As filed with the Securities and Exchange Commission on November 6, 1998
Registration No. 333-49843
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SIEBERT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
New York 6211 11-1796714
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
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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)
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Copy to:
Muriel F. Siebert 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)
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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 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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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.
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PROSPECTUS
SIEBERT FINANCIAL CORP.
Rights Offering
1,100,000 Shares of Common Stock
$7.50 per share
Siebert Financial Corp.
885 Third Avenue, Suite 1720
New York, New York 10022
We are a retail discount brokerage and municipal and corporate investment
banking firm operating through our wholly owned subsidiary, Muriel Siebert &
Co., Inc.
IF YOU WERE A SHAREHOLDER OF THE COMPANY ON JULY 29, 1998, YOU HAVE BEEN GRANTED
A TRANSFERABLE RIGHT (A "RIGHT") TO PURCHASE ADDITIONAL SHARES OF COMMON STOCK
FOR A SUBSCRIPTION PRICE OF $7.50 PER SHARE.
THE OFFERING:
- ----------------------------------------------------------
Per Share Total
- ----------------------------------------------------------
Price to
Shareholders: $7.50 $8,250,000
Proceeds to
Siebert*: $7.50 $8,250,000
- ----------------------------------------------------------
*BEFORE DEDUCTING ESTIMATED OFFERING EXPENSES OF $235,000.
Certain terms of the Offering:
o You (or anyone to whom you transfer your Rights) may purchase one share of
Common Stock for each share of Common Stock held by you on July 29, 1998.
o In addition, if you purchase as many new shares of Common Stock in this
offering as you held on July 29, 1998 and other shareholders do not purchase
all of the shares that they are entitled to purchase, you will have the right
to purchase the shares of Common Stock that the other shareholders elected
not to purchase, subject to the limitations described under the heading "The
Rights Offering."
o Once you have exercised your Right to purchase shares of Common Stock in this
offering, you may revoke your exercise only under the conditions described
under the heading "The Rights Offering."
o Your Right to purchase shares of Common Stock in this offering commenced on
July 31, 1998 and, as extended as of the date of this Prospectus, expires on
December 15, 1998.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Closing sale price of the Common Stock in the
Nasdaq SmallCap Market on November 4, 1998:
$6.875 per share
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Trading Symbols in Nasdaq SmallCap Market:
Common Stock: SIEB
Rights Offered in this Offering: SIEBR
The date of this Prospectus is November 6, 1998.
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PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER THE COMPANY NOR SIEBERT HAS AUTHORIZED ANYONE TO PROVIDE
PROSPECTIVE INVESTORS WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR
ANY SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT
A PUBLIC OFFERING OF THE RIGHTS OR THE COMMON STOCK OR POSSESSION OR
DISTRIBUTION OF THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO
POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES AND
CANADA ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS
AS TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE IN THAT
JURISDICTION.
AVAILABLE INFORMATION
The Company files annual, quarterly and current reports, proxy
statements and other information with the Commission. You may read and copy any
reports, statements or other information on file at the Commission's public
reference room in Washington, D.C. You can request copies of those documents,
upon payment of a duplicating fee, by writing to the Securities and Exchange
Commission (the "Commission"). You can also inspect and copy these reports,
statements and other information 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.
The Company has filed a Registration Statement on Form S-1 with the
Commission. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement.
Certain information is omitted and you should refer to the Registration
Statement and its exhibits. With respect to references made in this Prospectus
to any contract or other document of the Company, such references are not
necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement at the Commission's public reference
room in Washington, D.C. and at the Commission's regional offices in Chicago,
Illinois and New York, New York. Please call the Commission at 1-800-SEC-0330
for further information on the operation of the public reference room. The
Company's filings and the Registration Statement can also be reviewed by
accessing the Commission's Internet site at http://www.sec.gov.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE EXERCISING THE RIGHTS AND INVESTING
IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING
THE FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. THE FINANCIAL AND
OTHER INFORMATION ABOUT SIEBERT FINANCIAL CORP. CONTAINED IN THIS SUMMARY HAS
BEEN ADJUSTED TO GIVE EFFECT TO THE 4 FOR 1 STOCK SPLIT EFFECTIVE APRIL 7, 1998.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE
INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. SOME OF THE FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE
FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS ARE SET FORTH UNDER THE HEADING
"RISK FACTORS."
