As filed with the Securities and Exchange Commission on July 6, 1998
Registration No. 333-49843
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
SIEBERT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
New York 6211 11-1796714
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or organization) Code Number) Number)
885 Third Avenue, Suite 1720
New York, New York 10022
(212) 644-2400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Copy to:
Richard M. Feldman Sarah Hewitt, Esq.
Siebert Financial Corp. Brown Raysman Millstein Felder & Steiner, LLP
885 Third Avenue, Suite 1720 120 West 45th Street
New York, New York 10022 New York, New York 10036
(212) 644-2400 (212) 944-1515
(Name, address, including zip code,
and telephone number, including
area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective date of this Registration Statement and the
effective date of the Rights Offering described herein.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]______
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum Amount of
Amount to be Aggregate Price Aggregate Registration
Title of Each Class of Securities to be Registered Registered Per Share (1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 1,100,000 shares (2) $ 10.6875 $ 11,756,250 $ 3,540(3)
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Rights to Purchase Shares of Common Stock 1,100,000 rights (4) == == ==
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933, as amended.
(2) Represents the maximum number of shares of Common Stock, par value $.01 per
share, issuable upon the exercise of the Rights to purchase shares of
Common Stock to be distributed in connection with the Rights Offering
described in this Registration Statement.
(3) $4,462 was paid with the Registration Statement filed with the Securities
and Exchange Commission on April 10, 1998.
(4) Represents the maximum number of Rights which may be issued in connection
with the Rights Offering described in this Registration Statement.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
Exhibit Index on Page II-I
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<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP.
(Cross Reference Sheet Furnished Pursuant to
Item 501(b) of Regulation S-K)
Item Number and Caption in Form S-1 Location in Prospectus
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<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus........................... Cover page.
2. Inside Front and Outside Back Cover Pages
of Prospectus............................................ Inside front and outside back cover page.
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............................. Prospectus Summary; Investment Considerations.
4. Use of Proceeds............................................ Use of Proceeds.
5. Determination of Offering Price............................ Cover page; Prospectus Summary The Rights Offering.
6. Dilution................................................... Investment Considerations -- Immediate Dilution.
7. Selling Security Holders................................... Inapplicable.
8. Plan of Distribution....................................... Cover page; The Rights Offering; Plan of
Distribution
9. Description of Securities to be Registered................. Cover page; Prospectus Summary; The Rights Offering;
Description of Capital Stock.
10. Interests of Named Experts and Counsel..................... Legal Matters; Experts; Management.
11. Information with Respect to the Registrant................. Prospectus Summary; Dividend Policy; Price Range of
Common Stock; Capitalization; Selected Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Principal Shareholders;
Description of Capital Stock; Financial Statements.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................... Inapplicable.
</TABLE>
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PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED JULY 6, 1998
1,100,000 Shares of Common Stock
[logo] SIEBERT FINANCIAL CORP.
Rights Offering
Siebert Financial Corp. (the "Company") is distributing to holders of
record of its common stock, par value $.01 per share (the "Common Stock"),
outstanding as of July ___, 1998 (the "Record Date") transferable subscription
rights (the "Rights") to subscribe for and purchase additional shares of Common
Stock for a price of $______ per share (the "Subscription Price").
Each shareholder will receive one (1) transferable Right for each share
of Common Stock held of record on the Record Date. Each Right will be
exercisable for one (1) share of Common Stock. No fractional Rights or cash in
lieu thereof will be issued or paid. Holders of Rights are entitled to purchase
for the Subscription Price one share of Common Stock for each Right held. Record
Date shareholders who fully exercise all Rights distributed to them will also be
entitled to subscribe at the Subscription Price for shares of Common Stock that
are not otherwise purchased pursuant to the exercise of Rights, subject to
pro-ration by the Company under certain circumstances. Once a holder of Rights
has exercised such Rights, such exercise may not be revoked. The Rights will be
evidenced by transferable subscription certificates ("Subscription
Certificates"). The Company's majority shareholder, Chair and President, Muriel
F. Siebert, has indicated to the Company that to encourage increased public
ownership of the Common Stock, and consistent with her waiving her receipt of
past cash dividends, she intends to waive the receipt of the Rights to which she
would otherwise be entitled. An aggregate of up to approximately 1,100,000
shares of Common Stock (the "Underlying Shares") will be sold upon exercise of
the Rights. The distribution of the Rights and the sale of the shares of Common
Stock upon the exercise of the Rights is referred to herein as the "Rights
Offering." See "THE RIGHTS OFFERING."
The Rights will expire at 5:00 p.m., New York City time, on _________,
August __, 1998 (the "Expiration Date"). Holders of Rights are encouraged to
consider carefully the exercise or sale of the Rights by the Expiration Date.
After the Expiration Date, unexercised Rights will be null and void. See "THE
RIGHTS OFFERING."
REFERENCE IS MADE TO "INVESTMENT CONSIDERATIONS" BEGINNING ON PAGE 9
WHICH CONTAINS MATERIAL INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH
THE SECURITIES BEING OFFERED HEREBY.
The Common Stock is traded in the Nasdaq SmallCap Market under the
symbol "SIEB," and the Rights will trade in the same market under the symbol
"SIEBR." The closing sale price of the Common Stock in the Nasdaq SmallCap
Market on July ____, 1998 was $____________ per share. See "Price Range of
Common Stock."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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Price to Shareholder Proceeds to the Issuer(1)
- --------------------------------------------------------------------------------
Per Share $______ $______
- --------------------------------------------------------------------------------
Total: 1,100,000 Shares $__________ $___________
- --------------------------------------------------------------------------------
(1) Before deducting estimated expenses of the offering by the Company of
$235,000.
The date of this Prospectus is July _____, 1998.
2
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 (together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Rights and the underlying
shares of Common Stock. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC and certain items of which
may be contained in schedules and exhibits to the Registration Statement as
permitted by the rules and regulations of the SEC to which reference is hereby
made for further information with respect to the Company, the Rights and the
underlying shares of Common Stock. Items of information omitted from this
Prospectus but contained in the Registration Statement may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the SEC: 7 World Trade Center, New York, New York 10048, and Citicorp
Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
maintains a Web site that contains reports, proxy statements and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the Web site is http://www.sec.gov.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information can be inspected
and copied at the public reference facilities maintained by the SEC referred to
above. In addition, copies of such reports, proxy statements and other
information concerning the Company may also be inspected and copied at the
offices of The Nasdaq Stock Market, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006-1506 where the Common Stock is traded.
3
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN THE FINANCIAL AND OTHER
INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY HAS BEEN ADJUSTED TO
GIVE EFFECT TO THE 4 FOR 1 STOCK SPLIT EFFECTIVE APRIL 7, 1998. THIS MEMORANDUM
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT
MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE THE MATTERS SET FORTH UNDER "INVESTMENT
CONSIDERATIONS" AND ELSEWHERE IN THIS MEMORANDUM.
THE COMPANY
The Company, through its wholly owned subsidiary, Muriel Siebert & Co.,
Inc. ("Siebert"), is a retail discount brokerage and municipal and corporate
investment banking firm operating through 14 offices throughout the country.
Siebert provides services to its customers through two main divisions. Through
its Retail division, Siebert provides discount brokerage and related services to
its retail investor accounts. Through its Capital Markets division, Siebert
offers institutional clients equity execution services on an agency basis as
well as equity, fixed income and municipal underwriting and investment banking
services. In addition, this division participates in the secondary markets for
Municipal and U.S. Treasury securities and also trades listed closed end bond
funds and certain other securities for its own account. This proprietary trading
business is segregated from that of the agency business executed on behalf of
institutional clients.
The Company has acquired accounts from other discount brokerage firms
and, from time to time, has considered acquisitions of other discount brokerage
firms or their accounts. Although the Company intends to pursue these
opportunities, there can be no assurance that the Company will be able to
successfully consummate any such acquisitions in the future.
The Company was ranked third among discount brokerage firms in the July
1998 issue of SMART MONEY MAGAZINE in part based upon "a huge advance in its
responsiveness and solid gains in on-line trading, mutual funds and breadth of
products." In addition, unlike many discount brokerage firms, the firm offers a
wide variety of underwriting and investment banking services. Such services,
offered through its Capital Markets division, include acting as senior manager,
co-manager or otherwise participating in the underwriting or sales syndicates of
municipal, corporate debt and equity, government agency and mortgage/asset
backed securities issues.
Muriel F. Siebert, the first woman member of the New York Stock
Exchange, is the Chair and President and owns approximately 96% of the
outstanding Common Stock of the Company. The Company believes that it is the
largest Woman-Owned Business Enterprise ("WBE") that is a New York Exchange
member in the capital markets business in the country and the largest Minority
and Women's Business Enterprise ("MWBE") in the tax exempt underwriting business
in the country through its affiliate, Siebert, Brandford, Shank & Co., L.L.C.
The Company was incorporated on April 9, 1934 under the laws of the State of
New York. Siebert
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4
<PAGE>
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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 and their telephone number is (212)
644-2400.
THE RIGHTS OFFERING
Rights...............................Each shareholder will receive one (1)
transferable Right for each share of Common
Stock held of record on __________, July
_____, 1998, the Record Date. Each Right
will be exercisable for one (1) share of
Common Stock. The Company's majority
shareholder, Chair and President, Muriel F.
Siebert, has indicated to the Company that
to encourage increased public ownership of
the Common Stock, she intends to waive
receipt of the Rights to which she would
otherwise be entitled. An aggregate of up
to approximately 1,100,000 shares of Common
Stock (the "Underlying Shares") will be
sold upon exercise of the Rights. The
distribution of the Rights and the sale of
the shares of Common Stock upon the
exercise of the Rights is referred to
herein as the "Rights Offering." See "THE
RIGHTS OFFERING -- The Rights."
Subscription Price...................$______ in cash per share of Common Stock
subscribed for pursuant to the Basic
Subscription Privilege or the
Oversubscription Privilege (the
"Subscription Price"). The Subscription
Price of the Rights has been determined by
the Board of Directors of the Company based
upon an opinion of Advest, Inc., its
financial adviser, and represents a
discount to the market price of the Common
Stock at the date of this Prospectus. See
"THE RIGHTS OFFERING -- Subscription Price"
and "--Opinion of Financial Adviser."
Rights Ticker Symbol ................SIEBR
Record Date..........................__________, July _____, 1998
Expiration Date......................__________, August _____, 1998, at 5:00
p.m., New York City time.
Basic Subscription Privilege.........Each Right will be exercisable for one (1)
share of Common Stock (the "Basic
Subscription Privilege"). See "THE RIGHTS
OFFERING -- Subscription Privileges --
Basic Subscription Privilege."
Oversubscription Privilege...........Record Date shareholders who fully exercise
all Rights distributed to them will also be
entitled to subscribe at the Subscription
Price for shares of Common Stock that are
not otherwise purchased pursuant to the
exercise of Rights,
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5
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subject to proration by the Company under
certain circumstances (the
"Oversubscription Privilege"). If the
Underlying Shares not subscribed for
through the Basic Subscription Privilege
("Excess Shares") are not sufficient to
satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess
Shares will be allocated pro rata (subject
to the elimination of fractional shares)
among those holders of Rights exercising
the Oversubscription Privilege, in
proportion to the number of shares
requested by them pursuant to the
Oversubscription Privilege. See "THE RIGHTS
OFFERING -- Subscription Privileges --
Oversubscription Privilege."
Transferability of Rights............The Rights are transferable, and it is
anticipated that they will trade on the
Nasdaq SmallCap Market and in the
over-the-counter market until the close of
business on the last trading day prior to
the Expiration Date. There can be no
assurance, however, that a market for the
Rights will develop or as to the prices at
which the Rights will trade. See "THE
RIGHTS OFFERING -- Listing and Trading."
The Subscription Agent will endeavor to
sell Rights for holders who have so
requested and have delivered Subscription
Certificates with the instruction for sale
properly executed to the Subscription Agent
by 11:00 a.m., New York City time, on
__________, August _____, 1998. Any
brokerage commission, taxes and other
direct expenses of sale will be paid by the
holder. There can be no assurance that the
Subscription Agent will be able to sell any
Rights or as to the prices the Subscription
Agent may be able to obtain in such sales.
See "THE RIGHTS OFFERING -- Method of
Transferring Rights."
The right to subscribe for additional
shares of Common Stock pursuant to the
Oversubscription Privilege is not
transferable.
Procedure for Exercising Rights......Basic Subscription Privileges and
Oversubscription Privileges may be
exercised by properly completing the
Subscription Certificate and forwarding
such Subscription Certificate (or following
the Guaranteed Delivery Procedures
described herein), with payment of the
Subscription Price for each Underlying
Share subscribed for pursuant to the Basic
Subscription Privilege and the
Oversubscription Privilege, to the
Subscription Agent on or prior to the
Expiration Date. If the mail is used to
forward Subscription Certificates, it is
recommended that insured, registered mail
be used. See "THE RIGHTS OFFERING --
Exercise of Rights."
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6
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ONCE A HOLDER OF RIGHTS HAS EXERCISED THE
BASIC SUBSCRIPTION PRIVILEGE AND, IF
APPLICABLE, THE OVERSUBSCRIPTION PRIVILEGE,
SUCH EXERCISE MAY NOT BE REVOKED. See "THE
RIGHTS OFFERING -- No Revocation."
Procedure for Exercising Rights by
Foreign Shareholders................Subscription Certificates will not be
mailed to Holders whose addresses are
outside the United States but will be held
by the Subscription Agent for their
account. To exercise such Rights, such
Holders must notify the Subscription Agent
on or prior to 11:00 a.m., New York City
time, on __________, August _____, 1998, at
which time (if no instructions have been
received) the Rights represented thereby
will be sold, if feasible, and the net
proceeds, if any, remitted to such Holders.
See "THE RIGHTS OFFERING -- Foreign and
Certain Other Shareholders."
Persons Holding Shares, or Wishing to
Exercise Rights, Through Others....Persons holding shares of Common Stock and
receiving the Rights distributable with
respect thereto through a broker, dealer,
commercial bank, trust company or other
nominee, as well as persons holding
certificates representing shares of Common
Stock personally who would prefer to have
such institutions effect transactions
relating to the Rights on their behalf,
should contact the appropriate institution
or nominee and request it to effect the
transaction for them. See "THE RIGHTS
OFFERING -- Exercise of Rights."
Issuance of Common Stock.............Certificates representing shares of Common
Stock purchased pursuant to the Basic
Subscription Privilege will be delivered to
subscribers as soon as practicable after
the Expiration Date. Certificates
representing shares of Common Stock
purchased pursuant to the Oversubscription
Privilege will be delivered to subscribers
as soon as practicable after the Expiration
Date and after all prorations have been
effected. See "THE RIGHTS OFFERING --
Subscription Privileges."
Use of Proceeds......................The net proceeds from the Rights Offering
will be used to build up and promote the
Company's internet trading service and for
general corporate purposes. See "USE OF
PROCEEDS."
Subscription Agent...................American Stock Transfer & Trust Company
(the "Subscription Agent"). The
Subscription Agent's telephone number is
(800) 937-5449.
Information Agent....................D.F. King & Co., Inc. (the "Information
Agent"). The
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Information Agent's telephone number is
1-800-859-8508.
Federal Income Tax Considerations....See "THE RIGHTS OFFERING -- Certain Federal
Income Tax Consequences to Holders" and
"THE RIGHTS OFFERING -- Certain United
States Tax Consequences to Non-United
States Holders."
Shares of Common Stock
Outstanding prior to
Rights Offering....................Approximately ___ shares outstanding on the
Record Date.
Shares of Common Stock
Outstanding after Rights Offering..Approximately __________ shares based on
the number of shares outstanding on the
Record Date.
Investment Considerations ...........In addition to the other information
contained in this Prospectus and the
documents incorporated by reference herein,
prospective purchasers should consider the
investment considerations and other risk
factors set forth elsewhere herein prior to
deciding whether to exercise or sell their
Rights.
Selected Financial Data .............See "SELECTED FINANCIAL DATA."
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8
<PAGE>
INVESTMENT CONSIDERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO ALL THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE PURCHASERS SHOULD
CONSIDER THE INVESTMENT CONSIDERATIONS SET FORTH BELOW PRIOR TO DECIDING WHETHER
TO EXERCISE OR SELL THE RIGHTS.
MARKET CONDITIONS
The securities business is, by its nature, subject to significant
risks, particularly in volatile or illiquid markets, including the risk of
trading losses, losses resulting from the ownership or underwriting of
securities, counterparty failure to meet commitments, customer fraud, employee
fraud, issuer fraud, errors and misconduct, failures in connection with the
processing of securities transactions and litigation.
The Company's principal business activity, retail broker-dealer
operations, as well as its investment banking, institutional sales and other
services, are highly competitive and subject to various risks, volatile trading
markets and fluctuations in the volume of market activity. The securities
business is directly affected by many factors, including economic and political
conditions, broad trends in business and finance, legislation and regulation
affecting the national and international business and financial communities,
currency values, inflation, market conditions, the availability and cost of
short-term or long-term funding and capital, the credit capacity or perceived
creditworthiness of the securities industry in the marketplace and the level and
volatility of interest rates. These and other factors can contribute to lower
price levels for securities and illiquid markets.
Lower price levels of securities may result in (i) reduced volumes of
securities, options and futures transactions, with a consequent reduction in
commission revenues, and (ii) losses from declines in the market value of
securities held in trading, investment and underwriting positions. In periods of
low volume, levels of profitability are further adversely affected because
certain expenses remain relatively fixed. Sudden sharp declines in market values
of securities and the failure of issuers and counterparties to perform their
obligations can result in illiquid markets which, in turn, may result in the
Company having difficulty selling securities. Such negative market conditions,
if prolonged, may also lower the Company's revenues from investment banking and
other activities.
As a result of the varied risks associated with the securities
business, which are beyond the Company's control, the Company's commission and
other revenues could be adversely affected. A reduction in revenues or a loss
resulting from the underwriting or ownership of securities could have a material
adverse effect on the Company's results of operations and financial condition.
In addition, as a result of such risks, the Company's revenues and operating
results may be subject to significant fluctuations from quarter to quarter and
from year to year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Business Environment."
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
9
<PAGE>
significantly larger and better capitalized than Siebert. The Company's
municipal bond underwriting business also encounters significant competition
from firms engaged in the municipal finance business. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Business
Environment."
