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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 0-5703
SIEBERT FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
New York 1-1796714
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
885 Third Avenue, Suite 1720
New York, New York 10022
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 644-2400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10- K. [ X ]
As of March 24, 1997, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $1,227,000 based on the
bid price of the Common Stock on the Nasdaq SmallCap Market on that date.
As of March 24, 1997, there were 5,237,610 shares of Common Stock
outstanding, including 5,105,000 shares held by Muriel F. Siebert, Chair,
President and a Director of the Registrant.
Documents incorporated by reference:
Siebert Financial Corp.'s definitive proxy statement to be filed by the
Registrant pursuant to Regulation 14A is incorporated by reference into items
10, 11, 12 and 13 of Part III of this Form 10-K by reference.
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PART I
Item 1. BUSINESS
General
Siebert Financial Corp. (the "Company") is a holding company which conducts
all of its business activities in the retail discount brokerage and investment
banking business through its wholly-owned subsidiary, Muriel Siebert & Co.,
Inc., a Delaware corporation ("Siebert"). Muriel Siebert, the first woman member
of the New York Stock Exchange, is the President and owns 97.5% of the
outstanding Common Stock of the Company.
The Company is the successor by merger to J. Michaels, Inc. ("JMI"), a
company incorporated on April 9, 1934 in the State of New York which had been in
the retail furniture business for more than 100 years. Because of a decline in
the strength of JMI's core retail furniture business in Brooklyn, New York,
management of JMI concluded that the return on JMI's assets generated by its
business was insufficient and decided that it would be in the best interests of
its shareholders to sell JMI's assets and distribute the net proceeds after
payment of all liabilities to the shareholders of JMI. On April 24, 1996, JMI
and Muriel Siebert Capital Markets Group, Inc., a Delaware corporation owned by
Ms. Siebert ("MSCMG"), entered into a plan and agreement of merger (the "Merger
Agreement") providing for the merger (the "Merger") of MSCMG with and into JMI,
on the terms and conditions contained in the Merger Agreement, and, in
connection therewith, after a distribution concurrently with the consummation of
the Merger, to transfer all of JMI's remaining assets to a liquidating trust
pursuant to the Merger Agreement and to sell such assets and distribute the
proceeds thereof to the shareholders of JMI. The Merger was consummated on
November 8, 1996. Shortly thereafter, the first liquidating dividend of $11.50
per share was paid to shareholders of JMI. An additional $2.50 per share was
paid in February 1997 and additional amounts are expected in the future to a
total distribution of approximately $18.00 per share. The Company will have no
continuing involvement with the liquidation of the remaining assets of JMI.
Following the merger, the Company's fiscal year was changed to December 31.
Siebert was incorporated on June 13, 1969 under the laws of the State of
Delaware. The principal executive offices of the Company and Siebert are located
at 885 Third Avenue, 17th Floor, New York, New York 10022.
Business Overview
Siebert provides discount brokerage services and related services to more
than 80,000 investor accounts. Siebert's focus in its discount brokerage
business is to serve retail clients who seek a wide selection of quality
investment services at commissions that are substantially lower than those of
full-commission firms and competitive with the leading national discounters.
Through its Capital Markets division, Siebert offers institutional clients
equity execution services on an agency basis and equity, fixed income and
municipal underwriting and investment banking services. Siebert is a
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participant in the secondary markets for Municipal and U.S. Treasury securities.
The Capital Markets division trades listed closed end bond funds and certain
other securities for its own account. The proprietary trading business is
strictly segregated from that of the agency business executed on behalf of
institutional clients.
The firm is unique among discount brokerage firms in that through its
Capital Markets division it offers a wide array of underwriting and investment
banking services including acting as sole manager, co-manager and otherwise
participating in the management underwriting teams of, or acting as financial
advisors for, municipal, corporate debt and equity, government agency and
mortgage/asset backed securities issues.
The Company believes that it is the largest Woman-Owned Business Enterprise
("WBE") in the capital markets business in the country through Siebert and the
largest Minority and Women's Business Enterprise ("MWBE") in the tax exempt
underwriting area in the country through its Siebert Brandford Shank Division.
The Retail Discount Brokerage Business
Discount Brokerage and Related Services. The Commission eliminated fixed
commission rates on securities transactions on May 1, 1975, a date that would
later come to be known as "May Day", spawning the discount brokerage industry;
that very day, on the opening bell, Siebert executed its first discounted
commission trade. The firm has been a member of The New York Stock Exchange,
Inc. (the "NYSE") longer than any other discount broker.
Siebert provides discount brokerage and related services to more than
80,000 investor accounts. Siebert's focus in its discount brokerage business is
to serve retail clients who seek a wide selection of quality investment services
at commissions that are substantially lower than those of full-commission firms
and competitive with the national discounters.
Siebert clears securities transactions on a fully-disclosed basis through
National Financial Services Corp. ("NFSC"), a wholly owned subsidiary of
Fidelity Investments, as its clearing agent for all transactions. NFSC, with
over $4 billion in assets, adds state-of-the-art technology as well as
back-office experience to the operations of Siebert supplementing Siebert's
in-house systems.
Siebert serves investors who make their own investment decisions. Siebert
seeks to assist its customers in their investment decisions by offering a number
of value added services, including quick and easy access to account information.
The firm provides its customers with information via toll-free 800 service
direct to its representatives between 7:30 a.m. and 7:30 p.m. Eastern Time.
Through its MarketPhone Voice Response service and its Siebert OnLine software
introduced, in the first quarter of 1996, 24 hour access is available to
customers. Siebert's exclusive PerformanceFax P&L analysis service, introduced
in the second quarter of 1996, provides by facsimile profit and loss account
information before the market opens each morning. In January, 1997 SiebertNet
was introduced providing customers with the ability to place orders, get real
time quotes and news and other services directly over the Internet.
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Independent Retail Execution Services. Siebert is independent of the
Over-the- Counter ("OTC") and "Third" market makers and consequently offers what
is believed to be the best possible trade executions for customers. Siebert does
not make markets in securities, nor does it position against customer orders.
Most of the firm's listed orders are routed to the primary exchange for
execution. This allows the customer the opportunity for price improvement when
trading directly on the NYSE. Through a service called NYSE Prime*, Siebert has
the ability to document to customers all price improvements received on orders
executed on the NYSE when orders are filled at better than the National Best
Bid/Offer.
The firm's OTC orders are executed through a network of unaffiliated Nasdaq
market makers with no single market maker executing all trades. This allows
Siebert to fill its customer orders by choosing the market maker it deems best
in each particular stock quickly and efficiently in all market conditions.
Additionally, the firm offers customers execution services through the
SelectNet* and Instinet* systems. These systems are not generally offered by
other discounters. Siebert believes that its OTC executions afford its customers
the best possible opportunity for consistent price improvement. Siebert does not
execute OTC trades through affiliated market makers.
Siebert executes trades of fixed income securities through its Capital
Markets division. Representatives of Siebert's Capital Markets division assist
clients in buying, selling or shopping for competitive yields of fixed income
securities, including municipal bonds, corporate bonds, U.S. Treasuries,
mortgage-backed securities, Government Sponsored Enterprises, Unit Investment
Trusts ("UITs") or Certificates of Deposit ("CDs"). See "Business--Capital
Markets Division."
Retail Customer Service. Siebert provides retail customers, at no
additional charge, with personal service via toll-free access to dedicated
customer support personnel for all of its products and services. The customer
service department is located in its home office in New York City. The
department is staffed and supervised by securities professionals qualified to
address all of the clients' needs. Each representative is equipped with powerful
workstations running multiple software programs simultaneously for quick
response to customer inquiries. The workstations display real-time quotes,
market information, up-to-date equity and margin balances, positions and account
history.
Products and Services. Siebert offers retail customers a variety of
products and services designed to assist them with their investment needs and
allow them the convenience of maintaining a single brokerage account for
simplicity and security. The firm backs up its order execution service with a
no-hassle service guarantee that states, "If you are dissatisfied with a trade
for any reason, that trade is commission free."
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*NYSE Prime is a service mark of the New York Stock Exchange, Inc.; SelectNet is
a trademark of Nasdaq; Instinet is a trademark of Reuters.
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Siebert's products and services include the Siebert Asset Management
account featuring no- fee, no minimum check writing; a dividend reinvestment
program that allows for the automatic reinvestment of cash dividends as well as
capital gains distribution; retirement accounts that are free of fees if the
account maintains assets of at least $10,000; $100 million in account protection
per account consisting of $500,000 in standard insurance and $99.5 million in
additional protection, at no charge; free safekeeping services; and the Siebert
Syndicate Hotline, Siebert's exclusive municipal bond syndicate notification
program.
Electronic Services. Siebert provides customers with electronic delivery of
services through a variety of means, as discussed below. Siebert believes,
however, that the electronic delivery services, while cost efficient, do not
offer a customer the ultimate in flexibility. Siebert believes a combination of
electronic services and personalized telephonic service maintains customer
loyalty and best serves the needs of most customers. To that end, all of the
services of the firm are supported by trained licensed securities professionals.
Siebert OnLine - the firm's popular PC software, introduced in the first
quarter of 1996, runs on Windows 3.1* and Windows95* through a secure private
connection. It features easy installation and intuitive operations but its
design lends itself to the active trader as well. With the click of a mouse,
investors can check their account status, get real-time quotes and place orders
to trade securities 24 hours a day.
Siebert MarketPhone(R) - allows customers to trade at their convenience
through touch-tone phones and to check balances and executions and receive
real-time quotes, free. The service also permits automatic transfer to a live
broker or the use of the fax-on-demand feature to select an investment report to
be delivered to a fax machine within 90 seconds through the firm's Research by
Fax(R) service.
PerformanceFax - introduced in the second quarter of 1996, allows customers
to receive a comprehensive profit and loss analysis of their portfolios faxed
each morning before the market opens. Alternatively, the customer can select
from weekly and monthly schedules for receipt of PerformanceFax reports.
SiebertNet - Internet access with features including the efficiency and
manageability of placing stock orders, obtaining real time quotes, confirmation
of pending and executed orders, access to late breaking news and valuable
financial reports, as well as current account information including balances and
positions.
Siebert FundExchange(R) - The FundExchange(R) Mutual Fund service provides
customers with access to approximately 4,500 mutual funds, including 1,000
no-load funds, about 340 of which have no-transaction fees.
Siebert is currently developing and will offer during the next year new
products and services including the following:
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* Windows 3.1 and Windows95 are trademarks of the Microsoft Corporation.
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On-line statement imaging system - Electronic imaging of customer
statements will be displayed directly on the screen of Siebert
representatives for fast accurate reconciliation of customer accounts.
PerformanceFax enhancements - New reports will become available to
customers.
No annual fee VISA(R)* credit card - Will allow customers to make purchases
with a Siebert VISA credit card.
Enhanced MarketPhone(R) telephone brokerage service - Features will include
quotes on mutual funds and Canadian securities; the ability to purchase
mutual funds; a new upgraded menu system; and additional access ports.
Siebert Fax on Demand service - Customers will be able to call toll free
from any touch tone telephone and select from a list of reports that will
be faxed 24 hours a day.
Newsand trade execution alert service via PC, beeper and fax - Customers
will be able to keep abreast of the market whether at home or traveling
using the firm's alert service.
VIP Premiere Statement - The statements will offer a more sophisticated
view of the brokerage account information including a new account valuation
section, an asset allocation pie chart, a new improved activity section,
and a more detailed income summary section.
A Charitable Common Fund account that will allow customers to contribute
appreciated securities and designate the beneficiaries of income and
principal without incurring capital gains taxes on the appreciation.
Retail New Accounts. Siebert maintains a separate New Accounts department
to familiarize each customer with Siebert's array of services, policies and
procedures. The department assists in the development of new business received
through the firm's print and broadcast advertising as well as its referral
programs. Additionally, requests to upgrade services such as option and margin
approval are handled by this department.
The Retail New Accounts department assesses the credit worthiness of
customers and monitors control procedures for each new customer. These
procedures include the use of a combination of nationally recognized fraud
prevention services and internal controls developed and maintained by Siebert.
Management feels that these procedures minimize Siebert's exposure to customers'
fraudulent activities.
The New Accounts department staff also assist customers in document
management and compliance with regulatory requirements.
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*VISA is a registered trademark of VISA International.
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Retirement Accounts. Siebert offers customers a variety of self-directed
retirement accounts for which it acts as agent on all transactions. Custodial
services are provided through NFSC, the firm's clearing agent, which also serves
as trustee for such accounts. IRA, SEPP IRA and KEOGH accounts can be invested,
and 401(k) plans will in the near future be able to be invested, in a wide array
of mutual funds, stocks, bonds and other investments all through one
consolidated account. Cash balances in these accounts are swept daily to the
money market fund chosen by the customer. Retirement accounts in excess of
$10,000 in assets are free of maintenance fees. Retirement accounts also enjoy
free dividend reinvestment in more than 6,000 publicly traded securities
allowing customers to automatically reinvest cash dividends and capital gains
distributions for additional shares of the same security.
Customer Financing. Customers' securities transactions are effected on
either a cash or margin basis. Generally, a customer buying securities in a
cash-only brokerage account is required to make payment by the settlement date,
currently three business days after the trade is executed. However, for
purchases of certain types of securities, such as options, a customer must have
a cash or a money market fund balance in his or her account sufficient to pay
for the trade prior to its execution. When selling securities, a customer is
required to deliver the securities, and is entitled to receive the proceeds, on
the settlement date. In an account authorized for margin trading, Siebert
arranges for the clearing agent to lend its customer a portion of the market
value of certain securities up to the limit imposed by the Federal Reserve
Board, which for most equity securities is initially 50%. Such loans are
collateralized by the securities in the customer's account. Short sales of
securities represent sales of borrowed securities and create an obligation to
purchase the securities at a later date. Customers may sell securities short in
a margin account subject to minimum equity and applicable margin requirements
and the availability of such securities to be borrowed.
In permitting a customer to engage in transactions, Siebert assumes the
risk of its customer's failure to meet his or her obligations and in the event
of adverse changes in the market value of the securities positions in his or her
account. Both Siebert and its clearing agent reserve the right to set margin
requirements higher than those established by the Federal Reserve Board.
Pursuant to its clearing agreement, Siebert participates in its clearing
agent's income from financing Siebert customers' transactions. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Offices. During the fourth quarter of 1996, Siebert opened retail discount
brokerage offices in Morristown, New Jersey and Palm Beach and Surfside (Bal
Harbour), Florida and entered into an agreement to relocate its office in Los
Angeles to Beverly Hills.
Siebert currently maintains seven retail discount brokerage offices. See
"Item 2 Properties." Customers can visit the offices to obtain market
information, place orders, open accounts, deliver and receive checks and
securities, and obtain related customer services in person. Nevertheless, most
of Siebert's activities are conducted by telephone and mail.
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The New York office remains open Monday through Friday from 7:30 a.m. to
7:30 p.m., Eastern Time, daily, while branch offices remain open from 9 a.m. to
5 p.m., Eastern Time, daily to service customers in person and by telephone.
During the second quarter of 1996, the firm reached an agreement with its
clearing firm whereby the clearing firm would guarantee the availability of up
to 14 trading positions and related telephone and computer equipment for the use
of Siebert personnel in the event Siebert's main trading facility was
unavailable for any reason. Furthermore, the 14 trading positions would be
supported by the clearing agent's internal licensed representatives until
Siebert's representatives arrived. The clearing firm has failed to provide
evidence that they will be able to meet their commitments and the Company is
taking steps to provide alternate arrangements as soon as practical.
Information Systems. Siebert's operations rely heavily on its information
processing and communications systems. Siebert's system for processing a
securities transaction is automated. Registered representatives equipped with
online computer terminals can access customer account information, obtain
securities prices and related information and enter and confirm orders online.
To support its customer service delivery systems, as well as other
applications such as clearing functions, account administration, record keeping
and direct customer access to investment information, Siebert maintains a
computer network in New York. Through its clearing agent, Siebert's computers
are also linked to the major registered United States securities exchanges, the
National Securities Clearing Corporation and The Depository Trust Company.
Failure of Siebert's information processing or communication systems for a
significant period of time could limit its ability to process its large volume
of transactions accurately and rapidly. This could cause Siebert to be unable to
satisfy its obligations to customers and other securities firms, and could
result in regulatory violations. External events, such as an earthquake or power
failure, loss of external information feeds, such as security price information,
as well as internal malfunctions, such as those that could occur during the
implementation of system modifications, could render part or all of such systems
inoperative.
To enhance the reliability of the system and integrity of data, Siebert
maintains carefully monitored backup and recovery functions. These include
logging of all critical files intra-day, duplication and storage of all critical
data outside of its central computer site each evening, and maintenance of
facilities for backup and communications located in facilities provided by NFSC,
its clearing agent, at the World Financial Center.
Capital Markets Division
In 1991, Siebert formalized its commitment to its institutional customer
base by creating the Siebert Capital Markets division (the "Capital Markets
Division"). This group has served as a co- manager, selling group member or
underwriter on a full spectrum of new issue offerings by municipalities,
corporations and federal agencies. The Division has been involved in issues from
New York to California. In addition, the Division's distribution system is
extensive. The firm has an active retail account base in excess of 80,000
accounts, and an institutional account base which numbers approximately 600
accounts.
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The Company believes that it is the largest WBE in the capital markets
business in the country through Siebert and the largest MWBE in the tax exempt
underwriting area in the country through its Siebert Brandford Shank Division.
The two principal areas of the Capital Market Division are Investment
Banking and Institutional Equity Execution Services.
Investment Banking. Siebert offers investment banking services to corporate
and municipal clients through its Capital Markets Division which participates in
public offerings of equity and debt securities with institutional and individual
investors.
Siebert has participated as an underwriter for taxable and tax-exempt debt
raising capital for many types of issuers including states, counties, cities,
transportation authorities, sewer and water authorities and housing and
education agencies. Since it began underwriting in 1989, the firm has co-managed
over $61.6 billion in municipal debt. Investment Banking revenues from the
underwriting of taxable and tax-exempt debt and fees from financial advisor and
remarketing activities are set forth in the table "Selected Financial Data" in
Part II - Item 6.
In October 1996, Siebert formed the Siebert Brandford Shank Division of
Siebert to add to the former activities of Siebert's tax exempt underwriting
department the activities of 26 municipal investment banking professionals who
were previously employed by the 13th largest tax exempt underwriting firm in the
country. As soon as all licenses and consents are obtained, the Siebert
Brandford Shank Division will be separately incorporated and Napoleon Brandford
and Suzanne F. Shank will own 51% of the equity and be entitled to 51% of the
net profits or bear 51% of any net losses after Siebert's recovery of start-up
expenses while Siebert will have the balance. The group is expected to make
Siebert a more significant factor in the tax exempt underwriting area. This is
expected to enhance Siebert's government and institutional relationships as well
as the breadth of products that can be made available to retail clients.
In addition to occupying a portion of Siebert's existing offices in New
York, the new Division has opened offices in San Francisco, Seattle and Houston
and is paying rent on an interim basis while negotiating to open or assume the
leases for additional offices in Dallas, Chicago, Detroit and Los Angeles. The
additional overhead and costs incurred in the openings will adversely impact net
income until additional revenues are produced in amounts sufficient to absorb
such overhead and costs. There can be no assurance as to when and if such
revenues will be produced. As a startup Division, the unit has not yet been
profitable.
To date, however, the Division has been awarded roles as Co-Managing
Underwriter of offerings approximating $3.5 billion and as a Senior Managing
Underwriter of offerings of approximately $500 million expected to come to
market between April 1 and December 31, 1997. Awarded clients include the States
of California, Texas and Washington and the Cities of Chicago, Detroit and St.
Louis.
Siebert has participated as an underwriter in several of the largest common
stock offerings that have come to market, including Conrail, Allstate, PacTel
Corporation, Estee Lauder and Lucent Technologies. To date, the firm has
participated as an underwriter in over 105 offerings including corporate debt
issuance totaling over $3.6 billion.
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The principal sources of revenue of the Capital Markets Division are
underwriting profits and management fees derived from underwriting. Certain
risks are involved in the underwriting of securities. Underwriting syndicates
agree to purchase securities at a discount from the initial public offering
price. If the securities must be sold below the syndicate cost, an underwriter
is exposed to losses on the securities that it has committed to purchase. In the
last several years, investment banking firms have increasingly underwritten
corporate and municipal offerings with fewer syndicate participants or, in some
cases, without an underwriting syndicate. In such cases, the underwriter assumes
a larger part or all of the risk of an underwriting transaction. Under Federal
securities laws, other laws and court decisions, an underwriter is exposed to
substantial potential liability for material misstatements or omissions of fact
in the prospectus used to describe the securities being offered. While municipal
securities are exempt from the registration requirements of the Securities Act,
underwriters of municipal securities nevertheless are exposed to substantial
potential liability in connection with material misstatements or omissions of
fact in the offering documents prepared in connection with offerings of such
securities.
Institutional Equity Execution Services. The firm emphasizes personalized
service, professional order handling and client satisfaction to approximately
400 institutional accounts. It utilizes up to 15 independent floor brokers that
use an extensive network linked via direct "ring down" circuits. Each broker is
strategically located on a major exchange, which allows Siebert to execute
orders in all market environments. Utilizing its clearing arrangement, Siebert
has the ability to provide foreign execution and clearing services to
institutional customers. Although the firm from time to time positions stocks,
options or futures, it does not execute customer orders against such positions
because Siebert believes its client's interest in a transaction should always be
placed above any other interest. The firm's institutional client list includes
some of the largest pension funds, investment managers and banks across the
country. The firm trades an average of 668,000 shares daily for institutional
investors and for its own account.
Institutional Basket Trading Technology. The Capital Markets Division
completed in the second quarter of 1996 the design and commenced operation of
the exclusive Siebert Real-Time List Execution System ("SRLX"). SRLX is designed
exclusively for institutional customers who employ the use of basket trading
strategies in their portfolio management.
SRLX enables the Capital Markets Division to simultaneously manage an array
of baskets for multiple clients while providing real-time analysis. SRLX can be
integrated into an existing local area network. It is built with the latest 32
bit technology to take advantage of today's Pentium-based PC's running Microsoft
Windows95* or Windows NT*. Data integrity is assured through a private digital
T1 line with built-in network redundancy.
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* Pentium is a trademark of the Intel Corporation; Microsoft Windows95 and
WindowsNT are a trademarks of the Microsoft Corporation.
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SRLX is built for institutional customers with features designed to add
significant value to their trading capabilities. SRLX features include: Written
almost entirely in VB native code by in-house staff for reliability and speed;
sophisticated graphical interface allowing exceptional control and monitoring;
real-time order entry, reporting and messaging from the inter-market trading
network; real-time basket analysis including average pricing and liquidity;
multiple basket management from a single window; account allocation and
end-of-day report uploading; customized client reports; active intervention for
large blocks or inactive stocks; and built-in automatic fail-safe and recovery
system.
Advertising, Marketing and Promotion
Siebert develops and maintains its retail customer base through printed
advertising in financial publications, broadcast commercials over national and
local cable TV channels as well as promotional efforts and public appearances by
Ms. Siebert. Additionally, a significant portion of the firm's new business is
developed directly from referrals by satisfied customers.
The Capital Markets Division maintains a practice of announcing in advance
that it will contribute a portion of the net commission revenues it derives from
sales of negotiated new issue equity, municipal and government bonds to
charitable organizations. Once the Siebert Brandford Shank division is
profitable, the division will likely follow a similar practice. Siebert is
certified as a WBE with numerous states, agencies and authorities. Siebert is
the only "WBE" which offers both retail and institutional product distribution
capabilities. It is also the largest "WBE" with significant minority
participation. Although it has been a member of the New York Stock Exchange
since 1967, new business opportunities have become available to it based upon
its status as a "WBE." See "Business - Regulation."
Many of the firm's competitors expend substantial funds in advertising and
direct solicitation of prospects and customers to increase their share of the
market.
Competition
Siebert encounters significant competition from full-commission and
discount brokerage firms, as well as from financial institutions, mutual fund
sponsors and other organizations many of which are significantly larger and
better capitalized than Siebert. The general financial success of the securities
industry over the past several years has strengthened existing competitors.
Siebert believes that such success will continue to attract additional
competitors such as banks, insurance companies, providers of online financial
and information services, and others as they expand their product lines. Many of
these competitors are larger, more diversified, have greater capital resources,
and offer a wider range of services and financial products than Siebert. Siebert
competes with a wide variety of vendors of financial services for the same
customers. Siebert believes that the main competitive advantages are quality of
execution and service, responsiveness, price of services and products offered,
and the breadth of product line.
Among Siebert's principal retail competitors are Charles Schwab, Quick and
Reilly, Fidelity Investments, Waterhouse Securities, Jack White & Co. and
Kennedy Cabot. Siebert charges commissions lower than some other discount
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brokers including Charles Schwab, Quick & Reilly and Fidelity Investments. In
investment banking, Siebert's principal competitors for business include both
national and regional firms, some of whom have resources substantially greater
than Siebert's.
Regulation
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. The Securities and Exchange
Commission (the "Commission") is the Federal agency charged with administration
of the Federal securities laws. Siebert is registered as a broker-dealer with
the Commission, the NYSE and the National Association of Securities Dealers
("NASD"). Much of the regulation of broker-dealers has been delegated to
self-regulatory organizations, principally the NASD and the national securities
exchanges such as the NYSE which is Siebert's primary regulator with respect to
financial and operational compliance. These self-regulatory organizations adopt
rules (subject to approval by the Commission) governing the industry and conduct
periodic examinations of broker-dealers. Securities firms are also subject to
regulation by state securities authorities in the states in which they do
business. Siebert is registered as a broker-dealer in 48 states, the District of
Columbia and Puerto Rico.
The principal purpose of regulations and discipline of broker-dealers is
the protection of customers and the securities markets, rather than protection
of creditors and stockholders of broker-dealers. The regulations to which
broker-dealers are subject cover all aspects of the securities business,
including training of personnel, sales methods, trading practices among
broker-dealers, uses and safekeeping of customers' funds and securities, capital
structure of securities firms, record keeping, fee arrangements, disclosure to
clients, and the conduct of directors, officers and employees. Additional
legislation, changes in rules promulgated by the Commission and by
self-regulatory organizations or changes in the interpretation or enforcement of
existing laws and rules may directly affect the method of operation and
profitability of broker-dealers and investment advisers. The Commission,
self-regulatory organizations and state securities authorities may conduct
administrative proceedings which can result in censure, fine, cease and desist
orders, or suspension or expulsion of a broker-dealer or an investment adviser,
its officers, or employees. Neither the Company nor Siebert has been the subject
of such administrative proceedings.
As a registered broker-dealer and NASD member organization, Siebert is
required by Federal law to belong to the Securities Investor Protection
Corporation ("SIPC"), which provides, in the event of the liquidation of a
broker-dealer, protection for securities held in customer accounts held by the
firm of up to $500,000 per customer, subject to a limitation of $100,000 on
claims for cash balances. SIPC is funded through assessments on registered
broker-dealers. In addition, Siebert, through its clearing agent, has purchased
from private insurers additional account protection of up to $99.5 million per
customer, as defined, for customer securities positions only. Stocks, bonds,
mutual funds and money market funds are considered securities and are protected
on a share basis for the purposes of SIPC protection and the additional
protection (i.e., protected securities may either be replaced or converted into
an equivalent market value as of the date a SIPC trustee is appointed). Neither
SIPC protection nor the additional protection applies to fluctuations in the
market value of securities.
-12-
<PAGE>
Siebert is also authorized by the Municipal Securities Rulemaking Board to
effect transactions in municipal securities on behalf of its customers and has
obtained certain additional registrations with the Commission and state
regulatory agencies necessary to permit it to engage in certain other activities
incidental to its brokerage business.
Margin lending arranged by Siebert is subject to the margin rules of the
Board of Governors of the Federal Reserve System and the NYSE. Under such rules,
broker-dealers are limited in the amount they may lend in connection with
certain purchases and short sales of securities and are also required to impose
certain maintenance requirements on the amount of securities and cash held in
margin accounts. In addition, those rules and rules of the Chicago Board Options
Exchange govern the amount of margin customers must provide and maintain in
writing uncovered options.
In the recent election, voters in the State of California approved
Proposition 209, a proposed statewide constitutional amendment by initiative,
and the Governor issued an executive order requiring state officials to
immediately implement the initiative. Proposition 209 bans preferential
treatment for women and minorities in state programs. Under Proposition 209,
state agencies have been ordered to end all quotas or set asides. A number of
lawsuits were filed challenging the constitutionality of the proposition under
the Fourteenth Amendment and the equal protection clause and a court in San
Francisco has issued an injunction blocking the implementation of the
proposition. The Court of Appeals for the Ninth Circuit is currently considering
the appeal of the injunction blocking Proposition 209's implementation. It is
unclear at this point whether the proposition will be implemented or what the
impact of the proposition will be on the new business opportunities that may
have become available to Siebert in California based upon its status as a "WBE."
Ms. Siebert believes that irrespective of the legal requirements, as long as
there is a "sensitivity to diversity" and "competitive equality," opportunities
will be available for WBEs and MBEs.
See "Business-Advertising, Marketing and Promotion."
Net Capital Requirements; Net Capital
As a registered broker-dealer, Siebert is subject to the Uniform Net
Capital Rule (Rule 15c3-1) promulgated by the Commission (the "Net Capital
Rule"), which has also been adopted through incorporation by reference in NYSE
Rule 325. Siebert is a member firm of the NYSE and the NASD. The Net Capital
Rule specifies minimum net capital requirements for all registered
broker-dealers and is designed to measure financial integrity and liquidity.
Failure to maintain the required net capital may subject a firm to suspension or
expulsion by the NYSE and the NASD, certain punitive actions by the Commission
and other regulatory bodies and, ultimately, may require a firm's liquidation.
"Net capital" is defined as net worth (assets minus liabilities), plus
qualifying subordinated borrowings, less certain deductions that result from
excluding assets that are not readily convertible into cash and from
conservatively valuing certain other assets. These deductions include charges
(haircuts) that discount the value of firm security positions to reflect the
possibility of adverse changes in market value prior to disposition.
The Net Capital Rule requires notice of equity capital withdrawals to be
provided to the Commission prior to and subsequent to withdrawals exceeding
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<PAGE>
certain sizes. Such rule prohibits withdrawals that would reduce a
broker-dealer's net capital to an amount less than 25% of its deductions
required by the Net Capital Rule as to its security positions. The Net Capital
Rule also allows the Commission, under limited circumstances, to restrict a
broker-dealer from withdrawing equity capital for up to 20 business days.
The firm falls within the provisions of Regulation 240.15c3-1(a)(1)(ii)
promulgated by the Commission. Siebert has elected to use the alternative
method, permitted by the rule, which requires that Siebert maintain minimum net
capital, as defined, equal to the greater of $250,000 or 2 percent of aggregate
debit balances arising from customer transactions, as defined. (The net capital
rule of the NYSE also provides that equity capital may not be withdrawn or cash
dividends paid if resulting net capital would be less than 5 percent of
aggregate debits.) At December 31, 1996 and 1995, Siebert had net capital of
$7.8 million and $4.6 million, respectively, and net capital requirements of
$250,000 under Regulation 240.15c3-1(a)(1)(ii). Siebert is not subject to
Commission Rule 15c3-3 and claims exemption from the reserve requirement under
Section 15c3- 3(k)(2)(ii). The firm maintains net capital in excess of the
Commission Rule 17a-11 requirement.
Employees
As of March 18, 1997, Siebert had 121 full time employees, four of whom
were corporate officers. None of the employees are represented by a union, and
Siebert believes that its relations with its employees are good.
Item 2. Properties
Siebert operates its business out of the following nine offices:
<TABLE>
<CAPTION>
Approximate Expiration
Office Area in Date of
Square Current Renewal
Location Feet Lease Terms
-------- ---- ----- -----
<C> <C> <C> <C>
885 Third Ave. 7,828 SF 7/15/97 5 year option
Suite 1720
New York, NY 10022
2020 Avenue of the Stars 846 SF N/A Month-to-month
Concourse Level
Suite C216
Los Angeles, CA 90067
220 Sansome Street 3,250 SF 2/28/00 None
15th Floor
San Francisco, CA 94104
(Investment Banking only)
-14-
<PAGE>
Approximate Expiration
Office Area in Date of
Square Current Renewal
Location Feet Lease Terms
-------- ---- ----- -----
4400 North Federal Highway 1,038 SF 2/28/02 None
Suite 106D
Boca Raton, FL 33431
400 Fifth Avenue South 1,008 SF 4/22/99 None
Suite 100
Naples, FL 33940
230-238 Royal Palm Way 629 SF 10/31/97 1 year option
Suite 408-410
Palm Beach, FL 33480
9569 Harding Avenue 1,150 SF 9/30/98 None
Surfside, FL 33154
66 South Street 1,341 SF 8/31/06 None
Morristown, NJ 07960
2 Union Square 325 SF 4/30/97 2 one year
601 Union Street options
Seattle, WA 98101
(Investment Banking only)
601 Jefferson 220 SF Month None
Suite 320 to
Houston, TX 77002 month
(Investment Banking only)
</TABLE>
In addition to occupying a portion of Siebert's existing offices in New
York, the new Siebert, Brandford, Shank Division has opened offices in San
Francisco, Seattle and Houston and is paying rent on an interim basis while
negotiating to open or assume the leases for additional offices in Dallas,
Chicago, Detroit and Los Angeles.
The Company believes that its properties are in good condition and are
suitable and adequate for the Company's business operations.
Item 3. Legal Proceedings
Siebert is involved in various routine lawsuits of a nature which is deemed
customary and incidental to its business. In the opinion of management, the
ultimate disposition of such actions will not have a material adverse effect on
its financial position or results of operations.
-15-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock commenced trading in the Nasdaq SmallCap Market under the
symbol "SIEB" on November 12, 1996. The high and low sales prices of the Common
Stock reported by the Nasdaq SmallCap Market during the following periods were:
High Low
November 12, 1996 to December 31, 1996........ $ 12.00 $ 9.00
January 1, 1997 to March 24, 1997............. $ 12.375 $ 9.25
The closing bid price on March 24, 1997 in the Nasdaq SmallCap Market was
$9.25 per share.
As of March 24, 1997, there were approximately 530 holders of record of
Common Stock.
Limited Offering of Shares
In January, 1997 the Company offered to "odd lot" shareholders the
opportunity to round up to the closest 100 shares any holdings of an odd amount
at a price of $9.375 per share. The offer, once extended, expired March 21,
1997. 1,713 shares were issued pursuant to the offer.
Dividend Policy
Subject to statutory and regulatory constraints, prevailing financial
conditions and future earnings, the Company may pay cash dividends on its Common
Stock but has not done so to date. In considering whether to pay such dividends,
the Company's Board of Directors will review the earnings of the Company, its
capital requirements, its economic forecasts and such other factors as are
deemed relevant. Some portion of the Company's earnings will be retained to
provide capital for the operation and expansion of its business.
If the Company determines to pay a dividend, Ms. Siebert, as the majority
shareholder of the Company, may from time to time waive her rights to receive
cash dividends to be declared by the Company.
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<PAGE>
Item 6. Selected Financial Data
The selected consolidated financial data set forth below for the five years
ended December 31, 1996 has been derived from the Company's audited financial
statements. Such information should be read in conjunction with, and is
qualified in its entirety by, the financial statements and notes thereto
appearing elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income statement data:
Revenues:
Commissions ................................... $ 20,105,127 $ 15,645,334 $ 12,128,797 $ 14,349,051 $ 9,874,853
Trading profits ............................... 868,823 2,608,078 3,215,288 3,133,722 1,378,293
Interest and dividends ...................... 656,434 1,389,612 462,618 261,198 234,770
Investment banking ............................ 2,532,795 1,396,967 1,536,030 2,462,309 2,435,734
------------ ------------ ------------ ------------ ------------
Total revenues .............................. 24,163,179 21,039,991 17,342,733 20,206,280 13,923,650
------------ ------------ ------------ ------------ ------------
Expenses:
Salaries, commissions and employee ........... 9,753,847 8,586,116 6,132,899 8,999,567 4,844,544
benefits (1) ................................
Clearing fees, including floor
brokerage ................................... 4,585,398 4,249,050 3,967,558 4,473,740 3,017,085
Advertising and promotion .................... 3,265,692 2,485,426 2,299,030 2,171,858 1,838,707
Communications ................................ 1,359,325 1,119,189 1,001,957 896,986 590,034
Interest ...................................... 290,465 568,326 602,759 323,876 290,185
Rent and occupancy ............................ 403,534 326,089 323,123 323,235 200,976
Other general and administrative ............. 2,339,483 2,461,122 2,458,237 1,932,143 1,930,23
------------ ------------ ------------ ------------ ------------
Total expenses .............................. 21,997,744 19,795,318 16,785,563 19,121,405 12,711,769
------------ ------------ ------------ ------------ ------------
Income before provision for taxes ............... 2,165,435
Provision for income taxes - current ......... 201,000
------------
Net income -- historical ........................ 1,964,435 1,244,673 557,170 1,084,875 1,211,881
Pro forma provision for income taxes (2) ........ 752,000 548,000 245,000 477,000 533,000
------------ ------------ ------------ ------------ ------------
PRO FORMA NET INCOME ......................... 1,212,435 $ 696,673 $ 312,170 $ 607,875 $ 678,881
============ ============ ============ ============
Supplementary pro forma adjustment:
Effect of officer's salary reduction
as though 1997 salary had been in effect 2,975,000
Related income taxes .......................... (1,309,000)
------------
Supplementary pro forma net income .............. $ 2,878,435
============
Per share of common stock:
PRO FORMA NET INCOME .......................... $ .23 $ .13 $ .06 $ .12 $ .13
============ ============ ============ ============ ============
Supplementary pro forma net income .............. $ .55
============
Weighted average common shares deemed outstanding 5,235,897 5,235,897 5,235,897 5,235,897 5,235,897
Balance Sheet data (at period-end):
Total assets ................................. $ 14,372,708 $ 16,291,195 $ 9,372,230 $ 12,161,104 $ 4,784,663
Total liabilities excluding subordinated debt 4,271,143 9,154,065 3,479,773 6,825,817 1,530,795
Subordinated debt to majority shareholder .... 3,000,000 2,000,000 2,000,000 2,000,000 1,000,000
Stockholder's equity ......................... 7,101,565 5,137,130 3,892,457 3,335,287 2,253,868
</TABLE>
- ------------
(1) Salaries, commissions and employee benefits includes $2,975,000,
$2,975,000, $1,215,000, $3,958,000 and $1,450,000 for 1996 through 1992 of
S Corporation compensation of Muriel Siebert in excess of the amounts that
would have been paid had her new base salary arrangement of $150,000 been
in effect.
(2) The pro forma provision for income taxes represents income taxes which
would have been provided had Siebert operated as a C Corporation.
-17-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business Environment
Market conditions during 1996 reflected a continuation of the 1995 bull
market characterized by record volume and record high market levels. Declines in
market volumes or increases in interest rates could limit Siebert's growth or
even lead to a decline in Siebert's customer base which would adversely affect
its results of operations.
Also during 1996, competition has continued to intensify both among all
classes of brokerage firms and within the discount brokerage business as well as
from new firms not previously in the discount business announcing plans to
become significantly involved. Other firms, traditionally discount execution
firms primarily, have announced their intention to broaden their offerings to
include advice and investment management. Since 1994, some firms have offered
low flat rate execution fees that are difficult for any conventional discount
firm to meet. Many of the flat fee brokers, however, impose charges for services
such as mailing, transfers and handling reorganizations which Siebert does not
and also direct their execution to affiliated market makers. Increased
competition, broader service offerings or the prevalence of a flat fee
environment could also limit Siebert's growth or even lead to a decline in
Siebert's customer base which would adversely affect its results of operations.
Current Developments
For the year ended December 31, 1996, commission and fee income and
investment banking revenues continued to experience strong and record growth.
Equity trading activities, however, continued to lag the growth in the balance
of the firm.
During the fourth quarter of 1996, Siebert opened retail discount brokerage
offices in Morristown, New Jersey and Palm Beach and Surfside (Bal Harbour),
Florida and entered into an agreement to relocate its office in Los Angeles to
Beverly Hills.
In October 1996, Siebert formed the Siebert Brandford Shank Division of
Siebert to add to the former activities of Siebert's tax exempt underwriting
department the activities of 26 municipal investment banking professionals who
were previously employed by the 13th largest tax exempt underwriting firm in the
country. As soon as all licenses and consents are obtained, the Siebert
Brandford Shank Division will be separately incorporated and Napoleon Brandford
and Suzanne F. Shank will own 51% of the equity and be entitled to 51% of the
net profits while Siebert will own and be entitled to the balance. In addition
to occupying a portion of Siebert's existing offices in New York and Los
Angeles, the new Division has opened offices in San Francisco and Seattle and is
paying rent on an interim basis while negotiating to open or assume the leases
for additional offices in Houston, Dallas, Chicago and Detroit. The additional
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<PAGE>
overhead and costs incurred in the openings will adversely impact net income
until additional revenues are produced in amounts sufficient to absorb such
overhead and costs. There can be no assurance as to when and if such revenues
will be produced. As a startup Division, the unit has not yet been profitable.
