As filed with the Securities and Exchange Commission on March 24, 2000
Registration No. 333-86365
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
ON
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EMPIRE FINANCIAL HOLDING COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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Florida 6211 59-3627212
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(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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1385 West State Road 434
Longwood, Florida 32750
(407) 774-1300
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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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)
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Copies of communications to:
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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
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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Amount to Proposed Proposed
Title of Each Class Be Maximum Offering Maximum Aggregate Amount of
of Securities to Be Registered Registered Price Per Unit(1) Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value....................... 3,680,000(2) $12.00 $44,160,000 $11,658.24
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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
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TOTAL FEE: $12,990.32*
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(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.
* $10,633.50 was previously paid with the initial filing of this Registration
Statement.
------------------------------
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 March 24, 2000
Preliminary Prospectus
[LOGO]
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 6 of this prospectus.
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Per Share Total
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Price to the public.......................... $ $
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Underwriting discounts and commissions....... $ $
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Proceeds, before expenses, to us............. $ $
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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 April __, 2000
<PAGE>
TABLE OF CONTENTS
Page
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Summary...............................................................1
Risk Factors..........................................................6
Cautionary Note on Forward-Looking Statements........................16
Determination of Offering Price......................................16
Use of Proceeds......................................................17
Dividend Policy......................................................18
Dilution.............................................................18
Capitalization.......................................................20
Selected Consolidated Financial Data.................................21
Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................22
Business.............................................................31
Directors and Executive Officers.....................................45
Security Ownership of Certain Beneficial Owners and
Management........................................................51
Certain Transactions.................................................52
Description of Capital Stock.........................................52
Shares Eligible for Future Sale......................................55
Underwriting.........................................................57
Legal Matters........................................................60
Experts..............................................................60
Where You Can Find More Information..................................60
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.
<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 business-to-business provider of securities order execution
services and are also a financial brokerage services firm serving retail and
institutional investors, primarily using the Internet. We have trade clearing
capabilities that support our businesses. Recently we began offering private
label brokerage solutions to financial institutions which enable them to offer
web-based brokerage services to their customers using our established
capabilities and services. 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 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 addition,
we reduce the expenses associated with our order execution services by clearing
our own trades. 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. 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 recently began offering a private label brokerage solution 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.
We have recently received regulatory approval to provide clearing
services for up to three unaffiliated broker dealers and have begun marketing
these clearing services. We intend to seek further regulatory approval to
increase the number of clearing service customers. Additionally, we plan to
offer fee-based investment advisory services to our customers.
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We were incorporated in Florida in February 2000 and have 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.
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 securities brokerage business and is expected to continue
to grow significantly. Online trades accounted for over 25% of all retail stock
trades in the U.S. in the first quarter of 1999 and are expected to grow to 50%
by 2002. Current market research projections indicate that the number of online
investor accounts will jump from approximately 6.7 million at the end of 1998 to
over 24 million by the end of 2002. The value of assets held by customers in
accounts with online brokerage firms is projected to grow from $324 billion in
the U.S. at the end of 1998 to over $3 trillion in 2003.
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;
o Our income before taxes increased 217% to $3,458,326 for the year
ended December 31, 1999 from $1,090,584 in 1998;
o Our retail customer accounts increased 122% to approximately
10,000 at December 31, 1999 from approximately 4,500 at December
31, 1998; and
o Our average trades per day increased 52% to approximately 1,224
during 1999 from approximately 803 during 1998.
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
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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 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 realizing cost advantages in our business through
the development and use of proprietary technology. We plan to
continue to invest in the development of proprietary systems and
software that should enable us to maintain our cost advantages.
We believe that our proprietary securities trading and processing
software applications allow us to customize and better control
our operations by reducing dependence on third-party vendors.
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. 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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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
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
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.
We are currently an S corporation for federal income tax purposes and
our taxable income is a direct liability of our current shareholders. We will
distribute approximately $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.
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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.
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Year Ended
December 31,
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1999 1998 1997
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Statement of Income Data:
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
Total revenues.............................................. 17,598,303 7,933,999 6,325,073
Net income.................................................. 3,458,326 1,090,584 696,678
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Earnings per share-basic and diluted........................ $ .43 $ .14 $ .09
============ ============ ============
Unaudited pro forma information:
Net 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
December 31, 1999 December 31, 1998
-------------------------- --------------------
Actual As Adjusted Actual
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Balance Sheet Data:
Cash and cash equivalents............................. $1,880,142 $33,140,102 $367,825
Total assets.......................................... 22,166,240 53,192,437 8,860,788
Total liabilities..................................... 19,016,198 20,416,198 6,921,498
Shareholders' equity ................................. 3,150,042 32,776,239 1,939,290
</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 $31,300,000
net proceeds, the charge-off of $233,763 of deferred offering costs and the
declaration of a distribution of approximately $1,400,000 to our existing
shareholders for estimated tax payments related to 1999, which will be paid from
available cash.
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<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.
Volatility in the securities business could directly harm our business.
Our revenues depend on the volume of securities transactions that we
handle for our customers. As a result, our revenues are directly affected by the
same factors that affect the securities industry as a whole. The securities
business is volatile. Most factors that create volatility are beyond our control
and include:
o national and international political and economic conditions;
o broad trends in business and finance, including changes in
interest rates; and
o changes in state or federal regulation of the securities
industry.
These factors could result in trading losses and cause reduced
transaction volume which could result in reduced revenues and decreased
profitability for us. Additionally, volatility in the securities markets could
lead to customer losses, resulting in customer litigation being brought against
us, which would harm our business by requiring us to dedicate attention and
resources that would be better used for other purposes.
We face risks associated with our order execution services.
We conduct our order execution services predominantly as a principal,
which subjects us to significant risks. We purchase, sell or short sell
securities for our own account in order to fill orders received from independent
broker dealers. These activities are subject to a number of risks, including:
o the price volatility of specific securities;
o changes in the liquidity of markets;
o our ability to attract orderflow;
o the skill of our personnel;
o the availability of capital; and
o general market conditions.
These risks may limit or restrict our ability to either resell securities we
purchase or to repurchase securities we sell in such transactions. In addition,
we may experience difficulty borrowing
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securities to make delivery to purchasers to whom we sold short, or lenders from
whom we have borrowed previously.
We attempt to derive a profit from the difference between the prices at
which we buy and sell securities. However, competitive forces often require us
to match the quotes other market makers display. We cannot assure you that we
will be able to manage such risk successfully or that we will not experience
significant losses from such activities, either of which could materially
adversely affect our business, financial condition and operating results.
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, any of which could harm our business.
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. Due to the increasing
popularity and use of the Internet and other online services, various regulatory
authorities are considering laws and/or regulations with respect to the Internet
or other online services covering issues such as user privacy, pricing, content,
copyrights and quality of services, and are also considering imposing sales or
other taxes on Internet transactions.
Furthermore, the growth and development of the market for online
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. Moreover, the
recent increase in the number of complaints by online traders could lead to more
stringent regulations of online trading firms and their practices by the SEC,
NASD and other regulatory agencies.
The adoption of any additional laws or regulations may decrease the
growth of the Internet or other online services, which could, in turn, decrease
the demand for our trading systems and services and increase our cost of doing
business. Moreover, the applicability to the Internet and other online services
of existing laws in various jurisdictions governing issues such
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as property ownership, sales and other taxes and personal privacy is uncertain
and may take years to resolve.
In addition, as our services are available over the Internet in
multiple states and foreign countries, and as we have numerous clients residing
in these states and foreign countries, these jurisdictions may claim that we are
required to comply with the laws of these states and foreign countries.
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. For example, 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. A
significant operating loss or any unusually large charge against our net capital
could adversely affect our ability to expand or maintain our present level of
business.
Failure to comply with licensing or qualification requirements could harm our
business.
While 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, and our subsidiary Empire Investment Advisors,
Inc. has registered as an investment advisor under the Investment Advisers Act
of 1940, each is qualified to do business as a foreign corporation in only a few
states. Failure by them to qualify as a broker dealer in other jurisdictions or
as an out-of-state or "foreign" corporation in a jurisdiction where they are
required to do so could subject them to taxes and penalties for the failure to
qualify.
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
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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.
Employee misconduct could result in unknown and unmanaged risks or
losses. There have been highly publicized cases involving fraud, theft and other
misconduct by employees in the financial services industry, and we run the risk
that employee misconduct could occur. 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. Employee
misconduct could also involve the improper use of confidential information,
which could result in regulatory sanctions and serious harm to our reputation
and business.
We face risks associated with paying orderflow rebates.
We have arrangements with various investment banking and securities
brokerage firms under which we pay them to send their trade orders to us for
processing. This is known as paying for orderflow. Loss of the ability to have
orders routed to us in this manner could adversely affect our business,
financial condition and operating results. 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
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15% of all assets held in our retail customers' accounts are subject to 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
December 31, 1999, we had extended approximately $15,600,000 in credit to our
retail customers.
We face risks associated with our clearing operations.
Our failure to perform our clearing operations accurately and cost
effectively could have a material adverse effect on our business, financial
condition and results of operations. 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. 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. Any
liability or penalty that arises as a result of clearing operations could harm
our business, financial condition and operating results.
Our future operating results could fluctuate due to many factors.
We expect to experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including the following:
o gains or losses generated from trading in connection with our
order execution services;
o the timing of introductions or enhancements to online investing
services and products by us or our competitors, as well as market
acceptance of those services and products;
o changes in trading volume in securities markets;
o trends in securities markets;
o domestic and international regulation of the brokerage industry;
o changes in pricing policies by us or our competitors;
o changes in our strategy;
o the success of or costs associated with acquisitions, joint
ventures or other strategic relationships;
o changes in our key personnel;
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<PAGE>
o seasonal trends; and
o changes in the level of our operating expenses to support
projected growth.
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 harm our reputation and 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, Mercantile Bank, N.A., 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
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<PAGE>
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.
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 management's attention and could harm our business.
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.
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<PAGE>
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 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. 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 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. As a
result, they have the right to control our business and operations as our most
senior officers.
Investors will experience immediate and substantial dilution.
This offering involves an immediate and substantial dilution of $8.07
per share (73.4%) 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.
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<PAGE>
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 anticipate that our common stock will be listed 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. 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. Preferred stock could be issued to
discourage, delay or prevent a change in our control.
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
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<PAGE>
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.
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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. We may face other risks. 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 and other factors as were deemed relevant.
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<PAGE>
USE OF PROCEEDS
We estimate we will receive approximately $31,300,000 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 $480,000 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 $1,000,000). We expect to use the net proceeds as
follows:
Account Acquisition Programs and Advertising.................. $15,000,000
New Business Initiatives...................................... 9,000,000
Increase Net Capital.......................................... 7,300,000
-----------
$31,300,000
===========
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.
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.
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<PAGE>
DIVIDEND POLICY
We paid dividends to our shareholders in the past. After December 31,
1999, we expect to pay our shareholders a distribution of approximately
$1,400,000 relating to their tax liability for our net income for 1999. 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 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 December 31, 1999, our pro forma net tangible book value was
$1,516,279 or $0.19 per share of common stock. Pro forma net tangible book value
represents the amount of our total assets, less any intangible assets, total
liabilities and S corporation distributions for 1999 in the estimated aggregate
amount of approximately $1,400,000. 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 December
31, 1999, would have been $32,776,239 or $2.93 per share. This represents an
immediate increase in net tangible book value of $2.74 per share to existing
shareholders and an immediate dilution of $8.07 per share to investors in the
offering. The following table illustrates this per share dilution:
Initial public offering price................................. $11.00
Pro forma net tangible book value before offering.......... $0.19
Increase attributable to investors in this offering........ 2.74
Net tangible book value after offering..................... 2.93
-----
Dilution to new investors..................................... $8.07
=====
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 $3.23 which would result in dilution to your investment of
$7.77 per share of common stock.
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<PAGE>
The following table shows, at December 31, 1999, 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 December 31,
1999, 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>
December 31, 1999
--------------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Short-term borrowings from banks................................. $5,983,000 $5,983,000
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 32,664,239
Retained earnings............................................. 2,885,663 --
---------- ------------
Total shareholders' equity....................................... $3,150,042 $32,776,239
---------- ------------
Total capitalization............................................. $9,133,042 $38,759,239
---------- ------------
</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.
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 $233,763 and the
declaration of a distribution to be paid to our existing shareholders after
December 31, 1999 in the amount of approximately $1,400,000 and also includes a
reclassification in the amount of $1,485,663 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.
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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 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>
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Order execution trading revenues,
net............................... $ 10,441,910 $ 5,681,892 $ 4,612,693 $ 1,861,528 $ 495,686
Commissions and fees................ 5,867,121 2,022,433 1,487,379 925,707 566,058
Orderflow........................... 370,139 149,246 209,522 301,915 229,076
Interest............................ 679,432 66,675 -- -- --
Other............................... 239,701 13,753 15,479 72,907 73,864
------------- ----------- ----------- ----------- -----------
$ 17,598,303 $ 7,933,999 $ 6,325,073 $ 3,162,057 $ 1,364,684
------------- ----------- ----------- ----------- -----------
Expenses:
Employee compensation and benefits.. 4,708,879 2,715,069 2,415,490 1,200,386 535,233
Commissions and clearing costs...... 2,954,583 1,345,528 1,102,466 427,421 207,609
Orderflow payments.................. 2,775,599 1,661,488 1,617,153 713,742 199,630
Interest............................ 353,668 44,363 1,360 1,079 687
Communications and data processing.. 672,778 164,829 70,482 220,137 68,336
General and administrative.......... 2,113,336 642,845 286,986 286,235 96,981
Advertising......................... 561,134 269,293 134,458 72,660 5,510
------------- ----------- ----------- ----------- -----------
14,139,977 6,843,415 5,628,395 2,921,660 1,113,986
------------- ----------- ----------- ----------- -----------
Net income............................ $ 3,458,326 $ 1,090,584 $ 696,678 $ 240,397 $ 250,698
============= =========== =========== =========== ===========
Earnings per share-basic and diluted.. $ .43 $ .14 $ .09 $ .03 $ .03
============= =========== =========== =========== ===========
Unaudited pro forma information:
Income before income taxes.......... $ 3,458,326 $ 1,090,584 $ 696,678 $ 240,327 $ 250,690
Provision for income taxes.......... 1,300,000 410,000 262,000 90,000 94,000
------------- ----------- ----------- ----------- -----------
Net income.......................... $ 2,158,326 $ 680,584 $ 434,678 $ 150,327 $ 156,690
============= =========== =========== =========== ===========
Pro forma earnings per
share-basic and diluted........... $ .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
Balance Sheet Data (at year end):
Total assets.......................... $ 22,166,240 $ 8,860,788 $ 1,501,802 $ 1,047,379 $ 953,267
Total liabilities..................... 19,016,198 6,921,498 348,855 339,077 511,085
Shareholders' equity.................. 3,150,042 1,939,290 1,152,947 708,302 442,182
</TABLE>
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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
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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 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.
Commissions and Fees
Approximately 33% of our 1999 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
We receive monthly orderflow payments based on the number of shares
involved in retail transactions we send to other broker dealers for execution.
Interest
Interest revenues consist of profits from the interest we charge retail
customers when they borrow from us.
Other
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.
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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 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 orderflow rebates to other broker dealers to compensate them
for directing trades to us for execution. We pay monthly orderflow fees 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 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.
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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
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.
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.
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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.
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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 collected 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 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
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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. Cash and cash
equivalents at December 31, 1999 were $1,880,142 compared to $367,825 at
December 31, 1998.
Net cash used in operating activities was $1,089,730 in 1999 versus
$1,161,424 cash used in 1998. Our net cash used in operating 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 increased 148%, or $114,293 to
$191,379 in 1999 from $77,086 in 1998, primarily due to increased expenditures
for the purchase of property and equipment.
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. We are
currently permitted to borrow up to $15,000,000 under a short-term loan
agreement with Mercantile Bank, N.A. 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. The term of our current loan agreement has been extended to
September 30, 2000.
We are currently an S corporation for federal income tax purposes and
our taxable income is a direct liability of our current shareholders. We will
distribute approximately $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.
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
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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>
December 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Advantage Trading Group, Inc.:
(alternative method elected November 1999)
Net capital .......................................... $2,233,982 $1,392,009
Required net capital ................................. 350,766 458,751
---------- ----------
Excess net capital ................................... $1,883,216 $ 933,258
========== ==========
Ratio of aggregate indebtedness to net capital ....... N/A 4.94 to 1
Net capital as a percentage of aggregate debit items.. 12.74% N/A
Empire Financial Group, Inc.:
Net capital .......................................... $ 316,073 $ 335,281
Required net capital ................................. 250,000 250,000
---------- ----------
Excess net capital ................................... $ 66,073 $ 85,281
========== ==========
Ratio of aggregate indebtedness to net capital ....... 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
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for hedging activities. SFAS 133, as amended by SFAS 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 business-to-business provider of securities order execution
services and are also a financial brokerage services firm serving retail and
institutional investors, primarily using the Internet. We have trade clearing
capabilities that support our businesses. Recently we began offering private
label brokerage solutions to financial institutions which enable them to offer
web-based brokerage services to their customers using our established
capabilities and services. We plan to expand our business and diversify our
revenue sources by offering trade 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 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. 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.
We recently began offering a private label brokerage solution 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.
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We have recently 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 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.
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 were incorporated in Florida in February 2000 and have 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
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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.
The securities brokerage business has experienced dramatic growth in
transaction volumes in recent years. This growth is due to many factors
including the emergence and 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 securities brokerage business and is expected to continue to grow
significantly. Online trades of retail customers accounted for over 25% of all
retail stock trades in the U.S. in the first quarter of 1999 and are expected to
grow to 50% by 2002. Current market research projections indicate that the
number of online investor accounts will jump from approximately 6.7 million at
the end of 1998 to over 24 million by the end of 2002. The value of assets held
by customers in accounts with online brokerage firms is projected to grow from
$324 billion in the U.S. at the end of 1998 to over $3 trillion in 2003.
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.
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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 realizing cost advantages in our business through
development of proprietary technology. We plan to continue to
invest in the development of proprietary systems and software
that should enable us to maintain our cost advantages. We believe
that our proprietary securities trading and processing software
applications allow us to customize and better control our
operations by reducing dependence on third-party vendors.
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 regulatory
approval. We believe this capability will distinguish us from
many of our competitors and will result in stronger, more
comprehensive relationships with our customers.
Our Business
We are a business-to-business provider of securities order execution
services and also provide securities brokerage services directly to retail
customers, including both individual and institutional investors. 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.
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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.
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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 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 February 29, 2000, our
retail client support division consisted of 60 employees, of
which 31 are registered representatives and principals.
o Touch-tone Telephone. We are in the process of implementing 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 30%. If it does, the customer will be
required to increase the account's equity to 35%. 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.
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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 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
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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 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
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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. We recently 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 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. We have 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
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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 the third quarter of 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 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.
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Our Technology
We believe that our proprietary systems and software provide us with a
competitive advantage by allowing 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 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
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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.
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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
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 February 29, 2000, we had 90 full-time employees, of which 43 are
registered representatives. We have 37 people in management and operations and
53 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
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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 T. 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
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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. He is also a director of 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.
John T. 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.
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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. Each of these
committees will be composed of Mr. Macnab and Mr. 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.
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 $691,665
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 $691,665
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. The 1999
"Other Annual Compensation" amounts are estimates, and have not yet been
distributed.
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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 two
years thereafter. In a separate agreement, we have also agreed to pay Mr.
Wojnowski, upon completion of this offering, a finder's fee equal to one and a
half percent of the net proceeds received by us after we pay our offering
expenses.
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.
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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
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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 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.
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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>
Amount and Percent of Class
Nature of ---------------------
Name and Address of Beneficial Before After
Beneficial Owner 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 T. 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.
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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 six months 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 also agreed to pay Mr.
Wojnowski a finder's fee equal to one and a half percent of the net proceeds of
this offering.
We paid dividends to Messrs. Gagne and Goble in the past. Subsequent to
January 1, 2000, Messrs. Gagne and Goble will receive distributions estimated to
be in the aggregate amount of $1,400,000. 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.
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.
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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.
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.
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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.
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.
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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.
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
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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.
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<PAGE>
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>
Underwriter Number of 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.
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 $480,000. 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
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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 $1,000,000.
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.
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
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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.
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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.
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
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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.
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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 and 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants
Year Ended December 31, 1999...................................................................... F-2
Report of Independent Certified Public Accountants
Years Ended December 31, 1998 and 1997............................................................ F-3
Consolidated Statements of Financial Condition
December 31, 1999 and 1998........................................................................ F-4
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997...................................................... F-5
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997...................................................... F-6
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997 .................................................... F-7
Notes to Consolidated Financial Statements ............................................................ F-8
</TABLE>
F-1
<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-2
<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-3
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Unaudited Pro
Forma (Note 2) December 31, December 31,
December 31, 1999 1999 1998
----------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................................... $1,880,142 $1,880,142 $367,825
Cash and treasury bills segregated pursuant to federal
regulations................................................... 1,219,412 1,219,412 1,343,622
Receivables from customers, net of allowance for doubtful
accounts of $230,924 and $-0- ................................ 15,585,002 15,585,002 5,000,391
Receivable from brokers and dealers and clearing organizations.. 2,218,148 2,218,148 515,729
Deposits at clearing organizations.............................. 711,299 711,299 1,445,941
Furniture and equipment net of accumulated depreciation of
$100,878 and $45,779.......................................... 239,828 239,828 111,575
Other assets.................................................... 312,409 312,409 75,705
----------- ----------- ----------
$22,166,240 $22,166,240 $8,860,788
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks................................ 5,983,000 5,983,000 942,000
Accounts payable, accrued expenses and other liabilities........ 1,918,676 1,918,676 1,012,653
Payable to customers............................................ 10,769,314 10,769,314 4,384,361
Payable to brokers and dealers and clearing organizations....... 345,208 345,208 582,484
Distributions payable to shareholders........................... 1,400,000 - -
----------- ----------- ----------
20,416,198 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 80,000
Additional paid-in capital................................... 1,670,042 184,379 184,379
Retained earnings............................................ - 2,885,663 1,674,911
----------- ----------- ----------
Total shareholders' equity................................... 1,750,042 3,150,042 1,939,290
----------- ----------- ----------
$22,166,240 $22,166,240 $8,860,788
=========== =========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-4
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<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-5
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT 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-6
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT 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-7
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL 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.
F-8
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 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
F-9
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 Consolidated Statement of Financial Condition (Unaudited):
The Company's presentation of the unaudited pro forma consolidated
statement of financial condition at December 31, 1999 reflects the effect
on historical retained earnings of a planned S corporation distribution to
the existing shareholders of approximately $1,400,000 and the contribution
(reclassification) of the remaining undistributed earnings to additional
paid-in capital.
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.
F-10
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 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.
F-11
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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:
2000................ $224,520
2001................ 234,496
2002................ 246,212
2003................ 258,528
2004................ 271,452
Thereafter.......... 1,490,808
----------
$2,726,016
==========
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 formula for determination of reserve requirements. Net capital
positions of the Company's broker dealer subsidiaries were as follows:
F-12
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
---- ----
<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
F-13
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 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:
F-14
<PAGE>
EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<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-15
<PAGE>
<TABLE>
<S> <C>
================================================================================= =============================================
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 EMPIRE FINANCIAL
be relied upon as having been authorized by us or the underwriters. HOLDING COMPANY
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 3,200,000 Shares of
to buy any of the securities offered hereby in any jurisdiction to Common Stock
any person to whom it is unlawful to make an offer in such
jurisdiction.
-----------------------
PROSPECTUS
-----------------------
WACHOVIA SECURITIES, INC.
PUTNAM, LOVELL, de GUARDIOLA & THORNTON, INC.
EMPIRE FINANCIAL GROUP, INC.
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. April __, 2000
================================================================================= =============================================
</TABLE>
<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:
Securities and Exchange Commission registration fee................. $10,223.82
NASD filing fee..................................................... $ 3,950.00
Nasdaq National Market listing fee.................................. $63,725.00
Printing expenses................................................... $75,000.00
Accounting fees and expenses........................................ $
Legal fees and expenses............................................. $
Blue Sky fees and expenses.......................................... $15,000.00
Transfer Agent's fees and expenses.................................. $ 5,000.00
Miscellaneous....................................................... $
----------
Total...................................................... $
==========
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 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 above-referenced issuances, the Registrant
relied 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 full access to information relating to the Registrant and
represented to the Registrant that he had the required investment intent. In
II-1
<PAGE>
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
Exhibit Description
------- -----------
1.1 Form of Underwriting Agreement(2)
2.1 Share Exchange Agreement among the Registrant, Kevin M. Gagne
and Richard L. Goble(1)
3.1 Registrant's Articles of Incorporation(1)
3.2 Registrant's Bylaws(1)
4.1 Form of Underwriter's Warrant Agreement, including Form of
Warrant Certificate(2)
4.2 Form of Registrant's Common Stock Certificate(1)
5.1 Opinion of Greenberg Traurig, P.A.(1)
9.1 Voting Agreement between Kevin M. Gagne and Richard L. Goble(1)
10.1 2000 Stock Option Plan*(1)
10.2 Employment Agreement between the Registrant and Kevin M.
Gagne*(1)
10.3 Employment Agreement between the Registrant and Richard L.
Goble*(1)
10.4 Employment Agreement between the Registrant and Donald A.
Wojnowski, Jr.*(2)
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(1)
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(1)
10.7 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers*(1)
10.8 Clearing Agreement between Empire Financial Group, Inc. and Bear
Stearns Securities Corp.(1)
10.9 Firm Inventory Credit Agreement between Advantage Trading Group,
Inc. and Mercantile Bank National Association, as amended(1)
10.10 Remote Processing Agreement between SunGard Financial Systems,
Inc. and Advantage Trading Group, Inc.(1)
10.11 Shareholders Agreement by and among the Registrant, Kevin M.
Gagne and Richard L. Goble(1)
10.12 Finder's Fee Agreement between the Registrant and Donald A.
Wojnowski Jr.(2)
16.1 Letter from Sweeney Gates & Co. regarding change in certifying
accountant(1)
21.1 Subsidiaries of the Registrant(1)
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)(1)
23.3 Consent of PricewaterhouseCoopers LLP(1)
23.4 Consent of Director Appointee Craig Macnab(1)
23.5 Consent of Director Appointee Gregory M. Misiak(1)
II-2
<PAGE>
Exhibit Description
------- -----------
23.6 Consent of Director Appointee John T. Tsucalas(1)
25.1 Power of Attorney (included on the signature page of this
Registration Statement(3)
27.1 Financial Data Schedule(1)
- --------------------------
* Compensation Plan or Arrangement
(1) Filed herewith.
(2) To be filed by amendment.
(3) Previously filed.
(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.
II-3
<PAGE>
(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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 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 March 22, 2000.
EMPIRE FINANCIAL HOLDING COMPANY
By: /s/Richard L. Goble
-------------------------------
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. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Richard L Goble Co-Chief Executive Officer and March 22, 2000
------------------------------ Director
Richard L. Goble (Co-Principal Executive Officer)
/s/ Kevin M. Gagne Co-Chief Executive Officer and March 22, 2000
- ------------------------------- Director
Kevin M. Gagne (Co-Principal Executive Officer)
/s/ Patrick E. Rogers Chief Financial Officer March 22, 2000
- ------------------------------- (Principal Accounting Officer)
Patrick E. Rodgers
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
2.1 Share Exchange Agreement among the Registrant, Kevin M. Gagne
and Richard L. Goble
3.1 Registrant's Articles of Incorporation
3.2 Registrant's Bylaws
4.2 Form of Registrant's Common Stock Certificate
5.1 Opinion of Greenberg Traurig, P.A.
9.1 Voting Agreement between Kevin M. Gagne and Richard L. Goble
10.1 2000 Stock Option Plan
10.2 Employment Agreement between the Registrant and Kevin M.
Gagne
10.3 Employment Agreement between the Registrant and Richard L.
Goble
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
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
10.7 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers
10.8 Clearing Agreement between Empire Financial Group, Inc. and Bear
Stearns Securities Corp.
10.9 Firm Inventory Credit Agreement between Advantage Trading Group,
Inc. and Mercantile Bank National Association, as amended
10.10 Remote Processing Agreement between SunGard Financial Systems,
Inc. and Advantage Trading Group, Inc.
10.11 Shareholders Agreement by and among the Registrant, Kevin M.
Gagne and Richard L. Goble
16.1 Letter from Sweeney Gates & Co. regarding change in certifying
accountant
21.1 Subsidiaries of the Registrant
23.1 Consent of Greenberg Traurig, P.A. (included in its opinion
filed as Exhibit 5.1)
23.2 Consent of Sweeney, Gates & Co.(included in Exhibit 16.1)
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Director Appointee Craig Macnab
23.5 Consent of Director Appointee Gregory M. Misiak
23.6 Consent of Director Appointee John T. Tsucalas
27.1 Financial Data Schedule
II-6
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement') is entered into
effective as of the 17th day of February, 2000, by and among EMPIRE FINANCIAL
HOLDING COMPANY, a Florida corporation, with a principal address of 1385 West
State Road 434, Longwood, Florida 32750 (the "Company"), KEVIN M. GAGNE
("Gagne") and RICHARD L. GOBLE ("Goble"), each an individual with an address c/o
of the Company (Gagne and Goble are referred to individually as "Shareholder"
and collectively as "Shareholders").
Recitals:
A. Empire Financial Group, Inc., a Florida corporation
("Empire-Florida"), is authorized to issue 1,000 voting shares of common stock,
$10 par value per share, and 200,000 non-voting shares of common stock, $.001
par value per share. Empire-Florida has issued 100,500 shares to Goble and
100,500 shares to Gagne, which collectively represents all of the issued and
outstanding shares of Empire-Florida (collectively, the "Empire-Florida
Shares").
B. Advantage Trading Group, Inc., a Florida corporation
("Advantage-Florida"), is authorized to issue 1,000 shares of common stock, $10
par value per share. Advantage-Florida has issued 500 shares to Goble and 500
shares to Gagne, which collectively represent all of the issued and outstanding
shares of Advantage-Florida (collectively, the "Advantage-Florida Shares").
C. Empire Investment Advisors, Inc., a Florida corporation ("Investment
Advisors"), is authorized to issue 1,000 shares of common stock, $.01 par value
per share. Investment Advisors has issued 500 shares to Goble and 500 shares to
Gagne, which collectively represent all of the issued and outstanding shares of
Investment Advisors (collectively, the "Investment Advisors Shares").
D. The Company is authorized to issue 100,000,000 shares of common
stock, $.01 par value per share ("Common Stock"), none of which are presently
issued and outstanding.
E. Each of the Shareholders desires to contribute all of his
Empire-Florida Shares, Advantage-Florida Shares and Investment Advisors Shares
to the Company in exchange for shares of Common Stock, in accordance with the
terms of this Agreement, in a tax-free transaction within the meaning of Section
351 of the Internal Revenue Code of 1986, as amended ("Section 351").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
<PAGE>
1. Exchange of Stock.
a. The Shareholders agree to contribute to the Company
pursuant to Section 351, and the Company agrees to accept from the
Shareholders, all of the Empire-Florida Shares.
b. The Shareholders agree to contribute to the Company
pursuant to Section 351, and the Company agrees to accept from the
Shareholders, all of the Advantage-Florida Shares.
c. The Shareholders agree to contribute to the Company
pursuant to Section 351, and the Company agrees to accept from the
Shareholders, all of the Investment Advisors Shares.
d. In exchange for the Empire-Florida Shares,
Advantage-Florida Shares and Investment Advisors Shares, the Company
agrees to issue and deliver to each of the Shareholders 4,000,000
shares of Common Stock, which will result in the Shareholders owning
100% of the issued and outstanding shares of capital stock of the
Company after said exchange. The Company acknowledges that the exchange
of the Empire-Florida Shares, Advantage-Florida Shares and Investment
Advisors Shares for shares of Common Stock is a tax free exchange
pursuant to Section 351.
2. Closing.
a. The Closing of the transactions contemplated hereby shall
take place in the offices of Greenberg Traurig, P.A., 1221 Brickell
Avenue, Miami, Florida 33131 on February 17, 2000 or any other date
designated in writing by the Company. At the Closing:
i. The Shareholders shall deliver to the
Company the following:
(A) Stock certificates evidencing their
Empire-Florida Shares in proper form of transfer,
duly endorsed in blank or accompanied by an executed
stock power, with evidence of payment of any required
transfer taxes or documentary tax stamps; and
(B) All minute books, stock records and
other corporate records of Empire-Florida.
(C) Stock certificates evidencing their
Advantage-Florida Shares in proper form of transfer,
duly endorsed in blank or accompanied by an executed
stock power, with evidence of payment of any required
transfer taxes or documentary tax stamps; and
2
<PAGE>
(D) All minute books, stock records and
other corporate records of Advantage-Florida.
(E) Stock certificates evidencing their
Investment Advisors Shares in proper form of
transfer, duly endorsed in blank or accompanied by an
executed stock power, with evidence of payment of any
required transfer taxes or documentary tax stamps;
and
(F) All minute books, stock records and
other corporate records of Investment Advisors.
ii. The Company shall deliver to each Shareholder a
certificate or certificates evidencing 4,000,000
shares of Common Stock.
3. Representations and Warranties of Shareholders.
Each of the Shareholders jointly and severally represents and
warrants to the Company as of the date and time of the Closing, that:
a. Each Shareholder is the owner, beneficially and of record,
of those Empire-Florida Shares, Advantage-Florida Shares and Investment
Advisors Shares being exchanged hereby free and clear of any claims,
liens, options, charges, security interests, or encumbrances of any
nature (collectively, "Liens").
b. Upon delivery of all of the Empire-Florida Shares,
Advantage-Florida Shares and Investment Advisors Shares, the Company
shall acquire good and marketable title to such shares, free and clear
of all Liens, and shall be the holder of 100% of the issued and
outstanding capital stock of Empire-Florida, Advantage-Florida and
Investment Advisors.
c. There are no options, warrants or rights to acquire any of
the shares or any interest in Empire-Florida, Advantage-Florida or
Investment Advisors, and no claim by any person to any such rights.
d. Each Shareholder has full power and authority to contribute
his portion of Empire-Florida Shares, Advantage-Florida Shares or
Investment Advisors Shares to the Company and to consummate the
transactions contemplated by this Agreement. This Agreement and any
other documents or agreements related to this Agreement and executed by
either Shareholder constitute the valid and binding obligations of each
Shareholder, enforceable against the Shareholder in accordance with
their respective terms. Neither the execution and delivery of this
Agreement or the execution of any other documents or Agreements related
to this Agreement, nor the consummation of the transactions
contemplated by this Agreement violates any agreement to which such
Shareholder is a party or by which the Shareholder is bound, or
violates any law, order, decree or judgment applicable to such
Shareholder. No authorization, approval or
3
<PAGE>
consent of any third-party is required for lawful execution, delivery
and performance of this Agreement by each Shareholder.
e. Each Shareholder acknowledges that he is fully familiar
with the business, finances and operations of the Company. Each
Shareholder further acknowledges that the shares of the Common Stock
being issued to each Shareholder pursuant to this Agreement are being
issued without registration under the Securities Act of 1933, as
amended (the "Act"). The shares of the Common Stock may only be resold
if registered under the Act or pursuant to an exemption from the
registration provisions. Each Shareholder represents and warrants that
he is acquiring the shares of Common Stock for his own account for
investment and that the shares are not being required for resale in
connection with any distribution within the meaning of the Act. Each
Shareholder acknowledges that the certificates representing the shares
of Common Stock will bear a restrictive legend substantially as
follows:
"These shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), and may not be
offered, sold, assigned, pledged, hypothecated or disposed of
except (i) pursuant to an effective registration statement
under the Act or (ii) upon the delivery by the holder of the
shares to the Company of an opinion of counsel, satisfactory
to the counsel for the Company, stating that an exemption from
registration under the Act is available."