During 1996 and 1997 and the first half of 1998, 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, 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. Continued competition from ultra low cost,
flat fee brokers and broader service offerings from other discount brokers could
also limit the Company's growth or even lead to a decline in the Company's
customer base which would adversely effect its results of operations.
Industry-wide changes in trading practices are expected to cause continuing
pressure on fees earned by discount brokers for the sale of order flow. Some
such firms are offering their services over the facilities of the internet and
have devoted more resources to and have more elaborate web sites than the
Company. See "Use of Proceeds." Many of the flat fee brokers, however, impose
charges for services such as mailing, transfers and handling exchanges which
Siebert does not and also direct their execution to captive 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.
See "Business--Competition."
INTERNET DEVELOPMENT
Although the Company has been offering internet trading for
approximately one year, it has had only limited experience in this area relative
to some other companies in its industry. The Company's ability to develop its
internet business and enhance its business through the internet may depend on
its ability to attract and retain management personnel with internet experience.
There is no assurance that the Company will be able to attract, hire and retain
qualified personnel. See "Use of Proceeds."
To the extent that the net proceeds from the sale of the shares of the
Company's Common Stock offered hereby is used to develop the Company's internet
retail brokerage business, much of such expenditures will be expensed as made
and the revenues, if any, generated therefrom are likely to be realized in
subsequent accounting periods which may initially have a material adverse effect
on the Company's results of operations. See "Use of Proceeds."
10
<PAGE>
DEPENDENCE ON KEY MANAGEMENT
The success of the Company is principally dependent on its founder,
Muriel F. Siebert, Chair and President. The loss of the services of Ms. Siebert
would adversely affect the Company. See "Management." The success of the
Company's municipal bond underwriting business is dependent on the services of
two of its principals, Napoleon Brandford III and Suzanne Shank, the loss of
whose services would adversely affect the Company.
CAPITALIZATION OF SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
The Company owns 49% of Siebert, Brandford, Shank & Co., L.L.C., a tax
exempt underwriting business. Two individuals, Napoleon Brandford III and
Suzanne Shank, own the remaining 51%. Siebert, Brandford, Shank & Co., L.L.C. is
currently in the process of borrowing additional capital to enhance its ability
to participate in municipal bond underwritings and its ability to sell its bonds
to its customers. If such capital is not borrowed or otherwise raised, this
would have a material negative impact on such participation and such ability to
sell its bonds to customers. Management believes that it will be successful in
raising such capital. See "Business--Capital Markets Division."
RISKS ASSOCIATED WITH MINORITY AND WOMEN-OWNED BUSINESS PROGRAMS
Minority and Women-owned business programs generally operate under the
authority of state and local governments or their related agencies. Changes in
laws or policies of such governments or their agencies with respect to such
programs may adversely affect the Company's participation in municipal bond and
equity underwritings as well as the Company's execution of institutional equity
transactions. Management believes that, irrespective of the legal requirements,
as long as there is a "sensitivity to diversity and competitive equality,"
opportunities will be available for qualified minority and women-owned
businesses, especially in those locales that have a significant minority
population.
PRINCIPAL SHAREHOLDER
Upon completion of the Offering and if the 1,100,000 shares are sold to
the public, Ms. Siebert will own approximately 92% of the Company's outstanding
Common Stock. Ms. Siebert will have the power to elect the entire Board of
Directors and, except as otherwise provided by law or the Company's Certificate
of Incorporation, to approve any action requiring shareholder approval without a
shareholders' meeting. See "Management" and "Principal Shareholders."
PRINCIPAL TRANSACTIONS
The Company's Capital Markets division underwriting and trading
activities involve the purchase, sale or short sale of securities as principal.
These activities involve the risks of changes in the market prices of such
securities and of decreases in the liquidity of the securities markets, which
could limit the Company's ability to resell securities purchased or to
repurchase securities sold short. In addition, these activities subject the
Company's capital to significant risks that counterparties will fail to perform
their obligations.
11
<PAGE>
From time to time, the Company establishes short positions during the
course of its trading activities. It is a characteristic of short positions that
any loss sustained on closing out the position may exceed the liability related
thereto as shown on the Company's financial statements.
RISKS ASSOCIATED WITH FEDERAL AND STATE REGULATION
The Company's business is, and the securities industry is, subject to
extensive regulation in the United States, at both the Federal and state level.
As a matter of public policy, regulatory bodies are charged with safeguarding
the integrity of the securities and other financial markets and with protecting
the interests of customers participating in those markets and not with
protecting the interests of the Company's shareholders. In addition,
self-regulatory organizations and other regulatory bodies in the United States,
such as the SEC, the New York Stock Exchange (the "NYSE"), the National
Association of Securities Dealers, Inc. (the "NASD") and the Municipal
Securities Rulemaking Board (the "MSRB"), require strict compliance with their
rules and regulations. Failure to comply with any of these laws, rules or
regulations, some of which are subject to the uncertainties of interpretation,
could result in a variety of adverse consequences including civil penalties,
fines, suspension or expulsion, which could have a material adverse effect upon
the Company.
The laws and regulations, as well as governmental policies and
accounting principles, governing the financial services and banking industries
have changed significantly over recent years and are expected to continue to do
so. During the last several years Congress has considered numerous proposals
that would significantly alter the structure and regulation of such industries.
The Company cannot predict which changes in laws or regulations, or in
governmental policies and accounting principles, will be adopted, but such
changes, if adopted, could materially and adversely affect the business and
operations of the Company. See "Business--Regulation."
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The SEC, the NYSE and various other securities and commodities
exchanges and other regulatory bodies in the United States have rules with
respect to net capital requirements which affect the Company. These rules have
the effect of requiring that at least a substantial portion of a broker-dealer's
assets be kept in cash or highly liquid investments. Compliance with the net
capital requirements by the Company could limit operations that require
intensive use of capital, such as underwriting or trading activities. These
rules could also restrict the ability of the Company to withdraw capital from
Siebert, even in circumstances where Siebert has more than the minimum amount of
required capital, which, in turn, could limit the ability of the Company to
implement its strategies. In addition, a change in such rules, or the imposition
of new rules, affecting the scope, coverage, calculation or amount of such net
capital requirements, or a significant operating loss or any unusually large
charge against net capital, could have similar adverse effects. See
"Business--Net Capital Requirements."
SIGNIFICANT INCREASE IN OVERHEAD
During 1996 and 1997, Siebert opened retail discount brokerage offices
in Morristown, New Jersey and Palm Beach and Surfside (Bal Harbour), Florida and
relocated its office in Los Angeles. 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 Siebert Brandford Shank division has
opened offices
12
<PAGE>
in San Francisco and Seattle and has opened or assumed the leases for additional
offices in San Francisco, Seattle, Houston, Chicago, Detroit, Los Angeles and
Dallas. As a result of the new office expenses and the additional compensation
expenses, Siebert's overhead expense has increased significantly. There can be
no assurance that Siebert will generate sufficient additional revenue to cover
such expense which could have a material adverse effect upon the Company. The
Company intends to build up and promote its internet trading service and to
expend approximately $__________ principally on advertising and promotion of the
internet service, development of such service and salaries for additional
personnel for such service.
LIQUIDITY
Until November 1996, there was no public market for the Common Stock or
any other securities of the Company. In addition, as of June 30, 1998,
approximately 1,006,000 shares, or approximately 3.7% of the shares outstanding,
were currently held by the public. Although the Common Stock is traded in the
Nasdaq SmallCap Market, there can be no assurance that an active public market
will continue.
SHARES ELIGIBLE FOR FUTURE SALE
There will be approximately 22,096,000 shares of Common Stock
outstanding immediately after completion of this Rights Offering, 20,434,000 of
which, owned or controlled by Muriel F. Siebert, will be "restricted securities"
under the Securities Act, and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144 thereunder.
However, Ms. Siebert has agreed not to sell any shares of Common Stock owned by
her directly for a period of 60 days from the date of this Prospectus. In
addition, employees having options to purchase an aggregate of 169,480 shares of
Common Stock are currently vested and can be exercised and the underlying shares
of Common Stock sold. A significant portion of the shares not owned by Ms.
Siebert will be freely tradeable in the public markets. Sale of a substantial
number of shares of Common Stock in the public market, whether by Ms. Siebert or
other shareholders of the Company, could adversely affect the prevailing market
price of the Common Stock.
UNCERTAIN MARKET FOR RIGHTS; MARKET CONDITIONS; MARKET CONSIDERATIONS
Because the Rights are new securities, the trading market for the
Rights may be volatile. Moreover, there can be no assurance that a market for
the Rights will develop or as to the price at which the Rights will trade.
The Subscription Price of the Rights has been determined by the Board
of Directors of the Company based upon an opinion of Advest, Inc., its financial
adviser, and represents a discount to the market price of the Common Stock at
the date of this Prospectus. However, there can be no assurance that a
subscribing Rights holder will be able to sell shares of Common Stock purchased
in the Rights Offering at a price equal to or greater than the Subscription
Price. When made, the election of a Rights holder to exercise Rights in the
Rights Offering is irrevocable. Moreover, until certificates are delivered,
subscribing Rights holders may not be able to sell the Common Stock that they
have purchased in the Rights Offering. Certificates representing shares of
Common Stock purchased pursuant to the Basic Subscription Privilege will be
delivered to subscribers as soon as practicable after the Expiration Date.
Certificates representing shares of Common Stock purchased pursuant to the
Oversubscription Privilege
13
<PAGE>
will be delivered to subscribers as soon as practicable after the Expiration
Date and after all prorations have been effected. No interest will be paid to
Rights holders on funds delivered to the Subscription Agent pursuant to the
exercise of Rights pending delivery of shares of Common Stock acquired upon
exercise of Rights.
IMPACT OF RIGHTS OFFERING ON HOLDERS OF COMMON STOCK; DILUTION
The Rights entitle the holders of shares of Common Stock to purchase
shares of Common Stock at a price below the prevailing market price of the
Common Stock immediately prior to the commencement of the Rights Offering. Due
to the waiver by Ms. Siebert of the receipt of Rights to which she would
otherwise be entitled, holders of shares of Common Stock who exercise their
Rights through the Basic Subscription Privilege and the Oversubscription
Privilege will increase their proportionate interest in their equity ownership
and voting power of the Company on a fully-diluted basis. Holders who do not
exercise their Rights will experience a decrease in their proportionate interest
in the equity ownership of the Company. The sale of the Rights may not
compensate a holder for all or any part of the reduction in the market value of
such shareholder's shares of Common Stock, if any, resulting from the Rights
Offering. Shareholders who do not exercise or sell their Rights will relinquish
any value inherent in the Rights.
Assuming all of the Rights are exercised and based on 20,998,840 shares
of Common Stock outstanding on July ____, 1998, the Record Date, the
consummation of the Rights Offering would result (on a pro forma basis as of
such date) in an increase of approximately 1,100,000 shares of Common Stock.
IMPACT OF RIGHTS OFFERING ON HOLDERS OF OPTIONS & RESTRICTED STOCK
The Company will not distribute Rights to holders of vested or
non-vested options outstanding on the Record Date pursuant to the Company's
Stock Option Plan. Rather, the Company will adjust the exercise price of such
vested options by a percentage calculated by dividing the number of shares of
Common Stock issued pursuant to the Rights Offering by the number of outstanding
shares of Common Stock on the Record Date plus the number of shares of Common
Stock issued pursuant to the Rights Offering. Holders of restricted stock
pursuant to the Company's Restricted Stock Award Plan will be entitled to
receive Rights for each restricted share held as of the Record Date.
CONSTRUCTIVE DISTRIBUTIONS UNDER THE FEDERAL TAX CODE
The distribution of Rights pursuant to the Rights Offering should not
result in a taxable distribution of property for Federal income tax purposes to
the holders of shares of Common Stock. However, the provisions of the Internal
Revenue Code and the Treasury Regulations issued thereunder relating to the
treatment of distributions such as the Rights Offering are not clear as to
certain aspects of the analysis required to avoid such a taxable distribution,
and the tax consequences of the Rights Offering also may be affected by the
occurrence of future events. Accordingly, counsel to the Company is unable to
render an opinion as to the applicability of such provisions to the Rights
Offering. See "THE RIGHTS OFFERING--Certain Federal Income Tax Consequences to
Holders--Constructive Distributions under Section 305 of the Code."
IMMEDIATE DILUTION
Subscribing Rights holders will experience dilution, upon the sale of
such Common Stock, in net tangible book value of $_____ per share, based on a
closing price, as of July _____, 1998, of $_______ per share.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ from those projected in any forward-looking statements for
the reasons detailed in the other sections of this "Investment Considerations "
portion of, and elsewhere in, this Prospectus.
15
<PAGE>
USE OF PROCEEDS
The net proceeds available to the Company from the Rights Offering are
estimated to be $___________ if all the Rights are exercised and after deducting
expenses payable by the Company estimated to be approximately $235,000.
The Company intends to use approximately $_____________ of the net
proceeds from the Rights Offering to build up and promote its internet trading
service. Such net proceeds will be expended principally on advertising and
promotion of the internet service, development of such service and salaries for
additional personnel for such service. Any proceeds not utilized to build and
promote the internet trading service will be used for general corporate
purposes.
Pending any specific application of the net proceeds, the net proceeds
will be added to working capital and invested in short-term interest-bearing
obligations.
DIVIDEND POLICY
To date, the Company has established a practice of paying quarterly
cash dividends to its shareholders. On December 22, 1997, March 16, 1998 and
June 23, 1998, dividends of $.0225, $.0225 and $.03 per share were declared for
all shareholders of record as of December 30, 1997, March 20, 1998 and July 9,
1998, respectively. Ms. Siebert, as the majority shareholder of the Company,
waived her right to receive the three cash dividends declared by the Company and
has indicated to the Company that she intends to waive her right to receive
future cash dividends declared through 1998, if any. Shareholders who exercise
Rights will not be entitled to receive the June 23 dividend with respect to the
shares of Common Stock represented by such Rights.
Subject to statutory and regulatory constraints, prevailing financial
conditions and future earnings, the Company may pay cash dividends on its Common
Stock. 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.
16
<PAGE>
PRICE RANGE OF COMMON STOCK
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
---- ---
Period from November 12, 1996 to December 31, 1996 $ 3.00 $ 2.25
First Quarter - 1997 .............................. $ 3.09 $ 2.31
Second Quarter - 1997 ............................. $ 2.38 $ 2.31
Third Quarter - 1997 .............................. $ 2.31 $ 1.31
Fourth Quarter - 1997 ............................. $ 2.25 $ 1.88
First Quarter - 1998 .............................. $ 9.00 $ 2.42
Second Quarter - 1998 ............................. $ 19.00 $ 7.38
The closing price of the Common Stock on the Nasdaq SmallCap Market on
July ____, 1998 was $____________ per share.
As of July ______, 1998, there were approximately 200 holders of record
and approximately 1,500 additional beneficial holders of the Common Stock.
The Company currently meets the criteria for listing of its Common
Stock on the American Stock Exchange ("AMEX") and may meet the criteria for
listing of its Common Stock on the Nasdaq National Market System.
Notwithstanding its meeting the applicable criteria, there can be no assurance
that the Company will, in fact, either apply for listing or be listed on either
the Nasdaq National Market System or AMEX.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1998 as retroactively adjusted for the 4 for 1 stock split that
occurred on April 7, 1998, and as adjusted to reflect the net proceeds from the
sale of the 1,100,000 shares of Common Stock offered by the Company at a
Subscription Price of $______. See "Use of Proceeds."
March 31, 1998
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
(In thousands)
Subordinated debt to shareholder $ 3,000 $ 3,000
-------- -------
Common Stock, par value $.01, 49,000,000 210 221
shares authorized, 20,993,640 shares issued and
outstanding at March 31, 1998 and 22,093,640
shares issued and outstanding, as adjusted
Additional paid-in capital 6,609
Retained earnings 3,664 3,664
-------- -------
Total shareholders' equity 10,483
-------- -------
Total capitalization $ 13,483 $
======== =======
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<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below for the three
months ended March 31, 1998 and 1997 and for each of the years in the five year
period ended December 31, 1997 has been derived from the Company's unaudited
interim and audited annual 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 Prospectus.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
--------------------------- -------------------------
1998 1997 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income statement data:
Revenues:
Commissions and fees ........................... $4,595,905 $ 4,744,439 $18,879,674 $20,105,127
Investment banking ............................. 1,492,555 287,049 4,487,594 2,532,795
Trading profits ................................ 339,064 511,254 1,795,104 868,823
Interest and dividends ......................... 163,408 136,502 704,911 656,434
---------- ----------- ----------- -----------
6,590,932 5,679,244 25,867,283 24,163,179
---------- ----------- ----------- -----------
Expenses:
Employee compensation and benefits (1) ......... 2,348,562 1,821,896 8,208,006 9,753,847
Clearing fees, including floor brokerage........ 1,064,941 1,132,850 4,675,368 4,585,398
Advertising and promotion ...................... 449,669 901,086 2,751,755 3,265,692
Communications ................................. 409,256 432,162 1,446,817 1,359,325
Occupancy ...................................... 196,011 162,755 648,763 403,534
Interest ....................................... 100,051 92,075 418,405 290,465
Other general and administrative ............... 781,524 705,937 3,043,068 2,339,483
---------- ----------- ----------- -----------
5,350,014 5,248,761 21,192,182 21,997,744
---------- ----------- ----------- -----------
Income before provision for income taxes ............. 1,240,918 430,483 4,675,101 2,165,435
Provision for income taxes............................ 436,000 182,000 2,057,000 201,000
---------- ----------- ----------- -----------
Net income - historical............................... $ 804,918 $ 248,483 $ 2,618,101 1,964,435
========== =========== ===========
Pro forma provision for income taxes (2).............. 752,000
-----------
Net income - pro forma................................ 1,212,435
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
===========
Net income per share of common stock (basic and diluted):
Historical..................................... $ .04 $ .01 $ .12
Pro forma...................................... $ .06
Supplemental pro forma......................... $ .14
Weighted average shares deemed outstanding (basic) ... 20,992,018 20,945,940 20,949,484 20,943,588
Weighted average shares deemed outstanding (diluted) . 21,608,615 20,945,940 20,949,484 20,943,588
Statement of financial condition data (at period-end):
Total assets ...................................... $19,999,345 $16,307,198 $17,881,589 $14,372,708
Total liabilities excluding subordinated .......... 6,516,359 5,986,091 5,209,032 4,271,143
borrowings
Subordinated borrowings to majority shareholder ... 3,000,000 3,000,000 3,000,000 3,000,000
Shareholders' equity .............................. 10,482,986 7,321,107 9,672,557 7,101,565
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income statement data:
Revenues:
Commissions and fees ........................... $15,645,334 $12,128,797 $14,349,051
Investment banking ............................. 1,396,967 1,536,030 2,462,309
Trading profits ................................ 2,608,078 3,215,288 3,133,722
Interest and dividends ......................... 1,389,612 462,618 261,198
----------- ----------- -----------
21,039,991 17,342,733 20,206,280
----------- ----------- -----------
Expenses:
Employee compensation and benefits (1) ......... 8,586,116 6,132,899 8,999,567
Clearing fees, including floor brokerage........ 4,249,050 3,967,558 4,473,740
Advertising and promotion ...................... 2,485,426 2,299,030 2,171,858
Communications ................................. 1,119,189 1,001,957 896,986
Occupancy ...................................... 326,089 323,123 323,235
Interest ....................................... 568,326 602,759 323,876
Other general and administrative ............... 2,461,122 2,458,237 1,932,143
----------- ----------- -----------
19,795,318 16,785,563 19,121,405
----------- ----------- -----------
Income before provision for income taxes .............