To date, however, the Division has been awarded roles as Co-Managing Underwriter
of offerings approximating $3.5 billion and as a Senior Managing Underwriter of
offerings of approximately $500 million expected to come to market between April
1 and December 31, 1997.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues for 1996 were $24.2 million, an increase of $3.1 million or
15% over 1995. Commission and fee income and investment banking revenues
increased and trading and interest and dividend revenues declined.
Commission and fee income increased $4.5 million or 29% to $20.1 million
due to the continued bull market and increased spending for advertising and
promotion to attract additional clients. In addition, under a new clearing
agreement which was phased in during the second quarter of 1995, Siebert
received additional commission income on client margin and free credit balances
and investments in certain mutual and money market funds and the amounts of
related customer balances and investments increased substantially.
Trading profits declined $1.7 million or 67% to $869,000 due to a
continuing lack of liquidity and substantially reduced volatility in markets in
which the firm trades, thus limiting trading and arbitrage opportunities
compared to the prior year.
Interest and dividends decreased $733,000 or 53% to $656,000 due to
decreases in long trading positions and in trading strategies which generated
greater dividend income in 1995 over the corresponding period in 1996.
Investment banking increased $1.1 million or 81% to $2.5 million due to
increased participation in both equity and tax exempt underwritings over the
prior year period. This resulted from providing additional resources to the
development of both types of business and, from October 1, 1996, the addition of
over 20 municipal investment banking professionals to form the Siebert Brandford
Shank Division engaged in tax exempt underwriting.
Total costs and expenses for 1996 were $22.0 million, an increase of $2.2
million or 11% over 1995. All categories of costs increased except interest
expense and other general and administrative expenses.
Compensation and benefit costs increased $1.2 million or 14% to $9.8
million due to provisions for bonus payments and to increases in staffing to
cover the trading and service needs of the retail commission business, and, in
fourth quarter, the tax exempt underwriting business. Management, staff and
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<PAGE>
incentive bonuses increased $350,000 reflecting volume, improved performance and
firm profitability. The balance of the increase relates primarily to an increase
in average head count of 73 for 1995 to 95 for 1996, an increase of 32%. The
staff increase is primarily related to the increase in retail commission
business and, in the fourth quarter, the addition of the municipal investment
banking professionals.
Clearing and brokerage fees increased $336,000 or 7.9% to $4.6 million.
Such costs increased substantially less than commission volume due to the effect
of a new clearing cost structure that became effective in the second quarter of
1995.
Advertising and promotion expense increased $780,000 or 31% to $3.3 million
due to increased branch and service promotion (for example, the opening of the
Naples office in early 1996 and the Surfside and Palm Beach offices in late 1996
and the introduction of new products ( such as "Siebert OnLine") and increased
advertising and promotion to differentiate Siebert from other firms in an
increasingly competitive environment.
Communications expense increased $240,000 or 22% to $1.4 million as the
client base and volume increased and more services were offered directly
on-line.
Interest expense declined $278,000 or 49% to $291,000 primarily due to the
decreased use of equity trading strategies that involve large short positions.
Dividend charges against short positions are included as part of interest
expense.
Rent and occupancy costs increased $77,000 or 24% to $403,000 principally
due to opening a new branch in Naples, Florida in December 1995, pre-opening and
rental costs of three new retail branches in late 1996, and the new location
costs for the Siebert Brandford Shank Division for the fourth quarter of 1996.
Other general and administrative expenses decreased $122,000 or 5% to $2.3
million due principally to reduced legal and consulting fees in the current
year. Included in general and administrative costs for 1996 are approximately
$210,000 in legal, accounting and printing costs related to the JMI merger in
November, 1996.
Siebert's current and pro forma provision for income taxes increased
$405,000 or 74% to $953,000 while pro forma net income for 1996 was $1.2
million, an increase of $516,000 or 74% over 1995, both proportional to a
similar increase in pre-tax income.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues for 1995 were $21.0 million an increase of $3.7 million or
21% over 1994. Commission and fee income and interest and dividend revenues
increased and trading and investment banking revenues declined.
Commission and fee income increased $3.5 million or 29% to $15.6 million
due to the continued bull market and increased spending for advertising to
attract additional clients.
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<PAGE>
Trading profits declined $607,000 or 19% to $2.6 million due to a lack of
liquidity and substantially reduced volatility in the firm's markets during the
second half of the year thus limiting the trading and arbitrage opportunities
present in the first half of the year and in the prior period.
Interest and dividends increased $927,000 or 200% to $1.4 million due to
increases in long trading positions and in trading strategies which generated
greater dividend income.
Investment banking decreased $139,000 or 9.1% to $1.4 million due to
reduced underwriting volume generally in municipal markets and a shift from
negotiated underwriting transactions to competitively bid transactions which are
relatively less profitable for participants.
Total costs and expenses for 1995 were $19.8 million, an increase of $3.0
million or 18% over 1994. All categories of costs increased except interest
expense.
Compensation and benefit costs increased $2.5 million or 40% to $8.6
million due to an increase in Subchapter-S compensation to Ms. Siebert of $1.76
million, an increase in contractual incentive bonus compensation of $355,000 and
an increase in the bonus provision for other staff and executives of $365,000.
Clearing and brokerage fees increased $282,000 or 7.1% to $4.2 million.
Such costs increased substantially less than commission volume due to the effect
of a new clearing cost structure that became effective in the second quarter of
1995.
Advertising and promotion expense increased $186,000 or 8.1% to $2.5
million primarily in increased advertising to differentiate Siebert from other
firms in an increasingly competitive environment.
Communications expense increased $117,000 or 12% to $1.1 million due to
increased market volume, increased use of "800" number service resulting from
national television advertising and increased use of Siebert's market phone
service for orders as well as customer inquiries. Also as a result of increased
volume, the cost of quote services increased $58,000 or 14%.
Interest expense declined $34,000 or 5.7% to $568,000 primarily due to the
decreased use of equity trading strategies that involve large short positions.
Dividend charges against short positions are included as part of interest
expense.
Rent and occupancy costs increased $3,000 or 0.9% to $326,000 primarily
from cost escalation provisions in existing leases.
-21-
<PAGE>
Siebert's pro forma provision for income taxes increased $303,000 or 124%
to $548,000 and pro forma net income for 1995 was $697,000, an increase of
$385,000 or 123% over 1994, both proportional to a similar increase in pre-tax
income.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Total revenues for 1994 were $17.3 million, a decrease of $2.9 million or
14% compared to 1993. Commissions and fees and investment banking revenues
declined. Trading and interest income increased, but to a much lesser extent.
Commissions and fees were $12.1 million, a decrease of $2.2 million or 16%
compared to 1993. Principal factors were a general decline in overall stock
market volume and activity and increased competition in the discount brokerage
industry, particularly from a class of new flat fee discount brokers.
Trading profits increased $82,000 or 2.6% to $3.2 million due to the
continued success of firm trading strategies suited to relatively liquid and
volatile markets.
Interest and dividends increased $201,000 or 77% to $463,000 due to
increases in long trading positions and in trading strategies which generated
greater dividend income in 1994 compared to 1993.
Investment banking decreased $926,000 or 38% to $1.5 million due primarily
to a reduction of approximately $500,000 in taxable fixed income syndicate
income which had been significant in 1993. This was due to market conditions,
the termination of certain Resolution Trust Company and FannieMae underwriting
programs and the loss of a key employee. The municipal bond area principally
accounted for the remaining decline due to a softening in the municipal bond
market.
Total costs and expenses for 1994 were $16.8 million, a decrease of $2.3
million or 12% compared to 1993. Compensation and benefits and clearing costs
accounted principally for the decrease, with some offsetting increases in other
categories.
Compensation and benefits decreased $2.9 million or 32% to $6.1 million.
Ms. Siebert's Subchapter-S Corp. compensation declined $2.7 million in 1994
compared to 1993 and a reduction in staff and in the executive bonus provision
accounted for the balance, in each case due to reduced firm profitability.
Clearing and brokerage fees decreased $506,000 or 11% to $4.0 million due
to a decrease in the retail commission business. The decrease was less than the
percentage decrease in commissions because the 1994 mix of commissions had a
shift toward listed securities in 1994 which incur floor brokerage costs not
applicable to OTC trades.
Advertising and promotion expense increased $127,000 or 5.9% to $2.3
million. The increased expenditures represented a campaign to minimize the
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<PAGE>
effects of reduced market volume by capturing increased market share. Due to
reduced municipal market activity, contributions, included as promotional
expense, decreased approximately $560,000. Expenditures for other advertising
and promotional costs increased approximately $685,000 over the prior year.
Communications expense increased $105,000 or 12% to $1.0 million. Although
commission volume declined, the firm's emphasis on customer service resulted in
more service-oriented representatives providing a wider range of services,
specifically including substantially more quote services.
Interest expense increased $279,000 or 86% to $602,000 due to the trading
strategies involving large short positions which incur dividend charges.
Dividend charges against short positions are included as part of interest
expense.
Rent and occupancy costs remained the same at $323,000.
Other general and administrative expenses increased $526,000 or 27% to $2.5
million, principally due to legal defense fees and expenses with two actions
involving former employees; both cases were settled.
Siebert's pro forma provision for income taxes decreased $232,000 or 49% to
$245,000 and pro forma net income decreased $296,000 or 49% to $312,000, both
proportional to a similar decrease in pre-tax income.
Liquidity and Capital Resources
Siebert's assets are highly liquid, consisting generally of cash, money
market funds and securities freely salable in the open market. Siebert's total
assets at December 31, 1996 were $14.4 million, of which $2.0 million took the
form of a secured demand note. $13.5 million or 94% of total assets were highly
liquid.
Siebert is subject to the net capital requirements of the Commission, the
NYSE and other regulatory authorities. At December 31, 1996, Siebert's net
capital was $ 7.8 million, $7.5 million in excess of its minimum capital
requirement of $250,000.
Risk Management
The principal credit risk to which Siebert is exposed on a regular basis is
to customers who fail to pay for their purchases or who fail to maintain the
minimum required collateral for amounts borrowed against securities positions.
Siebert has established policies with respect to maximum purchase
commitments for new customers or customers with inadequate collateral to support
a requested purchase.
-23-
<PAGE>
Managers have some flexibility in allowing certain transactions. When
transactions occur outside normal guidelines, such accounts are monitored
closely until their payment obligation is completed; if the customer does not
meet the commitment, steps are taken to close out the purchase and minimize any
losses.
Siebert has a risk unit specifically responsible for monitoring all
customer positions for the maintenance of required collateral. The unit also
monitors accounts that may be concentrated unduly in one or more securities
whereby a significant decline in the value of a particular concentrated security
could reduce the value of the account's collateral below the account's loan
obligation.
Siebert has not had significant credit losses in the last five years.
Item 8. Financial Statements and Supplementary Data
See index immediately following the signature page.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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<PAGE>
Part III
Item 10. Directors and Executive Officers of the Company
(a) Identification of Directors
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A.
(B) Identification of Executive Officers
The executive officers of the Company are:
Name Age Position
- ---- --- --------
Muriel F. Siebert 64 Chair and President
Nicholas P. Dermigny 38 Executive Vice President and Chief
Operating Officer
T. K. Flatley 56 Executive Vice President, Chief Financial
and Administrative Officer and Assistant
Secretary
Daniel Iesu 37 Secretary and Controller
Certain information furnished to the Company by each executive officer is
set forth below.
Muriel F. Siebert has been Chair, President and a director of Siebert since
1967 and the Company since November 8, 1996. The first woman member of the New
York Stock Exchange on December 28, 1967, Ms. Siebert served as Superintendent
of Banks of the State of New York from 1977 to 1982. She is a director of the
New York State Business Council, the National Women's Business Council, the
International Women's Forum and the Boy Scouts of Greater New York.
Nicholas P. Dermigny has been Executive Vice President and Chief Operating
Officer of Siebert since joining the firm in 1989. Prior to 1993, he was
responsible for the retail discount division. Mr. Dermigny became an officer and
director of the Company on November 8, 1996.
T. K. Flatley has been Executive Vice President and Chief Financial and
Administrative Officer of Siebert since April 1996 and of the Company since
November 8, 1996. He became Assistant Secretary of the Company on March 11,
1997. From May 1993 until April 1996, he was engaged independently as a
consultant in the investment banking and brokerage business except for the
period from November 1993 to November 1994 when he was Chief Financial and
-25-
<PAGE>
Administrative Officer of Ryan, Beck & Co., Inc., an investment banking and
brokerage firm in New Jersey. From 1990 until 1993, he was President and Chief
Executive Officer of Motivated Security Services, a security services firm based
in New Jersey. Mr. Flatley is a Certified Public Accountant.
Daniel Iesu has been Secretary of Siebert since October 1996 and of the
Company since November 8, 1996. He has been Controller of Siebert since 1989.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
The financial statements filed as part of this report are
listed in the accompanying Index to Financial Statements.
2. Financial Statement Schedules
Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or
the notes thereto
3. Exhibits
The exhibits required by Item 601 of Regulations S-K filed as
part of, or incorporated by reference in, this report are
listed in the accompanying Exhibit Index.
-26-
<PAGE>
(b) Reports on Form 8-K
Current Report on Form 8-K filed with the Commission on
November 15, 1996 reporting pursuant to Item 5 the merger
with JMI.
Current Report on Form 8-K filed with the Commission on
November 21, 1996 reporting pursuant to Item 1 the change
in control of the Registrant as a result of the merger
with JMI.
(c) Exhibits required by Item 601 of Regulation S-K
See the accompanying Exhibit Index
(d) Financial Statement Schedules
See (a) 2. above
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIEBERT FINANCIAL CORP.
By: /s/ Muriel F. Siebert
-------------------------------------
Muriel F. Siebert
Chair and President
March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Muriel F. Siebert Chair, President and Director March 27, 1997
- ------------------------------ (principal executive officer)
Muriel F. Siebert
/s/ Nicholas P. Dermigny Executive Vice President and March 27, 1997
- ------------------------------ Chief Operating Officer and
Nicholas P. Dermigny Director
/s/ T. K. Flatley Executive Vice President and March 27, 1997
- ------------------------------ Chief Financial and
T. K. Flatley Administrative Officer
(principal financial and
accounting officer)
/s/ Patricia L. Francy Director March 27, 1997
- ------------------------------
Patricia L. Francy
/s/ Jane H. Macon Director March 27, 1997
- ------------------------------
Jane H. Macon
/s/ Monte E. Wetzler Director March 27, 1997
- ------------------------------
Monte E. Wetzler
-28-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Siebert Financial Corp. and Subsidiary
Report of Independent Auditors.....................................F-1
Consolidated Balance Sheets at
December 31, 1996 and 1995 .....................................F-2
Consolidated Statements of Income for each of the
years in the three-year period ended December 31, 1996.........F-3
Consolidated Statements of Retained Earnings for each of the
years in the three-year period ended December 31, 1996..........F-4
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31, 1996.........F-5
Notes to Financial Statements......................................F-6
<PAGE>
Richard A. Eisner & Company, LLP
- --------------------------------------------------------------------------------
Accountants and Consultants
RAE
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Siebert Financial Corp.
New York, New York
We have audited the accompanying consolidated balance sheets of Siebert
Financial Corp. and its wholly owned subsidiary as of December 31, 1996 and
December 31, 1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Siebert
Financial Corp. and its wholly owned subsidiary as of December 31, 1996 and
December 31, 1995, and the consolidated results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 14, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
A S S E T S
-----------
December 31,
-----------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 231,029 $ 164,071
Securities owned, at market value 10,116,248 13,746,931
Receivable from brokers and dealers 1,141,439
Secured demand note receivable from majority shareholder 2,000,000 2,000,000
Property and equipment, net 450,254 238,864
Prepaid expenses and other assets 433,738 141,329
----------- -----------
T O T A L $14,372,708 $16,291,195
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Payable to brokers and dealers $ 5,236,346
Accounts payable and accrued liabilities $ 2,824,000 3,339,229
Securities sold, not yet purchased, at market value 1,447,143 578,490
----------- -----------
T o t a l 4,271,143 9,154,065
----------- -----------
Commitments and contingencies
Liabilities to majority shareholder
subordinated to claims of general creditors 3,000,000 2,000,000
----------- -----------
Shareholders' equity:
Common stock, $.01 par value 49,000,000
shares authorized, 5,235,897 shares
outstanding at December 31, 1996,
5,105,000shares outstanding
at December 31, 1995 52,359 51,050
Additional paid-in capital 6,771,049
Retained earnings 278,157 5,086,080
----------- -----------
Total shareholders' equity 7,101,565 5,137,130
----------- -----------
T O T A L $14,372,708 $16,291,195
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Commissions $ 20,105,127 $ 15,645,334 $ 12,128,797
Trading profits 868,823 2,608,078 3,215,288
Interest and dividends 656,434 1,389,612 462,618
Investment banking 2,532,795 1,396,967 1,536,030
------------ ------------ ------------
Total revenues 24,163,179 21,039,991 17,342,733
------------ ------------ ------------
Expenses:
Salaries, commissions and employee benefits 9,753,847 8,586,116 6,132,899
Clearing fees, including floor brokerage 4,585,398 4,249,050 3,967,558
Advertising and promotion 3,265,692 2,485,426 2,299,030
Communications 1,359,325 1,119,189 1,001,957
Interest 290,465 568,326 602,759
Rent and occupancy 403,534 326,089 323,123
Other general and administrative 2,339,483 2,461,122 2,458,237
------------ ------------ ------------
Total expenses 21,997,744 19,795,318 16,785,563
------------ ------------ ------------
Income before provision for taxes 2,165,435
Provision for income taxes - current 201,000
------------
NET INCOME - HISTORICAL 1,964,435 1,244,673 557,170
Pro forma provision for income taxes 752,000 548,000 245,000
------------ ------------ ------------
PRO FORMA NET INCOME 1,212,435 $ 696,673 $ 312,170
============ ============
Supplementary pro forma adjustment:
Effect of officer's salary reduction as though
1997 salary had been in effect in 1996 2,975,000
Related income taxes (1,309,000)
------------
Supplementary pro forma net income $ 2,878,435
============
Per share of common stock:
PRO FORMA NET INCOME $ .23 $ .13 $ .06
============ ============ ============
Supplementary pro forma net income $ .55
============
Weighted average shares outstanding 5,235,897 5,235,897 5,235,897
The accompanying notes to financial statements are an integral part hereof
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock
-----------------------
Number Additional
of $.01 Par Paid-in Retained
Shares Value Capital Earnings Total
------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 5,105,000 $ 51,050 $ - 0 - $ 3,284,237 $ 3,335,287
Net income 557,170 557,170
----------- ----------- -------- ----------- -----------
Balance - December 31, 1994 5,105,000 51,050 - 0 - 3,841,407 3,892,457
Net income 1,244,673 1,244,673
----------- ------------ --------- ----------- -----------
Balance - December 31, 1995 5,105,000 51,050 - 0 - 5,086,080 5,137,130
Net income as S corporation January 1,
1996 - November 8, 1996 1,686,278 1,686,278
Transfer upon change in tax status 6,772,358 (6,772,358) - 0 -
Issuance of shares in connection
with reorganization 130,897 1,309 (1,309) - 0 -
Net income as C corporation
November 9, 1996 -
December 31, 1996 278,157 278,157
----------- ----------- ---------- ----------- -----------
BALANCE - DECEMBER 31, 1996 5,235,897 $ 52,359 $6,771,049 $ 278,157 $ 7,101,565
=========== =========== ========== =========== ===========
The accompanying notes to financial statements are an integral part hereof.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,964,435 $ 1,244,673 $ 557,170
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 108,460 67,360 55,668
Changes in operating assets and liabilities:
(Increase)decrease in prepaid expenses and other assets (292,409) (2,097) 137,781
Net decrease (increase) in securities owned, at market value 3,630,683 (8,006,577) 382,928
Net change in receivable from/payable to brokers and dealers (6,377,785) 8,151,165 2,309,964
(Decrease) increase in accounts payable and accrued liabilities (515,229) 1,432,940 (70,391)
Net increase (decrease) in securities sold, not yet
purchased, at market value 868,653 (994,994) (3,275,653)
----------- ----------- -----------
Net cash (used in) provided by operating activities (613,192) 1,892,470 97,467
Cash flows from investing activities:
Purchase of property and equipment (319,850) (95,771) (48,587)
Cash flows from financing activities:
Subordinated loan borrowings from majority shareholder 1,000,000 225,000
Repayment of subordinated loan to majority shareholder (2,000,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 66,958 (203,301) 273,880
Cash and cash equivalents - beginning of year 164,071 367,372 93,492
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 231,029 $ 164,071 $ 367,372
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 290,465 $ 568,326 $ 602,759
Income and franchise taxes 234,850 126,342 83,680
</TABLE>
Supplemental information on noncash financing activities:
During 1995, the majority shareholder issued a secured demand note to the
Company and the Company issued a subordinated note to the shareholder, both
in the amount of $2,000,000.
During 1994, a secured demand note receivable provided by Ms. Siebert was
offset by subordinated liabilities.
The accompanying notes to financial statements are an integral part hereof
F-5
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Organization and Summary of Significant Accounting Policies:
- -----------------------------------------------------------------------
(1) Organization and basis of presentation:
-------------------------------------------
Siebert Financial Corp. ("Financial") through its wholly owned
subsidiary Muriel Siebert & Co., Inc. ("Siebert") engages in the business of
providing discount brokerage services for customers, investment banking and
trading securities for its own account.
In accordance with a Plan and Agreement of Merger which closed on
November 8, 1996 (the "Merger"), J. Michaels, Inc. ("JMI") issued 5,105,000
shares (post one-for-seven reverse split) to Muriel Siebert in exchange for all
the issued and outstanding shares of Muriel Siebert Capital Markets Group, Inc.,
("MSCMG"), sole shareholder of Siebert. The Agreement provided that JMI
liquidate all its assets, other than shares of Siebert, and distribute the
proceeds to the pre-merger stockholders of JMI who, by virtue of the merger,
collectively retained a 2 1/2% interest in the surviving company which has been
renamed Siebert Financial Corp. The Merger has been accounted for as a
reorganization of Siebert whereby Financial issued 130,897 shares of its common
stock to the pre-merger stockholders of JMI. Accordingly, the financial
statements have been prepared using the historical basis of Siebert's assets and
liabilities.
The financial statements reflect the results of operations, financial
condition and cash flows of Siebert, and, from the date of the Merger,
Financial. All significant intercompany accounts have been eliminated. Financial
and Siebert collectively are referred to herein as the "Company".
(2) Security transactions:
--------------------------
Prior to 1996, security transactions, commissions, revenues and
expenses were recorded on a settlement date basis, generally the third day
following the transaction for securities and the next day for options. Revenues
and related expenses on a trade date basis were not materially different.
Effective January 1, 1996, security transactions, commissions, revenues and
expenses are recorded on a trade date basis.
Siebert clears all its security transactions through an unaffiliated
clearing firm on a fully disclosed basis. Accordingly, Siebert does not hold
funds or securities for, or owe funds or securities to, its customers. Those
functions are performed by the clearing firm which is highly capitalized.
(3) Income taxes:
-----------------
Effective November 8, 1996 the Company's S corporation tax status was
terminated by virtue of the Merger. The historical financial statements do not
include a provision for income taxes for the period prior to the termination of
the S election. A pro forma provision for income taxes has been reflected which
represents taxes which would have been provided had the Company operated as a C
corporation for the entire year.
The Company accounts for income taxes utilizing the asset and
liability approach requiring the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the basis of assets and liabilities for financial reporting purposes and
tax purposes.
(4) Property and equipment:
---------------------------
Property and equipment is stated at cost and depreciation is
calculated using the straight-line method over the lives of the assets,
generally five years. Leasehold improvements are amortized over the period of
the lease.
(5) Cash equivalents:
---------------------
For purposes of reporting cash flows, cash equivalents include money
market funds.
F-6
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Organization and Summary of Significant Accounting Policies:
(continued)
- --------------------------------------------------------------------------------
(6) Advertising costs:
----------------------
Advertising costs are charged to expense as incurred.
(7) Use of estimates:
---------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(8) Reclassifications:
----------------------
Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 and 1996 presentation.
(9) Supplementary pro forma data:
---------------------------------
Supplementary pro forma net income and supplementary pro forma earning
per share give effect to the adjustment of Ms. Siebert's salary to the amount
set forth in her current salary arrangement and the related tax effect.
(10) Pro forma and supplementary pro forma earnings per common share:
---------------------------------------------------------------------
The Company calculated earnings per share for all periods on the basis
of 5,235,897 common shares deemed outstanding.
(NOTE B) - Liabilities to Majority Shareholder Subordinated to Claims of General
Creditors and Secured Demand Note Receivable Due From Majority
Shareholder:
- --------------------------------------------------------------------------------
The subordinated liabilities consist of the following:
December 31,
----------------------------
1996 1995
---------- ----------
Subordinated note, due December 31, 1998,
interest payable at 4% per annum $2,000,000 $2,000,000
Subordinated note, due January 31, 1999,
interest payable at 8% per annum 500,000
Subordinated note, due October 31, 1999,
interest payable at 8% per annum 500,000
---------- -----------
T o t a l $3,000,000 $2,000,000
========== ==========
The long-term borrowings under subordination agreements will be
automatically renewed for a period of one year if notice of demand for payment
is not given thirteen months prior to maturity.
F-7
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Liabilities to Majority Shareholder Subordinated to Claims of General
Creditors and Secured Demand Note Receivable Due From Majority
Shareholder: (continued)
- --------------------------------------------------------------------------------
The subordinated borrowings are covered by agreements approved by the
New York Stock Exchange and are thus available in computing net capital under
the Securities and Exchange Commission's Uniform Net Capital Rule. To the extent
that such borrowings are required for Siebert's continued compliance with
minimum net capital requirements, they may not be repaid.
Interest paid on subordinated borrowings was $123,000, $160,000 and
$160,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The secured demand note receivable from shareholder of $2,000,000 at
December 31, 1996 and at December 31, 1995 is collateralized by marketable
securities with a market value of $2,363,000 and $2,394,000, respectively.
(NOTE C) - Property and Equipment - Net:
- ----------------------------------------
Property and equipment consist of the following:
December 31,
-------------------------------
1996 1995
--------- ----------
Leasehold improvements $ 70,576 $ 36,305
Furniture and fixtures 61,539 38,612
Equipment 569,471 306,819
--------- ----------
701,586 381,736
Less accumulated deprecia tion and
amortization (251,332) (142,872)
--------- ----------
T o t a l $ 450,254 $ 238,864
========== ==========
Depreciation and amortization expense for the years ended December 31,
1996, 1995 and 1994 amounted to $108,460, $67,360 and $55,668, respectively.
(NOTE D) - Income Taxes:
- ------------------------
The difference between the tax provisions (pro forma for periods prior
to November 8, 1996) and the amount that would be computed by applying the
statutory federal income tax rate to income before taxes is attributable to the
following:
Year Ended
December 31,
-----------------------------------
1996 1995 1994
-------- -------- --------
Income tax provision at 34% $736,000 $423,000 $189,000
State and local taxes,
net of federal tax benefit 217,000 125,000 56,000
------- ------- ------
T o t a l $953,000 $548,000 $245,000
======== ======== ========
There are no significant temporary differences which give rise to
deferred tax assets or liabilities at December 31, 1996.
F-8
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Net Capital:
- -----------------------
Siebert is subject to the Securities and Exchange Commission's Uniform
Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital. Siebert has elected to use the alternative method, permitted by the
rule, which requires that Siebert maintain minimum net capital, as defined,
equal to the greater of $250,000 or 2 percent of aggregate debit balances
arising from customer transactions, as defined. (The net capital rule of the New
York Stock Exchange also provides that equity capital may not be withdrawn or
cash dividends paid if resulting net capital would be less than 5 percent of
aggregate debits.) At December 31, 1996 and 1995, Siebert had net capital of
$7,754,450 and $4,606,280, respectively, as compared with net capital
requirements of $250,000.
(NOTE F) - Financial Instruments with Off-Balance Sheet Risk and Concentrations
of Credit Risk:
- --------------------------------------------------------------------------------
In the normal course of business, Siebert enters into transactions in
various financial instruments with off- balance sheet risk. This risk includes
both market and credit risk, which may be in excess of the amounts recognized in
the statement of financial condition.
Retail customer transactions are cleared through National Financial
Services Corp. ("NFSC") on a fully disclosed basis. In the event that customers
are unable to fulfill their contractual obligations, NFSC may charge Siebert for
any loss incurred in connection with the purchase or sale of securities at
prevailing market prices to satisfy customers' obligations. Siebert regularly
monitors the activity in its customer accounts for compliance with its margin
requirements.
Siebert is exposed to the risk of loss on unsettled customer
transactions in the event customers and other counterparties are unable to
fulfill contractual obligations. Securities transactions entered into as of
December 31, 1996 settled with no adverse effect on Siebert's financial
condition.
Siebert's equity in accounts held by NFSC, consisting of securities
owned and securities sold, not yet purchased, collateralize the margin amounts
due to NFSC.
(NOTE G) - Commitments and Contingencies:
- -----------------------------------------
The Company rents office space under long-term operating leases
expiring in various periods through 2006. These leases call for base rent plus
escalations for taxes and operating expenses.
Future minimum rental payments for base rent plus operating expenses
under these operating leases are as follows:
Year Ending
December 31, Amount
------------ ------
1997 $ 435,000
1998 235,000
1999 127,000
2000 66,000
2001 57,000
Thereafter 180,000
----------
$1,100,000
==========
Rent expense, including escalations for operating costs amounted to
$360,000, $289,000 and $309,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Payments are being charged to expense over the entire lease
term on a straight-line basis.
F-9
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Commitments and Contingencies: (continued)
- -----------------------------------------
The Company is party to certain claims, suits and complaints arising
in the ordinary course of business. In the opinion of management, all such
claims, suits and complaints are without merit, or involve amounts which would
not have a significant effect on the financial position of the Company.
The Company sponsors a defined contribution retirement plan under
Section 401(k) of the Internal Revenue Code that covers substantially all
employees. Participant contributions to the plan are voluntary and are subject
to certain limitations. The Company may also make discretionary contributions to
the plan. No contributions were made by the Company in 1996, 1995 and 1994.
F-10
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Plan and Agreement of Merger between J. Michaels, Inc. ("JMI")
and Muriel Siebert Capital Markets Group, Inc. ("MSCMG"), dated
as of April 24, 1996 ("Merger Agreement")
2.2 Amendment No. 1 to Merger Agreement, dated as of June 28, 1996
2.3 Amendment No. 2 to Merger Agreement, dated as of September 30, 1996
2.4 Amendment No. 3 to Mergr Agreement, dated as of November 7, 1996
3.1 Certificate of Incorporation of Siebert Financial Corp., formerly
known as J. Michaels, Inc., originally filed on April 9, 1934, as
amended to date (previously filed)
3.2 By-laws of Siebert Financial Corp.
10.1 Siebert Financial Corp. 1997 Stock Option Plan
10.2 LLC Operating Agreement, among Siebert, Brandford, Shank & Co., LLC,
Muriel Siebert & Co., Inc., Napoleon Brandford III and Suzanne F.
Shank, dated as of March 10, 1997
10.3 Services Agreement, between Siebert, Brandford, Shank & Co., LLC
and Muriel Siebert & Co., Inc., dated as of March 10, 1997
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (EDGAR filing only)
================================================================================
PLAN AND AGREEMENT OF MERGER
between
J. MICHAELS, INC.,
a New York corporation,
and
MURIEL SIEBERT CAPITAL MARKETS GROUP INC.,
a Delaware corporation
Dated as of April 24, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is for convenience of reference
only and is not intended to define, limit or describe the
scope or intent of any provision of this Merger Agreement.)
Page
----
RECITALS ................................................................ 1
ARTICLE I MERGER OF THE COMPANY INTO MSCMG.............................. 1
Section 1.1. Merger..................................................... 1
Section 1.2. Further Assurances......................................... 2
ARTICLE II CERTIFICATE OF INCORPORATION, BY-LAWS,
DIRECTORS AND OFFICERS, AND STOCK OPTIONS.................. 2
Section 2.1. Charter Amendment.......................................... 2
Section 2.2. Certificate of Incorporation............................... 2
Section 2.3. By-Laws.................................................... 2
Section 2.4. Directors and Officers..................................... 3
Section 2.5. Stock Options.............................................. 3
ARTICLE III CONVERSION AND EXCHANGE OF SHARES
ND LIQUIDATION OF THE COMPANY............................. 3
Section 3.1. Conversion of Shares....................................... 3
Section 3.2. Liquidation of the Company Assets.......................... 4
Section 3.3. Option to Leave Assets in Company.......................... 5
Section 3.4. Exchange of Certificates................................... 6
Section 3.5. Company Common Stock....................................... 6
Section 3.6. No Further Transfers....................................... 6
Section 3.7. Legended Certificates...................................... 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 7
Section 4.1. Organization; Authority.................................... 7
Section 4.2. Subsidiaries............................................... 7
Section 4.3. Capitalization of the Company.............................. 8
Section 4.4. Charter Documents.......................................... 9
Section 4.5. Subsidiary Capitalization.................................. 9
Section 4.6. Binding Obligation; Consents; Litigation................... 9
Section 4.7. Financial Statements....................................... 10
Section 4.8. Real Property.............................................. 11
Section 4.9. Banking Facilities......................................... 11
Section 4.10. Powers of Attorney and Suretyships........................ 11
Section 4.11. Employee Benefits......................................... 11
Section 4.12. Compliance With Law; Permits.............................. 15
Section 4.13. Litigation................................................ 15
Section 4.14. Material Contracts and Agreements......................... 16
Section 4.15. Labor Matters............................................. 17
Section 4.16. Tax Matters............................................... 17
Section 4.17. Absence of Undisclosed Liabilities........................ 18
-i-
<PAGE>
Section 4.18. Insurance................................................. 18
Section 4.19. No Material Adverse Change................................ 19
Section 4.20. Required Consents......................................... 19
Section 4.21. Proxy Statement........................................... 19
Section 4.22. Commission Filings........................................ 20
Section 4.23. Transfer of Assets and Liabilities
to Liquidating Trust................. 20
Section 4.24. Disclosure; Representations and Warranties................ 21
Section 4.25. Finders or Brokers........................................ 21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MSCMG....................... 21
Section 5.1. Organization............................................... 21
Section 5.2. Authority; Consents........................................ 21
Section 5.3. Subsidiaries............................................... 22
Section 5.4. Capitalization of MSCMG.................................... 22
Section 5.5. Binding Obligation; Consents; Litigation................... 22
Section 5.6. Financial Statements....................................... 23
Section 5.7. Compliance With Law; Permits............................... 23
Section 5.8. Litigation................................................. 24
Section 5.9. Litigation................................................. 24
Section 5.10. Consents.................................................. 24
Section 5.11. No Material Adverse Change................................ 24
Section 5.12. Proxy Statement........................................... 25
Section 5.13. Disclosure; Representations and Warranties................ 25
Section 5.14. Finders or Brokers........................................ 25
ARTICLE VI TRANSACTIONS PRIOR TO THE EFFECTIVE
TIME OF THE MERGER........................................ 26
Section 6.1. Stockholders' Meeting...................................... 26
Section 6.2. Approvals; Consents........................................ 27
Section 6.3. Conduct and Liquidation of Business
Prior To Effective Time of the Merger..................... 27
Section 6.4. Access to Information and Documents........................ 28
Section 6.5. Periodic Information....................................... 29
Section 6.6. Representations............................................ 29
Section 6.7. Mailing Date............................................... 30
Section 6.8. Information................................................ 35
Section 6.9. Notice of Breach........................................... 36
Section 6.10. Negotiations with Third Parties........................... 36
Section 6.11. Tax Matters............................................... 38
ARTICLE VII CONDITIONS TO OBLIGATIONS OF THE PARTIES.................... 41
Section 7.1. Stockholder Approvals...................................... 41
Section 7.2. Filing of Charter Amendment................................ 41
Section 7.3. Listing.................................................... 41
Section 7.4. Mailing Date Documents..................................... 41
Section 7.5. Regulatory Approvals....................................... 41
Section 7.6. Escrow Agreement........................................... 42
Section 7.7. Trust Agreement............................................ 42
ARTICLE VIII CONDITIONS TO MSCMG'S OBLIGATIONS.......................... 42
Section 8.1. Representations and Warranties............................. 42
Section 8.2. The Company's Performance.................................. 43
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Section 8.3. Authority.................................................. 43
Section 8.4. Opinion of the Company's Counsel........................... 43
Section 8.5. Legal Matters Satisfactory................................. 43
ARTICLE IX CONDITIONS TO THE COMPANY'S OBLIGATIONS..................... 43
Section 9.1. Representations and Warranties............................. 43
Section 9.2. MSCMG's Performance........................................ 44
Section 9.3. Authority.................................................. 44
Section 9.4. Opinion of MSCMG's Counsel................................. 44
Section 9.5. Legal Matters Satisfactory................................. 44
ARTICLE X TERMINATION................................................... 44
Section 10.1. Termination............................................... 44
Article XI INDEMNIFICATION.............................................. 45
Section 11.1. Indemnification by the Company............................ 45
Section 11.2. Indemnification by the Company............................ 49
Section 11.3. Legal Proceedings......................................... 51
ARTICLE XII MISCELLANEOUS............................................... 52
Section 12.1. Expenses.................................................. 52
Section 12.2. Survival of Representations and Warranties................ 52
Section 12.3. Governing Law............................................. 53
Section 12.4. Notices................................................... 53
Section 12.5. Jurisdiction; Agent For Service........................... 54
Section 12.6. Press Releases............................................ 56
Section 12.7. Assignment; Amendments, Waivers........................... 56
Section 12.8. Entire Agreement.......................................... 56
Section 12.9. Severability.............................................. 56
Section 12.10. Headings................................................. 57
Section 12.11. Counterparts............................................. 57
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Schedules
Section 4.2 Names and Addresses of Subsidiaries;
Jurisdictions of Incorporation and
Qualification
Section 4.3 Incentive Stock Options
Section 4.5 Subsidiary Capitalization
Section 4.8 Real Property
Section 4.10 Powers of Attorney
Section 4.11 Employee Benefits
Section 4.12 Compliance with Applicable Law
Section 4.13 Litigation
Section 4.14 Material Contracts
Section 4.15 Labor Matters
Section 4.17 Scheduled Liabilities
Section 4.18 Insurance
Section 4.23 Retained Assets
Exhibit A Form of Escrow Agreement
Exhibit B Form of Voting Agreement
Exhibit C Intentionally Omitted
Exhibit D Form of Opinion of Counsel to MSCMG
Exhibit E Form of Trust Agreement
Exhibit F Form of Assignment and Assumption Agreement
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PLAN AND AGREEMENT OF MERGER
This PLAN AND AGREEMENT OF MERGER (this "Merger Agreement") is made as of
April 24, 1996 between J. MICHAELS, INC., a New York corporation (the
"Company"), and MURIEL SIEBERT CAPITAL MARKETS GROUP INC., a Delaware
corporation wholly-owned by Muriel Siebert ("MSCMG"). The Company and MSCMG are
sometimes referred to herein as the "Constituent Corporations", and the Company
is sometimes referred to herein as the "Surviving Corporation."
RECITALS
A. The Company was incorporated in the State of New York on April 9, 1934.
Its principal executive offices are located at 182 Smith Street, Brooklyn, New
York 11201. The authorized capital stock of the Company consists of 1,500,000
shares of common stock, par value $1.00 per share (the "Company Common Stock"),
of which 891,282 shares were outstanding and entitled to vote as of April 24,
1996. The number of such outstanding shares of the Company Common Stock is
subject to change prior to the effective time of the merger herein provided for
pursuant to the exercise of current outstanding employee stock options.
B. MSCMG was incorporated in the State of Delaware on November 29, 1993.
Its principal executive offices are located at 885 Third Avenue, Suite 1720, New
York, New York 10022. The authorized capital stock of MSCMG consists of 1,500
shares of common stock, no par value (the "MSCMG Common Stock"), all of which
are outstanding and entitled to vote as of the date hereof.
C. The Boards of Directors of the Company and MSCMG have approved this
Merger Agreement and deem it advisable and for the benefit of their respective
corporations and their stockholders that MSCMG merge with and into the Company
on the terms and conditions herein set forth (the "Merger").
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
MERGER OF THE COMPANY INTO MSCMG
Section 1.1. Merger. Upon the approval and adoption of this Merger
Agreement by the stockholders of each of the Constituent Corporations in
accordance with the laws of the States of New York and Delaware, as appropriate,
<PAGE>
and the satisfaction or waiver of the conditions set forth herein to the
obligations of the parties hereto, a certificate of merger shall, subject to the
rights of termination and abandonment hereinafter set forth, be filed with the
Department of State of the State of New York in accordance with the law of the
State of New York and the Secretary of State of the State of Delaware in
accordance with the law of the State of Delaware. Effective as of the close of
business on the date on which the filing of such certificate of merger is made,
MSCMG shall merge with and into the Company, which as the Surviving Corporation
shall continue its corporate existence under the laws of the State of New York
under the name of Siebert Financial Corp. The date and time of such filing is
herein referred to as the "Effective Time of the Merger".
Section 1.2. Further Assurances. From time to time as and when requested by
the Surviving Corporation, or by its successors or assigns, the officers and
directors of MSCMG last in office shall execute and deliver such deeds and other
instruments of transfer and shall take or cause to be taken such further or
other act as shall be necessary or advisable in order to vest or perfect in the
Surviving Corporation, or to confirm of record or otherwise to the Surviving
Corporation, title to and possession of all the property, interests, assets,
rights, privileges, immunities, powers and purposes of each of the Constituent
Corporations.