4. Miscellaneous.
a. Survival. All representations, covenants, warranties and
agreements contained in this Agreement shall survive the Closing.
b. Waiver. Neither the failure nor any delay of any party to
exercise any right, remedy, power or privilege under this Agreement
shall operate as a waiver; nor shall any single or partial exercise of
any right, preclude further exercise of the same or of any other right;
nor shall any waiver of any right with regard to a specific occurrence
be construed as a waiver of that right with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is
signed by the party granting the waiver.
c. Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance and enforcement (including
provisions concerning limitations of actions), shall be governed by the
laws of the State of Florida, and without the aid of any canon, custom
or rule of law requiring construction against the draftsman.
d. Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been received only when personally
delivered. Personal delivery is effectuated either two days following
the day when deposited with an overnight courier service, such as
Federal Express, for delivery to the intended addressee or two days
following the day
4
<PAGE>
when deposited in the United States mails, first class postage prepaid,
to the addresses set forth at the beginning of the Agreement. Any
person may alter the address to which communications or copies are to
be sent by giving notice of such change of address in conformity with
the provisions of this paragraph for the giving of notice.
e. Binding Nature of Agreement; No Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties to the
Agreement, their respective heirs, personal representatives, successors
and assigns, except that no party may assign or transfer its rights
under this Agreement without the prior written consent of all parties.
f. Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original as against any party who signs the counterpart. All
counterparts together shall constitute one instrument. This Agreement
shall become binding when one or more counterparts, individually or
together, bears the signatures of all of the parties reflected as the
signatories.
g. Provisions Severable. The provisions of this Agreement are
independent of and severable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact
that any other provision or provisions may be invalid or unenforceable
in whole or in part.
h. Paragraph Headings. The section headings in this Agreement
are for convenience only; they form no part of this Agreement and shall
not affect its interpretation.
i. Gender, Etc. Words used in this Agreement, regardless of
the number and gender specifically used, shall be construed to include
any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context indicates is appropriate.
IN WITNESS HEREOF, the parties have executed and delivered this
Agreement on the date written above.
5
<PAGE>
SHAREHOLDERS:
/s/ Kevin M. Gagne
------------------
KEVIN M. GAGNE
/s/ Richard L. Goble
--------------------
RICHARD L. GOBLE
6
<PAGE>
COMPANY:
EMPIRE FINANCIAL HOLDING COMPANY
By: /s/ Kevin M. Gagne
----------------------
KEVIN M. GAGNE
Co-Chief Executive Officer
By: /s/ Richard L. Goble
------------------------
RICHARD L. GOBLE
Co-Chief Executive Officer
7
ARTICLES OF INCORPORATION
OF
EMPIRE FINANCIAL HOLDING COMPANY
The undersigned incorporator does hereby make, subscribe, file and
acknowledge these Articles of Incorporation for the purpose of forming a
corporation under the Florida Business Corporation Act (the "FBCA").
ARTICLE FIRST
-------------
NAME AND PRINCIPAL OFFICE
The name of the corporation (hereinafter called the "Corporation") is
Empire Financial Holding Company, and the Corporation's principal office and
mailing address is 1385 West State Road 434, Longwood, Florida 32750.
ARTICLE SECOND
--------------
REGISTERED AGENT NAME AND ADDRESS
The name and address of the Corporation's registered agent is
Corporation Service Company, 1201 Hays Street, Tallahassee, Florida 32301.
ARTICLE THIRD
-------------
CAPITAL STOCK
The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 101,000,000 shares, consisting of (i)
100,000,000 shares of common stock (the "Common Stock"), par value $.01 per
share and (ii) 1,000,000 shares of preferred stock (the "Preferred Stock"), par
value $.01 per share.
The designations, powers, preferences and relative participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof in respect of the Common Stock and the Preferred Stock are
as follows:
A. COMMON STOCK
1. Voting. Except as otherwise expressly provided by law, and
subject to the voting rights provided to the holders of Preferred Stock by these
Articles of Incorporation, the Common Stock shall have exclusive voting rights
on all matters requiring a vote of shareholders, voting together with the
holders of Preferred Stock, as one class.
<PAGE>
2. Other Rights. Each share of Common Stock issued and
outstanding shall be identical in all respects one with the other, and no
dividends shall be paid on any shares of Common Stock unless the same is paid on
all shares of Common Stock outstanding at the time of such payment. Except for
and subject to those rights expressly granted to the holders of the Preferred
Stock, or except as may be provided by the FBCA, the holders of Common Stock
shall have exclusively all other rights of shareholders.
B. PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or
more series. Subject to the limitations set forth herein and any limitations
prescribed by law, the Board of Directors is expressly authorized, prior to
issuance of any series of Preferred Stock, to fix by resolution or resolutions
providing for the issue of any series the number of shares included in such
series and the designations, relative powers, preferences and rights, and the
qualifications, limitations or restrictions of such series. Pursuant to the
foregoing general authority vested in the Board of Directors, but not in
limitation of the powers conferred on the Board of Directors thereby and by the
FBCA, the Board of Directors is expressly authorized to determine with respect
to each series of Preferred Stock:
(a) the designation or designations of such series
and the number of shares (which number from time to time may be decreased by the
Board of Directors, but not below the number of such shares then outstanding, or
may be increased by the Board of Directors unless otherwise provided in creating
such series) constituting such series;
(b) the rate or amount and times at which, and the
preferences and conditions under which, dividends shall be payable on shares of
such series, the status of such dividends as cumulative or noncumulative, the
date or dates from which dividends, if cumulative, shall accumulate, and the
status of such shares as participating or nonparticipating after the payment of
dividends as to which such shares are entitled to any preference;
(c) the rights and preferences, if any, of the
holders of shares of such series upon the liquidation, dissolution or winding up
of the affairs of, or upon any distribution of the assets of, the corporation,
which amount may vary depending upon whether such liquidation, dissolution or
winding up is voluntary or involuntary and, if voluntary, may vary at different
dates, and the status of the shares of such series as participating or
nonparticipating after the satisfaction of any such rights and preferences;
(d) the full or limited voting rights, if any, to be
provided for shares of such series, in addition to the voting rights provided by
law;
(e) the times, terms and conditions, if any, upon
which shares of such series shall be subject to redemption, including the amount
the holders of shares of such series shall be entitled to receive upon
redemption (which amount may vary under different conditions or at different
redemption dates) and the amount, terms, conditions and manner of operation of
any purchase, retirement or sinking fund to be provided for the shares of such
series;
2
<PAGE>
(f) the rights, if any, of holders of shares of such
series to convert such shares into, or to exchange such shares for, shares of
any other class or classes or of any other series of the same class, the prices
or rates of conversion or exchange, and adjustments thereto, and any other terms
and conditions applicable to such conversion or exchange;
(g) the limitations, if any, applicable while such
series is outstanding on the payment of dividends or making of distributions on,
or the acquisition or redemption of, Common Stock or any other class of shares
ranking junior, either as to dividends or upon liquidation, to the shares of
such series;
(h) the conditions or restrictions, if any, upon the
issue of any additional shares (including additional shares of such series or
any other series or of any other class) ranking on a parity with or prior to the
shares of such series either as to dividends or upon liquidation; and
(i) any other relative powers, preferences and
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of shares of such series; in each case, so
far as not inconsistent with the provisions of these Articles of Incorporation
or the FBCA as then in effect.
ARTICLE FOURTH
--------------
INCORPORATOR
The name and mailing address of the incorporator are as follows:
Manuel R. Valcarcel, Esq.
Greenberg Traurig, P.A.
1221 Brickell Avenue,
Miami, Florida 33131
ARTICLE FIFTH
-------------
ELECTION NOT TO BE GOVERNED BY SECTIONS 607.0901 AND 607.0902 OF THE FBCA
The Corporation expressly elects not to be governed by the provisions
of Section 607.0901 of the FBCA. Section 607.0902 of the FBCA shall not apply to
control-share acquisitions of shares of the Corporation.
3
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ARTICLE SIXTH
-------------
INDEMNIFICATION
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 607.0834 of the FBCA, as the same exists
or hereafter may be amended, (iv) for violation of a criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, or (v) for any transaction
from which the director derived an improper personal benefit.
If the FBCA hereafter is amended to authorize the further elimination
or limitation of the liability of directors, then the liability of the
Corporation's directors shall be eliminated or limited to the full extent
authorized by the FBCA, as amended.
The Corporation shall indemnify any present or former officer,
director, employee or agent of the Corporation to the fullest extent permitted
by law.
Any repeal or modification of this Article shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
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IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinbefore named, has executed, signed and acknowledged these Articles of
Incorporation this 15 day of February, 2000.
/s/ Manuel Valcarcel
--------------------
Manuel R. Valcarcel, Incorporator
ACCEPTANCE OF APPOINTMENT OF REGISTERED AGENT
---------------------------------------------
The undersigned, having been named the Registered Agent of Empire
Financial Holding Company, hereby accepts such designation and is familiar with,
and accepts the obligations of such position, as provided in Section 607.0505 of
the FBCA.
CORPORATION SERVICE COMPANY
By: /s/ Brian Courtney
----------------------
Name: Brian Courtney
--------------------
Title: Asst. V.P.
-----------------
Dated: February 16, 2000
5
BYLAWS
OF
EMPIRE FINANCIAL HOLDING COMPANY
(the "Corporation")
ARTICLE I
---------
OFFICES
-------
1.1 Registered Office. The registered office of the Corporation shall
be located at such place in Florida as the Board of Directors from time to time
determines.
1.2 Other Offices. The Corporation may also have offices or branches at
such other places as the Board of Directors from time to time determines or the
business of the Corporation requires.
ARTICLE II
----------
MEETINGS OF SHAREHOLDERS
------------------------
2.1 Time and Place. All meetings of the shareholders shall be held at
such place and time as the Board of Directors determines.
2.2 Annual Meetings. An annual meeting of shareholders shall be held
for the election of directors at such place, date and time, either within or
without the State of Florida, as may be designated by resolution adopted by the
Board of Directors.
2.3 Special Meetings. Special meetings of shareholders may be called,
for any purpose, solely by (i) the Corporation's Co-Chairmen of the Board or, if
neither of the Co-Chairmen is present or able (or if there is no Chairman), by
the Company's Co-Presidents, or (ii) the Corporation's Co-Secretaries or
Assistant Secretary pursuant to a resolution (stating the purpose for which the
meeting is to be called) adopted by a majority of the Board of Directors.
2.4 Notice of Meetings. Except as provided in Section 2.5 below (or
otherwise specifically required under Florida law), whenever shareholders of the
Corporation are required or permitted to take any action at an annual or special
meeting, a written notice of the meeting shall be given, not less than 10 nor
more than 60 days before the date of the meeting to each shareholder entitled to
vote at such meeting, which notice shall state the place, date and time of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called. Only such business shall be conducted at a special
meeting of shareholders as shall have been brought before the meeting pursuant
to the Corporation's notice of meeting. Notice of any adjourned meetings is
governed by Section 2.7 below.
<PAGE>
2.5 Notice Requirements for Shareholder Business and Director
Nominations.
(a) Annual Meetings of Shareholders. (1) Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered or transacted by the shareholders may be
made at an annual meeting of shareholders (A) pursuant to the Corporation's
notice of meeting with respect to such meeting, (B) by or at the direction of
the Board of Directors or (C) by any shareholder of the Corporation who was a
shareholder of record at the time of giving of the notice provided for in this
Section 2.5, who is entitled to vote at the meeting and who has complied with
the notice procedures set forth in this Section 2.5.
(2) For nomination(s) or other business to be
properly brought before an annual meeting by a shareholder pursuant to clause
(C) of paragraph (a)(1) of this Section 2.5, (1) the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation, (2) such
nomination(s) or other business must be a proper matter for shareholder action
under the Florida Business Corporation Act, (3) if the shareholder, or the
beneficial owner on whose behalf any such nomination or proposal is made, has
provided the Corporation with a Solicitation Notice (as that term is defined in
subsection (C)(z) of this Section, such shareholder or beneficial owner must, in
the case of a proposal relating to business other than a nomination or
nominations, have delivered a proxy statement and form of proxy to holders of
not less than the minimum number or percentage of the Corporation's voting
shares required under applicable law to carry or approve any such proposal, or,
in the case of a nomination or nominations, have delivered a proxy statement and
form of proxy to holders of a number or percentage of the Corporation's voting
shares reasonably believed by such shareholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
shareholder, and must, in either case, have included in such materials the
Solicitation Notice, and (4) if no Solicitation Notice relating thereto has been
timely provided pursuant to this Section, the shareholder or beneficial owner
proposing such nomination or other business must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section. To be timely, a shareholder's notice shall be delivered to
the Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the 60th day, nor earlier
than the close of business on the 90th day, prior to the first anniversary (the
"Anniversary") of the date on which the Corporation first mailed its proxy
materials to shareholders for the preceding year's annual meeting of
shareholders; provided, however, 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 to be timely
must be so delivered not later than the close of business on the later of (i)
the 90th day prior to such annual meeting or (ii) the 10th day following the day
on which public announcement of the date of such meeting is first made. In no
event shall the public announcement of an adjournment or postponement of an
annual meeting of shareholders commence a new time period, or otherwise postpone
the time periods, for the giving of a shareholder's notice as described above.
Such shareholder's notice shall set forth (A) as to each person whom the
shareholder proposes to nominate for election or reelection as a director all
information relating to such person as would be required to be disclosed in
solicitations of proxies for the election of such nominees as directors pursuant
to Regulation 14A under the
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Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
thereunder, and such person's written consent to being named in the proxy
statement as a nominee and to serve as a director if elected; (B) as to any
other business that the shareholder proposes to bring before the meeting, a
brief description of such business, the reasons for conducting such business at
the meeting and any material interest in such business of such shareholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (C) as
to the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (x) the name and address of such
shareholder, as they appear on the Corporation's books, and of such beneficial
owner, (y) the class and number of shares of the Corporation which are owned
beneficially and of record by such shareholder and such beneficial owner, and
(z) whether either such shareholder or such beneficial owner intends to deliver
a proxy statement and form of proxy to holders of, in the case of a nomination
or nominations, a sufficient number of the Corporation's voting shares to elect
such nominee or nominees or, in the case of a proposal relating to other
business, not less than the minimum number or percentage of the Corporation's
voting shares required under applicable law to carry or approve the proposal (an
affirmative statement of such intent being referred to herein as a "Solicitation
Notice"). The notice requirements set forth in clauses (A), (B) and (C) of the
immediately preceding sentence are referred to in this Bylaw as the "Notice
Requirements."
(3) Notwithstanding anything in the second sentence
of paragraph (a)(2) of this Section 2.5 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least 70 days prior to the Anniversary, a shareholder's notice
required by this Bylaw shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
(4) Only persons nominated for election as a director
of the Corporation at an annual meeting of shareholders in accordance with the
procedures set forth in this Section 2.5(a) shall be eligible to serve as
directors of the Corporation (if properly elected), and only such business shall
be conducted at an annual meeting of shareholders of the Corporation as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 2.5(a). The Chairman of the meeting shall have the power and the
duty to determine whether any nomination or any business proposed to be brought
before the meeting has been made or brought in accordance with the procedures
set forth in this Section 2.5(a) and, if any proposed nomination or business is
not in compliance with this Section 2.5(a), to declare that such defective
proposed nomination or business shall not be presented for shareholder
consideration or action at the meeting and shall be disregarded.
(b) Special Meetings of Shareholders. (1) Only such business
shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of shareholders, properly called in
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accordance with these Bylaws and applicable law, at which directors are to be
elected pursuant to the Corporation's notice of meeting (1) by or at the
direction of the Board of Directors or (2) by any shareholder of the Corporation
who is a shareholder of record at the time of giving of notice as provided in
this paragraph, who shall be entitled to vote at the meeting and who complies
with the notice procedures set forth in this Section 2.5. Nominations by
shareholders of one or more persons for election to the Board of Directors of
the Corporation may be made at such a special meeting of shareholders if the
shareholder's notice satisfies the Notice Requirements set forth under
subsection (a)(ii) of this Section 2.5 and is delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not later than
the close of business on the later of the 90th day prior to such special meeting
or the 10th day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment or postponement of a special meeting commence a
new time period, or otherwise postpone the time periods, for the giving of a
shareholder's notice as described above.
(2) Only persons nominated for election as a director
of the Corporation at a special meeting of shareholders in accordance with the
procedures set forth in this Section 2.5(b) shall be eligible to serve as
directors of the Corporation (if properly elected), and only such business shall
be conducted at a special meeting of shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in this Section
2.5(b). The Chairman of the meeting shall have the power and the duty to
determine whether a nomination or any business proposed to be brought before a
special meeting has been made or brought in accordance with the procedures set
forth in this Section 2.5(b) and, if any proposed nomination or business is not
in compliance with this Section 2.5(b), to declare that such defective proposed
nomination or business shall not be presented for shareholder consideration or
action at the meeting and shall be disregarded.
(c) For purposes of this Section 2.5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(d) Notwithstanding the foregoing provisions of this Section
2.5, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to matters
set forth in these Bylaws. Nothing in this Section 2.5 shall be deemed to affect
any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
2.6 List of Shareholders. The officer or agent who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of shareholders, a complete list of the shareholders entitled to
vote at the meeting or any adjournment of the meeting. The list shall be
arranged alphabetically within each class and series and shall show the address
of, and the number of shares registered in the name of, each shareholder. Such
list shall be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place
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within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
shareholder who is present. The stock ledger shall be the only evidence as to
who are the shareholders entitled to examine the stock ledger, the list of
shareholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of shareholders.
2.7 Quorum; Adjournments; Postponements. (a) Except as otherwise
provided by the Florida Business Corporation Act or in the Corporation's
Articles of Incorporation or these Bylaws (in each case, in respect of the
quorum that shall be required for a specified action or matter), the holders of
a majority of the shares of capital stock of the Corporation entitled to vote,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at all meetings (whether annual or special) of the
shareholders. The shareholders present in person or represented by proxy at a
duly organized meeting may continue to do business until final adjournment of
such meeting, whether on the same day or on a later day, notwithstanding the
withdrawal of shareholders such that the remaining shareholders constitute less
than a quorum.
(b) If a meeting cannot be organized because a quorum is not
present or represented, or even if a quorum shall be present or represented at
any meeting of the shareholders, either the Chairman of the meeting or the
holders of a majority of the shares of capital stock of the Corporation entitled
to vote at the meeting, present in person or represented by proxy, may adjourn
the meeting from time to time. Notice of the adjourned meeting need not be given
if the time and place of the adjourned meeting are announced at the meeting at
which the adjournment is taken. At any adjourned meeting at which a quorum is
present in person or represented by proxy, any business may be transacted which
might have been transacted at the meeting as originally called. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given by the Corporation to each shareholder of record entitled to vote at
the meeting.
(c) Any previously scheduled meeting of the shareholders may
be postponed, and any special meeting of the shareholders (unless the special
meeting was called upon demand of shareholders in accordance with and as
expressly permitted under the Florida Business Corporation Act) may be
cancelled, by resolution of the Board of Directors upon "public announcement"
(as defined in Section 2.5(c) hereof) given prior to the date previously
scheduled for such meeting of shareholders. These Bylaws may be amended or
repealed, or new Bylaws may be adopted, in any manner not inconsistent with the
laws of the State of Florida or the Corporation's Articles of Incorporation: (i)
by the Corporation's Board of Directors, pursuant to resolution adopted by a
majority to the total number of directors then constituting the Board, or (ii)
by the Corporation's shareholders, pursuant to a proposal or resolution approved
and adopted by the affirmative vote of the holders of at least two-thirds (2/3)
of the issued and outstanding shares of the capital stock of the Corporation
entitled to vote on the matter.
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2.8 Vote Requirements. Except as otherwise provided by the Florida
Business Corporation Act or in the Corporation's Articles of Incorporation or
these Bylaws (in each case, in respect of the vote that shall be required for a
specified action or matter):
(a) in all matters other than the election of directors, the
affirmative vote of the holders of a majority of the shares of capital stock of
the Corporation, present in person or represented by proxy at the meeting,
entitled to vote on the subject matter, shall be the act of the shareholders;
and
(b) in the election of directors, a plurality of the votes of
the holders of the shares of capital stock of the Corporation, present in person
or represented by proxy at the meeting, entitled to vote on the election of
directors, shall be the act of the shareholders in such election.
2.9 Proxies. Each shareholder entitled to vote at a meeting of
shareholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A shareholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary
of the corporation.
2.10 Questions Concerning Elections. The Board of Directors may, in
advance of the meeting, or the presiding officer may, at the meeting, appoint
one or more inspectors to act at a shareholders' meeting or any adjournment. If
appointed, the inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine challenges and questions arising in
connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders.
2.11 Action by Written Consent. (a) Unless otherwise provided in the
Corporation's Articles of Incorporation, and subject to the requirements of law
and these Bylaws (including the provisions of this Section 2.11), any action
required or permitted by law or the Articles of Incorporation to be taken at any
annual or special meeting of the shareholders of the Corporation may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock entitled to vote thereon having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote on such action were present or
represented by proxy and voted. Such written consent(s), if properly effected in
accordance with this Section 2.11 and applicable law, (i) shall be delivered to
the Corporation in accordance with the requirements of the Florida Business
Corporation Act, and (ii) shall be filed with the minutes of meetings of
shareholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent of shareholders
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<PAGE>
shall be given in accordance with the requirements of law to those shareholders
who have not so consented in writing.
(b) In order that the Corporation may determine the
shareholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than 10 days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. Any shareholder of record seeking to have the shareholders
authorize or take corporate action by written consent shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fix a
record date. The Board of Directors shall promptly, but in all events within 10
days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within 10 days of the date on which such a request is received, the
record date for determining shareholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Florida,
its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of shareholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
shareholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
(c) In the event of the delivery, in the manner provided by
this Section 2.11, to the Corporation of the requisite written consent or
consents to take corporate action and/or any related revocation or revocations,
the Corporation shall be authorized to engage nationally recognized independent
inspectors of elections for the purpose of promptly performing a ministerial
review of the validity of the consents and revocations. For the purpose of
permitting the inspectors to perform such review, no action by written consent
without a meeting shall be effective until such date as the independent
inspectors certify to the Corporation that the consents delivered to the
Corporation in accordance with this Section 2.11 represent at least the minimum
number of votes that would be necessary to take the corporate action. Nothing
contained in this paragraph shall in any way be construed to suggest or imply
that the Board of Directors or any shareholder shall not be entitled to contest
the validity of any consent or revocation thereof, whether before or after such
certification by the independent inspectors, or to take any other action
(including, without limitation, the commencement, prosecution or defense of any
litigation with respect thereto, and/or the seeking of injunctive relief in such
litigation).
(d) Every written consent shall bear the date of signature of
each shareholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within 60
days of the date the earliest dated consent was delivered in accordance with
this Section 2.11, a written consent or consents signed by a sufficient number
of
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holders to take such action are delivered to the Corporation in the manner
prescribed by this Section 2.11.
ARTICLE III
-----------
DIRECTORS
---------
3.1 Number and Residence. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors consisting
of not less than two (2) nor more than ten (10) directors, unless a greater or
lesser number is fixed by a majority of the total number of directors which the
Corporation then has, provided, however, that the number of directors shall not
be reduced so as to shorten the term of any director at the time in office.
Directors need not be shareholders. The Directors shall be elected at the annual
meeting of shareholders (or if so determined by the Board of Directors pursuant
to Section 2.3 hereof, at a special meeting of shareholders), by such
shareholders as have the right to vote at such election.
3.2 Term of Directors. Except as otherwise provided by statute or these
Bylaws, the directors shall be elected at each annual meeting of shareholders of
the Corporation.
3.3 Resignation. A Director may resign by written notice to the
Corporation. A Director's resignation is effective upon its receipt by the
Corporation or a later time set forth in the notice of resignation.
3.4 Removal. One or more Directors may be removed with cause by vote of
the holders of a majority of the shares entitled to vote at an election of
Directors cast at a meeting of the shareholders called for that purpose.
3.5 Vacancies. During the intervals between annual meetings of
shareholders, any vacancy occurring in the Board of Directors caused by
resignation, death or other incapacity and any newly created directorships
resulting from an increase in the number of Directors may be filled by a
majority vote of the Directors then in office, whether or not a quorum. Each
Director chosen to fill a vacancy shall hold office for the unexpired term in
respect of which such vacancy occurred. Each Director chosen to fill a newly
created directorship shall hold office until the next election of directors and
until his or her successor is elected and qualified.
3.6 Place of Meetings. The Board of Directors may hold meetings at any
location. The location of annual and regular Board of Directors' meetings shall
be determined by the Board and the location of special meetings shall be
determined by the person calling the meeting.
3.7 Annual Meetings. Each newly elected Board of Directors may meet
promptly after the annual shareholders' meeting for the purposes of electing
officers and transacting such other business as may properly come before the
meeting. No notice of the annual Directors' meeting shall be necessary to the
newly elected Directors in order to legally constitute the meeting, provided a
quorum is present.
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3.8 Regular Meetings. Regular meetings of the Board of Directors or
Board committees may be held without notice at such places and times as the
Board or committee determines at least 30 days before the date of the meeting.
3.9 Special Meetings. Special meetings of the Board of Directors may be
called by the Co-Chief Executive Officers, and shall be called by the
Co-Presidents or Co-Secretaries upon the written request of two Directors, on
two days notice to each Director or committee member by mail or 24 hours notice
by any other means provided in Section 5.1. The notice must specify the place,
date and time of the special meeting, but need not specify the business to be
transacted at, nor the purpose of, the meeting. Special meetings of Board
committees may be called by the Chairperson of the committee or a majority of
committee members pursuant to this Section 3.9.
3.10 Quorum. At all meetings of the Board or a Board committee, a
majority of the Directors then in office, or of members of such committee,
constitutes a quorum for transaction of business, unless a higher number is
otherwise required. If a quorum is not present at any Board or Board committee
meeting, a majority of the Directors present at the meeting may adjourn the
meeting to another time and place without notice other than announcement at the
meeting. Any business may be transacted at the adjourned meeting which might
have been transacted at the original meeting, provided a quorum is present.
3.11 Voting. The vote of a majority of the members present at any Board
or Board committee meeting at which a quorum is present constitutes the action
of the Board of Directors or of the Board committee, unless a higher vote is
otherwise required.
3.12 Telephonic Participation. Members of the Board of Directors or any
Board committee may participate in a Board or Board committee meeting by means
of conference telephone or similar communications equipment through which all
persons participating in the meeting can communicate with each other.
Participation in a meeting pursuant to this Section 3.12 constitutes presence in
person at such meeting.
3.13 Action by Written Consent. Any action required or permitted to be
taken under authorization voted at a Board or Board committee meeting may be
taken without a meeting if, before or after the action, all members of the Board
then in office or of the Board committee consent to the action in writing. Such
consents shall be filed with the minutes of the proceedings of the Board or
committee and shall have the same effect as a vote of the Board or committee for
all purposes.
3.14 Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board, designate one or more committees, each consisting
of one or more Directors. The Board may designate one or more Directors as
alternate members of a committee, who may replace an absent or disqualified
member at a committee meeting. In the absence or disqualification of a member of
a committee, the committee members present and not disqualified from voting,
regardless of whether they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in place of such absent
or disqualified member. Any committee, to the extent provided in the resolution
of the Board, may
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exercise all powers and authority of the Board of Directors in management of the
business and affairs of the Corporation, except a committee does not have power
or authority to:
(a) Amend the Articles of Incorporation.
(b) Adopt an agreement of merger or consolidation.
(c) Recommend to shareholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets.
(d) Recommend to shareholders a dissolution of the Corporation
or a revocation of a dissolution.
(e) Amend the Bylaws of the Corporation.
(f) Fill vacancies in the Board.
(g) Unless the resolution designating the committee or a later
Board of Director's resolution expressly so provides, declare a distribution or
dividend or authorize the issuance of stock.
Each committee and its members shall serve at the pleasure of the
Board, which may at any time change the members and powers of, or discharge, the
committee. Each committee shall keep regular minutes of its meetings and report
them to the Board of Directors when required.
3.15 Special Quorum & Vote Requirements. The Board of Directors of the
Corporation shall have the power and authority to prescribe, permit or require
special quorum and/or vote requirements for directors (including of the full
Board of Directors or of any designated sub-group or committee of the Board of
Directors), in connection with any action, determination, authorization and/or
approval that the Board of Directors shall deem appropriate and shall designate
for such special quorum and/or vote requirements, subject to the provisions of
the Florida Business Corporation Act. This power and authority shall include,
without limitation, the power and authority to prescribe, permit or require
special quorum and/or vote requirements for directors (including, without
limitation, special quorum or vote requirements for the full Board of Directors
or for any designated sub-group or committee of the Board of Directors), in
connection with any action, determination, authorization and/or approval in
connection with any share purchase rights, or any agreement embodying or
evidencing such share purchase rights, to be authorized and issued by the
Corporation. Notwithstanding the foregoing, unless otherwise provided in the
Articles of Incorporation (consistent with applicable law), the Board of
Directors shall not delegate to any committee or subgroup of the Board of
Directors any authorization or approval which, under and in accordance with
applicable law, may only be taken by the fully constituted Board of Directors.
3.16 Compensation. The Board, by affirmative vote of a majority of
Directors in office and irrespective of any personal interest of any of them,
may establish reasonable compensation of Directors for services to the
Corporation as directors, officers or members of a Board
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<PAGE>
committee. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation for such service.
ARTICLE IV
----------
OFFICERS
--------
4.1 Officers and Agents. The Board of Directors, at its first meeting
after each annual meeting of shareholders, shall elect a President, a Secretary
and a Treasurer and/or Chief Financial Officer, and may also elect and designate
as officers a Chairman of the Board, a Vice Chairman of the Board and one or
more Executive Vice Presidents, Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers. The Board of Directors may also
from time to time appoint, or delegate authority to the Corporation's Chief
Executive Officer to appoint, such other officers and agents as it deems
advisable. Any number of offices may be held by the same person, but an officer
shall not execute, acknowledge or verify an instrument in more than one capacity
if the instrument is required by law to be executed, acknowledged or verified by
two or more officers. An officer has such authority and shall perform such
duties in the management of the Corporation as provided in these Bylaws, or as
may be determined by resolution of the Board of Directors not inconsistent with
these Bylaws, and as generally pertain to their offices, subject to the control
of the Board of Directors.
4.2 Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors except to the extent delegated by the
Board of Directors to the President of the Company. In the absence of a specific
resolution to the contrary, authority regarding compensation for all officers
other than the Chairman of the Board, Vice Chairman of the Board, President and
Chief Financial Officer shall be deemed delegated to the President.
4.3 Term. Each officer of the Corporation shall hold office for the
term for which he or she is elected or appointed and until his or her successor
is elected or appointed and qualified, or until his or her resignation or
removal. The election or appointment of an officer does not, by itself, create
contract rights.
4.4 Removal. An officer elected or appointed by the Board of Directors
or the President, as the case may be, may be removed by the Board of Directors
or the President with or without cause. The removal of an officer shall be
without prejudice to his or her contract rights, if any.
4.5 Resignation. An officer may resign by written notice to the
Corporation. The resignation is effective upon its receipt by the Corporation or
at a subsequent time specified in the notice of resignation.
4.6 Vacancies. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors.
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<PAGE>
4.7 Chairman of the Board. The Chairman of the Board, if such office is
filled, shall be a Director and shall preside at all shareholders' and Board of
Directors' meetings. The Board may elect Co-Chairmen of the Board, who shall act
jointly. In the event the Board elects Co-Chairmen of the Board, then all
references to the Chairman of the Board in these Bylaws shall mean the
Co-Chairmen acting jointly. Both Co-Chairmen are unable to act because of
illness or unavailability, then the Co-Chairman able to act shall act as the
Chairman of the Board.
4.8 Chief Executive Officer. The Chairman of the Board, if any, or the
President, as designated by the Board, shall be the Chief Executive Officer of
the Corporation and shall have the general powers of supervision and management
of the business and affairs of the Corporation usually vested in the Chief
Executive Officer of a corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. The Board may appoint
Co-Chief Executive Officers who shall act jointly. If no designation of Chief
Executive Officer is made, or if there is no Chairman of the Board, the
President shall be the Chief Executive Officer. The Chief Executive Officer may
delegate to the other officers such of his or her authority and duties at such
time and in such manner as he or she deems advisable.
4.9 President. The President shall perform the duties and execute the
authority of the Chairman of the Board. If the Chairman of the Board is
designated by the Board as the Corporation's Chief Executive Officer, the
President shall be the chief operating officer of the Corporation, shall assist
the Chairman of the Board in the supervision and management of the business and
affairs of the Corporation and, in the absence of the Chairman of the Board,
shall preside at all shareholders' and Board of Directors' meetings. The Board
may appoint Co-Presidents who shall act jointly. The President may delegate to
the officers other than the Chairman of the Board, if any, such of his or her
authority and duties at such times and in such manner as he or she deems
appropriate.
4.10 Executive Vice Presidents and Vice Presidents. The Executive Vice
Presidents and Vice Presidents shall assist and act under the direction of the
Chairman of the Board and President. The Board of Directors or the President, as
the case may be, may designate one or more Executive Vice Presidents and may
grant other Vice Presidents titles which describe their functions or specify
their order of seniority. In the absence or disability of the President, the
authority of the President shall descend to the Executive Vice Presidents or, if
there are none, to the Vice Presidents in the order of seniority indicated by
their titles or otherwise specified by the Board. If not specified by their
titles or the Board, the authority of the President shall descend to the
Executive Vice Presidents or, if there are none, to the Vice Presidents, in the
order of their seniority in such office.
4.11 Secretary. The Secretary shall act under the direction of the
Corporation's Chief Executive Officer and President. The Board may appoint
Co-Secretaries who shall act jointly. The Secretary shall attend all
shareholders' and Board of Directors' meetings, record minutes of the
proceedings and maintain the minutes and all documents evidencing corporate
action taken by written consent of the shareholders and Board of Directors in
the Corporation's minute book. The Secretary shall perform these duties for
Board committees when required. The Secretary shall see to it that all notices
of shareholders' meetings and special Board of Directors' meetings
-12-
<PAGE>
are duly given in accordance with applicable law, the Articles of Incorporation
and these Bylaws. The Secretary shall have custody of the Corporation's seal
and, when authorized by the Corporation's Chief Executive Officer, President or
the Board of Directors, shall affix the seal to any instrument requiring it and
attest such instrument.
4.12 Treasurer and/or Chief Financial Officer. The Treasurer and/or
Chief Financial Officer shall act under the direction of the Corporation's Chief
Executive Officer and President. The Treasurer and/or Chief Financial Officer
shall have custody of the corporate funds and securities and shall keep full and
accurate accounts of the Corporation's assets, liabilities, receipts and
disbursements in books belonging to the Corporation. The Treasurer and/or Chief
Financial Officer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation in such depositories as may be designated by
the Board of Directors. The Treasurer and/or Chief Financial Officer shall
disburse the funds of the Corporation as may be ordered by the Corporation's
Chief Executive Officer, the President or the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Corporation's Chief
Executive Officer, the President and the Board of Directors (at its regular
meetings or whenever they request it) an account of all his or her transactions
as Treasurer and/or Chief Financial Officer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer and/or
Chief Financial Officer shall give the Corporation a bond for the faithful
discharge of his or her duties in such amount and with such surety as the Board
prescribes.
4.13 Assistant Vice Presidents, Secretaries and Treasurers. The
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, if
any, shall act under the direction of the Corporation's Chief Executive Officer,
the President and the officer they assist. In the order of their seniority, the
Assistant Secretaries shall, in the absence or disability of the Secretary,
perform the duties and exercise the authority of the Secretary. The Assistant
Treasurer, in the order of their seniority, shall, in the absence or disability
of the Treasurer, perform the duties and exercise the authority of the
Treasurer.
4.14 Execution of Contracts and Instruments. The Board of Directors may
designate an officer or agent with authority to execute any contract or other
instrument on the Corporation's behalf; the Board may also ratify or confirm any
such execution. If the Board authorizes, ratifies or confirms the execution of a
contract or instrument without specifying the authorized executing officer or
agent, the Corporation's Chief Executive Officer, the President, any Executive
Vice President, the Treasurer and/or Chief Financial Officer or Secretary may
execute the contract or instrument in the name and on behalf of the Corporation
and may affix the corporate seal to such document or instrument.
4.15 Voting of Shares and Securities of Other Corporations and
Entities. Unless the Board of Directors otherwise directs, the Corporation's
Chief Executive Officer shall be entitled to vote or designate a proxy to vote
all shares and other securities which the Corporation owns in any other
corporation or entity.
4.16 Disagreements between Co-Officers. In the event that the
Corporation's Co-Chairmen of the Board, Co-Chief Executive Officers,
Co-Presidents, Co-Secretaries or other co-
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<PAGE>
officers are not able to agree upon a particular action to be taken, then the
proposed action shall be submitted to the Board of Directors by the co-officers
in disagreement, and the Board of Directors shall vote on the proposed action.
The co-officers shall be directed to act in the manner approved by majority vote
of the Board of Directors.
