, require transfer, have improper instructions or which for any reason
require USCC to carry such securities for more than one day. In addition, you
will pay the interest charges on regular loans in connection with any
underwriting in which you participate as manager or syndicate member. Interest
charges may, at our option, be imposed in cash Accounts, in situations where a
debit balance has been incurred or increased as a result of deposited checks
which have been returned for non-sufficient funds or otherwise have not been
collected upon, or where overpayments have occurred as a result of your actions
or those of your employees. Interest will be charged to you for debit balances
in your trading and other proprietary Accounts at the lowest rate that USCC then
currently charges to customer margin Accounts. In addition, USCC will have the
right to charge you for the aggregate cash account debits outstanding, beyond
settlement dates, in your customer Accounts, at the lowest rate of interest then
currently charged customer margin Accounts.
14. Capital and Good Standing
USCC and you hereby warrant that as of the date of this Agreement and
until any termination thereof their net capital shall at all times exceed the
requirements of Rule 15c3-1 under the Securities Exchange Act of 1934 and the
applicable requirements of the NYSE and the SEC.
You hereby agree to provide us with a statement of your financial
condition as of a date within 30 days prior to this Agreement and copies of such
additional financial statements as are to be filed with regulatory bodies at the
time of this Agreement. In addition, copies of additional financial statements
(such as FOCUS reports etc.) as are to be filed with regulatory bodies shall be
presented to USCC on a regular basis shortly after such regulatory filing is
completed. You agree to promptly provide USCC with copies of your amendments to
your Broker-Dealer registration as are required to be filed by law. Upon the
request at anytime, you agree to promptly furnish USCC with a copy of your most
recent Broker-Dealer registration as are required to be filed by law. Upon the
request at anytime, you agree to promptly furnish USCC with a copy of your most
recent Broker-Dealer registration, with all accompanying schedules.
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15. Proprietary Information
All names and addresses of customers and customer lists shall be
treated as proprietary to and owned by you. Except as specified in this Section
(or permissible elsewhere in the Agreement) we will not use any information
relating to the customers or your accounts to make a solicitation. Customer
information will be disclosed to the proper authorities or third parties if we
are required by law or by a regulatory agency to which we are subject to make
such disclosure. You will not knowingly undertake any sales, advertising,
marketing, or solicitation effort which identifies, makes references to or
targets any of the affiliates of the Quick & Reilly Group, Inc.
Any specific remedies detailed in this Agreement to exercise various
rights, powers, remedies or privileges contained herein or, that may exist under
federal or state statute or law, shall not be construed as a waiver or
limitation or such rights, powers, or remedies.
16. Liability
We shall have no liability to you arising out of this Agreement or
otherwise except for; (a) Breach of the express terms of this Agreement, or (b)
Negligent, reckless, willful or intentional acts or violations of applicable law
by us.
17. Security Interest and Set-Off
Correspondent grants to USCC a first lien and security interest on any
and all money and securities of correspondent held by USCC. USCC may liquidate
any securities held without notice to Correspondent but will use its "best
efforts" and notify and consult with Correspondent. USCC shall have the
unlimited right to set-off any amounts owed to it by Correspondent from the
Commissions Payable Account and/or any other money or securities of
Correspondent in USCC's possession.
18. Term and Termination
(a) Term. The initial term of this Agreement shall be from the latter,
of the date on which this Agreement has been jointly signed by both parties or
the date it is approved by the NYSE, until the last day of the 12th full
calendar month.
(b) Termination. This Agreement shall continuously and automatically
renew for an additional term of Twenty four months, commencing with the outset
of the month following its then current term, absent an effective termination
notice pursuant to the provisions set forth in this Agreement. Either of us may
effect an intention not to renew this Agreement upon at least three months prior
written notice to be given before the expiration of the then current term. In
addition, USCC may immediately terminate this Agreement forthwith, upon written
notice, if you (the introducing firm) have:
1) Committed a material breach of any provision of the Agreement, or;
2) Embarked on a course of action which is contrary to the rules and
regulations of any regulation, agency or governing body, or;
3) Caused the net capital of your firm to fall below the requirements
of the Securities Exchange Act of 19'14, as amended, the net capital rule
15c3-1. or its successor, or:
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4) Made any representation or warranty here under or in connection with
this Agreement that was, at the time made, untrue or later becomes inaccurate or
untrue, or;
5) Made representations as to the nature of your business and
business-mix, its control or ownership and of its affiliations which were, at
the time they were made, untrue or later become untrue due to changes, additions
or alterations not approved by USCC, or;
6) Failed to promptly respond to cash or margin calls in your
proprietary Accounts, with the necessary cash deposits or securities, as
requested by USCC, or;
7) Effected transactions which your clients failed to promptly settle,
or refused to settle, wherein it was alleged that the transactions were
unauthorized, or,
8) Failed to maintain the stipulated security deposit in your
proprietary Account, (which shall be a minimum of $50,000) as demanded by USCC.