ARTICLE II
CERTIFICATE OF INCORPORATION, BY-LAWS,
DIRECTORS AND OFFICERS, AND STOCK OPTIONS
Section 2.1. Charter Amendment. At or immediately prior to the Effective
Time of the Merger, the Company shall amend its Certificate of Incorporation to
increase the number of authorized shares of Company Common Stock from 1,500,000
to 49,000,000 (the "Charter Amendment").
Section 2.2. Certificate of Incorporation. Except for the change of name of
the Company as provided herein, the Certificate of Incorporation of the Company
in effect at the Effective Time of the Merger (as amended by the Charter
Amendment) shall be the Certificate of Incorporation of the Surviving
Corporation until amended as provided by law.
Section 2.3. By-Laws. The by-laws of the Company in effect at the Effective
Time of the Merger shall be the by-laws of the Surviving Corporation until
amended or repealed as provided by law.
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Section 2.4. Directors and Officers. The directors of MSCMG at the
Effective Time of the Merger shall be the directors of the Surviving Corporation
and shall hold office as provided in the by-laws of the Surviving Corporation.
The officers of MSCMG at the Effective Time of the Merger shall be the officers
of the Surviving Corporation and shall hold office as provided in the by-laws of
the Surviving Corporation.
Section 2.5. Stock Options. The Company's Incentive Stock Option Plan and
the 1987 Stock Option Plan shall be terminated on the date of the Effective Time
of the Merger and any options issued pursuant to such plans not exercised prior
to the Effective Time of the Merger shall be canceled.
ARTICLE III
CONVERSION AND EXCHANGE OF SHARES
AND LIQUIDATION OF THE COMPANY
Section 3.1. Conversion of Shares. The manner and basis of converting the
shares of each Constituent Corporation shall be as follows:
(a) Subject to the provisions of paragraph (b), each share of MSCMG Common
Stock outstanding immediately prior to the Effective Time of the Merger (other
than shares of MSCMG Common Stock held in the treasury of MSCMG) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be entitled to receive as of the Effective Time of the Merger 23,823.33 shares
of Company Common Stock for each share of MSCMG Common Stock owned as of the
Effective Time of the Merger, such number of shares of Company Common Stock to
be fixed so that the stockholders of MSCMG as of the Effective Time of the
Merger receive an aggregate of 97.5% of the issued and outstanding shares of
Company Common Stock as of the Effective Time of the Merger.
(b) No certificates for fractions of shares of Company Common Stock and no
scrip or other certificates evidencing fractional interests in such shares shall
be issu- able and any such fractional share which would otherwise be issued
shall be canceled without the payment of any amount therefore. No such
stockholder shall be entitled to any voting, dividend or other rights as a
stockholder of the Company with respect to any fractional share.
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(c) The holders of Company Common Stock immediately prior to the Effective
Time of the Merger other than the Dissenting Holders (as defined below) (such
holders other than the Dissenting Holders, the "Existing Holders") shall at the
Effective Time of the Merger receive a cash payment equal to the Effective Date
Payment (as hereinafter defined), and the right to receive distributions from
the liquidating trust to be established by the Company pursuant to Section 3.2
for the benefit of the Existing Holders (the "Liquidating Trust"). The Effective
Date Payment shall be an amount equal to the available cash proceeds from the
liquidation referred to in Section 3.2 below (including in such proceeds the net
after-tax proceeds of any assets sold, after payment of all expenses and
liabilities of the Company (including tax liabilities relating to the
liquidation), and the cash and cash equivalents of the Company in hand
immediately prior to the Effective Time of the Merger), less (i) $500,000 to be
placed in escrow pursuant to Section 3.2 below, (ii) $500,000 to be held by the
Liquidating Trust to pay liabilities, if any, pursuant to the proviso in Section
3.2 below, and (iii) such amount as the trustees of the Liquidating Trust (the
"Trustees") determine in good faith to retain in the Liquidating Trust to enable
the Liquidating Trust to (x) liquidate the assets in the Liquidating Trust in an
orderly fashion and (y) maintain an adequate reserve for liabilities assumed by
the Liquidating Trust.
(d) Each share of MSCMG Common Stock issued and held in the treasury of
MSCMG immediately prior to the Effective Time of the Merger shall be canceled
and retired, and no shares or other securities of the Company shall be issuable,
and no cash shall be exchangeable, with respect thereto.
(e) The Merger shall effect no change in any of the shares of Company
Common Stock outstanding at the Effective Time of the Merger and no such shares
shall be converted as a result of the Merger.
Section 3.2. Liquidation of the Company Assets. Prior to the date hereof,
the Company commenced to liquidate the assets relating to the existing business
of the Company. At the Effective Time of the Merger, (i) the Existing Holders
(other than those who have elected to enforce their right to receive payment for
their shares pursuant to Section 623 of the New York Business Corporation Law)
(such electing holders, the "Dissenting Holders") shall receive the Effective
Date Payment, (ii) $500,000 shall be placed in escrow pursuant to an escrow
agreement substantially in the form of Exhibit A hereto (the "Escrow Agreement")
for one year from the Effective Time of the Merger and (iii) the Surviving
Corporation shall receive the Effective Date Payment for the Dissenting Holders.
Subject to Section 3.3 below, any and all assets of the Company immediately
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prior to the Effective Time of the Merger not so disbursed to the Existing
Holders or placed in escrow pursuant to this Section 3.2 or disbursed to the
Surviving Corporation pursuant to clause (iii) above, including without
limitation any and all cash or cash equivalents not placed in escrow or included
in the Effective Date Payment or the payment to the Surviving Corporation, shall
be transferred to the Liquidating Trust for the exclusive benefit of the
Existing Holders; provided, however, that on or immediately after the
liquidation of the last of the material assets of the Company transferred to the
Liquidating Trust (other than accounts receivable), an additional $500,000 shall
be reserved by the Liquidating Trust for a period of one year from the date
thereof to be used to pay all amounts due to MSCMG (or the Surviving Corporation
as the successor in interest thereto) pursuant to Section 11.1 hereto or to pay
liabilities other than liabilities set forth in Schedule 4.17. Without limiting
the generality of the foregoing, the assets of the Company immediately prior to
the Effective Time of the Merger which are to be transferred to the Liquidating
Trust shall include all cash and cash equivalents, all real and personal
property, all rights to tax or other refunds and all rights of any kind or
nature whatsoever, whether choate or inchoate.
Section 3.3. Option to Leave Assets in Company. At the option of the
Trustees and with the consent of the Surviving Corporation which shall not be
unreasonably withheld, assets of the Company immediately prior to the Effective
Time of the Merger which would otherwise have been transferred to the
Liquidating Trust and which constitute an active business shall, instead, be
held by the Company pending their sale or other disposition. During the period
in which any such assets are held by the Company, the Company irrevocably
designates the Trustees as its agents to manage any such assets pending their
sale or other disposition and to arrange in all respects for their sale or other
disposition, provided that the Company shall have no liability with respect to
such assets or in connection with such disposition, and any liability in
connection with such assets or such disposition shall be a liability to be
assumed by the Liquidating Trust. Such assets, and any after-tax revenues
generated by such assets (including without limitation any revenues generated
from the operation of such assets or their sale or other disposition) and after
payment of all expenses incurred as a result directly, or in any way indirectly,
of the operation or retention of such assets, shall be held in trust by the
Company for the benefit of the Liquidating Trust, and any such after-tax
revenues upon sale or disposition shall immediately be transferred to the
Liquidating Trust. The determination of after-tax revenues for purposes of this
Section 3.3 shall be made in accordance with the procedures contained in Section
6.11(d) hereof.
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Section 3.4. Exchange of Certificates.
-------------------------
(a) Each holder of record at the Effective Time of the Merger of shares of
MSCMG Common Stock shall be entitled, upon the surrender to the Company or its
transfer agent of the certificate for its shares of MSCMG Common Stock for
cancellation, to receive a certificate or certificates representing the number
of shares of Company Common Stock into which the holder's shares of MSCMG Common
Stock shall have been converted in the Merger under Section 3.1(a).
(b) Until so presented and surrendered in exchange for a certificate or
certificates representing shares of Company Common Stock, each certificate which
represented issued and outstanding shares of MSCMG Common Stock which were
converted at the Effective Time of the Merger into the right to receive shares
of Company Common Stock shall be deemed for all corporate purposes, except as
set forth below, to evidence the ownership of the number of shares of Company
Common Stock into which the holder's shares shall have been converted in the
Merger. Unless and until any such certificates shall be so surrendered, the
holder of such certificate shall not be entitled to receive any dividend or
other distribution payable to holders of shares of Company Common Stock.
Following such surrender, there shall be paid to the record holder of the
certificate representing shares of Company Common Stock issued upon such
surrender the amount of dividends (without interest thereon) which shall have
become payable with respect to the number of shares of Company Common Stock
represented by the certificate issued in exchange upon such surrender; provided
that such record holder shall not be entitled to receive the Effective Date
Payment, or any other distributions from or in respect of the Liquidating Trust,
after the Effective Time of the Merger or any other proceeds of the liquidation
referred to in Section 3.2 above.
Section 3.5. Company Common Stock. Except for the issuance of shares of
Company Common Stock upon conversion of shares of MSCMG Common Stock pursuant to
Section 3.1, the Merger shall effect no change in the shares of the Company's
capital stock and none of its shares shall be converted as a result of the
Merger.
Section 3.6. No Further Transfers. After the Effective Time of the Merger,
there shall be no registration of transfers on the stock transfer books of MSCMG
of the shares which were outstanding immediately prior to the Effective Time of
the Merger.
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Section 3.7. Legended Certificates. Certificates representing shares of
Company Common Stock issued to each holder of securities of MSCMG, shall bear a
legend substan- tially as follows:
"The shares represented by this certificate have not
been registered, under the Securities Act of 1933. The
shares may not be sold or transferred in the absence of a
current prospectus or an exemption therefrom under the
Securities Act of 1933."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants as follows:
Section 4.1. Organization; Authority. The Company is a corporation
organized and existing in good standing under the laws of the State of New York.
The Company is not required to be qualified or licensed to do business as a
foreign corporation in any jurisdiction by reason of the ownership or leasing of
real property, the maintenance of offices, the warehousing of goods, the conduct
of its business activities, the nature of its business or otherwise, except
where the failure to be so qualified or licensed would be curable by subsequent
qualification without such failure having a material adverse effect on the
Company or would not have a material adverse effect on the Company. The Company
would not be subject to material penalties, taxes or other burdens based on its
past conduct if it chose to qualify in any jurisdiction in which it is not now
qualified. No jurisdiction in the United States in which the Company is not now
qualified has asserted to the Company that the Company is required to be
qualified to do business therein.
The Company has all necessary power and authority to own or to lease, and
to operate, its properties and assets and to carry on its business as it is now
being conducted.
Section 4.2. Subsidiaries. Set forth on Schedule 4.2 are the only
corporations (the "Company Subsidiaries") with respect to which the Company
beneficially owns, directly or indirectly, in excess of 50% of the outstanding
stock or other equity interests, the holders of which are entitled to vote for
election of a majority of the board of directors or other governing body
thereof, except for corporations, if any, which have no material assets or
liabilities and have not conducted any operations for the past three years
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("Inactive Subsidiaries"). The Company is not aware of any Inactive
Subsidiaries. The other entities listed on Schedule 4.2 are the only entities
with respect to which (i) the Company beneficially owns directly or indirectly
in excess of 5% but not in excess of 50% of the outstanding stock or other
interests, the holders of which are entitled to vote for election of a majority
of the board of directors or other governing body thereof, (ii) the Company may
be deemed to be in control because of factors or relationships other than the
quantity of stock or other interests owned, or (iii) the Company's investment in
which is accounted for by the equity method. Each Company Subsidiary is
organized and existing and in good standing under the laws of its jurisdiction
of incorporation, which jurisdiction is set forth on Schedule 4.2. Each Company
Subsidiary has all necessary power and authority to own or to lease, and to
operate, its properties and assets and to carry on its business as it is now
being conducted. Each Subsidiary is duly licensed or qualified to do business as
a foreign corporation and in good standing in every jurisdiction in which (i)
the ownership or leasing of real property, the maintenance of offices, the
warehousing of goods, the conduct of its business activities or the nature of
its business makes such qualification necessary and (ii) failure so to qualify
or to become licensed would, if not remedied, impair title to its properties or
its rights to enforce contracts against others or expose it to material
liability in such jurisdictions.
Section 4.3. Capitalization of the Company. The authorized capital stock of
the Company consists of 1,500,000 shares of common stock, par value $1.00 per
share, of which 891,282 shares are outstanding and have been duly authorized and
validly issued and are fully paid and nonassessable. No shares of the Company's
capital stock are held by the Company or any of the Company Subsidiaries. There
are no options, warrants, rights, calls, commitments or agreements of any
character obligating the Company or any of the Company Subsidiaries to issue any
shares of capital stock or any security representing the right to purchase or
otherwise receive any such shares, except for options to purchase 25,000 shares
of the Company Common Stock pursuant to employee stock options granted under the
Company Incen- tive Stock Option Plan. Schedule 4.3 contains a complete --- and
accurate list of the following with respect to each employee stock option
outstanding under the Company Incentive Stock Option Plan and the 1987 Stock
Option Plan: the name of the holder of such option, the date such option was
granted, became or will become exercisable and will expire, the number of shares
of Company Common Stock covered by such option and the exercise price of such
option. Except for restrictions on transfer arising under applicable Federal and
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state securities laws, there are no existing restrictions imposed by the Company
or by its affiliates on the transfer of any outstanding shares of capital stock
of the Company and there are no registration covenants with respect thereto.
None of the outstanding shares of the Company or any of the Company Subsidiaries
was issued in violation of the preemptive rights of any present or former
stockholder.
Section 4.4. Charter Documents. The copies of the certificates of
incorporation and by-laws of the Company and each of the Company Subsidiaries
which have previously been delivered to MSCMG are complete and correct.
Section 4.5. Subsidiary Capitalization. Except as set forth on Schedule
4.5, (i) the authorized capital stock of the Company Subsidiaries consists
solely of shares of common stock; (ii) there are no options, warrants, rights,
calls, commitments or agreements of any kind obligating the Company or any of
the Company Subsidiaries to issue any shares of the capital stock of such
Company Subsidiary or any security representing the right to purchase or
otherwise receive any such capital stock or to transfer any issued shares of
such capital stock; and (iii) the Company is the record and beneficial owner of
all the outstanding shares of capital stock of the Company Subsidiaries, free
and clear of all mortgages, security interests, liens, claims and encumbrances.
All such shares of common stock which are outstanding have been validly issued
and are fully paid and nonassessable.
Section 4.6. Binding Obligation; Consents; Litigation. The execution and
delivery of this Merger Agreement by the Company do not, and the consummation of
the transactions contemplated hereby will not, violate (i) any provision of the
certificate of incorporation or by-laws of the Company or any of the Company
Subsidiaries or (ii) any provision of, or result in a breach of any of the terms
or provisions of, or result in the acceleration of any obligation under, or
constitute a default under, any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which the Company or any of the
Company Subsidiaries is a party, or to which the Company or any of the Company
Subsidiaries is, or the assets, properties or business of the Company or any of
the Company Subsidiaries are, subject, which would have a material adverse
effect on the Company or any of its assets (provided that neither a material
adverse change in the operations of the Company, nor the liquidation of the
Company's assets, shall be deemed to have a material adverse effect on the
Company or its assets) (any such included material adverse effect, a "Material
Adverse Effect"). The Board of Directors of the Company has approved this Merger
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Agreement, has authorized the execution and delivery hereof and has directed
that this Merger Agreement be submitted to the stockholders of the Company for
adoption at a special meeting of such stockholders. The Company has full power,
authority and legal right to enter into this Merger Agreement and, upon
appropriate vote of its stockholders in accordance with the law, to consummate
the transactions contemplated hereby. Except for the approval of its
stockholders, the Company has taken all action required by law, its certificate
of incorporation, its by-laws or otherwise to authorize and to approve the
execution and delivery of this Merger Agreement and the documents, agreements
and certificates executed and delivered by the Company in connection herewith
and the consummation by the Company of the transactions contemplated hereby.
This Merger Agreement has been duly executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms. No consent, action, approval
or authorization of, or registration, declaration or filing with, any
governmental authority arising from the Company's obligations prior to the
Merger is required to be obtained by the Company in order to authorize the
execution and delivery by the Company of this Merger Agreement or the
consummation by the Company of the Merger.
Section 4.7. Financial Statements. The Company has furnished MSCMG with
complete copies of the financial statements of the Company for each of the three
fiscal years ended March 31, 1995 (as restated in the case of the fiscal years
ended March 31, 1994 and 1993), including in each case a balance sheet, the
related statements of income and of changes in financial position for the period
then ended, the accompanying notes, and the report thereon of Richard A. Eisner
& Company, LLP, independent (of the Company) certified public accountants with
respect to the fiscal year ended March 31, 1995 ("Eisner & Co.") and the report
thereon of Ernst & Young LLP, independent (of the Company) certified public
accountants with respect to the two fiscal years ended March 31, 1994 and the
unaudited financial statements of the Company for the nine-month period from
March 31, 1995 to December 31, 1995, including a balance sheet and the related
statements of income and of changes in financial position for the nine-month
period then ended (the consolidated balance sheet therein and the notes thereto
as at December 31, 1995 being called the "Company Balance Sheet"). All such
financial statements (i) reflect and provide adequate reserves in respect of all
known liabilities of the Company and the Company Subsidiaries in accordance with
GAAP, including all known contingent liabilities as of their respective dates,
and (ii) present fairly the financial condition of the Company and the Company
Subsidiaries at such dates except that a diminution in the value of the
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Company's assets from that reflected on the Company Balance Sheet shall not be a
breach of the representation so long as such diminution shall not result in the
Company's being rendered insolvent at any time from the date hereof through the
Effective Time of the Merger.
Section 4.8. Real Property. Except as set forth on Schedule 4.8, neither
the Company nor the Company Subsidiaries owns, has legal or equitable title in,
or has a leasehold interest in, any real property (the "Real Property").
Section 4.9. Banking Facilities. Schedule 4.9 sets forth the name of each
bank with which the Company has an account or safe deposit box, the identifying
numbers or symbols thereof and the name of each person authorized to draw
thereon or to have access thereto.
Section 4.10. Powers of Attorney and Suretyships. The Company has set forth
on Schedule 4.10 the name of each person, if any, holding any power of attorney
from the Company and the Company Subsidiaries and a summary statement of the
terms thereof. The Company and the Company Subsidiaries have no material
obligation or material liability, either actual, accrued, accruing or
contingent, as guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity.
Section 4.11. Employee Benefits.
------------------
(a) Set forth on Schedule 4.11 is a correct and complete list of all funded
or unfunded, written or oral, employee benefit plans, contracts, agreements,
incentives, salary, wages or other compensation plans or arrangements, including
but not limited to all pension and profit sharing plans, savings plans, bonus,
deferred compensation, incentive compensation, stock purchase, supplemental
retirement, severance or termination pay, stock option, hospitalization,
medical, life insurance, dental, disability, salary continuation, vacation, or
supplemental unemployment benefit programs, policies, plans, or arrangements,
union contracts, employment contracts, consulting agreements, retiree benefits
and agreements, severance agreements and each other employee benefit program,
plan, policy or arrangement, at any time maintained since January 1, 1990,
contributed to, or required to be contributed to by the Company or an ERISA
Affiliate for the benefit of present or former employees, directors, agents or
consultants, or for which the Company may be responsible or with respect to
which it may have any liability, whether or not subject to ERISA and whether
legally binding or not (each a "Plan"); provided, however, Schedule 4.11 shall
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set forth only those hospitalization, medical, life insurance, dental,
disability, salary continuation and vacation programs, policies, plans or
arrangements and only those union contracts to which the Company or an ERISA
Affiliate is currently contributing. "ERISA Affiliate" means any trade or
business, whether or not incorporated, that together with the Company would be
deemed a single employer under Section 414(b), (c), (m), (n) or (o) of the Code
or Section 4001 of ERISA. Each Plan intended to be qualified under Section
401(a) of the Code (a "Tax-Qualified Plan", which term shall exclude any
multiemployer plan (as defined in Section 3(37) of ERISA to which the Company or
any of its subsidiaries contribute and which is the subject of a collective
bargaining agreement ("Multiemployer Plans")) is identified as a Tax-Qualified
Plan in such Schedule 4.11 and is so qualified.
(b) The Company has heretofore delivered to MSCMG true and complete copies
of the following:
(i) each Plan listed on Schedule 4.11 and all amendments thereto
to the date hereof;
(ii) each trust agreement and annuity contract (or any other
funding instruments) pertaining to any Plan, including all amendments
to such documents to the date hereof;
(iii) the most recent determination letter issued by the Internal
Revenue Service with respect to each of the Tax-Qualified Plans;
(iv) the most recent actuarial valuation report for each Plan for
which an actuarial valuation report is required to be prepared; and
(v) the most recent Annual Report (IRS Forms 5500 series),
including Schedules A and B and plan audits, if applicable, required
to be filed with respect to each Plan.
(c) The status as of the date hereof of each Plan and Multiemployer Plan is
set forth in Schedule 4.11, including (i) the amount of the Company's or the
ERISA Affiliates contribution to such Plan for each of the past three fiscal
years and the plan year in which the Effective Time of the Merger occurs, (ii)
the amount of any liability of the Company and the ERISA Affiliates for payments
or contributions past due with respect to such Plan as of the last day of its
most recent plan year and as of the end of any subsequent month ending prior to
the Effective Time of the Merger, and the date any such amounts were paid,
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(iii) any contribution to such Plan in a form other than in cash and (iv)
whether such Plan has been terminated. Except as set forth on Schedule 4.11,
neither the Company nor the ERISA Affiliates has obligations or liabilities with
respect to any Plan or liabilities relating to any Plan under any collective
bargaining agreement to which they are a party or by which they are bound.
(d) To the knowledge of the Company or any officer of the Company, each
Tax-Qualified Plan and any related trust agreements or annuity contracts (and
any other funding instruments) currently comply, and have complied in the past,
both as to form and operation, including compliance with all reporting and
disclosure requirements, with the provisions of ERISA and the Code, as well as
the provisions of any applicable collective bargaining agreement. The IRS has
issued a favorable determination letter with respect to the qualification under
Sections 401(a) and 501(a) of the Code including compliance with the
requirements of the Tax Reform Act of 1986, of each Tax- Qualified Plan and
related trust, if any, and has not taken any action to revoke such letters. In
addition, all necessary governmental approvals for the Tax-Qualified Plans have
been obtained.
(e) With respect to each Tax-Qualified Plan that is subject to Title I,
Subtitle B, Part 3 of ERISA (a "Pension Plan") the present value, on a
termination basis of all accrued benefits (vested and nonvested) of each such
Plan as of the Effective Time of the Merger, determined on the basis of the
actuarial assumptions set forth on Schedule 4.11(e), will not exceed the fair
market value of the assets of each such Plan as of the Effective Time of the
Merger.
(f) With respect to all Pension Plans, except as set forth on Schedule
4.11, (i) the Company and ERISA Affiliates have paid all premiums (and interest
charges and penalties for late payment, if applicable) due the PBGC with respect
to each plan year thereof for which such premiums are required; (ii) on and
after September 2, 1974, there has been no "reportable event" (as defined in
Section 4043(b) of ERISA and the regulations of the PBGC under that Section)
subject to Title IV of ERISA; (iii) no liability to the PBGC has been incurred
by the Company ERISA Affiliates on account of any termination subject to Title
IV of ERISA; (iv) on and after September 2, 1974, no filing has been made by the
Company ERISA Affiliates with the PBGC, and no proceeding has been commenced by
the PBGC, to terminate any Pension Plan subject to Title IV of ERISA maintained,
or wholly or partially funded, by the Company and ERISA Affiliates (v) neither
the Company and the ERISA Affiliates have (A) ceased operations at a facility so
as to become subject to the provisions of Section 4062(f) of ERISA, (B)
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withdrawn as a substantial employer so as to become subject to the provisions of
Section 4063 of ERISA, (C) ceased making contributions so as to become subject
to Section 4064(a) of ERISA to a Pension Plan to which the Company or any ERISA
Affiliates made contributions during the five years prior to the Closing Date,
or (D) made a complete or partial withdrawal from a Multiemployer Plan.
(g) In addition, with respect to all Plans, except as set forth on Schedule
4.11, (i) other than routine claims for benefits, there are no material actions,
suits or claims pending or threatened against any Plan or the fiduciaries
thereof, or against the assets of any Plan and (ii) on and after January 1,
1975, neither the Company nor any ERISA Affiliate, any plan fiduciary of any
Plan has engaged in any prohibited transaction within the meaning of Title I of
ERISA or Section 4975 of the Code and no imposition of excise tax penalties has
occurred with respect thereto.
(h) At the Effective Time of the Merger, the Company will have no employees
except to the extent that a portion of the business is left in the Company as
contemplated by Section 3.3.
(i) To the knowledge of the Company or any officer of the Company, each
"group health plan" (within the meaning of Section 4980B of the Code) maintained
by the Company has been administered in compliance with the coverage
continuation requirements contained in the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and any regulations promulgated or proposed
under the Code.
(j) The Company shall terminate or cause to be terminated, on or prior to
the Effective Time of the Merger, and without any liability to the Surviving
Corporation or MSCMG, all Plans described in Schedule 4.11, so that to the
extent permitted by applicable law the Company no longer maintains, contributes
to or participates in such plans after the Effective Time of the Merger, all in
accordance with the applicable requirements of ERISA, the Code, and the terms of
such plans or related instruments; provided, however, that any plan required to
be maintained by applicable law shall be terminated as soon as permitted by
applicable law. The Company shall promptly provide MSCMG with copies of all
documents filed with any governmental agencies and any other documents relating
to the amendment of such plans.
(k) Without limiting the generality of Section 3.2 of this Agreement, the
parties hereto hereby further agree that the Liquidating Trust, on or prior to
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the Effective Time, expressly assumes all obligations and responsibilities under
the Plans currently maintained or contributed to by the Company on behalf of the
employees or former employees, including, without limitation, all obligations
and liabilities with respect to the termination of and withdrawal from the
Plans, all obligations and responsibilities to provide retiree health coverage
and continuation coverage and appropriate notices under COBRA, and all
obligations and responsibilities under all severance and termination pay plans
and programs, and shall indemnify MSCMG and the Surviving Corporation for and
hold them harmless from and against all liabilities, costs, and expenses arising
in connection with such Plans, continuation coverage requirements and
termination obligations. The Surviving Corporation shall cooperate fully with
the Liquidating Trust by making available records, books of account or other
materials, or taking such other reasonable actions, as may be necessary or
helpful for the Liquidating Trust to fulfill its obligations under this Section
4.11(k).
(l) The Corporation does not maintain, sponsor or contribute to any plan or
program providing retiree medical or life insurance benefits.
Section 4.12. Compliance With Law; Permits. Except as set forth in Schedule
4.12, and except in all cases for non-compliance which would not have a Material
Adverse Effect, the Company and each Company Subsidiary have complied with all
applicable federal, state, local or foreign laws, regulations, ordinances,
orders, injunction, or decrees, or administrative decisions or directives (the
"Requirements of Law"), relating to its securities, property, employees, former
employees or applicants for employment ("Employees") or business, including,
without limitation, Title VII of the Civil Rights Act of 1964, as amended
("Title VII"), OSHA, the Age Discrimination in Employment Act of 1967, as
amended ("ADEA"), the Equal Pay Act of 1963, as amended ("EPA"), the NLRA, the
Foreign Corrupt Practices Act of 1977, as amended, the Foreign Agents
Registration Act of 1938, as amended, the Federal Regulation of Lobbying Act, as
amended, and the Ethics in Government Act of 1978, as amended, and all
applicable statutes, regulations, orders and restrictions relating to
environmental standards or controls.
Section 4.13. Litigation. (a) Except as set forth in Schedule 4.13, there
is no (i) action, suit, claim, proceeding or investigation pending or, to the
knowledge of the Company or any officer of the Company, threatened against or
affecting the Company or any of the Company Subsidiaries or their assets,
Employees or properties, at law or in equity, or before or by any court or
governmental authority, (ii) arbitration proceeding relating to the Company or
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any of the Company's Subsidiaries or their assets, Employees or properties or
(iii) governmental inquiry pending or, to the knowledge of the Company or any
officer of the Company, threatened relating to or involving the Company, any of
the Company Subsidiaries, their assets or properties or the businesses of the
Company or any of the Company Subsidiaries or the transactions contemplated by
this Merger Agreement (including inquiries as to the qualification of the
Company or any of the Company Subsidiaries to hold or receive any permit) and
the Company does not know of any basis for any of the foregoing. Except for
actions brought to collect accounts receivable in the ordinary course of the
Company's business, there are no pending actions, suits, claims or proceedings
brought by the Company or any of the Company Subsidiaries against others.
(b) Except as set forth in Schedule 4.13, neither the Company nor any of
the Company Subsidiaries has received any written opinion, memorandum, legal
advice or notice from legal counsel to the effect that they are exposed, from a
legal standpoint, to any liability or disadvantage which may be material to
their respective businesses and which would continue past the Effective Time of
the Merger. Neither the Company nor any of the Company Subsidiaries is in
default with respect to any order, writ, injunction or decree known to or served
upon the Company or any of the Company Subsidiaries of any court or of any
governmental authority.
Section 4.14. Material Contracts and Agreements. The Company has described
all material contracts of the Company now in effect to which the Company or any
of the Company Subsidiaries is a party or by which it or its properties or
assets may be bound or affected, under which the total obligation of the Company
or any of the Company Subsidiaries is in excess of $100,000 or which is
otherwise material to the Company on Schedule 4.14 (the "Material Contracts").
No default, alleged default or anticipatory breach exists on the part of the
Company or any of the Company Subsidiaries or, to the best knowledge of the
Company or any of its officers, on the part of any other party, under any
Material Contract, and there are no material agreements of the parties relating
to any Material Contract that have not been disclosed to MSCMG. All Material
Contracts will be either (i) terminated as of the Effective Time of the Merger
and evidence of such termination shall be given to MSCMG or (ii) assumed by the
Liquidating Trust. As of the Effective Time of the Merger, neither the Company
nor any of the Company Subsidiaries will be a party to any transaction with any
officer or director of the Company or any of the Company Subsidiaries, any
member of the family of any such officer or director or any corporation,
partnership, trust (except the Liquidating Trust) or other entity in which any
such officer or director has a substantial interest or is an officer, director,
trustee or partner.
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Section 4.15. Labor Matters. Except as set forth on Schedule 4.15, neither
the Company nor any of the Company Subsidiaries is a party to any collective
bargaining agreement with any labor organization. All such collective bargaining
agreements shall be terminated as of the Effective Time of the Merger. There is
not pending, or to the knowledge of the Company threatened, any labor dispute,
strike or work stoppage involving the employees of the Company or any Company
Subsidiaries.
Section 4.16. Tax Matters.
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(a) Each of the Company and each of the Company Subsidiaries has filed all
tax returns required to be filed by it under the laws of the United States of
America, the jurisdiction of its incorporation, and each state or other
jurisdiction in which it conducts business activities and is required to file.
The Company has paid or set up an adequate reserve in respect of all taxes for
the periods covered by such returns. Neither the Company nor any of the Company
Subsidiaries has any tax liability for which no tax reserve has been made in
respect of any jurisdiction in which the Company has business activities and is
required to file. The Company has set up as provisions for taxes on the Company
Balance Sheet amounts sufficient for all accrued and unpaid federal, state,
county and local taxes of the Company and the Company Subsidiaries, whether or
not disputed, including any interest and penalties in connection therewith, for
all fiscal periods ending on or before the date of the Company Balance Sheet.
(b) The Company's federal income tax returns have been examined by the
United States Internal Revenue Service (or closed by applicable statutes) for
all years to and including the fiscal year ended March 31, 1992 and no such
examinations are in progress. Any deficiencies proposed as a result of said
audits have been paid or finally settled and no issue has been raised in any
such examinations which, by application of similar principles, reasonably can be
expected to result in the assertion of a deficiency for any other year not so
examined. The results of any settlements and any necessary adjustments in state
income tax resulting therefrom are properly reflected in the Company's financial
statements referred to in Section 4.7. The Company is not aware of any fact
which would constitute grounds for any further tax liability with respect to the
years which have not been examined. No agreements or waivers have been made by
or on behalf of the Company for the extension of time for the assessment of any
tax or for any applicable statute of limitations.
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(c) Except for taxes for the payment of which an adequate reserve has been
established on the Company Balance Sheet, there are no tax liens, whether
imposed by any federal, state or local taxing authority, outstanding against any
of the assets, properties or business of the Company.
(d) All taxes and assessments that the Company is required to withhold or
to collect have been duly withheld or collected and all withholdings and
collections have either been duly and timely paid over to the appropriate
governmental authority or are, together with the payments due or to become due
in connection therewith, duly reflected on the Company Balance Sheet in
accordance with GAAP.
For purposes of this Section 4.16, the term "the Company" includes each
other corporation with which the Company files consolidated or combined income
tax returns or reports.
Section 4.17. Absence of Undisclosed Liabilities. Neither the Company nor
any Company Subsidiary has any material indebtedness, liability or obligation of
any character whatsoever, whether or not accrued and whether or not fixed or
contingent, other than (i) liabilities reflected in the Company Balance Sheet,
(ii) liabilities incurred in the ordinary course of business (or pursuant to the
liquidation) of the Company and the Company Subsidiaries since the date of the
Company Balance Sheet, (iii) indebtedness, liabilities and obligations listed on
Schedule 4.17 hereto, and (iv) liabilities incurred in connection with the
performance of this Merger Agreement. The Company has described all material
indebtedness, liabilities or obligations of the Company and the Company
Subsidiaries known to it on Schedule 4.17 (the "Scheduled Liabilities").
Section 4.18. Insurance. All significant policies of insurance, together
with the premiums currently paid thereon, providing for business interruption,
personal, Employee, product or public liability coverage with respect to the
business of the Company and the Company Subsidiaries are described on Schedule
4.18. The copies of such policies which have previously been delivered to MSCMG
are complete and correct. All such policies will be outstanding and in full
force and effect at the Effective Time of the Merger and thereafter, as
applicable, until the complete liquidation of the Company's business; provided,
that as of the Effective Time of the Merger, some or all of such policies will
be terminated and the balance (if any) of such policies will be assigned to, and
be for the benefit of, the Liquidating Trust (and the Surviving Corporation to
the extent that the Company is named as a party in any suit covered by such
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policies). Except as set forth on Schedule 4.18, there are no claims, actions,
suits or proceedings arising out of or based upon any of such policies of
insurance, and, so far as is known to the Company or any of its officers, no
basis for any such claim, action, suit or proceeding exists. There are no
notices of any pending or threatened terminations with respect to any of such
policies and each of the Company and the Company Subsidiaries is in compliance
with all conditions contained therein.
Section 4.19. No Material Adverse Change. Since the date of the Company
Balance Sheet, the Company has not experienced any damage, destruction or loss
(whether or not covered by insurance) or adverse change in the value of the
Company such that the Company has been or would be rendered insolvent.
Section 4.20. Required Consents. There have been or will be timely filed,
given obtained or taken all applications, notices, consents, approvals, orders,
registrations, qualifications, waivers or other actions of any kind required by
virtue of the execution and delivery of this Merger Agreement by the Company or
the consummation by the Company of any of the transactions contemplated hereby.
Section 4.21. Proxy Statement. When the Proxy Statement (the "Proxy
Statement") to be distributed to stockholders in connection with the Merger
shall first be mailed or distributed to such stockholders (the "Mailing Date"),
the information with respect to the Company and the Company Subsidiaries set
forth in the Proxy Statement (a) will comply in all material respects with the
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the General Rules and Regulations of the Securities and Exchange
Commission (the "Commission") thereunder and (b) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, except that no representation is hereby made as to any statements or
omissions as described in this clause (b) with respect to which, prior to the
Mailing Date, the Company shall have requested in writing any addition or
modification to the Proxy Statement which shall be necessary in order to make
the Proxy Statement not untrue or misleading in any material respect, unless
such addition or modification shall have been made by the Company prior to the
Mailing Date. At all times subsequent to the Mailing Date up to and including
the Effective Time of the Merger, the information with respect to the Company
and the Company Subsidiaries set forth in the Proxy Statement and all amendments
and supplements thereto (i) will comply in all material respects with the
provisions of the Exchange Act and the General Rules and Regulations of the
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Commission thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, except that
no representation is hereby made as to any statements or omissions as described
in this clause (ii) with respect to which, after the Mailing Date and prior to
the Effective Time of the Merger, the Company shall have requested in writing
any supplement to or amendment of the Proxy Statement, which shall be necessary
in order to make the Proxy Statement not untrue or misleading in any material
respect, unless such supplement or amendment shall have been made by the Company
prior to the Effective Time of the Merger.
Section 4.22. Commission Filings. The Company has previously delivered to
MSCMG a copy of the Company's Annual Reports on Form 10-K for the fiscal years
ended March 31, 1994 and 1995, the Company's annual reports to stockholders for
the fiscal years ended March 31, 1994 and 1995, the Company's proxy statements
in connection with its annual meetings of stockholders held on September 1, 1994
and September 15, 1995 and its Quarterly Reports on Form 10- Q for the fiscal
quarters ended June 30, 1995, September 30, 1995 and December 31, 1995. The
Company has heretofore made public disclosure of such additional material
information since the date of the Company's report on Form 10-K for the fiscal
year ended March 31, 1995 as it was required to disclose pursuant to the
requirements of applicable federal and state securities and other laws and has
furnished copies of such disclosures to MSCMG. Such Annual Reports on Form 10-K,
annual reports to stockholders, proxy statements, Quarterly Reports on Form
10-Q, and other public disclosures of the dates thereof or the dates made, and
such other documents or information with respect to the Company and the Company
Subsidiaries required to be supplied to MSCMG pursuant to this Merger Agreement
or supplied to MSCMG at its request by the Company or on its behalf, taken as a
whole, were or are true, correct and complete and did not or do not contain any
statement which is false or misleading with respect to a material fact, and did
not or do not omit to state a material fact necessary in order to make the
statements therein not false or misleading.
Section 4.23. Transfer of Assets and Liabilities to Liquidating Trust.
Except for those assets and liabilities referred to in Section 3.3 or listed on
Schedule 4.23, the Company will have transferred to the Liquidating Trust
immediately prior to the Effective Time of the Merger each and every one of its
assets and the Liquidating Trust will have assumed all of the Company's
liabilities and obligations now existing or hereafter arising out of the
business and operations of the Company through the period ending immediately
prior to the Effective Time of the Merger.
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Section 4.24. Disclosure; Representations and Warranties. The Company has
made true and complete responses to all MSCMG's requests for information,
documents, contracts, agreements and records of the Company and the Company
Subsidiaries relating to the business of the Company and the Company
Subsidiaries. Neither this Merger Agreement nor any statement, certificate,
writing or document furnished to MSCMG by the Company in connection with this
Merger Agreement contains, as of the dates of such documents, any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained therein not misleading.
Section 4.25. Finders or Brokers. The Company has not utilized the services
of any investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or commission in
connection with this Merger Agreement or upon consummation of the transactions
contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MSCMG
MSCMG represents and warrants that:
Section 5.1. Organization. MSCMG is a corporation organized and existing in
good standing under the laws of the State of Delaware.
Section 5.2. Authority; Consents. MSCMG has the corporate power and
authority to execute, deliver and perform its obligations under this Merger
Agreement and the other documents, agreements and certificates executed and
delivered by MSCMG in connection herewith. The execution and delivery of this
Merger Agreement do not, and the consummation of the transactions contemplated
hereby will not, violate any provision of the certificate of incorporation or
by-laws of MSCMG, or any provision of, or result in a breach of any of the terms
or provisions of, or result in the acceleration of any obligation under, or
constitute a default under, any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree, to which MSCMG is a party, or to
which MSCMG is, or the assets, properties or business of MSCMG are, subject.
MSCMG has taken all action required by law, its certificate of incorporation,
its by-laws or otherwise, to authorize and to approve the execution and delivery
of this Merger Agreement and the documents, agreements and certificates executed
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and delivered by MSCMG in connection herewith by MSCMG and the consummation by
MSCMG of the transactions contemplated hereby. This Merger Agreement has been
duly executed and delivered by MSCMG and constitutes a valid and legally binding
obligation of MSCMG, enforceable against MSCMG in accordance with its terms.
Section 5.3. Subsidiaries. Immediately prior to the Effective Time of the
Merger, Muriel Siebert & Co., Inc., a New York corporation ("MS&Co."), will be
the only corporation with respect to which MSCMG beneficially owns, directly or
indirectly, in excess of 50% of the outstanding stock or other equity interests,
the holders of which are entitled to vote for election of a majority of the
board of directors or other governing body thereof. The authorized capital stock
of MS&Co. will consist solely of shares of common stock; (ii) there will be no
options, warrants, rights, calls, commitments or agreements of any kind
obligating MSCMG or MS&Co. to issue any shares of the capital stock of MS&Co. or
any security representing the right to purchase or otherwise receive any such
capital stock or to transfer any issued shares of such capital stock; and (iii)
MSCMG will be the record and beneficial owner of all the outstanding shares of
capital stock of MS&Co., free and clear of all mortgages, security interests,
liens, claims and encumbrances. All such shares of common stock which are
outstanding have been validly issued and are fully paid and nonassessable.
