<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1999
Registration Statement No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHOCHET HOLDING CORP.
(Name of Small Business Issuer in its Charter)
------------------------
<TABLE>
<S> <C> <C>
Delaware 6211 59-2651232
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
------------------------
</TABLE>
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33998
(954) 454-0304
(Address and telephone number of principal executive offices)
------------------------
Roger N. Gladstone, Chief Executive Officer
and Chairman of the Board of Directors
Shochet Holding Corp.
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33998
(954) 454-0304
(Name, address and telephone number of agent for service)
------------------------
Copies to:
Joel D. Mayersohn, Esq. David Alan Miller, Esq.
Andrew Lockwood, Esq. Peter M. Ziemba, Esq.
Atlas, Pearlman, Trop & Borkson, P.A. Graubard Mollen & Miller
200 East Las Olas Boulevard, Suite 1900 600 Third Avenue
Fort Lauderdale, FL 33301 New York, NY 10016
Telephone: (954) 763-1200 Telephone: (212) 818-8800
Facsimile No. (954) 766-7800 Facsimile (212) 818-8881
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
------------------------
<PAGE>
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis under Rule 415 under the Securities Act
of 1933, as amended, 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 of 1933, as amended, please
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, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities To Be Offering Price Aggregate Offering Registration
To Be Registered Registered Per Security Price Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001
par value 920,000 (1) $9.00 (2) $8,280,000 (2) $2,185.92
Underwriters' Purchase Option
to purchase shares of
Common Stock 80,000 $ .001 $ 80 $ - (3)
Common Stock,
$.0001 par value issuable upon
exercise of the Underwriters'
Purchase Option 80,000 (4) $9.90 (2) $ 792,000 (2) $ 209.09
- -----------------------------------------------------------------------------------------------------------------------------------
Total Amount Due $2,395.01
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 120,000 shares of common stock that the underwriters have the
option to purchase from the registrant to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
(3) No registration fee required pursuant to Rule 457(g).
(4) Pursuant to Rule 416, there are also being registered an indeterminate
number of shares of common stock that may be issuable by reason of the
anti-dilution provisions of the underwriters' purchase option.
The registrant will amend 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 or until the registration statement shall become effective on
such date as the Commission, acting under Section 8(a), may determine.
-ii-
<PAGE>
Information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted or would be
unlawful prior to registration or qualification under the securities laws of any
state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED December 8, 1999
Shochet Holding Corp.
800,000 Shares of Common Stock
All 800,000 shares of our common stock are being sold by Shochet Holding
Corp. We also have given the underwriters of this offering an option to purchase
an additional 120,000 shares of our common stock to cover over-allotments.
No public market exists for our common stock. We have applied for
quotation of our common stock on the Nasdaq SmallCap Market under the symbol
"SHOC."
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price.............................. $ $
Underwriting discounts and commissions............. $ $
--------------- ------------------
Proceeds to Shochet Holding Corp................... $ $
=============== ==================
</TABLE>
We anticipate that the initial price per share will be between $7.00 and
$9.00. For purposes of this prospectus, we assume an initial price per share of
$8.00.
The underwriters are offering our shares of common stock on a firm
commitment basis subject to various conditions and may reject all or part of any
order.
Gaines, Berland Inc. Shochet Securities, Inc.
___________, 1999
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C>
Summary................................... 1 Management................................. 31
Risk Factors.............................. 4 Executive Compensation..................... 35
Use of Proceeds........................... 12 Principal Stockholders..................... 36
Dividend Policy........................... 13 Certain Transactions....................... 37
Dilution.................................. 13 Description of Securities.................. 37
Capitalization............................ 14 Shares Eligible for Future sale............ 38
Management's Discussion and Underwriting............................... 39
Analysis of Financial Condition Legal Matters.............................. 41
and Results of Operations............... 15 Experts.................................... 41
Business.................................. 22 Where You Can Find
Additional Information................... 41
Index to Financial Statements.............. F-1
</TABLE>
Shochet Holding Corp., referred to in this prospectus as Shochet Holding,
we or us, operates a full service, discount brokerage business through its
wholly-owned subsidiary, Shochet Securities, Inc., which we refer to as Shochet
Securities. We were incorporated in Delaware in July 1999. Our executive offices
are located at 2351 East Hallandale Beach Boulevard, Hallandale, Florida. Our
telephone number is (954) 434-0307. In this prospectus we refer to our
publicly-traded parent company, Research Partners International, Inc., as
Research Partners. We refer to our sister companies, GKN Securities Corp., as
GKN Securities, EarlyBirdCapital.com Inc., as EarlyBirdCapital and Research
Partners International AG as Research Partners AG. We refer to prospective
investors as you or the investor(s).
Unless otherwise indicated, all information in this prospectus assumes
that the underwriters will not exercise their option to purchase up to 120,000
shares of common stock to cover over-allotments and that all shares underlying
options issued or issuable under our 1999 Performance Equity Plan are not
exercised. All information in this prospectus also gives effect to our November
1999 corporate reorganization, which resulted in the issuance of 1,200,000
shares of our common stock to Research Partners.
<PAGE>
Summary
You should read the entire prospectus carefully, paying particular
attention to the section entitled Risk Factors.
Generally about us
We provide our customers a broad range of financial services through our
subsidiary, Shochet Securities, including full service, discount brokerage
services. We assign each of our customers a registered representative to
supervise his or her account. We intend to offer online brokerage services
through our website, www.shochet.com. Shochet Securities operates six branch
offices, all of which are in Florida. Our revenues have been derived primarily
from commissions from brokerage services. During the fiscal year ended January
31, 1999, we generated approximately $7.8 million in revenues. For the nine
months ended October 31, 1999, we generated approximately $6.1 million in
revenues.
We provide brokerage services in equity and fixed income securities,
options, annuities and mutual funds. We charge our clients commissions that are
generally less than those charged by other full service firms for similar
services, and pay our brokers a percentage of that commission. We employ
approximately 50 brokers, who manage an aggregate of more than $870 million in
assets in approximately 13,000 client accounts.
Our online services and products will include:
o online entry initially for equities, then options, mutual funds and fixed
income securities;
o real-time quotes;
o company and industry research; and
o access to initial public offerings and private financings distributed
through our sister company.
Strengths
We believe that our competitive advantage over other online brokerage
firms lies with the following factors:
o Each online customer will be assigned an experienced broker to assist him
or her. Unlike most other online brokers, which assign computer
technicians or a general help desk to answer customers' questions, we
will assign one of our experienced brokers to service each account on an
as-needed basis.
<PAGE>
o We have established ourselves in southern Florida as a quality brokerage.
Unlike newer, less established online brokerages, we have operated for
more than 18 years with an established customer base.
Strategy
Our goal is to establish ourselves as a premier full service, discount
Internet brokerage firm and to expand our presence in Florida. Our strategy
includes the following elements:
o Leverage our existing operations and experienced management team to build
our online brokerage business.
o Open cost-effective mini-offices and branch offices.
o Broaden exposure of the Shochet brand name.
The Offering
Securities offered............................ 800,000 shares of common stock.
Common stock outstanding
prior to the offering......................... 1,200,000 shares
Common stock to be outstanding
after the offering............................ 2,000,000 shares
Use of proceeds............................... We intend to use the net
proceeds of this offering as
follows:
o Advertising and promotion
o Repayment of debt owed
Research Partners
o Branch office expansion,
hiring of personnel
o Technology improvements
o Working capital and general
corporate purposes
Proposed Nasdaq SmallCap Market Symbol........ SHOC
- 2 -
<PAGE>
Summary Financial Data
The information below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
accompanying financial statements and notes included in another section of this
prospectus. The As adjusted column reflects an August 1999 loan in the form of
a $500,000 subordinated note payable to Research Partners, the sale of 800,000
shares of common stock in this offering at an assumed initial offering price of
$8.00 per share, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, and the application of these
proceeds, including the repayment of $1,000,000 of debt.
Summary Financial Information
<TABLE>
<CAPTION>
Year ended Six months ended
January 31 July 31
---------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Commissions, floor brokerage
and clearing charges .................. $ 7,127,000 $ 5,934,000 $ 3,877,000 $ 3,599,000
Interest ................................. 601,000 584,000 396,000 290,000
Total revenues .............................. 7,753,000 6,607,000 4,330,000 3,897,000
Expenses:
Employee compensation and
related expenses ...................... 4,224,000 3,461,000 2,300,000 2,125,000
Total expenses .............................. 7,653,000 6,485,000 4,155,000 3,813,000
Net income from continuing operations ....... 75,000 52,000 86,000 67,000
Loss from discontinued operations: .......... (402,000) -- (406,000) (177,000)
Net (loss) income ........................... $ (327,000) $ 52,000 $ (320,000) $ (110,000)
Basic and diluted gain (loss) earnings
Per common share
--from continuing operations ........... $ 0.06 $ 0.04 $ 0.07 $ 0.06
--from net (loss) income ............ $ (0.27) $ 0.04 $ (0.27) $ (0.09)
Weighted average common shares
outstanding - basic and diluted .......... 1,200,000 1,200,000 1,200,000 1,200,000
<CAPTION>
January 31, 1999 July 31, 1999
----------------------------------- ----------------------------------
(unaudited)
As adjusted
-----------
Balance Sheet Data:
<S> <C> <C> <C>
Cash and cash equivalents ................... $ 868,000 $ 493,000 $5,265,000
Receivables from brokers and dealers ........ 298,000 323,000 323,000
Goodwill, net ............................... 1,637,000 1,600,000 1,600,000
Total assets ................................ 3,915,000 3,787,000 8,559,000
Total liabilities (excluding
Subordinated debt) .................... 659,000 851,000 851,000
Subordinated debt ........................... 1,000,000 1,000,000 500,000
Total stockholders' equity .................. $2,256,000 $1,936,000 $7,208,000
</TABLE>
- ----------
- 3 -
<PAGE>
Risk Factors
You should consider carefully the following risks before you decide to
invest in our common stock. Our business, financial condition or results of
operation could be materially adversely affected by any of these risks. Any of
these risks could cause the trading price of our common stock to decline, and
you could lose all or part of your investment.
Risks Relating to Our Business
We have no history operating our online business upon which you can evaluate our
performance.
We intend to begin operating our online systems after a brief testing
period. It is uncertain whether our online business will be able to perform the
way we have anticipated. You should consider our prospects based on the risks,
expenses and difficulties frequently encountered in the operation of a new
business in a rapidly evolving industry characterized by intense competition.
Any failure of our systems could harm our business.
Our success depends on our ability to provide efficient and
uninterrupted high-quality services. Our systems and operations are vulnerable
to damage or interruption from:
o human error;
o telecommunications failures;
o physical or electronic break-ins;
o natural disasters;
o sabotage; and
o similar events that may be beyond our control.
System failures or service interruptions could be caused by high levels
of client use, failures of either third-party systems or our own systems, or
other acts beyond our control. Systems failures or service interruptions could
result in:
o substantial losses for our clients;
o loss of client accounts;
o decreased commission revenues;
o client inability to satisfy margin obligations; or
o harm to our reputation.
Any significant failure of our systems could create transaction delays
for our customers. During a systems failure, we may not be able to process the
resulting volume of telephone orders.
- 4 -
<PAGE>
Our inability to obtain accurate information could cause service interruptions
and client attrition and could subject us to claims by clients or third parties.
We rely upon information suppliers to provide accurate data on a
real-time basis. Failure by an information supplier to supply necessary
information could cause service interruptions, harm to our reputation and loss
of clients. In addition, we could be sued by clients if they download and rely
upon inaccurate information from our transaction execution system. We also may
be subject to claims for negligence or copyright or trademark infringement based
on the nature and content of information downloaded by clients from our systems
and subsequently distributed to others. We do not maintain insurance to cover
most of these types of liabilities. Any liability imposed on us or costs
incurred in defending claims not covered by or in excess of our insurance
coverage could materially adversely affect our business, financial condition and
operating results.
Because we are involved in the same business as Research Partners, conflicts of
interest and competition between us may arise and could result in a loss of
revenues or business opportunities for us.
Research Partners is engaged in the full service brokerage and
investment banking business through its broker-dealer subsidiaries,
EarlyBirdCapital, GKN Securities and Research Partners AG, as well as our
company. These subsidiaries may compete for the same clients and business
opportunities.
In addition, three of our directors are also directors of Research
Partners. There may be circumstances where Research Partners or these directors
take action which could favor one subsidiary over another. Research Partners and
our overlapping directors are not required to resolve any conflict in our favor.
Such decisions may relate to potential acquisitions of businesses, competition,
issuance or disposition of securities, election of new or additional directors
and other matters. Our certificate of incorporation allows overlapping
directors, officers and employees to offer a corporate opportunity to us or to
Research Partners' other subsidiaries and eliminates the liability of these
persons in circumstances which may arise from these conflicts.
Research Partners will be able to control stockholder matters, which may limit
the ability of minority stockholders to impact our affairs.
Research Partners will be able to control the outcome of all matters
submitted to a vote of the holders of common stock, including the election of
directors, amendments to our certificate of incorporation and approval of
significant corporate transactions. Upon the conclusion of this offering,
Research Partners will own 60% of our outstanding common stock. This
concentration of stockholder voting power could also delay, deter or prevent a
change in control that might benefit other stockholders.
- 5 -
<PAGE>
Future sales of shares by Research Partners could adversely affect the market
price of our common stock.
After completion of this offering, there will be 2,000,000 shares of
our common stock outstanding, of which 1,200,000 shares, or 60%, will be held by
Research Partners. Research Partners will be able to sell these shares in the
public market from time to time, subject to limits on the timing, amount and
method of these sales imposed by securities laws, and subject to its agreement
that it will not sell any of its shares without the prior consent of Gaines,
Berland Inc. until 24 months after the date of this prospectus.
If Research Partners were to sell a large number of shares following
this offering, the market price of our common stock could decline significantly
which could impair our ability to raise additional capital through the sale of
our equity securities. You should be aware that the possibility of these sales
may, in the future, have a depressive effect on the price of the common stock in
any market which may adversely affect the ability of any investor to market his
shares. Our affiliate may sell its shares during a favorable movement in the
market price of common stock which may have a depressive effect on its price per
share. The perception in the public markets that these sales by Research
Partners might occur could also adversely affect the market price of our common
stock.
We operate in a highly regulated industry and compliance failures could
adversely affect our business.
The securities industry in the United States is subject to extensive
regulation. Failure to comply with applicable laws or regulations could subject
us to disciplinary or other regulatory or legal actions. We could also become
subject to civil lawsuits in the future based on noncompliance.
Our operations would be interrupted if the services of our clearing broker are
terminated.
We are dependent on the operational capacity and the ability of our
clearing broker, Schroder & Co., for the orderly processing of transactions. Our
clearing agreement may be terminated by either party, upon 60 days' written
notice. Under this agreement, Schroder processes all securities transactions for
our account and the accounts of our clients. Schroder also provides billing
services, extends credit and provides for control and receipt, custody and
delivery of securities. Termination or material interruptions of services
provided by Schroder would have a material adverse effect on our operations.
Our clearing firm extends credit to our clients and we are liable if our clients
do not pay.
We permit our clients to purchase securities on a margin basis or sell
securities short, which means that our clearing firm extends credit to the
client secured by cash and securities in the clients' account. During periods of
volatile markets the value of the collateral held by Schroder could fall below
the amount borrowed by the client. If margin requirements are not
- 6 -
<PAGE>
sufficient to cover losses and Schroder sells or buys securities at prevailing
market prices, it may incur losses to satisfy client obligations. We have agreed
to indemnify Schroder for losses it incurs while extending credit to our
clients. As of November 30, 1999, we had approximately $38 million in credit
extended to our clients through Schroder.
Ineffective risk management methods could harm our business.
Our policies and procedures to identify, monitor and manage our risks
may not be fully effective. Some of our methods to manage risk are based on
historical market behavior and cannot necessarily accurately predict future risk
exposure, which could be greater than the historical measures and correlations
indicate.
Employee misconduct is difficult to detect and could harm our business.
We run the risk that employee misconduct could occur, including binding
us to transactions that exceed authorized limits or present unacceptable risks,
or hiding unauthorized or unsuccessful activities. This type of misconduct could
result in unknown and undamaged losses. Employee misconduct could also involve
the improper use of confidential information, which could result in regulatory
sanctions and harm to our reputation. We may not be able to detect, deter or
prevent any of these types of employee misconduct.
Losses due to customer fraud could have an adverse effect on our business.
We are exposed to potential losses resulting from fraud and other
misconduct by customers, such as fraudulent Internet trading (including access
to legitimate customer accounts, or the use of a false identity to open an
account) or the use of forged or counterfeit checks for payment. These types of
fraud may be difficult to prevent or detect. We may not be able to recover the
losses caused by these activities. Any of these losses could have a material
adverse effect on our business, financial condition and operating results.
Despite our efforts, our computer systems as well as those of others may not be
Year 2000 compliant, which could significantly disrupt our business.
We are substantially dependent upon the proper functioning of computer
systems, including our internal systems and the systems of third parties with
our clearing broker and vendors providing phone service, payroll services and
banking services. Although we have completed an evaluation of our mission
critical systems and believe that substantially all of our systems are Year
2000, we cannot assure you that this is the case. Although we have been working
closely with third-party vendors to determine whether their systems will be Year
2000 compliant on a timely basis, we cannot assure you that they will be
compliant and that we will
- 7 -
<PAGE>
not face disruption in our business, which could adversely affect our results of
operation, liquidity and financial condition.
Failure to comply with net capital requirements could result in termination of
our business.
Securities broker-dealers are subject to stringent rules with respect
to the maintenance of specific levels of net capital. Net capital is the net
worth (assets minus liabilities) less deductions for some types of assets. If we
fail to maintain required net capital levels, we may be subject to suspension or
revocation of our license, which could ultimately lead to our liquidation. If
the net capital rules are changed or expanded, or if we incur an unusually large
charge against net capital, we might be required to limit or discontinue those
portions of our business that require the intensive use of capital. Our ability
to withdraw capital is restricted, which could limit our ability to pay
dividends, repay debt and redeem or purchase shares of our outstanding stock, if
necessary. A large operating loss or charge against net capital could adversely
affect our ability to expand or even maintain our present levels of business.
The loss of any of our executive officers and key personnel, including Roger
Gladstone, David Greenberg and Howard Landers could adversely affect our
business.
Our continued success will depend to a large extent on the efforts and
abilities of Roger Gladstone, our chief executive officer and chairman of the
board, David Greenberg, our president, chief operating officer and director, and
Howard Landers, our executive vice president-online products and director. Each
of these employment agreements expires one year from the date of this
prospectus, and none of the officers are obligated to remain employed by us
after the expiration of their agreements. We have no key man insurance on any of
these officers. The loss of any of these officers could have a material adverse
effect on our business.
Market downturns could harm our business.
Any long-term stock market decline could result in reduced trading
volume and, consequently, reduced commission revenues. This would cause our
business, financial condition and operating results to be adversely affected
because our overhead expenses remain relatively fixed.
Risks Relating to the Online Brokerage Industry
The evolving nature of the online brokerage industry makes demand for our
services uncertain.
Demand for online brokerage services is uncertain due to its relatively
short history, rapid technological changes, evolving industry standards,
frequent new service and product announcements, introductions and enhancements.
Customers of traditional full commission brokerage firms or discount brokers may
be slow to convert to Internet brokerage services for a
- 8 -
<PAGE>
variety of reasons, including security and privacy concerns. If the market for
online brokerage services does not develop as we expect, our business, financial
condition and operating results could be materially adversely affected.
If the Internet does not become a viable commercial marketplace, our efforts to
expand into the online brokerage business could be hindered.
The use of the Internet could be adversely affected by delays in the
development or adoption of new standards and protocols to handle increased
levels of activity or by increased governmental regulation. Critical issues
concerning the commercial use of the Internet, including security, reliability,
cost, ease of use, accessibility and quality of service remain unresolved. These
issues may hinder the growth of Internet use or the attractiveness of commerce
and communications on the Internet and, therefore impede our ability to grow.
Rapid technological change could cause our online brokerage system to become
less attractive to potential and current clients.
Online stock trading is characterized by:
o rapidly changing technology;
o changing client requirements;
o frequent introduction of new services and transaction
execution systems; and
o enhancements and evolving industry standards in computer
hardware, operating systems, database technology and
information delivery systems.
Our inability to respond to any of these changes may cause our online
brokerage systems to become less attractive to potential and current clients.
Our business, financial condition and operating results may be adversely
affected if we are unable to anticipate or respond quickly to any of these or
similar developments.
New laws regarding the Internet may be passed, which could adversely affect our
business.
The legal and regulatory environment that pertains to the Internet is
uncertain and is changing rapidly. New laws and regulations, including
securities laws and regulations, could be difficult to comply with and could
increase our costs of doing business and prevent us from delivering our products
and services over the Internet, which could adversely affect our customer base
and our revenue. In addition to new regulations being adopted, existing laws may
be applied to the Internet. New and existing laws may cover issues that include:
o sales and other taxes;
- 9 -
<PAGE>
o access charges;
o user privacy;
o characteristics and quality of products and services; and
o other claims based on the nature and content of Internet
materials.