THE COMPANY
Siebert Financial Corp. (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. The Company has signed a letter of intent to purchase
the retail customer accounts of Donald K. Cowles and of Cowles, Sabol & Co.,
Inc. of Encino, California. Although the Company intends to pursue acquisition
opportunities, there can be no assurance that the Company will be able to
successfully consummate this or any other 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 of the Company 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
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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 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 person who was a shareholder of
the Company on July 29, 1998 has
been granted a transferable Right to
purchase one share of Common Stock
for each share of Common Stock held
by that shareholder on July 29,
1998. The Company's majority
shareholder, Chair and President,
Muriel F. Siebert, has waived her
right to participate in this
offering in order to encourage
increased public ownership of the
Common Stock. Up to approximately
1,100,000 shares of Common Stock
will be sold upon exercise of the
Rights offered in this offering. For
more information about the Rights
offered in this offering, see "THE
RIGHTS OFFERING -- The Rights."
Subscription Price..........................The holder of a Right offered in
this offering may purchase shares of
Common Stock at a subscription price
of $7.50 per share, payable in cash.
This price 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 on
July 31, 1998, the date on which
this offering commenced. See "THE
RIGHTS OFFERING -- Subscription
Price" and "--Opinion of Financial
Adviser."
Rights Ticker Symbol .......................SIEBR
Record Date.................................Wednesday, July 29, 1998
Extended Expiration Date....................Tuesday, December 15, 1998, at 5:00
p.m., New York City time.
Basic Subscription Privilege................Each Right will be exercisable for
one share of Common Stock. See "THE
RIGHTS OFFERING -- Subscription
Privileges -- Basic Subscription
Privilege."
Oversubscription
Privilege...................................In addition, each person who was a
shareholder of the Company on July
29, 1998 and who fully exercises all
Rights distributed to such person
will be entitled to purchase, at the
Subscription Price, shares of Common
Stock that are not otherwise
purchased pursuant to the
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exercise of Rights, subject to
proration by the Company under
certain circumstances. If the number
of shares of Common Stock not
purchased by the other holders of
Rights upon exercise of their Rights
under the Basic Subscription
Privilege is insufficient to satisfy
all subscriptions pursuant to this
Oversubscription Privilege, the
shares available for
oversubscription will be allocated
pro rata (subject to the elimination
of fractional shares) among those
holders of Rights exercising this
Oversubscription Privilege in
proportion to the number of shares
requested by them pursuant to this
Oversubscription Privilege. See "THE
RIGHTS OFFERING -- Subscription
Privileges -- Oversubscription
Privilege."
Transferability of Rights...................The Rights are evidenced by
subscription certificates
("Subscription Certificates"). The
Rights are transferable and have
traded, and are expected to continue
to 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
Extended Expiration Date. There can
be no assurance, however, that a
market for the Rights will continue
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 at the request of any
holder who has delivered
Subscription Certificates, together
with properly executed instructions
for sale, to the Subscription Agent
by 11:00 a.m., New York City time,
on Monday, December 14, 1998. Any
brokerage commission, taxes and
other direct expenses of sale must
be paid by the holder. The
Subscription Agent may not be able
to sell any Rights and the prices at
which the Subscription Agent may be
able to sell the Rights may vary.
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.............Rights may be exercised by properly
completing the Subscription
Certificate and forwarding it (or
following the Guaranteed Delivery
Procedures described in this
Prospectus), together with payment
of the Subscription Price for the
underlying shares of Common Stock
being purchased, to the Subscription
Agent on or prior to the Extended
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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Revocation .................................Any holder of Rights that has
exercised the Basic Subscription
Privilege or, if applicable, the
Oversubscription Privilege, prior to
5:00 p.m. on Friday, November 6,
1998 may revoke either or both of
such exercises prior to the Extended
Expiration Date. To revoke an
exercise, the holder must send a
written notice of revocation to the
Subscription Agent (by mail, courier
or facsimile transmission) at its
address set forth below under the
heading "THE RIGHTS OFFERING --
Exercise of Rights." For a
revocation to be effective, the
notice of revocation must be
received by the Subscription Agent
prior to the Extended Expiration
Date. A notice of revocation must:
(1) specify the name of the person
who has exercised the Right being
revoked, (2) identify the
Subscription Certificate(s) for
which an exercise is being revoked
(including the certificate number(s)
and the number of shares of Common
Stock for which such Subscription
Certificate(s) may be exercised) and
(3) be signed by the holder in the
same manner as the original
signature on the Subscription
Certificate(s) previously tendered
(including any required signature
guarantees). All questions as to the
validity, form and eligibility
(including time of receipt thereof)
of such notices will be determined
by the Company in its sole
discretion, which determination
shall be final and binding on all
parties. Any Subscription
Certificate for which a right of
exercise has been revoked will be
deemed not to have been validly
tendered for purposes of this
offering and no shares of Common
Stock will be issued with respect
thereto unless such Subscription
Certificate is validly retendered.
