AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 2000
REGISTRATION STATEMENT NO. 333-92307
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHOCHET HOLDING CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 6211 59-2651232
STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
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2351 EAST HALLANDALE BEACH BOULEVARD ROGER N. GLADSTONE, CHIEF EXECUTIVE OFFICER
HALLANDALE, FLORIDA 33998 AND CHAIRMAN OF THE BOARD OF DIRECTORS
(954) 454-0304 SHOCHET HOLDING CORP.
(ADDRESS AND TELEPHONE NUMBER OF 2351 EAST HALLANDALE BEACH BOULEVARD
PRINCIPAL EXECUTIVE OFFICES) HALLANDALE, FLORIDA 33998
(954) 454-0304
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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Copies to:
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JOEL D. MAYERSOHN, ESQ. DAVID ALAN MILLER, ESQ.
ANDREW LOCKWOOD, ESQ. PETER M. ZIEMBA, ESQ.
ATLAS PEARLMAN, P.A. GRAUBARD MOLLEN & MILLER
350 EAST LAS OLAS BOULEVARD, SUITE 1700 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
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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
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PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value...................... 1,150,000 $9.00(2) $10,350,000(2) $ 2,732.40
Underwriters' Purchase Option to purchase shares of
Common Stock........................................ 100,000 $.001 $100 $ -- (3)
Common Stock, $.0001 par value issuable upon
exercise of the Underwriters' Purchase Option....... 100,000(4) $9.90(2) $990,000(2) $ 261.36
Total Amount Due.............................................................................................. $ 598.75(5)
</TABLE>
(1) Includes 150,000 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 provision of the underwriters' purchase option.
(5) $2,395.01 has been previously paid in connection with the initial filing of
this registration statement.
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.
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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 DATED FEBRUARY 23, 2000
PRELIMINARY PROSPECTUS
[LOGO]
SHOCHET HOLDING CORP.
1,000,000 SHARES OF COMMON STOCK
------------------------
All 1,000,000 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 150,000 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 7 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.
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PER SHARE TOTAL
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Public offering price........................................................... $ $
Underwriting discounts and commissions.......................................... $ $
----- -----
Proceeds to Shochet Holding Corp................................................ $ $
----- -----
----- -----
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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.
------------------------
, 2000
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[ARTWORK OMITTED]
2
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TABLE OF CONTENTS
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PAGE
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Summary.................................................................................................... 4
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 15
Dividend Policy............................................................................................ 15
Dilution................................................................................................... 16
Capitalization............................................................................................. 17
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 18
Business................................................................................................... 23
Management................................................................................................. 31
Principal Stockholders..................................................................................... 37
Certain Transactions....................................................................................... 38
Description of Securities.................................................................................. 39
Shares Eligible for Future Sale............................................................................ 39
Underwriting............................................................................................... 40
Legal Matters.............................................................................................. 42
Experts.................................................................................................... 42
Where You Can Find Additional Information.................................................................. 42
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, 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 150,000 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 as a holding company, which resulted in the issuance of 1,200,000
shares of our common stock to Research Partners.
3
<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. In January 2000, we commenced offering online
brokerage services through our website, www.shochet.com. Shochet Securities
operates five branch offices, all of which are in Florida. Our revenues have
been derived primarily from commissions from brokerage services. 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.
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 presently include:
o online order entry for equity securities;
o charting;
o access to portfolios.
o real-time posting of positions; and
o real-time and delayed quotes;
Our online services and products will include:
o online order entry for options, mutual funds and fixed income
securities;
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 is 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
assign one of our experienced brokers to service each account on an
as-needed basis.
4
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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
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Securities offered........................ 1,000,000 shares of common stock.
Common stock outstanding prior to the
offering............................... 1,200,000 shares
Common stock to be outstanding after the
offering............................... 2,200,000 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
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5
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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 the sale of 1,000,000 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
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<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31 OCTOBER 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 $5,342,000 $5,157,000
Interest............................... 601,000 584,000 601,000 434,000
Total revenues............................ 7,753,000 6,607,000 6,002,000 5,609,000
Expenses:
Employee compensation and related
expenses............................... 4,224,000 3,461,000 3,278,000 3,105,000
Total expenses............................... 7,653,000 6,485,000 6,151,000 5,622,000
Income (loss) from continuing operations..... 75,000 52,000 (149,000) 7,000
Loss from discontinued operations............ (402,000) -- (495,000) (271,000)
Net (loss) income............................ $ (327,000) $ 52,000 $ (644,000) $ (264,000)
Basic and diluted gain (loss) earnings per
common share:
--from continuing operations........... $ 0.06 $ 0.04 $ (0.13) $ 0.01
--from net (loss) income............... $ (0.27) $ 0.04 $ (0.54) $ (0.22)
Weighted average common shares
outstanding--basic and diluted......... 1,200,000 1,200,000 1,200,000 1,200,000
</TABLE>
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<CAPTION>
JANUARY 31, 1999 OCTOBER 31, 1999
---------------- -------------------------
(UNAUDITED)
AS ADJUSTED
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<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 868,000 $ 813,000 $ 6,493,000
Receivables from brokers and dealers........................ 298,000 179,000 179,000
Goodwill, net............................................... 1,637,000 1,582,000 1,582,000
Total assets................................................ 3,915,000 3,863,000 9,543,000
Total liabilities (excluding Subordinated debt)............. 659,000 751,000 751,000
Subordinated debt........................................... 1,000,000 1,500,000 500,000
Total stockholders' equity.................................. $2,256,000 $ 1,612,000 $ 8,292,000
</TABLE>
6
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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 LITTLE HISTORY OPERATING OUR ONLINE BUSINESS UPON WHICH YOU CAN EVALUATE
OUR PERFORMANCE.
We began 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.
WE MAY NOT BE ABLE TO OFFSET OUR ACCUMULATED DEFICIT AND WE HAVE EXPERIENCED
LOSSES.
We had an accumulated deficit of $658,000 as of October 31, 1999, most of
which is a result of a nonrecurring loss due to discontinued operations. We may
not realize sufficient net income in the future to offset our accumulated
deficit. We lost money in fiscal 1999 and expect to lose money in fiscal 2000
and may not become profitable.
FAILURE OF OUR SYSTEMS COULD HARM OUR ABILITY TO EXECUTE TRANSACTIONS OR PROCESS
ORDERS WHICH MAY RESULT IN LOSSES FOR OUR CLIENTS AND 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 events beyond our control, such as system failures by our
clearing broker, our telephone company and other third party providers. System
failures or service interruptions also could be caused by a breakdown of our own
internal systems, which, for example, could be caused by high levels of client
use. Any significant failure of our systems could create transaction delays for
our customers because we may not be able to process the resulting volume of
telephone orders. Systems failures or service interruptions could result in:
o client inability to satisfy margin obligations;
o substantial losses for our clients;
o loss of client accounts;
o decreased commission revenues; or
o harm to our reputation.
7
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OUR INABILITY TO OBTAIN ACCURATE INFORMATION, INCLUDING REAL-TIME QUOTES, TRADE
INFORMATION FROM OUR TRANSACTION EXECUTION SYSTEM AND OTHER FINANCIAL
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, four of our seven 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 55% 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.
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 2,200,000 shares of our
common stock outstanding, of which 1,200,000 shares, or 55%, will be held by
Research Partners.
8
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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 or our employees to disciplinary or other regulatory or legal actions. We
could also become subject to civil lawsuits in the future based on
noncompliance.
In August 1997, while serving in managerial capacities for GKN Securities,
another subsidiary of Research Partners, Roger Gladstone, our chief executive
officer, and David Greenberg, our president and chief operating officer, agreed
to a settlement with NASDR resolving its investigation concerning alleged
excessive markups on warrants of seven companies GKN Securities underwrote and
for which it was a market maker during the period from December 1993 through
April 1996. Mr. Gladstone and Mr. Greenberg entered into the settlement without
admitting or denying NASDR's allegations. Mr. Gladstone consented to a fine of
$50,000 and a suspension from association with any NASD member firm for
30 days, and Mr. Greenberg consented to a $15,000 fine and a ten-day suspension
from any supervisory position with any member of the NASD. We cannot assure you
that NASDR will not, in the future, undertake additional investigations of us or
any of our personnel, including management.
In August 1999 Shochet Securities was found jointly and severally liable
with respect to an arbitration claim by a former customer against Shochet
Securities, a current employee and a former employee regarding unauthorized
execution of transactions in the former customer's account and improper
disbursements from the account during the period from June 1995 through November
1996. The former customer was awarded approximately $211,000 in compensatory and
punitive damages, interest and costs. In November 1999, Shochet Securities
agreed to pay $200,000 to settle the former customer's claim for attorney's
fees. Research Partners paid an aggregate of $411,000 on behalf of Shochet
Securities. Research Partners believes it has a claim against the former owners
of Shochet Securities for indemnification of the amounts it has paid since it
believes that most of the activity upon which the former customer's complaint
was based occurred prior to Research Partners' acquisition of Shochet
Securities. If Research Partners collects under this
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indemnification, it would reduce the amount Shochet Securities would be required
to reimburse Research Partners.
In January 2000, the Division of Securities and Investor Protection of the
Department of Banking of the State of Florida notified us that, based on the
circumstances described in the preceding paragraph, it believed that Shochet
Securities, the current employee and a former member of our management, had
violated provisions of the Florida Securities and Investor Protection Act.
Although the Division of Securities and Investor Protection proposed a
settlement to us at the same time as we were informed of its interest in this
matter, we intend to explore our options to defend or otherwise resolve this
matter. There can be no assurance that this matter will be resolved in a manner
favorable to us.
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 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
10
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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.
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 ROGER GLADSTONE OR DAVID GREENBERG 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 and David Greenberg, our president, chief operating officer and director.
Each of these executives has an employment agreement which expires one year from
the date of this prospectus, and neither of them is obligated to remain employed
by us after the expiration of his agreement. We have no key man insurance on
either of Gladstone or Mr. Greenberg. The loss of either of these executives
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.
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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 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, compared to those of our
competitors, 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 HINDER OUR ABILITY
TO DELIVER OUR ONLINE SERVICES, 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
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adopted, existing laws may be applied to the Internet. New and existing laws may
cover issues that include:
o sales and other taxes;
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. Some of our
competitors operate branch offices and online brokerage businesses. 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 15% OF THE PROCEEDS OF THIS OFFERING TO REPAY DEBT TO RESEARCH
PARTNERS AND HAVE BROAD DISCRETION REGARDING THE APPLICATION OF ALL OF THE
PROCEEDS.
We have allocated approximately $1,000,000, or 15%, of the estimated net
proceeds of this offering to repay debt owed to Research Partners and will not
have these funds for future operations. You may not agree with our application
of any of the proceeds, over which we will have broad discretion.
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<PAGE>
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.
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.
INVESTORS IN THIS OFFERING WILL INCUR SUBSTANTIAL IMMEDIATE DILUTION.
The public offering price of our common stock is substantially higher than
the net tangible book value per share of our common stock immediately after this
offering. Therefore, if you purchase our common stock in this offering, you will
incur immediate dilution of approximately $4.97 per share or 62% per share from
the price you will pay in the offering.
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.
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<PAGE>
USE OF PROCEEDS
We estimate that we will receive proceeds from the sale of our common stock
in this offering of approximately $6,680,000, or approximately $7,736,000 if the
underwriters exercise their over-allotment option in full, after deducting
underwriting discounts and commissions and other expenses payable by us
estimated at $1,320,000, or approximately $1,464,000 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............................................... $3,000,000 45%
Repayment of debt owed Research Partners................................ 1,000,000 15
Branch office expansion, hiring of personnel............................ 700,000 10
Technology improvements................................................. 700,000 10
Working capital and general corporate purposes.......................... 1,280,000 20
---------- ------
Total................................................................ $6,680,000 100%
---------- ------
---------- ------
</TABLE>
We intend to focus our advertising and promotional efforts on radio,
television and newspaper campaigns. In addition, we plan to sponsor seminars and
educational programs on topics such as estate planning and tax savings
workshops. We will advertise our business on our website and will seek ventures
with other synergistic businesses with a presence on the Internet to provide
links to our site. We estimate that we will need to hire at least four
additional personnel to accomplish the above.
Technological upgrades will include additional software and programming for
our website and additional leasing and purchasing of hardware, which may include
servers, workstations, networking equipment and telecommunications equipment.
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 our capital requirements for at
least 24 months from the date of this prospectus. Any funds realized from the
underwriters' exercise of their over-allotment option will be used for working
capital.
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.
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DILUTION
At October 31, 1999, after giving effect to our reorganization into a
holding company structure in November 1999, we had a pro forma net tangible book
value of ($22,000) or ($0.02) 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 October 31, 1999, after giving pro forma effect to the sale of 1,000,000
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 October 31, 1999 would have
been approximately $6.7 million, or approximately $3.03 per share of common
stock. The dilution is $4.97 per share, or approximately 62%, less than the
price you are paying per share in this offering. The following table illustrates
this dilution:
<TABLE>
<S> <C>
Assumed public offering price per share............................................. $8.00
-----
Net tangible book value per share of common stock as of
October 31, 1999........................................................... (0.02)
Increase per share attributable to sale of common stock in
this offering.............................................................. 3.05
-----
Pro forma net tangible book value per share of common stock
after this offering.............................................................. 3.03
-----
Dilution per share of common stock to investors in this offering.................... $4.97
-----
-----
</TABLE>
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CAPITALIZATION
The following table sets forth our capitalization. The Actual column shows
our capitalization as of October 31, 1999 after giving effect to our
reorganization into a holding company structure in November 1999. The Pro forma
column shows our capitalization on October 31, 1999, on a pro forma basis
adjusted to reflect our reorganization, the issuance of 1,000,000 shares of
common stock in this offering at an assumed public offering price of $8.00 per
share and the repayment of $1,000,000 of debt.
<TABLE>
<CAPTION>
OCTOBER 31, 1999
-----------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
Long term borrowings:
Subordinated debt............................................................. $1,500,000 $ 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); 2,200,000 shares issued and outstanding
(pro forma)................................................................. -- --
Additional paid-in capital.................................................... 2,270,000 8,950,000
Accumulated deficit........................................................... (658,000) (658,000)
---------- ----------
Total stockholders' equity................................................. 1,612,000 8,292,000
---------- ----------
Total capitalization....................................................... $3,112,000 $8,792,000
---------- ----------
---------- ----------
</TABLE>
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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 nine-month period ended October 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 in July 1999 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 nine-month period ended October 31, 1999
are not necessarily indicative of the expected results for the entire fiscal
year.
RESULTS OF OPERATIONS
NINE MONTHS ENDED OCTOBER 31, 1999 VS. SIX MONTHS ENDED OCTOBER 31, 1998
Net loss for the nine months ended October 31, 1999 was $644,000, as
compared to $264,000 for the nine months ended October 31, 1998. Loss from
continuing operations for the nine months ended October 31, 1999 was $149,000,
as compared to income of $7,000 for the same period in fiscal 1999. Basic and
diluted loss per share of common stock was $0.54 for the first nine months of
fiscal 2000, compared to $0.22 for the comparable period of fiscal 1999. Basic
and diluted loss from continuing operations per common share was $0.13 for the
nine-month period in fiscal 2000, as compared to earnings of $0.01 per common
share for the same period in fiscal 1999.
REVENUES
Total revenues increased by 7% to $6,002,000 for the first nine months of
fiscal 2000, as a result of increases in all revenue categories.
Commission revenues increased by 4%, or $185,000, in the first nine months
of fiscal 2000. This was due to a 33% increase in trade volume, partially offset
by a 22% decrease in average commissions per ticket.
Interest revenues increased 38%, or $167,000, in fiscal 2000 as a result of
increased interest on customer balances held at our clearing firm.
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<PAGE>
Other revenues increased 228%, or $41,000 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 nine months in fiscal 2000 were $6,151,000, a
9% increase from $5,622,000 for 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 6% or $173,000. 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 8%, or $63,000. This
increase is consistent with our increase in trade volume.
Occupancy and equipment expense increased 5%, or $29,000, primarily due to
costs associated with technological improvements in other branches.
Communications expenses remained consistent between fiscal 1999 and fiscal
2000.
Management fee expense of $171,000 was consistent with the same period in
the prior year. We pay GKN Securities a management fee for services rendered to
us in connection with its provision of accounting, legal, compliance and
executive management services.
Business development expenses decreased by 22%, or $19,000, due to
decreased promotional activities in continuing business lines.
Professional fees increased 26%, or $18,000, primarily due to consulting
services in connection with technological and structural improvements throughout
several branch offices.
Other expenses increased 76%, or $267,000 primarily due to a reserve for
contingencies recorded in the third quarter of fiscal 2000 related to an
arbitration claim by a former customer against Shochet Securities.
INCOME TAXES
For the nine months ended October 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 $206,000 for the nine months ended October 31, 1999. The tax benefit
recognized for the nine months ended October 31, 1998 resulted primarily from
the loss from discontinued operations, partially offset by the gain from
continuing operations.
DISCONTINUED OPERATIONS
On July 31, 1999, management discontinued the operations of the on-site day
trading segment of our business. Losses from the discontinuation of this segment
were estimated and recorded at this date and are included in loss from
discontinued operations for the nine
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months ended October 31, 1999 of $495,000, which compares with losses of
$271,000 for the nine months ended October 31, 1998. All equipment and contracts
utilized by this segment are being renegotiated to be used by other branches of
our company, so that management does not expect the costs of disposal to
generate additional losses.
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.
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.
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Management fee expense incurred in connection with accounting, legal,
compliance and executive management services provided by GKN Securities 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 fiscal
periods presented.
LIQUIDITY AND CAPITAL RESOURCES
Approximately 33% of our assets at October 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 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 the funds generated by
this offering will be sufficent to fund
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<PAGE>
our capital requirements for at least 24 months from the date of this
prospectus. 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 to accurately process
dates after December 31, 1999. This program consisted of a series of steps to
identify all critical and non-critical systems, determine Year 2000 compliance
through inquiries and testing and to change non-compliant systems. In addition,
we contacted all of our vendors regarding this issue, and received assurances
from all of them that they did not anticipate any Year 2000 problems. Our
program was substantially in place as of December 1, 1999, and, to our
knowledge, has prevented any problems associated with the Year 2000 computer
issue. Our entire program cost less than $200,000. We do not foresee the
occurrence of any Year 2000 problems in the future.
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.
In August 1999 Shochet Securities was found jointly and severally liable
with respect to an arbitration claim by a former customer against Shochet
Securities, a current employee and a former employee regarding unauthorized
execution of transactions in the former customer's account and improper
disbursements from the account during the period from June 1995 through November
1996. The former customer was awarded approximately $211,000 in compensatory and
punitive damages, interest and costs. In November 1999, Shochet Securities
agreed to pay $200,000 to settle the former customer's claim for attorney's
fees. Research Partners paid an aggregate of $411,000 on behalf of Shochet
Securities. Research Partners believes it has a claim against the former owners
of Shochet Securities for indemnification of the amounts it has paid since it
believes that most of the activity upon which the former customer's complaint
was based occurred prior to Research Partners' acquisition of Shochet
Securities. If Research Partners collects under this indemnification, it would
reduce the amount Shochet Securities would be required to reimburse Research
Partners.
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BUSINESS
INTRODUCTION
We provide a range of financial services through our wholly-owned operating
subsidiary, Shochet Securities, including full service discount brokerage and
online brokerage services. We provide our clients traditional brokerage services
in equities and fixed income securities options, annuities and mutual funds.
Shochet Securities operates five branch offices, all of which are in Florida:
Hallandale, Miami Beach, South Miami, Tamarac and Delray Beach. Our revenues
have been derived primarily from commissions from brokerage services.
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. Research
Partners had acquired all of the oustanding common stock of Shochet Securities
in November 1995. 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. Research Partners is currently our sole stockholder and upon
the completion of this offering, it will own 55% 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. 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.
o Emphasize the role of the broker in our online service offerings.
Each of our online customers is 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
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.
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.
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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, 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
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<PAGE>
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 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.
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 enable customers to:
o enter orders to sell or buy equities;
o review the securities positions in their portfolios with real-time
posting of positions;
o determine their buying power and margin balances (if applicable);
o obtain real-time and delayed stock quotes.
Our website offers 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.
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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. In addition, we plan to
sponsor seminars and educational programs on topics such as estate planning and
tax savings workshops.
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 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
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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.
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.
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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.
RELATIONSHIP WITH RESEARCH PARTNERS
Four of our seven directors 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 have entered into an intercompany services agreement with Research
Partners and its subsidiaries. Its material terms are summarized below. This
agreement was not negotiated on an arms'-length basis, but we believe its terms
are 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 permits 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, 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.
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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
full service and discount brokerage firms that also utilize the Internet to
transact retail brokerage business, including Merrill Lynch & Co., Charles
Schwab, TD Waterhouse Securities, Morgan Stanley Dean Witter & Co, Quick and
Reilly and Prudential Securities. Additionally, we face competition from
Internet-based firms such as Datek Securities Corp., Ameritrade and E*Trade,
Inc. Other sources of competition, such as commercial banks, mutual funds, 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. While we do not expect to provide the lowest
commissions available, we expect to compete on the basis of quality customer
service and availability of professional advice and service.
Our commissions for traditional, non-Internet brokerage transactions are
generally lower than commissions charged for the same transactions charged by
full service firms.
A wide range of prices, services and products exist among firms that are
primarily Internet-based brokerage operations. Many firms, such as Datek,
Ameritrade and E*Trade feature listed commission prices lower than ours. Unlike
us, however, these firms do not assign a permanent full service broker ready to
assist the client when needed.
Other firms such as Muriel Siebert, Quick & Reilly and Merrill Lynch Direct
feature branch office networks similar to ours and, like us, assign brokers to
their customers' online accounts. However, when an Internet client of these
firms trades with his or her assigned broker, the customer is charged the same
listed commission as a non-Internet client. When one of our online clients uses
his or her assigned broker, on the other hand, the client is charged a
commission discounted from commissions charged to our non-Internet clients.
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
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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.
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 December 31, 1999
Shochet Securities was required to maintain minimum net capital of $100,000 and
had total net capital of approximately $208,000, which was $108,000 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 January 1, 2000, we employed 73 people, 40 of which are registered
representatives, 25 of which are support staff, and 8 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 office)..................... 5,000 February 2006 $129,000
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>
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We have not yet commenced active operations in our Boca Raton office. We
intend to open this office during the second quarter of calendar 2000.
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.
In August 1999 Shochet Securities was found jointly and severally liable
with respect to an arbitration claim by a former customer against Shochet
Securities, a current employee and a former employee regarding unauthorized
execution of transactions in the former customer's account and improper
disbursements from the account during the period from June 1995 through November
1996. The former customer was awarded approximately $211,000 in compensatory and
punitive damages, interest and costs. In November 1999, Shochet Securities
agreed to pay $200,000 to settle the former customer's claim for attorney's
fees. Research Partners paid an aggregate of $411,000 on behalf of Shochet
Securities. Research Partners believes it has a claim against the former owners
of Shochet Securities for indemnification of the amounts it has paid since it
believes that most of the activity upon which the former customer's complaint
was based occurred prior to Research Partners' acquisition of Shochet
Securities. If Research Partners collects under this indemnification, it would
reduce the amount Shochet Securities would be required to reimburse Research
Partners.
In January 2000, the Division of Securities and Investor Protection of the
Department of Banking of the State of Florida notified us that, based on the
circumstances described in the preceding paragraph, it believed that Shochet
Securities, the current employee and a former member of our management, had
violated provisions of the Florida Securities and Investor Protection Act.
Although the Division of Securities and Investor Protection proposed a
settlement to us at the same time as we were informed of its interest in this
matter, we intend to explore our options to defend or otherwise resolve this
matter. There can be no assurance that this matter will be resolved in a manner
favorable to us.
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
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
John P. Margaritis................................ Director
John P. Reynolds.................................. 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
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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 also serves as a director of GKN
Securities, 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.
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 in November 1995. He has served as president of Shochet
Securities since June 1999. Mr. Greenberg was employed by GKN Securities from
1991 to July 1999, initially as director of Compliance then as branch manager of
GKN Securities' New York office. In January 1996, he became senior vice
president and director of Operations and Risk Management, in which capacity he
served until January 2000. From 1985 to 1986, 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, became our executive vice president-online
products in November 1999 and has served 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 was 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
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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 & 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.
John P. Margaritis, 50 years old, has served as one of our directors since
February 2000 and was president and chief executive officer of Research Partners
since December 1999 and as a director of Research Partners since August 1996. He
is also a director of GKN Securities and Early Bird Capital Inc., subsidiaries
of Research Partners. From September 1998 to December 1999, Mr. Margaritis
served as president and chief executive officer of The Hawthorn Group New York,
an international public relations firm. From June 1997 until September 1998, Mr.
Margaritis served as chief executive officer of Margaritis & Associates, a
public relations consulting firm. Mr. Margaritis was the president and chief
executive officer of Ogilvy Adams & Rinehart (currently known as Ogilvy Public
Relations Worldwide), a public relations firm, from January 1994 through
February 1997, and was the president and chief operating officer from January
1992 to January 1994. From July 1988 until January 1992, Mr. Margaritis was
chairman and chief executive officer of Ogilvy & Mathers Public Relations. Mr.
Margaritis is a director and member of the executive committee of the Arthur
Ashe Institution for Urban Health and Research! America, a non-profit
organization to promote government support of medical research, and a member of
the President's Advisory Counsel for the Museum of Television and Radio. Mr.
Margaritis is also a trustee of Washington and Jefferson College. Mr. Margaritis
received his B.A. from Washington and Jefferson College and received his M.A.
from the New School for Social Research.
John P. Reynolds, 55 years old, has served as one of our directors since
February 2000. Mr. Reynolds currently serves as senior manager of technology
operations at Econotek Communications, LLC, a competitive local exchange
carrier, which position he has held since April 1999. From December 1995 to
April 1999. Mr. Reynolds owned an information technology consulting firm. From
1988 to November 1995, Mr. Reynolds served as director, of facilities and
information technology and was limited partner of Mabon Nugent, a fixed income
trading firm. From 1982 to October 1995, Mr. Reynolds served as senior national
account manager in the brokerage-securities industry with AT&T. Mr. Reynolds has
served as chairman of the Security Industry Association's Telecommunications and
Information Management Committee and has served as a member
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of that organization and the Wall Street Telecommunications Committee since
1989. Mr. Reynolds received his B.B.A. from Manhattan College and has completed
coursework at the Massachusetts Institute of Technology.
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.
NASDR MATTER
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 for seven
companies underwritten by GKN Securities and for which it made a market during
the period from December 1993 through April 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 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
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<PAGE>
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.
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EXECUTIVE COMPENSATION
None of our current officers, including Roger Gladstone, who has served as
our chief executive officer since November 1999, received in excess of $100,000
compensation from us during any of the past three fiscal years. L. Donald
Yarkin, who served as our chief executive officer until November 1999, 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 24, 2000 and expire between March 12, 2007 and June 29, 2009.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Roger Gladstone,
David Greenberg and Howard Landers. The term of each agreement commences on the
effective date of this prospectus and expires 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 provides 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 provides for an annual base salary of
$120,000. Mr. Greenberg's agreement provides for an annual base salary of
$150,000. All three agreements provide for a bonus as may be awarded by our
board of directors, in its discretion. Each of the agreements gives the
executive the right to terminate his employment in the event of a change in
control of our company, in which case the executive will be entitled to
immediate vesting of his options and continued payment of his salary and
benefits through the expiration of the then current term of his employment
agreement. Mr. Gladstone and Mr. Greenberg will also be entitled to a minimum
bonus of $120,000 and $150,000, respectively, in the event of termination by
them because of a change in control. Each of Mr. Gladstones' and Mr. Greenberg's
agreement also contains a prohibition on competing with us for one year after
termination of employment for any reason. Mr. Gladstone's agreement provides
that he devote substantially all of his business time to us; each of Mr.
Greenberg's and Mr. Landers' agreements provides for full-time services.
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 incentive stock options are outstanding under the plan, all
of which were issued under the employment agreements described above. 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).
36
<PAGE>
The 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% 55%
One State Street Plaza
New York, New York 10004
Roger N. Gladstone ................................................... -0- -0- -0-
33 Plaza Real, Suite 245
Boca Raton, Florida 33434
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
John P. Margaritis ................................................... -0- -0- -0-
One State Street Plaza
New York New York 10004............................................
John P. Reynolds ..................................................... -0- -0- -0-
352 Seventh Avenue
New York New York 10001............................................
All officers and directors as a group ................................ -0- -0- -0-
(7 persons)
</TABLE>
37
<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. We believe that the terms of each affiliated
transaction were no less favorable then those that could have been obtained on
an arms-length basis from an unaffiliated party.
All future material transactions with any of our officers, directors or 5%
stockholders will be made or entered into on terms no less favorable to any
party than those that can be obtained from unaffiliated third parties. Any
future affiliated transactions must be approved by our independent directors,
who do not have an interest in the transaction and who have access, at our
expense, to their own legal counsel.
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 Shochet Securities in
the form of 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.
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. These services included accounting, legal, compliance and executive
management services. In fiscal 1998, this amount was $228,000. We have paid an
aggregate of $201,000 for the nine months ended October 31, 1999, which included
$30,000 paid for services to discontinued operations no longer rendered.