Section 5.4. Capitalization of MSCMG. The authorized capital stock of MSCMG
consists of 1,500 shares of common stock, no par value, all of which shares are
issued and outstanding and owned by Muriel Siebert. There are no options,
warrants, rights, calls, commitments or agreements of any character obligating
the Company or any of the Company Subsidiaries to issue any shares of capital
stock or any security representing the right to purchase or otherwise receive
any such shares.
Section 5.5. Binding Obligation; Consents; Litigation. The execution and
delivery of this Merger Agreement by MSCMG do not, and the consummation of the
transactions contemplated hereby will not, violate (i) any provision of the
certificate of incorporation or by-laws of MSCMG or MS&Co. or (ii) any provision
of, or result in a breach of any of the terms or provisions of, or result in the
acceleration of any obligation under, or constitute a default under, any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which MSCMG or MS&Co. is a party, or to which MSCMG or MS&Co. is,
or the assets, properties or business of MSCMG or MS&Co. are, subject, which
would have a Material Adverse Effect on MSCMG or any of its assets. The Board of
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Directors and the sole stockholder of MSCMG have approved this Merger Agreement
and authorized the execution and delivery hereof. MSCMG has full power,
authority and legal right to enter into this Merger Agreement and to consummate
the transactions contemplated hereby. MSCMG has taken all action required by
law, its certificate of incorporation, its by-laws or otherwise to authorize and
to approve the execution and delivery of this Merger Agreement and the
documents, agreements and certificates executed and delivered by MSCMG in
connection herewith and the consummation by MSCMG of the transactions
contemplated hereby. This Merger Agreement has been duly executed and delivered
by MSCMG and constitutes a valid and legally binding obligation of MSCMG,
enforceable against MSCMG in accordance with its terms. No consent, action,
approval or authorization of, or registration, declaration or filing with, any
governmental authority arising from MSCMG's obligations prior to the Merger is
required to be obtained by MSCMG in order to authorize the execution and
delivery by MSCMG of this Merger Agreement or the consummation by MSCMG of the
Merger.
Section 5.6. Financial Statements. MSCMG has furnished the Company with
complete copies of the financial statements of MS&Co. for each of the three
fiscal years ended December 31, 1995, including in each case a balance sheet
(the consolidated balance sheet therein and the notes thereto as at December 31,
1995 being called the "MS&Co. Balance Sheet"), the related statements of income
and of changes in financial position for the period then ended, the accompanying
notes, and the report thereon of Eisner & Co., independent (of MS&Co. certified
public accountants with respect to the two fiscal years ended December 31, 1995
and the report thereon of Shulman, Jacobson & Co., independent (of MS&Co.)
certified public accountants with respect to the fiscal year ended December 31,
1993. All such financial statements (i) reflect and provide adequate reserves in
respect of all known liabilities of MS&Co. in accordance with GAAP, including
all known contingent liabilities as of their respective dates, and (ii) present
fairly the financial condition of MS&Co. at such dates.
Section 5.7. Compliance With Law; Permits. Except in all cases for
non-compliance which would not have a Material Adverse Effect, MSCMG and MS&Co.
have complied with all Requirements of Law relating to its securities, property,
Employees or business, including, without limitation, Title VII, OSHA, the ADEA,
the EPA, the NLRA, the Foreign Corrupt Practices Act of 1977, as amended, the
Foreign Agents Registration Act of 1938, as amended, the Federal Regulation of
Lobbying Act, as amended, and the Ethics in Government Act of 1978, as amended,
and all applicable statutes, regulations, orders and restrictions relating to
environmental standards or controls.
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Section 5.8. Litigation. (a) There is no (i) action, suit, claim,
proceeding or investigation pending or, to the knowledge of MSCMG or any officer
of MSCMG threatened against or affecting MSCMG or MS&Co. or their assets,
Employees or properties, at law or in equity, or before or by any court or
governmental authority, (ii) arbitration proceeding relating to MSCMG or MS&Co.
or their assets, Employees or properties or (iii) governmental inquiry pending
or, to the knowledge of MSCMG or any officer of MSCMG, threatened relating to or
involving MSCMG, MS&Co., their assets or properties or the businesses of MSCMG
or MS&Co. or the transactions contemplated by this Merger Agreement (including
inquiries as to the qualification of MSCMG or MS&Co. to hold or receive any
permit) and MSCMG does not know of any basis for any of the foregoing. There are
no pending actions, suits, claims or proceedings brought by MSCMG or MS&Co.
against others.
(b) Neither MSCMG nor MS&Co. has received any written opinion, memorandum,
legal advice or notice from legal counsel to the effect that they are exposed,
from a legal standpoint, to any liability or disadvantage which may be material
to their respective businesses and which would continue past the Effective Time
of the Merger. Neither MSCMG nor MS&Co. is in default with respect to any order,
writ, injunction or decree known to or served upon MSCMG or MS&Co. of any court
or of any governmental authority.
Section 5.9. Litigation. MSCMG knows of no pending or threatened action,
suit, proceeding, investigation, order or injunction before or by any court or
governmental body that seeks to restrain or to prevent the consummation of the
transactions contemplated by this Merger Agreement.
Section 5.10. Consents. Except as otherwise referred to herein, no consent,
action, approval or authorization of, or registration, declaration or filing
with, any governmental authority having jurisdiction over MSCMG is required to
be obtained by MSCMG in order to authorize the execution and delivery by MSCMG
of this Merger Agreement or the performance by MSCMG of its terms (except for
filings and consents required pursuant to New York Stock Exchange requirements).
Section 5.11. No Material Adverse Change. Since the date of the MS&Co.
Balance Sheet, MS&Co. has not experienced any material damage, destruction or
loss (whether or not covered by insurance) to its assets or material adverse
change in the value of MS&Co.
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Section 5.12. Proxy Statement. On the Mailing Date, the information with
respect to MSCMG and MS&Co. set forth in the Proxy Statement (a) will comply in
all material respects with the provisions of the Exchange Act, and the General
Rules and Regulations of the Commission thereunder and (b) will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading, except that no representation is hereby made as to any statements or
omissions as described in this clause (b) with respect to which, prior to the
Mailing Date, MSCMG shall have requested in writing any addition or modification
to the Proxy Statement which shall be necessary in order to make the Proxy
Statement not untrue or misleading in any material respect, unless such addition
or modification shall have been made by the Company prior to the Mailing Date.
At all times subsequent to the Mailing Date up to and including the Effective
Time of the Merger, the information with respect to MSCMG and MS&Co. set forth
in the Proxy Statement and all amendments and supplements thereto (i) will
comply in all material respects with the provisions of the Exchange Act and the
General Rules and Regulations of the Commission thereunder and (ii) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading, except that no representation is hereby made as to any
statements or omissions as described in this clause (ii) with respect to which,
after the Mailing Date and prior to the Effective Time of the Merger, MSCMG
shall have requested in writing any supplement to or amendment of the Proxy
Statement which shall be necessary in order to make the Proxy Statement not
untrue or misleading in any material respect, unless such supplement or
amendment shall have been made by the Company prior to the Effective Time of the
Merger.
Section 5.13. Disclosure; Representations and Warranties. MSCMG has made
true and complete responses to all the Company's requests for information,
documents, contracts, agreements and records of MSCMG and MS&Co. relating to the
business of MSCMG and MS&Co. Neither this Merger Agreement nor any statement,
certificate, writing or document furnished to the Company by MSCMG in connection
with this Merger Agreement contains, as of the dates of such documents, any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein not misleading.
Section 5.14. Finders or Brokers. MSCMG has not utilized the services of
any investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or commission in
connection with this Merger Agreement or upon consummation of the transactions
contemplated hereby.
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ARTICLE VI
TRANSACTIONS PRIOR TO THE EFFECTIVE TIME OF THE MERGER
Section 6.1. Stockholders' Meeting. (a) Subject to its fiduciary
responsibilities, the Board of Directors of the Company will submit (i) this
Merger Agreement, (ii) the Charter Amendment, and (iii) the proposal to transfer
substantially all of its assets to the Liquidating Trust as required by Section
909 of the New York Business Corporation Law (the "Plan of Liquidation") to its
stockholders for their adoption and will solicit proxies in favor of and
recommend to its stockholders such adoption at a meeting thereof to be duly
called and held as soon as practicable. In connection therewith, the Company
shall prepare and file with the Commission, as soon as practicable, the required
proxy material and shall use its best efforts promptly to obtain clearance by
the staff of the Commission of the mailing of such material to its stockholders.
Subject to its fiduciary responsibilities, the Company will use its best efforts
to obtain the necessary approval of this Merger Agreement, the Charter Amendment
and the Plan of Liquidation by its stockholders and will take as soon as
practicable such other and further actions as may be required by this Merger
Agreement and as may be required by law to effectuate the Merger, the Charter
Amendment and the Plan of Liquidation. In obtaining the authorization and
approval of its stockholders, the Company shall comply with all applicable
Federal and state securities and other laws in connection with the transactions
to be effected hereunder. Without limiting the generality of the foregoing, the
Company agrees that the information contained in its proxy statement (other than
information as to MSCMG furnished to the Company in writing by MSCMG) (i) will
comply in all respects with the provisions of the Exchange Act and the rules and
regulations promulgated thereunder, and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case when first mailed to the Company's stockholders and at all times
thereafter through the Effective Date of the Merger. The Company shall not
distribute any material to its stockholders in connection with this Merger
Agreement, the Charter Amendment, the Plan of Liquidation and the transactions
contemplated hereby other than materials contained in its proxy statement
cleared by the staff of the Commission, except such additional material cleared
by the staff of the Commission.
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(b) Without limiting the generality of the foregoing, MSCMG agrees that the
information as to MSCMG furnished to the Company in writing by MSCMG for use in
the Proxy Statement (i) will comply in all respects with the provisions of the
Exchange Act and the rules and regulations promulgated thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case on the Mailing Date and at all times thereafter
through the Effective Date of the Merger.
Section 6.2. Approvals; Consents. The Company will obtain or cause to be
obtained all consents, approvals and authorizations required by any applicable
requirement of law or by any contract or agreement to be obtained by the Company
in connection with the consummation of the Merger and the Plan of Liquidation.
MSCMG will obtain or cause to be obtained all consents, approvals and
authorizations required by any applicable requirement of law or by any contract
or agreement to be obtained by MSCMG in connection with the consummation of the
Merger.
Section 6.3. Conduct and Liquidation of Business Prior To Effective Time of
the Merger. (a) The Company agrees that from and after the date hereof, the
Company will continue to use its best efforts to liquidate the assets relating
to the businesses of the Company and the Company Subsidiaries and to satisfy and
fully discharge the Scheduled Liabilities.
(b) The Company agrees that from the date hereof to the Effective Time of
the Merger, and except as otherwise consented to or approved by an officer of
MSCMG in writing or required by this Merger Agreement:
(i) No change shall be made in the number of shares of authorized
or issued capital stock of the Company or any of the Company
Subsidiaries, except pursuant to the exercise of the employee stock
options referred to in the third sentence of Section 4.3; nor shall
any option, warrant, call, commitment, right or agreement of any
character be granted or made by the Company or any of the Company
Subsidiaries relating to their respective authorized or issued capital
stock.
(ii) No dividend shall be declared or paid or other distribution
or payment declared, made or paid in respect of the Company Common
Stock.
(iii) No powers of attorney shall be granted by the Company or
any of the Company Subsidiaries except as may be necessary for the
conduct of meetings of stockholders or directors of the Company
Subsidiaries.
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(iv) The Company shall use all reasonable efforts to terminate
all contracts, agreements, commitments, understandings or instruments
of the Company or any of the Company Subsidiaries, including the
Material Contracts, except for those to be assumed by the Liquidating
Trust, and to deliver evidence of such termination to MSCMG prior to
the Effective Time of the Merger.
(v) Except as agreed pursuant to Section 3.3, prior to the
Effective Time of the Merger, the Company will terminate the
employment of all of its employees, and shall give any notices
required to be given, and provide any benefit required to be paid or
continued, pursuant to the Worker Adjustment and Retraining
Notification Act ("WARN"), COBRA or any other applicable federal,
state or local laws, regulations, ordinances, orders, injunction, or
decrees, or administrative decisions or directives, with respect to
such termination of employment.
Section 6.4. Access to Information and Documents. (a) From the date hereof
to the Effective Time of the Merger, the Company shall give to, or cause to be
made available for, MSCMG and MSCMG shall give to, or cause to be made available
for, the Company and their respective counsels, accountants and other
representatives full access during normal business hours to all properties,
documents, contracts, employees and records of the Company and the Company
Subsidiaries or MSCMG and furnish the other party with copies of such documents
and with such information as such party from time to time reasonably may
request; provided, however, that nothing herein shall be deemed to obligate the
Company or MSCMG to provide the other party access to information or operations
the access to which is restricted for statutory or other governmental security
purposes. The Company will make available to MSCMG for examination correct and
complete copies of all Federal, state, local and foreign tax returns filed by
the Company and the Company Subsidiaries, together with all available revenue
agents' reports, all other reports, notices and correspondence concerning tax
audits or examinations and analyses of all provisions for reserves or accruals
of taxes including deferred taxes.
(b) Until the Effective Time of the Merger (and, if this Merger Agreement
is terminated prior to the Effective Time of the Merger, at all times after such
termination), the Company and MSCMG will not disclose or use any confidential
information obtained in the course of their respective investigations, except to
the extent that any such confidential information subsequently becomes public
knowledge.
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(c) If the Merger is not consummated and this Merger Agreement is
terminated, then MSCMG promptly shall return all documents, contracts, records
or properties of the Company furnished by the Company to MSCMG, and all copies
thereof, and the Company promptly shall return all documents, contracts, records
or properties of MSCMG furnished by MSCMG to the Company, and all copies
thereof.
Section 6.5. Periodic Information. (a) From the date hereof to the
Effective Date of the Merger, the Company shall furnish MSCMG with such
additional financial and operating data and other information regarding its or
the Company Subsidiaries' business, reasonably available to the Company, as
MSCMG shall from time to time reasonably request.
(b) From the date hereof to the Effective Date of the Merger, the Company
shall, promptly and in a timely manner, notify MSCMG of any of the occurrence of
any event, or the failure of any event to occur, that results in a
misrepresentation by the Company or the breach of any warranty by the Company,
or any failure by the Company to comply with any covenant, condition or
agreement contained herein.
(c) From the date hereof to the Effective Date of the Merger, MSCMG shall
furnish the Company with such additional financial and operating data and other
information regarding its business, reasonably available to MSCMG, as the
Company shall from time to time reasonably request.
(d) From the date hereof to the Effective Date of the Merger, MSCMG shall,
promptly and in a timely manner, notify the Company of the occurrence of any
event, or the failure of any event to occur, that results in a misrepresentation
by MSCMG or the breach of any warranty by MSCMG, or any failure by MSCMG to
comply with any covenant, condition or agreement contained herein.
Section 6.6. Representations. The Company and MSCMG (a) will take and, in
the case of the Company, cause the Company Subsidiaries to take all action
necessary to render accurate as of the Effective Time of the Merger their
respective representations and warranties contained herein, (b) will refrain
from taking any action which would render any such representation or warranty
inaccurate in any material respect as of such time, and (c) will perform or
cause to be satisfied each covenant or condition to be performed or satisfied by
them under this Merger Agreement.
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Section 6.7. Mailing Date. (a) On or prior to the Mailing Date, MSCMG shall
have received the following:
(i) A letter from Eisner & Co., dated the Mailing Date and
addressed to MSCMG and the Company, in form and substance satisfactory
to MSCMG, to the effect that:
(A) they are independent certified public accountants
with respect to the Company and the Company Subsidiaries
within the meaning of the Exchange Act and the applicable
published rules and regulations thereunder;
(B) in their opinion the consolidated financial
statements of the Company and the Company Subsidiaries
examined by them and included in the Proxy Statement comply as
to form in all material respects with the accounting
requirements of the Exchange Act, and of the published rules
and regulations issued by the Commission thereunder;
(C) at the request of MSCMG they have carried out
procedures to a specified date not more than five business
days prior to the Mailing Date, which do not constitute an
examination in accordance with generally accepted auditing
standards of the consolidated financial statements of the
Company and the Company Subsidiaries, as follows: (1) read the
unaudited consolidated financial statements, if any, of the
Company and the Company Subsidiaries included in the Proxy
Statement, (2) read the unaudited consolidated financial
statements of the Company and the Company Subsidiaries for the
period from the date of the most recent financial statements
included in the Proxy Statement through the date of the most
recent interim financial statements available in the ordinary
course of business, (3) read the minutes of the meetings of
stockholders and boards of directors of the Company and the
Company Subsidiaries from March 31, 1994 to said date not more
than five business days prior to the Mailing Date, and (4)
made inquiries of certain officers and employees of the
Company who have responsibility for financial and accounting
matters as to (i) whether the unaudited financial statements,
if any, of the Company and the Company Subsidiaries included
in the Proxy Statement comply as to form in all material
respects with the applicable
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accounting requirements of the Exchange Act, and the published
rules and regulations issued by the Commission thereunder;
(ii) whether said financial statements are fairly presented in
conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
audited financial statements; and (iii) whether there has been
any change in capital stock or long term debt or any decrease
in consolidated net current assets, stockholders' equity,
revenues, income before income taxes or in the total or per
share amounts of consolidated net income of the Company and
the Company Subsidiaries; and, based on such procedures,
nothing has come to their attention which would cause them to
believe that (1) the unaudited financial statements, if any,
of the Company and the Company Subsidiaries included in the
Proxy Statement do not comply as to form in all material
respects with the applicable accounting requirements of the
Exchange Act, and the published rules and regulations issued
by the Commission thereunder; (2) said financial statements
are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements; (3)
as of said date not more than five business days prior to the
Mailing Date there was, except as set forth in the Proxy
Statement, any (x) material change in capital stock or long
term debt of the Company and the Company Subsidiaries or (y)
material decrease in consolidated net current assets or
stockholders' equity of the Company and the Company
Subsidiaries in each case as compared with the amounts shown
in the consolidated balance sheet of the Company and the
Company Subsidiaries at the date of the most recent financial
statements included in the Proxy Statement; or (4) for the
period from the date of the most recent financial statements
included in the Proxy Statement to said date not more than
five business days prior to the Mailing Date, there were,
except as set forth in the Proxy Statement, any decreases as
compared with the corresponding portion of the preceding
12-month period in consolidated revenues; and
(D) at the request of MSCMG they have carried out
described procedures acceptable to MSCMG to a specified date
not more than five business days prior to the Mailing Date
(which procedures do not constitute an examination in
accordance with generally accepted auditing stan-
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dards of the consolidated financial statements of the Company
and the Company Subsidiaries) with respect to such tabular,
percentage, statistical and financial information relating to
the Company set forth in the Proxy Statement as MSCMG shall
have reasonably requested.
(ii) An opinion dated the Mailing Date, of Moses & Singer LLP,
counsel to the Company to the effect that, while such counsel assumes
no responsibility for any events, occurrences or statements of fact
relating to the Company or the Company Subsidiaries, or for the
accuracy, completeness or fairness of any statements contained in the
Proxy Statement, and while such counsel expresses no opinion as to the
financial statements or other financial or statistical data contained
therein, with respect to the information in the Proxy Statement
relating to the Company and the Company Subsidiaries, such counsel has
no reason to believe that the Proxy Statement, as amended or
supplemented to the date of such opinion, 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 not misleading.
(iii) A certificate of the Company's President and its chief
financial officer, dated the Mailing Date, in form and substance
satisfactory to MSCMG, stating that (A) the Company has complied in
all material respects with the agreements contained herein on its part
to be performed on or prior to such date, and (B) the representations
and warranties of the Company contained herein are true and correct in
all material respects at and as of the date of such certificate,
except to the extent affected by the transactions contemplated hereby
and by the liquidation of the Company as permitted by the provisions
of Section 6.3 prior to the Mailing Date, with the same effect as
though such representations and warranties had been made at and as of
such date.
(iv) A certificate of the Company's President and its chief
financial officer, dated the Mailing Date, in form and substance
satisfactory to MSCMG, stating that all approvals, consents and
waivers required by Section 4.6 have been obtained, specifically
identifying such consents, waivers and attaching copies thereof to
such certificate.
(v) A voting agreement having the terms and provisions set forth
in Exhibit B attached hereto (the "Voting Agreement") dated the
Mailing Date shall have been signed by James H. Michaels (both
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individually and as the trustee for the trust for the benefit of
Richard H. Michaels and as a co-trustee for the trust under the will
of Jules Michaels) agreeing to vote all of his shares of Company
Common Stock in favor of the Merger Agreement, the Charter Amendment
and the Plan of Liquidation subject to the conditions set forth
therein.
(vi) A complete set of Schedules to this Agreement shall have
been delivered by the Company to MSCMG and the form and content of
such Schedules shall be satisfactory to MSCMG in its sole and complete
discretion.
(b) On or prior to the Mailing Date, the Company shall have received the
following:
(i) A letter from Eisner & Co., dated the Mailing Date and
addressed to the Company and MSCMG, in form and substance satisfactory
to the Company, to the effect that:
(A) they are independent certified public accountants
with respect to MSCMG and MS&Co. within the meaning of the
Exchange Act and the applicable published rules and
regulations thereunder;
(B) in their opinion the financial statements of
MS&Co. examined by them and included in the Proxy Statement
comply as to form in all material respects with the applicable
accounting requirements of the Exchange Act, and of the
published rules and regulations issued by the Commission
thereunder;
(C) at the request of the Company they have carried
out procedures to a specified date not more than five business
days prior to the Mailing Date, which do not constitute an
examination in accordance with generally accepted auditing
standards of the financial statements of MS&Co., as follows:
(1) read the unaudited consolidated financial statements, if
any, of MS&Co. included in the Proxy Statement, (2) read the
unaudited consolidated financial statements of MS&Co. for the
period from the date of the most recent financial statements
included in the Proxy Statement through the date of the most
recent interim financial statements available in the ordinary
course of business, (3) read the minutes of the meetings of
stockholders and boards of
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directors of MS&Co. from December 31, 1995 to said date not
more than five business days prior to the Mailing Date, and
(4) made inquiries of certain officers and employees of MS&Co.
who have responsibility for financial and accounting matters
as to (i) whether the unaudited financial statements, if any,
of MS&Co. included in the Proxy Statement comply as to form in
all material respects with the applicable accounting
requirements of the Exchange Act, and the published rules and
regulations issued by the Commission thereunder; (ii) whether
said financial statements are fairly presented in conformity
with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited
financial statements; and (iii) whether there has been any
change in capital stock or long term debt or any decrease in
net current assets, stockholders' equity, revenues, income
before taxes or in the total or per share amounts of net
income of MS&Co.; and, based on such procedures, nothing has
come to their attention which would cause them to believe that
(1) the unaudited financial statements, if any, of MS&Co.
included in the Proxy Statement do not comply as to form in
all material respects with the applicable accounting
requirements of the Exchange Act, and the published rules and
regulations issued by the Commission thereunder; (2) said
financial statements are not fairly presented in conformity
with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited
financial statements; (3) as of said date not more than five
business days prior to the Mailing Date there was, except as
set forth in the Proxy Statement, any (x) change in capital
stock or long term debt of MS&Co. or (y) decrease in net
current assets or stockholders' equity of MS&Co. in each case
as compared with the amounts shown in the balance sheet of
MS&Co. at the date of the most recent financial statements
included in the Proxy Statement; or (4) for the period from
the date of the most recent financial statements included in
the Proxy Statement to said date not more than five business
days prior to the Mailing Date, there were, except as set
forth in the Proxy Statement, any decreases as compared with
the corresponding portion of the preceding 12-month period in
revenues or income before taxes or in the total or per share
amounts of net income; and
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(D) at the request of the Company they have carried
out described procedures acceptable to the Company to a
specified date not more than five business days prior to the
Mailing Date (which procedures do not constitute an
examination in accordance with generally accepted auditing
standards of the financial statements of MS&Co.) with respect
to such tabular, percentage, statistical and financial
information relating to MS&Co. set forth in the Proxy
Statement as the Company shall have reasonably requested.
(ii) An opinion dated the Mailing Date, of Whitman Breed Abbott &
Morgan, counsel to MSCMG to the effect that, while such counsel
assumes no responsibility for any events, occurrences or statements of
fact relating to MSCMG or MS&Co., or for the accuracy, completeness or
fairness of any statements contained in the Proxy Statement, and while
such counsel expresses no opinion as to the financial statements or
other financial or statistical data contained therein, with respect to
the information in the Proxy Statement relating to MSCMG and MS&Co.,
such counsel has no reason to believe that the Proxy Statement, as
amended or supplemented to the date of such opinion, 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 not misleading.
(iii) A certificate of the President of MSCMG, dated the Mailing
Date, in form and substance satisfactory to the Company, stating that
(A) MSCMG has complied in all material respects with the agreements
contained herein on its part to be performed on or prior to such date,
and (B) the representations and warranties of MSCMG contained herein
are true and correct in all material respects at and as of the date of
such certificate, except to the extent affected by the transactions
contemplated hereby, with the same effect as though such
representations and warranties had been made at and as of such date.
(iv) A certificate of MSCMG's President and its chief financial
officer, dated the Mailing Date, in form and substance satisfactory to
the Company, stating that all approvals, consents and waivers required
by Section 5.10 have been obtained, specifically identifying such
consents, waivers and attaching copies thereof to such certificate.
Section 6.8. Information. (a) The Company will furnish MSCMG with all
information concerning the Company reasonably required for inclusion in any
application made by MSCMG to any stock exchange or any governmental or
regulatory body in connection with the transactions contemplated by this Merger
Agreement.
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(b) MSCMG will furnish the Company with all information concerning MSCMG
and MS&Co. reasonably required for inclusion in the Proxy Statement or any
application made by the Company to the Commission, any stock exchange or any
governmental or regulatory body in connection with the transactions contemplated
by this Merger Agreement.
Section 6.9. Notice of Breach. (a) MSCMG will immediately give notice to
the Company of the occurrence of any event or the failure of any event to occur
that results in a breach of any representation or warranty by MSCMG or a failure
by MSCMG to comply with any covenant, condition or agreement contained herein.
(b) The Company will immediately give notice to MSCMG of the occurrence of
any event or the failure of any event to occur that results in a breach of any
representation or warranty by the Company or a failure by the Company to comply
with any covenant, condition or agreement contained herein.
Section 6.10. Negotiations with Third Parties. The Company will not,
without the prior written approval of MSCMG, initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal relating to,
or that may reasonably be expected to lead to, any Competing Transaction (as
defined below), or enter into discussions or negotiate with any person or entity
in furtherance of such inquiries or to obtain a Competing Transaction, or agree
to or endorse any Competing Transaction, or authorize or permit any of the
officers, directors or employees of the Company or any of the Company
Subsidiaries or any investment banker, financial advisor, attorney, accountant
or other representative retained by the Company or any of the Company
Subsidiaries to take any such action, and the Company shall promptly notify
MSCMG of all relevant terms of any such inquiries and proposals received by the
Company or any of the Company Subsidiaries or by any such officer, director,
investment banker, financial advisor, attorney, accountant or other
representative relating to any of such matters and if such inquiry or proposal
is in writing, the Company shall promptly deliver or cause to be delivered to
MSCMG a copy of such inquiry or proposal; provided, however, that nothing
contained in this Section 6.10 shall prohibit the Board of Directors of the
Company from (i) furnishing information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
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fide written proposal, which proposal is at a materially higher value, by such
person or entity to acquire the Company pursuant to a merger, consolidation,
share exchange, business combination or other similar transaction or to acquire
a substantial portion of the assets of the Company if the Board of Directors of
the Company, after consultation with and based upon the advice of independent
legal counsel (who may be the Company's regularly engaged independent legal
counsel), determines in good faith that such action is appropriate for such
Board of Directors to comply with its fiduciary duties to stockholders under
applicable law; (ii) complying with Rule 14e-2 promulgated under the Exchange
Act with regard to a Competing Transaction; or (iii) failing to make or
withdrawing or modifying its recommendation referred to in Section 6.1 if the
Board of Directors of the Company, after consultation with and based upon the
advice of independent legal counsel (who may be the Company's regularly engaged
independent legal counsel), determines in good faith that such action is
necessary for such Board of Directors to comply with its fiduciary duties to
stockholders under applicable law; provided, further, however, that in
consideration of MSCMG's willingness to incur the expenses and devote the time
and resources necessary to seek to consummate the transactions contemplated
hereby, if the transactions contemplated hereby fail to be consummated because
the Company has taken any of the actions contemplated in clauses (i) through
(iii) above and the Competing Transaction is consummated, the Company shall pay
to MSCMG, by bank check or wire transfer of immediately available funds, an
amount equal to $750,000. For purposes of this Merger Agreement, "Competing
Transaction" shall mean any of the following (other than the transactions
contemplated by this Merger Agreement, including the Liquidation) involving the
Company or any of the Company Subsidiaries: (I) any merger, consolidation, share
exchange, business combination or similar transaction; (II) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 20% or more of the
assets of the Company and the Company Subsidiaries, taken as a whole; (III) any
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of the Company or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any person having acquired
beneficial ownership of, or any group (as such term is used in Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder) having
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 20% or more of the outstanding shares of capital stock of the
Company; or (v) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
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Section 6.11. Tax Matters. (a) (i) Subject to the limitations of Section
11.1(c), the Liquidating Trust shall be responsible for the payment of all taxes
of the Company and each Company Subsidiary attributable to taxable periods
ending on or before the date of the Effective Time of the Merger (the "Pre-ETM
Period") to the extent that payment of such taxes (through payment of estimated
taxes, withholding or in any other manner) has not been made prior to the
Effective Time of the Merger including any taxes resulting from the transfer of
assets by the Company to the Liquidating Trust. The term "Taxes" shall mean all
taxes, charges, fees, interest, penalties, additions to tax or other
assessments, including but not limited to income (whether net or gross), excise,
property, sales, transfer, use, value added, franchise taxes, payroll, wage,
unemployment, worker's compensation, social security, capital, occupation,
estimated, and customs duties imposed by any Tax Authority. The term "Tax
Authority" as used in this Section 6.11 shall mean any domestic or foreign
national, state or municipal or other local government, any subdivision, agency,
commission or authority thereof, or any quasi-governmental body exercising any
regulatory or taxing authority.
(ii) In the case of any taxable period that includes (but does not end
on) the date of the Effective Time of the Merger, the Taxes of the Company
and each of the Company Subsidiaries which shall be considered attributable
to the pre-ETM Period shall be computed as if such taxable period had in
fact ended at the Effective Time of the Merger and such Taxes as so
computed shall be the responsibility of the Liquidating Trust to the extent
that payment of such Taxes has not been made prior to the Effective Time of
the Merger.
(b) If the amount of Taxes paid by the Company and any of the Company
Subsidiaries or by the Liquidating Trust with respect to a Pre-ETM Period
exceeds the amount of Taxes for which the Company, any of the Company
Subsidiaries or the Liquidating Trust are responsible under this Agreement, the
Surviving Corporation shall pay to the Liquidating Trust the amount of such
excess after the final liability for such Taxes has been determined; provided,
however, that the Surviving Corporation shall in any event immediately pay such
excess to the Liquidating Trust in the event that such excess is used by any
Company Subsidiary or by the Surviving Corporation to reduce or eliminate taxes
that would otherwise be payable with respect to any taxable period subsequent to
a Pre-ETM Period.
(c) The amount of any Taxes attributable to any taxable period that
includes (but does not end on) the date of the Effective Time of the Merger
shall be determined on the basis of the permanent books and records (including
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workpapers) of the Company and the Company Subsidiaries by assuming that the
Company and each Subsidiary had a taxable year which ended at the Effective Time
of the Merger, except that exemptions, allowances or deductions that are
calculated on an annual basis shall be apportioned on a time basis.
(d) The Surviving Corporation shall compute or cause (i) Eisner & Co. or
(ii) such national accounting firm as shall be approved by the Liquidating Trust
(which approval shall not be unreasonably withheld) to compute the Taxes for all
Pre-ETM Periods for which the Liquidating Trust is responsible for Taxes under
subsection (a) of this Section 6.11 including any taxes determined under
subsection (c) above (each a "Pre-ETM Return Calculation"). The Surviving
Corporation shall pay the fees of Eisner & Co. or the national accounting firm
for computing taxes under this Section 6.11(d). The Surviving Corporation shall
submit the Pre-ETM Return Calculation to the Liquidating Trust at least 60 days
prior to the due date, including extensions actually obtained (the "Due Date"),
of any tax return on which such Taxes are returnable. The Pre-ETM Return
Calculation shall include a statement of any Taxes paid by the Company prior to
the Effective Time of the Merger and the Liquidating Trust shall have 25 days in
which to object to the Pre-ETM Return Calculation. In the event of a dispute as
to any Pre-ETM Return Calculation, the dispute shall be referred to such firm of
independent certified public accountants mutually agreed to by the Company and
the Liquidating Trust (the "Independent Accountants"). Such Independent
Accountants shall finally determine the Pre-ETM Return Calculation at least ten
(10) business days prior to the Due Date of any such return. The Company and the
Liquidating Trust shall each pay one-half of the fees of such Independent
Accountants relating to such determination. The Liquidating Trust shall pay the
Pre-ETM Return Calculation as finally determined (less any Taxes paid prior to
the Effective Time of the Merger as set forth in the Pre-ETM Return
Calculation).
(e) The Company shall prepare and timely file or shall cause the
preparation and timely filing of all tax returns required to be filed prior to
the Effective Time of the Merger. The Surviving Corporation shall have the sole
responsibility for the preparation and filing of all other tax returns of the
Company and any Company Subsidiary; provided that any returns with respect to
which the Liquidating Trust shall have liability under Section 6.11(a) shall be
prepared by (i) Eisner & Co. or (ii) such national accounting firm as shall be
approved by the Liquidating Trust (which approval shall not be unreasonably
withheld).
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(f) (i) The Surviving Corporation and the Company Subsidiaries shall elect,
where permitted by law, to carry forward any net operating loss, net capital
loss, charitable contribution or other item arising on or after the date of the
Effective Time of the Merger that could, absent such election, be carried back
to a Pre-ETM Period. Neither any Company Subsidiary nor the Surviving
Corporation shall amend, without the prior written consent of the Liquidating
Trust, any tax returns relating to a Pre-ETM Period.
(ii) If the Company and the Company Subsidiaries shall have a net operating
loss for any Pre-ETM Period, the Surviving Corporation shall carryback such net
operating loss to the extent permitted under Section 172 of the Internal Revenue
Code (the "Code") and shall apply, for the benefit of the Liquidating Trust, for
a tentative carryback adjustment of the tax pursuant to Section 6411 of the Code
for any prior taxable year affected by such net operating loss carryback and,
upon receipt of such Section 6411 refund or any other refund of tax with respect
to a Pre-ETM Period, shall promptly remit any such refund to the Liquidating
Trust.
(g) The Liquidating Trust and its duly appointed representatives shall have
the sole right, at its sole expense, to supervise or otherwise coordinate any
examination process and to negotiate, resolve, settle or contest any asserted
tax deficiencies or to assert any claim for a tax refund (collectively a "Tax
Claim") with respect to any Pre-ETM Period and neither the Surviving Corporation
nor any Company Subsidiary shall negotiate, resolve, settle or contest any such
Tax Claim without the prior written consent of the Liquidating Trust.
(h) The Surviving Corporation agrees to give prompt notice to the
Liquidating Trust of the assertion of any claim, or the commencement of any
suit, action, proceeding, investigation or audit with respect to any tax for a
Pre-ETM Period, which notice shall describe in reasonable detail the facts
pertaining thereto and the amount or an estimate of the amount of the liability
arising therefrom. The Company shall cooperate fully in any such action by
furnishing or making available records, books of account or other materials or
taking such other actions (including the granting of a power of attorney to the
Liquidating Trust) as may be necessary or helpful for the defense against the
assertions of any taxing authority as to any return for such periods to the
extent that the Liquidating Trust has responsibility therefore pursuant to
Section 6.11(a).
(i) The Company and each Company Subsidiary shall retain its records
relating to all tax periods which remain subject to audit by action or statute
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or waiver for all Pre- ETM Periods. To the extent that such records are
currently maintained in both a hard copy and an electronic media format, both
such types of records that pertain to the income or operations of the Company
and each Company Subsidiary prior to the close of business on the date of the
Effective Time of the Merger will be retained by the Company and will not be
destroyed without the prior written approval of the Liquidating Trust prior to
the expiration of the applicable statute of limitations.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PARTIES
The obligations of the parties under this Merger Agreement are subject to
the fulfillment and satisfaction of each of the following conditions, any one or
more of which may be waived by MSCMG and the Company.
Section 7.1. Stockholder Approvals. On or before the Effective Time of the
Merger, the stockholders of the Company and the stockholders of MSCMG shall have
adopted this Merger Agreement by the affirmative vote of at least two-thirds of
the outstanding shares of stock and the stockholders of the Company shall have
approved the Charter Amendment and the Plan of Liquidation. Stockholders owning
no more than 45,814 shares shall have elected to enforce their right to receive
payment for their shares of Company Common Stock pursuant to Section 623 of the
New York Business Corporation Law.
Section 7.2. Filing of Charter Amendment. Before the Effective Time of the
Merger the Company shall have filed the Charter Amendment with the New York
Department of State.
Section 7.3. Listing. On or before the Effective Time of the Merger, The
Nasdaq Stock Market shall have approved the listing, upon official notice of
issuance, of the shares of Company Common Stock to be issued pursuant to the
Merger as contemplated by Article Three.
Section 7.4. Mailing Date Documents. MSCMG and the Company shall each have
received on the Mailing Date the documents which they are to receive under
Section 6.4.
Section 7.5. Regulatory Approvals. On or before the Effective Time of the
Merger, all applicable approvals of governmental regulatory authorities of the
United States of America or of any state or political subdivision thereof
required to consummate the Merger shall have been obtained.
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Section 7.6. Escrow Agreement. The Company and a person or entity
acceptable to the Company and MSCMG, as escrow agent, shall have executed and
delivered to MSCMG the Escrow Agreement and placed $500,000 in escrow in
accordance with the terms thereof.
Section 7.7. Trust Agreement. (a) The Company and the Trustees shall have
executed and delivered a trust agreement substantially in the form of Exhibit E
hereto creating the Liquidating Trust and the Company shall have transferred all
of its business and assets (other than the escrow amount) to the Liquidating
Trust (except as otherwise provided in Section 3.3) and the Liquidating Trust
shall have assumed all the Company's obligations and liabilities (including the
Scheduled Liabilities and all tax liabilities resulting from the transfer of the
owned Real Property to the Liquidating Trust) by executing an assignment and
assumption agreement substantially in the form of Exhibit F hereto.
(b) In furtherance of the Company's transfer of its business and asset to
the Liquidating Trust, prior to the Effective Time of the Merger, the Company
shall execute a deed whereby it transfers title to all owned Real Property to
the Liquidating Trust, and a bill of sale and assignment whereby it transfers
title to all of its personal property, inventory, accounts receivable, bank
accounts and all other assets of the Company to the Liquidating Trust. Further,
the Company and the Liquidating Trustee shall enter into the assignment and
assumption agreement described above.
ARTICLE VIII
CONDITIONS TO MSCMG'S OBLIGATIONS
The obligations of MSCMG hereunder are subject to the satisfaction, at or
before the Effective Time of the Merger, of the following conditions (any of
which may be waived, in whole or in part, by MSCMG):
Section 8.1. Representations and Warranties. The representations and
warranties of the Company contained in this Merger Agreement (including the
Schedules and Exhibits hereto), or in any certificate or document delivered to
MSCMG in connection herewith, shall be true in all material respects at the
Effective Time of the Merger as if made again on and as of the Effective Time of
the Merger. The Company shall have duly performed and complied with all
agreements and conditions required by this Merger Agreement to be performed or
complied with by the Company at or before the Effective Time of the Merger.
MSCMG shall have been furnished with certificates of appropriate officers of the
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Company, dated the Effective Time of the Merger, certifying in such detail as
MSCMG may reasonably request to the fulfillment of the foregoing conditions.
Section 8.2. The Company's Performance. Each of the obligations of the
Company to be performed by it on or before the Effective Time of the Merger
pursuant to the terms of this Merger Agreement shall have been duly performed in
all material respects at the Effective Time of the Merger, and at the Effective
Time of the Merger the Company shall have delivered to MSCMG a certificate to
such effect signed by the President of the Company.
Section 8.3. Authority. All action required to be taken by, or on the part
of, the Company to authorize the execution, delivery and performance of this
Merger Agreement by the Company and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors and stockholders of the Company.
Section 8.4. Opinion of the Company's Counsel. Moses & Singer LLP, special
counsel to the Company, shall have delivered to MSCMG an opinion, dated the
Effective Time of the Merger and addressed to MSCMG, in form and substance
satisfactory to MSCMG.
Section 8.5. Legal Matters Satisfactory. All legal matters, and the form
and substance of all documents to be delivered by the Company to MSCMG at the
Effective Time of the Merger, shall have been approved by, and shall be
satisfactory to, MSCMG. The Trust shall have become a party to this Agreement by
executing an amendment hereto.