Properly revoked Subscription
Certificates may be retendered by
following the procedures described
in this Prospectus under "THE RIGHTS
OFFERING - Exercise of Rights" at
any time prior to the Extended
Expiration Date. NO EXERCISE OF THE
BASIC SUBSCRIPTION PRIVILEGE AND, IF
APPLICABLE, THE OVERSUBSCRIPTION
PRIVILEGE AFTER FRIDAY, NOVEMBER 6,
1998 MAY BE REVOKED.
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 Monday, December 14, 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."
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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
Extended 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 Extended
Expiration Date and after all
prorations have been effected. See
"THE RIGHTS OFFERING -- Subscription
Privileges."
Use of Proceeds.............................The net proceeds from the sale of
Common Stock upon exercise of the
Rights offered in this 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
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
this Offering............................Approximately 21,007,000 shares
outstanding on the Record Date.
Shares of Common Stock
Outstanding after this Offering...........Approximately 22,107,000 shares
based on the number of shares
outstanding on the Record Date if
all Rights are exercised.
Risk Factors ...............................In addition to the other information
contained in this Prospectus and the
documents incorporated by reference
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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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RISK FACTORS
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. YOU SHOULD READ THE
ENTIRE PROSPECTUS AND CAREFULLY CONSIDER ALL OF THE INFORMATION CONTAINED IN IT.
IN PARTICULAR, BECAUSE AN INVESTMENT IN THE COMPANY INVOLVES CERTAIN RISKS, YOU
SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH BELOW PRIOR TO DECIDING
WHETHER TO EXERCISE OR SELL YOUR RIGHTS.
MARKET CONDITIONS
The securities business is, by its nature, subject to significant
risks, particularly in volatile or illiquid markets. These risks include:
o the risk of trading losses;
o losses resulting from the ownership or underwriting of securities;
o counterparty failure to meet commitments;
o customer fraud, employee fraud, and issuer fraud;
o errors and misconduct;
o failures in connection with the processing of securities
transactions; and
o 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:
o economic and political conditions;
o broad trends in business and finance;
o legislation and regulation affecting the national and international
business and financial communities;
o currency values;
o inflation and general market conditions;
o the availability and cost of short-term or long-term funding and
capital;
o the credit capacity or perceived creditworthiness of the securities
industry in the marketplace; and
o 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. This, in turn, may result in the
Company having difficulty selling securities. Such negative market conditions,
if prolonged, may also lower the Company's
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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 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 three quarters 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. Siebert's
commission income per customer trade is trending down as the number of trades
done on SiebertNet increases. 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."
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INTERNET DEVELOPMENT
Although the Company has been offering internet trading for
approximately two years, 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.
The revenues, if any, generated from this offering are likely to be realized in
subsequent accounting periods. This may initially have a material adverse effect
on the Company's results of operations. See "Use of Proceeds."
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 or control 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
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<PAGE>
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. Changing
prices and decreased liquidity could limit the Company's ability to resell
securities that it has purchased or to repurchase securities that it has sold
short. In addition, these activities subject the Company's capital to
significant risks that counterparties will fail to perform their obligations.
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
Both the Company's business and the securities industry as a whole are
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, whose
interests may not be aligned with the interests of the Company's shareholders.
In addition, self-regulatory organizations and other regulatory bodies in the
United States, such as the Commission, 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 Commission, 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. This, in
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<PAGE>
turn, could limit the ability of the Company to implement its strategies. In
addition, a change in these rules, or the imposition of new rules, that affect
the scope, coverage, calculation or amount of the net capital requirements could
have an advserse effect on the Company. A significant operating loss or any
unusually large charge against net capital could have a similar adverse effect.
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 opened
offices in San Francisco and Seattle and 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 $5 million principally on advertising and
promotion of the internet service, development of such service and salaries for
additional personnel for such service. See "Use of Proceeds."
LIQUIDITY
Until November 1996, there was no public market for the Common Stock or
any other securities of the Company. In addition, approximately 800,000 shares,
or approximately 3.8% of the shares outstanding, are 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 22,107,000 shares of Common Stock
outstanding immediately after completion of this offering. Muriel F. Siebert
will own or control 20,434,000 of those shares. Ms. Siebert's shares will be
"restricted securities" under the Securities Act of 1933, as amended (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. 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, directors and
employees having options to purchase an aggregate of approximately 255,000
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.