This security deposit shall be maintained above and apart from the amounts
requested from you for the settlement and maintenance of .-our trading and
proprietary Accounts and the customer unsecured debits charged against you as
your liability under this Agreement, or,
9) Become enjoined, prohibited, censured, suspended or otherwise
disciplined as a result of an administrative proceeding or action of the SEC, a
court of law, a state regulatory authority, or of any self-regulatory
organization of -which you are a member, which action shall curtail all or a
portion of your business activity.
In addition, USCC, at its discretion, may terminate this Agreement upon
thirty ('30) days prior written notice to you (the introducing firm) in the
event that any director, executive officer, general securities principal or
financial and/or operations principal or financial and/or operations principal,
of the introducing firm or its affiliates, is enjoined, prohibited, disciplined
or suspended as a result of administrative or judicial proceedings from engaging
in any part of the securities business.
Moreover, USCC may immediately terminate this Agreement if it has been
determined that you are incapable or unwilling to fulfill your financial and
contractual obligations under the terms of this Agreement.
Termination of this Agreement however caused, shall not release either
you or ourselves from liability or responsibility with respect to the
transactions effected and the Accounts established prior to the date of
termination.
Upon termination of this Agreement, we will endeavor to transfer all
Accounts of your customers to you or your designee, providing that your
customers do not object and the problems in such Accounts are resolved to our
satisfaction. Upon termination of this Agreement you will be responsible for
promptly notifying your customers that USCC will no longer be providing you and
your clients with its clearance, execution and custodial services, and that
arrangements must be made for the expeditious transfer of Accounts to a
successor clearing broker, and you shall make a diligent effort to determine
that such transfers are not contrary to your customers' wishes. USCC shall have
the right although not the obligation, to inform your customers directly of the
termination of this Agreement and the need for them to decide upon a successor
carrying and clearing broker.
No sale or transfer of your securities business, your customers'
accounts or of your broker-dealer's license resulting in the termination of this
Agreement and the clearing relationship shall occur without you first satisfying
USCC with reasonable and fair compensation for the unexpired term of this
Clearing Agreement.
You agree to give USCC at least two weeks prior written notice of any
such sale of your business, your customer accounts, broker-dealer's license or
any changes in the ownership of your business or of the chief executive and/or
operating officers.
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USCC shall, at its discretion, tender notice of termination of this
Agreement if USCC disapproves of the changes in either the ownership or
management affecting the introducing firm's business or broker-dealer's license.
Subject to and only upon the specific written notification of USCC,
shall this Agreement be assignable, whereupon with such approval from USCC, it
shall then be binding upon and inure to the benefit of each of our present firms
and any successor firms thereto, in each case irrespective of any change at any
time in the personnel thereof. Absent any such notification and written approval
from USCC, this Agreement is not assignable and the Agreement shall terminate.
In the event of termination of this Clearing Agreement you will pay
USCC such reasonable conversion and termination charges as USCC has established
as having been incurred in connection with the transfer of your clients'
Accounts and the cessation of the clearing arrangement with uscc.
19. No Solicitation of Employees
For a period of one year after termination of this Agreement neither
you nor we shall contact or solicit any of the other employees with a view to
offering them employment without the prior written consent of you or us, as the
case may be.
20. Arbitration
It is agreed and understood that any controversy arising between us in
connection with this Agreement which cannot be adjusted to our mutual
satisfaction shall be submitted to arbitration in the city of New York and shall
be subject to settlement under the rules of the Arbitration Committee of the New
York Stock Exchange, Inc. or in accordance with the arbitration procedures of
the National Association of Securities Dealers, Inc.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto. This Agreement shall be governed by and interpreted according to
the laws of the State of New York.
If any provision or condition of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision or condition and all other provisions and conditions of this
Agreement shall remain in full force and effect.
Very truly yours,
U.S.Clearing Corp.
/s/ Pascal J. Mercurio
---------------------
Pascal J. Mercurio
Chairman
Chief Executive Officer
Accepted and Agreed to:
By: /s/ Joseph Ricupero Date: 7/17/97
- -------------------------
Joseph Ricupero
America First Associates Corp.