We have entered into an intercompany services agreement with Research
Partners under which Research Partners provides us with services on an as-needed
basis on a cost reimbursement basis. These services include: accounting and
bookkeeping; financial planning; financial reporting; internal audit; legal;
computer management; records management; payroll management; purchasing
assistance; regulatory compliance; marketing; human resources management and
compliance; tax reporting and filing; office services and use of office space.
38
<PAGE>
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 2,200,000 shares of common stock issued and outstanding.
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. The issuance of shares of preferred stock with voting or
conversion rights may adversely affect the voting power of holders of our common
stock. Any future issuance of shares of preferred stock will be approved by a
majority of our independent directors who do not have an interest in the
transaction and who have access, at our expense, to their own legal counsel.
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 2,200,000
shares of common stock outstanding. All 1,000,000 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
39
<PAGE>
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 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 1,000,000 shares of common stock for resale to the
public in connection with our initial public offering, as follows:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ---------------------------------------------------------- ----------------
<S> <C>
Gaines, Berland Inc....................................... 500,000
Shochet Securities, Inc................................... 500,000
----------
Total.................................................. 1,000,000
----------
----------
</TABLE>
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
40
<PAGE>
discounts and the non-accountable expenses allowance, up to an aggregate of
150,000 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 $100 the underwriters' purchase option,
consisting of the right to purchase up to an aggregate of 100,000 shares. The
underwriters' purchase option will be exercisable at any time beginning one year
after the date of this prospectus at a price of $ per share (110% of the
initial public offering price of $ per share) and may not be sold,
transferred, assigned or hypothecated for a period of one year from the date of
this prospectus except to officers of the underwriters and members of the
selling group and/or their officers. 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.
One of the underwriters, Shochet Securities, is our wholly-owned
subsidiary. A possible selected dealer in this offering, GKN Securities, is also
affiliated with us since Research Partners, the owner of all of our outstanding
stock prior to this offering, is the owner of all of the outstanding stock of
GKN Securities.
The rules of the National Association of Securities Dealers require that
when its members, such as Shochet Securities and possibly, GKN 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
41
<PAGE>
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;
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, 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 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
<TABLE>
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Financial Condition as of January 31, 1999 and October 31, 1999 (Unaudited)..... F-3
Consolidated Statements of Operations for the years ended January 31, 1999 and 1998 and the nine months
ended October 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 nine months ended October 31, 1999 (Unaudited).................................................. F-5
Consolidated Statements of Cash Flows for the years ended January 31, 1999 and 1998 and for the nine months
ended October 31, 1999 and 1998 (Unaudited)............................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
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, OCTOBER 31,
1999 1999
----------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................ $ 868,000 $ 813,000
Receivable from brokers and dealers.............................................. 298,000 179,000
Securities owned, at market value................................................ 119,000 283,000
Office furniture, equipment and leasehold improvements, net...................... 646,000 710,000
Goodwill, net.................................................................... 1,637,000 1,582,000
Income taxes receivable.......................................................... 106,000 15,000
Other assets..................................................................... 241,000 281,000
----------- ----------
Total assets..................................................................... $ 3,915,000 $3,863,000
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Securities sold, not yet purchased, at market value........................... $ 4,000 $ 8,000
Commissions payable........................................................... 276,000 173,000
Payable to related parties.................................................... 77,000 63,000
Accrued expenses and other liabilities........................................ 302,000 507,000
----------- ----------
659,000 751,000
Liability subordinated to the claims of general creditors..................... 1,000,000 1,500,000
----------- ----------
Total liabilities............................................................. 1,659,000 2,251,000
----------- ----------
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) (658,000)
----------- ----------
Total stockholder's equity.................................................... 2,256,000 1,612,000
----------- ----------
Total liabilities and stockholder's equity....................................... $ 3,915,000 $3,863,000
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Commissions.................................. $7,127,000 $5,934,000 $5,342,000 $5,157,000
Interest..................................... 601,000 584,000 601,000 434,000
Other........................................ 25,000 89,000 59,000 18,000
---------- ---------- ---------- ----------
Total revenues.................................. 7,753,000 6,607,000 6,002,000 5,609,000
---------- ---------- ---------- ----------
Expenses:
Compensation and benefits.................... 4,224,000 3,461,000 3,278,000 3,105,000
Brokerage, clearing and exchange fees........ 1,129,000 1,072,000 887,000 824,000
Occupancy and equipment...................... 716,000 596,000 565,000 536,000
Communications............................... 660,000 536,000 475,000 477,000
Management fee............................... 228,000 228,000 171,000 171,000
Business development......................... 107,000 109,000 69,000 88,000
Professional fees............................ 95,000 69,000 86,000 68,000
Other........................................ 494,000 414,000 620,000 353,000
---------- ---------- ---------- ----------
Total expenses.................................. 7,653,000 6,485,000 6,151,000 5,622,000
---------- ---------- ---------- ----------
Income (loss) before income taxes............... 100,000 122,000 (149,000) (13,000)
Income tax (provision) benefit.................. (25,000) (70,000) -- 20,000
---------- ---------- ---------- ----------
Income (loss) from continuing operations........ 75,000 52,000 (149,000) 7,000
Discontinued operations:
Loss from operations of the discontinued
On-site Day Trading segment, net of income
tax benefit of $132,000, $0, $0 and
$82,000, respectively..................... (402,000) -- (495,000) (271,000)
---------- ---------- ---------- ----------
Net (loss) income............................... $ (327,000) $ 52,000 $ (644,000) $ (264,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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 (loss) from continuing operations..... $ 0.06 $ 0.04 $ (0.13) $ 0.01
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss from discontinued operations............ $ (0.33) $ -- $ (0.41) $ (0.23)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net (loss) income............................ $ (0.27) $ 0.04 $ (0.54) $ (0.22)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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 ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT 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)................. -- -- -- (644,000) (644,000)
--------- ------- ---------- ----------- ----------
Balance at October 31, 1999
(unaudited)....................... 1,200,000 $ -- $2,270,000 $ (658,000) $1,612,000
--------- ------- ---------- ----------- ----------
--------- ------- ---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------ -----------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net (loss) income..................................... $ (327,000) $ 52,000 $(644,000) $ (264,000)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization...................... 212,000 172,000 193,000 151,000
Deferred taxes..................................... 2,000 8,000 -- (7,000)
---------- ---------- --------- ----------
(113,000) 232,000 (451,000) (120,000)
Decrease (increase) in operating assets:
Receivable from brokers and dealers................ (298,000) 30,000 119,000 (445,000)
Securities owned, at market value.................. 78,000 144,000 (164,000) 41,000
Income taxes receivable............................ (106,000) -- 91,000 (95,000)
Other assets....................................... 12,000 (16,000) (77,000) 48,000
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased................. 4,000 -- 4,000 19,000
Commissions payable................................ 116,000 (64,000) (103,000) 58,000
Payable to brokers and dealers..................... (40,000) 40,000 -- (40,000)
Payable to related parties......................... 47,000 (244,000) (14,000) 209,000
Income taxes payable............................... (64,000) 42,000 -- (64,000)
Accrued expenses and other liabilities............. 127,000 (25,000) 205,000 122,000
---------- ---------- --------- ----------
Net cash (used in) provided by operating activities..... (237,000) 139,000 (390,000) (267,000)
---------- ---------- --------- ----------
Investing activities:
Purchase of office furniture, equipment and leasehold
improvements....................................... (414,000) (40,000) (165,000) (372,000)
Goodwill resulting from acquisition................... (158,000) -- -- (158,000)
---------- ---------- --------- ----------
Net cash used in investing activities................... (572,000) (40,000) (165,000) (530,000)
---------- ---------- --------- ----------
Financing activities:
Issuance of subordinated loan......................... -- -- 500,000 --
Capital contribution.................................. 630,000 250,000 -- 380,000
---------- ---------- --------- ----------
Net cash provided by financing activities............... 630,000 250,000 500,000 380,000
---------- ---------- --------- ----------
Net (decrease) increase in cash and cash equivalents.... (179,000) 349,000 (55,000) (417,000)
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 $ 813,000 $ 630,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Cash paid for:
Interest........................................... $ 100,000 $ 266,000 $ 100,000 $ 80,000
---------- ---------- --------- ----------
---------- ---------- --------- ----------
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 NINE-MONTH PERIODS
ENDED OCTOBER 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.
F-7
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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 $288,000 at October 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 $273,000 at
October 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.
F-8
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 8.
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 in
April 1996. 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 $103,000 for each of
the nine month periods ended October 31,1999 and 1998. In August 1999,
the Company entered into an additional subordinated loan agreement,
which qualifies for net capital purposes, with Research Partners for
$500,000. The rate of interest on the loan is 8%. The total interest
expense
F-9
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
3. RELATED PARTY TRANSACTIONS--(CONTINUED)
included in other expenses was $7,000 for the nine months ended October
31, 1999.
(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 $201,000
and $211,000 for the nine months ended October 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 $40,000 for the nine months ended
October 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 $13,000 and $20,000 for the nine months ended
October 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. OFFICE FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Office furniture, equipment and leasehold improvements, net consist of the
following:
<TABLE>
<CAPTION>
JANUARY
31, OCTOBER 31,
1999 1999
---------- -----------
<S> <C> <C>
Office furniture.................................................................... $ 178,000 $ 178,000
Equipment........................................................................... 118,000 250,000
Computer software................................................................... -- 33,000
Leasehold improvements.............................................................. 535,000 537,000
---------- ---------
831,000 998,000
Accumulated depreciation and amortization........................................... (185,000) (288,000)
---------- ---------
$ 646,000 $ 710,000
---------- ---------
---------- ---------
</TABLE>
5. 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
F-10
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
adjustments. At January 31, 1999, future minimum rental commitments under such
leases were as follows for the fiscal years ending January 31:
<TABLE>
<CAPTION>
<S> <C>
2000...................................................................... $ 315,000
2001...................................................................... 279,000
2002...................................................................... 265,000
2003...................................................................... 247,000
2004...................................................................... 176,000
Thereafter................................................................ 254,000
----------
$1,536,000
----------
----------
</TABLE>
Total rent expense was $434,000 and $298,000 for the years ended January
31, 1999 and 1998, respectively, and $309,000 and $326,000 for the nine months
ended October 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.
6. 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 $23,000 and $22,000 for nine month periods ended October 31, 1999 and 1998,
respectively.
F-11
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
7. INCOME TAXES
The provision for income tax expense relating to continuing operations is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal..................................................... $21,000 $53,000 $ -- $16,000
State and local............................................. 4,000 9,000 -- 3,000
------- ------- ------- -------
25,000 62,000 -- 19,000
------- ------- ------- -------
Deferred:
Federal..................................................... -- 7,000 -- 1,000
State and local............................................. -- 1,000 -- --
------- ------- ------- -------
-- 8,000 -- 1,000
------- ------- ------- -------
$25,000 $70,000 $ -- $20,000
------- ------- ------- -------
------- ------- ------- -------
</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 October 31, 1999 are comprised
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31, 1999 OCTOBER 31, 1999
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
Gross deferred tax asset:
Depreciation and amortization........................................ $ 28,000 $ 35,000
Deferred rent........................................................ 17,000 16,000
Operating loss carryforward.......................................... -- 199,000
Other................................................................ 3,000 4,000
---------- ---------
Total gross deferred tax asset.................................... 48,000 254,000
Less: valuation allowance......................................... (10,000) (216,000)
---------- ---------
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-12
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
7. INCOME TAXES--(CONTINUED)
The effective tax rates reflected in the consolidated financial statements
differ from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
---------------------------------------------- -----------------
1999 1998 1999 1998
---------------------- --------------------- ------- -------
(UNAUDITED)
<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 -- 15.2
Change in valuation allowance and other.................... (11.9) 18.1 (34.0) 104.6
-------- ------- ------- -------
Effective tax rate......................................... 24.6% 57.4% --% 153.8%
-------- ------- ------- -------
-------- ------- ------- -------
</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.
8. 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
F-13
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
8. STOCK COMPENSATION PLAN--(CONTINUED)
Company would have reported the following net (loss) income and earnings per
share ("EPS"):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
------------------- ---------------------
1999 1998 1999 1998
--------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net (loss) income...................... As reported $(327,000) $52,000 $(644,000) $(264,000)
Pro forma
$(413,000) $25,000 $(691,000) $(279,000)
Basic EPS.............................. As reported $ (0.27) $ 0.04 $ (0.54) $ (0.22)
Pro forma $ (0.34) $ 0.02 $ (0.58) $ (0.23)
Diluted EPS............................ As reported $ (0.27) $ 0.04 $ (0.54) $ (0.22)
Pro forma $ (0.34) $ 0.02 $ (0.58) $ (0.23)
</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.
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, OCTOBER 31,
------------------------------------------ ------------------------------------------
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
STOCK OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 28,000 $ 6.00 -- $ -- 126,000 $ 3.82 28,000 $ 6.00
Granted.................. 101,000 3.28 29,000 6.00 3,000 3.69 1,000 3.13
Forfeited................ (1,000) 6.00 (1,000) 6.00 (51,000) 3.31 (1,000) 6.00
Swapped.................. (2,000) 6.00 -- -- -- -- (2,000) 6.00
Exercised................ -- -- -- -- (3,000) 3.25 -- --
------- ------ ------- ------ ------- ------ ------- ------
Outstanding at end of
period................. 126,000 $ 3.82 28,000 $ 6.00 75,000 $ 4.14 26,000 $ 5.90
------- ------ ------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------ ------- ------
Weighted-average fair
value of options
granted during the
period................. $ 1.75 $ 3.13 $ 2.11 $ 1.69
------ ------ ------ ------
------ ------ ------ ------
Options exercisable at
period-end............. none none 14,000 none
-------
-------
</TABLE>
F-14
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
8. STOCK COMPENSATION PLAN--(CONTINUED)
The fair value of the options was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0%, expected volatility of 32%, risk-free interest rate of 6.0%, and an
expected life of 10 years.
The following table summarizes information about stock options outstanding
at January 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICES
- --------------------------------------------- ----------- ----------- --------- ----------- ---------
<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' 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.
9. 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
F-15
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
9. EARNINGS PER COMMON SHARE--(CONTINUED)
EPS, which is similar to the previously disclosed fully diluted EPS. SFAS 128
will result in basic EPS results higher than EPS as calculated under the
previous method. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the SFAS 128
requirements. The following table sets forth the computation of basic and
diluted EPS:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator for basic and diluted EPS:
Income (loss) from continuing operations..... $ 75,000 $ 52,000 $ (149,000) $ 7,000
Loss from discontinued operations............ (402,000) -- (495,000) (271,000)
---------- ---------- ---------- ----------
Net (loss) income............................ $ (327,000) $ 52,000 $ (644,000) $ (264,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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 $ (0.13) $ 0.01
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss from discontinued operations............ $ (0.33) $ -- $ (0.41) $ (0.23)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net (loss) income............................ $ (0.27) $ 0.04 $ (0.54) $ (0.22)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted EPS from:
Income from continuing operations............ $ 0.06 $ 0.04 $ (0.13) $ 0.01
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss from discontinued operations............ $ (0.33) $ -- $ (0.41) $ (0.23)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net (loss) income............................ $ (0.27) $ 0.04 $ (0.54) $ (0.22)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
10. 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
F-16
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
10. CONCENTRATION OF CREDIT RISK AND OFF-BALANCE SHEET RISK--(CONTINUED)
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.
11. 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 October 31, 1999,
Shochet Securities had net capital of $496,000 and a net capital requirement of
$100,000. Shochet Securities' ratio of aggregate indebtedness to net capital was
1.5 to 1.
12. DISCONTINUED OPERATION
On July 31, 1999 (measurement date), the Company discontinued the
operations of the On-site Day Trading division. Pursuant to Accounting
Principles Board Opinion ("APB") No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
losses from this segment, net of tax effect, have been separately disclosed on
the financial statements. Losses from this division are as follow:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loss from discontinued operations..................... $ 534,000 $ -- $ 495,000 $ 353,000
Income tax benefit.................................... (132,000) -- -- (82,000)
--------- --------- --------- ---------
Net loss from discontinued operations................. $ 402,000 $ -- $ 495,000 $ 271,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
13. LITIGATION
In August 1999 Shochet Securities was found jointly and severally liable
with respect to an arbitration claim by a former customer against Shochet
Securities, a current employee and a former employee regarding unauthorized
execution of transactions in the former customer's account and improper
disbursements from the account during the period from June 1995 through November
1996. The former customer was awarded approximately $211,000 in compensatory and
punitive damages, interest and costs. In November 1999, Shochet Securities
agreed to pay $200,000 to settle the former customer's claim for
F-17
<PAGE>
SHOCHET HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION FOR THE NINE-MONTH PERIODS
ENDED OCTOBER 31, 1998 AND 1999)--(CONTINUED)
13. LITIGATION--(CONTINUED)
attorney's fees. Research Partners paid an aggregate of $411,000 on behalf of
Shochet Securities. Research Partners believes it has a claim against the former
owners of Shochet Securities for indemnification of the amounts it has paid
since it believes that most of the activity upon which the former customer's
complaint was based occurred prior to Research Partners' acquisition of Shochet
Securities. If Research Partners collects under this indemnification, it would
reduce the amount Shochet Securities would be required to reimburse Research
Partners.
At October 31, 1999, management recorded a reserve against possible future
losses from this settlement of $225,000. In November 1999, management decreased
this reserve to $150,000 based on its current estimate of Shochet Securities'
ultimate liability in this case.
14. SUBSEQUENT EVENTS
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. To
date, the Company has entered into agreements with three employees to award a
total of 108,000 options as of the date of the Company's public offering.
F-18
<PAGE>
[LOGO]
SHOCHET HOLDING CORP.
1,000,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
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.
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:
<TABLE>
<S> <C>
SEC Registration and Filing Fee................. $ 2,993.76
NASD Fee........................................ 1,634.21
Nasdaq SmallCap Fee............................. 6,000.00
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................................... 2,000.00
-----------
Total..................................... $352,628.00
-----------
-----------
</TABLE>
II-1
<PAGE>
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.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of 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.*
3.4 -- Amendment No. 1 to Bylaws of Shochet Holding Corp.
4.1 -- Specimen Common Stock Certificate
4.2 -- Underwriter's Purchase Option
5.1 -- Opinion of Atlas Pearlman, P.A.
10.1 -- 1999 Performance Equity Plan*
10.2 -- Employment Agreement between Shochet Holding Corp. and Roger Gladstone
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.
10.7 -- Form of Option Agreement
21.1 -- Subsidiaries of Shochet Holding Corp.*
23.1 -- Consent of KPMG LLP
23.2 -- Consent of Atlas Pearlman, P.A. (Contained in Exhibit 5.1)
24.1 -- Powers of Attorney (included on signature page)*
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
* Previously filed
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.
II-2
<PAGE>
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;
(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-3
<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 AMENDMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, HEREUNTO DULY AUTHORIZED, IN
HALLANDALE, FLORIDA ON FEBRUARY 22, 2000.
SHOCHET HOLDING CORP.
By: /s/ ROGER N. GLADSTONE
-----------------------------------
Roger N. Gladstone
Chairman and
Chief Executive Officer
(Principal Executive Officer)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------- ---------------------
<S> <C> <C>
/S/ROGER N. GLADSTONE
- ---------------------------------------------
Roger N. Gladstone Chairman of the Board and February 22, 2000
Chief Executive Officer
/S/DAVID GREENBERG*
- ---------------------------------------------
David Greenberg President, Chief Operating February 22, 2000
Officer and Director, Principal
Financial Officer and Principal
Accounting Officer
/S/HOWARD B. LANDERS*
- ---------------------------------------------
Howard B. Landers Executive Vice President February 22, 2000
and Director
/S/RICHARD Y. ROBERTS*
- ---------------------------------------------
Richard Y. Roberts Director February 22, 2000
/S/ JAMES I. KRANTZ*
- ---------------------------------------------
James I. Krantz Director February 22, 2000
/S/ JOHN P. MARGARITIS
- ---------------------------------------------
John Margaritis Director February 22, 2000
/S/ JOHN P. REYNOLDS
- ---------------------------------------------
John P. Reynolds Director February 22, 2000
By: /s/ ROGER N. GLADSTONE
-----------------------------------------
Roger N. Gladstone
(Attorney-in-Fact)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement
3.4 -- Amendment No. 1 to Bylaws of Shochet Holding Corp.
4.1 -- Specimen Common Stock Certificate
4.2 -- Underwriter's Purchase Option
5.1 -- Opinion of Atlas Pearlman, P.A.
10.2 -- Employment Agreement between Shochet Holding Corp. and Roger Gladstone
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.
10.7 -- Form of Option Agreement
23.1 -- Consent of KPMG LLP
23.2 -- Consent of Atlas Pearlman, P.A. (Contained in Exhibit 5.1)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
GM&M Draft
01/27/00
UNDERWRITING AGREEMENT
between
SHOCHET HOLDING CORP.,
SHOCHET SECURITIES, INC.
and
GAINES, BERLAND INC.
Dated: _______, 2000
<PAGE>
SHOCHET HOLDING CORP.
1,000,000 Shares of Common Stock
UNDERWRITING AGREEMENT
----------------------
New York, New York
__________, 2000
Gaines, Berland Inc.
1055 Stewart Avenue
Bethpage, New York 11714
Shochet Securities, Inc.
2351 East Hallendale Beach Boulevard
Hallendale, FL 33009
Ladies and Gentlemen:
The undersigned, Shochet Holding Corp. ("Company"), hereby confirms its
agreement with Shochet Securities, Inc. ("Shochet Securities") and Gaines,
Berland Inc. ("GBI" and together with Shochet Securities, the "Underwriters") as
follows:
1. Purchase and Sale of Securities.
--------------------------------
1.1 Firm Shares.
------------
1.1.1 Purchase of Firm Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell, and the
Underwriters agree to purchase, an aggregate of 1,000,000 shares of the
Company's common stock ("Firm Shares") at a purchase price (net of the
underwriting discount) of $______ per Firm Share. The Underwriters, severally
and not jointly, agree to purchase from the Company the number of Firm Shares
set forth opposite their respective names on Schedule I attached hereto and made
a part hereof.
1.1.2 Payment and Delivery. Delivery and payment for the Firm
Shares shall be made at 10:00 a.m., New York time, on or before the third
business day following the date the Firm Shares commence trading or at such
earlier time as the Underwriters shall determine, or at such other time as shall
be agreed upon by the Underwriters and the Company, at the offices of the legal
counsel to the Underwriters or at such other place as shall be agreed upon by
the Underwriters and
1
<PAGE>
the Company. The hour and date of delivery and payment for the Firm Shares are
called the "Closing Date." Payment for the Firm Shares shall be made on the
Closing Date by certified or official bank check in New York clearing house
funds to the account of the Company upon delivery to the Underwriters of a
certificate of the Company's transfer agent stating that the Firm Shares have
been registered in book entry form in such name or names and in such
denominations as are requested by the Underwriters. The Company shall not be
obligated to sell or deliver the Firm Shares except upon tender of payment by
the Underwriters for all the Firm Shares.
1.2 Over-Allotment Option.
----------------------
1.2.1 Option Shares. For the purposes of covering any
over-allotments in connection with the distribution and sale of the Firm Shares,
on the basis of the representations and warranties herein contained, but subject
to the terms conditions herein set forth, the Company hereby grants to the
Underwriters, severally and not jointly, an option ("Over-allotment Option") to
purchase up to an additional 150,000 Shares from the Company ("Option Shares").
Each Option is identical to a Firm Share. The Firm Shares and the Option Shares
are, collectively referred to as the "Public Shares." The purchase price to be
paid for the Option Shares will be the same price per Option Share as the price
per Firm Share set forth in Section 1.1.1 hereof.
1.2.2 Exercise of Option. The Over-allotment Option granted
pursuant to Section 1.2.1 hereof may be exercised by the Underwriters as to all
or any part of the Option Shares at any time, from time to time, within
forty-five days after the effective date ("Effective Date") of the Registration
Statement (as hereinafter defined). The Over-allotment Option granted hereunder
is for use by the Underwriters solely in covering any over-allotments in
connection with the sale and distribution of the Firm Shares. The Underwriters
will not be under any obligation to purchase any Option Shares prior to the
exercise of the Over-allotment Option. The Over-allotment Option granted hereby
may be exercised by the giving of oral notice to the Company from the
Underwriters, which must be confirmed by a letter or telecopy setting forth the
number of Option Shares to be purchased, the date and time for delivery of and
payment for the Option Shares and stating that the Option Shares referred to
therein are to be used for the purpose of covering over-allotments in con
nection with the distribution and sale of the Firm Shares. If such notice is
given at least two full business days prior to the Closing Date, the date set
forth therein for such delivery and payment will be the Closing Date. If such
notice is given thereafter, the date set forth therein for such delivery and
payment will not be earlier than three full business days after the date of the
notice, unless we mutually agree to an earlier date. If such delivery and
payment for the Option Shares does not occur on the Closing Date, the date and
time of the closing for such Option Shares will be as set forth in the notice
(hereinafter the "Option Closing Date"). Upon exercise of the Over-allotment
Option, subject to the terms and conditions set forth herein, the Company will
become obligated to convey to the Underwriters and the Underwriters will become
obligated to purchase the number of Option Shares specified in such notice.
1.2.3 Payment and Delivery. Payment for the Option Shares
shall be made by certified or official bank check in New York clearing house
funds on the Closing Date or the Option Closing Date, as the case may be, to the
account of the Company upon delivery to the Underwriters of a certificate of the
Company's transfer agent stating that the Option Shares have been registered in
book entry form in such name or names and in such denominations as are requested
by the Underwriters.
2
<PAGE>
1.3 Underwriters' Purchase Option.
------------------------------
1.3.1 Purchase Option. The Company hereby agrees to issue and
sell to the Underwriters (and/or their designees) on the Closing Date, for an
aggregate purchase price of $100, an option ("Underwriters' Purchase Option")
exercisable, at any time, in whole or in part, for a period of four years
commencing one year from the Effective Date, for the purchase of an aggregate of
100,000 Shares ("Underwriters' Shares") at an initial exercise price of 110% of
the initial offering price of a Share (i.e., $[___] per Share). The
Underwriters' Shares are identical to the Firm Shares. The Underwriters'
Purchase Option, and the Underwriters' Shares are hereinafter referred to
collectively as the "Underwriters' Securities." The Underwriters' Securities,
the Firm Shares and the Option Shares are hereinafter referred to collectively
as the "Shares."
1.3.2 Payment and Delivery. Delivery and payment for the
Underwriters' Purchase Option shall be made on the Closing Date. The Company
shall deliver to the Underwriters, upon payment therefor, certificates
evidencing the Underwriters' Purchase Option in the name or names and in such
authorized denominations as the Underwriters may request.
2. Representations and Warranties of the Company. The Company represents and
warrants to the Underwriters as follows:
2.1 Filing of Registration Statement. The Company has filed with the
Securities and Exchange Commission ("Commission") a registration statement and
an amendment or amendments thereto, on Form SB-2 (File No. 333-92307), including
any related preliminary prospectus ("Preliminary Prospectus"), covering the
registration of the Shares under the Securities Act of 1933, as amended ("Act"),
which registration statement and amendment or amendments have been prepared by
the Company in conformity with the requirements of the Act, and the rules and
regulations ("Regulations") of the Commission under the Act. Except as the
context may otherwise require, such registration statement, as amended, on file
with the Commission at the time the registration statement becomes effective
(including the prospectus, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430A of the Regulations), is herein called the "Registration
Statement," and the form of the final prospectus dated the Effective Date (or,
if applicable, the form of final prospectus filed with the Commission pursuant
to Rule 424 of the Regulations), is herein called the "Prospectus." The
Registration Statement has been declared effective by the Commission under the
Act.
2.2 No Stop Orders, Etc. No stop order suspending the effectiveness of
the Registration Statement or preventing or suspending the use of any
Preliminary Prospectus has been issued under the Act and no proceedings for that
purpose have been instituted or, to the best knowledge of the Company, are
pending or contemplated. No state regulatory authority has issued, to the best
knowledge of the Company, any order preventing or suspending the offering or
sale of the Shares in such jurisdiction, or threatened to institute any
proceedings with respect to such order.
2.3 Disclosures in Registration Statement.
--------------------------------------
2.3.1 Securities Act Representation. At the time the
Registration Statement became effective and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, if any, the
Registration Statement and the Prospectus and any amendment
3
<PAGE>
or supplement thereto contained and will contain all material statements that
are required to be stated therein in accordance with the Act and the
Regulations, and conformed and will conform in all material respects to the
requirements of the Act and the Regulations; neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, during such time
period and on such dates, contained or will contain any untrue statement of a
material fact or omitted or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. When any Preliminary
Prospectus was first filed with the Commission (whether filed as part of the
Registration Statement for the registration of the Shares or any amendment
thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
Preliminary Prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The representation and warranty made in this
Section 2.3.1 does not apply to statements made or statements omitted in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by the Underwriters expressly for use
in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
2.3.2 Disclosure of Contracts. The description in the
Registration Statement and the Prospectus of contracts and other documents is
accurate in all material respects and presents fairly the information required
to be disclosed and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be filed with
the Commission as exhibits to the Registration Statement that have not been so
described or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and (i) that is referred to in the Prospectus, or
(ii) is otherwise material to the Company's business, has been duly and validly
executed, is in full force and effect in all material respects and is
enforceable against the Company and, to the Company's knowledge, the other
parties thereto, in accordance with its terms, except (a) as such enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally, (b) as enforceability of any
indemnification provision may be limited under the federal and state securities
laws, and (c) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought, and
none of such contracts or instruments has been assigned by the Company, and
except as described in the Prospectus, neither the Company nor, to the best of
the Company's knowledge, any other party is in default thereunder and, to the
best of the Company's knowledge, no event has occurred which, with the lapse of
time or the giving of notice, or both, would constitute a default thereunder,
except, in either case, for any default that, singly or in the aggregate, would
not have a material adverse effect on the business, operations, assets,
financial condition or prospects of the Company (a "Material Adverse Effect").