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<PAGE>
Moreover, there can be no assurance that a market for the Rights will continue
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 on
July 31, 1998, the date on which this offering commenced. However, consistent
with recent market trends, the market price of the Common Stock has been less
than the Subscription Price on numerous occasions. There can be no assurance
that a subscribing Rights holder will be able to sell shares of Common Stock
purchased in this offering at a price equal to or greater than the Subscription
Price. When made, the election of a Rights holder to exercise Rights in this
offering is irrevocable, subject to certain exceptions. Moreover, until
certificates are delivered, subscribing Rights holders may not be able to sell
the Common Stock that they have purchased in this 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
Extended 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 Extended 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 this 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 this 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 approximately
21,007,000 shares of Common Stock outstanding on July 29, 1998 (the "Record
Date"), the consummation of this 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 and non-vested options by a percentage calculated by dividing the number
of shares of Common Stock issued pursuant to this 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 this offering. Holders of restricted stock
pursuant to the Company's Restricted Stock Award Plan will be
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<PAGE>
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 this 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 this offering are not clear as to certain
aspects of the analysis required to avoid such a taxable distribution, and the
tax consequences of this 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 this 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 $6.55 per share, based on a
subscription price of $7.50 per share.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (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 "Risk Factors" portion of, and elsewhere in, this
Prospectus.
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<PAGE>
USE OF PROCEEDS
The net proceeds available to the Company from this offering are
estimated to be $8,015,000 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 $5 million of the net proceeds
from this 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, although such amount may be higher or lower
depending on if the Company deems the results from the initial expenditure of
such amount successful and it raises sufficient funds. 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, June
23, 1998 and September 25, 1998 dividends of $.0225, $.0225, $.03 and $.03 per
share were declared for all shareholders of record as of December 30, 1997,
March 20, 1998, July 9, 1998 and October 9, 1998, respectively. Ms. Siebert, as
the majority shareholder of the Company, waived her right to receive the four
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 or September 25 dividends 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.
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<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
Third Quarter - 1998 (through July 29, 1998) ............ $11.50 $9.25
Fourth Quarter - 1998 (through November 4, 1998).......... $7.69 $6.25
The closing price of the Common Stock on the Nasdaq SmallCap Market on
November 4, 1998 was $6.875 per share.
As of November 4, 1998, there were approximately 230 holders of record
and approximately 1,700 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.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 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 $7.50 assuming all of the Rights are exercised. See "Use
of Proceeds."
September 30, 1998
-------------------------
Actual As Adjusted
---------- -----------
(unaudited)
(In thousands)
Subordinated debt to shareholder $ 3,000 $ 3,000
Common Stock, par value $.01, 49,000,000 --------- --------
shares authorized, 21,004,960 shares issued and
outstanding at September 30, 1998 and
21,104,960 shares issued and outstanding,
as adjusted 210 221
Additional paid-in capital 6,691 14,695
Retained earnings 6,042 6,042
--------- --------
Total shareholders' equity 12,943 20,958
--------- --------
Total capitalization $ 15,943 $ 23,958
========= ========
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<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below for the nine
months ended September 30, 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>
Nine Months Ended
September 30, Year Ended December 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Revenues:
Commissions and fees .... $13,998,015 $13,815,520 $18,879,674 $20,105,127 $15,645,334 $12,128,797 $14,349,051
Investment banking ...... 3,042,887 2,975,917 4,487,594 2,532,795 1,396,967 1,536,030 2,462,309
Trading profits ......... 960,658 1,704,976 1,795,104 868,823 2,608,078 3,215,288 3,133,722
Interest from equity
investee .............. 427,419
Interest and dividends .. 535,307 508,817 704,911 656,434 1,389,612 462,618 261,198
----------- ----------- ----------- ----------- ----------- ----------- -----------
18,694,286 19,005,230 25,867,283 24,163,179 21,039,991 17,342,733 20,206,280
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Employee compensation and
benefits (1) .......... 6,041,361 5,825,992 8,208,006 9,753,847 8,586,116 6,132,899 8,999,567
Clearing fees, including
floor brokerage ....... 1,987,846 3,415,125 4,675,368 4,585,398 4,249,050 3,967,558 4,473,740
Advertising and promotion 1,269,085 2,180,593 2,751,755 3,265,692 2,485,426 2,299,030 2,171,858
Communications .......... 1,269,020 1,211,702 1,446,817 1,359,325 1,119,189 1,001,957 896,986
Occupancy ............... 413,012 490,025 648,763 403,534 326,089 323,123 323,235
Interest ................ 267,915 284,760 418,405 290,465 568,326 602,759 323,876
Other general and
administrative ........ 2,166,734 2,245,177 3,043,068 2,339,483 2,461,122 2,458,237 1,932,143
----------- ----------- ----------- ----------- ----------- ----------- -----------
13,414,973 15,653,374 21,192,182 21,997,744 19,795,318 16,785,563 19,121,405
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before provision for
income taxes................. 5,549,313 3,351,856 4,675,101 2,165,435
Provision for income taxes..... 2,305,935 1,474,485 2,057,000 201,000
----------- ----------- ----------- -----------
Net income - historical........ $3,243,378 $1,877,371 $ 2,618,101 1,964,435 1,244,673 557,170 1,084,875
=========== =========== ===========
Pro forma provision for income
taxes (2).................... 752,000 548,000 245,000 477,000
----------- ----------- ----------- -----------
Net income - pro forma......... 1,212,435 $ 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 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................. $.15 $.09 $.12
Pro forma.................. $.06 $.03 $.01 $.03
Supplemental pro forma..... $.14
Weighted average shares deemed
outstanding (basic).......... 20,995,999 20,949,160 20,949,484 20,943,588 20,943,588 20,943,588 20,943,588
Weighted average shares deemed
outstanding (diluted)........ 21,674,383 20,949,160 20,949,484 20,943,588 20,943,588 20,943,588 20,943,588
Statement of financial condition
data (at period-end):
Total assets................. $18,986,788 $18,394,162 $17,881,589 $14,372,708 $16,291,195 $ 9,372,230 $12,161,104
Total liabilities excluding
subordinated borrowings...... 3,044,139 5,144,167 5,209,032 4,271,143 9,154,065 3,479,773 6,825,817
Subordinated borrowings to
majority shareholder........ 3,000,000 4,300,000 3,000,000 3,000,000 2,000,000 2,000,000 2,000,000
Shareholders' equity......... 12,942,649 8,949,995 9,672,557 7,101,565 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.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Company's
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 since September 1998 have been extremely volatile,
with swings in the market averages approaching daily and intraday records.
