<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2000
REGISTRATION NO. 333-86365
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- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EMPIRE FINANCIAL HOLDING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 6211 59-3627212
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
1385 WEST STATE ROAD 434
LONGWOOD, FLORIDA 32750
(407) 774-1300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEVIN M. GAGNE AND RICHARD L. GOBLE
CO-CHIEF EXECUTIVE OFFICERS
EMPIRE FINANCIAL HOLDING COMPANY
1385 WEST STATE ROAD 434
LONGWOOD, FLORIDA 32750
(407) 774-1300
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies of communications to:
<TABLE>
<S> <C>
PHILLIP J. KUSHNER, ESQ. GERALD F. ROACH, ESQ. AND AMY J. MEYERS, ESQ.
GREENBERG TRAURIG, P.A. SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
1221 BRICKELL AVENUE 2500 FIRST UNION CAPITOL CENTER
MIAMI, FLORIDA 33131 RALEIGH, NORTH CAROLINA 27601
TELEPHONE NO.: (305) 579-0500 TELEPHONE NO.: (919) 821-1220
FACSIMILE NO.: (305) 579-0717 FACSIMILE NO.: (919) 821-6800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value..................... 3,680,000(2) $12.00 $44,160,000 $11,658.24
Common Stock, par value $.01 per share, issuable
upon exercise of the Underwriter's Warrants(3)... 350,400 $14.40 $5,045,760 $1,332.08
Total Fee.................................... $12,990.32*
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
pursuant to Rule 457.
(2) Includes 480,000 shares of Common Stock which may be issued upon exercise of
a 30-day option granted to the underwriters solely to cover over-allotments,
if any.
(3) Pursuant to Rule 416 under the Securities Act, this Registration Statement
also covers additional shares as may become issuable as a result of the
anti-dilution provisions contained in the warrants.
* Previously paid.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 3, 2000
PRELIMINARY PROSPECTUS
[LOGO]
EMPIRE FINANCIAL HOLDING COMPANY
3,200,000 SHARES OF COMMON STOCK
------------------------
EMPIRE FINANCIAL HOLDING COMPANY
------------------------
This is our initial public offering. We have applied for listing on the
NASDAQ National Market under the proposed trading symbol EFHC.
We expect that the price to the public in the offering will be between
$10.00 and $12.00 per share. The market price of the shares after the offering
may be higher or lower than the offering price.
An investment in our shares involves certain risks. See Risk Factors
beginning on page 5 of this prospectus.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Price to the public........................................ $ $
Underwriting discounts and commissions..................... $ $
Proceeds, before expenses, to us........................... $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have entered into a firm commitment underwriting agreement with the
underwriters for the sale of the shares in this offering. We have granted to the
underwriters a 30-day option to purchase up to an additional 480,000 shares of
common stock to cover over-allotments. One of our subsidiaries, Empire Financial
Group, Inc., will be one of the underwriters participating in this offering.
------------------------
The underwriters expect to deliver the shares to purchasers on
, 2000.
WACHOVIA SECURITIES, INC.
PUTNAM, LOVELL, DE GUARDIOLA & THORNTON, INC.
EMPIRE FINANCIAL GROUP, INC.
THE DATE OF THIS PROSPECTUS IS MAY , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................... 1
Risk Factors................................ 5
Cautionary Note on Forward-Looking
Statements................................ 10
Determination of Offering Price............. 10
Use of Proceeds............................. 11
Dividend Policy............................. 11
Dilution.................................... 12
Capitalization.............................. 13
Selected Consolidated Financial Data........ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 15
<CAPTION>
PAGE
----
<S> <C>
Business.................................... 23
Directors and Executive Officers............ 33
Security Ownership of Certain Beneficial
Owners and Management..................... 37
Certain Transactions........................ 38
Description of Capital Stock................ 38
Shares Eligible for Future Sale............. 40
Underwriting................................ 41
Legal Matters............................... 43
Experts..................................... 44
Where You Can Find More Information......... 44
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Unless indicated otherwise, references to "we," "us" or "Empire" mean
Empire Financial Holding Company and its wholly owned subsidiaries Advantage
Trading Group, Inc., Empire Financial Group, Inc. and Empire Investment
Advisors, Inc. Empire Financial Holding Company was formed in February 2000 and
in the same month acquired all of the issued and outstanding stock of these
entities from their two shareholders in exchange for an aggregate of 8,000,000
shares of Empire Financial Holding Company common stock.
Except as otherwise indicated, all information in this prospectus assumes
no exercise of the underwriters' over-allotment option to purchase an additional
480,000 shares, does not give effect to up to 1,000,000 shares of common stock
issuable upon the exercise of options that may be granted under our 2000 Stock
Option Plan or 350,400 shares of common stock issuable upon exercise of warrants
to be issued to the representative of the underwriters and assumes an initial
public offering price of $11.00 per share.
(i)
<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 entire prospectus carefully, and
you should consider the risk factors and our financial statements and
accompanying notes that appear later in this prospectus.
ABOUT US
We are a financial brokerage services firm serving institutional and retail
investors through the Internet and traditional means. We also enable other
broker dealers to complete their customers' brokerage transactions by providing
securities order execution services. In February 2000, we introduced a new
service for financial institutions that enables them to offer brokerage services
to their retail customers through the Internet using our established
capabilities. We are currently marketing these private label brokerage services,
but have not begun to provide them to any financial institutions. In addition,
we plan to expand our business and diversify our revenue sources by offering
securities clearing services to other broker dealers and fee-based portfolio
investment advice to our retail customers.
Our securities order execution services involve filling orders to purchase
or sell securities received from approximately 80 independent broker dealers on
behalf of their retail and institutional customers. We typically act as
principal in these transactions and derive our order execution trading revenues,
net, from the difference between the price paid when a security is bought and
the price received when that security is sold. Therefore, we seek to take
advantage of daily stock price fluctuations to maximize our revenues. We
typically do not receive a fee or commission for providing order execution
services. Approximately 59% of our 1999 revenues were derived from these
services. We reduce the expenses associated with our order execution services by
clearing our own trades. We believe that our ability to clear transactions,
unlike many other order execution firms, provides us with a competitive
advantage in that we are able to control costs and provide better service. We
normally close out our trade positions at the end of each day and do not
maintain securities inventory in order to reduce our risks from market
volatility.
We also provide financial brokerage services directly to our retail
customers, including both individuals and small to mid-sized institutions such
as hedge funds, money managers, mutual funds and pension funds. Approximately
33% of our 1999 revenues were derived from commissions and fees generated in
connection with our retail financial brokerage services. Our retail customers
can place their securities orders online through our secure website located at
WWW.EMPIRENOW.COM or over the telephone by calling our client support desk at
1-800-lowfees (1-800-569-3337). We charge our customers an agreed upon brokerage
commission. Our current online retail trading commissions start at $6.95 per
trade and our broker assisted trades start at $19.00 per trade.
In February 2000, we began offering our private label brokerage services to
broker dealers and other financial institutions that want to provide expanded
services to their retail customers. We intend to provide their retail customers
the same level and range of products and services as we offer to our own retail
customers and will charge their customers commissions and fees similar to those
charged to our own retail customers. We plan to pay these institutions fees
based on transaction volume generated by their retail customers. Additionally,
we plan to offer fee-based investment advisory services to our customers by
December 31, 2000.
In January 2000, we received regulatory approval to provide clearing
services for up to three unaffiliated broker dealers. Our clearing services
involve account, settlement and delivery functions. We have begun marketing
these clearing services, but are not yet providing them to any other broker
dealer. We intend to seek further regulatory approval to increase the number of
clearing service customers.
We were incorporated in Florida in February 2000 and conduct all of our
operations through three wholly owned subsidiaries that were incorporated in
Florida in 1990, 1995 and 1999, respectively: Empire Financial Group, Inc.,
which provides our financial brokerage services, Advantage Trading Group, Inc.,
which provides our execution and clearing services and Empire Investment
Advisors, Inc., through which we plan to offer fee-based investment advisory
services.
1
<PAGE>
RECENT TRENDS
The securities brokerage business has experienced rapid growth in
transaction volumes in recent years. This growth is due to many factors
including the emergence and dramatic growth of online trading via the Internet.
As a result of the growth of the Internet, online trading is now the fastest
growing segment of the discount securities brokerage business and is expected to
continue to grow significantly. Cerulli Associates, an independent industry
research firm, estimates that the number of U.S. households with Internet access
will grow from 34 million in 1999 to approximately 107 million by 2003.
Consequently, this trend is expected to greatly increase the number of
households that will access financial products and services, including brokerage
services, via the Internet. Cerulli expects online brokerage accounts to
increase from approximately 11.5 million in 1999 to 33.9 million by 2003.
Similiarly, estimates published by Cerulli and Forrester Research project that
online brokerage assets will increase from approximately $750 billion to between
$1.8 and $3.0 trillion over the same period.
OUR GROWTH
Our business has grown significantly during the past year:
o Our total revenues increased 122% to $17,598,303 for the year ended
December 31, 1999 from $7,933,999 in 1998 and 108% to $7,440,653 for the
three months ended March 31, 2000 from $3,572,438 for the same period in
1999;
o Our income before taxes increased 217% to $3,458,326 for the year ended
December 31, 1999 from $1,090,584 in 1998 and 29% to $1,614,511 for the
three months ended March 31, 2000 from $1,251,025 for the same period in
1999;
o Our retail customer accounts increased 122% to approximately 10,000 at
December 31, 1999 from approximately 4,500 at December 31, 1998 and 83%
to approximately 11,000 at March 31, 2000 from approximately 6,000 at
March 31, 1999; and
o Our average trades per day increased 52% to approximately 1,224 during
1999 from approximately 803 during 1998 and approximately 71% to 2,005
for the three months ended March 31, 2000 from 1,175 for the same period
in 1999.
OUR BUSINESS STRATEGY
We plan to succeed in the financial brokerage business by offering order
execution and other services to broker dealers and by providing competitively
priced retail brokerage services. We believe that our proprietary and online
technologies will provide us with competitive and cost advantages in our
targeted businesses. We plan to grow our business while minimizing our costs by
implementing the following business strategy:
o Become a leading order execution services provider to broker dealers. We
plan on aggressively marketing our established order execution
capabilities to additional broker dealers to expand our business. We also
plan to strengthen our relationships with these broker dealers by
offering our proprietary online trade execution system in addition to our
current telephone order capabilities. Successful implementation of these
strategies should increase our transaction volume, which may increase our
order execution trading revenues, net.
o Become a leading provider of private label brokerage solutions for other
financial institutions. We recently began offering private label
brokerage solutions to broker dealers, banks, savings and loan
institutions, credit unions, insurance companies and various other
financial institutions that want to provide expanded services to their
customers. We believe that this strategy of entering into agreements with
institutions that have large customer bases will allow us to grow our own
retail customer base rapidly and efficiently.
o Increase our retail customer base. The proceeds from this offering will
allow us to increase our marketing and promotional programs targeting
individuals, affinity groups, financial planners and investment advisors,
as well as potential institutional private label customers. Further, we
may expand
2
<PAGE>
our retail customer base by selectively acquiring broker dealers with
established customer bases who may lack the necessary capital and other
resources to grow their client base or develop their own online
capability.
o Utilize our clearing capabilities to diversify our revenue base. We
recently received the necessary regulatory approvals to provide trade
clearing services for up to three unaffiliated broker dealers and have
begun marketing our clearing services to other broker dealers. We intend
to diversify our revenue base and realize efficiencies by expanding our
clearing operations.
o Utilize technology to sustain business advantages. We have been
successful in managing our costs through the in-house development and use
of proprietary technology. We plan to continue to invest in the
development of proprietary systems and software that we believe will
enhance the cost structure of our businesses. We believe that our
proprietary securities trading and processing software applications allow
us to monitor our potential risks of losses from volatility, reduce our
dependence on third party vendors and maintain low fixed processing and
labor costs.
o Supplement technology with personal interaction to increase transaction
volume and increase retail customer retention. We understand our
technology-based marketplace and are continually seeking to expand the
features offered to our retail customers. However, we believe that our
ability to offer access to client support representatives to complement
electronic investing will help increase our transaction volume and
improve customer retention rates.
o Establish expertise in investment advisory services. We plan to offer
fee-based portfolio investment advisory services to our retail and
private label customers after we receive the necessary regulatory
approvals which could occur by December 31, 2000. We have already
registered as an investment adviser under the Investment Advisers Act of
1940 and have applied for state approvals. We believe this capability
will distinguish us from many of our competitors and will result in
stronger, more comprehensive relationships with our customers.
HOW TO CONTACT US
Our principal executive offices are located at 1385 West State Road 434,
Longwood, Florida 32750, and our telephone number is 1-800-lowfees
(1-800-569-3337). Our website is located at WWW.EMPIRENOW.COM. Information on
our website is not part of this prospectus.
ABOUT THE OFFERING
<TABLE>
<S> <C>
Common stock offered...................... 3,200,000 shares
Common stock to be outstanding after the
offering................................ 11,200,000 shares
Use of net proceeds....................... For account acquisition programs and advertising, new business
initiatives, net capital and other general corporate purposes.
Proposed Nasdaq Symbol.................... EFHC
</TABLE>
The 11,200,000 shares of common stock to be outstanding after the offering
do not include 480,000 shares that would be issued if the representative of the
underwriters exercised its over-allotment option, 350,400 shares of common stock
issuable upon the exercise of warrants to be issued to the representative of the
underwriters and up to 1,000,000 shares of common stock that are reserved for
issuance upon exercise of options that may be granted under our 2000 Stock
Option Plan.
CONVERSION FROM S CORPORATION TO C CORPORATION
We are currently an S corporation for federal income tax purposes and our
taxable income is a direct liability of our current shareholders. We distributed
$1,400,000 to our existing shareholders in April 2000 related to their tax
liability for our net income for 1999.
3
<PAGE>
We will make a final distribution to our existing shareholders not later
than April 15, 2001 to help them pay their income taxes arising from our
earnings from January 1, 2000 until completion of this offering. We will
distribute to them approximately 40.5% of our earnings for the period. For the
three months ended march 31, 2000, 40.5% of our earnings equals approximately
$654,000.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
You should read the following summary of our financial statements in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, including the related
notes, included in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Order execution trading revenues,
net............................. $ 3,783,452 $ 2,764,311 $10,441,910 $ 5,681,892 $ 4,612,693
Commissions and fees............... 3,096,334 639,680 5,867,121 2,022,433 1,487,379
Total revenues..................... 7,440,653 3,572,438 17,598,303 7,933,999 6,325,073
Net income......................... 1,614,511 1,251,025 3,458,326 1,090,584 696,678
----------- ----------- ----------- ----------- -----------
Earnings per share--basic and
diluted......................... $ .20 $ .16 $ .43 $ .14 $ .09
=========== =========== =========== =========== ===========
Unaudited pro forma information:
Net income before income taxes..... $ 1,614,511 $ 1,251,025 $ 3,458,326 $ 1,090,584 $ 696,678
Provision for income taxes......... 607,000 470,000 1,300,000 410,000 262,000
----------- ----------- ----------- ----------- -----------
Net income......................... $ 1,007,511 $ 781,025 $ 2,158,326 $ 680,584 $ 434,678
=========== =========== =========== =========== ===========
Pro forma earnings per share--
basic and diluted............... $ .13 $ .10 $ .27 $ .09 $ .05
=========== =========== =========== =========== ===========
Weighted average shares
outstanding........................ 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------------------- -----------------
ACTUAL AS ADJUSTED ACTUAL
----------- ----------- -----------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................................... $ 2,594,895 $34,180,895 $ 1,880,142
Total assets.................................................. 30,973,584 62,157,389 22,166,240
Total liabilities............................................. 26,659,013 28,712,890 19,016,198
Shareholders' equity.......................................... 4,314,571 33,444,499 3,150,042
</TABLE>
We have operated as S corporations, and, accordingly, our taxable income
has been taxed directly to our shareholders. Pro forma net income amounts assume
that we were subject to federal income taxes and taxed as a C corporation at the
tax rates in effect for the periods presented. On the effective date of this
offering, our election to be treated as an S corporation will automatically
terminate, and we will be subject to federal income taxes. See Note 2 to our
consolidated financial statements.
The "As Adjusted" column reflects adjustments taking into account the sale
of the shares of common stock in this offering (based on an assumed public
offering price of $11.00 per share), the receipt of the estimated $31,586,000
net proceeds, the charge-off of $402,195 of deferred offering costs, the
declaration of a distribution of $1,400,000 to our existing shareholders for tax
payments related to 1999, which was paid in April 2000, and the expected payment
to our existing shareholders of $653,877 relating to their tax liability for our
earnings for the three months ended March 31, 2000.
4
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before making an investment decision. Our business, financial condition and
operating results could be adversely affected by any of the factors listed
below, which could cause the trading price of our common stock to decline, and
you could lose all or part of your investment.
DECREASED TRANSACTION VOLUME COULD REDUCE OUR REVENUES.
Our revenues depend on the volume of securities transactions that we handle
for our customers. Transaction volume in the securities industry can fluctuate
widely. Decreases in the volume of transactions we handle could result in
reduced revenues.
WE FACE RISKS ASSOCIATED WITH OUR ORDER EXECUTION SERVICES.
Our order execution services involve the purchase and sale of securities
predominantly as principal, instead of buying and selling securities as an agent
for our customers. As a result, we own securities or are required to buy
securities to complete customer transactions, and, therefore, are subject to
risks associated with market price fluctuations.
WE ARE SUBJECT TO SECURITIES REGULATION AND FAILURE TO COMPLY COULD SUBJECT US
TO PENALTIES OR SANCTIONS THAT COULD HARM OUR BUSINESS.
Our business is subject to federal and state laws regulating the securities
industry. In addition, the Securities and Exchange Commission, or the SEC, the
National Association of Securities Dealers, Inc., or the NASD, and other
self-regulatory organizations, as well 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 and disputes concerning compliance with any of these laws,
rules or regulations could result in substantial expenses for us as well as
censure, fines, the issuance of cease and desist orders or the suspension or
expulsion as a broker dealer.
POTENTIAL GOVERNMENTAL REGULATION OF THE INTERNET AND ONLINE COMMERCE COULD HARM
OUR BUSINESS.
Our business could be harmed by future legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business or the application of existing laws and
regulations to the Internet and other online services. 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. Regulatory
requirements applicable to our business are discussed in "Business--Government
Regulation--Additional Regulation" at page 32 of this propectus.
FAILURE TO COMPLY WITH NET CAPITAL REQUIREMENTS COULD SUBJECT US TO SUSPENSION
OR REVOCATION OF OUR BROKER DEALER REGISTRATION BY THE SEC OR EXPULSION BY THE
NASD.
We are subject to stringent rules promulgated by the SEC, the NASD and
various other regulatory agencies with respect to the maintenance of specific
levels of net capital by securities brokers. Failure to maintain the required
net capital may subject us to suspension or revocation of registration by the
SEC and suspension or expulsion by the NASD or 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
our net capital could limit our operations that require the intensive use of
capital, such as the financing of client account balances.
FAILURE TO QUALIFY AS A FOREIGN CORPORATION COULD HARM OUR BUSINESS.
Our subsidiaries, Advantage Trading Group, Inc. and Empire Financial Group,
Inc. are both currently registered as broker dealers in all 50 states as well as
Puerto Rico, but are qualified to do business as a foreign corporation in only a
few states. Because our services are available over the Internet and we have
5
<PAGE>
customers in many states, we may be required to qualify as a foreign
corporation. Failure to so qualify could result in the imposition of taxes and
penalties that would increase our costs. Regulatory requirements applicable to
our business are discussed in "Government Regulation--Additional Regulation" at
page 32 of this prospectus.
INTENSE COMPETITION FROM EXISTING AND NEW BROKERAGE SERVICES MAY ADVERSELY
AFFECT OUR REVENUES AND PROFITABILITY.
We cannot assure you 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. The market for online brokerage services is relatively new,
rapidly evolving, intensely competitive and has few barriers to entry. We expect
competition to continue and intensify in the future. Discount brokerage firms
may continue to reduce their commission rates in an effort to offer the lowest
transaction costs to investors. Many of these firms have greater transaction
volume and offer a wider range of services than we do, which allows them to
compensate for lower commission rates. Our current commission fees for online
trading start at $6.95 per trade. Any rate reductions by us would adversely
affect our profitability.
Because many of our competitors have significantly greater financial,
technical, marketing and other resources, offer a wider range of products and
services and have more extensive client bases than us, they may be able to
respond more quickly to new or changing opportunities, technologies and client
requirements than us. They may also 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.
EMPLOYEE MISCONDUCT COULD HARM OUR BUSINESS.
Because our business involves handling cash and marketable securities on
behalf of our customers, employee misconduct could result in unknown and
unmanaged risks or losses. Misconduct by employees could also include binding us
to transactions that exceed authorized limits or present unacceptable risks or
hiding from us unauthorized or unsuccessful activities.
WE FACE RISKS ASSOCIATED WITH MAKING ORDERFLOW PAYMENTS.
We have arrangements with various investment banking and securities
brokerage firms under which we pay them to send their trade orders to us for
execution. This is known as paying for orderflow. Loss of the ability to have
orders routed to us in this manner could reduce our transaction volume and
therefore reduce our revenues. To attract orderflow, we must be competitive on:
o providing enhanced liquidity to our customers;
o the speed of our order execution;
o payment for orderflow;
o the sophistication of our trading technology; and
o the quality of our customer service.
This practice of paying for orderflow is widespread in the securities
industry. However, there can be no assurance that the SEC, the NASD, courts or
other regulatory agencies will continue to permit payments for orderflow.
WE FACE RISKS THAT OUR RETAIL CUSTOMERS MAY NOT REPAY US FOR CREDIT WE EXTEND TO
THEM.
We are subject to the risks inherent in extending credit to the extent that
we permit our retail customers to purchase securities on a margin basis. In
margin transactions, credit is extended to customers and secured by cash and
securities in the client's account. Approximately 60% of our retail customers'
purchase transactions during 1999 were completed on a margin basis through
Advantage Trading Group, Inc., our subsidiary clearing firm, and Bear Stearns
Securities Corp., an independent clearing broker which we have agreed to
indemnify. Approximately 15% of all assets held in our retail customers'
accounts are subject to
6
<PAGE>
margin obligations. Periods of volatile markets increase these risks because the
value of the collateral held by us could fall below the amount borrowed by the
customer. In such circumstances, we may be required to sell or buy securities at
prevailing market prices and incur losses to satisfy customer obligations. As of
March 31, 2000, we had extended approximately $21,957,000 in credit to our
retail customers, accounting for approximately 71% of our total assets.
WE FACE RISKS ASSOCIATED WITH OUR CLEARING OPERATIONS.
Errors in performing clearing functions and failure to comply with related
regulatory requirements could create liabilities to affected customers and lead
to civil penalties imposed by the SEC or the NASD. Clearing services include the
confirmation, receipt, settlement and delivery functions involved in securities
transactions. Clearing securities firms are subject to substantially more
regulatory control and examination than non-clearing firms because clearing
operations involve substantial risks of liability to customers due to clerical
errors related to the handling of customer funds and securities. We are also
required to maintain cash or qualified securities in a special reserve bank
account for the exclusive benefit of our customers.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES IN A
COST-EFFECTIVE MANNER.
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 in a timely and
cost-effective manner. 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.
INTERRUPTION OR LOSS OF CONTENT PROVIDED BY THIRD PARTIES COULD CAUSE US TO LOSE
CUSTOMERS, HARMING OUR BUSINESS.
We rely on third-party content providers for much of the financial
information we offer through our website and are therefore dependent on the
ability of third-party content providers to deliver content in a timely and
consistent manner. Interruption or termination of our existing third-party
content supply would require us to seek content from other third parties. Delays
in obtaining replacement content could cause us to lose customers.
WE DEPEND HEAVILY ON COMPUTER SYSTEMS, AND SYSTEM FAILURES COULD HARM OUR
BUSINESS.
We rely heavily on various electronic media. We receive trade orders using
the Internet and telephone. In addition, we process trade orders through our own
systems and those of Bear Stearns Securities Corp., ABN Amro Incorporated, The
Vantra Group, Inc. and SunGard Financial Systems, Inc. These methods of trading
are heavily dependent on the integrity of the electronic systems supporting
them.
Heavy system traffic during peak trading times could cause our systems to
operate at unacceptably low speeds or fail altogether. Any significant
degradation or failure of our computer systems, those of our vendors, 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. As a result, our revenues may decline and our business
reputation may be adversely affected. Our computer systems are also vulnerable
to damage or interruption from human error, natural disasters, power loss,
sabotage or computer viruses.
Several prominent websites, including Yahoo.com, eBay.com and Buy.com, were
recently shut down temporarily due to attacks by computer criminals. These
attacks exploit security gaps in computer systems by planting software known as
"zombies" on unsuspecting computers through the Internet. Zombie software can
then be remotely activated to cause infected computers to flood a targeted
website with millions of messages, effectively blocking access to the site by
legitimate users. Our business could be harmed if our website was subjected to
such an attack.
7
<PAGE>
COMPROMISES OF OUR SYSTEMS' SECURITY COULD HARM OUR BUSINESS.
Any compromise of our systems' 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. 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 means our vendors and we use to protect client transaction and other data.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO PROTECT OUR
PROPRIETARY TECHNOLOGY AGAINST INFRINGEMENT.
Our business depends to a significant degree on our proprietary internal
trade execution and clearing software applications. We rely on copyright and
trade secret protection for these applications. Unlike patent protection,
copyright and trade secret rights do not protect against competitors developing
similar applications independently. Development and use of similar software
applications by our competitors could adversely affect our ability to compete
effectively.
WE MAY FACE CLAIMS OF INFRINGEMENT.
Other parties may in the future claim that we infringe their intellectual
property rights. Regardless of whether any such claims are valid, claims of
infringement could be time-consuming and expensive to defend, could divert our
resources and our management's attention and could disrupt our business or
increase our costs if we are forced to stop using any software, systems or
processes.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL WHEN WE NEED 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. In the future, however, we may 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 or
on terms that will not result in dilution to our existing shareholders. Our line
of credit is subject to annual renewal in September of each year. We cannot
assure you that our line of credit will be renewed.
DISAGREEMENTS BETWEEN OUR CO-CHIEF EXECUTIVE OFFICERS COULD HINDER OUR GROWTH.
Our management team is currently headed by our co-chairmen, co-chief
executive officers and co-presidents, Kevin M. Gagne and Richard L. Goble.
Messrs. Gagne and Goble may disagree in the future regarding business decisions.
Our bylaws provide that disagreements between our co-chairmen, co-chief
executive officers and co-presidents will be decided by our board of directors.
Nevertheless, our business could suffer if we frequently have to resort to this
dispute resolution procedure.
KEVIN M. GAGNE AND RICHARD L. GOBLE OWN MOST OF OUR COMMON STOCK AND CONTROL US.
Upon completion of this offering, our co-chairmen, co-chief executive
officers and co-presidents, Kevin M. Gagne and Richard L. Goble, will
beneficially own approximately 71% of our common stock. Accordingly, following
completion of this offering, these two individuals will control us and have the
power to, among other matters, elect all directors, increase our authorized
capital stock or cause us to dissolve, merge or sell our assets. Messrs. Gagne
and Goble have also entered into a voting agreement under which they have agreed
that corporate actions requiring their vote as shareholders will require the
approval of both of them, so that neither of them can act unilaterally, thus
strengthening their collective control of us. The voting agreement provides
that, if Messrs. Gagne and Goble are unable to agree as to a particular proposal
to be voted upon by our shareholders, they each agree to abstain from voting,
which may have the effect of preventing the other shareholders from approving
the proposal. Messrs. Gagne and Goble have also entered
8
<PAGE>
into a shareholder agreement pursuant to which each of them has granted to the
other a right of first refusal (except in limited circumstances) to purchase any
shares of our common stock owned by them, thus further strengthening their
collective control of us.
Each of Messrs. Gagne and Goble has also entered into an employment
agreement with us for an initial term expiring on December 31, 2005. As a
result, they have the right to control our business and operations as our most
senior officers. Additional discussion of these employment agreements is found
at "Directors and Executive Officers--Employment Agreements" at page 35 of this
prospectus.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
This offering involves an immediate and substantial dilution of $8.01 per
share (72.9%) between the net tangible book value per share after the offering
and the initial public offering price per share, assuming an initial public
offering price of $11.00 per share.
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE
MAY BE VOLATILE.
Prior to this offering, there has been no public market for our common
stock. We have applied for listing of our common stock on The Nasdaq National
Market; however, we cannot assure you that an active trading market will develop
or be sustained. The initial public offering price will be determined by
negotiations between us and Wachovia Securities, Inc., the representative of the
underwriters, 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 completion of this offering. The market price of our common stock may 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 Internet stocks in particular and other
factors.
THERE ARE MANY SHARES ELIGIBLE FOR FUTURE SALE AND SALES OF THOSE SHARES COULD
REDUCE THE MARKET PRICE.
The 3,200,000 shares of common stock offered hereby will be freely tradable
without restriction or further registration under the Securities Act of 1933 by
persons other than "affiliates" within the meaning of Rule 144 under the
Securities Act. The holders of the remaining 8,000,000 shares of common stock
generally will be entitled to sell these shares in the public securities market
commencing in February 2001, without registration under the Securities Act to
the extent permitted by Rule 144 under the Securities Act. In addition, the
holders of these restricted shares have agreed not to sell or dispose of those
shares for a period of 180 days from the date of this prospectus without the
written consent of Wachovia Securities, Inc. Future sales of a substantial
amount of our common stock in the public market, or the perception that future
sales may occur, could reduce the market price of our common stock.
WE MAY ISSUE PREFERRED STOCK WITH PREFERENTIAL RIGHTS THAT MAY ADVERSELY AFFECT
YOUR RIGHTS.
The rights of the holders of our common stock will be subject to, and may
be adversely affected by, the rights of holders of any preferred stock that we
may issue in the future. Preferred stock could be issued to discourage, delay or
prevent a change in our control. Our articles of incorporation authorize our
board of directors to issue 1,000,000 shares of preferred stock and to fix the
rights, preferences, privileges and restrictions, including voting rights of
these shares without further shareholder approval. The holders of preferred
stock will have a preference on the receipt of dividends and payment upon
liquidation compared to the holders of our common stock.
CERTAIN PROVISIONS OF FLORIDA LAW MAY DISCOURAGE, DELAY OR PREVENT A CHANGE OF
CONTROL WHICH MIGHT OTHERWISE BE BENEFICIAL TO OUR SHAREHOLDERS.