None of the provisions of such contracts or instruments violates or will result
in a violation of any existing applicable law, rule, regulation, judgment, order
or decree of any governmental agency or court having jurisdiction over the
Company or any of its respective assets or businesses, including, without
limitation, those relating to environmental laws and regulations, except where
such violation, singly or in the aggregate, would not have a Material Adverse
Effect.
4
<PAGE>
2.4 Changes After Dates in Registration Statement.
----------------------------------------------
2.4.1 No Material Adverse Changes. Since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, except as otherwise specifically stated therein, (i) there has been
no material adverse change in the business, operations, assets, financial
condition or prospects of the Company, including, but not limited to, a material
loss or interference with its business from fire, storm, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, whether or not arising in the
ordinary course of business, (ii) there have been no transactions entered into
by the Company, other than those in the ordinary course of business, that are
material with respect to the condition, financial or otherwise, or to the
results of operations, business or business prospects of the Company; and (iii)
there has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of capital stock or repurchase or redemption by the
Company of any class of capital stock.
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities, incurred any
liability outside the ordinary course of business or incurred any obligation,
direct or contingent, for borrowed money; or (ii) declared or paid any dividend
or made any other distribution on or in respect to its capital stock.
2.5 Independent Accountants. KPMG LLP, whose report is filed with the
Commission as part of the Registration Statement, are independent accountants as
required by the Act and the Regulations.
2.6 Financial Statements. The financial statements, including the notes
thereto and supporting schedules included in the Registration Statement and
Prospectus, fairly present in all material respects the financial position and
the results of operations of the Company at the dates and for the periods to
which they apply; and such financial statements have been prepared in conformity
with generally accepted accounting principles, consistently applied throughout
the periods involved except as may be otherwise stated therein. The pro forma
financial information set forth in the Registration Statement and Prospectus
reflects all assumptions and adjustments relating to the business and operations
of the Company that management of the Company considers significant. The
historical financial data set forth in the Prospectus under the captions
"Summary--Summary Financial Data" and "Capitalization" fairly present in all
material respects the information set forth therein and have been compiled on a
basis consistent with that of the audited financial statements contained in the
Registration Statement.
2.7 Authorized Capital; Options; Etc. The Company had at the date or
dates indicated in the Prospectus duly authorized, issued and outstanding actual
capitalization as set forth in the Registration Statement and the Prospectus.
Giving effect to the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the number of outstanding
securities shown to be outstanding upon completion of the offering in the
disclosure relating to capitalization set forth in the Prospectus. Except as set
forth in the Registration Statement and the Prospectus, on the Effective Date
and on the Closing Date there will be no options, warrants, or other rights to
purchase or otherwise acquire, or preemptive rights with respect to the issuance
or sale of, any shares of Common Stock of the Company, including any obligations
5
<PAGE>
to issue any shares pursuant to anti-dilution provisions, or any security
convertible into shares of Common Stock of the Company, or any contracts or
commitments to issue or sell shares of Common Stock or any such options,
warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
----------------------------------
2.8.1 Outstanding Securities. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The outstanding options and warrants
to purchase shares of Common Stock constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. The authorized
Common Stock and outstanding options and warrants to purchase shares of Common
Stock conform in all material respects to all statements relating thereto
contained in the Registration Statement and the Prospectus. The offers and sales
of the outstanding Common Stock, options and warrants to purchase shares of
Common Stock were at all relevant times either registered under the Act and
registered or qualified under the applicable state securities or Blue Sky Laws
or exempt from such registration or qualification requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Shares
have been duly authorized and, when issued and paid for in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-assessable;
the holders thereof are not and will not be subject to personal liability by
reason of being such holders; the Shares are not and will not be subject to the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company; and all corporate action required to
be taken for the authorization, issuance and sale of the Shares has been duly
and validly taken. When issued and paid for in accordance with the terms of this
Agreement and the Underwriters' Purchase Option, the Underwriters' Securities
will constitute a valid and binding obligation of the Company to issue and sell,
upon exercise thereof and payment of the exercise price therefor, the number of
Underwriter Shares called for thereby and the Underwriters' Purchase Option,
will be enforceable against the Company in accordance with its terms, except (i)
as such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2.9 Registration and Anti-Dilution Rights of Third Parties. Except as
described in the Prospectus, no holders of any securities of the Company or of
any options or warrants or other securities exercisable for or convertible or
exchangeable into securities of the Company (i) have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in a registration statement to be filed by the
Company; or (ii) have rights to have the exercise or conversion prices of their
securities lowered and/or the number of securities that they may purchase
increased as a result of the issuance by the Company of securities for a price
less than such exercise or conversion price.
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2.10 Validity and Binding Effect of Agreements. This Agreement and the
Underwriters' Purchase Option have been duly and validly authorized by the
Company and constitute, or when executed and delivered, will constitute, the
valid and binding agreements of the Company, enforceable against the Company in
accordance with their respective terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification or
contribution provision may be limited under the federal and state securities
laws, and (iii) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and performance by the
Company of this Agreement and the Underwriters' Purchase Option, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms hereof and thereof do not and
will not, with or without the giving of notice or the lapse of time or both, (i)
result in a breach of, or conflict with any of the terms and provisions of, or
constitute a default under, or result in the creation, modification, termination
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to the terms of, any indenture, mortgage, deed of trust,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company is a party or by which the Company may be bound or to which any of
the property or assets of the Company is subject, except where such breach,
conflict, default, creation, modification, termination or imposition, singly or
in the aggregate, would not have a Material Adverse Effect; (ii) result in any
violation of the provisions of the Certificate of Incorporation of the Company
currently in effect ("Certificate of Incorporation") or the bylaws of the
Company as currently in effect ("Bylaws"); (iii) violate any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties or business ("Laws"), except where such violation singly or in the
aggregate, would not have a Material Adverse Effect; (iv) have any effect on any
permit, license, certificate, registration, approval, consent or franchise
(collectively, "Permits") necessary for the Company to own or lease and operate
any of its properties or to conduct its business, except for such effects as
would not, singly or in the aggregate, have a Material Adverse Effect.
2.12 No Defaults; Violations. Except as described in the Prospectus, no
default exists in the due performance and observance of any term, covenant or
condition of any license, contract, indenture, mortgage, deed of trust, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
properties or assets of the Company is subject, except where such default,
singly or in the aggregate, would not have a Material Adverse Effect. The
Company is not in violation of any term or provision of (i) its Certificate of
Incorporation or Bylaws or (ii) any franchise, license, permit, or applicable
Law, except, in the case of (ii), where such violation, singly or in the
aggregate, would not have a Material Adverse Effect.
2.13 Corporate Power; Licenses; Consents.
------------------------------------
2.13.1 Conduct of Business. The Company has all requisite
corporate power and authority, and has all necessary Permits of and from all
governmental or regulatory officials and bodies to own or lease its properties
and conduct its business as described in the Prospectus. The
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Company is, and has been doing business, in compliance with all such Permits and
all applicable Laws. The description in the Registration Statement of federal,
state and local regulation and their effects on the Company's business as
currently conducted and as contemplated to be conducted is accurate in all
material respects and does not omit to state a material fact required to be
stated therein or necessary, in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
2.13.2 Transactions Contemplated Herein. The Company has all
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
approvals, authorizations or orders of, and no filing with, any court,
government agency or other body is required for the valid authorization,
issuance, sale and delivery of the Shares and the consummation of the
transactions and agreements contemplated by this Agreement and the Underwriters'
Purchase Option and as contemplated by the Prospectus, except with respect to
applicable federal and state securities laws.
2.14 Title to Property; Insurance. The Company has good and defensible
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus (including the financial statements and notes thereto), purchase
money security interests and liens for taxes not yet due and payable. The
Company has insurance covering its properties against loss or damage by fire,
theft, damage, destruction, acts of vandalism or other casualty and maintains
insurance in commercially reasonable amounts.
2.15 Litigation; Governmental Proceedings. Except as described in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the
Company's knowledge, threatened against, or involving the properties or business
of, the Company that might, if determined adversely, have a Material Adverse
Effect, or that questions the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement. There are no outstanding orders,
judgments or decrees of any court, governmental agency or other tribunal,
domestic or foreign, naming the Company and enjoining the Company from taking,
or requiring the Company to take, any action, or to which the Company, its
properties or business is bound or subject, except as set forth in the
Prospectus or such as would not singly or in the aggregate, have a Material
Adverse Effect.
2.16 Good Standing. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of the state of
its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
Material Adverse Effect.
2.17 Taxes. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof, except where the
failure to file would not, singly or in the aggregate, have a Material Adverse
Effect. The Company has paid all taxes (as hereinafter defined) shown as due on
such
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returns that were filed and has paid all taxes imposed on or assessed against
the Company, except where the failure to pay would not, singly or in the
aggregate, have a Material Adverse Effect. The provisions for taxes payable, if
any, shown on the financial statements filed with or as part of the Registration
Statement are sufficient for all accrued and unpaid taxes, whether or not
disputed, and for all periods to and including the dates of such financial
statements. No material issues have been raised (and are currently pending) by
any taxing authority in connection with any of the returns or taxes asserted as
due from the Company, and no waivers of statutes of limitation with respect to
the returns or collection of taxes have been given by or requested from the
Company. The term "taxes" mean all federal, state, local, foreign, and other net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments, or charges of any
kind whatever, together with any interest and any penalties, additions to tax,
or additional amounts with respect thereto. The term "returns" means all
returns, declarations, reports, statements, and other documents required to be
filed in respect to taxes.
2.18 Transactions Affecting Disclosure to NASD.
------------------------------------------
2.18.1 Finder's Fees. There are no claims, payments,
issuances, arrangements or understandings for services in the nature of a
finder's, consulting or origination fee with respect to the introduction of the
Company to the Underwriters or the sale of the Shares hereunder. Except for the
arrangements, agreements, understandings, payments or issuances between the
Company and the Underwriters that are described in the "Underwriting" section of
the Prospectus.
2.18.2 Payments Within Twelve Months. (i) the Company has not
made or become obligated to make any direct or indirect payments (in cash,
securities or otherwise), and (ii) there are no other arrangements, agreements,
understandings, payments or issuances pursuant to which the Company has made or
will make a payment (in cash, securities or otherwise), which would constitute
underwriting compensation under Rule 2710.
2.18.3 Use of Proceeds. Other than $1,000,000 of the proceeds
which will be used to repay a debt owed to Research Partners International Inc.
("RPII"), no other portion of the net proceeds of this offering will be paid by
the Company to any NASD member or any affiliate or associate of any NASD member.
2.18.4 Insiders' NASD Affiliation. Except as set forth on
Schedule 2.18.4, no officer or director of the Company or owner of any of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member. The Company will advise the Underwriters and
the NASD if any officer, director or stockholder of the Company is or becomes an
affiliate or associated person of an NASD member participating in the offering.
2.19 Foreign Corrupt Practices Act. Neither the Company nor any of its
officers, directors, employees, agents or any other person acting on their
behalf has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist
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it in connection with any actual or proposed transaction) that (i) might subject
the Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
Material Adverse Effect on the Company as reflected in any of the financial
statements contained in the Prospectus or (iii) if not continued in the future,
might have a Material Adverse Effect on the Company. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
with the Foreign Corrupt Practices Act of 1977, as amended.
2.20 Nasdaq SmallCap Market Eligibility. As of the Effective Date, the
Public Shares and Underwriters' Shares have been approved for quotation on The
Nasdaq SmallCap Market ("Nasdaq SmallCap"), underlying Shares have been approved
for quotation on Nasdaq subject to notice of issuance. [Add BSE if approved by
the effective date].
2.21 Intangibles. The Company owns or possesses the licenses,
trademarks, service marks, service names, trade names, patents and patent
applications, copyrights and other intellectual property rights listed on
Schedule 2.21 (collectively, "Intangibles"). The Intangibles are the only such
rights used by the Company in its business or relating to products or services
sold or currently proposed to be sold by the Company. Intangibles that have been
registered in the United States Patent and Trademark Office have been fully
maintained and are in full force and effect. There is no claim or action by any
person pertaining to, or proceeding pending or, to the Company's knowledge,
threatened, and the Company has not received any notice of conflict with the
asserted rights of others that challenges the rights of the Company with respect
to, any of the Intangibles. To the Company's knowledge, the Intangibles and the
Company's current products, services and processes do not infringe on any
intangibles held by any third party, and no others have infringed upon the
Intangibles of the Company except for any infringements that, singly or in the
aggregate, would not have a Material Adverse Effect. The Company has in place
all confidentiality agreements with its employees, consultants and third parties
as are reasonably necessary to protect the Company's Intangibles.
2.22 Relations With Employees.
-------------------------
2.22.1 Employee Matters. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto, except where non-compliance,
singly or in the aggregate, would not have a Material Adverse Effect. There are
no pending investigations involving the Company by the U.S. Department of Labor
or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any predecessor
entity, and none has ever occurred. No question concerning representation exists
respecting the employees of the Company and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.22.2 Employee Benefit Plans. Other than as set forth in the
Registration Statement, the Company neither maintains, sponsors nor contributes
to, nor is it required to
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contribute to, any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multi-employer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). The Company does not maintain or contribute to, and has at no time
maintained or contributed to, a defined benefit plan, as defined in Section
3(35) of ERISA. If the Company does maintain or contribute to a defined benefit
plan, any termination of the plan on the date hereof would not give rise to
liability under Title IV of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended ("Code"), that could subject the Company to any tax penalty for
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan that is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multi-employer
plan."
2.23 Officers' Certificate. Any certificate signed by any duly
authorized officer of the Company and delivered to you or to your counsel on the
Closing Date and the Option Closing Date, if any, shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
2.24 Lock-Up Agreements. The Company has delivered legally binding and
enforceable agreements pursuant to which RPII agrees not to sell any shares of
Common Stock beneficially owned by them or securities beneficially owned by it
which are convertible into Common Stock of the Company for a period of 24 months
following the Effective Date, in each case except with the consent of the GBI.
2.25 Subsidiaries.
-------------
2.25.1 The Company does not own any stock or other equity
interest in, or control, directly or indirectly, any corporation, partnership or
other entity other than Shochet Securities, Inc. ("Subsidiary"). All of the
issued and outstanding stock of the Subsidiary has been duly authorized and
validly issued and is fully paid and non-assessable. The Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization, with all necessary power and authority,
corporate and other, and all required licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and operate
its properties and to conduct its business. There is no proceeding pending or to
the knowledge of the Company threatened (and, to the knowledge of the Company,
there are no facts or circumstances which, individually or in the aggregate, may
form the basis therefor) which may cause any such license, permit,
certification, registration, approval, consent or franchise to be withdrawn,
canceled, suspended or not renewed, except where such withdrawal, cancellation,
suspension or lack of renewal would not have a material adverse effect on the
general affairs, properties, condition (financial or otherwise), results of
operations, stockholders' equity or business of the Company and its Subsidiary,
considered as one enterprise. The Company owns all of the outstanding capital
stock of the Subsidiary free and clear of all claims, liens, charges and
encumbrances. The Subsidiary is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of
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property requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect on the Company.
2.25.2 As a foreign corporation in each jurisdiction in which
it owns or leases any real property or the character of its operations requires
such qualification or licensing, except where the failure to so qualify will not
have a Material Adverse Effect on the Company.
2.25.3 In addition to the foregoing, the representations and
warranties made by the Company in this Agreement shall also apply and be true
with respect to the Subsidiary, individually and taken as a whole with the
Company and the Subsidiary, as if each representation and warranty contained
herein made specific reference to the Subsidiary each time the term "Company"
was used.
2.26 Year 2000. The Company is Year 2000 compliant, except in instances
which do not result in a Material Adverse Effect.
2.27 Related-Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person required to
be described in the Prospectus that have not been described as required.
2.28 Internal Accounting. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary in order to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company will deliver to
the Underwriters, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Underwriters
shall reasonably object.
3.2 Federal Securities Laws.
3.2.1 Compliance. During the time when a Prospectus is
required to be delivered under the Act, the Company will use all reasonable
efforts to comply with all requirements imposed upon it by the Act, the
Regulations, the Securities Exchange Act of 1934, as amended ("Exchange Act"),
and the regulations under the Exchange Act, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in the Shares
in accordance with the provisions hereof and the Prospectus. If at any time when
a Prospectus relating to the Shares is required to be delivered under the Act
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or counsel for the Underwriters, the Prospectus, as then amended
or supplemented, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the
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circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus or to comply with the Act, the Company will
notify the Underwriters promptly and prepare and file with the Commission,
subject to Section 3.1 hereof, an appropriate amendment or supplement in
accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. If required, the Company
shall file the Prospectus (in form and substance satisfactory to the
Underwriters) with the Commission (including the information required by Rule
430A of the Regulations) pursuant to the requirements of Rule 424 of the
Regulations; or the Company shall file a post-effective amendment to the
Registration Statement (in form and substance satisfactory to the Underwriters)
containing the information required by such Rule 430A; or, if the Company elects
to rely upon Rule 434 of the Regulations and obtains the Underwriters' consent
thereto, the Company shall file a term sheet with the Commission in the manner
and within the time period required by Rule 424(b) of the Regulations.
3.2.3 Exchange Act Registration. For a period of five years
from the Effective Date, the Company will use its best efforts to maintain the
registration of the Firm Shares, Option Shares, if any, and Underwriters' Shares
under the provisions of the Exchange Act.
3.3 Blue Sky Filings. The Company will endeavor in good faith, in
cooperation with the Underwriters, at or prior to the time the Registration
Statement becomes effective, to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as the Underwriters may reasonably
designate, provided that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject to service
of general process or to taxation as a foreign corporation doing business in
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriters agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may be required by the
laws of such jurisdiction.
3.4 Delivery to Underwriters of Prospectuses. The Company will deliver
to each of the Underwriters, without charge, from time to time during the period
when the Prospectus is required to be delivered under the Act or the Exchange
Act, such number of copies of each Preliminary Prospectus and the Prospectus as
such Underwriter may reasonably request and, as soon as the Registration
Statement or any amendment or supplement thereto becomes effective, deliver to
each of the Underwriters two original executed Registration Statements,
including exhibits, and all post-effective amendments thereto and copies of all
exhibits filed therewith or incorporated therein by reference and all original
executed consents of certified experts.
3.5 Events Requiring Notice to the Underwriters. The Company will
notify the Underwriters immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment thereto, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Shares for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, (iv) of the
mailing and delivery to the Commission for filing of any amendment or supplement
to the Registration Statement or Prospectus, (v) of the receipt of any comments
or request for any additional information from the Commission, and (vi) of the
happening of any event during the period described in Section 3.4 hereof that,
in the judgment of the Company, makes any statement of a material fact made in
the Registration Statement or the Prospectus untrue or that
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requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 Review of Financial Statements. The Company, at its expense, shall
cause its regularly engaged independent certified public accountants to review
(but not audit) the Company's financial statements for each of the first three
fiscal quarters prior to the announcement of quarterly financial information,
the filing of the Company's Form 10-Q or Form 10-QSB quarterly reports and the
mailing of quarterly financial information to stockholders.
3.7 Unaudited Financials. The Company will furnish to the Underwriters
as early as practicable after the date hereof and at least three full days prior
to the Closing Date and the Option Closing Date, if any, a copy of the latest
available unaudited interim financial statements of the Company (which in no
event shall be as of a date more than thirty days prior to the Effective Date)
which have been read by the Company's independent accountants, as stated in
their letter to be furnished pursuant to Section 4.3 hereof.
3.8 Secondary Market Trading and Standard & Poor's. The Company will
take all necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions (within thirty
(30) days after the Effective Date) and to maintain such publication with
updated quarterly information for a period of five years from the Effective
Date, including the payment of any necessary fees and expenses. The Company
shall take such action as may be reasonably requested by the Underwriters to
obtain a secondary market trading exemption in such states as may be requested
by the Underwriter, including the payment of any necessary fees and expenses and
the filing of a Form (e.g. 25101(b)) for secondary market trading in the State
of California on the Effective Date or as soon thereafter as is permissible.
3.9 Nasdaq Maintenance. For a period of five years from the date
hereof, the Company will use its best efforts to maintain the quotation by The
Nasdaq Stock Market of the Firm Shares, Option Shares, if any, and Underwriters'
Shares. [BSE to be added if approved by Effective Date].
3.10 Secondary Market Trading Memorandum. Until such time as the Shares
are listed or quoted, as the case may be, on one of the following: the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market
System, the Company shall cause the Underwriters' legal counsel to deliver to
the Underwriters on the Effective Date a written memorandum detailing those
states in which the Shares may be traded in non-issuer transactions under the
Blue Sky laws of the fifty states ("Secondary Market Trading Memorandum") and to
update such memorandum as reasonably requested by the Underwriters. The Company
shall pay to the Underwriter's legal counsel a one-time fee of $5,000 for such
services on the Closing Date.
3.11 Reports to the Underwriters and Others.
---------------------------------------
3.11.1 Periodic Reports, Etc. For a period of five years from
the Effective Date, the Company will promptly furnish to the Underwriters,
copies of such financial statements and other periodic and special reports as
the Company from time to time files with any governmental authority
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or furnishes generally to holders of any class of its securities (at
substantially the same time as such information is filed with the governmental
authority or furnished to security holders), and promptly furnish to the
Underwriters (i) a copy of each periodic report the Company shall be required to
file with the Commission, (ii) a copy of every press release issued by the
Company, (iii) a copy of each Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4
received or prepared by the Company, and (iv) such additional public documents
and information with respect to the Company and the affairs of any future
subsidiaries of the Company as the Underwriters may from time to time reasonably
request.
3.11.2 Transfer Sheets and Weekly Position Listings. For a
period of twelve months after the Closing Date, the Company will furnish to the
Underwriters at the Company's sole expense such transfer sheets and position
listings of the Company's Shares as the Underwriters may request, including the
daily, weekly and monthly consolidated transfer sheets of the transfer agent of
the Company and the weekly security position listings of the Depository Trust
Company.
3.12 Underwriters' Purchase Option. On the Closing Date, the Company
will execute and deliver the Underwriters' Purchase Option to the Underwriters
substantially in the form filed as an exhibit to the Registration Statement.
3.13 Disqualification of Form SB-2 or S-1 (or other appropriate form).
For a period equal to five years from the date hereof, the Company will use its
reasonable efforts to take such action or actions as may be necessary to permit
the Company to remain eligible to use Form SB-2 or Form S-1 (or other
appropriate form) for the registration of the Underwriters' Securities under the
Act and will not take any action or actions that may prevent the Company's use
of such forms.
3.14 Payment of Expenses.
--------------------
3.14.1 General Expenses. The Company hereby agrees to pay on
the Closing Date and, to the extent not paid on the Closing Date, on the Option
Closing Date, all expenses incident to the performance of the obligations of the
Company under this Agreement, including but not limited to (i) the preparation,
printing, filing, delivery and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement, any post-effective
amendments thereto, the Prospectus and the Preliminary Prospectuses, including
the cost of all copies thereof, (ii) the printing, engraving, issuance and
delivery of the Shares including any transfer or other taxes payable thereon,
(iii) the qualification of the Shares under state or foreign securities or Blue
Sky laws, including the filing fees under such Blue Sky laws, the costs of
printing and mailing the "Preliminary Blue Sky Memorandum" and all amendments
and supplements thereto, fees and disbursements of Underwriters' counsel (of
which $15,000 has been paid to date), (iv) a fee of $5,000 payable to the
Underwriters' counsel for the preparation of the Secondary Market Trading
Memorandum, (v) filing fees, costs and expenses (including reasonable fees and
disbursements of the Underwriters' counsel) incurred in registering the offering
with the NASD, (vi) costs of placing "tombstone" advertisements in the Wall
Street Journal, The New York Times and a third publication to be selected by
GBI, (vii) fees and disbursements of the transfer agent, (viii) the reasonable
expenses associated with "due diligence" meetings arranged by the Underwriters
but not the travel, hotel or other out-of-pocket expenses of GBI personnel
attending such meetings, (ix) the preparation, binding and delivery of
transaction "bibles" in quantity, form and style satisfactory to GBI and
transaction lucite cubes or similar commemorative items in a style and quantity
as reasonably requested by GBI, (x) any listing of the Shares on The Nasdaq
Stock Market and any
15
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securities exchange to be selected by GBI or any listing in Standard & Poor's,
and (xi) all other costs and expenses incident to the performance of its
obligations hereunder that are not otherwise specifically provided for in this
Section 3.15.1. Since an important part of the public offering process is for
the Company to describe appropriately and accurately the backgrounds of the
principals of the Company and the Company's competitive position in the
industry, the Company has engaged and will pay for an investigative search firm
of GBI's choice to conduct an investigation of principals of the Company
mutually selected by GBI and the Company. The Underwriters may deduct from the
net proceeds of the offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth herein to be paid by the
Company to the Underwriters and/or to third parties.
3.14.2 Non-Accountable Expenses. The Company further agrees
that, in addition to the expenses payable pursuant to Section 3.15.1, it will
pay to the Underwriters a non-accountable expense allowance equal to two percent
(2%) of the gross proceeds received by the Company from the sale of the Public
Shares, of which $50,000 has been paid to date, and the Company will pay the
balance on the Closing Date and any additional monies owed attributable to the
Option Shares or otherwise on the Option Closing Date by certified or bank
cashier's check or, at the election of the Underwriters, by deduction from the
proceeds of the offering contemplated herein. If, for any reason whatsoever, the
offering contemplated by this Agreement is not consum mated, then the following
provisions shall apply: The Company's liability for payment to the Underwriters
of the non-accountable expense allowance shall be equal to the sum of the
Underwriters' actual out-of-pocket expenses (including, but not limited to,
counsel fees, "road-show" and due diligence expenses). The Underwriters shall
retain such part of the non-accountable expense allowance previously paid as
shall equal its actual out-of-pocket expenses. If the amount previously paid is
insufficient to cover such actual out-of-pocket expenses, the Company shall
remain liable for and promptly pay any other actual out-of-pocket expenses. If
the amount previously paid exceeds the amount of the actual out-of-pocket
expenses, the Underwriters shall promptly remit to the Company any such excess.
3.15 Application of Net Proceeds. The Company will apply the net
proceeds from the offering received by it in a manner consistent with the
application described under the caption "Use of Proceeds" in the Prospectus. The
Company hereby agrees that, except as so described, the Company will not apply
any net proceeds from the offering to pay (i) any debt for borrowed money, other
than $1,000,000 to RPII, as discussed in the Prospectus; (ii) any obligations
(including indebtedness, both principal and any interest thereon, for borrowed
funds and unpaid salaries, fees or other compensation) owed to any officers or
directors of the Company or any of their respective family members of affiliates
(excluding salaries or fees payable on a current basis to officers and directors
in the ordinary course of the Company's business).
3.16 Reserved.
---------
3.17 Reserved.
---------
16
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3.18 Stabilization. Neither the Company, nor, to its knowledge, any of
its employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or that has constituted or that might
reasonably be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
3.19 Internal Controls. The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.20 Sale of Securities. The Company agrees to take all reasonable
actions to prevent a private or public sale or private or public offering of any
of its securities (except by means of private transactions in connection with
which the transferee agrees to be bound by the same lockup agreement that the
transferor is bound by) owned nominally or beneficially by any of the security
holders referenced in Section 2.24 for the respective periods set forth in
Section 2.24 without obtaining the prior written consent of the Underwriters.
4. Conditions of Underwriters' Obligations. The obligations of the Underwriters
to purchase and pay for the Shares, as provided herein, shall be subject to the
continuing accuracy of the representations and warranties of the Company as of
the date hereof and as of each of the Closing Date and the Option Closing Date,
if any, to the accuracy of the statements of officers of the Company made
pursuant to the provisions hereof and to the performance by the Company of its
obligations hereunder and to the following conditions:
4.1 Regulatory Matters.
-------------------
4.1.1 Effectiveness of Registration Statement. The
Registration Statement has been declared effective on the date of this Agreement
and, at each of the Closing Date and the Option Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for such purpose shall have been instituted or shall
be pending or, to the knowledge of the Company, contemplated by the Commission
and any request on the part of the Commission for additional information shall
have been complied with to the reasonable satisfaction of Graubard Mollen &
Miller, counsel to the Underwriters.