Intense competition from existing and new entities may adversely affect our
revenues and profitability.
The securities industry in general, and particularly the online
brokerage service segment of the industry, are rapidly evolving, intensely
competitive and have few barriers to entry. We expect competition to intensify
in the future. Many of our competitors have significantly greater financial,
technical, marketing and other resources and offer a wider range of services and
financial products and have greater name recognition and a larger client base.
These competitors may be able to adapt 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. We may not be able to compete
effectively with current or future competitors.
Our exposure to potential securities litigation could adversely affect our
business.
Many aspects of the securities brokerage business, including online
trading services, involve substantial risks of liability in connection with the
distribution of securities and claims by dissatisfied customers for fraud,
unauthorized trading, churning, mismanagement and breach of fiduciary duty.
There has been an increasing incidence of litigation involving the securities
brokerage industry, including class action and other suits that generally seek
substantial damages, including in some cases punitive damages. From time to
time, we are involved in lawsuits and arbitrations. This type of litigation
could have a material adverse effect on our business, financial condition and
operating results.
Risks Relating to this Offering
We will use 19% of the proceeds of this offering to repay debt to Research
Partners.
We have allocated approximately $1,000,000, or 19%, of the estimated
net proceeds of this offering to repay debt owed to Research Partners and will
not have these funds for future operations.
There has been no prior market for our common stock and the market price of the
shares may fluctuate.
There has been no market for our common stock prior to this offering.
The price of our common stock after the offering may fluctuate widely and may
trade at prices significantly below its initial public offering price. We cannot
guarantee that a trading market for our common stock will develop or, if a
market does develop, the depth of the trading market for the common stock or the
prices at which the common stock will trade.
We could hinder or prevent a change in control by issuing preferred stock.
- 10 -
<PAGE>
Our certificate of incorporation authorizes the issuance of "blank
check" preferred stock by our board of directors. If issued, the preferred stock
could adversely affect the voting power or other rights of our stockholders or
be used, to discourage, delay or prevent a change in control, which could have
the effect of discouraging bids for us and prevent stockholders from receiving
maximum value for their shares. Although we have no present intention to issue
any shares of preferred stock, we cannot assure you that we will not do so in
the future.
Forward-looking statements
Some of the statements contained in this prospectus are forward-looking
and may involve a number of risks and uncertainties. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause our actual results to differ materially from those contemplated by the
statements. We caution you that these forward-looking statements are only
predictions. We cannot assure you that the future results predicted, whether
expressed or implied, will be achieved. The forward-looking statements are based
on current expectations, and we are not obligated to update this information.
- 11 -
<PAGE>
Use of Proceeds
We estimate that we will receive proceeds from the sale of our common
stock in this offering of approximately $5,272,000, or approximately $6,117,000
if the underwriters exercise their over-allotment option in full, after
deducting underwriting discounts and commissions and other expenses payable by
us estimated at $1,128,000, or approximately $1,243,000 if the underwriters
exercise their over-allotment option in full. We intend to use the proceeds
approximately as follows:
<TABLE>
<CAPTION>
Percent of
Application Amount Net Proceeds
- ----------- ------ ------------
<S> <C> <C>
Advertising and promotion.......................... $2,820,000 54%
Repayment of debt owed
Research Partners.............................. 1,000,000 19%
Branch office expansion,
hiring of personnel............................ 705,000 13%
Technology improvements............................ 705,000 13%
Working capital and
general corporate purposes.................... 42,000 1%
---------- ---
Total.............................................. $5,272,000 100%
========== ===
</TABLE>
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. We will use a portion of the proceeds from this offering to retire
$1,000,000 of the $1,500,000 of subordinated debt owed by us to Research
Partners, all of which was provided to us by Research Partners to satisfy our
net capital requirements. The note being repaid was issued when Research
Partners purchased Shochet Securities; it bears an annual interest rate of 12%
and must be repaid by May 31, 2000. The remaining $500,000 was issued in August
1999; it bears an annual interest rate of 8% and must be repaid by August 31,
2001. Based upon our current business plan, we believe that the funds generated
by this offering will be sufficient to fund working capital for the foreseeable
future. Any funds realized from the underwriters' exercise of their
over-allotment option will be used for working capital.
- 12 -
<PAGE>
Dividend Policy
We expect to retain all earnings generated by our operations for the
development and growth of our business, and do not anticipate paying any cash
dividends to our stockholders in the foreseeable future. The payment of future
dividends on the common stock and the rate of such dividends, if any, will be
determined by our board of directors in light of our earnings, financial
condition, capital requirements and other factors. Our ability to pay dividends
in the future may also be restricted by Shochet Securities' obligations to
comply with the net capital requirements imposed on broker-dealers by the SEC
and the NASD.
Dilution
At July 31, 1999, after giving effect to our reorganization, we had a
pro forma net tangible book value of $272,000 or $0.23 per share of common
stock. Net tangible book value is equal to total tangible assets minus total
liabilities. Our net tangible book value per share is calculated by dividing our
net tangible book value by 1,200,000, the total number of shares of common stock
outstanding.
At July 31, 1999, after giving pro forma effect to the sale of 800,000
shares of common stock in this offering at an assumed initial public offering
price of $8.00 per share and the receipt by us of the net proceeds from this
offering, our pro forma net tangible book value at July 31, 1999 would have been
approximately $5.5 million, or approximately $2.77 per share of common stock.
The dilution is $5.23 per share, or approximately 65%, less than the price you
are paying per share in this offering. The following table illustrates this
dilution:
Assumed public offering price per share.....................$8.00
-----
Net tangible book value per share of common stock
as of July 31, 1999..........................................0.23
Increase per share attributable to sale of common
stock in this offering...................................... 2.54
-----
Pro forma net tangible book value per share of
common stock after this offering............................ 2.77
-----
Dilution per share of common stock to investors
in this offering............................................$5.23
=====
- 13 -
<PAGE>
Capitalization
The following table sets forth our capitalization. The Actual
column shows our capitalization as of July 31, 1999 after giving effect to our
reorganization into a holding company structure. The Pro forma column shows our
capitalization on July 31, 1999, on a pro forma basis adjusted to reflect our
reorganization, the issuance of 800,000 shares of common stock in this offering
at an assumed public offering price of $8.00 per share, the August 1999 loan
in the form of a $500,000 subordinated note payable to Research Partners
and the repayment of $1,000,000 of debt.
<TABLE>
<CAPTION>
July 31, 1999
----------------------------------
Actual Pro forma
------ ---------
<S> <C> <C>
Long term borrowings:
Subordinated debt $ 1,000,000 $ 500,000
----------- ----------
Stockholders' equity:
Preferred stock, $.0001 par value; 1,000,000
shares authorized; no shares outstanding - -
Common stock, $.0001 par value; 15,000,000
shares authorized; 1,200,000 shares issued and
outstanding (actual); 2,000,000 shares issued - -
and outstanding(pro forma)
Additional paid-in capital 2,270,000 7,542,000
Accumulated deficit (334,000) (334,000)
----------- -----------
Total stockholders' equity 1,936,000 7,208,000
---------- ----------
Total capitalization $2,936,000 $7,708,000
========== ==========
</TABLE>
- --------------------------------
- 14 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following analysis of the consolidated results of operations and
financial condition of us and Shochet Securities should be read in conjunction
with our consolidated financial statements included elsewhere in this
prospectus.
Business Environment
Our primary business activity, full service discount brokerage, is
subject to general economic and market conditions and the volatility of trading
markets. The six-month period ended July 31, 1999 was characterized by favorable
market conditions, which represented a recovery from the negative effects caused
by volatile market conditions which characterized most of fiscal 1999.
Our focus is to develop our presence as an Internet brokerage firm and
continue to develop our physical presence as a premier discount broker in
Florida. This focus led us to discontinue the on-site day trading segment of our
business which had proven unprofitable. The results of operations of the on-site
day trading has been separately disclosed in the statement of operations as
discontinued operations.
The results of operations for the six-month period ended July 31, 1999
are not necessarily indicative of the expected results for the entire fiscal
year.
Results of Operations
Six months ended July 31, 1999 vs. six months ended July 31, 1998
Net loss for the six months ended July 31, 1999 was $320,000, as
compared to $110,000 for the six months ended July 31, 1998. Income from
continuing operations for the six months ended July 31, 1999 was $86,000, as
compared to $67,000 for the same period in fiscal 1998. Basic and diluted loss
per share of common stock was $0.27 for the first half of fiscal 2000, compared
to $0.09 for the first half of fiscal 1999. Basic and diluted earnings from
continuing operations per common share was $0.07 for the first half of fiscal
2000, as compared to $0.06 per common share for the first half of fiscal 1999.
Revenues
Total revenues increased by 11% to $4,330,000 for the first half of
fiscal 2000, as a result of increases in all revenue categories.
Commission revenues increased by 8%, or $278,000, in the first half of
fiscal 2000. This was due to a 53% increase in trade volume, partially offset by
a decrease in average commissions per ticket.
- 15 -
<PAGE>
Interest revenues increased 37%, or $106,000, in fiscal 2000 as a
result of increased interest on customer balances held at our clearing firm.
Other revenues increased 613%, or $49,000 primarily due to the
collection of inactive account fees in fiscal 2000 and increased order flow
income in fiscal 2000 as compared with fiscal 1999.
Expenses
Total expenses for the first six months in fiscal 2000 were $4,155,000,
a 9% increase from the same period in fiscal 1999. The increase is attributable
to increases in all expense categories, except for a decrease in business
development expenses.
Compensation and benefits expense increased 8% or $175,000. The
majority of these expenses are variable because commissions to brokers are paid
as a percentage of commission revenues generated. The increase is consistent
with the increase in commission revenue for the same period.
Brokerage, clearing and exchange fees increased 17%, or $93,000. This
increase is consistent with our increase in trade volume.
Occupancy and equipment expense increased 7%, or $23,000, primarily due
to the opening of a new branch office in Delray Beach which began operations in
May 1998 and costs associated with technological improvements in other branches.
Communications expenses increased 4%, or $13,000. This increase is
consistent with our increase in trade volume.
Management fee expense of $114,000 was consistent with the same period
in the prior year. We pay Research Partners a management fee for services
rendered to us by GKN Securities in connection with its provision of accounting,
legal, compliance and executive management services.
Business development expenses decreased by 38%, or $26,000, due to
decreased promotional activities in continuing business lines.
Professional fees increased 32%, or $15,000, primarily due to the
opening of a new branch office in Delray Beach and additional use of computer
system consultants.
Other expenses increased 20%, or $49,000 primarily due to the opening
of a new branch office in Delray Beach.
- 16 -
<PAGE>
Income taxes
For the six months ended July 31, 1999, we incurred no income tax
expenses, due to our net operating loss for the year to date. Additionally, we
have recognized a valuation reserve for the recognition of future deferred tax
benefits of $96,000 for the six months ended July 31, 1999. The tax benefit
recognized for the six months ended July 31, 1998 resulted primarily from the
loss from discontinued operations, partially offset by the gain from continuing
operations.
Year ended January 31, 1999 vs. year ended January 31, 1998
- ------------------------------------------------------------
Net loss for the year ended January 31, 1999 was $327,000 as compared
with a net gain of $52,000 for the year ended January 31, 1998. Income from
continuing operations for the year ended January 31, 1999 was $75,000 as
compared to $52,000 for the same period in fiscal 1998. Basic and diluted loss
per share of common stock was $0.27 for fiscal 1999 as compared to a gain of
$0.04 per share for fiscal 1998. Basic and diluted earnings from continuing
operations per common share was $0.06 for fiscal 1999 as compared to $0.04 per
common share for fiscal 1998.
Revenues
Total revenues increased by 17% to $7,753,000 for fiscal 1999 as a
result of increases in commission and interest revenue, partially offset by a
decrease in other revenues.
Commission revenues increased by 20%, or $1,193,000, in fiscal 1999
over the prior year. This was due to increased trade volume, partially offset by
a decrease in average commissions per ticket as a result of the competitive
impact of online brokers.
Interest revenues increased 3%, or $17,000, in fiscal 1999 as a result
of increased interest on customer balances held at our clearing firm.
Other revenues decreased 72%, or $64,000, primarily due to lower
trading gains and reduced order flow in fiscal 1999 as compared to fiscal 1998.
Expenses
Total expenses for fiscal 1999 were $7,653,000, an 18% increase from
fiscal 1998. The increase is attributable to increases in all expense categories
as discussed in detail below, with the exception of a decrease in business
development expenses.
Compensation and benefits expense increased 22%, or $763,000. The
majority of these expenses are variable because commissions to brokers are paid
as a percentage of commission revenues generated. The increase is consistent
with the increase in commission revenue for the same period.
- 17 -
<PAGE>
Brokerage, clearing and exchange fees increased 5%, or $57,000. This
increase is consistent with our increase in trade volume.
Occupancy and equipment expense increased 20% or $120,000 primarily due
to the opening of a new branch office in Delray Beach.
Communications expenses increased 23%, or $124,000. This increase is
consistent with our increase in trade volume.
Management fee expense of $228,000 was comparable with the same period
in the prior year.
Business development expenses decreased by 2%, or $2,000, due to
decreased promotional activities in continuing business lines.
Professional fees increased 38%, or $26,000, primarily due to the
opening of a new branch office in Delray Beach and additional use of computer
system consultants.
Other expenses increased 19%, or $80,000, primarily due to the opening
of a new branch office in Delray Beach and the costs of maintaining the other
branches.
Income taxes
For the year ended January 31, 1999, we recognized a total tax benefit
of $107,000, primarily resulting from the loss from discontinued operations,
partially offset by the gain from continuing operations and recognition of a
valuation reserve for the recognition of future deferred tax benefits of
$10,000. This compares to a $70,000 expense in the prior year as a result of the
gain from operations.
Weighted average common shares outstanding
The average number of common shares outstanding used in the computation
of basic and diluted loss per common share was 1,200,000 for each of the first
half of fiscal 2000 and the first half of fiscal 1999.
Liquidity and Capital Resources
Approximately 31% of our assets at July 31, 1999 were highly liquid,
consisting primarily of cash and cash equivalents, securities inventories and
receivables from other broker-dealers, all of which fluctuate depending upon the
levels of customer business and trading activity. Receivables from
broker-dealers, which are primarily from our clearing broker, turn over rapidly.
As a securities dealer, we may carry significant levels of securities
inventories to meet customer needs. Our inventory of securities is readily
marketable; however, holding large blocks of the same security may limit
liquidity and prevent realization of full market value for the securities. The
total assets or the individual components of total assets may vary
- 18 -
<PAGE>
significantly from period to period because of changes relating to customer
demand and economic and market conditions.
Our brokerage subsidiary, Shochet Securities, is subject to the net
capital rules of the NASD and the SEC. Therefore, we and Shochet Securities are
subject to restrictions on the use of capital and related liquidity. In August
1999, Research Partners contributed $500,000 of additional regulatory capital in
the form of subordinated debt. Shochet Securities' net capital position as of
October 31, 1999, was $496,000, which was $396,000 in excess of its net capital
requirements.
We continually review our overall capital and funding needs to ensure
that our capital base can support the estimated needs of our business. Our
review takes into account business needs as well as regulatory capital
requirements of our subsidiary. Based upon these reviews, we believe that our
capital structure is adequate for current operations for the foreseeable future.
We will use a portion of the proceeds from this offering to repay $1,000,000 of
subordinated debt owed Research Partners. We will also use a portion of these
proceeds to fund our expansion into the online brokerage business.
Other Matters
Year 2000 computer issue
We initiated a firm-wide program to address the Year 2000 computer
issue in order to prepare our computer systems and applications for properly
processing dates after December 31, 1999. This program consists of a series of
steps to identify all critical and non-critical systems, determine Year 2000
compliance through inquiries and testing and change non-compliant systems. Our
program was substantially in place as of December 1, 1999.
We have completed our identification phase. Third party vendors and
service providers provide all of our computer programs and services. Most of the
programs were purchased after the Year 2000 problem became widely recognized. We
have contacted approximately 99% of our third party vendors and service
providers and have received written confirmation from approximately 95% of them
that the Year 2000 problem has been appropriately managed. Schroder, our
clearing firm, is our largest and most important computer services related
vendor. Schroder has provided us with assurances that it expects to
appropriately manage the Year 2000 problem on a timely basis.
The Year 2000 problem creates a risk for us from unforeseen problems in
our own computer systems, third-party vendors and service providers, and from
third parties with whom we deal. We are continuing to communicate with our
third-party vendors and service providers to determine the likely extent to
which we may be affected by third parties' Year 2000 plans and target dates. In
this regard, while we do not now expect material financial exposure as a result
of the Year 2000 problem, there can be no guarantee that the systems of other
entities on which we rely will be rededicated on a timely basis, or that a
failure to remediate by another party, would
- 19 -
<PAGE>
not have a material adverse effect on us. Such failures could have a material
impact on our ability to conduct business.
We are developing contingency plans in the event that significant
external parties fail to achieve their Year 2000 plans by the targeted dates. We
anticipate that beginning on January 1, 2000, Year 2000 related failures may
result in sporadic disruption of communications, power or other external
infrastructure worldwide that could compromise the timely performance of
specific business functions and/or limit the flow of business opportunities
across the organization. We intend to have contingency plans and crisis
management teams in place to coordinate our response to those events likely to
present material risks to us. The process is currently underway, but there can
be no assurance that any such contingency plans will fully mitigate the effects
of any third party failure.
Based on information currently available, we do not expect our Year
2000 expenditures for fiscal 2000 to be a material cost to us. To date, we have
spent less than $150,000, and expect that the entire program will not exceed
$200,000. The expected costs of the Year 2000 program are based on management's
current estimates; however, actual results could differ materially from those
plans.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1, effective for financial
statements for fiscal years beginning after December 15, 1998, requires that
entities capitalize certain internal-use software costs once certain criteria
are met and amortize those costs over the estimated useful life of the software.
Our financial statements reflect the implementation of SOP 98-1.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes standards for
accounting and reporting of derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. SFAS 133 was
originally effective for fiscal quarters beginning after June 15, 1999; however,
in June 1999, the FASB issued SFAS 137, Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133
which amended SFAS 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. We expect to adopt this standard when
required in fiscal year 2001. The effect of SFAS 133 is not expected to be
material to our financial statement disclosures.
Legal Proceedings
In November 1999 we reached an arbitrated settlement regarding a claim
by a former customer against Shochet Securities and named past and present
employees during the period from 1992 through November 1996. Shochet Securities
and certain of its employees were found joint and severally liable. The
plaintiff was awarded approximately $411,000 in compensatory and punitive
damages and legal fees, which Research Partners paid on behalf of Shochet
Securities. Under an
- 20 -
<PAGE>
indemnification agreement, Shochet Securities has a claim against its former
principals for payment of the settlement amount. Shochet Securities intends to
pursue vigorously reimbursement of this payment, but cannot guarantee that it
will be collected.
1999 Performance Equity Plan
In November 1999 we established our 1999 Performance Equity Plan, which
authorizes the granting of awards of up to 350,000 shares of common stock to key
employees, officers, directors and consultants. As of the date of this
prospectus, options to purchase 108,000 shares of common stock were issued and
outstanding, none of which had vested.
- 21 -
<PAGE>
Business
Introduction
We provide a range of financial services through our wholly-owned
operating subsidiary, Shochet Securities, including full service, discount
brokerage and will provide online brokerage services. We provide our clients
traditional brokerage services in equities and fixed income securities, options,
annuities and mutual funds. Shochet Securities operates six branch offices, all
of which are in Florida: Hallandale, Boca Raton, Miami Beach, South Miami,
Tamarac and Delray Beach. Our revenues have been derived primarily from
commissions from brokerage services. During the fiscal year ended January 31,
1999, we generated approximately $7.8 million in revenues. For the nine months
ended October 31, 1999, we generated approximately $6.1 million in revenues.
We incorporated in Delaware in July 1999, and we acquired all of the
outstanding shares of Shochet Securities from Research Partners in November 1999
in exchange for 1,200,000 newly-issued shares of our common stock. Shochet
Securities is our operating broker-dealer subsidiary and was incorporated in
Florida in February 1980, and is a member of the NASD. Research Partners was
incorporated in Delaware in 1987 and has been publicly traded since 1996. Upon
the completion of this offering, Research Partners will own 60% of our
outstanding common stock.
Strategy
We intend to establish ourselves as a premier Internet brokerage firm
and continue to develop our presence as a discount broker in Florida. We believe
that our advantage over other online brokers lies with our securities brokerage
industry experience embodied by our employees and our reputation. Our strategy
includes the following elements:
o Leverage our existing operations capabilities and experienced
management team to build our online brokerage business. We believe that
our account representatives and our longevity in the brokerage industry
have contributed to our reputation as a quality brokerage firm. Our
expertise derives from over 18 years of operation and will provide the
backbone of our online brokerage services business. We believe that
many brokerage clients will choose our services over less established
online-only firms because of these strengths.
o Emphasize the role of the broker in our online service offerings. Each
of our online customers will be assigned a broker to service his or her
account. The customer will decide how active a role the broker plays in
the customer's investment decisions. The customer may trade online
without assistance or may call upon the broker for investment advice
and execute trades through the broker. Our online services will
complement the services provided by our brokers and appeal to those
clients who may feel that their needs are not met by large online-only
brokerage firms.