Certain provisions of the Florida Business Corporation Act could delay,
defer or impede the removal of incumbent directors and could make more difficult
a merger, tender offer or proxy contest involving us, even if these events could
be beneficial to our shareholders. These provisions could also limit the price
that certain investors might be willing to pay in the future for our common
stock. In addition, Florida has certain laws that may deter or frustrate
takeovers of Florida corporations, although we have at the present time opted
out of these statutes.
9
<PAGE>
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Forward-looking statements represent our judgment about the future and are
not based on historical facts. These statements are typically identified by the
use of words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate" or "continue" and similar expressions or variations. 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.
Investing in our common stock is risky. You should carefully consider the
risks and uncertainties identified in this prospectus, including the factors
described in the preceding risk factors, and our financial statements and the
related notes before making an investment decision. Our business, operating
results and financial condition could be adversely affected by any of the
preceding risks. The trading price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for our common
stock. As a result, the offering price for our common stock has been determined
by discussions between us and Wachovia Securities, Inc., the representative of
the underwriters, which is acting as a qualified independent underwriter. The
offering price is based on Wachovia's recommendations, and may not necessarily
be related to our asset value, net worth, or other established criteria of
value. The factors considered in such negotiations, in addition to prevailing
market conditions, include the history of and prospects for the industry in
which we compete, an assessment of our management, our prospects, our capital
structure, our past performance and future plans for products and services.
10
<PAGE>
USE OF PROCEEDS
We estimate we will receive approximately $31,586,000 from the sale of
3,200,000 shares of common stock offered at an assumed initial public offering
price of $11.00 per share after deducting the underwriting discount,
approximately $320,000 to be paid to Mr. Donald A. Wojnowski Jr., who will
become our vice president business development effective as of the date of this
prospectus, as a finder's fee and additional offering expenses payable by us
(estimated to be approximately $830,000). We expect to use the net proceeds as
follows:
<TABLE>
<S> <C> <C>
Account Acquisition Programs and Advertising.... $ 15,000,000 Represents costs associated with acquisitions of
other broker dealers, establishment of
additional relationships with broker dealers for
their clearing and trade execution business and
advertising efforts.
New Business Initiatives........................ 9,000,000 Represents expenses associated with expanding
our product and service offerings, including our
private label brokerage solutions, investment
advisory services and clearing operations.
Increase Net Capital............................ 7,586,000 Represents increase in net capital.
-------------
Total...................................... $ 31,586,000
=============
</TABLE>
If the underwriters exercise their over-allotment option in full, we will
realize additional net proceeds of approximately $4,900,000, based on an assumed
initial public offering price of $11.00 per share after deducting the
underwriting discount, which will be added initially to our net capital.
This represents our best estimate of the allocation of the net proceeds of
this offering based upon the current status of our business. This estimate is
based on certain assumptions, including continued expansion of our client base
and corresponding increases in revenues and that the proposed expansion of our
products and services can be completed without unanticipated delays or costs. If
any of these factors change, we may find it necessary to reallocate a portion of
the proceeds within the above-described categories or use portions of the
proceeds for other purposes. Our estimates may prove to be inaccurate, we may
undertake new programs or activities that will require considerable additional
expenditures, or unforeseen expenses may occur.
From time to time we evaluate potential opportunities for acquisitions of
complimentary businesses, including other broker dealers, but we cannot assure
you that we will complete any particular acquisition. We have no present
commitment or agreement with respect to a material acquisition of another
business.
Based on currently proposed plans and assumptions relating to implementing
our business plans, we believe that the proceeds of this offering, combined with
cash flow from operations, will enable us to fund our presently anticipated
operations for at least the next 12 months. However, if our plans change, our
assumptions change or prove to be inaccurate or if the proceeds of this offering
and our operating cash flow otherwise prove to be insufficient to implement our
business plans, we may find it necessary or desirable to reallocate a portion of
the proceeds within the above-described categories, use proceeds for other
purposes, seek additional financing or curtail our operations or plans. We
cannot assure you that any additional financing will be available to us on
acceptable terms, or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
DIVIDEND POLICY
From time to time we paid dividends to our existing shareholders during
1998, 1999 and the period from January 1, 2000 to the date of this prospectus in
the amounts of $304,241, $2,247,574 and $1,849,982, respectively. We are
currently an S corporation for federal tax purposes and our taxable income is a
direct liability of our current shareholders. We will make a final distribution
to our existing shareholders not later than April 15, 2001 to help them pay
their income taxes arising from our earnings from January 1, 2000 until
completion of this offering. We will distribute to them approximately 40.5% of
our earnings for the period. For the three months ended march 31, 2000, 40.5% of
our earnings equals approximately $654,000.
11
<PAGE>
taxes arising from our earnings from January 2000 until the completion of this
offering. We will distribute to them approximately 40.5% of our earnings for
this period.
We will automatically become a C corporation effective with the completion
of this offering, and we do not intend to pay any other dividends to our
shareholders 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 on our ability to generate earnings, our need for capital and our overall
financial condition among other factors.
DILUTION
The difference between the initial public offering price per share of our
common stock and the pro forma net tangible book value per share after this
offering constitutes the dilution to investors in this offering. Pro forma net
tangible book value per share of common stock is determined by dividing our net
tangible book value (total tangible assets less total liabilities) by the number
of shares of common stock outstanding.
As of March 31, 2000, our pro forma net tangible book value was $1,858,499
or $.23 per share of common stock. Pro forma net tangible book value represents
the amount of our total assets, less any intangible assets, total liabilities, S
corporation distributions for 1999 in the amount of $1,400,000 and the expected
payment to our existing shareholders of approximately $654,000 relating to their
tax liability for our earnings for the three months ended March 31, 2000. After
giving effect to the sale of the 3,200,000 shares of common stock offered
through this prospectus, and after deducting the underwriting discount, finder's
fee and other estimated expenses of the offering, our adjusted pro forma net
tangible book value as of March 31, 2000, would have been $33,444,499 or $2.99
per share. This represents an immediate increase in net tangible book value of
$2.76 per share to existing shareholders and an immediate dilution of $8.01 per
share to investors in the offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price.................................................................. $ 11.00
Pro forma net tangible book value before offering............................................ $ .23
Increase attributable to investors in this offering.......................................... 2.76
Net tangible book value after offering....................................................... 2.99
---------
Dilution to new investors...................................................................... $ 8.01
=========
</TABLE>
If the underwriters exercise their over-allotment option in full, the pro
forma adjusted net tangible book value per share of common stock after the
offering would be $3.28 which would result in dilution to your investment of
$7.72 per share of common stock.
The following table shows, at March 31, 2000, a comparison of the total
number of shares of common stock purchased from us, the total consideration paid
and the average price paid per share by existing common shareholders and to be
paid by investors who purchase shares of common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT DOLLARS PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders............................. 8,000,000 71% $ 264,379 1% $ 0.03
New Investors..................................... 3,200,000 29 35,200,000 99 11.00
---------- ----- ----------- -----
Total........................................... 11,200,000 100% $35,464,379 100%
========== ===== =========== =====
</TABLE>
The above table assumes no exercise of the underwriters' over-allotment
option to purchase an additional 480,000 shares of common stock and does not
give effect to up to 1,000,000 shares of common stock issuable upon the exercise
of options that may be granted under our 2000 Stock Option Plan or 350,400
shares of common stock issuable upon exercise of warrants to be issued to the
representative of the underwriters. If the underwriters' over-allotment option
is exercised in full, the new investors will have paid $40,480,000 for 3,680,000
shares of common stock, representing approximately 32% of the total number of
shares of common stock outstanding.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000, as
adjusted to give effect to the sale of 3,200,000 shares of common stock offered
in this offering at an assumed public offering price of $11.00 per share and the
receipt of the net proceeds from the sale. You should read this table in
conjunction with our consolidated financial statements and the notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short-term borrowings from banks................................................... $ 6,254,000 $ 6,254,000
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and
outstanding................................................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized; 8,000,000 shares
issued and outstanding, actual; 11,200,000 shares issued and outstanding, as
adjusted...................................................................... 80,000 112,000
Additional paid-in capital....................................................... 184,379 33,332,499
Retained earnings................................................................ 4,050,192 --
----------- -----------
Total shareholders' equity......................................................... $ 4,314,571 $33,444,499
----------- -----------
Total capitalization............................................................... $10,568,571 $39,698,499
=========== ===========
</TABLE>
The above table assumes no exercise of the underwriters' over-allotment
option to purchase an additional 480,000 shares of common stock, does not give
effect to up to 1,000,000 shares of common stock issuable upon the exercise of
options that may be granted under our 2000 Stock Option Plan or 350,400 shares
of common stock issuable upon exercise of warrants to be issued to the
representative of the underwriters. Further, the above table does not reflect
the issuance of such warrants. Upon assistance of the warrants, we will record
the fair value of the warrants in shareholders' equity with a corresponding
reduction in additional paid in capital.
The "As Adjusted" column reflects adjustments to take into account the sale
of 3,200,000 shares of common stock in this offering at an assumed initial
public offering price of $11.00 per share and the application of the net
proceeds therefrom (after deducting the underwriting discount, finder's fee and
the estimated expenses of this offering). These figures are further adjusted to
reflect the charge-off of deferred offering costs of $402,195 and the
declaration of a distribution paid to our existing shareholders in April 2000 in
the amount of $1,400,000, the expected payment to our existing shareholders
of approximately $654,000 relating to their tax liability for our earnings for
the three months ended March 31, 2000 and also includes a reclassification in
the amount of $1,996,315 from retained earnings to additional paid-in capital by
our existing shareholders, as a result of the automatic conversion to a C
corporation upon completion of this offering.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference to, and should be read in conjunction with, our audited consolidated
financial statements and the notes to those statements, our unaudited interim
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus. We have operated as S corporations, and, accordingly, our taxable
income has been taxed directly to our shareholders. Unaudited pro forma
information assumes that we were subject to federal income taxes and taxed as a
C corporation at the tax rates in effect for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Order execution
trading revenues,
net................. $ 3,783,452 $ 2,764,311 $10,441,910 $5,681,892 $4,612,693 $1,861,528 $ 495,686
Commissions and fees.. 3,096,334 639,680 5,867,121 2,022,433 1,487,379 925,707 566,058
Orderflow............. 93,511 122,699 370,139 149,246 209,522 301,915 229,076
Interest.............. 324,143 100,902 679,432 66,675 -- -- --
Other................. 143,213 (55,154) 239,701 13,753 15,479 72,907 73,864
----------- ----------- ----------- ---------- ---------- ---------- ----------
$ 7,440,653 $ 3,572,438 $17,598,303 $7,933,999 $6,325,073 $3,162,057 $1,364,684
----------- ----------- ----------- ---------- ---------- ---------- ----------
Expenses:
Employee compensation
and benefits........ 1,913,428 820,182 4,708,879 2,715,069 2,415,490 1,200,386 535,233
Commissions and
clearing costs...... 1,691,918 273,314 2,954,583 1,345,528 1,102,466 427,421 207,609
Orderflow payments.... 779,556 707,890 2,775,599 1,661,488 1,617,153 713,742 199,630
Interest.............. 102,162 51,555 353,668 44,363 1,360 1,079 687
Communications and
data processing..... 271,179 137,493 672,778 164,829 70,482 220,137 68,336
General and
administrative...... 925,312 244,919 2,113,336 642,845 286,986 286,235 96,981
Advertising........... 142,587 86,060 561,134 269,293 134,458 72,660 5,510
----------- ----------- ----------- ---------- ---------- ---------- ----------
5,826,142 2,321,413 14,139,977 6,843,415 5,628,395 2,921,660 1,113,986
----------- ----------- ----------- ---------- ---------- ---------- ----------
Net income.............. $ 1,614,511 $ 1,251,025 $ 3,458,326 $1,090,584 $ 696,678 $ 240,397 $ 250,698
=========== =========== =========== ========== ========== ========== ==========
Earnings per share--
basic and diluted..... $ .20 $ .16 $ .43 $ .14 $ .09 $ .03 $ .03
=========== =========== =========== ========== ========== ========== ==========
Unaudited pro forma
information:
Income before income
taxes............... $ 1,614,511 $ 1,251,025 $ 3,458,326 $1,090,584 $ 696,678 $ 240,327 $ 250,690
Provision for income
taxes............... 607,000 470,000 1,300,000 410,000 262,000 90,000 94,000
----------- ----------- ----------- ---------- ---------- ---------- ----------
Net income............ $ 1,007,511 $ 781,025 $ 2,158,326 $ 680,584 $ 434,678 $ 150,327 $ 156,690
=========== =========== =========== ========== ========== ========== ==========
Pro forma earnings per
share--basic and
diluted............. $ .13 $ .10 $ .27 $ .09 $ .05 $ .02 $ .02
=========== =========== =========== ========== ========== ========== ==========
Weighted average shares
outstanding--basic and
diluted............... 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000
Balance Sheet Data (at
period end):
Total assets............ $30,973,584 $22,166,240 $8,860,788 $1,501,802 $1,047,379 $ 953,267
Total liabilities....... 26,659,013 19,016,198 6,921,498 348,855 339,077 511,085
Shareholders' equity.... 4,314,571 3,150,042 1,939,290 1,152,947 708,302 442,182
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
We were incorporated in February 2000 and at that time acquired all of the
outstanding capital stock of Empire Financial Group, Inc., Advantage Trading
Group, Inc. and Empire Investment Advisors, Inc. from our co-chief executive
officers, co-presidents and co-chairmen of the board, Kevin M. Gagne and Richard
L. Goble, the former co-owners of these entities. In exchange, we issued an
aggregate of 8,000,000 shares of our common stock, half of these shares to
Mr. Gagne and the other half to Mr. Goble. Our business is conducted entirely
through our wholly owned subsidiaries. Accordingly, the following discussion and
analysis of our financial condition and results of operations is based on the
combined results of these businesses.
Our securities order execution services involve filling orders to purchase
or sell securities received from approximately 80 independent broker dealers on
behalf of their retail customers. We typically act as principal in these
transactions and derive our order execution trading revenues, net, from the
difference between the price paid when a security is bought and the price
received when that security is sold. We typically do not receive a fee or
commission for providing order execution services. At the end of each day, we
normally close out our trade positions and do not maintain securities inventory
in order to reduce our risks from market volatility.
We are also a financial brokerage services firm providing discount
brokerage services directly to retail and institutional customers. Our retail
customers can place their securities orders online through our secure website
located at www.empirenow.com or over the telephone at 1-800-lowfees
(1-800-569-3337). We provide our retail customers access to useful financial
products and services through our website and by telephone. Our customers may,
upon request, also receive advice from our brokers regarding mutual funds and
bonds. Our brokers do not provide advice regarding specific equity securities or
options.
We added clearing capabilities for our order execution business in 1996 and
for our financial brokerage services business in 1998. Prior to that, we cleared
all of our customer equity and option transactions through third-party clearing
firms that processed our trades, prepared transaction confirmations and acted as
the custodian for our customer's securities. Clearing services involve the
confirmation, receipt, settlement, custody and delivery functions involved in
securities transactions. We began hiring associates to perform these functions
in August 1997 and incurred significant non-recurring costs to hire and train
our associates, as well as systems integration costs during this period. The
addition of clearing capabilities has allowed us to clear approximately 94% of
our total trades during 1999 and to realize significant cost savings that allow
us to competitively price our services. Our direct costs per transaction that we
clear have decreased approximately 67% since implementing clearing operations.
Our subsidiary, Advantage Trading Group, Inc., currently provides clearing
services for approximately 75% of the transactions initiated by our subsidiary
Empire Financial Group, Inc. Advantage recently received the necessary
regulatory approvals to provide trade clearing services for up to three
unaffiliated broker dealers and has begun marketing its clearing services to
other broker dealers.
SOURCES AND DESCRIPTION OF REVENUES
Order execution trading revenues, net
Approximately 59% of our 1999 revenues, and approximately 51% of our first
quarter 2000 revenues consist of order execution trading revenues, net. Order
execution trading revenues are generated from the difference between the price
we pay to buy securities and the price we are paid when we sell securities.
Volatility of stock prices, which can result in significant price fluctuations
in short periods of time, may result in trading gains or losses. Our order
execution trading revenues are dependent on our ability to evaluate and act
rapidly on market trends and manage risk successfully. We typically act as
principal in these transactions and do not receive a fee or commission for
providing order execution services.
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Commissions and Fees
Approximately 33% of our 1999 revenues and approximately 42% of our first
quarter 2000 revenues consist of commissions and fees. Commissions and fees
include revenues generated from transactional fees charged to retail and
institutional customers. Commissions and fees also include mutual fund
transaction commissions and trailer fees, which are periodic fees paid by mutual
funds as an incentive to keep assets invested with them over time. Transactional
fees charged to retail and institutional customers are primarily affected by
changes in transaction volumes and changes in the commission or fee rates
charged per transaction. The significant growth in daily average trading volumes
in the U.S. and major global equities markets, combined with our introduction of
online trading services, has increased our trading volume.
Orderflow
Approximately 2% of our 1999 revenues and approximately 1% of our first
quarter 2000 revenues consist of orderflow payments. We send retail transactions
to other broker dealers in exchange for monthly payments, referred to as
orderflow payments, based on the number of shares involved in the transactions.
Interest
Approximately 4% of our 1999 and first quarter 2000 revenues consist of
interest revenues. Interest revenues consist of profits from the interest we
charge retail customers when they borrow from us.
Other
Approximately 1% of our 1999 revenues and 2% of our first quarter 2000
revenues consist of other income. Other income derives from miscellaneous items,
including net gains on investments and fees (other than the order execution
trading revenues, net and commissions and fees described above) charged to
clients, as well as interest earned on our interest-bearing assets.
DESCRIPTION OF OPERATING EXPENSES
Employee compensation and benefits
Employee compensation and benefits, which includes salaries and wages,
incentive compensation and related employee benefits and taxes, is our largest
operating expense, accounting for approximately 33% of our 1999 and first
quarter 2000 total expenses. Our registered representatives, which make up
approximately half of our employees, are compensated primarily on a performance
basis. Therefore, a significant portion of compensation and benefits expense
will fluctuate based on our operating results.
Commissions and clearing costs
Commissions and clearing costs include commissions paid to independent
brokers, fees paid to floor brokers and exchanges for trade execution costs,
fees paid to third-party vendors for data processing services and fees paid to
clearing entities for certain clearance and settlement services. Commissions and
clearing costs generally fluctuate based on transaction volume.
Orderflow payments
We make payments to other broker dealers to compensate them for directing
trades to us for execution. We make these payments monthly based on either per
share prices or total transaction value.
Interest
Interest expenses consist of interest charges associated with our
interest-bearing liabilities such as customer credit balances and drawdowns
under our short-term bank loan.
Communications and data processing
Communications and data processing expenses consist primarily of costs
related to our computer systems. Communications expenses include costs
associated with traditional communications expenses, such as voice telephone and
the costs to maintain our Internet access capabilities. These costs also include
amounts
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paid to provide customers access to automated quote information, stock and
option orders or account balance information.
General and administrative
Our general and administrative expenses consist primarily of legal,
accounting and other professional fees, software consulting fees, travel and
entertainment expenses, insurance coverage, depreciation, occupancy expenses and
other similar operating expenses.
Advertising
Advertising expenses include television, online, print and direct mail
advertising expenses and other costs incurred to create brand awareness, promote
our product and service offerings and introduce new products and services.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Total revenues for the three months ended March 31, 2000 increased
$3,868,215, or 108%, to $7,440,653 from $3,572,438 reported for the three months
ended March 31, 1999. Revenue growth in the three months ended March 31, 2000
was primarily due to the reasons described below.
Order execution trading revenues, net, in the first quarter 2000 increased
$1,019,141, or 37%, to $3,783,452 from $2,764,311 in the first quarter 1999,
primarily due to an approximately 40% increase in the number of order execution
transactions. The number of order execution trade transactions increased from
59,939 in the first quarter 1999 to 84,088 in the first quarter 2000.
Commission and fee revenues in the first quarter 2000 increased $2,456,654,
or 384%, to $3,096,334, from $639,680 for the first quarter 1999, primarily due
to increased retail trading volume. Our retail customer accounts totaled
approximately 11,000 at March 31, 2000 compared to approximately 6,000 at
March 31, 1999, an increase of approximately 83%. Furthermore, in the first
quarter 2000 we processed approximately 42,000 transactions for our retail
customers versus approximately 14,000 in the first quarter 1999, an increase of
approximately 200%.
Orderflow revenues in the first quarter 2000 decreased $29,188, or 24%, to
$93,511 from $122,699 in the first quarter 1999, primarily due to reductions in
the rates realized on orderflow payments.
Interest revenues in the first quarter 2000 increased $223,241, or 221%, to
$324,143 from $100,902 in the first quarter 1999, an increase is directly
attributable to the increase in receivables from customers' margin accounts of
$12,331,383, or 128%, to $21,956,993 from $9,625,607 in the first quarter 1999.
Other revenues in the first quarter 2000 increased $198,367, or 360%, to
$143,213 from ($55,154) in the first quarter 1999, primarily as a result of the
increase in miscellaneous income items, including interest income, miscellaneous
fee revenues and net gains on investments.
Total operating expenses in the first quarter 2000 increased $3,504,729, or
151%, to $5,826,142 from $2,321,413 in the first quarter 1999, due primarily to
the reasons described below.
Employee compensation and benefits in the first quarter 2000 increased
$1,093,246, or 133%, to $1,913,428 from $820,182 in the first quarter 1999. The
growth in employee compensation and benefits was consistent with and reflects
the costs associated with our overall business growth. At March 31, 2000, we
employed 98 people as compared to 38 at March 31, 1999.
Commissions and clearing costs in the first quarter 2000 increased
$1,418,604, or 519%, to $1,691,918 from $273,314 in the first quarter 1999. The
primary reasons for the increase were increased volume and clearing costs
incurred in connection with our retail trades for institutions.
Orderflow payments increased $71,666, or 10%, to $779,556 in the first
quarter 2000 from $707,890 in the first quarter 1999. The effect of increases in
trading volume was partially offset by a reduction in orderflow payment rates
per transaction.
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Interest expense in the first quarter 2000 increased $50,607 or 98%, to
$102,162 from $51,555 in the first quarter 1999. The increase was principally
due to interest incurred on short-term borrowings and interest paid on customer
credit balances.
Communications and data processing expenses in the first quarter 2000
increased $133,686, or 97%, to $271,179 from $137,493 in the first quarter 1999.
This increase was attributable to costs associated with commencing our clearing
operations, the establishment of online services and telephone communications
and expenses related to establishment of backoffice support systems and quote
services.
General and administrative expenses in the first quarter 2000 increased
$680,393, or 278%, to $925,312 from $244,919 in the first quarter 1999. The
increase is primarily attributable to an increase of approximately $122,000 in
consulting expenses, $162,000 in stationary, printing and office supplies and
$102,000 in rental and facilities expenses.
Advertising expenses in the first quarter 2000 increased $56,527, or 66%,
to $142,587 from $86,060 in the first quarter 1999. The increase in advertising
expenses was primarily due to costs incurred in connection with increased
promotion of our general business activities. As a percentage of total revenues,
advertising expenses were approximately 2% in each of first quarter 2000 and
first quarter 1999.
As a result of all of the foregoing factors, net income in the first
quarter 2000 increased $363,486, or 29%, to $1,614,511, compared to $1,251,025
in the first quarter 1999. Net income does not reflect provision for income
taxes, given that we have been an S corporation and will continue to be an S
corporation until completion of this offering.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Total revenues for the year ended December 31, 1999 increased $9,664,304,
or 122%, to $17,598,303 from $7,933,999 reported for the year ended
December 31, 1998. Revenue growth in 1999 was primarily due to reasons described
below.
Order execution trading revenues, net, in 1999 increased $4,760,018, or
84%, to $10,441,910 from $5,681,892 in 1998, due to an approximately 34%
increase in the number of order execution transactions and a 37% increase in the
average profitability per trade. The number of order execution trade
transactions increased from 175,661 in 1998 to 236,176 in 1999.
Commission and fee revenues in 1999 increased $3,844,688, or 190%, to
$5,867,121, from $2,022,433 for 1998, primarily due to increased retail trading
volume. Our retail customer accounts totaled approximately 10,000 at December
31, 1999 compared to approximately 4,500 at December 31, 1998, an increase of
approximately 122%. Furthermore, in 1999 we processed approximately 72,203
transactions for our retail customers versus approximately 26,686 in 1998, an
increase of approximately 171%.
Orderflow revenues in 1999 increased $220,893, or 148%, to $370,139 from
$149,246 in 1998, reflecting primarily increases in the number of trades for
which orderflow payments were received by us.
Interest revenues in 1999 increased $612,757, or 919%, to $679,432 from
$66,675 in 1998, and the increase is directly attributable to the increase in
1999 in receivables from customers' margin accounts of $10,584,611, or 212%, to
$15,585,002 from $5,000,391 in 1998. The increase is primarily attributable to
our commencing clearing operations, which allowed us to collect all interest on
customer margin loans beginning in the last quarter of 1998.
Other revenues in 1999 increased $225,948, or 1,643%, to $239,701 from
$13,753 in 1998, primarily as a result of the increase in miscellaneous income
items, including interest income, miscellaneous fee revenues and net gains on
investments.
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Total operating expenses in 1999 increased $7,296,562, or 107%, to
$14,139,977 from $6,843,415 in 1998, due primarily to the reasons described
below.
Employee compensation and benefits in 1999 increased $1,993,810, or 73%, to
$4,708,879 from $2,715,069 in 1998. The growth in employee compensation and
benefits was consistent with and reflects the costs associated with our overall
business growth. At December 31, 1999, we employed 84 people as compared to 23
in 1998.
Commissions and clearing costs in 1999 increased $1,609,055, or 120%, to
$2,954,583 from $1,345,528 in 1998. The primary reasons for the increase were
increased volume and clearing costs incurred in connection with our retail
trades for institutions. As compared to related revenues, commissions and
clearing costs increased by a lesser percentage because of the reduction in
expenses realized through our clearing operations.
Orderflow payments increased $1,114,111, or 67%, to $2,775,599 in 1999 from
$1,661,488 in 1998. The effect of increases in trading volume was partially
offset by a reduction in orderflow payment rates per transaction.
Interest expense in 1999 increased $309,305, or 697%, to $353,668 from
$44,363 in 1998. The increase was principally due to interest incurred on
short-term borrowings and interest paid on customer credit balances during all
of 1999, as compared to only the last quarter of 1998.
Communications and data processing expenses in 1999 increased $507,949, or
308%, to $672,778 from $164,829 in 1998. This increase was attributable to costs
associated with commencing our clearing operations, the establishment of online
services and telephone communications and expenses related to establishment of
backoffice support systems and quote services.
General and administrative expenses in 1999 increased $1,470,491, or 229%,
to $2,113,336 from $642,845 in 1998. The increase is primarily attributable to
an increase of approximately $305,000 in professional and legal fees, $284,000
in computer consulting expenses, $231,000 in customer write-offs, $151,000 in
arbitration awards and $150,000 in stationary, printing and general office
supplies.
Advertising expenses in 1999 increased $291,841, or 108%, to $561,134 from
$269,293 in 1998. The increase in advertising expenses was primarily due to
costs incurred in connection with increased promotion of our general business
activities. As a percentage of total revenues, advertising expenses were
approximately 3% in each of 1999 and 1998.
As a result of all of the foregoing factors, net income in 1999 increased
$2,367,742, or 217%, to $3,458,326, compared to $1,090,584 in 1998. Net income
does not reflect provision for income taxes, given that we have been an S
corporation and will continue to be an S corporation until completion of this
offering.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Total revenues for the year ended December 31, 1998 increased $1,608,926,
or 25%, to $7,933,999 from $6,325,073 reported for the year ended December 31,
1997. Revenue growth in 1998 was primarily due to the reasons described below.
Order execution trading revenues, net, in 1998 increased $1,069,199 or 23%
to $5,681,892 from $4,612,693 in 1997 primarily due to a 30% increase in overall
volume of transactions performed for independent broker dealers. Our annual
trading volume was 175,661 in 1998 as compared to 135,516 in 1997.
Commission and fee revenues in 1998 increased $535,054 or 36% to $2,022,433
from $1,487,379 in 1997 due to increased trading volume, which was partially
offset by lower commission rates per trade. For 1998, our trading volume for our
retail customers was 26,686 versus 13,076 in 1997, or a 104% increase.
Orderflow revenues in 1998 decreased $60,276 or (29%) to $149,246 from
$209,522 in 1997, reflecting reductions in the rates realized on orderflow
payments.
Interest revenues in 1998 were $66,675, as compared to none in 1997. We
commenced our clearing operations in the fourth quarter of 1998.
Other revenues in 1998 decreased $1,726 or (11%) to $13,753 from $15,479 in
1997.
Total operating expenses in 1998 increased $1,215,020, or 22% to $6,843,415
from $5,628,395 in 1997, due primarily to the reasons described below.
Employee compensation and benefits in 1998 increased $299,579 or 12% to
$2,715,069 from $2,415,490 in 1997. Employee compensation and benefit expenses
are largely performance based and tend to increase with total revenue.
Commissions and clearing costs in 1998 increased $243,062 or 22% to
$1,345,528 from $1,102,466 in 1997, primarily as a result of the increase in
trading volume.
Orderflow payments remained relatively stable in 1998 compared to 1997.
Interest expense in 1998 increased $43,003 or 3,162% to $44,363 from $1,360
in 1997, due to interest charges on loans taken to finance customer margin
loans. The loan balance outstanding at December 31, 1998
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was $942,000. At December 31, 1997, there was no loan balance outstanding, since
we did not provide clearing operations at that date.
Communications and data processing expenses in 1998 increased $94,347, or
134%, to $164,829 from $70,482 in 1997 mainly due to implementation of clearing
operations in the fourth quarter of 1998.
General and administrative expenses in 1998 increased $355,859, or 124%, to
$642,845 from $286,986 in 1997, primarily due to the growth of our businesses
and the commencement of clearing operations in the fourth quarter of 1998.
Advertising expenses in 1998 increased $134,835, or 100%, to $269,293 from
$134,458 in 1997 and is mainly attributable to increased marketing efforts.
As a result of all of the foregoing factors, net income in 1998 increased
by $393,906, or 57%, to $1,090,584 from $696,678 in 1997. Net income does not
reflect provision for income taxes, given that we have been an S corporation and
will continue to be an S corporation until completion of this offering.