Provision for income taxes............................
Net income - historical............................... 1,244,673 557,170 1,084,875
Pro forma provision for income taxes (2).............. 548,000 245,000 477,000
----------- ----------- -----------
Net income - pro forma................................ $ 696,673 $ 312,170 $ 607,875
=========== =========== ===========
Supplementary pro forma adjustment:
Effect of officer's salary reduction as though
1997 salary had been in effect in 1996
Related income taxes...........................
Supplementary pro forma net income....................
Net income per share of common stock (basic and diluted):
Historical.....................................
Pro forma...................................... $ .03 $ .01 $ .03
Supplemental pro forma.........................
Weighted average shares deemed outstanding (basic) ... 20,943,588 20,943,588 20,943,588
Weighted average shares deemed outstanding (diluted) . 20,943,588 20,943,588 20,943,588
Statement of financial condition data (at period-end):
Total assets ...................................... $16,291,195 $ 9,372,230 $12,161,104
Total liabilities excluding subordinated .......... 9,154,065 3,479,773 6,825,817
borrowings
Subordinated borrowings to majority shareholder ... 2,000,000 2,000,000 2,000,000
Shareholders' equity .............................. 5,137,130 3,892,457 3,335,287
</TABLE>
- ----------------------
(1) Employee compensation and benefits include $2,975,000, $2,975,000,
$1,215,000 and $3,958,000 for 1996 through 1993, respectively, of S
corporation compensation of Muriel Siebert in excess of the amounts that
would have been paid had her 1997 compensation 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.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Company's
unaudited quarterly and audited Annual Consolidated Financial Statements and the
Notes thereto contained elsewhere in this Prospectus.
Statements in this "Management's Discussion and Analysis or Plan of
Operation" and elsewhere in this document as well as oral statements that may be
made by the Company or by officers, directors or employees of the Company acting
on the Company's behalf that are not statements of historical or current fact
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve risks and uncertainties and known and unknown factors that could cause
the actual results of the Company to be materially different from the historical
results or from any future results expressed or implied by such forward looking
statements, including, without limitation: changes in general economic and
market conditions, fluctuations in volume and prices of securities, changes and
prospects for changes in interest rates and demand for brokerage and investment
banking services, increases in competition within and without the discount
brokerage business through broader services offerings or otherwise, competition
from electronic discount brokerage firms offering greater discounts on
commissions than the Company, prevalence of a flat fee environment, decline in
participation in equity or municipal finance underwritings, decreased ticket
volume in the discount brokerage division, limited trading opportunities,
increases in expenses and changes in net capital or other regulatory
requirements.
BUSINESS ENVIRONMENT
Market conditions during the first three months of 1998 and the 1997
fiscal year reflected a continuation of the 1996 bull market characterized by
record volume and record high market levels. At the same time, 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 brokerage business. Electronic trading continues to grow as a retail
discount market segment with some firms offering very low flat rate trading
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 exchanges which the Company does not and also
direct their executions to captive market makers. Continued competition from
ultra low cost, flat fee brokers and broader service offerings from other
discount brokers could also limit the Company's growth or even lead to a decline
in the Company's customer base which would adversely affect its results of
operations. Industry-wide changes in trading practices are expected to cause
continuing pressure on fees earned by discount brokers for the sale of order
flow.
The Company, like other securities firms, is directly affected by
general economic and market conditions including fluctuations in volume and
prices of securities, changes and prospects for changes in interest rates and
demand for brokerage and investment banking services, all of which can affect
the Company's relative profitability. In periods of reduced market activity,
profitability is likely to be adversely affected because certain expenses,
including salaries and related costs, portions of communications costs and
occupancy expenses, remain relatively fixed.
Accordingly, earnings for any period should not be considered representative of
any other period.
Siebert's clearing broker has represented that its computer systems
will be year 2000 operable and fully tested by December 31, 1998. The Company's
own systems are presently being modified or replaced. The Company believes its
cost for meeting this problem will not be material.
20
<PAGE>
CURRENT DEVELOPMENTS
During the first three months of 1998, the Company, through its
Siebert, Brandford, Shank division, acted as either senior manager or co-manager
for a total of over $6.1 billion of municipal bond offerings. In addition, the
Company was appointed as senior manager for several large planned offerings
including Detroit Metro Wayne County Airport ($1 billion). There is no assurance
that such offerings will occur as planned.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total revenues for the first three months of 1998 were $6.6 million, an
increase of $912,000 or 16% over the same period in 1997. Investment banking and
interest and dividend revenues increased as compared to the prior year, however,
commission and fee income and trading profits decreased.
Commission and fee income decreased $149,000 or 3.1% to $4.6 million
due to lower commissions earned per trade resulting from the increase of lower
priced electronic trading, price reductions on other related services caused by
increased competition from ultra low cost, flat fee brokers and a reduction of
order flow fees.
Investment banking revenues increased $1.2 million or 420% to $1.5
million primarily due to the increased tax exempt underwriting activity by the
Siebert, Brandford, Shank division in 1998. This division had minimal operations
for the first three months of 1997, since it only began operations in late 1996.
Trading profits decreased $172,000 or 34% to $339,000 primarily due to
reduced income opportunities in trading of listed bond funds, the firm's
principal trading activity.
Interest and dividends increased $27,000 or 20% to $163,000 primarily
due to trading strategies which generated higher dividend income.
Total expenses for the first three months of 1998 were $5.4 million, an
increase of $101,000 or 1.9% over the same period in 1997. Employee compensation
and benefits, occupancy, interest and other general and administrative costs
increased and all other expenses decreased.
Employee compensation and benefit costs increased $527,000 or 29% to
$2.3 million primarily due to commissions paid to the Siebert, Brandford, Shank
division's sales personnel resulting from increased tax exempt underwriting
activity.
Clearing and floor brokerage fees decreased $68,000 or 6.0% to $1.1
million. Such costs decreased primarily due to a one time rebate from the
clearing broker.
Advertising and promotion expense decreased $451,000 or 50% to $450,000
due to decreased branch and service promotion.
Communications expense decreased $23,000 or 5.3% to $409,000 primarily
due to telephone contract price reductions.
Occupancy costs increased $33,000 or 20% to $196,000 principally due to
a lease extension option cancellation fee paid during 1998.
Interest expense increased $8,000 or 8.7% to $100,000 primarily due to
greater use of margin borrowings and short positions in proprietary trading
activity.
21
<PAGE>
Other general and administrative expenses increased $76,000 or 11% to
$781,000 primarily due to increased business development expenses related to the
municipal investment banking staff.
Provision for income taxes increased $254,000 or 140% to $436,000
primarily due to an increase in net income before tax in the first quarter of
1998 of $810,000 or 188% to $1.2 million over the same period in 1997, partially
offset by a refund of local taxes.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues for 1997 were $25.9 million, an increase of $1.7 million
or 7.1% over 1996. Investment banking revenues, trading and interest and
dividend revenues increased as compared to the prior year, however, commission
and fee income decreased.
Commission and fee income decreased $1.2 million or 6.1% to $18.9
million due to lower commissions earned per trade resulting from the increase of
lower priced electronic trading, price reductions on other related services
caused by increased competition from ultra low cost flat fee brokers and a
reduction of order flow fees.
Trading profits increased $926,000 or 107% to $1,795,000 primarily due
to increased activity in secondary municipal bond trading by the Siebert,
Brandford, Shank division and improved trading opportunities in the principal
listed bond funds trading activity.
Interest and dividends increased $48,000 or 7.4% to $705,000 primarily
due to trading strategies which generated greater dividend income.
Investment banking revenues increased $2.0 million or 77% to $4.5
million primarily due to a whole year of tax exempt underwriting activity by the
Siebert, Brandford, Shank division in 1997. This division operated for only
three months of the year in 1996.
Total expenses for 1997 were $21.2 million, a decrease of $806,000 or
3.7% over 1996. Both employee compensation and benefits and advertising and
promotion decreased. All other categories of costs increased.
Employee compensation and benefit costs decreased $1.5 million or 16%
to $8.2 million primarily due to Muriel Siebert's compensation reduction, offset
by a full year's worth of compensation for the Siebert, Brandford, Shank
division's principals, municipal investment banking staff and commission based
municipal trading personnel.
Clearing and brokerage fees increased $90,000 or 2.0% to $4.7 million.
Such costs increased due to a higher volume of tickets.
Advertising and promotion expense decreased $514,000 or 15.7% to $2.8
million due to decreased branch and service promotion; 1996 included several one
time expenses related to branch expansion and on-line trading.
Communications expense increased $87,000 or 6.4% to $1.4 million as the
client base and volume increased and more services were offered directly on-line
and from activities of the investment banking staff. These increases were
partially offset by telephone contract price reductions.
Occupancy costs increased $245,000 or 61% to $649,000 principally due
to a full year's worth of rent in 1997 for new retail and investment banking
branch offices opened during 1996.
Interest expense increased $128,000 or 44% to $418,000 primarily due to
greater use of margin
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borrowings and short positions in proprietary trading activity.
Other general and administrative expenses increased $704,000 or 30% to
$3.0 million primarily due to travel and entertainment expenses related to the
new municipal investment banking staff and a range of miscellaneous costs
associated with increased volume.
Current and pro forma provision for income taxes increased $1.1 million
or 116% to $2.1 million while net income for 1997 was $2.6 million, an increase
of $1.4 million or 116% over 1996, both proportional to a similar increase in
pre-tax income.
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 revenues 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.
Employee 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 the fourth quarter, the tax exempt underwriting business.
Management, staff and 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
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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.
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.
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.
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.
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 revenues 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.
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Employee 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%.
Occupancy costs increased $3,000 or 0.9% to $326,000 primarily from
cost escalation provisions in existing leases.
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
Upon the completion of the Rights Offering and assuming the exercise of
all of the Rights, the Company will have approximately $____ million in
additional cash and/or short-term securities.
The Company'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 March 31, 1998 were $20 million, of which $2 million took the
form of a secured demand note. At such date, $15 million or 75% of total assets
were highly liquid.
Siebert is subject to the net capital requirements of the SEC, the NYSE
and other regulatory authorities. At March 31, 1998, Siebert's regulatory net
capital was $9.0 million, $8.7 million in excess of its minimum capital
requirement of $250,000.
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BUSINESS
GENERAL
The Company, through its wholly owned subsidiary, Muriel Siebert & Co.,
Inc. ("Siebert"), is a retail discount brokerage and municipal and corporate
investment banking firm operating through 14 offices throughout the country.
Muriel F. Siebert, the first woman member of the New York Stock Exchange, is the
Chair and President and owns approximately 96% of the outstanding common stock,
par value $.01 per share (the "Common Stock"), of the Company.
The Company has acquired accounts from other discount brokerage firms
and, from time to time, the Company has considered acquisitions of other
discount brokerage firms or their accounts. Although the Company intends to
pursue these opportunities, there can be no assurance that the Company will be
able to successfully consummate any such acquisitions in the future.
The Company was ranked third among discount brokerage firms in the July
1998 issue of SMART MONEY MAGAZINE in part based upon "a huge advance in its
responsiveness and solid gains in on-line trading, mutual funds and breadth of
products." In addition, unlike many discount brokerage firms, the firm offers a
wide variety of underwriting and investment banking services. Such services,
offered through its Capital Markets division, include acting as senior manager,
co-manager or otherwise participating in the underwriting or sales syndicates of
municipal, corporate debt and equity, government agency and mortgage/asset
backed securities issues.
The Company became a reporting company through a merger with J.
Michaels, Inc. ("JMI"), a company not previously associated with Siebert
Financial Corp., effective on November 8, 1996. Following the merger, the
Company's fiscal year was changed to December 31.
The Company was incorporated on April 9, 1934 under the laws of the
State of Delaware. 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
and their telephone number is (212) 644-2400.
BUSINESS OVERVIEW
Siebert provides services to its customers through two main divisions.
Through its Retail division, Siebert provides discount brokerage and related
services to its retail investor accounts. Through its Capital Markets division,
Siebert offers institutional clients equity execution services on an agency
basis as well as equity, fixed income and municipal underwriting and investment
banking services. In addition, this division participates in the secondary
markets for Municipal and U.S. Treasury securities and also trades listed closed
end bond funds and certain other securities for its own account. This
proprietary trading business is segregated from that of the agency business
executed on behalf of institutional clients.
The Company believes that it is the largest Woman-Owned Business
Enterprise ("WBE") that is a New York Stock Exchange member in the capital
markets business in the country and the largest Minority and Women's Business
Enterprise ("MWBE") in the tax exempt underwriting business in the country
through its affiliate Siebert, Brandford, Shank & Co., L.L.C.
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THE RETAIL DIVISION
DISCOUNT BROKERAGE AND RELATED SERVICES. The Securities and Exchange
Commission (the "SEC") 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
in business and a member of The New York Stock Exchange, Inc. (the "NYSE")
longer than any other discount broker.
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. In fact, many of Siebert's new accounts come from
such full-commission firms.
Siebert clears all securities transactions on a fully-disclosed basis
through National Financial Services Corp. ("NFSC"), a wholly owned subsidiary of
Fidelity Investments. NFSC, with over $9 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 research by fax and quick and easy
access to account information. The firm provides its customers with information
via a toll-free 800 service direct to its representatives Monday through Friday
between 7:30 a.m. and 7:30 p.m. Eastern Time. Through its SiebertNet, Siebert
OnLine and Siebert MarketPhone services, 24 hour access is available to
customers.
INDEPENDENT RETAIL EXECUTION SERVICES. Siebert is independent of
Over-the-Counter ("OTC") and Third Market market makers and consequently offers
what it believes 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, however, all such customer orders are afforded the opportunity for
price improvement. Through a service called NYSE Prime(1), Siebert also 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.
Additionally, the firm offers customers execution services through the
SelectNet(2) and Instinet(3) systems for an additional fee. These systems give
customers access to extended trading hours. Siebert believes that its OTC
executions afford its customers the best possible opportunity for consistent
price improvement. Siebert does not have any affiliation with market makers and
therefore does not execute OTC trades through affiliated market makers.
Siebert executes trades of fixed income securities through its Capital
Markets division. Representatives of this division assist clients in buying,
selling or shopping for competitive yields of fixed
- ---------------------
(1) NYSE Prime is a service mark of the New York Stock Exchange, Inc.
(2) SelectNet is a trademark of The Nasdaq Stock Market, Inc.
(3) Instinet is a trademark of Reuters Group PLC.
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income securities, including municipal bonds, corporate bonds, U.S. Treasuries,
mortgage-backed securities, Government Sponsored Enterprises, Unit Investment
Trusts or Certificates of Deposit. See "Description of 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
guarantee that states, "If you are dissatisfied with a trade for any reason,
that trade is commission free," which excludes losses due to fluctuations in the
market value of securities and applies only to commissions.
Siebert's products and services include the Siebert Asset Management
account featuring no-fee, no minimum check writing with payee detail; 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 protection per account, consisting of $500,000 in protection through
Securities Investor Protection Corporation ("SIPC") and $99.5 million in
additional protection at no charge; and free safekeeping services.
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.
SIEBERTNET - Internet access with features including the efficiency and
manageability of placing low commission stock and option orders, obtaining
research and 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 ONLINE - the firm's popular PC software runs on Windows 3.1,
Windows95 and Windows98(4) 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 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 free
real-time quotes (including closed end mutual funds). 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 through the firm's
Research by Fax(R) service.
- -----------------------
(4) Windows 3.1, Windows95 and Windows98 are trademarks of the Microsoft
Corporation.
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SELECTNET AND INSTINET - gives customers access to extended trading
hours.
PERFORMANCEFAX - 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.
SIEBERT FUNDEXCHANGE(R)- the FundExchange(R)Mutual Fund service
provides customers with access to approximately 7,000 mutual funds, including
2,000 no-load funds, about 1,000 of which have no transaction fees.
ON-LINE STATEMENT IMAGING SYSTEM - electronic imaging of customer
statements are displayed directly on the screen of Siebert representatives for
fast accurate detail of customer accounts.
VISA(R)(5) DEBIT CARD - allows customers the convenience of a Siebert
VISA debit card.
SIEBERT RESEARCH BY FAX - customers are able to call toll free from any
touch tone telephone and select from a list of research reports that will be
faxed 24 hours a day. Upon request, such reports will be mailed to customers or
made available for customer pick-up at any branch.
VIP PREMIERE STATEMENT - these statements offer a more sophisticated
view of the brokerage account information including an account valuation
section, an asset allocation pie chart, an enhanced activity section and a
detailed income summary section.
NEW ACCOUNTS DEPARTMENT. Siebert maintains a separate New Accounts
department to familiarize each customer with Siebert's variety 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.
The 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,
credit bureaus 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 assists customers in document
management and compliance with regulatory requirements.
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 an affiliate of NFSC, the
firm's clearing agent, which also serves as trustee for such accounts. IRA, SEP
IRA, ROTH IRA, 401(k) and KEOGH accounts can 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 12,000 publicly traded securities and mutual funds
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
- -----------------------
(5) VISA is a registered trademark of VISA International, Inc.