- 22 -
<PAGE>
o Open branch offices and mini-offices. We intend to open new branch
offices to expand our presence into areas of Florida where currently we
are not represented. We plan to increase our visibility further by
opening mini-offices: smaller satellite office located in highly
trafficked areas, each within a short drive of a branch office, staffed
by two to four brokers.
Industry Overview
The securities brokerage industry has recently undergone a period of
significant change, led by electronic and online commerce. Internet and online
services have created new methods of conducting business for organizations and
individuals that have traditionally conducted business in person, through the
mail or over the telephone. Consumers have shown a growing desire to transact
various types of business electronically, such as bill payment and trading
securities. Online commerce has enabled individuals to execute these
transactions faster, less expensively and more conveniently than could be
conducted previously.
Prior to the 1975 passage of a law that deregulated brokerage
commissions, an individual investor could access the financial markets only
through a full-commission broker. The deregulation of brokerage commissions led
to the emergence of the discount brokerage firms, which gave rise to the
electronic brokerage firms. Electronic brokerage services permit investors to
reduce further brokerage costs and expand clients' access to information. As
investors obtain more access to investment information, we believe they will
desire greater control over their financial decisions and seek alternative ways
to invest more conveniently and cost-effectively. We believe that this trend has
created a growing opportunity to provide online trading services that are easy
to use, cost-effective and secure.
In recent years, there has been substantial growth in the ownership of
equity and fixed income securities worldwide. According to the Investment
Company Institute, total financial assets of U.S. households were $14.0 trillion
at the end of 1995, and are expected to grow to over $22.5 trillion by the year
2000. These assets are invested in, among other things, more than 8,500 publicly
traded companies in the United States, including more than 2,900 companies that
have completed initial public offerings in the last five years, and thousands
more internationally. The growth in financial assets has resulted from a number
of factors, including an increase in the number of mutual funds and increased
cash flows into those mutual funds, households allocating more of their assets
to equity investments, sustained high returns in the equity markets over a
number of years, and lower trading costs as a result of regulatory changes and
improved technologies.
The online brokerage services segment of the brokerage industry has
undergone rapid growth and is expected to continue to grow significantly. Piper
Jaffray estimates that at June 30,
- 23 -
<PAGE>
1999, there were 9.7 million online accounts, compared to 3.7 million in 1997
and 7.3 million in 1998. Piper Jaffray also reported a daily average of 547,500
online trades during the three months ended June 30, 1999. Earlier this year, CS
First Boston estimated that online trades account for almost one in every six
stock market trades. Forrester Research predicts that by 2003, 9.7 million
households in the United States will hold greater than $3 trillion in 20.4
million accounts, compared to $415 billion in 1998, an increase of more than
700%.
Traditional Product Lines
Equities
We offer access to all United States equities and to equities in most
foreign markets. We do not make markets in equity securities and do not maintain
any inventory positions of equities for customers to purchase, except that we
take principal positions on a case-by-case basis only to facilitate customer
transactions. Equity executions are automatically routed to a third party market
maker, wholesale trader or an electronic clearing network to achieve the best
execution for our customers.
Fixed income
We maintain a trading desk to locate, buy and sell fixed income
securities, such as municipal bonds, corporate bonds, government securities,
notes and other fixed income products. We maintain inventories in fixed income
securities on a case-by-case basis only to facilitate customer transactions.
Research services
We provide our customers with research conducted by several third party
sources including Ryan, Beck & Co. Southeast Research Group, EarlyBirdCapital
and our clearing firm, Schroder. We make this research available in our
branches, enclose it in customer statements and intend to provide it on our
website.
Mutual funds
We sell and market mutual funds to our customers from numerous mutual
fund providers. Our customers have access to over 4,000 mutual funds through
Schroder.
Insurance products
Our insurance division markets a range of fixed and variable annuities,
universal life insurance, term life insurance, long term health care insurance
and other insurance products. We expect to increase our marketing efforts of
these and related products.
- 24 -
<PAGE>
Other products and services
We offer additional investment products, such as retirement accounts,
check writing, cash management accounts, debit cards and other products.
Online Brokerage Services
Our online brokerage services will enable customers to:
o enter orders to sell or buy equities;
o review the securities positions in their portfolios;
o confirm their buying power and margin balances (if
applicable);
o obtain real-time stock quotes; and
o review their recent trading activity.
Our website will offer earnings reports, stock performance, charting
and screening capabilities, company news and other research.
Investment Banking
We intend to expand our full-service operations to include investment
banking. We have recently received approval to co-manage or participate as a
selling group member in public offerings. Our customers will have the ability to
participate in corporate finance transactions, including initial public
offerings and private placements of other companies, distributed through our
sister company, EarlyBirdCapital. This product line will provide an additional
source of revenue for us.
Marketing and Advertising
Historically, our marketing efforts have been limited to advertisements
in local news publications and local radio. We intend to build brand awareness,
attract new customers and sell our existing customers additional products and
services by marketing our online brokerage services through advertisements
appearing in various online sites, in a broader variety of newspapers and
magazines, on the radio and through inserts appearing in monthly customer
statements. To date, these efforts have been limited.
Clearing Arrangements
We do not hold any funds or securities of our clients nor do we
directly execute and process either our own or our clients' securities
transactions. We currently carry our customer accounts and clear our customer
orders through Schroder. Each account carried by Schroder is
- 25 -
<PAGE>
covered by the Securities Investors Protection Corporation, or SIPC, which
provides each client insurance for an aggregate of $500,000 in assets, which
includes a maximum of $100,000 in cash or cash equivalents. Each account carries
an additional $99.5 million in coverage, which coverage is provided by an
outside insurance company.
Our agreement with Schroder provides that it process all securities
transactions for our account and the accounts of our clients for a fee. Services
include billing and credit control and receipt, custody and delivery of
securities, for which we pay a per ticket charge. We have agreed to indemnify
and hold Schroder harmless from certain liabilities or claims, including claims
arising from the transactions of its clients, which could be material in amount.
Our clearing agreement may be terminated by either party upon 60 days' written
notice. We depend on the operational capacity and the ability of Schroder for
the orderly processing of transactions.
Clients' securities transactions are effected on either a cash or
margin basis. In connection with margin transactions, credit is extended to a
client, collateralized by securities and cash in the client's account, for a
portion of the purchase price. The client is charged for margin financing at
interest rates based on the brokers' call rate plus an additional amount. The
brokers' call rate is the prevailing interest rate charged by banks on secured
loans to broker-dealers.
Margin lending is subject to the margin rules of the board of governors
of the Federal Reserve system. Margin lending subjects us to the risk of a
market decline that would reduce the value of our collateral below the clients'
indebtedness before the collateral can be sold. In conformance to industry
standards, during a market downturn we require each client to deposit additional
securities or cash in the margin account to ensure that the amount of the loan
does not exceed a set percentage (on a sliding scale from 50% to 65%, generally)
of the market value of securities in the account. Margin interest we derive is
shared on a sliding scale basis with Schroder.
Account Security
We use proprietary and industry standard security measures to protect
our clients' assets. Online clients will be assigned individual account numbers,
user identification and passwords that must be input each time they log on to
the system. In accordance with standard industry practices, telephone orders
require authentication through personal identification numbers, passwords or
other personal information. In addition, our trade processing system compares
our accounts database with the clearing firm's account information on a daily
basis to detect any discrepancies.
We rely on encryption and authentication technology, including public
key cryptography technology licensed from other parties, to provide the security
and authentication necessary to effect the secure exchange of information.
- 26 -
<PAGE>
Firewalls and other software limit not only system access to the
authorized users, but also the authorized users to specifically approved
applications. This filter-software prevents unauthorized access to critical
areas of our system such as account information.
We have implemented policies relating to the transfer or withdrawal of
funds by clients to prevent unauthorized withdrawals. Checks will be issued only
in the account holder's name and wire transactions will be sent only to a bank
account in the account holder's name.
Client Support
Our client service organization handles product and service inquiries
and addresses all brokerage and technical questions. Live client support is
available 10 hours a day from 8:00 a.m. to 6:00 p.m. EST Monday through Friday.
We intend to employ 10-12 client service associates, who will be available to
accept and execute client orders, research past trades, discuss account
information, and provide detailed technical support to those customers not
requiring the attention of our full service brokers. A separate technical team
will assist clients with technical issues.
Risk Management
Our risk management is implemented through a risk management principal,
our legal and compliance departments and an operations group comprised of our
personnel and Research Partners' supervisory personnel.
Risk management
Our in-house risk management principal monitors and maintains firm and
customer margin credit and securities concentrations and monitors our adherence
to securities and lending regulations.
Legal and compliance
Aided by Research Partners's legal and compliance departments, we
maintain a comprehensive compliance program, which monitors and implements
policies to ensure our adherence to securities laws, regulations and rules,
rules imposed by the self-regulatory organizations, lending rules and other
similar rules and regulations to which we are subject. Our own compliance
department will continue to operate in conjunction with Research Partners'
compliance department for the foreseeable future.
Operations
Our operations department plays a key role in the day-to-day function
and control of our business. Its duties include ensuring that all checks have
been properly deposited into customer accounts, that all disbursements have been
distributed accurately and that all customer account applications are processed
correctly, among others.
- 27 -
<PAGE>
Relationship with Research Partners
Three of our directors will serve simultaneously as officers or
directors of Research Partners or its other subsidiaries. Service as a director
or officer of both us and Research Partners or its subsidiaries could create
conflicts of interest if these directors and officers are faced with decisions
that could have materially different implications for us and for Research
Partners. If and when a conflict of interest arises, our directors intend to
take all actions necessary to comply with their fiduciary duties to our
stockholders under Delaware law. Our charter provides for the limitation of
liability of our officers, directors and employees who serve in similar
capacities for Research Partners in situations where there may be a breach of
fiduciary duty caused by conflicts of interest between us and Research Partners.
We intend to enter into an intercompany services agreement with
Research Partners and its subsidiaries. Its material terms are summarized below.
This agreement will not be negotiated on an arms'-length basis, but we believe
its terms will be no less favorable to us than those that could have been
obtained from an unaffiliated third party. Our by-laws also provide that we will
not enter into new material agreements with Research Partners unless those
agreements are approved by a majority of our directors who are not affiliated
with Research Partners. This provision can be amended only by a majority of
non-affiliate directors.
Intercompany services agreement
The intercompany services agreement will permit us to obtain services
as needed from Research Partners and its affiliates on a cost reimbursement
basis. The services we anticipate receiving under the agreement include
accounting and bookkeeping, financial planning and financial reporting, internal
audit, legal, computer management, information, records management, payroll
management, purchasing assistance, regulatory compliance, marketing, human
resources management and compliance, tax reporting and tax filing, office
services and office space. We may change the scope of services or obtain them
from another party at our discretion. Services provided by Research Partners
will be performed by personnel of Research Partners or one of the subsidiaries,
who will be held to a standard of care equal to that of their work for their
employer. Either Research Partners or we may cancel the agreement upon 60 days'
notice. Additionally, either party may cancel the agreement in the event of
breach by the other party which has not been cured, or by liquidation,
bankruptcy or insolvency of the other party. We, in turn, will provide services
to Research Partners when requested, also on a cost reimbursement basis. The
terms of this agreement may not be changed unless a majority of our
non-affiliate directors consent. Unless terminated earlier, the agreement will
be effective until the earlier of the date Research Partners owns less than 50%
of our outstanding capital stock or three years from the date of this
prospectus.
Competition
We encounter intense competition in all aspects of the securities
business and compete directly with other securities firms, a significant portion
of which have greater capital and other resources. Our competition includes
traditional discount brokerage firms and large and small
- 28 -
<PAGE>
brokerage firms that utilize the Internet to transact retail brokerage business,
such as E*Trade Group, Inc., Charles Schwab & Co., Inc., DLJ Direct, Quick &
Reilly, Inc., Waterhouse Securities, Inc., Fidelity Brokerage Services, Inc.,
Datek Securities Corp., OnlineTrading.com., Inc. and AB Watley. We also face
competition from full commission brokerage firms, particularly those that have
begun to utilize the Internet to transact business, including Morgan Stanley
Dean Witter & Co., PaineWebber Incorporated and Salomon Smith Barney, as well as
financial institutions and mutual funds. In addition to competition from firms
currently in the securities business, other sources, such as commercial banks
and insurance companies, have entered our market. We believe that the principal
factors affecting competition in the securities industry are the quality and
abilities of professional personnel, and the quality, range and relative prices
of services and products offered.
Government Regulation
The securities industry in the United States is subject to extensive
and frequently changing federal and state laws and substantial regulation by the
SEC and various state agencies and regulatory organizations, such as the NASD.
Shochet Securities is registered as a broker-dealer with the SEC and is a member
firm of the NASD. Much of the regulation of broker-dealers has been delegated to
self-regulatory organizations, principally NASD Regulation, Inc., known as
NASDR, which has been designated by the SEC as the primary regulator of Shochet
Securities. NASDR adopts rules that govern members of the NASD and conducts
periodic examinations of member firms' operations. Securities firms are also
subject to regulation by state securities administrators in those states in
which they conduct business. Shochet Securities is registered as a broker-dealer
in 38 states and the District of Columbia.
Broker-dealers are subject to regulations which cover all aspects of
the securities business, including sales methods and supervision, trading
practices among broker-dealers, use and safekeeping of customers' funds and
securities, capital structure of securities firms, record keeping and the
conduct of directors, officers and employees. Additional legislation, changes in
rules promulgated by the SEC and self-regulatory organizations or changes in the
interpretation or enforcement of existing laws and rules may directly affect the
mode of operation and profitability of broker-dealers. The SEC, self-regulatory
organizations and state securities commissions may conduct administrative
proceedings that can result in censure, fine, the issuance of cease-and-desist
orders or the suspension or expulsion of a broker-dealer, its officers or
employees. The principal purpose of regulation and discipline of broker-dealers
is the protection of customers and the integrity of the securities markets.
We are subject to federal and state securities laws which govern the
offer and sale of securities and the operation of the securities markets and
broker-dealers. When enacted, these securities laws did not contemplate the
conduct of a securities business through the Internet. Although the SEC has
provided guidance on various issues related to the offer and sale of securities
and the conduct of a securities business through the Internet, the application
of the laws to the conduct of a securities business through the Internet
continues to evolve.
- 29 -
<PAGE>
Net capital requirements
The SEC, NASD and other self-regulatory agencies have stringent rules
requiring the maintenance of specific levels of net capital by securities
brokers, including the SEC's uniform net capital rule. As of October 31, 1999
Shochet Securities was required to maintain minimum net capital of $100,000 and
had total net capital of approximately $496,000, which was $396,000 in excess of
the required amount.
If we fail to maintain the required net capital, we may be subject to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NASD and other regulatory bodies, which ultimately could require our
liquidation. In addition, a change in the net capital rules, the imposition of
new rules, a specific operating loss, or any unusually large charge against net
capital could limit our operations that require the intensive use of capital and
could limit our ability to expand our business. The net capital rules also could
restrict our ability to withdraw capital, which could limit our ability to pay
dividends, repay debt and repurchase shares of our outstanding stock.
Trademark
We have applied for registration in the United States of the trademark
"ShochetOnline!" which appears on our website. We own no other trademarks,
patents or registered copyrights.
Employees
As of November 30, 1999, we employed 72 people, 40 of which are
registered representatives, 25 of which are support staff, and 7 of which are
management personnel who are also registered. We believe our relations with our
employees are generally good and we have no collective bargaining agreements
with any labor unions.
Properties
<TABLE>
<CAPTION>
Approximate Approximate
Square Annual
Location Footage Lease Expiration Lease Payments
-------- ------- ---------------- --------------
<S> <C> <C> <C>
Hallandale (principal 5,000 February 2006 $129,000
office)
Boca Raton 1,500 October 2004 $ 60,000
Miami Beach 3,000 April 2003 $ 71,000
South Miami 3,155 November 2003 $ 76,000
Tamarac 2,516 June 2001 $ 45,000
Delray Beach 2,400 November 2002 $ 36,000
</TABLE>
- 30 -
<PAGE>
Legal Proceedings
In the ordinary course of business, we and our principals are, and may
become a party to, legal or regulatory proceedings or arbitrations. We are not
currently involved in any legal or regulatory proceedings or arbitrations, the
outcome of which is expected to have a material adverse effect on our business.
Management
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Roger N. Gladstone Chairman of the Board and
Chief Executive Officer
Donald Yarkin Vice Chairman of the Board
David F. Greenberg President, Chief Operating Officer and
Director
Howard B. Landers Executive Vice President-Online Products
and Director
Richard Y. Roberts Director
James I. Krantz Director
</TABLE>
Roger N. Gladstone, 45 years old, has been our chairman and chief
executive officer since November 1999, and an executive officer and director of
Shochet Securities since it became a subsidiary of Research Partners in November
1995. Mr. Gladstone has served as vice chairman of the board of Research
Partners since June 1999 and as a director of that company since January 1987.
From 1987 to June 1999, he served as president of Research Partners. He serves
as a director of GKN, GKN Realty Corp. and GKN Property Management, subsidiaries
of Research Partners. Mr. Gladstone serves on the Board of Arbitrators of the
National Association of Securities Dealers, Inc. He is also a member of the
Young Presidents Organization and an honorary member of the board of directors
of the Sid Jacobson Community Center in Roslyn, New York. Mr. Gladstone is a
director of No Small Affair South, a charitable foundation which provides
positive experiences for disadvantaged children. From 1984 through 1986, Mr.
Gladstone was engaged primarily in the acquisition, management, syndication and
operation of real estate projects. From 1980 through 1984, Mr. Gladstone was
engaged in the private practice of law in New York. Mr. Gladstone received his
B.A. from Stanford University, his M.B.A. from New York University and his J.D.
from the Benjamin N. Cardozo School of Law, Yeshiva University. Mr. Gladstone is
a member in good standing of both the New York and Florida Bar Associations.
- 31 -
<PAGE>
Donald Yarkin, 69 years old, has served as our vice chairman since
November 1999, and as president since 1988. He served as president and director
of Shochet Securities from November 1995 to June 1999 and as vice chairman of
Shochet Securities from July 1999 until the present. From 1987 to 1988, Mr.
Yarkin served as president of Ganz Associates, a registered investment advisor
headquartered in North Miami. From 1972 through 1973, Mr. Yarkin was a partner
of Loeb, Rhoades & Co., at which point he became executive vice president of
Shearson Lehman and Co., the successor to Loeb Rhoades, in which capacity he
served until 1987. Mr. Yarkin has served as president of the Jewish Culture
Foundation in New York City. Mr. Yarkin received his B.A. from New York
University.
David F. Greenberg, 52 years old, has served as our president, chief
operating officer and director since November 1999, and as chief operating
officer and director of Shochet Securities since it became a subsidiary of
Research Partners. He has served as president of Shochet Securities since June
1999. Mr. Greenberg was employed by GKN from 1991 to July 1999, initially as
director of Compliance then as branch manager of GKN's New York office. In
January 1996, he became senior vice president and director of Operations and
Risk Management, in which capacity he served until July 1999. From 1985 to 1987,
Mr. Greenberg served as president and chief executive officer of First New York
Discount Corp., a broker-dealer, which he founded. From 1978 to 1985, Mr.
Greenberg served in several capacities, including as director of Compliance and
Branch Liaison Manager and General Securities and Options Principal for US
Clearing Corp. Mr. Greenberg serves on the Board of Arbitrators of the NASD. Mr.
Greenberg also serves as a member of Securities Industry Association-Discount
Brokerage Committee Year 2000.
Howard B. Landers, 43 years old, served as our executive vice
president-online products since November 1999 and as an executive officer of
Shochet Securities since February 1998. From October 1994 through January 1998,
Mr. Landers provided compliance, operations, trading and marketing consulting
services to NASD member firms through Coral Capital Group, Inc., a firm of which
Mr. Landers is a principal. From 1990 to October 1994, Mr. Landers held various
executive and supervisory positions with VereinWest Capital Markets, First
Banquehouse Investment Group, and The Partners Financial Group, all of which are
broker dealers. From 1979 to 1989, Mr. Landers was employed by Merrill Lynch &
Co., Inc. in various capacities, including supervisory positions in the areas of
operations, compliance, trading and as a registered representative.
Richard Y. Roberts, 48 years old, has served as our director since
November 1999 and as a director of Research Partners since December 1997. Mr.
Roberts became affiliated with Thelen Reid & Priest LLP in January 1997, as
counsel, where he participates in its Business and Finance, Infrastructure and
Government and Utility and Energy Practice Groups. From August 1995 to December
1996, Mr. Roberts served as General Counsel to Princeton Venture Research, Inc.,
a venture capital securities consulting firm. From October 1990 to July 1995,
Mr. Roberts served as a Commissioner of the Securities and Exchange Commission.