Meanwhile, competition has continued to intensify among all classes of brokerage
firms. Electronic trading continues to grow as a retail discount market segment
with some firms charging very low flat trading execution fees that are difficult
for any conventional discount brokerage firm to match. Many of the low flat fee
firms, however, impose charges for services such as mailing, transfers and
handling exchange transactions for which the Company does not currently charge
its customers. Some of those firms also direct customer orders to captive market
makers that earn a "spread" on the order. The Company does not have a captive
market maker. 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, including the Company, for the sale of order flow.
CURRENT DEVELOPMENTS
In June 1998, Siebert signed a new one-year agreement with its clearing
broker, which provides, among other things, for reduced ticket charges and
execution fees. The clearing broker is also paying to Siebert $1,000,000 in
monthly installments through December 31, 1998. Siebert recognized $750,000 of
that amount as pre-tax income in the quarter ended June 30, 1998 and $250,000 in
the quarter ended September 30, 1998 when all contingencies relating to the
payments lapsed. Siebert realized the projected clearing cost savings for the
quarter ended September 30, 1998.
In July 1998, Siebert, Brandford, Shank & Co., L.L.C. ("SBS") began
operating as a separate broker/dealer and, accordingly, the Company began
reporting its investment in and the operations of SBS using the equity method of
accounting. Prior to July 1998 the operations of what is now SBS were fully
consolidated with those of Siebert.
Siebert's commission income per customer trade is trending down as the
number of trades done on
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<PAGE>
SiebertNet increases. For the month of October 1998, SiebertNet trades were
approximately 21% of all Siebert trades. Siebert's online trading system was in
the early stage of implementation in October 1997.
In November 1998, Siebert agreed to acquire the retail customer
accounts of Donald K. Cowles and of Cowles, Sabol & Co., Inc. of Encino,
California. The acquisition is expected to be completed before the end of 1998.
In July 1998, the Company distributed to its shareholders transferable
rights to subscribe for and purchase one share of Common Stock for each share
held on the Record Date, at an exercise price of $7.50 a share. The offer as
extended will expire on December 15, 1998. If this offering is successful, the
Company currently intends to use approximately $5,000,000 of the net proceeds to
further build up and promote its SiebertNet trading service.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Total revenues for the nine months ended September 30, 1998 were $ 19
million, a decrease of $41,000 or .2 % over the same period in 1997. Commission
and fee income, investment banking revenues, income from equity investee, and
interest and dividend revenues increased as compared to the prior year; however,
trading profits decreased.
Commission and fee income increased $182,000 or 1% to $14 million for
the nine months ended September 30, 1998 due to higher volume partially offset
by 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. The portion of trades executed on the Company's SiebertNet web
site is increasing at a rapid rate.
Investment banking revenues increased $67,000 or 2% to $3 million for
the nine months ended September 30, 1998 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 nine months of 1997, since it
began operations in late 1996. Siebert, Brandford, Shank & Co., LLP began
operations as a separate broker-dealer in July 1998 and, accordingly, the
Company began to account for its forty-nine percent interest in Siebert,
Brandford, Shank & Co., LLP on the equity method in the third quarter of 1998.
Income from equity investee increased $427,000 or 100% to $427,000 for
the nine months ended September 30, 1998.
Trading profits decreased $744,000, or 44%, to $961,000 for the nine
months ended September 30, 1998 primarily due to reduced income opportunities in
the trading of listed bond funds, the firm's principal trading activity.