29
<PAGE>
basis. Generally, a customer buying securities in a cash-only brokerage account
is required to make payment by the settlement date, generally 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 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.
CURRENT DEVELOPMENTS. In June 1998, Siebert signed a new one year
agreement with NFSC which provides, among other things, for reduced ticket
charges and execution fees. Such agreement provides for the retroactive effect
of the new charges and execution fees in an amount not to exceed $1,000,000. If
the new agreement had been effective for the entire calendar year 1997, Siebert
would have realized monthly savings of a minimum of $150,000. A pro rata portion
of the payment is refundable under certain circumstances and accordingly Siebert
will recognize pre-tax income of approximately $750,000 in its financial
statements for the second quarter of 1998. The balance shall be recognized in a
future period after such balance is no longer refundable. In addition, Siebert
will have reduced clearing costs and execution fees for the remainder of the
contract term based on the volume of trades and customer account balances. The
new agreement also provides increasing volume discounts as the monthly number of
trades increases.
OFFICES. Siebert currently maintains seven retail discount brokerage
offices. See "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.
The New York office remains open Monday through Friday from 7:30 a.m.
to 7:30 p.m., Eastern Time, while branch offices remain open from 9 a.m. to 5
p.m., Eastern Time, to service customers in person and by telephone.
RISK MANAGEMENT. The principal credit risk to which the Company 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. 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.
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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.
INFORMATION SYSTEMS. Siebert's operations rely heavily on its
information processing and communications systems. Siebert's system for
processing securities transactions is highly 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 offsite.
CAPITAL MARKETS DIVISION
In 1991, Siebert formalized its commitment to its institutional
customer base by creating a separate capital markets division (the "Capital
Markets Division"). This division has served as a co-manager, selling group
member or underwriter on a full spectrum of securities offerings by
municipalities, corporations and Federal agencies.
The two principal areas of the Capital Markets 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 for sale to
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 either
senior or co-managed over $100 billion in total transaction value of municipal
debt. 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 or selling group member in over 210 corporate
offerings, including debt issuances, totaling over $137 billion in total
transaction value.
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During 1996, Siebert formed the Siebert, Brandford, Shank division of
the investment banking group to add to the former activities of Siebert's tax
exempt underwriting department. This division is primarily comprised of a group
of investment banking professionals who were previously employed by the 13th
largest tax exempt underwriting firm in the country. The operations of the
Siebert, Brandford, Shank division were moved on July 1, 1998 to a newly formed
entity, Siebert, Brandford, Shank & Co., L.L.C. Two individuals, Mr. Napoleon
Brandford and Ms. Suzanne F. Shank, own 51% of the equity and are entitled to
51% of the net profits, after Siebert's recovery of start-up expenses, while
Siebert is entitled to the balance. The group has made Siebert a more
significant factor in the tax exempt underwriting area and 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. See "Risk
Factors --Capitalization of Siebert, Brandford, Shank & Co., L.L.C."
Pending transfer to Siebert, Brandford, Shank & Co., L.L.C., the
municipal bond business has been operated as a division of Siebert, pursuant to
the financial arrangement previously described.
In addition to occupying a portion of Siebert's existing offices in New
York, Siebert, Brandford, Shank & Co., L.L.C. operates out of offices in San
Francisco, Seattle, Houston, Chicago, Detroit, Los Angeles and Dallas.
To date, the Siebert, Brandford, Shank division has co-managed or
senior co-managed offerings of over $27 billion in total transaction value and
senior managed offerings of over $700 million in total transaction value.
Clients include the States of California, Texas and Washington and the Cities of
New York, Chicago, Detroit and St. Louis.
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 of 1933, as amended,
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 600 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 has a proprietary trading function,
it does not execute customer orders against such proprietary 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 540,000 shares daily for institutional investors and
for its own account.
32
<PAGE>
The Institutional Equity Execution Services department utilizes the
Siebert Real-Time List Execution ("SRLX") system. The SRLX system is designed
exclusively for institutional customers who employ the use of basket trading
strategies in their portfolio management. This system enables the Capital
Markets Division to simultaneously manage an array of baskets for multiple
clients while providing real-time analysis. The SRLX system 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(6)-based PCs running Microsoft
Windows98, Windows95 or Windows NT(7). Data integrity is assured through a
private digital T1 line with built-in network redundancy.
The SRLX system is built for institutional customers with features
designed to add significant value to their trading capabilities. This system's
features include: design and development by in-house professionals 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 automated report uploading; customized client reports; active
intervention for large blocks or inactive stocks; and built-in 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. 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.
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 certain negotiated new issue equity, municipal and
government bonds to charitable organizations. 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 "Description of
Business - Regulation."
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. Some
such firms are offering their services over the facilities of the internet and
have devoted more resources to and have more elaborate web sites than the
Company. See "Use of Proceeds." Siebert competes with a wide variety of vendors
of financial services for the same customers. Siebert believes that its main
competitive advantages are quality of execution and
- ------------------------
(6) Pentium is a trademark of the Intel Corporation.
(7) Microsoft Windows98, Windows95 and WindowsNT are trademarks of the
Microsoft Corporation.
33
<PAGE>
service, responsiveness, price of services and products offered and the breadth
of its product line.
There are currently over sixty principal competitors with Siebert in
the discount brokerage business. Siebert charges commissions generally lower
than other discount brokers but more than some others. 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. Siebert
believes that it is one of the largest independent discount brokerage firms, as
most firms that were previously independent have been purchased by or merged
into larger financial institutions.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. The SEC is the Federal agency
charged with administration of the Federal securities laws. Siebert is
registered as a broker-dealer with the SEC, the NYSE and the National
Association of Securities Dealers, Inc. ("NASD"). Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations, principally
the NASD and 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 SEC)
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 shareholders 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 SEC 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 SEC, 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 its employees.
Neither the Company nor Siebert has been the subject of any such administrative
proceedings.
As a registered broker-dealer and NASD member organization, Siebert is
required by Federal law to belong to 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. The 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. Neither SIPC protection nor the
additional protection applies to fluctuations in the market value of securities.
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 SEC and state regulatory
agencies necessary to permit it to engage in certain other activities incidental
to its brokerage business.
34
<PAGE>
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 1996, 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 issued an injunction
blocking the implementation of the proposition. The Court of Appeals for the
Ninth Circuit considered the appeal of the injunction blocking Proposition 209's
implementation. Such Court expressly upheld Proposition 209 and the Governor
responded to the decision by signing an executive order abolishing minority
preferences in the awarding of state contracts. 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
qualified WBEs and MWBEs. See "Description of Business - Advertising, Marketing
and Promotion."
NET CAPITAL REQUIREMENTS
As a registered broker-dealer, Siebert is subject to the SEC's Uniform
Net Capital Rule (Rule 15c3-1) (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
regulatory net capital may subject a firm to suspension or expulsion by the NYSE
and the NASD, certain punitive actions by the SEC and other regulatory bodies
and, ultimately, may require a firm's liquidation.
Regulatory 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 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 SEC prior to and subsequent to withdrawals exceeding certain
sizes. The Net Capital Rule also allows the SEC, 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 Rule 240.15c3-1(a)(1)(ii)
promulgated by the SEC. 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 March 31, 1998, Siebert had net capital of $9 million and
net capital requirements of $250,000 under Regulation 240.15c3-1(a)(1)(ii).
Siebert is not subject to SEC Rule 15c3-3 and claims exemption from the reserve
requirement under Section 15c3-3(k)(2)(ii). The firm
35
<PAGE>
maintains net capital in excess of the SEC Rule 17a-11 requirement.
EMPLOYEES
The Company currently has approximately 115 employees, all of whom are
full time and four of whom are corporate officers. None of the employees are
represented by a union, and the Company believes that its relations with its
employees are good.
PROPERTIES
Siebert operates its business out of the following fourteen leased
offices:
<TABLE>
<CAPTION>
Expiration
Approximate Date of
Office Area in Current Renewal
Location Square Feet Lease Terms
- -------- ----------- ----- -----
<S> <C> <C> <C>
Corporate Headquarters, Retail and
Investment Banking Office
- -------------------------
885 Third Ave.
New York, NY 10022 7,828 SF 4/30/03 None
Retail Offices
- --------------
1,000 SF 12/31/00 None
9693 Wilshire Boulevard
Beverly Hills, CA 90212
4400 North Federal Highway 1,038 SF 2/28/02 None
Boca Raton, FL 33431
66 South Street 1,341 SF 8/31/98 None
Morristown, NJ 07960
400 Fifth Avenue - South 1,008 SF 4/22/99 None
Naples, FL 33940
240A South County Road 770 SF 10/14/00 2 year option
Palm Beach, FL 33480
9569 Harding Avenue 1,150 SF 9/30/98 None
Surfside, FL 33154
Investment Banking Offices
- --------------------------
30 N. LaSalle Street 1,613 SF 8/31/99 None
Chicago, IL 60602
1845 Woodall Rodgers Freeway 224 SF Month to None
Dallas, TX 75201 month
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Expiration
Approximate Date of
Office Area in Current Renewal
Location Square Feet Lease Terms
- -------- ----------- ----- -----
<S> <C> <C> <C>
400 Renaissance Center 1,500 SF Month to None
Detroit, MI 48243 month
400 Louisiana 1,513 SF 6/29/99 None
Houston, TX 77002
523 West 6th Street 1,138 SF Month to None
Los Angeles, CA 90014 month
220 Sansome Street 3,250 SF 2/28/00 None
San Francisco, CA 94104
601 Union Street 325 SF Month to None
Seattle, WA 98101 month
</TABLE>
The Company believes that its properties are in good condition and are
suitable and adequate for the Company's business operations.
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.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
Name Age Position
- ---- --- --------
Muriel F. Siebert 65 Chair, President and Director
Nicholas P. Dermigny 40 Executive Vice President, Chief Operating
Officer and Director
Richard M. Feldman 37 Executive Vice President, Chief Financial
Officer and Assistant Secretary
Daniel Iesu 38 Secretary
Patricia L. Francy 52 Director
Jane H. Macon 51 Director
Monte E. Wetzler 62 Director
Certain information furnished to the Company by each director and
executive officer is set forth below.
Muriel F. Siebert has been Chair, President and a director of Siebert
since 1969 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 and the Company
since November 8, 1996. Prior to 1993, he was responsible for the Retail
division. Mr. Dermigny became a director of the Company on November 8, 1996.
Richard M. Feldman has been Executive Vice President, Chief Financial
Officer and Assistant Secretary of Siebert and the Company since October 1997.
From August 1992 to October 1997, Mr. Feldman served as Chief Financial Officer
of various broker dealers, including Waterhouse Securities, Inc., a national
discount brokerage firm headquartered in New York City. Prior to these
positions, Mr. Feldman worked ten years for Deloitte & Touche, a large
international accounting firm. Mr. Feldman 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.
38
<PAGE>
Patricia L. Francy is Treasurer and Controller of Columbia University.
She previously served as the University's Director of Finance and Director of
Budget Operations and has been associated with the University since 1969. Ms.
Francy became a director of the Company on March 11, 1997.
Jane H. Macon is a partner with the law firm of Fulbright & Jaworski
L.L.P., San Antonio, Texas. Ms. Macon has been associated with the firm since
1983. Ms. Macon became a director of the Company on November 8, 1996.
Monte E. Wetzler is a partner with the New York law firm of Brown
Raysman Millstein Felder & Steiner, LLP and chairman of its corporate
department. From 1988 until October 31, 1996, Mr. Wetzler was a partner with the
New York law firm of Whitman Breed Abbott & Morgan, chairman of its corporate
department and a member of its executive committee. Mr. Wetzler became a
director of the Company on November 8, 1996.
The Board of Directors has standing Audit and Compensation Committees
consisting of Ms. Francy, Ms. Macon and Mr. Wetzler with Ms. Siebert serving as
a non-voting member.
Directors are elected by the shareholders at each annual meeting or, in
the case of a vacancy, appointed by the directors then in office, to serve until
the next annual meeting or until their successors are elected and qualified.
Pursuant to the Company's bylaws, its officers are chosen annually by the Board
of Directors and hold office until their respective successors are chosen and
qualified.
EXECUTIVE COMPENSATION OF THE COMPANY
The following table sets forth certain information with respect to
compensation awarded to, earned by or paid to (a) the Company's Chief Executive
Officer and (b) each of the four most highly compensated executive officers of
the Company as of the 1997 year end (other than the Chief Executive Officer)
whose total annual salary and bonus exceeded $100,000, in each case for the
preceding three fiscal years (collectively, the "Named Executives"). In 1997,
1996 and 1995, there were only two such persons.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary ($) Bonus($)
- --------------------------- ---- ---------- --------
Muriel F. Siebert 1997 $ 150,000 $ --
Chair and President 1996 150,000 2,975,000
1995 108,000 3,017,000
Nicholas P. Dermigny 1997 125,000 187,500
Executive Vice President 1996 125,000 205,000
and Chief Operating Officer 1995 125,000 175,000
Daniel Iesu 1997 50,000 65,000
Secretary 1996 50,000 53,250
1995 47,692 42,500
39
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or its subsidiaries are
paid a fee at an annual rate of $10,000. On March 11, 1997, each of the
non-employee directors of the Company received an option to purchase 40,000
shares of Common Stock at an exercise price of $2.313 per share expiring on the
fifth anniversary of the date of grant. Officers and employees of the Company or
its subsidiaries receive no remuneration for their services as directors. The
Company indemnifies its directors to the extent permitted by applicable law.
STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "Stock Option Plan") was
adopted by the Board of Directors in March 1997 and approved by the shareholders
on December 1, 1997. The Stock Option Plan permits the issuance of either
options intended to qualify as incentive stock options ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or options not intended to so qualify ("Nonstatutory Stock
Options"). The aggregate fair market value of Common Stock for which a
participant is granted Incentive Stock Options that first become exercisable
during any given calendar year will be limited to $100,000. To the extent such
limitation is exceeded, an option will be treated as a Nonstatutory Stock
Option.
The Stock Option Plan provides for the grant of options to purchase up
to 2,100,000 shares of Common Stock to employees of the Company and its
subsidiaries. The Stock Option Plan is administered by a committee of the Board
of Directors consisting of Patricia L. Francy, Jane H. Macon and Monte E.
Wetzler (the "Committee") that selects persons to receive awards under the Stock
Option Plan, determines the amount of each award and the terms and conditions
governing such award, interprets the Stock Option Plan and any awards granted
thereunder, establishes rules and regulations for the administration of the
Stock Option Plan and takes any other action necessary or desirable for the
administration of the Stock Option Plan. The Stock Option Plan may be amended by
the Board of Directors as it deems advisable; PROVIDED, HOWEVER, that no
amendment will become effective unless approved by affirmative vote of the
Company's shareholders if such approval is necessary for the continued validity
of the Stock Option Plan or if the failure to obtain such approval would
adversely affect the compliance of the Stock Option Plan under any applicable
rule or regulation. No amendment may, without the consent of a participant,
impair such participant's rights under any option previously granted under the
Stock Option Plan.
The price for which shares of Common Stock may be purchased upon the
exercise of an option will be the fair market value of such shares on the date
of the 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. An option may be granted for a term
not to exceed ten years from the date such option is granted. An Incentive Stock
Option awarded to an employee who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company may not, in
any event, be exercisable after the expiration of five years from the date such
Incentive Stock Option is granted. All options will be exercisable in accordance
with the terms and conditions set forth in the option agreements evidencing the
grant of such options. Except under limited circumstances involving termination
of employment due to retirement or death or disability, a participant may not
exercise any option granted under the Stock Option Plan within the first year
after the date of the grant of such option.
40
<PAGE>
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 Stock
Option Plan must be made at the time of such exercise. The Stock Option Plan
provides that 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 necessary to pay the
purchase price and applicable withholding taxes, and any other documents that
the Committee deems necessary.
During a participant's lifetime, options granted under the Stock Option
Plan will be exercisable only by such participant. Furthermore, any options
granted under the Stock Option Plan may not be transferred, other than by will
or by the laws of descent and distribution. Notwithstanding the foregoing, a
participant may transfer a Nonstatutory Stock Option granted under the Stock
Option Plan to his or her 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.
On May 16, 1997, the Company granted options to certain of its
employees at an exercise price of $2.313 per share, including options to
purchase 200,000 shares of Common Stock to its Executive Vice President and
Chief Operating Officer. On November 6, 1997, the Company granted options to
purchase 40,000 shares of Common Stock to its Executive Vice President and Chief
Financial Officer at an exercise price of $2.219 per share. On February 9, 1998,
the Company granted options to certain of its employees at an exercise price of
$2.688 per share, including options to purchase 40,000 shares of Common Stock to
its Executive Vice President and Chief Operating Officer, 8,000 shares of Common
Stock to its Executive Vice President and Chief Financial Officer and 8,000
shares of Common Stock to its Secretary. All such options are exercisable at a
rate of 20% on the first, second, third, fourth and fifth anniversaries of the
date of grant and expire after the tenth anniversary of the date of grant;
options to purchase an aggregate of approximately 847,400 shares of Common Stock
are currently outstanding and held by 38 employees. Details of such grants are
summarized below:
41
<PAGE>
- --------------------------------------------------------------------------------
1997 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
NAME AND POSITION FAIR VALUE ($)(1) NUMBER OF UNITS
- --------------------------------------------------------------------------------
Muriel F. Siebert, Chair and President 0 0
- --------------------------------------------------------------------------------
Nicholas P. Dermigny, Executive 287,200 240,000
Vice President and Chief Operating Officer
- --------------------------------------------------------------------------------
Richard M. Feldman, Executive 55,440 48,000
Vice President, Chief Financial Officer and
Assistant Secretary
- --------------------------------------------------------------------------------
Daniel Iesu, Secretary 82,040 68,000
- --------------------------------------------------------------------------------
Executive Group (4 persons) 424,680 356,000
- --------------------------------------------------------------------------------
Patricia L. Francy 0 0
- --------------------------------------------------------------------------------
Jane H. Macon 0 0
- --------------------------------------------------------------------------------
Monte E. Wetzler 0 0
- --------------------------------------------------------------------------------
Non-Executive Director Group (3 persons) 0 0
- --------------------------------------------------------------------------------
Non-Executive Officer Employee 643,782 523,400
Group (approximately 35 persons)
- --------------------------------------------------------------------------------
RESTRICTED STOCK AWARD PLAN
The 1998 Restricted Stock Award Plan (the "Plan"), provides for awards
of not more than 60,000 shares of Common Stock, subject to adjustments for stock
splits, stock dividends and other changes in the Company's capitalization, to
key employees, to be issued either immediately after the award or at a future
date. As provided in the Plan and subject to restrictions, shares awarded may
not be disposed of by the recipients for a period of one year from the date of
the award. Cash dividends on shares awarded are held by the Company for the
benefit of the recipients, subject to the same restrictions as the award. Such
dividends (without interest) are paid to the recipients upon lapse of the
restrictions.