LIQUIDITY AND CAPITAL RESOURCES
We maintain a highly liquid balance sheet with the majority of our assets
consisting of cash and cash equivalents and receivables from customers, brokers,
dealers and clearing brokers arising from customer-related securities
transactions. Receivables from customers consist primarily of collateralized
customer margin loans, which are typically secured with marketable equity
securities.
At December 31, 1999, we had shareholders' equity of $3,150,042,
representing an increase of $1,210,752 from December 31, 1998. At March 31,
2000, we had shareholders' equity of $4,314,571, representing an increase of
$1,125,639 from March 31, 1999. Cash and cash equivalents at December 31, 1999
were $1,880,142 compared to $367,825 at December 31, 1998. Cash and cash
equivalents at March 31, 2000 were $2,594,895 compared to $1,336,778 at March
31, 1999. In April 2000, we distributed $1,400,000 to our existing shareholders
related to their tax liability for our net income for 1999.
Net cash used in operating activities was $1,089,730 in 1999 versus
$1,161,424 cash used in 1998. Net cash provided by operating activities was
$1,032,529 for the three months ended March 31, 2000 versus $322,345 for the
three months ended March 31, 1999. Our net cash used in operating (provided by)
activities is materially impacted by changes in the brokerage-related assets and
liabilities of our subsidiary, Advantage Trading Group, Inc.
Net cash used in investing activities was $191,379 in 1999, compared to
$77,086 in 1998. The increase was primarily due to increased expenditures for
the purchase of property and equipment. Net cash used in investing activities
was $138,796 for the three months ended March 31, 2000, compared to $7,167 for
the three months ended March 31, 1999.
Net cash provided by financing activities was $2,793,426 in 1999 and
$637,759 in 1998. The net increase in 1999 was due to $5,041,000 in draws on our
short-term bank loans, less $2,247,574 distributed to our shareholders. Net cash
used in financing activities was $178,980 for the three months ended March 31,
2000, compared to net cash provided by financing activities of $653,775 for the
three months ended March 31, 1999. We are currently permitted to borrow up to
$15,000,000 under a short-term loan agreement with Firstar Corporation. The loan
bears interest at 100 basis points above the federal funds rate of interest
(approximately 6% at December 31, 1999) and is payable on demand. The short-term
bank loan balance was $5,983,000 at December 31, 1999, and it was collateralized
by $9,350,000 of customers' margin account securities. At March 31, 2000, the
short-term bank loan balance was $6,254,000 and was collateralized by
$12,239,000 of customers' margin account securities. The term of our current
loan agreement has been extended to September 30, 2000.
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We are currently an S corporation for federal income tax purposes and our
taxable income is a direct liability of our current shareholders. In April 2000,
we distributed $1,400,000 to our existing shareholders related to their tax
liability for our net income for 1999. We will automatically become a C
corporation upon completion of this offering. We will make a final distribution
to our existing shareholders not later than April 15, 2001 to help them pay
their income taxes arising from our earnings from January 2000 until completion
of this offering. We will distribute to them approximately 40.5% of our earnings
for this period. For the three months ended March 31, 2000, 40.5% of our
earnings equals approximately $654,000.
Based on currently proposed plans and assumptions relating to the
implementation of our business plan, we believe that the proceeds of this
offering, combined with cash flow from operations, will enable us to fund our
presently planned operations, both for at least 12 months and thereafter. If
not, or if our plans change, our assumptions change or prove to be inaccurate,
or if the proceeds of this offering and our operating cash flow otherwise prove
to be insufficient to implement our business plans, we may require additional
financing and may seek to raise funds through subsequent equity or debt
financings or other sources. We cannot assure you that additional funds will be
available in adequate amounts or on acceptable terms. If funds are needed but
are not available, our business would be harmed.
NET CAPITAL REQUIREMENTS
Our broker dealer subsidiaries, Advantage Trading Group, Inc. and Empire
Financial Group, Inc., are subject to the requirements of the Uniform Net
Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. This rule
requires that aggregate indebtedness, as defined, not exceed 15 times net
capital, as defined. Rule 15c3-1 also provides for an "alternative net capital
requirement" which, if elected requires that net capital be equal to the greater
of $250,000 or 2% of aggregate debit items computed in applying the formula for
determination of reserve requirements. Net capital positions of each of our
broker dealer subsidiaries were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ------------------------
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Advantage Trading Group, Inc.:
(alternative method elected November 1999)
Net capital........................................... $ 2,261,084 $2,233,982 $1,392,009
Required net capital.................................. 476,223 350,766 458,751
----------- ---------- ----------
Excess net capital.................................... $ 1,784,861 $1,883,216 $ 933,258
=========== ========== ==========
Ratio of aggregate indebtedness to net capital........ N/A N/A 4.94 to 1
Net capital as a percentage of aggregate debit
items.............................................. 9.5% 12.7% N/A
Empire Financial Group, Inc.:
Net capital........................................... $ 1,061,575 $ 316,073 $ 335,281
Required net capital.................................. 250,000 250,000 250,000
----------- ---------- ----------
Excess net capital.................................... $ 811,575 $ 66,073 $ 85,281
=========== ========== ==========
Ratio of aggregate indebtedness to net capital........ 1.25 to 1 2.08 to 1 .37 to 1
</TABLE>
ACCOUNTING STANDARDS
We intend to grant stock options to certain employees and consultants with
an exercise price not less than the fair market value at the date of grant.
Certain of these options will be granted as of the date of this prospectus. In
accordance with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" or SFAS 123, issued by the Financial Accounting
Standards Board or FASB, we will apply the intrinsic value method of accounting
for employee stock compensation plans prescribed by Accounting Principles
Opinion No. 25 rather than the fair value method of accounting prescribed by
SFAS 123. We will be providing the required pro forma disclosures going forward.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" or SFAS
133. SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
SFAS 133, as amended by SFAS
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137, is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000, with earlier application encouraged. We do not currently use
derivative instruments and, therefore, do not expect that the adoption of SFAS
133 will have any impact on our financial position or results of operations.
CHANGE IN ACCOUNTANTS
We engaged the independent accounting firm of PricewaterhouseCoopers LLP to
act as our principal accountants and audit our financial statements for the year
ended December 31, 1999.
PricewaterhouseCoopers LLP replaced our former principal accountants,
Sweeney, Gates & Co., effective as of January 14, 2000. The decision to change
accountants was approved by our board of directors. During our two most recent
fiscal years there were no disagreements with Sweeney, Gates & Co. on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Sweeney, Gates & Co., would have caused it to make reference to
the subject matter of the disagreements in connection with its report. We had no
consultation with PricewaterhouseCoopers LLP prior to their engagement regarding
application of any accounting principles or the type of audit opinion that they
might render on our consolidated financial statements.
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BUSINESS
OVERVIEW
We are a financial brokerage services firm serving institutional and retail
investors through the Internet and traditional means. We also enable other
broker dealers to complete their customers, brokerage transactions by providing
securities order execution services. In February 2000, we introduced a new
service for financial institutions that enables them to offer brokerage services
to their retail customers through the Internet using our established
capabilities. We are currently marketing these private label brokerage services,
but have not begun to provide them to any financial institutions. In addition,
we plan to expand our business and diversify our revenue sources by offering
securities clearing services to other broker dealers and fee-based portfolio
investment advice to our retail customers.
Our securities order execution services involve filling orders to purchase
or sell securities received from approximately 80 independent broker dealers on
behalf of their retail and institutional customers. We typically act as
principal in these transactions and derive our order execution trading revenues,
net, from the difference between the price paid when a security is bought and
the price received when that security is sold. Therefore, we seek to take
advantage of daily stock price fluctuations to maximize our revenues. We
typically do not receive a fee or commission for providing order execution
services. In order to take full advantage of market volatility in providing
order execution services, we have developed and implemented sophisticated
software systems for transaction monitoring and risk management. We have also
employed and trained personnel with the necessary expertise to efficiently
provide our order execution services. We normally close out our trade positions
at the end of each day and do not maintain securities inventory in order to
reduce our risks from market volatility.
We also provide financial brokerage services directly to our retail
customers, including both individuals and small to mid-sized institutions such
as hedge funds, money managers, mutual funds and pension funds. Approximately
33% of our 1999 revenues were derived from commissions and fees generated in
connection with our retail financial brokerage services. Our retail customers
can place their securities orders online through our secure website located at
WWW.EMPIRENOW.COM or over the telephone by calling our client support desk at
1-800-lowfees (1-800-569-3337). We charge our customers an agreed upon brokerage
commission. Our current online retail trading commissions start at $6.95 per
trade and our broker assisted trades start at $19.00 per trade. We provide our
retail customers access to useful financial products and services through our
website and by telephone. Our retail customers may, upon request, also receive
advice from our brokers regarding mutual funds and bonds. Our brokers do not
provide advice regarding specific equity securities or options.
In February 2000, we began offering private label brokerage solutions to
broker dealers and other financial institutions that want to provide expanded
services to their retail customers. Our private label solution benefits these
institutions by providing them with an additional revenue source and allowing
them to retain customers and increase traffic to their own website, potentially
leading to additional business. We plan to provide their retail customers the
same level and range of products and services as we provide to our own retail
customers, and will charge their customers commissions and fees similar to those
charged to our own retail customers. We plan to pay these institutions fees
based on transaction volume generated by their retail customers.
In January 2000, we received regulatory approval to provide clearing
services for up to three unaffiliated broker dealers. Our clearing services
involve account, settlement and delivery functions. We have begun marketing
these clearing services but are not yet providing them to any other broker
dealer. We intend to seek further regulatory approval to increase the number of
clearing service customers beyond three broker dealers. We are also developing
online order execution services, which we plan to integrate with our clearing
operations. We believe that providing online order execution services with our
clearing operations will strengthen our existing relationships with independent
broker dealers, attract additional broker dealer clients seeking low cost,
online order execution and clearing services and provide us with an additional
revenue source.
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We plan to offer fee-based investment advisory services to our retail
customers, which will assist us in establishing more comprehensive relationships
with them. The investment advisory services we plan to provide include
investment portfolio planning with recommendations on overall portfolio
allocations for different types of investments based on each customer's long
term needs, and recommendations regarding mutual fund and bond investments. We
do not plan to provide recommendations regarding trades of particular equity
securities. We plan to begin offering these services by December 31, 2000.
We were incorporated in Florida in February 2000 and conduct all of our
operations through our three wholly owned subsidiaries: Empire Financial Group,
Inc., Advantage Trading Group, Inc. and Empire Investment Advisors, Inc., that
were incorporated in Florida in 1990, 1995 and 1999, respectively. Each of these
companies were owned by Messrs. Goble and Gagne. In February 2000, we acquired
these companies from Messrs. Goble and Gagne solely in exchange for shares of
our common stock. We conduct our discount brokerage business through Empire
Financial Group, while Advantage Trading Group provides order execution services
for independent broker dealers, as well as clearing and some trade execution
services for Empire Financial Group. Empire Investment Advisors plans to offer
fee-based investment advisory services to our retail customers.
SECURITIES BROKERAGE BUSINESS
The securities brokerage business involves the purchase and sale of
securities. A retail customer who desires to purchase or sell a specific
security usually places a securities order with a broker dealer. Broker dealers,
including us, charge retail customers a commission or fee for processing these
orders. Our commission and fee revenues are derived entirely from commission or
fees charged to retail customers.
In order to fill the customer's order, the broker dealer generally places
an order with an order execution service or market maker. The order execution
service or market maker most often fills the order as principal by either buying
or selling the specific security. Both order execution service firms and market
makers obtain net revenues from the difference between the price paid when a
specific security is bought and the price received when that security is sold.
We offer order execution services to approximately 80 broker dealers and derive
our order execution trading revenues, net, from these differences.
Each securities transaction also involves clearing activities which include
sending a confirmation to both the buyer and seller, obtaining payment from the
buyer and custody of the security from the seller, and delivering payment to the
seller and the security to the buyer. Companies that provide clearing services
receive a fee for these services from the broker dealers involved in the
securities transaction. We currently provide clearing services for most of the
securities transactions initiated by our retail customers (thus saving clearing
fees) and have regulatory approval initially to provide clearing services for up
to three unaffiliated broker dealers, which will be a new revenue source for us.
RECENT TRENDS
The securities brokerage business has experienced rapid growth in
transaction volumes in recent years. This growth is due to many factors
including the emergence and dramatic growth of online trading via the Internet.
As a result of the growth of the Internet, online trading is now the fastest
growing segment of the discount securities brokerage business and is expected to
continue to grow significantly. Cerulli Associates, an independent industry
research firm, estimates that the number of U.S. households with Internet access
will grow from 34 million in 1999 to approximately 107 million by 2003.
Consequently, this trend is expected to greatly increase the number of
households that will access financial products and services, including brokerage
services, via the internet. Cerulli expects online brokerage accounts to
increase from approximately 11.5 million in 1999 to 33.9 million by 2003.
Similiarly, estimates published by Cerulli and Forrester Research project that
online brokerage assets will increase from approximately $750 billion to between
$1.8 and $3.0 trillion over the same period.
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OUR BUSINESS STRATEGY
We plan to succeed in the financial brokerage business by offering order
execution and other services to broker dealers and by providing competitively
priced retail brokerage services. We believe that our proprietary and online
technologies will provide us with competitive and cost advantages in our
targeted businesses. We have developed our business infrastructure to provide a
full range of securities brokerage services directly to our own customers, as
well as to the customers of other financial institutions such as broker dealers
and banks through private labeling of our retail customer services. We plan to
grow our business while minimizing our costs by implementing the following
business strategy:
o Become a leading order execution services provider to broker dealers. We
plan on aggressively marketing our established order execution
capabilities to additional broker dealers to expand our business. We also
plan to strengthen our relationships with these broker dealers by
offering our proprietary online trade execution system in addition to our
current telephone order capabilities. Successful implementation of these
strategies should increase our transaction volume, which may increase our
order execution trading revenues, net.
o Become a leading provider of private label brokerage solutions for other
financial institutions. We recently began to offer private label
brokerage solutions to broker dealers, banks, savings and loan
institutions, credit unions, insurance companies and various other
financial institutions that want to provide expanded services to their
customers. We believe that this business-to-business strategy of entering
into agreements with institutions that have large customer bases will
allow us to grow our own retail customer base rapidly and efficiently.
o Increase our retail customer base. In addition to attracting retail
customers through our private label brokerage solutions, the proceeds
from this offering will allow us to increase our marketing and
promotional programs targeting individuals, affinity groups, financial
planners and investment advisors. Further, we may expand our retail
customer base by selectively acquiring broker dealers with established
customer bases who may lack the necessary capital and other resources to
grow their client base or fully develop their own online capability.
o Utilize our clearing capabilities to diversify our revenue base. We
recently received the necessary regulatory approvals to provide trade
clearing services for up to three other broker dealers and have begun
marketing our clearing services to unaffiliated broker dealers. We intend
to diversify our revenue base and realize efficiencies by expanding our
clearing operations.
o Utilize technology to sustain business advantages. We have been
successful in managing our costs through the in-house development and use
of proprietary technology. We plan to continue to invest in the
development of proprietary systems and software that we believe will
enhance the cost structure of our businesses. We believe that our
proprietary securities trading and processing software applications allow
us to monitor our potential risks of losses from volatility, reduce our
dependence on third party vendors and maintain low fixed processing and
labor costs.
o Supplement technology with personal interaction to increase transaction
volume and increase retail customer retention. We understand our
technology-based marketplace and are continually seeking to expand the
features offered to our retail customers. However, we believe that our
ability to offer access to client support representatives to complement
electronic investing will help increase our transaction volume and
improve customer retention rates.
o Establish expertise in investment advisory services. We plan to offer
fee-based portfolio investment advisory services to our retail and
private label customers via our website and traditional means after we
receive regulatory approvals which could occur by December 31, 2000. We
have already registered as an investment adviser under the Investment
Advisers Act of 1940 and have applied for state approvals. We believe
this capability will distinguish us from many of our competitors and will
result in stronger, more comprehensive relationships with our customers.
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OUR BUSINESS
We enable other broker dealers to complete their customers' brokerage
transactions by providing securities order execution services. We are also a
financial brokerage services firm serving institutional and retail investors
through the Internet and traditional means. We have trade clearing capabilities
that support our businesses. We have also begun offering a combination of our
execution, clearing and securities brokerage services as a private label
securities trading solution for other financial institutions such as broker
dealers, banks, savings and loan institutions, credit unions and insurance
companies.
Order Execution Services
We provide order execution services for equity securities to approximately
80 independent broker dealers. Our current trade execution capabilities allow us
to handle orders via telephone, and we are in the process of expanding our trade
execution capabilities to include online orders. Order execution services
consist of filling orders received from independent broker dealers to buy
securities or sell securities. We typically act as principal in these
transactions and derive our order execution trading revenue, net, from the
difference between the price we pay when we buy a security and the price we
receive when we sell that security. We typically do not receive a fee or
commission for providing order execution services.
Our order execution trading revenues, net, are dependent on our ability to
take advantage of daily stock price fluctuations. Thus, we must be able to
evaluate and act rapidly on market trends and manage risk successfully. Our
methodology focuses on the dynamic, real-time analysis of market activity and
price movements, which enables us to increase our revenues and manage risk
better. Additionally, we have developed an internal trade order and risk
management software application we refer to as the "e-blotter," which allows
real-time analysis of our trading positions in individual securities and
monitoring of our short and long positions and our aggregate profits and losses.
We normally close out our trade positions at the end of each day and do not
maintain securities inventories, which reduces our exposure to risk from market
volatility.
Retail Brokerage Services
We provide securities brokerage services to retail investors, including
both individuals and small to mid-sized institutions such as hedge funds, money
managers, mutual funds and pension funds. We charge our customers an agreed upon
brokerage commission. Our current online retail trading commissions start at
$6.95 per trade and our broker assisted trades start at $19.00 per trade. Our
client support representatives are available from 7:00 a.m. to 7:00 p.m. eastern
time. We recently expanded our services to allow for after hours trading.
Customers can directly place orders to buy and sell Nasdaq and
exchange-listed securities, as well as equity and index options, through our
automated order processing system. We support a range of order types, including
market orders, limit orders (good-till-cancelled or day), stop orders and short
sales. Our system automatically checks the parameters of an order, together with
the customer's buying power and positions held, prior to executing an order. All
listed market orders, subject to certain size limitations, are executed at the
National Best Bid/Offer, or NBBO, or better at the time of receipt by a third
market firm or exchange. The NBBO is a dynamically updated representation of the
combined highest bid and lowest offer quoted across all United States stock
exchanges and market makers registered in a specific stock. Eligible orders are
exposed to the marketplace for possible price improvement, but in no case are
orders executed at a price inferior to the NBBO. Limit orders are executed based
on an indicated price and time priority. All Nasdaq market orders, subject to
certain size limitations, are executed at the Best Bid/Offer or better at the
time of receipt by the market maker.
Our retail brokerage services are readily accessible to our brokerage
customers through multiple gateways:
o Internet Access. Customers using personal computers can access our
brokerage services through the Internet by direct modem access. Our
website, www.empirenow.com, combines an easy-to-use interface with the
trading capabilities and financial content that experienced investors
demand. We
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have designed our website to appeal to a broad range of retail investors,
from novice to more sophisticated investors, particularly those seeking
competitively priced online services. We intend to continually develop
the features of our website and to position ourselves as the high
value/low cost provider in our pricing segment.
o Voice Telephone. We provide customers with a toll-free number to access
our brokers and other client support representatives. We also provide our
clients with direct access to our registered representatives and
principals through our client support desk to allow them to execute
trades other than online. 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. As of
March 31, 2000, our retail client support division consisted of 55
employees, of which 35 are registered representatives and principals.
o Touch-tone Telephone. We have implemented a touch-tone telephone system
to provide an alternate delivery channel for customers to access
automated quote information, place stock and option orders, review
account balances and check messages from any touch-tone telephone.
o Wireless Communications. We are also in the process of implementing
wireless communications systems allowing the use of pagers and other
wireless non-voice based technology to process orders and receive market
and account information.
Margin Lending
We make loans to customers collateralized by securities held in their
accounts. Margin lending is subject to the margin requirements of the Federal
Reserve and NASD and our internal policies, which are more stringent than those
requirements. Under applicable NASD rules, in the event of a decline in the
market value of the securities in a margin account, we are obligated to require
the customer to deposit additional securities or cash in the account so that at
all times the customer's equity in the account is at least 25% of the value of
the securities in the account. Our current internal requirement, however, is
that the customer's equity not fall below 35%. If it does, the customer will be
required to increase the account's equity to 40%. We also restrict access to
margin lending with regard to trading of certain stocks determined by us to be
too volatile. Margin lending to customers constitutes the major portion of the
basis on which our net capital requirements are determined under the SEC's Net
Capital Rule. To the extent these activities expand, our net capital
requirements will increase.
Private Label Brokerage Solutions
In February 2000, we began offering private label brokerage services to
broker dealers, banks, savings and loan institutions, credit unions, insurance
companies, financial planners and various other financial institutions that want
to provide expanded services to their customers. Financial institutions are
increasingly seeking to enter the securities brokerage business. Given the time
and the complexity involved in obtaining the necessary regulatory approvals, one
efficient method for financial institutions to enter the securities brokerage
business is to contract with a third-party provider of online investing
solutions in order to provide this packaged solution to their customers.
Our private label brokerage solutions are designed to provide our full
range of retail customer brokerage services through the financial institution's
website. The website screens will have the financial institution's look and
feel, with a reference to Empire Financial Group, Inc. as the provider for the
services. Customers that use our services through these other financial
institutions will have accounts directly with us and will be treated as our
customers. We plan to charge the customers of these financial institutions
similar fees we charge our own retail customers and plan to pay these
institutions fees based on transaction volume generated by their retail
customers.
Our focus is to offer our services to smaller institutions that may lack
the resources to efficiently implement their own brokerage solution. Our
services benefit these institutions by allowing them to retain customers and
their customer credit balances, create additional revenue sources and increase
traffic to their own website, potentially leading to additional business. We
have developed our own software systems to
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provide such services tailored to the needs of these institutions while
providing the same level and range of products and services we offer to our own
retail customers. We believe that this strategy will allow us to grow rapidly
and efficiently by gaining access to the customer bases of other financial
institutions.
Clearing Operations
Clearing operations include the confirmation, receipt, settlement, custody
and delivery functions involved in securities transactions. We added clearing
capabilities for our order execution business in 1996 and for our financial
brokerage services business in 1998. Prior to that, we cleared all of our
customer equity and option transactions through third-party clearing firms that
processed our trades, prepared transaction confirmations and acted as the
custodian for our customers' securities. The addition of clearing capabilities
allowed us to clear approximately 94% of our total trades during 1999 and to
realize significant cost savings that permit us to competitively price our
services. Performing our own clearing operations allows us to retain customer
free credit balances and securities for use in margin lending activities subject
to SEC and NASD rules. In August 1998, we entered into a three-year agreement
with SunGard Financial Systems, Inc. for the provision of computer services to
support order entry, order routing, securities processing, customer statements,
tax reporting, regulatory reporting and other services necessary to the
management of a brokerage clearing business.
The retail customer accounts we clear are carried on a fully disclosed
basis with our subsidiary, Advantage Trading Group, Inc. Our clients' securities
positions and credit balances carry $2,000,000 insurance coverage through Lloyds
of London that is supplemental to standard SIPC protection for clients' accounts
up to $500,000 subject to a limitation of $100,000 for claims for cash balances.
All customer credit balances are subject to immediate withdrawal from our
clearing firm, at the discretion of the customer.
Ancillary Retail Brokerage Services
We offer the following ancillary services in connection with our retail
brokerage services:
o Securities Borrowing. We borrow securities both to cover short sales and
to complete customer transactions in the event a customer fails to
deliver securities by the required settlement date. We collateralize such
borrowings by depositing cash or securities with the lender and receive a
rebate, in the case of cash collateral, or pay a fee calculated to yield
a negotiated rate of return. Securities borrowing transactions are
executed pursuant to written agreements with counterparties that require
the securities borrowed be marked to market on a daily basis and that
additional collateral be furnished in the event of changes in the market
value of the securities. The securities usually are marked to market on a
daily basis through the facilities of the various national clearing
organizations. We do not currently engage in securities lending, but may
do so in the future.
o Market Data and Financial Information. During trading hours, we
continually receive a direct feed of detailed quote data, market
information and news. Our retail customers can create their own personal
lists of stocks and options for quick access to current pricing
information. We provide our customers free access to delayed quotes,
including stocks, options, major market indices, most active issues and
largest gainers and losers for the major exchanges. Real-time quotes are
also available for a small fee. Upon placing an order, the customer is
provided with a real-time bid and ask quote, at no extra charge. We also
offer our customers a real time quote service for $14.95 per month, which
entitles the customer to receive 250 real-time quotes per month, plus
$.05 for each additional real-time quote. Customers who purchase this
service also receive 100 real-time quotes with each trade placed through
us. Through our strategic alliances and content provider relationships,
we have expanded our services to include immediate access to breaking
news, charts, market commentary and analysis and company financial
information. Our website, WWW.EMPIRENOW.COM, provides comprehensive
investment research content as well as access to SEC filings of public
companies, among other features.
o Portfolio Tracking and Records Management. Customers have online access
to a listing of all their portfolio assets held with us, including data
on the date of purchase, cost basis, current price and current market
value. The system automatically calculates unrealized profits and losses
for each asset held. Information provided to our customers also includes
total short-term or long-term gain/loss and
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commissions paid. Detailed account balance and transaction information
includes cash and money fund balances, buying power, net market portfolio
value, dividends paid, interest earned, deposits and withdrawals.
Customers can also create watchlists to include any number of stocks,
options, mutual funds and other financial investments a customer is
interested in tracking. All transaction and portfolio records are
automatically updated to reflect trading activity. Buy and sell orders
placed when the markets are closed are automatically submitted prior to
the next day's market opening. Online account holders receive electronic
notification of order execution, and all of our customers receive printed
trade confirmations and detailed monthly statements. We also provide for
the transmittal of proxy, annual report and tender offer materials to
customers. We are planning to offer our online customers electronic
confirmations and statements.
o Cash Management Services. Customer payments received through the mail or
federal wire system are credited to customer accounts upon receipt. We
also provide cash management services to our customers. For example,
uninvested funds earn interest in a credit interest program or can be
invested in money market funds. In addition, we provide free checking
services and debit cards for our customer accounts through a commercial
bank. We are exploring the expansion of these services.
o Account Security. We use a combination of proprietary and industry
standard security measures to protect customers' assets. Customers are
assigned unique account numbers, user identifications and passwords that
must be used each time they log on to our system. We rely on encryption
and authentication technology to provide the security necessary to effect
the confidential exchange of information. We do not plan to share
customer data with third parties.
BUSINESS EXPANSION INITIATIVES
We plan to distinguish ourselves from our competitors and attract new
customers through our ongoing initiatives to expand our business. Our current
plans include:
o Correspondent Clearing Services. In January 2000, we received regulatory
approval to provide clearing services for up to three unaffiliated broker
dealers and have begun marketing our clearing services to other broker
dealers. We have not yet begun providing clearing services to any other
broker dealer. We intend to seek further regulatory approval to increase
the number of clearing service customers beyond three broker dealers. We
are developing online order execution services which will be integrated
with our clearing operations. We believe that providing online order
execution services combined with our clearing operations will strengthen
our existing relationships with independent broker dealers, attract
additional broker dealer clients seeking low cost, online order execution
and clearing services and provide us with an additional revenue source.
o Private Label Brokerage Solutions. In February 2000, we initiated a
direct marketing effort in connection with our private label brokerage
solutions. Our current efforts include direct contact with web-enabled
banks and banks that do not offer brokerage services to their customers.
We are also meeting with various banking trade organizations and are
formulating a strategic marketing plan targeted at domestic and
international financial institutions. We have also engaged an independent
consulting and marketing firm to further our marketing efforts in this
area.
o Investment Advisory Services. Our subsidiary, Empire Investment Advisors,
Inc., will offer fee-based investment advisory services to our customers,
which will assist us in establishing more comprehensive relationships
with our customers. The investment advisory services we plan to provide
include investment portfolio planning with recommendations on overall
portfolio allocations for different types of investments based on
customers' long term needs, and recommendations regarding mutual fund and
bond investments. We do not plan to provide recommendations regarding
trades of particular equity securities. We have registered Empire
Investment Advisors, Inc. as an investment advisor under the Investment
Adviser's Act of 1940 and are in the process of obtaining state
registrations. We expect to begin offering these services by
December 31, 2000.
o Strategic Marketing Efforts. We plan to increase our brand recognition to
attract new retail customers and broker dealers. We are developing a
comprehensive marketing plan to attract more clients and
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broker dealers to clear their trades through us, as well as build market
awareness, educate the investing public about our services and broaden
and enhance brand name recognition and loyalty. We are actively pursuing
additional alliances with various companies to increase trading volume
and operational efficiencies and to further enhance name recognition. In
addition, we regularly examine new ways to provide additional products
and services to our current clients, as well as new clients, including,
for example, banks and other financial institutions seeking to provide
expanded services to their customers. We also intend to expand our market
share through, among other things, television, direct-response
advertising, advertising on our own and other websites, a public
relations program and live seminars.
o www.myempirenow.com. We are in the early stages of developing a financial
portal, WWW.MYEMPIRENOW.COM, which is expected to be available to our
customers by December 31, 2000. A portal site is an Internet site that
provides direct access to a greater variety of resources on the Internet
than a website. Our portal site, WWW.MYEMPIRENOW.COM, will provide access
to a full range of financial and investment information and services,
including customer account information, order entry and execution, as
well as online training and investor tools and news. We plan to offer
through our portal access to online banking and loan processing,
insurance and other financial products and services provided by banking,
insurance and other financial institutions with which we develop
strategic relationships in the future. We also plan to offer through our
portal site audiovisual presentations to customers, including online
seminars conducted by investment managers and industry analysts for
investor training and general investment information. We plan to
diversify and increase our revenues by gaining access to a wider customer
base and developing revenue sharing relationships with other businesses
through cross-marketing opportunities created by our portal presence.
OUR TECHNOLOGY
We believe that our proprietary systems and software allow us to maintain
low fixed processing and labor costs in both our order execution and retail
brokerage businesses. By developing proprietary software applications, we are
able to customize and better control our operations and reduce our dependence on
third-party software vendors. Our proprietary software applications include our
customized trade order and risk management system, which we refer to as the
"e-blotter." This system allows real-time analysis of our trading positions in
individual securities and reduces our potential exposure to losses from trade
volatility. We have also developed and expect to implement a web-based order
system that will directly link our broker dealer customers to our order
execution services employees. This system allows us to process trade
transactions more effectively by maximizing the use of our execution and
clearing services in trade orders we receive.