Prior to his tenure with the Securities and Exchange Commission, Mr. Roberts
served as the administrative assistant and the legislative director for
then-Congressman and later Senator Richard Shelby. Mr. Roberts is a member of
the Legal Advisory Board of the NASD, the Advisory Board of Securities
Regulation
- 32 -
<PAGE>
& Law Reports, the Editorial Board of the Municipal Finance Journal, and the
National Board of Policy Advisors of the Institute of Law and Economic Policy.
He is a graduate of Auburn University where he received his B.S. in Electrical
Engineering. He received his J.D. from the University of Alabama School of Law
and his Master of Laws from the George Washington University Law Center. Mr.
Roberts is a member of the Alabama Bar and the District of Columbia Bar.
James I. Krantz, 44 years old, has served as our director since
November 1999 and as a director of Research Partners since September 1990. Since
1977, Mr. Krantz has served as a Property, Casualty and Life Insurance Broker
and has been engaged in real estate management and investment. From 1993 to
September 1997, Mr. Krantz served as vice president, and since 1997, president
and chief executive officer, of York International Agency, Inc., a full service
insurance agency. Mr. Krantz received his B.A. from Syracuse University and
holds a Chartered Property Casualty Underwriter designation.
Each director will hold office until the next meeting of stockholders
or until his successor is duly appointed and qualified. Roger Gladstone is the
brother-in-law of David M. Nussbaum, a director of Research Partners and
director and executive officer of EarlyBirdCapital, and brother of Robert H.
Gladstone, an executive officer and director of GKN Securities.
The board of directors has established an audit committee, consisting
of Roger Gladstone, Richard Roberts and James Krantz. The audit committee will
review the scope of accounting audits, policies and recommend to whom reports
should be submitted, review with the independent auditors their final report,
review with internal and independent auditors overall accounting and financial
controls, and be available to the independent auditors during the year for
consultation purposes. In addition, this committee will review any related party
transaction on an ongoing basis for potential conflicts of interest.
The board of directors also established a compensation committee,
consisting of Roger Gladstone, David Greenberg, Richard Roberts and James
Krantz. The compensation committee will review and make recommendations to the
board regarding salaries, compensation and benefits of executive officers and
key employees.
In August 1997, GKN Securities and certain of its executive officers,
senior managers or former and present brokers, including Roger Gladstone and
David Greenberg, reached settlements with the NASDR resolving an NASDR
investigation concerning alleged excessive markups on warrants of several
companies underwritten by GKN Securities and for which it made a market during
the period 1993 through 1996. The settlement was entered into without admitting
or denying the NASDR's allegations. Under the settlement, GKN Securities
consented to sanctions including censure, the payment of restitution, interest
and fines of $1,723,000 and engaged an independent consultant to review GKN
Securities' policies, practices and procedures relating to the fair pricing and
commissions charged to customers and to related supervisory and compliance
policies and structure and agreed to implement the recommendations of the
independent consultant. Roger Gladstone consented to censure, a $50,000 fine and
a suspension from association in any capacity with any member of
- 33 -
<PAGE>
the NASD for 30 days. David Greenberg consented to a $15,000 fine and to a
suspension from any supervisory position with any member of the NASD for ten
days.
Limitation on Directors' Liabilities
Our certificate of incorporation limits, to the maximum extent
permitted under Delaware law, the personal liability of directors and officers
for monetary damages for breach of their fiduciary duties as directors and
officers, except in certain circumstances involving certain wrongful acts, such
as a breach of the director's duty of loyalty or acts of omission which involve
intentional misconduct or a knowing violation of law.
Delaware Law permits us to indemnify officers, directors or employees
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement in connection with legal proceedings if the officer, director or
employee acted in good faith and in a manner he reasonably believed to be in or
not opposed to our best interest, and, with respect to any criminal act or
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Indemnification is not permitted as to any matter as to which the person is
adjudged to be liable unless, and only to the extent that, the court in which
such action or suit was brought upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper. Individuals who successfully defend this type of action are entitled to
indemnification against expenses reasonably incurred in connection therewith.
Our by-laws require us to indemnify our directors and officers
against, to the fullest extent permitted by law, liabilities which they may
incur under the circumstances described in the preceding paragraph.
We plan to maintain standard policies of insurance under which coverage
is provided to our directors and officers against loss arising from claims made
by reason of breach of duty or other wrongful act and to us with respect to
payments which may be made by us to these officers and directors according to
the above indemnification provision or otherwise as a matter of law.
In addition, we plan to enter into indemnification agreements with our
directors and executive officers. Under these agreements, we will indemnify each
director and officer to the fullest extent permitted by law for any acts
performed, or for failures to act, on our behalf or on behalf of another person
or entity for which that director or officer is performing services at our
request. We will not indemnify a director or officer for any breach of loyalty
to us or our stockholders, or if the director or officer does not act in good
faith or for acts involving intentional misconduct, or for acts of omissions
described in the laws of Delaware, or for any transaction for which the director
or officer derives an improper benefit. We will indemnify for expenses related
to indemnifiable events, and will pay for these expenses in advance. Our
obligation to indemnify and to provide advances for expenses are subject to the
approval of a review process with a reviewer to be determined by our board. The
rights of directors and officers will not exclude any rights to indemnification
otherwise available under law or under our certificate of incorporation.
- 34 -
<PAGE>
Executive Compensation
Donald Yarkin, our executive vice chairman, received from Shochet
Securities total compensation in excess of $100,000 during the fiscal year ended
January 31, 1999. Mr. Yarkin received a salary of $157,441 in fiscal 1999,
$132,526 in fiscal 1998 and $144,793 in fiscal 1997. During the past three
fiscal years, Mr. Yarkin received options to purchase an aggregate of 13,000
shares of Research Partners' common stock, 10,000 of which have an exercise
price of $6.00, the remainder of which have an exercise price of $3.69. These
options vest over a period from March 11, 2000 to June 29, 2002 and expire
between March 10, 2007 and June 29, 2009. No other officer or employee,
including Roger Gladstone, our chief executive officer, received in excess of
$100,000 compensation from us during any of the past three fiscal years.
Employment Agreements
We intend to enter into employment agreements with each of Roger
Gladstone, David Greenberg and Howard Landers. The term of each agreement will
commence on the effective date of this prospectus and expire on the one-year
anniversary date of this prospectus, and will be subject to automatic renewals
of one-year terms unless 30 days' prior written notice of termination is given
by either party. Each agreement will provide for the granting of options to
purchase 36,000 shares of common stock at the per-share offering price of this
initial public offering. The options will vest in equal annual installments over
a three-year period commencing on the one-year anniversary date of this
prospectus. Each of Mr. Gladstone's and Mr. Landers' agreement will provide for
an annual base salary of $120,000. Mr. Greenberg's agreement will provide for an
annual base salary of $150,000. All three agreements will provide for a bonus as
may be awarded by our board of directors, in its discretion, and will contain a
prohibition on competing with us for two years after termination of employment
for any reason.
1999 Performance Equity Plan
In November 1999, the board of directors adopted, and in December 1999,
the sole stockholder approved, our 1999 Performance Equity Plan. This plan
authorizes the granting of awards of up to 350,000 shares of common stock to our
key employees, officers, directors and consultants. Awards consist of stock
options (both nonqualified options and options intended to qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986),
restricted stock awards, deferred stock awards, stock appreciation rights and
other stock-based awards, as described in the plan. As of the date of this
prospectus, 108,000 options are outstanding under the plan, all of which were
issued under the employment agreements. No options have vested.
The plan is administered by our board of directors which determines the
persons to whom awards will be granted, the number of awards to be granted and
the specific terms of each grant, including their vesting schedule, subject to
the provisions of the plan.
In connection with incentive stock options, the exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant (or 110% of the fair market value of the case of a grantee
holding more than 10% of our outstanding stock). The
- 35 -
<PAGE>
aggregate fair market value of shares for which incentive stock options are
exercisable for the first time by an employee during any calendar year may not
exceed $100,000. Nonqualified stock options granted under the plan may be
granted at a price determined by the board of directors, not to be less than the
fair market value of the common stock on the date of grant.
Principal Stockholders
The following table sets forth the beneficial ownership of our common
stock by all stockholders that hold 5% or more of the outstanding shares of our
common stock, each director and executive officer. Each stockholder named has
sole voting and investment power with respect to his or its shares. This table
does not include options not exercisable within 60 days of the date of this
prospectus. As of the date of this prospectus, there were 1,200,000 shares of
common stock issued and outstanding.
<TABLE>
<CAPTION>
Percentage
----------
Name and Address or Number of Shares Before After
Identity of Group Beneficially Owned Offering Offering
- ----------------- ------------------ -------- --------
<S> <C> <C> <C>
Research Partners International, Inc. 1,200,000 100% 60%
One State Street Plaza
New York, New York 10004
Roger N. Gladstone -0- -0- -0-
33 Plaza Real, Suite 245
Boca Raton, Florida 33434
Donald Yarkin -0- -0- -0-
2351 East Hallandale Beach Blvd.
Hallandale, Florida 33998
David F. Greenberg -0- -0- -0-
2351 East Hallandale Beach Blvd.
Hallandale, Florida 33998
Howard B. Landers -0- -0- -0-
2351 East Hallandale Beach Blvd.
Hallandale, Florida 33998
Richard Y. Roberts -0- -0- -0-
Thelen Reid & Priest LLP
701 Pennsylvania Avenue, N.W.
Washington, DC 20004-2608
James I. Krantz -0- -0- -0-
One Executive Boulevard
Yonkers, New York 10701
All officers and directors as a group -0- -0- -0-
(6 persons)
</TABLE>
- 36 -
<PAGE>
Certain Transactions
We, Shochet Securities, Research Partners and affiliates of Research
Partners engage in a variety of transactions between and among each other in the
ordinary course of our businesses. We have not retained an independent third
party to evaluate transactions with Research Partners and its affiliates and, to
date, there has been no independent committee of the board of directors to
evaluate these transactions. The terms and conditions of these transactions,
including fees or other amounts paid by us connection with these transactions,
were agreed upon by all parties.
In 1996, in connection with the purchase of Shochet Securities by
Research Partners, Shochet Securities entered into a subordinated loan agreement
for $1,000,000 with Research Partners. The loan bears an annual interest rate of
12% and total interest paid was $137,000 for the fiscal year ended January 31,
1999 and $145,000 for the year ended January 31, 1998. All payments under the
note are due in May 2000. We intend to use a portion of the proceeds of this
offering to repay this loan.
In August 1999, Research Partners loaned $500,000 to us by a
subordinated note. The note bears an annual interest rate of eight percent and
its term is for two years, expiring August 31, 2001.
James Krantz, one of our directors, provides to us commercial property
and umbrella insurance through York Insurance Agency, a company of which he is a
principal. Our aggregate payments to York for each of the past two fiscal years
were $24,816 and $19,416, respectively. We believe that the terms of this policy
are no different than could have been obtained in an arms-length transaction
with an unaffiliated party.
In the year ended January 31, 1999, we paid to GKN Securities a
management fee of an aggregate of $283,000 for management services rendered to
us, which included $55,000 paid for services to discontinued operations no
longer rendered. In fiscal 1998, this amount was $228,000. We have paid an
aggregate of $171,000 for the nine months ended October 31, 1999.
We intend to enter into an intercompany services agreement with
Research Partners under which Research Partners will provide us with services on
an as-needed basis on a cost reimbursement basis.
Description of Securities
Common Stock
Our certificate of incorporation authorizes us to issue up to
15,000,000 shares of common stock, par value $.0001 per share, 1,200,000 shares
are issued and outstanding as of the date of this prospectus. Upon completion of
this offering, there will be 2,000,000 shares of common stock issued and
outstanding.
- 37 -
<PAGE>
Holders of common stock are entitled to receive dividends as may be
declared by our board of directors from funds legally available for these
dividends. Upon liquidation, holders of shares of common stock are entitled to a
pro rata share in any distribution available to holders of common stock. The
holders of common stock have one vote per share on each matter to be voted on by
stockholders, but are not entitled to vote cumulatively. Holders of common stock
have no preemptive rights. All of the outstanding shares of common stock are,
and all of the shares of common stock to be issued in connection with this
offering will be, validly issued, fully paid and non-assessable.
Preferred Stock
Our certificate of incorporation authorizes our board of directors,
without stockholder approval, to issue up to 1,000,000 shares of preferred
stock, par value $.0001 per share, to establish one or more series of preferred
stock and to determine, with respect to each of these series, their preferences,
voting rights and other terms. Upon completion of this offering, no shares of
preferred stock will be outstanding, and our board has no present intention to
issue any additional shares.
Transfer Agent
The transfer agent and registrar for common stock is Continental Stock
Transfer & Trust Company, New York, New York.
Shares Eligible for Future Sale
Immediately after the completion of this offering, we will have
2,000,000 shares of common stock outstanding. All 800,000 shares sold in the
offering will be freely tradeable without restriction under the Securities Act
of 1933. The remaining 1,200,000 shares will be restricted securities as defined
in Rule 144 under the Securities Act and are currently subject to the
restrictions of Rule 144. All of the restricted shares are currently eligible
for sale under Rule 144. Research Partners has entered into a written agreement
not to sell or otherwise dispose of our shares of common stock beneficially held
by it for 24 months after the date of this prospectus without the prior written
approval of Gaines, Berland, one of the underwriters.
Under Rule 144, a person (or persons whose shares are aggregated) who
has beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be generally
entitled to sell within any three month period a number of shares that does not
exceed the greater of (i) 1% of the number of then outstanding shares of the
common stock or (ii) the average weekly trading volume of the common stock in
the public market during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to manner of sale provisions, notice requirements and
the availability of current public information about the company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding nonaffiliated holders), would be entitled to sell shares
under
- 38 -
<PAGE>
Rule 144(k) without regard to the volume limitations, manner-of-sale provisions,
public information requirements or notice requirements.
Underwriting
Gaines, Berland and Shochet Securities, as underwriters, have agreed,
in accordance with the underwriting agreement, to purchase from us on a firm
commitment basis a total of 800,000 shares of common stock for resale to the
public in connection with our initial public offering.
The obligations of the underwriters under the underwriting agreement
are subject to approval of legal matters by counsel, the SEC's declaring the
registration statement effective, market conditions being suitable, no material
adverse information regarding us or being discovered by the underwriters and our
not breaching any of our representations or warranties under the underwriting
agreement. The underwriters are obligated to purchase all of the shares offered
by this prospectus (other than the shares covered by the over-allotment option,
described below) if any are purchased. Below is a summary of the key terms of
the underwriting agreement. For more details, you should read the entire
underwriting agreement, a copy of which we have filed as an exhibit to the
registration statement, of which this prospectus forms part.
The underwriters propose to offer the shares to the public at the
public offering price set forth on the cover page of this prospectus and to
certain dealers at that price less a concession not in excess of $ per share.
The underwriters may allow, and the dealers may reallow, a concession not in
excess of $ per share to other dealers. The offering price, concession and
reallowance may be changed by the underwriters after completion of the offering.
We have agreed to sell to the underwriters the shares of common stock
being underwritten at a discount equal to ten percent of the offering price, and
to pay to the underwriters an expense allowance on a non-accountable basis equal
to two percent of the gross proceeds derived from the sale of the shares
underwritten (including the sale of any shares subject to the underwriters'
over-allotment option), $50,000 of which has been paid to date. We have also
agreed to pay all expenses in connection with qualifying the shares offered by
this prospectus for sale under the laws of any states as the underwriters may
designate and registering this offering with the NASD including fees and
expenses of counsel retained for these purposes by the underwriters.
Additionally, we have agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act.
We have granted to the underwriters an option, exercisable during the
45-day period after the date of this prospectus, to purchase from us at the
offering price, less underwriting discounts and the non-accountable expenses
allowance, up to an aggregate of 120,000 additional shares for the sole purpose
of covering over-allotments, if any.
In connection with this offering, we have agreed to sell to the
underwriters for an aggregate of $80 the underwriters' purchase option,
consisting of the right to purchase up to an aggregate of 80,000 shares. The
underwriters' purchase option will be exercisable at any time
- 39 -
<PAGE>
between the first and the fifth anniversary of the date of this prospectus at a
price of $ per share (110% of the initial public offering price of
$ per share). The shares issuable upon exercise of the underwriters'
purchase option are the same as the shares being sold to the public in this
offering. The underwriters' purchase option grants piggyback and demand rights
for periods of five and seven years, respectively, from the date of this
prospectus with respect to the registration under the Securities Act of the
securities issuable upon exercise of the underwriters' purchase option.
The underwriting agreement provides that for a period of three years
from the date of this prospectus Gaines, Berland shall have the right to send a
representative reasonably acceptable to us to observe each board of directors
meeting.
In connection with this offering, the underwriters may over-allot, or
engage in syndicate covering transactions, stabilizing transactions and penalty
bids. Over-allotment involves syndicate sales of common stock in excess of the
number of shares to be purchased by the underwriters in this offering, which
creates a syndicate short position. Syndicate covering transactions involve
purchases of common stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing transactions
consist of certain bids or purchase of common stock made for the purpose of
preventing or retarding a decline in the market price of the common stock while
this offering is in progress. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the representative, in covering
syndicate short positions, repurchases shares originally sold by that syndicate
member. These activities may cause the price of our common stock to be higher
than the price that otherwise would exist in the open market in the absence of
this transaction. These transactions may be effected on the Nasdaq SmallCap
Market, in the over-the-counter market or otherwise and, if commenced, may be
discontinued at any time.
The underwriters do not intend to sell any of our securities to any
accounts over which they exercise discretionary authority.
The rules of the National Association of Securities Dealers require
that when its members, such as Shochet Securities, participate in the public
distribution of securities of an "affiliate," such as Shochet Holding, the
public offering price can be no higher than that recommended by a qualified
independent underwriter. Gaines, Berland will serve in this capacity, and will
recommend an initial public offering price in compliance with NASD rules. As
part of its role as qualified independent underwriter, Gaines, Berland has
participated in the preparation of this registration statement and prospectus
and has performed its necessary due diligence. Gaines, Berland has agreed to
undertake all legal responsibilities and liabilities of an underwriter under the
Securities Act.
There has been no public market for our common stock prior to this
offering. The initial public offering price for our shares was determined
through negotiations between us and Gaines, Berland. The factors considered in
determining the initial price to the public include:
o the history of and the prospects for the brokerage industry;
- 40 -
<PAGE>
o our past and present operations;
o our historical results of operations;
o our prospects on future earnings;
o market valuations of other companies engaged in activities
similar to ours;
o our management; and
o the general condition of the securities market at the time
of this offering.
Legal Matters
Atlas Pearlman Trop & Borkson, P.A., Fort Lauderdale, Florida, will
opine as to the validity of the common stock offered by this prospectus and
legal matters for us. Graubard Mollen & Miller, New York, New York, has served
as counsel to the underwriters in connection with this offering. Graubard Mollen
& Miller represents Research Partners, the sole stockholder of our company, one
of the co-underwriters, in other matters.
Experts
The financial statements of Shochet Holding Corp. as of January 31,
1999, and for each of the years in the two-year period ended January 31, 1999,
have been included in the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing in the
registration statement, and upon the authority of this firm as experts in
accounting and auditing.
Where You Can Find Additional Information
We intend to furnish our stockholders annual reports, which will
include financial statements audited by independent accountants, and all other
periodic reports as we may determine to furnish or as may be required by law,
including Sections 13(a) and 15(d) of the Exchange Act.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the securities offered by this prospectus.
This prospectus does not contain all the information set forth in the
registration statement and the accompanying exhibits, as permitted by the rules
and regulations of the SEC. For further information, please see the registration
statement and accompanying exhibits. Statements contained in this prospectus
regarding any contract or other document which has been filed as an exhibit to
the registration statement are qualified in their entirety by reference to these
exhibits for a complete statement of their terms and conditions. The
registration statement and the accompanying exhibits may be inspected without
charge at the offices of the SEC and copies may be obtained from the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 or at of its
regional offices
- 41 -
<PAGE>
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the
fees prescribed by the SEC. Electronic reports and other information filed
through the Electronic Data Gathering, Analysis, and Retrieval System, known as
EDGAR, are publicly available on the SEC's website, http://www.sec.gov.