Pursuant to the Plan, 400 shares of the Company's Common Stock was
awarded to each of 110 employees of the Company, effective January 5, 1998.
Additional awards of 400 shares were granted to each of three individuals,
effective February 20, 1998. For shares that have been issued, the market value
at the date of the awards was $2.25 and $5.75, respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a registered broker-dealer, the Company is subject to the Uniform
Net Capital Rule (Rule 15c3-1) promulgated by the SEC. "Net capital" is defined
as net worth (assets minus liabilities), plus qualifying subordinated
borrowings, less certain deductions. Ms. Siebert has executed subordinated notes
in favor of the Company in the principal amount of $3 million which bear
interest at rates ranging from 4% to 8%.
The foregoing relationship and transactions have been approved by the
Board or a committee of the Board or by the shareholders and, to the extent that
such arrangements are available from non-affiliated parties, are on terms no
less favorable to the Company than those available from non-affiliated parties.
- ----------------------
(1) The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yields ranging from 0% to 3.3%, expected volatility
ranging from 25% to 39%, risk-free interest rates ranging from 6.20% to
6.43%, and expected lives ranging from 5 to 10 years.
42
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July ____, 1998, certain
information with respect to beneficial ownership of the Common Stock by each
person (or group of affiliated persons) who is known to the Company to own
beneficially more than 5% of the Common Stock, by each of the Company's
directors and executive officers and by all directors and executive officers as
a group. The persons named in the table have sole voting and investment power
with respect to all shares of Common stock shown as beneficially owned by them.
Name Shares Percentage(1)
---- ------ -------------
Muriel F. Siebert 20,212,000 96.3%(2)
885 Third Avenue, Suite 1720
New York, New York 10022
Nicholas P. Dermigny 240,400(3) 1.1%
Richard M. Feldman 400 *
Daniel Iesu 68,400(4) *
Patricia L. Francy 40,000(5) *
Jane H. Macon 40,000(5) *
Monte E. Wetzler 40,000(5) *
Directors and executive officers 20,641,200(6) 98.3%
as a group (6 persons)
----------------
* Less than 1%
(1) Percentages computed on the basis of 20,996,440 shares of Common Stock
outstanding as of June _____, 1998 in accordance with Rule 13d-3
promulgated under the Exchange Act.
(2) Includes 222,000 shares of Common Stock owned by the Muriel F. Siebert
Foundation, Inc. as to which shares Ms. Siebert has voting and
investment power.
(3) Includes 240,000 shares of Common Stock which Mr. Dermigny has the
rights to acquire pursuant to a stock option grant.
(4) Includes 68,000 shares of Common Stock which Mr. Iesu has the right to
acquire pursuant to a stock option grant.
(5) Consists of 40,000 shares of Common Stock which the director has the
right to acquire pursuant to a stock option grant.
(6) Includes options to purchase an aggregate of 428,000 shares of Common
Stock described in footnotes 3,4 and 5 above.
43
<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights, at no cost, to the
record holders ("Holders") of the Common Stock outstanding as of the Record
Date. The Company will distribute one (1) Right for each share of Common Stock
held of record on the Record Date. The Rights will be evidenced by transferable
Subscription Certificates. The Company's majority shareholder, Chair and
President, Muriel F. Siebert, has indicated to the Company that to encourage
increased public ownership of stock, and consistent with her waiving her receipt
of past cash dividends, she intends to waive the receipt of the Rights to which
she would otherwise be entitled. An aggregate of up to approximately 1,100,000
Underlying Shares will be sold upon exercise of the Rights.
No Subscription Certificate may be divided in such a way as to permit
the holder to receive a greater number of Rights than the number to which such
Subscription Certificate entitles its holder, except that a depositary, bank,
trust company, and securities broker or dealer holding shares of Common Stock on
the Record Date for more than one beneficial owner may by delivering a written
request by 5:00 p.m., New York City time, on ____________, August ____, 1998
and, upon proper showing to the Subscription Agent, exchange its Subscription
Certificate to obtain a Subscription Certificate for the number of Rights to
which all such beneficial owners in the aggregate would have been entitled had
each been a Holder on the Record Date.
SUBSCRIPTION PRICE
The Subscription Price is $______ per Underlying Share subscribed for
pursuant to the Basic Subscription Privilege or the Oversubscription Privilege.
The Subscription Price of the Rights has been determined by the Board of
Directors of the Company based upon an opinion of Advest, Inc., its financial
advisor, and represents a discount to the market price of the Common Stock at
the date of this Prospectus.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on the
Expiration Date. After the Expiration Date, unexercised Rights will be null and
void. The Company will not be obligated to honor any purported exercise of
Rights received by the Subscription Agent after the Expiration Date, regardless
of when the documents relating to such exercise were sent, except pursuant to
the Guaranteed Delivery Procedures described below.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Pursuant to the Basic Subscription
Privilege, each Right will entitle the holder thereof to receive, upon payment
of the Subscription Price, one (1) share of Common Stock. Certificates
representing shares of Common Stock purchased pursuant to the Basic Subscription
Privilege will be delivered to subscribers as soon as practicable after the
Expiration Date.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below,
each Right also carries the right to subscribe pursuant to the Oversubscription
Privilege at the Subscription Price for a number of additional shares of Common
Stock available after satisfaction of all subscriptions pursuant to the Basic
Subscription Privilege, subject to proration by the Company under certain
circumstances. The right to subscribe for additional shares of Common Stock
pursuant to the Oversubscription Privilege is not transferable.
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Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any Underlying Shares are not
subscribed for through the Basic Subscription Privilege. If the Underlying
Shares not subscribed for through the Basic Subscription Privilege ("Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among those holders of Rights
exercising the Oversubscription Privilege, in proportion to the number of shares
requested by them pursuant to the Oversubscription Privilege. Only Record Date
shareholders who exercise the Basic Subscription Privilege in full will be
entitled to exercise the Oversubscription Privilege. Transferees of Rights may
not exercise the Oversubscription Privilege with respect to such Rights.
Certificates representing shares of Common Stock purchased pursuant to the
Oversubscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date and after all prorations have been
effected.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Underlying Shares that are being subscribed for pursuant to the
Oversubscription Privilege by each beneficial owner of Rights on whose behalf
such nominee holder is acting and that such person was a beneficial owner on the
Record Date.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to American Stock Transfer &
Trust Company, as the Subscription Agent, on or prior to 5:00 p.m., New York
City time, on the Expiration Date, the properly completed and executed
Subscription Certificate evidencing such Rights with any required signature
guarantees, together with payment in full of the Subscription Price for each
Underlying Share subscribed for pursuant to the Basic Subscription Privilege and
the Oversubscription Privilege. Such payment in full must be by (a) check or
bank draft drawn upon a U.S. bank or postal, telegraphic or express money order
payable to American Stock Transfer & Trust Company, as Subscription Agent, or
(b) wire transfer of funds to the account maintained by the Subscription Agent
for such purpose at the [CHASE MANHATTAN BANK, ACCOUNT NO. 323053807; ABA NO.
021000021]. The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or any postal, telegraphic or express money order or (iii)
receipt of good funds in the Subscription Agent's account designated above. If
paying by uncertified personal check, please note that the funds paid thereby
may take at least five business days to clear. Accordingly, holders of Rights
who wish to pay the Subscription Price by means of uncertified personal check
are urged to make payment sufficiently in advance of the Expiration Date to
ensure that such payment is received and clears by such date and are urged to
consider payment by means of certified or cashier's check, money order or wire
transfer of funds.
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The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
<TABLE>
<CAPTION>
AMERICAN STOCK TRANSFER & TRUST COMPANY
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand:
American Stock Transfer & Trust Company (718) 921-8334 American Stock Transfer & Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
To Confirm Receipt and For General Information:
(800) 937-5449
</TABLE>
If a Rights holder wishes to exercise Rights, but time will not permit
such holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription Price
for each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege to be
received (in the manner set forth above) by the Subscription Agent on
or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instruction as to Use of
Siebert Financial Corp. Subscription Certificates (the "Instructions")
distributed with the Subscription Certificates, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. (the "NASD"), or from a
commercial bank or trust company having an office or correspondent in
the United States (each, an "Eligible Institution"), stating the name
of the exercising Rights holder, the number of Rights represented by
the Subscription Certificate or Subscription Certificates held by such
exercising Rights holder, the number of Underlying Shares being
subscribed for pursuant to the Basic Subscription Privilege and the
number of Underlying Shares, if any, being subscribed for pursuant to
the Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate evidencing such
Rights within three Nasdaq SmallCap Market trading days following the
date of the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate or Subscription
Certificates evidencing the Rights being exercised, with any required
signatures guaranteed, is received by the Subscription Agent within
three Nasdaq SmallCap Market trading days following the date of the
Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the
same manner as Subscription Certificates at the addresses set forth
above, or may be transmitted to the Subscription Agent by telegram or
facsimile transmission [(TELECOPY NO. (718) 236-4588 OR (718)
234-5001)]. Additional copies of the form of Notice of Guaranteed
Delivery are available upon request from the Information Agent, whose
address and telephone numbers are set forth under "Information Agent."
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
shares of Common Stock that such holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for shares not issued
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shall be returned by mail without interest or deduction as soon as practicable
after the Expiration Date.
Unless a Subscription Certificate (i) provides that the shares of
Common Stock to be issued pursuant to the exercise of Rights represented thereby
are to be delivered to the holder of such Rights or (ii) is submitted for the
account of an Eligible Institution, signatures on such Subscription Certificate
must be guaranteed by an Eligible Institution.
Holders who hold shares of Common Stock for the account of others, such
as brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Right should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Common Stock or Rights held through such a holder should contact the holder and
request the holder to effect transactions in accordance with the beneficial
owner's instructions.
The instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company in its sole discretion may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Company determines in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Certificates or
incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Information Agent, D.F. King & Co., Inc., at its address and telephone number
set forth under "Information Agent."
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
AND, IF APPLICABLE, THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE
REVOKED.
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METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. The Rights may be traded on the Nasdaq SmallCap
Market and in the over-the-counter market. It is anticipated that the Rights
will trade on a "when issued" basis up to and including the Nasdaq SmallCap
Market trading day immediately following the Record Date.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying Instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate are to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold. Promptly
following the Expiration Date, the Subscription Agent will send the Rights
holder a check for the net proceeds from the sale of any Rights sold. If the
Rights can be sold, sales of such Rights will be deemed to have been effected at
the weighted average price received by the Subscription Agent for the sale of
all Rights through the Subscription Agent, less any applicable brokerage
commissions, taxes and other direct expenses of sale. The Company will pay the
fees charged by the Subscription Agent for effecting such sales. Orders to sell
Rights must be received by the Subscription Agent prior to 11:00 a.m., New York
City time, on ____________, August _____, 1998 and the Subscription Agent's
obligation to execute orders is subject to its ability to find buyers.
Holders wishing to transfer all or a portion of their Rights should
allow a sufficient amount of time prior to the Expiration Date for (i) the
transfer instructions to be received and processed by the Subscription Agent,
(ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to retained Rights, if any, and (iii) the Rights
evidenced by such new Subscription Certificates to be exercised or sold by the
recipients thereof. Neither the Company nor the Subscription Agent shall have
any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be
paid by the Company as described above), all commissions, fees and other
expenses (including brokerage commissions and transfer taxes) incurred in
connection with the purchase, sale or exercise of Rights will be for the account
of the transferor of the Rights, and none of such commissions, fees or expenses
will be paid by the Company or the Subscription Agent.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected through the facilities of the
Depository Trust Company ("DTC"; Rights exercised through DTC are referred to as
"DTC Exercised Rights"). The holder of a DTC Exercised Right may exercise the
Oversubscription Privilege in respect of such DTC exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
New York City time, on the Expiration Date, a DTC Participant Oversubscription
Exercise Form, together with payment of the appropriate
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<PAGE>
Subscription Price for the number of Underlying Shares for which the
Oversubscription Privilege is to be exercised. Copies of the DTC Participant
Oversubscription Exercise Form may be obtained from the Information Agent.
LISTING AND TRADING
The outstanding shares of Common Stock are listed on the Nasdaq
SmallCap Market. It is anticipated that the Rights will trade on the Nasdaq
SmallCap Market and in the over-the-counter market. There can be no assurance,
however, that a market for the Rights will develop or as to the price at which
the Rights will trade. The Company has applied for the listing of the Underlying
Shares on the Nasdaq SmallCap Market.
FOREIGN AND CERTAIN OTHER SHAREHOLDERS
Subscription Certificates will not be mailed to Holders whose addresses
are outside the United States but will be held by the Subscription Agent for
their account. To exercise such Rights, such Holders must notify the
Subscription Agent on or prior to 11:00 a.m., New York City time, on __________,
August _____, 1998, at which time (if no instructions have been received) the
Rights represented thereby will be sold, if feasible, and the net proceeds, if
any, remitted to such Holders. If the Rights can be sold, sales of such Rights
will be deemed to have been effected at the weighted average price received by
the Subscription Agent for the sale of all Rights through the Subscription
Agent, less any applicable brokerage commissions, taxes and other expenses.
HOLDERS OF OPTIONS AND RESTRICTED STOCK
The Company will not distribute Rights to holders of vested or
non-vested options outstanding on the Record Date pursuant to the Company's
Stock Option Plan. Rather, the Company will adjust the exercise price of such
vested options by a percentage calculated by dividing the number of shares of
Common Stock issued pursuant to the Rights Offering by the number of outstanding
shares of Common Stock on the Record Date plus the number of shares of Common
Stock issued pursuant to the Rights Offering. See "Management -- Stock Option
Plan."
Holders of restricted stock pursuant to the Company's Restricted Stock
Award Plan will be entitled to receive Rights for each restricted share held as
of the Record Date. See "Management -- Restricted Stock Award Plan."
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<PAGE>
OPINION OF FINANCIAL ADVISOR
The Company has retained Advest, Inc. ("Advest") to act as its
exclusive financial advisor in connection with the Rights Offering. On
_________, 1998, Advest delivered to the Company its opinion that, from a
financial point of view, the Rights Offering is fair to the Company and its
shareholders (the "Fairness Opinion"). No limitations were imposed by the
Company with respect to the investigations made or procedures followed by Advest
in rendering the Fairness Opinion.
A COPY OF THE FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX A
TO THIS PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE
FAIRNESS OPINION OF ADVEST SET FORTH IN THIS PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. SHAREHOLDERS ARE URGED
TO READ SUCH OPINION IN ITS ENTIRETY.
At the Company's Board of Directors meeting on __________, 1998, Advest
delivered its oral and written opinion (dated ________, 1998) that the proposed
Rights Offering is fair to the Company and its shareholders from a financial
point of view.
The full text of Advest's written opinion, dated __________, 1998, is
attached hereto as Annex A. Shareholders are urged to read the opinion in its
entirety for the assumptions made, matters considered and limits of the review
undertaken by Advest.
In arriving at its opinion Advest reviewed: (1) registration statement
and other publicly available information concerning the Company, (2) financial
and operating information with respect to the business, operations and prospects
of the Company furnished by the Company, (3) trading history of the Company's
common stock and a comparison of that trading history with those of other
relevant companies, and (4) a comparison of the financial terms of the Rights
Offering with the financial terms of certain other relevant recent transactions.
In addition, Advest undertook the following analyses in determining the
structure of the Rights Offering and assessing the fairness to the Company and
its shareholders from a financial point of view: (1) VALUATION ANALYSIS. Advest
assessed and compared the Company's trading valuation based upon its recent
financial performance and earnings growth relative to its peers which consist of
eleven companies; (2) RIGHTS OFFERING ANALYSIS. Advest assessed the structure
and terms of seventeen rights offerings that have been issued over the past
eighteen months.
In arriving at its opinion, Advest assumed and relied upon the accuracy
and completeness of the financial and other information without assuming any
responsibility for independent verification of such information and further
relied upon the assurances of management of the Company that they are not aware
of any facts that would make such information inaccurate or misleading. The
opinion is necessarily based upon market, economic and other conditions as they
exist on, and can be evaluated as of __________, 1998.
Advest, as part of its investment banking business is engaged in the
valuation of securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements, and in valuations for corporate and other purposes. The
Company selected Advest to render its opinion on the basis of such firm's
expertise. Advest has also performed various investment banking services for the
Company in the past and has received customary fees for such services.
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VALUATION ANALYSIS
PEER GROUP SELECTION
Advest selected a peer group for the Company which consists of eleven
publicly traded companies that are broker/dealers, discount brokerage firms,
internet-based retail brokerage firms and small to mid-cap trading and
investment banking firms all of which are located in the U.S. Advest believes
that this group of companies represents the best peer group given the Company's
broad product offering and recent expansion into other lines of business. The
peer group consisted of the following companies: The Charles Schwab Corporation;
National Discount Brokers Group, Inc.; E*Trade Group, Inc.; Ameritrade Holding
Corporation; Scott & Stringfellow Financial, Inc.; Kinnard Investments Inc.;
First Montauk Financial Corp.; Atalanta Sosnoff Capital Corp.; Kirlin Holding
Corporation; First Albany Companies Inc.; and Freedom Securities Corporation.
TRADING AND FINANCIAL PERFORMANCE COMPARISONS The peer group above was
used to assess and compare the Company's current trading valuation based upon
its recent financial performance (March 31, 1998) and earnings growth relative
to such peer group. Based on the Company's closing share price of $_________ on
________, 1998, the Company trades at a price/LTM EPS of ____X, which is
[above/below] the peer median of ____X. However, the Company's financial
performance as measured by return on average assets ("ROA") and return on
average equity ("ROE") of ____% and ____% is significantly [above/below] its
peers median ROA and ROE of ____% and ____%, respectively. In addition, the
Company's earnings per share growth over the last three years has been ____%,
which is significantly [above/below] its peers' median growth rate of ____%. In
addition, we analyzed the trading valuation of high growth companies which are a
sub-set of the Company's peer group. For the purposes of this analysis, we have
defined high growth companies as companies with earnings and sales growth over
the past three years greater than ____% and ____%, respectively. Based upon this
analysis we came up with three companies which trade at a median price/LTM EPS
of ____X and a median three year growth in EPS of ____%, median ROA of ____% and
median ROE of ____%. The Company's three year EPS growth, ROA and ROE is
significantly [above/below] the high growth peer group median levels. Therefore,
based upon the Company's [above/below] average financial performance and
earnings growth relative to both sets of peers, the Company's stock appears to
be fairly valued at its current trading levels.