ARTICLE V
---------
NOTICES AND WAIVERS OF NOTICE
-----------------------------
5.1 Delivery of Notices. All written notices to shareholders, Directors
and Board committee members shall be given personally or by mail (registered,
certified or other first class mail, with postage pre-paid), addressed to such
person at the address designated by him or her for that purpose or, if none is
designated, at his or her last known address. Written notices to Directors or
Board committee members may also be delivered at his or her office on the
Corporation's premises, if any, or by overnight carrier, telegram, telex,
telecopy, radiogram, cablegram, facsimile, computer transmission or similar form
of communication, addressed to the address referred to in the preceding
sentence. Notices given pursuant to this Section 5.1 shall be deemed to be given
when dispatched, or, if mailed, when deposited in a post office or official
depository under the exclusive care and custody of the United States postal
service. Notice given by overnight carrier shall be deemed "dispatched" at 9:00
a.m. on the day the overnight carrier is reasonably requested to deliver the
notice. The Corporation shall have no duty to change the written address of any
Director, Board committee member or shareholder unless the Secretary receives
written notice of such address change.
5.2 Waiver of Notice. Whenever notice is required to be given under the
Articles of Incorporation, these Bylaws or applicable law, a written waiver,
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except where the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE VI
----------
SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD
---------------------------------------------
6.1 Certificates. The shares of the Corporation shall be represented by
certificates signed by the Chairman of the Board, Vice Chairman of the Board, or
the President or a Vice President and by the Treasurer or an Assistant
Treasurer, or by the Secretary or an Assistant Secretary representing the number
of shares registered in certificate form. Any of or all the signatures on the
certificate may be by facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
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<PAGE>
6.2 Lost or Destroyed Certificates. The Corporation may issue a new
certificate of stock in the place of any certificates theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
6.3 Transfer of Shares. Shares of the Corporation are transferable only
on the Corporation's stock ledger upon surrender to the Corporation or its
transfer agent of a certificate for the shares, duly endorsed for transfer, and
the presentation of such evidence of ownership and validity of the transfer as
the Corporation requires.
6.4 Record Date. The Board of Directors may fix, in advance, a date as
the record date for determining shareholders for any purpose, including
determining shareholders entitled to (a) notice of, and to vote at, any
shareholders' meeting or any adjournment of such meeting; or (b) receive payment
of a share dividend or distribution or allotment of a right. The record date
shall not be more than 60 nor less than 10 days before the date of the meeting,
nor more than 60 days before any other action.
If a record date is not fixed:
(a) the record date for determining the shareholders entitled
to notice of, or to vote at, a shareholders' meeting shall be the close of
business on the day next preceding the day on which notice of the meeting is
given, or, if no notice is given, the close of business on the day next
preceding the date on which the meeting is held; and
(b) the record date for determining shareholders for any other
purpose shall be the close of business on the day on which the resolution of the
Board of Directors relating to the action is adopted.
A determination of shareholders of record entitled to notice of, or to
vote at, a shareholders' meeting shall apply to any adjournment of the meeting,
unless the Board of Directors fixes a new record date for the adjourned meeting.
Only shareholders of record on the record date shall be entitled to
notice of, or to participate in, the action relating to the record date,
notwithstanding any transfer of shares on the Corporation's books after the
record date. This Section 6.4 shall not affect the rights of a shareholder and
the shareholder's transferor or transferee as between themselves.
Notwithstanding any term or provision of this Section 6.4, the terms
and provisions of Section 2.11 of these Bylaws (regarding shareholder action by
written consent) shall govern the determination of the record date in connection
with any shareholder action taken or effected by written consent.
6.5 Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of a share for all purposes,
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<PAGE>
including notices, voting, consents, dividends and distributions, and shall not
be bound to recognize any other person's equitable or other claim to interest in
such share, regardless of whether it has actual or constructive notice of such
claim or interest.
6.6 Legends for Preferences and Restrictions on Transfer. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized upon
the certificate, or the certificate shall indicate that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
such restrictions. If the Corporation issues any shares that are not registered
under the Securities Act of 1933, as amended, and registered or qualified under
the applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME."
6.7 Facsimile Signatures. The signatures of the Chairman of the Board,
the President or a Vice President and the Secretary or Assistant Secretary upon
a certificate may be facsimiles, if the certificate is manually signed by a
transfer agent, or registered by a registrar, other than the Corporation itself
or an employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of the
issuance.
ARTICLE VII
-----------
INDEMNIFICATION
---------------
7.1 Indemnification. The Corporation shall, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
(a) indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a Director, officer, employee or agent of the Corporation, or
is or was
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<PAGE>
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, partnership, joint venture, trust or
other enterprise (collectively, "Covered Matters') against all liability and
loss suffered and expenses (including attorneys' fees) reasonably incurred by
such persons; and (b) pay or reimburse such expenses incurred by such person in
connection with any Covered Matter in advance of final disposition of such
Covered Matter. The Corporation may provide such other indemnification of
Directors, officers, employees and agents by insurance, contract or otherwise as
is permitted by law and authorized by the Board of Directors.
7.2 Claims. If a claim for indemnification or payment of expenses under
this Article VII is not paid in full within sixty days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
7.3 Non-Exclusivity of Rights. The rights conferred on any person by
this Article VII shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of the Articles of
Incorporation, these Bylaws, agreement, vote of shareholders or disinterested
directors or otherwise.
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
8.1 Checks and Funds. All checks, drafts or demands for money and notes
of the Corporation must be signed by such officer or officers or such other
person or persons as the Board of Directors from time to time designates. All
funds of the Corporation not otherwise employed shall be deposited or used as
the Board of Directors from time to time designates.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such
date as the Board of Directors from time to time determines.
8.3 Corporate Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
8.4 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time.
8.5 Interested Directors; Quorum. No contract or transaction between
the Corporation and one or more of its Directors or officers, or between the
Corporation and any
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<PAGE>
other corporation, partnership, association, or other organization in which one
or more of its Directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the Director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if: (a) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transactions by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested Directors be less than a
quorum; or (b) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or (c) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, of the
shareholders. Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE IX
----------
AMENDMENTS
----------
These Bylaws may be amended or repealed, or new Bylaws may be adopted,
in any manner not inconsistent with the laws of the State of Florida or the
Corporation's Articles of Incorporation: (i) by the Corporation's Board of
Directors, pursuant to resolution adopted by a majority to the total number of
directors then constituting the Board, or (ii) by the Corporation's
shareholders, pursuant to a proposal or resolution approved and adopted by the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of the capital stock of the Corporation entitled to vote on
the matter.
ARTICLE X
---------
SCOPE OF BYLAWS
---------------
These Bylaws govern the regulation and management of the affairs of the
Corporation to the extent that they are consistent with applicable law and the
Articles of Incorporation; to the extent they are not consistent, applicable law
and the Articles of Incorporation shall govern.
-18-
Certificate No. 0 For_____ Shares
Forward to_____________________________
_______________________________________
Dated______________________ 20___
From when transferred
_______________________________________
Dated______________________ 20__
No. of Original No. of Original No. of Shares
CERTIFICATE SHARES TRANSFERRED
______________________ _______________________ _________________________
Received Certificate No. ______
For _________________ Shares
on______________________ 20___
_______________________________________
[GRAPHIC OMITTED]
ORGANIZED UNDER LAWS OF
THE STATE OF FLORIDA
EMPIRE FINANCIAL HOLDING COMPANY
100,000,000 SHARES COMMON STOCK $0.01 PAR VALUE PER SHARE
1,000,000 SHARES PREFERRED STOCK $0.01 PAR VALUE PER SHARE
This Certifies that ________________________________ is the registered holder of
_______________________________________________________________ Shares
Common Stock of EMPIRE FINANCIAL HOLDING COMPANY
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has issued this Certificate to be
signed by its duly subscribed officers and its Corporate Seal to be hereunto
affixed this __________________ day of _____________________________________
A.D. 20__.
SAMPLE CERTIFICATE
______________________________________ ___________________________________
SECRETARY PRESIDENT
<PAGE>
For Value Received, _________________ hereby sell, assign and transfer unto
________________________________________________ Shares represented by the
within certificate and do hereby irrevocably constitute and appoint
_____________________________________________ Attorney to transfer the said
Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated _________________ 20___
In presence of ______________________________________.
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR. WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
GREENBERG
A T T O R N E Y S A T L A W
TRAURIG
March 22, 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
March 22, 2000
Page 2
This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions, dated April 8, 1991, as
amended and supplemented, issued by the Business Law Section of The Florida Bar
(the "Report"). The Report is incorporated by reference into this opinion.
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.
VOTING AGREEMENT
THIS VOTING AGREEMENT ("Agreement") is made and entered into as of the
13th day of March, 2000, by and between Kevin M. Gagne ("Gagne") and Richard L.
Goble ("Goble" and collectively with Gagne, the "Shareholders"), each of whom is
a shareholder of Empire Financial Holding Company, a Florida corporation (the
"Company").
Recitals
A. Gagne and Goble each is the owner of record of 4,000,000 shares of
voting common stock, par value $.01 per share, of the Company ("Common Stock").
B. This Agreement is made and entered into pursuant to Section 607.0731
of the Florida Business Corporation Act.
C. The Shareholders desire to establish certain rights and obligations
regarding their beneficial ownership of Common Stock and are willing to enter
into this Agreement to govern all shares of Common Stock presently beneficially
owned by any one of the Shareholders and any and all shares of Common Stock of
the Company acquired by them hereafter, whether by gift, devise, purchase,
exercise of a warrant or option, receipt of stock dividend or otherwise (all
shares of Common Stock presently beneficially owned or acquired hereafter by
Shareholders are hereinafter sometimes referred to in the aggregate as the
"Shares"). As used in this Agreement, a Shareholder shall be a beneficial owner
of all Shares in which the Shareholder, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise (other than
pursuant to the terms of this Agreement) has or shares (1) voting power which
includes the power to vote, or direct the voting of, such Shares; and/or (2)
investment power which includes the power to dispose, or to direct the
disposition of such Shares.
D. The Shareholders deem it to be in their best interests to enter into
this Agreement.
Agreement
NOW, THEREFORE, in consideration of the recitals set forth above and
the mutual covenants and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged
hereby, each of the parties hereto, intending legally to be bound, hereby agrees
as follows:
1. Incorporation of Recitals. The parties to this Agreement hereby
agree and acknowledge that all of the recitals set forth above are true,
complete and correct in every respect and hereby incorporate said recitals into
this Agreement by this reference.
2. Representations of Shareholder. The Shareholders hereby severally
represent and warrant to each other that, each Shareholder: (a) owns and has the
right to vote the number of Shares set forth above, (b) has full power to enter
into this Agreement and has not, prior to the date of this Agreement, executed
or delivered any proxy or entered into any other voting
<PAGE>
agreement or similar arrangement with respect to the Shares and (c) will not
take any action inconsistent with the purposes and provisions of this Agreement.
3. Scope of Agreement. This Agreement shall govern the voting of the
Shares by the Shareholders with respect to any and all matters voted upon by
shareholders of the Company, whether at a meeting or pursuant to written consent
or otherwise, including, but not limited to:
(i) any change in the authorized capital stock or capital
structure of the Company, including the creation of any additional
class of shares;
(ii) any amendment of the Company's Articles of Incorporation;
(iii) any merger of the Company;
(iv) the election of any director to the Company's Board of
Directors;
(v) any change in the number of directors fixed to serve on
the Company's Board of Directors; and
(vi) the adoption of any stock option plan.
Unless terminated as hereinafter provided, this Agreement shall remain in effect
without regard to any action taken by the shareholders of the Company.
4. Changes in Common Stock; Dispositions. In the event that subsequent
to the date of this Agreement any shares of Common Stock or other securities of
the Company or another corporation are issued on, or in exchange for, any of the
Shares by reason of any stock dividend, stock split, consolidation of shares,
reclassification, exchange, merger or consolidation or otherwise involving the
Company, such shares of Common Stock or other securities shall be deemed to be
Shares for purposes of this Agreement. Any Shares that are no longer
beneficially owned by a Shareholder as a result of a sale, disposition or other
transfer shall not be deemed to be Shares for purposes of this Agreement.
5. Voting of Shares. The Shareholders agree and covenant that at any
meeting of shareholders of the Company and/or in connection with any corporate
action by the shareholders of the Company pursuant to written consent or
otherwise, all of the Shares shall be voted with respect to any matter presented
to the shareholders of the Company in the manner and to the effect unanimously
determined by the Shareholders, in each of his sole and absolute discretion. In
the event that the Shareholders are not able to make such unanimous
determination with respect to any matter to be presented to the shareholders of
the Company, then the Shareholders agree that the Shares shall not be voted by
the Shareholders with respect to such matter, but shall be voted by the
Shareholders with respect to such matter in the manner and to the effect of
placing that matter as the last subject to be presented to the shareholders of
the Company for discussion during such shareholders meeting. In the event that
the Shareholders are not able to make a unanimous determination with respect to
such matter during the shareholder meeting,
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<PAGE>
then the Shareholders shall vote their Shares in favor of the adjournment of the
meeting to a future date mutually acceptable to the Shareholders. Accordingly,
during the term of this Agreement, neither Shareholder shall vote or attempt to
vote any Shares or otherwise exercise or attempt to exercise any voting or other
approval rights of any Shares without the concurrence of all of the other
Shareholders, and any such prohibited exercise by such Shareholder of voting or
other approval rights shall be void and of no force or effect. In addition, each
Shareholder agrees that all Shares owned by such Shareholder shall be present,
in person or by proxy, at any meeting of shareholders of the Company.
6. Termination. This Agreement shall terminate only upon the earlier to
occur of the occurrence of any one of the following events:
(A) either of the Shareholders becomes the beneficial owner of
less than ten percent of the aggregate voting rights of all of the then issued
and outstanding capital stock of the Company; or
(B) the death of either Shareholder or incapacity of either
Shareholder to act hereunder; or
(C) the termination of this Agreement by written agreement of
the Shareholders, which written agreement must be signed by each of the
Shareholders.
7. Legend. The Shareholders will imprint all certificates for the
Shares with notice of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to rules
regarding choice of law. Any proceedings of whatever nature brought to enforce
the provisions of this Agreement shall be brought and heard in Seminole County,
Florida, and the parties hereto consent to personal jurisdiction and venue in
such forum.
9. Benefits; Binding Effect. This Agreement shall be for the benefit of
and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors, assigns and transferees.
10. Counterparts. This Agreement may be executed in several
counterparts and all so executed shall constitute one Agreement, binding on all
the parties hereto, notwithstanding that all the parties are not signatories to
the original or same counterpart.
11. Amendment or Modification. This Agreement may be altered, modified
or amended only by the unanimous consent, in writing, of the parties subject
hereto, either now or hereafter. Any such modification must be signed by each
party to this Agreement and each signature must be acknowledged and notarized in
order for the modification to take effect.
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<PAGE>
12. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understandings and arrangements, both oral and
written, among the parties hereto with respect to such subject matter.
13. Enforceability. The Shareholders expressly agree that this
Agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against each of the parties hereto. If
any provision of this Agreement shall be declared void or unenforceable by any
court or administrative board of competent jurisdiction, such provision shall be
deemed to have been severed from the remainder of this Agreement and this
Agreement shall continue in all respects to be valid and enforceable and shall
be construed so as to best give effect to the purposes and intents hereof.
14. References. Whenever required by the context, and is used in this
Agreement, the singular number shall include the plural and pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural, as the identification the person may require.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
/s/ KEVIN M. GAGNE
------------------
Kevin M. Gagne
/s/ RICHARD L. GOBLE
--------------------
Richard L. Goble
4
---------------------------------------
EMPIRE FINANCIAL HOLDING COMPANY
2000 STOCK OPTION PLAN
---------------------------------------
1. Purpose. The purpose of this Plan is to advance the interests of
Empire Financial Holding Company, a Florida corporation (the "Company"), and its
Subsidiaries by providing an additional incentive to attract and retain
qualified and competent persons who provide management services and upon whose
efforts and judgment the success of the Company and its Subsidiaries is largely
dependent, through the encouragement of stock ownership in the Company by such
persons.
2. Definitions. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(c) "Committee" shall mean the committee appointed by the
Board pursuant to Section 13(a) hereof, or, if such committee is not appointed,
the Board.
(d) "Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
(e) "Company" shall mean Empire Financial Holding Company, a
Florida corporation.
(f) "Director" shall mean a member of the Board.
(g) "Effective Date" shall mean February 17, 2000.
(h) "Fair Market Value" of a Share on any date of reference
shall mean the fair market value of a Share of the Company's Common Stock on
that date, as determined by the Committee in a fair and uniform manner. If the
Company's Common Stock is Publicly-Held, then Fair Market Value shall mean the
"Closing Price" (as defined below) of the Common Stock on the business day
immediately preceding the date of reference, unless the Committee in its sole
discretion shall determine otherwise in a fair and uniform manner. For the
purpose of determining Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be (i) if the Common Stock is listed or admitted
for trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of Common Stock on such exchange or
reporting system, as reported in any newspaper of general circulation, (ii) if
the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the last
reported sale price of Common Stock on such system or, if sales prices are not
reported, the mean between the closing high bid and low asked quotations for
such day of Common Stock on such system, as reported in any newspaper of general
circulation or (iii) if neither clause (i) or (ii) is applicable, the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau, Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common Stock on at least
five of the ten preceding days.
(i) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Internal Revenue Code.
<PAGE>
(j) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(k) "Non-Qualified Stock Option" shall mean an Option that is
not an Incentive Stock Option.
(l) "Officer" shall mean the Company's Chairman of the Board,
President, Chief Executive Officer, principal financial officer, principal
accounting officer, any vice-president of the Company in charge of a principal
business unit, division or function (such as sales, administration or finance),
any other officer who performs a policy-making function, or any other person who
performs similar policy-making functions for the Company. Officers of
Subsidiaries shall be deemed Officers of the Company if they perform such
policy-making functions for the Company. As used in this paragraph, the phrase
"policy-making function" does not include policy-making functions that are not
significant. If pursuant to Item 401(b) of Regulation S-K (17 C.F.R. ss.
229.401(b)) the Company identifies a person as an "executive officer," the
person so identified shall be deemed an "Officer" even though such person may
not otherwise be an "Officer" pursuant to the foregoing provisions of this
paragraph.
(m) "Option" (when capitalized) shall mean any option granted
under this Plan.
(n) "Option Agreement" means the agreement between the Company
and the Optionee for the grant of an option.
(o) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(p) "Outside Director" shall mean a member of the Board who
qualifies as an "outside director" under Section 162(m) of the Internal Revenue
Code and the regulations thereunder and as a "Non-Employee Director" under Rule
16b-3 promulgated under the Securities Exchange Act.
(q) "Plan" shall mean this Stock Option Plan for the Company.
(r) "Publicly-Held," when applied to the Shares, shall mean
that there has occurred an initial public offering of the Company's Common Stock
pursuant to a Registration Statement filed under the Securities Act of 1993, as
amended.
(s) "Publicly-Traded Date" shall mean the date on which the
Common Stock of the Company, (or the stock of any successor company into which
the Option or any substituted option or right becomes exercisable pursuant to
Section 10(c) hereof), is registered pursuant to the Securities Exchange Act.
(t) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(u) "Share" shall mean a share of Common Stock.
(v) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
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<PAGE>
3. Shares Available for Option Grants. The Committee or the Board may
grant to Optionees from time to time Options to purchase an aggregate of up to
One Million (1,000,000) Shares from the Company's authorized and unissued
Shares. If any Option granted under the Plan shall terminate, expire, or be
canceled or surrendered as to any Shares, new Options may thereafter be granted
covering such Shares.
4. Incentive and Non-Qualified Options.
(a) An Option granted hereunder shall be either an Incentive
Stock Option or a Non-Qualified Stock Option as determined by the Committee or
the Board at the time of grant of such Option and shall clearly state whether it
is an Incentive Stock Option or Non-Qualified Stock Option. All Incentive Stock
Options shall be granted within 10 years from the effective date of this Plan.
Incentive Stock Options may not be granted to any person who is not an employee
of the Company or any Subsidiary.
(b) Options otherwise qualifying as Incentive Stock Options
hereunder will not be treated as Incentive Stock Options to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the Shares, with respect to which Options meeting the requirements of Section
422(b) of the Code are exercisable for the first time by any individual during
any calendar year (under all plans of the Company and its parent and subsidiary
corporations as defined in Section 424 of the Code), exceeds $100,000.
5. Conditions for Grant of Options.
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee or the
Board, provided such terms are not inconsistent with this Plan or any applicable
law. Optionees shall be (i) those persons selected by the Committee or the Board
from the class of all regular employees of, or persons who provide consulting or
other services as independent contractors to, the Company or its Subsidiaries,
including Directors and Officers who are regular employees, and (ii) Directors
who are not employees of the Company or of any Subsidiaries. Any person who
files with the Committee, in a form satisfactory to the Committee, a written
waiver of eligibility to receive any Option under this Plan shall not be
eligible to receive any Option under this Plan for the duration of such waiver.
(b) In granting Options, the Committee or the Board shall take
into consideration the contribution the person has made to the success of the
Company or its Subsidiaries and such other factors as the Committee shall
determine. The Committee or the Board shall also have the authority to consult
with and receive recommendations from officers and other personnel of the
Company and its Subsidiaries with regard to these matters. The Committee or the
Board may from time to time in granting Options under the Plan prescribe such
other terms and conditions concerning such Options as it deems appropriate,
including, without limitation, (i) prescribing the date or dates on which the
Option becomes exercisable, (ii) providing that the Option rights accrue or
become exercisable in installments over a period of years, or upon the
attainment of stated goals or both, or (iii) relating an Option to the continued
employment of the Optionee for a specified period of time, provided that such
terms and conditions are not more favorable to an Optionee than those expressly
permitted herein.
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither the
Plan nor any Option granted under the Plan shall confer upon any person any
right to employment or continuance of employment by the Company or its
Subsidiaries.
(d) Notwithstanding any other provision of this Plan, an
Incentive Stock Option shall not be granted to any person owning directly or
indirectly (through attribution under Section 424(d) of the
3
<PAGE>
Code) at the date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (or of its parent or
subsidiary as defined in Section 424 of the Code at the date of grant) unless
the option price of such Option is at least 110% of the Fair Market Value of the
Shares subject to such Option on the date the Option is granted, and such Option
by its terms is not exercisable after the expiration of five years from the date
such Option is granted.
(e) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Options
granted to any one Optionee may not exceed 1,000,000, subject to adjustment as
provided in Section 10 hereof.
6. Option Price. The option price per Share of any Option shall be any
price determined by the Committee but shall not be less than the par value per
Share; provided, however, that in no event shall the option price per Share of
any Incentive Stock Option be less than the Fair Market Value of the Shares
underlying such Option on the date such Option is granted.
7. Exercise of Options. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Optionee's payment to the Company of the amount that is necessary for the
Company or Subsidiary employing the Optionee to withhold in accordance with
applicable Federal or state tax withholding requirements. The consideration to
be paid for the Shares to be issued upon exercise of an Option, as well as the
method of payment of the exercise price and of any withholding and employment
taxes applicable thereto, shall be determined by the Committee or the Board and
may, in the discretion of the Committee or the Board, consist of: (1) cash, (2)
certified or official bank check, (3) money order, (4) Shares that have been
held by the Optionee for at least six (6) months (or such other Shares as the
Company determines will not cause the Company to recognize for a financial
accounting purposes a charge for compensation expense), (5) the withholding of
Shares issuable upon exercise of the Option, (6) pursuant to a "cashless
exercise" procedure, by delivery of a properly executed exercise notice together
with such other documentation, and subject to such guidelines, as the Board or
the Committee shall require to effect an exercise of the Option and delivery to
the Company by a licensed broker acceptable to the Company of proceeds from the
sale of Shares or a margin loan sufficient to pay the exercise price and any
applicable income or employment taxes, or (7) such other consideration as the
Committee or the Board deems appropriate, or by a combination of the above. In
the case of an Incentive Stock Option, the permissible methods of payment shall
be specified at the time the Option is granted. The Committee or the Board in
its sole discretion may accept a personal check in full or partial payment of
any Shares. If the exercise price is paid in whole or in part with Shares, or
through the withholding of Shares issuable upon exercise of the Option, the
value of the Shares surrendered or withheld shall be their Fair Market Value on
the date the Option is exercised. The Company in its sole discretion may, on an
individual basis or pursuant to a general program established in connection with
this Plan, lend money to an Optionee, guarantee a loan to an Optionee, or
otherwise assist an Optionee to obtain the cash necessary to exercise all or a
portion of an Option granted hereunder or to pay any tax liability of the
Optionee attributable to such exercise. If the exercise price is paid in whole
or part with Optionee's promissory note, such note shall (i) provide for full
recourse to the maker, (ii) be collateralized by the pledge of the Shares that
the Optionee purchases upon exercise of such Option, (iii) bear interest at the
prime rate of the Company's principal lender, and (iv) contain such other terms
as the Board in its sole discretion shall reasonably require. No Optionee shall
be deemed to be a holder of any Shares subject to an Option unless and until a
stock certificate or certificates for such Shares are issued to such person(s)
under the terms of this Plan. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 10
hereof.
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<PAGE>
8. Exercisability of Options. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee or the
Board shall provide in such Option, except as otherwise provided in this Section
8.
(a) Notwithstanding any other provision of this Plan to the
contrary, under no circumstances shall any Option granted pursuant to this Plan
be exercisable unless and until the Company's Common Stock is Publicly-Held.
(b) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(c) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable in the event of a "Change in
Control" or in the event that the Committee or the Board exercises its
discretion to provide a cancellation notice with respect to the Option pursuant
to Section 9(b) hereof. For this purpose, the term "Change in Control" shall
mean:
(i) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or other form of corporate transaction or
series of transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately thereafter, own more than
50% 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, in substantially the same proportions as their ownership
immediately prior to such reorganization, merger, consolidation or other
transaction, or a liquidation or dissolution of the Company or the sale of all
or substantially all of the assets of the Company (unless such reorganization,
merger, consolidation or other corporate transaction, liquidation, dissolution
or sale is subsequently abandoned); or
(ii) Individuals who, as of the date on which the
Option is granted hereof, constitute the Board (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 date on which the Option was
granted whose election, or nomination for election by the Company's
shareholders, 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 of Regulation
14A promulgated under the Securities Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board; or
(iii) The acquisition (other than from the Company)
by any person, entity or "group", within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act, of more than 50% of either the then
outstanding shares of the Company's Common Stock or the combined voting power of
the Company's then outstanding voting securities entitled to vote generally in
the election of directors (hereinafter referred to as the ownership of a
"Controlling Interest") excluding, for this purpose, any acquisitions by (1) the
Company or its Subsidiaries, (2) any person, entity or "group" that as of the
date on which the Option is granted owns beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a
Controlling Interest or (3) any employee benefit plan of the Company or its
Subsidiaries.
(d) The Committee or the Board may in its sole discretion
accelerate the date on which any Option may be exercised and may accelerate the
vesting of any Shares subject to any Option or previously acquired by the
exercise of any Option.
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<PAGE>
9. Termination of Option Period.
(a) Unless otherwise provided in any Option agreement, the
unexercised portion of any Option shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(i) three months after the date on which the
Optionee's employment is terminated other than by reason of (A) Cause, which,
solely for purposes of this Plan, shall mean the termination of the Optionee's
employment by reason of the Optionee's willful misconduct or gross negligence,
(B) a mental or physical disability (within the meaning of Internal Revenue Code
Section 22(e)) of the Optionee as determined by a medical doctor satisfactory to
the Committee, or (C) death of the Optionee;
(ii) immediately upon the termination of the
Optionee's employment for Cause;
(iii) twelve months after the date on which the
Optionee's employment is terminated by reason of a mental or physical disability
(within the meaning of Section 22(e) of the Code) as determined by a medical
doctor satisfactory to the Committee;
(iv) (A) twelve months after the date of termination
of the Optionee's employment by reason of death of the employee, or , if later,
(B) three months after the date on which the Optionee shall die if such death
shall occur during the one year period specified in Subsection 9(a)(iii) hereof;
(v) immediately in the event that the Optionee shall
file any lawsuit or arbitration claim against the Company or any Subsidiary, or
any of their respective officers, directors or shareholders; or
(vi) on the earlier of (y) the fifth anniversary of
the date on which the Option was granted, if the Publicly-Traded Date has not
then occurred or (z) the date on which a Change in Control occurs, if such
Change in Control occurs prior to the Publicly-Traded Date.
(b) To the extent not previously exercised, (i) each Option
shall terminate immediately in the event of (1) the liquidation or dissolution
of the Company, or (2) any reorganization, merger, consolidation or other form
of corporate transaction in which the Company does not survive, unless the
successor corporation, or a parent or subsidiary of such successor corporation,
assumes the Option or substitutes an equivalent option or right pursuant to
Section 10(c) hereof, and (ii) the Committee or the Board in its sole discretion
may by written notice ("cancellation notice") cancel, effective upon the
consummation of any corporate transaction described in Subsection 8(b)(i) hereof
in which the Company does survive, any Option that remains unexercised on such
date. The Committee or the Board shall give written notice of any proposed
transaction referred to in this Section 9(b) a reasonable period of time prior
to the closing date for such transaction (which notice may be given either
before or after approval of such transaction), in order that Optionees may have
a reasonable period of time prior to the closing date of such transaction within
which to exercise any Options that then are exercisable (including any Options
that may become exercisable upon the closing date of such transaction). An
Optionee may condition his exercise of any Option upon the consummation of a
transaction referred to in this Section 9(b).
10. Adjustment of Shares.
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the
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<PAGE>
declaration of a stock dividend or through any recapitalization resulting in a
stock split-up, combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) the Board or the Committee may, in its
discretion, make any adjustments it deems appropriate in the number of Shares
and the exercise price per Share thereof then subject to any outstanding Option,
so that the same percentage of the Company's issued and outstanding Shares shall
remain subject to purchase at the same aggregate exercise price.
(b) Unless otherwise provided in any Option, the Committee may
change the terms of Options outstanding under this Plan, with respect to the
option price or the number of Shares subject to the Options, or both, when, in
the Committee's sole discretion, such adjustments become appropriate so as to
preserve but not increase benefits under the Plan.
(c) In the event of a proposed sale of all or substantially
all of the Company's assets or any reorganization, merger, consolidation or
other form of corporate transaction in which the Company does not survive, where
the securities of the successor corporation, or its parent company, are issued
to the Company's shareholders, then the successor corporation or a parent of the
successor corporation may, with the consent of the Committee or the Board,
assume each outstanding Option or substitute an equivalent option or right. If
the successor corporation, or its parent, does not cause such an assumption or
substitution to occur, or the Committee or the Board does not consent to such an
assumption or substitution, then each Option shall terminate pursuant to Section
9(b) hereof upon the consummation of sale, merger, consolidation or other
corporate transaction.
(d) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made to, the number of or exercise price
for Shares then subject to outstanding Options granted under the Plan.
(e) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
11. Transferability of Options and Shares. Each Option shall provide
that such Option shall not be transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and each Option shall be
exercisable during the Optionee's lifetime only by the Optionee.
(a) No Incentive Stock Option, and unless the prior written
consent of the Committee or the Board is obtained (which consent may be withheld
for any reason) and the transaction does not violate the requirements of Rule
16b-3 promulgated under the Securities Exchange Act no Non-Qualified Stock
Option, shall be subject to alienation, assignment, pledge, charge or other
transfer other than by the Optionee by will or the laws of descent and
distribution, and any attempt to make any such prohibited
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<PAGE>
transfer shall be void. Each Option shall be exercisable during the Optionee's
lifetime only by the Optionee, or in the case of a Non-Qualified Stock Option
that has been assigned or transferred with the prior written consent of the
Committee or the Board, only by the permitted assignee.
(b) No Shares acquired by an Officer or Director pursuant to
the exercise of an option may be sold, assigned, pledged or otherwise
transferred prior to the expiration of the six-month period following the date
on which the Option was granted, unless the transaction does not violate the
requirements of Rule 16b-3 promulgated under the Securities Exchange Act.
12. Issuance of Shares.
(a) Notwithstanding any other provision of this Plan, the
Company shall not be obligated to issue any Shares unless it is advised by
counsel of its selection that it may do so without violation of the applicable
Federal and State laws pertaining to the issuance of securities, and may require
any stock so issued to bear a legend, may give its transfer agent instructions,
and may take such other steps, as in its judgment are reasonably required to
prevent any such violation.
(b) As a condition to any sale or issuance of Shares upon
exercise of any Option, the Committee may require such agreements or
undertakings as the Committee may deem necessary or advisable to facilitate
compliance with any applicable law or regulation including, but not limited to,
the following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised, that he is acquiring the
Shares to be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to
be bound by any legends endorsed upon the certificate(s) for such Shares that
are, in the opinion of the Committee, necessary or appropriate to facilitate
compliance with the provisions of any securities laws deemed by the Committee to
be applicable to the issuance and transfer of such Shares.
13. Administration of the Plan.
(a) The Plan shall be administered by the Board or, at the
discretion of the Board, by a committee appointed by the Board (the "Committee")
which shall be composed of two or more Directors. At any time that any shares of
the Common Stock of the Company shall be registered under Section 12 of the
Securities Exchange Act of 1934, the membership of the Committee shall be
constituted so as to comply at all times with the then applicable requirements
for Outside Directors of Rule 16b-3 promulgated under the Securities Exchange
Act and Section 162(m) of the Internal Revenue Code. The Committee shall serve
at the pleasure of the Board and shall have the powers designated herein and
such other powers as the Board may from time to time confer upon it.
(b) The Board may grant Options pursuant to this Plan to any
persons to whom Options may be granted under Section 5(a) hereof.
(c) The Committee or the Board, from time to time, may adopt
rules and regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan or any Option shall be final and conclusive.
(d) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
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14. Withholding or Deduction for Taxes. If at any time specified herein
for the making of any issuance or delivery of any Option or Common Stock to any
Optionee, any law or regulation of any governmental authority having
jurisdiction in the premises shall require the Company to withhold, or to make
any deduction for, any taxes or take any other action in connection with the
issuance or delivery then to be made, such issuance or delivery shall be
deferred until such withholding or deduction shall have been provided for by the
Optionee or beneficiary, or other appropriate action shall have been taken.
15. Interpretation.
(a) As it is the intent of the Company that the Plan comply in
all respects with Rule 16b-3 promulgated under the Securities Exchange Act
("Rule 16b-3"), any ambiguities or inconsistencies in construction of the Plan
shall be interpreted to give effect to such intention, and if any provision of
the Plan is found not to be in compliance with Rule 16b-3, such provision shall
be deemed null and void to the extent required to permit the Plan to comply with
Rule 16b-3. The Committee or the Board may from time to time adopt rules and
regulations under, and amend, the Plan in furtherance of the intent of the
foregoing.
(b) The Plan and any Option agreements entered into pursuant
to the Plan shall be administered and interpreted so that all Incentive Stock
Options granted under the Plan will qualify as Incentive Stock Options under
Section 422 of the Code. If any provision of the Plan or any such Option
agreement should be held invalid for the granting of Incentive Stock Options or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan and the Option agreement shall be
construed and enforced as if such provision had never been included in the Plan
or the Option agreement.
(c) This Plan shall be governed by the laws of the State of
Florida.
(d) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(e) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
16. Amendment and Discontinuation of the Plan. The Committee or the
Board may from time to time amend, suspend or terminate the Plan or any Option;
provided, however, that, any amendment to the Plan shall be subject to the
approval of the Company's shareholders if such shareholder approval is required
by any federal or state law or regulation (including, without limitation, Rule
16b-3 or to comply with Section 162(m) of the Internal Revenue Code) or the
rules of any Stock exchange or automated quotation system on which the Common
Stock may then be listed or granted. Except to the extent provided in Sections 9
and 10 hereof, no amendment, suspension or termination of the Plan or any Option
issued hereunder shall substantially impair the rights or benefits of any
Optionee pursuant to any Option previously granted without the consent of the
Optionee.
17. Effective Date and Termination Date. The effective date of the Plan
is the February 17, 2000 and the Plan shall terminate on the 10th anniversary of
the Effective Date.
9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
on March 22, 2000, effective as of the Offering Date (hereinafter defined), by
and between Empire Financial Holding Company, a Delaware corporation (the
"Company"), and Kevin Gagne (the "Executive").
Recitals
--------
A. The Executive is a co-founder of the Company and 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. 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.
1.2 Duties of the Executive. The Executive shall serve as
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company. In his capacities, the Executive shall have such powers, perform such
duties and shall have such responsibilities with respect to the Company as are
set forth in the Bylaws of the Company in effect as of the date of this
Agreement with respect to such positions. During the term of Employment, the
Executive shall diligently perform all services as may be reasonably assigned to
the Executive by the Board consistent with his positions, and shall exercise
such additional power and authority as may from time to time be delegated to the
Executive by the Board.