4.1.2 NASD Clearance. By the Effective Date, (i) the
Underwriters shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters as described in the
Registration Statement; and (ii) GBI shall have been approved as a qualified
independent underwriter for this offering.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of
the Shares in any jurisdiction designated by the Underwriters pursuant to
Section 3.3 hereof shall have been issued on either on the Closing Date or the
Option Closing Date, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
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4.1.4 Unaudited Financials. The Company shall have furnished
to the Underwriters as early as practicable prior to the date hereof a copy of
the latest available unaudited interim financial statements ("Unaudited
Financials") of the Company (that in no event shall be as of a date more than 30
days prior to the Effective Date) which have been read by the Company's
independent accountants, as stated in their letter to be furnished pursuant to
Section 4.3 hereof.
4.2 Opinion of Counsel.
-------------------
4.2.1 Opinion of Company Counsel. On each of the Effective
Date, Closing Date and the Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Atlas, Pearlman, Trop & Borkson, P.A.,
counsel to the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters and in form and substance
satisfactory to Graubard Mollen & Miller, counsel to the Underwriters, to the
effect that:
(i) The Company is a corporation validly existing and
in good standing under the laws of the State of Delaware. The Company is duly
qualified and in good standing in as a foreign corporation in each jurisdiction
in which it owns or leases any real property or the character of its operations
requires such qualification or licensing, except where the failure to so qualify
does not have a Material Adverse Effect.
(ii) The Company has all corporate power and
authority to enter into this Agreement and the Underwriters' Purchase Option and
to carry out its obligations hereunder and thereunder. No consents, approvals,
authorizations or orders of, and no filings with, any court or governmental
agency or body, are required for the Company to execute, deliver and perform its
obligations under this Agreement, or to authorize, issue, sell and deliver the
Shares, and to consummate the transactions and agreements contemplated by this
Agreement or the Underwriters' Purchase Option, except for those authorizations,
approvals, consents, orders and filings as have been made or obtained and are in
full force and effect and except for such authorizations, approvals, consents,
orders and filings under the Act and the Blue Sky laws of any state or
jurisdiction in the United States in which the Shares may be offered, as to
which we express no opinion.
(iii) All issued and outstanding shares of Common
Stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column titled "Actual"
under the caption "Capitalization" as of the date stated therein. To such
counsel's knowledge, all of the issued and outstanding shares of Common Stock
were issued pursuant to an exemption from the registration requirements of the
Securities Act and the rules and regulations promulgated thereunder. The holder
of all of the outstanding Company Common Stock is not subject to personal
liability under the Certificate of Incorporation or Bylaws of the Company or the
General Corporation Law of the State of Delaware solely by reason of being such
a holder. None of the issued and outstanding shares of Common Stock were issued
in violation of statutory preemptive rights of any holders of such securities of
the Company or, to such counsel's knowledge, were issued in violation of similar
contractual rights granted by the Company. All of the issued and outstanding
options and warrants to purchase shares of Common Stock were validly authorized
by the Board of Directors and constitute valid and binding obligations of the
Company enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, fraudulent
18
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conveyance and other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
(iv) The Shares have been duly authorized for
issuance and sale by the
Company by all requisite corporate action by the Company. When issued and
delivered by the Company in accordance with the terms of this Agreement, against
payment of the consideration set forth herein, the Shares will be fully paid and
non-assessable. The holders of the Shares will not be subject to personal
liability under the Certificate of Incorporation or Bylaws of the Company or the
General Corporation Law of the State of Delaware solely by reason of being such
holders. The Shares are not and will not be subject to the preemptive rights of
any holders of any security of the Company or, to the best of such counsel's
knowledge after due inquiry, similar contractual rights granted by the Company.
The forms of certificates used to evidence the Common Stock and Underwriters'
Purchase Option comply with the applicable requirements of the Certificate of
Incorporation and Bylaws of the Company and the General Corporation Law of the
State of Delaware.
(v) To the best of such counsel's knowledge, after
due inquiry, except as fully
disclosed in the Prospectus, no holders of any securities of the Company or of
any options, warrants or other securities of the Company exercisable for or
convertible or exchangeable into securities of the Company (i) have the right to
require the Company to register any such securities of the Company under the Act
or to include any such securities in a registration statement filed by the
Company, or (ii) have rights to have the exercise or conversion prices of their
securities lowered and/or the number of securities that they may purchase
increased as a result of the issuance by the Company of securities for a price
less than such exercise or conversion price.
(vi) The Public Shares and Underwriters Shares have
been approved for
quotation on the Nasdaq SmallCap Market. [and BSE if appropriate]
(vii) This Agreement and the Underwriters' Purchase
Option have each been
duly and validly authorized and, when executed and delivered by the Company,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject to, in
each case: (i) bankruptcy, insolvency, reorganization, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
and to general principles of equity, (ii) the fact that the indemnification and
contribution provisions set forth in this Agreement and the Underwriters'
Purchase Option may be limited under federal and applicable state securities
laws and by public policy, and (iii) the fact that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(viii) The execution, delivery and performance by the
Company of this
Agreement and the Underwriters' Purchase Option, the issuance and sale of the
Shares, the performance by the Company of its obligations hereunder and
thereunder (other than the performance by the Company of its obligations under
the indemnification and contribution provisions of this Agreement and the
Underwriters' Purchase Option, as to which no opinion need be rendered), do not
and will not, (a) result in any violation of the provisions of the Certificate
of Incorporation or the Bylaws of the Company, (b) to such counsel's knowledge,
will not constitute a breach of, or a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to any material contracts,
19
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agreements, instruments, leases or licenses filed by the Company or incorporated
by reference as exhibits to the Registration Statement, or (c) to such counsel's
knowledge, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company (other
than the Blue Sky or securities laws or regulations of the various states, as to
which counsel need not express any opinion).
(ix) The Registration Statement, each Preliminary
Prospectus and the Prospectus and any post-effective amendments or supplements
thereto (other than the financial statements and supporting schedules included
therein, or the financial statements and supporting schedules included in
exhibits to or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the applicable
requirements of the Act and Regulations. The disclosure in the Prospectus has
been reviewed by such counsel, and insofar as such disclosure constitutes
matters of law, summaries of legal matters, summaries of the Company's
Certificate of Incorporation or of Bylaw provisions, or legal conclusions, such
statements have been reviewed by such counsel and fairly present and summarize,
in all material respects, the matters referred to therein and are correct in all
material respects. To such counsel's knowledge, there are no contracts or
documents to which the Company is a party required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement pursuant to the Act or the Regulations that are not so
described or filed as required and there is no statute or regulation or legal or
governmental proceeding required to be described in the Regulation Statement and
Prospectus that is not so described as required.
(x) The Registration Statement is effective under the
Act, and, to the best of
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act by the Commission.
(xi) The Company has all requisite corporate power
and authority, and has
all necessary authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental or regulatory officials and bodies to own
or lease its properties and conduct its business as described in the
Registration Statement and Prospectus, except to the extent that the lack of
such authorizations, approvals, orders, licenses, certificates and permits
would, singularly or in the aggregate, not have a Material, Adverse Effect on
the Company. To the best of such counsel's knowledge, the Company is, and has
been, conducting its activities in material compliance with all such
authorizations, approvals, orders, licenses, certificates and permits, and with
all federal, state and local laws and regulations. The Company is not in
violation of its Certificate of Incorporation or Bylaws. To such counsel's
knowledge, the Company is not (i) in violation of or any law, rule, regulation,
judgment, administrative regulation or administrative or court decree applicable
to the Company, or (ii) except as described in the Prospectus, in default in the
performance or observance of any obligation, agreement, covenant or condition
contain in any material contracts, agreements, instruments, leases and licenses
to which the Company is a party or by which the Company or any of its properties
or assets may be bound, except in each such case for such violations or defaults
as would not, singly or in the aggregate, result in a Material Adverse Effect.
20
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(xii) To the best of such counsel's knowledge, after
due inquiry, except as set forth in the Prospectus, there is no action, suit or
proceeding pending or threatened against the Company that might reasonably be
expected to have a Material Adverse Effect on the Company.
(xiii) To the best of such counsel's knowledge, after
due inquiry, the Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, other than as
described in the Registration Statement and Prospectus, the requisite licenses
or other rights to use all patents, licenses, intangibles and other rights
necessary to conduct its business (including, without limitation, any such
licenses or rights described in the Registration Statement and Prospectus as
being licensed to or owned or possessed by the Company), and there is no claim
or action by any person pertaining to, or preceding, pending or to the best of
such counsel's knowledge after due inquiry threatened, which challenges the
exclusive rights of the Company with respect to any Intangibles used in the
conduct of its business (including without limitation any such licenses or
rights described in the Registration Statement and Prospectus as being owned or
possessed by the Company); to the best of such counsel's knowledge, after due
inquiry, the Company's services and processes do not infringe on any Intangibles
held by third parties except as discussed in the Registration Statement and
Prospectus; and the Company's Intangibles which have been registered in the
United States Patent and Trademark Office have been fully maintained and are in
full force and effect.
(xiv) To the best of such counsel's knowledge, after
due inquiry, except as described in the Registration Statement and Prospectus,
the Company does not own an interest in any corporation, partnership, joint
venture, trust or other business entity.
(xv) To the best of such counsel's knowledge, after
due inquiry except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the nature
of a finder's or origination fee with respect to the sale of the Shares
hereunder or financial consulting arrangements or any other arrangements,
agreements, understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD.
(xvi) Counsel has participated in conferences with
officers and other representatives of the Company, and representatives of the
independent public accountants for the Company at which the contents of the
Registration Statement, the Prospectus and related matters were discussed and
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise set forth in this
opinion), no facts have come to the attention of such counsel which lead them to
believe that either the Registration Statement or the Prospectus or any
amendment or supplement thereto, as of the date of such opinion, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus).
(xvii) The Company has, to such counsel's knowledge,
good and marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property (tangible and intangible) stated in the
Registration Statement and Prospectus to be owned or leased
21
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by it, free and clear of all liens, encumbrances, claims, security interests,
defects and restrictions of any material nature whatsoever, other than those
referred to in the Registration Statement and Prospectus and liens for taxes not
yet due and payable.
Unless the context clearly indicates otherwise, the term "Company" as
used in this Section 4.2.1 shall include and be deemed to be made with respect
to each subsidiary of the Company. The opinion of counsel for the Company and
any opinion relied upon by such counsel for the Company shall include a
statement to the effect that it may be relied upon counsel for the Underwriters
in its opinion delivered to the Underwriters.
4.3 Cold Comfort Letter.
--------------------
4.3.1 Cold Comfort Letter of KPMG LLP. At the time this
Agreement is executed, and at each of the Closing Date and the Option Closing
Date, if any, the Underwriters shall have received a letter, addressed to them
and in form and substance satisfactory in all respects (including the
non-material nature of the changes or decreases, if any, referred to in clause
(iii) below) to the Underwriters and to Graubard Mollen & Miller, counsel to the
Underwriters, from KPMG LLP dated, respectively, as of the date of this
Agreement and as of the Effective Date, Closing Date and the Option Closing
Date, if any:
(i) Confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable Regulations;
(ii) Stating that in their opinion the financial statements
and the financial statement schedules of the Company included (or incorporated
by reference) in the Registration Statement and Prospectus comply as to form in
all material respects with the applicable accounting requirements of the Act and
the published Regulations thereunder;
(iii) Stating that, based on the performance of procedures
specified by the American Institute of Certified Public Accountants for a review
of the latest available unaudited interim financial statements of the Company
(as described in Statement on Auditing Standards ("SAS") No. 71--Interim
Financial Information), with an indication of the date of the latest available
unaudited interim financial statements, a reading of the latest available
minutes of the stockholders and board of directors and the various committees of
the board of directors, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention that would lead
them to believe that (a) the unaudited financial statements of the Company
included or incorporated by reference in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or any material modification should
be made to the unaudited interim financial statements included in the
Registration Statement for them to be in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements of the Company included or incorporated by
reference in the Registration Statement, (b) at a date not later than five days
prior to the Effective Date, Closing Date or Option Closing Date, as the case
may be, there was any change in the capital stock, increase in long-term debt or
any decreases in net current assets (working capital) or in stockholders' equity
of the Company as compared with amounts shown on the October 31, 1999 condensed
balance sheet included in the Registration Statement, (c) for the period from
November 1, 1999 to a specified date not later than five days prior to the
Effective Date,
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Closing Date or Option Closing Date, as the case may be, there were any
decreases in net earnings or net earnings per share of Common Stock, in each
case as compared with the corresponding period in the preceding year and as
compared with the corresponding period in the preceding quarter, and if there
was any decrease, setting forth the amount of such decrease;
(iv) Stating that in their opinion all of the pro forma
financial information included in the Registration Statement and Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the published Regulations thereunder;
(v) Setting forth, at a date not later than five days prior to
the Effective Date, the amount of liabilities of the Company;
(vi) Stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records and work sheets
of the Company with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(vii) Statements as to such other matters incident to the
transaction contemplated hereby as you may reasonably request.
4.4 Officers' Certificates.
-----------------------
4.4.1 Officers' Certificate. At each of the Closing Date and
the Option Closing Date, if any, the Underwriters shall have received a
certificate of the Company signed by the Chairman of the Board or the President
and the Secretary of the Company, dated the Closing Date or the Option Closing
Date, as the case may be, respectively, to the effect that the Company has
performed all covenants and complied with all conditions required by this
Agreement to be performed or complied with by the Company prior to and as of the
Closing Date, or the Option Closing Date, as the case may be, and that the
conditions set forth in Section 4.5 hereof have been satisfied as of such date
and that, as of the Closing Date and the Option Closing Date, as the case may
be, the representations and warranties of the Company set forth in Section 2
hereof are true and correct. In addition, the Underwriters will have received
such other and further certificates of officers of the Company as the
Underwriters may reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing Date and
the Option Closing Date, if any, the Underwriters shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the Bylaws and Certificate of Incorporation of the Company are true and
complete, have not been modified and are in full force and effect, (ii) that the
resolutions relating to the public offering contemplated by this Agreement are
in full force and effect and have not been modified, (iii) all correspondence
between the Company or its counsel and the Commission, (iv) all correspondence
between the Company or its counsel and the NASD concerning inclusion of the
Shares on the Nasdaq SmallCap, and (v) as to the incumbency of the officers of
the Company. The documents referred to in such certificate shall be attached to
such certificate.
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4.5 No Material Changes. Prior to and on each of the Closing Date and
the Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material change in the business,
operations, assets, financial condition or prospects of the Company from the
latest dates as of which such condition is set forth in the Registration
Statement and Prospectus, (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by the Company from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is materially adverse to the Company, taken as a
whole, (iii) the Company shall not be in default under any provision of any
instrument relating to any outstanding indebtedness which default would have a
Material Adverse Effect on the Company, (iv) no material amount of the assets of
the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus, (v) no action suit or proceeding, at law
or in equity, shall have been pending or threatened against the Company or
affecting any of its property or business before or by any court or federal or
state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus, (vi) no stop order shall
have been issued under the Act and no proceedings therefor shall have been
initiated or threatened by the Commission, and (vii) the Registration Statement
and the Prospectus and any amendments or supplements thereto contain all
material statements that are required to be stated therein in accordance with
the Act and the Regulations and conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.6 Delivery of Underwriters' Purchase Option. The Company shall have
delivered to the Underwriters an executed copy of the Underwriters' Purchase
Option dated the Closing Date.
4.7 Opinion of Counsel for the Underwriters. All proceedings taken in
connection with the authorization, issuance or sale of the Shares as herein
contemplated shall be reasonably satisfactory in form and substance to the
Underwriters and to Graubard Mollen & Miller, counsel for the Underwriters, and
you shall have received from such counsel a favorable opinion, dated the Closing
Date and the Option Closing Date, if any, with respect to such of these
proceedings as you may reasonably require. On or prior to the Effective Date,
the Closing Date and the Option Closing Date, as the case may be, counsel for
the Underwriters shall have been furnished such documents, certificates and
opinions as they may reasonably require for the purpose of enabling them to
review or pass upon the matters referred to in this Section 4.7, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
4.8 Employment Agreements. The Company shall have delivered to the
Underwriters employment agreements between the Company and each of Roger
Gladstone, David Greenberg and Howard Landers in a form satisfactory to GBI,
which provides for a covenant not to compete for a period of two years after
termination of employment.
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5. Indemnification.
----------------
5.1 Indemnification of the Underwriters. Subject to the conditions set
forth below, the Company agrees to indemnify and hold harmless each of the
Underwriters, its directors, officers, agents and employees and each person, if
any, who controls any Underwriter ("controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all
loss, claim, damage, liability and expense whatsoever (including but not limited
to any and all legal or other expenses reasonably incurred in investigating,
preparing or defending against any litigation, or any claims whatsoever
commenced or threatened, whether arising out of any action between either of the
Underwriters and the Company or between either of the Underwriters and any third
party or otherwise) to which they or any of them may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries (including in settlement of any litigation,
if such settlement is effected with the written consent of the Company), arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact (i) contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time each may be amended and
supplemented, and including any information deemed to be a part thereof pursuant
to Rule 430A or Rule 434 of the Regulations); (ii) contained in any
post-effective amendment or amendments or any new registration statement and
prospectus in which are included securities of the Company issued or issuable
upon exercise of the Underwriters' Purchase Option; (iii) contained in any
application or other document or written communication (in this Section 5
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Shares or this offering under the securities laws thereof or filed with the
Commission, any state securities commission or agency, the NASD (including
Nasdaq and NASD Regulation, Inc.) or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; (iv) based in whole or in part upon
any inaccuracy in the representations and warranties of the Company contained
herein; (v) based in whole or in part upon any failure of the Company to perform
its obligations hereunder or under law; or (vi) based in whole or in part on any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the offering
contemplated hereby, and that is included as part of or referred to in any loss,
claim, damage, liability or action arising out of or based upon any matter
covered by clauses (i), (ii) or (iii) above; provided that the Company shall not
be liable under this clause (vi) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; provided, however, that the foregoing indemnity agreement
shall not apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon,
and in strict conformity with, written information furnished to the Company with
respect to any Underwriter by or on behalf of such Underwriter expressly for use
in any Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment or supplement thereof, or in any application, as the case may be, and
provided further, that with respect to any preliminary prospectus, the foregoing
indemnity agreement shall not inure to the benefit of any Underwriter from whom
the person asserting any loss, claim, damage, liability or expense purchased
Shares, or any person controlling such Underwriter, if copies of the Prospectus
were timely delivered to the Underwriters pursuant to Section 3.4 and a copy of
the Prospectus (as then amended or supplemented if the Company shall have
22
<PAGE>
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or expense.
The indemnity agreement set forth in this Section 5.1 shall be in addition to
any liabilities that the Company may otherwise have. The Company agrees promptly
to notify the Underwriters of the commencement of any litigation or proceedings
against the Company or any of its officers, directors or controlling persons in
connection with the issue and sale of the Shares or in connection with the
Registration Statement or Prospectus.
5.2 Indemnification of the Company. Each Underwriter, severally and not
jointly, agrees to indemnify and hold harmless the Company against any and all
loss, liability, claim, damage and expense described in the foregoing indemnity
from the Company to the several Underwriters, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
directly relating to the transactions effected by the Underwriters in connection
with this offering made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereto or in any
application in reliance upon, and in strict conformity with, written information
furnished to the Company with respect to such Underwriter by or on behalf of
such Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
in any such application. The indemnity agreement set forth in this Section 5.2
shall be in addition to any liabilities that each Underwriter may otherwise
have.
5.3 Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 5 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 5, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability that
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 5 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnifying party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
upon advice of legal counsel that a conflict may arise between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties that are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so as to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will be liable to such indemnified party under this Section 5 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the employment of such counsel by the
indemnified party shall have been authorized in writing by the indemnifying
party in connection with the defense of such action, or (ii) the indemnifying
party shall not have employed counsel to have charge of the defense of such
action,
26
<PAGE>
or (iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events the fees
and expenses of not more than one additional firm of attorneys selected by the
indemnified party and/or controlling person thereof shall be borne by the
indemnifying party.
5.4 Settlements. The indemnifying party under this Section 5 shall not
be liable for any settlement of any proceedings effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
5.3 hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnifying party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party or
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
5.5 Contribution.
5.5.1 Contribution Rights. In order to provide for just and
equitable contribution under the Act in any case in which (i) any person
entitled to indemnification under this Section 5 makes claim for indemnification
pursuant hereto but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in such case, or (ii) contribution
under the Act, the Exchange Act or otherwise may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by the Company and
the Underwriters, as incurred, in such proportions that each Underwriter is
responsible for that portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to the initial
offering price appearing thereon and the Company is responsible for the balance;
provided, that, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Notwith standing
the provisions of this Section 5.5.1, each Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay in respect of such losses, liabilities, claims, damages and
expenses. For purposes of this Section, each director, officer and employee of
each
27
<PAGE>
Underwriter, and each person, if any, who controls each Underwriter within the
meaning of Section 15 of the Act, shall have the same rights to contribution as
the Underwriters.
5.5.2 Contribution Procedure. Within fifteen days after
receipt by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability that it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding that was effected
by the party seeking contribution without the written consent of such
contributing party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
6. Default by an Underwriter. If either Underwriter shall default in its
obligations to purchase Shares hereunder, the non-defaulting Underwriter may, in
its discretion, arrange for itself or another party or parties to purchase such
Shares on the terms contained herein. In the event that within one business day
after such default the non-defaulting Underwriter does not arrange for the
purchase of the Shares as to which such default relates, this Agreement will
thereupon terminate automatically (but only with respect to the obligations
relating to the Option Shares if such default occurs after the Closing Date)
without liability on the part of the Company (except as provided in Sections
3.14 and 5.1 hereof) or the one-defaulting Underwriter, but nothing herein shall
relieve the defaulting Underwriter of its liability, if any, to the
non-defaulting Underwriter and to the Company for damages occasioned by its
default.
7. Additional Covenants.
---------------------
7.1 Board Designee. For a period of three years from the Effective
Date, GBI shall have the right to send a representative (who need not be the
same individual from meeting to meeting) to observe each meeting of the
Company's Board of Directors. Such representative shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging and transportation. The Company
agrees to give GBI written notice of each such meeting and to provide GBI with
an agenda and minutes of the meeting no later than it gives such notice and
provides such items to the other directors.
7.2 Press Releases. The Company will not issue a press release or
engage in any other publicity (other than customary advertisements for its
products and services) until 25 days after the Effective Date without GBI's
prior consent.
8. Representations and Agreements to Survive Delivery. Except as the context
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Dates and such representations, warranties and agreements of the
Underwriters and Company, including the
28
<PAGE>
indemnity agreements contained in Section 5 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Shares to the
several Underwriters until the earlier of the expiration of any applicable
statute of limitations and the seventh anniversary of the later of the Closing
Date or the Option Closing Date, if any, at which time the representations,
warranties and agreements shall terminate and be of no further force and effect.
9. Effective Date of This Agreement and Termination Thereof.
---------------------------------------------------------
9.1 Effective Date. This Agreement shall become effective on the
Effective Date at the time that the Registration Statement is declared
effective.
9.2 Termination. GBI, as the qualified independent underwriter, shall
have the right to terminate this Agreement at any time prior to any Closing
Date, (i) market conditions are unsuitable for such offering at the price per
Share or range set forth on the cover of the Prospectus and the Company cannot
agree on another price or structure, (ii) material adverse information not
previously disclosed to GBI comes to its attention relating to the Company, its
management or its position in the industry which would preclude a successful
public offering, (iii) a material adverse change has occurred in the financial
condition, business or prospects of the Company, (iv) the Company has breached
any of its representations, warranties or obligations hereunder, or failed to
expeditiously proceed with the offering or to cooperate with GBI in requesting
effectiveness of the Registration Statement at such time as GBI may reasonably
deem appropriate, or (v) if any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, general securities markets in the United States, or
(vi) if trading on the New York Stock Exchange, the Nasdaq National Market,
Nasdaq SmallCap Market or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for Shares shall have been fixed, or maximum ranges
for prices for Shares shall have been required on the over-the-counter market by
the NASD or by order of the Commission or any other government authority having
jurisdiction, or (vii) if the United States shall have become involved in a war
or major hostilities, or (viii) if a banking moratorium has been declared by a
New York State or federal authority, or (ix) if a moratorium on foreign exchange
trading has been declared that materially adversely impacts the United States
securities market, or (x) if the Company shall have sustained a material loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act that, whether or not such loss shall have been insured, will,
in your opinion, make it inadvisable to proceed with the delivery of the Shares.
9.3 Expenses. In the event that this Agreement shall not be carried out
for any reason whatsoever, within the time specified herein or any extensions
thereof pursuant to the terms hereof, the obligations of the Company to pay the
expenses related to the transactions contemplated herein shall be governed by
Section 3.14 hereof.
9.4 Indemnification. Notwithstanding any contrary provision contained
in this Agreement, any election hereunder or any termination of this Agreement,
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
29
<PAGE>
10. Miscellaneous.
--------------
10.1 Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed
If to the Underwriters:
Gaines, Berland Inc.
1055 Stewart Avenue
Bethpage, New York 11714
Attention: Joseph Berland
Shochet Securities, Inc.
One State Street Plaza
New York, New York 1000
Attention: Roger N. Gladstone
Copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
If to the Company:
Shochet Holding Corp.
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33998
Attention: Roger N. Gladstone
Copy to:
Atlas, Pearlman, Trop & Borkson, P.A.
350 East Las Olas Boulevard
Suite 1700
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
Andrew Lockwood, Esq.
10.2 Headings. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
10.3 Amendment. This Agreement may be amended only by a written
instrument executed by each of the parties hereto.
10.4 Entire Agreement. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior
30
<PAGE>
agreements and understandings of the parties, oral and written, with respect to
the subject matter hereof.
10.5 Binding Effect. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Underwriters, the Company, the controlling
persons, directors and officers referred to in Section 5 hereof, and their
respective successors, legal Underwriters and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim under
or in respect of or by virtue of this Agreement or any provisions herein
contained.
10.6 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed and enforced in accordance with the law of the State of New York,
without giving effect to principles of conflicts of law. Each of the parties
hereto hereby agrees that any action, proceeding or claim against it arising out
of or relating in any way to this Agreement shall be brought and enforced in the
courts of the State of New York or the United States District Court for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. Each of the parties hereto hereby waives
any objection to such exclusive jurisdiction and that such courts represent an
inconvenient forum. Any such process or summons to be served upon the Company
may be served by transmitting a copy thereof by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address set
forth in Section 10.1 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the Company in any action, proceeding or claim.
The parties hereto agree that the prevailing party(ies) in any such action shall
be entitled to recover from the other party(ies) all of its reasonable
attorneys' fees and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefor.
10.7 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
10.8 Waiver, Etc. The failure of any of the parties hereto at any time
to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto thereafter to enforce each and every provision of this Agreement.
No waiver of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
10.9 Qualified Independent Underwriter. GBI hereby agrees to act as a
"qualified independent underwriter," as such term is defined in Section (b)(15)
of Rule 2720 of the NASD Conduct Rules, in connection with the offering
contemplated by this Agreement. As a "qualified independent underwriter," GBI
shall recommend the maximum public offering price at which the Shares can be
offered to the public. The Company and Shochet Securities agree that they shall
not offer the Shares at a price higher than such maximum price. GBI represents
and warrants that it meets the applicable requirements under Section (b)(15) of
Rule 2720 to act as the "qualified independent underwriter" in connection with
the offering contemplated by this Agreement.
31
<PAGE>
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
SHOCHET HOLDING CORP.
By: /s/ Roger N. Gladstone
------------------------------------
Roger N. Gladstone
Chief Executive Officer and Chairman
Accepted as of the date first above written.
New York, New York
GAINES, BERLAND INC.
By:
----------------------------------------
Name:
--------------------------------
Title:
-------------------------------
SHOCHET SECURITIES, INC.
By:
----------------------------------------
Name:
--------------------------------
Title:
-------------------------------
32
<PAGE>
SCHEDULE I
SHOCHET HOLDING CORP.
1,000,000 Shares
Number of Firm Shares
Underwriter to Be Purchased
- ----------- ---------------
Gaines, Berland Inc. 250,000
Shochet Securities, Inc. 750,000
1,000,000
33
<PAGE>
SCHEDULE 2.18.4
Insider's NASD Affiliation
--------------------------
34
<PAGE>
SCHEDULE 2.21
Intangibles
-----------
35
Adopted: January 28, 2000
AMENDMENT NO. 1
TO
BY-LAWS
OF
SHOCHET HOLDING CORP.
-----------------------------
Article II, Section 2.2 of the By-Laws is hereby changed by deleting it
in its entirety and replacing it with the following:
"2.2. 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 at least 10% of
the issued and outstanding voting stock of the corporation, which
request shall state the purpose or purposes of the proposed meeting."
The remainder of the By-Laws shall remain in full force and effect
without modification.
The following amendment was adopted by written consent of the sole
Stockholder of Shochet Holding Corp. as of January 28, 2000.
SHOCHET
SECURITIES
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
COMMON STOCK CUSIP 824880 30 1
(ILLEGIBLE)
THIS CERTIFIES that:
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $.0001 PAR VALUE EACH OF THE COMMON
STOCK OF
==========================SHOCHET HOLDING CORP.===============================
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware
and to the Certificate of Incorporation and By-Laws of the Corporation, as
(ILLEGIBLE) or hereafter amended.
This certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signature of
its duly authorized officers.