13
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Exhibit A
1. Extensions: $5.00 per
2. Sell Out/Buy In Telegrams: $5.00 per, charged to client
3. Excess SIPC Insurance: $2.40 per active account per year
(Based on December month end statements)
Other Items
1. America First Associates Corp. (AFA) agrees to maintain a good faith
deposit of $50,000. This deposit will be held at U.S. Clearing Corp.
(USCC) in either cash, Treasury Bill, or a Money Fund. Interest is
proprietary to AFS. The amount of the Good Faith Deposit may be
increased if you engage in market making activity and/or participate in
IPO'S. (see Section 5.)
2. AFA agrees to maintain a Broker's Blanket Bond in the amount of
$250,000 prior to starting business with USCC.
3. AFA agrees to maintain a minimum of $100,000 in Net Capital. (see
Section 5.)
4. AFA agrees to use a communication system (at their expense) to transmit
orders to USCC electronically. All communication charges are subject to
any AT&T increase and USCC will pass along such increase.
5. Postage & Handling Fee: $10.00 per ticket, USCC will retain $1.50.
6. Other Charges:
A. Wire Transfer of Funds $15.00
B. Bounced Checks $15.00
C. Accommodation Transfers $15.00
D. Legal Transfers $15.00
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U.S.Clearing
A Division of Fleet Securities, Inc.
Member New York Stock Exchange, Inc.
August 21, 1998
Mr. Joseph Ricupero
America First Associates Corp.
415 Madison Avenue, 3rd Floor
New York, NY 10017
Addendum to Clearing Agreement
Dear Joe:
The Clearing Agreement dated April 2, 1997 between America First
Associates Corp. and U.S. Clearing (USCC) is amended herewith as follows:
Equity Electronic Trading: (Internet only) will carry the following
schedule for hold in street name only, transfer and ship requests will carry a
$15.00 fee.
Average # of Trades Per Day Ticket Charge
--------------------------- ------------
0-1000 $9.00
Order Flow Rebate(s): Any payment for order flow contemplated by this
Addendum will only be made if permissible under the rules and regulations of the
Securities and Exchange Commission, the Federal Reserve Board, the
self-regulatory organizations that regulate USCC and the laws of the various
states that regulate any of the activities of USCC. In the event that industry
practices result in a reduction or elimination of payment for order flow, USCC
reserves the right in b sole discretion, to reduce or eliminate any payment
provided for hereunder.
4. OTC Transactions: America First Associates Corp. will execute their
OTC transactions through USCC Trading with no exceptions. OTC Transactions will
carry an appropriate rebate as follows:
Spread based rates (No payment for manning or price improvement)
26 BROADWAY - NEW YORK, NY 10004-1798 (212) 747-1400 (800) 221-3524
<PAGE>
Market Orders:
Spread Greater than 1/16 = 2 cents per share
Spread Less than or equal to 1/16 and greater than 1/32 = 1 cent per share
Spread Equal to 1/32 = 1/4 cent per share Spread Less than 1/32 = 1/4% of
principal (Amount not to exceed 1/4 cent per share)
Limit Orders at half of above Market Order rates
No spread available & price greater than or equal to $2.00 = 1 cent per
share. Less than $2.00 = no payment. (Primarily the result of routing non-market
making securities).
2. Listed (Third Market) Securities: will be executed through the
Chicago Stock Exchange and carry an approximate rebate as follows:
Tier I (OEX Stocks) $.0125 per share
Tier 11 (S&P Stocks) $ .01 00 per share
Tier III (All Other Stocks) $.0075 per share
Sincerely,
/s/ Charles LaBella
-------------------
Charles LaBella
Vice President
Accepted and Agreed to by
/s/ Joseph Ricupero
- -------------------
Joseph Ricupero
cc: P. Mercurio
J. Boyle
JG/jg
<PAGE>
U.S.Clearing
A Division of Fleet Securities, Inc.
Member New York Stock Exchange, Inc.
April 30, 1999
Mr. Joseph Ricupero
America First Associates Corp.
415 Madison Ave
New York, NY 10017
Re: PAIB Addendum
Dear Joseph:
This Addendum amends the Fully Disclosed Clearing Agreement between U.S.
Clearing, a Division of Fleet Securities, Inc. ("Clearing Broker") and America
First Associates Corp. ("Introducing Broker"), in conformity with the SEC
No-Action Letter, dated November 3, 1998 ("No-Action Letter") relating to the
capital treatment of assets in the proprietary account of an introducing broker
("PAIB") and to permit Introducing Broker to use PAIB assets in its net capital
computations. This Addendum shall be effective June 1, 1999.