ARTICLE IX
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company hereunder are subject to the satisfaction,
at or before the Effective Time of the Merger, of the following conditions (any
of which may be waived, in whole or in part, by the Company):
Section 9.1. Representations and Warranties. The representations and
warranties of MSCMG contained in this Merger Agreement, or in any certificate or
document delivered to the Company in connection herewith, shall be true in all
material respects at the Effective Time of the Merger as if made again on and as
of the Effective Time of the Merger. MSCMG shall have duly performed and
complied with all agreements and conditions required by this Merger Agreement to
be performed or complied with by MSCMG at or before the Effective Time of the
Merger. The Company shall have been furnished with certificates of appropriate
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officers of MSCMG, dated the Effective Time of the Merger, certifying in such
detail as the Company may reasonably request to the fulfillment of the foregoing
conditions.
Section 9.2. MSCMG's Performance. Each of the obligations of MSCMG to be
performed by it on or before the Effective Time of the Merger pursuant to the
terms of this Merger Agreement shall have been duly performed in all material
respects at the Effective Time of the Merger, and at the Effective Time of the
Merger MSCMG shall have delivered to the Company a certificate to such effect
signed by the President of MSCMG.
Section 9.3. Authority. All action required to be taken by, or on the part
of, MSCMG to authorize the execution, delivery and performance of this Merger
Agreement and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Board of Directors and the sole
stockholder of MSCMG.
Section 9.4. Opinion of MSCMG's Counsel. Whitman Breed Abbott & Morgan,
special counsel to MSCMG, shall have delivered to the Company an opinion, dated
the Closing Date and addressed to the Company, substantially in the form of
Exhibit D.
Section 9.5. Legal Matters Satisfactory. All legal matters, and the form
and substance of all documents to be delivered by MSCMG to the Company at the
Closing, shall have been approved by, and shall be satisfactory to, the Company.
ARTICLE X
TERMINATION
Section 10.1. Termination.
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This Merger Agreement may be terminated and the Merger abandoned at any
time before the Effective Time of the Merger:
(a) by the written consent of the Company and MSCMG;
(b) by MSCMG, if there has been a material misrepresentation in this
Merger Agreement by the Company, or a material breach by the Company of any
of its warranties or covenants set forth herein, or a failure of any
condition to which the obligations of MSCMG hereunder are subject;
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(c) by the Company, if there has been a material misrepresentation in
this Merger Agreement by MSCMG, or a material breach by MSCMG of any of the
warranties or covenants of MSCMG set forth herein, or a failure of any
condition to which the obligations of the Company hereunder are subject;
(d) by either the Company or MSCMG if the Effective Time of the Merger
shall not have occurred before July 30, 1996, for any reason other than the
failure of the party seeking to terminate this Merger Agreement to perform
its obligations hereunder or a misrepresentation or breach of warranty by
such party herein;
(e) by the Company or MSCMG if the Company shall not have received at
the stockholder meeting called to approve the Merger the favorable vote of
at least two-thirds of its stockholders to approve the Merger; or
(f) by the Company or MSCMG if the Board of Directors of the Company
(i) fails to make or withdraws or modifies its recommendation to the
stockholders of the Company to vote in favor of the Merger, or (ii)
recommends to the Company's stockholders approval or acceptance of a
Competing Transaction, in each case only if the Board of Directors of the
Company, after consultation with and based upon the advice of independent
legal counsel (who may be the Company's regularly engaged independent legal
counsel), determines in good faith that such action is appropriate for such
Board of Directors to comply with its fiduciary duties to shareholders
under applicable law.
Article XI
INDEMNIFICATION
Section 11.1. Indemnification by the Company.
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(a) The Company (through the Liquidating Trust) shall be liable for,
shall indemnify MSCMG (or the Surviving Corporation as the successor in
interest thereto) for, shall hold harmless, protect and defend MSCMG (or
the Surviving Corporation as the successor in interest thereto) from and
against, and shall reimburse MSCMG (or the Surviving Corporation as the
successor in interest thereto) for, any and all MSCMG Damages (as
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defined in Section 11.1(b)) in the manner and to the extent set forth in
this Section 11.1, and subject in all cases to the limitation on the scope
of the Company's obligation to indemnify set forth in Section 11.1(c).
(b) The term "MSCMG Damages" means any and all damages, losses,
liabilities, obligations, penalties, excise taxes, income taxes, fines,
actions, claims, litigation, demands, defenses, judgments, suits,
proceedings, equitable relief, costs, sums paid in settlement of the
foregoing, disbursements or expenses (including, without limitation,
attorneys' and experts' fees and disbursements) of any kind or of any
nature whatsoever (whether based in common law, statute or contract; fixed
or contingent; known or unknown) suffered or incurred by MSCMG, its
officers, directors, employees, affiliates, successors or assigns
(including the Surviving Corporation) resulting from or arising in
connection with:
(i) any misrepresentation by the Company contained in or made
pursuant to this Merger Agreement or in any certificate, instrument or
agreement delivered to MSCMG pursuant to or in connection with this
Merger Agreement;
(ii) any breach of warranty or any default in the performance of
any covenant or obligation of the Company under or in connection with
this Merger Agreement;
(iii) any obligations and liabilities of the Company to be
assumed by the Liquidating Trust pursuant to Section 6, including,
without limitation, the Scheduled Liabilities;
(iv) any Taxes for which the Liquidating Trust is liable under
Section 6.11(a);
(v) any pension, severance, health and other employee benefit,
including severance or vacation pay, supplemental unemployment
benefits or any similar benefit, that became payable to any employees
of the Company in connection with a Shutdown (as hereinbelow defined)
and any other costs, expenses or payments paid or payable by the
Company in connection with the transactions contemplated by this
Merger Agreement that would not otherwise have been paid or become
payable
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but for the liquidation of the Company, the Merger or the transactions
contemplated by this Merger Agreement. The term "Shutdown" means the
closure or deemed closure of any plant or the discontinuance or deemed
discontinuance of any department or business, in any case related to
the Company or the Company Subsidiaries or their respective businesses
or operations; and
(vi) the employment, termination of employment or application for
employment of any Employee of the Company prior to the Effective Time
of the Merger or at any time in connection with Section 6.3(b)(viii);
and
(vii) all obligations and liabilities with respect to the
termination of and withdrawal from the Plans, all obligations and
responsibilities to provide retiree health coverage and continuation
coverage and appropriate notices under COBRA, and all obligations and
responsibilities under all severance and termination pay plans and
programs.
(c) MSCMG Damages shall only include actual liability or cost incurred
and paid by MSCMG (or the Surviving Corporation as the successor in
interest thereto) to a third party, and shall not include any claim for any
diminution in the value of any assets of the Company or MSCMG or the
Surviving Corporation, or any other damages, direct or indirect, other than
in an actual cost or expense paid by MSCMG (or the Surviving Corporation as
the successor in interest thereto) to a third party. Notwithstanding
anything in this Agreement, under law or otherwise, the maximum liability
of the Company (through the Liquidating Trust) to MSCMG (or the Surviving
Corporation as the successor in interest thereto) for MSCMG Damages shall
be limited as follows:
(i) the Company shall not be liable for more than an amount equal
to $1,000,000 in the aggregate for all claims for such MSCMG Damages
(excluding, however, liabilities with respect to the non-payment of
the Scheduled Liabilities which shall be satisfied by the Liquidating
Trust and excluding any Taxes resulting from the sale or transfer to
the Liquidating Trust of assets in connection with the liquidation of
assets relating to the existing businesses of the Company) which
liability shall be satisfied in full from funds deposited in escrow
pursuant to the Escrow Agreement; and
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(ii) the obligation of the Company (through the Liquidating Trust) to
indemnify MSCMG for, and to hold MSCMG harmless from, MSCMG Damages shall
survive the Effective Time of the Merger until the first anniversary date
of the Effective Time of the Merger, and no claim with respect to such
MSCMG Damages under this Section 11.1 shall be valid unless asserted in
writing prior to the expiration of such period, specifying in reasonable
detail the basis for such MSCMG Damages, as provided in the Escrow
Agreement.
The right of MSCMG (or the Surviving Corporation as the successor in interest
thereto) to be indemnified pursuant to this Section 11.1 up to the maximum
amount of $1,000,000 in the aggregate (consisting of $500,000 held pursuant to
the Escrow Agreement and $500,000 reserved by the Liquidating Trust in
accordance with the provisions of Section 3.2) is the sole and exclusive right
of MSCMG for any breach of this Agreement or any of the documents executed in
connection herewith, or otherwise in connection with any of the transactions
contemplated hereby, including without limitation the Merger, and neither MSCMG
nor any of its affiliates shall have the right to assert any claim against the
Company, any controlling person of the Company or any of the Company's
affiliates, directors, officers, employees or stockholders, whether such claim
is based on tort (including fraud), contract or otherwise, and whether arising
under statute, common law or otherwise, arising out of this Agreement, the
Merger or any of the transactions contemplated hereby or thereby, except for
claims relating to the non-payment of the Scheduled Liabilities.
In addition, no claim, whether such claim is based on tort (including
fraud), contract or otherwise, and whether arising under statute, common law or
otherwise, shall be asserted by the Company, MSCMG or any of their affiliates
against the Trustees or the beneficiaries of the Liquidating Trust. No claim
shall be asserted by the Company, MSCMG or any of their affiliates against the
Liquidating Trust after the first anniversary date of the Effective Time of the
Merger, or in excess of an aggregate of $1,000,000 (consisting of $500,000 held
pursuant to the Escrow Agreement and $500,000 reserved by the Liquidating Trust
in accordance with the provisions of Section 3.2), except for claims relating to
the non-payment of the Scheduled Liabilities.
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Section 11.2. Indemnification by the Company.
-------------------------------
(a) MSCMG (through the Surviving Corporation) shall be liable for,
shall indemnify the Company (or the Liquidating Trust as the successor in
interest thereto) for, shall hold harmless, protect and defend the Company
(or the Liquidating Trust as the successor in interest thereto) from and
against, and shall reimburse the Company (or the Liquidating Trust as the
successor in interest thereto) for, any and all Company Damages (as defined
in Section 11.2(b)) in the manner and to the extent set forth in this
Section 11.2, and subject in all cases to the limitation on the scope of
MSCMG's obligation to indemnify set forth in Section 11.2(c).
(b) The term "Company Damages" means any and all damages, losses,
liabilities, obligations, penalties, excise taxes, income taxes, fines,
actions, claims, litigation, demands, defenses, judgments, suits,
proceedings, equitable relief, costs, sums paid in settlement of the
foregoing, disbursements or expenses (including, without limitation,
attorneys' and experts' fees and disbursements) of any kind or of any
nature whatsoever (whether based in common law, statute or contract; fixed
or contingent; known or unknown) suffered or incurred by the Company, its
officers, directors, employees, affiliates, successors or assigns
(including the Liquidating Trust) resulting from or arising in connection
with:
(i) any misrepresentation by MSCMG contained in or made pursuant
to this Merger Agreement or in any certificate, instrument or
agreement delivered to the Company pursuant to or in connection with
this Merger Agreement;
(ii) any breach of warranty or any default in the performance of
any covenant or obligation of MSCMG under or in connection with this
Merger Agreement; and
(iii) any Taxes for which the Surviving Corporation is liable
under Section 6.11(e);
(c) Company Damages shall only include actual liability or cost
incurred and paid by the Company (or the Liquidating Trust as the successor
in interest thereto) to a third party, and shall not include any claim for
any diminution in the value of any assets of the Company or the Liquidating
Trust, or any other damages, direct or indirect, other than in an actual
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cost or expense paid by the Company (or the Liquidating Trust as the
successor in interest thereto) to a third party. Notwithstanding
anything in this Agreement, under law or otherwise, the maximum
liability of MSCMG (through the Surviving Corporation) to the Company
(or the Liquidating Trust as the successor in interest thereto) for
Company Damages shall be limited as follows:
(i) MSCMG shall not be liable for more than an amount equal to
$1,000,000 in the aggregate for all claims for such Company Damages;
and
(ii) the obligation of MSCMG (through the Surviving Corporation)
to indemnify the Company for, and to hold the Company harmless from,
Company Damages shall survive the Effective Time of the Merger until
the first anniversary date of the Effective Time of the Merger, and no
claim with respect to such Company Damages under this Section 11.2
shall be valid unless asserted in writing prior to the expiration of
such period, specifying in reasonable detail the basis for such
Company Damages.
The right of the Company (or the Liquidating Trust as the successor in interest
thereto) to be indemnified up to the maximum amount of $1,000,000 pursuant to
this Section 11.2 is the sole and exclusive right of the Company for any breach
of this Agreement or any of the documents executed in connection herewith, or
otherwise in connection with any of the transactions contemplated hereby,
including without limitation the Merger, and neither the Company nor any of its
affiliates shall have the right to assert any claim against MSCMG, any
controlling person of MSCMG or any of MSCMG's affiliates, directors, officers,
employees or stockholders, whether such claim is based on tort (including
fraud), contract or otherwise, and whether arising under statute, common law or
otherwise, arising out of this Agreement, the Merger or any of the transactions
contemplated hereby or thereby. In addition, (i) no claim, whether such claim is
based on tort (including fraud), contract or otherwise, and whether arising
under statute, common law or otherwise, shall be asserted by the Company, the
Liquidating Trust or any of their affiliates against MSCMG or the Surviving
Corporation and (ii) no claim shall be asserted by the Company, the Liquidating
Trust or any of their affiliates against MSCMG or the Surviving Corporation
after the first anniversary date of the Effective Time of the Merger, in excess
of the $1,000,000.
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Section 11.3. Legal Proceedings.
------------------
(a) If any legal proceeding shall be instituted, or any claim or
demand made, against an indemnified party or a party which proposes to
assert that the provisions of this Article XI apply (the "Indemnified
Party") such Indemnified Party shall give prompt notice of the claim to the
party obliged or alleged to be so obliged so to indemnify such Indemnified
Party (the "Indemnitor"). The omission so to notify such Indemnitor,
however, shall not relieve such Indemnitor from any duty to indemnify which
otherwise might exist with regard to such claim unless (and only to the
extent that) the omission to notify materially prejudices the ability of
the Indemnitor to assume the defense of such claim. After any Indemnitor
has received notice from an Indemnified Party that a claim has been
asserted against such Indemnified Party, the Indemnitor shall have the
right, upon giving written notice to the Indemnified Party, to participate
in the defense of such claim and to elect to assume the defense against the
claim, at its own expense, through the Indemnified Party's attorney or an
attorney selected by the Indemnitor and approved by the Indemnified Party,
which approval shall not be unreasonably withheld. If the Indemnitor fails
to give prompt notice of such election, then the Indemnitor shall be deemed
to have elected not to assume the defense of such claim and the Indemnified
Party may defend against the claim with its own attorney.
(b) If the Indemnitor so elects to participate in the defense of such
claim or to assume the defense against a claim, then the Indemnified Party
will cooperate and make available to the Indemnitor (and its
representatives) all employees, information, books and records in its
possession or under its control which are reasonably necessary or useful in
connection with such defense; and if the Indemnitor shall have elected to
assume the defense of a claim, then the Indemnitor shall have the sole
right to compromise and settle in good faith any such claim. If the
Indemnitor shall elect to defend or to agree in writing to compromise or to
settle any such claim, then it shall be bound by any ultimate judgment or
settlement as to the existence and amount of the claim, and the amount of
said judgment or settlement shall be conclusively deemed for all purposes
of this Merger Agreement to be a liability on account of which the
Indemnified Party is entitled to be indemnified hereunder.
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(c) If the Indemnitor does not elect to assume, or is deemed to have
elected not to assume, the defense of a claim then:
(i) the Indemnified Party alone shall have the right to conduct
such defense;
(ii) the Indemnified Party shall have the right to compromise and
to settle, in good faith, the claim without the prior consent of the
Indemnitor; and
(iii) if it is ultimately determined that the claim of loss which
shall form the basis of such judgment or settlement is one that is
validly an obligation of the Indemnitor that elected not to assume the
defense, then such Indemnitor shall be bound by any ultimate judgment
or settlement as to the existence and the amount of the claim and the
amount of said judgment or settlement shall be conclusively deemed for
all purposes of this Merger Agreement to be a liability on account of
which the Indemnified Party is entitled to be indemnified hereunder.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Expenses. Except as otherwise provided herein, MSCMG shall
pay all of the expenses of the Company and MSCMG, in connection with the
preparation and performance of the terms of this Merger Agreement and the
transactions contemplated hereby (other than those incurred in association with
the liquidation of the Company, which expenses shall be paid solely by the
Company), including all fees and expenses of each party's investment bankers,
counsel, accountants and actuaries. MSCMG shall pay up to $25,000 of the fees
and expenses of the Company for investment bankers, counsel, accountants and
actuaries in connection with the negotiation and preparation of any letters of
intent between the parties related to the transactions contemplated hereby.
Section 12.2. Survival of Representations and Warranties. (a) Except as
provided below, the representations and warranties of the Company contained in
Article 4 and the representations and warranties of MSCMG contained in Article 5
shall terminate upon (i) the first anniversary date of the Effective Time of the
Merger, or (ii) the termination of this Merger Agreement and abandonment of the
-52-
<PAGE>
Merger pursuant to the provisions of Section 10.1(a) or 10.1(d) (except for the
agreements as to confidentiality contained in Section 6.4 and as to expenses
contained in Section 12.1), and the parties hereto shall have no continuing
obligations or liabilities with respect thereto.
(b) If either MSCMG or the Company shall have the right to terminate this
Merger Agreement and abandon the Merger pursuant to the provisions of Section
10.1(b) or Section 10.1(c), then the party which does not have the right so to
terminate this Merger Agreement will use its reasonable efforts to cure the
condition giving rise to such right. If such party is unable to cure the
condition giving rise to such right, the other may exercise its right under
Section 10.1(b) or Section 10.1(c) to terminate the Merger Agreement and abandon
the Merger, or may waive such right and proceed to consummate the Merger. In any
such event, the representations, warranties, covenants and agreements (except
for the agreements as to confidentiality contained in Section 6.4 and as to
expenses contained in Section 12.1) of the parties shall terminate, and the
parties hereto shall have no continuing obligations or liabilities with respect
thereto, except as set forth in this Section 12.2(b).
Section 12.3. Governing Law. THIS MERGER AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WITHIN SUCH STATE.
Section 12.4. Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be deemed validly
given, made or served if in writing and delivered personally (as of such
delivery) or sent by certified mail (as of two days after deposit in a United
States post office), or sent by overnight courier service (as of two days after
delivery to an internationally recognized courier service), or by telex,
facsimile or telegraph (upon receipt), in any case, postage and charges prepaid,
(a) if to MSCMG, addressed to:
Muriel Siebert Capital Markets Group Inc.
885 Third Avenue, Suite 1720
New York, New York 10022
Telephone: (212) 644-2418
Facsimile: (212) 486-2784
Attention: Muriel Siebert
with a copy to:
Whitman Breed Abbott & Morgan
-53-
<PAGE>
200 Park Avenue
New York, New York 10166
Telephone: (212) 351-3000
Facsimile: (212) 351-3131
Attention: Monte E. Wetzler, Esq.
(b) if to the Company, addressed to:
J. Michaels, Inc.
182 Smith Street
Brooklyn, New York 11201
Telephone: (718) 852-6100
Facsimile: (718) 858-0396
Attention: James H. Michaels
with a copy to:
Moses & Singer LLP
1301 Avenue of the Americas
New York, NY 10019-6076
Telephone: (212) 554-7800
Facsimile: (212) 554-7700
Attention: Irving Sitnick, Esq.
or such other address as shall be furnished in writing by either party to the
other.
Section 12.5. Jurisdiction; Agent For Service.
--------------------------------
(a) Legal proceedings commenced by the Company or MSCMG arising out of any
of the transactions or obligations contemplated by this Merger Agreement shall
be brought exclusively in the Federal courts or, in the absence of Federal
jurisdiction, state courts, in either case in New York, New York. The Company
and MSCMG irrevocably and unconditionally submit to the jurisdiction of such
courts and agree to take any and all future action necessary to submit to the
jurisdiction of such courts. Each of MSCMG and the Company irrevocably waives
any objection that it may now or hereafter have to the laying of venue of any
suit, action or proceeding brought in any Federal or state court in New York,
New York and further irrevocably waives any claims that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Final judgment against the Company or MSCMG, as the case may be, in any such
suit shall be conclusive and may be enforced in other jurisdictions by suit on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability of the Company or
MSCMG, as the case may be, therein described, or by appropriate proceedings
under any applicable treaty or otherwise.
-54-
<PAGE>
(b) The Company consents to service of process in any suit, action or other
proceeding arising out of this Merger Agreement or the subject matter hereof or
any of the transactions contemplated hereby in such Federal or state courts by
registered mail addressed to the Company at the address provided in Section 12.4
or to the Company's Agent (defined below). The Company hereby irrevocably
designates and appoints Moses & Singer LLP, with offices on the date hereof at
1301 Avenue of the Americas, New York, New York 10019-6076 (herein referred to
as the "Company's Agent"), as its attorney-in-fact to receive service of process
in such action, suit or proceeding, it being agree that service upon such
attorney-in-fact shall constitute valid service upon the Company and its
successors and assigns. The Company's submission to jurisdiction is made for the
express benefit of MSCMG and its successors, subrogees and assigns. Nothing in
this Section shall affect the right of MSCMG, or its successors, subrogees or
assigns to serve legal process in any other manner permitted by law or shall
affect the right of MSCMG or its successors, subrogees or assigns to bring any
action or proceeding against the Company or its property in the courts of other
jurisdictions. So long as this Merger Agreement shall be in effect, the Company
shall maintain a duly appointed agent for the service of summonses give MSCMG
written notice prior to any change of the identity of or of the address for such
agent.
(c) MSCMG consents to service of process in any suit, action or other
proceeding arising out of this Merger Agreement or the subject matter hereof or
any of the transactions contemplated hereby in such Federal or state courts by
registered mail addressed to MSCMG at the address provided in Section 12.4 or to
MSCMG's Agent (defined below). MSCMG hereby irrevocably designates and appoints
Whitman Breed Abbott & Morgan, with offices on the date hereof at 200 Park
Avenue, New York, New York 10166 (herein referred to as "MSCMG's Agent"), as its
attorney-in-fact to receive service of process in such action, suit or
proceeding, it being agree that service upon such attorney-in-fact shall
constitute valid service upon MSCMG and its successors and assigns. MSCMG's
submission to jurisdiction is made for the express benefit of the Company and
its successors, subrogees and assigns. Nothing in this Section shall affect the
right of the Company, or its successors, subrogees or assigns to serve legal
process in any other manner permitted by law or shall affect the right of the
Company or its successors, subrogees or assigns to bring any action or
proceeding against MSCMG or its property in the courts of other jurisdictions.
So long as this Merger Agreement shall be in effect, MSCMG shall maintain a duly
appointed agent for the service of summonses and other legal processes in New
York, New York and shall give the Company written notice prior to any change of
the identity of or of the address for such agent.
-55-
<PAGE>
Section 12.6. Press Releases. MSCMG and the Company will consult and
cooperate in the issuance, form, content and timing of any press releases issued
in connection with the transactions contemplated by this Merger Agreement.
Section 12.7. Assignment; Amendments, Waivers.
--------------------------------
(a) Neither MSCMG nor the Company shall assign any of its rights or
obligations under this Merger Agreement without the prior written consent of the
other, except that the Company shall have the right to assign all of its rights
together with but not separate from all of its obligations under this Agreement
and the Escrow Agreement to the Liquidating Trust; provided that the Liquidating
Trust shall have no right to further assign such rights or obligations which
shall terminate upon the termination of the Liquidating Trust except as
otherwise provided in this Agreement.
(b) This Merger Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and permitted assigns,
and no other person shall acquire or have any right under or by virtue of this
Merger Agreement.
(c) No provision of this Merger Agreement may be amended, modified or
waived except by written agreement duly executed by each of the parties. No
waiver by either party of any breach of any provision hereof shall be deemed to
be a continuing waiver thereof in the future or a waiver of any other provision
hereof; nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right accruing to it
thereafter.
Section 12.8. Entire Agreement. This Merger Agreement represents the entire
agreement between the parties and supersedes and cancels any prior oral or
written agreement, letter of intent or understanding related to the subject
matter hereof.
Section 12.9. Severability. If any term, provision, covenant or restriction
of this Merger Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Merger Agreement shall remain in full force
and effect, unless such action would substantially impair the benefits to either
party of the remaining provisions of this Merger Agreement.
-56-
<PAGE>
Section 12.10. Headings. The headings herein are for convenience only, do
not constitute a part of this Merger Agreement, and shall not be deemed to limit
or affect any of the provisions hereof.
Section 12.11. Counterparts. This Merger Agreement may be executed in one
or more counterparts which, taken together, shall constitute one and the same
instrument, and this Merger Agreement shall become effective when one or more
counterparts have been signed by each of the parties.
-57-
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement has been duly executed by the
parties hereto on the day and year first above written.
J. MICHAELS, INC. MURIEL SIEBERT CAPITAL
MARKETS GROUP INC.
By /S/ JAMES MICHAELS By /S/ MURIEL SIEBERT
---------------------- -------------------------
Name: James Michaels Name: Muriel Siebert
------------------- ----------------------
Title: President Title: President
------------------ ---------------------
-58-
AMENDMENT TO PLAN AND AGREEMENT OF MERGER
AMENDMENT, made and entered into as of June __, 1996 (this "Amendment"), to
the PLAN AND AGREEMENT OF MERGER, dated as of April 24, 1996 (the "Merger
Agreement"), by and between J. MICHAELS, INC., a New York corporation (the
"Company"), and MURIEL SIEBERT CAPITAL MARKETS GROUP INC., a Delaware
corporation wholly-owned by Muriel Siebert ("MSCMG").
W I T N E S S E T H:
WHEREAS, the Company and MSCMG have entered into the Merger Agreement; and
WHEREAS, the Company and MSCMG desire to amend the Merger Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment to the Merger Agreement. Section 10.1(d) of the Merger
Agreement shall be amended by deleting reference to "July 30, 1996" appearing in
the third line thereof and substituting in its place "September 30, 1996."
2. Approval of this Amendment. All authorizations, approvals and consents
(including consents of the Boards of Directors) necessary for the execution and
delivery by the Company and MSCMG of this Amendment have been given or made.
3. Governing Law. This Amendment shall be construed and enforced in
accordance with and governed by the laws of the State of New York applicable to
contracts executed in and to be performed solely within such state.
4. Status of the Merger Agreement. All other terms and conditions of the
Merger Agreement shall remain in full force and effect, as amended hereby.
5. Miscellaneous. (a) Headings. All headings in this Amendment are for
convenience of reference only and are not intended to limit or affect the
meaning of any provision hereof.
(b) Counterparts. This Amendment may be executed in one or more
counterparts with the same effect as if the signatures to all such counterparts
were upon the same instrument, and all such counterparts shall constitute but
one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by a duly authorized officer and to become effective as of the day and year
first above written.
J. MICHAELS, INC.
By: /S/ JAMES MICHAELS, President
----------------------------------
Name: James Michaels
Title: Pres
MURIEL SIEBERT CAPITAL MARKETS
GROUP INC.
By: /S/ MURIEL F. SIEBERT
----------------------------------
Name: Muriel F. Fiebert
Title:
-2-
AMENDMENT NO. 2 TO PLAN AND AGREEMENT OF MERGER
AMENDMENT NO. 2, made and entered into as of September 30, l996 (this
"Amendment"), to the PLAN AND AGREEMENT OF MEREST, dated as of April 29, 1996,
as amended by Amendment No. 1 made and entered into as of June 28, 1996, (as so
amended, the "Merger Agreement"), by and between J. MlCHAELS, INC., a New York
corporation (the "company"), and MURIEL SIEBERT CAPITAL MARKETS GROUP INC., a
Delaware corporation wholly-owned by Muriel Siebert ("MSCMG").
W I T N E SS E TH:
WHEREAS, the Company and MSCMG have entered into the Merger Agreement; and
WHEREAS, the Company and MSCMG desire to amend the Merger Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Termination. Section 10.1(d) of the Merger Agreement shall be amended by
(a) deleting the reference to "September.30, 1996" appearing in the third line
thereof and substituting in its place "January 6, 1997" and (b) inserting after
the word "herein" appearing in the fourth line thereof the following clause:
", provided, however, that if the Company has not yet implemented a
one-for-seven reverse stock split of its common stock (the "Reverse
Stock Split") on or prior to November 15, 1996, then, at the option of
the Company, the Effective Time of the Merger may be deferred until
either the third or sixth day of January, 1997"
2. Reverse Stock Split. The Company shall, immediately following execution
of this Amendment, take all actions necessary to allow it to amend its
certificate of incorporation to cause its Common Stock, par value $1.00 per
share, to be reverse split on a one-for-seven basis, including making such
filings with the Securities and Exchange Commission, The NASDAQ Stock Market and
the State of New York as may be required and mailing an information atatement to
its stockholders. In connection with such Reverse Stock Split, fractional shares
shall be rounded upwards to the next largest whole share. Such Reverse Stock
Split shall become effectixe immediately after the Effective Time of the Merger.
MSCMG shall indemnify the Company and its officers, directors, employees,
affiliates, successors or assigns (the "Indemnified Parties") for, and shall
hold the Indemnified Parties harmless from and against, and shall reimburse the
Indemnified Parties for, any and all damages, losses, liabilities, penalties or
expenses of any kind or of any nature whatatever incurred by the Indemnified
Parties in connection with the Reverse Stock Split.
<PAGE>
3. Expenses. Section 12.1 of the Merger Agreement shall be amended by
inserting the following paragraph after the first paragraph thereof:
"Further, MSCMG shall pay all additional third party expenses (including,
but not limited to, reasonable attorneys' fees, accountants' fees and filing
fees and excluding expenses relating to the liquidation of the Company's assets
(including, but not limited to, salaries and all other costs relatlng to the
Company's employees)) of the Company incurred in connection with (i) the Reverse
stock Split and (ii) the continued affairs of the Company until the Effective
Time of the Merger which would not have been incurred had the Closing occurred
on September 20, 1996."
4. Legal Fees. Promptly following the execution of this Amendment, MSCMG
shall reimburse the Company in the amount of $5,000 for legal fees previous1y
paid by it in connection with the transactions contemplated by the Merger
Agreement. Further, MSCMG shall similarly pay all outstanding invoices for legal
fees for services rendered by Moses & Singer LLP, special counsel to the
Company, to the Company pursuant to the Merger Agreement.
5. Approval of this Amendment. All authorizations, approvals and consents
(including consents of the Boards of Directors) necessary for the execution and
delivery by the Company and MSCMG of this Amendment have been given or made.
6. Governing Law. This Amendment shall be construed and enforced in
accordance with and governed by the laws of the State of New York applicable to
contracts executed in and to be performed solely within such state.
7. Status of the Merger Agreement. All other terms and conditions of the
Merger Agreement shall remain in full force and effect, as amended hereby.
8. Miscellaneous. (a) Headings. All headings in this Amendment are for
convenience of reference only and are not intended to limit or affect the
meaning of any provision hereof.
(b) Counterparts. This Amendment may be executed in one or more
counterparts with the same effect as if the signatures to all such counterparts
were upon the same instrument, and all such counterparts shall constitute but
one instrument.
(c) Capitalized Terms. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the same meaning as such terms have in the
Merger Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by a duly authorized officer and to become effective as of the day and year
first above written.
J. MICHAELS, INC.
By: /S/ JAMES H. MICHAELS
-----------------------------
Name: James H. Michaels
Title: President
MURIEL SIEBERT CAPITAL
MARKETS GROUP INC.
By: /S/ MURIEL F. SIEBERT
----------------------------
Name: Muriel F. SIEBERT
Title: President
AMENDMENT NO. 3 TO PLAN AND AGREEMENT OF MERGER
AMENDMENT NO. 3, made and entered into as of November 7, 1996 (this
"Amendment"), to the PLAN AND AGREEMENT OF MERGER, dated as of April 24, 1996,
as amended by Amendment No. 1 and Amendment No. 2 made and entered into as of
June 28, 1996 and September 30, 1996, respectively (as so amended, the "Merger
Agreement"), by and between J. MICHAELS, INC., a New York corporation (the
"Company"), J. MICHAELS, INC. TRUST, a New York trust (the "Trust"), and MURIEL
SIEBERT CAPITAL MARKETS GROUP INC., a Delaware corporation wholly-owned by
Muriel Siebert ("MSCMG").
W I T N E S S E T H:
WHEREAS, the Company and MSCMG have entered into the Merger Agreement; and
WHEREAS, the Company and MSCMG desire to amend the Merger Agreement to add
the Trust as a party thereto.
NOW, THEREFORE, the parties hereto agree as follows:
1. Trust as a Party to the Merger Agreement. By its execution hereof, the
Trust does hereby agree to become a party to, and by its execution hereof shall
become a party to, the Merger Agreement effective upon the Effective Time of the
Merger. On and after the Effective Time of the Merger, the Trust shall succeed
to the rights and obligations of the Company under the Merger Agreement.
2. Approval of this Amendment. All authorizations, approvals and consents
(including consents of the Boards of Directors) necessary for the execution and
delivery by the Company, the Trust and MSCMG of this Amendment have been given
or made.
3. Governing Law. This Amendment shall be construed and enforced in
accordance with and governed by the laws of the State of New York applicable to
contracts executed in and to be performed solely within such state.
4. Status of the Merger Agreement. All other terms and conditions of the
Merger Agreement shall remain in full force and effect, as amended hereby.
5. Miscellaneous. (a) Headings. All headings in this Amendment are for
convenience of reference only and are not intended to limit or affect the
meaning of any provision hereof.
<PAGE>
(b) Counterparts. This Amendment may be executed in one or more
counterparts with the same effect as if the signatures to all such counterparts
were upon the same instrument, and all such counterparts shall constitute but
one instrument.
(c) Capitalized Terms. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the same meaning as such terms have in the
Merger Agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by a duly authorized officer and to become effective as of the day and year
first above written.
J. MICHAELS, INC.
By: /S/ JAMES MICHAELS
------------------------------
Name: James H. Michaels
Title: President
J. MICHAELS, INC. TRUST
By: /S/ JAMES H. MICHAELS
------------------------------
Name:
Title: Trustee
MURIEL SIEBERT CAPITAL MARKETS
GROUP INC.
By: /S/ MURIEL F. SIEBERT
------------------------------
Name: Muriel F. Siebert
Title: President
-2-
BY-LAWS
-of-
SIEBERT FINANCIAL CORP.
(formerly J. MICHAELS, INC.)
-----------------------------------------------------------
(a New York corporation hereinafter called the "Corporation")
ARTICLE I
---------
Offices
-------
Section 1.01. Office. The office of the Corporation shall be located at
such address in the State of New York, within the City and County provided by
the Certificate of Incorporation, as the Board of Directors shall fix by
resolution.
Section 1.02. Other Offices. The Corporation may also have offices at such
other places within and/or without the State of New York as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
----------
Shareholders
------------
Section 1.01. Annual Meeting. The annual meeting of shareholders for the
election of directors and the transaction of such other business as may come
before it shall be held on such date in each calendar year, and at such place
within or without the State of New York, as shall be fixed by the Board of
Directors and stated in the notice or waiver of notice of the meeting.
<PAGE>
Section 2.02. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, may be called by the President or by resolution of the
Board of Directors. Special meetings of shareholders, if called by the
President, shall be held at such place within the County or City within the
State of New York in which is located the office of the Corporation specified in
its Certificate of Incorporation as shall be fixed by the President, or at such
place within or without the State of New York as may be designated by the Board
of Directors or consented to in writing by any shareholders not attending such
meeting. Such place shall be stated in the notice or waiver of notice of the
meeting.
Section 2.03. Quorum. The holders of one-third of the shares entitled to
vote thereat shall constitute a quorum at a meeting of shareholders for the
transaction of any business, provided that when a specified item of business is
required to be voted on by a class or series voting as a class, the holders of
one-third of the shares of such class or series shall constitute a quorum for
the transaction of such specified item of business.
Section 2.04. Ballots. The vote upon any question before any shareholders'
meeting need not be by ballot.
-2-
<PAGE>
ARTICLE III
-----------
Directors
---------
Section 3.01. Number of Directors. Subject to the provisions of the last
paragraph of this section, the number of directors which shall constitute the
entire Board shall be not less than three nor more than nine within the limits
above specified. The number of directors shall be determined by resolution of a
majority of the entire Board of Directors or by the shareholders at an annual or
any special meeting.
Anything hereinabove in this Section 3.01 to the contrary notwithstanding,
if all the shares of the Corporation are owned beneficially and of record by
less than three shareholders, the number of directors may, if so determined by
resolution of the Board of Directors or by the shareholders at an annual or
special meeting, be less than three but not less than the number of
shareholders.
Section 3.02. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors, the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, if any, or if no time is specified therein, then upon receipt
of such notice by the addressee; and, unless otherwise provided therein, the
acceptance of such resignation shall not be necessary to make it effective.
-3-
<PAGE>
Section 3.03. Removal of Directors. Except as expressly provided otherwise
by law, any or all of the directors may be removed at any time (a) for cause by
vote of the shareholders or by action of the Board of Directors or (b) without
cause by vote of the shareholders.
Section 3.04. Vacancies and Newly Created Directorships. If the office of
any director or directors becomes vacant for any reason, including but not
limited to, the removal of a director or directors without cause, the directors
in office, although less than a quorum, by a majority vote, or such number
greater than such majority as the Certificate of Incorporation of the
Corporation may provide, may choose a successor or successors, who shall hold
office for the unexpired term in respect of which such vacancy or vacancies
occurred or until the next election of directors; or any such vacancy may be
filled by the shareholders at any meeting thereof. Newly created directorships
resulting from an increase in the number of directors shall be filled in the
same manner as vacancies as aforesaid.
Section 3.05. Quorum of Directors. Except as expressly provided otherwise
by law or in Section 3.04 and in Section 8.01 hereof, at all meetings of the
Board of Directors, one-third of the entire Board, but not less than two
directors, shall be necessary and sufficient to constitute a quorum for the
transaction of business, except that when the Board consists of one director
then one director shall constitute such quorum.
-4-
<PAGE>
Section 3.06. Organizational Meeting. The first meeting of each newly
elected Board of Directors shall be held at such time and place as shall be
fixed by the vote of the shareholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the shareholders to fix the time or place of such first meeting
of the newly elected Board of Directors, or in the event such meeting is not
held at the time and place so fixed by the shareholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors.
Section 3.07. Regular Meetings. Regular meetings of the Board of Directors
may be held at such time and place as shall from time to time be fixed by the
Board of Directors and no notice thereof shall be necessary.
Section 3.08. Special Meetings. Special meetings may be called at any time
by the Chairman of the Board, if any, or by the President or by any two
directors, or by resolution of the Board of Directors. Special meetings shall be
held at such place within the State of New York as shall be fixed by the person
-5-
<PAGE>
or persons calling the meeting, or at such place within or without the State of
New York as may be designated by the Board of Directors or consented to in
writing by any directors not attending such meeting. Such place shall be stated
in the notice or waiver of notice of the meeting.
Special meetings of the Board of Directors shall be held upon notice to the
directors or waiver thereof. Unless waived, notice of each special meeting of
the directors, stating the time and place of the meeting, shall be given to each
director by delivered letter, by telegram or by personal communication either
over the telephone or otherwise, in each such case not later than the second day
prior to the meeting, or by mailed letter deposited in the United States mail
with postage thereon prepaid not later than the fifth day prior to the meeting.
Section 3.09. Committees. The Board of Directors, by resolution adopted by
a majority of the entire Board, may designate from among its members an
Executive Committee and other committees, each consisting of three or more
directors, and each of which to the extent provided in such resolution, shall
have all the authority of the Board of Directors, except that no such committee
shall have authority as to the following matters:
(a) The submission to shareholders
of any action that needs shareholders'
authorization under the law.
(b) The filling of vacancies in the
Board of Directors or in any committee.
-6-
<PAGE>
(c) The fixing of compensation of
the directors for serving on the Board
of Directors or on any committee.
(d) The amendment or repeal of the
By-Laws, or the adoption of new By-Laws.
(e) The amendment or repeal of any
resolution of the Board of Directors
which by its terms shall not be so
amendable or repealable.
The Board of Directors may designate one or more directors as alternate
members of any such committee, who may replace any absent member or members at
any meeting of such committee. Each such committee shall serve at the pleasure
of the Board of Directors. Each such committee shall keep minutes of its
proceedings and report the same to the Board of Directors.
Each and every committee of the Board of Directors and each and every
member of each such committee shall be deemed redesignated at each annual
organization meeting of the Board of Directors without the necessity of any
affirmative action at such meeting; except that the term of office of any member
of any such committee shall terminate upon his ceasing, at any time and for any
reason, to be a director of the Corporation.
Regular meetings of any such committee shall be held at such time and place
as shall from time to time be fixed by such committee and no notice thereof
shall be necessary. Special meetings may be called at any time by any officer of
the Corporation or any member of such committee. Notice of each special meeting
of each such committee shall be given (or waived) in the same manner as notice
of a special meeting of the Board of Directors and the place of any such special
-7-
<PAGE>
meeting of any such committee shall be subject to any limitations applicable in
the case of a similarly called special meeting of the Board of Directors;
provided, however, that the signature of the minutes of any such meeting by any
member of any such committee shall constitute a waiver of notice of such meeting
by such member. A majority of the members of any such committee shall constitute
a quorum for the transaction of business.