Dated:
/s/ ILLEGIBLE (SEAL) /s/ ILLEGIBLE
- ---------------------- ----------------------
President Chief Executive
Officer and Assistant Secretary
<PAGE>
The following abbreviations, when used in the inscription on the face of the
certificate, shall be construed as though they were written out in full
according to application laws and regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entities
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ___________Custodian____________
(Cust) (Officer)
under Uniform Gifts to Minors
Act_____________________________
(ILLEGIBLE)
Additional abbreviations may also be used though not in the above list.
For Value Received,_________________________hereby sell, assign and transfer
unto
Please insert Social Security or other
indentifing number or (ILLEGIBLE)
(BOX OMITTED)
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE (ILLEGIBLE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the written Certificate, and do hereby
(ILLEGIBLE) constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the written Corporation with full
power of substitution in the (ILLEGIBLE)
Dated__________________________________
________________________________________________________
(ALL ILLEGIBLE)
Signature(s) Guaranteed:
_______________________________________
(ALL ILLEGIBLE)
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT LOST, STOLEN, MUTILATED OR
DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSURANCE OF A REPLACEMENT CERTIFICATE.
DRAFT: 1/27/00
THE SHARES EVIDENCED BY THIS INSTRUMENT MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT") AND APPLICABLE SECURITIES
LAWS OF ANY STATE OR JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME, _______________, 2005.
PURCHASE OPTION
For the Purchase of
100,000 Shares of Common Stock
of
SHOCHET HOLDING CORP.
(A Delaware Corporation)
1. Purchase Option.
----------------
THIS CERTIFIES THAT, in consideration of $100.00 duly paid by
or on behalf of _____________________ ("Holder"), as registered owner of this
Purchase Option ("Purchase Option"), to Shochet Holding Corp. ("Company"),
Holder is entitled, at any time or from time to time at or after ___________ __,
2001 ("Commencement Date"), and at or before 5:00 p.m., Eastern Time,
_____________ __, 2005 ("Expiration Date"), but not thereafter, to subscribe
for, purchase and receive, in whole or in part, up to 100,000 shares ("Shares")
of the common stock of the Company, $.0001 par value ("Common Stock"), which
have been registered together with the Purchase Option on the registration
statement on Form SB-2 (File No. 333-92307) ("Registration Statement"), which
was declared effective ("Effective Date") by the Securities and Exchange
Commission on ________ __, 2000. If the Expiration Date is a day on which
banking institutions are authorized by law to close, then this Purchase Option
may be exercised on the next succeeding day which is not such a day in
accordance with the terms herein. During the period ending on the Expiration
Date, the Company agrees not to take any action that would terminate the
Purchase Option. This Purchase Option is initially exercisable at $____ per
Share purchased (110% of the initial public offering price per shares of Common
Stock); provided, however, that upon the occurrence of any of the events
specified in Section 6 hereof, the rights granted by this Purchase Option,
including the exercise price and the number of Shares to be received upon such
exercise, shall be adjusted as therein specified. The term "Exercise Price"
shall mean the initial exercise price or the adjusted exercise price, depending
on the context.
1
<PAGE>
2. Exercise.
---------
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price in cash or by certified check or official bank check for the Shares being
purchased. If the subscription rights represented hereby shall not be exercised
at or before 5:00 p.m., Eastern time, on the Expiration Date this Purchase
Option shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2 Legend. Each certificate for the Shares purchased under this
Purchase Option shall bear a legend as follows unless such Shares have been
registered under the Securities Act, as amended:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act") or applicable state law. The Shares may not be offered
for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act, or pursuant to
an exemption from registration under the Act and applicable
state law."
2.3 Cashless Exercise.
------------------
2.3.1 Conversion Right.
-----------------
2.3.1.1 Determination of Amount. In lieu of the
payment of the Exercise Price in the manner required by Section 2.1, the Holder
shall have the right (but not the obligation) to convert any exercisable but
unexercised portion of this Purchase Option into securities ("Conversion Right")
as follows: Upon exercise of the Conversion Right, the Company shall deliver to
the Holder (without payment by the Holder of any of the Exercise Price in cash)
that number of Shares equal to the quotient obtained by dividing (x) the "Value"
(as defined below) of the portion of the Purchase Option being converted by (y)
the "Market Price" (as defined below). The "Value" of the portion of the
Purchase Option being converted shall equal the remainder derived from
subtracting (a) the Exercise Price multiplied by the number of Shares underlying
the portion of the Purchase Option being converted from (b) the Market Price of
the Shares, multiplied by the number of Shares underlying the portion of the
Purchase Option being converted. As used herein, the term "Market Price" shall
be deemed to be the last reported sale price of the Shares on the date prior to
the date the Conversion Right is exercised, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
immediately preceding three trading days, in either case as officially reported
by the principal securities exchange on which the Units are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any
national securities exchange or if any such exchange on which the Units are
listed is not their principal trading market, the last reported sale price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Shares are not listed or admitted to trading on
any of the foregoing markets, or similar organization, as determined in good
faith by resolution of the Board of Directors of the Company, based on the best
information available to it.
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<PAGE>
2.3.1.2 Exercise of Conversion Right. The Conversion
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company this Purchase Option with a duly executed exercise form attached hereto
with the conversion section completed.
Conversion Right.
- -----------------
3. Transfer.
---------
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will not sell, transfer or
assign or hypothecate this Purchase Option prior to the Commencement Date to
anyone other than (i) an officer of either Gaines, Berland Inc. or Shochet
Securities, Inc., the underwriters of the public offering with respect to which
this Purchase Option has been issued ("Underwriters") or an officer or partner
of any Selected Dealer in connection with the Company's public offering with
respect to which this Purchase Option has been issued, or (ii) any Selected
Dealer. On and after the Commencement Date, transfers to others may be made
subject to compliance with or exemptions from applicable securities laws. In
order to make any permitted assignment, the Holder must deliver to the Company
the assignment form attached hereto duly executed and completed, together with
the Purchase Option and payment of all transfer taxes, if any, payable in
connection therewith. The Company shall immediately transfer this Purchase
Option on the books of the Company and shall execute and deliver a new Purchase
Option or Purchase Options of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the aggregate number of Shares
purchasable hereunder or such portion of such number as shall be contemplated by
any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Shares underlying this Purchase Option shall not be transferred unless and until
(i) the Company has received the opinion of counsel for the Holder that this
Purchase Option or the Shares, as the case may be, may be transferred pursuant
to an exemption from registration under the Act and applicable state law, the
availability of which is established to the reasonable satisfaction of the
Company (the Company hereby agreeing that the opinion of Graubard Mollen &
Miller shall be deemed satisfactory evidence of the availability of an
exemption), or (ii) a registration statement relating to such Purchase Option or
Shares, as the case may be, has been filed by the Company and declared effective
by the Securities and Exchange Commission and compliance with applicable state
law.
4. New Purchase Options to be Issued.
----------------------------------
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, upon
surrender of this Purchase Option for cancellation, together with the duly
executed exercise or assignment form and funds sufficient to pay the Exercise
Price, the Company shall cause to be delivered to the Holder without charge a
new Purchase Option of like tenor to this Purchase Option in the name of the
Holder evidencing the right of the Holder to purchase the aggregate number of
Shares purchasable hereunder as to which this Purchase Option has not been
exercised or assigned.
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<PAGE>
4.2 Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute a substitute contractual obligation
on the part of the Company.
5. Registration Rights.
--------------------
5.1 Demand Registration.
--------------------
5.1.1 Grant of Right. The Company, upon written demand
("Initial Demand Notice") of the Holder(s) of more than 50% of the Purchase
Options and/or the underlying Shares ("Majority Holders"), agrees to register on
one occasion, all or any portion of the Purchase Options requested by the
Majority Holders in the Initial Demand Notice and all of the Shares underlying
such Purchase Options (collectively the "Registrable Shares"). On such occasion,
the Company will file a Registration Statement covering the Registrable Shares
within sixty days after receipt of the Initial Demand Notice and use its best
efforts to have such registration statement declared effective promptly
thereafter. If the Company fails to comply with the provisions of this Section
5.1.1, the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any and all incidental, special and
consequential damages sustained by the Holder(s). A demand for registration may
be made at any time during a period of four years beginning one year from the
Effective Date. The Company covenants and agrees to give written notice of its
receipt of any Initial Demand Notice by any Holder(s) to all other registered
Holders of the Purchase Options and/or the Registrable Shares within ten days
from the date of the receipt of any such Initial Demand Notice.
5.1.2 Terms. The Company shall bear all fees and expenses
attendant to registering the Registrable Shares, but the Holders shall pay any
and all underwriting commissions and the expenses of any legal counsel selected
by the Holders to represent them in connection with the sale of the Registrable
Shares. The Company agrees to use its best efforts to cause the filings required
herein to become effective promptly and to qualify or register the Registrable
Shares in such States as are reasonably requested by the Holder(s); provided,
however, that in no event shall the Company be required to register the
Registrable Shares in a State in which such registration would cause (i) the
Company to be obligated to register or license to do business in such State, or
(ii) the principal stockholders of the Company to be obligated to escrow their
shares of capital stock of the Company. The Company shall cause any registration
statement filed pursuant to the demand rights granted under Section 5.1.1 to
remain effective for a period of at least nine consecutive months from the date
that the Holders of the Registrable Shares covered by such registration
statement are first given the opportunity to sell all of such securities.
5.2 "Piggy-Back" Registration.
--------------------------
5.2.1 Grant of Right. In addition to the demand right of
registration, the Holders of the Purchase Options shall have the right for a
period of six years commencing one year from the Effective Date, to include the
Registrable Securities as part of any other registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a)
4
<PAGE>
promulgated under the Act or pursuant to Form S-8); provided, however, that if,
in the written opinion of the Company's managing underwriter or underwriters, if
any, for such offering, the inclusion of the Shares, when added to the
securities being registered by the Company or the selling stockholder(s), will
exceed the maximum amount of the Company's securities which can be marketed (i)
at a price reasonably related to their then current market value, or (ii)
without materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Shares required to be so
registered but such Shares shall not be sold by the Holders until 120 days after
the registration statement for such offering has become effective and provided
further that, if any securities are registered for sale on behalf of other
stockholders in such offering and such stockholders have not agreed to defer
such sale until the expiration of such 120-day period, the number of securities
to be sold by all stockholders in such public offering during such 120-day
period shall be apportioned pro rata among all such selling stockholders,
including all holders of the Shares, according to the total amount of securities
of the Company owned by said selling stockholders, including all holders of the
Shares. Notwithstanding the foregoing, if, pursuant to a written agreement
executed prior to the date of this letter, the Company is prohibited from
registering the Registrable Shares and, after using its diligent efforts, the
Company is unable to obtain a waiver of such prohibition, then the Company will
not be obligated to register the Registrable Shares.
5.2.2 Terms. The Company shall bear all fees and expenses
attendant to registering the Registrable Shares, but the Holders shall pay any
and all underwriting commissions and the expenses of any legal counsel selected
by the Holders to represent them in connection with the sale of the Registrable
Shares. In the event of such a proposed registration, the Company shall furnish
the then Holders of outstanding Registrable Shares with not less than thirty
days written notice prior to the proposed date of filing of such registration
statement. Such notice to the Holders shall continue to be given for each
registration statement filed by the Company until such time as all of the Shares
have been sold by the Holder. The holders of the Shares shall exercise the
"piggy-back" rights provided for herein by giving written notice, within twenty
days of the receipt of the Company's notice of its intention to file a
registration statement. The Company shall cause any registration statement filed
pursuant to the above "piggyback" rights to remain effective for at least nine
months from the date that the Holders of the Shares are first given the
opportunity to sell all of such securities.
5.3 General Terms.
--------------
5.3.1 Indemnification. The Company shall indemnify the
Holder(s) of the Shares to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
or litigation, commenced or threatened, whether arising out of any action
between either of the Underwriters and the Company or between either of the
Underwriters and any third party or otherwise) to which any of them may become
subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriters contained in Sections 5.1 and 5.5 of the Underwriting Agreement
between the Underwriters and the Company, dated the Effective Date. The
Holder(s)
5
<PAGE>
of the Shares to be sold pursuant to such registration statement, and their
successors and assigns, shall severally, and not jointly, indemnify the Company,
against all loss, claim, damage, expense or liability (including all reasonable
attorneys' fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, in
writing, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Sections 5.2 and
5.5 of the Underwriting Agreement pursuant to which the Underwriters have agreed
to indemnify the Company.
5.3.2 Exercise of Purchase Options. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options prior to or after the initial filing of any registration
statement or the effectiveness thereof.
5.3.3 Exclusivity. The Company shall not permit the inclusion
of any securities other than the Registrable Shares to be included in any
registration statement filed pursuant to Section 5.1 hereof without the prior
written consent of the Majority Holders of the Registrable Shares.
5.3.4 Documents Delivered to Holders. The Company shall
furnish to each Holder participating in any of the foregoing offerings and to
each underwriter of any such offering, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the date
of the closing under any underwriting agreement related thereto), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company shall also deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and inde
pendent auditors, all to such reasonable extent and at such reasonable times and
as often as any such Holder shall reasonably request.
5.3.5 Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter(s) selected by any Holders
whose Registrable Shares are being registered pursuant to this Section 5. Such
agreement shall be reasonably satisfactory
6
<PAGE>
in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their Shares and
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders, their
shares and their intended methods of distribution.
5.3.6 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders.
6. Adjustments.
------------
6.1 Adjustments to Exercise Price and Number of Shares. The Exercise
Price and the number of Shares underlying the Purchase Option shall be subject
to adjustment from time to time as hereinafter set forth:
6.1.1 Stock Dividends - Split-Ups. If after the date hereof,
and subject to the provisions of Section 6.2 below, the number of outstanding
shares of Common Stock is increased by a stock dividend payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split-up, the number of
Shares issuable on exercise of the Purchase Option shall be increased in
proportion to such increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof, and
subject to the provisions of Section 6.2, the number of outstanding shares of
Common Stock is decreased by a consolidation, combination or reclassification of
shares of Common Stock or other similar event, then, upon the effective date of
such consolidation, combination or reclassification, the number of Shares
issuable on exercise of the Purchase Option shall be decreased in proportion to
such decrease in outstanding shares.
6.1.3 Adjustments in Exercise Price. Whenever the number of
Shares purchasable upon the exercise of this Purchase Option is adjusted, as
provided in this Section 6.1, the Exercise Price shall be adjusted (to the
nearest cent) by multiplying such Exercise Price immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the number of
Shares purchasable upon the exercise of this Purchase Option immediately prior
to such adjustment, and (y) the denominator of which shall be the number of
Shares so purchasable immediately thereafter.
6.1.4 Replacement of Shares Upon Reorganization, etc. If after
the date hereof any capital reorganization or reclassification of the Common
Stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation or other similar event shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger, or sale, lawful
and fair provision shall be
7
<PAGE>
made whereby the Holders shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in the
Purchase Option and in lieu of the securities of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented thereby, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for the number of securities
equal to the number of securities immediately theretofore purchasable and
receivable upon the exercise of the rights represented by the Purchase Option,
had such reorganization, reclassification, consolidation, merger, or sale not
taken place and in such event appropriate provision shall be made with respect
to the rights and interests of the Holders to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Exercise Price
and of the number of securities purchasable upon the exercise of the Purchase
Option) shall thereafter be applicable, as nearly as may be in relation to any
share of stock, securities, or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any such consolidation, merger, or sale
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger, or the
corporation purchasing such assets, shall assume by written instrument executed
and delivered to the Holders evidencing its obligation to deliver such shares of
stock, securities, or assets as, in accordance with the foregoing provisions,
such Holders may be entitled to purchase. The provisions of this Section 6.1.4
shall similarly apply to successive reclassifications, reorganizations, mergers
or consolidations, sales or other transfers.
6.1.5 Changes in Form of Purchase Option. This form of
Purchase Option need not be changed because of any change pursuant to this
Section, and Purchase Options issued after such change may state the same
Exercise Price and the same number of Shares as are stated in the Purchase
Options initially issued pursuant to this Agreement. The acceptance by any
Holder of the issuance of new Purchase Options reflecting a required or
permissive change shall not be deemed to waive any rights to a prior adjustment
or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Shares, upon the
exercise or transfer of the Purchase Option, nor shall it be required to issue
scrip or pay cash in lieu of any fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up or down to the nearest whole number of Shares.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon exercise of the Purchase Options, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise hereof. The Company covenants and agrees that, upon exercise of the
Purchase Options and payment of the Exercise Price herefor, all shares of Common
Stock and other securities issuable upon such exercise shall be duly and validly
issued, fully paid and non-assessable and not subject to preemptive rights of
any stockholder. As long as the Purchase Options shall be outstanding, the
Company shall use its best efforts to cause all Shares, issuable upon exercise
of the Purchase Options to be listed on all securities exchanges (or, if
applicable on the Nasdaq National Market or SmallCap Market or OTC Bulletin
Board) on which the Common Stock issued to the public in connection herewith are
then listed and/or quoted.
8
<PAGE>
8. Certain Notice Requirements.
----------------------------
8.1 Holder's Right to Receive Notice. Nothing herein shall be construed
as conferring upon the Holders the right to vote or consent or to receive notice
as a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Purchase Options and their exercise, any of the
events described in Section 8.2 shall occur, then, in one or more of said
events, the Company shall give written notice of such event at least fifteen
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution, conversion or exchange of securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of the
closing of the transfer books, as the case may be.
8.2 Events Requiring Notice. The Company shall be required to give the
notice described in this Section 8 upon one or more of the following events: (i)
if the Company shall take a record of the holders of its shares of Common Stock
for the purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company, or (ii) the Company shall
offer to all the holders of its Common Stock any additional shares of capital
stock of the Company or securities convertible into or exchangeable for shares
of capital stock of the Company, or any option, right or warrant to subscribe
therefor, or (iii) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Purchase Option shall be in writing and shall be
deemed to have been duly made on the date of delivery if delivered personally or
sent by overnight courier, with acknowledgment of receipt to the party to which
notice is given, or on the fifth day after mailing if mailed to the party to
whom notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of the Purchase Option, to the address of such Holder as shown
on the books of the Company, or (ii) if to the Company, to its principal
executive office.
9. Miscellaneous.
--------------
9.1 Amendments. The Underwriters may from time to time supplement or
amend this Purchase Option in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Underwriters may deem necessary
or desirable and which the Underwriters deem shall not adversely affect the
interest of
9
<PAGE>
the Holders. All other modifications or amendments shall require the written
consent of the party against whom enforcement of the modification or amendment
is sought.
9.2 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Purchase Option.
9.3 Entire Agreement. This Purchase Option (together with the other
agreements and documents being delivered pursuant to or in connection with this
Purchase Option) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
9.4 Binding Effect. This Purchase Option shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Purchase Option or any provisions
herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws of
the State of New York, without giving effect to conflict of laws. The Company
hereby agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Purchase Option shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any process or summons to be served upon the Company may be served by
transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
8 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim. The Company agrees
that the prevailing party(ies) in any such action shall be entitled to recover
from the other party(ies) all of its reasonable attorneys' fees and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option shall be effective unless set
forth in a written instrument executed by the party or parties against whom or
which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same
10
<PAGE>
agreement, and shall become effective when one or more counterparts has been
signed by each of the parties hereto and delivered to each of the other parties
hereto.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of the _____ day of
____________, 2000.
SHOCHET HOLDING CORP.
By: /s/ Roger N. Gladstone
------------------------------------
Roger N. Gladstone
Chairman and Chief Executive Officer
11
<PAGE>
Form to be used to exercise Purchase Option:
Shochet Holding Corp.
2351 East Hallendale Beach Boulevard
Hallendale, Florida 33998
Date:_________________, 2000
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase ____ Shares of the Common Stock of
Shochet Holding Corp. ("Company") and hereby makes payment of $____________ (at
the rate of $_________ per Share of Common Stock) in payment of the Exercise
Price pursuant thereto. Please issue the Shares as to which this Purchase Option
is exercised in accordance with the instructions given below.
or
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase _________ Shares of Common Stock of the
Company by surrender of the unexercised portion of the within Purchase Option
(with a "Value" of $__________ based on a "Market Price" of $___________).
Please issue the Shares in accordance with the instructions given below.
------------------------------
Signature
------------------------------
Signature Guaranteed
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Purchase Option in every particular
without alteration or enlargement or any change whatsoever.
12
ATLAS PEARLMAN, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
February 22, 2000
Shochet Holding Corp.
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33998
Re: Registration Statement on Form SB-2; Shochet Holding Corp.
(the "Company"), Registration No. 333-92307 ("Registation
---------------------------------------------------------
Statement")
-----------
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration by the
Company of 1,000,000 shares of common stock, par value $.001 per share
("Shares") plus up to an additional 150,000 Shares issuable in connection with
the Underwriters' over-allotment option and 100,000 Shares issuable upon
exercise of the Underwriter's Purchase Option.
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation and Bylaws of the Company; (ii) resolutions of the Board of
Directors of the Company authorizing the offering and the issuance of the Shares
and the Shares underlying the Underwriter's Purchase Option and related matters;
(iii) the Registration Statement and the exhibits thereto; and (iv) such other
matters of law as we have deemed necessary for the expression of the opinion
herein contained. In all such examinations, we have assumed the genuineness of
all signatures on original documents, and the conformity to originals or
certified documents of all copies submitted to us as conformed, photostat or
other copies. In passing upon certain corporate records and documents of the
Company, we have necessarily assumed the correctness and completeness of the
statements made or included therein by the Company, and we express no opinion
thereon. As to the various questions of fact material to this opinion, we have
relied, to the extent we deemed reasonably appropriate, upon representations or
certificates of officers or directors of the Company and upon documents, records
and instruments furnished to us by the Company, without independently checking
or verifying the accuracy of such documents, records and instruments.
<PAGE>
Shochet Holding Corp.
February 22, 2000
Page 2
Based upon the foregoing, we are of the opinion that the Shares and the
Shares underlying the Underwriter's Purchase Option have been duly and validly
authorized and when issued and paid for in accordance with their terms will be
fully paid and non-assessable. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to use our name under the
caption "Legal Matters" in the prospectus comprising part of the Registration
Statement. In giving such consent, we do not thereby admit that we are included
in with the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations promulgated thereunder.
Sincerely,
/S/ ATLAS PEARLMAN, P.A.
---------------------------
ATLAS PEARLMAN, P.A.
EMPLOYMENT AGREEMENT
AGREEMENT dated as of February ___, 2000 between ROGER N.
GLADSTONE, residing at 8563 Horseshoe Lane, Boca Raton, Florida 33432
("Executive"), and SHOCHET HOLDING CORP., a Delaware corporation having its
principal office at 2351 East Hallandale Beach Boulevard, Hallandale, Florida
33009 ("Company").
WHEREAS, the Company is engaged through its subsidiary
corporation in the business of operating and managing an investment banking and
securities brokerage firm, as well as other related enterprises; and
WHEREAS, the Company employs and desires to continue the
employment of Executive for the purpose of securing for the Company and its
subsidiary corporation the experience, ability and services of Executive; and
WHEREAS, Executive desires to continue his present employment
with the Company, pursuant to the terms and conditions herein set forth,
superseding all prior agreements between the Company, its subsidiary and/or
predecessors and Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
----------------------------------
1.1 The Company hereby employs Executive as its Chief
Executive Officer ("CEO"). All of Executive's powers and authority in any
capacity shall at all times be subject to the direction and control of the
Company's Board of Directors.
1.2 Executive's duties shall include general executive
operating supervision over the property, business and affairs of the Company,
its subsidiary and divisions, subject to the guidelines and direction of the
Board of Directors of the Company. At all times during the Term, as hereinafter
defined, the Executive shall serve as a member of the Board of Directors of the
Company and in accordance with the Bylaws of the Company.
<PAGE>
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energies and attention to the
performance of his duties hereunder. Nothing herein shall be construed as
preventing Executive from making and supervising personal investments, provided
they will not interfere with the performance of Executive's duties hereunder or
violate the provisions of paragraph 5.4 hereof. Notwithstanding the foregoing,
the parties acknowledge that Executive may be required to devote a portion of
his business time and travel to the business of the Research Partners
International, Inc. ("RPII") and its other subsidiaries pursuant to the
Intercompany Services Agreement between RPII and the Company.
1.4 Executive shall be based in the southern Florida area, and
shall undertake such occasional travel, within or without the United States, as
is reasonably necessary in the interests of the Company.
2. Compensation and Benefits.
--------------------------
2.1 The Company shall pay to Executive a salary at the minimum
annual rate of $120,000 for each twelve-month period during the term hereof
(i.e., $10,000 per month). Executive's compensation shall be paid in equal,
periodic installments in accordance with the Company's normal payroll
procedures.
2.2 The Company shall also pay to Executive such bonuses as
may be determined from time to time by the Board of Directors. In connection
therewith, the Executive shall be entitled to participate at the level of CEO in
the Company's 1999 Performance Equity Plan adopted by the Board of Directors and
approved by the Company's sole stockholder, and thereafter as in effect from
time to time during the term hereof.
2.3 The Company shall grant to Executive under its 1999
Performance Equity Plan options to purchase 36,000 shares of its common stock,
exercisable at a price equal to the per share price of the common stock offered
in the Company's initial public offering expected to be consummated in the first
quarter of calendar 2000. The options will vest in three equal annual
installments commencing on the one-year anniversary date of the effective date
of the initial public offering. Executive and the Company shall enter into a
separate stock option agreement in connection therewith. In the event that
Executive terminates this Agreement for Good Reason (as defined) any and all
options which have not vested shall immediately and automatically vest in full
without any action being required by any of the parties hereto.
2
<PAGE>
2.4 Executive shall be entitled to such medical, life,
disability and other benefits as are generally afforded to other senior
executives of the Company, subject to applicable waiting periods and other
conditions.
2.5 Executive shall be entitled to four weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.6 The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.
2.7 Executive shall maintain a suitable automobile for
business use. The Company shall reimburse Executive for the costs of leasing
such automobile and for all other costs associated with the use of the vehicle,
including insurance costs, repairs and maintenance. These reimbursements shall
be considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
3. Term and Termination.
--------------------
3.1 The term of this Agreement commences as of the effective
date of the initial public offering and shall continue until the one-year
anniversary date thereof, unless sooner terminated as herein provided (the
"Term"). This Agreement shall be subject to automatic renewals of one-year terms
unless 30 days' prior written notice of termination is given by either party.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to the
legal representative of Executive's estate (i) the base salary due Executive
pursuant to paragraph 2.1 hereof through the date of Executive's death, (ii) a
pro rata allocation of bonus payments under paragraph 2.2 during the year of
death through the date of Executive's death, (iii) all earned and previously
approved but unpaid bonuses, (iv) all valid expense reimbursements through the
date of the termination of this Agreement,
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<PAGE>
(v) all accrued but unused vacation pay and (vi) all costs associated with
terminating the lease for Executive's automobile.
3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to render,
for six consecutive months, services of the character contemplated by this
Agreement. Notwithstanding such termination, the Company shall pay to Executive
(i) the base salary due Executive pursuant to paragraph 2.1 hereof through the
date of such notice, less any amount Executive receives for such period from any
Company- sponsored or Company-paid source of insurance, disability compensation
or government program, (ii) a pro rata allocation of bonus payments under
paragraph 2.2 during the year in which the disability commenced through the date
of such notice, (iii) all earned and previously approved but unpaid bonuses,
(iv) all valid expense reimbursements through the date of the termination of
this Agreement, (v) all accrued but unused vacation pay and (vi) all costs
associated with terminating the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate this
Agreement for cause. As used herein, "Cause" shall mean: (a) the refusal or
failure by Executive to carry out specific directions of the Board which are of
a material nature and consistent with his status as CEO, or the refusal or
failure by Executive to perform a material part of Executive's duties hereunder;
(b) the commission by Executive of a material breach of any of the provisions of
this Agreement; (c) fraud or dishonest action by Executive in his relations with
the Company or any of its subsidiaries or affiliates ("dishonest" for these
purposes shall mean Executive's knowingly or recklessly making of a material
misstatement or omission for his personal benefit); or (d) the conviction of
Executive of any crime involving an act of moral turpitude, or the imposition
against Executive of a permanent bar from association with a securities firm by
any federal, state or regulatory agency or self-regulatory body after the
exhaustion of all judicial and administrative appeals therefrom. Notwithstanding
the foregoing, no termination for Cause shall be deemed to exist with respect to
Executive's acts described in clauses (a) or (b) above, unless the Company shall
have given written notice to Executive specifying the Cause with reasonable
particularity and, within thirty calendar days after such notice, Executive
shall not have cured or eliminated the problem or thing giving rise to such
Cause; provided, however, that a repeated breach after notice, cure and written
acceptance of such cure by the Board being delivered to Executive of any
provision of clauses (a) or (b) above involving
4
<PAGE>
the same or substantially similar actions or conduct, shall be grounds for
termination for Cause without any additional notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
3.6 The Executive, by notice to the Company, may terminate
this Agreement if a "Good Reason" exists. For purposes of this Agreement, Good
Reason shall mean the occurrence of any of the following circumstances without
the Executive's prior express written consent: (a) a substantial and material
adverse change in the nature of Executive's title, duties or responsibilities
with the Company that represents a demotion from his title, duties or
responsibilities as in effect immediately prior to such change; (b) a
substantial and material breach of this Agreement by the Company; (c) a failure
by the Company to make any payment to Executive when due, unless the payment is
not material and is being contested by the Company, in good faith; (d) (i) any
person or entity other than the Company or any officers, directors or
stockholders of the Company as of the date of this Agreement acquires securities
of the Company (in one or more transactions) having 25% or more of the total
voting power of all the Company's securities then outstanding and (ii) the Board
of Directors of the Company does not authorize or otherwise approve such
acquisition; or (e) a liquidation, bankruptcy or receivership of the Company.