- 42 -
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
Index to Financial Statements
Independent Auditors' Report F-2
Consolidated Statements of Financial Condition as of
January 31, 1999 and July 31, 1999 (Unaudited) F-3
Consolidated Statements of Operations for the years ended
January 31, 1999 and 1998 and the six months ended
July 31, 1999 and 1998 (Unaudited) F-4
Consolidated Statements of Changes in Stockholder's Equity
for the years ended January 31, 1999 and 1998 and the six months
ended July 31, 1999 (Unaudited) F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1999 and 1998 and for the six months ended
July 31, 1999 and 1998 (Unaudited) F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors of Shochet Holding Corp.:
We have audited the accompanying consolidated statement of financial condition
of Shochet Holding Corp. and subsidiary (the "Company") as of January 31, 1999,
and the related consolidated statements of operations, changes in stockholder's
equity, and cash flows for each of the years in the two-year period ended
January 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
January 31, 1999, and the results of its operations and its cash flows for each
of the years in the two-year period ended January 31, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
December 6, 1999
F-2
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(unaudited)
January 31, July 31,
1999 1999
---------------- ----------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 868,000 $ 493,000
Receivable from brokers and dealers 298,000 323,000
Securities owned, at market value 119,000 376,000
Office furniture, equipment and
leasehold improvements, net 646,000 725,000
Goodwill, net 1,637,000 1,600,000
Income taxes receivable 106,000 15,000
Other assets 241,000 255,000
---------------- ----------------
Total assets $ 3,915,000 $ 3,787,000
================ ================
Liabilities and Stockholder's Equity
Liabilities:
Securities sold, not yet purchased, at
market value $ 4,000 $ 3,000
Commissions payable 276,000 192,000
Payable to related parties 77,000 364,000
Accrued expenses and other liabilities 302,000 292,000
---------------- ----------------
659,000 851,000
Liability subordinated to the claims
of general creditors 1,000,000 1,000,000
---------------- ----------------
Total liabilities 1,659,000 1,851,000
---------------- ----------------
Stockholder's equity:
Preferred stock, $0.0001 par value;
1,000,000 shares authorized;
no shares issued - -
Common stock, $0.0001 par value;
15,000,000 shares authorized;
1,200,000 shares issued and outstanding - -
Additional paid-in capital 2,270,000 2,270,000
Accumulated deficit (14,000) (334,000)
---------------- ----------------
Total stockholder's equity 2,256,000 1,936,000
---------------- ----------------
Total liabilities and stockholder's equity $ 3,915,000 $ 3,787,000
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(unaudited)
Year ended January 31, Six Months Ended July 31,
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 7,127,000 $ 5,934,000 $ 3,877,000 $ 3,599,000
Interest 601,000 584,000 396,000 290,000
Other 25,000 89,000 57,000 8,000
--------------- ---------------- --------------- ---------------
Total revenues 7,753,000 6,607,000 4,330,000 3,897,000
--------------- ---------------- --------------- ---------------
Expenses:
Compensation and benefits 4,224,000 3,461,000 2,300,000 2,125,000
Brokerage, clearing and
exchange fees 1,129,000 1,072,000 644,000 551,000
Occupancy and equipment 716,000 596,000 369,000 346,000
Communications 660,000 536,000 330,000 317,000
Management fee 228,000 228,000 114,000 114,000
Business development 107,000 109,000 43,000 69,000
Professional fees 95,000 69,000 62,000 47,000
Other 494,000 414,000 293,000 244,000
--------------- ---------------- --------------- ---------------
Total expenses 7,653,000 6,485,000 4,155,000 3,813,000
--------------- ---------------- --------------- ---------------
Income before income taxes 100,000 122,000 175,000 84,000
Income tax provision (25,000) (70,000) (89,000) (17,000)
--------------- ---------------- --------------- ---------------
Income from continuing operations 75,000 52,000 86,000 67,000
Discontinued operations:
Loss from operations of the
discontinued On-site Day Trading
segment, net of income tax benefit
of $132,000, $0, $89,000 and
$45,000, respectively (402,000) - (406,000) (177,000)
--------------- ---------------- --------------- ---------------
Net (loss) income $ (327,000) $ 52,000 $ (320,000) $ (110,000)
=============== ================ =============== ================
Weighted average common shares
outstanding - basic and diluted 1,200,000 1,200,000 1,200,000 1,200,000
=============== ================ =============== ===============
Basic and diluted earnings per
common share from:
Income from continuing operations $ 0.06 $ 0.04 $ 0.07 $ 0.06
=============== =============== =============== ===============
Loss from discontinued operations $ (0.33) $ - $ (0.34) $ (0.15)
=============== ================ =============== ===============
Net (loss) income $ (0.27) $ 0.04 $ (0.27) $ (0.09)
=============== ================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------------- Paid-in Retained
Shares Amt. Capital Earnings Total
--------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1997 1,200,000 $ - $ 1,390,000 $ 261,000 $ 1,651,000
Capital contribution - - 250,000 - 250,000
Net income - - - 52,000 52,000
--------------- ---------------- --------------- ---------------- ---------------
Balance at January 31, 1998 1,200,000 - 1,640,000 313,000 1,953,000
Capital contribution - - 630,000 - 630,000
Net loss - - - (327,000) (327,000)
--------------- ---------------- --------------- ---------------- ---------------
Balance at January 31, 1999 1,200,000 - 2,270,000 (14,000) 2,256,000
Net loss (unaudited) - - - (320,000) (320,000)
--------------- ---------------- --------------- ---------------- ---------------
Balance at July 31, 1999
(unaudited) 1,200,000 $ - $ 2,270,000 $ (334,000) $ 1,936,000
=============== =============== =============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited)
Year ended January 31, Six Months Ended July 31,
1999 1998 1999 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating activities:
Net (loss) income $ (327,000) $ 52,000 $ (320,000) $ (110,000)
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 212,000 172,000 128,000 94,000
Other 2,000 8,000 - (4,000)
------------- -------------- -------------- --------------
(113,000) 232,000 (192,000) (20,000)
Decrease (increase) in operating assets:
Receivable from brokers and dealers (298,000) 30,000 (25,000) (362,000)
Receivable from related parties (1,000) (1,000) 3,000 1,000
Securities owned, at market value 78,000 144,000 (257,000) 144,000
Income taxes receivable (106,000) - 91,000 (23,000)
Other assets 13,000 (15,000) (40,000) 31,000
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased 4,000 - (1,000) 10,000
Commissions payable 116,000 (64,000) (84,000) 99,000
Payable to brokers and dealers (40,000) 40,000 - (40,000)
Payable to related parties 47,000 (244,000) 287,000 160,000
Income taxes payable (64,000) 42,000 - (64,000)
Accrued expenses and other liabilities 127,000 (25,000) (10,000) 38,000
------------- -------------- -------------- -------------
Net cash (used in) provided by
operating activities (237,000) 139,000 (228,000) (26,000)
------------- -------------- -------------- -------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (414,000) (40,000) (147,000) (148,000)
Goodwill resulting from acquisition (158,000) - - (158,000)
------------- -------------- -------------- -------------
Net cash used in investing activities (572,000) (40,000) (147,000) (306,000)
------------- -------------- -------------- -------------
Financing activities:
Capital contribution 630,000 250,000 - -
-------------- -------------- -------------- -------------
Net cash provided by financing activities 630,000 250,000 - -
-------------- -------------- -------------- -------------
Net (decrease) increase in cash
cash equivalents (179,000) 349,000 (375,000) (332,000)
Cash and cash equivalents at
beginning of period 1,047,000 698,000 868,000 1,047,000
------------- -------------- -------------- -------------
Cash and cash equivalents at end of period $ 868,000 $ 1,047,000 $ 493,000 $ 715,000
============= ============== ============== =============
Cash paid for:
Interest $ 100,000 $ 266,000 $ - $ -
============= ============== ============== =============
Income taxes $ - $ 8,000 $ - $ -
============= ============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(unaudited with respect to information for the six-month periods
ended July 31, 1998 and 1999)
1. Basis of Presentation
The consolidated financial statements include the activities of Shochet Holding
Corp. and its subsidiary (the "Company"). The Company, a wholly owned
subsidiary of Research Partners International, Inc. ("Research Partners"), is
primarily engaged in providing discount securities brokerage and trading
services for individuals through the Company's wholly owned subsidiary, Shochet
Securities, Inc. ("Shochet Securities"), a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") and a member firm of the
National Association of Securities Dealers, Inc. (the "NASD").
In June 1999, the Company entered into a letter of intent with Gaines, Berland
Inc. for the public sale of the Company's common stock. On November 30, 1999,
in a corporate reorganization, the Company acquired all of the outstanding
common stock of Shochet Securities from Research Partners in exchange for
1,200,000 shares of the Company's common stock. The acquisition was accounted
for in a manner similar to a pooling of interests since both the Company and
Shochet Securities were under common control. Accordingly, the financial
statements of the Company include the combined financial condition, results of
operations and cash flows of the Company and Shochet Securities. All
significant intercompany accounts and transactions are eliminated in
consolidation. Where appropriate, prior year amounts have been reclassified to
conform to the current presentation.
The financial statements conform with generally accepted accounting principles
("GAAP"). The preparation of financial statements in conformity with GAAP
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Summary of Significant Accounting Policies
Fair value of financial instruments
Substantially all of the Company's financial assets and liabilities are carried
at market or fair values or at amounts which approximate current fair value due
to their short-term nature.
Cash and cash equivalents
Cash equivalents are highly liquid securities with maturities of three months
or less when purchased.
Receivable from brokers and dealers
Receivable from brokers and dealers consists primarily of amounts due from the
Company's clearing organization, which provides clearing and depository
services for brokerage transactions on a fully disclosed basis.
Securities
Securities transactions and the related revenues and expenses, including
commission revenues and expenses, are recorded on a trade-date basis.
Securities owned and securities sold, not yet purchased, consist primarily of
equities and are stated at quoted market values. Unrealized gains and losses
are included in other revenues.
F-7
<PAGE>
Depreciation and amortization
Office furniture, equipment and leasehold improvements are stated at cost, net
of accumulated depreciation and amortization of $185,000 at January 31, 1999,
and $252,000 at July 31, 1999. Office furniture and equipment are depreciated
using either an accelerated method or a straight-line method, where applicable,
over their estimated useful lives. Leasehold improvements are amortized over
the lesser of the life of the lease or estimated useful life of the
improvement.
Goodwill
Goodwill primarily represents the excess of the purchase price paid by Research
Partners over the Company's net assets acquired at November, 1995. The increase
in goodwill during the year ended January 31, 1999 represents the purchase
price paid by the Company for the business of Litwin Securities Inc. The
goodwill is being amortized over 25 years on a straight line basis. Accumulated
amortization was $217,000 at January 31, 1999 and $254,000 at July 31, 1999.
Management reviews goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.
Computer software costs
The Company capitalizes the cost of any computer software developed or obtained
for internal use. These costs are amortized over the estimated useful life of
the software on a straight line basis in accordance with AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use".
Stock-based compensation
The Company uses the intrinsic value method to account for stock-based employee
compensation plans. Under this method, compensation cost is recognized for
stock option awards only if the quoted market price (or estimated fair market
value of the stock prior to the stock becoming publicly traded) is greater than
the amount the employee must pay to acquire the stock. Pro forma disclosures
required by SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"),
based on the fair value-based method are presented in note 7.
Income Taxes
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
and existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using the enacted tax rates. The effect
on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
3. Related Party Transactions
(a) Payable to related parties consists of amounts due to Research
Partners and other wholly owned subsidiaries of Research Partners.
(b) In connection with the purchase of the Company by Research Partners,
the Company entered into a subordinated loan agreement, which
qualifies for net capital purposes, for $1,000,000 with Research
Partners. The rate of interest on the loan is 12%. The total interest
expense included in other expenses resulting from an effective rate
of interest on the loan of 13.7% was $137,000 and $145,000 for the
years ended January 31, 1999 and 1998, respectively, and $69,000 for
each of the six month periods ended July 31, 1999 and 1998.
F-8
<PAGE>
(c) The Company paid a management fee of $283,000 and $228,000 to GKN
Securities Corp., a wholly owned subsidiary of Research Partners, for
the years ended January 31, 1999 and 1998, respectively, and $144,000
and $139,000 for the six months ended July 31, 1999 and 1998,
respectively. Of these amounts $55,000 was paid to GKN Securities
Corp. by the discontinued On-site Day Trading segment for the year
ended January 31, 1999 and $30,000 and $25,000 for the six months
ended July 31, 1999 and 1998, respectively (see Note 11).
(d) Professional fees includes fees for research services provided
totaling $24,000 and $22,000 for the years ended January 31, 1999 and
1998, respectively, and $8,000 and $12,000 for the six months ended
July 31, 1999 and 1998, respectively, and were paid by the Company to
Southeast Research Partners, Inc., formerly a wholly-owned subsidiary
of Research Partners.
4. Commitments and Contingencies
The Company leases office facilities and equipment under noncancelable
operating leases. Certain leases have renewal options and clauses for
escalation and operating cost adjustments. At January 31, 1999, future minimum
rental commitments under such leases were as follows for the fiscal years
ending January 31:
2000 $ 315,000
2001 279,000
2002 265,000
2003 247,000
2004 176,000
Thereafter 254,000
---------------
$ 1,536,000
===============
Total rent expense was $434,000 and $298,000 for the years ended January 31,
1999 and 1998, respectively, and $218,000 and $208,000 for the six months ended
July 31, 1999 and 1998, respectively.
The Company's broker-dealer subsidiary is involved in various other legal
proceedings arising from its securities activities. Management believes that
resolution of these proceedings will have no material adverse effect on the
Company's consolidated financial position or results of operations.
5. Employee Benefits
The Company participates in a defined contribution 401(k) plan sponsored by
Research Partners. The plan covers substantially all of the Company's employees
meeting certain eligibility requirements. Prior to May 1, 1996, the Company's
employees were covered by a separate 401(k) plan. The Company makes
discretionary matching contributions to the plan annually, which amounted to
$29,000 and $25,000 for the years ended January 31, 1999 and 1998,
respectively, and $15,000 and $14,000 for six month periods ended July 31, 1999
and 1998, respectively.
F-9
<PAGE>
6. Income Taxes
The provision for income tax expense relating to continuing operations is as
follows:
<TABLE>
<CAPTION>
(unaudited)
Year Ended January 31, Six Months Ended July 31,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Current:
Federal $ 21,000 $ 53,000 $ - $ 12,000
State and local 4,000 9,000 - 2,000
------------- -------------- ------------- --------------
25,000 62,000 - 14,000
------------- -------------- ------------- --------------
Deferred:
Federal - 7,000 76,000 2,000
State and local - 1,000 13,000 1,000
------------- -------------- ------------- --------------
- 8,000 89,000 3,000
------------- -------------- ------------- --------------
$ 25,000 $ 70,000 $ 89,000 $ 17,000
============= ============== ============= ==============
</TABLE>
Deferred income taxes reflect temporary differences in the basis of the
Company's assets and liabilities for income tax purposes and for financial
reporting purposes, using current tax rates. These temporary differences result
in taxable or deductible amounts in future years.
Net deferred taxes at January 31, 1999 and July 31, 1999 are comprised as
follows:
<TABLE>
<CAPTION>
(unaudited)
Six Months Ended
January 31, July 31,
1999 1999
--------------- ---------------
<S> <C> <C>
Gross deferred tax asset:
Depreciation and amortization $ 28,000 $ 33,000
Deferred rent 17,000 16,000
Operating loss carryforward - 92,000
Other 3,000 3,000
--------------- ---------------
Total gross deferred tax asset 48,000 144,000
Less: valuation allowance (10,000) (106,000)
--------------- ---------------
Net deferred tax asset 38,000 38,000
--------------- ---------------
Gross deferred tax liability:
Bonus and other (38,000) (38,000)
--------------- ---------------
Net deferred taxes $ - $ -
=============== ===============
</TABLE>
Management believes that the valuation allowance is adequate as timing
differences will reverse in the carryforward period.
F-10
<PAGE>
The effective tax rates reflected in the consolidated financial statements
differ from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
(unaudited)
Year Ended Six Months Ended
January 31, July 31,
--------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0% 34.0%
State and local taxes, net of federal tax benefit 2.5 5.3 - 2.4
Change in valuation allowance and other (11.9) 18.1 (34.0) (16.1)
----------- ----------- ---------- -----------
Effective tax rate 24.6% 57.4% - % 20.3%
=========== =========== ========== ===========
</TABLE>
The Company is included in Research Partners' consolidated federal and combined
New York State and New York City income tax returns. Current and deferred
income taxes are allocated to the Company on a stand-alone basis.
7. Stock Compensation Plan
Employee Incentive Plan
The Company participates in Research Partners' 1991 Employee Incentive Plan
(the "Plan") which provides for the issuance of stock, stock options and other
stock purchase rights to executive officers, other key employees and
consultants of Research Partners and its subsidiaries. Research Partners may
grant options for up to five million shares of common stock under the Plan. The
options may qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended. The exercise price of each option
granted under the Plan is determined by Research Partners' Board of Directors
at the time of grant. The exercise price of incentive stock options must be at
least equal to the fair market value of Research Partners' stock on the date of
grant. The exercise price of non-qualified options must be at least equal to
65% of the fair market value of Research Partners' stock on the date of grant.
The vesting period is at least one year for all grants and incentive stock
options have maximum terms of ten years and non-qualified options have maximum
terms of 13 years.
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for stock options granted
to employees of the Company under Plan. Had compensation cost been determined
based on the fair value at the grant dates for stock option awards consistent
with the method of SFAS 123, the Company would have reported the following net
(loss) income and earnings per share ("EPS"):
<TABLE>
<CAPTION>
(unaudited)
Year Ended January 31, Six Months Ended July 31,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net (loss) income As reported $ (327,000) $ 52,000 $ (320,000) $ (110,000)
Pro forma $ (413,000) $ 25,000 $ (360,000) $ (120,000)
Basic EPS As reported $ (0.27) $ 0.04 $ (0.27) $ (0.09)
Pro forma $ (0.34) $ 0.02 $ (0.30) $ (0.10)
Diluted EPS As reported $ (0.27) $ 0.04 $ (0.27) $ (0.09)
Pro forma $ (0.34) $ 0.02 $ (0.30) $ (0.10)
</TABLE>
In April 1998, Research Partners offered employees holding certain options
having an exercise price of $4.50 to $6.00 the opportunity to convert their
options into options for a fewer number of shares, but with a lower exercise
price. Options for 2,000 shares were canceled and new options for 1,000 shares
were granted to employees of the Company in the conversion.
F-11
<PAGE>
A summary of the status of the Company's participation in the Plan and changes
during the periods then ended is presented below:
<TABLE>
<CAPTION>
January 31, July 31,
-------------------------------------------- -----------
1999 1998 1999
------------------------------- --------- -----------
Shares Weighted-Average Shares Shares
Stock Options (000) Exercise Price (000) (000)
- ------------- --------- ------------------ --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 28 $ 6.00 - 126
Granted 101 3.28 29 13
Forfeited (1) 6.00 (1) (1)
Swapped (2) 6.00 - -
Exercised - - - (3)
------ ------- ------ ------
Outstanding at end of period 126 $ 3.82 28 135
====== ======= ====== ======
Weighted-average fair value of
options granted during the period $ 1.75 $ 3.13 $ 2.39
Options exercisable at period-end none none 30
======
</TABLE>
The following table summarizes information about stock options outstanding at
January 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 1/31/99 Life Price at 1/31/99 Price
- --------------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.125 to $3.3125 101,000 9.1 years $ 3.28 - $ -
$6.00 25,000 8.1 $ 6.00 - -
-----------
126,000
===========
</TABLE>
Stock award plan
The Company's participates in Research Partners' 1996 Incentive Compensation
Plan, which provides for a portion of annual incentive awards payable to
executive management and business unit managers to be made in restricted shares
of Research Partners' common stock. All awards are subject to a minimum
three-year vesting period. The maximum number of shares which may be awarded
under the plan is one million. As of January 31, 1999, less than 1,000 shares
had been awarded to employees of the Company. The Company recognized no
compensation expense for stock awards under this plan.
Non-employee stock compensation
Research Partners granted stock options to purchase 25,000 shares to the former
owner of Shochet Securities on the date of Research Partners's initial public
offering in accordance with the Shochet Securities purchase agreement. The fair
value of the options, which was recorded as an adjustment to the purchase
price, was estimated to be $36,000 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%,
expected volatility of 27%, risk-free interest rate of 6.4%, and expected life
of 2.5 years. All of the options were outstanding at January 31, 1999.
F-12
<PAGE>
8. Earnings per Common Share
In March 1997, the FASB issued SFAS No. 128, Earnings per Share ("SFAS 128").
This statement changes the calculation and presentation of EPS. The new
presentation consists of basic EPS, which includes no dilution and is computed
by dividing net income by the weighted-average number of common shares
outstanding for the period, and diluted EPS, which is similar to the previously
disclosed fully diluted EPS. SFAS 128 will result in basic EPS results higher
than EPS as calculated under the previous method. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements. For the fiscal year ended January 31,
1999 and the six months ended July 31, 1998 and 1999, common stock equivalents,
consisting of stock options and warrants, were not included in the computation
of diluted EPS, as the inclusion of such shares would be anti-dilutive due to
the Company's net loss for each period.