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The Executive, by virtue of his positions with the Company shall be,
together with the other Co-Chairman of the Board, Co-Chief Executive Officer and
Co-President of the Company, the most senior officer of the Company and all
other officers and agents of the Company (other than the other Co-Chairman of
the Board, Co-Chief Executive Officer and Co-President of the Company) shall be
subject to the supervision and direction of both the Executive and the other
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company. Together, the Executive and the other Co-Chairman of the Board,
Co-Chief Executive Officer and Co-President of the Company shall be responsible
for coordinating and supervising the activities of the other officers of the
Company and shall have the power to employ and terminate the employment of all
other officers and employees of the Company.
Together, the Executive and the other Co-Chairman of the Board,
Co-Chief Executive Officer and Co-President of the Company shall have the power
and authority to establish and modify, from time to time, the compensation and
benefits of all other officers and employees of the Company whose compensation
had not been established by the Board of Directors of the Company or any
authorized committee thereof.
The Executive shall be required to report solely to, and shall be
subject solely to the supervision and direction of the Board, and no other
person or group shall be given authority to supervise or direct Executive in the
performance of the Executive's duties. In addition, the Executive shall
regularly consult with and provide information to the Board with respect to the
Company's business and affairs. 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 for the Executive to (a) serve on
civic or charitable boards or committees, (b) deliver lectures, fulfill speaking
engagements or teach at seminars, and (c) manage personal investments, 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.
Notwithstanding anything in this Agreement to the contrary, the
Executive agrees that he will consult, from time to time, with the other
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company regarding any significant Company matters and the Executive agrees that
he will not knowingly take any action that is contrary to the expressed desire
of the other Co-Chairman of the Board, Co-Chief Executive Officer and
Co-President of the Company. In the event that the Executive and the other
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company are not able to agree upon any particular action to be taken, then the
Executive shall advise the Board of Directors of the Company, and the Board of
Directors by a majority vote shall have the authority to direct both the
Executive and the other Co-Chairman of the Board, Co-Chief Executive Officer and
Co-President of the Company.
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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. The Company shall not, without the written consent of the Executive,
relocate or transfer the Executive to an office that is more than thirty (30)
miles from the current principal executive offices of the Company. The Executive
shall travel as reasonably required in connection with the performance of his
duties hereunder; provided, however, the Executive shall not be required,
without his written consent, to be absent from the geographic region surrounding
Orlando, Florida on business more than thirty (30) working days in any one (1)
year or more than five (5) consecutive days at any one time.
1.4 Term. The term of this Agreement shall commence on the
effective date of the Offering (the "Offering Date") and expire on December 31,
2005, unless sooner terminated as hereinafter set forth; provided, however, that
commencing on January 1, 2003 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless at
least one hundred eighty (180) days prior to January 1 of any year on or after
January 2003, the Company shall have delivered to the Executive or the Executive
shall have delivered to the Company written notice that the term of the
Executive's employment hereunder will not be extended. The determination not to
extend the term of this Agreement by the Company shall only be made by the
majority vote of the Board (excluding the Executive) acting in good faith.
1.5 Indemnification. The Company agrees to enter into an
indemnification agreement with the Executive in form and substance substantially
similar to the indemnification agreement, if any, entered into between the
Company and its other executive officers. In addition, to the extent that the
Company elects to obtain an officer and director liability insurance policy
covering its other executive officers and directors, the Company will cause such
insurance policy to cover the Executive to the same extent that it covers other
executive officers and directors of the Company.
2. Compensation.
2.1 Base Salary. Commencing on the date of this Agreement, the
Executive shall receive a base salary at the annual rate of $375,000 (the "Base
Salary") during the term of this Agreement, with such Base Salary payable in
installments consistent with the Company's normal payroll schedule, subject to
applicable withholding and other taxes. Such Base Salary may be increased, but
not decreased, from time to time in the sole discretion of the Board (or any
authorized committee hereof). The Base Salary, if increased, shall not
thereafter be decreased for any reason.
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<PAGE>
2.2 Incentive Compensation. The Executive shall also be
entitled to receive such other bonus payments or incentive compensation as may
be determined at any time or from time to time by the Board (or any authorized
committee hereof) in its sole discretion. Such potential additional bonus
payments and/or incentive compensation shall be considered at least annually by
the Board (it being agreed that such consideration shall not create any
implication that the Board shall award any such bonus or incentive
compensation).
2.3 Perquisites. Similarly, the Executive shall also be
entitled to participate in any other perquisites established for senior
executives by the Board or its compensation committee (including Stock Option
Plans, automobile allowances, club membership, lines of credit, etc.).
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 Plan and Insurance. During the term of
this Agreement, the Executive and/or the Executive's spouse and children shall
be compensated for 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 four weeks paid vacation per year.
4
<PAGE>
4. Termination.
4.1 Termination for Cause. The Company shall have the right,
upon written notice to the Executive to terminate the Executive's employment
under this Agreement for Cause (as hereinafter defined), effective upon the
giving of such notice (or such later date as shall be specified in such notice),
and the Company shall have no further obligations hereunder, except to pay the
Executive any Base Salary which may be owed to the date of termination. For
purposes of this agreement, "Cause" means (i) conviction of (and such conviction
is sustained on all appeals) or the entry of a plea of guilty by the Executive
to a felony; (ii) a material breach of the Executive's obligations hereunder
which is not remedied within ten (10) business days after receipt of written
notice of the material breach from the Board; or (iii) any act or omission of
the Executive constituting willful misconduct (including willful violation of
the Company's policies), gross negligence, fraud, misappropriation,
embezzlement, or competitive business activities which, as determined by the
Company in its reasonable discretion, shall cause material harm to the Company.
Any determination of "Cause" for purposes of this Agreement shall be made by the
majority vote of the Board (excluding the Executive) acting in good faith.
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 two hundred
fifty (250) days in any twelve (12) month period. The determination of mental or
physical incapacity, illness or disability for purposes of this Agreement shall
only be made by the majority vote of the Board (excluding the Executive) acting
in good faith and after consulting with appropriate medical personnel. Upon any
termination pursuant to this Section 4.2, the Executive shall be entitled to
receive his Base Salary until the earlier of (a) nine months from the date of
such termination or (b) the date that any disability insurance applicable to the
Executive commences paying benefits.
4.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, this Agreement and the employment
relationship created by it shall terminate as of the date of death and the
Company shall pay to the estate of the Executive any Base Salary which may be
owed to the date of termination.
4.4 Termination Without Cause. The Company may terminate the
Executive's employment under this Agreement without Cause upon giving the
Executive ninety (90) days written notice of such termination. Upon termination
without Cause, the Executive shall be entitled to receive his then current Base
Salary for the then remaining term of this Agreement.
5
<PAGE>
4.5 Termination by Executive for Good Reason or by
Resignation.
(i) The Executive shall have the right to terminate
his employment hereunder upon ninety (90) days written notice for Good Reason.
For purposes of this Agreement, "Good Reason" means: (i) a material breach by
the Company of the Company's obligations under this Agreement, which is not
remedied within ten (10) business days after receipt of written notice from the
Executive; (ii) the assignment to the Executive of any duties inconsistent in
any material respect with the Executive's position (including status, office,
title and/or reporting requirements), authorities, duties or responsibilities
contemplated hereunder; or (iii) a change in control (as hereinafter defined).
Upon termination for Good Reason, the Executive shall be entitled to receive his
then current Base Salary for the then remaining term of this Agreement.
(ii) The Executive shall have the right to terminate
his employment under this Agreement by resignation. Upon such termination by
resignation, 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).
5. Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(i) 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 thirty percent (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;
(ii) 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;
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<PAGE>
(iii) 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 fifty-one percent (51%) of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated Company's than 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, 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 (1) 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
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<PAGE>
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.
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 two (2) 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 (6) months.
6.3 Non-Competition. While employed by the Company and for a
period of two (2) 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 (5%)
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
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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 interest 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 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.
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. Nomination of the Executive as Director. During the term of this
Agreement, the Company shall cause the nomination of the Executive as a director
of the Company at each stockholder meeting at which election of directors is
considered.
8. 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 law principles, and any proceeding contemplated
by Section 6.4 or to enforce any arbitration award contemplated by Section 14
shall be held 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.
9. 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 (3) days after being deposited in the United States
mail, by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
If to the Company: Empire Financial Holding Company
1385 West State Road 434
Longwood, Florida 32750
Attention: Board of Directors
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With a copy to: Phillip J. Kushner
Greenberg Taurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
If to the Executive: Kevin M .Gagne
1385 West State Road 434
Longwood, Florida 32750
With a copy to: David S. Piercefield, P.A.
230 Lookout Place, Suite 200
Maitland, Florida 37251
</TABLE>
or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
10. 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.
(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.
11. 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.
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12. 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.
13. 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 single
arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. The arbitration shall be conducted in Orlando, Florida
and the arbitrator shall have the right to award actual damages and attorneys'
fees and costs, but shall not have the right to award punitive, special,
exemplary or consequential damages against any party. Any arbitral award
resulting from such proceeding or settlement in connection therewith shall be
held in strict confidence by the parties hereto, unless the disclosure of such
award or settlement is required by law.
14. Damages. Nothing contained herein shall be construed to prevent
this 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.
15. 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.
16. 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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
EMPIRE FINANCIAL HOLDING COMPANY
By:/s/ Richard Goble
--------------------
Co-Chairman of the Board
EXECUTIVE:
/s/ Kevin Gagne
---------------
Kevin Gagne
11
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
on March 22, 2000, effective as of the Offering Date (hereinafter defined), by
and between Empire Financial Holding Company, a Delaware corporation (the
"Company"), and Richard Goble (the "Executive").
Recitals
--------
A. The Executive is a co-founder of the Company and 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. 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.
1.2 Duties of the Executive. The Executive shall serve as
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company. In his capacities, the Executive shall have such powers, perform such
duties and shall have such responsibilities with respect to the Company as are
set forth in the Bylaws of the Company in effect as of the date of this
Agreement with respect to such positions. During the term of Employment, the
Executive shall diligently perform all services as may be reasonably assigned to
the Executive by the Board consistent with his positions, and shall exercise
such additional power and authority as may from time to time be delegated to the
Executive by the Board.
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The Executive, by virtue of his positions with the Company shall be,
together with the other Co-Chairman of the Board, Co-Chief Executive Officer and
Co-President of the Company, the most senior officer of the Company and all
other officers and agents of the Company (other than the other Co-Chairman of
the Board, Co-Chief Executive Officer and Co-President of the Company) shall be
subject to the supervision and direction of both the Executive and the other
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company. Together, the Executive and the other Co-Chairman of the Board,
Co-Chief Executive Officer and Co-President of the Company shall be responsible
for coordinating and supervising the activities of the other officers of the
Company and shall have the power to employ and terminate the employment of all
other officers and employees of the Company.
Together, the Executive and the other Co-Chairman of the Board,
Co-Chief Executive Officer and Co-President of the Company shall have the power
and authority to establish and modify, from time to time, the compensation and
benefits of all other officers and employees of the Company whose compensation
had not been established by the Board of Directors of the Company or any
authorized committee thereof.
The Executive shall be required to report solely to, and shall be
subject solely to the supervision and direction of the Board, and no other
person or group shall be given authority to supervise or direct Executive in the
performance of the Executive's duties. In addition, the Executive shall
regularly consult with and provide information to the Board with respect to the
Company's business and affairs. 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 for the Executive to (a) serve on
civic or charitable boards or committees, (b) deliver lectures, fulfill speaking
engagements or teach at seminars, and (c) manage personal investments, 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.
Notwithstanding anything in this Agreement to the contrary, the
Executive agrees that he will consult, from time to time, with the other
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company regarding any significant Company matters and the Executive agrees that
he will not knowingly take any action that is contrary to the expressed desire
of the other Co-Chairman of the Board, Co-Chief Executive Officer and
Co-President of the Company. In the event that the Executive and the other
Co-Chairman of the Board, Co-Chief Executive Officer and Co-President of the
Company are not able to agree upon any particular action to be taken, then the
Executive shall advise the Board of Directors of the Company, and the Board of
Directors by a majority vote shall have the authority to direct both the
Executive and the other Co-Chairman of the Board, Co-Chief Executive Officer and
Co-President of the Company.
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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. The Company shall not, without the written consent of the Executive,
relocate or transfer the Executive to an office that is more than thirty (30)
miles from the current principal executive offices of the Company. The Executive
shall travel as reasonably required in connection with the performance of his
duties hereunder; provided, however, the Executive shall not be required,
without his written consent, to be absent from the geographic region surrounding
Orlando, Florida on business more than thirty (30) working days in any one (1)
year or more than five (5) consecutive days at any one time.
1.4 Term. The term of this Agreement shall commence on the
effective date of the Offering (the "Offering Date") and expire on December 31,
2005, unless sooner terminated as hereinafter set forth; provided, however, that
commencing on January 1, 2003 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless at
least one hundred eighty (180) days prior to January 1 of any year on or after
January 2003, the Company shall have delivered to the Executive or the Executive
shall have delivered to the Company written notice that the term of the
Executive's employment hereunder will not be extended. The determination not to
extend the term of this Agreement by the Company shall only be made by the
majority vote of the Board (excluding the Executive) acting in good faith.
1.5 Indemnification. The Company agrees to enter into an
indemnification agreement with the Executive in form and substance substantially
similar to the indemnification agreement, if any, entered into between the
Company and its other executive officers. In addition, to the extent that the
Company elects to obtain an officer and director liability insurance policy
covering its other executive officers and directors, the Company will cause such
insurance policy to cover the Executive to the same extent that it covers other
executive officers and directors of the Company.
2. Compensation.
2.1 Base Salary. Commencing on the date of this Agreement, the
Executive shall receive a base salary at the annual rate of $375,000 (the "Base
Salary") during the term of this Agreement, with such Base Salary payable in
installments consistent with the Company's normal payroll schedule, subject to
applicable withholding and other taxes. Such Base Salary may be increased, but
not decreased, from time to time in the sole discretion of the Board (or any
authorized committee hereof). The Base Salary, if increased, shall not
thereafter be decreased for any reason.
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<PAGE>
2.2 Incentive Compensation. The Executive shall also be
entitled to receive such other bonus payments or incentive compensation as may
be determined at any time or from time to time by the Board (or any authorized
committee hereof) in its sole discretion. Such potential additional bonus
payments and/or incentive compensation shall be considered at least annually by
the Board (it being agreed that such consideration shall not create any
implication that the Board shall award any such bonus or incentive
compensation).
2.3 Perquisites. Similarly, the Executive shall also be
entitled to participate in any other perquisites established for senior
executives by the Board or its compensation committee (including Stock Option
Plans, automobile allowances, club membership, lines of credit, etc.).
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 Plan and Insurance. During the term of
this Agreement, the Executive and/or the Executive's spouse and children shall
be compensated for 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 four weeks paid vacation per year.
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<PAGE>
4. Termination.
4.1 Termination for Cause. The Company shall have the right,
upon written notice to the Executive to terminate the Executive's employment
under this Agreement for Cause (as hereinafter defined), effective upon the
giving of such notice (or such later date as shall be specified in such notice),
and the Company shall have no further obligations hereunder, except to pay the
Executive any Base Salary which may be owed to the date of termination. For
purposes of this agreement, "Cause" means (i) conviction of (and such conviction
is sustained on all appeals) or the entry of a plea of guilty by the Executive
to a felony; (ii) a material breach of the Executive's obligations hereunder
which is not remedied within ten (10) business days after receipt of written
notice of the material breach from the Board; or (iii) any act or omission of
the Executive constituting willful misconduct (including willful violation of
the Company's policies), gross negligence, fraud, misappropriation,
embezzlement, or competitive business activities which, as determined by the
Company in its reasonable discretion, shall cause material harm to the Company.
Any determination of "Cause" for purposes of this Agreement shall be made by the
majority vote of the Board (excluding the Executive) acting in good faith.
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 two hundred
fifty (250) days in any twelve (12) month period. The determination of mental or
physical incapacity, illness or disability for purposes of this Agreement shall
only be made by the majority vote of the Board (excluding the Executive) acting
in good faith and after consulting with appropriate medical personnel. Upon any
termination pursuant to this Section 4.2, the Executive shall be entitled to
receive his Base Salary until the earlier of (a) nine months from the date of
such termination or (b) the date that any disability insurance applicable to the
Executive commences paying benefits.
4.3 Death. In the event of the death of the Executive during
the term of his employment hereunder, this Agreement and the employment
relationship created by it shall terminate as of the date of death and the
Company shall pay to the estate of the Executive any Base Salary which may be
owed to the date of termination.
4.4 Termination Without Cause. The Company may terminate the
Executive's employment under this Agreement without Cause upon giving the
Executive ninety (90) days written notice of such termination. Upon termination
without Cause, the Executive shall be entitled to receive his then current Base
Salary for the then remaining term of this Agreement.
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<PAGE>
4.5 Termination by Executive for Good Reason or by
Resignation.
(i) The Executive shall have the right to terminate
his employment hereunder upon ninety (90) days written notice for Good Reason.
For purposes of this Agreement, "Good Reason" means: (i) a material breach by
the Company of the Company's obligations under this Agreement, which is not
remedied within ten (10) business days after receipt of written notice from the
Executive; (ii) the assignment to the Executive of any duties inconsistent in
any material respect with the Executive's position (including status, office,
title and/or reporting requirements), authorities, duties or responsibilities
contemplated hereunder; or (iii) a change in control (as hereinafter defined).
Upon termination for Good Reason, the Executive shall be entitled to receive his
then current Base Salary for the then remaining term of this Agreement.
(ii) The Executive shall have the right to terminate
his employment under this Agreement by resignation. Upon such termination by
resignation, 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).
5. Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(i) 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 thirty percent (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;
(ii) 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;
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(iii) 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 fifty-one percent (51%) of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated Company's than 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, 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 (1) 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
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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.
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 two (2) 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 (6) months.
6.3 Non-Competition. While employed by the Company and for a
period of two (2) 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 (5%)
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
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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 interest 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 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.
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. Nomination of the Executive as Director. During the term of this
Agreement, the Company shall cause the nomination of the Executive as a director
of the Company at each stockholder meeting at which election of directors is
considered.
8. 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 law principles, and any proceeding contemplated
by Section 6.4 or to enforce any arbitration award contemplated by Section 14
shall be held 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.
9. 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 (3) days after being deposited in the United States
mail, by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
If to the Company: Empire Financial Holding Company
1385 West State Road 434
Longwood, Florida 32750
Attention: Board of Directors
9
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With a copy to: Phillip J. Kushner
Greenberg Taurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
If to the Executive: Richard L. Goble
1385 West State Road 434
Longwood, Florida 32750
With a copy to: David S. Piercefield, P.A.
230 Lookout Place, Suite 200
Maitland, Florida 37251
</TABLE>
or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
10. 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.
(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.
11. 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.
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12. 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.
13. 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 single
arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. The arbitration shall be conducted in Orlando, Florida
and the arbitrator shall have the right to award actual damages and attorneys'
fees and costs, but shall not have the right to award punitive, special,
exemplary or consequential damages against any party. Any arbitral award
resulting from such proceeding or settlement in connection therewith shall be
held in strict confidence by the parties hereto, unless the disclosure of such
award or settlement is required by law.
14. Damages. Nothing contained herein shall be construed to prevent
this 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.
15. 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.
16. 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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
EMPIRE FINANCIAL HOLDING COMPANY
By:/s/ Kevin Gagne
------------------
Co-Chairman of the Board
EXECUTIVE:
/s/ Richard Goble
-----------------
Richard Goble
11
LEASE
<TABLE>
<CAPTION>
BASIC LEASE INFORMATION
<S> <C>
Landlord: G & G Holdings, Inc.
Tenant: Advantage Trading Group, Inc.
Location of Commercial Office Building: 1385 W. Highway 434, Longwood, FL 32750.
Leaseable Square Feet of Premises: 5,906
Leaseable Square Feet of Building: 19,400
Tenant's Share: 30%
Lease Commencement Date: May 8, 1999
Lease Expiration Date: May 31, 2009
Base Rent Commencement Date: June 1, 1999
Initial Base Rent: $9,228.00 per month, plus sales tax
Security Deposit Received: $0
Use of Premises: General Office
</TABLE>
TERM AND RENT
(a) Tenant agrees to pay Landlord Base Rent ("Base Rent") in the
amounts set forth below, payable in advance in equal monthly installments, for
each and every calendar month of the Term of this Lease, adjusted as provided
below:
<TABLE>
<CAPTION>
Term Total Annual Base Rent Monthly Payment
---- ---------------------- ---------------
<S> <C> <C>
5/8/99-6/1/99 $0 $0
Lease Year 1 $110,736.00 $9,288.00
Lease Year 2 $116,280.00 $9,690.00
Lease Year 3 $122,088.00 $10,174.00
Lease Year 4 $128,196.00 $10,683.00
Lease Year 5 $134,604.00 $11,217.00
Lease Year 6 $141,336.00 $11,778.00
Lease Year 7 $148,404.00 $12,367.00
Lease Year 8 $155,820.00 $11,985.00
Lease Year 9 $163,608.00 $13,634.00
Lease Year 10 $171,792.00 $14,316.00
</TABLE>
<PAGE>
(b) Base Rent shall be payable in equal monthly installments as set
forth above, the first of which shall be due on the Base Rent Commencement Date.
Rent for any partial month of occupancy at the end of the Term of this Lease
shall be pro-rated, such pro-ration to be based upon the actual number of days
in the partial month.
(c) In addition to Base Rent, and any Additional Rent that may be due
by reason of other sections of this Lease, Tenant shall pay to Landlord each
month a sum equal to any sales tax, tax on rentals, and any other charges, taxes
and/or impositions, now in existence or hereafter imposed, based upon the
privilege of renting the space leased hereunder or upon the amount of rent
collected therefore. Nothing herein shall require Tenant to pay any part of any
federal or state taxes on income imposed on Landlord.
(d) (i) As of the Lease Commencement Date, Tenant shall pay, as
Additional Rent (defined below), Tenant's share ("Tenant's Share"), as
hereinafter defined, of the total amount of the annual operating expenses
("Operating Expenses"). For all years during the Lease Term, Landlord shall in
advance, reasonably estimate for each calendar year the total amount of the
Operating Expenses, and shall notify Tenant in writing. One-twelfth (1/12th ) of
the estimated Operating Expenses shall be payable monthly in advance, along with
each monthly payment of Base Rent.
(ii) Landlord shall, within ninety (90) days after the close
of any calendar year for which additional rent is due under the provisions of
this Section, give a written statement to Tenant showing computations for
Additional Rent due, except that Landlord, at Landlord's option, may give Tenant
a written statement showing the computation of any additional rent due by reason
of this Section within thirty (30) days after receipt by Landlord of tax or
assessment statements enabling Landlord to determine the amount of Additional
Rent attributable to or resulting therefrom. Tenant shall have the right to
inspect and audit Landlord's books and records showing the Operating Expenses
for such calendar year and the annual operating statement or any other statement
shall be deemed approved unless protested in writing within thirty (30) days
after receipt by Tenant. Tenant shall make full payment of such Additional Rent
to Landlord within thirty (30) days after receipt of the statement for
Additional Rent. In the event of decrease in Operating Expenses for a prior
calendar year, any overpayment of estimated Operating Expenses by Tenant for
that calendar year shall be credited against Tenant's next payment of Additional
or Base Rent.
(e) (i) The term "Operating Expenses" shall mean all commercially
reasonable expenses and costs of ownership, management, operation and
maintenance of the Building, including, without limitation:
2
<PAGE>
(A) Wages, salaries, professional fees, taxes,
insurance, benefits and other payroll
burdens of all employees employed in
connection with the operation and
maintenance of the Building.
(B) Building management fee not to exceed three
percent (3%) of Base Rent and Additional
Rent.
(C) Landscaping costs, maintenance, guard and
other services (if to be provided by
Landlord pursuant to the terms of this
Lease).
(D) Power, fuel, water, sewer, waste disposal,
lighting, garbage removal, window cleaning,
system maintenance, and parking area care.
(E) Any and all other utilities, materials,
supplies, maintenance and repairs.
(F) Insurance applicable to the Building.
(G) The cost (amortized over such reasonable
period as Landlord shall determine together
with interest at the rate of twelve percent
(12%) per annum on the amortized balance) of
any capital improvements made to the
Building by Landlord after the date of this
Lease.
(H) Taxes (defined below).
(I) Real estate brokers commissions.
(J) Structural repair or roof repair.
(K) Operating Expenses shall not include:
(1) Depreciation on the Building,
(2) Costs of tenant's improvements,
(3) Debt service on the Building.
(4) Utilities metered for individual
tenants, and
Landlord hereby agrees to deduct each year from the amount of the Operating
Expenses the total amount of any and all sums, amounts or charges paid by Tenant
or other tenants of the Building directly to Landlord or its agent for specific
tenant-requested services.
3
<PAGE>
(ii) The term "Taxes" shall mean the gross amount (which
shall mean the amount of such taxes as assessed by the taxing authority based on
the maximum discount amount payable for a given year) of all impositions, taxes,
assessments (special or otherwise), water and sewer assessments and other
governmental liens or charges of any and every kind, nature and sort whatsoever
ordinary and extraordinary, foreseen and unforeseen, and substitutes therefor,
including all taxes whatsoever, except for taxes for the following categories
which shall be excluded from the definition of Taxes: (A) any inheritance,
estate, succession, transfer or gift taxes imposed upon Landlord or (B) any
income taxes specifically payable by Landlord as a separate tax-paying entity
without regard to Landlord's income source as arising from or out of the
Building and/or the land on which it is located) attributable in any manner to
the Building, the land on which the Building is located or the rents (however
the term may be defined) receivable therefrom, or any part thereof, or any use
thereon, or any facility located therein or used in conjunction therewith,
whether or not any of the foregoing shall be designated "real estate tax",
"sales tax", "rental tax", "excise tax", "business Tax", or designated in any
other manner, but nothing herein shall be construed as relieving Tenant of its
obligation to pay sales tax.
(iii) The term "Tenant's Share" at the Commencement of the
Term of the Lease shall mean the following percentage: Thirty (30%). Landlord
and Tenant acknowledge that Tenant's Share has been obtained by dividing the
leaseable area of the Premises, which Landlord and Tenant hereby stipulate for
all purposes is 5,906 leaseable square feet, by the total leaseable area of the
Building, which Landlord and Tenant hereby stipulate for all purposes is 19,400
square feet, and multiplying such quotient by I00. In the event Tenant's Share
is changed during a calendar year by reason of a change in the leaseable area of
the Premises, Tenant's Share shall thereafter mean the result obtained by
dividing the new leaseable area of the Premises by 19,400 square feet and
multiplying such quotient by 100. Tenant's share shall be determined on the
basis of the number of days during such calendar year applicable to each such
Tenant's Share.
(iv) The term "Rent" shall mean the sum of the Base Rent and
Additional Rent, if applicable. The term "Additional Rent" refers to any and all
other sums payable by Tenant hereunder defined and as specified in the other
provisions of this Lease. Tenant agrees to pay such Additional Rent upon demand
by Landlord and that Additional Rent is to be treated in the same manner as Rent
hereunder, both in terms of the lien for Rent herein provided and in terms of
the default provisions herein contained.
Tenant also agrees to pay a late charge fee of $20.00 for any monthly
payment not paid on or before the 10th day of the month in which the rental
payment is due, and an additional late charge fee of $10.00 per day thereafter
until said payment and late charge fee are paid in full.
4
<PAGE>
Should the Tenant pay the rent late three (3) times or more in any
twelve (12) month period, Landlord shall have the right to terminate this Lease
by giving Tenant sixty (60) days written notice.
SECURITY DEPOSIT
On execution of this lease, Landlord acknowledges Tenant's previous
deposit of the sum of $0, as security for the faithful performance by Tenant of
the terms and conditions hereof. Such deposit shall be returned to Tenant upon
the termination of this lease if there exists no breach of any of the covenants
of this lease at that time.
USE OF PREMISES
Tenant shall use the demised premises only as a commercial office,
unless Landlord's consent is obtained in writing, which consent shall not be
unreasonably withheld.
ASSIGNMENT AND SUBLETTING
Without the prior written consent of Landlord, Tenant shall not assign
this lease, or sublet or grant any concession or license to use the retail or
office space or any part thereof. A consent by Landlord to one assignment,
subletting, concession, or license shall not be deemed to be a consent to any
subsequent assignment, subletting, concession, or license. An assignment,
subletting, concession, or license without the prior written consent of
Landlord, or an assignment or subletting by operation of law, shall be void and
shall, at Landlord's option, terminate this lease.
ALTERATIONS, IMPROVEMENTS AND SIGNS
All signs must be approved, in writing, by Landlord.
Tenant shall make no alterations or improvements to the building on the
demised premises without the prior written consent of the Landlord. All
alterations, changes, and improvements built, constructed, or placed on the
demised premises by Tenant, with the exception of fixtures removable without
damage to the premises, trade fixtures, and moveable personal property, shall,
unless otherwise provided by written agreement between Landlord and Tenant, be
the property of Landlord and remain on the demised premises at the expiration or
sooner termination of this lease.
UTILITIES, SALES TAX, PROPERTY TAXES AND INSURANCE
For the first three years of this lease, Tenant shall be responsible
for arranging for and paying for all utilities. For years four and five of this
lease, Landlord shall pay
5
<PAGE>
for Tenant's electric, water, and sewer. Landlord shall be responsible for all
real property taxes on the premises. Tenant shall be responsible for personal
property taxes on personal property located in Tenant's Area and all sales taxes
due on the rental amount.
Tenant shall be responsible for all casualty insurance on its personal
property and the contents of its premises. Tenant shall be responsible for and
provide premises liability insurance for its area. Landlord shall be responsible
for insurance on the structure and common areas.
ENTRY FOR INSPECTION AND REPAIRS
Landlord shall have the right to enter the leased premises for
inspection during normal business hours and whenever necessary, obtain a time
compatible with Tenant, to make repairs and alterations to the premises.
REPAIRS, ALTERATIONS AND CLEANING
Tenant shall be responsible for repairs to the interior of Tenant's
Area, including maintenance, replacement of light bulbs, and changing and
replacing air conditioning filters. Exterior maintenance of the building shall
be the responsibility of the Landlord. Landlord shall make repairs to the air
conditioning system (other than change of filters) and to the electrical and
plumbing systems other than the fixtures in Tenant's area.
For the first three years of this lease, Tenant shall be responsible
for arranging for and paying for janitorial services for Tenant's area. For
years four and five of this lease, Landlord shall pay for Tenant's janitorial
services.
TENANT DUTIES
Tenant shall, at all times during occupancy under this lease:
A. Comply with all obligations imposed upon Tenant by any
applicable provision of any building, housing or health code.
B. Keep that part of the premises which the Tenant occupies clean
and sanitary.
C. Remove from Tenant's Area all garbage in a clean and sanitary
manner and be responsible for placing that Area's garbage at
curbside as required by the City of Longwood for pickup.
D. Keep all plumbing fixtures in the Tenant's Area clean and
sanitary and in repair.
6
<PAGE>
E. Use and operate in a reasonable manner all electrical,
plumbing, sanitary, heating, ventilation, air conditioning,
and other facilities and appliances.
F. Not destroy, deface, damage, impair, or remove any part of the
premises or property therein belonging to the Landlord, nor
permit any person to do so.
WASTE, NUISANCE, OR UNLAWFUL USE
Tenant agrees that it will not commit waste on the premises, or
maintain or permit to be maintained a nuisance thereon, or use or permit the
premises to be used in an
unlawful manner.
SUBORDINATION
This Lease and all rights of Tenant hereunder shall be subject and subordinate
to the lien of any and all mortgages that may now or hereafter affect the
demised premises, or any part thereof, and to any and all renewals,
modifications or extensions of any such mortgages. Tenant shall, upon five (5)
days notice provided by Landlord, execute, acknowledge and deliver to Landlord,
without expense to Landlord, any and all instruments that may be necessary or
proper to subordinate this Lease and all rights herein to the lien of any such
mortgage or mortgages and each renewal, modification or extension thereof.
Notwithstanding any other provision of this paragraph, any such subordination by
Tenant is, and shall be, with the understanding that so long as Tenant is not in
default of its obligations hereunder, this Lease, and the tenancy provided
herein, shall continue in full force and effect, and Tenant shall be permitted
to occupy the demised premises under the terms hereof notwithstanding any
default by Landlord under said mortgage or transfer of title to the demised
premises by foreclosure, deed in lieu of foreclosure, or otherwise.
INDEMNITY
Landlord shall not be liable for any loss, injury, death, or damage to
persons or property which at any time may be suffered or sustained by Tenant or
by any person who may at any time be using or occupying or visiting the leased
property, or be in, on, or about the leased property, whether such loss, injury,
death, or damage shall be caused by or in any way result from or arise out of
any act, omission, or negligence of Tenant or of any occupant, subtenant,
co-tenant, visitor, or user of any portion of the leased property, or shall
result from or be caused by any other matter or thing whether of the same kind
as or of a different kind than the matters or things above set forth.
Tenant shall indemnify Landlord against all claims, liability, loss, or
damage whatsoever on account of any such loss, injury, death, or damage arising
in any way out of Tenant's rental of the leased premises. Tenant hereby waives
all claims against
7
<PAGE>
Landlord for damages to any improvements that are now on or hereafter placed or
built on the leased property and to the property of Tenant in, on, or about the
property, and for injuries to persons or property in or about the premises, from
any cause arising at any time.
LANDLORD'S REMEDIES ON DEFAULT
If Tenant defaults in the payment of rent, or defaults in the
performance of any of the other covenants or conditions of this agreement,
Landlord may give Tenant notice of such default and if Tenant does not cure any
rent default within seven (7) days, or other default within thirty (30) days,
after the giving of such notice (or if such other default is of such nature that
it cannot be completely cured within such period, if Tenant does not commence
such curing within such thirty (30) days and thereafter proceed with reasonable
diligence and in good faith to cure such default), then Landlord may terminate
this lease on not less than five (5) days' notice to Tenant. On the date
specified in the notice the term of this lease shall terminate and Tenant shall
then quit and surrender the premises to Landlord, but Tenant shall remain liable
as provided below. If this lease shall have been so terminated by Landlord,
Landlord may at any time thereafter resume possession of the premises by any
lawful means and remove Tenant or other occupants and their effects.
DEFICIENCY
In any case where Landlord has recovered possession of the premises by
reason of Tenant's default, Landlord may, at Landlord's option, occupy the
premises or cause the premises to be redecorated, altered, divided, consolidated
with other adjoining premises, or otherwise changed or prepared for re-letting,
and may re-let the premises or any part of the premises as agent of Tenant or
otherwise, for a time or terms to expire prior to, at the same time as, or
subsequent to, the original expiration date of this lease, at Landlord's option,
and receive the rent therefor. Rent so received shall be applied first to the
payment of such expenses as Landlord may have incurred in connection with the
recovery of possession and to repair for damages or preparing for re-letting,
and the re-letting, including brokerage and reasonable attorneys' fees, and then
to the payment of damages in amounts equal to the rent under this agreement and
to the cost and expenses of performance of the other covenants of Tenant as
herein provided. Tenant agrees, in any such case, whether or not Landlord has
re-let, to pay to Landlord damages equal to the rent and other sums herein
agreed to be paid by Tenant, less the new proceeds of the re-letting, if any and
the damages shall be payable by Tenant on the several rent days above specified,
or at the option of the Landlord, the Landlord may elect to declare all
remaining amounts of rent due at once and the entire balance of the rent shall
be accelerated. In re-letting the premises Landlord may grant rent concessions,
and Tenant shall not be credited with such concessions. No such re-letting shall
constitute a surrender and acceptance or be deemed evidence of a surrender and
acceptance. If Landlord elects, pursuant to this
8
<PAGE>
agreement, actually to occupy and use the premises or any part of the premises
during any part of the balance of the term as originally fixed or since
extended, there shall be allowed against Tenant's obligation for rent or damages
as herein defined, during the period of Landlord's occupancy, the reasonable
value of such occupancy, not to exceed in any event the rent herein reserved and
such occupancy shall not by construed as a relief of Tenant's liability under
this agreement.
Tenant hereby waives all right of redemption to which Tenant or any
person claiming under Tenant might be entitled by any law now or hereafter in
force. Landlord's remedies under this agreement are in addition to any remedy
allowed by law.
INSURANCE
Tenant shall provide, pay for, and maintain in force the required insurance at
all times during the lease term performed. Such policy or policies shall be
issued by companies authorized to do business in the State of Florida, and
having agents upon whom service of process may be made in the State of Florida.
Tenant shall provide the following.
(a) Severabilitv of Interest: The liability insurance afforded shall
apply separately to each insured, named insured, or additional insured with
respect to any claim, suit or judgment made or brought by or for any other
insured, named insured, or additional insured as though a separate policy had
been issued to each, except for insurer's liability shall not be increased
beyond the amount or amounts for which the insurer would have been liable had
only one insured been named. The inclusion of any person or organization as an
insured, named insured or additional insured shall not affect any right which
such person or organization would have as a claimant if not so included.