RIGHTS OFFERING ANALYSIS
Advest compiled a list of seventeen rights offerings that have been
issued over the past eighteen months. This list was used to analyze: (1) the
subscription price of the right relative to the issuer's common stock price in
assessing the discount to market (2) the discount to market relative to the
transferability of the rights (3) an issuer's common stock price behavior on the
record date of the Rights Offering to the expiration date of the Rights
Offering. The analysis yielded the following statistics: (1) the median discount
to market for all rights offerings was ____% (2) the discount to market for
rights which were transferable was ____% (3) the median price decline of an
issuer's common stock price was ____% from the Record Date to the Expiration
Date. Given the recent significant price movement in the Company's stock price,
we used the 30 day average closing stock price to calculate the discount to
market price of the subscription right. Based upon the Company's 30 day average
stock price of $_______ on __________, 1998, this represents a ____% discount to
market at a $_______ subscription price, which is [above/below] the median
discount to market for the seventeen rights offerings of ____% and [above/below]
median discount of ____% for rights offering with transferability of rights.
Assuming the Company's common stock price declines at median levels, this
represents a ____% discount to market, which is [above/below] rights offerings
with transferable rights.
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The Company selected Advest as its financial advisor because Advest is
a nationally recognized investment banking firm engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions and
for other purposes and has substantial experience in transactions similar to the
Rights Offering. Pursuant to an engagement letter dated June __, 1998 with
Advest, the Company paid Advest an initial fee for its advisory services of
$_____ and became obligated to pay Advest an additional fee of $_____ upon the
closing of the Rights Offering. In addition, the engagement letter provides that
the Company will reimburse Advest for its reasonable out-of-pocket expenses
(including reasonable fees and disbursements of its legal counsel) and will
indemnify Advest and certain related persons against certain liabilities arising
out of its engagement.
Advest has in the past provided financial advisory services to the
Company and received customary fees for rendering such services. In the ordinary
course of business, Advest may actively trade in securities of the Company for
its own account and for the account of its customers and, accordingly, may at
any time hold a long or short position in such securities.
The Company does not currently have and has not had within the past two
years and does not contemplate hereafter having any material relationship with
Advest or any of its affiliates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS
Brown Raysman Millstein Felder & Steiner LLP, counsel to the Company,
has advised the Company that the following summary reflects their opinion as to
the material United States federal income tax considerations applicable to
Holders upon the distribution of the Rights, and to Holders of Rights upon their
exercise and disposition. Holders should be aware that certain of the federal
income tax consequences relevant to the Holders are unclear under existing law
or are dependent on factual considerations that cannot currently be determined
and counsel have not rendered an opinion with respect to such consequences. An
opinion of counsel represents the legal judgment of such counsel and is not
binding on the United States Internal Revenue Service (the "Service"). There can
be no assurance that the Service will take a similar view as to any of the tax
consequences described below. No ruling has been or will be requested from the
Service on any tax matters relating to the Rights Offering or the ownership or
disposition of the Common Stock.
This summary is based upon the provisions of the Code, the United
States Treasury regulations promulgated thereunder (the "Regulations"),
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. This summary does not purport to deal with all aspects of
federal income taxation that may be relevant to a particular Holder or to
certain types of Holders subject to special treatment under the federal income
tax laws (for example, banks, dealers in securities, life insurance companies,
tax exempt organizations and foreign taxpayers), nor does it discuss any aspect
of state, local or foreign tax laws. Foreign persons should see "THE RIGHTS
OFFERING --Certain United States Tax Consequences to Non-United States Holders"
below. Furthermore, this summary is limited to persons that have held the Common
Stock as capital assets (generally, property held for investment) within the
meaning of Section 1221 of the Code. This discussion is not intended as tax
advice to the Holders. Holders are advised to consult
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their own tax advisors with respect to the consequences to them of the Rights
Offering to their own particular tax situations.
DISTRIBUTION OF THE RIGHTS. Subject to the discussions in "Constructive
Distributions Under Section 305 of the Code," below, Holders of Common Stock
will not recognize taxable income, for federal income tax purposes, in
connection with the distribution of the Rights.
BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided in the
following sentence, the basis of the Rights received by a Holder as a
distribution with respect to such Holder's Common Stock will be zero. If either
(i) the fair market value of the Rights on the date of issuance is 15% or more
of the fair market value (on the date of issuance) of the Common Stock with
respect to which they are received or (ii) the Holder elects, in such Holder's
federal income tax return for the taxable year in which the Rights are received,
to allocate part of the basis of such Common Stock to the Rights, then, upon
exercise or transfer of the Rights, the Holder's basis in such Common Stock will
be allocated between the Common Stock and the Rights in proportion to the fair
market values of each on the date of distribution. The holding period of a
Holder with respect to the Rights received as a distribution on such Holder's
Common Stock will include the Holder's holding period for the Common Stock with
respect to which the Rights were distributed. In the case of a purchaser of
Rights, the tax basis of such Rights will be equal to the purchase price paid
therefore and the holding period for such Rights will commence on the day
following the date of the purchase.
TRANSFER OF THE RIGHTS. A Holder who sells the Rights received in the
distribution prior to exercise will recognize gain or loss equal to the
difference between the sale proceeds and such Holder's basis (if any) in the
Rights sold. Such gain or loss will be capital gain or loss if gain or loss from
a sale of Common Stock held by such Holder would be characterized as capital
gain or loss at the time of such sale, and will be long term capital gain or
loss if the holding period for the Rights disposed of is more than one year
(with a more favorable long term capital gain rate applicable if the holding
period is more than eighteen months) and short term capital gain or loss if such
holding period is one year or less.
LAPSE OF THE RIGHTS. Holders who received the Rights in respect of
Common Stock who allow the Rights distributed to them to lapse will not
recognize any gain or loss, and no adjustment will be made to the basis of the
Common Stock owned by such Holders.
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF COMMON STOCK.
Holders of Rights will not recognize gain or loss upon the exercise of such
Rights. The basis of the Common Stock acquired through exercise of the Rights
will be equal to the sum of the Subscription Price therefor and the Holder's
basis in such Rights (if any). The holding period for the Common Stock acquired
through exercise of the Rights will begin on the date the Rights are exercised.
CONSTRUCTIVE DISTRIBUTIONS UNDER SECTION 305 OF THE CODE. Section 305
of the Code provides, as a general rule, that a distribution of rights to
acquire stock of a corporation made by such corporation to its shareholders with
respect to its stock is not a taxable event. However, there are a number of
exceptions to this general rule, and a distribution of rights that falls within
any one of such exceptions is treated as "a distribution of property to which
section 301 applies" (i.e., a distribution that may be taxable as a dividend).
Under one of the relevant exceptions, a distribution of stock or stock
rights will be treated as a distribution of property to which section 301
applies if it constitutes a "disproportionate distribution" with respect to any
class or classes of stock or convertible debt of the corporation. A distribution
of
53
<PAGE>
stock or stock rights constitutes a "disproportionate distribution" if it is a
part of a distribution or a series of distributions (including deemed
distributions) that has the effect of (i) the receipt of property (including
cash) by some shareholders and (ii) an increase in the proportionate interests
of other shareholders in the assets or earnings and profits of the distributing
corporation. For this purpose, cash dividends paid with respect to stock and
debt service payments made with respect to convertible securities (which are
treated for this purpose as outstanding stock) may constitute the requisite
"receipt of property" by some shareholders irrespective of whether such
dividends or payments are related to the distribution of stock or stock rights.
Further, a distribution of stock or stock rights that does not maintain the
proportionate interests of the various classes of stock and securities
(including any conversion rights relating thereto) of the distributing company
may constitute the requisite increase in the proportionate interests in the
assets or earnings and profits of the shareholders receiving the distribution of
stock or stock rights.
Under a second relevant exception, a distribution of stock or stock
rights by a corporation with respect to its preferred stock generally will be
treated as a distribution of property to which section 301 applies unless the
distribution is made with respect to convertible preferred stock to take into
account a stock dividend, stock split or any similar event (including the sale
of stock at less than fair market value pursuant to a rights offering) that
would otherwise result in the dilution of the conversion right.
If the Rights Offering were to result in a distribution of property to
which section 301 applies under one of the above-described exceptions, such
distribution (measured by the fair market value of the Rights distributed) would
be treated, first, as a dividend to the extent of the Company's current or
accumulated earnings and profits, then as a tax-free return of capital to the
extent of the recipient's basis in the stock to which such distribution is
attributable, and finally as an amount received in exchange for such stock.
The Company has both current and accumulated earnings and profits as of
the close of its taxable year ended December 31, 1997 and for the first quarter
of 1998. The amount of earnings and profits, if any, that the Company will earn
during 1998 will depend on its future actions and financial performance and
cannot currently be determined. However, based upon the Company's current
projections, it is anticipated that the Company will have current and
accumulated earnings and profits for its 1998 tax year sufficient to cover the
estimated fair market value of the Rights Offering. In such case, the Rights
Offering may result in dividend income to the Holders of Common Stock if the
Rights Offering ultimately is determined to have resulted in a distribution of
property to which section 301 applies.
If the Company were to either generate current earnings and profits for
1998 or maintain accumulated earnings and profits and the Rights Offering were
treated as a distribution of property to which section 301 applies under one of
the above-described exceptions, a Holder might ultimately be treated as having
received a dividend pursuant to Section 305 of the Code as a result of the
Rights Offering equal to the lesser of the value of the distribution and such
Holder's share of the current and/or accumulated earnings and profits of the
Company. Subject to certain holding period and taxable income requirements
imposed by the Code, an actual or constructive distribution to a corporate
Holder resulting from the Rights Offering that is treated as a dividend may
qualify for the dividends received deduction available under section 243 of the
Code. Corporate Holders claiming such a dividends received deduction are advised
to consult with their tax advisors as to the potential limitations applicable to
the dividend received deduction and the potential applicability of section 1059
to such deduction.
Whether or not the Company has current or accumulated earnings and
profits, in the event that
54
<PAGE>
the Rights Offering is treated as a distribution to which section 301 applies,
Holders would receive a basis in the Rights received or other property deemed
distributed equal to the amount of such distribution.
EACH HOLDER IS URGED TO CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING TO SUCH HOLDER'S OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND
LOCAL INCOME AND OTHER TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF RIGHTS OFFERING TO COMPANY
The Company will not recognize gain or loss on either the distribution
or the exercise or lapse of the Rights.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following summary describes the material United States federal tax
consequences of the distribution, exercise and disposition of the Rights, and
the ownership and disposition of Common Stock acquired upon exercise thereof, by
a person (a "non-U.S. Holder") who, for United States federal income tax
purposes, is a nonresident alien individual, a foreign corporation, foreign
partnership, or foreign estate or trust, as such terms are defined in the Code.
This summary does not discuss all aspects of federal taxation that may be
relevant to a particular non-U.S. Holder, nor does it consider specific facts
and circumstances that may be relevant to a particular non-U.S. Holder's tax
position.
ISSUANCE OR EXERCISE OF THE RIGHTS. Subject to the possible application
of Section 305 of the Code (see "THE RIGHTS OFFERING--Certain federal Tax
Consequences to Holders -- CONSTRUCTIVE DISTRIBUTIONS UNDER SECTION 305 OF THE
CODE," above), which could cause the Rights Offering to result in the
constructive receipt of dividends (which would be taxable as described in
"DIVIDENDS ON COMMON STOCK," below) or of an amount received in exchange for the
Common Stock (which would be taxable as described in "DISPOSITION OF RIGHTS OR
COMMON STOCK," below), non-U.S. Holders of Common Stock will not recognize
taxable income, for United States federal income tax purposes, and will not be
subject to withholding of United States federal income tax, in connection with
the receipt or exercise of the Rights.
DISPOSITION OF RIGHTS OR COMMON STOCK. A non-U.S. Holder generally will
not be subject to United States federal income tax with respect to any gain
recognized on the disposition of the Rights or Common Stock unless (i) the gain
is effectively connected with a trade or business of the non-U.S. Holder in the
United States, (ii) in the case of a non-U.S. Holder who is a nonresident alien
individual and holds either the Rights or such Common Stock as a capital asset,
such non-U.S. Holder meets the "substantial presence test" set forth in section
7701(b)(3) of the Code (generally, present in the United States for 183 or more
days in the taxable year of sale), (iii) the non-U.S. Holder has owned, directly
or by attribution, more than 5% of the Common Stock at any time during the
shorter of (A) the period during which the Holder owned the Common Stock and (B)
the five-year period ending on the date of disposition of such interest, at the
time of disposition, and the Rights or such Common Stock, as the case may be,
are/is a United States real property interest within the meaning of Section
897(c)(1) of the Code or (iv) a non-U.S. Holder is subject to tax pursuant to
certain provisions of the Code applicable to expatriates.
DIVIDENDS ON COMMON STOCK. Dividends paid to a non-U.S. Holder of
Common Stock will be
55
<PAGE>
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty, unless (i)
the dividends are effectively connected with the conduct of a trade or business
of the non-U.S. Holder within the United States or (ii) such non-U.S. Holder
meets the "substantial presence test" set forth in section 7701(b)(3) of the
Code. In order to claim the benefit of an applicable tax treaty rate, a non-U.S.
Holder may have to file with the Company or its dividend paying agent an
exemption or reduced treaty rate certificate or letter in accordance with the
terms of such treaty and the Code.
Dividends received by a non-U.S. Holder that are effectively connected
with the conduct of a trade or business of a non-U.S. Holder within the United
States are exempt from the withholding tax described above. A non-U.S. Holder
may claim this exemption by filing Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of Trade or Business in the
United States) with the Company or its dividend paying agent. Dividends that are
effectively connected with the conduct of a trade or business within the United
States (after reduction by certain deductions) are generally taxed at the
regular United States federal income tax rate and, in the case of foreign
corporations, may also be subject to an additional U.S. branch profits tax of
30% (or lower applicable treaty rate) pursuant to section 884 of the Code.
FEDERAL ESTATE TAXES. Common Stock held by an individual non-U.S.
Holder at the time of death will be included in such Holder's gross estate for
United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
EACH NON-U.S. HOLDER IS URGED TO CONSULT WITH SUCH NON-U.S. HOLDER'S
OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING TO
SUCH NON-U.S. HOLDER'S OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION
AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING.
Under the Regulations, United States information reporting requirements
and backup withholding tax may apply to dividends paid on Common Stock to U.S.
Holders and non-U.S. Holders. U.S. Holders are required to file annual returns
reporting any dividends received during the reporting year and such dividends
may be subject to backup withholding when paid unless the U.S. Holder certifies
its social security number and that backup withholding is not required.
The Service has imposed new information reporting and certification
requirements and possible backup withholding on payments of dividends to
non-U.S. Holders. Non-U.S. Holders should consult with their tax advisers as to
compliance with the new rules so as to avoid possible information reporting and
backup withholding on dividend payments. U.S. Holders and non-U.S. Holders may
be eligible to obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the Service.
DESCRIPTION OF COMMON STOCK
For a description of the Common Stock, see "DESCRIPTION OF CAPITAL
STOCK."
56
<PAGE>
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which the
Notice of Guaranteed Delivery must be delivered, is:
<TABLE>
<CAPTION>
AMERICAN STOCK TRANSFER & TRUST COMPANY
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND:
American Stock Transfer & Trust Company (718) 921-8334 American Stock Transfer & Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
TO CONFIRM RECEIPT AND FOR GENERAL INFORMATION:
(800) 937-5449
</TABLE>
The Company will pay the fees and expenses of the Subscription Agent, and has
also agreed to indemnify the Subscription Agent from any liability which it may
incur in connection with the Rights Offering. The Company has been informed by
the Subscription Agent that it is a bank within the meaning of Section 3(a)(6)
of the Exchange Act.
INFORMATION AGENT
The Company has appointed D.F. King & Co., Inc. as Information Agent
for the Rights Offering. Any questions or requests for additional copies of this
Prospectus, the Instructions or the Rights Offering Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
address below.
D.F. KING & CO., INC.
77 Water Street
20th Floor
New York, NY 10005
Banks and Brokers Call Collect: (212) 269-5550
Others Call Toll Free: 1-800-859-8508
The Company will pay the fees and expenses of the Information Agent and has also
agreed to indemnify the Information Agent from certain liabilities which it may
incur in connection with the Rights Offering.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following general summary of the material terms of the capital
stock of the Company does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the pertinent portions of the
Company's Certificate of Incorporation.
GENERAL
The authorized capital stock of the Company consists of 49,000,000
shares of common stock, par value $.01 per share (the "Common Stock"). As of
June _____, 1998, there were 20,996,440 shares of the Common Stock outstanding.
Of this number, 20,212,000 shares of Common Stock, or 96%, were owned or
controlled by Muriel F. Siebert.
COMMON STOCK
GENERAL. There are no redemption or sinking fund provisions applicable
to the shares of Common Stock and such shares are not entitled to any preemptive
rights.
VOTING. Each holder of Common Stock is entitled to one vote for each
share registered in the holder's name on the books of the Company. Since none of
the shares of Common Stock have cumulative voting rights, the holders of more
than 50% of the shares can elect all the directors of the Company if they so
chose and, in that event, the holders of the remaining shares will not be able
to elect any directors.
DIVIDENDS. The holders of Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors of the
Company from the assets of the Company which are legally available therefor.
LIQUIDATION. Upon the liquidation, dissolution or winding-up of the
Company, holders of Common Stock are entitled to receive, pro rate, after the
prior rights of creditors have been satisfied, all the remaining assets of the
Company available for distribution.
TRANSFER AGENT AND REGISTRAR. American Stock Transfer & Trust Company
is the transfer agent and registrar for the Common Stock.