The following table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
(unaudited)
Year Ended Six months ended
January 31, July 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted EPS:
Income from continuing operations $ 75,000 $ 52,000 $ 86,000 $ 67,000
Loss from discontinued operations (402,000) - (406,000) (177,000)
------------- ------------- ------------- -------------
Net (loss) income $ (327,000) $ 52,000 $ (320,000) $ (110,000)
============= ============= ============= =============
Denominator for basic EPS 1,200,000 1,200,000 1,200,000 1,200,000
------------- ------------- ------------- -------------
Denominator for diluted EPS 1,200,000 1,200,000 1,200,000 1,200,000
============= ============= ============= =============
Basic EPS from:
Income from continuing operations $ 0.06 $ 0.04 $ 0.07 $ 0.06
============= ============ ============= =============
Loss from discontinued operations $ (0.33) $ - $ (0.34) $ (0.15)
============= ============ ============= =============
Net (loss) income $ (0.27) $ 0.04 $ (0.27) $ (0.09)
============= ============ ============= =============
Diluted EPS from:
Income from continuing operations $ 0.06 $ 0.04 $ 0.07 $ 0.06
============= ============ ============= =============
Loss from discontinued operations $ (0.33) $ - $ (0.34) $ (0.15)
============= ============ ============= =============
Net (loss) income $ (0.27) $ 0.04 $ (0.27) $ (0.09)
============= ============ ============= =============
</TABLE>
F-13
<PAGE>
9. Concentration of Credit Risk and Off-Balance Sheet Risk
In the normal course of business, the Company's broker-dealer subsidiary
executes securities transactions on behalf of customers through a clearing
broker. The execution of these transactions includes the purchase and sale of
securities, including the sale of securities not currently owned. These
activities expose the Company to off-balance sheet risk in the event that
customers fail to fulfill their contractual obligations and margin requirements
are not sufficient to fully cover losses. The Company is obligated to its
clearing broker for losses sustained from the Company's customers. Should a
customer fail to deliver cash or securities as agreed, the Company may be
required to purchase or sell securities at unfavorable market prices. The
Company limits its risk by requiring customers to maintain margin collateral
that is in compliance with regulatory and internal guidelines and by making
credit inquiries when establishing customer relationships.
Securities sold, not yet purchased, represent the Company's obligations to
deliver specified securities at contracted prices. The Company is exposed to
risk of loss if securities prices increase prior to closing the transactions.
10. Net Capital Requirements
Shochet Securities is a registered broker-dealer with the SEC and a member firm
of the NASD and, as such, is subject to the SEC's net capital rule, which
requires the maintenance of minimum net capital.
Shochet Securities computes net capital under the standard aggregate
indebtedness method permitted by the net capital rule. At July 31, 1999,
Shochet Securities had net capital of $223,000 and a net capital requirement of
$100,000. Shochet Securities' ratio of aggregate indebtedness to net capital
was 4.05 to 1.
11. Discontinued Operation
During the six months ended July 31, 1999, the Company discontinued the
operations of the On-site Day Trading division. Losses incurred from this
division, net of tax effect, have been separately disclosed on the financial
statements.
12. Subsequent Events
Subsequent to July 31, 1999, the Company reached a settlement with respect to a
claim by a former customer against Shochet Securities and certain past and
present employees during the period from 1992 through November 1996. Through
arbitration, Shochet Securities and its employees were found jointly and
severally liable. The plaintiff was awarded approximately $411,000 in
compensatory and punitive damages and legal fees, which was paid by Research
Partners on Shochet Securities' behalf. Shochet Securities believes that it has
a claim against its former owners for payment of the settlement amount, pursuant
to an indemnification agreement. While the Company intends to vigorously pursue
payment of the settlement amount, there can be no assurance as to its ultimate
collection. As a result of an infusion of capital in August 1999 in the form of
a $500,000 subordinated note from Research Partners, management does not expect
this payment to cause Shochet Securities' net capital to fall below its
requirement.
In November 1999 the Company established the 1999 Performance Equity Plan. The
plan authorizes the granting of awards of up to 350,000 shares of the Company's
common stock to key employees, officers, directors and consultants. The Board
of Directors determines the persons to whom awards will be granted, the number
of awards to be granted and the specific terms of each grant. The
Company has not granted any awards under this plan to date.
F-14
<PAGE>
[back cover page]
You should rely only on the information contained in this prospectus.
Neither Shochet Holding Corp. nor any underwriter has authorized anyone to
provide prospective investors with any different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this prospectus or any
sale of these securities.
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.
Shochet Holding Corp.
Gaines, Berland Inc. Shochet Securities, Inc.
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The laws of the Delaware permit the indemnification of directors,
employees, officers and agents of Delaware corporations. Our articles of
incorporation and bylaws provide that we shall indemnify to the fullest extent
permitted by Delaware law any person whom we indemnify under that law.
The provisions of Delaware law that authorize indemnification do not
eliminate the duty of care of a director. In appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available. In addition, each director will continue to be subject to
liability for (a) violations of criminal laws, unless the director has
reasonable cause to believe that his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (b) deriving an improper personal
benefit from a transaction, (c) voting for or assenting to an unlawful
distribution and (d) willful misconduct or conscious disregard for our best
interests in a proceeding by or in our right to procure a judgment in its favor
or in a proceeding by or in the right of a stockholder. The statute does not
affect a director's responsibilities under any other law, such as the federal
securities laws.
The effect of the foregoing is to require us to indemnify our officers
and directors for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he or she
reasonably believed to be in or not contrary to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Under the terms of our underwriting agreement, our directors and
officers also are indemnified against certain civil liabilities that they may
incur under the Securities Act of 1933.
To the extent that we indemnify our management for liabilities arising
under securities laws, we have been informed by the SEC that this
indemnification is against public policy and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by us in connection with the
distribution of the securities being registered are as follows:
SEC Registration and Filing Fee................................. $ 2,395.01
NASD Fee........................................................ 1,407.21
Nasdaq SmallCap Fee............................................. 6,000.00
II-1
<PAGE>
Legal Fees and Expenses......................................... 120,000.00
Accounting Fees and Expenses.................................... 75,000.00
Financial Printing and Engraving................................ 95,000.00
Blue Sky Fees and Expenses...................................... 50,000.00
Miscellaneous................................................... 10,000.00
------------
TOTAL................................................. $ 359,802.22
============
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In November 1999, as part of a corporate reorganization into a holding
company structure, Research Partners contributed all 200,000 issued and
outstanding shares of Shochet Securities to Shochet Holding Corp. in exchange
for 1,200,000 shares of common stock of Shochet Holding Corp. Inasmuch as this
transaction did not involve any public offering, this transaction was exempt
from registration within the meaning of Section 4(2) and Regulation D of the
Securities Act of 1933.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Description of Document
1.1 Underwriting Agreement*
2.1 Certificate of Incorporation of Shochet Holding Corp.
3.2 Certificate of Amendment of Shochet Holding Corp.
3.2(a) Certificate of Amendment of Shochet Holding Corp.
3.3 Bylaws of Shochet Holding Corp.
4.1 Specimen Common Stock Certificate*
4.2 Underwriter's Purchase Option*
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.*
10.1 1999 Performance Equity Plan
10.2 Employment Agreement between Shochet Holding Corp. and
Roger Gladstone*
II-2
<PAGE>
10.3 Employment Agreement between Shochet Holding Corp. and
David Greenberg*
10.4 Employment Agreement between Shochet Holding Corp. and
Howard Landers*
10.5 Intercompany Services Agreement between Research
Partners International, Inc. and Shochet Holding
Corp.*
10.6 Clearing Agreement between Shochet Securities, Inc.
and Schroder & Co., Inc.*
21.1 Subsidiaries of Shochet Holding Corp.
23.1 Consent of KPMG LLP
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A.
(Contained in Exhibit 5.1)*
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
- ----------------------
*To be filed by amendment
ITEM 28. UNDERTAKINGS
The undersigned issuer hereby undertakes to provide to the
underwriters, 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.
The undersigned issuer also undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(1) include any prospectus required by section 10(a)(3) of the
Securities Act;
(2) reflect in the prospectus any facts or events arising after
the effective date of the registration statement;
II-3
<PAGE>
(3) include any additional or changed material information
regarding the plan of distribution;
(4) for determining liability under the Securities Act, we will
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time shall be deemed to be the initial bona
fide offering; and
(5) file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(b) As indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant under the above provisions, or otherwise, we have 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 unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by any director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) We undertake:
(1) For the purpose 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 us under 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.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered in the prospectus and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering of the securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in Hallandale, Florida on December 7, 1999.
Shochet HOLDING CORP.
By: /s/ Roger N. Gladstone
---------------------------------------
Roger N. Gladstone
Chairman and
Chief Executive Officer
(Principal Executive Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roger Gladstone and David Greenberg, and
each of them, with full power to act without the other, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, any and all amendments thereto
(including post-effective amendments), any subsequent Registration Statements
pursuant to Rule 462 of the Securities Act of 1933, as amended, and any
amendments thereto and to file the same, with exhibits and schedules thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Roger N. Gladstone Chairman of the Board and Chief December 7, 1999
- ---------------------------- Executive Officer
Roger N. Gladstone
/s/ Donald Yarkin Vice Chairman of the Board December 7, 1999
- ----------------------------
Donald Yarkin
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ David Greenberg President, Chief Operating Officer December 7, 1999
- ----------------------------- and Director, Principal Financial
David Greenberg Officer and Principal Accounting
Officer
/s/ Howard B. Landers Executive Vice President December 7, 1999
- ----------------------------- and Director
Howard B. Landers
/s/ Richard Y. Roberts Director December 7, 1999
- -----------------------------
Richard Y. Roberts
Director December 7, 1999
- -----------------------------
James I. Krantz
</TABLE>
II-6
<PAGE>
Exhibit Index
-------------
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Certificate of Incorporation of Shochet Holding Corp.
3.2 Certificate of Amendment of Shochet Holding Corp.
3.2(a) Certificate of Amendment of Shochet Holding Corp.
3.3 Bylaws of Shochet Holding Corp.
10.1 1999 Performance Equity Plan
21.1 Subsidiaries of Shochet Holding Corp.
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
<PAGE>
Exhibit 2.1
Certificate of Incorporation of Shochet Holding Corp.
CERTIFICATE OF INCORPORATION
OF
SHOCHET TRADING.COM INC.
- - - - - - - - - - - - - - - - - - - - - - - - - -
Pursuant to Section 102 of the
Delaware General Corporation Law
- - - - - - - - - - - - - - - - - - - - - - - - - -
I, the undersigned, in order to form a corporation for the
purposes hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
1. The name of the Corporation is Shochet Trading.com Inc.
(hereinafter sometimes called "the Corporation").
2. The registered office of the Corporation is to be located
at 9 East Loockerman Street, Kent County, Dover, Delaware. The name of its
registered agent at that address is National Corporate Research, Ltd.
3. The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
4. The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 16,000,000 of which (i)
15,000,000 shares shall be Common Stock, par value $.0001 per share, and (ii)
1,000,000 shares shall be Preferred Stock, par value $.0001 per share.
A. Preferred Stock. The Board of Directors is
expressly granted authority to provide for the issue of all or any shares of the
Preferred Stock, in one or more series, and to fix for each such series such
voting powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions hereof as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series (a "Preferred Stock Designation") and as may be permitted
by the Delaware General Corporation Law. The number of authorized shares of
1
<PAGE>
Preferred Stock may be increased or decreased (but not below the number of
shares hereof then outstanding) by the affirmative vote of the holders of a
majority of the voting power of all of the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, without a separate vote of the
holders of the Preferred Stock, or any series thereof, unless a vote of any such
holders is required pursuant to any Preferred Stock Designation.
B. Common Stock. Except as otherwise required by law
and except as otherwise provided in any Preferred Stock Designation, the holders
of the Common Stock shall exclusively possess all voting power of the
Corporation. Each share of Common Stock shall have one vote.
5. The name and address of the sole incorporator are as
follows:
Name Address
---- -------
Danielle Ghorra, Esq. Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
6. The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
(a) Election of directors need not be by ballot.
(b) The Board of Directors shall have the power,
without the assent or vote of the stockholders, to make,
alter, amend, change, add to or repeal the by-laws of the
Corporation as provided in the by-laws of the Corporation.
(c) The directors in their discretion may submit any
contract or act for approval or ratification at any annual
meeting of the stockholders or at any meeting of the
stockholders called for the purpose of considering any such
act or contract, and any contract or act that shall be
approved or be ratified by the vote of the holders of a
majority of the stock of the Corporation which is represented
in person or by proxy at such meeting and entitled to vote
thereat (provided that a lawful quorum of stockholders be
there repre sented in person or by proxy) shall be as valid
and binding upon the Corporation and upon all the stockholders
as though it had been approved or ratified by every
stockholder of the Corporation, whether or not the
2
<PAGE>
contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(d) In addition to the powers and authorities
hereinbefore or by statute expressly conferred upon them, the
directors are hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this Certificate of Incorporation,
and to any by-laws from time to time made by the stockholders;
provided, however, that no by-law so made shall invalidate any
prior act of the directors which would have been valid if such
by-law had not been made.
7. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders 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 stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. Neither the amendment nor repeal of this
Article 7, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article 7, shall eliminate or reduce the
effect of this Article 7 in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article 7, would accrue or arise prior
to such amendment, repeal or adoption of an inconsistent provision.
8. The Corporation, to the full extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, shall indemnify all persons whom it may indemnify pursuant
thereto.
9. Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stock holders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
3
<PAGE>
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
IN WITNESS WHEREOF, I have signed this Certificate this 29th
day of July, 1999.
/s/ Danielle Ghorra
------------------------
Danielle Ghorra, Esq.
Sole Incorporator
4
<PAGE>
Exhibit 3.2
Certificate of Amendment of Shochet Holding Corp.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SHOCHET TRADING.COM INC.
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Pursuant to Section 241 of the
General Corporation Law of Delaware
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
The undersigned sole incorporator of Shochet Trading.com Inc.
("Corporation'), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Shochet Trading.com Inc.
SECOND: The Corporation has not received any payment for any of its
stock.
THIRD: The Certificate of Incorporation of the Corporation is hereby
amended by deleting Article 1 in its entirety and by substituting the following
new Article 1 in lieu thereof:
"1. The name of the Corporation is Shochet Holding Corp.
(hereinafter sometimes called the "Corporation")."
FOURTH: The amendment of the certificate of incorporation of the
Corporation herein certified was duly adopted, pursuant to the provisions of
Section 241 of the General Corporation Law of the State of Delaware, by the sole
incorporator, no directors having been named in the certificate of incorporation
and no directors having been elected.
IN WITNESS WHEREOF, the undersigned have signed this Certificate under
penalties of perjury that the matters set forth in this Certificate are the acts
and deeds of the Corporation and the facts stated herein are true this 26th day
of October, 1999.
/s/ Danielle Ghorra
----------------------------------
Danielle Ghorra, Sole Incorporator
1
<PAGE>
Exhibit 3.2(a)
Certificate of Amendment of Shochet Holding Corp.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SHOCHET HOLDING CORP.
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Pursuant to Section 241 of the
General Corporation Law of Delaware
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
The undersigned sole incorporator of Shochet Holding Corp.
("Corporation"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Shochet Holding Corp. The name
under which the Corporation was originally formed was Shochet Trading.com Inc.
SECOND: The Corporation has not received any payment for any of its
stock.
THIRD: The Certificate of Incorporation of the Corporation is hereby
amended by adding a new Article 10 as follows:
"10. In anticipation that the Corporation will cease to be a
wholly-owned subsidiary of Research Partners International, Inc. ("RPII") but
will continue as a partially-owned subsidiary of RPII and that the Corporation
and RPII may engage in the same or similar activities or lines of businesses and
have an interest in the same areas of corporate opportunities, and in
recognition of (i) the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with RPII (including the
service of officers and directors of RPII as officers and directors of the
Corporation) and (ii) the difficulties attendant to any director, who desires
and endeavors fully to satisfy such director's fiduciary duties, in determining
the full scope of such duties in any particular situation, the provisions of
this Article Ten are set forth to regulate, define and guide the conduct of
certain affairs of the Corporation as they may involve RPII's and its officers
and directors and the powers, rights, duties and liabilities of the Corporation
and its officers, directors and stockholders in connection therewith.
(a) RPII shall have no duty to refrain from engaging in the
same or similar business activities or lines of business as
the Corporation, except as it may be agreed in a contract
between the Corporation and RPII.
(b) RPII and its officers, directors and employees shall not
be liable to the Corporation or its stockholders for breach of
any fiduciary duty by reason of any
1
<PAGE>
activities of RPII in competition with the Corporation, except
as it may be agreed in a contract between the Corporation and
RPII.
(c) In the event that RPII acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for
both RPII and the Corporation, RPII shall have no duty to
communicate or offer the corporate opportunity to the
Corporation and shall not be liable to the Corporation or its
stockholders for breach of any fiduciary duty as a stockholder
of the Corporation or controlling person of a stockholder by
reason of the fact that RPII pursues or acquires the corporate
opportunity for itself, directs the corporate opportunity to
another person or entity, or does not communicate information
regarding, or offer, the corporate opportunity to the
Corporation, except as it may be agreed in a contract between
the Corporation and RPII.
(d) Except as it may be agreed in a contract between the
Corporation and RPII, in the event that a director or officer
of the Corporation who is also a director, officer or employee
of RPII acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for the Corporation
and RPII (whether the potential transaction or matter is
proposed by a third party or is conceived of by such director,
officer or employee of the Corporation), such director,
officer or employee shall be entitled to offer such corporate
opportunity to the Corporation or RPII as such director,
officer or employee deems appropriate under the circumstances
in his sole discretion and in accordance with any agreement
between the Corporation and RPII, and no such director,
officer or employee shall be liable to the Corporation or its
stockholders for breach of any fiduciary duty or duty of
loyalty or failure to act in (or not opposed to) the best
interests of the Corporation or for deriving an improper
personal benefit by reason of the fact that (i) such director,
officer or employee offered such corporate opportunity to RPII
(rather than the Corporation) or did not communicate
information regarding such corporate opportunity to the
Corporation or (ii) RPII pursues or acquires such corporate
opportunity for itself or directs such corporate opportunity
to another person or does not communicate information
regarding such corporate opportunity to the Corporation.
(e) Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation
shall be deemed to have notice of and to have consented to the
provisions of this Article Ten and the contractual provisions
provided for in this Article Ten.
(f) For purposes of this Article Ten only, (i) the term
"Corporation" shall mean the Corporation and all corporations,
partnerships, joint ventures, associations and other entities
in which the Corporation beneficially owns (directly or
indirectly) 50 percent or more of the outstanding voting
stock, voting power or similar voting interests, and (ii) the
term RPII shall mean RPII and all corporations, partnerships,
joint ventures, associations and other entities (other than
the Corporation, defined in accordance with clause (i) of this
paragraph) in which RPII beneficially owns
2
<PAGE>
(directly or indirectly) 50% or more of the outstanding voting
stock, voting power or similar voting interests.
(g) Notwithstanding anything to the contrary in this
Certificate of Incorporation, as amended, the foregoing
provisions of this Article Ten will expire on the date that
RPII ceases to own beneficially Common Stock of the
Corporation and other securities representing at least 10% of
the voting authority for the election of the majority of the
directors of the Corporation. Neither the alteration,
amendment, change or repeal of any provision of this Article
Ten nor the adoption of any provision of this Certificate of
Incorporation inconsistent with any provision of this Article
Ten shall eliminate or reduce the effect of this Article Ten
in respect of any matter occurring, or any cause of action,
suit or claim that, but for this Article Ten would accrue or
arise, prior to such alteration, amendment, repeal or
adoption.
(h) The provisions of this Article Ten are in addition to the
provisions of Articles Six, Seven and Eight of the
Corporation's Certificate of Incorporation, as amended.
FOURTH: The amendment of the certificate of incorporation of the
Corporation herein certified was duly adopted, pursuant to the provisions of
Section 241 of the General Corporation Law of the State of Delaware, by the sole
incorporator, no directors having been named in the certificate of incorporation
and no directors having been elected.
IN WITNESS WHEREOF, the undersigned have signed this Certificate under
penalties of perjury that the matters set forth in this Certificate are the acts
and deeds of the Corporation and the facts stated herein are true this 24th day
of November, 1999.
/s/ Danielle Ghorra
----------------------------------
Danielle Ghorra, Sole Incorporator
3
<PAGE>
Exhibit 3.3
Bylaws of Shochet Holding Corp.
Adopted: November 30, 1999
BY-LAWS
OF
SHOCHET HOLDING CORP.
--------------------------
Article I
OFFICES
1.1 Registered Office. The registered office shall be established and
maintained in the City of Dover, County of Kent, State of Delaware and National
Corporate Research, Ltd. shall be the registered agent of the corporation in
charge thereof. The Board of Directors (the "Board") may change the location of
the registered office and the registered agent in charge thereof as it deems
appropriate, in its sole discretion.
1.2 Other Offices. The corporation may have other offices, either
within or without the State of Delaware, at such place or places as the Board
may from time to time appoint or the business of the corporation may require.
Article II
STOCKHOLDERS
2.1 Annual Meetings of Stockholders. The annual meeting of stockholders
shall be held on the 10th day of June in each year, or as soon thereafter as
practicable, and shall be held at a place and time determined by the Board.