Notwithstanding the foregoing, no Good Reason shall be deemed to exist with
respect to the Company's acts described in clauses (a), (b) or (c) above, unless
Executive shall have given written notice to the Company specifying the Good
Reason with reasonable particularity and, within thirty calendar days after such
notice, the Company shall not have cured or eliminated the problem or thing
giving rise to such Good Reason; provided, however, that a repeated breach after
notice and cure of any provision of clauses (a), (b) or (c) above involving the
same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from Executive.
3.7 In the event that Executive terminates this Agreement for
Good Reason, pursuant to the provisions of paragraph 3.6, or the Company
terminates this Agreement without Cause, as defined in paragraph 3.4, the
Company shall continue to pay to Executive (or in the case of his death, the
legal representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments,
compensation and
5
<PAGE>
benefits required under paragraph 2 hereof through the expiration of the then
current term of this Agreement; provided, however, that (i) a minimum bonus of
no less than $120,000 per annum shall be paid through the term of this
Agreement; (ii) Executive's insurance coverage shall terminate upon the
Executive becoming covered under a similar program by reason of employment
elsewhere; and (iii) Executive shall use reasonable efforts to obtain employment
elsewhere as an employee or consultant and all compensation for services paid or
earned and deferred in connection therewith shall be a reduction against the
Company's then future salary obligations pursuant to Section 2.1, but not bonus
obligations pursuant to Section 2.2, hereunder.
4. Executive Indemnity
-------------------
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided
6
<PAGE>
Executive first enters into an appropriate agreement for repayment of such
advances if indemnification is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
--------------------------------------------------------
5.1 Executive acknowledges that:
(a) As a result of his current and prior employment
with the Company, Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in this paragraph 5 as the "Company"),
including, without limitation, financial information, proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which
will be difficult
to compute if, during the period of his employment with the Company or
thereafter, Executive should enter a business competitive with the Company or
divulge Confidential Information.
(c) The provisions of this Agreement are reasonable
and necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time
divulge to any person or entity any Confidential Information obtained or learned
by him as a result of his employment with the Company, except (i) in the course
of performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government
7
<PAGE>
process, and (b) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blue prints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship with the Company.
5.4 During the period commencing on the date hereof and ending
on the one-year anniversary of the date Executive's employment hereunder is
terminated (and, if Executive is terminated with "Cause" or Executive terminates
this Agreement without "Good Reason," until April 30, 2001), Executive, without
the prior written permission of the Company, shall not (i) be employed by, or
render any services to, any person, firm or corporation engaged in any business
which is directly in competition with the Company or any of its subsidiaries (a
"Competitive Business"), (ii) employ or retain, or have or cause any other
person or entity to employ or retain, any person who was employed or retained by
the Company while Executive was employed by the Company; or (iii) solicit,
interfere with, or endeavor to entice away from the Company, for the benefit of
a Competitive Business, any of its customers or other persons with whom the
Company has a contractual relationship. Notwithstanding the foregoing, nothing
in this Agreement shall preclude Executive from investing his personal assets in
any manner he chooses, provided, however, that Executive may not, during the
period referred to in this Section 5.4, own more than 4.9% of the equity
securities of any Competitive Business.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.3 or 5.4, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the ser vices being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over
to the Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach
8
<PAGE>
of any of the provisions of Sections 5.2 or 5.4, and Executive hereby agrees to
account for and pay over such damages to the Company.
Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.7 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason, except in the event Executive is
terminated by the Company without "Cause" in breach of this Agreement, or if
Executive terminates this Agreement with "Good Reason," in either of which
events, this paragraph 5.4 shall be void and of no further force or effect.
6. Miscellaneous Provisions.
-------------------------
6.1 All notices provided for in this Agreement shall be
in writing, and shall be deemed to have been duly given when (i) delivered
personally to the party to receive the same, or (ii) when mailed first class
postage prepaid, by certified mail, return receipt requested, addressed to the
party to receive the same at his or its address set forth below, or such other
address as the party to receive the same shall have specified by written notice
given in the manner provided for in this Section 6.1. All notices shall be
deemed to have been given as of the date of personal delivery or mailing
thereof.
9
<PAGE>
If to Executive:
Roger Gladstone
8563 Horseshoe Lane
Boca Raton, Florida 33432
If to the Company:
Shochet Holding Corp.
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33009
Attn: Chief Operating Officer
With a copy in either case to:
Andrew Lockwood, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
6.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement, may be waived or changed except by a writing by the party against
whom such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
6.3 All questions with respect to the construction of
this Agreement, and the rights and obligations of the parties hereunder, shall
be determined in accordance with the law of the State of Florida applicable to
agreements made and to be performed entirely in Florida.
6.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
-----------------------------------------
ROGER GLADSTONE
SHOCHET HOLDING CORP.
-----------------------------------------
By: David Greenberg, President and
Chief Operating Officer
11
EMPLOYMENT AGREEMENT
AGREEMENT dated as of February ___, 2000 between DAVID
GREENBERG, residing at 4101 Pine Tree Drive #708, Miami Beach, Florida 33105
("Executive"), and SHOCHET HOLDING CORP., a Delaware corporation having its
principal office at 2351 East Hallandale Beach Boulevard, Hallandale, Florida
33009 ("Company").
WHEREAS, the Company is engaged through its subsidiary
corporation in the business of operating and managing an investment banking and
securities brokerage firm, as well as other related enterprises; and
WHEREAS, the Company employs and desires to continue the
employment of Executive for the purpose of securing for the Company and its
subsidiary corporation the experience, ability and services of Executive; and
WHEREAS, Executive desires to continue his present employment
with the Company, pursuant to the terms and conditions herein set forth,
superseding all prior agreements between the Company, its subsidiary and/or
predecessors and Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
---------------------------------
1.1 The Company hereby employs Executive as its President and
Chief Operating Officer ("COO"). All of Executive's powers and authority in any
capacity shall at all times be subject to the direction and control of the
Company's Board of Directors and its Chief Executive officer ("CEO").
1.2 The Board and the CEO may assign to Executive such general
management and supervisory responsibilities and executive duties for the Company
or any subsidiary of the Company, including serving as an executive officer
and/or director of any subsidiary, as are consistent with Executive's status as
COO. The Company and Executive acknowledge that Executive's primary functions
and duties as COO shall be the (i) management, oversight and supervision
(subject to the employees of the Company who report to Executive remaining
primarily responsible for supervision of their designated divisions and
functions) of the day-to-day operations of the Company and its
<PAGE>
subsidiaries and divisions, and (ii) the overall supervision of, and oversight
over, the operations of the Company.
1.3 Executive accepts such employment and agrees to devote
all of his business time, energies and attention to the performance of his
duties hereunder. Nothing herein shall be construed as preventing Executive from
making and supervising personal investments, provided they will not interfere
with the performance of Executive's duties hereunder or violate the provisions
of paragraph 5.4 hereof. Notwithstanding the foregoing, the parties acknowledge
that Executive may be required to devote a portion of his business time and
travel to the business of the Research Partners International, Inc. ("RPII") and
its other subsidiaries pursuant to the Intercompany Services Agreement between
RPII and the Company.
1.4 Executive shall be based in the southern Florida area, and
shall undertake such occasional travel, within or without the United States, as
is reasonably necessary in the interests of the Company.
2. Compensation and Benefits.
-------------------------
2.1 The Company shall pay to Executive a salary at the minimum
annual rate of $150,000 for each twelve-month period during the term hereof
(i.e., $12,500 per month). Executive's compensation shall be paid in equal,
periodic installments in accordance with the Company's normal payroll
procedures.
2.2 The Company shall also pay to Executive such bonuses as
may be determined from time to time by the Board of Directors. In connection
therewith, the Executive shall be entitled to participate at the level of COO in
the Company's 1999 Performance Equity Plan adopted by the Board of Directors and
approved by the Company's sole stockholder, and thereafter as in effect from
time to time during the term hereof.
2.3 The Company shall grant to Executive under its 1999
Performance Equity Plan options to purchase 36,000 shares of its common stock,
exercisable at a price equal to the per share price of the common stock offered
in the Company's initial public offering expected to be consummated in the first
quarter of calendar 2000. The options will vest in three equal annual
installments commencing on the one-year anniversary date of the effective date
of the initial public offering. Executive and the Company shall enter into a
separate stock option agreement in connection therewith. In the event that
Executive terminates this Agreement for Good Reason (as defined) any and all
options which have not vested shall immediately and automatically vest in full
without any action being required by any of the parties hereto.
2
<PAGE>
2.4 Executive shall be entitled to such medical, life,
disability and other benefits as are generally afforded to other senior
executives of the Company, subject to applicable waiting periods and other
conditions.
2.5 Executive shall be entitled to four weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.6 The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.
3. Term and Termination.
--------------------
3.1 The term of this Agreement commences as of the effective
date of the initial public offering and shall continue until the one-year
anniversary date thereof, unless sooner terminated as herein provided. This
Agreement shall be subject to automatic renewals of one-year terms unless 30
days' prior written notice of termination is given by either party.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to the
legal representative of Executive's estate (i) the base salary due Executive
pursuant to paragraph 2.1 hereof through the date of Executive's death, (ii) a
pro rata allocation of bonus payments under paragraph 2.2 during the year of
death through the date of Executive's death, (iii) all earned and previously
approved but unpaid bonuses, (iv) all valid expense reimbursements through the
date of the termination of this Agreement and, (v) all accrued but unused
vacation pay.
3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to render,
for six consecutive months, services of the character contemplated by this
Agreement. Notwithstanding such termination, the Company shall pay to Executive
(i) the base salary due Executive pursuant to paragraph 2.1 hereof through the
date of such notice, less any amount Executive receives for such period from any
Company-
3
<PAGE>
sponsored or Company-paid source of insurance, disability compensation or
government program, (ii) a pro rata allocation of bonus payments under paragraph
2.2 during the year in which the disability commenced through the date of such
notice, (iii) all earned and previously approved but unpaid bonuses, (iv) all
valid expense reimbursements through the date of the termination of this
Agreement and, (v) all accrued but unused vacation pay.
3.4 The Company, by notice to Executive, may terminate this
Agreement for cause. As used herein, "Cause" shall mean: (a) the refusal or
failure by Executive to carry out specific directions of the Board or CEO which
are of a material nature and consistent with his status as COO, or the refusal
or failure by Executive to perform a material part of Executive's duties
hereunder; (b) the commission by Executive of a material breach of any of the
provisions of this Agreement; (c) fraud or dishonest action by Executive in his
relations with the Company or any of its subsidiaries or affiliates ("dishonest"
for these purposes shall mean Executive's knowingly or recklessly making of a
material misstatement or omission for his personal benefit); or (d) the
conviction of Executive of any crime involving an act of moral turpitude, or the
imposition against Executive of a permanent bar from association with a
securities firm by any federal, state or regulatory agency or self-regulatory
body after the exhaustion of all judicial and administrative appeals therefrom.
Notwithstanding the foregoing, no termination for Cause shall be deemed to exist
with respect to Executive's acts described in clauses (a) or (b) above, unless
the Company shall have given written notice to Executive specifying the Cause
with reasonable particularity and, within thirty calendar days after such
notice, Executive shall not have cured or eliminated the problem or thing giving
rise to such Cause; provided, however, that a repeated breach after notice, cure
and written acceptance of such cure by the Board being delivered to Executive of
any provision of clauses (a) or (b) above involving the same or substantially
similar actions or conduct, shall be grounds for termination for Cause without
any additional notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
3.6 The Executive, by notice to the Company, may terminate
this Agreement if a "Good Reason" exists. For purposes of this Agreement, Good
Reason shall mean the occurrence of any of the following circumstances without
the Executive's prior express written consent: (a) a
4
<PAGE>
substantial and material adverse change in the nature of Executive's title,
duties or responsibilities with the Company that represents a demotion from his
title, duties or responsibilities as in effect immediately prior to such change;
(b) a substantial and material breach of this Agreement by the Company; (c) a
failure by the Company to make any payment to Executive when due, unless the
payment is not material and is being contested by the Company, in good faith;
(d) (i) any person or entity other than the Company or any officers, directors
or stockholders of the Company as of the date of this Agreement acquires
securities of the Company (in one or more transactions) having 25% or more of
the total voting power of all the Company's securities then outstanding and (ii)
the Board of Directors of the Company does not authorize or otherwise approve
such acquisition; or (e) a liquidation, bankruptcy or receivership of the
Company. Notwithstanding the foregoing, no Good Reason shall be deemed to exist
with respect to the Company's acts described in clauses (a), (b) or (c) above,
unless Executive shall have given written notice to the Company specifying the
Good Reason with reasonable particularity and, within thirty calendar days after
such notice, the Company shall not have cured or eliminated the problem or thing
giving rise to such Good Reason; provided, however, that a repeated breach after
notice and cure of any provision of clauses (a), (b) or (c) above involving the
same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from Executive.
3.7 In the event that Executive terminates this Agreement for
Good Reason, pursuant to the provisions of paragraph 3.6, or the Company
terminates this Agreement without Cause, as defined in paragraph 3.4, the
Company shall continue to pay to Executive (or in the case of his death, the
legal representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments,
compensation and benefits required under paragraph 2 hereof through the
expiration of the then current term of this Agreement; provided, however, that
(i) a minimum bonus of no less than $150,000 per annum shall be paid through the
term of this Agreement; (ii) Executive's insurance coverage shall terminate upon
the Executive becoming covered under a similar program by reason of employment
elsewhere; and (iii) Executive shall use reasonable efforts to obtain employment
elsewhere as an employee or consultant and all compensation for services paid or
earned and deferred in connection therewith shall be a reduction against the
Company's then future salary obligations pursuant to Section 2.1, but not bonus
obligations pursuant to Section 2.2, hereunder.
5
<PAGE>
4. Executive Indemnity
-------------------
4.1 The Company agrees to indemnify Executive and hold Executive harmless
against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (other than settlements to which the Company
does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
-------------------------------------------------------
5.1 Executive acknowledges that:
(a) As a result of his current and prior employment
with the Company, Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in this paragraph 5 as the
6
<PAGE>
"Company"), including, without limitation, financial information, proprietary
rights, trade secrets and "know-how," customers and sources ("Confidential
Information").
(b) The Company will suffer substantial damage which
will be difficult to compute if, during the period of his employment with the
Company or thereafter, Executive should enter a business competitive with the
Company or divulge Confidential Information.
(c) The provisions of this Agreement are reasonable
and necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not, at any time, divulge to
any person or entity any Confidential Information obtained or learned by him as
a result of his employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blue prints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship with the Company.
7
<PAGE>
5.4 During the period commencing on the date hereof and ending
on the one-year anniversary of the date Executive's employment hereunder is
terminated (and, if Executive is terminated with "Cause" or Executive terminates
this Agreement without "Good Reason," until April 30, 2001), Executive, without
the prior written permission of the Company, shall not (i) be employed by, or
render any services to, any person, firm or corporation engaged in any business
which is directly in competition with the Company or any of its subsidiaries (a
"Competitive Business"), (ii) employ or retain, or have or cause any other
person or entity to employ or retain, any person who was employed or retained by
the Company while Executive was employed by the Company, or (iii) solicit,
interfere with, or endeavor to entice away from the Company, for the benefit of
a Competitive Business, any of its customers or other persons with whom the
Company has a contractual relationship. Notwithstanding the foregoing, nothing
in this Agreement shall preclude Executive from investing his personal assets in
any manner he chooses, provided, however, that Executive may not, during the
period referred to in this Section 5.4, own more than 4.9% of the equity
securities of any Competitive Business.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.3 or 5.4, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the ser vices being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over
to the Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2 or
5.4, and Executive hereby agrees to account for and pay over such damages to the
Company.
Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
8
<PAGE>
5.6 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.7 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason, except in the event Executive is
terminated by the Company without "Cause" in breach of this Agreement, or if
Executive terminates this Agreement with "Good Reason," in either of which
events, paragraph 5.4 shall be void and of no further force or effect.
6. Miscellaneous Provisions.
------------------------
6.1 All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when (i) delivered
personally to the party to receive the same, or (ii) when mailed first class
postage prepaid, by certified mail, return receipt requested, addressed to the
party to receive the same at his or its address set forth below, or such other
address as the party to receive the same shall have specified by written notice
given in the manner provided for in this Section 6.1. All notices shall be
deemed to have been given as of the date of personal delivery or mailing
thereof.
If to Executive:
David Greenberg
4101 Pine Tree Drive # 708
Miami, Florida 33105
If to the Company:
Shochet Holding Corp.
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33009
Attn: Chief Executive Officer
With a copy in either case to:
Andrew Lockwood, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
9
<PAGE>
6.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement, may be waived or changed except by a writing by the party against
whom such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
6.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of Florida applicable to
agreements made and to be performed entirely in Florida.
6.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
-----------------------------------------
DAVID GREENBERG
SHOCHET HOLDING CORP.
-----------------------------------------
By: Roger Gladstone, Chief Executive Officer
10
EMPLOYMENT AGREEMENT
AGREEMENT dated as of February ___, 2000 between HOWARD B.
LANDERS, residing at 9881 SW 131st Street, Miami, Florida 33176 ("Executive"),
and SHOCHET HOLDING CORP., a Delaware corporation having its principal office at
2351 East Hallandale Beach Boulevard, Hallandale, Florida 33009 ("Company").
WHEREAS, the Company is engaged through its subsidiary
corporation in the business of operating and managing an investment banking and
securities brokerage firm, as well as other related enterprises; and
WHEREAS, the Company employs and desires to continue the
employment of Executive for the purpose of securing for the Company and its
subsidiary corporation the experience, ability and services of Executive; and
WHEREAS, Executive desires to continue his present employment
with the Company, pursuant to the terms and conditions herein set forth,
superseding all prior agreements between the Company, its subsidiary and/or
predecessors and Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
---------------------------------
1.1 The Company hereby employs Executive as its Executive Vice
President - Online Products ("EVP"). All of Executive's powers and authority in
any capacity shall at all times be subject to the direction and control of the
Company's Board of Directors and its Chief Executive Officer ("CEO") and its
Chief Operating Officer ("COO").
1.2 The Board, CEO or COO may assign to Executive such general
management and supervisory responsibilities and executive duties for the Company
or any subsidiary of the Company, including serving as an executive officer
and/or director of any subsidiary, as are consistent with Executive's status as
EVP. The Company and Executive acknowledge that Executive's primary functions
and duties as EVP shall be the management and oversight of the Company's online
operations.
<PAGE>
1.3 Executive accepts such employment and agrees to devote all
of his business time, energies and attention to the performance of his duties
hereunder. Nothing herein shall be construed as preventing Executive from making
and supervising personal investments, provided they will not interfere with the
performance of Executive's duties hereunder or violate the provisions of
paragraph 5.4 hereof.
1.4 Executive shall be based in the southern Florida area, and
shall undertake such occasional travel, within or without the United States, as
is reasonably necessary in the interests of the Company.
2. Compensation and Benefits.
-------------------------
2.1 The Company shall pay to Executive a salary at the minimum
annual rate of $120,000 for each twelve-month period during the term hereof
(i.e., $10,000 per month). Executive's compensation shall be paid in equal,
periodic installments in accordance with the Company's normal payroll
procedures.
2.2 The Company shall also pay to Executive such bonuses as
may be determined from time to time by the Board of Directors. In connection
therewith, the Executive shall be entitled to participate at the level of EVP in
the Company's 1999 Performance Equity Plan adopted by the Board of Directors and
approved by the Company's sole stockholder, and thereafter as in effect from
time to time during the term hereof.
2.3 The Company shall grant to Executive under its 1999
Performance Equity Plan options to purchase 36,000 shares of its common stock,
exercisable at a price equal to the per share price of the common stock offered
in the Company's initial public offering expected to be consummated in the first
quarter of calendar 2000. The options will vest in three equal annual
installments commencing on the one-year anniversary date of the effective date
of the initial public offering. Executive and the Company shall enter into a
separate stock option agreement in connection therewith. In the event that
Executive terminates this Agreement for Good Reason (as defined) any and all
options which have not vested shall immediately and automatically vest in full
without any action being required by any of the parties hereto.
2
<PAGE>
2.4 Executive shall be entitled to such medical, life,
disability and other benefits as are generally afforded to other senior
executives of the Company, subject to applicable waiting periods and other
conditions.
2.5 Executive shall be entitled to four weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.6 The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.
3. Term and Termination.
--------------------
3.1 The term of this Agreement commences as of the effective
date of the initial public offering and shall continue until the one-year
anniversary thereof, unless sooner terminated as herein provided. This Agreement
shall be subject to automatic renewals of one-year terms unless 30 days' prior
written notice of termination is given by either party.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to the
legal representative of Executive's estate (i) the base salary due Executive
pursuant to paragraph 2.1 hereof through the date of Executive's death, (ii) a
pro rata allocation of bonus payments under paragraph 2.2 during the year of
death through the date of Executive's death, (iii) all earned and previously
approved but unpaid bonuses, (iv) all valid expense reimbursements through the
date of the termination of this Agreement and, (v) all accrued but unused
vacation pay.
3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to render,
for six consecutive months, services of the character contemplated by this
Agreement. Notwithstanding such termination, the Company shall pay to Executive
(i) the base salary due Executive pursuant to paragraph 2.1 hereof through the
date of such notice, less any amount Executive receives for such period from any
Company-
3
<PAGE>
sponsored or Company-paid source of insurance, disability compensation or
government program, (ii) a pro rata allocation of bonus payments under paragraph
2.2 during the year in which the disability commenced through the date of such
notice, (iii) all earned and previously approved but unpaid bonuses, (iv) all
valid expense reimbursements through the date of the termination of this
Agreement and, (v) all accrued but unused vacation pay.
3.4 The Company, by notice to Executive, may terminate this
Agreement for cause. As used herein, "Cause" shall mean: (a) the refusal or
failure by Executive to carry out specific directions of the Board, the CEO or
COO which are of a material nature and consistent with his status as EVP, or the
refusal or failure by Executive to perform a material part of Executive's duties
hereunder; (b) the commission by Executive of a material breach of any of the
provisions of this Agreement; (c) fraud or dishonest action by Executive in his
relations with the Company or any of its subsidiaries or affiliates ("dishonest"
for these purposes shall mean Executive's knowingly or recklessly making of a
material misstatement or omission for his personal benefit); or (d) the
conviction of Executive of any crime involving an act of moral turpitude, or the
imposition against Executive of a permanent bar from association with a
securities firm by any federal, state or regulatory agency or self-regulatory
body after the exhaustion of all judicial and administrative appeals therefrom.
Notwithstanding the foregoing, no termination for Cause shall be deemed to exist
with respect to Executive's acts described in clauses (a) or (b) above, unless
the Company shall have given written notice to Executive specifying the Cause
with reasonable particularity and, within thirty calendar days after such
notice, Executive shall not have cured or eliminated the problem or thing giving
rise to such Cause; provided, however, that a repeated breach after notice, cure
and written acceptance of such cure by the Board being delivered to Executive of
any provision of clauses (a) or (b) above involving the same or substantially
similar actions or conduct, shall be grounds for termination for Cause without
any additional notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
3.6 The Executive, by notice to the Company, may terminate
this Agreement if a "Good Reason" exists. For purposes of this Agreement, Good
Reason shall mean the occurrence of any of the following circumstances without
the Executive's prior express written consent: (a) a
4
<PAGE>
substantial and material adverse change in the nature of Executive's title,
duties or responsibilities with the Company that represents a demotion from his
title, duties or responsibilities as in effect immediately prior to such change;
(b) a substantial and material breach of this Agreement by the Company; (c) a
failure by the Company to make any payment to Executive when due, unless the
payment is not material and is being contested by the Company, in good faith;
(d) (i) any person or entity other than the Company or any officers, directors
or stockholders of the Company as of the date of this Agreement acquires
securities of the Company (in one or more transactions) having 25% or more of
the total voting power of all the Company's securities then outstanding and (ii)
the Board of Directors of the Company does not authorize or otherwise approve
such acquisition; or (e) a liquidation, bankruptcy or receivership of the
Company. Notwithstanding the foregoing, no Good Reason shall be deemed to exist
with respect to the Company's acts described in clauses (a), (b) or (c) above,
unless Executive shall have given written notice to the Company specifying the
Good Reason with reasonable particularity and, within thirty calendar days after
such notice, the Company shall not have cured or eliminated the problem or thing
giving rise to such Good Reason; provided, however, that a repeated breach after
notice and cure of any provision of clauses (a), (b) or (c) above involving the
same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from Executive.
3.7 In the event that Executive terminates this Agreement for
Good Reason, pursuant to the provisions of paragraph 3.6, or the Company
terminates this Agreement without Cause, as defined in paragraph 3.4, the
Company shall continue to pay to Executive (or in the case of his death, the
legal representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments,
compensation and benefits required under paragraph 2 hereof through the
expiration of the then current term of this Agreement; provided, however, that
(i) Executive's insurance coverage shall terminate upon the Executive becoming
covered under a similar program by reason of employment elsewhere, and (ii)
Executive shall use reasonable efforts to obtain employment elsewhere as an
employee or consultant and all compensation for services paid or earned and
deferred in connection therewith shall be a reduction against the Company's then
future salary obligations pursuant to Section 2.1.
5
<PAGE>
4. Executive Indemnity
-------------------
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
-------------------------------------------------------
5.1 Executive acknowledges that:
(a) As a result of his current and prior employment
with the Company, Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in this paragraph 5 as the
6
<PAGE>
"Company"), including, without limitation, financial information, proprietary
rights, trade secrets and "know-how," customers and sources ("Confidential
Information").
(b) The Company will suffer substantial damage which
will be difficult
to compute if, during the period of his employment with the Company or
thereafter, Executive should enter a business competitive with the Company or
divulge Confidential Information.
(c) The provisions of this Agreement are reasonable
and necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, divulge to
any person or entity any Confidential Information obtained or learned by him as
a result of his employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blue prints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship with the Company.
7
<PAGE>
5.4 During the period commencing on the date hereof and ending
on the one-year anniversary of the date Executive's employment hereunder is
terminated (and, if Executive is terminated with "Cause" or Executive terminates
this Agreement without "Good Reason," until April 30, 2001), Executive, without
the prior written permission of the Company, shall not (i) employ or retain, or
have or cause any other person or entity to employ or retain, any person who was
employed or retained by the Company while Executive was employed by the Company,
or (ii) solicit, interfere with, or endeavor to entice away from the Company,
for the benefit of any person, firm or corporation principally engaged in the
business of providing online brokerage services (a "Competitive Business"), any
of its customers or other persons with whom the Company has a contractual
relationship. Notwithstanding the foregoing, nothing in this Agreement shall
preclude Executive from investing his personal assets in any manner he chooses,
provided, however, that Executive may not, during the period referred to in this
Section 5.4, own more than 4.9% of the equity securities of any Competitive
Business.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.3 or 5.4, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the ser vices being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over
to the Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2 or
5.4, and Executive hereby agrees to account for and pay over such damages to the
Company.
Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
8
<PAGE>
5.6 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.7 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason, except in the event Executive is
terminated by the Company without "Cause" in breach of this Agreement, or if
Executive terminates this Agreement with "Good Reason," in either of which
events, this paragraph 5 shall be null and void and of no further force or
effect.
6. Miscellaneous Provisions.
------------------------
6.1 All notices provided for in this Agreement shall be
in writing, and shall be deemed to have been duly given when (i) delivered
personally to the party to receive the same, or (ii) when mailed first class
postage prepaid, by certified mail, return receipt requested, addressed to the
party to receive the same at his or its address set forth below, or such other
address as the party to receive the same shall have specified by written notice
given in the manner provided for in this Section 6.1. All notices shall be
deemed to have been given as of the date of personal delivery or mailing
thereof.
If to Executive:
Howard B. Landers
9881 SW 131st Street
Miami, Florida 33176
If to the Company:
Shochet Holding Corp.
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33009
Attn: Chief Executive Officer
With a copy in either case to:
Andrew Lockwood, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
9
<PAGE>
6.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement, may be waived or changed except by a writing by the party against
whom such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
6.3 All questions with respect to the construction of
this Agreement, and the rights and obligations of the parties hereunder, shall
be determined in accordance with the law of the State of Florida applicable to
agreements made and to be performed entirely in Florida.
6.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
-----------------------------------------
HOWARD B. LANDERS
SHOCHET HOLDING CORP.
-----------------------------------------
By: Roger Gladstone, Chief Executive Officer
10
INTERCOMPANY SERVICES AGREEMENT
This Intercompany Services Agreement ("Agreement"), dated as of ______
__, 2000, by and among Research Partners International, Inc., a Delaware
corporation ("RPII"), Shochet Holding Corp., a Delaware corporation ("Shochet
Holding") and Shochet Securities, Inc., a Florida corporation ("Shochet
Securities" and together with Shochet Holding, "Shochet").