ARTICLE IV
----------
Officers
--------
Section 4.01. Executive Officers. The executive officers of the Corporation
shall be a President, a Secretary, a Treasurer, and such number of Vice
Presidents, Assistant Secretaries and Assistant Treasurers, and such other
officers, if any, including a Chairman of the Board of Directors, as the Board
of Directors may from time to time determine. Any officer may, but no officer
need, be chosen from among the Board of Directors, except that the Chairman of
the Board of Directors shall be a member of the Board of Directors.
Section 4.02. President. The President shall be the chief executive officer
of the Corporation; he shall preside at all meetings of the shareholders and,
unless a Chairman of the Board of Directors has been elected and is present, at
-8-
<PAGE>
all meetings of the Board of Directors; he shall have the management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect, subject to the right of the Board of
Directors to delegate any specific powers to any other officer or officers of
the Corporation.
Section 4.03. Vice President. Any Vice President of the Corporation shall
have such powers and perform such duties as the Board of Directors may from time
to time prescribe, and shall perform such other duties as may be prescribed by
these By-Laws. The Vice Presidents, if there be more than one Vice President,
shall have such seniority as may be prescribed by the Board of Directors. In
case of the absence, resignation or inability to act of the President, the Vice
President (or if there be more than one Vice President, the Vice President
designated by the Board of Directors) shall perform the duties and exercise the
power of the President.
Section 4.04. Secretary. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the shareholders and act as clerk
thereof, and record all votes and the minutes of all proceedings in a book to be
kept for that purpose. He shall give or cause to be given notice of all meetings
of shareholders and directors and shall perform such other duties as may be
prescribed by the Board of Directors. He shall keep in safe custody the seal of
the Corporation and, when authorized by the Board of Directors, affix it to any
instrument.
-9-
<PAGE>
Section 4.05. Treasurer. The Treasurer, subject to the order of the Board
of Directors, shall have the custody of the corporate funds, securities and
documents, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and directors at the regular meetings of the Board of Directors,
or whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. The Treasurer shall, if
required by the Board of Directors, give the Corporation a bond in such sum or
sums and with such surety or sureties as shall be satisfactory to the Board of
Directors, conditioned upon faithful performance of his duties and for the
restoration to the Corporation in case of his death, resignation, retirement or
removal from office of all books, papers, vouchers, money and other property of
whatever kind in his possession, or under his control belonging to the
Corporation.
-10-
<PAGE>
ARTICLE V
---------
Capital Shares and Other Securities
-----------------------------------
Section 5.01. Form of Certificates. The shares of the Corporation shall be
represented by certificates in such form as shall be determined by the Board of
Directors.
Section 5.02. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
indorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or such transfer
agent to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 5.03. Registered Holders. The Corporation shall be entitled to
treat and shall be protected in treating the persons in whose names shares or
any warrants, rights, options or instruments of indebtedness stand on the record
of shareholders, warrant holders, rights holders, option holders or holders of
such instruments of indebtedness, as the case may be, as the owners thereof for
all purposes and shall not be bound to recognize any equitable or other claim
to, or interest in, any such share, warrant, right, option or instrument of
indebtedness on the part of any other person, whether or not the Corporation
shall have express or other notice thereof, except as expressly provided
otherwise by law.
-11-
<PAGE>
Section 5.04. New Certificates. The Board of Directors may direct that a
new certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the Corporation, alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such sum and with such surety or sureties
as it may direct as indemnity against any claim that may be made against the
Corporation and/or its transfer agent or transfer clerk and/or its registrar
with respect to the certificate alleged to have been lost, stolen or destroyed,
or the issuance of such new certificate or certificates.
-12-
<PAGE>
ARTICLE VI
----------
Dividends and Financial Notices to Shareholders
-----------------------------------------------
Section 6.01. Dividends. Dividends upon the shares of the Corporation,
subject to any provisions of the Certificate of Incorporation relating thereto,
may be declared by the Board of Directors, to the extent permitted by law, at
any regular or special meeting. Before payment of any dividend, there may be set
aside out of the funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time in its absolute discretion may
deem proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall deem conducive to the
interests of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE VII
-----------
Miscellaneous
-------------
Section 7.01. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal, New York".
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<PAGE>
Section 7.02. Checks. All checks, notes, drafts and demands for money of
the Corporation shall be signed by such person or persons as the Board of
Directors may from time to time designate.
Section 7.03. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 7.04. Indemnification of Directors and Officers. The Corporation
shall indemnify any person made a party to an action by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he,
his testator or intestate, is or was a director or officer of the Corporation,
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense of such action, or in
connection with an appeal therein, except in relation to matters as to which
such director or officer is adjudged to have breached his duty to the
Corporation under Section 717 of the Business Corporation Law of the State of
New York, as now in effect or as amended from time to time, to the maximum
extent that is permitted by and is consistent with the law.
The Corporation shall indemnify any person made, or threatened to be made,
a party to an action or proceeding other than one by or in the right of the
Corporation to procure a judgment in its favor, whether civil or criminal,
-14-
<PAGE>
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, which any director or officer of the Corporation
served in any capacity at the request of the Corporation, by reason of the fact
that he, his testator or intestate, was a director or officer of the Corporation
or served such other corporation in any capacity, against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in the best interests of the
Corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful, to maximum extent
that is permitted by and is consistent with the law. The termination of any such
civil or criminal action or proceeding by judgment, settlement, conviction or
upon a plea of nolo contendere, or its equivalent, shall not in itself create a
presumption that any such director or officer did not act, in good faith, for a
purpose which he reasonably believed to be in the best interests of the
Corporation or that he had reasonable cause to believe that his conduct was
unlawful.
Section 7.05. Litigation. Neither the President nor any other officer nor
any director of the Corporation shall, by virtue of his office of otherwise, be
authorized or empowered to commence or prosecute, in the name of or on behalf of
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<PAGE>
the Corporation, any action, suit or proceeding before any court or any
governmental or other agency against any past or present officer, director or
shareholder of the Corporation, or the legal representatives of any such past or
present officer, director or shareholder, without being expressly authorized to
do so in each and every case by the affirmative vote of a majority of the entire
Board, or such number greater than such majority as the Certificate of
Incorporation of the Corporation may provide, which vote shall be taken at a
duly convened regular or special meeting of said Board of Directors.
Section 7.06. Entire Board. As used in these By-Laws, "entire Board" means
the total number of directors which the Corporation would have if there were no
vacancies.
Section 7.07. Section Headings. The headings of the Articles and Sections
of these By-Laws are inserted for convenience of reference only and shall not be
deemed to be a part thereof or used in the construction or interpretation
thereof.
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<PAGE>
ARTICLE VIII
------------
Amendment of By-Laws
--------------------
Section 8.01. Amendment. These By-Laws, as now in effect or as hereafter
amended from time to time, may be amended or repealed and new or additional
By-Laws adopted at any meeting of the Board of Directors or by vote of the
shareholders entitled to vote in the election of any directors; provided,
however, that any amendment by the Board of Directors changing the number of
directors shall require the vote of a majority of the entire Board, and provided
further, that this Article VIII may be amended only by vote of the shareholders
entitled to vote in the election of any directors.
-17-
Siebert Financial Corp.
1997 Stock Option Plan
1. Purpose. The purpose of this Siebert Financial Corp. 1997 Stock Option
Plan (the "Plan") is to advance the interests of Siebert Financial Corp. (the
"Company") and its shareholders by providing officers and employees of the
Company and its subsidiaries with a larger personal and financial interest in
the success of the Company through the grant of stock options.
2. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of at least two members of the Board of Directors of the
Company (the "Board"). The Committee shall be constituted in such a manner as to
satisfy the requirements of applicable law, the provisions of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule, and the provisions of Section 162(m)(4)(C)(i) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Committee shall be appointed,
and vacancies shall be filled, by the Board. The Committee shall have full power
and authority to (i) select the individuals to whom Options (as hereinafter
defined) may be granted under the Plan; (ii) determine the number of shares of
Common Stock (as hereinafter defined) covered by each Option and the terms and
conditions, not inconsistent with the provisions of the Plan, governing such
Option; (iii) interpret the Plan and any Option granted thereunder; (iv)
establish such rules and regulations as it deems appropriate for the
administration of the Plan; and (v) take such other action as it deems necessary
or desirable for the administration of the Plan. Any action of the Committee
with respect to the administration of the Plan shall be taken by majority vote.
The Committee's interpretation and construction of any provision of the Plan or
the terms of any Option shall be conclusive and binding on all parties.
3. Participants. Options may be granted under the Plan to any officer or
employee of the Company.
4. The Shares. The shares that may be delivered or purchased under the Plan
shall not exceed an aggregate of 525,000 shares (subject to adjustment pursuant
to Section 7) of common stock, par value $.01 per share, of the Company (the
"Common Stock"). Such shares of Common Stock shall be set aside out of the
authorized but unissued shares of Common Stock not reserved for any other
purpose or out of previously issued shares acquired by the Company and held in
its treasury. Any shares of Common Stock which, by reason of the termination or
expiration of an Option or otherwise, are no longer subject to an Option may
again be subjected to an Option under the Plan.
5. Options. Options to purchase Common Stock ("Options") shall be evidenced
by option agreements which shall be subject to the terms and conditions set
forth in the Plan and such other terms and conditions not inconsistent herewith
as the Committee may approve.
<PAGE>
(a) Types of Options. Options granted under the Plan shall, as
determined by the Committee at the time of grant, be either Options
intended to qualify as incentive stock options under Section 422 of the
Code ("Incentive Stock Options") or Options not intended to so qualify
("Nonstatutory Stock Options"). Each option agreement shall identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option.
(b) Price. The price at which shares of Common Stock may be purchased
upon the exercise of an Option granted under the Plan shall be the fair
market value of such shares on the date of grant of such Option; provided,
however, that an Incentive Stock Option granted to an employee who owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company shall have a purchase price for the
underlying shares equal to 110% of the fair market value of the Common
Stock on the date of grant.
For purposes of the Plan, the fair market value of a share of Common
Stock on a specified date shall be the closing price on such date of the
Common Stock on the Nasdaq SmallCap Market or, if no such sale of Common
Stock occurs on such date, the fair market value of the Common Stock as
determined by the Committee in good faith.
(c) Per-Participant Limit. No participant may be granted Options
during any consecutive 12-month period on more than 100,000 shares of
Common Stock (subject to adjustment pursuant to Section 7).
(d) Limitation on Incentive Stock Options. The aggregate fair market
value (determined on the date of grant) of Common Stock for which a
participant is granted Incentive Stock Options that first become
exercisable during any given calendar year shall be limited to $100,000. To
the extent such limitation is exceeded, an Option shall be treated as a
Nonstatutory Stock Option.
(e) Nontransferability. Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution,
and, during a participant's lifetime, shall be exercisable only by the
participant. Notwithstanding the foregoing, a participant may transfer any
Nonstatutory Option granted under the Plan to the participant's spouse,
children and/or grandchildren, or to one or more trusts for the benefit of
such family members, if the agreement evidencing such Option so provides
and the participant does not receive any consideration for the transfer.
Any Option so transferred shall continue to be subject to the same terms
and conditions that applied to such Option immediately prior to its
transfer (except that such transferred Option shall not be further
transferable by the transferee during the transferee's lifetime).
-2-
<PAGE>
(f) Term and Exercisability of Options. Options may be granted for
terms of not more than 10 years and shall be exercisable in accordance with
such terms and conditions as are set forth in the option agreements
evidencing the grant of such Options. In no event shall an Incentive Stock
Option granted to an employee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company be
exercisable after the expiration of five years from the date such Incentive
Stock Option is granted.
Except as otherwise provided in Section 5(g), no Option granted under
the Plan shall be exercisable by a participant during the first year after
the date of grant of such Option.
(g) Termination of Employment. An Option may not be exercised
following a participant's termination of employment except as set forth in
this Section 5(g).
(i) Death, Disability, or Retirement. If a participant's
employment terminates by reason of death, permanent disability (within
the meaning of Section 22(e)(3) of the Code), or retirement at or
after age 65, the participant (or the participant's estate in the
event of the participant's death) may, within 90 days following such
termination, exercise the Option with respect to all or any part of
the shares of Common Stock subject thereto regardless of whether the
Option was otherwise exercisable at the time of termination of
employment.
(ii) Other Reasons. If a participant's employment terminates for
any reason other than death, permanent disability, or retirement at or
after age 65, the participant may, within 30 days following such
termination, exercise the Option with respect to all or any part of
the shares of Common Stock subject thereto, but only to the extent
that such Option was exercisable at the time of termination of
employment.
In no event may an Option be exercised after the expiration of the term of
such Option.
(h) Payment. Full payment of the purchase price for shares of Common
Stock purchased upon the exercise, in whole or in part, of an Option
granted under the Plan shall be made at the time of such exercise. The
purchase price may be paid in cash or in shares of Common Stock valued at
their fair market value on the date of purchase. Alternatively, an Option
may be exercised in whole or in part by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds
-3-
<PAGE>
necessary to pay the purchase price and applicable withholding taxes, and
such other documents as the Committee may determine.
6. Withholding. No later than the date as of which an amount first becomes
includible in the gross income of a participant for Federal income tax purposes
with respect to any Option under the Plan, the participant shall pay to the
Company, or make arrangement satisfactory to the Committee regarding the payment
of, any Federal, state or local taxes required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common Stock
that is part of the Option that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind due to the
participant. Any election made by a participant subject to Section 16(b) of the
Exchange Act to have shares of Common Stock withheld in satisfaction of the
withholding requirement with respect to such participant's Option shall be
subject to the approval of the Committee and shall be in accordance with the
requirements of Rule 16b-3 under such Act.
7. Changes in Capital Structure, etc. In the event that the shares of
Common Stock, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or if the number of such shares shall be increased through the
payment of a stock dividend or a dividend on shares of Common Stock of rights or
warrants to purchase securities of the Company shall be made, then there shall
be substituted for or added to each share of Common Stock theretofore
appropriated or thereafter subject or which may become subject to an Option the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed, or for which each such
share shall be exchanged, or to which each such share shall be entitled, as the
case may be, and references herein to shares of Common Stock shall be deemed to
be references to any such stock or other securities as appropriate. Outstanding
Options shall also be appropriately amended as to price and other terms as may
be necessary to reflect the foregoing events. In the event there shall be any
other change in the number or kind of the outstanding shares of Common Stock or
any stock or other securities into which such shares shall have been changed or
for which it shall have be exchanged, then if the Committee shall, in its sole
discretion, determine that such change equitably requires an adjustment in any
Option theretofore granted or which may be granted under this Plan, such
adjustments shall be made in accordance with such determination. Fractional
shares resulting from any adjustment in Options pursuant to this Section 7 may
be settled in cash or otherwise as the Committee shall determine. Notice of any
adjustment shall be given by the Company to each holder of an Option which shall
have been adjusted and such adjustment (whether or not such notice is given)
shall be effective and binding for all purposes of this Plan.
-4-
<PAGE>
8. Effective Date and Termination of Plan. The Plan shall become effective
on the date of its adoption by the Board, subject to the ratification of the
Plan by the affirmative vote or consent of holders of a majority of the issued
and outstanding shares of Common Stock. The Plan shall terminate 10 years from
the date of its adoption or such earlier date as the Board may determine. Any
Option outstanding under the Plan at the time of its termination shall remain in
effect in accordance with its terms and conditions and those of the Plan.
9. Amendment. The Board may amend the Plan in any respect from time to
time; provided, however, that no amendment shall become effective unless
approved by affirmative vote of the Company's shareholders if such approval is
necessary for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
under the Exchange Act or any other rule or regulation. No amendment may,
without the consent of a participant, impair such participant's rights under any
Option previously granted under the Plan.
10. Legal and Regulatory Requirements. No Option shall be exercisable and
no shares will be delivered under the Plan except in compliance with all
applicable Federal and state laws and regulations including, without limitation,
compliance with withholding tax requirements and with the rules of all domestic
stock exchanges on which the Common Stock may be listed. Any share certificate
issued to evidence shares for which an Option is exercised may bear such legends
and statements as the Committee shall deem advisable to assure compliance with
Federal and state laws and regulations. No Option shall be exercisable and no
shares shall be delivered under the Plan, until the Company has obtained consent
or approval from regulatory bodies, Federal or state, having jurisdiction over
such matters as the Committee may deem advisable.
11. General Provisions.
(a) Nothing contained in the Plan, or in any Option granted pursuant
to the Plan, shall confer upon any employee any right to the continuation
of the employee's employment or services.
(b) The Plan and all Options made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
New York.
-5-
SIEBERT, BRANDFORD, SHANK & CO., LLC
OPERATING AGREEMENT
Dated as of March 10, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C> <C>
ARTICLE I
Definitions................................................. 1
SECTION 1.1 Definitions............................................................................... 1
ARTICLE II
Organization................................................. 7
SECTION 2.1 Formation................................................................................. 7
SECTION 2.2 Name...................................................................................... 7
SECTION 2.3 Principal Place of Business............................................................... 7
SECTION 2.4 Term...................................................................................... 7
SECTION 2.5 Purposes and Powers....................................................................... 7
SECTION 2.6 Title to Property......................................................................... 7
SECTION 2.7 Certificates of Interest.................................................................. 7
SECTION 2.8 General Rights............................................................................ 8
SECTION 2.9 General Protective Provisions............................................................. 9
ARTICLE III
Members................................................... 9
SECTION 3.1 Names and Addresses....................................................................... 9
SECTION 3.2 Initial Contributions..................................................................... 9
SECTION 3.3 Additional Contributions.................................................................. 9
SECTION 3.4 Withdrawal of Capital..................................................................... 9
SECTION 3.5 No Interest on Capital.................................................................... 10
SECTION 3.6 Admission of Members...................................................................... 10
SECTION 3.7 Resignation of Member..................................................................... 10
SECTION 3.8 Outside Business.......................................................................... 10
SECTION 3.9 Representation and Warranties............................................................. 10
SECTION 3.10 Power of Attorney........................................................................ 10
ARTICLE IV
Meetings of Members............................................. 11
SECTION 4.1 Annual Meeting............................................................................ 11
SECTION 4.2 Special Meetings.......................................................................... 11
SECTION 4.3 Place of Meetings......................................................................... 11
SECTION 4.4 Notice of Meetings........................................................................ 11
SECTION 4.5 Record Date............................................................................... 11
SECTION 4.6 Waiver of Notice.......................................................................... 12
SECTION 4.7 Number of Votes........................................................................... 12
SECTION 4.8 Quorum.................................................................................... 12
SECTION 4.9 Manner of Acting.......................................................................... 12
SECTION 4.10 Action by Members Without a Meeting...................................................... 12
SECTION 4.11 Action by Communication Equipment........................................................ 13
ARTICLE V
Board of Managers.............................................. 13
SECTION 5.1 General Powers............................................................................ 13
SECTION 5.2 Binding Authority......................................................................... 13
SECTION 5.3 Number and Term of Office................................................................. 14
i
<PAGE>
SECTION 5.4 Resignation and Vacancies................................................................. 14
SECTION 5.5 Meetings.................................................................................. 14
SECTION 5.6 Compensation; Expenses.................................................................... 16
SECTION 5.7 Fiduciary Duty............................................................................ 16
SECTION 5.8 Certain Matters Requiring Approval........................................................ 16
ARTICLE VI
Chairpersons and Officers.......................................... 18
SECTION 6.1 Chairperson............................................................................... 18
SECTION 6.2 Election, Appointment and Term of Office.................................................. 18
SECTION 6.3 Resignation, Removal and Vacancies........................................................ 19
SECTION 6.4 Duties and Functions...................................................................... 19
SECTION 6.5 Committees................................................................................ 20
SECTION 6.6 Powers and Duties of Committees........................................................... 20
ARTICLE VII
Books and Records; Right of Inspection; Tax Matters............................. 21
SECTION 7.1 Books and Records......................................................................... 21
SECTION 7.2 Information............................................................................... 21
SECTION 7.3 Tax Returns............................................................................... 21
SECTION 7.4 Tax Elections............................................................................. 21
SECTION 7.5 Tax Matters Partner....................................................................... 21
SECTION 7.6 No Partnership............................................................................ 22
ARTICLE VIII
Capital Accounts............................................... 22
SECTION 8.1 Maintenance............................................................................... 22
SECTION 8.2 Adjustments............................................................................... 22
SECTION 8.3 Market Value Adjustments.................................................................. 23
SECTION 8.4 Transfer.................................................................................. 23
ARTICLE IX
Allocations and Accounting Method...................................... 23
SECTION 9.1 Determination............................................................................. 23
SECTION 9.2 Allocations of Net Profits, Net Losses,
and Other Items........................................................................... 23
SECTION 9.3 Allocations in the Event of Property
Distribution.............................................................................. 24
SECTION 9.4 Special Rules............................................................................. 24
SECTION 9.5 Tax Allocations........................................................................... 27
ARTICLE X
Distributions................................................ 28
SECTION 10.1 Distributions............................................................................ 28
SECTION 10.2 Withholding.............................................................................. 28
SECTION 10.3 Offset................................................................................... 28
SECTION 10.4 Limitation Upon Distributions............................................................ 28
SECTION 10.5 Accounting Period and Method............................................................. 29
SECTION 10.6 Tax Distributions........................................................................ 29
ARTICLE XI
Indemnification............................................... 29
ii
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SECTION 11.1 Indemnification.......................................................................... 29
SECTION 11.2 Indemnification Not Exclusive............................................................ 30
ARTICLE XII
Dissolution................................................. 30
SECTION 12.1 Dissolution.............................................................................. 30
SECTION 12.2 Event of Withdrawal...................................................................... 31
SECTION 12.3 Bankruptcy............................................................................... 31
SECTION 12.4 Continuation............................................................................. 31
ARTICLE XIII
Liquidation................................................. 32
SECTION 13.1 Liquidation.............................................................................. 32
SECTION 13.2 Priority of Payment...................................................................... 32
SECTION 13.3 Timing................................................................................... 32
SECTION 13.4 Liquidating Reports...................................................................... 33
SECTION 13.5 Certificate of Cancellation.............................................................. 33
SECTION 13.6 Deficit Capital Account.................................................................. 33
SECTION 13.7 Nonrecourse to Other Members............................................................. 33
ARTICLE XIV
Transferability............................................... 33
SECTION 14.1 General.................................................................................. 33
SECTION 14.2 First Refusal Rights..................................................................... 34
SECTION 14.3 Right to Compel Sale..................................................................... 36
SECTION 14.4 Right to Purchase........................................................................ 37
SECTION 14.5 Call Right............................................................................... 38
SECTION 14.6 Transferee Rights........................................................................ 39
SECTION 14.7 Effective Date........................................................................... 40
SECTION 14.8 Secured Party............................................................................ 40
ARTICLE XV
General Provisions.............................................. 40
SECTION 15.1 Waiver of Dissolution Rights............................................................. 40
SECTION 15.2 Waiver of Partition Right................................................................ 40
SECTION 15.3 Waivers Generally........................................................................ 40
SECTION 15.4 Equitable Relief......................................................................... 41
SECTION 15.5 Remedies for Breach...................................................................... 41
SECTION 15.6 Costs.................................................................................... 41
SECTION 15.7 Counterparts............................................................................. 41
SECTION 15.8 Notice................................................................................... 41
SECTION 15.9 Date of Performance...................................................................... 42
SECTION 15.10 Limited Liability....................................................................... 42
SECTION 15.11 Partial Invalidity...................................................................... 42
SECTION 15.12 Entire Agreement........................................................................ 42
SECTION 15.14 Benefit................................................................................. 43
SECTION 15.15 Binding Effect.......................................................................... 43
SECTION 15.16 Further Assurances...................................................................... 43
SECTION 15.17 Headings................................................................................ 43
SECTION 15.18 Terms................................................................................... 43
SECTION 15.19 Conversion.............................................................................. 43
SECTION 15.20 Governing Law; Consent to Jurisdiction.................................................. 44
iii
</TABLE>
<PAGE>
SIEBERT, BRANDFORD, SHANK & CO., LLC
OPERATING AGREEMENT
This Operating Agreement (the "Agreement"), dated as of March 10, 1997, is
entered into by and among Siebert, Brandford, Shank & Co., LLC, a Delaware
limited liability company (the "Company"), Muriel Siebert & Co., Inc., a
Delaware corporation ("Siebert"), Napoleon Brandford III, an individual having
an address as set forth in Schedule I attached hereto ("Brandford"), and Suzanne
F. Shank, an individual having an address as set forth on Schedule I attached
hereto ("Shank").
WHEREAS, the Persons signing this Agreement desire to establish their
respective rights and obligations pursuant to the Delaware Limited Liability
Company Act in connection with forming and operating the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Persons signing this Agreement below
agree as follows:
ARTICLE I
Definitions
SECTION 1.1 Definitions. In this Agreement, the following terms shall have
the meanings set forth below:
(a) "Act" means the Delaware Limited Liability Company Act, as amended
from time to time including any amendatory or successor provisions thereto.
(b) "Adjusted Capital Account" means, with respect to any Member, the
balance in such Member's Capital Account as of the end of the relevant Fiscal
Year, after giving effect to the following adjustments:
(i) such Capital Account shall be deemed to be increased by any
amounts that such Member is obligated to restore to the Company (pursuant to
this Agreement or otherwise) or is deemed to be obligated to restore pursuant to
(A) the penultimate sentence of section 1.704-2(g)(1) of the Regulations, or (B)
the penultimate sentence of section 1.704-2(i)(5) of the Regulations; and
(ii) such Capital Account shall be deemed to be decreased by the
items described in sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the
Regulations.
The foregoing definition of Adjusted Capital Account is intended to comply
with the provisions of section 1.704-1(b)(2)(ii)(d) of the Regulations and shall
be interpreted and applied consistently therewith.
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(c) "Affiliate" of a party means any entity which directly or
indirectly controls, is controlled by or is under the common control with such
party. The term "control", with respect to an entity, means the power to direct
the affairs of such entity by reason of ownership of equity securities,
contract, or otherwise.
(d) "Available Cash" means, with respect to any fiscal quarter, all
cash receipts of the Company from any source (excluding Capital Contributions)
during such quarter plus cash available from any reduction in the amount of any
reserves of the Company during such quarter less the sum of the following to the
extent made from such cash receipts or reserves:
(i) all cash expenditures of the Company made during such quarter
(except Distributions), including expenses and costs incurred in the
acquisition, ownership, or management of the Company's property including
amounts paid for office space as well as salary and bonuses; and
(ii) funds set aside by the Board of Managers as reasonable
reserves for contingencies, working capital, debt service, taxes, insurance or
other costs or expenses incident to the conduct of the Company's business in the
next succeeding fiscal quarter.
(e) "Bankruptcy" shall have the meaning ascribed to it in Section
12.3.
(f) "Board of Managers" shall mean a committee of Managers comprised
in accordance with this Agreement and having the powers set forth herein.
(g) "Book Value" means, with respect to any asset of the Company, the
adjusted basis of such asset as of the relevant date for federal income tax
purposes; provided, however, that (1) the initial Book Value of any asset
contributed by a Member to the Company shall be such asset's Fair Market Value
on the date of contribution; (2) the Book Value of all Company assets shall be
adjusted in accordance with Regulations sections 1.704- 1(b)(2)(iv)(d) and (f);
and (3) if the Book Value of the Company's assets is adjusted as provided in (1)
and (2) above, the Members' Capital Accounts shall be adjusted in accordance
with Regulations section 1.704-1(b)(2)(iv)(g) for allocations to the Members of
Depreciation and gain or loss with respect to such property. This definition is
intended to comply with the provisions of Section 1.704-1(b)(2)(iv) of the
Regulations and shall be interpreted and applied consistently therewith.
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(h) "Business Day" means any day other than Saturday or Sunday and any
other day on which banks in Wilmington, Delaware or New York, New York are not
open for business.
(i) "Capital Account" shall have the meaning ascribed to such
term in Section 8.1.
(j) "Capital Contribution" means the amount of cash and the Fair
Market Value of property (net of liabilities secured by such property that the
Company is considered to assume or take subject to under Code section 752)
contributed to the capital of the Company by a Member and any Company
liabilities assumed by a Member within the meaning of Regulations section 1.704-
1(b)(2)(iv)(c). The contributions made to the capital of the Company by the
Members as of the date hereof are set forth in Schedule I.
(k) "Certificate of Formation" means the Certificate of Formation of
the Company filed or to be filed with the Office of the Secretary of State of
the State of Delaware, as the same may from time to time be amended.
(l) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any superseding federal revenue statute.
(m) "Combined Marginal Rate" means, for any Fiscal Year, the sum of
(i) the highest marginal federal income tax rate assessable for such year on the
ordinary income of individual taxpayers and (ii) the highest combined marginal
state and local income tax rate assessable for such year on the ordinary income
of individual taxpayers among the various states and localities in which holders
of Units shall be required to file income tax returns after giving effect to the
federal income tax benefit derived from such state and local taxes based on the
rate determined in the preceding clause (i), as certified to the Company by the
Members on or before April 1 of the immediately succeeding Fiscal Year.
(n) "Company" shall have the meaning set forth in the preamble of this
Agreement.
(o) "Company Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Nonrecourse Liability of the Company,
that would be realized by the Company if it disposed of the Company property
subject to such liability in a taxable transaction in full satisfaction thereof
(and for no other consideration) and by aggregating the amounts so computed,
determined in accordance with sections 1.704-2(d) and (k) of the Regulations.
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(p) "Depreciation" means, for each Fiscal Year or part thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Fiscal Year or part thereof, except that if the Book Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of such
Fiscal Year, the depreciation, amortization or other cost recovery deduction for
such Fiscal Year or part thereof shall be an amount which bears the same ratio
to such Book Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such Fiscal Year or part thereof bears to such
adjusted tax basis.
(q) "Disability" means, with respect to Brandford, Shank, or any other
Member who is also an employee or officer of the Company, the incapacity of such
Member due to physical or mental illness or injury to perform adequately his or
her duties under his or her employment arrangement with the Company for one
hundred twenty (120) days in any twelve (12) month period; provided, however,
that for purposes of this definition, pregnancy shall not be considered a
"Disability" and neither maternity leave nor time spent working productively
from home shall be counted as part of any one hundred twenty (120) day period
provided herein.
(r) "Distribution" means any money and the Fair Market Value of any
property (net of liabilities secured by such property that the Member is deemed
to assume or take pursuant to Section 752 of the Code) distributed by the
Company to the Members in accordance with this Agreement.
(s) "Dissolution" means the happening of any of the events set forth
in Section 12.1.
(t) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(u) "Event of Withdrawal" means, with respect to any Member the
occurrence of such Member's death, insanity, Bankruptcy, retirement,
resignation, expulsion, adjudication of incompetency, or any other event that
terminates the continued membership of such Person in the Company by operation
of law (including the dissolution of any Member that is not an individual).
(v) "Exchange Act Rule" means a rule promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
(w) "Fair Market Value" means, with respect to any property, the value
that would be obtained in an arm's length transaction for ownership of such
property for cash between an informed and willing seller and an informed and
willing purchaser, each with an adequate understanding of the facts and under no
compulsion to buy or sell.
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(x) "Fiscal Year" means the fiscal year of the Company, which shall be
each year ending December 31.
(y) "Liquidation" means the process of winding up the Company after
its Dissolution.
(z) "Manager" shall have the meaning set forth in Section 5.1.
(aa) "Member" means each Person who or which executes a counterpart of
this Agreement and is admitted to the Company as a Member in accordance with
this Agreement.
(ab) "Member Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Member Nonrecourse Debt, that would be
realized by the Company if it disposed of the Company property subject to such
Member Nonrecourse Debt in a taxable transaction in full satisfaction thereof
(and for no other consideration), determined in accordance with the provisions
of sections 1.704-2(i)(3) and (k) of the Regulations for determining such
Member's share of minimum gain attributable to a Member Nonrecourse Debt.
(ac) "Member Nonrecourse Debt" has the meaning specified for "partner
nonrecourse debt" in section 1.704-2(b)(4) of the Regulations.
(y) "Member Nonrecourse Deductions" has the meaning ascribed to the
term "partner nonrecourse deductions" in section 1.704-2(i)(2) of the
Regulations.
(ad) "Net Losses" means, with respect to any Fiscal Year, or part
thereof, of the Company, the net losses of the Company for such period computed
using Book Values and applying the methods and principles of accounting used for
federal income tax purposes, including, as appropriate, each item of income,
gain, loss, deduction or credit entering into such determination, as determined
by the accountants of the Company. The determination of Net Losses shall take
into account all items of income and deduction including income exempt from
taxation and related deductions.
(ae) "Net Profits" means, with respect to any Fiscal Year, or part
thereof, of the Company, the net profits of the Company for such period computed
using Book Values and applying the methods and principles of accounting used for
federal income tax purposes, including, as appropriate, each item of income,
gain, loss, deduction or credit entering into such determination, as determined
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by the accountants of the Company. The determination of Net Profits shall take
into account all items of income and deduction including income exempt from
taxation and related deductions.
(af) "Nonrecourse Liability" means any Company liability (or portion
thereof) for which no Member bears the economic risk of loss for such liability
under section 1.752-2 of the Regulations.
(ag) "Person" means any individual, corporation, governmental
authority, limited liability company, partnership, trust, estate, unincorporated
association, or other entity.
(ah) "Pre-Formation Expenses" shall mean any expenses, budgeted or
unbudgeted, incurred directly or indirectly by Siebert in excess of revenues
received by Siebert prior to the formation of the Company with respect to the
business of the Company including, without limitation, payroll, payroll tax,
employment insurance, commissions, rent, telephone, quotes, travel and
entertainment, postage, printing, office supplies, dues, donations and the like
from and after October 1, 1996 through the date hereof. Such expenses for the
period from October 1, 1996 through the most recent available date are set forth
on Annex B hereto. Any such expenses from and after such date shall be submitted
to Brandford and Shank for their review and approval.
(ai) "Proportionate Share" shall mean the percentage of the total
number of Units that a Member is entitled to purchase pursuant to an option or
right set forth in this Agreement equal to the number of Units then owned by a
Member divided by the aggregate number of Units then owned by such Member and
all other Members who are entitled to participate in such option or right.
(aj) "Regulations" means all proposed, temporary and final regulations
promulgated and in effect under the Code, as the same may be amended from time
to time.
(ak) "Regulatory Allocations" shall have the meaning set forth in
Section 9.4(a)(vi).
(al) "ss.704(b) Regulations" shall have the meaning ascribed to such
term in Section 8.1.
(am) "Tax Matters Partner" shall have the meaning ascribed to such
term in Section 7.5.
(an) "Transfer" means a sale, exchange, assignment, transfer, pledge,
hypothecation or other disposition of a Unit, or portion thereof, (whether
voluntary or involuntary) other than by operation of law or to an immediate
family member of a Member who is alive as of the date hereof.
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(ao) "Unit" means an interest in the Company having the rights and
characteristics set forth herein.
ARTICLE II
Organization
SECTION 2.1 Formation. An organizer shall form the Company as a limited
liability company by preparing, executing and filing with the Secretary of State
of Delaware the Certificate of Formation pursuant to Section 18-201 of the Act.
SECTION 2.2 Name. The name of the Company is Siebert, Brandford, Shank &
Co., LLC.
SECTION 2.3 Principal Place of Business. The principal place of business of
the Company shall be 885 Third Avenue, New York, New York, or such other
location as the Board of Managers may, from time to time, select, provided that
no such changes of location shall be made without giving at least fifteen (15)
days prior written notice thereof to the Members.
SECTION 2.4 Term. The Company shall continue in existence from the date of
filing of the Certificate of Formation through the twentieth (20th) anniversary
of the date thereof, unless the Company is dissolved sooner pursuant to this
Agreement or the Act; provided, however, that the Board of Managers shall in its
sole discretion have the right to extend the term of the Company for a period of
up to three (3) years.
SECTION 2.5 Purposes and Powers. The purpose of the Company shall initially
be to provide investment banking, sales and trading and financial advisory
services to clients across the country focusing on municipal finance; and
thereafter to conduct such other lawful activities as the Members may agree from
time to time. In connection therewith, the Company shall have all the powers
permitted to a limited liability company under the Act or which are necessary,
convenient or advisable and lawful in order for it to conduct its business.
SECTION 2.6 Title to Property. Title to, and all right and interest in, the
Company's assets shall be acquired in the name of and held by the Company, or,
if acquired in any other name, be held for the benefit of the Company.
SECTION 2.7 Certificates of Interest. Every holder of record of a Unit
shall be entitled to have a certificate certifying the number of Units owned by
such Person in the Company. Each certificate evidencing ownership of Units shall
bear and be subject to the following legend:
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"THE UNITS EVIDENCED HEREBY ARE SUBJECT TO AN OPERATING
AGREEMENT DATED AS OF MARCH 10, 1997 (A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER). SUCH OPERATING AGREEMENT RESTRICTS
THE SALE, PLEDGE, HYPOTHECATION AND TRANSFER OF THE UNITS AND
THE INTEREST REPRESENTED HEREBY AND CONTAINS PROVISIONS
GOVERNING THE VOTING OF THE UNITS. BY ACCEPTING ANY INTEREST
IN SUCH UNITS, THE PERSON ACCEPTING SUCH UNITS SHALL BE DEEMED
TO AGREE TO, AND SHALL BECOME BOUND BY, ALL THE PROVISIONS OF
SUCH OPERATING AGREEMENT.
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE UNITS EVIDENCED BY THIS CERTIFICATE MAY BE
MADE EXCEPT AS OTHERWISE PROVIDED IN SUCH OPERATING AGREEMENT
AND (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), ANY
APPLICABLE STATE SECURITIES AND "BLUE SKY" LAWS OR (B) IF NOT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, THEN ONLY
WHEN THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER,
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND SUCH STATE
SECURITIES AND "BLUE SKY" LAWS."
Each such certificate shall be signed by, or in the name of the Company by, the
Chairperson, President, or a Vice President, and the Treasurer, or Secretary of
the Company. In case any officer who has signed or whose facsimile signature has
been placed upon a certificate while such officer was an officer of the Company
but such officer shall have ceased to be an officer before such certificate is
issued, it may nevertheless be issued by the Company with the same effect as if
such individual were an officer at the date of issue.
SECTION 2.8 General Rights. Units shall not have a stated value or any
rights to Distributions unless the Board of Managers, pursuant to the terms
hereof, shall have declared such a Distribution out of funds legally available
therefor. Except as expressly provided herein, no Member holding any class of
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Units shall have priority over any other Member holding any other class of
Units, and in no event shall any Member holding any class of Units have priority
over any other Member holding that same class of Units, whether for the return
of a Capital Contribution or for Net Profits, Net Losses or a Distribution;
provided, however, that the foregoing shall not apply to loans, advances or
other indebtedness (as distinguished from a Capital Contribution) made by a
Member to the Company.
SECTION 2.9 General Protective Provisions. Notwithstanding anything else to
the contrary contained herein, the Company shall not, without first obtaining
the approval of those Members holding of record at least a two-thirds of all of
the votes permitted hereunder:
(a) cause or permit the sale of all or substantially all of the
Company's assets;
(b) cause or permit the merger or consolidation of the Company into or
with another Person;
(c) cause or permit the conversion of the Company into another form of
business entity; or
(d) cause or permit to be undertaken by the Company any other material
transactions or other activities not in the ordinary course of the Company's
business.
ARTICLE III
Members
SECTION 3.1 Names and Addresses. The names and addresses of the Members are
as set forth in Schedule I to this Agreement.
SECTION 3.2 Initial Contributions. Each of the Members has agreed to make a
contribution to the Company in the amount set forth opposite such Member's name
on Schedule I hereto in exchange for the number of Units also set forth opposite
such Member's name on Schedule I hereto.
SECTION 3.3 Additional Contributions. Except as provided in the Act and
Section 3.2 hereof, no Member will be required to make any additional Capital
Contributions or restore any deficit to its Capital Account.
SECTION 3.4 Withdrawal of Capital. Except as specifically provided in this
Agreement, no Member will be entitled to withdraw all or any part of such
Person's Capital Account from the Company prior to the Company's Dissolution and
Liquidation or to demand a Distribution of property or money.
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SECTION 3.5 No Interest on Capital. No Member will be entitled to receive
interest on such Person's Capital Account or any Capital Contribution.
SECTION 3.6 Admission of Members. A Person may be admitted as a Member
after the date of this Agreement only upon the unanimous consent of the Board of
Managers.
SECTION 3.7 Resignation of Member. No Member may be permitted to resign
without the consent of the Board of Managers.
SECTION 3.8 Outside Business. Any Manager or any Member may engage in or
possess an interest in other business ventures of any nature or description,
independently or with others, except business ventures which are competitive
with the business of the Company or which detracts from such Manager's or
Member's handling of the Company's business. The Company and the Members shall
have no rights by virtue of this Agreement in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture
shall not be deemed wrongful or improper.
SECTION 3.9 Representation and Warranties. Each Member, hereby represents
and warrants to the Company and each other Member that: (a) if that Member is an
organization, that it is duly organized, validly existing, and in good standing
under the law of its state of organization and that it has full organizational
power to execute and agree to this Agreement and to perform its obligations
hereunder; (b) that the Member is acquiring its Units for the Member's own
account as an investment and without an intent to distribute the Units; (c) the
Member acknowledges that the Units have not been registered under the Securities
Act of 1933, as amended, or any state securities laws, and may not be resold or
transferred by the Member without appropriate registration or the availability
of an exemption from such requirements.