We utilize local consultants and also outsource software development
projects to contractors in India for rapid application development at reduced
rates. We have entered into independent contractor arrangements with these
individuals on an as-needed basis to assist with programming and developing
proprietary technologies.
COMPETITION
We provide order execution services for equity securities to approximately
80 independent broker dealers. The market for these services is rapidly evolving
and intensely competitive. We expect competition to continue to intensify in the
future. We compete primarily with wholesale, national and regional broker
dealers and trade execution firms such as Knight/Trimark Group, as well as
electronic communications networks, which provide a direct trading venue to
institutional and retail investors. We compete primarily on the basis of
execution quality, customer service and technology.
The market for brokerage services, particularly over the Internet, is
rapidly expanding and extremely competitive. This competition is expected to
continue to grow in the future. Major competitors include Charles Schwab & Co.
Inc., E*Trade Group, Inc., TD Waterhouse Group, Inc., Ameritrade Holding
Corporation and Fidelity Brokerage Services, Inc., among many others. In
addition, we compete with financial institutions and investing services that
offer online brokerage services. We believe the major
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competitive factors for brokerage services include costs, service, quality, ease
of use and customer satisfaction.
Some of the strongest competition comes from companies who have greater
marketing, financial and technical resources than ours. These competitors can
offer a wider range of services and financial products at the current time. Some
of our competitors also 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.
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 or 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 all 50 states and in Puerto Rico. An amendment
to the federal securities laws prohibits the states from imposing substantive
requirements on broker dealers which exceed those imposed under federal law.
This 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 broker 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, 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 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 certain
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of a broker dealer's subordinated indebtedness, 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.
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. We also carry $2,000,000
additional insurance through Lloyds of London on client accounts that we clear.
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, copyrights and quality of services. 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. 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 we are required
to qualify to do business as a foreign corporation in each such state and
foreign country.
EMPLOYEES
As of March 31, 2000, we had 98 full-time employees, of which 47 are
registered representatives. We have 42 people in management and operations and
56 providing order execution services and retail brokerage services to our
customers. No employee is covered by a collective bargaining agreement or is
represented by a labor union. We consider our employee relations to be
excellent.
FACILITIES
Our principal executive offices consist of 11,800 square feet of a 19,400
square foot facility located in Longwood, Florida. This facility is owned by G&G
Holdings, Inc., an entity owned by Kevin M. Gagne and Richard L. Goble. Our
subsidiaries Empire Financial Group and Advantage Trading Group have each
entered into leases with G&G Holdings, Inc. which expire on May 31, 2009 and
provide for an average rent of approximately $24,000 per month, plus sales and
property taxes. We also have a branch office in Delray Beach, Florida, and a
branch office in Cocoa Beach, Florida. We do not have lease agreements for our
branch offices. The rent for these facilities is paid by the independent brokers
who are located there.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions held with
respect to each director and executive officer:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Richard L. Goble............................ 39 Co-Chief Executive Officer, Co-President and
Co-Chairman of the Board
Kevin M. Gagne.............................. 40 Co-Chief Executive Officer, Co-President and
Co-Chairman of the Board
Donald A. Wojnowski Jr...................... 40 Vice President Business Development
Patrick E. Rodgers.......................... 59 Chief Financial Officer
Craig Macnab................................ 44 Director Appointee
Gregory M. Misiak........................... 53 Director Appointee
John J. Tsucalas............................ 59 Director Appointee
</TABLE>
Richard L. Goble is our co-chairman of the board, co-chief executive
officer and co-president. He is also the chief executive officer of Empire
Financial Group, Inc., which he co-founded in 1990, and president of Advantage
Trading Group, Inc. Mr. Goble is responsible for the creation, development and
management of our execution and clearing operations. Mr. Goble was formerly a
stock broker with Drexel Burnham Lambert and was president of Metta Financial
Group.
Kevin M. Gagne is our co-chairman of the board, co-chief executive officer
and co-president. He is also the president of Empire Financial Group, Inc.,
which he co-founded in 1990, and the chief executive officer of Advantage
Trading Group, Inc. Mr. Gagne was responsible for the creation of Empire's
online trading operations and development of our institutional operations.
Mr. Gagne was formerly employed by American Express Financial Services as well
as Thompson McKinnon Securities.
Donald A. Wojnowski Jr. will become our vice president business development
effective upon completion of this offering. Mr. Wojnowski joined Empire
Financial Group, Inc. in March 1993 as an independent broker and has been the
managing principal of our Cocoa Beach, Florida branch since March 1993. From
1987 to March 1993, Mr. Wojnowski was vice president of investments with Dean
Witter Reynolds, Inc. Mr. Wojnowski has served as a director of Eckler
Industries, Inc. and Smart Choice Automotive Group, Inc., both publicly traded
companies.
Patrick E. Rodgers joined us in December 1999 and is our chief financial
officer. From September 1998 to December 1999, Mr. Rodgers served as vice
president-finance and administration and chief financial officer for
PowerAdz.Com, LLC, an Internet infrastructure provider and aggregator of local
content for publishers. From November 1997 to September 1998, Mr. Rodgers was a
self-employed financial and business consultant for manufacturing companies and
service organizations. From June 1995 to November 1997, he served as executive
vice president-finance and chief financial officer for The Med-Design
Corporation, a manufacturer of safety medical devices. From April 1994 to June
1995, Mr. Rodgers served as chief financial officer of Saratoga Beverage Group,
Inc., a manufacturer of bottled water. Mr. Rodgers received a B.S. degree in
accounting from Rutgers University and is a certified public accountant.
Craig Macnab will become a director upon completion of the offering.
Mr. Macnab has been the president of Tandem Capital, a venture capital firm,
since 1997. From 1993 to 1996, Mr. Macnab was a general partner of Macneil
Advisors, which was the general partner of three partnerships investing in
equity securities. Mr. Macnab is also a director of Environmental Tectonics
Corp., a manufacturer of aircrew training systems and public entertainment
systems, JDN Realty Corp., a real estate development and asset management
company and Unidial Communications, an integrated telecommunications provider.
Gregory M. Misiak will become a director upon completion of the offering.
Mr. Misiak has been providing consulting and venture capital services to various
Internet startup companies since 1998. From 1992 to 1998, Mr. Misiak was
president of Litton Systems, Inc.'s Laser Systems Division, which is engaged in
the manufacture of laser systems.
33
<PAGE>
John J. Tsucalas will become a director upon completion of the offering.
Since February 2000, Mr. Tsucalas has been chief executive officer and chief
financial officer of Littlefield Adams & Company, a company engaged in the sale
of men's apparel. He held these positions on an interim basis from July 1999 to
February 2000. From 1995 to July 1999, Mr. Tsucalas operated his own corporate
financial services company, John James Tsucalas & Co. He is a chartered
financial analyst.
OTHER KEY EMPLOYEES
George R. Cupples has been our chief compliance officer and controller
since August 1999. From 1990 to 1999, Mr. Cupples worked for the SEC as an
examiner of broker dealers for compliance with various federal and NASD rules
and regulations. His activities also included reviewing litigation involving
broker dealers in enforcement proceedings. From 1982 to 1990, he worked for the
NASD examining broker dealers for compliance with net capital requirements,
customer protection, sales practices and supervisory procedures.
William C. Fraley has been a vice president of our subsidiary Empire
Financial Group, Inc. since February 1993. He is responsible for sales and
servicing of our clients. Mr. Fraley is a Series 4, 7 and 63 licensed registered
representative.
Steven P. Sitkowski joined our subsidiary Empire Financial Group, Inc. as
its national sales manager, and our subsidiary Empire Investment Advisors as its
lead manager in November 1999. From 1995 to 1999, Mr. Sitkowski was a national
lecturer in the field of personal finance.
OTHER INFORMATION
There are no family relationships between any of our executive officers,
key employees and directors.
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, but we plan to establish audit and
compensation committees upon completion of this offering. The audit committee
will be composed of Messrs. Macnab, Misiak and Tsucalas. The compensation
committee will be composed of Messrs. Gagne, Goble, Macnab and Misiak.
Officers serve at the pleasure of the board of directors (except for
Messrs. Goble, Gagne and Wojnowski who have each entered into employment
agreement with us that have initial terms of approximately six, six and five
years, respectively) 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 COMPENSATION
We do not currently pay our directors any fees for attending board
meetings. We anticipate that following this offering we will pay non-employee
directors an annual retainer of $5,000, in addition to $500 per meeting, plus
travel reimbursements. In addition, each non-employee director will receive
stock options covering 10,000 shares of our common stock at an exercise price
equal to the initial offering price.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by us during the last
three completed fiscal years for our co-chief executive officers and each other
executive officer whose annual compensation exceeded $100,000 during the year
ended December 31, 1999.
34
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------
ANNUAL
COMPENSATION
------------ OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY COMPENSATION
- ------------------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
Richard L. Goble............................................. 1999 $302,160 $ 700,000
Co-Chief Executive Officer and 1998 254,879 566,681
Co-Chairman of the Board 1997 416,846 346,900
Kevin M. Gagne............................................... 1999 $302,160 $ 700,000
Co-Chief Executive Officer and 1998 254,879 566,681
Co-Chairman of the Board 1997 416,846 346,900
</TABLE>
"Other Annual Compensation" consists of distributions to these individuals
as shareholders to cover their subchapter S tax liability.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements, effective as of the date of
this prospectus, with each of Messrs. Gagne and Goble which provide that each of
them shall serve as our co-chairman of the board, co-chief executive officer and
co-president. Each of these agreements provides for annual base compensation of
$375,000. In addition, each of these agreements provides incentive and other
compensation and benefits to the executive. These employment agreements have an
initial term expiring on December 31, 2005. Beginning on January 1, 2003, and
each following January 1, the term of each agreement will be automatically
extended for one additional year unless we give written notice of termination to
the employee not later than at least six months prior to that date. As a result,
if we elect to terminate either of these agreements we will be obligated to
employ the employee for at least two and a half years after making this election
to terminate. These agreements may also be terminated by us after a conviction
of (and such conviction is sustained on all appeals) or the entry of a plea of
guilty by the employee to a felony, if the employee materially breaches the
agreement, if the employee commits any act or omission constituting willful
misconduct, gross negligence, fraud, misappropriation, embezzlement or
competitive business activities which we believe could cause us material harm or
upon the employee's disability as defined in the employment agreement. Each of
these employment agreements contains confidentiality provisions and also
noncompetition provisions during the term of the agreement and for two years
thereafter.
Messrs. Gagne and Goble may each terminate his agreement at any time upon
90 days prior written notice. If he terminates his agreement because he is
assigned duties that are materially inconsistent with his current position,
because of our material breach of his agreement or as a result of a change in
control, then we must compensate the employee for the remainder of the term. In
the event we terminate the agreement because of the employee's disability, we
must pay that employee his base salary until the earlier of nine months after
his termination or the date on which his long term disability insurance payments
begin.
We have also entered into an employment agreement, effective as of the date
of this prospectus, with Donald Wojnowski Jr., which provides that he shall
serve as vice president business development. His agreement provides for annual
base compensation of $150,000 and also provides incentive and other compensation
and benefits to him. He will also be granted stock options under the 2000 Stock
Option Plan covering 200,000 shares of our common stock at an exercise price
equal to the initial public offering price. This employment agreement may be
terminated by us on December 31, 2004. We may also terminate this agreement if
he is convicted of (and such conviction is sustained on all appeals) or he
enters a plea of guilty to a felony, he materially breaches his obligations
under the employment agreement or he becomes disabled as defined in the
agreement. This employment agreement contains confidentiality provisions and
also noncompetition provisions during the term of the agreement and for three
years thereafter.
35
<PAGE>
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our directors
and executive officers. Under these agreements, we have agreed to indemnify them
against certain liabilities and expenses in proceedings other than those we
bring against them that they become involved in because of their status as a
director, officer or agent of ours. In order to be entitled to indemnification,
they must have acted in good faith and in a manner they reasonably believed to
be in or not opposed to our best interests and, with respect to any criminal
proceedings, had no reasonable cause to believe their conduct was unlawful. With
respect to any action brought by us or in our right, a director or executive
officer will also be indemnified, to the extent not prohibited by law, for
liabilities and expenses they reasonably incur if a court determines they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to our best interests. Under the terms of the agreement, no legal action can be
brought by us or on our behalf against a former officer or director more than
two years after the officer or director has ceased serving us in that capacity,
if the action would give rise to a claim for indemnification.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted in 1999 to any of our executive officers.
OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
There were no options exercised in 1999 or held as of December 31, 1999 by
any of our executive officers.
STOCK OPTION PLAN
We have reserved 1,000,000 shares of common stock for issuance upon
exercise of options granted under our 2000 Stock Option Plan. The 2000 Plan is
designed to serve as an incentive for retaining qualified and competent
directors, employees, consultants and independent contractors. Options will be
granted to certain persons in proportion to their contributions to our overall
success as determined by the board of directors and our compensation committee
in their sole discretion.
Our board of directors, or a committee thereof, administers and interprets
the 2000 Plan and is authorized to grant options to all eligible employees,
including our directors and executive officers (whether current or former
employees), as well as consultants and independent contractors. The 2000 Plan
provides for the granting of both "incentive stock options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) and nonstatutory
stock options. Incentive stock options may only be granted, however, to
employees. Options can be granted under the 2000 Plan on the terms and at the
prices determined by the board of directors, or a committee thereof, except that
the per share exercise price of incentive stock options granted under the 2000
Plan will not be less than the fair market value of the common stock on the date
of grant and, in the case of an incentive stock option granted to a 10%
shareholder, the per share exercise price will not be less than 110% of the fair
market value as defined in the 2000 Plan.
Options under the 2000 Plan that would otherwise qualify as incentive stock
options will not be treated as incentive stock options to the extent that the
aggregate fair market value of the shares covered by the incentive stock options
which are exercisable for the first time by any individual during any calendar
year exceeds $100,000.
Options granted under the 2000 Plan will be exercisable after the period or
periods specified in the option agreement. Options granted under the 2000 Plan
are exercisable no later than ten years from the date of the grant. Incentive
stock options are not transferable. Nonstatutory stock options may be
transferred by the optionee by will or the laws of descent and distribution.
Adjustments in the number of shares subject to options granted under the 2000
Plan can be made by the board of directors or the appropriate committee in the
event of a stock dividend or recapitalization resulting in a stock split-up,
combination or exchange of shares.
Effective as of the date of this prospectus, we have granted options under
the 2000 Plan to purchase an aggregate of 661,400 shares of common stock. These
options will be exercisable at a price equal to the initial
36
<PAGE>
public offering price per share of the shares of common stock offered and will
expire no later than ten years from the date of grant. In addition, exercise of
the options is contingent on the optionee's continued employment by us.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership
of our common stock as of the date of this prospectus, by (1) each person who
owns beneficially more than 5% of our outstanding common stock, (2) each of our
directors, (3) each of our executive officers and (4) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF CLASS
--------------------
AMOUNT AND NATURE OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OFFERING OFFERING
- ----------------------------------------------------------------------- ---------------------- -------- --------
<S> <C> <C> <C>
Richard L. Goble....................................................... 4,000,000 50% 35.7%
Kevin M. Gagne......................................................... 4,000,000 50 35.7
Craig Macnab........................................................... -- -- --
Gregory M. Misiak...................................................... -- -- --
Patrick E. Rodgers..................................................... -- -- --
John J. Tsucalas....................................................... -- -- --
Donald A. Wojnowski Jr................................................. -- -- --
---------- ------ ------
All directors and executive officers as a group (7 persons)............ 8,000,000 100.0% 71.4%
========== ====== ======
</TABLE>
The business address of all directors and executive officers is c/o Empire
Financial Holding Company, Inc., 1385 West State Road 434, Longwood, Florida
32750.
37
<PAGE>
CERTAIN TRANSACTIONS
We currently lease the facilities where our principal offices are located
from G&G Holdings, Inc., a corporation owned by our principal shareholders,
co-chairmen of the board and co-chief executive officers, Messrs. Gagne and
Goble. The lease expires on May 31, 2009 and provides for average rent of
approximately $24,000 per month, plus sales and property taxes, which we believe
to be less than fair market value. Our Cocoa Beach, Florida branch facility is
owned by Donald A. Wojnowski, who will become our vice president business
development as of the date of this prospectus. Rent for this facility is paid by
the independent brokers who are located at this facility.
In February 2000, we acquired all of the outstanding capital stock of each
of Advantage Trading Group, Inc., Empire Financial Group, Inc. and Empire
Investment Advisors, Inc. from Messrs. Gagne and Goble in exchange for a total
of 8,000,000 shares of our common stock, issued in equal amounts to Messrs.
Gagne and Goble. We have also agreed to grant to Mr. Wojnowski, as of the date
of this prospectus, options to purchase 100,000 shares of our common stock that
become exercisable one year after the date of this prospectus at an exercise
price equal to the offering price and options to purchase an additional 100,000
shares of our common stock that become exercisable over a five-year period at an
exercise price equal to the offering price. We have orally agreed to purchase
Mr. Wojnowski's retail brokerage account relationships for $200,000, effective
as of the date of this prospectus. We have also orally agreed to pay Mr.
Wojnowski a finder's fee equal to one percent of the net proceeds of this
offering which we anticipate will be approximately $320,000.
From time to time we paid dividends to our existing shareholders, Messrs.
Cagne and Goble, during 1998, 1999 and the period from January 1, 2000 to the
date of this prospectus in the amounts of $304,241, $2,247,574 and $1,849,982,
respectively. We are currently an S corporation for federal tax purposes, and
our taxable income is a direct liability of our shareholders. We will
automatically become a C corporation upon completion of this offering. As a
final payment to Messrs. Gagne and Goble to assist them in the payment of their
estimated income tax liability related to our 2000 earnings prior to the
offering, we have agreed to make a final distribution to them no later than
April 15, 2001 equal to approximately 40.5% of our net income from January 1,
2000 through the completion of the offering. For the three months ended March
31, 2000, 40.5% of our earnings equals approximately $654,000.
We intend that following completion of this offering, all transactions
between us and our directors, executive officers and principal shareholders will
be on terms no less favorable than could be obtained from unaffiliated third
parties and will be approved by a majority of our independent directors.
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
100,000,000 shares of common stock, par value $.01 per share, 11,200,000 shares
of which will be issued and outstanding, and 1,000,000 shares of preferred
stock, par value $.01 per share, no shares of which are issued and outstanding.
COMMON STOCK
Subject to the rights of the holders of any preferred stock that may be
outstanding and that may have preferential dividend rights, each holder of our
common stock on the applicable record date is entitled to receive the dividends
declared by our board of directors out of funds legally available, 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 and the liquidation
preference of any of our outstanding preferred stock.
Each holder of our 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. Holders of our 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 our common stock are, and the
shares of our common stock offered will be, when issued, fully paid and
nonassessable.
38
<PAGE>
PREFERRED STOCK
Our board of directors has the authority to issue 1,000,000 shares of
preferred stock in one or more series and to fix, by resolution, conditional,
full, limited or no voting powers, and the designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any, including the
number of shares in the series (which our board of directors may increase or
decrease as permitted by Florida law), liquidation preferences, dividend rates,
conversion or exchange rights, redemption provisions of the shares constituting
any series and such other special rights and protective provisions with respect
to any class or series as our board of directors may deem advisable without any
further vote or action by the shareholders. Any shares of our preferred stock so
issued could have priority over the common stock with respect to dividend or
liquidation rights or both and could have voting and other rights of
shareholders.
One of the effects of the existence of our unissued preferred stock and
large quantity of authorized but unissued common stock is to render it more
difficult and discourage an attempt to obtain control of us through a merger,
tender offer, proxy contest or otherwise. This could result in delay or
prevention of a change in control even if some of our shareholders believe that
a change in control is in their best interests. We have no present plans to
issue any shares of our preferred stock.
ANTI-TAKEOVER EFFECTS OF BYLAWS
General
Certain provisions of our bylaws may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt,
including attempts that might result in a premium being paid over the market
price for the shares held by shareholders. The following provisions may not be
amended in our bylaws without the affirmative vote of a majority of the total
number of directors then constituting our board of directors or by the holders
of at least two-thirds of our outstanding shares of common stock.
Special Meetings of Shareholders
Our bylaws provide that special meetings of our shareholders may be called
only by our co-chairmen of the board or, if neither of the co-chairmen of the
board is present or able, by our co-presidents, or by our co-secretaries
pursuant to a resolution adopted by a majority of our board of directors.
Advance Notice Requirements for Shareholder Proposals and Director Nominations
Our bylaws provide that shareholders seeking to bring business before an
annual meeting of shareholders, or to nominate candidates for election as
directors at an annual or special meeting of shareholders, must provide timely
notice in writing. To be timely, a shareholder's notice must be delivered to our
secretary at our principal executive offices not less than 60 days nor more than
90 days prior to the first anniversary of the date on which we first mailed our
proxy materials to shareholders for the preceding year's annual meeting of
shareholders; provided, however, that in the event that if the date of the
annual meeting is more than 30 days before or more than 30 days after the
anniversary of the preceding year's annual meeting of shareholders, notice by
the shareholder must be delivered not later than the close of business on the
later of the 90th day prior to such meeting or the 10th day following the day on
which public announcements of the date of such meeting is first made. The bylaws
also specify certain requirements as to the content and form of a shareholder's
notice. These provisions may preclude shareholders from bringing matters before
the shareholders at an annual or special meeting or from making nominations for
directors at an annual or special meeting.
39
<PAGE>
Amendment of Bylaws
The bylaws may only be altered, amended or repealed by the majority vote of
the board of directors or the affirmative vote of the holders of at least
two-thirds of our outstanding shares of common stock.
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in a "control share acquisition" will not possess any voting
rights unless such voting rights are approved by a majority of the corporation's
disinterested shareholders. A "control share acquisition" is an acquisition,
directly or indirectly, by any person of ownership of, or the power to direct
the exercise of voting power with respect to, issued and outstanding "control
shares" of a publicly held Florida corporation. "Control shares" are shares,
which, except for the Florida Control Share Act, would have voting power that,
when added to all other shares owned by a person or in respect to which such
person may exercise or direct the exercise of voting power, would entitle such
person, immediately after acquisition of such shares, directly or indirectly,
alone or as a part of a group, to exercise or direct the exercise of voting
power in the election of directors within any of the following ranges: (1) at
least 20% but less than 33 1/3% of all voting power; (2) at least 33 1/3% but
less than a majority of all voting power; or (3) a majority or more of all
voting power.
The Florida Affiliated Transactions Act generally requires supermajority
approval by disinterested shareholders of certain specified transactions between
a public corporation and holders of more than 10% of the outstanding voting
shares of the corporation or their affiliates.
At the present time we have opted out of both of these statutes as
permitted thereunder.
Additionally, Florida law and our articles and bylaws also authorize us to
indemnify our directors, officers, employees and agents. In addition, our
articles of incorporation and Florida law presently limit the personal liability
of corporate directors for monetary damages, except where the directors (1)
breach their fiduciary duties, and (2) such breach constitutes or includes
certain violations of criminal law, a transaction from which the directors
derived an improper personal benefit, certain unlawful distributions or certain
other reckless, wanton or willful acts or misconduct.
TRANSFER AGENT
The transfer agent for our common stock is Continental Stock Transfer and
Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 11,200,000 shares of common
stock outstanding. Of these shares, the 3,200,000 shares of common stock sold in
the offering will be freely tradable without restriction under the Securities
Act. The remaining 8,000,000 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 in February 2001.
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 on The Nasdaq National
Market 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.
40
<PAGE>
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.
Our directors, executive officers and shareholders who own an aggregate of
8,000,000 shares of common stock (representing all of the issued and outstanding
shares prior to this offering) have entered into written agreements not to sell
or otherwise dispose of the shares of common stock beneficially owned by them
for 180 days after the date of this prospectus without the consent of Wachovia
Securities.
We also plan to issue to certain of our employees on the date of this
prospectus options to purchase 661,400 shares of our common stock under our 2000
Plan. These options will have an exercise price equal to the offering price and
options to acquire approximately 30,000 of these shares will be immediately
exercisable. The shares issuable upon exercise of these options may be freely
transferable.
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.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among us
and the underwriters named below, who are represented by Wachovia Securities,
Inc., each underwriter has severally agreed to purchase from us, and we have
agreed to sell to the several underwriters, the number of shares of common stock
set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------- ---------
<S> <C>
Wachovia Securities, Inc.....................................
Putnam, Lovell, de Guardiola & Thornton, Inc.................
Empire Financial Group, Inc..................................
---------
Total...................................................... 3,200,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations are
subject to approval of certain legal matters by counsel and to various other
conditions customary in a firm commitment underwritten public offering. The
underwriters are committed to purchase and pay for all the shares offered by
this prospectus, other than those covered by the over-allotment option described
below, if any are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price listed on the cover page of this
prospectus and to selected securities dealers at that price less a concession
not in excess of $ per share. The underwriters may allow, and the selected
dealers may reallow, a concession not in excess of $ per share to other
brokers and dealers. We expect that the shares of common stock will be ready for
delivery on or about , 2000. After the shares of common stock are
released for sale, the offering price and other selling terms may change.
41
<PAGE>
We have granted the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase up to 480,000 additional shares
of common stock to cover over-allotments, if any, at the public offering price
listed on the cover page of this prospectus, less the underwriting discount. The
underwriters may purchase these shares only to cover over-allotments made in
connection with this offering. To the extent that the underwriters exercise the
option, each underwriter will become obligated, subject to certain conditions,
to purchase the additional shares in approximately the same proportion as set
forth in the preceding table.
The following table summarizes the per share and total underwriting
discount we will pay to the underwriters:
<TABLE>
<CAPTION>
TOTAL
---------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
- ------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
$ $ $
</TABLE>
We have agreed to pay Donald A. Wojnowski Jr., who will become our vice
president business development as of the date of this prospectus, a finder's fee
of approximately $520,000. This fee may be deemed to be part of the
underwriters' compensation under the rules of the NASD.
In September 1999, we paid $100,000 to LM Capital Securities, Inc. as an
advance against expenses in connection with the offering. LM Capital is no
longer acting as a representative of the underwriters, however, LM Capital will
participate in the offering on the same terms and conditions as the other
underwriters. Payment of these expenses may be deemed to be part of the
underwriters compensation under the rules of the NASD.
We have agreed to sell to Wachovia Securities and its designees warrants to
purchase up to 350,400 shares of common stock at an exercise price of $ per
share (120% of the public offering price per share). Wachovia Securities will
pay a purchase price of $100 for the warrants. The warrants are not transferable
for one year from the date of this prospectus, except to the officers and
partners of Wachovia Securities or members of the underwriting syndicate and
selling group. The holders may exercise the warrants as to all or any lesser
number of the underlying shares of common stock at any time during the four-year
period commencing one year after the date of this prospectus. As a result, the
holders of the warrants will have the opportunity to profit from a rise in the
market price of the common stock at nominal cost during the term of the
warrants. To the extent that the warrants are exercised, the newly issued shares
will dilute the interests of our shareholders. Further, the terms upon which we
will be able to obtain additional equity capital may be adversely affected since
the holders of the warrants can be expected to exercise them at a time when we
would, in all likelihood, be able to obtain any needed capital on terms more
favorable to us than those provided in the warrants. Any profit realized by the
underwriters on the sale of the warrants or the underlying shares of common
stock may be deemed additional underwriting compensation.
We estimate that our total expenses of the offering, excluding the
underwriting discount and the finder's fee, will be approximately $830,000.
Empire Financial Group, Inc., one of our subsidiaries, will participate in
the offering upon the same terms and conditions as the other underwriters.
Because Empire Financial Group is our affiliate, this offering is being
conducted in accordance with Rule 2720 of the NASD's conduct rules. When an NASD
member participates in the underwriting of its parent's equity securities, this
rule requires, among other things, that the initial public offering price per
share can be no higher than that recommended by a "qualified independent
underwriter," as defined by the NASD. In accordance with this requirement,
Wachovia Securities has assumed the responsibilities of acting as a qualified
independent underwriter. Both in its role as a lead manager in this offering and
in its role as a qualified independent underwriter, Wachovia Securities has
performed due diligence investigations and reviewed and participated in the
preparation of the registration statement of which this prospectus forms a part.
Wachovia Securities will receive no additional compensation for serving in this
capacity. We have agreed to indemnify Wachovia Securities against certain
liabilities it may incur in connection with its responsibilities as a qualified
independent underwriter, or to contribute to payments Wachovia Securities may be
required to make in connection with those liabilities.
42
<PAGE>
We and all of our directors, executive officers and shareholders have
agreed not to sell or otherwise dispose of any shares of our common stock or any
securities that can be converted into or exchanged for shares of our common
stock, or publicly announce an intention to do so, or enter into any swap or
other arrangement that transfers to another any of the economic consequences of
ownership of common stock or make any demand or filing for the registration of
shares of common stock for a period of 180 days from the date of this prospectus
without the prior written consent of Wachovia Securities.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock has been
determined arbitrarily by negotiations between us and Wachovia Securities and is
not necessarily related to our asset value, net worth or other established
criteria of value. The factors considered in determining the initial public
offering price include:
o our past and present revenues, earnings and cash flows;
o our prospects for growth, revenues, earnings and cash flows;
o an assessment of our management and our capital structure;
o the history of and prospects for the industry in which we compete;
o prevailing market conditions, recent market prices of comparable publicly
traded companies;
o the current state of the economy in the United States and the level of
economic activity in our industry; and
o certain other factors as were deemed relevant.
The underwriters do not intend to sell shares of our common stock to any
account over which they exercise discretionary authority.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, as currently in effect, or to
contribute to payments that the underwriters may be required to make in
connection with those liabilities.
In connection with this offering the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
our common stock. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which the
underwriters or selling group members may bid for or purchase common stock for
the purpose of stabilizing its market price. The underwriters also may create a
short position by selling more common stock in connection with the offering than
they are committed to purchase from us. In that event, the underwriters may
purchase common stock in the open market following completion of the offering to
cover all or a portion of that short position. The underwriters also may cover
all or a portion of that short position by exercising the over-allotment option.
In addition, if the representative purchases shares in the open market in a
stabilizing transaction or to cover a short position, the representative may
reclaim a selling concession, known as a penalty bid, from the underwriters and
selling group members who sold those shares as part of this offering. In
general, purchases of a security for the purpose of stabilization or to reduce a
short position could cause the price of the common stock to remain higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the common stock to the extent that it
were to discourage resales of the common stock. None of the transactions
described in this paragraph are required, and, if any are undertaken, they may
be discontinued at any time. These transactions may be effected on the Nasdaq
National Market, the over-the-counter market or otherwise.