58
<PAGE>
PLAN OF DISTRIBUTION
The Company is distributing transferable Rights, at no cost, to the
Holders of the Common Stock outstanding as of the Record Date. See "THE RIGHTS
OFFERING --The Rights." Each Right will entitle the holder thereof to receive,
upon payment of the Subscription Price, one (1) share of Common Stock. Record
Date shareholders who fully exercise all Rights distributed to them will also be
entitled to subscribe at the Subscription Price for shares of Common Stock that
are not otherwise purchased pursuant to the exercise of Rights, subject to
proration by the Company under certain circumstances. The Company's majority
shareholder, Muriel F. Siebert, has indicated to the Company that to encourage
increased public ownership of stock, and consistent with her waiving her receipt
of past dividends, she intends to waive the receipt of the Rights to which she
would otherwise be entitled. See "THE RIGHTS OFFERING -- Subscription
Privileges."
The Company anticipates receiving approximately $ in proceeds from the
Rights Offering, after payment of approximately $235,000 of fees and expenses
incurred in connection with the Rights Offering. See "USE OF PROCEEDS."
TRADING
The outstanding shares of Common Stock are traded in the Nasdaq
SmallCap Market. The Company has applied for listing the shares offered hereby
in the Nasdaq SmallCap Market.
DESCRIPTION OF COMMON STOCK
For a description of the Common Stock, see "Description of Capital
Stock."
59
<PAGE>
LEGAL MATTERS
The legality of the securities offered hereby is being passed upon for
the Company by Brown Raysman Millstein Felder & Steiner, LLP, New York, New
York.
EXPERTS
The consolidated statements of financial condition of Siebert
Financial Corp. and its subsidiary, Muriel Siebert & Co., Inc., as of December
31, 1997 and December 31, 1996, 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, 1997 included in this Prospectus have
been audited by Richard A. Eisner & Company, LLP, independent auditors, as
indicated in their report with respect thereto, and are included herein in
reliance upon such report given upon authority of said firm as experts in
accounting and auditing.
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors..........................................F-2
Consolidated Statements of Financial Condition at
March 31, 1998 (unaudited) and December 31, 1997 and 1996 ............F-3
Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 (unaudited).............................F-4
Consolidated Statements of Income for each of the years in
the three-year period ended December 31, 1997.........................F-5
Consolidated Statements of Changes in Shareholders' Equity
for each of the years in the three-year period ended
December 31, 1997 and the three months ended
March 31, 1998 (unaudited)............................................F-6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited).............................F-7
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1997......................F-8
Notes to Consolidated Financial Statements..............................F-9
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Siebert Financial Corp.
New York, New York
We have audited the accompanying consolidated statements of financial condition
of Siebert Financial Corp. and its wholly owned subsidiary as of December 31,
1997 and December 31, 1996, 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, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1997 and December 31,
1996, and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 13, 1998
(April 7, 1998, with respect to the third and fourth paragraphs of Note F)
F-2
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1998 -------------------------
(unaudited) 1997 1996
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 3,808,287 $ 4,394,142 $ 231,029
Cash equivalents - restricted 1,300,000 1,300,000 --
Receivable from clearing broker -- 2,134,839 1,141,439
Securities owned, at market value 11,125,733 6,564,668 10,116,248
Secured demand note receivable from affiliate 2,000,000 2,000,000 2,000,000
Furniture, equipment and leasehold improvements, net 548,065 475,553 450,254
Investment in affiliate 392,000 392,000 --
Prepaid expenses and other assets 825,260 620,387 433,738
----------- ----------- -----------
$19,999,345 $17,881,589 $14,372,708
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 382,018 $ 2,037,547 $ 1,447,143
Payable to clearing broker 2,332,531 -- --
Accounts payable and accrued liabilities 3,801,810 3,171,485 2,824,000
----------- ----------- -----------
6,516,359 5,209,032 4,271,143
----------- ----------- -----------
Commitments and contingent liabilities
Subordinated borrowings payable to affiliate 3,000,000 3,000,000 3,000,000
----------- ----------- -----------
Shareholders' equity:
Common stock, $.01 par value; 49,000,000 shares
authorized, 20,993,640 shares outstanding at March 31, 1998,
20,950,440 shares outstanding at December 31, 1997,
and 20,943,588 shares outstanding at December 31, 1996 209,936 209,504 209,436
Additional paid-in capital 6,609,182 6,584,963 6,613,972
Retained earnings 3,663,868 2,878,090 278,157
----------- ----------- -----------
10,482,986 9,672,557 7,101,565
----------- ----------- -----------
$19,999,345 $17,881,589 $14,372,708
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
----------- -----------
Revenues:
<S> <C> <C>
Commissions and fees $ 4,595,905 $ 4,744,439
Investment banking 1,492,555 287,049
Trading profits 339,064 511,254
Interest and dividends 163,408 136,502
----------- -----------
6,590,932 5,679,244
----------- -----------
Expenses:
Employee compensation and benefits 2,348,562 1,821,896
Clearing fees, including floor brokerage 1,064,941 1,132,850
Advertising and promotion 449,669 901,086
Communications 409,256 432,162
Occupancy 196,011 162,755
Interest 100,051 92,075
Other general and administrative 781,524 705,937
----------- -----------
5,350,014 5,248,761
----------- -----------
Income before provision for income taxes 1,240,918 430,483
Provision for income taxes 436,000 182,000
----------- -----------
Net income $ 804,918 $ 248,483
=========== ===========
Net income per share of common stock - basic and diluted $0.04 $0.01
Weighted average shares outstanding - basic 20,992,018 20,945,940
Weighted average shares outstanding - diluted 21,608,615 20,945,940
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Commissions and fees $18,879,674 $20,105,127 $15,645,334
Investment banking 4,487,594 2,532,795 1,396,967
Trading profits 1,795,104 868,823 2,608,078
Interest and dividends 704,911 656,434 1,389,612
----------- ----------- -----------
25,867,283 24,163,179 21,039,991
----------- ----------- -----------
Expenses:
Employee compensation and benefits 8,208,006 9,753,847 8,586,116
Clearing fees, including floor brokerage 4,675,368 4,585,398 4,249,050
Advertising and promotion 2,751,755 3,265,692 2,485,426
Communications 1,446,817 1,359,325 1,119,189
Occupancy 648,763 403,534 326,089
Interest 418,405 290,465 568,326
Other general and administrative 3,043,068 2,339,483 2,461,122
----------- ----------- -----------
21,192,182 21,997,744 19,795,318
----------- ----------- -----------
Income before provision for income taxes 4,675,101 2,165,435 1,244,673
Provision for income taxes - current 2,057,000 201,000 --
----------- ----------- -----------
NET INCOME - HISTORICAL $ 2,618,101 1,964,435 1,244,673
===========
Pro forma provision for income taxes 752,000 548,000
----------- -----------
NET INCOME - PRO FORMA 1,212,435 $ 696,673
===========
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
===========
Net income per share of common stock - basic and diluted:
Historical $.12
Pro forma $.06 $.03
Supplementary pro forma $.14
WEIGHTED AVERAGE SHARES DEEMED OUTSTANDING 20,949,484 20,943,588 20,943,588
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------
Number Additional
of $.01 Par Paid-in Retained
Shares Value Capital Earnings Total
---------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1995 20,420,000 $204,200 $ -- $ 3,688,257 $ 3,892,457
Net income -- -- -- 1,244,673 1,244,673
---------- -------- ----------- ----------- ------------
BALANCE - DECEMBER 31, 1995 20,420,000 204,200 -- 4,932,930 5,137,130
Net income as subchapter - S corporation
January 1, 1996 - November 8, 1996 -- -- -- 1,686,278 1,686,278
Transfer upon change in tax status -- -- 6,619,208 (6,619,208) --
Issuance of shares in connection with
reorganization 523,588 5,236 (5,236) -- --
Net income as C corporation
November 9, 1996 - December 31, 1996 -- -- -- 278,157 278,157
---------- -------- ----------- ----------- ------------
BALANCE - DECEMBER 31, 1996 20,943,588 209,436 6,613,972 278,157 7,101,565
Net income -- -- -- 2,618,101 2,618,101
Issuance of shares in connection with
offering, net of expenses 6,852 68 (29,009) -- (28,941)
Dividend on common stock -- -- -- (18,168) (18,168)
---------- -------- ----------- ----------- ------------
BALANCE - DECEMBER 31, 1997 20,950,440 209,504 6,584,963 2,878,090 9,672,557
Net income -- -- -- 804,918 804,918
Issuance of shares in connection with
Restricted Stock Award Plan, net of
2,000 shares forfeited 43,200 432 (432) -- --
Noncash compensation in connection
with Restricted Stock Award Plan -- -- 24,651 -- 24,651
Dividend on common stock -- -- -- (19,140) (19,140)
---------- -------- ----------- ----------- ------------
BALANCE - MARCH 31, 1998 (UNAUDITED) 20,993,640 $209,936 $ 6,609,182 $ 3,663,868 $ 10,482,986
========== ======== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 804,918 $ 248,483
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization 38,822 37,996
Noncash compensation 24,651 --
Changes in operating assets and liabilities:
Net (increase) decrease in securities owned, at market value (4,561,065) 786,238
Net change in receivable from clearing broker 4,467,370 4,117,804
(Increase) in prepaid expenses and other assets (204,873) (86,488)
Net (decrease) in securities sold, not yet purchased,
at market value (1,655,529) (964,588)
Increase (decrease) in accounts payable and accrued
liabilities 630,325 (296,829)
----------- -----------
Net cash (used in) provided by operating activities (455,381) 3,842,616
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (111,334) (76,533)
Investment in affiliate -- (392,000)
----------- -----------
Net cash (used in) investing activities (111,334) (468,533)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend on common stock (19,140) --
Issuance of shares, net of expenses -- (28,941)
----------- -----------
Net cash (used in) financing activities (19,140) (28,941)
----------- -----------
Net (decrease) increase in cash and cash equivalents (585,855) 3,345,142
Cash and cash equivalents - beginning of period 4,394,142 231,029
----------- -----------
Cash and cash equivalents - end of period $ 3,808,287 $ 3,576,171
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 100,051 $ 92,075
Income taxes 337,290 50,075
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,618,101 $ 1,964,435 $ 1,244,673
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 157,010 108,460 67,360
Changes in operating assets and liabilities:
Net decrease (increase) in securities owned, at market value 3,551,580 3,630,683 (8,006,577)
Net change in receivable from clearing broker (993,400) (6,377,785) 8,151,165
(Increase) in prepaid expenses and other assets (186,649) (292,409) (2,097)
Net increase (decrease) in securities sold, not yet purchased,
at market value 590,404 868,653 (994,994)
Increase (decrease) in accounts payable and accrued
liabilities 347,485 (515,229) 1,432,940
----------- ----------- -----------
Net cash provided by (used in) operating activities 6,084,531 (613,192) 1,892,470
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cash equivalents-restricted (1,300,000) -- --
Purchase of furniture, equipment and leasehold improvements (182,309) (319,850) (95,771)
Investment in affiliate (392,000) -- --
----------- ----------- -----------
Net cash (used in) investing activities (1,874,309) (319,850) (95,771)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Subordinated borrowings from affiliate -- 1,000,000 --
Repayment of subordinated borrowings from affiliate -- -- (2,000,000)
Issuance of shares, net of expenses (28,941) -- --
Dividend on common stock (18,168) -- --
----------- ----------- -----------
Net cash (used in) provided by financing activities (47,109) 1,000,000 (2,000,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 4,163,113 66,958 (203,301)
Cash and cash equivalents - beginning of year 231,029 164,071 367,372
----------- ----------- -----------
Cash and cash equivalents - end of year $ 4,394,142 $ 231,029 $ 164,071
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 405,000 $ 290,465 $ 568,326
Income taxes 1,796,000 234,850 126,342
Supplemental information on noncash financing activities:
During 1995, an affiliate issued a secured demand note to the Company and the
Company issued a subordinated note to a shareholder, both in the amount of
$2,000,000.
See notes to consolidated financial statements.
F-8
</TABLE>
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
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 services for institutional clients and trading
securities for its own account.
In accordance with a Plan and Agreement of Merger (the "Agreement") which
closed on November 8, 1996 (the "Merger"), J. Michaels, Inc. ("JMI")
issued 20,420,000 shares to Muriel Siebert in exchange for all the issued
and outstanding shares of Muriel Siebert Capital Markets Group, Inc.,
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 shareholders 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 523,588
shares of its common stock to the pre-merger shareholders of JMI.
Accordingly, the financial statements for 1996 and 1995 are the
historical basis financial statements of Siebert.
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."
The consolidated financial statements for the three months ended March
31, 1998 and 1997 are unaudited; however, in the opinion of management,
all adjustments considered necessary to reflect fairly the Company's
financial position and results of operations, consisting of normal
recurring adjustments, have been included. Because of the nature of the
Company's business, the results of any interim period are not necessarily
indicative of results for a full year.
[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.
F-9
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] INCOME TAXES:
Prior to November 8, 1996, the Company was considered a subchapter-S
corporation for tax purposes. Such 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. The Company files a consolidated Federal income tax return.
[4] FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
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.
[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.
F-10
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] Earnings per share:
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 requires the
reporting of earnings per basic share and earnings per diluted share.
Earnings per basic share are calculated by dividing net income by the
weighted average outstanding shares during the period. Earnings per
diluted share are calculated by dividing net income by the basic shares
and all dilutive securities including options. Adoption of SFAS No. 128
had no effect on prior periods.
[9] PRO FORMA AND SUPPLEMENTARY PRO FORMA DATA:
Pro forma net income and pro forma earnings per share give effect to
income taxes which would have been provided had the Company operated as a
C corporation for all of 1996 and 1995.
Supplementary pro forma net income and supplementary pro forma earnings
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] INVESTMENT BANKING:
Investment banking revenues include gains and fees, net of syndicate
expenses, arising primarily from municipal bond offerings in which the
Siebert, Brandford, Shank ("SBS") division of Siebert acts as an
underwriter or agent. Investment banking management fees are recorded on
offering date, sales concessions on settlement date and underwriting fees
at the time the underwriting is completed and the income is reasonably
determinable.
[11] CASH EQUIVALENTS - RESTRICTED:
Cash equivalents - restricted represents cash invested in a money market
account which is pledged as collateral for a secured demand note in the
amount of $1,200,000 executed in favor of Siebert, Brandford, Shank &
Co., L.L.C., an affiliated registered broker dealer.
NOTE B - INVESTMENT IN AFFILIATE
In March 1997, Siebert and two individuals (the "Principals") formed Siebert,
Brandford, Shank & Co., L.L.C. to succeed to the tax exempt underwriting
business of the SBS division of Siebert when regulatory requirements have been
met. The agreements with the Principals provide that profits will be shared 51%
to the Principals and 49% to Siebert. Losses incurred in the amount of
approximately $601,000 through December 31, 1997 are to be recouped by Siebert
prior to any profit allocation to the Principals. Siebert invested $392,000 as
its share of the members' capital of Siebert, Brandford, Shank
F-11
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE B - INVESTMENT IN AFFILIATE (CONTINUED)
& Co., L.L.C. Siebert operated the SBS division business in accordance with the
terms of the agreements with the Principals.
NOTE C - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE
The subordinated borrowings are payable to an affiliate and consist of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
---------- -----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Secured demand note collateral agreement, 4%,
due December 31, 1999 $2,000,000 $2,000,000 $2,000,000
Subordinated note, 8%, due January 31, 2000 500,000 500,000 500,000
Subordinated note, 8%, due October 31, 1999 500,000 500,000 500,000
---------- ---------- ----------
$3,000,000 $3,000,000 $3,000,000
========== ========== ==========
</TABLE>
The long-term borrowings are automatically renewed for a period of one year if
notice of demand for payment is not given thirteen months prior to maturity.
The subordinated borrowings are available in computing net capital under the
Securities and Exchange Commission's (the "SEC") 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 approximately $66,000 and $40,000
for the three months ended March 31, 1998 and 1997, respectively, and $160,000,
$123,000 and $160,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The secured demand note receivable of $2,000,000 at March 31, 1998, December 31,
1997 and December 31, 1996 is collateralized by marketable securities with a
market value of approximately $2,404,000, $2,446,000 and $2,363,000,
respectively.
F-12
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE D - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
March 31, December 31,
-------- -------------------
1998 1997 1996
-------- -------- --------
Equipment $635,236 $638,534 $569,471
Leasehold improvements 132,115 128,655 70,576
Furniture and fixtures 84,468 84,468 61,539
-------- -------- --------
851,819 851,657 701,586
Less accumulated depreciation and amortization 303,754 376,104 251,332
-------- -------- --------
$548,065 $475,553 $450,254
======== ======== ========
Depreciation and amortization expense for the three months ended March 31, 1998
and 1997 amounted to approximately $39,000 and $38,000, respectively. Such
expense for the years ended December 31, 1997, 1996 and 1995 amounted to
approximately $157,000, $108,000 and $67,000, respectively.
NOTE E - INCOME TAXES
Income tax expense (pro forma for periods prior to November 8, 1996) consists of
the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------------------------------------
1998 1997 1997 1996 1995
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Federal income tax $407,000 $120,000 $1,360,000 $624,000 $359,000
State and local income tax 29,000 62,000 697,000 329,000 189,000
-------- -------- ---------- -------- --------
Income tax expense $436,000 $182,000 $2,057,000 $953,000 $548,000
======== ======== ========== ======== ========
</TABLE>
A reconciliation between the income tax expense (pro forma for periods prior to
November 8, 1996) and income taxes computed by applying the statutory Federal
income tax rate to income before taxes is as follows:
F-13
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
NOTE E - INCOME TAXES (CONTINUED)
Three Months Ended
March 31, Year Ended December 31,
--------------------- --------------------------------
1998 1997 1997 1996 1995
--------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Expected income tax
provision at statutory
Federal tax rate $ 422,000 $146,000 $1,590,000 $736,000 $423,000
State and local taxes, net of
Federal tax effect 124,000 36,000 467,000 217,000 125,000
Effect of refund of prior year's
local taxes net of Federal and
state tax effect
(110,000) -- -- -- --
--------- -------- ---------- -------- --------
Income tax expense $ 436,000 $182,000 $2,057,000 $953,000 $548,000
========= ======== ========== ======== ========
</TABLE>
There are no significant temporary differences which give rise to deferred tax
assets or liabilities at March 31, 1998, December 31, 1997 and December 31,
1996.