Interest and dividends increased $26,000, or 5%, to $535,000 for the
nine months ended September 30, 1998 primarily due to trading strategies which
generated higher dividend income.
Total expenses for the nine months ended September 30, 1998 were $13.4
million, a decrease of $2.2 million, or 14%, over the same period in 1997.
Clearing fees, advertising and promotion, rent and occupancy, interest and
general and administrative all decreased and all other expenses increased.
Employee compensation and benefit costs increased $215,000 or, 4%, to
$6 million for the nine months ended September 30, 1998, primarily due to
commissions paid to the Siebert, Brandford, Shank division's sales personnel
resulting from increased tax exempt underwriting activity prior to July 1, 1998.
Clearing and floor brokerage fees decreased $1.4 million, or 42%, to $2
million for the nine months ended September 30, 1998. Such costs decreased
primarily due to the retroactive effect of Company's new clearing agreement with
its clearing broker.
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<PAGE>
Advertising and promotion expense decreased $912,000, or 42%, to $1.3
million for the nine months ended September 30, 1998, due to a decreased level
of promotional advertising.
Communications expense increased $57,000, or 5%, to $1.3 million for
the nine months ended September 30, 1998, primarily due increased quote and news
services.
Occupancy costs decreased $77,000, or 16%, to $413,000 for the nine
months ended September 30, 1998, principally due to commencement of operations
of SBS as a separate entity partially offset by a lease extension option
cancellation fee paid during 1998.
Interest expense decreased $17,000, or 6%, to $268,000 for the nine
months ended September 30, 1998, primarily due to the use of short positions in
proprietary trading activity.
Other general and administrative expenses decreased $78,000, or 4%, to
$2.2 million for the nine months ended September 30, 1998, primarily due to
increased business development expenses related to the municipal investment
banking staff.
Provision for income taxes increased $831,000, or 56%, to $2.3 million
for the nine months ended September 30, 1998, primarily due to an increase in
net income before income tax in the first nine months of 1998 of $2.2 million,
or 66%, to $5.5 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.
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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 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.
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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 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.
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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.
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
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 September 30, 1998 were $19 million, of which $2 million took
the form of a secured demand note. $13.8 million, or 73%, of total assets were
highly liquid.
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Siebert is subject to the net capital requirements of the Commission,
the NYSE and other regulatory authorities. At September 30, 1998, Siebert's
regulatory net capital was $11.2 million, $11 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. The Company has signed a letter of
intent to purchase the retail customer accounts of Donald K. Cowles and of
Cowles, Sabol & Co., Inc. of Encino, California. Although the Company intends to
pursue acquisition opportunities, there can be no assurance that the Company
will be able to successfully consummate this or 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 "Commission") eliminated fixed commission rates on securities
transactions on May 1, 1975, a date that would later come to be known as "May
Day," spawning the discount brokerage industry; that very day, on the opening
bell, Siebert executed its first discounted commission trade. The firm has been
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~, 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~ and Instinet~ 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 income securities, including
municipal bonds, corporate bonds, U.S. Treasuries, mortgage-backed
- ----------
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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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. The Company has recently upgraded the software used by its discount
trading representatives to a Windows NT platform from an existing terminal
emulation program. The Company believes that this should result in additional
efficiencies as it pertains to order entry and execution.
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. SiebertNet features have
been upgraded to include news provided by CBS MarketWatch and research from
Zacks. Additionally, the Company has signed a license agreement with Geo
Interactive Media Group Ltd. whose Emblaze technology enables the delivery of
true streaming, real-time multimedia over SiebertNet, including audio, video,
animation and interactive content at existing 'low bandwidth' modem speeds and
without plug-ins or server software. In addition, the Company has retained Gomez
Advisors, Inc., a source of strategic research for brokerages, mutual funds,
banks, and other commercial firms that utilize the Internet to enhance their
customer relationships, to advise with respect to SiebertNet.
SIEBERT ONLINE - the firm's popular PC software runs on Windows 3.1,
Windows95 and Windows98~ - 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)~ 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.
The Company, through its clearing agent, expects to roll out its voice
recognition technology in the first quarter of 1999, which will allow its
customers to use "natural-language" to obtain stock quotes, make trades and
check balances. In addition, the Company, through its clearing agent, expects to
unveil its new interactive palm-top service that will allow Siebert clients to
make equity trades, receive confirmations, get real-time quotes and alerts,
access account data, send and receive e-mail and more - all without a phone or
computer. Using the newest wireless digital "push" technology, this
beeper-sized, 4.9-ounce battery-operated device can be programmed to provide
instant account updates and quotes. Its virtual real-time messaging capability
will enable clients to communicate with others in virtual real-time. The two-way
beeper fits into your palm, can easily clip to a belt or fit into a shirt pocket
or purse. It features an extra-large backlit LCD display and a full-featured
keyboard.