LEGAL MATTERS
Greenberg Traurig, P.A., a professional association, Miami, Florida will
give an opinion regarding the validity of the common stock offered under this
prospectus. Certain legal matters relating to the offering will be passed upon
for the underwriters by Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P., a limited liability partnership, Raleigh, North Carolina.
43
<PAGE>
EXPERTS
The consolidated financial statements as of December 31, 1999 and for the
year ended December 31, 1999 included in this prospectus have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
The consolidated financial statements as of December 31, 1998 and for each
of the two years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of Sweeney, Gates &
Co., independent accountants, given on the authority of that firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement containing this prospectus with the
SEC 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. Each statement in this prospectus is deemed qualified in its entirety
by reference to the registration statement and to the financial statements,
schedules and exhibits filed as a part of it.
The registration statement we filed 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; filings may also be obtained from the SEC's website at
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 Securities Exchange Act of 1934 and will file reports, proxy
statements and other information with the SEC. These reports, proxy statements
and other information can be inspected and copied at the public reference
facilities of the SEC set forth above, and copies of these materials can be
obtained from the SEC'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.
44
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Consolidated Statements of Financial Condition
March 31, 2000 (unaudited)............................................................................... F-2
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 (unaudited)................................................... F-3
Consolidated Statements of Shareholders' Equity
Three Months Ended March 31, 2000 (unaudited)............................................................ F-4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 (unaudited)................................................... F-5
Notes to Consolidated Financial Statements (unaudited)..................................................... F-6
Report of Independent Certified Public Accountants
Year Ended December 31, 1999............................................................................. F-7
Report of Independent Certified Public Accountants
Years Ended December 31, 1998 and 1997................................................................... F-8
Consolidated Statements of Financial Condition
December 31, 1999 and 1998............................................................................... F-9
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997............................................................. F-10
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997............................................................. F-11
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997............................................................. F-12
Notes to Consolidated Financial Statements................................................................. F-13
</TABLE>
F-1
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, MARCH 31,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................................... $ 2,594,895 $ 4,180,895
Cash and treasury bills segregated pursuant to federal regulations................. 1,055,638 1,055,638
Receivables from customers, net of allowance for doubtful accounts of $230,924 .... 21,956,990 21,956,990
Receivables from brokers and dealers and clearing organizations.................... 3,679,267 3,679,267
Deposits at clearing organizations................................................. 708,108 708,108
Furniture and equipment net of accumulated depreciation of
$117,428 ........................................................................ 347,004 347,004
Other assets....................................................................... 631,682 229,487
----------- -----------
$30,973,584 $62,157,389
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks................................................. $ 6,254,000 $ 6,254,000
Accounts payable, accrued expenses and other liabilities......................... 3,375,060 3,375,060
Payable to customers............................................................. 16,542,656 16,542,656
Payable to brokers and dealers and clearing organizations........................ 487,297 487,297
Distributions payable to shareholders............................................ - 2,053,877
----------- -----------
26,659,013 28,712,890
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized;
none issued and outstanding................................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized;
8,000,000 shares issued and outstanding....................................... 80,000 112,000
Additional paid-in capital....................................................... 2,180,694 33,332,499
Retained earnings................................................................ 4,050,192 --
----------- -----------
Total shareholders' equity....................................................... 2,260,694 33,444,499
----------- -----------
$30,973,584 $62,157,389
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements (unaudited)
are an integral part of these financial statements.
F-2
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Order execution trading revenues, net.......................................... $3,783,452 $2,764,311
Commissions and fees........................................................... 3,096,334 639,680
Orderflow...................................................................... 93,511 122,699
Interest....................................................................... 324,143 100,902
Other.......................................................................... 143,213 (55,154)
---------- ----------
7,440,653 3,572,438
---------- ----------
Expenses:
Employee compensation and benefits............................................. 1,913,428 820,182
Commissions and clearing costs................................................. 1,691,918 273,314
Orderflow payments............................................................. 779,556 707,890
Interest....................................................................... 102,162 51,555
Communications and data processing............................................. 271,179 137,493
General and administrative..................................................... 925,312 244,919
Advertising.................................................................... 142,587 86,060
---------- ----------
5,826,142 2,321,413
---------- ----------
Net income....................................................................... $1,614,511 $1,251,025
========== ==========
Earnings per share-basic and diluted............................................. $ 0.20 $ 0.16
========== ==========
Pro forma information:
Income before income taxes..................................................... $1,614,511 $1,251,025
Provision for income taxes..................................................... 607,000 470,000
---------- ----------
Net income..................................................................... $1,007,511 $ 781,025
========== ==========
Pro forma earnings per share--basic and diluted................................ $ 0.13 $ 0.10
========== ==========
Weighted average shares outstanding.............................................. 8,000,000 8,000,000
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements (unaudited)
are an integral part of these financial statements.
F-3
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 2000...................................... 8,000,000 $80,000 $184,379 $2,885,663
Net income...................................................... -- -- -- 1,614,511
Shareholders' distribution...................................... -- -- -- (449,982)
--------- ------- -------- ----------
Balance at March 31, 2000....................................... 8,000,000 $80,000 $184,379 $4,050,192
========= ======= ======== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements (unaudited)
are an integral part of these financial statements.
F-4
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net income....................................................................... $ 1,614,511 $ 1,251,025
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation.................................................................. 31,618 10,168
Provision for doubtful accounts...............................................
Loss on disposal of furniture and equipment................................... 3,731
Change in assets and liabilities:
Segregated cash and treasury bills.......................................... 163,774 4,657
Receivable from customers................................................... (6,371,988) (4,625,216)
Receivable from brokers and dealers and clearing organizations.............. (1,461,119) (1,287,688)
Deposits at clearing organizations.......................................... 3,191 543,612
Other assets................................................................ (319,273) 22,922
Accounts payable, accrued expenses and other liabilities.................... 1,456,384 (154,758)
Payable to customers........................................................ 5,773,342 4,184,607
Payable to brokers and dealers and clearing organizations................... 142,089 369,285
----------- -----------
Net cash provided by operating activities................................... 1,032,529 322,345
----------- -----------
Investing activities:
Purchase of furniture and equipment.............................................. (138,796) (7,167)
----------- -----------
Net cash used in investing activities....................................... (138,796) (7,167)
----------- -----------
Financing activities:
Change in short-term borrowings from banks....................................... 271,000 655,159
Shareholder distributions........................................................ (449,980) (1,384)
----------- -----------
Net cash provided by (used in) financing activities......................... (178,980) 653,775
----------- -----------
Net increase in cash and cash equivalents.......................................... 714,753 968,953
Cash and cash equivalents at beginning of period................................... 1,880,142 367,825
----------- -----------
Cash and cash equivalents at end of period......................................... $ 2,594,895 $ 1,336,778
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest...................................................................... $ 90,876 $ 12,727
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements (unaudited)
are an integral part of these financial statements.
F-5
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
Empire Financial Holding Company ("the Company"), a Florida corporation,
was formed on February 16, 2000 to acquire Empire Financial Group, Inc. ("Empire
Group"), Advantage Trading Group, Inc. ("Advantage") and Empire Investment
Advisors, Inc. ("Advisors"). Because all of these entities were owned by the
same shareholders, the acquisitions have been accounted for at historical cost
in a manner similar to a pooling of interest. Accordingly, the consolidated
financial statements reflect the results of operations of the acquired companies
for all periods presented. All subsidiaries are wholly owned and all significant
intercompany transactions and accounts have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements include the
accounts of the Company, Empire Group, Advantage and Advisors and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. Certain footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. The nature of the Company's business is such that the
results of an interim period are not necessarily indicative of the results for
the full year. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's audited financial statements as of December 31, 1999 included in this
prospectus.
2. NET CAPITAL AND RESERVE REQUIREMENTS
The broker dealer subsidiaries of the Company are subject to the Securities
and Exchange Commission Uniform Net Capital Rule 15c3-1 and the requirements of
the securities exchanges of which they are members. This rule requires that
aggregate indebtedness, as defined, not exceed 15 times net capital, as defined.
Rule 15c3-1 also provides for an "alternative net capital requirement" which, if
elected, requires that net capital be equal to the greater of $250,000 or 2% of
aggregate debit items computed in applying the formula for determination of
reserve requirements. Net capital positions of the Company's broker dealer
subsidiaries were as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------
2000
----------
<S> <C>
Advantage (alternative method elected in 1999):
Net capital as a percentage of aggregate debit items................................ 9.6%
Ratio of aggregate indebtedness to net capital...................................... N/A
Net capital......................................................................... $2,261,089
Required net capital................................................................ $ 476,221
Empire Group:
Ratio of aggregate indebtedness to net capital...................................... 1.25 to 1
Net capital......................................................................... $1,061,575
Required net capital................................................................ $ 250,000
</TABLE>
Advantage is also subject to Rule 15c3-3 under the Securities Exchange Act
of 1934 which specifies certain conditions under which brokers and dealers
carrying customer accounts are required to maintain cash or qualified securities
in a special reserve bank account for the exclusive benefit of customers.
Amounts to be maintained, if required, are computed in accordance with a formula
defined in the Rule. At March 31, 2000, Advantage had a reserve requirement of
$375,405.
Empire Group is exempt from the provisions of Rule 15c3-3 under Paragraph
(k)(2)(ii) of the Rule as it clears all transactions with and for customers on a
fully-disclosed basis with affiliated and unaffiliated clearing brokers.
F-6
<PAGE>
3. Pro Forma Information (Unaudited)
The Comapny's presentation of the unaudited pro forma consolidated
statement of financial condition at March 31, 2000 reflects the effect on
historical retained earnings of a planned S corporation distribution to the
existing shareholders of approximately $2,054,000 and the contribution
(reclassification) of the remaining undistributed earnings to additional paid-in
capital.
Empire Group, Advantage and Advisors, individually, with the consent of
their shareholders, elected to be taxed under Subchapter S of the Internal
Revenue Code, which provides for taxable income of the respective company to be
included in the income tax returns of the individual shareholders. The pro forma
adjustments shown in the consolidated statements of income reflect provisions
for income taxes computed based upon statutory tax rates as if the Company had
been subject to federal and state taxation during the periods presented.
4. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates in two primary business segments retail brokerage
services and order execution services. Retail brokerage services (including sale
of equities, mutual funds and fixed income products) are provided on a discount
basis to retail and institutional customers through on-line trading or the three
retail branches of Empire Group located in Florida. Order execution services are
conducted through Advantage, which fills orders to purchase or sell securities
received from independent broker dealers on behalf of their retail customers.
Advantage typically acts as principal in these transactions and derives order
execution trading revenues, net, from the difference between the price paid when
a security is bought and the price received when that security is sold.
Advantage does not typically receive a fee or commission for providing order
execution services. Advantage normally closes out of its trade positions at the
end of each day and does not maintain securities inventory in order to reduce
the risks from market volatility. Advantage also clears securities transactions
for its own account and for its affiliate, Empire Group.
All of the Company's business and long-lived assets are located in the U.S.
Information concerning operations in these segments of business is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
---------------------------------
<S> <C>
Revenue:
Order execution services................................... $ 5,246,988
Retail brokerage services.................................. 3,465,202
Eliminations............................................... (1,271,537)
------------
$ 7,440,653
============
Net income:
Order execution services................................... $ 866,710
Retail brokerage services.................................. 747,801
------------
$ 1,614,511
============
Identifiable assets:
Order execution services................................... $ 28,793,133
Retail brokerage services.................................. 2,695,100
Eliminations............................................... (1,090,649)
------------
$ 30,397,584
============
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Empire Financial Holding Company
In our opinion, the accompanying consolidated statement of financial
condition and the related consolidated statements of income, of shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Empire Financial Holding Company and its subsidiaries at
December 31, 1999, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
February 24, 2000
F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
Empire Financial Holding Company
We have audited the accompanying consolidated statement of financial
condition of Empire Financial Holding Company as of December 31, 1998, and the
related statements of income and shareholders' equity and cash flows for the
years ended December 31, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
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 Empire Financial Holding
Company at December 31, 1998, and the results of its operations and its cash
flows for the years ended December 31, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/ SWEENEY, GATES & CO.
Ft. Lauderdale, Florida
February 19, 1999
F-9
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 1,880,142 $ 367,825
Cash and treasury bills segregated pursuant to federal
regulations....................................................... 1,219,412 1,343,622
Receivables from customers, net of allowance for doubtful accounts
of $230,924 and $0................................................ 15,585,002 5,000,391
Receivable from brokers and dealers and clearing organizations...... 2,218,148 515,729
Deposits at clearing organizations.................................. 711,299 1,445,941
Furniture and equipment net of accumulated depreciation of $100,878
and $45,779....................................................... 239,828 111,575
Other assets........................................................ 312,409 75,705
------------ ------------
$ 22,166,240 $ 8,860,788
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks.................................. $ 5,983,000 $ 942,000
Accounts payable, accrued expenses and other liabilities.......... 1,918,676 1,012,653
Payable to customers.............................................. 10,769,314 4,384,361
Payable to brokers and dealers and clearing organizations......... 345,208 582,484
Distributions payable to shareholders............................. -- --
------------ ------------
19,016,198 6,921,498
------------ ------------
Commitments and contingencies (Note 7)
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none
issued and outstanding......................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized;
8,000,000 shares issued and outstanding........................ 80,000 80,000
Additional paid-in capital........................................ 184,379 184,379
Retained earnings................................................. 2,885,663 1,674,911
------------ ------------
Total shareholders' equity........................................ 3,150,042 1,939,290
------------ ------------
$ 22,166,240 $ 8,860,788
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-10
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Order execution trading revenues, net............................... $10,441,910 $5,681,892 $4,612,693
Commissions and fees................................................ 5,867,121 2,022,433 1,487,379
Orderflow........................................................... 370,139 149,246 209,522
Interest............................................................ 679,432 66,675 --
Other............................................................... 239,701 13,753 15,479
----------- ---------- ----------
17,598,303 7,933,999 6,325,073
----------- ---------- ----------
Expenses:
Employee compensation and benefits.................................. 4,708,879 2,715,069 2,415,490
Commissions and clearing costs...................................... 2,954,583 1,345,528 1,102,466
Orderflow payments.................................................. 2,775,599 1,661,488 1,617,153
Interest............................................................ 353,668 44,363 1,360
Communications and data processing.................................. 672,778 164,829 70,482
General and administrative.......................................... 2,113,336 642,845 286,986
Advertising......................................................... 561,134 269,293 134,458
----------- ---------- ----------
14,139,977 6,843,415 5,628,395
----------- ---------- ----------
Net income............................................................ $ 3,458,326 $1,090,584 $ 696,678
=========== ========== ==========
Earnings per share-basic and diluted.................................. $ .43 $ .14 $ .09
=========== ========== ==========
Unaudited pro forma information (Note 1):
Income before income taxes.......................................... $ 3,458,326 $1,090,584 $ 696,678
Provision for income taxes.......................................... 1,300,000 410,000 262,000
----------- ---------- ----------
Net income.......................................................... $ 2,158,326 $ 680,584 $ 434,678
=========== ========== ==========
Pro forma earnings per share--basic and diluted..................... $ .27 $ .09 $ .05
=========== ========== ==========
Weighted average shares outstanding................................... 8,000,000 8,000,000 8,000,000
=========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-11
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997...................................... 8,000,000 $80,000 $184,379 $ 443,923
Net income...................................................... -- -- -- 696,678
Shareholders' distribution...................................... -- -- -- (252,033)
--------- ------- -------- -----------
Balance at December 31, 1997.................................... 8,000,000 80,000 184,379 888,568
Net income...................................................... -- -- -- 1,090,584
Shareholders' distribution...................................... -- -- -- (304,241)
--------- ------- -------- -----------
Balance at December 31, 1998.................................... 8,000,000 80,000 184,379 1,674,911
Net income...................................................... -- -- -- 3,458,326
Shareholders' distribution...................................... -- -- -- (2,247,574)
--------- ------- -------- -----------
Balance at December 31, 1999.................................... 8,000,000 $80,000 $184,379 $ 2,885,663
========= ======= ======== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-12
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
Operating activities:
Net income............................................................... $ 3,458,326 $1,090,584 $696,678
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation........................................................... 59,395 33,224 31,811
Provision for doubtful accounts........................................ 230,924 -- --
Loss on disposal of furniture and equipment............................ 3,731 16,081 1,461
Change in assets and liabilities:
Segregated cash and treasury bills................................... 124,210 (1,070,592) (273,030)
Receivable from customers............................................ (10,815,535) (5,000,391) --
Receivable from brokers and dealers and clearing organizations....... (1,702,419) (462,753) 402,467
Deposits at clearing organizations................................... 734,642 (1,335,812) (30,129)
Other assets......................................................... (236,704) (62,408) 4,141
Accounts payable, accrued expenses and other liabilities............. 906,023 833,324 (159,748)
Payable to customers................................................. 6,384,953 4,384,361 --
Payable to brokers and dealers and clearing organizations............ (237,276) 412,958 169,526
----------- ---------- --------
Net cash (used in) provided by operating activities.................. (1,089,730) (1,161,424) 843,177
----------- ---------- --------
Investing activities:
Purchases of furniture and equipment..................................... (191,379) (77,086) (65,000)
----------- ---------- --------
Net cash used in investing activities................................ (191,379) (77,086) (65,000)
----------- ---------- --------
Financing activities:
Change in short-term borrowings from banks............................... 5,041,000 942,000 --
Shareholder distributions................................................ (2,247,574) (304,241) (252,033)
----------- ---------- --------
Net cash provided by (used in) financing activities.................. 2,793,426 637,759 (252,033)
----------- ---------- --------
Net increase (decrease) in cash and cash equivalents....................... 1,512,317 (600,751) 526,144
Cash and cash equivalents at beginning of year............................. 367,825 968,576 442,432
----------- ---------- --------
Cash and cash equivalents at end of year................................... $ 1,880,142 $ 367,825 $968,576
=========== ========== ========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest............................................................... $ 190,403 $ 43,363 $ 1,360
=========== ========== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-13
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 AND 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
Empire Financial Holding Company ("the Company"), a Florida corporation,
was formed on February 16, 2000 to acquire Empire Financial Group, Inc. ("Empire
Group"), Advantage Trading Group, Inc. ("Advantage") and Empire Investment
Advisors, Inc. ("Advisors"). Because all of these entities were owned by the
same shareholders, the acquisitions have been accounted for at historical cost
in a manner similar to a pooling of interest. Accordingly, the consolidated
financial statements reflect the results of operations of the acquired companies
for all periods presented. All subsidiaries are wholly owned and all significant
intercompany transactions and accounts have been eliminated in consolidation.
Empire Group was incorporated in Florida on August 20, 1990 and is a securities
broker dealer that provides discount brokerage services to retail and
institutional customers. Advantage was incorporated in Florida on July 18, 1995
and is a securities broker dealer which acts as principal in providing order
execution services for independent broker dealers and also acts as a clearing
broker for its affiliate, Empire Group. Advisors was incorporated on
September 10, 1999 for the purpose of providing fee-based investment advisory
services to retail customers. Advisors had no activities during 1999. The
Company's executive office is located in Longwood, Florida, and the Company
maintains branch offices in Cocoa Beach and Delray Beach, Florida. The Company
operates in two primary business segments--retail brokerage services (Empire
Group) and order execution services (Advantage). Disaggregated financial
information by segment is set forth in Note 10.
Management Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Segment Reporting
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 supersedes SFAS
14, "Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and addressing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect the Company's financial position or results of operations but did
affect the disclosure of segment information (Note 10).
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents for purposes of the
consolidated statement of cash flows.
Securities Owned and Securities Sold, Not Yet Purchased
Securities owned, which are readily marketable, and securities sold, not
yet purchased (short sales), are recorded at market value with unrealized gains
or losses reflected in income currently. At December 31, 1999 and 1998 the
Company had securities owned of approximately $827 and $33,750, respectively,
which are included in other assets in the consolidated statement of financial
condition. At December 31, 1999 and 1998 the Company had securities sold, not
yet purchased, of approximately $1,075 and $7,725, respectively, which
F-14
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
are included in accounts payable, accrued expenses and other liabilities in the
consolidated statement of financial condition.
Securities sold, not yet purchased, represent obligations of the Company to
deliver specified securities at the contracted prices, thereby creating a
liability to purchase the securities at prevailing market prices. Accordingly,
these transactions result in off-balance-sheet risk as the Company's ultimate
obligation to satisfy the sale of these securities may exceed the amount
recorded in the consolidated statement of financial condition.
Revenue Recognition
Securities transactions and the related revenues and expenses are recorded
in the accounts on trade date.
Order Execution Trading Revenues, Net
Order execution trading revenues, net, are generated from the difference
between the price paid to buy securities and the amount received from the sale
of securities. Volatility of stock prices, which can result in significant price
fluctuations in short periods of time, may result in trading gains or losses.
The Company typically acts as principal in these transactions and does not
receive a fee or commission for providing order execution services.
Commissions and Fees
Commissions and fees include revenues generated from transactional fees
charged to retail and institutional customers. Commissions and fees also include
mutual fund transaction sales commissions and trailer fees, which are periodic
fees paid by mutual funds as an incentive to keep assets invested with them over
time.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation and amortization
on furniture and equipment are provided utilizing the double declining balance
method over the estimated useful lives of the related assets, which range from
five to seven years.
Income Taxes
Empire Group and Advantage, individually, with the consent of their
shareholders, elected to be taxed under Subchapter S of the Internal Revenue
Code, which provides for taxable income of the respective Company to be included
in the income tax returns of the individual shareholders. Accordingly, the
accompanying consolidated financial statements reflect no provision for income
taxes for the years ended December 31, 1999, 1998, or 1997. The Company and its
subsidiaries will automatically terminate their Subchapter S elections
concurrently with the offering. The pro forma adjustments shown in the
consolidated statements of income reflect provisions for income taxes computed
based upon statutory tax rates as if the Company had been subject to federal and
state taxation during 1999, 1998 and 1997.
Fair Value of Financial Instruments
The financial instruments of the Company are reported in the accompanying
consolidated statement of financial condition at their carrying values which
approximate their fair values.
2. PRO FORMA STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
The Company's unaudited pro forma consolidated statement of financial
condition at March 31, 2000 is presented on Page F-2
F-15
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. CLEARING AGREEMENTS
In connection with its retail brokerage services business, the Company has
clearing agreements with two unaffiliated clearing brokers. Under such
agreements, the clearing brokers provide the Company execution and clearing
services on a fully disclosed basis. In order to facilitate transactions with
the unaffiliated clearing brokers, the Company maintains a deposit of
approximately $200,000 which earns interest at a rate equal to 1% above the rate
customarily paid on credit balances to the clients of the clearing broker. The
$200,000 is included in deposits at clearing organizations on the consolidated
statements of financial condition.
4. RECEIVABLE FROM AND PAYABLE TO BROKERS AND DEALERS AND CLEARING ORGANIZATIONS
Amounts receivable from and payable to brokers and dealers and clearing
organizations consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- --------
<S> <C> <C>
Receivable:
Securities failed to deliver.................................. $ 54,899 $ 74,499
Deposits on securities borrowed............................... 221,700 239,269
Other amounts due from brokers and dealers.................... 1,941,549 201,961
---------- --------
$2,218,148 $515,729
========== ========
Payable:
Securities failed to receive.................................. $ 73,107 $ 42,685
Payable to clearing organizations............................. 73,542 501,421
Orderflow payable............................................. 198,559 38,378
---------- --------
$ 345,208 $582,484
========== ========
</TABLE>
Deposits on securities borrowed represent cash on deposit with other
brokers and dealers relating to securities borrowed. If the counterparty failed
to return these deposits, the Company may sustain a loss if the market value of
the securities borrowed declines.
5. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
Receivable from and payable to customers arise from cash and margin
transactions executed by the Company on the customer's behalf. Receivables are
collateralized by securities owned by customers. Such collateral is not
reflected in the accompanying consolidated statements of financial condition. In
management's opinion, prior to 1999 no allowance for doubtful accounts was
required. A provision for doubtful accounts of $230,924 was recorded in 1999.
6. SHORT-TERM BORROWINGS FROM BANKS
The Company maintains a $15,000,000 line of credit with a commercial bank
collateralized by customer receivables ("Customer LOC"). The Company also
maintains a $1,500,000 line of credit with the same commercial bank,
collateralized by firm inventory ("Firm LOC"). The Company may draw on these
lines up to an aggregate amount of $15,000,000. Borrowings under the lines of
credit bear interest, at the Company's option, at the federal funds rate plus
100 basis points and are restricted to a percentage of the market value
F-16
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. SHORT-TERM BORROWINGS FROM BANKS--(CONTINUED)
of the related collateral securities, and are due on demand. These lines of
credit expire on September 30, 2000. At December 31, 1999 and 1998,
approximately $5,983,000 and $942,000, respectively, were outstanding under the
Customer LOC. There were no draws on the Customer LOC during 1997. At
December 31, 1999 and 1998 the Company pledged approximately $9,350,000 and
$3,000,000, respectively, of non-fully or partially paid customer securities
against the outstanding balance on the Customer LOC. There were no draws on the
Firm LOC during 1999, 1998, or 1997. The maximum and average amounts outstanding
on the Customer LOC during the year ended December 31, 1999 were approximately
$5,983,000 and $2,375,000, respectively ($1,150,000 and $500,000, respectively,
for the year ended December 31, 1998). The average interest rates at and during
the year ended December 31, 1999 and 1998 were 6.6% and 6.0%, respectively.
7. COMMITMENTS AND CONTINGENCIES
In November 1999, the Company entered into a lease agreement for operating
facilities with a corporation owned by the two controlling shareholders of the
Company. The lease contains escalating rental payments and expires in May 2009.
Rental expense is reflected on a straight-line basis over the term of the lease.
Total rental expense for 1999 was approximately $127,000, including
approximately $48,000 under the operating facilities lease with the two
controlling shareholders. Total rental expense for 1998 and 1997 was
approximately $78,109 and $58,550, respectively. The Company does not have lease
agreements for its branch offices in Cocoa Beach and Delray Beach, Florida. The
rent for the branch office facilities is paid by the independent contractor
registered representatives who are located in these facilities.
At December 31, 1999, future minimum annual lease payments, all of which
relate to the operating facilities lease, are as follows:
<TABLE>
<S> <C>
2000...................................................... $ 224,520
2001...................................................... 234,496
2002...................................................... 246,212
2003...................................................... 258,528
2004...................................................... 271,452
Thereafter................................................ 1,490,808
----------
$2,726,016
==========
</TABLE>
The Company is a defendant or co-defendant in various lawsuits incidental
to its retail brokerage services business. The Company is contesting the
allegations of the complaints in these cases. In view of the number and
diversity of claims against the Company, the number of jurisdictions in which
litigation is pending and the inherent difficulty of predicting the outcome of
litigation and other claims, the Company cannot state with certainty what the
eventual outcome of pending litigation or other claims will be. In the opinion
of management, based on discussions with legal counsel, the outcome of the
matters will not result in a material adverse effect on the financial position
or results of operations of the Company.
8. NET CAPITAL AND RESERVE REQUIREMENTS
The broker dealer subsidiaries of the Company are subject to the Securities
and Exchange Commission Uniform Net Capital Rule 15c3-1 and the requirements of
the securities exchanges of which they are members. This rule requires that
aggregate indebtedness, as defined, not exceed 15 times net capital, as defined.
Rule 15c3-1 also provides for an "alternative net capital requirement" which, if
elected, requires that net capital be equal to the greater of $250,000 or 2% of
aggregate debit items computed in applying the
F-17
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. NET CAPITAL AND RESERVE REQUIREMENTS--(CONTINUED)
formula for determination of reserve requirements. Net capital positions of the
Company's broker dealer subsidiaries were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
------------ ----------
<S> <C> <C>
Advantage (alternative method elected in 1999):
Net capital as a percentage of aggregate debit items............................... 12.74% N/A
Ratio of aggregate indebtedness to net capital..................................... N/A 4.94 to 1
Net capital........................................................................ $2,233,982 $1,392,009
Required net capital............................................................... $ 350,766 $ 458,751
Empire Group:
Ratio of aggregate indebtedness to net capital..................................... 2.08 to 1 .37 to 1
Net capital........................................................................ $ 316,073 $ 335,281
Required net capital............................................................... $ 250,000 $ 250,000
</TABLE>
Advantage is also subject to Rule 15c3-3 under the Securities Exchange Act
of 1934 which specifies certain conditions under which brokers and dealers
carrying customer accounts are required to maintain cash or qualified securities
in a special reserve bank account for the exclusive benefit of customers.
Amounts to be maintained, if required, are computed in accordance with a formula
defined in the Rule. At December 31, 1999 and 1998, Advantage had a reserve
requirement of $158,536 and $0, respectively.
Empire Group is exempt from the provisions of Rule 15c3-3 under Paragraph
(k)(2)(ii) of the Rule as it clears all transactions with and for customers on a
fully-disclosed basis with affiliated and unaffiliated clearing brokers.
9. OFF-BALANCE-SHEET RISK
In the normal course of business, the Company purchases and sells
securities as principal for its own account and on behalf of its customers. The
Company normally closes out its trade positions at the end of each day and
normally does not maintain a securities inventory in order to minimize its risks
from market volatility. Nevertheless, if either the customer or a counterparty
fails to perform, the Company may be required to discharge the obligations of
the nonperforming party. In such circumstances, the Company may sustain a loss
if the market value of the security contract is different from the contract
value of the transaction.
In addition, the Company has sold securities that it does not currently own
and will, therefore, be obligated to purchase such securities at a future date.
At December 31, 1999, the Company has recorded these obligations in the
financial statements at the estimated fair value of the related securities and
may incur a loss if the market value of the securities increases subsequent to
December 31, 1999.
In the normal course of business, the Company's customer clearance
activities involve the execution, settlement, and financing of various customer
securities transactions. These activities may expose the Company to
off-balance-sheet risk in the event the customer or other broker is unable to
fulfill its contracted obligations and the Company has to purchase or sell the
financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a
cash or margin basis. In margin transactions, the Company extends credit to its
customers, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customers' accounts. In connection
with these activities, the Company executes and clears customer transactions
involving the sale of securities not yet purchased, substantially all of which
are transacted on a margin basis subject to individual exchange regulations.
Nevertheless, margin transactions may expose the Company to significant
off-balance-sheet risk in the event margin requirements are not sufficient to
fully cover losses that customers may incur. In the
F-18
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
9. OFF-BALANCE-SHEET RISK--(CONTINUED)
event the customer fails to satisfy its obligations, the Company may be required
to purchase or sell financial instruments at prevailing market prices to fulfill
the customer's obligations.