1. Introducing Broker shall identify to Clearing Broker in writing all accounts
that are, or from time to time may be, proprietary accounts of Introducing
Broker. Clearing Broker shall perform a computation for PAIB assets ("PAE3
Reserve Computation") of Introducing Broker in accordance with the customer
reserve computation set forth in Rule 15c3-3 ("customer reserve formula") with
the following modifications:
A. Any credit (including a credit applied to reduce a debit) that is
included in the customer reserve formula may not be included as a
credit in the PAIB reserve computation;
B. Note E(3) to Rule 15c3-3a which reduces debit balances by 1% under the
basic method and subparagraph (a)(1)(ii)(A) of the net capital rule
which reduces debit balances by 3% under the alternative method shall
not apply; and
C. Neither Note E(l) to Rule 15c3-3a nor NYSE Interpretation /04 to Item
10 of Rule 15c3-3a regarding securities concentration charges shall be
applicable to the PAIB reserve computation.
2. The PAIB reserve computation shall include all proprietary accounts of
Introducing Broker. All PAIB assets shall be kept separate and distinct from
customer assets under the customer reserve formula in Rule 15c3-3.
3. The PAI]3 reserve computation shall be prepared within: the same time frames
as those prescribed by Rule 15c3-3 for the customer reserve formula.
26 BROADWAY , NEW YORK, NY 10004-1798 (212) 747-1400 (800) 221-3524
<PAGE>
4. Clearing Broker shall establish and maintain a separate "Special Reserve
Account for the Exclusive Benefit of Customers" with a bank in conformity with
the standards of paragraph (D of Rule 15c3-3 ("PAIB Reserve Account"). Cash
and/or qualified securities as defined in the customer reserve formula shall be
maintained in the PAIB Reserve Account in an amount equal to the PAIB reserve
requirement.
5. If the PAIB reserve computation results in a deposit requirement, the
requirement may be satisfied to the extent of any excess debit in the customer
reserve formula of the same date. However, a deposit requirement resulting from
the customer reserve formula shall not be satisfied with excess debits from the
PAIB reserve computation.
6. Within two business days of entering into this PAIB Agreement, Introducing
Broker shall notify its designated examining authority in writing (with copy to
Clearing Broker) that it has entered into this PAIB Agreement.
7. Commissions receivable and other receivables of Introducing Broker from
Clearing Broker (excluding clearing deposits) that are otherwise allowable
assets under the net capital rule may not be included in the PAIB reserve
computation, provide the amounts have been clearly identified as receivables on
the books and records of Introducing Broker and as payables on the books of
Clearing Broker.
8. If Introducing Broker is a guaranteed subsidiary of Clearing Broker or if
Introducing Broker guarantees Clearing Broker (i.e., guarantees all liabilities
and obligations) then the proprietary account of Introducing Broker shall be
excluded from the PAIB Reserve Computation.
9. Upon discovery that any deposit made to the PAIB Reserve Account did not
satisfy its deposit requirement, Clearing Broker shall by facsimile or telegram
immediately notify its designated examining authority and the Securities and
Exchange Commission ("Commission"). Unless a corrective plan is found acceptable
by the Commission and the designated examining authority, Clearing Broker shall
provide written notification within 5 business days of the date of discovery to
Introducing Brokers that PA]13 assets held by Clearing Broker shall not be
deemed allowable assets for net capital purposes. The notification shall also
state that if Introducing Broker wishes to continue to count its PAI]3 assets as
allowable, it has until the last business day of the month following the month
in which the notification was made to transfer all PAIB assets to another
clearing broker. However, if the deposit deficiency is remedied before the time
at which Introducing Broker must transfer its PAIB assets to another clearing
broker, the Introducing Broker may choose to keep its assets at Clearing Broker.
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10. The parties shall adhere to the terms of the No-Action Letter, including
the Interpretations set forth therein, in all respects.
U.S.Clearing, a Division of
Fleet Securities, Inc.
/s/ Joel Hirstreet
-------------------
Joel Hirstreet
Chief Financial Officer
Senior Vice President
ACCEPTED AND AGREED TO:
By: /s/ Joseph Ricupero
--------------------
Mr. Joseph Ricupero
America First Associates Corp.
CONSENT OF ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated February 20, 1998 and January 29, 1999, for the audited financial
statements dated December 31, 1997 and 1998, respectively, included in or made
part of this Registration Statement.
New York, New York Kaufmann & Company, P.C.
April 26, 1999 (now Kaufmann, Gallucci & Company, LLP)
CONSENT OF ATTORNEYS
We hereby consent to the use of our name, and all references to our firm,
included in or made a part of this Registration Statement.
New York, New York
April 30, 1999
LAMPERT, LAMPERT & FERENCE