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 basis. Generally, a customer buying securities in a
cash-only brokerage account is required to make
- -------------------
(5) VISA is a registered trademark of VISA International, Inc.
30
<PAGE>
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. 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.
Siebert's commission income per customer trade is trending down as the
number of trades done on SiebertNet increases. For the month of October 1998,
SiebertNet trades were approximately 21% of all Siebert trades. Siebert's online
trading system was in the early stage of implementation in October 1997.
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
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<PAGE>
not meet the commitment, steps are taken to close out the purchase and minimize
any losses.
Siebert has a risk unit specifically responsible for monitoring all
customer positions for the maintenance of required collateral. The unit also
monitors accounts that may be concentrated unduly in one or more securities
whereby a significant decline in the value of a particular concentrated security
could reduce the value of the account's collateral below the account's loan
obligation. Siebert has not had significant credit losses in the last five
years.
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. The firm has
participated as an underwriter or selling group member in over 210 corporate
offerings, including debt issuances, totaling
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over $137 billion in total transaction value.
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 was 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.
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
33
<PAGE>
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.
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 Pentium6-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
- ----------
6 Pentium is a trademark of the Intel Corporation.
7 Microsoft Windows98, Windows95 and WindowsNT are trademarks of the Microsoft
Corporation.
34
<PAGE>
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 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 Commission is the Federal
agency charged with administration of the Federal securities laws. Siebert is
registered as a broker-dealer with the Commission, the NYSE and the National
Association of Securities Dealers, 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
Commission) governing the industry and conduct periodic examinations of
broker-dealers. Securities firms are also subject to regulation by state
securities authorities in the states in which they do business. Siebert is
registered as a broker-dealer in 48 states, the District of Columbia and Puerto
Rico.
The principal purpose of regulations and discipline of broker-dealers
is the protection of customers and the securities markets, rather than
protection of creditors and 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 Commission and by
self-regulatory organizations or changes in the interpretation or enforcement of
existing laws and rules may directly affect the method of operation and
profitability of broker-dealers and investment advisers. The Commission,
self-regulatory organizations and state securities authorities may conduct
administrative proceedings which can result in censure, fine, cease and desist
orders or suspension or expulsion of a broker-dealer or an investment adviser,
its officers or 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
35
<PAGE>
municipal securities on behalf of its customers and has obtained certain
additional registrations with the Commission and state regulatory agencies
necessary to permit it to engage in certain other activities incidental to its
brokerage business.
Margin lending arranged by Siebert is subject to the margin rules of
the Board of Governors of the Federal Reserve System and the NYSE. Under such
rules, broker-dealers are limited in the amount they may lend in connection with
certain purchases and short sales of securities and are also required to impose
certain maintenance requirements on the amount of securities and cash held in
margin accounts. In addition, those rules and rules of the Chicago Board Options
Exchange govern the amount of margin customers must provide and maintain in
writing uncovered options.
In 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 Commission'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 Commission 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 Commission prior to and subsequent to withdrawals exceeding
certain sizes. The Net Capital Rule also allows the Commission, under limited
circumstances, to restrict a broker-dealer from withdrawing equity capital for
up to 20 business days.
The firm falls within the provisions of Rule 240.15c3-1(a)(1)(ii)
promulgated by the Commission. Siebert has elected to use the alternative
method, permitted by the rule, which requires that Siebert maintain minimum net
capital, as defined, equal to the greater of $250,000 or 2 percent of aggregate
debit balances arising from customer transactions, as defined. (The net capital
rule of the NYSE also provides that equity capital may not be withdrawn or cash
dividends paid if resulting net capital would be less than
36
<PAGE>
5 percent of aggregate debits.) At September 30, 1998, Siebert had net capital
of $11.2 million and net capital requirements of $250,000 under Regulation
240.15c3-1(a)(1)(ii). Siebert is not subject to Commission Rule 15c3-3 and
claims exemption from the reserve requirement under Section 15c3-3(k)(2)(ii).
The firm maintains net capital in excess of the Commission requirements.
EMPLOYEES
The Company currently has approximately 120 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>
Approximate Expiration
Office Area in Date of Current Renewal
Location Square Feet Lease Terms
- -------- ----------- ----- -----
Corporate Headquarters, Retail and
Investment Banking Office
- -------------------------
<S> <C> <C> <C>
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
55 Madison Avenue 140 SF Month to month 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 Month to month 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 month None
Dallas, TX 75201
400 Renaissance Center 1,500 SF Month to month None
Detroit, MI 48243
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Approximate Expiration
Office Area in Date of Current Renewal
Location Square Feet Lease Terms
- -------- ----------- ----- -----
<S> <C> <C> <C>
400 Louisiana 1,513 SF 6/29/99 None
Houston, TX 77002
523 West 6th Street 1,138 SF Month to month None
Los Angeles, CA 90014
220 Sansome Street 3,250 SF 2/28/00 None
San Francisco, CA 94104
601 Union Street 325 SF Month to month None
Seattle, WA 98101
</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.