The Company seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. The Company monitors required
margin levels daily and requires the customer to deposit additional collateral
pursuant to such guidelines or to reduce positions. The Company's policy is to
impose more stringent margin requirements than those required by the Federal
Reserve or the NASD, and it also may restrict access to margin lending with
regard to trading of certain stocks determined by it to be too volatile.
10. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates in two primary business segments retail brokerage
services and order execution services. Retail brokerage services (including sale
of equities, mutual funds and fixed income products) are provided on a discount
basis to retail and institutional customers through on-line trading or the three
retail branches of Empire Group located in Florida. Order execution services are
conducted through Advantage, which fills orders to purchase or sell securities
received from independent broker dealers on behalf of their retail customers.
Advantage typically acts as principal in these transactions and derives order
execution trading revenues, net, from the difference between the price paid when
a security is bought and the price received when that security is sold.
Advantage does not typically receive a fee or commission for providing order
execution services. Advantage normally closes out of its trade positions at the
end of each day and does not maintain securities inventory in order to reduce
the risks from market volatility. Advantage also clears securities transactions
for its own account and for its affiliate, Empire Group.
The accounting policies of the Company's segments are the same as those
described in the "Nature of Business and Summary of Significant Accounting
Policies." All of the Company's business and long-lived assets are located in
the U.S. Information concerning operations in these segments of business is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Revenue:
Order execution services................................... $ 11,628,511 $6,147,226 $4,772,400
Retail brokerage services.................................. 6,906,442 2,341,912 1,714,223
Eliminations............................................... (936,650) (555,139) (161,550)
------------ ---------- ----------
$ 17,598,303 $7,933,999 $6,325,073
============ ========== ==========
Net income:
Order execution services................................... $ 2,855,586 $1,025,382 $ 594,522
Retail brokerage services.................................. 602,740 65,202 102,156
------------ ---------- ----------
$ 3,458,326 $1,090,584 $ 696,678
============ ========== ==========
Identifiable assets:
Order execution services................................... $ 21,250,103 $8,429,209 $1,041,717
Retail brokerage services.................................. 1,202,302 554,725 474,585
Eliminations............................................... (286,165) (123,146) (14,500)
------------ ---------- ----------
$ 22,166,240 $8,860,788 $1,501,802
============ ========== ==========
</TABLE>
Eliminations represent revenues and receivables from intercompany
transactions resulting from clearing activities between Empire Group and
Advantage.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, THE
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY US OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF OR SINCE THE DATES AS OF
WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER
IN SUCH JURISDICTION.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
EMPIRE FINANCIAL
HOLDING COMPANY
3,200,000 SHARES OF
COMMON STOCK
------------------------
PROSPECTUS
------------------------
WACHOVIA SECURITIES, INC.
PUTNAM, LOVELL, DE GUARDIOLA & THORNTON, INC.
EMPIRE FINANCIAL GROUP, INC.
MAY , 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $12,990.32
NASD filing fee............................................. 4,916.00
Nasdaq National Market listing fee.......................... 81,625.00
Printing expenses........................................... 125,000.00
Accounting fees and expenses................................ 225,000.00
Legal fees and expenses..................................... 350,000.00
Blue Sky fees and expenses.................................. 15,000.00
Transfer Agent's fees and expenses.......................... 5,000.00
Miscellaneous............................................... 10,468.68
-----------
Total....................................................... $830,000.00
===========
</TABLE>
All amounts except the Securities and Exchange Commission registration fee,
the Nasdaq National Market listing fee and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided for in such statute.
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant may insure, shall indemnify and shall advance expenses on behalf of
its officers and directors to the fullest extent not prohibited by law. The
Registrant is also a party to indemnification agreements with each of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In September 1999, Empire Investment Advisors, Inc., now a wholly-owned
subsidiary of the Registrant, issued an aggregate of 1,000 shares of its common
stock, $.01 par value per share, 500 shares to Kevin M. Gagne and 500 shares to
Richard L. Goble, in exchange for $10.00, services provided by them in
connection with the organization of said corporation and other good and valuable
consideration. These shares were later exchanged by Messrs. Gagne and Goble for
shares of the Registrant's common stock as discussed below.
In February 2000 the Registrant issued an aggregate of 8,000,000 shares of
its common stock, 4,000,000 shares to each of Messrs. Kevin M. Gagne and Richard
L. Goble, in exchange for all of the outstanding capital stock of each of Empire
Financial Group, Inc., Advantage Trading Group, Inc. and Empire Investment
Advisors, Inc. pursuant to the terms of a Share Exchange Agreement among the
Registrant, Mr. Gagne and Mr. Goble.
In connection with the offering, we have agreed to sell to Wachovia
Securities and its designees warrants to purchase up to 350,400 shares of common
stock at an exercise price of 120% of the public offering price per share.
Wachovia Securities will pay a purchase price of $100 for the warrants. The
warrants are not transferable for one year from the date of this prospectus,
except to the officers and partners of Wachovia Securities or members of the
underwriting syndicate and selling group. The holders may exercise the warrants
as to all or any lesser number of the underlying shares of common stock at any
time during the four-year period commencing one year after the date of this
prospectus.
In connection with the above-referenced issuances, the Registrant relied
(or plans to rely) on Section 4(2) under the Securities Act of 1933, as amended,
as transactions by an issuer not involving any public offering. Each of the
above investors had (or will have) full access to information relating to the
II-1
<PAGE>
Registrant and represented (or will represent) to the Registrant that he had (or
has) the required investment intent. In addition, the above-referenced
securities will bear appropriate restrictive legends, and stop transfer orders
will be placed against such securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement(1)
2.1 -- Share Exchange Agreement among the Registrant, Kevin M. Gagne and Richard L. Goble(3)
3.1 -- Registrant's Articles of Incorporation(3)
3.2 -- Registrant's Bylaws(3)
4.1 -- Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate(1)
4.2 -- Form of Registrant's Common Stock Certificate(3)
5.1 -- Opinion of Greenberg Traurig, P.A.(1)
9.1 -- Voting Agreement between Kevin M. Gagne and Richard L. Goble(3)
10.1 -- 2000 Stock Option Plan*(3)
10.2 -- Employment Agreement between the Registrant and Kevin M. Gagne*(3)
10.3 -- Employment Agreement between the Registrant and Richard L. Goble*(3)
10.4 -- Form of Employment Agreement between the Registrant and Donald A. Wojnowski Jr.*(1)
10.5 -- Lease between Advantage Trading Group, Inc. and G&G Holdings, Inc. relating to principal offices of
Registrant located at 1385 W. Highway 434, Longwood, Florida(3)
10.6 -- Lease between Empire Financial Group, Inc. and G&G Holdings, Inc. relating to principal offices of
Registrant located at 1385 W. Highway 434, Longwood, Florida(3)
10.7 -- Form of Indemnification Agreement between the Registrant and each of its directors and executive
officers*(3)
10.8 -- Clearing Agreement between Empire Financial Group, Inc. and Bear Stearns Securities Corp.(3)
10.9 -- Firm Inventory Credit Agreement between Advantage Trading Group, Inc. and Mercantile Bank National
Association (now named Firstar Corporation), as amended(3)
10.10 -- Remote Processing Agreement between SunGard Financial Systems, Inc. and Advantage Trading Group,
Inc.(3)
10.11 -- Shareholders Agreement by and among the Registrant, Kevin M. Gagne and Richard L. Goble(3)
16.1 -- Letter from Sweeney Gates, & Co. regarding change in certifying accountant(3)
21.1 -- Subsidiaries of the Registrant(3)
23.1 -- Consent of Greenberg Traurig, P.A. (included in its opinion filed as Exhibit 5.1)(1)
23.2 -- Consent of Sweeney, Gates & Co. (included in Exhibit 16.1)(3)
23.3 -- Consent of PricewaterhouseCoopers LLP(1)
23.4 -- Consent of Director Appointee Craig Macnab(3)
23.5 -- Consent of Director Appointee Gregory M. Misiak(3)
23.6 -- Consent of Director Appointee John J. Tsucalas(3)
25.1 -- Power of Attorney (included on the signature page of this Registration Statement)(3)
27.1 -- Financial Data Schedule(1)
</TABLE>
- ------------------
* Compensation Plan or Arrangement
(1) Filed herewith.
(2) To be filed by amendment.
(3) Previously filed.
II-2
<PAGE>
(b) Financial Statement Schedules
Schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
the required information is provided in the financial statements.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(2) 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.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense or any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act
of 1933, 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to this Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Longwood, State of Florida, on May 2, 2000.
EMPIRE FINANCIAL HOLDING COMPANY
By: /s/ RICHARD L. GOBLE
-----------------------------------
Co-Chief Executive Officer
By: /s/ KEVIN M. GAGNE
-----------------------------------
Kevin M. Gagne
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ ------------------------------------------------- -------------
<C> <S> <C>
/s/ RICHARD L GOBLE Co-Chief Executive Officer and Director (Co- May 2, 2000
- ------------------------------------------ Principal Executive Officer)
Richard L. Goble
/s/ KEVIN M. GAGNE Co-Chief Executive Officer and Director (Co- May 2, 2000
- ------------------------------------------ Principal Executive Officer)
Kevin M. Gagne
/s/ PATRICK E. RODGERS Chief Financial Officer May 2, 2000
- ------------------------------------------ (Principal Accounting Officer)
Patrick E. Rodgers
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
4.1 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate
5.1 Opinion and Consent of Greenberg Traurig, P.A.
10.4 Form of Employment Agreement between the Registrant and Donald A. Wojnowski Jr.
23.3 Consent of PricewaterhouseCoopers, LLP
27.1 Financial Data Schedule
</TABLE>
II-5
________ SHARES
EMPIRE FINANCIAL HOLDING COMPANY
COMMON STOCK
UNDERWRITING AGREEMENT
___________, 2000
WACHOVIA SECURITIES, INC.
As representative of the several
Underwriters named in Schedule I hereto,
c/o Wachovia Securities, Inc.
IJL Financial Center
201 North Tryon Street
Charlotte, North Carolina 28202
Ladies and Gentlemen:
Empire Financial Holding Company (the "Company") proposes, subject to
the terms and conditions stated herein, to issue and sell to the underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 3,200,000 shares
of common stock, par value $.01 per share (the "Common Stock"), of the Company
(the "Firm Shares"), and, at the election of the Underwriters, subject to the
terms and conditions stated herein, to sell to the Underwriters up to 480,000
additional shares of Common Stock (the "Optional Shares") solely to cover
overallotments, if any (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 1 hereof are collectively
called the "Shares").
The Company also proposes to issue and sell to you for your own account
and not on behalf of the Underwriters, a warrant (the "Representative's
Warrant") exerciseable for the purchase of up to 350,400 shares of Common Stock
as further described in Section 2(c) hereof. The shares of Common Stock issuable
upon the exercise of the Representative's Warrant are referred to collectively
as the "Warrant Securities."
The Shares and the Warrant Securities are sometimes referred to
collectively as the "Securities." The Securities are more fully described in the
Registration Statement and Prospectus referred to below.
<PAGE>
1. PURCHASE AND SALE OF SHARES.
(a) Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agree, severally and not jointly, to purchase from the Company the
number of Firm Shares set opposite the name of such Underwriter in Schedule 1
hereto, at a purchase price of $__________ per share, (b) in the event and to
the extent that the Underwriters shall exercise the option to purchase Optional
Shares as provided below, the Company agrees to issue and to sell to each of the
Underwriters, and each of the Underwriters agree, severally and not jointly, to
purchase from the Company, at a purchase price of $_______ per share, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares that such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares that all of the Underwriters are entitled to
purchase hereunder.
(b) The Company hereby grants to the Underwriters the right to purchase
at its election in whole or in part from time to time up to _______ Optional
Shares, at the purchase price of $______ per share for the sole purpose of
covering over-allotments in the sale of Firm Shares. Any such election to
purchase Optional Shares may be exercised by written notice from you to the
Company, given from time to time within a period of 30 calendar days after the
date of this Agreement and setting forth the aggregate number of Optional Shares
to be purchased and the date on which the Optional Shares are to be delivered,
as determined by you but in no event earlier than the First Time of Delivery (as
hereinafter defined) or, unless you and the Company otherwise agree in writing
earlier than two or later than ten business days after the date of such notice.
In the event you elect to purchase all or a portion of the Optional Shares, the
Company agrees to furnish or cause to be furnished to you the certificates,
letters and opinions, and to satisfy all conditions set forth in Section 7
hereof at each Subsequent Time of Delivery (as hereinafter defined).
(c) At the First Time of Delivery, the Company shall issue and sell to
the Representative and the Representative shall purchase, at a purchase price of
$100.00 and for other good and valuable consideration, the Representative's
Warrant, substantially in the form attached hereto as Exhibit A. The
Representative's Warrant shall be exerciseable for a period of four years
commencing one year from the effective date of the Registration Statement at an
initial exercise price equal to $_______ [120% of the initial public offering
price of the Firm Shares.] The aggregate number of shares of Common Stock
subject to the Representative's Warrant shall equal 350,400. The
Representative's Warrant will be restricted from sale, transfer, assignment or
hypothecation for a period of 12 months after the effective date of the
Registration Statement, except to the Representative, the Underwriters or
members of the selling group or their respective officers or partners.
2
<PAGE>
2. OFFERING BY THE UNDERWRITERS. Upon the authorization by you of the
release of the Shares, the several Underwriters propose to offer the Shares for
sale upon the terms and conditions disclosed in the Prospectus.
3. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as the Representative may request upon at least 48
hours prior notice to the Company shall be delivered by or on behalf of the
Company to you for your account against payment by you of the purchase price
therefor by wire transfer of immediately available funds to an account
designated by the Company. The closing of the sale and purchase of the Shares
shall be held at the offices of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P., 2500 First Union Capitol Center, Raleigh, North Carolina
27601. The time and date of such delivery and payment shall be, with respect to
the Firm Shares, at 10:00 a.m., Charlotte, North Carolina time, on the 3rd (or
if the Firm Shares are priced, as contemplated by Rule 15c6-1(c) under the
Exchange Act, after 4:30 p.m., Washington, D.C. time, the 4th) full business day
after the execution of this Agreement or at such other legally permissible time
and date as you and the Company may agree upon in writing, and, with respect to
the Optional Shares, at 10:00 a.m., Charlotte, North Carolina time, on the date
specified by you in the written notice given by you of the Underwriters'
election to purchase all or part of such optional shares, or at such other time
and date as you and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of Delivery,"
such time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called a "Subsequent Time of Delivery," and each such time
and date for delivery is herein called a "Time of Delivery." The Company will
make such certificates available for checking and packaging at least 24 hours
prior to each Time of Delivery at your office at the address set forth above or
such other location designated by you to the Company. If the Representative so
elects, delivery of the Firm Shares and the Optional Shares, if any, may be made
by credit through full fast transfer to the accounts at the Depositary Trust
Company designated by the Representative.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with each of the Underwriters that:
(1) A registration statement on Form S-1 with respect to the
Shares and the Warrant Securities, has been filed by the Company with
the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"). Copies of
the registration statement and any amendments thereto, including any
post-effective amendments, have been delivered by the Company to you,
and have been declared effective by the Commission in such form. No
other document with respect to the registration statement or any post
effective amendment thereto has been filed with the Commission; and no
stop order suspending the effectiveness of the registration statement
has been issued and no proceeding for that purpose has been instituted
or threatened by the Commission. Any preliminary prospectus included in
the registration statement or filed with the Commission pursuant to
Rule 424 of the Rules and Regulations of the Commission under the
Securities Act (the "Rules and Regulations"), is herein called a
3
<PAGE>
"Preliminary Prospectus." The various parts of such registration
statement, including the prospectus, Part II, all financial schedules
and exhibits thereto, and including the information contained in the
form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act, and deemed by virtue of Rule 430A
under the Securities Act to be part of the registration statement at
the time it was declared effective, as amended at the time such part
became effective, are herein called collectively the "Registration
Statement," and the final prospectus, in the form first filed pursuant
to Rule 424(b), is herein called the "Prospectus."
(2) No order preventing or suspending the use of any
Prospectus, including any Preliminary Prospectus, has been issued and
no proceeding for that purpose has been instituted or threatened by the
Commission or the securities authority of any state or other
jurisdiction. No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceeding for that purpose has been instituted or threatened or, to
the best knowledge of the Company, contemplated by the Commission or
the securities authority of any state or other jurisdiction.
(3) Each Prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto
complied when so filed in all material respects with the requirements
applicable to it under the Securities Act and the Rules and Regulations
and none of such documents contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and any
further amendment or supplement thereto, when such documents become
effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Securities
Act, and the Rules and Regulations and will not contain an untrue
statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Wachovia Securities, Inc. (the
"Representative") expressly for use therein. When the Registration
Statement or any amendment thereto was declared effective, and at each
Time of Delivery (as hereinafter defined), it (i) contained all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of the Securities Act and the Rules and Regulations and (ii) did not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein not
misleading. When the Prospectus or any amendment or supplement thereto
is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or such amendment or supplement is not required to be so
filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is
declared effective) and at each Time of Delivery, the Prospectus, as
amended or supplemented at any such time (i) contained or will contain
4
<PAGE>
all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Securities Act and the Rules and Regulations and (ii) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The conditions for use of a registration statement on Form
S-1 set forth in the General Instructions to Form S-1 have been
satisfied with respect to the Company, the transactions contemplated
herein and in the Registration Statement.
(4) The descriptions in the Registration Statement and the
Prospectus of statutes, rules, regulations, legal and governmental
proceedings or contracts and other documents that are required to be so
described are accurate and fairly present the information required to
be shown; and there are no statutes, rules, regulations or legal or
governmental proceedings required to be described in the Registration
Statement or the Prospectus that are not described as required and no
contracts or documents of a character that are required to be described
in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described and filed
as required.
(5) Each of the Company and its Subsidiaries (as defined in
Section 16 hereof) has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
organization, and has (and will have) full power and authority to own
or lease its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the
character of the business conducted by it or the location of the
properties owned or leased by it makes such qualification necessary.
The Company has full power and authority to enter into this Agreement
and to perform its obligations hereunder. Each of the Company and its
Subsidiaries (i) has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of
and from all foreign and domestic governmental or regulatory officials
and bodies (including, without limitation, those having jurisdiction
over the activities of brokers and dealers), to own or lease its
properties and conduct its business as described in the Prospectus and
(ii) is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises,
permits and all foreign, federal, state and local laws, rules and
regulations, (including, without limitation, timely filing of all
Financial and Operational Combined Uniform Single Reports required to
be filed with the Securities and Exchange Commission), and has not
received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license,
certificate, franchise or permit which, if the subject of an
unfavorable decision, ruling or finding, would, in the aggregate, have
a material adverse effect on stockholders' equity in, or the condition
(financial or otherwise), earnings, business prospects or properties
of, the Company and its Subsidiaries, taken as a whole. The disclosures
in the Registration Statement concerning the effects of foreign,
federal, state and local laws, rules and regulations on each of the
Company's and the Subsidiaries' business as currently conducted and as
contemplated are correct in all material respects and do not omit to
state a material fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were
made.
5
<PAGE>
(6) The capitalization of the Company is as disclosed under
the caption "Capitalization" in the Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the capital stock under the caption "Description of
Capital Stock" contained in the Prospectus. None of the issued shares
of capital stock of the Company has been issued or is owned or held in
violation of any preemptive or similar rights, and no person or entity
(including any holder of outstanding shares of capital stock of the
Company or any subsidiary) has any preemptive or other rights to
subscribe for any of the Securities. The Subsidiaries listed on
Schedule II hereto are the only Subsidiaries of the Company. All of the
outstanding shares of capital stock of each Subsidiary of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable and are owned directly or indirectly by the Company, free
and clear of any claim, lien, encumbrance or security interest.
(7) Except as disclosed in the Prospectus, there are no
outstanding (i) securities or obligations of the Company or any
Subsidiary convertible into or exchangeable for any capital stock of
the Company or any Subsidiary, (ii) warrants, rights or options to
subscribe for or purchase from the Company or any Subsidiary any such
capital stock or any such convertible or exchangeable securities or
obligations, or (iii) obligations of the Company or any Subsidiary to
issue any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(8) Since the date as of which information is given in the
Prospectus, neither the Company nor any Subsidiary has sustained any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as disclosed in or contemplated by the Prospectus.
(9) Since the date as of which information is given in the
Prospectus, (i) neither the Company nor any Subsidiary has incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that are material
to the Company or such Subsidiary, (ii) the Company has not purchased
any of its outstanding capital stock or declared, paid or otherwise
made any dividend or distribution of any kind on its capital stock,
(iii) there has not been any change in the capital stock, long-term
debt or short-term debt of the Company or any Subsidiary, and (iv)
there has not been any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
financial position, general affairs, management, business or prospects
of the Company or any Subsidiary, in each case other than as disclosed
in or contemplated by the Prospectus.
(10) The consolidated financial statements of the Company,
together with related notes and schedules as set forth in the
Registration Statement, conform to the requirements of the Securities
Act and the Rules and Regulations. Such financial statements fairly
6
<PAGE>
present the consolidated financial position, the results of the
operations and changes in financial position of the entities purported
to be shown thereby at the dates or for the periods indicated and have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis for the periods indicated and
all adjustments necessary for a fair presentation of the results for
such periods have been made. The Company and its Subsidiaries have no
material contingent obligations which are not disclosed in the
Company's financial statements which are included in the Registration
Statement. The financial, operating and statistical data set forth in
the Prospectus under the captions "Summary Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" fairly present, when read in
conjunction with the Company's financial statements and the related
notes and schedules and on the basis stated in the Registration
Statement, the information set forth therein. The accountants whose
reports are included in the Registration Statement, are independent
accountants as required by the Securities Act and the Rules and
Regulations.
(11) The Shares to be sold by the Company hereunder have been
duly authorized and, when issued and delivered against payment therefor
as provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Stock
contained in the Prospectus; and all corporate action required to be
taken for the authorization, issuance and sale of the Shares has been
validly taken. The Underwriters will receive good and marketable title
to the Shares to be issued and delivered hereunder, free and clear of
all liens, encumbrances, claims, security interests, restrictions,
shareholders' agreements and voting trusts whatsoever. The certificates
evidencing the Shares will be in due and proper form and will comply
with all applicable legal requirements.
(12) The issuance and sale of the Representative's Warrant has
been duly authorized and, when issued, paid for and delivered, the
Representative's Warrant will constitute a valid and binding obligation
of the Company enforceable as to the Company in accordance with its
terms. The Representative's Warrant will not be subject to preemptive
rights of any shareholder of the Company. The Warrant Securities have
been duly reserved for issuance upon exercise of the Representative's
Warrant. The Representative's Warrant conforms to the description
thereof contained in the Registration Statement and Prospectus.
(13) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
7
<PAGE>
(14) Neither the Company nor any Subsidiary is: (i) in
violation of its Articles of Incorporation, Bylaws or other governing
instruments; or (ii) in default under any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
the Company or any Subsidiary is a party or to which any of their
respective properties or assets are subject, except, in the case of
clause (ii) above, where such default would not have a material adverse
effect on either the Company or any Subsidiary.
(15) The issue and sale of the Shares, the execution, delivery
and performance of this Agreement and the consummation of the
transactions herein contemplated will not give rise to a right to
terminate or accelerate any payment due under or conflict with, or
(with or without the giving of notice or the passage of time or both)
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which the
Company or any Subsidiary is a party or to which any of their
respective properties or assets is subject, nor will such action
conflict with or violate any provision of the Articles of
Incorporation, Bylaws or other governing instruments of the Company or
any Subsidiary, or any statute, rule or regulation or any order,
judgment or decree of any court or governmental agency or body having
jurisdiction over the Company or any Subsidiary or any of their
respective properties or assets.
(16) Neither the Company nor any Subsidiary owns any real
property and the Company and each Subsidiary has good title to all
personal property owned by them, in each case free and clear of all
liens, security interests, pledges, charges, encumbrances, mortgages
and defects, except such as are disclosed in the Prospectus or such as
do not materially and adversely interfere with the operations of the
Company or any Subsidiary; and any real and personal property and
buildings held under lease by the Company or any Subsidiary are held
under valid, subsisting and enforceable leases, with such exceptions as
are disclosed in the Prospectus or are not material and do not
interfere with the operations of the Company or any Subsidiary.
(17) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body or third party is required for the issue
and sale of the Securities or the consummation of the transactions
contemplated by this Agreement, except the registration of the Shares
and the Warrant Securities under the Securities Act and such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") and under state securities or blue sky laws in connection with
the offer, sale and distribution of the Securities by the Underwriters.
(18) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or, to the knowledge of any director or executive
officer of the Company, threatened (or any reasonable basis therefor)
in which the Company or any Subsidiary is a party or of which any of
8
<PAGE>
their respective properties or assets are the subject which, if
determined adversely to the Company or any Subsidiary, would
individually or in the aggregate have a material adverse effect on the
financial position, general affairs, management, business or prospects
of the Company or any Subsidiary.
(19) This Agreement and the Representative's Warrant have each
been duly authorized, executed and delivered by the Company and
constitute the valid and binding agreement of the Company enforceable
against the Company in accordance with their respective terms subject,
as to enforcement, to applicable bankruptcy, insolvency, reorganization
and moratorium laws and other laws relating to or affecting the
enforcement of creditors' rights generally and to general equitable
principles, and except as the enforceability of rights to indemnity and
contribution under this Agreement may be limited under applicable
securities laws or the public policy underlying such laws.
(20) Neither the Company nor any of its officers, directors or
affiliates has (i) taken, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A)
sold, bid for, purchased or paid anyone any compensation for soliciting
purchases of, the Securities or (B) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other
securities of the Company.
(21) None of the Company, any Subsidiary, nor, to the
knowledge of the Company, any director or executive officer, agent,
employee or other person acting on behalf of the Company or any
Subsidiary has (i) used or authorized the use of, any corporate or
other funds for unlawful payments, or contributions, (ii) made unlawful
expenditures relating to political activity to government officials, or
(iii) established or maintained any unlawful or unrecorded funds in
violation of any federal, state, or local law or regulation, including
Section 30A of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). None of the Company, any Subsidiary, nor, to the
knowledge of the Company, any director or executive officer of the
Company or any Subsidiary has accepted or received any unlawful
contributions or payments.
(22) The Company has obtained for the benefit of the Company
and the Underwriters from each of its directors, executive officers and
holders of five percent or more of the Common Stock, a written
agreement (the "Lockup Agreements") that for a period of 180 days from
the date of the Prospectus such director, officer or shareholder will
not, without your prior written consent, offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of (or
announce any offer, pledge, sale, grant of an option to purchase or
other disposition), directly or indirectly, any shares of Common Stock
or securities convertible into, or exercisable or exchangeable for,
shares of Common Stock.
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(23) The Company and each Subsidiary have each filed or caused
to be filed, within the times (as extended) and manners prescribed by
law, all federal, state, local and foreign tax returns, elections and
tax reports which are required to be filed by, or with respect to, the
Company and each Subsidiary, including a valid election to be treated
as an S corporation in accordance with the provisions of Section
1362(a) of the Internal Revenue Code, and has qualified, and continues
to qualify as an S corporation, since 1995. All federal, state, local
and foreign income, profits, franchise, sales, use, occupancy, excise
and other taxes and assessments (including interest and penalties)
payable by or due from the Company have been fully paid or adequately
disclosed and fully provided for in the books and financial statements
of the Company. The federal income tax liability of the Company has
been determined for all fiscal years to and including the fiscal year
ended December 31, 1998. No examination of any tax return of the
Company or any Subsidiary is currently in progress, and no basis for
any assessment exists. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax
return of the Company or any Subsidiary.
(24) The Company is not, nor will it become as a result of
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
(25) The Company and its Subsidiaries own and possess all
right title and interest in and to, or have duly licensed or otherwise
lawfully acquired from third parties enforceable rights to use, all
trademarks, trademark applications, service marks, trade names and
other rights to inventions, know-how, patents, copyrights, copyright
applications, licenses, proprietary information and other intellectual
property necessary to conduct the business now operated by them as
described in the Prospectus and have not received any notice of
infringement of or conflict with asserted rights of others with respect
to any intellectual property rights that, if determined adversely to
the Company or any of its Subsidiaries, would individually or in the
aggregate have a material adverse effect on the condition (financial or
other), business or results of operations of the Company and its
Subsidiaries.
(26) There is no document or contract of a character required
to be described in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which is not
described or filed as required. Each agreement listed in the Exhibits
to the Registration Statement or incorporated by reference therein is
in full force and effect and is valid and enforceable against the
Company or its Subsidiaries in accordance with its terms in all
material respects, assuming the due authorization, execution and
delivery thereof by each of the other parties thereto. Neither the
Company or its Subsidiaries, nor to the Company's knowledge, any other
party is in default in the observance or performance of any term or
obligation to be performed by it under any such agreement, and no event
has occurred which with notice or lapse of time or both would
constitute such a default, in any such case which default or event
10
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would have a material adverse effect on the business, results of
operations, financial or condition of the Company and its Subsidiary.
No default exists, and, to the Company's knowledge, no event has
occurred which with notice or lapse of time or both would constitute a
default, in the due performance and observance of any term or
obligation, by the Company or any of its Subsidiaries of any other
agreement or instrument to which the Company or any such Subsidiary is
a party or by which it or its properties or business may be bound or
affected which default or event would have a material adverse effect on
the business, results of operations or financial condition of the
Company and its Subsidiaries. No transaction has occurred between or
among the Company or any Subsidiary and any of its officers or
directors or any affiliate or affiliates of any such officer or
director that is required to be described in and is not described in
the Registration Statement and the Prospectus.
(27) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted
only in accordance with management's general or specific authorization,
and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(28) The Company and its Subsidiaries maintain insurance of
the types and in the amounts generally deemed adequate for its
business, including, but not limited to, directors' and officers'
insurance, insurance covering real and personal property owned or
leased by the Company and its Subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. The
Company has not been refused any insurance coverage sought or applied
for, and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially
adversely affect the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the
Company or its Subsidiaries.
(29) The Company has entered into employment agreements with
Kevin M. Gagne and Richard L. Goble in the forms filed as Exhibits ___
and ___, respectively, to the Registration Statement and purchased term
key-man insurance on the lives of Messrs. Gagne and Goble in the amount
of $1,000,000, which policy shall not expire earlier than one year from
the date hereof and of which the Company is and shall at all times be
the sole beneficiary.