NOTE F - SHAREHOLDERS' EQUITY
Siebert is subject to the SEC'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 March 31, 1998, December
31, 1997 and December 31, 1996, Siebert had net capital of approximately
$8,967,000, $9,052,000 and $7,754,000, respectively, as compared with net
capital requirements of $250,000. Siebert claims exemption from the reserve
requirement under Section 15c3-3(k)(2)(ii).
In an offering completed on March 21, 1997, the Company offered to its
shareholders with "odd lots" the opportunity to "round up" their shares to the
next nearest 100 shares. 6,852 shares were issued with proceeds to the Company
of approximately $16,000. Costs related to the offering approximated $45,000.
On December 22, 1997 and March 16, 1998 the Company declared quarterly dividends
of $.0225 per share. The principal shareholder waived her right to receive her
portion of the dividends.
On April 7, 1998 the Company split its stock 4 for 1 in order to comply with the
rules of The Nasdaq Stock Market, Inc. relating to listings on the SmallCap
Market. All share and per share data contained herein have been retroactively
adjusted to reflect this stock split.
F-14
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE G - 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 March 31, 1998 and
December 31, 1997 settled with no adverse effect on Siebert's financial
condition.
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES
The Company rents office space under long-term operating leases expiring in
various periods through 2003. 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
------------ --------------
1998 $ 362,000
1999 356,000
2000 343,000
2001 325,000
2002 307,000
Thereafter 103,000
--------------
$ 1,796,000
==============
Rent expense, including escalations for operating costs, amounted to
approximately $129,000 for each of the three months ended March 31, 1998 and
1997, and $424,000, $360,000 and $289,000 for the years ended December 31, 1997,
1996 and 1995, respectively. Payments are being charged to expense over the
entire lease term on a straight-line basis.
F-15
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Siebert 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.
Siebert 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.
Siebert may also make discretionary contributions to the plan. No contributions
were made by Siebert in the years ended December 31, 1997, 1996 and 1995 and in
the three month periods ended March 31, 1998 and 1997.
Siebert executed a demand note payable in favor of SBS in the amount of
$1,200,000 collaterized by approximately $1,300,000 of cash equivalents which
are reported as cash equivalents - restricted. This obligation is not included
in the Company's statement of financial condition.
NOTE I - OPTIONS
In 1997, the shareholders of the Company approved the 1997 Stock Option Plan
(the "Plan"). The Plan authorizes the grant of options to purchase up to an
aggregate of 2,100,000 shares, subject to adjustment in certain circumstances.
Both non-qualified options and options intended to qualify as "Incentive Stock
Options" under Section 422 of the Internal Revenue Code, as amended, may be
granted under the Plan. A Stock Option Committee of the Board of Directors
administers the Plan which has the authority to determine when options are
granted, the term during which an option may be exercised (provided no option
has a term exceeding 10 years), the exercise price and the exercise period. The
exercise price shall generally be not less than the fair market value on the
date of grant. No option may be granted under the Plan after December 2007.
On March 11, 1997, the Company granted to non-employee directors options to
purchase 120,000 shares of the Company's Common Stock at an exercise price of
$2.313 per share. The directors' options are exercisable six months from the
date of grant and expire five years from the date of grant. On May 16, 1997,
pursuant to the Plan, the Company granted options to certain of its employees to
purchase 799,000 shares of the Company's Common Stock at an exercise price of
$2.313 per share. On November 6, 1997, pursuant to the Plan, the Company granted
options to an employee to purchase 40,000 shares of the Company's Common Stock
at an exercise price of $2.219 per share. On February 9, 1998, the Company
granted options to purchase 76,000 shares of the Company's Common Stock to
certain of its employees at an exercise price of $2.688 per share. All such
employee options vest 20% per year for five years and expire ten years from the
date of grant. As of March 31, 1998, no employee options were exercisable.
F-16
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE I - OPTIONS (CONTINUED)
A summary of the Company's stock option transactions for the three months ended
March 31, 1998 and the year ended December 31, 1997 is presented below:
<TABLE>
<CAPTION>
1998 1997
----------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Outstanding - beginning of period 925,200 $2.31 - -
Granted 76,000 $2.69 959,000 $2.31
Forfeited - - (33,800) $2.31
--------- ---------
Outstanding - end of period 1,001,200 925,200 $2.31
========= =========
-
Exercisable at end of period 120,000 $2.34 120,000 $2.31
Weighted average fair value of options granted $1.16 $1.18
</TABLE>
The following table summarizes information related to options outstanding at
March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -------------------------------
Weighted-Average Weighted- Weighted-
Range Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$2.31 885,200 8.51 Years $2.31 120,000 $2.31
$2.22 40,000 9.60 Years $2.22 - -
$2.69 76,000 9.85 Years $2.69 - -
---------- ---------
$2.22 - $2.69 1,001,200 8.65 Years $2.34 120,000 $2.31
========== =========
</TABLE>
The following table summarizes information related to options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -------------------------------
Weighted-Average Weighted- Weighted-
Range Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$2.31 885,200 8.68 Years $2.31 120,000 $2.31
$2.22 40,000 9.85 Years $2.22 - -
---------- ---------
$2.22 - $2.31 925,200 8.73 Years $2.31 120,000 $2.31
========== =========
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yields ranging from 0% to 3.3%, expected volatility
ranging from of 25% to 39%, risk-free interest rates ranging from 6.20% to
6.43%, and expected lives ranging from 5 to 10 years.
F-17
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
NOTE I - OPTIONS (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for its stock
option grants. The effect of applying SFAS No. 123 on 1997 pro forma net income
is not necessarily representative of the effects on reported net income for
future years due to, among other things, (1) the vesting period of stock options
and (2) the fair value of additional stock options in future years. Had
compensation costs for the Company's stock option grants been determined based
on the fair value at the grant dates for awards, the Company's net income and
earnings per share would have reduced to the pro forma amounts indicated below.
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
------------------ -----------------
Net Income As reported $804,918 $2,618,101
Pro forma $752,889 $2,397,101
Net Income Per Share As reported $.04 $.12
Pro forma $.04 $.11
NOTE J - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and No.
131, "Disclosure about Segments of an Enterprise and Related Information"
effective for fiscal years beginning after December 15, 1997. The Company
believes that the above pronouncements will not have a significant effect on its
financial position or results of operations.
F-18
<PAGE>
ANNEX A
ADVEST, INC.
One Rockefeller Plaza
New York, New York 10020
-------------------
____________, 1998
Board of Directors
Siebert Financial Corp.
885 Third Avenue
New York, New York 10022
Members of the Board:
We understand that Siebert Financial Corp. (the "Company") intends to
distribute to holders of record of its common stock outstanding as of ________,
1998, transferable subscription rights to subscribe for and purchase 1,006,440
shares of common stock for a price of $________ per share (the "Proposed
Transaction" or the "Rights Offering"). The terms and conditions of the Proposed
Transaction are set forth in more detail in the Company's Registration Statement
on Form S-1.
Advest, Inc. ("Advest") has been requested by the Company to advise the
Company generally with respect to the Rights Offering, as well as to render a
written opinion to the Board that the Rights Offering is fair, from a financial
point of view to the Company and its shareholders.
In arriving at our opinion, we reviewed and analyzed: (1) the
Registration Statement and such other publicly available information concerning
the Company which we believe to be relevant to our inquiry, (2) financial and
operating information with respect to the business, operations and prospects of
the Company furnished to us by the Company, (3) a trading history of the
Company's common stock and a comparison of that trading history with those of
other companies which we deemed relevant, (4) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies which we deemed relevant, and (5) a comparison of the financial
terms of the Rights Offering with the financial terms of certain other recent
transactions which we deemed relevant.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make such information
inaccurate or misleading. Our opinion is necessarily based upon market, economic
and other conditions as they exist on, and can be evaluated as of, the date of
this letter.
<PAGE>
Board of Directors
Page 2
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the Proposed Transaction
is fair to the Company and its shareholders.
We have acted as financial advisor to the Company in connection with
the Proposed Transaction and will receive a fee ($25,000 retainer fee paid by
the Company upon signing an engagement letter with Advest and $45,000, payable
by the Company, upon closing the Proposed Transaction) for the Proposed
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities which may arise out of the rendering of this opinion. We also have
performed various investment banking services for the Company in the past
(including a valuation analysis) and have received customary fees for such
services.
This opinion is solely for the use and benefit of the Board of
Directors of the Company and shall not be disclosed publicly except it may be
included as an exhibit to the Prospectus forming a part of the Registration
Statement, or made available to, or relied upon by, any third party without our
prior approval. This opinion is not intended to be and does not constitute a
recommendation to any shareholder of the Company.
Very truly yours,
ADVEST, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the sale
of the Common Stock offered hereby, other than underwriting discounts and
commissions. The amount of such expenses are as follows:
SEC registration fees...............................................$ 4,462
NASDAQ listing fee.................................................. 7,500
Printing and engraving expenses..................................... 18,000*
Legal fees and expenses............................................. 90,000*
Bankers Fees........................................................ 70,000*
Information Agent................................................... 10,000*
Subscription and Transfer Agent..................................... 10,000*
Accounting fees and expenses........................................ 15,000*
Blue Sky fees and expenses.......................................... 5,000*
Miscellaneous....................................................... 5,038*
---------
Total................................................................$235,000*
* Estimated
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------ ----------------------
2(a) 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") (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended December 31,
1996)
2(b) Amendment No. 1 to Merger Agreement, dated as of June 28, 1996
(incorporated by reference to Siebert Financial Corp.'s Form 10-K for
the fiscal year ended December 31, 1996)
2(c) Amendment No. 2 to Merger Agreement, dated as of September 30, 1996
(incorporated by reference to Siebert Financial Corp.'s Form 10-K for
the fiscal year ended December 31, 1996)
2(d) Amendment No. 3 to Merger Agreement, dated as of November 7, 1996
(incorporated by reference to Siebert Financial Corp.'s Form 10-K for
the fiscal year ended December 31, 1996)
3(a) Certificate of Incorporation of Siebert Financial Corp., formally known
as J. Michaels, Inc., originally filed on April 9, 1934, as amended and
restated to date (incorporated by reference to Siebert Financial
Corp.'s Form 10-K for the fiscal year ended December 31, 1996)
II-1
<PAGE>
3(b) By-laws of Siebert Financial Corp.*
4 Form of Subscription Certificate
5 Opinion of Brown Raysman Millstein Felder & Steiner LLP as to the
legality of the securities being registered
10(a) Siebert Financial Corp. 1997 Stock Option Plan (incorporated by
reference to Siebert Financial Corp.'s Form 10-K for the fiscal year
ended December 31, 1996)
10(b) 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 (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended December 31,
1996)
10(c) Services Agreement, between Siebert, Brandford, Shank & Co., LLC and
Muriel Siebert & Co., Inc., dated as of March 10, 1997 (incorporated by
reference to Siebert Financial Corp.'s Form 10-K for the fiscal year
ended December 31, 1996)
10(d) Siebert Financial Corp. 1998 Restricted Stock Award Plan (incorporated
by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year
ended December 31, 1997)
21 List of Subsidiaries of Siebert Financial Corp.*
23(a) Consent of Richard A. Eisner & Company, LLP
23(b) Consent of Brown Raysman Millstein Felder & Steiner LLP (included in
their opinion set forth as Exhibit 5 to this Registration Statement)
24 Powers of Attorney of certain directors and officers of Siebert
(included on page II-10 of the Registration Statement filed with the
SEC on April 10, 1998)
99.1** Form of Instructions to Shareholders as to use of Subscription
Certificates
99.2** Form of Notice of Guaranteed Delivery for Subscription Certificates and
Important Tax Information (See exhibit 99.1)
99.3** Form of Subscription Agency Agreement
99.4** Form of Information Agent Agreement
99.5** Form of Letter to Common Shareholders who are record holders
99.6** Form of Letter to Common Shareholders whose addresses are outside the
United States
99.7** Form of Letter to Common Shareholders who are beneficial holders
99.8** Form of Letter to Clients of Common Shareholders who are beneficial
holders
99.9** Form of Certification and Request for Additional Rights
99.10** Form of Letter to Participants in the 1997 Stock Option Plan
II-2
<PAGE>
99.11** Form of Letter to Participants in the 1998 Restricted Stock Award Plan
- -------------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
Schedules have been omitted because either they are not required or are
not applicable or because the required information has been included
elsewhere in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
* * * *
(d) The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms offering from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this Amendment No. 1 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 6th day of July,
1998.
SIEBERT FINANCIAL CORP.
By: /s/ Muriel F. Siebert
-----------------------------------
Muriel F. Siebert
Chair and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement on Form S-1 has been signed below
by the following persons, in the capacities indicated, on July 6, 1998.
Name Title
---- -----
/s/ Muriel F. Siebert Chair, President and Director
- -------------------------------- (principal executive officer)
Muriel F. Siebert
/s/ Nicholas P. Dermigny Executive Vice President, Chief
- -------------------------------- Operating Officer and
Nicholas P. Dermigny Director
/s/ Richard M. Feldman Executive Vice President and
- -------------------------------- Chief Financial Officer and
Richard M. Feldman Assistant Secretary (principal
financial and accounting officer)
/s/ Patricia L. Francy Director
- --------------------------------
Patricia L. Francy
/s/ Jane H. Macon Director
- --------------------------------
Jane H. Macon
/s/ Monte E. Wetzler Director
- --------------------------------
Monte E. Wetzler
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits Page
- ------ ----------------------- ----
2(a) 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") (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended
December 31, 1996)
2(b) Amendment No. 1 to Merger Agreement, dated as of June
28, 1996 (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended
December 31, 1996)
2(c) Amendment No. 2 to Merger Agreement, dated as of
September 30, 1996 (incorporated by reference to
Siebert Financial Corp.'s Form 10-K for the fiscal
year ended December 31, 1996)
2(d) Amendment No. 3 to Merger Agreement, dated as of
November 7, 1996 (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended
December 31, 1996)
3(a) Certificate of Incorporation of Siebert Financial
Corp., formally known as J. Michaels, Inc., originally
filed on April 9, 1934, as amended and restated to
date (incorporated by reference to Siebert Financial
Corp.'s Form 10-K for the fiscal year ended December
31, 1996)
3(b) By-laws of Siebert Financial Corp.*
4 Form of Subscription Certificate
5 Opinion of Brown Raysman Millstein Felder & Steiner
LLP as to the legality of the securities being
registered
10(a) Siebert Financial Corp. 1997 Stock Option Plan
(incorporated by reference to Siebert Financial
Corp.'s Form 10-K for the fiscal year ended December
31, 1996)
10(b) 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 (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended
December 31, 1996)
10(c) Services Agreement, between Siebert, Brandford, Shank
& Co., LLC and Muriel Siebert & Co., Inc., dated as of
March 10, 1997 (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended
December 31, 1996)
10(d) Siebert Financial Corp. 1998 Restricted Stock Award
Plan (incorporated by reference to Siebert Financial
Corp.'s Form 10-K for the fiscal year ended December
31, 1997)
<PAGE>
21 List of Subsidiaries of Siebert Financial Corp.*
23(a) Consent of Richard A. Eisner & Company, LLP
23(b) Consent of Brown Raysman Millstein Felder & Steiner
LLP (included in their opinion set forth as Exhibit 5
to this Registration Statement)
24 Powers of Attorney of certain directors and officers
of Siebert (included on page II-10 of the Registration
Statement filed with the SEC on April 10, 1998)
99.1** Form of Instructions to Shareholders as to use of
Subscription Certificates
99.2** Form of Notice of Guaranteed Delivery for Subscription
Certificates and Important Tax information (See
exhibit 99.1)
99.3** Form of Subscription Agency Agreement
99.4** Form of Information Agent Agreement
99.5** Form of Letter to Common Shareholders who are record
holders
99.6** Form of Letter to Common Shareholders whose addresses
are outside the United States
99.7** Form of Letter to Common Shareholders who are
beneficial holders
99.8** Form of Letter to Clients of Common Shareholders who
are beneficial holders
99.9** Form of Certification and Request for Additional Rights
99.10** Form of Letter to Participants in the 1997 Stock
Option Plan
99.11** Form of Letter to Participants in the 1998 Restricted
Stock Award Plan
- -------------------
* Previously filed.
** To be filed by amendment.
EXHIBIT 5
Brown Raysman Millstein Felder & Steiner, LLP
120 West 45th Street
New York, New York 10036
(212) 944-1515
July 6, 1998
Siebert Financial Corp.
885 Third Avenue, Suite 1720
New York, New York 10022
Re: Siebert Financial Corp.
Ladies and Gentlemen:
We refer to Amendment No. 1 to the Registration Statement on Form S-1
(Reg. No. 333-49843) (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), filed by Siebert Financial Corp., a New
York corporation (the "Company"), with the Securities and Exchange Commission
(the "SEC"). The Registration Statement covers (i) rights to purchase (the
"Rights") shares of the Company's common stock, par value $.01 per share (the
"Company Common Stock") and (ii) shares of Company Common Stock to be issued and
sold upon the exercise of the Rights to be distributed in connection with a
rights offering (the "Rights Offering").
We have examined the originals or certified, photostatic or facsimile
copies of such records and other documents as we have deemed relevant and
necessary as the basis for the opinions set forth below. In such examination, we
have assumed the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as certified,
photostatic or facsimile copies and the authenticity of the originals of such
copies.
Based upon our examination mentioned above, as described above, and
subject to the assumptions and qualifications stated and relying on the
statements of fact contained in the documents that we have examined, we are of
the opinion that the Rights proposed to be issued by the Company and the Company
Common Stock proposed to be issued and sold by the Company have been duly
authorized for issuance and that the Common Stock, when issued to holders of the
Company Common Stock in accordance with the terms of the Rights Offering, will
have been validly issued and will be fully paid and non-assessable.
We consent to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not omit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the General Rules and Regulations of the SEC.
Very truly yours,
BROWN RAYSMAN MILLSTEIN
FELDER & STEINER LLP
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Amendment No. 1 to Registration Statement on
Form S-1 (Reg. No. 333-49843) of our report dated February 13, 1998 (April 7,
1998 with respect to the third and fourth paragraphs of Note F) on our audits of
Siebert Financial Corp. and Subsidiary as of December 31, 1997 and December 31,
1996 and for each of the years in the three-year period ended December 31, 1997.
We also consent to the reference to our firm under the caption "Experts."
Richard A. Eisner & Company, LLP
New York, New York
July 2, 1998