(b) Workers' Compensation and Employers Liability Insurance: Workers'
Compensation Insurance to apply for all employees in compliance with the
"Workers' Compensation Law" of the State of Florida and all applicable Federal
laws. In addition, the policies shall include Employers Liability Insurance with
minimum limits of One Hundred Thousand Dollars ($100,000.00) each accident; One
Hundred Thousand Dollars ($100,000.00) each employee and Five Hundred Thousand
Dollars ($500.000.00) minimum policy limit for disease.
(c) General Liability Insurance: General Liability Insurance with
minimum limits of One Million Dollars ($1,000,000.00) per occurrence combined
single limit for Bodily Injury Liability and Property Damage Liability. Coverage
must be afforded on a form no more restrictive than the latest edition of the
General Liability Policy, without restrictive endorsements, as filed by the
Insurance Services Office and must include G & G Holdings Limited, Inc. to be
named as additional insureds.
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<PAGE>
(d) Certificate of Insurance: Tenant shall provide to Landlord a
Certificate of Insurance or a copy of all insurance policies required by this
Section. Landlord reserves the right to require a certified copy of such
policies upon request. All endorsements and certificates shall state that
Landlord shall be given thirty (30) days written notice prior to expiration or
cancellation of the policy.
NOTICES
(a) All notices, demands, or other writings required to be given or
made or sent in this Lease, or which may be given or made or sent, by either
party to the other, shall be deemed to have fully given or made or sent when in
writing and addressed as follows:
Landlord
--------
G & G Holdings, Inc.
c/o Richard L. Goble
282 Snowfields Run
Heathrow, FL 32746
Tenant
------
Advantage Trading Group, Inc.
c/o Richard L. Goble
282 Snowfields Run
Heathrow, FL 32746
(b) All notices required, or which may be given hereunder, shall be
considered properly given if (1) personally delivered, (2) sent by certified
United States mail, return receipt requested, or (3) sent by Federal Express or
other equivalent overnight letter delivery company.
(c) The effective date of such notices shall be the date personally
delivered, or if sent by mail, the date of the postmark, or if sent by overnight
letter delivery company, the date the notice was picked up by the overnight
letter delivery company.
(d) Parties may designate other parties or addresses to which notice
shall be sent by notifying, in writing, the other party in a manner designated
for the filing of notice hereunder.
GENERAL PROVISIONS
A. This agreement contains the entire understanding of the parties
hereto. No amendment or modification to this agreement shall be valid unless
reduced to writing and executed by both parties hereto.
10
<PAGE>
B. Should a disagreement occur between the parties regarding any term
or provision contained in this agreement which results in litigation occurring,
the prevailing party in such litigation shall be entitled, in addition to the
relief sought in such litigation, to the recovery of all attorney fees and costs
expended by such party in connection with such litigation.
C. In the event the demised premises are totally destroyed by fire,
casualty, disaster, or other cause, this lease shall immediately terminate and
be canceled, and neither party shall thereafter have any further obligation
hereunder. Should the demised premises be damaged as to render it unfit for
occupancy, yet be repairable within a reasonable time, Landlord shall enter and
repair the same with reasonable promptness. Payment of rent shall be abated
while such repairs are being made, but shall commence immediately after said
repairs shall be completed.
D. At the end of the term or any renewals thereof, Tenant shall quit
and deliver up the premises to the Landlord in as good condition as it is now,
ordinary wear, decay and damage by the elements excepted.
E. If the premises are substantially taken by eminent domain, either
party may terminate the lease without liability for the remainder of the term.
F. This agreement shall inure to the benefit of the parties and their
successors and assignees.
G. Venue. In the event that either party files an action to enforce
this lease, Venue shall be proper in court of competent jurisdiction in Seminole
County, Florida.
WAIVERS
A waiver by Landlord of a breach of any covenant or duty of Tenant
under this lease is not a waiver of a breach of any other covenant or duty of
Tenant, or of any subsequent breach of the same covenant or duty.
TIME OF THE ESSENCE
Time is of the essence of this lease, and of each and every covenant,
term, condition, and provision hereof.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this lease.
LANDLORD G & G Holdings, Inc.
By: /s/ Richard L. Goble
--------------------
Richard L. Goble, President
Date: 8/13/99
-------
TENANT
Advantage Trading Group, Inc.
By: /s/ Richard L. Goble
--------------------
Richard L. Goble, President
Date: 8/13/99
-------
12
LEASE
<TABLE>
<CAPTION>
BASIC LEASE INFORMATION
<S> <C>
Landlord: G & G Holdings, Inc.
Tenant: Empire Financial Group, Inc.
Location of Commercial Office Building: 1385 W. Highway 434, Longwood, FL 32750.
Leaseable Square Feet of Premises: 5,906
Leaseable Square Feet of Building: 19,400
Tenant's Share: 30%
Lease Commencement Date: May 8, 1999
Lease Expiration Date: May 31, 2009
Base Rent Commencement Date: June 1, 1999
Initial Base Rent: $9,228.00 per month, plus sales tax
Security Deposit Received: $0
Use of Premises: General Office
</TABLE>
TERM AND RENT
(a) Tenant agrees to pay Landlord Base Rent ("Base Rent") in the
amounts set forth below, payable in advance in equal monthly installments, for
each and every calendar month of the Term of this Lease, adjusted as provided
below:
<TABLE>
<CAPTION>
Term Total Annual Base Rent Monthly Payment
---- ---------------------- ---------------
<S> <C> <C>
5/8/99-6/1/99 $0 $0
Lease Year 1 $110,736.00 $9,288.00
Lease Year 2 $116,280.00 $9,690.00
Lease Year 3 $122,088.00 $10,174.00
Lease Year 4 $128,196.00 $10,683.00
Lease Year 5 $134,604.00 $11,217.00
Lease Year 6 $141,336.00 $11,778.00
Lease Year 7 $148,404.00 $12,367.00
Lease Year 8 $155,820.00 $11,985.00
Lease Year 9 $163,608.00 $13,634.00
Lease Year 10 $171,792.00 $14,316.00
</TABLE>
<PAGE>
(b) Base Rent shall be payable in equal monthly installments as set
forth above, the first of which shall be due on the Base Rent Commencement Date.
Rent for any partial month of occupancy at the end of the Term of this Lease
shall be pro-rated, such pro-ration to be based upon the actual number of days
in the partial month.
(c) In addition to Base Rent, and any Additional Rent that may be due
by reason of other sections of this Lease, Tenant shall pay to Landlord each
month a sum equal to any sales tax, tax on rentals, and any other charges, taxes
and/or impositions, now in existence or hereafter imposed, based upon the
privilege of renting the space leased hereunder or upon the amount of rent
collected therefore. Nothing herein shall require Tenant to pay any part of any
federal or state taxes on income imposed on Landlord.
(d) (i) As of the Lease Commencement Date, Tenant shall pay, as
Additional Rent (defined below), Tenant's share ("Tenant's Share"), as
hereinafter defined, of the total amount of the annual operating expenses
("Operating Expenses"). For all years during the Lease Term, Landlord shall in
advance, reasonably estimate for each calendar year the total amount of the
Operating Expenses, and shall notify Tenant in writing. One-twelfth (1/12th ) of
the estimated Operating Expenses shall be payable monthly in advance, along with
each monthly payment of Base Rent.
(ii) Landlord shall, within ninety (90) days after the close
of any calendar year for which additional rent is due under the provisions of
this Section, give a written statement to Tenant showing computations for
Additional Rent due, except that Landlord, at Landlord's option, may give Tenant
a written statement showing the computation of any additional rent due by reason
of this Section within thirty (30) days after receipt by Landlord of tax or
assessment statements enabling Landlord to determine the amount of Additional
Rent attributable to or resulting therefrom. Tenant shall have the right to
inspect and audit Landlord's books and records showing the Operating Expenses
for such calendar year and the annual operating statement or any other statement
shall be deemed approved unless protested in writing within thirty (30) days
after receipt by Tenant. Tenant shall make full payment of such Additional Rent
to Landlord within thirty (30) days after receipt of the statement for
Additional Rent. In the event of decrease in Operating Expenses for a prior
calendar year, any overpayment of estimated Operating Expenses by Tenant for
that calendar year shall be credited against Tenant's next payment of Additional
or Base Rent.
(e) (i) The term "Operating Expenses" shall mean all commercially
reasonable expenses and costs of ownership, management, operation and
maintenance of the Building, including, without limitation:
2
<PAGE>
(A) Wages, salaries, professional fees, taxes,
insurance, benefits and other payroll
burdens of all employees employed in
connection with the operation and
maintenance of the Building.
(B) Building management fee not to exceed three
percent (3%) of Base Rent and Additional
Rent.
(C) Landscaping costs, maintenance, guard and
other services (if to be provided by
Landlord pursuant to the terms of this
Lease).
(D) Power, fuel, water, sewer, waste disposal,
lighting, garbage removal, window cleaning,
system maintenance, and parking area care.
(E) Any and all other utilities, materials,
supplies, maintenance and repairs.
(F) Insurance applicable to the Building.
(G) The cost (amortized over such reasonable
period as Landlord shall determine together
with interest at the rate of twelve percent
(12%) per annum on the amortized balance) of
any capital improvements made to the
Building by Landlord after the date of this
Lease.
(H) Taxes (defined below).
(I) Real estate brokers commissions.
(J) Structural repair or roof repair.
(K) Operating Expenses shall not include:
(1) Depreciation on the Building,
(2) Costs of tenant's improvements,
(3) Debt service on the Building.
(4) Utilities metered for individual
tenants, and
Landlord hereby agrees to deduct each year from the amount of the Operating
Expenses the total amount of any and all sums, amounts or charges paid by Tenant
or other tenants of the Building directly to Landlord or its agent for specific
tenant-requested services.
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(ii) The term "Taxes" shall mean the gross amount (which
shall mean the amount of such taxes as assessed by the taxing authority based on
the maximum discount amount payable for a given year) of all impositions, taxes,
assessments (special or otherwise), water and sewer assessments and other
governmental liens or charges of any and every kind, nature and sort whatsoever
ordinary and extraordinary, foreseen and unforeseen, and substitutes therefor,
including all taxes whatsoever, except for taxes for the following categories
which shall be excluded from the definition of Taxes: (A) any inheritance,
estate, succession, transfer or gift taxes imposed upon Landlord or (B) any
income taxes specifically payable by Landlord as a separate tax-paying entity
without regard to Landlord's income source as arising from or out of the
Building and/or the land on which it is located) attributable in any manner to
the Building, the land on which the Building is located or the rents (however
the term may be defined) receivable therefrom, or any part thereof, or any use
thereon, or any facility located therein or used in conjunction therewith,
whether or not any of the foregoing shall be designated "real estate tax",
"sales tax", "rental tax", "excise tax", "business Tax", or designated in any
other manner, but nothing herein shall be construed as relieving Tenant of its
obligation to pay sales tax.
(iii) The term "Tenant's Share" at the Commencement of the
Term of the Lease shall mean the following percentage: Thirty (30%). Landlord
and Tenant acknowledge that Tenant's Share has been obtained by dividing the
leaseable area of the Premises, which Landlord and Tenant hereby stipulate for
all purposes is 5,906 leaseable square feet, by the total leaseable area of the
Building, which Landlord and Tenant hereby stipulate for all purposes is 19,400
square feet, and multiplying such quotient by I00. In the event Tenant's Share
is changed during a calendar year by reason of a change in the leaseable area of
the Premises, Tenant's Share shall thereafter mean the result obtained by
dividing the new leaseable area of the Premises by 19,400 square feet and
multiplying such quotient by 100. Tenant's share shall be determined on the
basis of the number of days during such calendar year applicable to each such
Tenant's Share.
(iv) The term "Rent" shall mean the sum of the Base Rent and
Additional Rent, if applicable. The term "Additional Rent" refers to any and all
other sums payable by Tenant hereunder defined and as specified in the other
provisions of this Lease. Tenant agrees to pay such Additional Rent upon demand
by Landlord and that Additional Rent is to be treated in the same manner as Rent
hereunder, both in terms of the lien for Rent herein provided and in terms of
the default provisions herein contained.
Tenant also agrees to pay a late charge fee of $20.00 for any monthly
payment not paid on or before the 10th day of the month in which the rental
payment is due, and an additional late charge fee of $10.00 per day thereafter
until said payment and late charge fee are paid in full.
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Should the Tenant pay the rent late three (3) times or more in any
twelve (12) month period, Landlord shall have the right to terminate this Lease
by giving Tenant sixty (60) days written notice.
SECURITY DEPOSIT
On execution of this lease, Landlord acknowledges Tenant's previous
deposit of the sum of $0, as security for the faithful performance by Tenant of
the terms and conditions hereof. Such deposit shall be returned to Tenant upon
the termination of this lease if there exists no breach of any of the covenants
of this lease at that time.
USE OF PREMISES
Tenant shall use the demised premises only as a commercial office,
unless Landlord's consent is obtained in writing, which consent shall not be
unreasonably withheld.
ASSIGNMENT AND SUBLETTING
Without the prior written consent of Landlord, Tenant shall not assign
this lease, or sublet or grant any concession or license to use the retail or
office space or any part thereof. A consent by Landlord to one assignment,
subletting, concession, or license shall not be deemed to be a consent to any
subsequent assignment, subletting, concession, or license. An assignment,
subletting, concession, or license without the prior written consent of
Landlord, or an assignment or subletting by operation of law, shall be void and
shall, at Landlord's option, terminate this lease.
ALTERATIONS, IMPROVEMENTS AND SIGNS
All signs must be approved, in writing, by Landlord.
Tenant shall make no alterations or improvements to the building on the
demised premises without the prior written consent of the Landlord. All
alterations, changes, and improvements built, constructed, or placed on the
demised premises by Tenant, with the exception of fixtures removable without
damage to the premises, trade fixtures, and moveable personal property, shall,
unless otherwise provided by written agreement between Landlord and Tenant, be
the property of Landlord and remain on the demised premises at the expiration or
sooner termination of this lease.
UTILITIES, SALES TAX, PROPERTY TAXES AND INSURANCE
For the first three years of this lease, Tenant shall be responsible
for arranging for and paying for all utilities. For years four and five of this
lease, Landlord shall pay
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for Tenant's electric, water, and sewer. Landlord shall be responsible for all
real property taxes on the premises. Tenant shall be responsible for personal
property taxes on personal property located in Tenant's Area and all sales taxes
due on the rental amount.
Tenant shall be responsible for all casualty insurance on its personal
property and the contents of its premises. Tenant shall be responsible for and
provide premises liability insurance for its area. Landlord shall be responsible
for insurance on the structure and common areas.
ENTRY FOR INSPECTION AND REPAIRS
Landlord shall have the right to enter the leased premises for
inspection during normal business hours and whenever necessary, obtain a time
compatible with Tenant, to make repairs and alterations to the premises.
REPAIRS, ALTERATIONS AND CLEANING
Tenant shall be responsible for repairs to the interior of Tenant's
Area, including maintenance, replacement of light bulbs, and changing and
replacing air conditioning filters. Exterior maintenance of the building shall
be the responsibility of the Landlord. Landlord shall make repairs to the air
conditioning system (other than change of filters) and to the electrical and
plumbing systems other than the fixtures in Tenant's area.
For the first three years of this lease, Tenant shall be responsible
for arranging for and paying for janitorial services for Tenant's area. For
years four and five of this lease, Landlord shall pay for Tenant's janitorial
services.
TENANT DUTIES
Tenant shall, at all times during occupancy under this lease:
A. Comply with all obligations imposed upon Tenant by any
applicable provision of any building, housing or health code.
B. Keep that part of the premises which the Tenant occupies clean
and sanitary.
C. Remove from Tenant's Area all garbage in a clean and sanitary
manner and be responsible for placing that Area's garbage at
curbside as required by the City of Longwood for pickup.
D. Keep all plumbing fixtures in the Tenant's Area clean and
sanitary and in repair.
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E. Use and operate in a reasonable manner all electrical,
plumbing, sanitary, heating, ventilation, air conditioning,
and other facilities and appliances.
F. Not destroy, deface, damage, impair, or remove any part of the
premises or property therein belonging to the Landlord, nor
permit any person to do so.
WASTE, NUISANCE, OR UNLAWFUL USE
Tenant agrees that it will not commit waste on the premises, or
maintain or permit to be maintained a nuisance thereon, or use or permit the
premises to be used in an
unlawful manner.
SUBORDINATION
This Lease and all rights of Tenant hereunder shall be subject and subordinate
to the lien of any and all mortgages that may now or hereafter affect the
demised premises, or any part thereof, and to any and all renewals,
modifications or extensions of any such mortgages. Tenant shall, upon five (5)
days notice provided by Landlord, execute, acknowledge and deliver to Landlord,
without expense to Landlord, any and all instruments that may be necessary or
proper to subordinate this Lease and all rights herein to the lien of any such
mortgage or mortgages and each renewal, modification or extension thereof.
Notwithstanding any other provision of this paragraph, any such subordination by
Tenant is, and shall be, with the understanding that so long as Tenant is not in
default of its obligations hereunder, this Lease, and the tenancy provided
herein, shall continue in full force and effect, and Tenant shall be permitted
to occupy the demised premises under the terms hereof notwithstanding any
default by Landlord under said mortgage or transfer of title to the demised
premises by foreclosure, deed in lieu of foreclosure, or otherwise.
INDEMNITY
Landlord shall not be liable for any loss, injury, death, or damage to
persons or property which at any time may be suffered or sustained by Tenant or
by any person who may at any time be using or occupying or visiting the leased
property, or be in, on, or about the leased property, whether such loss, injury,
death, or damage shall be caused by or in any way result from or arise out of
any act, omission, or negligence of Tenant or of any occupant, subtenant,
co-tenant, visitor, or user of any portion of the leased property, or shall
result from or be caused by any other matter or thing whether of the same kind
as or of a different kind than the matters or things above set forth.
Tenant shall indemnify Landlord against all claims, liability, loss, or
damage whatsoever on account of any such loss, injury, death, or damage arising
in any way out of Tenant's rental of the leased premises. Tenant hereby waives
all claims against
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Landlord for damages to any improvements that are now on or hereafter placed or
built on the leased property and to the property of Tenant in, on, or about the
property, and for injuries to persons or property in or about the premises, from
any cause arising at any time.
LANDLORD'S REMEDIES ON DEFAULT
If Tenant defaults in the payment of rent, or defaults in the
performance of any of the other covenants or conditions of this agreement,
Landlord may give Tenant notice of such default and if Tenant does not cure any
rent default within seven (7) days, or other default within thirty (30) days,
after the giving of such notice (or if such other default is of such nature that
it cannot be completely cured within such period, if Tenant does not commence
such curing within such thirty (30) days and thereafter proceed with reasonable
diligence and in good faith to cure such default), then Landlord may terminate
this lease on not less than five (5) days' notice to Tenant. On the date
specified in the notice the term of this lease shall terminate and Tenant shall
then quit and surrender the premises to Landlord, but Tenant shall remain liable
as provided below. If this lease shall have been so terminated by Landlord,
Landlord may at any time thereafter resume possession of the premises by any
lawful means and remove Tenant or other occupants and their effects.
DEFICIENCY
In any case where Landlord has recovered possession of the premises by
reason of Tenant's default, Landlord may, at Landlord's option, occupy the
premises or cause the premises to be redecorated, altered, divided, consolidated
with other adjoining premises, or otherwise changed or prepared for re-letting,
and may re-let the premises or any part of the premises as agent of Tenant or
otherwise, for a time or terms to expire prior to, at the same time as, or
subsequent to, the original expiration date of this lease, at Landlord's option,
and receive the rent therefor. Rent so received shall be applied first to the
payment of such expenses as Landlord may have incurred in connection with the
recovery of possession and to repair for damages or preparing for re-letting,
and the re-letting, including brokerage and reasonable attorneys' fees, and then
to the payment of damages in amounts equal to the rent under this agreement and
to the cost and expenses of performance of the other covenants of Tenant as
herein provided. Tenant agrees, in any such case, whether or not Landlord has
re-let, to pay to Landlord damages equal to the rent and other sums herein
agreed to be paid by Tenant, less the new proceeds of the re-letting, if any and
the damages shall be payable by Tenant on the several rent days above specified,
or at the option of the Landlord, the Landlord may elect to declare all
remaining amounts of rent due at once and the entire balance of the rent shall
be accelerated. In re-letting the premises Landlord may grant rent concessions,
and Tenant shall not be credited with such concessions. No such re-letting shall
constitute a surrender and acceptance or be deemed evidence of a surrender and
acceptance. If Landlord elects, pursuant to this
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agreement, actually to occupy and use the premises or any part of the premises
during any part of the balance of the term as originally fixed or since
extended, there shall be allowed against Tenant's obligation for rent or damages
as herein defined, during the period of Landlord's occupancy, the reasonable
value of such occupancy, not to exceed in any event the rent herein reserved and
such occupancy shall not by construed as a relief of Tenant's liability under
this agreement.
Tenant hereby waives all right of redemption to which Tenant or any
person claiming under Tenant might be entitled by any law now or hereafter in
force. Landlord's remedies under this agreement are in addition to any remedy
allowed by law.
INSURANCE
Tenant shall provide, pay for, and maintain in force the required insurance at
all times during the lease term performed. Such policy or policies shall be
issued by companies authorized to do business in the State of Florida, and
having agents upon whom service of process may be made in the State of Florida.
Tenant shall provide the following.
(a) Severabilitv of Interest: The liability insurance afforded shall
apply separately to each insured, named insured, or additional insured with
respect to any claim, suit or judgment made or brought by or for any other
insured, named insured, or additional insured as though a separate policy had
been issued to each, except for insurer's liability shall not be increased
beyond the amount or amounts for which the insurer would have been liable had
only one insured been named. The inclusion of any person or organization as an
insured, named insured or additional insured shall not affect any right which
such person or organization would have as a claimant if not so included.
(b) Workers' Compensation and Employers Liability Insurance: Workers'
Compensation Insurance to apply for all employees in compliance with the
"Workers' Compensation Law" of the State of Florida and all applicable Federal
laws. In addition, the policies shall include Employers Liability Insurance with
minimum limits of One Hundred Thousand Dollars ($100,000.00) each accident; One
Hundred Thousand Dollars ($100,000.00) each employee and Five Hundred Thousand
Dollars ($500.000.00) minimum policy limit for disease.
(c) General Liability Insurance: General Liability Insurance with
minimum limits of One Million Dollars ($1,000,000.00) per occurrence combined
single limit for Bodily Injury Liability and Property Damage Liability. Coverage
must be afforded on a form no more restrictive than the latest edition of the
General Liability Policy, without restrictive endorsements, as filed by the
Insurance Services Office and must include G & G Holdings Limited, Inc. to be
named as additional insureds.
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(d) Certificate of Insurance: Tenant shall provide to Landlord a
Certificate of Insurance or a copy of all insurance policies required by this
Section. Landlord reserves the right to require a certified copy of such
policies upon request. All endorsements and certificates shall state that
Landlord shall be given thirty (30) days written notice prior to expiration or
cancellation of the policy.
NOTICES
(a) All notices, demands, or other writings required to be given or
made or sent in this Lease, or which may be given or made or sent, by either
party to the other, shall be deemed to have fully given or made or sent when in
writing and addressed as follows:
Landlord
--------
G & G Holdings, Inc.
c/o Richard L. Goble
282 Snowfields Run
Heathrow, FL 32746
Tenant
------
Empire Financial Group, Inc.
c/o Richard L. Goble
282 Snowfields Run
Heathrow, FL 32746
(b) All notices required, or which may be given hereunder, shall be
considered properly given if (1) personally delivered, (2) sent by certified
United States mail, return receipt requested, or (3) sent by Federal Express or
other equivalent overnight letter delivery company.
(c) The effective date of such notices shall be the date personally
delivered, or if sent by mail, the date of the postmark, or if sent by overnight
letter delivery company, the date the notice was picked up by the overnight
letter delivery company.
(d) Parties may designate other parties or addresses to which notice
shall be sent by notifying, in writing, the other party in a manner designated
for the filing of notice hereunder.
GENERAL PROVISIONS
A. This agreement contains the entire understanding of the parties
hereto. No amendment or modification to this agreement shall be valid unless
reduced to writing and executed by both parties hereto.
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B. Should a disagreement occur between the parties regarding any term
or provision contained in this agreement which results in litigation occurring,
the prevailing party in such litigation shall be entitled, in addition to the
relief sought in such litigation, to the recovery of all attorney fees and costs
expended by such party in connection with such litigation.
C. In the event the demised premises are totally destroyed by fire,
casualty, disaster, or other cause, this lease shall immediately terminate and
be canceled, and neither party shall thereafter have any further obligation
hereunder. Should the demised premises be damaged as to render it unfit for
occupancy, yet be repairable within a reasonable time, Landlord shall enter and
repair the same with reasonable promptness. Payment of rent shall be abated
while such repairs are being made, but shall commence immediately after said
repairs shall be completed.
D. At the end of the term or any renewals thereof, Tenant shall quit
and deliver up the premises to the Landlord in as good condition as it is now,
ordinary wear, decay and damage by the elements excepted.
E. If the premises are substantially taken by eminent domain, either
party may terminate the lease without liability for the remainder of the term.
F. This agreement shall inure to the benefit of the parties and their
successors and assignees.
G. Venue. In the event that either party files an action to enforce
this lease, Venue shall be proper in court of competent jurisdiction in Seminole
County, Florida.
WAIVERS
A waiver by Landlord of a breach of any covenant or duty of Tenant
under this lease is not a waiver of a breach of any other covenant or duty of
Tenant, or of any subsequent breach of the same covenant or duty.
TIME OF THE ESSENCE
Time is of the essence of this lease, and of each and every covenant,
term, condition, and provision hereof.
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IN WITNESS WHEREOF, the parties have executed this lease.
LANDLORD G & G Holdings, Inc.
By: /s/ Richard L. Goble
--------------------
Richard L. Goble, President
Date: 8/13/99
-------
TENANT
Empire Financial Group, Inc.
By: /s/ Richard L. Goble
--------------------
Richard L. Goble, President
Date: 8/13/99
-------
12
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, effective as of ________________, 2000
between Empire Financial Holding Company, a Florida corporation (the "Company"),
and ______________ (the "Indemnitee").
Recitals
--------
A. The Company desires to continue to retain the services of the
Indemnitee as a director and/or executive officer of the Company.
B. As a condition to the Indemnitee's agreement to continue to serve as
a director and/or executive officer of the Company, the Indemnitee requires that
he be indemnified from liability to the fullest extent permitted by law.
C. The Company is willing to indemnify the Indemnitee to the fullest
extent permitted by law in order to retain the services of the Indemnitee.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein, the Company and the Indemnitee agree as follows:
SECTION 1. Mandatory Indemnification In Actions, Suits Or Proceedings
Other Than Those By Or In The Right Of The Company. Subject to Section 4 hereof,
the Company shall indemnify and hold harmless the Indemnitee from and against
any and all claims, damages, expenses (including attorneys' fees), judgments,
fines (including excise taxes assessed with respect to an employee benefit
plan), amounts paid in settlement and all other liabilities actually and
reasonably incurred by him in connection with the investigation, defense,
prosecution, settlement or appeal of any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) and to
which the Indemnitee was or is a party or is threatened to be made a party by
reason of the fact that the Indemnitee is or was an officer, director, employee
or agent of the Company or any of its subsidiaries, or is or was serving at the
request of the Company as an officer, director, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, or by reason of anything done or not done by
the Indemnitee in any such capacity or capacities, provided that the Indemnitee
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
SECTION 2. Mandatory Indemnification In Actions Or Suits By Or In The
Right Of The Company. Subject to Section 4 hereof, the Company shall indemnify
and hold harmless the Indemnitee from and against any and all expenses
(including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him in connection with the
<PAGE>
investigation, defense, settlement or appeal of any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor and to which the Indemnitee was or is a party or is threatened to
be made a party by reason of the fact that the Indemnitee is or was an officer,
director, employee or agent of the Company, or is or was serving at the request
of the Company as an officer, director, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, or by reason of anything done or not done by the Indemnitee in
such capacity or capacities, provided that (i) the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, (ii) indemnification for amounts paid in settlement
shall not exceed, in the judgment of the Board of Directors, the estimated
expense of litigating the proceeding to conclusion, and (iii) no indemnification
shall be made in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable for misconduct in the
performance of his duty to the Company unless and only to the extent that the
court in which such action or suit was brought (or any other court of competent
jurisdiction) shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
SECTION 3. Reimbursement Of Expenses Following Adjudication Of
Negligence. The Company shall reimburse the Indemnitee for any expenses
(including attorney's fees) and amounts paid in settlement actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of any action or suit described in Section 2 hereof that
results in an adjudication that the Indemnitee was liable for negligence (but
not willful misconduct) in the performance of his duty to the Company; provided,
however, that the Indemnitee acted in good faith and in a manner he believed to
be in the best interests of the Company.
SECTION 4. Authorization Of Indemnification. Any indemnification under
Sections l and 2 hereof (unless ordered by a court) and any reimbursement made
under Section 3 hereof shall be made by the Company only as authorized in the
specific case upon a determination (the "Determination") that indemnification or
reimbursement of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in Sections 1, 2
or 3 hereof, as the case may be. Subject to Sections 5.6, 5.7 and 8 of this
Agreement, the Determination shall be made in the following order of preference:
(1) first, by the Company's Board of Directors (the
"Board") by majority vote or consent of a quorum consisting of directors
("Disinterested Directors") who are not, at the time of the Determination, named
parties to such action, suit or proceeding; or
(2) next, if such a quorum of Disinterested Directors
cannot be obtained, by majority vote or consent of a committee duly designated
by the Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested
Directors; or
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<PAGE>
(3) next, if such a committee cannot be designated, by any
independent legal counsel (who may be the outside counsel regularly employed by
the Company) selected pursuant to Section 5.6 hereof; or
(4) next, if such legal counsel determination cannot be
obtained, by vote or consent of the holders of a majority of the Company's
shares of common stock ("Disinterested Shareholders") that are represented in
person or by proxy and entitled to vote at a meeting called for such purpose,
excluding the Indemnitee and shareholders who are at the time of the
Determination named parties to such action, suit or proceeding.
4.1 No Presumptions. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
4.2 Benefit Plan Conduct. The Indemnitee's conduct with
respect to an employee benefit plan for a purpose he reasonably believed to be
in the interests of the participants in and beneficiaries of the plan shall be
deemed to be conduct that the Indemnitee reasonably believed to be not opposed
to the best interests of the Company.
4.3 Reliance as Safe Harbor. For purposes of any Determination
hereunder, the Indemnitee shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on (i) the records or books of account of the Company or another enterprise,
including financial statements, (ii) information supplied to him by the officers
of the Company or another enterprise in the course of their duties, (iii) the
advice of legal counsel for the Company or another enterprise, or (iv)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 4.3 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 4.3 shall not be deemed to be exclusive or to limit
in any way the other circumstances in which the Indemnitee may be deemed to have
met the applicable standard of conduct set forth in Sections l, 2 or 3 hereof,
as the case may be.
4.4 Success on Merits or Otherwise. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Section 1 or 2 hereof, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
investigation, defense,
-3-
<PAGE>
settlement or appeal thereof. For purposes of this Section 4.4, the term
"successful on the merits or otherwise" shall include, but not be limited to,
(i) any termination, withdrawal, or dismissal (with or without prejudice) of any
claim, action, suit or proceeding against the Indemnitee without any express
finding of liability or guilt against him, (ii) the expiration of 120 days after
the making of any claim or threat of an action, suit or proceeding without the
institution of the same and without any promise or payment made to induce a
settlement, or (iii) the settlement of any action, suit or proceeding under
Section 1, 2 or 3 hereof pursuant to which the Indemnitee pays less than
$10,000.
4.5 Partial Indemnification or Reimbursement. If the
Indemnitee is entitled under any provision of this Agreement to indemnification
and/or reimbursement by the Company for some or a portion of the claims,
damages, expenses (including attorneys' fees), judgments, fines or amounts paid
in settlement by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action specified in Section 1, 2 or 3 hereof, but
not, however, for the total amount thereof, the Company shall nevertheless
indemnify and/or reimburse the Indemnitee for the portion thereof to which the
Indemnitee is entitled. The party or parties making the Determination shall
determine the portion (if less than all) of such claims, damages, expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement for
which the Indemnitee is entitled to indemnification and/or reimbursement under
this Agreement.
4.6 Limitations on Indemnification. No indemnification
pursuant to Sections 1 and 2 hereof shall be paid by the Company if a judgment
(after exhaustion of all appeals) or other final adjudication determines that
the Indemnitee's actions, or omissions to act, were material to the cause of
action so adjudicated and constitute:
(a) a violation of criminal law, unless the Indemnitee had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful;
(b) a transaction from which the Indemnitee received an
improper personal benefit within the meaning of Section 607.0850(7) of the
Florida Business Corporation Act;
(c) a circumstance under which the liability provisions of
Section 607.0834 of the Florida Business Corporation Act are applicable; or
(d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder of the Company.
SECTION 5. Procedures For Determination Of Whether Standards Have Been
Satisfied.
5.1 Costs. All costs of making the Determination required by
Section 4 hereof shall be borne solely by the Company, including, but not
limited to, the costs of legal counsel, proxy solicitations and judicial
determinations. The Company shall also be solely responsible
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<PAGE>
for paying (i) all reasonable expenses incurred by the Indemnitee to enforce
this Agreement, including, but not limited to, the costs incurred by the
Indemnitee to obtain court-ordered indemnification pursuant to Section 8 hereof,
regardless of the outcome of any such application or proceeding, and (ii) all
costs of defending any suits or proceedings challenging payments to the
Indemnitee under this Agreement.
5.2 Timing of the Determination. The Company shall use its
best efforts to make the Determination contemplated by Section 4 hereof
promptly. In addition, the Company agrees:
(a) if the Determination is to be made by the Board or a
committee thereof, such Determination shall be made not later than 15 days after
a written request for a Determination (a "Request") is delivered to the Company
by the Indemnitee;
(b) if the Determination is to be made by independent
legal counsel, such Determination shall be made not later than 30 days after a
Request is delivered to the Company by the Indemnitee; and
(c) if the Determination is to be made by the shareholders
of the Company, such Determination shall be made not later than 120 days after a
Request is delivered to the Company by the Indemnitee.
The failure to make a Determination within the above-specified time period shall
constitute a Determination approving full indemnification or reimbursement of
the Indemnitee. Notwithstanding anything herein to the contrary, a Determination
may be made in advance of (i) the Indemnitee's payment (or incurring) of
expenses with respect to which indemnification or reimbursement is sought,
and/or (ii) final disposition of the action, suit or proceeding with respect to
which indemnification or reimbursement is sought.
5.3 Reasonableness of Expenses. The evaluation and finding as
to the reasonableness of expenses incurred by the Indemnitee for purposes of
this Agreement shall be made (in the following order of preference) within 15
days of the Indemnitee's delivery to the Company of a Request that includes a
reasonable accounting of expenses incurred:
(a) first, by the Board by a majority vote of a quorum
consisting of Disinterested Directors; or
(b) next, if a quorum cannot be obtained under subdivision
(a), by majority vote or consent of a committee duly designated by the Board (in
which designation all directors, whether or not Disinterested Directors, may
participate), consisting solely of two or more Disinterested Directors; or
(c) next, if a finding cannot be obtained under either
subdivision (a) or (b), by vote or consent of the holders of a majority of the
Disinterested Shareholders' Common Stock that are represented in person or by
proxy at a meeting called for such purpose.
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<PAGE>
All expenses shall be considered reasonable for purposes of this Agreement if
the finding contemplated by this Section 5.3 is not made within the prescribed
time. The finding required by this Section 5.3 may be made in advance of the
payment (or incurring) of the expenses for which indemnification or
reimbursement is sought.
5.4 Payment of Indemnified Amount. Immediately following a
Determination that the Indemnitee has met the applicable standard of conduct set
forth in Sections 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by Section 5.3 hereof, or the passage of
time prescribed for making such Determination(s), the Company shall pay to the
Indemnitee in cash the amount to which the Indemnitee is entitled to be
indemnified and/or reimbursed, as the case may be, without further authorization
or action by the Board; provided, however, that the expenses for which
indemnification or reimbursement is sought have actually been incurred by the
Indemnitee.