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<PAGE>
(30) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance
in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment
practices, terms and conditions of employment and wages and hours
relating thereto. There are no pending investigations involving the
Company by the U.S. Department of Labor, or any other governmental
agency responsible for the enforcement of such federal, state or local
laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor
Regulations Board or any strike, picketing, boycott, dispute, slowdown
or stoppage pending or threatened against or involving the Company or
any predecessor entity, and none has ever occurred. The Company has
never been a party to nor are any of its employees subject to, any
collective bargaining agreement. No representation question exists
respecting the employees of the Company and no collective bargaining
agreement or modification thereof is currently being negotiated by the
Company.
(31) Other than as set forth in the Registration Statement,
neither the Company nor any Subsidiary maintains, sponsors nor
contributes to any program or arrangement that is an "employee pension
benefit plan," an "employee welfare benefit plan," or a "multiemployer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") ("ERISA Plans"). Neither the Company nor any
Subsidiary has, and has not at any time, maintained or contributed to a
"defined benefit plan", as defined in Section 3(35) of ERISA. No ERISA
Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975
of the Code, which could subject the Company or any Subsidiary to any
material tax or penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and
ERISA as they relate to any such ERISA Plan. Determination letters have
been received from the Internal Revenue Service with respect to each
ERISA Plan which is intended to comply with Section 401(a) of the Code,
stating that such ERISA Plan and the attendant trust are qualified
thereunder. The Company has never completely or partially withdrawn
from a "multiemployer plan".
(32) The Company and its Subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment of hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole.
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(33) The Company has complied with all provisions of Florida
law and statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
(34) Except as described in the Prospectus, neither the
Company nor any of its affiliates has incurred any liability for any
finder's fees or similar payments in connection with the transactions
herein contemplated.
(35) The Company has provided to Smith Anderson, counsel to
the several underwriters ("Underwriters' Counsel"), all material
agreements, certificates, correspondence and other documents and
information requested by such counsel pursuant to its Preliminary Due
Diligence Request List dated January 24, 2000 and any subsequent
requests.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriters:
(1) The Company shall comply with the provisions of and make
all requisite filings with the Commission pursuant to and in accordance
with Rule 430A and subparagraph (1) (or, if applicable and if consented
to by you, subparagraph (4)) of Rule 424(b) not later than the earlier
of (i) the Commission's close of business on the second business day
following the execution and delivery of this Agreement or (ii) the date
on which the Prospectus is first used after the Registration Statement
is declared effective. The Company will advise you promptly of any such
filing pursuant to Rules 430A or 424(b).
(2) The Company will not file with the Commission the
Prospectus or any amendment or supplement to the Prospectus or any
amendment to the Registration Statement unless you have received a
reasonable period of time to review any such proposed amendment or
supplement and consented to the filing thereof and will use its best
efforts to cause any such amendment to the Registration Statement to be
declared effective as promptly as possible. Upon the request of the
Representative or counsel for the Representative, the Company will
promptly prepare and file with the Commission, in accordance with the
Rules and Regulations, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters and will use its best efforts to cause any such amendment
to the Registration Statement to be declared effective as promptly as
possible. If required, the Company will file any amendment or
supplement to the Prospectus with the Commission in the manner and
within the time period required by Rule 424(b) under the Securities
Act. The Company will advise the Representative, promptly after
receiving notice thereof, of the time when the Registration Statement
or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and
will provide evidence to the Representative of each such filing or
effectiveness.
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<PAGE>
(3) The Company will advise you promptly after receiving
notice or obtaining knowledge of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or any part thereof or any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, (ii) the suspension of the qualification of the
Shares for offer or sale in any jurisdiction or of the initiation or
threatening of any proceeding for any such purpose, or (iii) any
request made by the Commission or any securities authority of any other
jurisdiction for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company
will use its best efforts to prevent the issuance of any such stop
order and, if any such stop order is issued, to obtain the withdrawal
thereof as promptly as possible.
(4) If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any events shall have
occurred as a result of which, in the judgment of the Company or the
opinion of the Underwriters, the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if for any reason it is necessary during such
same period to amend or supplement the Prospectus to comply with the
Securities Act or the Rules and Regulations or any law, the Company
will promptly notify you and upon your request (but at the Company's
expense) prepare and file with the Commission and any state or other
governmental securities commissions in jurisdictions where the Shares
have been sold by the Underwriters, an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such
compliance and will furnish without charge to each Underwriter and to
any dealer in securities, as many copies of such amended or
supplemented Prospectus as you may from time to time reasonably
request. Neither your consent to, nor the Underwriter's delivery of,
any such amendment or supplement shall constitute a waiver of any of
the conditions set forth in Section 7.
(5) The Company promptly from time to time will take such
action as you may reasonably request to qualify the Shares for offering
and sale under the securities or blue sky laws of such jurisdictions as
you may reasonably request and will continue such qualifications in
effect for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not
be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction. In the event that
the qualification of the Shares in any jurisdiction is suspended, the
Company shall so advise the Representative promptly in writing.
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<PAGE>
(6) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of the Preliminary
Prospectus as the Representative may reasonably request. The Company
will deliver to, or upon the order of, the Representative, during the
period when delivery of a Prospectus is required under the Securities
Act, as many copies of the Prospectus in final form, or as thereafter
amended or supplemented, as the Representative may reasonably request.
The Company will deliver to the Representative at or before the Time of
Delivery, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representative such number of copies of the Registration
Statement (including such number of copies of the exhibits filed
therewith that may be reasonably requested), and of all amendments
thereto, as the Representative may reasonably request.
(7) The Company will, from time to time, after the effective
date of the Registration Statement file with the Commission such
reports as are required by the Securities Act, the Exchange Act and the
Rules and Regulations, and shall also file with foreign, state and
other governmental securities commissions in jurisdictions where the
Shares have been sold by the Underwriters such reports as are required
to be filed by the securities acts and the regulations of those
jurisdictions.
(8) As soon as practicable, but in any event not later than
the last day of the thirteenth month after the effective date of the
Registration Statement, the Company will make generally available to
its security holders an earnings statement (which need not be audited)
in reasonable detail covering a period of at least 12 consecutive
months beginning after the effective date of the Registration
Statement, complying with Section 11(a) of the Securities Act and the
Rules and Regulations and will advise you in writing when such
statement has been so made available.
(9) The Company will, for a period of three years from the
Time of Delivery, deliver to the Representative copies of annual
reports and copies of all other documents, reports and information
furnished by the Company to its shareholders or filed with the NASD or
any securities exchange pursuant to the requirements of such exchange
or with the Commission pursuant to the Securities Act or the Exchange
Act. The Company will deliver to the Representative similar reports
with respect to significant subsidiaries, as that term is defined in
the Rules and Regulations, which are not consolidated in the Company's
financial statements.
(10) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, the Company will not, without your prior written consent,
offer, pledge, issue, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of (or announce any offer, pledge, sale,
grant of an option to purchase or other disposition), directly or
indirectly, any shares of Common Stock or securities convertible into,
exercisable or exchangeable for, shares of Common Stock, except as
provided in Section 2 and except as described in the Prospectus.
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<PAGE>
(11) Neither the Company nor any of its officers, directors or
affiliates will (i) take, directly or indirectly, prior to the closing
of the purchase and sale of the Shares, any action designed to cause or
to result in, or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Shares, (ii)
sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of, the Shares or (iii) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company.
(12) The Company will apply the net proceeds from the offering
in the manner set forth under the heading "Use of Proceeds" in the
Prospectus, and will timely report such use of proceeds pursuant to
Item 701 of Regulation S-K in its periodic reports filed pursuant to
Section 13(a) and 15(d) of the Exchange Act in accordance with Rule 463
of the Securities Act or any successor provision.
(13) If at any time during the 60-day period after the
Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which in your reasonable opinion the market price of the Common Stock
has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus) and after written notice from you advising
the Company to the effect set forth above, the Company agrees to
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor,
publication or event.
(14) The Company will cooperate with the Underwriters to cause
the Shares to be quoted on the Nasdaq National Market at each Time of
Delivery and for at least one year from the date hereof.
(15) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 of the Securities Act by the earlier of (i)
10:00 p.m. Charlotte, North Carolina time, on the date of this
Agreement, and (ii) the time that confirmations are given or sent, as
specified by Rule 462(b)(2).
(16) The Company will, concurrently with the effective date of
the Registration Statement, register the class of equity securities of
which the Shares are a part under Section 12(g) of the Exchange Act and
the Company will use its best efforts to maintain the registration for
at least one year after the effective date.
(17) The Company shall retain American Stock Transfer & Trust
Company as its transfer agent for the Common Stock (or such other
transfer agent which is reasonably acceptable to the Representative),
for a period of three years following the effective date. In addition,
for a period of three years following the effective date, the Company,
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at its expense, shall cause its transfer agent to provide the
Representative, if so requested in writing, with copies of the
Company's daily transfer sheets and, when requested by the
Representative, a current list of the Company's securityholders,
including a list of the beneficial owners held by a depository trust
company and other nominees.
(18) For a period of three years after the effective date, the
Company shall continue to retain PricewaterhouseCoopers LLP (or such
other nationally recognized accounting firm as is acceptable to the
Representative) as the Company's independent public accountants.
(19) For a period of 25 days following the effective date, the
Company will not issue press releases or engage in any other publicity
without the Representative's prior written consent, other than normal
and customary releases issued in the ordinary course of the Company's
business or those releases required by law.
6. EXPENSES. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including without limitation all costs and
expenses incident to (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Securities Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement (including all amendments
thereto), any Preliminary Prospectus, the Prospectus and any amendments and
supplements thereto, this Agreement and any blue sky memoranda; (ii) the
delivery of copies of the foregoing documents to the Underwriters; (iii) the
filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Shares; (iv) the preparation, issuance and
delivery to the Underwriters of any certificates evidencing the Shares,
including transfer agent's and registrar's fees; (v) the qualification of the
Shares for offering and sale under state securities and blue sky laws, including
filing fees and fees and disbursements of counsel for the Underwriters relating
thereto; (vi) any expenses of listing the Shares on the Nasdaq National Market;
(vii) any expenses for travel, lodging and meals incurred by the Company and any
of its officers, directors and employees in connection with any meetings with
prospective investors in the Shares. It is understood, however, that, except as
provided in this Section, Section 8 and Section 10 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel
(other than those related to qualification of the Shares under state securities
or blue sky laws), stock transfer taxes on resale of any of the Shares by them,
and any advertising expenses relating to the offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Securities to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of such Time of Delivery, to the accuracy of the statements
17
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of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its covenants and agreements hereunder, and to the following
additional conditions precedent:
(1) The Registration Statement as amended to date shall have
become effective prior to the execution of this Agreement or at such
later date and/or time as shall have been consented to by you in
writing. The Prospectus and any amendment or supplement thereto shall
have been filed with the Commission pursuant to Rule 424(b) within the
applicable time period prescribed for such filing and in accordance
with Section 5(a) of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceedings for that purpose shall have been
instituted, threatened or, to the knowledge of the Company and the
Representative, contemplated by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your satisfaction.
(2) Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P., counsel for the Underwriters, shall have furnished to you such
opinion or opinions, dated such Time of Delivery, with respect to the
incorporation of the Company, the validity of the Shares being
delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request and
which are customary, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them
to pass upon such matters.
(3) You shall have received an opinion, dated such Time of
Delivery, of Greenberg Traurig, P.A., counsel for the Company
substantially in the form attached hereto as Exhibit B. ---------
(4) You shall have received from Sweeney, Gates & Co. and
PricewaterhouseCoopers LLP, letters dated, respectively, the date of
this Agreement and the effective date of the most recently filed
post-effective amendment to the Registration Statement and also at each
Time of Delivery, in form and substance satisfactory to you, containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus. At a minimum such "comfort
letter" shall confirm that each of Sweeney, Gates & Co. and
PricewaterhouseCoopers LLP are independent accountants within the
meaning of the Securities Act and stating in effect that:
(1) it is their opinion that the audited financial
statements and supporting schedules of the Company
included in the Registration Statement and the
Prospectus comply as to form in all material respects
with the applicable accounting requirements of the
Securities Act and the Rules and Regulations and that
the Representative may rely upon their opinion with
respect to such financial statements and supporting
schedules included in the Registration Statement;
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(2) they have compared specified dollar amounts,
numbers of shares, number of active customer
accounts, total customer trades, total customer
assets, average trades per day, percentages of
revenues and earnings, number of employees,
statements and other financial information pertaining
to the Company or its Subsidiaries set forth in the
Prospectus (where, for purposes of this paragraph
only the term "Prospectus" includes any supplement
thereto at the date of the letter), in each case to
the extent that such amounts, numbers, percentages,
statements and information may be derived from the
general accounting records, including work sheets, of
the Company with the results obtained from the
application of specified readings, inquiries and
other appropriate procedures (which procedures do not
constitute an examination in accordance with
generally accepted auditing standards) set forth in
the letter and found them to be in agreement; and
(3) statements as to such other matters incident to
the transaction contemplated hereby as the
Representative may request, including with respect to
comfort on unaudited financial statements of the
Company that are included in the Prospectus.
(5) You shall have received on each Time of Delivery a
certificate or certificates of the Co-Chief Executive Officers of the
Company to the effect that:
(a) the representations and warranties of the Company
in Section 1 of this Agreement are true and correct, as if
made at and as of the First Time of Delivery or the Subsequent
Time of Delivery, as the case may be, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Time of Delivery and as to such other matters as
you may reasonably request;
(b) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for
that purpose have been initiated or are pending, or to their
knowledge, contemplated under the Securities Act;
(c) all filings required by Rule 424 and Rule 430A of
the Rules and Regulations have been made;
(d) they have carefully examined the Registration
Statement and the Prospectus, and any amendments or
supplements thereto, and in his or her opinion, such documents
do not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
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necessary to make the statements therein not misleading in
light of the circumstances under which they were made; and
(e) since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not been so set forth.
(6) Since the date of the latest audited financial statements
included in the Prospectus, neither the Company nor any Subsidiary
shall have sustained (i) any loss or interference with their respective
businesses from fire, explosion, flood, hurricane or other calamity,
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree, otherwise than as disclosed in
or contemplated by the Prospectus, or (ii) any change, or any
development involving a prospective change (including without
limitation a change in management or control of the Company), in or
affecting the position (financial or otherwise), results of operations,
net worth or business prospects of the Company and any subsidiary,
otherwise than as disclosed in or contemplated by the Prospectus
(including any amendment), the effect of which, in either such case, is
in your judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the
Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(7) Subsequent to the date hereof there shall not have
occurred any of the following: (i) any suspension or limitation in
trading in securities generally on the New York Stock Exchange or the
over-the-counter market (other than normal market breaks or cooling
periods), or any setting of minimum prices for trading on such
exchange, or if trading in any securities of the Company has been
suspended by the Commission, or limitations on prices for trading
(other than limitations on hours or numbers of days of trading) have
been fixed, or maximum ranges for prices for securities have been
required, by the Nasdaq National Market or the NASD or by order of the
Commission or any other governmental authority; (ii) a moratorium on
commercial banking activities in New York declared by either federal or
state authorities; (iii) neither Kevin M. Gagne nor Richard L. Goble is
serving the Company in their respective present capacities; or (iv) any
major outbreak or major escalation of hostilities involving the United
States, declaration by the United States of a national emergency (other
than with respect to natural disasters) or war or any other national or
international calamity or emergency or any material adverse change in
general economic, political or financial conditions if the effect of
any such event specified in this clause (v) in your judgment makes it
impracticable or inadvisable to proceed with the purchase, sale and
delivery of the Shares being delivered at such Time of Delivery as
contemplated by the Registration Statement.
(8) The Shares shall be approved for quotation on the Nasdaq
National Market when issued.
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<PAGE>
(9) The Representative shall have received the Lockup
Agreements as described in Section 1(21).
(10) You shall have been furnished such additional documents
and certificates as you may reasonably request.
(11) The NASD shall have indicated that it has no objection to
the underwriting arrangements pertaining to the offer or sale of the
Securities.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and to counsel for the Underwriters. The Company shall furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon: (i) any untrue statement or alleged untrue statement made by the
Company in Section 1 of this Agreement; (ii) any untrue statement or alleged
untrue statement of any material fact contained in (A) the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or (B) any application or other
document, or any amendment or supplement thereto, executed by the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"); or (iii) the omission or alleged
omission to state in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application, material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter. The Company will not,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding (or related cause of action or portion thereof) in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
21
<PAGE>
is a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding or related
cause of action or portion thereof.
(b) Each Underwriter agrees severally, but not jointly, to indemnify
and hold harmless the Company and its officers, directors, agents,
representatives and affiliates against any losses, claims, damages or
liabilities to which the Company or its officers, directors, agents,
representatives and affiliates may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or any Application or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter through the Representative expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the obligation of each
Underwriter to indemnify the Company (including any officer, director, agent,
representative or affiliate thereof) shall be limited to the net proceeds
received by the Company from such Underwriter.
(c) Promptly after receipt by an indemnified party under subsection (a)
and (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party); provided, however, that if the defendants in any such action included
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such action on behalf of such indemnified
party and such indemnified party shall have the right to select separate counsel
to defend such action on behalf of such indemnified party. After such notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
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<PAGE>
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances, which
separate counsel shall be designated by the Representative in the case of
indemnity arising under paragraph (a) of this Section 8) or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. Nothing in this Section 8(c)
shall preclude an indemnified party from participating at its own expense in the
defense of any such action so assumed by the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriter on
the other from the offering of the Shares. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection (c)
above, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriter on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts, and
commissions received by the Underwriters. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
the Underwriter shall not be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
23
<PAGE>
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint. Each party entitled to
contribution agrees that upon the service of a summons or other initial legal
process upon it in any action instituted against it in respect of which
contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought from any obligation it
may have hereunder or otherwise (except as specifically provided in subsection
(c) hereof). No party shall be liable for contribution with respect to any
action, suit, proceeding or claim settled without its written consent.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Securities Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Securities Act.
9. DEFAULT OF UNDERWRITERS. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your discretion
arrange for you or another party, or other parties to purchase such shares on
the terms contained herein. If within 36 hours after such default by any
Underwriter you do not arrange for the purchase of such Shares, the Company
shall be entitled to a further period of 36 hours within which to procure
another party or other parties satisfactory to you to purchase such Shares on
such terms. In the event that, within the respective prescribed periods, you
notify the Company that you have so arranged for the purchase of such Shares, or
the Company notifies you that it has so arranged for the purchase of such
Shares, you or the Company shall have the right to postpone a Time of Delivery
for a period of not more than 7 days in order to effect whatever change is made
necessary thereby in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your opinion
may thereby be made necessary. The cost of preparing, printing and filing any
such amendments shall be paid for by the Underwriters. The term "Underwriter" as
used in this Agreement shall include any person substituted under this Section
with effect as if such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of
Shares to be purchased at such Time of Delivery, then the Company shall have the
24
<PAGE>
right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made, but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. TERMINATION. (a) This Agreement may be terminated with respect to
the Shares or any Optional Shares in the sole discretion of the Representative
by notice to the Company given prior to the First Time of Delivery or any
Subsequent Time of Delivery, respectively, in the event that (i) any condition
to the obligations of the Underwriters set forth in Section 7 hereof has not
been satisfied, or (ii) the Company shall have failed, refused or been unable to
deliver the Securities or to perform all obligations and satisfy all conditions
on its part to be performed or satisfied hereunder at or prior to such Time of
Delivery, in either case other than by reason of a default by any of the
Underwriters. If this Agreement is terminated pursuant to this Section 10(a),
the Company will reimburse the Underwriters upon demand for all out-of-pocket
expenses (including counsel fees and disbursements) that shall have been
incurred by it in connection with the proposed purchase and sale of the Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in Section 10(a), the aggregate number of such Shares which remain
unpurchased exceeds one-eleventh of the aggregate number of Shares to be
purchased at such Time of Delivery, or if the Company shall not exercise the
right described in Section 9(b) to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to a Subsequent Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares)
thereupon will terminate, without liability on the part of any nonfaulting
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers and the
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of the Underwriter or any controlling person referred to in
Section 8(e) or the Company, or any officer or director or controlling person of
the Company referred to in Section 8(e), and shall survive delivery of and
payment for the Shares. The respective agreements, covenants, indemnities and
other statements set forth in Sections 6, 8 and 13 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
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<PAGE>
12. NOTICES. All communications hereunder shall be in writing and, if
sent to the Underwriter, shall be mailed, delivered or telecopied and confirmed
in writing to Wachovia Securities, Inc., IJL Financial Center, 201 North Tryon
Street, Charlotte, North Carolina 28202, Attention: Corporate Finance Department
and if sent to the Company, shall be mailed, delivered or telecopied and
confirmed in writing to the Company at Empire Financial Holding Company, 1385
West State Road 434, Longwood, Florida 32750, Attention: Kevin M. Gagne and
Richard L. Goble, Co-Chief Executive Officers.
13. RIGHT OF FIRST REFUSAL. The Company grants to the Representative an
unconditional right of first refusal to serve as exclusive or lead advisor to
the Company on all corporate finance transactions of whatever nature, whether
debt or equity, undertaken or considered by the Company for three years from the
effective date of the Prospectus. The Representative shall not be entitled to
more than one payment or fee in exchange for the waiver or termination of this
right of first refusal, and any payment or fee to waive or terminate the right
of first refusal shall be paid in cash and will not exceed the greater of (a)
one percent (1%) of the aggregate purchase price of the Shares purchased
pursuant to this Agreement, and (b) five percent (5%) of the underwriting
discount or commission paid in connection with the future financing (including
any overallotment option that may be exercised).
14. REPRESENTATIVE. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you will be binding upon all the Underwriters.
15. BINDING EFFECT. This Agreement shall be binding upon, and inure
solely to the benefit of, each Underwriter and the Company and to the extent
provided in Sections 8 and 10 hereof, the officers and directors and controlling
persons referred to therein and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from the Underwriters shall be deemed a successor or assign by reason
merely of such purchase.
16. DEFINITION OF SUBSIDIARY. For purposes of this Agreement,
"Subsidiary" has the meaning set forth in Rule 405 under the Securities Act.
17. QUALIFIED INDEPENDENT UNDERWRITER. The Company hereby confirms that
at its request the Representative has without compensation acted as a "Qualified
Independent Underwriter" (in such capacity, the "QIU") within the meaning of
Conduct Rule 2720 of the NASD in connection with the offering of the Securities.
The Company will indemnify and hold harmless the QIU against all losses, claims,
damages or liabilities, join or several, to which the QIU may become subject,
under the Securities Act or otherwise, insofar as such losses, claims or
liabilities (or actions in respect thereof) arise out of or are based upon the
QIU's acting (or alleged failing to act) as such "qualified independent
underwriter" and will reimburse the QIU for any legal or other expenses
26
<PAGE>
reasonably incurred by the QIU in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred.
18. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in
the last paragraph on the cover page (stabilization language) and under the
caption "Underwriting" in the Prospectus, constitute the only written
information furnished by or on behalf of any Underwriter referred to in
paragraph 3 in Section 1 hereof and in paragraphs (a) and (b) in Section 8
hereof.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina without giving effect to
any provisions regarding conflicts of laws.
20. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
27
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and upon
the acceptance hereof by Wachovia Securities, Inc., this letter will constitute
a binding agreement among the Underwriters and the Company.
Very truly yours,
EMPIRE FINANCIAL HOLDING COMPANY
By:______________________________
Name:
Title:
WACHOVIA SECURITIES, INC.
By:_________________________
Name:
Title:
28
<PAGE>
SCHEDULE I
EMPIRE FINANCIAL HOLDING COMPANY
________ SHARES
COMMON STOCK
NUMBER OF
OPTIONAL SHARES
TOTAL NUMBER OF TO BE PURCHASED
FIRM SHARES TO IF MAXIMUM
UNDERWRITER BE PURCHASED OPTION EXERCISED
- ----------- ------------ ----------------
Wachovia Securities, Inc. -- --
Putnam, Lovell, De Guardiola
& Thornton, Inc.
Total
-----
<PAGE>
SCHEDULE II
Subsidiaries of the Company
[to be completed by Company]
<PAGE>
EXHIBIT A
Form of Representative's Warrant
--------------------------------
<PAGE>
EXHIBIT B
Form of Company Counsel Legal Opinion
-------------------------------------
The Representative shall have at each Time of Delivery from Greenberg
Traurig, P.A., counsel to the Company, an opinion addressed to the
Representative and dated as of such Time of Delivery, and stating in effect
that:
(i) Each of the Company and its Subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to own
or lease its properties and conduct its business as described in the Prospectus,
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the character of the business
conducted by it or the location of the properties owned or leased by it makes
such qualification necessary.
(ii) The authorized, issued and outstanding Common Stock of the Company
as of __________,___ is as set forth under the caption "Capitalization" in the
Prospectus, and the Common Stock conforms to the description thereof contained
under the caption "Description of Common Stock" in the Prospectus. The
outstanding shares of Common Stock have been, and the Shares and Warrant
Securities, upon issuance and delivery and payment therefor in the manner herein
described, will be, duly authorized, validly issued, fully paid and
nonassessable. There are no preemptive or other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's articles of incorporation, bylaws, other
governing documents or any agreement or other instrument known to such counsel
to which the Company or any of its Subsidiaries is a party or by which any of
them is bound; and to the best of such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock. To the best of such counsel's knowledge, except as disclosed in
the Registration Statement and the Prospectus, there is no outstanding option,
warrant or other right calling for the issuance of any share of stock of the
Company or any securities convertible into, exercisable for or exchangeable for
stock of the Company.
(iii) All issued and outstanding securities of each Subsidiary have
been duly authorized and validly issued and are fully paid and nonassessable;
the holders thereof have, to such counsel's knowledge, no rights of rescission
with respect thereto, and are not subject to personal liability by reason of
being holders of such Subsidiaries' securities; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company; all outstanding shares of capital stock of the Subsidiaries are
owned by the Company either directly or through wholly owned subsidiaries free
and clear of any perfected security interest and, to the knowledge of such
counsel, after due inquiry, any other security interest, claim, lien or
encumbrance.
<PAGE>
(iv) Neither the Company nor any of its Subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or in
default under, nor will the execution or delivery hereof or consummation of the
transactions contemplated hereby result in a violation of, or constitute a
default under, the articles of incorporation, bylaws or other governing
documents of the Company or any of its Subsidiaries, or any agreement, contract,
mortgage, deed of trust, loan agreement, note, lease, indenture or other
instrument known to such counsel, to which the Company or any of its
Subsidiaries is a party or by which any of them is bound, or to which any of
their properties is subject, nor will the performance by the Company of its
obligations hereunder violate any law, rule, administrative regulation or decree
of any court or any governmental agency or body having jurisdiction over the
Company, its Subsidiaries or their properties, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of the Company or any of its Subsidiaries. Except for permits and similar
authorizations required under the Securities Act and the securities or "Blue
Sky" laws of certain jurisdictions and for such permits and authorizations which
have been obtained, no consent, approval, authorization or order of any court,
governmental agency or body or financial institution is required in connection
with the consummation of the transactions contemplated by this Agreement.
(v) This Agreement has been duly authorized, executed and delivered by
the Company and, assuming capacity, due authorization, execution and delivery by
the other parties hereto, constitutes the legal, valid and binding obligation of
the Company and is enforceable against the Company in accordance with its terms,
except as rights to indemnity may be limited by federal or state securities laws
and except (i) as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and (ii) to
the extent that rights to indemnity or contribution under this Agreement may be
limited by federal or state securities laws or the public policy underlying such
laws.
(vi) The Company has all requisite corporate power and authority to
own, lease and license its assets and properties and conduct its business as
described in the Registration Statement and the Prospectus; and the Company has
all requisite corporate power and authority and all necessary authorizations,
approvals, consents, orders, licenses, certificates and permits to enter into,
deliver and perform this Agreement and to issue and sell the Securities, except
as may be required under state or foreign securities or Blue Sky laws.
(vii) The Registration Statement and all post-effective amendments
thereto and the Rule 462(b) Registration Statement, if any, have become
effective under the Securities Act and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending before or contemplated by the Commission and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations have been made;
the Registration Statement, each Preliminary Prospectus and the Prospectus and
any amendment or supplement thereto, as of their respective effective dates and
as of each Time of Delivery complied in all material respects with the
<PAGE>
requirements of the Securities Act and the Rules and Regulations (except that
counsel need express no opinion on the financial statements and supporting notes
and schedules and other financial data); the conditions for use of Form SB-2,
set forth in the General Instructions thereto, have been satisfied.
(viii) All descriptions in the Prospectus of statutes, regulations,
legal or governmental proceedings, contracts and other documents are accurate
and fairly present the information required to be shown under the Securities
Act; and such counsel does not know of any contracts or documents of a character
required to be summarized or described therein or to be filed as exhibits
thereto which are not so summarized, described or filed, nor does such counsel
know of any pending or threatened litigation or any governmental proceeding,
statute or regulation required to be described in the Prospectus which is not so
described.
(ix) The statements in the Prospectus under "Regulation and
Supervision", "Business -- Legal Proceedings", "Certain Transactions,"
"Description of Capital Stock" and `Shares Eligible for Future Sale" have been
reviewed by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all respects.
(x) To the knowledge of such counsel, the persons listed under the
caption "Principal Stockholders" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in regulation 13d-3 under the
Exchange Act) of the securities set forth opposite their respective names
thereunder, as and to the extent set forth therein.
(xi) Except as described in the Prospectus, no person, corporation,
trust, partnership, association or other entity has the right to include and/or
register any securities of the Company in the Registration Statement, require
the Company to file any registration statement or, if filed, to include any
security in such registration statement;
(xii) To such counsel's knowledge, and other than as set forth in the
Prospectus, there is no litigation or other proceeding before any court or
before or by any state or federal public body pending or threatened against, or
involving the assets, properties or businesses of, the Company or any of its
Subsidiaries which would have a material adverse effect upon the business.
Results of operations or financial condition of the Company and its
Subsidiaries.
(xiii) The issuance and sale of the Representative's Warrant has been
duly authorized and, when issued, paid for and delivered pursuant to the terms
of the Representative's Warrant, will constitute the valid and binding
obligations of the Company, enforceable as to the Company in accordance with its
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other similar
laws affecting the rights of creditors generally and the discretion of courts in
granting equitable remedies and except that enforceability of the
indemnification provisions may be limited by the federal securities laws or
public policy underlying such laws. The Warrant Securities have been duly
<PAGE>
reserved for issuance in accordance with the provisions of the Representative's
Warrant. The Representative's Warrant conforms in all material respects to the
descriptions thereof contained in the Registration Statement and the Prospectus.