2.2 Special Meetings of Stockholders. Special meetings of stockholders
may be called by resolution of the Board or by the Chairman and/or President of
the corporation, and shall be called by the Chairman, President or Secretary,
upon the request in writing of a majority of the directors then in office or of
the stockholders of record owning a majority of the issued and outstanding
voting stock of the corporation, which request shall state the purpose or
purposes of the proposed meeting.
2.3 Place and Time of Stockholders' Meetings. All meetings of the
stockholders of the corporation shall be held in or outside the State of
Delaware at the place and time specified by the Board.
1
<PAGE>
2.4 Notice of Meetings of Stockholders. Written notice of each meeting
of stockholders shall be given to each stockholder of record entitled to vote at
the meeting, except that no notice of any adjourned meeting need be given except
when required under Section 2.7 (d). Each notice of meeting shall be given,
personally or by mail, not less than 10 nor more than 60 days before the date of
the meeting, and, unless, it is the annual meeting, shall state at whose
direction or request the meeting is called and the purposes for which it is
called. Such notice, if mailed, shall be deemed given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his or her
address on the records of the corporation.
2.5 Business To Be Transacted at Annual Meetings. At each annual
meeting, the stockholders shall elect the directors whose terms of office shall
expire at such meeting. At any such annual meeting any further proper business
may be transacted. To be properly brought before an annual meeting, business
must be (a) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board, (b) otherwise properly brought before
the meeting, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given written notice thereof, either by
personal delivery or by United States mail, postage prepaid, to the Secretary of
the corporation, not later than 90 days in advance of such meeting. Any such
notice shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting and, in the event that such business includes a proposal to amend either
the Certificate of Incorporation or By-laws of the corporation, the language of
the proposed amendment, (ii) the name and address of the stockholder proposing
such address, (iii) a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such business, and (iv)
any material interest of the stockholder in such business. Stockholders wishing
to nominate directors for election must comply with the additional requirements
of Section 2.6 below. No business shall be conducted at an annual meeting of
stockholders except in accordance with this Section and the chairman of any
annual meeting of stockholders may refuse to permit any business to be brought
before an annual meeting without compliance with the foregoing procedures.
2.6 Nominations for Directors. Nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors. Any stockholder entitled to vote for the
election of directors at a meeting may nominate a person or persons for election
as directors only if written notice of such stockholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than 90 days in
advance of such meeting. Each notice of a stockholder's intent to make such
nomination shall set forth the information set forth in Section 2.6 above and,
in addition, the following information: (a) a description of all arrangements
and understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (b) such other information
regarding each nominee proposed by the stockholder as would have been required
to be included in a proxy statement filing pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors; and (c) the consent of each nominee
to serve as a Director of the Corporation if so elected. The chairman of any
meeting of stockholders to elect directors and
2
<PAGE>
the Board of Directors may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedures.
2.7 Quorum of Stockholders.
(a) Unless otherwise provided by the Certificate of
Incorporation or by law, at any meeting of the stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of the votes
thereat shall constitute a quorum.
(b) In the absence of a quorum, a majority in voting interest
of those present or, if no stockholders are present, any officer entitled to
preside or to act as chairman of the meeting may adjourn the meeting until a
quorum is present. Notice of any adjourned meeting, other than announcement at
the meeting, shall not be required to be given, except as provided in paragraph
(d) below and except where expressly required by law.
(c) At any adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting originally called but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof, unless a new record date is fixed by the Board.
(d) If an adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given pursuant to Section 2.4.
2.8 Chairman and Secretary of Meeting. The Chairman, or, in his or her
absence, the President, shall preside at meetings of the stockholders. The
Secretary or, in his or her absence, an Assistant Secretary, shall act as
secretary of the meeting, or if neither is present, then the presiding officer
may appoint a person to act as secretary of the meeting.
2.9 Voting by Stockholders. Except as may be otherwise provided by the
Certificate of Incorporation or these by-laws, each stockholder shall be
entitled to one vote for each share of stock having voting power registered in
his or her name on the corporation's records. Corporate action to be taken by
stockholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or Section 2.14. Directors shall be elected in the manner
provided in Section 3.2. Voting need not be by written ballot unless requested
by a stockholder at the meeting or ordered by the chairman of the meeting;
however, all elections of directors shall be by written ballot unless the
Certificate of Incorporation shall provide otherwise.
2.10 Proxies. Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by proxy. Every proxy shall be in
writing, subscribed by the stockholder or his or her duly authorized
attorney-in-fact. No proxy shall be valid after three years from its date unless
it provides otherwise.
2.11 Inspectors. The election of directors and any other vote by ballot
at any meeting of the stockholders shall be supervised by at least two
inspectors. Such inspectors shall be appointed
3
<PAGE>
by the Board in advance of the meeting. If one or both inspectors so appointed
shall refuse to serve or shall not be present, such appointment shall be made by
the officer presiding at the meeting.
2.12 List of Stockholders.
(a) At least ten days before every meeting of stockholders the
Secretary shall prepare and make a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder.
(b) During ordinary business hours, for a period of at least
ten days prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held.
(c) The list shall also be produced and kept at the time and
place of the meeting during the whole time of the meeting, and it may be
inspected by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are
the stockholders entitled to examine the stock ledger, the list required by this
Section 2.12 or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
2.13 Procedure at Stockholders' Meetings. Except as otherwise provided
by these by-laws or any resolutions adopted by the stockholders or Board, the
order of business and all other matters of procedure at every meeting of
stockholders shall be determined by the presiding officer. Not less than 15
minutes following the presentation of any resolution to any meeting of
stockholders, the presiding officer may announce that further discussion on such
resolution shall be limited to not more than three persons who favor and not
more than three persons who oppose such resolution, each of whom shall be
designated by the presiding officer and shall thereupon be entitled to speak
thereon for not more than five minutes. After such persons, or such a lesser
number thereof as shall advise the presiding officer of their desire so to
speak, shall have spoken on such resolution, the presiding officer may direct a
vote on such resolution without further discussion thereon at the meeting.
2.14 Action By Consent Without Meeting. Unless otherwise provided by
the Certificate of Incorporation, any action required or permitted to be taken
at any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
4
<PAGE>
Article III
DIRECTORS
3.1 Powers of Directors. The property, business and affairs of the
corporation shall be managed by the Board which may exercise all the powers of
the corporation except such as are by the law of the State of Delaware or the
Certificate of Incorporation or these by-laws required to be exercised or done
by the stockholders.
3.2 Number, Classes, Election, Terms of Office of Directors. The number
of directors which shall constitute the Board shall be not less than two and not
more than twelve, as fixed by resolution of the Board. The term of office of
each director shall expire at the annual meeting next ensuing. The number of
directors may be changed by resolution of a majority of the entire Board, but no
decrease may shorten the term of any incumbent director. Directors shall be
elected by a plurality of the votes cast and shall hold office until his or her
successor is elected and qualified. Directors need not be stockholders. As used
in these by-laws, the term "entire Board" means the total number of directors
which the corporation would have if there were no vacancies on the Board.
3.3 Vacancies on Board of Directors; Removal.
(a) Any director may resign his or her office at any time by
delivering his or her resignation in writing to the President or the Secretary.
It will take effect at the time specified therein or, if no time is specified,
it will be effective at the time of its receipt by the corporation. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
(b) Any vacancy, or newly created directorship resulting from
any increase in the authorized number of directors, may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and any director so chosen shall hold office until the next
annual meeting of stockholders at which his or her class of directors is to be
elected and until his or her successor is duly elected and qualified or until
his or her earlier resignation or removal.
(c) Any director may be removed with cause at any time by the
affirmative vote of stockholders holding of record in the aggregate at least a
majority of the outstanding shares of stock of the corporation entitled to vote,
given at a special meeting of the stockholders called for that purpose.
3.4 Meetings of the Board of Directors.
(a) The Board may hold its meetings, both regular and special,
either within or outside the State of Delaware.
(b) Regular meetings of the Board may be held at such time and
place as shall from time to time be determined by resolution of the Board. No
notice of such regular meetings
5
<PAGE>
shall be required. If the date designated for any regular meeting be a legal
holiday, then the meeting shall be held on the next day which is not a legal
holiday.
(c) The first meeting of each newly elected Board shall be
held immediately following the annual meeting of the stockholders for the
election of officers and the transaction of such other business as may come
before it. If such meeting is held at the place of the stockholders' meeting, no
notice thereof shall be required.
(d) Special meetings of the Board shall be held whenever
called by direction of the President or at the written request of any two
directors.
(e) The Secretary shall give notice to each director of any
special meeting of the Board by mailing the same at least three days before the
meeting or by telegraphing, telexing, or delivering the same not later than the
day before the meeting. Unless required by law, such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting. Any and all business may be transacted at any meeting of the Board. No
notice of any adjourned meeting need be given. No notice to or waiver by any
director shall be required with respect to any meeting at which the director is
present.
3.5 Quorum and Action. Unless provided otherwise by law or the
Certificate of Incorporation, a majority of the entire Board shall constitute a
quorum for the transaction of business; but if there shall be less than a quorum
at any meeting of the Board, a majority of those present may adjourn the meeting
from time to time. The vote of a majority of the directors present at any
meeting at which a quorum is present shall be necessary to constitute the act of
the Board.
3.6 Presiding Officer and Secretary of Meeting. The President, or, in
his or her absence, any Vice President, or, in their absence a member of the
Board selected by the members present, shall preside at meetings of the Board.
The Secretary shall act as secretary of the meeting, but in his or her absence
the presiding officer may appoint a secretary of the meeting.
3.7 Action by Consent Without Meeting. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes or proceedings of the Board or committee.
3.8 Action by Telephonic Conference. Members of the Board or any
committee designated by the Board may participate in a meeting of the Board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such a meeting shall constitute presence in person at such
meeting.
3.9 Committees.
(a) The Board may, by resolution or resolutions passed by a
majority of the entire Board, designate one or more committees, each committee
to consist of two or more directors. The Board may designate one or more
directors as alternate members of any committee, who may replace
6
<PAGE>
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any such meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member.
(b) Any such committee, to the extent provided in the
resolution or resolution of the Board, or in these by-laws, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power of authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the by-laws of the corporation; and unless the resolution, these
by-laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
3.10 Compensation of Directors. Directors who are not employees of the
corporation shall receive such reasonable compensation for their service on the
Board or any committees thereof, whether in the form of salary or a fixed fee
for attendance at meetings, or both, with expenses, if any, as the Board may
from time to time determine. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
3.11 Contracts.
(a) No contract or other transaction between this corporation
and any other corporation shall be impaired, affected or invalidated, nor shall
any director be liable in any way, by reason of the fact that any one or more of
the directors is or are interested in, or is a director or officer, or are
directors or officers of such other corporation, provided that such facts are
fully disclosed or made known to the Board prior to the Board considering such
contract or other transaction.
(b) Any director, personally and individually, may be a party
to or may be interested in any contract or transaction of this corporation, and
no director shall be liable in any way by reason of such interest, provided that
the fact of such interest be disclosed or made known to the Board, and provided
that the Board shall authorize, approve or ratify such contract or transaction
by the vote (not counting the vote of any such director) of a majority of a
quorum, notwithstanding the presence of any such director at the meeting at
which such action is taken. Such director or directors may be counted in
determining the presence of a quorum at such meeting. This Section shall not be
construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
(c) Except as provided otherwise in these by-laws, the Board
may authorize any officer, agent or employee of this corporation, in the name
and on behalf of this corporation, to enter
7
<PAGE>
into any contract or execute and deliver any instrument; provided however, that
any material contract or other instrument of this corporation which is entered
into with our parent corporation, Research Partners International, Inc.
("RPII"), and any affiliates of RPII after the date these by-laws are adopted by
the Board, may not be executed and delivered by any officer, agent or employee
of this corporation unless (a) such contract is contemplated by the Intercompany
Services Agreement between this corporation and RPII entered into in November
1999 and if not, (b) such contract or other instrument is approved by at least a
majority of the directors of the Board who are not affiliated with RPII or its
affiliates for the two year period prior to the date of approval, or if there is
only one or two such directors, then by one of such directors. This provision
may not be amended except with the approval of non-affiliated directors as in
the same manner as for contracts and other instruments between this corporation
and RPII and its affiliates. Such authorization may be general or confined to
specific instances. Unless so authorized by the Board or these by-laws, no
officer, agent or employee shall have any power of authority to bind this
corporation by any contract or engagement, with the purpose of pledging this
corporation's credit or rendering it pecuniarily liable for any purpose or to
any amount. This Section 3.11(c) shall be of no further effect upon the earlier
of (i) the date that RPII owns less than 50% of the securities eligible to elect
the majority of the directors of this corporation and (ii) the third anniversary
of the effective date of the registration statement filed by this corporation
with the Securities and Exchange Commission in connection with this
corporation's initial public offering.
Article IV
OFFICERS
4.1 Officers, Title, Elections, Terms.
(a) The executive officers of the corporation are the
Chairman, President, one or more Vice Presidents, the Treasurer and the
Secretary. The executive officers shall be elected by the Board at its annual
meeting following the annual meeting of the stockholders, to serve, subject to
these by-laws, until the next annual meeting of the Board and until their
respective successors are elected and qualify.
(b) The Board may elect or appoint at any time, and from time
to time, additional officers or agents with such duties as it may deem necessary
or desirable. Such additional officers shall serve at the pleasure of the Board
or otherwise as shall be specified by the Board at the time of such election or
appointment. Two or more offices may be held by the same person.
(c) Any vacancy in any office may be filled for the unexpired
portion of the term by the Board.
(d) Any officer may resign his or her office at any time,
subject to such officer's contractual commitments to the corporation. Such
resignation shall be made in writing and shall take effect at the time specified
therein or, if no time be specified, at the time of its receipt by the
corporation. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation.
8
<PAGE>
(e) The salaries of all officers of the corporation shall be
fixed by the Board of Directors or the Board's Compensation Committee, if any.
4.2 Removal of Elected Officers. Any executive officer may be removed
at any time, either with or without cause, by resolution adopted at any regular
or special meeting of the Board by a majority of the directors then in office.
4.3 Duties.
(a) Chairman. The Chairman, subject to the control of the
Board of Directors, shall supervise and control the business and affairs of the
corporation.
(b) President. The President shall be the chief operating
officer of the corporation. The President, subject to the control of the
Chairman and the Board of Directors, shall supervise and control the day-to-day
business and affairs of the corporation. He or she shall see that all orders and
resolutions of the Board are carried into effect (unless any such order or
resolution shall provide otherwise), and in general shall perform all duties
incident to the office of president and such other duties as may be prescribed
by the Board from time to time.
(c) Vice President. Each Vice President, if any, shall have
such powers and perform such duties as the Board may determine or as may be
assigned to him by the President or Chairman. In the absence of the President or
in the event of his or her death, or inability or refusal to act, the Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated at the time of their election, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President and when so acting, shall have all the powers and be
subject to all the restrictions upon the President.
(d) Treasurer. The Treasurer shall (i) have charge and custody
of and be responsible for all funds and securities of the corporation; (ii)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever; (iii) deposit all such moneys in the name of the corporation
in such banks, trust companies, or other depositories as shall be selected by
resolution of the Board; and (iv) in general perform all duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the Chairman, President or by the Board. He or she shall, if required
by the Board, give a bond for the faithful discharge of his or her duties in
such sum and with such surety or sureties as the Board shall determine.
(e) Secretary. The Secretary shall (i) keep the minutes of the
meetings of the stockholders, the Board, the Executive Committee (if
designated), and all other committees, if any, of which a secretary shall not
have been appointed, in one or more books provided for that purpose; (ii) see
that all notices are duly given in accordance with the provisions of these
by-laws and as required by law; (iii) be custodian of the corporate records and
of the seal of the corporation and see that the seal of the corporation is
affixed to all documents, the execution of which on behalf of the corporation
under its seal, is duly authorized; (iv) keep a register of the post office
address of each stockholder which shall be furnished to the Secretary by such
stockholder; (v) have general charge of stock transfer books of the corporation;
and (vi) in general perform all duties incident to the office
9
<PAGE>
of secretary and such other duties as from time to time may be assigned to him
by the Chairman, President or by the Board.
(f) Assistant Secretaries and Assistant Treasurers. At the
request of the Board or Secretary, or in the absence or disability of the
Secretary, one or more Assistant Secretaries designated by him or by the Board
shall have all the powers of the Secretary for such period as he or she or it
may designate or until he or she or it revokes such designation. At the request
of the Board or Treasurer or in the absence or disability of the Treasurer, one
or more Assistant Treasurers designated by him or by the Board shall have all
the powers of the Treasurer for such period as he or she or it may designate or
until he or she or it revokes such designation. The Assistant Secretaries and
Assistant Treasurers, in general, shall perform such duties as shall be assigned
to them by the Secretary or the Treasurer, respectively, or by the Chairman,
President or the Board.
Article V
CAPITAL STOCK
5.1 Stock Certificates.
(a) Every holder of stock in the corporation shall be entitled
to have a certificate signed by, or in the name of, the corporation by the
Chairman, President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, certifying the number of
shares owned by him or her.
(b) If such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, the signatures of the officers of the corporation
may be facsimiles, and, if permitted by law, any other signature may be a
facsimile.
(c) In case any officer who has signed or whose facsimile
signature has been placed upon a 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 or she were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board. They shall be numbered and registered in the order in which they are
issued.
(e) All certificates surrendered to the corporation shall be
canceled with the date of cancellation, and shall be retained by the Secretary,
together with the powers of attorney to transfer and the assignments of the
shares represented by such certificates, for such period of time as shall be
prescribed from time to time by resolution of the Board.
5.2 Record Ownership. A record of the name and address of the holder of
each certificate, the number of shares represented thereby and the date of issue
thereof shall be made on the corporation's books. The corporation shall be
entitled to treat the holder of any share of stock as the holder in fact
thereof, and accordingly shall not be bound to recognize any equitable or other
10
<PAGE>
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as required by law.
5.3 Transfer of Record Ownership. Transfers of stock shall be made on
the books of the corporation only by direction of the person named in the
certificate or his or her attorney, lawfully constituted in writing, and only
upon the surrender of the certificate therefor and a written assignment of the
shares evidenced thereby. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer if, when the certificates are presented to the corporation for
transfer, both the transferor and transferee request the corporation to do so.
5.4 Lost, Stolen or Destroyed Certificates. Certificates representing
shares of the stock of the corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed in such manner and on
such terms and conditions as the Board from time to time may authorize.
5.5 Transfer Agent; Registrar; Rules Respecting Certificates. The
corporation may maintain one or more transfer offices or agencies where stock of
the corporation shall be transferable. The corporation may also maintain one or
more registry offices where such stock shall be registered. The Board may make
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of stock certificates.
5.6 Fixing Record Date for Determination of Stockholders of Record. The
Board may fix, in advance, a date as the record date for the purpose of
determining stockholders entitled to notice of, or to vote at, any meeting of
the stockholders or any adjournment thereof, or the stockholders entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or to express consent to corporate action in writing
without a meeting, or in order to make a determination of the stockholders for
the purpose of any other lawful action. Such record date in any case shall be
not more than sixty days nor less than ten days before the date of a meeting of
the stockholders, nor more than sixty days prior to any other action requiring
such determination of the stockholders. A determination of stockholders of
record entitled to notice or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
5.7 Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board may, out of funds legally available therefor at any
regular or special meeting, declare dividends upon the capital stock of the
corporation as and when they deem expedient. Before declaring any dividend there
may be set apart out of any funds of the corporation available for dividends,
such sum or sums as the Board from time to time in their discretion deem proper
for working capital or as a reserve fund to meet contingencies or for equalizing
dividends or for such other purposes as the Board shall deem conducive to the
interests of the corporation.
11
<PAGE>
Article VI
SECURITIES HELD BY THE CORPORATION
6.1 Voting. Unless the Board shall otherwise order, the President shall
have full power and authority, on behalf of the corporation, to attend, act and
vote at any meeting of the stockholders of any corporation in which the
corporation may hold stock, and at such meeting to exercise any or all rights
and powers incident to the ownership of such stock, and to execute on behalf of
the corporation a proxy or proxies empowering another or others to act as
aforesaid. The Board from time to time may confer like powers upon any other
person or persons.
6.2 General Authorization to Transfer Securities Held by the
Corporation. Unless the Board shall otherwise order, the President shall be, and
he or she hereby is, authorized and empowered to transfer, convert, endorse,
sell, assign, set over and deliver any and all shares of stock, bonds,
debentures, notes, subscription warrants, stock purchase warrants, evidence of
indebtedness, or other securities now or hereafter standing in the name of or
owned by the corporation, and to make, execute and deliver, under the seal of
the corporation, any and all written instruments of assignment and transfer
necessary or proper to effectuate the authority hereby conferred.
Article VII
MISCELLANEOUS
7.1 Signatories. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board may from time to time designate.
7.2 Seal. The seal of the corporation shall be in such form and shall
have such content as the Board shall from time to time determine.
7.3 Notice and Waiver of Notice. Whenever any notice of the time, place
or purpose of any meeting of the stockholders, directors or a committee is
required to be given under the law of the State of Delaware, the Certificate of
Incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the holding
thereof, or actual attendance at the meeting in person or, in the case of any
stockholder, by his or her attorney-in-fact, shall be deemed equivalent to the
giving of such notice to such persons.