5.5 Selection of Independent Legal Counsel. If the
Determination required under Section 4 is to be made by independent legal
counsel, such counsel shall be selected by the Board (pursuant to the procedure
set forth in Sections 4(1) and (2) hereof) with the approval of the Indemnitee,
which approval shall not be unreasonably withheld. The fees and expenses
incurred by counsel in making any Determination (including Determinations
pursuant to Section 5.6 hereof) shall be borne solely by the Company regardless
of the results of any Determination and, if requested by counsel, the Company
shall give such counsel an appropriate written agreement with respect to the
payment of their fees and expenses and such other matters as may be reasonably
requested by counsel.
5.6 Right of Indemnitee To Select Forum For Determination. If,
at any time subsequent to the date of this Agreement, "Continuing Directors" do
not constitute a majority of the members of the Board, or there is otherwise a
change in control of the Company (as contemplated by Item 403(c) of Regulation
S-K), then upon the request of the Indemnitee, the Company shall cause the
Determination required by Section 4 hereof to be made by independent legal
counsel selected by the Indemnitee and approved by the Board (which approval
shall not be unreasonably withheld), which counsel shall be deemed to satisfy
the requirements of clause (3) of Section 4 hereof. If none of the legal counsel
selected by the Indemnitee are willing and/or able to make the Determination,
then the Company shall cause the Determination to be made by a majority vote or
consent of a Board committee consisting solely of Continuing Directors. For
purposes of this Agreement, a "Continuing Director" means either a member of the
Board at the date of this Agreement or a person nominated to serve as a member
of the Board by a majority of the then Continuing Directors.
5.7 Access by Indemnitee to Determination. The Company shall
afford to the Indemnitee and his representatives ample opportunity to present
evidence of the facts upon which the Indemnitee relies for indemnification or
reimbursement, together with other information relating to any requested
Determination. The Company shall also afford the Indemnitee the reasonable
opportunity to include such evidence and information in any Company proxy
statement relating to a shareholder Determination.
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<PAGE>
5.8 Judicial Determinations in Derivative Suits. In each
action or suit described in Section 2 hereof, the Company shall cause its
counsel to use its best efforts to obtain from the Court in which such action or
suit was brought (i) an express adjudication whether the Indemnitee is liable
for negligence or misconduct in the performance of his duty to the Company, and,
if the Indemnitee is so liable, (ii) a determination whether and to what extent,
despite the adjudication of liability but in view of all the circumstances of
the case (including this Agreement), the Indemnitee is fairly and reasonably
entitled to indemnification.
SECTION 6. Scope Of Indemnity. The actions, suits and proceedings
described in Sections 1 and 2 hereof shall include, for purposes of this
Agreement, any actions that involve, directly or indirectly, activities of the
Indemnitee both in his official capacities as a Company director or officer and
actions taken in another capacity while serving as director or officer,
including, but not limited to, actions or proceedings involving (i) compensation
paid to the Indemnitee by the Company, (ii) activities by the Indemnitee on
behalf of the Company, including actions in which the Indemnitee is plaintiff,
(iii) actions alleging a misappropriation of a "corporate opportunity," (iv)
responses to a takeover attempt or threatened takeover attempt of the Company,
and (v) the Indemnitee's preparation for and appearance (or potential
appearance) as a witness in any proceeding relating, directly or indirectly, to
the Company. In addition, the Company agrees that, for purposes of this
Agreement, all services performed by the Indemnitee on behalf of, in connection
with or related to any subsidiary of the Company, any employee benefit plan
established for the benefit of employees of the Company or any subsidiary, any
corporation or partnership or other entity in which the Company or any
subsidiary has a 5% ownership interest, or any other affiliate of the Company,
shall be deemed to be at the request of the Company.
SECTION 7. Advance For Expenses.
7.1 Mandatory Advance. Expenses (including attorneys' fees, court
costs, judgments, fines, amounts paid in settlement and other payments) incurred
by the Indemnitee in investigating, defending, settling or appealing any action,
suit or proceeding described in Section 1 or 2 hereof shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding.
The Company shall promptly pay the amount of such expenses to the Indemnitee,
but in no event later than 10 days following the Indemnitee's delivery to the
Company of a written request for an advance pursuant to this Section 7, together
with a reasonable accounting of such expenses.
7.2 Undertaking to Repay. The Indemnitee hereby undertakes and
agrees to repay to the Company any advances made pursuant to this Section 7 if
and to the extent that it shall ultimately be found that the Indemnitee is not
entitled to be indemnified by the Company for such amounts.
7.3 Miscellaneous. The Company shall make the advances
contemplated by this Section 7 regardless of the Indemnitee's financial ability
to make repayment, and regardless whether indemnification of the Indemnitee by
the Company will ultimately be required. Any
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<PAGE>
advances and undertakings to repay pursuant to this Section 7 shall be unsecured
and interest-free.
SECTION 8. Court-Ordered Indemnification. Regardless whether the
Indemnitee has met the standard of conduct set forth in Sections 1, 2 or 3
hereof, as the case may be, and notwithstanding the presence or absence of any
Determination whether such standards have been satisfied, the Indemnitee may
apply for indemnification (and/or reimbursement pursuant to Section 3 hereof) to
the court conducting any proceeding to which the Indemnitee is a party or to any
other court of competent jurisdiction. On receipt of an application, the court,
after giving any notice the court considers necessary, may order indemnification
(and/or reimbursement) if it determines the Indemnitee is fairly and reasonably
entitled to indemnification (and/or reimbursement) in view of all the relevant
circumstances (including this Agreement).
SECTION 9. Nondisclosure Of Payments. Except as expressly required by
Federal securities laws, neither party shall disclose any payments under this
Agreement unless prior approval of the other party is obtained. Any payments to
the Indemnitee that must be disclosed shall, unless otherwise required by law,
be described only in Company proxy or information statements relating to special
and/or annual meetings of the Company's shareholders, and the Company shall
afford the Indemnitee the reasonable opportunity to review all such disclosures
and, if requested, to explain in such statement any mitigating circumstances
regarding the events reported.
SECTION 10. Covenant Not To Sue, Limitation Of Actions And Release Of
Claims. No legal action that if brought would give rise to a claim for
indemnification hereunder shall be brought during the term of this agreement or
asserted by or on behalf of the Company (or any of its subsidiaries) against the
Indemnitee, his spouse, heirs, executors, personal representatives or
administrators more than two years after the date the Indemnitee ceases (for any
reason) to serve as either director or an executive officer of the Company, and
any such claim or cause of action of the Company (or any of its subsidiaries)
shall be extinguished and deemed released unless asserted by filing of a legal
action within such two-year period.
SECTION 11. Indemnification Of Indemnitee's Estate. Notwithstanding any
other provision of this Agreement, and regardless whether indemnification of the
Indemnitee would be permitted and/or required under this Agreement, if the
Indemnitee is deceased, the Company shall indemnify and hold harmless the
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively the "Indemnitee's Estate") against, and the Company
shall assume, any and all claims, damages, expenses (including attorneys' fees),
penalties, judgments, fines and amounts paid in settlement actually incurred by
the Indemnitee or the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Section 1 or 2 hereof.
Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be
mandatory and not require a Determination or any other finding that the
Indemnitee's conduct satisfied a particular standard of conduct.
SECTION 12. Miscellaneous.
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<PAGE>
12.1 Notice Provision. Any notice, payment, demand or
communication required or permitted to be delivered or given by the provisions
of this Agreement shall be deemed to have been effectively delivered or given
and received on the date personally delivered to the respective party to whom it
is directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the parties at the addresses set forth by their
signatures to this Agreement.
12.2 Entire Agreement. Except for the Company's Articles of
Incorporation and Bylaws, this Agreement constitutes the entire understanding of
the parties and supersedes all prior understandings, whether written or oral,
between the parties with respect to the subject matter of this Agreement.
12.3 Severability of Provisions. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid, and enforceable.
12.4 Applicable Law. This Agreement shall be governed by and
construed under the laws of the State of Florida.
12.5 Execution in Counterparts. This Agreement and any
amendment may be executed simultaneously or in two or more counterparts, each of
which together shall constitute one and the same instrument.
12.6 Cooperation and Intent. The Company shall cooperate in
good faith with the Indemnitee and use its best efforts to ensure that the
Indemnitee is indemnified and/or reimbursed for liabilities described herein to
the fullest extent permitted by law.
12.7 Amendment. No amendment, modification or alteration of
the terms of this Agreement shall be binding unless in writing, dated subsequent
to the date of this Agreement, and executed by the parties.
12.8 Binding Effect. The obligations of the Company to the
Indemnitee hereunder shall survive and continue as to the Indemnitee even if the
Indemnitee ceases to be a director, officer, employee and/or agent of the
Company. Each and all of the covenants, terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the successors to the Company
and, upon the death of the Indemnitee, to the benefit of the estate, heirs,
executors, administrators and personal representatives of the Indemnitee.
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<PAGE>
12.9 Gender and Number. Wherever the context shall so require,
all words herein in the male gender shall be deemed to include the female or
neuter gender, all singular words shall include the plural and all plural words
shall include the singular.
12.10 Nonexclusivity. The rights of indemnification and
reimbursement provided in this Agreement shall be in addition to any rights to
which the Indemnitee may otherwise be entitled by statute, bylaw, agreement,
vote of shareholders or otherwise.
12.11 Effective Date. The provisions of this Agreement shall
cover claims, actions, suits and proceedings whether now pending or hereafter
commenced and shall be retroactive to cover acts or omissions or alleged acts or
omissions which heretofore have taken place.
EMPIRE FINANCIAL HOLDING
COMPANY
------------------------------------
By:
Its:
Address:
INDEMNITEE:
------------------------------------
Name:
Address:
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[BEAR STEARNS LETTERHEAD]
December 28, 1998
Empire Financial Group Inc.
2170 State Road 434 W # 124
Longwood, FL 32779
RE: AGREEMENT FOR SECURITIES CLEARANCE SERVICES
-------------------------------------------
Gentlemen:
This Agreement sets forth the terms and conditions under which Bear,
Stearns Securities Corp. ("Bear Stearns Securities") will act as your clearing
broker to clear and carry on a fully disclosed basis, your customer margin and
cash accounts, and your proprietary accounts, and you will become a
correspondent of Bear Stearns Securities.
1. (a) Bear Stearns Securities will carry such of your customer
accounts as will be mutually agreed by the parties hereto: These accounts are
hereinafter called the "Accounts" and the legal and beneficial owners thereof
are hereinafter called the "Customers".
(b) For the purposes of the Securities Investor Protection Act and the
financial responsibility rules of the Securities and Exchange Commission,
Customers shall be deemed to be Customers of Bear Stearns Securities, as your
clearing agent.
2. (a) You shall have sole discretion to determine the amount of
commission charged to your Customers' accounts cleared by Bear Stearns
Securities. You agree to pay Bear Stearns Securities for its services pursuant
to this Agreement, on each order executed on your behalf on a national stock
exchange or over-the-counter, such amounts as set forth in Schedule A hereto.
(b) Bear Stearns Securities agrees to pay to you monthly such
commissions received by Bear Stearns Securities less any amounts due to Bear
Stearns Securities under this Agreement or otherwise and any expenses or other
sums to third parties paid on your behalf by Bear Stearns Securities.
3. Bear Stearns Securities agrees to notify your Customers in writing
concerning the respective obligations of the parties hereto pursuant to
paragraphs 4-14 of this Agreement and any other Customer related
responsibilities of the parties to this Agreement.
4. (a) You agree to supply Bear Stearns Securities with copies of all
financial information and reports filed by you with the New York Stock Exchange,
Inc. (if a member), the National Association of Securities Dealers, Inc., the
Securities and Exchange Commission, and
<PAGE>
any other National Securities Exchange (where a member) (including but not
otherwise limited to monthly and quarterly Financial and Operational Combined
Uniform Single Reports i.e., "FOCUS" Reports) simultaneously with the filing
thereof. You shall submit to Bear Stearns Securities on a monthly basis or, if
so requested by Bear Stearns Securities, at more frequent intervals, information
and reports relating to your financial integrity, including but not otherwise
limited to information regarding your aggregate indebtedness ratio and net
capital.
(b) You agree to supply Bear Stearns Securities with copies of all
amendments, modifications and disclosures regarding your Form BD filed by you
with the National Association of Securities Dealers, Inc. simultaneously with
the filing thereof.
5. You will be responsible to Bear Stearns Securities for: (a) all
payments required so that all Accounts, cash and margin, shall be at all times
in compliance with Regulation T, as amended, promulgated by the Board of
Governors of the Federal Reserve Board, (b) maintaining margin in each margin
Account to the satisfaction of Bear Stearns Securities, (c) the payment of any
unsecured debt balance in an Account, (d) until funds are credited to Bear
Stearns Securities, all payment to Bear Stearns Securities on checks received by
it in connection with your Accounts, (e) payment and delivery of "when issued"
transactions in the Accounts, and (f) the delivery by Customers of securities in
good delivery form under all applicable rules and practices. Bear Stearns
Securities has sole discretion to execute buy-ins or sell-outs in any cash or
margin Account whenever it determines such action appropriate regardless whether
the Account complies with applicable margin maintenance requirements or has
requested extension of time in which to make payment. Any request by you that
Bear Stearns Securities should waive either buying-in or selling-out an Account
must be in writing signed by an officer, partner or principal of your firm and
you agree that if Bear Stearns Securities accedes to your request that you will
indemnify and hold Bear Stearns Securities, its controlling persons, successors
and assigns (such persons being the "Indemnified Parties") harmless against any
loss, liability, damage, claim, cost or expense (including but not limited to
fees and expenses of legal counsel) arising therefrom. Bear Stearns Securities
shall have sole discretion as to any application for an extension of time for
any Account to make any payment required by Regulation T.
6. (a) Bear Stearns Securities may, at its discretion, either buy
back in the "cash" market or borrow the day you are notified of option
assignments affecting shares which have been tendered and cause short positions
in your Accounts as of either the proration or withdrawal date. Shares purchased
for cash or borrowed will not be considered part of an Account's tendered
position until such shares are in Bear Stearns Securities' actual possession.
Bear Stearns Securities will reduce the tender for your firm accounts and the
Accounts by the size of the short or unreceived shares.
(b) During a tender period in which there are competing and counter
tender offers for a security, Bear Stearns Securities will tender only on a
trade date basis the number of the shares net long in your firm account and the
Accounts as of either the proration or withdrawal date.
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<PAGE>
7. For each trade executed you agree to supply to Bear Stearns
Securities on trade date all the information necessary to complete an order
ticket. You further agree to comply with Bear Stearns Securities' procedures
concerning your obligation to provide timely notification of any omission of, or
error in, any detail of a trade or any discrepancy between the floor broker's
ticket and your order ticket as transmitted to us by you with regard to any
detail of a trade (collectively, 'Trade Discrepancies"). For purposes of this
paragraph, "Timely notification" shall mean notification provided on trade date,
whenever possible, but in any event by (and in no event later than) such time so
as to afford Bear Stearns Securities a reasonable opportunity to resolve such
trade discrepancy on your behalf prior to comparison of such trade. You hereby
agree to indemnify and hold Bear Stearns Securities and the Indemnified Parties
harmless from and against, and pay immediately upon demand, any loss, liability,
damage, claim, cost or expense (including but not limited to fees and expenses
of legal counsel) arising out of or in connection with such Trade Discrepancies
or as a result of any investigation conducted in connection with such Trade
Discrepancies or in the defense or settlement of any action or proceeding
brought by any regulatory or self-regulatory organization arising out of or in
connection with such Trade Discrepancies.
8. (a) For each account you agree to supply to Bear Stearns
Securities a new account report on such forms as Bear Stearns Securities will
supply you and to supply any other documentation and information which Bear
Stearns Securities may, in its sole discretion, request you to obtain from the
Customer. Bear Stearns Securities agrees to provide you with copies of its
Customer Agreement and such other agreements and forms necessary to enable you
to document each Account.
(b) Bear Stearns reserves the right to negotiate the terms of its
Customer Agreement and other agreements required to be executed by the
Customers. All changes reflected in writing on the Customer Agreement and other
agreements shall be deemed accepted by you if not objected to promptly upon your
receipt of your copy thereof which should be provided to you by each Customer.
(c) In the event requested documentation or information is not promptly
received by Bear Stearns Securities, Bear Stearns Securities has the right to
refuse to accept orders for such Account, to close the Account and to withhold
your commissions and assess upon you any other penalties it sees fit.
9. Unless otherwise agreed to in writing by Bear Stearns Securities,
Bear Stearns Securities shall issue confirmations, statements and notices
directly to your Customers on Bear Stearns Securities' forms for such purpose
which shall bear the following: Transactions cleared through Bear Stearns
Securities Corp., a wholly owned guaranteed subsidiary of Bear Stearns & Co.
Inc. and will send you duplicate confirmations, statements and notices.
10. You agree that before you commence any trading in options for any
Account you will have a Senior Registered Options Principal registered with
either the American Stock Exchange, Inc. or the National Association of
Securities Dealers, Inc.
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<PAGE>
11. (a) This Agreement and all transactions in the Accounts, will be
subject to the applicable Constitution, Rules, By-Laws, Regulations and customs
of any securities market, association, exchange or clearing house where such
transactions are effected or of which Bear Stearns Securities is a member, and
also to all applicable U. S.
Federal and state laws and regulations. All of the foregoing are hereinafter
called the "Applicable Rules".
(b) Except as otherwise specified in this Agreement you are solely
responsible for the conduct of the Accounts, and ensuring that the transactions
conducted therein are in compliance with the Applicable Rules. Such
responsibility includes, but is not limited to: (i) using due diligence to learn
and on a continuing basis to know the essential facts of each Customer,
including verifying the address changes of each Customer, knowing all persons
holding power of attorney over any Account, being familiar with each order in
any Account and at all times to fully comply with Rule 405 of the New York Stock
Exchange, Inc., and any interpretations thereof, and all similar Applicable
Rules; (ii) selecting, investigating, training, and supervising all personnel
who open, approve or authorize transactions in the Accounts; (iii) establishing
written procedures for the conduct of the Accounts and ongoing review of all
transactions in Accounts, and maintaining compliance and supervisory personnel
adequate to implement such procedures; (iv) determining the suitability of all
transactions, including option transactions; (v) ensuring that there is a
reasonable basis for all recommendations made to Customers; (vi) determining the
appropriateness of the frequency of trading in Accounts; (vii) determining the
authorization and legality of each transaction in the Account; and (viii)
obtaining and maintaining all documents necessary for the performance of your
responsibilities under this Agreement and retaining such documents in accordance
with all the Applicable Rules.
(c) You will be responsible for responding to all your Customer
inquiries and complaints and you agree to promptly notify Bear Stearns
Securities in writing of complaints concerning Bear Stearns Securities.
(d) You hereby agree to indemnify and hold Bear Stearns Securities and
the Indemnified Parties harmless against any loss, liability, damage, claim,
cost or expense (including but not limited to fees and expenses of legal
counsel) caused by you directly or indirectly as a result of your breach of any
of the terms hereof. You hereby agree and warrant that you will maintain
appropriate brokers blanket bond insurance policies covering any and all acts of
your employees, agents and partners adequate to fully protect and indemnify Bear
Stearns Securities and the Indemnified Parties against any loss, liability,
damage, claim, cost or expense (including but not limited to fees and expenses
of legal counsel) which Bear Stearns Securities and the Indemnified Parties may
suffer or incur, directly or indirectly, as a result of any act of your
employees, agents or partners. This policy shall be obtained by an insurance
broker of Bear Stearns Securities' choosing. Coverage shall be in an amount
agreed by the parties, but in no event shall it be less than $1,000,000 per
occurrence. Further this insurance shall remain in effect while Bear Stearns
Securities acts as your clearance agent and will include coverage for any claims
discovered or made within 90 days following the termination of any such clearing
relationship. You further agree that if such a 90 day discovery feature is
exercisable at your option you hereby agree, in advance, to exercise such
option.
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<PAGE>
12. Bear Stearns Securities, in the performance of its role as
creditor pursuant to paragraph 14 of this Agreement, has the right, exercisable
in its sole discretion, to restrict trading in the Accounts or in your
proprietary or market making accounts to liquidating orders only or cash
transactions only, or to prohibit certain trading strategies or trading of
certain types of securities.
13. Bear Stearns Securities, unless otherwise agreed, will supply you
on each business day with copies of customer confirmations, margin status
reports, money line and a daily commission detail report. Unless you notify Bear
Stearns Securities within a reasonable time of all mistakes or discrepancies in
the above described reports and information, Bear Stearns Securities shall be
entitled to consider all the information supplied to you as correct.
14. Bear Stearns Securities agrees to:
(a) monitor and require your Customers to (i) make prompt payment for
purchases of securities, interest and other charges, (ii) deliver securities
sold and loaned, (iii) maintain money and securities in each Account as required
by the Applicable Rules, and to comply with any additional requirements as Bear
Stearns Securities as clearing broker, in its sole discretion, may require, upon
reasonable notice to you and your Customers;
(b) advise you of the necessity for buying in or selling out positions
in Accounts for failure to comply with payment or delivery requirements and Bear
Stearns Securities shall have the night in its discretion to execute buy-ins or
sell-outs if you decline or fail to act;
(c) arrange the extension of credit for margin purchases in Accounts in
accordance with the Applicable Rules, and with Bear Stearns Securities' own
additional requirements;
(d) transfer securities to and from accounts;
(e) provide custody, safekeeping and segregation of money and
securities of Customers carried by Bear Stearns Securities;
(f) arrange for the receipt and delivery of securities in exchange and
tender offers, rights and warrants offerings, redemptions and other similar type
transactions;
(g) maintain all books and records as are required by the Applicable
Rules governing brokers having custody of money and securities in the Accounts;
and
(h) notify you promptly in writing of complaints concerning you, your
employees or your agents.
15. Errors, misunderstandings or controversies, except those
specifically otherwise covered in this Agreement, between the Accounts and you
or any of your employees which shall arise out of your acts or omissions
(including, without limiting the foregoing, your failure to
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<PAGE>
deliver promptly to Bear Stearns Securities any instructions received by you
from an Account with respect to the voting, tender or exchange of shares held in
such Account) shall be your sole and exclusive responsibility. In the event
that, by reason of such error, misunderstanding or controversy, you in your
discretion deem it advisable to commence an action or proceeding against an
Account, you shall indemnify and hold Bear Stearns Securities and the
Indemnified Parties harmless from any loss, liability, damage, claim, cost or
expense (including but not limited to fees and expenses of legal counsel) which
Bear Stearns Securities or the Indemnified Parties may incur or sustain directly
or indirectly in connection therewith or under any settlement thereof. If such
error, misunderstanding or controversy shall result in the bringing of any
action or proceeding against Bear Stearns Securities or the Indemnified Parties,
you shall indemnify and hold Bear Stearns Securities and the Indemnified Parties
harmless from any loss, liability, damage, claim, cost or expense (including but
not limited to fees and expenses of legal counsel) which Bear Stearns Securities
or the Indemnified Parties may incur or sustain directly or indirectly in
connection therewith or under any settlement thereof.
16. Bear Stearns Securities agrees to indemnify and hold you harmless
and you agree to indemnify Bear Stearns Securities and the Indemnified Parties
and hold them harmless from and against any loss, liability, damage, claim, cost
or expense (including but not limited to fees and expenses of legal counsel)
arising out of or resulting from any failure by the indemnifying party or any of
its employees to carry out fully the duties and responsibilities assigned to
such herein or any breach of any representation, warranty or covenant herein by
such party under this Agreement. You hereby agree to indemnify and hold Bear
Stearns Securities and the Indemnified Parties harmless from and against any
loss, liability, damage, claim, cost or expense (including but not limited to
fees and expenses of legal counsel) sustained or incurred in connection herewith
in the event any Account fails to meet any initial margin call or maintenance
call.
17. You represent, warrant and covenant to Bear Stearns Securities as
follows:
(i) You will maintain at all times while this agreement is in
full force and effect net capital equal to the greater of the amount required by
the SEC net capital rules applicable to a correspondent introducing broker or
$150,000 unless Bear Stearns Securities has otherwise agreed in writing. You
will immediately notify Bear Stearns Securities when (1) your Aggregate
Indebtedness Ratio reaches or exceeds 10 to 1 or (2) if you have elected to
operate under paragraph (a)(1)(ii) of Rule 15c3-1 of the Securities Exchange Act
of 1934, as amended, when your net capital is less than the greater of $150,000
or 5% of aggregate debit items computed in accordance with Rule 15c3-3.
(ii) You are a member in good standing of the National
Association of Securities Dealers, Inc., or if you have applied for membership
of the National Association of Securities Dealers, Inc. you agree to furnish
Bear Stearns Securities upon your receipt thereof, with the National Association
of Securities Dealers, Inc.'s notification to you concerning the result of your
membership application and if your membership application is refused for any
reason whatsoever, Bear Stearns Securities has the right to forthwith terminate
this agreement. You are a member in good standing of every national securities
exchange or other securities
6
<PAGE>
association of which you are a member and you agree to promptly notify Bear
Stearns Securities of any additional exchange memberships or affiliations. You
shall also comply with whatever non-member access rules have been promulgated by
any national securities exchange or any other securities exchange of which you
are not a member.
(iii) You are and during the term of this Agreement will
remain duly registered or licensed and in good standing as a broker/dealer under
the Applicable Rules.
(iv) You have all the requisite authority in conformity with
all Applicable Rules to enter into this Agreement and to retain the services of
Bear Stearns Securities in accordance with the terms hereof and you have taken
all necessary action to authorize the execution of this Agreement and the
performance of the obligations hereunder.
(v) You are in compliance, and during the term of this
Agreement will remain in compliance with (1) the capital and financial reporting
requirements of every national securities exchange or other securities exchange
and/or securities association of which you are a member, (2) the capital
requirements of the Securities and Exchange Commission, and (3) the capital
requirements of every state in which you are licensed as a broker/dealer.
(vi) Unless otherwise agreed to in writing by Bear Stearns
Securities, you shall not generate any statements, billings or confirmations
representing any Account.
(vii) You shall keep confidential any information you may
acquire as a result of this Agreement regarding the business and affairs of Bear
Stearns Securities, which requirements shall survive the term of this Agreement.
(viii) You shall have entered into a dealer agreement with
each and every mutual fund or other investment company whose shares are sold to
Customer Accounts.
18. Bear Stearns Securities represents, warrants and covenants to you
as follows:
(i) Bear Stearns Securities is a member in good standing of
the National Association of Securities Dealers, Inc., and principal exchanges.
(ii) Bear Stearns Securities is and during the term of this
Agreement will remain duly licensed and in good standing as a broker/dealer
under the Applicable Rules.
(iii) Bear Stearns Securities has all the requisite
authority, in conformity with all Applicable Rules to enter into and perform
this Agreement and has taken all necessary action to authorize the execution of
this Agreement and the performance of the obligations hereunder.
(iv) Bear Stearns Securities is in compliance, and during
the term of this Agreement will remain in compliance with (1) the capital and
financial reporting requirements of every national securities exchange and/or
other securities exchange or association of which it is a member, (2) the
capital requirements of the Securities and Exchange Commission, and (3) the
capital requirements of every state in which it is licensed as a broker/dealer.
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<PAGE>
(v) Bear Stearns Securities represents and warrants that the
names and addresses of your customers which have or which may come to its
attention in connection with the clearing and related functions it has assumed
under this Agreement are confidential and shall not be utilized by Bear Stearns
Securities except in connection with the functions performed by Bear Stearns
Securities pursuant to this Agreement. Notwithstanding the foregoing, should an
Account request, on an unsolicited basis, that Bear Stearns Securities become
its broker, acceptance of such Account by Bear Stearns Securities shall in no
way violate this representation and warranty, nor result in a breach of this
Agreement.
(vi) Bear Stearns Securities shall keep confidential any
information it may acquire as a result of this Agreement regarding your business
and affairs, which requirement shall survive the life of this Agreement.
19. Notwithstanding any provision in this Agreement, the following
events or occurrences shall constitute an Event of Default under this Agreement:
(i) either party hereto shall fail to perform or observe any
term, covenant or condition to be performed hereunder and such failure shall
continue to be unremedied for a period of 30 days after written notice from the
non-defaulting party to the defaulting party specifying the failure and
demanding that the same be remedied; or
(ii) any representation or warranty made by either party shall
prove to be incorrect at any time in any material respect; or
(iii) a receiver, liquidator or trustee of either party
hereto or of any property held by either party, is appointed by court order and
such order remains in effect for more than 30 days; or either party is
adjudicated bankrupt or insolvent; or any property of either party is
sequestered by court order and such order remains in effect for more than 30
days; or a petition is filed against either party under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, and is
not dismissed within 30 days after such filing; or
(iv) either party hereto files a petition in voluntary
bankruptcy or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such law; or
(v) either party hereto makes an assignment for the benefit
of its creditors, or admits in writing its inability to pay its debts generally
as they become due, or consents to the appointment of a receiver, trustee or
liquidator of either party, or of any property held by either party.
Upon the occurrence of any such Event of Default, the
nondefaulting party may, at its option, by notice to the defaulting party
declare that this Agreement shall be thereby terminated and such termination
shall be effective as of the date such notice has been communicated to the
defaulting party. Upon the occurrence by you of an Event of Default
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<PAGE>
pursuant to paragraphs (iii), (iv), or (v) above, Bear Stearns Securities shall
be entitled to, upon the consent of the Customer, to accept instructions
directly from the Customer and to transfer the Account directly to Bear Stearns
Securities.
20. (a) In the event you execute your own orders and give Bear
Stearns Securities' name to the other broker for clearance and settlement, you
agree that you will only execute bona fide orders or request free delivery of
cash or securities where you have reasonable grounds to believe that the account
and the other broker have the financial capability to complete the transaction.
Bear Stearns Securities reserves the right at any time to place a limit (of
either dollars or number of securities) on the size of transactions that Bear
Stearns Securities in these circumstances will accept for clearance. If after
you have received notice of such limitation you execute an order in excess of
the limit established by Bear Stearns Securities, Bear Stearns Securities shall
have the right to notify the other party and other broker that it will not
accept the transaction for clearance and settlement. In the event any claim is
asserted against Bear Stearns Securities or the Indemnified Parties by the other
broker because of such action by Bear Stearns Securities, you agree to indemnify
and hold Bear Stearns Securities and the Indemnified Parties harmless from any
loss, liability, damage, cost or expense (including but not limited to fees and
expenses of legal counsel) arising directly or indirectly therefrom.
(b) In the event you execute orders away from Bear Stearns
Securities, Bear Stearns Securities will on a best efforts basis attempt to
clear the transaction within a reasonable period and utilize the same procedures
it utilizes when clearing transactions on behalf of other firms clearing through
Bear Stearns Securities. If either you or the other broker for any reason
whatsoever fail to settle the transaction, you will be solely liable to Bear
Stearns Securities for any and all loss, including expenses, caused thereby and
Bear Stearns Securities shall have no liability to you whatsoever in any such
circumstance. You further agree to take all appropriate capital charges on your
books arising out of or incurred in connection with your executing orders away
from Bear Stearns Securities.
21. In the event you request that Bear Stearns Securities provide
prime brokerage services to your Customers when you act as the executing broker,
as such term is defined in a certain no-action letter issued by the Securities
and Exchange Commission on January 25, 1994 regarding prime brokerage (the
"No-Action Letter"), Bear Stearns Securities acts as your clearing agent, and
the prime broker settles such transactions and carries the positions for the
Customer
(a) You hereby agree as follows:
(i) You will notify Bear Stearns Securities with respect to
each Customer Account for which you intend to act as an executing broker in a
prime brokerage arrangement.
(ii) You will be solely responsible for the conduct of the
Customer's Account, including but not limited to the responsibilities to know
your Customer, determine the suitability of all transactions, obtain all proper
documentation (including all new account documents), and conduct your own credit
review of the Customer.
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<PAGE>
(iii) Prior to effecting a short sale, you shall be
responsible for verifying with Bear Stearns Securities to ensure that all orders
effected by you will comply with all applicable short sale provisions in the
Applicable Rules, including but not limited to SEC Rule 10a-1 and NYSE Rule
440A, and you will be responsible for verifying that securities can be borrowed
in order to effect a timely delivery against each short sale.
(iv) In the event of any execution error or trade
discrepancy between a trade as executed and a trade as recorded in the
Customer's Account with the prime broker, you shall be responsible for
correcting such error or resolving such discrepancy with Bear Stearns Securities
or your customer by such time as Bear Stearns Securities deems appropriate on
the next business day after trade date. You shall be liable to Bear Stearns
Securities for any and all losses, including expenses caused thereby, and Bear
Stearns Securities shall have no liability to you whatsoever in any
circumstance. You agree to indemnify and hold Bear Stearns Securities harmless
from and against and pay promptly on demand any loss, liability, damage, claim,
cost or expense (including reasonable fees and expenses of counsel) arising out
of or incurred in connection with such discrepancy or error.
(v) You shall retain in your possession copies of all
agreements that are necessary to enable you to execute prime brokerage trades
and, except to the extent undertaken by Bear Stearns Securities in this
Agreement, you shall preserve all records relating to such trades, as required
of an executing broker by the Applicable Rules and any SEC No-Action Letters
pertaining to prime brokerage arrangements (collectively, "No-Action Letters").
(b) Bear Stearns Securities hereby agrees as follows:
(i) Bear Stearns Securities will, on your behalf and pursuant
to your instructions, inform the prime broker of all trade data, including but
not limited to the contract amount, security involved, number of shares or
number of units, and whether the transaction was a long or short sale or a
purchase, by the morning of the next business day after trade date.
(ii) Bear Stearns Securities will treat the Customer as its
own customer and record the transactions in a cash or margin account at Bear
Stearns Securities. Bear Stearns Securities shall treat all disaffirmed and DK'd
trades as normal customer transactions. If the disaffirmed or DK'd trade is a
short sale, we shall treat the transaction as if it had been executed in a
customer margin account.
(iii) Bear Stearns Securities shall be responsible for
issuing confirmations directly to the Customer for each trade executed by you at
Bear Stearns Securities unless Bear Stearns receives written instructions from
the Customer explicitly requesting that the confirmations be sent to the
Customer in care of its prime broker, in which case Bear Stearns Securities will
send the confirmations to such Customer in care of the prime broker. In the
event a trade is disaffirmed or DK'd, Bear Stearns Securities will promptly send
a confirmation of the transaction to the customer in the manner described above.
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<PAGE>
(iv) If a Customer Account introduced by you to Bear Stearns
Securities is managed by an investment advisor, each confirmation may cover a
single bulk trade representing transactions that have been combined with those
of other accounts of such investment advisor.
(c) You hereby represent and covenant that you have entered
into all agreements concerning the prime broker arrangement that are required by
the Applicable Rules and No-Action Letters to enable you to execute prime
brokerage trades.
(d) Bear Stearns Securities hereby represents and covenants
that Bear Stearns Securities has and at all times during the term of this
Addendum shall maintain the minimum net capital required by the Applicable Rules
and No-Action Letters.
(e) In the event of a conflict between this paragraph 21 and
any other provision of this Agreement, this paragraph shall supersede the
conflicting provision only in respect of the provision of prime brokerage
services and only to the extent of the conflict.
22. (a) Bear Stearns Securities shall limit its services pursuant to
the terms of this Agreement to that of clearing functions and the related
services expressly set forth herein. Neither this Agreement nor any operation
hereunder shall create a general or limited partnership, association or joint
venture or agency relationship between you and Bear Stearns Securities.
(b) You shall not, without the prior written approval of Bear
Stearns Securities, place any advertisement in any newspaper, publication,
periodical or any other medium including, but not limited to, electronic
communications media such as, by way of example, the Internet, if such
advertisement in any manner makes reference to Bear Stearns Securities or to the
clearing arrangements and the services embodied in this Agreement.
(c) Should you in any way hold yourself out as, advertise or
represent that you are the agent of Bear Stearns Securities, Bear Stearns
Securities shall have the power, at its option, to terminate this Agreement and
you shall be liable for any loss, liability, damage, claim, cost or expense
(including but not limited to fees and expenses of legal counsel) sustained or
incurred by Bear Stearns Securities as a result of such a representation of
agency or apparent authority to act as an agent of Bear Stearns Securities or
agency by estoppel. Notwithstanding the provisions of paragraph 27 below that
any dispute or controversy between the parties relating to or arising out of
this Agreement shall be referred to and settled by arbitration, in connection
with any breach by you of this paragraph 22, Bear Stearns Securities may, at any
time prior to the initial arbitration hearing pertaining to such dispute or
controversy, seek by application to the United States District Court for the
Southern District of New York or the Supreme Court of the State of New York for
the County of New York any such temporary or provisional relief or remedy
("provisional remedy") provided for by the laws of the United States of America
or the laws of the State of New York as would be available in an action based
upon such dispute or controversy in the absence of an agreement to arbitrate.