SECTION 3.10 Power of Attorney. (a) Each Member hereby appoints the Board
of Managers, and any officer duly appointed thereby, acting individually, with
power of substitution, as its true and lawful representative and
attorney-in-fact, in its name, place and stead to make, execute, sign,
acknowledge, swear to and file: (i) any and all instruments, certificates, and
other documents that may be deemed necessary or desirable to effect the
Dissolution or Liquidation of the Company, provided that such action has been
approved in accordance with this Agreement; (ii) any business certificate,
fictitious name certificate, or amendment thereto, or required by any applicable
federal, state or local law; and (iii) all amendments or modifications to this
Agreement, provided that such amendment or modification has been approved in
accordance with Section 15.13.
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(b) The power of attorney hereby granted by each Member is coupled
with an interest, is irrevocable, and shall survive, and shall not be affected
by, the subsequent death, disability, incapacity, incompetency, termination,
Bankruptcy or insolvency of such Member.
ARTICLE IV
Meetings of Members
SECTION 4.1 Annual Meeting. A meeting of the Members shall be held annually
for the transaction of business as may properly come before the Members at such
meeting. The annual meeting of the Members shall be held on the third Tuesday in
March or at such other time as shall be determined by the vote or written
consent of the Board of Managers and the Members holding a majority of the votes
permitted hereunder, except that no annual meeting need be held if all actions
required by this Agreement to be taken at an annual meeting of Members are taken
by written consent in lieu of a meeting pursuant to Section 4.10.
SECTION 4.2 Special Meetings. Special meetings of the Members, for any
purpose, may be called by any Member or Members holding not less than twenty
five percent (25%) of the votes permitted hereunder, or by the Board of
Managers.
SECTION 4.3 Place of Meetings. Meetings of the Members may be held at any
place, within or outside the State of Delaware. If no such designation is made,
the place of any such meeting shall be the principal office of the Company.
SECTION 4.4 Notice of Meetings. Written notice stating the place, day and
time of the meeting, the purpose or purposes for which the meeting is called,
and by whom the meeting was called, shall be delivered no fewer than ten (10) or
more than sixty (60) days before the date of the meeting.
SECTION 4.5 Record Date. For the purpose of determining the Members
entitled to notice of or to vote at any meeting of Members or any adjournment of
such meeting, or Members entitled to receive payment of any Distribution, or to
make a determination of Members for any other purpose, the date five (5) days
prior to the date on which notice of the meeting is mailed or the date on which
the resolution declaring the Distribution is adopted or the date of
determination of Members for any other purpose, as the case may be, shall be the
record date for making such a determination. When a determination of Members
entitled to vote at any meeting of Members has been made pursuant to this
Section 4.5, the determination shall apply to any adjournment of the meeting.
For the purpose of determining the Members for any other purpose (excluding
entitlement to Distributions which shall be governed by the provision contained
in Section 10.1), the date established by the Board of Managers as the record
date for making such determination shall be deemed to be the record date for
making such a determination.
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SECTION 4.6 Waiver of Notice. Notice of a meeting need not be given to any
Member who submits a signed waiver of notice, in person or by proxy, whether
before or after the meeting. The attendance of any Member at a meeting, in
person or by proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting, shall constitute a waiver of notice by him
or her.
SECTION 4.7 Number of Votes. With respect to all matters requiring their
vote, each Member shall be entitled to one vote in person or by proxy for each
one Unit such Member holds.
SECTION 4.8 Quorum. At each meeting of the Members, except as otherwise
required by the Act, Members holding not less than a majority of all of the
votes permitted hereunder, represented in person or by proxy, shall constitute a
quorum for the transaction of business. In the absence of a quorum at any
meeting of Members, Members holding a majority of the votes so represented may
adjourn the meeting for a period not to exceed ten (10) days without further
notice. If the adjournment is for more than ten (10) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each Member of record entitled to vote
at such meeting. At a rescheduled meeting at which a quorum shall be present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed. The Members present at a meeting may continue
to transact business until adjournment, notwithstanding the withdrawal during
the meeting of a Person or Persons holding votes whose absence results in less
than a quorum being present.
SECTION 4.9 Manner of Acting. If a quorum is present at any meeting, the
vote or written consent of Members holding not less than a majority of the votes
permitted hereunder shall be the act of the Members, unless the vote of a
greater or lesser proportion or number is otherwise required by the Act, the
Certificate of Formation or this Agreement.
SECTION 4.10 Action by Members Without a Meeting. Any action required or
permitted to be taken at any annual or special meeting of the Members may be
taken without a meeting, without prior notice and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
Members who hold of record the minimum number of votes that would be necessary
to authorize or to take such action at a meeting at which all the Members
entitled to vote thereon were present and voted and shall be delivered to the
officer or individual of the Company who shall have charge of its records.
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Every consent must be signed and dated by the Member or the Member's
attorney-in-fact. Any consent given under a power-of- attorney shall be
presented together with the executed, dated and notarized document granting such
power upon the Person claiming the same. No consent shall be valid after the
expiration of thirty (30) days from the date thereof. Every consent shall be
revocable at the pleasure of the Member executing it. In the event of
conflicting consents, the later dated consent shall govern.
SECTION 4.11 Action by Communication Equipment. The Members may participate
in a meeting of Members by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear or otherwise interactively communicate with each other, and
such participation shall constitute presence in person at such meeting.
ARTICLE V
Board of Managers
SECTION 5.1 General Powers. (a) Subject to the rights expressly granted to
the Members under this Agreement, the Board of Managers and the authorized
officers of the Company appointed by the Board of Managers shall have the
exclusive authority and responsibility to manage the business of the Company.
(b) The members of the Board of Managers (the "Managers") shall be
"managers" within the meaning of the Act. Except as set forth in this Agreement,
the Board of Managers shall have power and authority, on behalf of the Company,
to take any and all lawful acts that the Board of Managers considers necessary,
advisable, or in the best interests of the Company in connection with any
business of the Company, including, without limitation: (i) to authorize the
purchase, lease or other acquisition, or the sale, lease or other disposition,
of any property; (ii) to open, maintain and close bank accounts, draw checks or
other orders for the payment of moneys and invest the funds of the Company;
(iii) to authorize the purchase of insurance on the business and assets of the
Company; (iv) to commence lawsuits and other proceedings; (v) to authorize the
Company to enter into any agreement, instrument or other writing; (vi) to retain
accountants, attorneys, consultants, appraisers or other agents or advisors;
(vii) to appoint and remove officers of the Company; and (viii) to hire
employees and establish base salaries and award discretionary bonuses with the
recommendation of Brandford and Shank.
SECTION 5.2 Binding Authority. Unless specifically authorized to do so by
this Agreement, no Member or other Person shall have any power or authority to
bind the Company, unless such Member or other Person has been authorized by the
Board of Managers to act on behalf of the Company.
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SECTION 5.3 Number and Term of Office. The number of Managers constituting
the Board of Managers shall be three (3). Each of Brandford and Shank shall be a
Manager as well as one person designated by Siebert who initially shall be
Muriel F. Siebert. Such persons shall hold offices until their successors shall
have been appointed and shall have qualified.
SECTION 5.4 Resignation and Vacancies. (a) Any Manager may resign at any
time by giving written notice of his resignation to the Chairperson, the
President, or the Secretary of the Company. Any such resignation shall take
effect at the time specified therein, or, if the time when it shall become
effective shall not be specified therein, when accepted by action of the Board
of Managers. Except as aforesaid, the acceptance of such resignation shall not
be necessary to make it effective.
(b) Any vacancy which shall occur on the Board of Managers, whether by
resignation, death, or otherwise, shall be filled by a designee of the Member
whose seat is being vacated.
SECTION 5.5 Meetings.
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(a) Annual Meetings. As soon as practicable after each annual meeting
of Members, the Board of Managers shall meet for the purpose of organization and
the transaction of other business.
(b) Regular Meetings. Regular meetings of the Board of Managers shall
be held at such times as the Board of Managers shall from time to time
determine.
(c) Special Meetings. Special meetings of the Board of Managers shall
be held whenever called by the Chairperson, the President or any Manager at the
time in office. Any and all business may be transacted at a special meeting that
may be transacted at a regular meeting of the Board of Managers.
(d) Place of Meeting. The Board of Managers may hold its meetings at
such place or places within or without the State of Delaware as the Board of
Managers may from time to time by resolution determine or as shall be designated
in the respective notices or waivers of notice thereof.
(e) Notice of Meetings. Notice of any regular, special, or adjourned
meeting of the Board of Managers shall be mailed by the Secretary or an
Assistant Secretary of the Company to each Manager, addressed to such Person at
such Person's residence or usual place of business, so as to be received at
least two (2) calendar days before the day on which such meeting is to be held,
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or shall be sent to such Person by telecopy, telegraph, cable or other form of
recorded communication or be delivered personally not later than the close of
business one (1) calendar day before the day on which such meeting is to be
held. Such notice shall include the time and place of such meeting. However,
notice of any such meeting need not be given to any Manager if waived in writing
or by telecopy, telegraph, cable or other form of recorded communication,
whether before or after such meeting shall be held or if such Person shall be
present at such meeting.
(f) Quorum and Manner of Acting. Except as otherwise provided by law
or this Agreement, at least two-thirds (2/3) of the total number of Managers
shall be present at any meeting of the Board of Managers in order to constitute
a quorum for the transaction of business at such meeting. In the absence of a
quorum for any such meeting, the Manager present thereat shall adjourn such
meeting from time to time until a quorum shall be present thereat. Each Manager
shall, with respect to all matters requiring a vote of the Board of Managers, be
entitled to one vote. At all meetings of the Board of Managers, all matters,
except as otherwise provided by law or in this Agreement, shall be decided by
the vote of a majority of the entire Board of Managers.
(g) Action by Communication Equipment. The Managers may participate in
a meeting of the Board of Managers and members of a committee of the Board of
Managers may participate in a meeting of such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
(h) Action by Consent. Any action required or permitted to be taken by
the Managers or members of a committee of the Board of Managers, as the case may
be, may be taken without a meeting if the number of Managers that would be
necessary to authorize or take such action at a meeting of the Board of
Managers, or the number of members of a committee that would be necessary to
authorize or take such action at a meeting of the committee, as the case may be,
consent thereto in writing and such writing is filed with the minutes of the
proceedings of the Board of Managers or of the committee, as the case may be.
(i) Organization. At each meeting of the Board of Managers, in the
absence of the Chairperson, one of the following shall act as chairman of the
meeting and preside thereat, in the following order of precedence: (i) the
President, and (ii) any Manager chosen by a majority of the Managers present.
The Secretary or, in case of the Secretary's absence, any person (who shall be
an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom
the Chairperson shall appoint, shall act as secretary of such meeting and keep
the minutes thereof.
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SECTION 5.6 Compensation; Expenses. (a) Managers, as such, shall not
receive any stated salary for their services, but by resolution of the Board of
Managers may receive a fixed sum for expenses incurred in performing the
functions of Manager, and such additional, reasonable compensation as the Board
of Managers may award from time to time. Nothing herein contained shall be
construed so as to preclude any Manager from serving the Company in any other
capacity and receiving compensation therefor.
(b) The Company shall be responsible for paying, and the Board of
Managers shall pay directly out of Company funds, all ordinary and necessary
costs and expenses incurred in connection with the business of the Company,
including, without limitation, any such expenses incurred by the Managers,
liability and other insurance premiums, expenses in the preparation of reports
to the Members and legal, accounting and other professional fees and expenses.
SECTION 5.7 Fiduciary Duty. Each Manager shall perform his duties as a
Manager in good faith and with that degree of care that an ordinarily prudent
person in a like position would use under similar circumstances. In performing
his duties, each Manager shall be entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by: (i) one or more agents or employees of
the Company; (ii) counsel, public accountants or other persons as to matters
that such Manager reasonably believes to be within such person's professional or
expert competence; or (iii) any other Manager duly designated in accordance with
this Agreement, as to matters within his designated authority, which the Manager
believes to merit confidence, so long as in so relying he shall be acting in
good faith and with such degree of care that an ordinarily prudent person in a
like position would use under similar circumstances; provided, however, that a
Manager shall not be considered to be acting in good faith if he has knowledge
concerning the matter in question that would cause reliance on any of the
Persons listed above to be unwarranted. The provisions of this Agreement, to the
extent they restrict the duties and liabilities of a Manager otherwise existing
at law or in equity, are agreed by the parties hereto to replace such other
duties and liabilities of such Manager.
SECTION 5.8 Certain Matters Requiring Approval. Notwithstanding anything to
the contrary contained herein, the Managers may not take or approve any of the
following actions, and none of the following matters may be acted upon,
authorized or caused to occur by the Managers, unless all of the Managers (or
their designated deputies who are reasonably acceptable to the other Managers
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which initially, in the case of Ms. Siebert, shall be Nicholas P. Dermigny and
T.K. Flatley and, in the case of Mr. Brandford, shall be V. McCanley and, in the
case of Ms. Shank, shall be D. Thompson) agree to any such action or to act on
any such matter:
(a) the admission of additional Members;
(b) the making of calls by the Managers for capital contributions;
(c) the making of any capital expenditure or the purchase of any
capital asset (except in accordance with the business plan);
(d) the determination of any plan for winding up the business and
affairs of the Company or liquidating the assets of the Company after
dissolution;
(e) the approval of the sale of all or substantially all of the assets
of the Company;
(f) amendment of this Agreement or the Articles of Formation of the
Company;
(g) the sale, lease, exchange, mortgage, assignment, pledge or other
transfer of, or guarantee of a security interest in, all or
substantially all of the Company's property and assets except in the
liquidation and winding up of the business of the Company upon its
termination or dissolution;
(h) the approval of the annual business plan of the Company or any
deviation from the budget for the 1996- 1997 fiscal year as set forth
in Annex A hereto;
(i) any contract, agreement or undertaking between the Company and any
of its Members or Managers or any material contract with any third
party other than contracts for municipal bond underwritings which are
in accordance with the Company's written guidelines with respect
thereto;
(j) any amendments to or changes in the Company's written guidelines
with respect to municipal bond underwritings;
(k) the entry of the Company into any new lines of business or any
other material transactions or other activities not in the ordinary
course of the Company's business;
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(l) the filing by the Company of a petition in bankruptcy or the
taking of any other action by the Company in relief from creditors or
under any bankruptcy or insolvency law; and
(m) the merger or consolidation of the Company with or into any other
Person, the dissolution of the Company or the conversion of the
Company into another form of business entity.
ARTICLE VI
Chairpersons and Officers
SECTION 6.1 Chairperson and Vice Chairperson. (a) The Chairperson shall be
the Chairperson of the Board of Managers and the Chairperson shall preside at
all meetings of the Members and at all meetings of the Board of Managers and
shall perform such other duties and exercise such other powers as may from time
to time be prescribed by the Board of Managers. At each annual meeting of the
Board of Managers at which a quorum is present, the Manager or an individual
designated by a Manager receiving the greatest number of votes shall be
Chairperson until his successor is elected at the next annual Board of Managers
meeting or until his resignation or removal in accordance with Section 5.3
hereof in which event his replacement shall become Chairperson for the remainder
of his term. Napoleon Brandford III initially shall serve as the Chairperson.
(b) The Vice Chairperson shall be the Vice Chairperson the Board of
Managers and the Vice Chairperson, in the absence of the Chairperson, shall
preside at all meetings of the Members and at all meetings of the Board of
Managers and shall perform such other duties and exercise such other powers as
may from time to time be prescribed by the Board of Managers. At each annual
meeting of the Board of Managers at which a quorum is present, the Manager or an
individual designated by a Manager receiving the greatest number of votes shall
be Vice Chairperson until his successor is elected at the next annual Board of
Managers meeting or until his resignation or removal in accordance with Section
5.3 hereof in which event his replacement shall become Vice Chairperson for the
remainder of his term. Suzanne F. Shank initially shall serve as the
Chairperson.
SECTION 6.2 Election, Appointment and Term of Office.
-----------------------------------------
(a) The officers of the Company shall be a President, Treasurer and
Secretary who shall be chosen by and hold office at the pleasure of the Board of
Managers. Any two (2) or more offices may be held by the same person. Each
officer shall hold office until the next annual meeting of the Board of Managers
and until his successor is appointed or until his earlier death, or his earlier
resignation or removal in the manner hereinafter provided. Suzanne F. Shank
initially shall serve as the President.
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(b) The Board of Managers may appoint such other officers as it deems
necessary, including one or more Vice Presidents, Assistant Vice Presidents,
Assistant Treasurers and Assistant Secretaries. Each such officer shall have
such authority and shall perform such duties as may be provided herein or as the
Board of Managers may prescribe.
(c) If additional officers are elected or appointed during the year,
each of them shall hold office until the next annual meeting of the Board of
Managers and until his successor is appointed or until his earlier death,
resignation or removal.
SECTION 6.3 Resignation, Removal and Vacancies.
-----------------------------------
(a) Any officer may resign at any time by giving written notice to the
Chairperson, the President or the Secretary of the Company, and such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, when accepted by action of the
Board of Managers. Except as aforesaid, the acceptance of such resignation shall
not be necessary to make it effective.
(b) All officers and agents elected or appointed by the Board of
Managers shall be subject to removal at any time by the Board of Managers, with
or without cause.
(c) A vacancy in any office may be filled for the unexpired portion of
the term in the same manner as provided for election or appointment to such
office.
SECTION 6.4 Duties and Functions.
---------------------
(a) President. The President shall be the chief executive officer of
the Company and shall have the supervision and control over, and responsibility
for, the day-to-day management of the operations of the Company, subject to the
general policy directions of the Chairperson and the Board of Managers, and
shall see that all orders and resolutions of the Board of Managers are carried
out and put into effect.
(b) Treasurer. The Treasurer shall keep and maintain, or cause to be
kept and maintained, adequate and correct accounts of the properties and
business transactions of the Company, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and Units.
The Treasurer shall disburse the funds of the Company as may be ordered by the
Chairperson, the Board of Managers or the President, taking proper vouchers for
such disbursements and shall render to the Chairperson, the Board of Managers
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and the President, whenever they shall so request, an account of all of his
transactions as Treasurer and of the financial condition of the Company.
(c) Secretary. The Secretary shall give or cause to be given notice of
all meetings of the Board of Managers and the Members and keep the records of
all meetings of the Board of Managers and the Members. The Secretary shall be
custodian of all contracts, deeds, documents and all other indicia of title to
properties owned by the Company and of its other records and in general shall
have all powers incident to the office of Secretary and perform such duties as
may be prescribed by the Board of Managers or the President, under whose
supervision he shall be.
SECTION 6.5 Committees of Managers. The Board of Managers may, by
resolution or resolutions passed by a majority of the whole Board, designate one
or more committees, each committee to consist of one or more of the Managers of
the Company.
Except as herein provided, vacancies in membership of any committee
shall be filled by the vote of a majority of the whole Board of Managers. The
Board of Managers may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of any member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Managers to act at the
meeting in the place of any such absent or disqualified member. Members of a
committee shall hold office for such period as may be fixed by a resolution
adopted by a majority of the whole Board of Managers, subject, however, to
removal at any time by the vote of a majority of the whole Board of Managers.
SECTION 6.6 Powers and Duties of Committees. Any committee, to the extent
provided in the resolution or resolutions creating such committee, shall have
and may exercise the powers of the Board of Managers in the management of the
business and affairs of the Company and may authorize the seal of the Company to
be affixed to all papers which may require it. No such committee shall have the
power or authority with regard to amending the Certificate of Formation,
adopting an agreement of merger or consolidation, recommending to the Members
the sale, lease or exchange of all or substantially all of the Company's
property and assets, recommending to the Members a dissolution of the Company or
a revocation of a dissolution or amending this Agreement.
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ARTICLE VII
Books and Records; Right of Inspection; Tax Matters
SECTION 7.1 Books and Records. The Company will keep accurate books and
records relating to transactions with respect to the assets of the Company based
on Book Values using federal income tax accounting principles. The Company will
also keep the following books and records at the Company's principal office: (i)
a current list of the full name and last known business, residence or mailing
address of each Member, (ii) a copy of the Certificate of Formation and of this
Agreement, (as well as any signed powers of attorney pursuant to which any such
document was executed); (iii) a copy of the Company's federal, state and local
income tax returns and reports, and annual financial statements of the Company,
for all Fiscal Years; and (iv) minutes, or minutes of action (or written consent
without a meeting), of every meeting of the Members or the Board of Managers.
SECTION 7.2 Information. Each Member has the right upon reasonable notice
to obtain from the Company: (i) a current list of the full name and last known
business, residence or mailing address of each Member; (ii) a copy of the
Certificate of Formation and of this Agreement (as well as any signed powers of
attorney pursuant to which any such document was executed); (iii) a copy of the
Company's federal, state and local income tax returns and reports, and annual
financial statements of the Company, for all Fiscal Years; (iv) minutes (or
written consents without a meeting) of every meeting (or action taken by
consent) of the Members or the Board of Managers; and (v) such other information
as the Company shall be required to make available to the Members pursuant to
Section 18-305 of the Act.
SECTION 7.3 Tax Returns. The Company, at its expense, will cause the
preparation and timely filing (including extensions) of all tax returns required
to be filed by the Company pursuant to the Code as well as all other required
state and local tax returns in each jurisdiction in which the Company is
required to file by applicable law. Within ninety (90) days following the end of
each Fiscal Year, the Company will provide each Member with all necessary tax
reporting information, a copy of the Company's informational federal income tax
return for such Fiscal Year and such other information as is reasonably
necessary to enable the Members to comply with their tax reporting requirements.
SECTION 7.4 Tax Elections. The Company shall make and revoke such tax
elections as the Board of Managers may from time to time determine.
SECTION 7.5 Tax Matters Partner. The Members by a two-thirds vote of all
votes permitted hereunder shall designate one Member to be the tax matters
partner (the "Tax Matters Partner") under ss. 6231(a)(7) of the Code. Until
further action by the Company, Siebert is hereby designated as the Tax Matters
Partner.
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SECTION 7.6 No Partnership. The classification of the Company as a
partnership will apply only for federal (and, as appropriate, state and local)
income tax purposes. This characterization, solely for tax purposes, does not
create or imply a general partnership among the Members for state law or any
other purpose. Instead, the Members acknowledge the status of the Company as a
limited liability company formed under the Act.
ARTICLE VIII
Capital Accounts
SECTION 8.1 Maintenance. Each Member agrees that a single capital account
(each a "Capital Account") will be established and maintained for each Member
and will be credited, charged and otherwise adjusted as provided in this Article
VIII and as required by the regulations promulgated under ss.704(b) of the Code
(the "ss.704(b) Regulations"). The initial Capital Account balance for each
Member is the contribution amount set forth in Schedule I to this Agreement. The
Capital Account of each Member will be:
(a) credited with (i) each Capital Contribution made by such Member,
(ii) such Member's allocable share of Net Profits, including items of income and
gain exempt from tax, and (iii) all other items properly charged to the Capital
Account of such Member as required by the ss.704(b) Regulations; and
(b) charged with (i) each Distribution made to such Member by the
Company, (ii) such Member's allocable share of Net Losses, and (iii) all other
items properly charged to the Capital Account of such Member as required by the
ss.704(b) Regulations.
SECTION 8.2 Adjustments. The Members intend to comply with the ss.704(b)
Regulations in all respects, and agree to adjust their Capital Accounts to the
full extent that the ss.704(b) Regulations may apply (including, without
limitation, applying the concepts of the minimum gain chargebacks and qualified
income offsets). To this end, each Member agrees to make any Capital Account
adjustment that, in the opinion of tax counsel selected by the Board of
Managers, is necessary or appropriate to maintain equality between the aggregate
Capital Accounts of the Members and the amount of capital of the Company
reflected on its balance sheet (as computed for book purposes), as long as such
adjustments are consistent with the underlying economic arrangement of the
Members and, wherever practicable, are based on and consistent with federal tax
accounting principles.
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SECTION 8.3 Market Value Adjustments. Each Member agrees that the Company
shall make appropriate adjustments to the Capital Account of such Member upon
any Transfer of all or any portion of a Unit, including those that apply upon
the constructive liquidation of the Company under ss. 708(b)(1) of the Code or
the liquidation of a Member's Units, all in accordance with the ss. 704(b)
Regulations.
SECTION 8.4 Transfer. Each Member agrees that, if all or any part of its
Units is transferred in accordance with this Agreement, except to the extent
otherwise provided in the ss.704(b) Regulations, upon admission of the
transferee as a Member, the Capital Account of the transferor that is
attributable to the transferred Units will carry over to the transferee.
ARTICLE IX
Allocations and Accounting Method
SECTION 9.1 Determination. Each Member agrees that for each Fiscal Year,
Net Profits and Net Losses, and all other items of income, gain, loss and
deduction of the Company, will be determined based upon Book Values in
accordance with federal income tax accounting principles consistently applied
(including the ss.704(b) Regulations).
SECTION 9.2 Allocations of Net Profits, Net Losses, and Other Items. Each
Member agrees that:
(a) the Net Profits of the Company for each Fiscal Year shall be
allocated (i) first, to Siebert until the aggregate amount of all Net Profits
allocated pursuant to this Section 9.2(a)(i) for all Fiscal Years equals the
Pre-Formation Expenses; (ii) next, pro rata among the Members in accordance with
any Net Losses allocated to such Members pursuant to Section 9.2(b) until the
aggregate amount of Net Profits allocated pursuant to this Section 9.2(a)(ii)
equals the aggregate amount of Net Losses allocated to such Members for all
prior Fiscal Years pursuant to Section 9.2(b); and (iii) thereafter, in
proportion to the Members' holdings of Units registered on the Company's books
on the last day of the Fiscal Year (subject to Section 9.4(b));
(b) the Net Losses of the Company for each Fiscal Year shall be
allocated in proportion to the Members' holdings of Units registered on the
Company's books on the last day of the Company's Fiscal Year (subject to Section
9.4(b)); and
(c) notwithstanding Sections 9.2(a) and 9.2(b), expenses or deductions
attributable to Pre-Formation Expenses to the extent otherwise includible in the
determination of Net Profit or Net Losses for such Fiscal Year shall be
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allocated to Siebert and the Net Profits and Net Losses allocable pursuant to
Section 9.2(a) or 9.2(b), as the case may be, for the period that includes such
deductions or expenses attributable to Pre- Formation Expenses shall be
determined without regard to such deductions or expenses.
SECTION 9.3 Allocations in the Event of Property Distribution. In the event
that property other than cash is distributed to any Member, such property shall
be deemed sold at its Fair Market Value immediately prior to its Distribution,
and any gain or loss resulting from such deemed sale shall be allocated among
the Members in accordance with Section 9.2. Similarly, in accordance with the
ss.704(b) Regulations and Section 9.1(b)(iii), the Capital Account of any Member
receiving a Distribution of such property shall be charged based on the Fair
Market Value (as determined in the preceding sentence) of the property
distributed to such Member.
SECTION 9.4 Special Rules. Notwithstanding the general allocation rules set
forth in Section 9.2 or the allocation rules set forth in Section 9.3, the
following special allocation rules shall apply under the circumstances
described.
(a) Deficit Capital Account and Nonrecourse Debt Rules.
(i) Limitation on Loss Allocations. The Net Losses allocated to
any Member pursuant to Section 9.2 with respect to any Fiscal Year shall not
exceed the maximum amount of Net Losses that can be so allocated without causing
such Member to have a deficit in its Adjusted Capital Account at the end of such
Fiscal Year. All Net Losses in excess of the limitation set forth in the
preceding sentence of this Section 9.4(a)(i) shall be allocated (1) first, to
the maximum extent permitted by the Code and the Regulations, pro rata among the
Members having positive balances in their Adjusted Capital Accounts (after
giving effect to the allocations required by Section 9.2 in the ratio obtained
by dividing (x) each such Member's Capital Account balance by (y) the sum of all
such Members' Capital Account balances and (2) second, any remaining amount to
the Members in the manner required by the Code and the Regulations.
(ii) Qualified Income Offset. If in any Fiscal Year a Member
unexpectedly receives an adjustment, allocation or distribution described in
sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, and such
adjustment, allocation or distribution causes or increases a deficit in the
Adjusted Capital Account for such Member, then, before any other allocations are
made under this Agreement or otherwise, such Member shall be allocated items of
income and gain (consisting of a pro rata portion of each item of income,
including gross income and gain) in an amount and manner sufficient to eliminate
such deficit in the Adjusted Capital Account as quickly as possible.
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(iii) Company Minimum Gain Chargeback. If there is a net decrease
in Company Minimum Gain during any Fiscal Year, each Member shall be allocated
items of income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in proportion to, and to the extent of, an amount equal to the
portion of such Member's share of the net decrease in Company Minimum Gain
during such Fiscal Year, subject to the exceptions set forth in sections
1.704-2(f)(2), (3) and (5) of the Regulations; provided that, if the Company has
any discretion as to an exception set forth in section 1.704-2(f)(5), the Tax
Matters Partner shall exercise such discretion on behalf of the Company. The Tax
Matters Partner shall, if the application of this Section 9.4(a)(iii) would
cause a distortion in the economic arrangement among the Members, ask the
Commissioner of the Internal Revenue Service to waive the Company Minimum Gain
chargeback requirements pursuant to section 1.704-2(f)(4) of the Regulations. To
the extent that this Section is inconsistent with section 1.704-2(f) or
1.704-2(k) of the Regulations or incomplete with respect to such sections of the
Regulations, the Company Minimum Gain chargeback provided for herein shall be
applied and interpreted in accordance with such sections of the Regulations.
(iv) Member Minimum Gain Chargeback. If there is a net decrease
in Member Minimum Gain during any Fiscal Year, each Member with a share of such
Member Minimum Gain shall be allocated items of income and gain for such Fiscal
Year (and, if necessary, for subsequent Fiscal Years) in proportion to, and to
the extent of, an amount equal to such Member's share of the net decrease in
Member Minimum Gain during such Fiscal Year, subject to the exceptions set forth
in sections 1.704-2(f)(2),(3), and (5) of the Regulations as referenced by
section 1.704-2(i)(4) of the Regulations. The Tax Matters Partner shall, if the
application of this Section 9.4(a)(iv) would cause a distortion in the economic
arrangement among the Members, ask the Commissioner of the Internal Revenue
Service to waive the Member Minimum Gain chargeback requirement pursuant to
section 1.704- 2(i)(4) of the Regulations. To the extent that this Section
9.4(a)(iv) is inconsistent with sections 1.704-2(i)(4) or 1.704- 2(k) of the
Regulations or incomplete with respect to such sections of the Regulations, the
Member Minimum Gain chargeback provided for herein shall be applied and
interpreted in accordance with such sections of the Regulations.
(v) Member Nonrecourse Deductions. Member Nonrecourse Deductions
shall be allocated among the Members in accordance with the ratios in which the
Members share the economic risk of loss for the Member Nonrecourse Debt that
gave rise to those deductions as determined under section 1.752-2 of the
Regulations. This allocation is intended to comply with the requirements of
section 1.704-2(i) of the Regulations and shall be interpreted and applied
consistent therewith.
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(vi) Limited Effect and Interpretation. The special rules set
forth in Sections 9.4(a)(i), (ii), (iii), (iv) and (v) (the "Regulatory
Allocations") shall be applied only to the extent required by applicable
Regulations for the resulting allocations provided for in this Section 9.4,
taking into account such Regulatory Allocations, to be respected for federal
income tax purposes. The Regulatory Allocations are intended to comply with the
requirements of sections 1.704-1(b), 1.704-2 and 1.752-1 through 1.752-5 of the
Regulations and shall be interpreted and applied consistently therewith.
(vii) Curative Allocations. The Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide the Net
Profits, Net Losses and similar items. Accordingly, Net Profits, Net Losses and
other items will be reallocated among the Members in a manner consistent with
section 1.704-1(b) and 1.704-2 of the Regulations so as to negate as rapidly as
possible any deviation from the manner in which Net Profits, Net Losses and
other items are intended to be allocated among the Members pursuant to Section
9.2 that is caused by the Regulatory Allocations.
(viii) Change in Regulations. If the Regulations incorporating
the Regulatory Allocations are hereafter changed or if new Regulations are
hereafter adopted, and such changed or new Regulations, in the opinion of
independent tax counsel for the Company, make it necessary to revise the
Regulatory Allocations or provide further special allocation rules in order to
avoid a significant risk that a material portion of any allocation set forth in
this Article IX would not be respected for federal income tax purposes, the
Members shall make such reasonable amendments to this Agreement as, in the
opinion of such counsel, are necessary or desirable, taking into account the
interests of the Members as a whole and all other relevant factors, to avoid or
reduce significantly such risk to the extent possible without materially
changing the amounts allocable and distributable to any Member pursuant to this
Agreement.
(b) Change in Member's Interests. If there is a change in any Member's
share of the Net Profits, Net Losses or other items of the Company during any
Fiscal Year, allocations among the Members shall be made in accordance with
their interests in the Company from time to time during such Fiscal Year in
accordance with section 706 of the Code, using the closing-of-the-books method,
except that Depreciation, amortization and similar items shall be deemed to
accrue ratably on a daily basis over the entire Fiscal Year during which the
corresponding asset is owned by the Company if such asset is placed in service
prior to or during the Fiscal Year.
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SECTION 9.5 Tax Allocations.
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(a) In General. Except as set forth in Section 9.5(b), allocations for
tax purposes of items of income, gain, loss and deduction, and credits and basis
therefor, shall be made in the same manner as allocations for book purposes as
set forth in Section 9.2. Allocations pursuant to this Section 9.5 are solely
for purposes of federal, state and local income taxes and shall not affect, or
in any way be taken into account in computing, any Member's Capital Account or
share of Net Profits, Net Losses, other items or distributions pursuant to any
provision of this Agreement.
(b) Special Rules.
--------------
(i) Elimination of Book/Tax Disparities. In determining a
Member's allocable share of the Company's taxable income, the Member's allocable
share of each item of Net Profits and Net Losses shall be properly adjusted to
reflect the difference between such Member's share of the adjusted tax basis and
the Book Value of the Company's assets used in determining such item. With
respect to depreciation, in determining the taxable income allocable to such
Member, Net Profits and Net Losses allocable to such Member shall be adjusted by
eliminating Depreciation allocable to such Member and substituting therefor tax
depreciation allocable to such Member determined by reference to such Member's
share of the tax basis of the Company's assets. This provision is intended to
comply with the requirements of section 704(c) of the Code and section
1.704-1(b)(2)(iv)(f) of the Regulations and shall be interpreted and applied
consistently therewith.
(ii) Allocation of Items Among Members. Except as otherwise
provided in Section 9.5(b)(i), each item of income, gain, loss and deduction and
all other items governed by section 702(a) of the Code shall be allocated among
the Members in proportion to the allocation of Net Profits and Net Losses set
forth in Section 9.2, provided that any gain recognized from any disposition of
a Company asset that is treated as ordinary income because it is attributable to
the recapture of any depreciation or amortization shall be allocated among the
Members in the same ratio as the prior allocations of Net Profits, Net Losses or
other items that included such depreciation or amortization, but not in excess
of the gain otherwise allocable to each Member.
(iii) Tax Credits. All tax credits shall be allocated among the
Members in accordance with applicable law.
(c) Conformity of Reporting. The Members are aware of the income tax
consequences of the allocations made by this Section 9.5 and hereby agree to be
bound by the provisions of this Section 9.5 in reporting their shares of the
Company's profits, gains, income, losses, deductions, credits and other items
for income tax purposes.
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ARTICLE X
Distributions
SECTION 10.1 Distributions. Distributions of Available Cash, if any, shall
be made at such time and in such amounts as the Board of Managers shall
determine. Notwithstanding anything else to the contrary contained herein,
Distributions in each Fiscal Year shall be made first to satisfy the
Distributions required by Section 10.6 hereof and thereafter as follows:
(a) to Siebert until the aggregate amount of the Distributions made
pursuant to this Section 10.1(a) for all Fiscal Years is equal to the
Pre-Formation Expenses; and
(b) thereafter all Distributions shall be made to all Members
(including Siebert) pro rata in accordance with the Units held as of the record
date(s) set for such Distributions.
SECTION 10.2 Withholding. (a) If required by the Code or by state or local
law, the Company will withhold any required amount from Distributions to a
Member for payment to the appropriate taxing authority. Any amount so withheld
from a Member will be treated as a Distribution by the Company to such Member.
Each Member agrees to timely file any document that is required by any taxing
authority in order to avoid or reduce any withholding obligation that would
otherwise be imposed on the Company.
(b) To the extent any amount is required to be withheld with respect
to a Member and paid over to an appropriate taxing authority which amount is in
excess of the amounts distributed to such Member in respect of such withholding,
the amounts paid to the taxing authority in respect of such withholding shall be
treated as a Distribution to such Member and a corresponding Distribution shall
be made to each other Member in proportion to the Capital Account registered on
the Company's books in such Member's name. To the extent that cash is not
available to make any of the Distributions required under this Section 10.2(b),
such Distribution shall be delayed and paid out of the next Available Cash.
SECTION 10.3 Offset. The Company may offset all amounts owing to the
Company by a Member against any Distribution to be made to such Member.
SECTION 10.4 Limitation Upon Distributions. No Distribution shall be
declared and paid to the extent that, at the time of the Distribution, after
giving effect to the Distribution, all liabilities of the Company (other than
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liabilities to Members on account of their interest in the Company and
liabilities for which recourse of creditors is limited to specified property of
the Company) exceed the Fair Market Value of the assets of the Company (except
that the Fair Market Value of property that is subject to a liability for which
the recourse of creditors is limited shall be included in the assets of the
Company only to the extent that the Fair Market Value of such property exceeds
such liability). To the extent that any Distribution made pursuant to Sections
10.1 and 10.2 would be limited by reason of this Section 10.4, the aggregate
Distributions under Sections 10.1 and 10.2 which includes such Distribution
shall be repayable to extent provided in Section 18- 607 of the Act.
SECTION 10.5 Accounting Period and Method. The accounting period of the
Company shall be the Fiscal Year. For income tax and financial accounting
purposes, the Company will use the accrual method of accounting.
SECTION 10.6 Tax Distributions. Notwithstanding Section 10.1, on or before
April 1 of each Fiscal Year, the Company shall distribute to each Member an
amount in cash of Available Cash, if any, equal to the product of (i) the Net
Profits allocated to such Member for the preceding Fiscal Year, and (ii) the
Combined Marginal Rate for such preceding Fiscal Year.
ARTICLE XI
Indemnification
SECTION 11.1 Indemnification. (a) The Managers and each officer
(collectively, the "Indemnified Party") shall, in accordance with this Article
XI, be indemnified and held harmless by the Company from and against any and all
losses, claims, damages, liabilities, costs, expenses (including legal and other
professional fees and disbursements), judgments, fines, settlements, and other
amounts (collectively, the "Indemnification Obligations") arising from any and
all claims, demands, actions, suits or proceedings (civil, criminal,
administrative or investigative), actual or threatened, in which such
Indemnified Party may be involved, as a party or otherwise, by reason of such
Indemnified Party's service to, or on behalf of, or management of the affairs
of, the Company, or rendering of advice or consultation with respect thereto, or
which relate to the Company, its properties, business or affairs, whether or not
the Indemnified Party continues to be a Manager or officer at the time any such
Indemnification Obligation is paid or incurred, provided that such
Indemnification Obligation resulted from a mistake of judgment, or from action
or inaction of such Indemnified Party that did not constitute gross negligence,
willful misconduct or bad faith. The Company shall also indemnify and hold
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harmless any Indemnified Party from and against any Indemnification Obligation
suffered or sustained by such Indemnified Party by reason of any action or
inaction of any employee, broker or other agent of such Indemnified Party,
provided, that such employee, broker or agent was selected, engaged or retained
by such Indemnified Party with reasonable care. The termination of a proceeding
by judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that such
Indemnification Obligation resulted from the gross negligence, willful
misconduct or bad faith of such Indemnified Party. Expenses (including legal and
other professional fees and disbursements) incurred in any proceeding will be
paid by the Company, as incurred, in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of such Indemnified
Party to repay such amount if it shall ultimately be determined that such
Indemnified Party is not entitled to be indemnified by the Company as authorized
hereunder.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal fees) incurred by an Indemnified Party in defending
any claim, demand, action, suit or proceeding relating to Section 11.1(a) shall,
from time to time, be advanced by the Company prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Company of an
undertaking by or on behalf of the Indemnified Party to repay such amount if it
shall be determined by a court of competent jurisdiction having final or
unappealed dispositive authority over such matter that the Indemnified Party is
not entitled to be indemnified as authorized in this Article XI.
SECTION 11.2 Indemnification Not Exclusive. The indemnification provided by
this Article XI shall not be deemed to be exclusive of any other rights to which
each Indemnified Party may be entitled under any agreement, or as a matter of
law, or otherwise, both as to action in such Indemnified Party's official
capacity and to action in another capacity, and shall continue as to such
Indemnified Party who has ceased to have an official capacity for acts or
omissions during such official capacity or otherwise when acting at the request
of the Board of Managers, or any Person granted authority thereby, and shall
inure to the benefit of the heirs, successors and administrators of such
Indemnified Party.