WHEREAS, Shochet Holding, through its wholly-owned subsidiary Shochet
Securities, offers, full service discount brokerage, telephonically, in-person
and through the Internet ("Shochet Business").
WHEREAS, in November 1999, RPII exchanged all of its shares of Shochet
Securities, which constituted all of the outstanding capital stock of Shochet
Securities, to Shochet Holding in exchange for 1,200,000 shares of the common
stock of Shochet Holding, then constituting all of the outstanding capital stock
of Shochet Holding.
WHEREAS, upon consummation of the intended public offering of Shochet
Holding, RPII will maintain its majority ownership position in Shochet Holding,
which in turn will continue to own all of the outstanding common stock of
Shochet Securities.
WHEREAS, RPII, through its other operating subsidiaries, GKN Securities
Corp., Research Partners International, AG, Dalewood Associates, Inc. and
EarlyBirdCapital.com Inc., provides institutional investment banking, securities
brokerage, trading services and merchant banking and engages in certain of such
businesses, telephonically, in person and/or through the Internet.
WHEREAS, RPII has been providing certain services to Shochet directly
or indirectly through its other operating subsidiaries.
WHEREAS, Shochet desires RPII to continue to provide certain services
to Shochet and Shochet agrees to provide certain services to RPII, all on a cost
reimbursement basis in accordance with the terms of this Agreement.
WHEREAS, RPII agrees to continue to provide certain services to Shochet
and desires Shochet to provide certain services to RPII, all on a cost
reimbursement basis in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises contained
herein, the parties to this Agreement agree as follows:
1. Services by RPII. As reasonably requested by Shochet, RPII will
provide services to Shochet in connection with the operation of Shochet's
business, including rendering services regarding: accounting and bookkeeping,
financial planning and financial reporting, internal audit, records management,
payroll management, purchasing assistance, regulatory compliance, human
resources management, tax reporting and tax filing, financial analysis and
office services. Services may be provided by RPII or any of its affiliates, as
determined by RPII. In addition, Shochet will be permitted to use office space
of RPII at One State Street Plaza, New York, New York as mutually agreed upon by
RPII and Shochet.
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2. Reimbursement by Shochet. As compensation for RPII's services,
Shochet will pay to RPII its direct and reasonable costs related to performing
such services. The office space of RPII used by Shochet will be compensated for
on the basis of allocable square footage used by Shochet at the rate RPII is
required to pay under its lease. This obligation will extend to reimbursement
for the cost of services performed prior to the effective date of this Agreement
which have been accrued, but not paid. All invoices will be due and payable
within 10 days of receipt. RPII, unless otherwise agreed, will not be obligated
to advance funds for the costs or expenses of Shochet's operations or
obligations.
3. Services by Shochet. Shochet will provide services to RPII within
Shochet's then ordinary scope of business, from time to time, as requested by
RPII.
4. Reimbursement by RPII. In compensation for Shochet's services, RPII
will pay to Shochet its direct and reasonable costs related to performing such
services including all of its overhead and related expenses attributable to
performing the services. All invoices will be due and payable within 10 days of
receipt. Shochet, unless otherwise agreed, will not be obligated to advance
funds for the costs or expenses of RPII operations or obligations.
5. Third-Party Services for Shochet. As reasonably requested by
Shochet, using commercially reasonable efforts, RPII will arrange for
independent third-parties to provide certain of the services referenced in
section 1 above to Shochet. Third-party services may include, but not be limited
to, suppliers of goods and services, bank services, clearing services, warehouse
charges for centralized records storage, delivery charges, and tax preparation
and payment. The costs that are incurred by RPII to third-party suppliers of
services or products on behalf of Shochet will be reimbursed promptly (at actual
cost) by Shochet or, if directed by RPII, will be paid directly to the
third-party suppliers. RPII will submit to Shochet all bills or other supporting
documentation relating to third-party suppliers. To the extent third-party
services are incurred for the benefit of all affiliates of RPII, these costs
will be reimbursed by Shochet on an allocated basis, provided that the
allocation will be applied consistently among all the affiliates based on the
use of the services supplied by the third-party.
6. Standard of Care. RPII and Shochet will provide the services
described herein during the term of this Agreement in accordance with the terms
and conditions set forth herein. Each of RPII and Shochet will perform its
responsibilities hereunder in a diligent, careful and vigilant manner. The
services are to be of a scope and quality not less than those generally
performed by the RPII or Shochet employees for the benefit of their respective
employers. Each of RPII and Shochet will make available to the other the full
benefit of the judgement, experience and advice of the employees performing
services for the other.
7. Personnel. In performances of the services hereunder, each of RPII
and Shochet may use their personnel or the personnel of their affiliates as may
be necessary to perform the obligations required by this Agreement at their
expense. The cost of the services performed by such employee, however, shall be
reimbursed by the party on whose behalf the services were performed in
accordance with Sections 2 or 4 hereof, as the case may be.
8. Term. The term of this Agreement will commence on the date the
registration statement filed by Shochet Holding with the Securities and Exchange
Commission ("SEC") is declared effective by the SEC and will end on the earlier
of (i) the date that RPII no longer owns 50% of the outstanding capital stock of
Shochet Holding having the right to cast a majority of the votes
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entitled to vote on all matters on which the holders of the common stock of
Shochet Holding are entitled to vote, or (ii) the third anniversary of the date
of this Agreement.
Shochet Holding will have the right to terminate this
Agreement immediately: (i) if RPII is in material breach of any of its
obligations hereunder, which breach is not cured within 20 days of receipt of
written notice from Shochet Holding of the breach, (ii) if RPII is the subject
of a voluntary petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within 60 days of
filing, or becomes the subject of any involuntary petition in bankruptcy or any
involuntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within 60 days of filing, (iii) if the business of RPII is liquidated
or otherwise terminated for insolvency or any other basis, or (iv) if RPII
becomes insolvent or unable to pay its debts as they mature or makes an
assignment for the benefit of its creditors.
RPII will have the right to terminate this Agreement
immediately: (i) if either of Shochet Holding or Shochet Securities is in
material breach of any of its obligations hereunder, which breach is not cured
within 20 days of receipt of written notice from RPII of the breach, (ii) if
either of Shochet Holding or Shochet Securities is the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within 60 days of filing, or becomes the
subject of any involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within 60
days of filing, (iii) if the business of either Shochet Holding or Shochet
Securities is liquidated or otherwise terminated for insolvency or any other
basis, or (iv) if either of Shochet Holding or Shochet Securities becomes
insolvent or unable to pay its debts as they mature or makes an assignment for
the benefit of its creditors.
Either RPII or Shochet Holding may terminate this Agreement
upon not less than 60 days notice to the other, which notice will state the date
on which termination will be effective, provided notice of termination given by
Shochet Holding shall be approved by a majority of its directors who are not
employees, directors or officers of RPII.
No exercise by a party of its right to terminate this
Agreement will limit its remedies by reason of the other party's default, the
party's right to exercise any other rights under this section or any of that
party's other rights.
9. Directors and Officers Duties. Nothing in this Agreement will limit
or restrict the right of any of the RPII directors, officers or employees to
engage in any other business or devote their time and attention in part to the
management or other aspects of any other business, whether of a similar nature,
or to limit or restrict the right of RPII to engage in any other business or to
render services of any kind to any corporation, firm, individual, trust or
association.
10. Independent Contractors. Each of RPII and Shochet is an independent
contractor and when its employees act under the terms of this Agreement, they
will be deemed at all times to be under the supervision and responsibility of
their employer; and no person employed by RPII or Shochet and acting under the
terms of this Agreement will be deemed to be acting as agent or employee of the
other for any purpose whatsoever.
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11. Other Agreements. From time to time one party may find it necessary
or desirable either to enter into agreements covering services of the type
contemplated by this Agreement to be provided by persons other than RPII or
Shochet, as the case may be. Nothing in this Agreement will be deemed to limit
in any way the right of RPII or Shochet to acquire services from others or to
enter into other agreements.
12. No Waiver. No failure or delay on the part of any party in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any single or partial exercise thereof preclude any other or
future exercise thereof or the exercise of any other right, power or privilege.
13. Successors and Assigns. This Agreement will inure to the benefit
of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto, provided however, that neither party may
assign its rights or obligations hereunder without the consent of the other
party hereto, except that RPII may assign its rights and obligations hereunder
to any affiliate of RPII other than Shochet Holding or Shochet Securities
without obtaining the consent of Shochet Holding. Any assignment will not
relieve RPII of its rights or obligations hereunder.
14. Amendments. Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure from the terms of any provisions to this Agreement
will be made in writing, signed by the parties hereto, and will be effective
only (a) in the specific instance and for the specific purpose for which it is
made or given; and (b) if approved by a majority of the directors of Shochet who
are not affiliated with RPII.
15. Notices. Unless otherwise specifically provided, all notices,
demands, statements and communications required hereunder will be in writing and
will be sent by registered or certified mail, if intended for RPII addressed
thereto at
Research Partners International, Inc.
One State Street Plaza
New York, New York 10004
Attention: Mr. John P. Margaritis, Chief Executive Officer
and if intended for Shochet addressed thereto at
Shochet Holding Corp.
2351 East Hallandale Beach Boulevard
Hallandale, Florida 33998
Attention: Roger N. Gladstone, Chief Executive Officer
16. Captions. The captions of this Agreement are inserted only for the
purpose of convenient reference and do not define, limit or prescribe the scope
or intent of this Agreement or any part hereof.
17. Governing Law. This Agreement will be governed by, and construed
under, the laws of the State of New York without regard to the principles of
conflicts of law thereof.
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18. Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
19. Entire Agreement. This Agreement integrates all the terms and
conditions mentioned herein or incidental hereto and supersedes all oral
negotiations and prior writings in respect to the subject matter hereof. In the
event of any conflict between the terms, conditions and provisions of this
Agreement and any other agreement, document or instrument to which the parties
hereto are bound, the terms, conditions and provisions of this Agreement shall
prevail.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
SHOCHET HOLDING CORP.
By: ____________________________________
Name: Roger N. Gladstone
Title: Chief Executive Officer
SHOCHET SECURITIES, INC.
By: _____________________________________
Name: Roger N. Gladstone
Title: Chief Executive Officer
RESEARCH PARTNERS INTERNATIONAL, INC.
By: _____________________________________
Name: John P. Margaritis
Title: President and Chief Executive Officer
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AGREEMENT
This agreement, made this __ day of _____________ (the "Agreement")
between Schroder & Co. Inc. a Delaware corporation ("Schroder" or the "Clearing
Firm"), and Shochet Securities (the "Introducing Firm").
W I T N E S S E T H T H A T :
WHEREAS, the Introducing Firm desires to avail itself of the clearing
services of Schroder as more fully set forth herein, and
WHEREAS, Schroder desires to extend such clearing services to the
Introducing Firm;
NOW, THEREFORE, in consideration of the mutual convenants hereinafter
set forth and other good and valuable considerations the receipt of which is
hereby acknowledged, the parties hereby convenant and agree as follows:
I. Services to be Performed by Schroder.
A. Schroder will carry individually on its books on a fully disclosed
basis the securities accounts on behalf of the Introducing Firm's customers
whose accounts have been introduced by the Introducing Firm and are accepted by
Schroder and will similarly carry all of the Introducing Firm's firm accounts
(collectively the "Introduced Accounts") commencing with the trade date of
_________.
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B. Schroder will prepare and mail to the Introduced Accounts
confirmations of purchases and sales of securities imprinted "Upon Instructions
of" the Introducing Firm and monthly statements of account (or quarterly
statements where appropriate due to inactivity) imprinted "In account with" the
Introducing Firm and bearing the name of Schroder and reflecting all
transactions reported to Schroder as having been executed by the Introducing
Firm for the Introduced Accounts pursuant to paragraph I.A. above.
C. Schroder shall be responsible for establishing and implementing
procedures for the transmission or execution of orders for the Introduced
Accounts.
D. Schroder will settle all transactions reported to it pursuant to
paragraph I.B. above and all related contracts.
E. Schroder will perform all cashiering functions in connection with
transactions reported to it by the Introducing Firm for the Introduced Accounts
including, but not limited to, the receipt, transfer and delivery of securities
purchased, sold, borrowed and loaned, making and receiving payment therefore,
and if requested by the Introducing Firm, holding in custody and safekeeping all
securities and cash so received.
F. Schroder will process warrants, exchange offers, rights offerings,
tender offers and redemptions for securities which are held by Schroder in the
same manner such offers and redemptions are processed for Schroder's own
accounts, or as mutually agreed between Schroder and the Introducing Firm.
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G. Schroder will forward all annual reports, proxy materials, proxies
and other reports with respect to securities which are held by Schroder in
accordance with applicable rules and regulations, to the extent such material is
provided on a timely basis to Lewco Securities Corp. by the applicable company.
H. Schroder will accept and remit dividends and interest for securities
which are held by Schroder (or in its name of any subsidiary or nominee) for
Introduced Accounts.
I. In accordance with the requirements of the Securities and Exchange
Commission ("SEC") and all the national securities exchanges and associations
having jurisdiction over such activities, Schroder will prepare, maintain and
preserve for the required periods books, records and documentation of all
transactions with respect to which it has performed clearance or cashiering
services for the Introduced Accounts. Provided, however, that Schroder shall not
be responsible for the filing of any regulatory reports required of the
Introducing Firm by the SEC, the National Association of Securities Dealers,
Inc. ("NASD"), or any national securities, commodities or other exchange, which
shall be the sole responsibility of the Introducing Firm.
J. Schroder will maintain appropriate stock inventory records for
securities which are deposited with Schroder in connection with transactions
cleared by Schroder for the Introduced Accounts.
K. Schroder will prepare and deliver to the Introducing Firm duplicate
confirmations and statements with respect to transactions cleared for the
Introduced Accounts and daily and monthly computer summaries of all transactions
cleared by Schroder for the Introduced Accounts on the same schedule as
comparable reports are prepared for Schroder's own accounts, or as mutually
agreed.
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L. Schroder will comply with all applicable rules and regulations
governing the handling of accounts for employees or officers of member
organizations and self-regulatory organizations including, but not limited to,
sending duplicate confirmations to the proper employer for all transactions
executed by or cleared through Schroder for all Introduced Accounts so
identified to Schroder.
M. Schroder expressly disclaims any obligation to furnish investment
advice to any Introduced Account. The furnishing of investment advice is to be
the responsibility of the Introducing Firm or any third party investment adviser
who may be employed by the customer.
N. For purposes of the Securities Investor Protection Act and the
Securities and Exchange Commission's financial responsibility rules, Introduced
Accounts are accounts of the Clearing Firm, and not the Introducing Firm.
II. Charges.
A. For the services to be performed by Schroder hereunder, the
Introducing Firm agrees to pay the charges listed on Exhibit 1 attached hereto
and made a part hereof.
B. In the event that the Introducing Firm or any customer of the
Introducing Firm shall direct any securities transactions (other than those
referred to above) to Schroder during the term of this Agreement, Schroder may
either, as mutually agreed, (i) give appropriate recognition thereto by the
reduction of one or more amounts payable by the Introducing Firm to Schroder
hereunder or (ii) provide additional compensation to the Introducing Firm.
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III. Opening of Accounts.
A. At the opening of each Introduced Account, the Introducing Firm
shall furnish Schroder with all customary information concerning its customer
which Schroder requests. At the time of the opening of an Introduced Account,
Schroder shall cause to be delivered to and solicit the return from the
customer, Customers' Agreements on Schroder's forms (or assignments, in form
satisfactory to Schroder, of existing agreements between the customer and the
Introducing Firm) and such other documents as Schroder shall deem necessary with
respect to the account. Schroder's failure to receive any of the above documents
required to be executed and returned shall not be deemed a waiver of the above
requirements. Schroder shall also inform the customer of the existence of this
Agreement pursuant to Rule 382(c) of the New York Stock Exchange. In addition,
on Schroder's request, the Introducing Firm shall furnish Schroder with any
other documents, letters and/or agreements which may be reasonably requested by
Schroder in connection with the opening, operating or maintaining of any
Introduced Account.
B. The Introducing Firm and Schroder shall each have the right to
reject any account. Schroder shall have the right, in its sole discretion, to
reject any account accepted by the Introducing Firm which is then referred to
Schroder, and the right to terminate any account previously accepted by it. Any
such action will be discussed in advance with the Introducing Firm. Any account
previously accepted by Schroder may not be terminated by the Introducing Firm
except by written notice to Lewco Securities Corp., 2 Broadway, New York, NY
10004, on a form provided by Lewco Securities Corp. in order to permit the
closing of all open transactions.
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IV. Interest.
Schroder will charge interest on debit balances of Introduced Accounts,
whether cash or margin, in accordance with Schroder's cash or margin account
agreement then in use, with Schroder's letter to customers regarding Credit
Charges and Margin Requirements and with Regulation T of the Board of Governors
of the Federal Reserve System and other applicable laws, rules and regulations.
Consistent with the foregoing, the Introduced Accounts shall be charged interest
at such rates as shall be mutually agreed by the parties hereto. Schroder shall
be responsible for compliance with Regulation T of the Federal Reserve Board and
New York Stock Exchange regulation, with respect to any margin accounts accepted
by it.
V. Transactions and Margin.
A. Schroder will advise the Introducing Firm promptly of initial and
maintenance margin deposits by Introduced Accounts required by law, rule or
regulation or in accordance with Schroder's Margin Account Agreement. The
Introducing Firm shall be responsible for assuring that any initial margin so
required is deposited on or before the settlement date for each margin
transaction and that full payment is made on the settlement date for each cash
transaction. In addition, the Introducing Firm will use its best efforts to
assist Schroder in obtaining the deposit of any maintenance margin so required.
The maintenance margin required by Schroder for the Introduced Accounts shall be
the same that Schroder requires of its own customers. This requirement, which
may be changed at any time in Schroder's sole discretion, shall initially be
35%.
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B. In the event any such deposit is not timely made, Schroder will
inform the Introducing Firm of such situation and discuss with the Introducing
Firm appropriate action; provided, however, that whenever Schroder deems action
appropriate pursuant to the applicable margin agreement, it may, after notice to
the Introducing Firm, exercise any and all rights granted to it under said
margin agreement.
C. The Introducing Firm shall be responsible, and hereby agrees to
indemnify Schroder, for any loss or expense, including interest expense,
suffered by Schroder because of the failure of any Introduced Account, without
fault on the part of Schroder, after prior notice to such Introduced Account and
the Introducing Firm, (i) to pay for securities purchased for its account by
settlement date; (ii) to promptly deliver securities sold or otherwise disposed
of for such account in proper negotiable form; (iii) to deposit by settlement
date sufficient and adequate initial margin in connection with any margin
transactions; or (iv) to promptly deposit sufficient and adequate maintenance
margin upon Schroder's request to the Introducing Firm. The Introducing Firm
agrees to pay promptly any loss or expense as determined by Schroder under this
paragraph V.C., such determination shall be in a manner consistent with that
charged both internal Schroder departments and all other clearing firms.
D. In the event any designated officer of the Introducing Firm requests
in writing that Schroder withhold contemplated actions to "sell out" or "buy in"
on Introduced Accounts for a specified period of time and Schroder complies in
full or in part with such request, the Introducing Firm agrees to reimburse
Schroder promptly for any loss or expenses (including but not limited to
interest on any such loss or expense) sustained by any total or partial
compliance with such request.
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E. Where the Introducing Firm designates the contra broker in any
transaction executed by Schroder on the Introducing Firm's instruction, the
Introducing Firm shall assume the risk of default by the contra broker and shall
indemnify Schroder for any loss or expense including loss or expense resulting
from failure or liquidation of the contra broker which latter loss or expense
shall be shared in the same ratio as commissions are shared hereunder. Schroder
shall similarly indemnify the Introducing Firm if Schroder designates the contra
broker on any transaction it executes.
VI. Supervision.
A. The Introducing Firm shall maintain an organized program of
supervision and compliance, consistent with the rules and regulations of the
SEC, the National Association of Securities Dealers, Inc., if applicable, and
any applicable national securities exchanges. Such program shall include, but
not be necessarily limited to, the following types of procedures:
(i) Inquiry review, verification and approval of all new accounts for
the purpose of establishing the identity, capacity to contract, reputability,
financial condition, credit worthiness, investment objectives and needs of each
prospective client for whom it is proposed to open an Introduced Account (and,
if applicable, essential information concerning his agent).
(ii) Review and approval of the basis for any suitability of all stock,
bond or option recommendations.
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(iii) Establish and implement procedures for the transmission and
execution of orders received by the Introducing Firm and from its customers or
initiated by the Introducing Firm pursuant to discretionary authority or power
of attorney.
(iv) Screen all orders transmitted and all transactions reported by the
Introducing Firm to Schroder prior to execution and all transactions prior to
settlement.
(v) Review of all daily transactions and monthly account statements on
a timely basis.
(vi) Review and approval of all restricted or insider securities
transactions, with prior notification of such transactions to and clearance by
the Compliance Department of Schroder and such other persons as shall, from time
to time, be designated by Schroder.
(vii) Review and approval of all discretionary account trading
authorizations and all discretionary transactions.
(viii) Review and approval of all customer purchases of new and
secondary issues.
(ix) Registration of the Introducing Firm as a broker/dealer and of its
sales personnel in all states in which the Introducing Firm conducts business
and such registration is required.
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B. The Introducing Firm represents that one or more of its officers has
been designated as having supervisory responsibility for all of the Introduced
Accounts and that the Introducing Firm has established, and will implement on a
continuous basis, written supervisory procedures to assure that all transactions
cleared by Schroder for Introduced Accounts are in compliance with applicable
Federal and state securities laws and the rules and regulations of the NASD and
applicable exchanges.
C. The Introducing Firm further represents that it is in compliance
with the applicable net capital requirements of the SEC, the NASD, if
applicable, and any applicable securities exchanges and that it will provide to
persons designated by Schroder copies of each Statement of Financial Condition
contained in a Financial and Operational Uniform Single ("FOCUS") Report filed
by the Introducing Firm with the SEC, and any other applicable regulatory
authority simultaneous with the filing thereof.
D. The Introducing Firm shall be responsible, and hereby agrees to
indemnify Schroder, for any loss, liability, damage and expense, including
reasonable fees and expenses of legal counsel, which Schroder may incur or
sustain because of the failure of the Introducing Firm or any of its officers to
perform the supervision provided in this paragraph VI.
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VII. Payment.
A. Payment for services hereunder, and reimbursement to the Introducing
Firm for commissions received on its behalf by Schroder shall be made in the
following manner:
(i) On the 15th day of each month (or the next business day if the 15th
day is not a business day) the Introducing Firm shall be paid 90% of the net
amount due it hereunder for transactions settled through the end of the last
complete calendar week ending prior to such 15th day:
(ii) On the last business day of each month the Introducing Firm shall
be paid 90% of the net amount due it hereunder for transactions settled through
the end of the last complete calendar week ending prior to such last business
day (less any amounts paid pursuant to paragraph (i) immediately above); and
(iii) On the 15th day of each month (or the next business day if such
15th day is not a business day) the Introducing Firm shall be paid the net
balance due it for all transactions settled through the last business day of the
preceding calendar month and not previously paid to it pursuant to paragraphs
(i) and (ii) immediately above.
B. Schroder shall deliver to the Introducing Firm a monthly
reconciliation summarizing the calculation of such amounts on the 15th of each
month during the term hereof.
C. All payments to be made by Schroder to the Introducing Firm
hereunder shall be by funds wired to the bank designated by the Introducing Firm
or by a transfer of funds to one or more accounts of the Introducing Firm at
Schroder.
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VIII. Errors, Controversies and Indemnities.
A. Errors, misunderstandings or controversies, except those
specifically otherwise covered in this Agreement, with Introduced Accounts which
shall arise out of the acts or omissions of the Introducing Firm or its
employees when not at the direction of Schroder, without fault on the part of
Schroder, shall be the responsibility and liability of the Introducing Firm. In
the event, however, that by reason of such error, misunderstanding or
controversy, the Introducing Firm in its discretion deems it advisable to
commence an action or proceeding against an Introduced Account, the Introducing
Firm shall provide prior notice to Schroder of such commencement and shall
indemnify and hold the Clearing Firm harmless from any loss, liability, damage,
cost or expense (including but not limited to fees and expenses of legal
counsel) which the Clearing Firm may incur or sustain in connection therewith or
under any settlement thereof.
B. Errors, misunderstandings or controversies, except those
specifically otherwise covered in this Agreement, with Introduced Accounts which
shall arise out of the acts or omissions of Schroder or its employees when not
at the direction of the Introducing Firm, without fault on the part of the
Introducing Firm, shall be the responsibility and liability of Schroder. In the
event, however, that by reason of such error, misunderstanding or controversy,
Schroder in its discretion deems it advisable to commence an action or
proceeding against an Introduced Account, Schroder shall provide prior notice to
the Introducing Firm of such commencement and shall indemnify and hold the
Introducing Firm harmless from any loss, liability, damage, cost or expense
(including, but not limited, to fees and expenses of legal counsel), which the
Introducing Firm may incur or sustain in connection therewith or under any
settlement thereof.
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Schroder recognizes that it would be desirable to resolve any such errors,
misunderstandings or controversies without litigation, and, if possible, by
negotiation between Schroder and the Introducing Firm. To this end, Schroder
will give the Introducing Firm as much prior notice before commencing an action
or proceeding against an Introduced Account as Schroder deems consistent with
adequate protection of its interests.
C. (i) Schroder shall have the right to take whatever action it deems
necessary to promptly effect a mitigaton of damages or mitigation of losses
arising out of a controversy or misunderstanding between Schroder and an
Introduced Account without obtaining the consent of the Introducing Firm,
provided such action shall be without prejudice to the rights of either party
hereunder. Schroder recognizes the Introducing Firm's desire to preclude
Schroder's direct contact with the client with respect to any such action
referred to above, without initially contacting the Introducing Firm whenever
such contact is possible, consistent with Schroder's protection of its
interests.
(ii) If any error, controversy or misunderstanding shall result in the
bringing of an action or proceeding against the Introducing Firm or Schroder by
an Introduced Account, the party against whom such action or proceeding is
brought shall give written notice to the other party to this Agreement if a
claim is intended to be asserted against such other party with respect to any
loss, liability, damage or expense arising out of such action or proceeding, and
such other party shall be entitled to participate in the defense thereof at its
own expense.
13
<PAGE>
D. Schroder and the Introducing Firm each agrees to indemnify the other
and hold the other harmless from and against any loss, liability, damage, cost
or expense (including but not limited to reasonable fees and expenses of legal
counsel) arising out of or resulting from any failure by the indemnifying party
or any of its employees to carry out fully the duties and responsibilities
assigned to the indemnifying party herein or any breach of any representation or
warranty made herein by the indemnifying party.
E. The indemnification provisions of this Agreement, including but not
limited to those in paragraphs V., VI., VIII.A., VIII.B., VIII.C. and VIII.D.
above shall remain operative and in full force and effect, regardless of the
termination of this Agreement, and shall survive any such termination.
IX. Customer Complaints.
Each of the Introducing Firm and Schroder shall notify the other of any
complaints and regulatory inquiries received. In the event, however, that by
reason of any such complaint or inquiry, either the Introducing Firm or Schroder
deems it advisable to settle the complaint, the settling party shall (provided
the non-settling party is without fault with respect thereto) indemnify and hold
the other harmless from any loss, liability, damage, cost or expense (including
but not limited to reasonable fees and expenses of legal counsel) which it may
incur or sustain in connection therewith or any settlement thereof.
14
<PAGE>
X. Representations and Warranties.
A. The Introducing Firm represents and warrants as follows:
(i) The Introducing Firm is in compliance, and during the term of
this Agreement will remain in compliance with (a) the capital requirements of
the SEC, the NASD, if applicable, and all applicable Exchanges and (b) the
capital requirements of every state in which the Introducing Firm is licensed as
a broker/dealer.
(ii) The Introducing Firm will immediately notify Schroder should it
be in violation of the net capital rules and regulations of any regulatory or
self-regulatory organization to whose jurisdiction the Introducing Firm is
subject.
(iii) The Introducing Firm is a member in good standing of the NASD.
The Introducing Firm will promptly notify Schroder of any changes in its
exchange or association memberships or affiliations.
(iv) The Introducing Firm is and during the term of this Agreement
will remain duly registered or licensed and in good standing as a broker/dealer
under all applicable Federal and state laws, rules and regulations as well as
under the constitutions, rules and regulations of all applicable self-regulatory
organizations.
(v) The Introducing Firm shall keep confidential any information it
may acquire as a result of this Agreement regarding the business and affairs of
the Clearing Firm, which requirement shall survive the termination of this
Agreement.
15
<PAGE>
B. Schroder represents and warrants as follows:
(i) Schroder is in compliance, and during the term of this Agreement
will remain in compliance with (a) the capital and financial reporting
requirements of every national securities exchange and national securities
brokers or dealers association of which it is a member, (b) the capital
requirements of the SEC, and (c) the capital requirements of every state in
which it is licensed as a broker/dealer.
(ii) Schroder will immediately notify the Introducing Firm should it be
in violation of the net capital rules and regulations of any regulatory or
self-regulatory organization to whose jurisdiction Schroder is subject.
(iii) Schroder is a member in good standing of the NYSE, the Chicago
Board Options Exchange and the Boston, Midwest and Philadelphia Stock Exchanges,
AMEX, and the NASD. Schroder will promptly notify the Introducing Firm of any
changes in its exchange memberships or affiliations.