7.4 Amendment of By-Laws.
(a) By Board of Directors. The by-laws of the corporation may
be altered, amended or repealed or new by-laws may be made or adopted by the
Board of Directors at any regular or special meeting of the Board; provided that
paragraph (c) of Section 3.3 and Section 7.4(b) of these By-Laws may be altered,
amended or repealed only by action of the stockholders acting pursuant to
Section 7.4(b) hereof.
12
<PAGE>
(b) By Stockholders. The by-laws of the corporation may also
be altered, amended or repealed or new by-laws may be made or adopted by the
vote of a majority in interest of the stockholders represented and entitled to
vote upon the election of directors, at any meeting at which a quorum is
present.
7.5 Indemnity. The corporation shall indemnify its directors, officers,
employees or agents to the fullest extent allowed by law.
7.6 Fiscal Year. Except as from time to time otherwise determined by
the Board, the fiscal year of the corporation shall end on December 31st.
13
<PAGE>
Exhibit 10.1
1999 Performance Equity Plan
Approved by Board of Directors on November 30, 1999
Approved by the Sole Stockholder on December 1, 1999
SHOCHET HOLDING CORP.
1999 Performance Equity Plan
Section 1. Purpose; Definitions.
1.1 Purpose. The purpose of the Shochet Holding Corp. 1999 Performance
Equity Plan is to enable the Company to offer to its employees, officers,
directors and consultants whose past, present and/or potential contributions to
the Company and its Subsidiaries have been, are or will be important to the
success of the Company, an opportunity to acquire a proprietary interest in the
Company. The various types of long-term incentive awards that may be provided
under the Plan will enable the Company to respond to changes in compensation
practices, tax laws, accounting regulations and the size and diversity of its
businesses.
1.2 Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Agreement" means the agreement between the Company and
the Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" means the Stock Option Committee of the Board
or any other committee of the Board that the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company,
$.0001 par value per share.
(f) "Company" means Shochet Holding Corp., a corporation
organized under the laws of the State of Delaware.
(g) "Deferred Stock" means Common Stock to be received, under
an award made pursuant to Section 8, below, at the end of a specified deferral
period.
(h) "Disability" means physical or mental impairment as
determined under procedures established by the Committee for purposes of the
Plan.
(i) "Effective Date" means the date set forth in Section 12.1,
below.
(j) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
1
<PAGE>
last sale price of the Common Stock in the principal trading market for the
Common Stock on such date, as reported by the exchange or Nasdaq, as the case
may be; (ii) if the Common Stock is not listed on a national securities exchange
or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, but is traded
in the over-the-counter market, the closing bid price for the Common Stock on
such date, as reported by the OTC Bulletin Board or the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under
the Plan.
(l) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active
employment with the Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 9,
below, that is valued in whole or in part by reference to, or is otherwise based
upon, Common Stock.
(p) "Parent" means any present or future "parent corporation"
of the Company, as such term is defined in Section 424(e) of the Code.
(q) "Plan" means the Shochet Holding Corp. 1999 Performance
Equity Plan, as hereinafter amended from time to time.
(r) "Repurchase Value" shall mean the Fair Market Value in the
event the award to be repurchased under Section 10.2 is comprised of shares of
Common Stock and the difference between Fair Market Value and the Exercise Price
(if lower than Fair Market Value) in the event the award is a Stock Option or
Stock Appreciation Right; in each case, multiplied by the number of shares
subject to the award.
(s) "Restricted Stock" means Common Stock, received under an
award made pursuant to Section 7, below, that is subject to restrictions under
said Section 7.
(t) "SAR Value" means the excess of the Fair Market Value (on
the exercise date) over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option, multiplied by the
number of shares for which the Stock Appreciation Right is exercised.
(u) "Stock Appreciation Right" means the right to receive from
the Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the Fair Market Value (on the exercise date).
(v) "Stock Option" or "Option" means any option to purchase
shares of Common Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under
Section 5.3 of the Plan.
2
<PAGE>
(x) "Subsidiary" means any present or future "subsidiary
corporation" of the Company, as such term is defined in Section 424(f) of the
Code.
Section 2. Administration.
2.1 Committee Membership. The Plan shall be administered by the Board
or a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
The Committee members, to the extent possible and deemed to be appropriate by
the Board, shall be "non-employee directors" as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and "outside directors" within the meaning of Section 162(m) of the Code.
2.2 Powers of Committee. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) to select the officers, employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share exercise price or types of consideration
paid upon exercise of such options, such as other securities of the Company or
other property, any restrictions or limitations, and any vesting, exchange,
surrender, cancellation, acceleration, termination, exercise or forfeiture
provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Common Stock;
(f) to determine the extent and circumstances under which
Common Stock and other amounts payable with respect to an award hereunder shall
be deferred that may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
3
<PAGE>
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 11, below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 11, below, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload Options or Stock
Appreciation rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for issuance under the Plan shall be 350,000 shares.
Shares of Common Stock under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares of Common Stock
that have been granted pursuant to a Stock Option cease to be subject to a Stock
Option, or if any shares of Common Stock that are subject to any Stock
Appreciation Right, Restricted Stock, Deferred Stock award, Reload Stock Option
or Other Stock-Based Award granted hereunder are forfeited or any such award
otherwise terminates without a payment being made to the Holder in the form of
Common Stock, such shares shall again be available for distribution in
connection with future grants and awards under the Plan. If a Holder pays the
exercise price of a Stock Option by surrendering any previously owned shares
and/or arranges to have the appropriate number of shares otherwise issuable upon
exercise withheld to cover the withholding tax liability associated with the
Stock Option exercise, then the number of shares available under the Plan shall
be increased by the lesser of (i) the number of such surrendered shares and
shares used to pay taxes; and (ii) the number of shares purchased under such
Stock Option.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
merger, reorganization, consolidation, dividend (other than a cash dividend)
payable on shares of Common Stock, stock split, reverse stock split, combination
or exchange of shares, or other extraordinary or unusual event occurring after
the grant of an award which results in a change in the shares of Common Stock of
the Company as a whole, the Committee shall determine, in its sole discretion,
whether such change equitably requires an adjustment in the terms of any award
or the aggregate number of shares reserved for issuance under the Plan. Any such
adjustments will be made by the Committee, whose determination will be final,
binding and conclusive.
Section 4. Eligibility.
Awards may be made or granted to employees, officers,
directors and consultants who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.
4
<PAGE>
Section 5. Stock Options.
5.1 Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options or
Non-Qualified Stock Options, or both types of Stock Options which may be granted
alone or in addition to other awards granted under the Plan. To the extent that
any Stock Option intended to qualify as an Incentive Stock Option does not so
qualify, it shall constitute a separate Nonqualified Stock Option.
5.2 Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Option Term. The term of each Stock Option shall be fixed
by the Committee; provided, however, that an Incentive Stock Option may be
granted only within the ten-year period commencing from the Effective Date and
may only be exercised within ten years of the date of grant (or five years in
the case of an Incentive Stock Option granted to an optionee who, at the time of
grant, owns Common Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company ("10% Stockholder").
(b) Exercise Price. The exercise price per share of Common
Stock purchasable under a Stock Option shall be determined by the Committee at
the time of grant and may not be less than 100% of the Fair Market Value on the
day of grant; provided, however, that the exercise price of an Incentive Stock
Option granted to a 10% Stockholder shall not be less than 110% of the Fair
Market Value on the date of grant.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee and as set forth in Section 10, below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to the Company specifying
the number of shares of Common Stock to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, which shall be in cash or,
if provided in the Agreement, either in shares of Common Stock (including
Restricted Stock and other contingent awards under this Plan) or partly in cash
and partly in such Common Stock, or such other means which the Committee
determines are consistent with the Plan's purpose and applicable law. Cash
payments shall be made by wire transfer, certified or bank check or personal
check, in each case payable to the order of the Company; provided, however, that
the Company shall not be required to deliver certificates for shares of Common
Stock with respect to which an Option is exercised until the Company has
confirmed the receipt of good and available funds in payment of the purchase
price thereof. Payments in the form of Common Stock shall be valued at the Fair
Market Value on the date prior to the date of exercise. Such payments shall be
made by delivery of stock certificates in negotiable form that are effective to
transfer good and valid title thereto to the Company, free of any liens or
encumbrances. Subject to the terms of the Agreement, the Committee may, in its
sole discretion, at the request of the Holder, deliver upon the exercise of a
Nonqualified Stock Option a combination of shares of Deferred Stock and Common
Stock; provided that, notwithstanding the provisions of Section 8 of the Plan,
such Deferred Stock shall be
5
<PAGE>
fully vested and not subject to forfeiture. A Holder shall have none of the
rights of a Stockholder with respect to the shares subject to the Option until
such shares shall be transferred to the Holder upon the exercise of the Option.
(e) Transferability. Except as may be set forth in the
Agreement, no Stock Option shall be transferable by the Holder other than by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the Holder's lifetime, only by the Holder (or, to the extent
of legal incapacity or incompetency, the Holder's guardian or legal
representative).
(f) Termination by Reason of Death. If a Holder's employment
by the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall thereupon automatically terminate,
except that the portion of such Stock Option that has vested on the date of
death may thereafter be exercised by the legal representative of the estate or
by the legatee of the Holder under the will of the Holder, for a period of one
year (or such other greater or lesser period as the Committee may specify at
grant) from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
Committee at the time of grant and set forth in the Agreement, shall thereupon
automatically terminate, except that the portion of such Stock Option that has
vested on the date of termination may thereafter be exercised by the Holder for
a period of one year (or such other greater or lesser period as the Committee
may specify at the time of grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section
13.3, below, and unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, if a Holder is an employee of the Company
or a Subsidiary at the time of grant and if such Holder's employment by the
Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate, except
that if the Holder's employment is terminated by the Company or a Subsidiary
without cause or due to Normal Retirement, then the portion of such Stock Option
that has vested on the date of termination of employment may be exercised for
the lesser of three months after termination of employment or the balance of
such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the aggregate Fair Market Value (on the date of
grant of the Option) with respect to which Incentive Stock Options become
exercisable for the first time by a Holder during any calendar year (under all
such plans of the Company and its Parent and Subsidiary) shall not exceed
$100,000.
(j) Buyout and Settlement Provisions. The Committee may at any
time, in its sole discretion, offer to repurchase a Stock Option previously
granted, based upon such terms and conditions as the Committee shall establish
and communicate to the Holder at the time that such offer is made.
5.3 Stock Reload Option. If a Holder tenders shares of Common Stock to
pay the exercise price of a Stock Option ("Underlying Option"), and/or arranges
to have a portion of the shares otherwise issuable upon exercise withheld to pay
the applicable withholding taxes, the Holder may receive, at the discretion of
the Committee, a new Stock Reload Option to purchase that number of shares of
Common Stock equal to the number of shares tendered to pay the exercise price
and the withholding taxes (but only if such shares were held by the Holder for
at least six months). Stock Reload Options may be any type of option permitted
under
6
<PAGE>
the Code and will be granted subject to such terms, conditions, restrictions and
limitations as may be determined by the Committee, from time to time. Such Stock
Reload Option shall have an exercise price equal to the Fair Market Value as of
the date of exercise of the Underlying Option. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and shall expire on the date of expiration of the Underlying Option
to which the Reload Option is related.
Section 6. Stock Appreciation Rights.
6.1 Grant and Exercise. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Stock Options under
the Plan as a means of allowing such participants to exercise their Stock
Options without the need to pay the exercise price in cash. In the case of a
Nonqualified Stock Option, a Stock Appreciation Right may be granted either at
or after the time of the grant of such Nonqualified Stock Option. In the case of
an Incentive Stock Option, a Stock Appreciation Right may be granted only at the
time of the grant of such Incentive Stock Option.
6.2 Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as shall be determined by the Committee and set forth in the
Agreement, subject to the limitations, if any, imposed by the Code, with respect
to related Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate
and shall no longer be exercisable upon the termination or exercise of the
related Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of shares of Common Stock equal to
the SAR Value divided by the Fair Market Value on the date the Stock
Appreciation Right is exercised.
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Right shall not affect the number of shares of Common Stock
available under for awards under the Plan. The number of shares available for
awards under the Plan will, however, be reduced by the number of shares of
Common Stock acquirable upon exercise of the Stock Option to which such Stock
Appreciation Right relates.
Section 7. Restricted Stock.
7.1 Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture ("Restriction Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
awards.
7.2 Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded.
7
<PAGE>
During the Restriction Period, certificates representing the Restricted Stock
and any securities constituting Retained Distributions (as defined below) shall
bear a legend to the effect that ownership of the Restricted Stock (and such
Retained Distributions), and the enjoyment of all rights appurtenant thereto,
are subject to the restrictions, terms and conditions provided in the Plan and
the Agreement. Such certificates shall be deposited by the Holder with the
Company, together with stock powers or other instruments of assignment, each
endorsed in blank, which will permit transfer to the Company of all or any
portion of the Restricted Stock and any securities constituting Retained
Distributions that shall be forfeited or that shall not become vested in
accordance with the Plan and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the
Restriction Period with respect to each award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions (i) all
or part of such Restricted Stock shall become vested in accordance with the
terms of the Agreement, subject to Section 10, below, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested,
subject to Section 10, below. Any such Restricted Stock and Retained
Distributions that do not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
Section 8. Deferred Stock.
8.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which, receipt of the shares will be deferred, and all the
other terms and conditions of the awards.
8.2 Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 8.2 (d) below, where
applicable), share certificates shall be issued and delivered
8
<PAGE>
to the Holder, or his legal representative, representing the number equal to the
shares covered by the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred
Stock shall not have any rights of a Stockholder by virtue of such award until
the expiration of the applicable Deferral Period and the issuance and delivery
of the certificates representing such Common Stock. The shares of Common Stock
issuable upon expiration of the Deferral Period shall not be deemed outstanding
by the Company until the expiration of such Deferral Period and the issuance and
delivery of such Common Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all or part of such Deferred
Stock shall become vested in accordance with the terms of the Agreement, subject
to Section 10, below. Any such Deferred Stock that does not vest shall be
forfeited to the Company and the Holder shall not thereafter have any rights
with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event
("Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
Section 9. Other Stock-Based Awards.
Other Stock-Based Awards may be awarded, subject to
limitations under applicable law, that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, shares
of Common Stock, as deemed by the Committee to be consistent with the purposes
of the Plan, including, without limitation, purchase rights, shares of Common
Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company. Each other Stock-Based Award shall
be subject to such terms and conditions as may be determined by the Committee.
Section 10. Accelerated Vesting and Exercisability.
10.1 Non-Approved Transactions. If any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act of 1934, as amended ("Exchange
Act")), is or becomes the "beneficial owner" (as referred in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 61% or more of the combined voting power of the Company's then
outstanding securities in one or more transactions, and the Board does not
authorize or otherwise approve such acquisition, then the vesting periods of any
and all Stock Options and other awards granted and outstanding under the Plan
shall be accelerated and all such Stock Options and awards will immediately and
entirely vest, and the respective holders thereof will have the immediate right
to purchase and/or receive any and all Common Stock subject to such Stock
Options and awards on the terms set forth in this Plan and the respective
agreements respecting such Stock Options and awards.
10.2 Approved Transactions. The Committee may, in the event of an
acquisition of substantially all of the Company's assets or at least 50% of the
combined voting power of the Company's then outstanding securities in one or
more transactions (including by way of merger or reorganization) which has been
approved by the Company's Board of Directors, (i) accelerate the vesting of any
and all Stock Options and
9
<PAGE>
other awards granted and outstanding under the Plan, and (ii) require a Holder
of any award granted under this Plan to relinquish such award to the Company
upon the tender by the Company to Holder of cash in an amount equal to the
Repurchase Value of such award.
Section 11. Amendment and Termination.
The Board may at any time, and from time to time, amend alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made that would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
Section 12. Term of Plan.
12.1 Effective Date. The Plan shall be effective as of the date
approved by the Company's Board of Directors as reflected on the first page of
this Plan, subject to the approval of the Plan by the Company's stockholders
within one year after the Effective Date. Any awards granted under the Plan
prior to such approval shall be effective when made (unless otherwise specified
by the Committee at the time of grant), but shall be conditioned upon, and
subject to, such approval of the Plan by the Company's stockholders and no
awards shall vest or otherwise become free of restrictions prior to such
approval.
12.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time as no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may be made only during the ten
year period following the Effective Date.
Section 13. General Provisions.
13.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms, of the Agreement executed by
the Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 10 days after the Agreement has been delivered to the Holder for
his or her execution.
13.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
13.3 Employees.
(a) Engaging in Competition With the Company; Disclosure of
Confidential Information. If a Holder's employment with the Company or a
Subsidiary is terminated for any reason whatsoever, and within three months
after the date thereof such Holder either (i) accepts employment with any
competitor of, or otherwise engages in competition with, the Company or (ii)
discloses to anyone outside the Company or uses any confidential information or
material of the Company in violation of the Company's policies or any agreement
between the Holder and the Company, the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any award
that was realized or obtained by such Holder at any time during the period
beginning on that date that is six months prior to the date such Holder's
employment with the Company is terminated.
10
<PAGE>
(b) Termination for Cause. The Committee may, if a Holder's
employment with the Company or a Subsidiary is terminated for cause, annul any
award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award that was realized or obtained by such
Holder at any time during the period beginning on that date that is six months
prior to the date such Holder's employment with the Company is terminated.
(c) No Right of Employment. Nothing contained in the Plan or
in any award hereunder shall be deemed to confer upon any Holder who is an
employee of the Company or any Subsidiary any right to continued employment with
the Company or any Subsidiary, nor shall it interfere in any way with the right
of the Company or any Subsidiary to terminate the employment of any Holder who
is an employee at any time.
13.4 Investment Representations; Company Policy. The Committee may
require each person acquiring shares of Common Stock pursuant to a Stock Option
or other award under the Plan to represent to and agree with the Company in
writing that the Holder is acquiring the shares for investment without a view to
distribution thereof. Each person acquiring shares of Common Stock pursuant to a
Stock Option or other award under the Plan shall be required to abide by all
policies of the Company in effect at the time of such acquisition and thereafter
with respect to the ownership and trading of the Company's securities.
13.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of Common Stock and cash otherwise
than under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
13.6 Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee, tax withholding or payment obligations may be settled with
Common Stock, including Common Stock that is part of the award that gives rise
to the withholding requirement. The obligations of the Company under the Plan
shall be conditioned upon such payment or arrangements and the Company or the
Holder's employer (if not the Company) shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the Holder from the Company or any Subsidiary.
13.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions); provided,
however, that all matters relating to or involving corporate law shall be
governed by the laws of the State of Delaware.
13.8 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
13.9 Non-Transferability. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged,
11
<PAGE>
transferred, encumbranced or charged, and any attempt to alienate, sell, assign,
hypothecate, pledge, exchange, transfer, encumber or charge the same shall be
void.
13.10 Applicable Laws. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the Securities Act
of 1933, as amended, and (ii) the rules and regulations of any securities
exchange on which the Common Stock may be listed.
13.11 Conflicts. If any of the terms or provisions of the Plan or an
Agreement conflict with the requirements of Section 422 of the Code, then such
terms or provisions shall be deemed inoperative to the extent they so conflict
with such requirements. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provisions of the Plan, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
13.12 Non-Registered Stock. The shares of Common Stock to be
distributed under this Plan have not been, as of the Effective Date, registered
under the Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Common Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Common Stock on a national securities
exchange or any other trading or quotation system, including the Nasdaq National
Market and Nasdaq SmallCap Market.
12
<PAGE>
Plan Amendments
<TABLE>
<CAPTION>
Initials of
Date Approved Attorney
Date Approved by Stockholders, Sections Description of Effecting
by Board if necessary Amended Amendments Amendment
-------- ------------ ------- ---------- ---------
<S> <C> <C> <C> <C>
</TABLE>
13
<PAGE>
Exhibit 21.1
Subsidiaries of Shochet Holding Corp.
Shochet Securities, Inc., a Florida corporation.
<PAGE>
Exhibit 23.1
The Board of Directors
Shochet Holding Corp.
We consent to the use of our report dated December 6, 1999 with respect to the
consolidated statement of financial condition of Shochet Holding Corp. and
Subsidiary at January 31, 1999 and for each of the years in the two year period
then ended included in the registration statement Form SB-2 and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
December 6, 1999
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JUL-31-1999
<CASH> 493,000
<RECEIVABLES> 323,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 376,000
<PP&E> 725,000
<TOTAL-ASSETS> 3,787,000
<SHORT-TERM> 0
<PAYABLES> 1,848,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 3,000
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 1,936,000
<TOTAL-LIABILITY-AND-EQUITY> 3,787,000
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 396,000
<COMMISSIONS> 3,877,000
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 2,300,000
<INCOME-PRETAX> 175,000
<INCOME-PRE-EXTRAORDINARY> 86,000
<EXTRAORDINARY> (406,000)
<CHANGES> 0
<NET-INCOME> (320,000)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