The parties acknowledge and agree that it is their intention to have any such
application for a provisional remedy decided by the Court to which it is made
and that such application shall not be referred to or settled by arbitration. No
such application to either said Court for a provisional remedy, nor any act or
conduct by either party in furtherance of or in opposition to such application,
shall constitute a relinquishment or
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<PAGE>
waiver of any right to have the underlying dispute or controversy with respect
to which such application is made settled by arbitration in accordance with
paragraph 27 below.
23. You agree that Bear Stearns Securities shall have a lien upon and
security interest in all your property, including but not limited to securities,
commodity futures, contracts, commercial paper, monies and any after acquired
property held by it in your trading or commission accounts as security for the
repayment of your obligations and liabilities to Bear Stearns Securities. You
further agree that Bear Stearns Securities may debit any cash balance in your
account or accounts and/or liquidate any securities or commodities held in your
account and credit the proceeds to its account in an amount necessary to satisfy
such obligations. This provision shall survive the termination of this
Agreement, thereby extending the right to any lien and security interest for the
duration of any account conversion period and until such time as, in the sole
discretion of Bear Stearns Securities, security for the repayment of your
obligations is no longer required.
24. The enumeration herein of specific remedies shall not be
exclusive of any other remedies. Any delay or failure by any party to this
Agreement to exercise any right herein contained, now or hereafter existing
under the Applicable Rules shall not be construed to be a waiver of such fight,
or to limit the exercise of such right. No single, partial or other exercise of
any such right shall preclude the further exercise thereof or the exercise of
any other right.
25. This Agreement shall be submitted to and approved by the New York
Stock Exchange, Inc., or other regulatory and self-regulatory bodies vested with
the authority to review and approve this Agreement or any amendment or
modifications hereto. In the event of disapproval, the parties hereto agree to
bargain in good faith to achieve the requisite approval.
26. (a) This Agreement supersedes all other agreements between the
parties with respect to the transactions contemplated herein. This Agreement may
not be amended except by a writing signed by both parties hereto and may be
terminated upon thirty (30) days written notice to the other party. Bear Stearns
Securities agrees that it will send to you copies of all written notices sent to
customers. Notices to you shall be sent to:
Notices to Bear Stearns Securities shall be sent to the President of Bear,
Stearns Securities Corp., 245 Park Avenue, New York, N.Y. 10167, with a copy to
the Chief Legal Officer of Bear Stearns Securities. Termination shall not affect
any of the rights and liabilities of the parties hereto incurred before the date
of receipt of such notice of termination.
(b) This Agreement shall be binding upon and inure to the
benefit of the respective successors of the parties. Neither party may assign
any of its rights or obligations hereunder without the prior written consent of
the other party.
27. (a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(b) All disputes and controversies relating to or in any way
arising out of this Agreement shall be settled by arbitration before and under
the rules and auspices of the
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<PAGE>
New York Stock Exchange, Inc., unless the transaction which gives rise to such
dispute or controversy is effected in another United States market which
provides arbitration facilities, in which case it shall be settled by
arbitration under such facilities.
28. Bear Stearns Securities shall not be liable for losses caused
directly or indirectly by government restrictions, exchange or market rulings,
suspension of trading, war, strikes or any equipment or systems failure or other
conditions or occurrences beyond its control.
Please evidence your agreement to the foregoing by executing and
delivering to Bear Stearns Securities the enclosed copy hereof, whereupon you
and Bear Stearns Securities shall have entered into this Agreement.
Very truly yours,
BEAR, STEARNS SECURITIES CORP.
By: /s/ D. Hauck (illegible)
----------------------------
President
ACCEPTED AND AGREED TO:
EMPIRE FINANCIAL GROUP, INC.
- ----------------------------
Name of Correspondent
By: /s/ Kevin Gagne
- --------------------
Name of Authorized Signatory
Title: President
- ----------------
Date: 1/7/99
- ------------
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SUPPLEMENT TO AGREEMENT FOR SECURITIES CLEARANCE SERVICES
OPTIONS PROCEDURES FOR CORRESPONDENTS
-------------------------------------
It is each Correspondent's responsibility to have each account in which
it effects listed option transactions approved by its own ROP, and to ensure (1)
that each account carried on its books has received an appropriate Options Risk
Disclosure Document no later than the first day an option transaction is
effected in the account, (2) that it obtains a signed "Correspondent's Customer
Option Agreement" (Form No. 3000-96-350) within fifteen business days of the
first trade. Both Bear Stearns Securities and each Correspondent have
overlapping responsibilities concerning option trading.
In order for a Correspondent to meet its responsibilities, it must have
sufficient information in its files to comply with the rules of the option
exchanges concerning the opening of accounts and the suitability of the
recommended transaction. Each Correspondent is required to send to each of its
accounts the option risks disclosure document titled "Understanding the Risks
and Uses of Listed Options" and a combined Option Agreement/New Account Form for
the customers signature. Where applicable, the Correspondent must also send the
appropriate supplementary risk disclosure documents and option agreements for
index, currency, or debt options.
In order that Bear Stearns Securities be assured that the foregoing has
been accomplished, you must provide Bear Stearns Securities with a copy of the
"Correspondent's Customer's Option Approval Form" (Form No. 2000-70-1782-4/83)
(or the form currently in effect at the time of the initial transaction) within
fifteen days of the first option trade. Bear Stearns Securities will withhold
from that Correspondent its share of the commissions generated on those option
accounts for which Bear Stearns Securities has not received the option approval
form within the required time. Bear Stearns Securities will only remit the
retained commissions upon timely receipt of the correct documentation and if the
necessary papers continue to be received late from that Correspondent, Bear
Stearns Securities will not recredit that Correspondent with retained
commissions.
14
FIRM INVENTORY CREDIT AGREEMENT
-------------------------------
THIS FIRM INVENTORY CREDIT AGREEMENT (this "Agreement") is made and
entered into as of October 12, 1998, by and between: ADVANTAGE TRADING GROUP,
INC., a Florida corporation ("Borrower"); and MERCANTILE BANK NATIONAL
ASSOCIATION, a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower desires, and may from time to time make application,
to borrow money from Bank, to be secured by firm owned securities; and
WHEREAS, Bank may from time to time, without any obligation to do so,
advance money to Borrower on the terms and conditions set forth hereinafter in
this Agreement;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank hereby agree as follows:
1. Loan Advances. Bank may, without any obligation to do so, advance
sums to Borrower in a maximum amount equal to the lesser of:
(a) One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00); or
(b) With respect to securities owned by Borrower and deemed
acceptable to Bank in Bank's discretion, and which are pledged
by Borrower to Bank at Depository Trust Company of New York,
or are pledged by Borrower to Bank as evidenced by a trust
receipt in the possession of Bank or physical possession of
such securities by Bank (all as described in paragraph 5
hereof), the sum of the following:
(1) 70% of the current market value of stocks listed on
the New York or American Stock Exchanges or
over-the-counter stocks, all having a current market
value of at least Ten Dollars ($10.00) per share;
plus
(2) 50% of the current market value of stocks listed on
the New York or American Stock Exchanges or
over-the-counter stocks, all having a current market
value of at least Six Dollars ($6.00) per share and
not greater than Nine and 99/100 ($9.99) per share;
plus
(3) 80% of the current "bid" price for corporate and
municipal bonds rated BBB or better by Standard &
Poor's or Baa or better by Moody's Investor's
Service; plus
(4) 90% of the current "bid" price for United States of
America Treasury Notes and Bonds having a maturity
date of over five (5) years; plus
<PAGE>
(5) 95% of the current "bid" price for United States of
America Treasury Notes, Bonds and Bills having a
maturity date of five (5) years or less;
provided, however, that the total combined outstanding amounts under this
Agreement and under the certain Customer Credit Agreement dated October _____,
1998, executed by Borrower and Bank shall not exceed Fifteen Million and 00/100
Dollars ($15,000,000.00) in the aggregate at any time.
Unless sooner terminated by Bank under paragraph 13, Borrower's ability
to request loans hereunder shall automatically terminate on September 30, 1999.
2. Replacement of Principal. The principal amount of all loans
hereunder shall be repayable ON DEMAND.
3. Interest. Prior to demand for repayment of the loans outstanding
hereunder, Borrower shall pay interest to Bank on the aggregate and unpaid
principal amount of all loans from time to time outstanding hereunder at a rate
per annum equal to the rate quoted by Bank to Borrower in Bank's sole and
absolute discretion, which rate shall fluctuate as and when said rate so quoted
shall change. After such demand for repayment, Borrower shall pay interest to
Bank on the aggregate and unpaid principal amount of all loans from time to time
outstanding hereunder at a rate per annum equal to Two Percent (2%) over and
above the interest rate announced from time to time by Bank as its "prime rate"
on commercial loans, which interest rate shall fluctuate as and when said prime
rate shall change. All accrued and unpaid interest hereunder shall be due and
payable ON DEMAND, or if demand is not made prior thereto, then all accrued and
unpaid interest hereunder as of the last day of the preceding month, shall be
due and payable monthly commencing November 10, 1998, and on the 10th day of
every month thereafter. All interest hereunder shall be calculated upon the
basis of an actual day, 360-day year.
4. Demand Note. All loans hereunder shall be evidenced by a Demand
Note - Firm Inventory Credit Agreement executed by Borrower payable ON DEMAND to
the order of Bank in the principal amount of One Million Five Hundred Thousand
and 00/100 Dollars ($1,500,000.00) and dated the date hereof. Said Demand Note -
Firm Inventory Credit Agreement shall be in the form of Exhibit A attached
hereto, and, by reference, made a part hereof.
5. Pledge of Securities. Borrower hereby pledges to Bank, as security
for the obligations of Borrower hereunder and under the Note, all securities of
Borrower which now or hereafter are (a) held in a collateral account at
Depository Trust Company of New York for the benefit of Bank or are otherwise
marked on the books and records of Depository Trust Company of New York as being
held for the benefit of or pledged to Bank, (b) described on a trust receipt in
the possession of Bank, or (c) otherwise in the possession of Bank
(collectively, the "Pledged Securities"). Borrower hereby grants to Bank all
rights and remedies of a secured party under the Uniform Commercial Code of the
State of Missouri with respect to such securities.
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<PAGE>
6. Reduction in Value of Pledged Securities. In the event the
outstanding principal balance of the loans hereunder shall exceed at any time
the value of the Pledged Securities (as determined under paragraph 1 above), the
Borrower shall immediately either:
(a) pledge additional securities acceptable to Bank in its sole
discretion with a value (as determined under paragraph 1
above) sufficient to eliminate such excess; or
(b) make a payment of the principal balance of the loans
outstanding hereunder in the amount of such excess.
7. Requests for Loans. Borrower hereby represents and warrants to Bank
that, until Bank has received written instructions to the contrary, Bank may
rely upon the written instructions by facsimile of any of the following named
employees of Borrower with regard to any requests for loans or repayments by
Borrower hereunder, to-wit:
NAME TITLE
- ---- -----
Richard Goble President
___________________________________ ______________________________________
Kevin Gagne Vice President
___________________________________ ______________________________________
___________________________________ ______________________________________
___________________________________ ______________________________________
8. Funding of Loans. All loans by Bank to Borrower hereunder shall be
credited by Bank to Borrower's Account No(s). 1005007487 at Bank. Repayments of
loans hereunder may be accomplished by Bank debiting said account of Borrower at
Bank, by check drawn on said account, by wire transfer in same day funds to Bank
from Borrower or by check drawn on another financial institution (which shall be
subject to additional interest charges as determined by bank).
9. Statements of Loans. Each month, Bank will issue to Borrower a
statement showing the date of each loan or payment, the principal balance and
the interest accrued hereon during the period for which the statement is issued,
plus any accrued and unpaid interest from prior periods. Borrower agrees that if
Borrower does not object in writing to the balances and interest so shown within
fifteen (15) days of the date of such statement, the amounts shown on said
statement shall constitute prima facie evidence of the amount outstanding hereon
as of the date of such statement.
10. Reports. Borrower agrees that until all loans to Borrower
hereunder have been repaid in full with interest, and until the terms and
conditions of this Agreement have been fully performed, Borrower will:
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<PAGE>
(a) Furnish to Bank within ninety (90) days after the end of its
fiscal year, audited financial statements which shall include
but not be limited to a balance sheet, income and expense
statement and statement of retained earnings; and
(b) Furnish to Bank, within fifteen (15) days after filing, copies
of all monthly Financial and Operational Combined Uniform
Single (FOCUS) Reports (Securities and Exchange Commission
form X-17A-5).
11. Compliance with SEC and Federal Reserve Rules and Regulations.
Borrower hereby represents and warrants to Bank that it is in compliance and
will remain in compliance with all rules, regulations and directives of the
Federal Reserve System and the Securities & Exchange Commission relating to the
hypothecation of customer securities.
12. Year 2000 Compliance. Borrower has: (a) initiated a review and
assessment of all areas within the business and operations (including those
affected by suppliers and vendors) of Borrower and each subsidiary and affiliate
that could be affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by Borrower or any subsidiary or affiliate [or
suppliers or vendors] may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to, on and any date after
December 31, 1999); (b) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis; and (c) to date implemented that plan in
accordance with that timetable. Borrower represents that all computer
applications (including those of its suppliers and vendors) that are material to
the business and operations of Borrower or any subsidiary or affiliate will on a
timely basis, be able to perform date sensitive functions for all dates before,
on and after January 1, 2000, except to the extent that a failure to do so could
not reasonably be expected to have a material adverse effect. Borrower shall
promptly notify Bank in the event Borrower discovers or determines that any
computer application (including those of its suppliers and vendors) that is
material to the business and operations of Borrower or any subsidiary or
affiliate will not be Year 2000 compliant except to the extent that such failure
could not reasonably be expected to have a material adverse effect.
13. Termination. Bank may terminate this Agreement at any time in its
sole and absolute discretion.
14. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement
is submitted to Bank at Bank's principal place of business in St. Louis,
Missouri and shall be deemed to have been made thereat. This Agreement shall be
governed and controlled as to interpretation, enforcement, validity,
construction, effect and in all other respects by the laws, statutes and
decisions of the State of Missouri. Borrower irrevocably agrees that, subject to
Bank's sole and absolute election, all actions or proceedings in any way, manner
or respect arising out of or from or related to this Agreement shall be
litigated only in courts having situs within the County of St. Louis, State of
Missouri. Borrower hereby consents and submits to the jurisdiction of any local,
state or federal court within said county and state. BORROWER AND BANK HEREBY
WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY LITIGATION BROUGHT IN ACCORDANCE WITH
THIS SECTION.
4
<PAGE>
15. Notice Required by Section 432.045 R.S. Mo. ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE.
TO PROTECT BORROWER AND BANK FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS REACHED BY BORROWER AND BANK COVERING SUCH MATTERS ARE CONTAINED IN
THIS AGREEMENT AND THE NOTE, WHICH AGREEMENT AND NOTE ARE A COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN BORROWER AND BANK, EXCEPT AS
BORROWER AND BANK MAY LATER AGREE IN WRITING TO MODIFY THEM. THIS AGREEMENT AND
THE NOTE EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES
HERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN)
RELATING TO THE SUBJECT MATTER HEREOF.
5
<PAGE>
DEMAND NOTE - CUSTOMER CREDIT AGREEMENT
---------------------------------------
$15,000,000.00 St. Louis, Missouri
October 12, 1998
FOR VALUE RECEIVED, the undersigned: ADVANTAGE TRADING GROUP, INC., a
Florida corporation ("Borrower"), hereby promises to pay ON DEMAND, to the order
of MERCANTILE BANK NATIONAL ASSOCIATION, a national banking association
("Bank"), the principal amount of Fifteen Million and 00/100 Dollars
($15,000,000.00), or such lesser amount as may then be evidenced by this Demand
Note - Customer Credit Agreement (this "Note"). The aggregate principal amount
which Bank hereof may have outstanding under this Note at any one time shall not
exceed the lesser of Fifteen Million and 00/100 Dollars ($15,000,000.00) or any
lower amount specified in the Customer Credit Agreement (as hereinafter
defined), which amount may be borrowed, paid, reborrowed and repaid, in whole or
in part, subject to the terms and conditions hereof and of the Customer Credit
Agreement.
Borrower also hereby promises to pay to the order of Bank interest from
the date hereof at a rate per annum which shall be equal to the rate quoted by
Bank to Borrower in Bank's sole and absolute discretion (which rate shall
fluctuate as and when said rate so quoted shall change), on the principal
balance outstanding and unpaid. Said interest shall be payable on demand, or if
no demand is made, then monthly on the 10th day of each month, commencing
November 10, 1998. After demand for repayment of the loans evidenced hereby,
interest shall be payable on demand on the outstanding principal balance of such
loans at a rate per annum equal to Two Percent (2%) over and above the interest
rate announced from time to time by Bank as its "prime rate" on commercial loans
(which rate shall fluctuate as and when said prime rate shall change). In
addition, if Borrower fails to make any payment of any principal of or interest
on this Note as and when the same shall become due and payable, whether by
reason of demand or otherwise, Borrower hereby promises to pay to the order of
the holder hereof on demand with respect to each such late payment a late fee in
an amount equal to the greater of $100.00 or 5% percent of each such late
payment. All payments received by the holder hereof shall be applied first to
the payment of accrued and unpaid late fees and the costs and expenses
hereinafter described, next to accrued and unpaid interest hereon, and the
remainder to principal. The amount of interest accruing hereunder shall be
computed on an actual day, 360-day year basis.
This Note shall evidence all loans made by Bank to Borrower under that
certain Customer Credit Agreement between Bank and Borrower dated of even date
herewith, as the same may from time to time be amended; (the "Customer Credit
Agreement"), reference to which is made for certain terms and provisions which
affect this Note. Bank may record the date and amount of all loans and all
payments of principal and interest hereunder in the records it maintains with
respect thereto. The books and records of Bank hereof showing the account
between Bank hereof and Borrower shall be admissible in evidence in any action
or proceeding and shall constitute prima facie proof of the items therein set
forth.
6
<PAGE>
All payments required hereunder shall be made in lawful money of the
United States of America at the office of Bank situated at One Mercantile
Center, St. Louis, Missouri 63101, or at such other place as the holder hereof
may designate in writing.
If this Note is not paid upon demand, and is placed in the hands of an
attorney or attorneys for collection (whether or not litigation shall be
commenced in aid thereof) or for representation of the holder hereof in
connection with bankruptcy or insolvency proceedings, Borrower promises to pay,
in addition to the amount due hereon, the reasonable costs and expenses of such
collection and representation, including reasonable attorneys, fees and
expenses. Presentment, protest and notice of dishonor and of protest are hereby
waived by all parties hereto, whether as maker, endorser, surety or guarantor.
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND BANK FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER AND BANK
COVERING SUCH MATTERS ARE CONTAINED IN THIS NOTE AND THE CREDIT AGREEMENT, WHICH
NOTE AND CREDIT AGREEMENT ARE A COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN BORROWER AND BANK, EXCEPT AS BORROWER AND BANK MAY LATER AGREE
IN WRITING TO MODIFY THEM.
This Note shall be governed by and construed in accordance with the
laws of the State of Missouri.
(SIGNATURE ON FOLLOWING PAGE)
7
<PAGE>
Signature Page
$15,000,000.00 Demand Note - Customer Credit Agreement
of Advantage Trading Group, Inc.
dated October 12, 1998
BORROWER:
ADVANTAGE TRADING GROUP, INC.
By: /s/ Richard Goble
---------------------
Title: President
----------------
By: /s/ Kevin Gagne
-------------------
Title: President
-----------------
8
<PAGE>
AMENDMENT TO
CUSTOMER CREDIT AGREEMENT AND FIRM INVENTORY
CREDIT AGREEMENT
THIS AMENDMENT TO CUSTOMER MARGIN CREDIT AGREEMENT AND FIRM INVENTORY
CREDIT AGREEMENT (this "Amendment") is made and entered into as of October 1,
1999, by and between: ADVANTAGE TRADING GROUP, INC., a Florida corporation
("Borrower"), and MERCANTILE BANK NATIONAL ASSOCIATION, a national banking
association ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower and Bank have heretofore entered into that certain
Customer Credit Agreement dated as of October 12, 1998 and that certain Firm
Inventory Credit Agreement dated as of October 12, 1998 (Collectively, the
"Agreements");
WHEREAS, pursuant to the Agreements, Borrower executed its Demand Note
- -- Customer Credit Agreement dated October 12, 1998, in favor of Bank, in the
principal amount of $15,000,000, and its Demand Note -- Firm Inventory Credit
Agreement dated October 12, 1998, in favor of Bank, in the principal amount of
$1,500,000 (collectively, the "Notes");
WHEREAS, Borrower and Bank desire to amend the Agreements in the manner
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Bank hereby agree as follows:
1. The last sentences of Section 1 of both Agreements are deleted and
substituted with the following:
"Unless sooner terminated by Bank under Section 14, Borrower's
ability to request loans hereunder shall automatically
terminate on September 30, 2000."
2. All references in the Agreements and Notes to this "Agreement" and
any other reference of similar import shall henceforth mean the respective
Agreement as amended by this Amendment. All capitalized terms used and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Agreement as amended by this Agreement.
3. Except to the extent specifically amended by this Amendment, all of
the terms, provisions, conditions, covenants, benefits of Borrower and Bank and
their respective successors
<PAGE>
and assigns, except that Borrower may not assign, transfer or delegate any of
its rights or obligations hereunder.
5. [SIC] In the event of any inconsistency or conflict between this
Amendment and the Agreement, the terms, provisions and conditions of this
Amendment shall govern and control.
6.[SIC] This Amendment shall be governed by and construed in accordance
with the internal laws of the State of Missouri.
7.[SIC] Borrower hereby reaffirms all representations, warranties,
covenants and agreements recited in the Agreements and Notes, as of the date
hereof, and the same are hereby adopted as representations, warranties,
covenants and agreements of Borrower herein. Borrower further represents and
warrants that it is not in default under any of its obligations under the
Agreements and Notes and that it has full power and authority to execute and
deliver this Amendment, and that the execution and delivery hereof has been duly
authorized, and that all necessary and proper acts have been performed or taken.
8.[SIC] ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND BANK FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS BORROWER AND BANK REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN BORROWER AND BANK, EXCEPT AS
BORROWER AND BANK MAY LATER AGREE IN WRITING TO MODIFY IT.
2
<PAGE>
SIGNATURE PAGE -- AMENDMENT TO CUSTOMER CREDIT AGREEMENT AND FIRM INVENTORY
CREDIT AGREEMENT DATED AS OF OCTOBER 1, 1999, EXECUTED BY ADVANTAGE TRADING
GROUP, INC. AND MERCANTILE BANK NATIONAL ASSOCIATION
BORROWER:
ADVANTAGE TRADING GROUP, INC.
By: /s/ Richard L. Goble
-------------------------
Title: President
By: /s/ Kevin M. Gagne
------------------------
Title: C.E.O.
BANK:
MERCANTILE BANK
NATIONAL ASSOCIATION
By: /s/ Mary Ann Lemonds
--------------------------
Mary Ann Lemonds,
Vice President
3
REMOTE PROCESSING AGREEMENT
BETWEEN
SUNGARD FINANCIAL SYSTEMS, INC.
a Delaware corporation
("SunGard")
AND
ADVANTAGE TRADING GROUP, INC.
a Florida corporation
("Customer")
DATED
January 12, 1998
By the signatures of their duly authorized representatives below, SunGard and
Customer, intending to be legally bound, agree to all of the provisions of this
Agreement and all Schedules and Addenda to this Agreement.
SUNGARD FINANCIAL SYSTEMS, INC. ADVANTAGE TRADING GROUP, INC.
BY: /s/ David Taylor BY: /s/ Kevin M. Gagne/ /s/Richard L. Goble
-------------------------- ----------------------------------------
PRINT NAME: /s/ David Taylor PRINT NAME: /s/ Kevin M. Gagne/
------------------ --------------------------------
/s/ Richard L. Goble
--------------------------------
PRINT TITLE: President PRINT TITLE: C.E.O./President
---------------- -------------------------------
DATE SIGNED: January 12, 1998 DATE SIGNED: 1/12/98/1/12/98
---------------- ------------------------------
- --------------------------------------------------------------------------------
SUNGARD
<PAGE>
1. SERVICES
1.1 Provision of Services. SunGard shall provide to Customer, and
Customer shall accept, the on-line processing, report services
and related services described on Schedule A to this Agreement
("System Services") available through use of SunGard's
proprietary applications software system Identified on
Schedule A to this Agreement ("System") and the related
documentation listed on Schedule A ("Documentation"), as the
System Services, System and Documentation may be modified,
revised and updated in accordance with this Agreement.
1.2 On-Line Processing Services. SunGard shall provide to Customer
the on-line processing services described on Schedule A. The
System will be available to Customer twenty-four hours a day
except during System maintenance. Customer will have on-line
access to the System during every day that any of the United
States securities markets are open ("Business Day"). On each
Business Day, SunGard will perform a daily batch cycle which
will begin at 8:00 p.m. Eastern Time and takes approximately
twelve (12) hours for normal data processing, unless
additional processing is required by Customer ("Batch Cycle").
During the Batch Cycle access by Customer to the System is
limited to the inquiry functions and order entry of trades for
next Business Day processing. If Customer requests a delay in
the commencement of the Batch Cycle or if any clearing
entities are not available to be accessed by the System, Batch
Processing may be delayed and the System may not be available
for next Business Day processing for approximately twelve (12)
hours after the commencement of the Batch Cycle. The
Designated Location will be staffed at SunGard's usual levels
twenty-four (24) hours a day commencing at 7:00 a.m. Eastern
Time on Monday through 7:00 p.m. Eastern Time Saturday, and on
Sunday from 7:00 a.m. Eastern Time to 7:00 p.m. Eastern Time.
Customer may request additional staffing by providing five (5)
days' prior written notice to SunGard. Such additional
staffing will be charged to Customer at SunGard's current
rates.
1. 3 Report Services. SunGard shall provide to Customer the report
services described on Schedule A, subject to any advance
notification procedures stated on Schedule A. SunGard shall
transmit all reports to Customer in the manner described in
the Documentation.
1.4 Customer Data. Customer shall supply to SunGard all of the
data to be processed under this Agreement as described on
Schedule A and in the Documentation. Customer shall transmit
the data to SunGard by communications link or in another
manner described on Schedule A. Customer shall use its best
efforts to insure that any information or data which it
introduces into the System is accurate and complete. Customer
shall maintain copies of all source data and current backup
copies of all data supplied to SunGard, and SunGard shall have
no liability for any loss or damage caused by Customer's
failure to maintain copies.
1
<PAGE>
1.5 Limited Use. Customer may use the System Services and
Documentation only in the ordinary course of its business
operations and for its own business purposes, including the
processing of trades of Customer's correspondent brokers in
its ordinary course of business. Customer shall use the System
Services only in accordance with the Documentation. Customer
may use only the copies of the Documentation that are provided
by SunGard, except that Customer may copy the Documentation to
the extent reasonably necessary for routine backup and
disaster recovery purposes.
2. INITIAL IMPLEMENTATION SUPPORT AND TRAINING
2.1 Initial Implementation. SunGard shall provide and Customer
shall accept the Initial Implementation Support described on
Schedule C. This shall include delivery to Customer of the
Initial Copies of the Documentation stated on Schedule C and
assistance with any other implementation or related activities
described on Schedule C. Subject to the availability of
SunGard's personnel, SunGard shall provide to Customer
additional implementation support services reasonably
requested by Customer. After delivery, Customer shall bear all
risk of loss or damage to all copies of the Documentation
delivered by SunGard to Customer. SunGard shall provide to
Customer replacement or additional copies of the Documentation
reasonably requested by Customer.
2.2 Training. SunGard shall provide and Customer shall accept the
Minimum Training described on Schedule C. This shall include
basic training in the use of the System Services for a
reasonable number of Customer's employees. Subject to the
availability of SunGard's personnel, SunGard shall provide to
Customer additional training services reasonably requested by
Customer. SunGard shall provide training at Customer's
location(s) whenever SunGard and Customer agree on-site
training is appropriate.
3. SUNGARD'S OTHER OBLIGATIONS
3.1 Ongoing Support Services. SunGard shall provide the following
ongoing support services to Customer:
(a) Telephone Support. SunGard shall provide to Customer,
during SunGard's normal business hours, Monday
through Friday from 7:30 a.m. Eastern Time to 7:30
p.m. Eastern Time (except that Customer and SunGard
may agree in advance to provide support services on
U.S. holidays), telephone consultative support
through SunGard's Customer Support Department
regarding Customer's proper and authorized use of the
Software. During normal business hours, SunGard shall
provide access to at least one of the following
people: (i) the primary support person for customer
account, (ii) the project manager for customer's
account or (iii) a senior manager of SunGard. In
addition, telephone
2
<PAGE>
consultative support will be provided through the
SunGard hotline twenty-four (24) hours a day seven
(7) days a week.
(b) Error Corrections. SunGard shall use commercially
reasonable efforts to correct failures of the
Software to perform in accordance with the
Documentation ("Errors") as follows:
1. Classification of Errors. An Error shall be
classified in accordance with the following terms:
Class 1 Error. A "Class 1 Error" is any
Error that renders continued use of the
Software either impossible or seriously
impractical and either interrupts production
by Customer or makes continued production
substantially costly to Customer.
Class 2 Error. A "Class 2 Error" is any
Error that is not a Class 1 Error.
2. Notification of Errors. SunGard shall provide to
Customer a list of persons (in increasing positions
of authority) and telephone numbers ("Calling List")
for Customer to contact in order to report an error.
When reporting any Error, Customer shall provide the
classification of the Error and reasonably detailed
documentation and explanation, together with
underlying data, to substantiate the Error and to
assist SunGard in its efforts to diagnose and correct
the Error. Customer will immediately report any Class
1 Error. If SunGard detects a Class 1 Error, then
SunGard will immediately contact Customer.
3. Response Time. SunGard shall use commercially
reasonable efforts to respond to Customer's initial
Error reports with off-site telephone consultation,
assistance and advice within fifteen (15) minutes for
Class 1 Errors and within one (1) hour for Class 2
Errors, but in any event, SunGard shall respond
within four working hours. If SunGard fails to so
respond, or if the designated person from the Calling
List is not available when Customer makes contact
with SunGard to report an Error, then Customer shall
attempt to contact the next more responsible person
of the Calling List until contact is made and a
designated person responds to the call.
Class 1 Errors. For any Class 1 Error,
SunGard shall take all reasonably necessary
steps to supply a reasonable work-around or
correction to Customer as soon as possible.
This will include assigning qualified,
dedicated staff to work on the Error 24
hours per day, 7 days per week, at either
the SunGard site or Designated Location as
necessary. Upon detecting or being notified
of a Class 1 Error, SunGard shall
immediately assemble the appropriate
3
<PAGE>
personnel to analyze the problem, identify
potential solutions and determine the best
plan of action. Customer shall participate
in this process when necessary and provide
SunGard with additional documentation and
examples, if possible, to assist in
resolving the Error. SunGard personnel shall
be dedicated to resolving the Error until an
acceptable work-around or correction is
supplied or until Customer determines in its
reasonable judgment after consultation with
SunGard that a work around or correction
cannot be produced. A SunGard representative
shall keep Customer informed of the status.
Class 2 Errors. For any Class 2 Error,
SunGard shall work with Customer to document
the Error through mutually established
standards. Class 2 Errors shall be resolved
according to mutually agreed priorities.
SunGard personnel shall be dedicated to
resolving Class 2 Errors through SunGard's
normal software support procedures.
(c) Billable Correction Services. If SunGard determines,
reasonably and in good faith, that a reported Error
did not, in fact, exist or was not attributable to a
defect in the Software or an act or omission of
SunGard, then Customer shall pay for SunGard's
investigation and related services at the service
fees specified in Section 5.3.
3.2 Modifications. SunGard shall provide to Customer, and Customer
shall accept, the following modifications to System Services:
(a) SunGard shall provide modifications, revisions and
updates to the System Services which SunGard, in its
sole discretion, incorporates into the System
Services without additional charge.
(b) SunGard shall use commercially reasonable efforts to
develop and implement changes to the System so that
the System Services will continue to comply with
applicable rules and regulations of regulatory
authorities as they may change from time to time.
(c) At SunGard's option and subject to the availability
of SunGard personnel, SunGard shall evaluate and, if
feasible and appropriate, produce and implement
Customer requests for modifications in the System
Services or the System. In SunGard's sole discretion,
it may implement requested modifications at no charge
in accordance with Section 3.1 (a) or offer them at
an additional charge in accordance with Section 3.4.
(d) SunGard shall deliver updates to the Documentation
whenever SunGard determines, in its sole discretion,
that such updates are necessary.
4
<PAGE>
(e) Customer shall accept modifications, revisions and
updates in the System Services, System and
Documentation, including changes in programming
languages, rules of operation and screen or report
format, as and when they are implemented by SunGard
and provided the modifications, revisions or updates
do not have a material adverse effect on the System
Services. Customer acknowledges that modifications,
revisions and updates in the System Services and the
System permitted by this Agreement may result in
changes in the form, timing or other features of
on-line services, reports and other System Services
provided under this Agreement.
3.3 Enhancements. SunGard shall offer to Customer the opportunity
to purchase services available through use of refinements,
improvements and enhancements to the System which SunGard, in
its sole discretion, does not incorporate into the System
without additional charge.
3.4 Consulting and Other Services. At Customer's reasonable
request and subject to the availability of SunGard's
personnel, SunGard shall provide to Customer conversion
assistance, consulting services, custom modification
programming, support services relating to custom
modifications, assistance with data transfers, assistance in
the use of the System Services security mechanisms and other
specialized support services with respect to the System
Services. These services shall be provided by SunGard at
Customer location(s) if SunGard and Customer agree that
on-site services are appropriate.
3.5 Backup Copies and Disaster Recovery. SunGard will make a
backup copy, in digital form, of Customer's data files then in
SunGard's possession (i) at the end of each business day and
stored at an off-site location for a period of five (5)
business days and (ii) at the end of each month and saved at
an off-site location for a period of the twelve (12) months,
provided that the monthly data files for the first four (4)
months of any tax year will be saved until the fifth month of
the following tax year. SunGard will maintain an agreement for
backup processing services with an affiliated company
consisting of the right to use an installed, fully operational
computer system and networking capability subject to the
availability of computer and other hardware. The backup
processing will be performed by SunGard using backup copies
which will be sent to the backup facility. Customer will be
charged for any recovery services associated with any computer
hardware or communications equipment required for Customer or
its correspondent brokers to access the System that is not
located at the Designated Location. In the case of an
emergency requiring backup processing, SunGard will promptly
contact the person or persons designated in writing by
Customer to be notified in such circumstance.
3.6 Special Processing. Upon the request of Customer and subject
to the limitations of the applications and hardware, SunGard
will use commercially reasonable
5
<PAGE>
efforts to provide special processing services such as
additional, customized reports or other enhancements that are
not included in the processing services provided under this
Agreement. Such special processing services will be provided
for an additional charge agreed upon by Customer and SunGard
in writing.
4. CUSTOMER'S OTHER OBLIGATIONS
4.1 Access to Facilities and Employees. Customer shall provide to
SunGard access to the Customer's facilities, equipment and
employees, and shall otherwise cooperate with SunGard, as
reasonably necessary for SunGard to perform its
implementation, training, support and other obligations under
this Agreement.
4.2 Procurement of Hardware and Other Items. Customer shall be
responsible, at its expense, for procuring and maintaining the
communications equipment and lines, computer equipment,
software and all other out of pocket expenses, which comprise
the Specified Configuration described on Schedule A, and for
updating the Specified Configuration in accordance with
SunGard's published updates to Schedule A.
4.3 Notices and Certifications. Customer shall give written notice
to SunGard (in accordance with Section 9.1) whenever Customer
intends to increase the transaction volume, in any material
respect, to be processed on the System. Customer shall
promptly complete and return to SunGard periodic
certifications which SunGard, in its sole discretion, may from
time to time send to Customer, certifying that Customer has
complied and is then in compliance with the provisions of
Section 7.
4.4 Certain Legal Requirements. Customer shall be responsible, at
its expense, for complying with all laws and regulations of
any jurisdiction applicable to use of System Services,
including laws and regulations pertaining to (a) remote use of
software and related property, (b) communication or
transmission of data into or out of a jurisdiction or (c)
registration of this Agreement. Customer shall indemnify and
hold harmless SunGard (and its affiliates, and the respective
directors, officers, employees and agents of SunGard and its
affiliates) from and against all actions, claims, damages or
liabilities (including reasonable attorneys' fees) arising out
of any violation by Customer of any such laws or regulations.
5. PAYMENTS
5.1 Initial Implementation Support and Minimum Training. Customer
shall pay to SunGard the fees for Initial Implementation
Support and Minimum Training in the amounts stated on Schedule
C, in accordance with the payment terms stated on Schedule C.