(xiv) To the knowledge of such counsel, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial consulting
arrangement or any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriters' compensation, as determined by the
NASD.
(xv) Assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations of the
parties thereto, enforceable against the party and any subsequent holder of the
securities subject thereto in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law).
(xvi) The Common Stock has been duly registered pursuant to Section 12
of the Exchange Act.
(xvii) Neither the Company nor any of its Subsidiaries is, nor upon
consummation of the transactions contemplated hereby will be, an "investment
company" as such term is defined in the Investment Company Act.
Such counsel shall state that it has participated in conferences with
officers and other representatives of the Company and representatives of the
independent public accountants for the Company at which conferences such counsel
made inquiries of such officers, representatives and accountants and discussed
the contents of the Prospectus, the Registration Statement and the Prospectus,
as well as related matters, and no facts have come to the attention of such
counsel which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective or the Prospectus or amendment or supplement thereto, as of the date
of such opinion, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements, related notes and
schedules and other financial data included therein).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' counsel) of
other counsel acceptable to Underwriters' counsel, familiar with the applicable
laws, (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of officers of the Company, and certificates or other
written statements of officers or departments of various jurisdictions having
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custody of documents respecting the corporate existence or good standing of the
Company or any of its Subsidiaries, provided that copies of any such statements
or certificates shall be delivered to Underwriters' counsel if requested. Such
opinion shall state that Underwriters' counsel is entitled to rely thereon.
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
EMPIRE FINANCIAL HOLDING COMPANY
WARRANT
Warrant No. WSI-01 Dated: ________, 2000
Empire Financial Holding Company, a corporation organized and existing
under the laws of the State of Florida (the "Company"), hereby certifies that,
for value received, WACHOVIA SECURITIES, INC., IJL Financial Center, 201 N.
Tryon Street, Charlotte, NC 28202, or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of 350,400 shares of Common Stock, par value $[ ] per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $[ ] per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"),
beginning at the date as specified in Section 3(a) and to and including
____________, 2005 (the "Expiration Date") subject to the following terms and
conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register a permitted transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Company at the office specified in or pursuant to Section 3(b). Upon any such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
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acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Exercise Event and Subsequent Duration Of Warrant, Cash or Net
Exercise of Warrant and Redemption.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:00 P.M., New York time, at any time and from time
to time on a date beginning one year after the date ("Effective Date") on which
the Company closes on a firmly underwritten sale of shares of its Common Stock
to the public under an effective registration statement on Form S-1 or its
successor form (the "Initial Public Offering"), and ending on and including the
Expiration Date. At 5:00 P.M., New York time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value.
(b) Cash Exercise. Subject to Sections 2(b), 6 and 11, upon
surrender of this Warrant, with the Form of Election to Exercise and Purchase
attached hereto duly completed and signed, to the Company at its office at 1385
West State Street Road 434, Longwood, Florida 32750, Attention: Chief Financial
Officer, or at such other address as the Company may specify in writing to the
then registered Holder, and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, in
lawful money of the United States of America, in cash or by certified or
official bank check or checks, all as specified by the Holder in the Form of
Election to Exercise and Purchase, the Company shall promptly (but in no event
later than two Trading Days after receipt by the Company of this Warrant and the
signed Election to Purchase) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
Net Exercise. Upon any exercise of this Warrant, the Holder
may, at its option, instruct the Company, by written notice accompanying the
surrender of this Warrant at the time of such exercise, to apply to the payment
required by paragraph 3(b) such number of shares of Common Stock otherwise
issuable to such holder upon such exercise on a net basis. Such net basis shall
be calculated by the formula of Fair Market Value less the Exercise Price
divided by the Fair Market Value times the number of Warrant Shares so
exercised. The difference between the Warrant Shares and the Net Issue Shares
shall be deemed to have been paid to the Company and the number of shares
issuable upon such exercise shall be the Net Issue Shares. In such calculations,
rounding, if necessary, shall be in accordance with the methodology in 8(f)
herein. Upon such a net exercise, the Company shall promptly (but in no event
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later than two Trading Days after receipt by the Company of this Warrant and the
signed Election to Purchase with such notice of Net Exercise) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise. Any person so designated by the
Holder to receive Warrant Shares shall be deemed to have become holder of record
of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Exercise and Purchase attached hereto (or attached to such
New Warrant) appropriately completed and duly signed, and (ii) if exercised for
cash, payment of the Exercise Price for the number of Warrant Shares so
indicated by the holder hereof to be purchased.
A "Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq National or Small Cap Markets or other stock exchange or
market on which the Common Stock has been listed, or (b) if the Common Stock is
not listed on the Nasdaq National or Small Cap Markets or any stock exchange or
market, a day on which the Common Stock if traded on the over-the-counter
market, as reported by the OTC Bulletin Board, or (c) if the Common Stock is not
quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau (or any
similar organization or agency succeeding its functions of reporting prices);
provided, however, that in the event that the Company's Common Stock is not
listed or quoted as set forth in (a), (b) and (c) above, Trading Day shall mean
any day except Saturday, Sunday and any day which shall be a legal holiday or a
day on which banking institutions in the State of Florida generally are
authorized or required by law or other government actions to close.
(c) This Warrant shall be exercisable, either in its entirety
or, in accordance with the terms herein and from time to time thereafter, for a
portion of the number of Warrant Shares. If less than all of the Warrant Shares
which may be purchased under this Warrant are exercised at any time, the Company
shall issue or cause to be issued, at its expense, a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares for which no exercise
has been evidenced by this Warrant.
4. Registration Rights
(a) Piggyback Registration. During the period beginning on the
Effective Date and ending seven years thereafter, the Company may not file any
registration statement with the Securities and Exchange Commission (the "SEC")
(other than registration statements of the Company filed on Form S-8 or Form
S-4, or successor forms, each as promulgated under the Securities Act of 1933,
as amended (the "Act"), pursuant to which the Company is registering securities
pursuant to a Company employee benefit plan or pursuant to a merger, acquisition
or similar transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to the Holder,
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notice of its intention to file such registration statement and provides the
Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
(b) Demand Registration. At any time commencing one year after
the Effective Date, and expiring four years thereafter, the Holder shall have
the additional right, exercisable by written notice to the Company, to have the
Company prepare and file with the SEC, on one occasion, at the Company's
expense, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Holder, in order to comply with the provisions of the Act, so as to
permit a public offering and sale of its Warrant Shares for nine consecutive
months (or such longer period of time as permitted by the Act) by such Holder
and any other Holders of any of the Warrant Shares who notify the Company within
20 days after receipt of notice from the Company of such request. A demand under
this Section 4(b) (a "Demand Registration") shall not be counted as a Demand
Registration hereunder until such Demand Registration has been declared
effective by the SEC and maintained continuously effective for a period of at
least nine months or such shorter period when all Warrant Shares included
therein have been sold in accordance with such Demand Registration.
(c) Additional Rights. In addition to the registration rights
under Sections 4(a) and (b), at any time commencing one year after the Effective
Date, and expiring four years thereafter, the Holder shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file, on one occasion, with the SEC a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine consecutive months (or such longer period of time as permitted by the Act)
by any such Holder; provided, however, that the provisions of Section 4(b)
hereof shall not apply to any such registration request and registration and all
costs incident thereto shall be at the expense of the Holder.
(d) Request for Registration. Any written request by the
Holder made pursuant to Section 4(b) shall:
(i) specify the number of Warrant Shares which the
Holder intends to offer and sell and the minimum price at
which the Holder intends to offer and sell such securities;
(ii) state the intention of the Holder to offer such
securities for sale;
(iii) describe the intended method of distribution of
such securities; and
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(iv) contain an undertaking on the part of the Holder
to provide all such information and materials concerning the
Holder and take all such action as may be reasonably required
to permit the Company to comply with all applicable
requirements of the SEC and to obtain acceleration of the
effective date of the registration statement.
5. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders (taking into account the adjustments
and restrictions of Section 8). The Company covenants that all Warrant Shares
that shall be so issuable and deliverable shall, upon issuance and the payment
of the applicable Exercise Price in accordance with the terms hereof, be duly
and validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 8. Upon each such adjustment of the Exercise
Price pursuant to this Section 8, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
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(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property equal to the amount of Warrant Shares such
Holder would have been entitled to had such Holder exercised this Warrant
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 8(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
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(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock for a consideration per
share less than the Exercise Price then in effect, then, forthwith upon such
issue or sale, the Exercise Price shall be reduced to the price (rounded up to
the nearest full cent) determined by dividing (i) an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the Exercise Price, and (B) the consideration, if
any, received or receivable by the Company upon such issue or sale by (ii) the
total number of shares of Common Stock outstanding immediately after such issue
or sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock,
or (B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be rounded up
to the nearest cent or the nearest whole share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
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(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 10 Trading Days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder shall pay the Exercise Price
in cash, in immediately available funds in the case of a Cash Exercise (see
3(b)) and shall pay the Exercise Price in foregone shares of fully-paid and
non-assessable shares of Common Stock in the case of a Net Exercise (see 3(b)).
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the nearest whole number.
11. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m. (New York time) on a Trading Day, (ii) the Trading
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in the Section later
than 5:00 p.m. (New York time) on any date and earlier than 11:59 p.m. (New York
time) on such date, (iii) upon receipt of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
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to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to: 1385 West State Street Road
434, Longwood, Florida 32750, Attention: Chief Financial Officer, or to
facsimile no. [ ] or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business can, at the Company's
election, be a successor warrant agent under this Warrant without any further
act. Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed (by first class mail, postage prepaid)
to the Holder at the Holder's last address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of North Carolina
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
EMPIRE FINANCIAL HOLDING COMPANY
By: __________________________
Name: ________________________
Title: _______________________
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FORM OF ELECTION TO EXERCISE AND PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To [ ]:
In accordance with the Warrant enclosed with this Form of Election to
Exercise and Purchase, the undersigned hereby irrevocably elects to purchase
_____________ shares of Common Stock ("Common Stock"), par value $[ ] per share,
of [ ] and encloses herewith $________ in cash or certified or official bank
check or checks, which sum represents the aggregate Exercise Price (as defined
in the Warrant) for the number of shares of Common Stock to which this Form of
Election to Exercise and Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , _______. Name of Holder:
(Print)
(By:) (Name:) (Title:) (Signature must conform in all respects
to name of holder as specified on the face of the Warrant)
[To be completed and signed only upon transfer of Warrant]
11
<PAGE>
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of [ ] to which the
within Warrant relates and appoints ________________ attorney to transfer said
right on the books of [ ] with full power of substitution in the premises.
Dated: ___________________, ____
---------------------------------------
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
--------------------------------------- Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
12
<PAGE>
GREENBERG
A T T O R N E Y S A T L A W
TRAURIG
May 2, 2000
Empire Financial Holding Company
1385 W. State Road 434
Longwood, Florida 32750
Re: Empire Financial Holding Company
REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
You have requested our opinion with respect to the shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), included
in the Registration Statement on Form S-1 (the "Form S-1") filed with the U.S.
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act").
As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinions expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinions, we have
relied upon statements or certificates of officials and representatives of the
Company and others.
Based on, and subject to the foregoing, we are of the opinion that the
shares of Common Stock being registered in the Form S-1 shall, upon such
issuance as described in the Form S-1, be duly and validly issued and fully paid
and nonassessable.
In rendering this opinion, we advise you that we are members of the Bar
of the State of Florida, and we express no opinion herein concerning the
applicability or effect of any laws of any other jurisdiction, except the
securities laws of the United States of America referred to herein.
1221 Brickell Avenue
Miami, Florida 33131
305-579-0500
<PAGE>
Empire Financial Holding Company
May 2, 2000
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Form S-1. We also consent to the use of our name under the caption "Legal
Matters" in the Prospectus constituting part of the Form S-1. In giving such
consent, we do not thereby admit that we are included within the category of
persons whose consent is required under Section 7 of the Securities Act, or the
rules and regulations promulgated thereunder.
Sincerely,
GREENBERG TRAURIG, P.A.
By: /s/ Phillip J. Kushner
----------------------
Phillip J. Kushner
GREENBERG TRAURIG, P.A.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
on May __, 2000, effective as of the Offering Date (hereinafter defined), by and
between Empire Financial Holding Company, a Delaware corporation (the
"Company"), and Donald A. Wojnowski Jr. (the "Executive").
Recitals
A. The Executive is currently employed as an executive of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Company is currently contemplating an initial public offering of
shares of its common stock (the "Offering").
D. In contemplation of the Offering, the Board of Directors of the
Company (the "Board") recognizes and desires to assure the Company of the
Executive's continued employment in an executive capacity and to compensate the
Executive therefor.
E. The Executive is willing to make his services available to the
Company, on the terms and conditions hereinafter set forth.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment.
----------
1.1 Employment and Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company, on the terms
and conditions set forth herein, for the period commencing on the effective date
of the Offering (the "Offering Date") and expiring on December 31, 2004 unless
sooner terminated as hereinafter set forth. The term of this Agreement shall
automatically continue after December 31, 2004, until either the Company or the
Executive provides the other party with at least 90 days prior written notice
that the Agreement shall terminate effective on a date no earlier than December
31, 2004.
1.2 Duties of Executive. The Executive shall serve as Vice
President Business Development of the Company. During the term of Employment,
the Executive shall diligently perform all services as may be reasonably
assigned to the Executive by the Co-Chief Executive Officers of the Company
consistent with his position, and shall exercise such power and authority as may
from time to time be delegated to the Executive by the Co-Chief Executive
<PAGE>
Officers of the Company. The Executive will not obligate the Company in any form
without the express written permission of both Co-Chief Executive Officers of
the Company. The Executive shall be required to report solely to, and shall be
subject solely to the supervision and direction of the Co-Chief Executive
Officers of the Company. In addition, the Executive shall regularly consult with
and provide information to the Co-Chief Executive Officers of the Company. The
Executive shall devote substantially all of the Executive's working time and
attention to the business and affairs of the Company (excluding any vacation and
sick leave to which the Executive is entitled), render such services to the best
of the Executive's ability, and use the Executive's reasonable best efforts to
promote the interests of the Company. It shall not be a violation of this
Agreement, after written notice to and approval of the Co-Chief Executive
Officers of the Company, for the Executive to (a) serve on civic or charitable
boards or committees, (b) deliver lectures, fulfill speaking engagements or
teach at seminars, (c) manage personal investments and (d) provide brokerage
services to certain customers of the Executive that are mutually agreed upon by
the Executive and the Company and held at the Company, so long as none of the
foregoing activities interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
1.3 Place of Performance. In connection with his employment by
the Company, the Executive shall be based at the Company's principal executive
offices, except for travel reasonably necessary in connection with the Company's
business.
2. Compensation.
------------
2.1 Draw. Commencing on the date of this Agreement, the
Executive shall receive a draw at the annual rate of $150,000 (the "Draw")
during the term of this Agreement, with such Draw payable in installments
consistent with the Company's normal payroll schedule, subject to applicable
withholding and other taxes. The Draw shall not be refundable to the Company.
2.2 Incentive Compensation. The Executive shall also be
entitled to receive such other bonus payments or performance compensation, as
shall be determined from time to time by the Co-Chief Executive Officers of the
Company, in their sole discretion. Such potential additional bonus payments
and/or performance compensation shall be reduced by an amount not to exceed the
then current monthly Draw payable to the Executive.
2.3 Stock Options. Simultaneously with the consummation of the
Offering, the Executive shall be granted an option pursuant to the Company's
2000 Stock Option Plan to purchase 100,000 authorized but unissued shares of the
Company's Common Stock, $0.01 par value (the "First Option"), at a purchase
price equal to the initial public offering price in the Offering. The First
Option shall vest one year after the date of grant. The First Option will
expire ten years from the date the hereof.
Simultaneously with the consummation of the Offering, the Executive
shall be granted a second option pursuant to the Company's 2000 Stock Option
Plan to purchase an additional 100,000 authorized but unissued shares of the
Company's Common Stock, $0.01 par value (the "Second Option"), at a purchase
price equal to the initial public offering price in the Offering.
2
<PAGE>
Twenty thousand shares covered by the Second Option shall vest on each of the
first through fifth anniversary of the grant of the Second Option, subject to
the Executive's employment on such anniversary date. The Second Option will
expire ten years from the date the hereof.
3. Expense Reimbursement and Other Benefits.
----------------------------------------
3.1 Expense Reimbursement. During the term of the Executive's
employment hereunder, the Company, upon the submission of reasonable supporting
documentation by the Executive, shall reimburse the Executive for all reasonable
expenses actually paid or incurred by the Executive in the course of and
pursuant to the business of the Company, including expenses for travel and
entertainment.
3.2 Incentive, Savings and Retirement Plans. During the term
of this Agreement, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other key executives of the Company and its subsidiaries as may be
in effect from time to time.
3.3 Healthcare Benefit Plans. During the term of this
Agreement, the Executive shall be eligible for participation in and shall
receive all benefits under healthcare benefit plans, practices, policies and
programs provided by the Company and its subsidiaries that may be in effect from
time to time (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs), on terms comparable to the terms
offered to other executives of the Company.
3.4 Working Facilities. During the term of the Executive's
employment hereunder, the Company shall furnish the Executive with an office,
secretarial support and such other facilities and services suitable to his
position and adequate for the performance of the Executive's duties hereunder as
reasonably determined by the Company.
3.5 Vacation. During the term of this Agreement, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its subsidiaries as in
effect at any time hereafter with respect to other key executives of the Company
and its subsidiaries; provided, however, that in no event shall the Executive be
entitled to less than two weeks paid vacation per year.
4. Termination.
-----------
4.1 Termination for Cause. Notwithstanding anything contained
to the contrary in this Agreement, the Company may terminate this Agreement for
Cause. As used in this Agreement, "Cause" shall only mean (i) the willful and
material failure or refusal of the Executive to perform the duties or render the
services assigned under this Agreement (except during reasonable vacation
periods or sick leave) or other material breach of this Agreement, which is not
remedied within ten business days after receipt of written notice from the
Company, (ii) the indictment of the Executive for any criminal act which is a
felony, or (iii) a material breach of the Executive's representation in Section
15, which is not remedied within ten business
3
<PAGE>
days after receipt of written notice from the Board. The determination of Cause
for purposes of this Agreement shall only be made by the majority vote of the
Board (excluding the Executive). Upon any termination pursuant to this Section,
the Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of termination).
4.2 Disability. Notwithstanding anything contained in this
Agreement to the contrary, the Company, by written notice to the Executive,
shall at all times have the right to terminate this Agreement, and the
Executive's employment hereunder, if the Executive shall, as the result of
mental or physical incapacity, illness or disability, fail to perform his duties
and responsibilities provided for herein for a period of more than 90 days in
any 12-month period. Upon any termination pursuant to this Section, the
Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of termination).
4.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall pay to the estate of the
deceased Executive an amount equal his Base Salary to the date of death and the
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination).
4.4 Termination Without Cause. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive; provided, however, that the Company shall (a) pay to
the Executive any unpaid Base Salary accrued through the effective date of
termination and (b) pay to the Executive an amount equal to the Executive's then
annual Base Salary, in accordance with the Company's normal payroll period, for
a period equal to the lesser of one year from effective termination date or the
expiration of the term of this Agreement, provided the Executive is not in
breach of Section 6. The Company shall be deemed to have terminated the
Executive's employment pursuant to this Section if such employment is terminated
(i) by the Company without Cause, or (ii) by the Executive voluntarily for "Good
Reason." For purposes of this Agreement, "Good Reason" means a material breach
of the Company's obligations under this Agreement, which is not remedied within
ten business days after receipt of written notice from the Executive or any
termination by the Executive (other than a termination for Cause) during the
three-month period following the effective date of any "Change in Control."
4.5 Resignation by Executive.
------------------------
(i) The Executive shall have the right to
terminate his employment under this Agreement at any time upon at least 90 days
prior written notice to the Company.
(ii) Upon any termination pursuant to this
Section, the Executive shall be entitled to be paid his Base Salary to the date
of termination and the Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses
4
<PAGE>
incurred prior to the date of termination). Except as specifically set forth in
this Section, the Executive shall not have any additional liability or
obligation hereunder by reason of such termination.
5. Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) Without the prior approval of the Incumbent Board
(hereinafter defined), the acquisition (other than by or from the Company), at
any time after the date hereof, by any person, entity or "group," within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors;
(b) The individuals who constitute the Board as of the
Offering Date (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the Offering Date whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board;
(c) Without the prior approval of the Incumbent Board,
approval by the stockholders of the Company of (A) a reorganization, merger or
consolidation with respect to which persons who were the stockholders of the
Company immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 51% of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated company's then outstanding voting securities, (B) a
liquidation or dissolution of the Company, or (C) the sale of all or
substantially all of the assets of the Company, unless the approved
reorganization, merger, consolidation, liquidation, dissolution or sale is
subsequently abandoned.
6. Restrictive Covenants.
---------------------
6.1 Confidentiality and Rights to Inventions.
----------------------------------------
(a) Confidential Information. The
Executive hereby acknowledges that the Executive will or may be making use of,
acquiring and adding to confidential information of a special and unique nature
and value affecting and relating to the Company and its operations, including,
but not limited to, its business, the identities of its customers and suppliers,
its data base information, prices paid by the Company for inventory, its
business practices, marketing strategies, expansion plans, contracts, business
records and other records,
5
<PAGE>
trade secrets, inventions, techniques, know-how and technologies, whether or not
patentable, and other similar information relating to the Company (all the
foregoing regardless of whether same was known to the Executive prior to the
date hereof is hereinafter referred to collectively as "Confidential
Information"). The Executive further recognizes and acknowledges that all
Confidential Information is the exclusive property of the Company, is material
and confidential, and greatly affects the legitimate business interests,
goodwill and effective and successful conduct of the Company's business.
Accordingly, the Executive hereby covenants and agrees that he will use the
Confidential Information only for the benefit of the Company and shall not at
any time, directly or indirectly, either during the Term of this Agreement or
afterward, divulge, reveal or communicate any Confidential Information to any
person, firm, corporation or entity whatsoever, or use any Confidential
Information for the Executive's own benefit or for the benefit of others.
(b) Rights to Inventions, Patents and
Copyrights. The Executive shall promptly disclose in writing to the Company: all
ideas, inventions, discoveries, devices, machines, apparatus, methods,
compositions, know-how, works, processes and improvements to any thereof,
whether or not patentable or copyrightable, that the Executive may conceive,
make, develop, invent, reduce-to-practice, author or discover, whether solely or
jointly or commonly with others, during the Executive's employment with the
Company, or within one calendar year following the termination of the
Executive's employment with the Company, which relate to the business of the
Company at the time of termination (the items specified in this section are
hereinafter collectively referred to as "Inventions"). All Inventions are the
sole and exclusive property of the Company. The Executive shall promptly assign,
transfer and set over unto the Company, its successors and assigns, all of his
rights, title and interest in and to all Inventions, all applications for
letters patent or copyrights, foreign and domestic, which have or may be filed
on such Inventions, all copyrights, all letters patent of the United States and
its territorial possessions and all letters patent of foreign countries which
may be granted therefor, and all reexaminations and reissues of said letters
patent, including the subject matter of any and all claims which may be obtained
in every such domestic and foreign patent, the same to be held and enjoyed by
the Company for its own and exclusive use and advantage, and for the exclusive
use and advantage of its successors, assigns and other legal representatives, to
the full end of the term or terms for which said copyrights and letters patent
of the United States, territories and foreign countries are or may be granted,
reexamined or reissued, as fully and entirely as the same would have been held
and enjoyed by the Executive if the assignment had not been made. The Executive
further covenants and agrees that the Executive will, during and subsequent to
the term of this Agreement, without demanding any other consideration therefor,
at any time, upon request, execute, or cause to be executed, and deliver any and
all papers that may be necessary or desirable to perfect the title to any
Invention and to such letters patent and copyrights as may be granted therefor,
in the Company, its successors, assigns or other legal representatives, and that
if the Company, its successors, assigns, or other legal representatives shall
desire to file any subsequent or derivative application, or to secure a reissue
or reexamination of such letters patent, or to file a disclaimer relating
thereto, the Executive will upon request, sign, or cause to be signed, all
papers, make or cause to be made all rightful oaths, and do all lawful acts
requisite for such action.
6
<PAGE>
The Executive does further covenant and agree, that he will,
at any time during and subsequent to the term of this Agreement hereof, upon
request, communicate to the Company, its successors, assigns, or other legal
representatives, such facts relating to the Inventions, letters patent and
copyrights or to the history thereof, as may be known to him, and testify, at
the Company's expense, as to the same in any interference or other litigation or
proceeding in which the Executive is not a party and does not have an interest,
when requested to do so.
6.2 Nonsolicitation of Employees. While employed by the
Company and for a period of three years thereafter, the Executive shall not
directly or indirectly, for himself or for any other person, firm, corporation,
partnership, association or other entity, attempt to employ or enter into any
contractual arrangement with any employee or former employee of the Company,
unless such employee or former employee has not been employed by the Company for
a period in excess of six months.
6.3 Non-Competition. While employed by the Company and for a
period of three years thereafter, the Executive shall not, directly or
indirectly, whether as principal, agent, shareholder (except as set forth below)
or in any other capacity, whether or not compensation is received, engage or
participate in any activity for, be employed by, assist or have an equity
interest in (other than as a passive investor of no more than five percent with
no involvement in the management or conduct of the affairs of business of such
entity) any business or other entity which is or plans to enter into the
securities brokerage business in the State of Florida or to engage in the
securities brokerage business with customers using the Internet. The Executive
acknowledges that the provisions of this Section 6.3 are reasonably necessary
for the purposes of protecting the Company's and its subsidiaries' legitimate
business interests and goodwill. It is accordingly the intention of the parties
that this Section 6.3 be enforceable to the fullest extent permissible under
applicable law. The Executive agrees, however, that in the event any restriction
or limitation of this Section 6.3, or any portion thereof, shall be declared or
held to be invalid or unenforceable by a court of competent jurisdiction, then
such restriction or limitation shall be deemed amended to substitute or modify
it, as either or both may be necessary, to render it valid and enforceable.
6.4 Equitable Relief. It is recognized and hereby acknowledged
by the parties hereto that a breach by the Executive of any of the covenants
contained in this Article 6 will cause irreparable injury to the Company's and
its subsidiaries' legitimate business interests and goodwill and that such
injury would not be adequately compensated by monetary damages. Accordingly, the
Executive recognizes and hereby acknowledges that the Company and any of its
subsidiaries shall be entitled to specific performance of any of the provisions
of this Article 6 and an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in this Article 6 by the Executive or any of his affiliates, associates,
partners or agents, either directly or indirectly, and that such right to
injunction and specific performance shall be cumulative and in addition to
whatever other remedies the Company or its subsidiaries may possess.
7
<PAGE>
6.5 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
7. Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida without
application of any conflicts of laws principles, and any proceeding contemplated
by Section 6.4 or to enforce any arbitration award contemplated by Section 12
shall be heard in the state or federal courts located in Seminole County,
Florida. The parties hereto hereby consent to personal jurisdiction in such
venue and waive any claim or argument that such venue is inconvenient or
improper.
8. Notices: Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or three days after being deposited in the United States mail,
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company: Empire Financial Holding Company
1385 West State Road 434
Longwood, Florida 32750
Attention: Board of Directors
With a copy to:
--------------
Mr. Phillip J. Kushner
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
If to the Executive: Donald A. Wojnowski Jr.
505 N. Orlando Avenue, Suite 307
Cocoa Beach, FL 32931
or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
9. Successors.
----------
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive other than the transfers of benefits hereunder by will or the laws of
descent and distribution.
8
<PAGE>
(b) This Agreement shall inure to the benefit of, be
enforceable by and be binding upon the Company's successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
10. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area, which would cure such invalidity.
11. Waivers. The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.
12. Arbitration. Except as set forth in Section 6.4, any controversy
between the parties regarding this Agreement and any claims arising out of this
Agreement or its breach shall be required to be submitted to binding
arbitration. Either party shall have the right to commence arbitration
proceedings. The arbitration proceedings shall be conducted, by a panel of three
arbitrators, pursuant to the Commercial Arbitration Rules of the National
Association of Securities Dealers (NASD). The arbitration shall be conducted in
Seminole County, Florida and the arbitrator shall have the right to award actual
damages and attorney fees and costs, but shall not have the right to award
punitive, special, exemplary or consequential damages against any party. The
parties shall hold any award resulting from such proceeding or settlement in
connection therewith in strict confidence, unless the disclosure of such award
or settlement is required by law.
13. Damages. Nothing contained herein shall be construed to
prevent the Company or the Executive from seeking and recovering from the other
damages sustained by either or both of them as a result of its or his breach of
any term or provision of this Agreement.
14. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
(other than the parties hereto and, in the case of Executive, his heirs,
personal representative(s) and/or legal representative) any rights or remedies
under or by reason of this Agreement.
15. Conflicts With Other Agreements. The Executive represents
to the Company that the Executive's execution and performance of this Agreement
does not violate the provisions of any employment, non-competition or other
agreement to which the Executive is a party or by which the Executive is bound.
9
<PAGE>
16. Indemnification. The Company agrees to promptly execute and deliver
to the Executive an Indemnification Agreement in substantially the same form as
utilized for the Chairman of the Board, it being agreed that the Company will
use its best efforts to ensure that such agreement will provide for mandatory
indemnification and advancement of expenses to the fullest extent permitted by
law.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
EMPIRE FINANCIAL HOLDING COMPANY
By:
-------------------------------------
Richard L. Goble
Co-Chairman of the Board
By:
-------------------------------------
Kevin M. Gagne
Co-Chairman of the Board
EXECUTIVE:
----------------------------------------
Donald A. Wojnowski Jr.
10
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We hereby consent to the use in this Registration Statement on Form S-1
(Amendment No. 2) of our report dated February 24, 2000 relating to the
financial statements of Empire Financial Holding Company, which appears in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ Pricewaterhouse Coopers LLP
Tampa, Florida
May 3, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,650,533
<SECURITIES> 0
<RECEIVABLES> 25,867,181
<ALLOWANCES> (230,924)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 464,432
<DEPRECIATION> (117,428)
<TOTAL-ASSETS> 30,973,584
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 80,000
<OTHER-SE> 4,234,571
<TOTAL-LIABILITY-AND-EQUITY> 30,973,584
<SALES> 0
<TOTAL-REVENUES> 7,440,653
<CGS> 0
<TOTAL-COSTS> 5,826,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,162
<INCOME-PRETAX> 1,614,511
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,614,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,614,511
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