(iv) Schroder is and during the term of this Agreement will remain duly
registered or licensed and in good standing as a broker/dealer under all
applicable laws, rules and regulations as well as under the constitutions, rules
and regulations of all applicable self-regulatory organizations.
(v) The names and addresses of the Introducing Firm's customers which
have or which may come to Schroder's attention in connection with the clearing
and related functions it has assumed under this Agreement are confidential and
shall not be utilized by Schroder except in connection with the functions
performed by Schroder pursuant to this Agreement.
16
<PAGE>
(vi) Schroder shall keep confidential any information it may acquire as
a result of this Agreement regarding the business, affairs and Introduced
Accounts (unless required by legal process) of the Introducing Firm which
requirement shall survive termination of this Agreement, and shall provide to
the Introducing Firm reasonable access to Schroder's records pertaining to the
Introduced Accounts.
XI. Termination - Events of Default.
Notwithstanding any provision in the Agreement, the occurrence of any
of the following events shall constitute an Event of Default under this
Agreement:
(1) Either Schroder or the Introducing Firm shall fail to perform or
observe any term, covenant or condition to be performed or observed by it
hereunder and such failure shall continue to be unremedied for a period of
thirty (30) days after written notice from the non-defaulting party to the
defaulting party specifying the failure and demand that the same be remedied; or
(2) any representation or warranty made by either Schroder or the
Introducing Firm herein shall prove to be incorrect at any time in any material
respect; or
(3) a receiver, liquidator or trustee of Schroder or the Introducing
Firm or any of the property of either, is appointed by court order and such
order remains in effect for more than 30 days; or Schroder or the Introducing
Firm is adjudicated bankrupt or insolvent; or any of the property of either is
sequestered by court order and such order remains in effect for more than 30
days; or a petition is filed against Schroder or the
17
<PAGE>
Introducing Firm under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect, and is not dismissed within 30 days after
such filing; or
(4) Schroder or the Introducing Firm files a petition in voluntary
bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such law; or
(5) Schroder or the Introducing Firm makes an assignment for the
benefit of its creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a receiver,
trustee or liquidator of Schroder or the Introducing Firm or of all or any part
of its property.
Upon the occurrence of any such Event of Default, the nondefaulting
party may, at its option, by written notice to the defaulting party declare that
this Agreement shall be thereby terminated and such termination shall be
effective as of the date such notice has been received by the defaulting party.
Upon the termination of this Agreement, whether pursuant to this paragraph XI.,
paragraph XIII. hereof or otherwise, Schroder shall cause the Introduced
Accounts to be transferred to the Introducing Firm or its designee.
18
<PAGE>
XII. Remedies Cumulative.
The enumeration herein of specific remedies shall not be exclusive of
any other remedies. Any delay or failure by any party to this Agreement to
exercise any right, power, remedy or privilege herein contained, or now or
hereafter existing under any applicable statute or law, shall not be construed
to be a waiver of such right, power, remedy or privilege or to limit the
exercise of such right, power, remedy or privilege. No single, partial or other
exercise of any such right, power, remedy or privilege shall preclude the
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
XIII. Net Capital Treatment of Assets in Proprietary Account of Introducing
Firm
A. With respect to assets in the proprietary account of Introducing
Firm ("PAIB") Schroder shall perform a computation ("PAIB Reserve Computation")
in accordance with the customer reserve computation set forth in SEC Rule 15c3-3
("customer reserve formula") with the following modifications:
(i) Any credit (including a credit applied to reduce a debit) that is
included in the customer reserve formula shall not be included as a credit in
the PAIB reserve computation;
(ii) Note E(3) to Rule 15c3-3a which reduces debit balances by one
percent under the basic method and subparagraphs (a)(1)(ii)(A) of the Net
Capital Rule which reduced debit balances by three percent under the alternative
method shall not apply; and
19
<PAGE>
(iii) Neither Note E(1) to Rule 15c3-3a nor NYSE Interpretation /04 to
Item 10 of Rule 15c3-3a regarding securities concentration charges shall be
applicable to the PAIB reserve computation.
B. The PAIB reserve computation shall include all proprietary accounts
of Introducing Firm. All PAIB assets shall be kept separate and distinct from
customer assets under the customer reserve formula in Rule 15c3-3.
C. The PAIB reserve computation shall be prepared within the same time
frames as those prescribed by Rule 15c3-3 for the customer reserve formula.
D. Schroder shall establish and maintain a separate "Special Reserve
Account for the Exclusive Benefit of Customers" with a bank in conformity with
the standards of paragraph (f) of Rule 15c3-3 ("PAIB Reserve Account"). Cash
and/or qualified securities as defined in the customer reserve formula shall be
maintained in the PAIB Reserve Account in an amount equal to the PAIB reserve
requirement.
E. If the PAIB reserve computation results in a deposit requirement,
the requirement may be satisfied to the extent of an excess debit in the
customer reserve formula on the same date. However, a deposit requirement
resulting from the customer reserve formula shall not be satisfied with excess
debits from the PAIB reserve computation.
F. Within two business days of entering into this Agreement,
Introducing Firm shall notify its designated examining authority in writing
(with a copy sent to Schroder) upon request that it has entered into the PAIB
Section of this Agreement.
G. Commissions receivable and other receivables of Introducing Firm
from Schroder (excluding clearing deposits) that are otherwise allowable assets
under the Net Capital Rule shall not be included in the PAIB reserve
computation, provided the amounts have been clearly identified as receivables on
the books and records of Introducing Firm and as payables on the books of
Schroder.
H. If Introducing Firm is a guaranteed subsidiary of Schroder or if
Introducing Firm guarantees Schroder (i.e., guarantees all liabilities and
obligations) then the proprietary accounts of Introducing Firm shall be excluded
from the PAIB Reserve Computation.
20
<PAGE>
I. Upon discovery that any deposit made to the PAIB Reserve Account did
not satisfy the deposit requirement, Schroder shall by facsimile or telegram
immediately notify its designated examining authority and the SEC. Unless a
corrective plan is found acceptable by the SEC and the designated examining
authority, Schroder shall provide written verification within five business days
of the date of discovery to Introducing Firm that PAIB assets held by Schroder
shall not be deemed allowable assets for net capital purposes. The notification
shall also state that if Introducing Firm wishes to continue to count its PAIB
assets as allowable, it has until the last business day of the month following
the month in which the notification was made to transfer all PAIB assets to
another clearing broker. However, if the deposit deficiency is remedied before
the time at which Introducing Firm must transfer its PAIB assets to another
clearing broker, Introducing Firm may choose to keep its assets at Schroder.
J. The parties shall adhere to the terms of the SEC's No-Action letter,
dated November 3, 1998 relating to the net capital treatment of assets in the
proprietary account of an introducing broker, including the interpretations set
forth, in all respects.
K. It shall be the sole responsibility of Introducing Firm to identify
any and all PAIB accounts and provide Schroder with an exhaustive list of such
PAIB accounts, including the account names and numbers. Further, Introducing
Firm shall notify Schroder in writing of any and all additions and/or deletions
to its list of PAIB accounts within one business day of such change.
XIII. Prime Broker Accounts
In the event Introducing Firm requests Schroder to act as "Prime
Broker" on behalf of its customers ("Customers"), as such term is used in the
no-action letter, dated January 25, 1994 from the Division of Market Regulation
of the SEC with respect to the provision of prime brokerage services, as the
same may be amended, modified or supplemented from time to time, and Schroder
agrees to act as Prime Broker, the parties hereto agree as follows:
21
<PAGE>
A. Prior to the commencement of any prime brokerage activity,
Introducing Firm
shall identify to Schroder each account in which Introducing Firm requests that
Schroder act as Prime Broker ("Prime Brokerage Account") and the Executing
Brokers employed in connection with such Prime Brokerage Accounts.
B. For all prime brokerage transactions, Introducing Firm shall inform
Schroder of the details of all trades including, among other things, the
contract amount, security involved, number of shares or units, and whether the
transaction was a long or short sale or a purchase.
C. Schroder shall be responsible for monitoring the "minimum net
equity" (as defined in the No-Action Letter) in each Prime Brokerage Account.
Schroder will notify the Introducing Firm in the event the net equity falls
below the required minimum amount in a Prime Brokerage Account. In such event,
Introducing Firm shall be responsible for assuring that any amounts required to
maintain or restore the minimum net equity are deposited in each Prime Brokerage
Account. In addition, Introducing Firm will use its best efforts to assist
Schroder in obtaining from Customer the deposit of any amounts so required. If a
Prime Brokerage Account fails to meet such net equity requirements within the
time period specified by the No-Action Letter, Schroder shall inform Introducing
Firm and applicable Executing Brokers that it is no longer serving as Customer's
Prime Broker.
D. Schroder will timely notify Introducing Firm if Schroder disaffirms
or DKs a transaction for a Prime Brokerage Account. In such event, Introducing
Firm remains responsible for resolving such transaction with the customer or the
Executing Broker, as applicable.
22
<PAGE>
E. Introducing Firm acknowledges that it is responsible for knowing its
Customers, obtaining all the proper documentation (including all new account and
prime brokerage documents), conducting its own credit reviews, and determining
the availability of shares to cover any short sales.
F. Both parties hereto agree to comply with the terms and conditions of
the No-Action Letter and subsequent amendments for all prime brokerage
transactions effected hereunder.
XIII. Miscellaneous.
A. This Agreement may be cancelled by either party upon sixty (60) days
written notice. Notice shall be effective only upon receipt. Notice shall be
given at the addresses listed below or such other address as shall be specified
in a written notice delivered in accordance herewith. Notices to Schroder shall
be delivered to Michael F. Dura and Patrick J. Borruso, at the office of
Schroder & Co. Incorporated, Equitable Center, 787 Seventh Avenue, New York, NY
10019. Notice to the Introducing Firm shall be delivered to:
----------------------------------
Mr. Roger Gladstone
----------------------------------
C/O GKN Securities
----------------------------------
One State Street Plaza, 23rd floor
----------------------------------
New York, NY 10004
----------------------------------
23
<PAGE>
B. This Agreement shall be submitted to and effective only upon
approval by any national securities exchange or regulatory or self-regulatory
body having authority to approve this Agreement.
C. Any dispute or controversy between parties to this Agreement
relating to or arising out of this Agreement, including but not limited to
matters reserved for mutual agreement, shall be settled by arbitration in
accordance with the rules then obtaining of (i) the NYSE if NYSE arbitration is
available and (ii) the American Arbitration Association in all other cases. The
award of the arbitrators hereunder shall be final, and judgment upon the award
rendered may be entered in any court having jurisdiction and the parties hereto
submit themselves and their personal representatives to the jurisdiction of any
such court for the purpose of such arbitration and the entering of such
judgment.
D. Any assignment of this Agreement shall be subject to the requisite
review and/or approval of any regulatory or self-regulatory agency or body whose
review and/or approval must be obtained prior to the effectiveness and validity
of such assignment. No assignment of this Agreement shall be valid unless the
non-assigning parties consent to such an assignment in writing. Anything herein
to the contrary notwithstanding, Schroder shall have the right unilaterally to
assign this agreement as part of the sale of all or substantially all of the
assets or a majority interest in Schroder.
E. Neither this Agreement nor any operation hereunder is intended to
be, shall not be deemed to be, and shall not be treated as a general or limited
partnership, association or joint venture or agency relationship between the
Introducing Firm and Schroder.
24
<PAGE>
F. Whenever hereinabove reference is made to services to be rendered by
or rights or indemnification of Schroder, such references shall be deemed to
include Schroder's subsidiary Lewco Securities Corp. which may perform services
contemplated hereby at the direction of Schroder, but the performance of
services by Lewco Securities Corp. shall in no way affect Schroder's obligations
to the Introducing Firm hereunder and, for the purposes of this Agreement, any
services performed by Lewco Securities Corp. shall be deemed to have been
performed by Schroder.
G. The construction and effect of every provision of this Agreement,
the rights of the parties hereunder and any questions arising out of the
Agreement shall be subject to the statutory and common law of the State of New
York.
H. The headings preceding the text and paragraphs hereof have been
inserted for convenience and reference only and shall not be construed to affect
the meaning, construction or effect of this Agreement.
I. If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or self-regulatory agency
or body, such invalidity or unenforceability shall attach only to such provision
or condition. The validity of the remaining provisions and conditions shall not
be affected thereby and this Agreement shall be carried out as if any such
invalid or unenforceable provision or condition were not contained herein.
J. Schroder will make available money market funds or other investment
vehicles as mutually agreed, for investment of credit balances of the Introduced
Accounts, and, with regard to money market funds, will provide automatic
features for the investment of cash and the liquidation of shares of such funds
to pay for purchases of other securities.
25
<PAGE>
These features will be made available for other investment vehicles to the
extent legally permissible.
K. Schroder will reserve the right to pass along to the Introducing
Firm applicable costs associated with a deconversion.
Made and executed at New York, New York on the date first hereinabove
set forth.
SCHRODER & CO. INC.
BY: /s/ Gary L. Salamone
----------------------
Gary L. Salamone
Managing Director
AGREED & ACCEPTED
SHOCHET SECURITIES
BY: /s/ Roger Gladstone
------------------------
Roger Gladstone
CEO
26
STOCK OPTION AGREEMENT
[EMPLOYEE INCENTIVE/NON-INCENTIVE STOCK OPTION AGREEMENT UNDER PLAN]
AGREEMENT, made as of _________ __, _____ by and between SHOCHET
HOLDING CORP., a Delaware corporation (the "Company"), and (the "Employee" or
"Holder").
WHEREAS, on , (the "Grant Date"), pursuant to the terms and conditions
of the Company's 1999 Performance Equity Plan (the "Plan"), the Board of
Directors of the Company or the Committee authorized the grant to the Employee
of an option (the "Option") to purchase an aggregate of
shares of the authorized but unissued Common Stock of the Company,
$.0001 par value (the "Common Stock"), conditioned upon the Employee's
acceptance thereof upon the terms and conditions set forth in this Agreement and
subject to the terms of the Plan (capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Plan); and
WHEREAS, the Employee desires to acquire the Option on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
a. Grant of Stock Option. The Company hereby grants Employee
the Option to purchase all or any part of an aggregate of shares of Common Stock
(the "Option Shares") on the terms and conditions set forth herein and subject
to the provisions of the Plan.
a. Incentive Stock Option. The Option represented hereby is
intended to be an Option that qualifies as an "Incentive Stock Option" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
a. Exercise Price. The exercise price of the Option shall be
$ per share, subject to adjustment as hereinafter provided.
4. Exercisability. This Option shall become exercisable on , subject to
the terms and conditions of the Plan and this Agreement, and shall remain
exercisable until the close of business on _________ __, ____(the "Exercise
Period").
OR
4. Exercisability. This Option shall become exercisable, subject to the
terms and conditions of the Plan and this Agreement, as follows: (i) the right
to purchase (331/3%) of the Option Shares shall be exercisable on and after
_______ __, ____ (ii) the right to purchase an additional (331/3%) of the Option
Shares shall be exercisable on and after , ____ and (iii) the right to purchase
the remaining (331/3%) of the Option Shares shall be exercisable on and after
_______ __, ____ After a portion of the Option becomes exercisable, it shall
remain exercisable except as otherwise provided herein, until the close of
business on __________ __, ____(the "Excercise Period").
5. Withholding Tax. Not later than the date as of which an amount first
must be included in the gross income of Employee for Federal income tax purposes
with respect to the Option, Employee may be required to pay to the Company, or
make arrangements satisfactory to the Company 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. The obligations of the Company under the Plan
and pursuant to this Agreement shall be conditional upon such payments or
arrangements with the Company, if such payments or arrangements are required,
and 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 Employee from the
Company.
6. Adjustments.
<PAGE>
(a) In the event of a stock split, stock dividend, combination
of shares, or any other 6407-0200 269903.1 similar change in the Common Stock of
the Company as a whole, the Board of Directors of the Company shall make
equitable, proportionate adjustments in the number and kind of shares covered by
the Option and in the option price hereunder.
(b) In the event of any reclassification or reorganization of
the outstanding shares of Common Stock other than a change covered by subsection
(a) hereof or that solely affects the par value of such shares of Common Stock,
or in the case of any merger or consolidation of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and that does not result in any reclassification
or reorganization of the outstanding shares of Common Stock), the Holder shall
have the right thereafter (until the expiration of the right of exercise of this
Option) to receive upon the exercise hereof after such event, for the same
aggregate Exercise Price payable hereunder immediately prior to such
reclassification, reorganization, merger or consolidation by a holder of the
number of shares of Common Stock of the Company obtainable upon exercise of this
Option immediately prior to such event. The provisions of this subsection (b)
shall similarly apply to successive reclassifications, reorganizations, mergers
or consolidations, sales or other transfers.
7. Effect of Termination of Employment.
a. Termination Due to Death. If Employee's employment by the
Company terminates by reason of death, the portion of the Option, if any, that
was exercisable as of the date of death may thereafter be exercised by the legal
representative of the estate or by the legatee of the Employee under the will of
the Employee, for a period of one year from the date of such death or until the
expiration of the Exercise Period, whichever period is shorter. The portion of
the Option, if any, that was not exercisable as of the date of death shall
immediately expire.
b. Termination Due to Disability. If Employee's
employment by the Company terminates by reason of disability (as such term is
defined in the Plan), the portion of the Option, if any, that was exercisable as
of the date of disability may thereafter be exercised by the Employee for a
period of one year from the date of such termination or until the expiration of
the Exercise Period, whichever period is shorter. The portion of the Option, if
any, that was not exercisable as of the date of termination shall immediately
expire.
c. Termination by the Company Without Cause and/or Due
to Retirement. If Employee's employment is terminated by the Company without
cause or due to the normal retirement of Employee after his 65th birthday, then
the portion of the Option that has vested by the date of termination of
employment may be exercised for a period of three months from termination of
employment or until the expiration of the Exercise Period, whichever is shorter.
The portion of the Option, if any, not yet exercisable on the date of
termination of employment shall immediately expire.
d. Other Termination.
i. If Employee's employment is terminated for
any reason other than (i) death, (ii) disability, (iii) normal retirement, or
(iv) without cause by the Company, the Option, whether or not then exercisable,
shall expire on the date of termination of employment.
ii. The Board of Directors of the Company or the
Committee, in the event the Employee's employment is terminated for cause, may
require the Employee to return to the Company the economic benefit of any Option
Shares purchased hereunder by the Employee within the six month period prior to
the date of termination. In such event, the Employee hereby agrees to remit to
the Company, in cash, an amount equal to the difference between the Fair Market
Value (on the date of termination) of the Option Shares so purchased by Employee
(or the sales price of such Option Shares if the Option Shares were sold during
such six month period) and the Exercise Price.
<PAGE>
e. Competing With the Company. In the event that, within
six (6) months after the date of termination of Employee's employment with the
Company, Employee accepts employment with, or becomes engaged as a consultant
by, any competitor of, or otherwise competes with, the Company, the Committee,
in its sole discretion, may require such Employee to return to the Company the
economic value of any Option Shares purchased hereunder by the Employee within
the six-month period prior to the date of termination. In such event, Employee
agrees to remit the economic value to the Company in accordance with Section
7.4.2.
a. Method of Exercise.
a. Notice to the Company. The Option may be exercised in whole
or in part by written notice in the form attached hereto as Exhibit A directed
to the Company at its principal place of business accompanied by full payment as
hereinafter provided of the exercise price for the number of Option Shares
specified in the notice.
b. Delivery of Option Shares. The Company shall deliver a
certificate for the Option Shares to the Employee as soon as practicable after
payment therefor.
c. Payment of Purchase Price.
i. Cash Payment. The Employee shall make cash
payments by wire transfer, certified or bank check or personal check, in each
case payable to the order of the Company. The Company shall not be required to
deliver certificates for Option Shares until the Company has confirmed the
receipt of good and available funds in payment of the purchase price thereof.
ii. Cashless Payment. The Company, in its sole
discretion, may allow Employee to use Common Stock of the Company owned by him
to pay the purchase price for the Option Shares 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. Shares of
Common Stock used for this purpose shall be valued at the Fair Market Value on
the last trading day preceding the date of exercise.
8.3.3. Payment of Withholding Tax. Any required
withholding tax may be paid in cash or with Common Stock in accordance with
Sections 8.3.1. and 8.3.2.
8.3.4. Exchange Act Compliance. Notwithstanding
the foregoing, the Company shall have the right to reject payment in the form of
Common Stock if in the opinion of counsel for the Com pany, (i) it could result
in an event of "recapture" under Section 16(b) of the Exchange Act (as defined
in the Plan); (ii) such shares of Common Stock may not be sold or transferred to
the Company; or (iii) such transfer could create legal difficulties for the
Company.
a. Nonassignability. The Option shall not be assignable
or transferable, without the consent of the Company, except by will or by the
laws of descent and distribution in the event of the death of the Employee. No
transfer of the Option by the Employee by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and a copy of the will and/or
such other evidence as the Company may deem necessary to establish the validity
of the transfer and the acceptance by the transferee or transferees of the terms
and conditions of the Option.
a. Company Representations. The Company hereby
represents and warrants to the Employee that:
(1) the Company, by appropriate and all required
action, is duly authorized to enter into this Agreement and consummate
all of the transactions contemplated hereunder; and
<PAGE>
(2) the Option Shares, when issued and delivered by
the Company to the Employee in accordance with the terms and conditions
hereof, will be duly and validly issued and fully paid and
non-assessable.
a. Employee Representations. The Employee hereby
represents and warrants to the Company that:
(1) he or she is acquiring the Option and shall
acquire the Option Shares for his own account and not with a view
towards the distribution thereof;
(2) he or she has received a copy of the Plan as in
effect as of the date of this Agreement;
(3) he or she has received a copy of all reports and
documents required to be filed by the Company with the Securities and
Exchange Commission pursuant to the Exchange Act within the last 24
months and all reports issued by the Company to its stockholders;
(4) he or she understands that he or she must bear
the economic risk of the investment in the Option Shares, which cannot
be sold by him unless they are registered under the Securities Act of
1933 (the "Securities Act") or an exemption therefrom is available
thereunder and that the Company is under no obligation to register the
Option Shares for sale under the Securities Act;
(5) in his or her position with the Company, he or
she has had both the opportunity to ask questions and receive answers
from the officers and directors of the Company and all persons acting
on its behalf concerning the terms and conditions of the offer made
hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it
without unreasonable effort or expense necessary to verify the accuracy
of the information obtained pursuant to clause (iii) above;
(6) he or she is aware that the Company shall place
stop transfer orders with its transfer agent against the transfer of
the Option Shares in the absence of registration under the 1933 Act or
an exemption therefrom as provided herein; and
(7) the certificates evidencing the Option Shares
shall bear the following legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said
Act."
"The shares represented by this certificate have been
acquired pursuant to a Stock Option Agreement, dated
as of , , a copy of which is on file with the
Company, and may not be transferred, pledged or
disposed of except in accordance with the terms and
conditions thereof."
a. Restriction on Transfer of Option Shares.
(a) Anything in this Agreement to the contrary
notwithstanding, Employee hereby agrees that he shall not sell, transfer by any
means or otherwise dispose of the Option Shares acquired by him without
registration under the Securities Act, or in the event that they are not so
registered, unless (i) an exemption from the Securities Act registration
requirements is available thereunder, and (ii) the Employee has furnished the
Company with notice of such proposed transfer and the Company's legal counsel,
in its reasonable opinion, shall deem such proposed transfer to be so exempt.
<PAGE>
(b) Anything in this Agreement to the contrary
notwithstanding, Employee hereby agrees that he shall not sell, transfer by any
means or otherwise dispose of the Option Shares acquired by him except in
accordance with the Company's policy, if any, regarding the regarding the sale
and disposition of securities owned by employees and/or directors of the
Company.
a. Miscellaneous.
a. Notices. All notices, requests, deliveries, payments,
demands and other communications that are required or permitted to be given
under this Agreement shall be in writing and shall be either delivered
personally or sent by registered or certified mail, or by private courier,
return receipt requested, to the parties at their respective addresses set forth
herein, or to such other address as either shall have specified by notice in
writing to the other. Notice shall be deemed duly given hereunder when delivered
or mailed as provided herein.
b. Plan Paramount; Conflicts with Plan. This Agreement and the
Option shall, in all respects, be subject to the terms and conditions of the
Plan, whether or not stated herein. In the event of a conflict between the
provisions of the Plan and the provisions of this Agreement, the provisions of
the Plan shall in all respects be controlling.
c. Employee and Stockholder Rights. Employee shall not have
any of the rights of a stockholder with respect to the Option Shares until such
shares have been issued after the due exercise of the Option. Nothing contained
in this Agreement shall be deemed to confer upon Employee any right to continued
employment with the Company or any subsidiary thereof, nor shall it interfere in
any way with the right of the Company to terminate Employee in accordance with
the provisions regarding such termination set forth in Employee's written
employment agreement with the Company, or if there exists no such agreement, to
terminate Employee at will.
d. Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
other or subsequent breach.
e. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof. This
Agreement may not be amended except by writing executed by the Employee and the
Company.
f. Binding Effect; Successors. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and, to the extent not
prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives, any rights, remedies,
obligations or liabilities.
g. Governing Law. This Agreement 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 Delaware General Corporation
Law.
h. Headings. The headings contained herein are for the sole
purpose of convenience of reference and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written:
Address:
By:
---------------------------------
EMPLOYEE: Address:
- ------------------------------------
6407-0200 269903.1
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
- ----------------------------
DATE
Company's Name
Address
Attention: Stock Option Committee of
the Board of Directors
Re: Purchase of Option Shares
-------------------------
Gentlemen:
In accordance with my Stock Option Agreement dated as of ,
("Agreement") with (the "Company"), I hereby irrevocably elect to exercise the
right to purchase _________ shares of the Company's common stock, par value
$.001 per share ("Common Stock"), which are being purchased for investment and
not resale.
As payment for my shares, enclosed is (check and complete
applicable box[es]):
|_| a [personal check] [certified check] [bank check]
payable to the order of the Company in the sum of
$_________;
|_| confirmation of wire transfer in the amount of
$_____________; and/or
|_| with the consent of the Company, a certificate for
__________ shares of the Company's Common Stock, free
and clear of any encumbrances, duly endorsed, having
a Fair Market Value (as such term is defined in the
Company's 1999 Performance Equity Plan) of
$_________.
I hereby represent and warrant to, and agree with, the Company
that:
(i) I am acquiring the Option Shares for my own
account, for investment, and not with a view towards the distribution
thereof;
(ii) I have received a copy of the Plan and all
reports and documents required to be filed by the Company with the
Commission pursuant to the Securities Exchange Act of 1934 within the
last 24 months and all reports issued by the Company to its
stockholders;
(iii) I understand that I must bear the economic risk
of the investment in the Option Shares, which cannot be sold by me
unless they are registered under the Securities Act of 1933 (the
"Securities Act") or an exemption therefrom is available thereunder and
that the Company is under no obligation to register the Option Shares
for sale under the Securities Act;
(iv) I agree that I will not sell, transfer by any
means or otherwise dispose of the Option Shares acquired by me hereby
except in accordance with Company's policy, if any, regarding the sale
and disposition of securities owned by employees and/or directors of
the Company;
<PAGE>
(v) in my position with the Company, I have had
both the opportunity to ask questions and receive answers from the
officers and directors of the Company and all persons acting on its
behalf concerning the terms and conditions of the offer made hereunder
and to obtain any additional information to the extent the Company
possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (ii) above;
(vi) I am aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the
Option Shares in the absence of registration under the Securities Act
or an exemption therefrom as provided herein;
(vii) my rights with respect to the Option Shares
shall, in all respects, be subject to the terms and conditions of the
Company's 1999 Performance Equity Plan and this Agreement; and
(viii) the certificates evidencing the Option
Shares shall bear the following legends:
"The shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
"The shares represented by this certificate have been acquired
pursuant to a Stock Option Agreement, dated as of , , a copy
of which is on file with the Company, and may not be
transferred, pledged or disposed of except in accordance with
the terms and conditions thereof."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
- ------------------------------- --------------------------------
(Signature) (Address)
- ------------------------------- ---------------------------------
(Print Name)
---------------------------------
(Social Security Number)
The Board of Directors and Stockholders
Shochet Holding Corp. and Subsidiary
We consent to the inclusion of our report dated December 6, 1999 with respect to
the consolidated statement of financial condition of Shochet Holding Corp. and
subsidiary as of January 31, 1999, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the two year period ended January 31, 1999, in the registration
statement form SB-2 and to the reference to our firm under the heading "Expert"
in the prospectus dated February 14, 2000.
KPMG LLP
New York, New York
February 18, 2000
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 813,000
<RECEIVABLES> 194,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 283,000
<PP&E> 710,000
<TOTAL-ASSETS> 3,863,000
<SHORT-TERM> 0
<PAYABLES> 743,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 8,000
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 1,612,000
<TOTAL-LIABILITY-AND-EQUITY> 3,863,000
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 601,000
<COMMISSIONS> 5,342,000
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 3,278,000
<INCOME-PRETAX> (149,000)
<INCOME-PRE-EXTRAORDINARY> (149,000)
<EXTRAORDINARY> (495,000)
<CHANGES> 0
<NET-INCOME> (644,000)
<EPS-BASIC> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