ARTICLE XII
Dissolution
SECTION 12.1 Dissolution. Dissolution of the Company will occur upon the
happening of any of the following events: (a) an Event of Withdrawal of a
Member, unless, after giving effect to the Event of Withdrawal, the Company is
continued as provided in Section 12.4; (b) the unanimous consent of all of the
Members; (c) the conversion of the Company into a corporation or other Person;
(d) the expiration of the term set forth in Section 2.4 hereof; or (e) the entry
of a decree of judicial dissolution pursuant to Section 18-802 of the Act.
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SECTION 12.2 Event of Withdrawal. Within ten (10) days after the occurrence
of an Event of Withdrawal with respect to any Member, such Member (or such
Member's legal representative or other successor in interest) shall give notice
to the Company of the occurrence of such Event of Withdrawal. Except for the
Bankruptcy of a Member, which shall result in an immediate Event of Withdrawal
of such Member, any other Event of Withdrawal shall, in the absence of formal
notice of such Event of Withdrawal as required in the preceding sentence, be
deemed to occur upon the first date any other Member has actual notice of such
Event of Withdrawal.
SECTION 12.3 Bankruptcy. The bankruptcy or insolvency ("Bankruptcy") of a
Member will be deemed to occur when (a) such Person shall commence any case,
proceeding or other action (i) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (ii) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part
of its assets, or such Person shall make a general assignment for the benefit of
its creditors; (b) there shall be commenced against such Person any case,
proceeding or other action of a nature referred to in clause (a) above that (i)
results in the entry of an order for relief or any such adjudication or
appointment or (ii) remains undismissed, undischarged or unbonded for a period
of sixty (60) days; or (c) there shall be commenced against such Person any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets that results in the entry of an order for any such relief that shall
not have been vacated, discharged, or stayed or bonded pending appeal within
sixty (60) days from the entry thereof.
SECTION 12.4 Continuation. Upon the occurrence of an Event of Withdrawal
with respect to any Member, the Company will be continued if, within ninety (90)
days following such event, the remaining Member or Members holding a majority of
the remaining votes permitted hereunder consent(s) in writing to continue the
Company's business as a limited liability company under the Act and this
Agreement. If the business of the Company is so continued, an Event of
Withdrawal of one or more Members will not cause the Dissolution of the Company.
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ARTICLE XIII
Liquidation
SECTION 13.1 Liquidation. Upon Dissolution of the Company, the Company will
immediately proceed to wind up its affairs and liquidate. The Liquidation of the
Company will be accomplished in a businesslike manner by such Person or Persons
designated by the Board of Managers, which Person(s) shall be entitled to
reasonable compensation therefore. A reasonable time will be allowed for the
orderly Liquidation of the Company and the discharge of liabilities to creditors
so as to enable the Company to minimize any losses attendant upon Liquidation.
Any gain or loss on disposition of any Company assets in Liquidation will be
allocated among the Members and credited or charged to Capital Accounts in
accordance with the provisions of this Agreement. Until the filing of the
certificate of cancellation under Section 13.5 and without affecting the
liability of Members and without imposing liability on the liquidating trustee,
the Person or Persons conducting the liquidation may settle and close the
Company's business, prosecute and defend suits, dispose of its property,
discharge or make provision for its liabilities, and make Distributions in
accordance with the priorities set forth in Section 13.2.
SECTION 13.2 Priority of Payment. The assets of the Company will be
distributed in Liquidation in the following order:
(a) to creditors, including Members who are creditors, by the payment
or provision for payment of the debts and liabilities of the Company and the
expenses of Liquidation;
(b) to the setting up of any reserves that are reasonably necessary
for any contingent or unforeseen liabilities or obligations of the Company; and
(c) to the Members pro rata in proportion to the balances in their
Capital Accounts.
SECTION 13.3 Timing. Final Distributions in Liquidation will be made by the
end of the Company's Fiscal Year in which such actual Liquidation occurs (or, if
later, within ninety (90) days after such event) in the manner required to
comply with the ss.704(b) Regulations. Payments of Distributions in Liquidation
may be made to a liquidating trust established by the Company for the benefit of
those entitled to payments under Section 13.2 in any manner consistent with this
Agreement and the ss.704(b) Regulations.
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SECTION 13.4 Liquidating Reports. A report will be submitted with each
liquidating Distribution to the Members, showing the collections, disbursements
and Distributions during the period which is subsequent to any previous report.
A final report, showing cumulative collections, disbursements and Distributions,
will be submitted upon completion of the liquidation process.
SECTION 13.5 Certificate of Cancellation. Within ninety (90) days following
the Dissolution of the Company and the commencement of winding up of its
business, or at any other time there are no Members, the Company will file a
certificate of cancellation (to cancel the Certificate of Formation) with the
Secretary of State of the State of Delaware pursuant to the Act. At such time,
the Company will also file an application for withdrawal of its certificate of
authority in any jurisdiction where it is then qualified to do business.
SECTION 13.6 Deficit Capital Account. Upon a liquidation of the Company
within the meaning of section 1.704-1(b)(2)(ii)(g) of the Regulations, if any
Member has a negative Capital Account (after giving effect to all contributions,
distributions, allocations and other adjustments for all Fiscal Years, including
the Fiscal Year in which such liquidation occurs), the Member shall have no
obligation to make any Capital Contribution, and the negative balance of any
Capital Account shall not be considered a debt owed by the Member to the Company
or to any other person for any purpose.
SECTION 13.7 Nonrecourse to Other Members. Except as provided by applicable
law or as expressly provided in this Agreement, upon Dissolution, each Member
shall receive a return of his Capital Contribution solely from the assets of the
Company. If the assets of the Company remaining after the payment or discharge
of the debts and liabilities of the Company is insufficient to return any
Capital Contribution of any Member, such Member shall have no recourse against
any other Member.
ARTICLE XIV
Transferability
SECTION 14.1 General. Except for a Transfer of some or all of its Units by
Siebert to an Affiliate or a Transfer of any Unit or portion of a Unit by any
Member pursuant to Sections 14.2, 14.3. 14.4, or 14.5 hereof, no Member shall
Transfer to another Person any portion of a Unit without the prior written
consent of the Board of Managers and the Member or Members holding fifty percent
(50%) of the votes permitted hereunder. Notwithstanding anything else to the
contrary contained herein, no Unit, or any portion thereof, may be Transferred
unless the transferee executes and delivers to the Board of Managers an
instrument pursuant to which it agrees to be bound by the terms of this
Agreement. No Transfer of a Unit, or Transfer of an indirect interest in the
Company, or any portion of either thereof, shall be made if such Transfer would:
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(a) result by itself, or in combination with any other previous
Transfers, in the termination of the Company as a partnership for federal income
tax purposes;
(b) result in the violation of the Securities Act of 1933, as amended,
or any other applicable federal or state laws;
(c) be a violation of or a default (or an event that, with notice or
the lapse of time or both, would constitute a default) under, or result in an
acceleration of any indebtedness under, any note, mortgage, loan agreement or
similar instrument or document to which the Company is a party;
(d) result in or create a "prohibited transaction" or cause the
Company or a Member to be or become a "party in interest", as such terms are
defined in section 3(3) of ERISA, or a "disqualified person", as defined in
section 4975 of the Code, with respect to any "plan", as defined in section
3(14) of ERISA and/or section 4975 of the Code; or result in or cause the
Company or any Member to be liable for tax under Chapter 42 of the Code;
(e) be a Transfer to an individual who is not legally competent or who
has not achieved his or her majority under the law of the state (excluding
trusts for the benefit of minors);
(f) cause the Company or any Member (other than the transferee) to be
subject to any excise tax pursuant to Chapter 42A of Subtitle D of the Code; or
(g) be a Transfer to a "tax-exempt entity" or a "tax-exempt controlled
entity" within the meaning of sections 168(h)(2) and 168(h)(6)(F)(iii),
respectively, of the Code.
The Company shall not transfer on its books any Unit or issue any document
representing any interest in the Company unless, in the opinion of counsel to
the Company, there has been compliance with all of the material conditions
hereof and any such attempted Transfer in violation of this Agreement shall be
void and of no effect.
SECTION 14.2 First Refusal Rights. (a) If Siebert, Brandford, Shank, or any
other holder of Units receives a bona fide offer or enters or intends to enter
into an agreement (the "Offer") for the sale of one or more of the Units held of
record by such holder to a third party (the "Outside Party"), such holder (the
"Selling Holder") shall have the Offer reduced to writing and shall
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give notice (the "Option Notice") to the Company and the other Members
containing the name and address of the Outside Party, which notice shall be
accompanied by a copy of the Offer. The Units subject to the Offer are referred
to herein as the "Offered Units".
(b) Upon the giving of the Option Notice, Siebert shall have the
right, if Brandford and/or Shank are the Selling Holder(s), and Brandford and
Shank shall have the right, if Siebert is the Selling Holder, but not the
obligation (the "First Right") to purchase, at the price, on the terms and
subject to the conditions specified in the Offer, all or part of the Offered
Units covered by the Option Notice. Within thirty (30) days after the date of
the Option Notice, the other Member(s) as specified above shall notify the
Selling Holder(s) and all of the other Members (the "First Notice") whether and
to what extent it intends to exercise the First Right. Failure to deliver the
First Notice within such period shall constitute a waiver of the First Right.
(c) In the event that the other Members specified in paragraph (b)
above do not exercise the First Right as to all of the Offered Units, each of
the other Members shall have the right, but not the obligation (the "Member
Right") to purchase, at the price, on the terms and subject to the conditions
specified in the Offer, such Member's Proportionate Share of the Offered Units
by notifying the Selling Holder, the other Members and the Company in writing
(the "Member Notice") within forty (40) days after the date of the Option Notice
whether and to what extent such Member intends to exercise the Member Right. If
any Member fails to exercise the Member Right as to all of its Proportionate
Share of the Offered Units, then any of the other Members shall have the right
to purchase all or part of the Offered Units that such Member has elected not to
purchase by amending its respective Member Notice within five (5) days after the
date that it receives notice that any other Member has so declined to exercise
the Member Right in full. Failure to deliver the Member Notice within the
applicable periods shall constitute a waiver of such Member's purchase right as
to the Offered Units.
(d) The Selling Holder(s) shall have the obligation to sell to the
other Members such portion of the Offered Units as are covered by the First
Notice and the Member Notice, and the Selling Holder(s) may sell the balance of
the Offered Units (or all of the Offered Units if no such notices have been
given) to the Outside Party on terms not more favorable to such Outside Party
than those contained in the Offer. In the event that such terms are more
favorable or if such sale to the Outside Party is not consummated within the
time period specified herein, the Offered Units shall again be subject to the
restrictions contained in this Agreement.
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(e) The closing for any purchase of Offered Units by any of the
Members or the Outside Party pursuant to this Section 14.2 shall be held at
10:00 A.M. (local time) at the offices of the Company on the sixtieth (60th) day
after the date of the Option Notice or at such other time and place as the
parties shall agree. At the closing, the applicable Members and/or the Outside
Party, as the case may be, shall pay for the Offered Units in accordance with
the terms of the Offer. At any closing pursuant to this Section 14.2, the
Selling Holder(s) shall deliver certificates representing the Units being
Transferred, free and clear of all liens, charges and encumbrances and properly
endorsed for Transfer.
SECTION 14.3 Right to Compel Sale. (a) If Siebert, Brandford or Shank (the
"transferring party") proposes to sell all of the Units then owned by him, her
or it to a third party in an arms-length transaction in which the consideration
to be received for such Units consists of cash and/or marketable securities,
then Siebert may require Brandford, Shank and any other Member or Unit holder to
sell, and Brandford and/or Shank may require Siebert and any other Member of
Unit holder to sell, all of the Units owned by him, her or it (the "Designated
Units") to the third party for the same consideration per Unit and otherwise on
the same terms and conditions upon which such Member is selling its Units
pursuant to the provisions set forth in this Section 14.3.
(b) Siebert shall send written notice of the exercise of such rights
pursuant to this Section 14.3 to Brandford, Shank, and any other Member or Unit
holder, and Brandford and/or Shank shall send written notice of the exercise of
such rights pursuant to this Section 14.3 to Siebert and any other Member or
Unit holder, setting forth the consideration per Unit to be paid by the third
party and the other terms and conditions of such transaction. Within twenty (20)
days following the date of the notice, Siebert, Brandford, Shank, and any other
Member or Unit holder shall deliver to the transferring party certificates
representing the Units held by him, her, or it duly endorsed, together with all
other transfer documents reasonably required to be executed in connection with
such transaction. In the event that Brandford, Shank, or any other Member or
Unit holder should fail to deliver such certificates to the transferring party,
the Company shall cause the books and records of the Company to show that such
Units are bound by the provisions of this Section 14.3 and that such Units shall
be transferred only to the third party upon surrender for transfer by the holder
thereof.
(c) If, within ninety (90) days after the transferring party gives
such notice, the sale of all Units in accordance herewith has not been
completed, the transferring party shall return to Siebert, Brandford or Shank,
and any other Member or Unit holder all certificates representing Units that
Siebert,Brandford, Shank, or any Member or Unit holder delivered for sale, and
all the restrictions on sale or other disposition contained in this Agreement
with respect to Units owned by all Persons shall again be in effect.
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(d) Simultaneously with the consummation of the sale of the Units of
all Members pursuant to this Section 14.3, the transferring party shall notify
Siebert, Brandford or Shank, and any other Member or Unit holder of the
consummation of the sale, and shall: (i) cause the purchaser to remit directly
to Siebert, Brandford or Shank, and any other Member or Unit holder the total
sales price for such Person's Units sold or otherwise disposed of pursuant
hereto, and (ii) furnish such other evidence of the completion and time of
completion of such sale or other disposition and the terms thereof as may be
reasonably requested by any Member or Unit holder.
SECTION 14.4 Right to Purchase. (a) Upon (i) the death or Disability of
Brandford, Shank or any other Member who is also an employee or officer of the
Company, directly or indirectly, or (ii) the termination of any such Person's
employment directly or indirectly with the Company for any reason (the deceased,
disabled or terminated Member being known as the "Affected Member"), the Company
shall send a notice in writing to all Members informing them of such occurrence
(the "Purchase Notice").
(b) Upon the giving of the Purchase Notice, whichever of Brandford or
Shank who has not died, become disabled or been terminated (the "Non-Affected
Member") shall have the right, but not the obligation, to purchase, and the
Affected Member (or his duly appointed legal representative) shall sell, any or
all of the Units owned by the Affected Member for the purchase price and in
accordance with the procedures set forth in this Section 14.4. Within thirty
(30) days after the date of the Purchase Notice, the Non-Affected Member shall
notify the Affected Member or his duly appointed legal representative and all of
the other Members whether and to what extent he intends to exercise his rights
under this Section 14.4. Failure to deliver such notice within such period shall
constitute a waiver of the Non-Affected Member's rights under this Section 14.4.
(c) In the event that the Non-Affected Member does not exercise his
purchase option as to all of the Affected Member's Units, Siebert and each of
the other Members shall have the right, but not the obligation (the "Siebert
Right"), to purchase, at the price set forth in this Section 14.4, such Member's
Proportionate Share of the Affected Member's Units not claimed by the
Non-Affected Member by notifying the Affected Member or his duly appointed legal
representative, the other Members and the Company in writing (the "Siebert
Notice") within forty (40) days after the date of the Purchase Notice whether
and to what extent such Member intends to exercise its rights under this Section
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14.4. If any Member fails to exercise its rights as to all of its Proportionate
Share of the Affected Member's Units, then any of the other Members shall have
the right to purchase all or part of the Affected Member's Units that such
Member has elected not to purchase by amending its respective notice within five
(5) days after the date that it receives notice that any other Member has so
declined to exercise its rights in full. Failure to deliver any notice required
under this Section 14.4 within the applicable periods shall constitute a waiver
of such Member's purchase rights as to the Affected Member's Units.
(d) The purchase price for the Units purchased pursuant to this
Section 14.4 shall be the Book Value of the Units owned by the Affected Member
(as determined by the Company's independent certified public accountants in
accordance with generally accepted accounting principles consistently applied
and valued) on the date of the Affected Member's death, disablement, or
termination of employment; provided, however, that if:
(i) the Affected Member's employment is terminated by the Company
due to the Affected Member's death, Disability or termination of employment; AND
(ii) the Book Value of the Affected Member's Units on the date of
determination is less than the Fair Market Value of the Units on such date as
determined in good faith by the Board of Managers; THEN
(iii) the purchase price for the Affected Member's Units
purchased pursuant to this Section 14.4 shall be such Fair Market Value of the
Affected Member's Units.
(e) The closing for any purchase of Units by the Non- Affected Member,
Siebert and/or any other Members pursuant to this Section 14.4 shall be held at
10:00 A.M. (local time) at the offices of the Company on the sixtieth (60th) day
after the date of the Purchase Notice or at such other time and place as the
parties shall agree. At the closing, the Non-Affected Member, Siebert and/or the
other Members, as the case may be, shall pay for the Affected Member's Units in
accordance with the price determined in Section 14.4(d) above. At any closing,
the Affected Member shall deliver certificates representing the Units being
Transferred, free and clear of all liens, charges and encumbrances and properly
endorsed for Transfer.
SECTION 14.5 Call Right. (a) In the event that at any time the aggregate
Net Losses for all Fiscal Years shall exceed the aggregate Net Profits for all
Fiscal Years by One Million Dollars ($1,000,000) or more (such excess being the
"Deficit" and such event being the "Triggering Event"), Siebert shall be
entitled to purchase from each of Brandford and Shank twenty percent (20%) of
all the Units held by such Person (the "Siebert Call Right") and Brandford and
Shank shall sell such Units to Siebert at the price and in accordance with the
procedures set forth in this Section 14.5 unless Brandford and/or Shank elect to
contribute to the Company the amount of the Deficit in cash.
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(b) Within thirty (30) days after the date of the Triggering Event,
Siebert shall notify Brandford and Shank in writing (the "Siebert Call Notice")
whether and to what extent it intends to exercise the Siebert Call Right.
Failure to deliver the Siebert Call Notice within such period shall constitute a
waiver of the Siebert Call Right. Within thirty (30) days after the Siebert Call
Notice, Brandford and Shank shall have notify Siebert whether they intend to
contribute to the Company the amount of the Deficit in cash. If they do not so
elect, Siebert shall be entitled to purchase the Units described in paragraph
(a) above. If they do so elect, they shall have thirty (30) days to do so. If
they fail to do so, Siebert shall again be entitled to purchase the Units
described in paragraph (a) above.
(c) The purchase price for the Units purchased pursuant to this
Section 14.5 shall be the Book Value of the Units as determined by the Company's
independent certified public accountants in accordance with generally accepted
accounting principles consistently applied and valued on the date of the
occurrence of the Triggering Event.
(d) The closing for any purchase of Units pursuant to this Section
14.5 shall be held at 10:00 a.m. at the offices of the Corporation on the
sixtieth (60th) day after the date of the Siebert Call Notice or at such other
time and place as the parties shall agree. At the closing, Siebert shall pay for
the Units and Brandford and Shank shall deliver certificates representing the
Units free and clear of all liens, charges and encumbrances and properly
endorsed for transfer.
SECTION 14.6 Transferee Rights. Any transferee of a Unit who is not
admitted as a Member in accordance with Section 3.6 of this Agreement has no
right (i) to participate or interfere in the management or administration of the
Company's business or affairs or (ii) to vote or agree on any matter affecting
the Company or any Member. The only rights of a transferee of a Unit who is not
admitted as a Member in accordance with Section 3.6 of this Agreement is to
receive the Distributions to which the transferor would otherwise be entitled
(to the extent of the Unit transferred) and to obtain such information
concerning the Company's books and financial affairs as provided herein.
However, each transferee will be subject to all of the obligations, restrictions
and other terms contained in this Agreement as if such transferee were a Member.
To the extent of any Unit transferred, the transferor Member shall not possess
any right or power as a Member or under the terms of this Agreement and may not
exercise any such right or power directly or indirectly on behalf of the
transferee.
39
<PAGE>
SECTION 14.7 Effective Date. Any sale of a Member's Units or admission of a
Member pursuant to this Article XIV shall be deemed effective as of the last day
of the calendar month in which such sale or admission occurs.
SECTION 14.8 Secured Party. The pledge or hypothecation of, or the granting
of any security interest in, or other lien or encumbrance against, a Unit by any
Person shall be made only in accordance with this Agreement and will not cause
the occurrence of an Event of Withdrawal of such Member from the Company. In no
event will the Company have any liability or obligation to any Person by reason
of the Company's payment of a Distribution to any secured party as long as the
Company makes such payment in reliance upon written instructions from the holder
of record on whose behalf such Distributions are payable. Any secured party will
be entitled, with respect to the security interest granted, only to the
Distributions to which the holder of record granting the security interest is
entitled under this Agreement, and only if, as and when such Distribution is
made by the Company. Upon any foreclosure or other Transfer in lieu of
foreclosure of a Unit to any secured party, the Transfer will be subject to the
other provisions of this Agreement.
ARTICLE XV
General Provisions
SECTION 15.1 Waiver of Dissolution Rights. The Members agree that
irreparable damage would occur if any Member should bring an action for judicial
dissolution of the Company. Accordingly, each Member accepts the provisions
under this Agreement as such Member's sole entitlement on Dissolution of the
Company and waives and renounces such Member's right to seek a court decree of
dissolution or to seek the appointment by a court of a liquidator for the
Company. Each Member further waives and renounces any alternative rights which
might otherwise be provided by law upon the withdrawal or resignation of such
Member and accepts the provisions under this Agreement as such Member's sole
entitlement upon the happening of such event.
SECTION 15.2 Waiver of Partition Right. Each Member waives and renounces
any right that it may have prior to Dissolution and Liquidation to institute or
maintain any action for partition with respect to any property of the Company.
SECTION 15.3 Waivers Generally. No course of performance or other conduct
subsequently pursued or acquiesced in, and no oral agreement or representation
subsequently made, by the Members, whether or not relied or acted upon, and no
usage of trade, whether or not relied or acted upon, shall amend this Agreement
or impair or otherwise affect any Member's obligations pursuant to this
Agreement or any rights and remedies of a Member pursuant to this Agreement. No
delay in the exercise of any right will operate as a waiver of such right. No
40
<PAGE>
single or partial exercise of any right will preclude its further exercise. A
waiver of any right on any one occasion will not be construed as a bar to, or
waiver of, any such right on any other occasion.
SECTION 15.4 Equitable Relief. If any Member proposes to Transfer all or
any part of its Units in violation of the terms of this Agreement, the Company
or any Member may apply to any court of competent jurisdiction for an injunctive
order prohibiting such proposed Transfer except upon compliance with the terms
of this Agreement, and the Company or any Member may institute and maintain any
action or proceeding against the Person proposing to make such Transfer to
compel the specific performance of this Agreement. Any attempted Transfer in
violation of this Agreement is null and void, and of no force and effect. The
Person against whom such action or proceeding is brought waives the claim or
defense that an adequate remedy at law exists, and such Person will not urge in
any such action or proceeding the claim or defense that such remedy at law
exists.
SECTION 15.5 Remedies for Breach. Unless otherwise set forth herein, the
rights and remedies of the Members set forth in this Agreement are neither
mutually exclusive nor exclusive of any right or remedy provided by law, in
equity or otherwise. The Members agree that all legal remedies (such as monetary
damages) as well as all equitable remedies (such as specific performance) will
be available for any breach or threatened breach of any provision of this
Agreement.
SECTION 15.6 Costs. If the Company or any Member retains counsel for the
purpose of enforcing or preventing the breach or any threatened breach of any
provision of this Agreement or for any other remedy relating to it, then the
prevailing party will be entitled to be reimbursed by the nonprevailing party
for all costs and expenses so incurred (including reasonable attorney's fees,
costs of bonds, and fees and expenses for expert witnesses).
SECTION 15.7 Counterparts. This Agreement may be signed in multiple
counterparts. Each counterpart will be considered an original, but all of them
in the aggregate will constitute one instrument.
SECTION 15.8 Notice. All notices under this Agreement will be in writing
and will be delivered or sent to a Member at the address or telecopier number
listed on Schedule I hereto, or at such other address or fax number as a Member
may give by notice to the Company and all other Members. Any notices given to
any Member in accordance with this Agreement will be deemed to have been duly
given: (a) on the date of receipt if personally delivered, (b) five (5) days
after being sent by mail, postage prepaid, (c) the date of receipt, if sent by
registered or certified mail, postage prepaid, (d) when sent by confirmed
41
<PAGE>
facsimile or telecopier transmission, or (e) one (1) Business Day after having
been sent by a recognized overnight courier service.
SECTION 15.9 Date of Performance. Whenever this Agreement provides for any
action to be taken on a day which is not a Business Day, such action shall be
taken on the next following Business Day.
SECTION 15.10 Limited Liability. (a) The liability of each Member, holder
of any interest herein who is not a Member, officer or agent of the Company
shall be limited as set forth in this Agreement, the Act and other applicable
law. No Member, holder of any interest herein who is not a Member, Manager,
officer or agent of the Company is liable for any debts, obligations or
liabilities of the Company or each other, whether arising in tort, contract or
otherwise, solely by reason of being a Member, holder of interest herein who is
not a Member, officer or agent of the Company, or acting (or omitting to act) in
such capacities or participating (as an employee, consultant, contractor or
otherwise) in the conduct of the business of the Company, except that a holder
of any interest herein shall remain personally liable for the payment of such
holder's Capital Contribution and as otherwise set forth in this Agreement, the
Act and other applicable law.
(b) Notwithstanding the foregoing, a Manager shall perform such
Manager's duties in accordance with the provisions hereof. A Manager who so
performs such duties shall not have any liability by reason of being or having
been a Manager. No Manager shall be liable to the Company or any holder of any
interest herein for any loss or damage sustained by the Company or any holder of
any interest herein, unless a judgment or other final adjudication adverse to
such Manager establishes that such Manager's acts or omissions were in bad faith
or involved intentional misconduct or a knowing violation of law. Without
limiting the generality of the preceding sentence, a Manager does not in any way
guaranty the return of any Capital Contribution to a holder of any interest
herein or a profit for the holders of any interest herein from the operations of
the Company.
SECTION 15.11 Partial Invalidity. Wherever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law. However, if for any reason any one or more of the
provisions of this Agreement are held to be invalid, illegal or unenforceable in
any respect, such action will not affect any other provision of this Agreement.
In such event this Agreement will be construed as if such invalid, illegal or
unenforceable provision had never been contained in it.
SECTION 15.12 Entire Agreement. This Agreement contains the entire
agreement among the Members with respect to the subject matter of this
Agreement, and supersedes each course of conduct previously pursued or
acquiesced in, and each oral agreement and representation previously made, by
the Members and the Company with respect thereto, whether or not relied or acted
upon.
42
<PAGE>
SECTION 15.13 Amendments. No course of performance or other conduct
subsequently pursued or acquiesced in, and no oral agreement or representation
subsequently made, by the Members, whether or not relied or acted upon, and no
usage of trade, whether or not relied or acted upon, shall amend this Agreement
or impair or otherwise affect any Member's obligations pursuant to this
Agreement or any rights and remedies of a Member pursuant to this Agreement. No
amendment to this Agreement shall be effective unless made in a writing duly
executed by all of the Members and specifically referring to each provision of
this Agreement being amended.
SECTION 15.14 Benefit. The contribution obligations of each Member will
inure solely to the benefit of the other Members and the Company, without
conferring on any other Person any rights of enforcement or other rights.
SECTION 15.15 Binding Effect. This Agreement is binding upon, and inures to
the benefit of, the Members and their transferees, successor and assigns,
provided that, any transferee will have only the rights specified in Section
14.6 unless admitted as an additional Member in accordance with this Agreement.
SECTION 15.16 Further Assurances. Each Member agrees, without further
consideration, to sign and deliver such other documents of further assurance as
may reasonably be necessary to effectuate the provisions of this Agreement.
SECTION 15.17 Headings. Article and section titles have been inserted for
convenience of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
SECTION 15.18 Terms. Terms used with initial capital letters will have the
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. All pronouns (and any variation) will be deemed to
refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural includes the other, as the context requires or
permits. The word include (and any variation) is used in an illustrative sense
rather than in a limiting sense. The word "day" means a calendar day, unless
otherwise specified. Unless otherwise indicated herein, the term "section"
refers to Sections of this Agreement.
SECTION 15.19 Conversion. If the Net Profits of the Company warrant in the
opinion of Siebert Financial Corp., each of Brandford and Shank shall each be
entitled to exchange 20% of their Units for stock of Siebert Financial Corp., a
New York corporation, on a basis to be determined by Siebert Financial Corp. at
the time.
43
<PAGE>
SECTION 15.20 Governing Law; Consent to Jurisdiction. This Agreement will
be governed by, and construed in accordance with, the laws of the State of
Delaware (without giving effect to Delaware choice of law provisions). Any
conflict or apparent conflict between this Agreement and the Act will be
resolved in favor of this Agreement except as otherwise required by the Act. In
any action or proceeding arising out of, related to, or in connection with this
Agreement, the parties consent to be subject to the jurisdiction and venue of
(a) the Superior Court of the State of California in and for the County of San
Francisco located in the City of San Francisco, and (b) the United States
District Court for the Northern District of California. Each of the parties
consents to the service of process in any action commenced hereunder by
certified or registered mail, return receipt requested, or by any other method
or service acceptable under federal law or the laws of the State of California.
IN THE EVENT THAT AN ACTION IS COMMENCED IN THE STATE OF CALIFORNIA, THE PARTIES
HEREBY AGREE TO WAIVE THEIR RIGHTS TO A TRIAL BY JURY.
[This Page Intentionally Ends Here]
44
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
SIEBERT, BRANDFORD, SHANK & CO., LLC
By: /S/ SUZANNE F. SHANK
---------------------------------------
Name: Suzanne F. Shank
Title: Member, President
MURIEL SIEBERT & CO., INC.
By: /S/ MURIEL F. SIEBERT
----------------------------------------
Name:
Title:
/S/ NAPOLEON BRADFORD III
----------------------------------------
Napoleon Brandford III
/S/ SUZANNE F. SHANK
----------------------------------------
Suzanne F. Shank
45
<PAGE>
SCHEDULE I
Name of Member Total Contribution Number of Units
- -------------- ------------------ ---------------
Muriel Siebert & Co., Inc. Three Hundred Ninety-Two 490 Units
885 Third Avenue Thousand Dollars and No
Suite 1720 Cents.
New York, NY 10022
(212) 838-0647
Napoleon Brandford III Two Hundred Four Thousand 255 Units
220 Sansome Street Dollars and No Cents.
15th Floor
San Francisco, CA 94104
(415) 439-4480
Suzanne F. Shank Two Hundred Four Thousand 255 Units
100 Renaissance Center Dollars and No Cents.
Suite 1601
Detroit, MI 48243
(313) 396-0096
46
SERVICES AGREEMENT
This SERVICES AGREEMENT (this Agreement") is made and entered into as of
March 10, 1997 by and between SIEBERT, BRANDFORD, SHANK & CO., LLC., a Delaware
limited liability company (the "Company"), and MURIEL SIEBERT & CO., INC., a
Delaware corporation ("MS&Co.").
R E C I T A L S
---------------
WHEREAS, the Company desires to obtain certain services from MS&Co. and
MS&Co. desires to provide such services; and
WHEREAS, the parties are willing to enter into this Agreement on the terms
and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the covenants and undertakings of the
parties hereto and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
---------
SERVICES
--------
1.1 The Designated Services. During the term of this Agreement, MS&Co.
shall provide certain personnel including the full-time services of Napoleon
Brandford III and Suzanne F. Shank and such other persons as the Company may
request as well as administrative, payroll, technical and employee benefits
services to the Company and such other services as may be approved in advance by
the Company (collectively, "Services"). MS&Co. will furnish the Services and
perform its obligations hereunder in accordance with its standard policies and
practices; provided that MS&Co. and its Affiliates shall have no liability to
the Company of any kind whatsoever arising, directly or in any way indirectly,
from the furnishing of the Services or the performance of MS&Co.'s obligations
hereunder, the manner in which such activities are or fail to be conducted or
from any transaction in connection with the Services between MS&Co. and its
Affiliates and the Company to which MS&Co. or its Affiliates and the Company are
parties except for conduct constituting fraud, gross negligence or a pattern of
repeated and intentional misconduct causing material damage to the Company over
an extended period of time.
ARTICLE II
----------
FEES FOR SERVICES
-----------------
2.1 Fees for Services. In consideration for the Services provided
hereunder, MS&Co. shall be entitled to an amount equal to the direct and
indirect costs incurred by MS&Co. (without markup) for the provision of such
<PAGE>
Services which shall be paid in cash on the last business day of each calendar
quarter in arrears upon the presentation of proper invoices therefore. For
purposes hereof, the parties agree that indirect costs to be incurred by MS&Co.
to provide the Services described herein will equal $300,000 per annum for 1997.
The Company shall have the right to inspect that portion of the books and
records of MS&Co. that show the direct costs to MS&Co. of providing the
Services.
ARTICLE III
-----------
TERM AND TERMINATION
--------------------
3.1 Term. The term of this Agreement shall commence on the date hereof and
shall terminate on the first anniversary of the date hereof (such period being
hereinafter referred to as the "Term"); provided, however, that the Term shall
automatically be extended for additional one-year periods unless either party
provides written notice to the other not less than 90 days prior to the
expiration of the Term, as extended. The Company shall have the right to
terminate this Agreement in the event MS&Co. is guilty of fraud, gross
negligence or a pattern of repeated and intentional misconduct causing material
damage to the Company over an extended period of time. MS&Co. shall have the
right at any time to terminate this Agreement in its entirety upon 90 days'
advance written notice to the Company, provided that the indemnification
provisions of Article IV hereof shall survive any such cancellation.
ARTICLE IV
----------
INDEMNIFICATION
---------------
4.1 Indemnification.
(a) The Company agrees to indemnify and save harmless MS&Co., its present
and future officers, directors, employees, agents and Affiliates from and
against any and all liabilities, penalties, fines, forfeitures, demands, claims,
causes of action, suits and costs and expenses incidental thereto (including
costs of defense, settlement and reasonable attorney's fees), which any or all
of them may hereafter suffer, incur, be responsible for or pay out as a result
of bodily injuries (including death) to any person, damage (including loss of
use) to any property (public or private), or any violation or alleged violation
of statutes, ordinances, orders, rules or regulations of any governmental entity
or agency, to the extent such are caused by, or arise out of breach of any
warranties by the Company, or any grossly negligent or willful act or omission
of the Company, its employees, subcontractors or agents arising out of the
performance of this Agreement.
(b) MS&Co. shall give written notice to the Company of a claim for
indemnification under this provision within thirty (30) days following MS&Co.'s
first knowledge of the event or occurrence which gives rise to the claim. Upon
receipt of notice, the Company shall retain counsel to defend MS&Co. and will
pay such counsel reasonable attorney's fees and other litigation expenses.
<PAGE>
(c) Subject to Section 1.1 hereof, MS&Co. agrees to indemnify and save
harmless the Company, its present and future officers, directors, employees and
agents, from and against any and all liabilities, penalties, fines, forfeitures,
demands, claims, causes of action, suits and costs and expenses incidental
thereto (including costs of defense, settlement and reasonable attorney's fees),
which any or all of them may hereafter suffer, incur, be responsible for or pay
out as a result of bodily injuries (including death) to any person, damage
(including loss of use) to any property (public or private), or any violation or
alleged violation of statutes, ordinances, orders, rules or regulations of any
governmental entity or agency, to the extent such are caused by, or arise out of
breach of any warranties by, MS&Co., or any grossly negligent or willful act or
omission of MS&Co., its employees, subcontractors or agents arising out of the
performance of this Agreement.
(d) The Company shall give written notice to MS&Co. of a claim for
indemnification under this provision within thirty (30) days following the
Company's first knowledge of the event or occurrence which gives rise to that
claim. Upon receipt of notice, MS&Co. shall retain counsel to defend the Company
and will pay such counsel reasonable attorney's fees and other litigation
expenses.
4.2 Survival. The obligations of the parties under this Article IV shall
survive the termination of this Agreement.
ARTICLE V
---------
MISCELLANEOUS
-------------
5.1 Force Majeure. Any failure of any party to perform any of its
obligations hereunder shall not constitute a breach or nonperformance of this
Agreement if such failure is due to circumstances beyond its control (an "Event
of Force Majeure"), including, but not limited to, any requisition by any
government authority, act of war, strike, boycott, lockout, picketing, riot,
sabotage, civil commotion, insurrection, epidemic, disease, act of God, fire,
flood, accident, explosion, earthquake, storm, failure of public utilities or
common carriers, mechanical failure, embargo or prohibition imposed by any
governmental body or agency having authority over the party, provided that upon
the elimination of such circumstances the obligations of such party shall
continue in full force and effect thereafter. The party affected by such
circumstance shall give prompt notice thereof to the other party hereto. Any
affected party shall use its best efforts to minimize the duration and
consequences of, and to eliminate, any such circumstances.
5.2 Independent Contractor Status. MS&Co. shall be deemed an
independent contractor in the performance of all Services hereunder and not a
partner, subcontractor or other legal representative of the Company. Neither
party hereto shall have the right or authority to assume, create or incur any
liability or obligation of any kind, express or implied, against or in the name
of or on behalf of any other party except in accordance with the explicit terms
of this Agreement.
<PAGE>
5.3 Notices. Unless otherwise specified in this Agreement, all notices,
demands, elections, requests and other communications which any party to this
Agreement may desire or be required to give hereunder shall be in writing and
shall be given by delivering the same by a reputable courier service which
requires a signature upon delivery or by mailing the same by registered mail,
postage prepaid, return receipt requested, or by telefax with receipt
confirmation, addressed:
if to the Company, to:
Siebert, Brandford, Shank & Co., LLC
100 Renaissance Center, Suite 1601
Detroit, Michigan 48243
Attention: Suzanne F. Shank
Fax: (313) 396-0096
and
Siebert, Brandford, Shank & Co., LLC
220 Sansome Street, 15th Floor
San Francisco, California 94104
Attention: Napoleon Brandford III
Fax: (415) 439-4480
if to MS&Co., to:
Muriel Siebert & Co., Inc.
885 Third Avenue, Suite 1720
New York, New York 10022
Attention: Muriel F. Siebert
Fax: (212) 838-0647
or to any other address designated by either party in a notice given to the
other party pursuant to the provisions of this section. All notices given as in
this Section 5.3 provided shall be deemed to have been given or served on the
date delivered.
5.4 Headings and Captions. The headings and captions contained in this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning or interpretation of this Agreement.
5.5 Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof, and all prior
agreements and understandings between the parties pertaining to the subject
matter hereof are superseded hereby. There are no representations, warranties,
covenants or undertakings with respect hereto, other than those set forth or
referred to herein. No rights in favor of third parties are hereby created.
<PAGE>
5.6 Amendments, Modification. This Agreement may not be amended except in a
written instrument signed by both of the parties hereto expressly stating it is
an amendment to this Agreement. No course of dealing will be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or
obligations of any party under or by reason of this Agreement.
5.7 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but both of which together shall constitute but one
and the same instrument and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
5.8 Choice of Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws (and not the conflicts of laws
rules) of the State of New York applicable to contracts made and to be performed
therein.
5.9 Waiver; Severability. A failure of any party to insist in any instance
upon the strict and punctual performance of any provision of this Agreement
shall not constitute a waiver of such provision. No party shall be deemed to
have waived any right, power or privilege under this Agreement or any provisions
hereof unless such waiver shall have been in writing and duly executed by the
party to be charged with such waiver, and such waiver shall be a waiver only
with respect to the specific instance involved and shall in no way impair the
rights of the waiving party or the obligations of the other party in any other
respect or any other time. If any provision of this Agreement shall be waived,
or be invalid, illegal or unenforceable, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain binding and in full force
and effect.
5.10 Relationship of the Parties. In all matters relating to this
Agreement, each party hereto shall be solely responsible for the acts of its
employees, and employees of one party shall not be considered employees of the
other party. Except as otherwise provided herein, no party shall have any right,
power or authority to create any obligation, express or implied, on behalf of
the other party.
5.11 No Third Party Rights. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any other persons other than the parties hereto and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligations or liability of any third persons to any
party to this Agreement, nor shall any provision give any third parties any
right to subrogation or action over or against any party to this Agreement. This
Agreement is not intended to and does not create any third-party beneficiary
rights whatsoever.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Services Agreement as of the day and year first
above written.
SIEBERT, BRANDFORD,
SHANK & CO., LLC
By: /S/ SUZANNE F. SHANK
--------------------------------
Title: President
-----------------------------
MURIEL SIEBERT & CO., INC.
By: /S/ MURIEL F. SIEBERT
--------------------------------
Title: President
-----------------------------
SUBSIDIARIES OF THE REGISTRANT
Muriel Siebert & Co., Inc.
Delaware
Siebert Brandford Shank & Co., LLC
Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 231,029
<SECURITIES> 10,116,248
<RECEIVABLES> 3,141,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,922,454
<PP&E> 701,586
<DEPRECIATION> 251,332
<TOTAL-ASSETS> 14,372,708
<CURRENT-LIABILITIES> 4,271,143
<BONDS> 3,000,000
0
0
<COMMON> 52,359
<OTHER-SE> 7,049,206
<TOTAL-LIABILITY-AND-EQUITY> 14,372,708
<SALES> 0
<TOTAL-REVENUES> 24,163,179
<CGS> 0
<TOTAL-COSTS> 21,997,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,165,435
<INCOME-TAX> 953,000
<INCOME-CONTINUING> 1,212,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,212,435
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