5.2 Monthly Fees. On a monthly basis, beginning on the first day
of processing live trades on the System ("Effective Date") and
continuing until termination of this
6
<PAGE>
Agreement, Customer shall pay to SunGard the fees described on
Schedule C. Customer shall pay minimum monthly fees for
certain services in advance as stated on Schedule C.
5.3 Special Service Fees. Customer shall pay to SunGard the
service fees stated on Schedule C for conversion, consulting
services, custom modification programming, support services
relating to custom modifications, assistance with data
transfers, and other specialized support services under
Sections 3.4. In each case where service fees are not
specified on Schedule C, then the fees for such services shall
be based upon SunGard's standard professional fee rates.
SunGard's standard professional fee rates in effect on the
date of this Agreement are stated on Schedule C and are
subject to increase in the ordinary course of business.
5.4 Expense Reimbursements. Customer shall be responsible for all
out-of-pocket expenses to receive, deliver or transmit reports
or data, and shall reimburse SunGard for all such expenses
incurred by SunGard. Whenever any services are provided by
SunGard at a Customer location or any other location requested
by Customer other than one of SunGard's locations, Customer
shall reimburse SunGard for its reasonable travel, lodging,
meal and related expenses incurred by SunGard personnel in
providing such services.
5.5 Other Fees. If Customer requires replacement or additional
copies of the Documentation if Customer assigns or otherwise
transfers this Agreement with SunGard's consent (in accordance
with Section 9.3), then Customer shall pay to SunGard the
corresponding fees stated on Schedule C.
5.6 Taxes. The fees and other amounts payable by Customer to
SunGard under this Agreement do not include any taxes of any
jurisdiction that may be assessed or imposed upon the services
provided under this Agreement or the copies of the
Documentation provided to Customer, including sales, use,
excise, value added, personal property, export, import and
withholding taxes, excluding only taxes based upon SunGard's
net income. Customer shall directly pay any such taxes
assessed against it, and Customer shall promptly reimburse
SunGard for any such taxes payable or collectable by SunGard.
5.7 Payment Terms. SunGard shall submit invoices to Customer on a
monthly basis for monthly fees and routine expense
reimbursements. SunGard shall submit invoices to Customer for
any other fees or expense reimbursements as and when incurred.
All invoices shall be sent to Customer's address for invoices
stated on Schedule A. Customer's payments shall be due within
thirty (30) days after receipt of invoice. Interest at the
rate of eighteen percent (18%) per annum (or, if lower, the
maximum rate permitted by applicable law) shall accrue on any
amount not paid by Customer to SunGard when due under this
Agreement, and shall be payable by Customer to SunGard on
demand. Except as provided in Sections 6.1
7
<PAGE>
and 6.2(c), all fees and other amounts paid by Customer under
this Agreement are non-refundable.
5.8 Fee Increases. On an annual basis, by giving at least one
hundred and twenty (120) days advance written notice to
Customer (in accordance with Section 9.1), SunGard may
increase the fees payable under this Agreement. If in
Advantage Trading Group's determination said fee increase is
unacceptable, Advantage Trading Group retains the right to
terminate this agreement within at least one hundred and
twenty (120) days of notification of increase from SunGard.
6. WARRANTIES AND LIMITATIONS
6.1 Performance. SunGard shall use reasonable care in processing
all work transmitted to it by Customer. SunGard shall have no
liability under this Section 6.1 unless, within thirty (30)
days after the applicable date of service, SunGard receives
notice from Customer (in accordance with Section 9.1)
describing a material processing error caused by SunGard's
failure to use reasonable care, together with adequate
supporting documentation and data. Upon receipt of any such
notice, SunGard's only obligation under this Section 6.1 is to
correct the error and redo the work affected as soon as
reasonably practical at no additional charge, or, at SunGard's
option, to refund or credit the charges applicable to the work
affected.
6.2 Right to Perform Services; No Infringement. SunGard warrants
to Customer that it has the full legal right to use the System
to provide the System Services in accordance with this
Agreement, and that the System Services and Documentation, in
the form delivered to Customer by SunGard and when properly
used for the purpose and in the manner specifically authorized
by this Agreement, do not infringe in any material respect
upon any United States patent or copyright or any trade secret
or other proprietary right of any person. SunGard shall
reimburse Customer for any damages finally awarded against and
paid by Customer to the extent attributable to a violation of
the foregoing warranty. SunGard shall have no liability under
this Section 6.2 unless Customer gives written notice to
SunGard (in accordance with Section 9.1) within ten (10) days
after any applicable infringement claim is initiated against
Customer and allows SunGard to have sole control of the
defense or settlement of the claim. If any applicable
infringement claim is initiated, or in SunGard's sole opinion
is likely to be initiated, against Customer or SunGard, then
SunGard shall have the option, at its expense, to:
(a) modify or replace all or the infringing part of the
System Services, System or Documentation so that it
is no longer infringing, provided that the System
Services do not change in any material adverse
respect; or
(b) procure the right to continue using or providing the
infringing part of the System Services, System or
Documentation; or
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(cc) remove all or the infringing part of the System
Services, System or Documentation, and refund to
Customer the corresponding portion of any monthly fee
paid in advance, in which case this Agreement shall
terminate with respect to the affected System
Services.
6.3 Care of Data. SunGard shall use reasonable care in handling
tapes or other materials which encode or contain data
belonging to Customer. SunGard's only obligation for breach of
this Section 6.3 shall be to replace or repair the tape or
material lost or damaged and to make reasonable efforts to
regenerate any lost data from backup copies maintained by
SunGard or from source data provided by Customer.
6.4 Application of Data. SunGard shall have no liability for any
loss or damage resulting from any application of the results
obtained from the use of any services provided under this
Agreement or from any unintended or unforeseen results
obtained from the use of any services provided under this
Agreement.
6.5 Exclusion for Unauthorized Actions. SunGard shall have no
liability under any provision of this Agreement with respect
to any performance problem, claim of infringement or other
matter to the extent attributable to any unauthorized or
improper use or modification of the System, any unauthorized
combination of the System with other software (other than
software included in the Specified Configuration), or any
breach of this Agreement by Customer.
6.6 Force Majeure. SunGard shall not be liable for, nor shall
SunGard be considered in breach of this Agreement due to, any
failure to perform its obligations under this Agreement as a
result of a cause beyond its control, including any act of God
or a public enemy, act of any military, civil or regulatory
authority, change in any law or regulation, fire, flood,
earthquake, storm or other like event, disruption or outage of
communications, power or other utility, labor problem,
unavailability of supplies, or any other cause, whether
similar or dissimilar to any of the foregoing, which could not
have been prevented by SunGard with reasonable care. Customer
acknowledges that availability of System Services is subject
to normal System downtime and that SunGard is not responsible
for delays or inability to access services caused by
communications problems.
6.7 Disclaimer and Exclusions. EXCEPT AS EXPRESSLY STATED IN THIS
AGREEMENT, SUNGARD MAKES NO REPRESENTATIONS OR WARRANTIES,
ORAL OR WRITTEN, EXPRESSED OR IMPLIED, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE REGARDING THE SYSTEM, THE SYSTEM SERVICES OR ANY OTHER
MATTER PERTAINING TO THIS AGREEMENT. EXCEPT FOR DAMAGES
REIMBURSABLE UNDER SECTION 6.2, SUNGARD'S TOTAL LIABILITY
UNDER THIS AGREEMENT SHALL UNDER NO CIRCUMSTANCES EXCEED AN
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AMOUNT EQUAL TO FIVE HUNDRED THOUSAND DOLLARS ($500,000).
UNDER NO CIRCUMSTANCES SHALL SUNGARD BE LIABLE TO CUSTOMER OR
ANY OTHER PERSON FOR LOST REVENUES, LOST PROFITS, LOSS OF
BUSINESS, OR ANY INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY
NATURE, WHETHER OR NOT FORESEEABLE.
6.8 Other Limitations. The warranties made by SunGard in this
Agreement, and the obligations of SunGard under this
Agreement, run only to Customer and not to its affiliates, its
customers or any other persons. Under no circumstances shall
any other person be considered a third party beneficiary of
this Agreement or otherwise entitled to any rights or remedies
under this Agreement. Customer shall have no rights or
remedies against SunGard except as specifically provided in
this Agreement. No action or claim of any type relating to
this Agreement may be brought or made by Customer more than
one (1) year after Customer first has knowledge of the basis
for the action or claim.
7. CONFIDENTIALITY, OWNERSHIP AND RESTRICTIVE COVENANTS
7.1 Confidential Information. All business information disclosed
by one party to the other in connection with this Agreement
shall be treated as confidential information unless it is or
later becomes publicly available through no fault of the other
party or it was or later is rightfully developed or obtained
by the other party from independent sources free from any duty
of confidentiality. Each party's confidential information
shall be held in strict confidence by the other party, using
the same standard of care as it uses to protect its own
confidential information, and shall not be used or disclosed
by the other party for any purpose except as necessary to
implement or perform this Agreement, or except as required by
law provided that the other party is given a reasonable
opportunity to obtain a protective order. Without limiting the
generality of the foregoing, such con-fidential information
shall include Customer's data, reports generated by SunGard
from Customer's data and the details of Customer's computer
operations.
7.2 SunGard's Proprietary Items. Customer acknowledges that the
System and Documentation, the object code and the source code
for the System, the name of the System, the visual
expressions, screen formats, report formats and other design
features of the System, all ideas, methods, algorithms,
formulae and concepts used in developing and/or incorporated
into the System or Documentation, all future modifications,
revisions, updates, releases, refinements, improvements and
enhancements of the System or Documentation, all derivative
works based upon any of the foregoing, and all copies of the
foregoing (referred to, collectively, as "Proprietary Items")
are trade secrets and proprietary property of SunGard, having
great commercial value to SunGard. Customer acknowledges that
the restrictions in this Agreement are reasonable and
necessary to protect SunGard's legitimate business interests.
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7.3 Ownership Rights. All Proprietary Items provided to Customer
under this Agreement are being provided on a strictly
confidential and limited use basis. Title to all Proprietary
Items and all related patent, copyright, trademark, service
mark, trade secret, intellectual property and other ownership
rights shall remain exclusively with SunGard, even with
respect to such items that were created by SunGard
specifically for or on behalf of Customer. This Agreement is
not an agreement of sale, and no title, patent, copyright,
trademark, service mark, trade secret, intellectual property
or other ownership rights to any Proprietary Items are
transferred to Customer by virtue of this Agreement. All
copies of Proprietary Items in Customer's possession shall
remain the exclusive property of SunGard and shall be deemed
to be on loan to Customer during the term of this Agreement.
7.4 Disclosure Restrictions. All Proprietary Items in Customer's
possession, whether or not authorized, shall be held in strict
confidence by Customer, and Customer shall take all steps
reasonably necessary to preserve the confidentiality thereof.
Customer shall not, directly or indirectly, communicate,
publish, display, loan, give or otherwise disclose any
Proprietary Item to any person, or permit any person to have
access to or possession of any Proprietary Item. Customer
shall limit its use of and access to Proprietary Items to only
those of its employees whose responsibilities require such use
or access. Customer shall advise all such employees, before
they receive access to or possession of any Proprietary Items,
of the confidential nature of the Proprietary Items and
require them to abide by the terms of this Agreement. Customer
shall be liable for any breach of this Agreement by any of its
employees or any other person who obtains access to or
possession of any Proprietary Item from or through Customer.
7.5 Use Restrictions. Customer shall not do, nor shall it permit
any other person to do, any of the following:
(a) use any Proprietary Item for any purpose, at any
location or in any manner not specifically authorized
by this Agreement; or
(b) make or retain any copy of any Proprietary Item
except as specifically authorized by this Agreement;
or
(c) create or recreate the source code for the System, or
re-engineer, reverse engineer, decompile or
disassemble the System; or
(d) modify, adapt, translate or create derivative works
based upon the System or Documentation, or combine or
merge any part of the System or Documentation with or
into any other software or documentation; or
(e) refer to or otherwise use any Proprietary Item as
part of any effort to develop a program having any
functional attributes, visual expressions or other
features similar to those of the System or to compete
with SunGard: or
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(f) remove, erase or tamper with any copyright or other
proprietary notice printed or stamped on, affixed to,
or encoded or recorded in any Proprietary Item, or
fail to preserve all copyright and other proprietary
notices in any copy of any Proprietary Item made by
Customer; or
(g) sell, market, license, sublicense, distribute or
otherwise grant to any person, including any
outsourcer, vendor, consultant or partner, any right
to use any Proprietary Item, whether on Customer's
behalf or otherwise; or
(h) use the System to conduct any type of service bureau
or timesharing operation or to provide remote
processing, network processing, network
communications or similar services to any person,
whether on a fee basis or otherwise; or attempt to do
any of the foregoing.
7.6 Notice and Remedy of Breaches. Customer shall promptly give
written notice to SunGard (in accordance with Section 9.1) of
any actual or suspected breach by Customer of any of the
provisions of this Section 7, whether or not intentional, and
Customer shall, at its expense, take all steps reasonably
requested by SunGard to prevent or remedy the breach.
7.7 Audit. SunGard may, at its expense and by giving reasonable
advance written notice to Customer (in accordance with Section
9.1), enter Customer locations during normal business hours
and audit the number of copies of the Documentation in
Customer's possession and information pertaining to Customer's
compliance with the provisions of this Section 7. If SunGard
discovers that Customer is not in compliance with the
provisions of this Section 7 in any material respect, then
Customer shall reimburse SunGard for the expenses incurred by
SunGard in conducting the audit.
7.8 Enforcement. Customer acknowledges that any breach of any of
the provisions of this Section 7 shall result in irreparable
injury to SunGard for which money damages could not adequately
compensate. If there is a breach, then SunGard shall be
entitled, in addition to all other rights and remedies which
SunGard may have at law or in equity, to have a decree of
specific performance or an injunction issued by any competent
court, requiring the breach to be cured or enjoining all
persons involved from continuing the breach. The existence of
any claim or cause of action which Customer or any other
person may have against SunGard shall not constitute a defense
or bar to the enforcement of any of the provisions of this
Section 7.
8. TERMINATION
8.1 Initial Term; Renewal. The term of this Agreement begins on
the date Customer begins processing live trades and shall
continue for three (3) years, and thereafter for successive
one-year renewal terms unless and until terminated in
accordance with this Section 8 or any other section of this
Agreement. SunGard or Customer
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may terminate this Agreement at the end of the initial Term or
at the end of any one-year renewal term by giving at least
ninety (90) days advance written notice of termination (in
accordance with Section 9.1) to the other.
8.2 Termination by Customer. Customer may terminate this Agreement
immediately upon notice to SunGard (in accordance with Section
9.1) if SunGard improperly denies Customer access to the
System Services and Customer's files maintained in the System
for more than one (1) business day, or if SunGard fails to
provide to Customer any daily reports described on Schedule A
for more than two (2) consecutive business days, in either
case unless due to a hardware or software malfunction or
defect, in which case SunGard shall be allowed a reasonable
period of time to correct the malfunction or defect.
8.3 Termination by SunGard. SunGard may immediately terminate this
Agreement, by giving written notice of termination to Customer
(in accordance with Section 9.1), upon the occurrence of any
of the following events:
(a) Customer fails to pay to SunGard, within ten (10)
days after SunGard makes written demand therefor, any
past-due amount payable under this Agreement
including interest thereon) that is not the subject
of a good faith dispute as to which Customer has
given written notice to SunGard (in accordance with
Section 9.1) explaining its position in reasonable
detail.
(b) Customer breaches, in any material respect, any of
the provisions of Section 7 or Section 9.3.
(c) Customer breaches any of its other obligations under
this Agreement and does not cure the breach within
thirty (30) days after SunGard gives written notice
to Customer (in accordance with Section 9.1)
describing the breach in reasonable detail.
(d) Bankruptcy, insolvency, dissolution or liquidation
proceedings of any nature are instituted by or
against Customer or Customer discontinues all or a
significant part of its business operations.
8.4 Suspension of Services. On the occurrence of any event which
would permit SunGard to terminate this Agreement under Section
8.3, in addition to all other rights and remedies which
SunGard may have at law or in equity, SunGard may, without
terminating this Agreement, and in its sole discretion and
without further notice to Customer, suspend performance of any
or all of its services under this Agreement and/or activate
internal controls in the System that are designed to deny
Customer access to the System Services and files, until and
unless SunGard determines, in its sole discretion and upon
whatever conditions SunGard chooses to impose on Customer, to
resume performance of some or all of the suspended services or
allow Customer access to the System Services and files.
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8.55 Effect of Termination. Upon a termination of this Agreement,
whether under this Section 8 or otherwise, Customer shall
immediately cease all use of the System Services,
Documentation and other Proprietary Items, Customer shall
promptly return to SunGard all copies of the Documentation and
any other Proprietary Items then in Customer's possession.
Customer shall remain liable for all payments due to SunGard
with respect to the period ending on the date of termination.
Within thirty (30) days after termination of this Agreement,
Customer shall give notice to SunGard (in accordance with
Section 9.1) containing reasonable instructions regarding the
disposition of tapes, data, files and other property belonging
to Customer and then in SunGard's possession. SunGard shall
comply with that notice, except that SunGard may retain all
such property until SunGard receives all payments due to
SunGard under this Agreement. Upon request contained in such
notice, SunGard shall convert Customer's data to machine
readable form to the extent practicable and at Customer's
expense. If Customer fails to give that notice within thirty
(30) days after termination of this Agreement, then SunGard
may dispose of such property as it sees fit. The provisions of
Sections 5, 6 and 7 shall survive any termination of this
Agreement, whether under this Section 8 or otherwise.
9. OTHER PROVISIONS
9.1 Notice. All notices, consents and other communications under
or regarding this Agreement shall be in writing and shall be
deemed to have been received on the earlier of the date of
actual receipt, the third business day after being mailed by
first class certified air mail, or the first business day
after being sent by a reputable overnight delivery service.
Any notice may be given by facsimile, provided that signed
written original is sent by one of the foregoing methods
within twenty-four (24) hours thereafter. Customer's address
for notices is stated on Schedule A. SunGard's address for
notices is 504 Totten Pond Road, Waltham, Massachusetts 02154
Attention: Contract Administration. Either party may change
its address for notices by giving written notice of the new
address to the other party in accordance with this Section
9.1.
9.2 Defined Terms. As used in this Agreement, the following terms
have the following meanings:
(a) "affiliate" means, with respect to a specified
person, any person which directly or indirectly
controls, is controlled by, or is under common
control with the specified person as of the date of
this Agreement, for as long as such relationship
remains in effect.
(b) "copy" means any paper, disk, tape, film, memory
device, or other material or object on or in which
any words, object code, source code or other symbols
are written, recorded or encoded, whether permanent
or transitory.
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(c) "including" means including but not limited to.
(d) "person" means any individual, sole proprietorship,
joint venture, partnership, corporation, company,
firm, bank, association, cooperative, trust, estate,
government, governmental agency, regulatory
authority, or other entity of any nature.
9.3 Parties In Interest. This Agreement shall bind, benefit and be
enforceable by and against SunGard and Customer and, to the
extent permitted hereby, their respective successors and
assigns. Customer shall not assign this Agreement or any of
its rights hereunder, nor delegate any of its obligations
hereunder, without SunGard's prior written consent. SunGard's
consent shall not be unreasonably withheld in the case of an
assignment to a purchaser of or a successor to substantially
all of Customer's business, or to an affiliate of Customer,
provided that SunGard receives prior notice (in accordance
with Section 9.1) of the assignment together with the
successor's written undertaking to assume all of Customer's
obligations under this Agreement. Any change in control of
Customer, and any assignment by merger or otherwise by
operation of law, shall constitute an assignment of this
Agreement by Customer for purposes of this Section 9.3.
9.4 Relationship. The relationship between the parties created by
this Agreement is that of independent contractors and not
partners, joint venturers or agents.
9.5 Employee. Customer shall not, directly or indirectly (through
one or more subsidiaries or other controlled entities), hire
or offer to hire any programmer or data processing employee or
contractor of SunGard at any time when such person is employed
or engaged by SunGard or during the six (6) months after such
employment or engagement ends. For purposes of this provision,
"hire" means to employ as an employee or to engage as an
independent contractor, whether on a full-time, part-time or
temporary basis. This provision will remain in effect during
the term of this Agreement and for a period of one (1) year
after expiration or termination of this Agreement.
9.6 Entire Understanding. This Agreement, which includes and
incorporates the Schedules referred to herein, states the
entire understanding between the parties with respect to its
subject matter, and supersedes all prior proposals, marketing
materials, negotiations and other written or oral
communications between the parties with respect to the subject
matter of this Agreement. Any written, printed or other
materials which SunGard provides to Customer that are not
included in the Documentation are provided on an "as is"
basis, without warranty, and solely as an accommodation to
Customer.
9.7 Modification and Waiver. No modification of this Agreement,
and no waiver of any breach of this Agreement, shall be
effective unless in writing and signed by an authorized
representative of the party against whom enforcement is
sought.
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No waiver of any breach of this Agreement, and no course of
dealing between the parties, shall be construed as a waiver of
any subsequent breach of this Agreement.
9.8 Severability. A determination that any provision of this
Agreement is invalid or unenforceable shall not affect the
other provisions of this Agreement.
9.9 Headings. Section headings are for convenience of reference
only and shall not affect the interpretation of this
Agreement.
9.10 Jurisdiction and Process. In any action relating to this
Agreement, (a) each of the parties irrevocably consents to the
exclusive jurisdiction and venue of the federal and state
courts located in the Commonwealth of Pennsylvania, (b) each
of the parties irrevocably waives the right to trial by jury,
(c) each of the parties irrevocably consents to service of
process by first class certified mail, return receipt
requested, postage prepaid, to the address at which the party
is to receive notice in accordance with Section 9.1, and (d)
the prevailing party shall be entitled to recover its
reasonable attorney's fees (including, if applicable, charges
for in-house counsel), court costs and other legal expenses
from the other party.
9.11 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA EXCLUDING CHOICE OF LAW.
16
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (this "Agreement"), effective as of March
13, 2000, is entered into by and among Empire Financial Holding Company, a
Florida corporation (the "Company"), Kevin M. Gagne and Richard L. Goble
(collectively, the "Current Shareholders") and each future holder of record of
Shares (hereinafter defined) who executes this Agreement or a separate
agreement to be bound by the terms hereof, regardless of when executed (the
Current Shareholders and such future holders of record are hereinafter sometimes
referred to collectively as the "Shareholders" and each individually as a
"Shareholder").
RECITALS
A. As of the date of this Agreement, the Current Shareholders are the
record and beneficial owners of all of the outstanding Shares (as hereinafter
defined).
B. The Company and the Current Shareholders are willing to execute this
Agreement and to be bound by the provisions hereof.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. PROHIBITION ON TRANSFERS
1.1 No Transfers Unless Expressly Permitted. No Shareholder shall sell,
assign, transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose
of (each, a "Transfer") all or any of such Shareholder's Shares, except in
compliance with the terms and conditions of this Agreement. As used in this
Agreement, "Shares" shall mean and include all shares of the Common Stock or
Preferred Stock of the Company, and rights, options or warrants to purchase such
Common Stock or Preferred Stock, and securities of any type whatsoever that are,
or may become, convertible or exchangeable into such Common Stock or Preferred
Stock, now owned or hereafter acquired by any Shareholder.
1.2 Certain Permitted Transfers. Notwithstanding Section 1.1, nothing
herein shall restrict: (i) a Transfer by a Shareholder of Shares to (A) to any
spouse, child, child of a spouse, parent or grandchild of such Shareholder, (B)
a trust of which there are no principal beneficiaries other than such
Shareholder and one or more of such relatives of such Shareholder, (C) a
partnership of which there are no partners other than such Shareholder, one or
more of such relatives of such Shareholder or one or more trusts or corporations
which would qualify as a Permitted Transferee (as defined below) under clause
(i)(B) or (i)(D) hereof, or (D) a corporation of which there are no stockholders
other than such Shareholder, one or more of such relatives of such Shareholder
or one or more trusts or other corporations which would qualify as a Permitted
Transferee under clause (i)(B) or this (i)(D) hereof, or (E) a charitable
institution; (ii) any Transfer to a legal representative or guardian of a
Shareholder in the event such Shareholder becomes mentally incompetent; (iii)
any Transfer by will or the laws of descent; or (iv) any Transfer made in a
market transaction in which the Shareholder does not solicit nor arrange for the
solicitation of an order to buy the Shares; provided, however, that the
aggregate amount of Transfers by the Shareholder in market
<PAGE>
transactions shall not exceed 10,000 Shares during any calendar quarter
(each, a "Permitted Transferee").
SECTION 2. RIGHT OF FIRST REFUSAL
2.1 Right of First Refusal.
(a) Except for Transfers permitted by Section 1.2, if at any time a
Shareholder (the "Selling Shareholder") desires to Transfer all or any part of
such Selling Shareholder's Shares pursuant to a bona fide offer from a third
party (the "Proposed Transferee"), the Selling Shareholder must comply with the
provisions of this Section prior to accepting the third party offer. Within ten
days of receipt of a third party offer, the Selling Shareholder shall submit a
written offer (the "Offer") to sell such Shares (the "Offered Shares") to the
other Shareholders (excluding the Selling Shareholder) (the "Other
Shareholders") on terms and conditions, including price, not less favorable than
those on which the Selling Shareholder proposes to sell such Offered Shares to
the Proposed Transferee. The Offer shall disclose the identity of the Proposed
Transferee, the number of Offered Shares proposed to be sold, the total number
of Shares owned by the Selling Shareholder, the terms and conditions, including
price, of the proposed sale, and any other material facts relating to the
proposed sale. The Offer shall further state (i) that the Other Shareholders may
acquire, in accordance with the provisions of this Agreement, any of the Offered
Shares for the price and upon the other terms and conditions set forth therein
and (ii) that if all such Offered Shares are not purchased by any Other
Shareholders, the remaining Other Shareholders may purchase any Offered Shares
not purchased by any Other Shareholder.
(b) Each Other Shareholder shall have the irrevocable and exclusive
option, but not the obligation (the "Option"), to purchase all, but not less
than all, of the Offered Shares in pro portion to the number of Shares owned by
such Other Shareholder compared to the total number of Shares owned by all of
the Other Shareholders for the purchase price and on the terms set forth in the
Offer. The Option shall be exercisable by the Other Shareholders by giving
notice of such exercise (the "Exercise Notice") to the Selling Shareholder and
the Other Shareholders within 20 days following the Other Shareholder's receipt
of the Offer. The Exercise Notice shall, when taken in conjunction with the
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of the Offered Shares. Failure by any Other
Shareholder to exercise the Option or to give an Exercise Notice shall be deemed
an election by such Other Shareholder not to exercise the Option.
(c) If any of the Offered Shares are not purchased by the Other
Shareholder pursuant to this Section 2.1, then, the Selling Shareholder may sell
the Offered Shares at any time during the ensuing 60 days in strict conformity
with the terms set forth in the Offer. Any such sale shall be to the Proposed
Transferee, at not less than the price and upon other terms and conditions, if
any, not more favorable to the Proposed Transferee than those specified in the
Offer. If at the end of such 60-day period the Selling Shareholder has not sold
the Offered Shares, all restrictions on the sale or transfer of the Offered
Shares set forth in this Agreement shall again be in effect.
2.2 Closing. If any Shares are purchased by an Other Shareholder
pursuant to the Option, then such purchases shall, unless the parties thereto
otherwise agree, be completed at a closing to
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be held at the principal office of the Company on the tenth business day
following the exercise of the Option.
SECTION 3. MISCELLANEOUS
3.1 Term. This Agreement shall terminate only upon the earlier to occur
of the occurrence of any one of the following events:
(A) either of the Current Shareholders becomes the beneficial
owner of less than ten percent of the aggregate voting rights of all of the then
issued and outstanding capital stock of the Company; or
(B) the death of either Current Shareholder or incapacity of
either Current Shareholder to act hereunder; or
(C) the termination of this Agreement by written agreement of
the Shareholders, which written agreement must be signed by each of the
Shareholders.
3.2 Representations of Shareholders. Each Shareholder represents and
warrants to the Company and each other Shareholder that as of the date of such
Shareholder's execution of this Agreement, such Shareholder is the record and
beneficial owner of the Shares indicated on Exhibit A attached hereto, free and
clear of all liens, claims, encumbrances, and equities of every kind and
character whatsoever. Each Shareholder agrees to indemnify and hold harmless the
Company and each other Shareholder from and against any and all liabilities,
losses, costs or expenses (including attorney's fees) arising from the breach or
inaccuracy of the foregoing representation and warranty.
3.3 Amendments, Waivers and Consents. This Agreement shall not be
changed, modified or amended in any respect except by the mutual written
agreement of the parties hereto. Any provision of this Agreement may be waived
in writing by the party which is entitled to the benefits thereof. No waiver of
any provision of this Agreement shall be deemed to or shall constitute a waiver
of any other provision hereof (whether or not similar), nor shall any such
waiver constitute a continuing waiver
3.4 Governing Law. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of the State of
Florida, without giving effect to conflicts of laws principles thereof. Any
proceedings of whatever nature brought to enforce the provisions of this
Agreement shall be brought and heard in Seminole County, Florida, and the
parties hereto consent to personal jurisdiction and venue in such forum.
3.5 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; but neither this Agreement nor any of the rights, benefits or
obligations hereunder shall be assigned, by operation of law or otherwise, by
any party hereto. Nothing in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
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3.6 Headings. The captions, headings and titles herein are for
convenience of reference only and shall not effect the construction, meaning or
interpretation of this Agreement or any term or provision hereof.
3.7 Notices and Demands. Any notices, requests, consents, demands and
other communications required or permitted to be given hereunder must be in
writing and, except as otherwise specified in writing, will be deemed to have
been duly given when personally delivered, telexed or facsimile transmitted, or
three days after deposit in the United States mail, by certified mail, postage
prepaid, return receipt requested, addressed to the parties at its address set
forth on Exhibit A or such other address as such party may specify by notice to
the other parties hereto.
3.8 Severability. Any term or provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
3.9 Endorsement of Stock Certificates. Conformed copies of this
Agreement shall be filed with the Secretary of the Company and kept with the
records of the Company at its principal office. Certificates representing the
Shares issued prior to the date of this Agreement to the Shareholders shall be
recalled by the Company on or before one day after the effective date of this
Agreement, and an officer of the Company shall endorse each certificate
representing such Shares heretofore and hereafter issued by the Company to the
Shareholders by causing to be placed on the face thereof the following: "See
restrictions on back of certificate" and by causing to be placed on the back
thereof the following legend:
THE SHARES REPRESENTED BY THE WITHIN CERTIFICATE IS ISSUED, ACCEPTED
AND HELD SUBJECT TO THE TERMS OF A SHAREHOLDERS AGREEMENT, DATED AS OF
MARCH 13, 2000. A COPY OF SUCH SHAREHOLDERS AGREEMENT HAS BEEN FILED AT
THE OFFICE OF THE CORPORATION. THIS CERTIFICATE AND THE SHARES
REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT AS PROVIDED IN
SUCH SHAREHOLDERS AGREEMENT, TO ALL OF WHICH AND TO WHICH SHAREHOLDERS
AGREEMENT THE HOLDER HEREOF, BY THE ACCEPTANCE HEREOF, AGREES.
The Company may also cause to be imposed upon such certificates such
other legends as counsel to the Company shall determine to be required under the
provisions of any federal or state securities law.
3.10 Specific Performance. Each of the parties acknowledge that it will
be impossible to measure in money the damage to the parties or to any of them,
if any party fails to comply with any of the restrictions or obligations imposed
by this Agreement, that every such restriction and obligation is material, and
that in the event of any such failure, the other parties will not have an
adequate remedy at law or in damages. Therefore, each party consents to the
issuance of an injunction or the enforcement of other equitable remedies against
her/him/it at the suit of an
4
<PAGE>
aggrieved party without bond or other security, to compel performance of all of
the terms hereof, and waives any defenses thereto, including, without
limitation, the defenses of (i) failure of consideration, (ii) breach of any
other provision of this Agreement and (iii) availability of relief in damages.
3.11 Entire Agreement. This Agreement, including the exhibits referred
to herein, constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
3.12 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
(Continued on Signature Page)
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement on the date first written above.
EMPIRE FINANCIAL HOLDING COMPANY
By: /s/ RICHARD L. GOBLE
------------------------
Richard L. Goble, Co-Chairman of the Board
By: /s/ KEVIN M. GAGNE
-----------------------
Kevin M. Gagne, Co-Chairman of the Board
KEVIN M. GAGNE
--------------
/s/ KEVIN M. GAGNE
RICHARD L. GOBLE
----------------
/s/RICHARD L. GOBLE
6
<PAGE>
EXHIBIT A
List of Shareholders
--------------------
Name and Address Number of Shares Held
- -------------------------------------------- ----------------------------------
Kevin M. Gagne 4,000,000
Richard L. Goble 4,000,000
LETTER REGARDING CHANGE IN CERTIFYING ACCOUNTANTS
AND
CONSENT OF SWEENEY, GATES & CO.
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Empire Financial Holding Company
Amendment No. 1 to Registration Statement on Form S-1
SEC File No. 333-86365
We are the former accountants of Empire Financial Holding Company and
subsidiaries (collectively, "the Company") and concur with the statements made
by the Company in this Amendment No. 1 to this Registration Statement regarding
our replacement as the Company's principal accountants.
We hereby consent to the use in this Amendment No. 1 to Registration Statement
on Form S-1 of our report dated February 19, 1999, relating to the consolidated
financial statements of the Company.
We also consent to the reference to our firm under the caption "Experts" in the
prospectus.
/s/ Sweeney, Gates & Co.
------------------------
Sweeney, Gates & Co.
Fort Lauderdale, Florida
March 22, 2000
Subsidiaries of the Registrant
------------------------------
Name State of Incorporation
---- ----------------------
1. Empire Financial Group, Inc. Florida
2. Advantage Trading Group, Inc. Florida
3. Empire Investment Advisors, Inc. Florida
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We hereby consent to the use in this Registration Statement on Form S-1
(Amendment No. 1 to Form SB-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/ PricewaterhouseCoopers LLP
Tampa, Florida
March 22, 2000
CONSENT OF DIRECTOR
-------------------
THE UNDERSIGNED hereby consents and agrees to: (i) serve as a director
of Empire Financial Holding Company (the "Company") effective upon completion of
the Company's initial public offering of its common stock (the "Offering"), and
(ii) being named a director (effective upon completion of the Offering) in the
Company's Registration Statement on Form SB-2 relating to the Offering, and in
the Prospectus contained therein proposed to be circulated in connection with
the Offering, and all amendments thereto.
EXECUTED as of this 8th day of October, 1999.
/s/ Craig Macnab
--------------------------
Name: Craig Macnab
CONSENT OF DIRECTOR
-------------------
THE UNDERSIGNED hereby consents and agrees to: (i) serve as a director
of Empire Financial Holding Company (the "Company") effective upon completion of
the Company's initial public offering of its common stock (the "Offering"), and
(ii) being named a director (effective upon completion of the Offering) in the
Company's Registration Statement on Form SB-2 relating to the Offering, and in
the Prospectus contained therein proposed to be circulated in connection with
the Offering, and all amendments thereto.
EXECUTED as of this 29th day of September, 1999.
/s/ Gregory Misiak
---------------------------
Name: Gregory Misiak
Exhibit 23.6
CONSENT OF DIRECTOR
-------------------
THE UNDERSIGNED hereby consents and agrees to: (i) serve as a director
of Empire Financial Holding Company (the "Company") effective upon completion of
the Company's initial public offering of its common stock (the "Offering"), and
(ii) being named a director (effective upon completion of the Offering) in the
Company's Registration Statement on Form S-1 relating to the Offering, and in
the Prospectus contained therein proposed to be circulated in connection with
the Offering, and all amendments thereto.
EXECUTED as of this 1st day of March, 2000.
/s/ John Tsucalas
-----------------
Name: John Tsucalas
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 3,099,554
<SECURITIES> 0
<RECEIVABLES> 18,034,074
<ALLOWANCES> (230,924)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 340,706
<DEPRECIATION> (100,878)
<TOTAL-ASSETS> 22,166,240
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 80,000
<OTHER-SE> 3,070,042
<TOTAL-LIABILITY-AND-EQUITY> 22,166,240
<SALES> 0
<TOTAL-REVENUES> 17,598,303
<CGS> 0
<TOTAL-COSTS> 14,139,977
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 353,668
<INCOME-PRETAX> 3,458,326
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,458,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,458,326
<EPS-BASIC> .43
<EPS-DILUTED> .43
</TABLE>