38
<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
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.
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.
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
39
<PAGE>
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
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.
40
<PAGE>
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.
41
<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 and 60,000 shares to its Secretary. On November 6, 1997,
the Company granted options to purchase 40,000 shares of Common Stock to its
former 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 $2.688 per share, including options to
purchase 40,000 shares of Common Stock to its Executive Vice President and Chief
Operating Officer, 8,000 shares of Common Stock to its former Executive Vice
President and Chief Financial Officer and 8,000 shares of Common Stock to its
Secretary. All such options are exercisable at a rate of 20% on the first,
second, third, fourth and fifth anniversaries of the date of grant and expire
after the tenth anniversary of the date of grant; options to purchase an
aggregate of 908,800 shares of Common Stock are currently outstanding and held
by 33 employees. Details of such grants are summarized below:
42
<PAGE>
- --------------------------------------------------------------------------------
1997 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
NAME AND POSITION FAIR VALUE ($)(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
- --------------------------------------------------------------------------------
Daniel Iesu, Secretary 82,040 68,000
- --------------------------------------------------------------------------------
Executive Group (3 persons) 369,240 308,000
- --------------------------------------------------------------------------------
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 538,184 440,800
Group (approximately 31 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 Commission. "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%.
In addition, pursuant to a Temporary Subordination Agreement entered
into on June 30, 1998 expiring on August 14, 1998 Siebert loaned $3 million to
SBS, its 49% joint venture partner, which was subsequently repaid. Previously,
Siebert lent $1.2 million to SBS on a subordinated basis which bears interest at
10% and is due in 2001.
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.
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain current 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 40,400(3) *
Daniel Iesu 12,400(4) *
Patricia L. Francy 40,000(5) *
Jane H. Macon 40,000(5) *
Monte E. Wetzler 40,000(5) *
Directors and executive officers 20,384,800(6) 96.3%
as a group (6 persons)
----------------
* Less than 1%
(1) Percentages computed 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 40,000 shares of Common Stock which Mr. Dermigny has the right
to acquire pursuant to a stock option grant.
(4) Includes 12,000 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 172,000 shares of Common
Stock described in footnotes 3, 4 and 5 above.
44
<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company has distributed transferable Rights, at no cost, to the
record holders ("Holders") of the Common Stock outstanding as of the Record
Date. The Company distributed one (1) Right for each share of Common Stock held
of record on the Record Date. The Rights are 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 has waived 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.
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 Monday, November 30, 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 $7.50 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 represented a discount to the market price of the Common Stock at
the date of commencement of this offering.
COMMENCEMENT DATE; EXTENDED EXPIRATION DATE
This offering commenced on July 31, 1998. Primarily due to recent
market conditions, the Company has extended the expiration date of this offering
from 5:00 p.m., New York City time, on Friday, November 6, 1998 to 5:00 p.m.,
New York City time, on Wednesday, December 15, 1998 (the "Extended Expiration
Date"). As of the close of business on Wednesday, November 4, 1998, rights to
purchase an aggregate of 21,309 shares of Common Stock had been exercised
pursuant to the Basic Subscription Privilege and the Oversubscription Privilege.
Shareholders are encouraged to consider this offering carefully prior to the
Extended Expiration Date. After the Extended Expiration Date, this offering will
be null and void unless further extended (which is not now contemplated). The
Company will not be obligated to honor any purported exercise of Rights received
by the Subscription Agent after the Extended 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
Extended Expiration Date.
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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.
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; provided, however,
that if such pro rata allocation results in any holder being allocated a greater
number of Excess Shares than such holder subscribed for pursuant to the exercise
of such holder's Oversubscription Privilege, then such holder will be allocated
only such number of shares of Excess Shares as such holder subscribed for and
the remaining Excess Shares will be allocated among all other holders exercising
Oversubscription Privileges; provided, however, that if such pro rata allocation
results in any holder being allocated a greater number of Excess Shares than
such holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such holder will be allocated only such number
of shares of Excess Shares as such holder subscribed for and all the remaining
Excess Shares will be allocated among all other holders exercising
Oversubscription Privileges. 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
Extended 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.
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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 Extended 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. 323294723; 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 Extended 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>
<S> <C> <C> <C>
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND:
American Stock Transfer & Trust Company (718) 234-5001 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
Extended 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 Extended Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Extended
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 facsimile
transmission ((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 Extended 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 EXTENDED 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."
REVOCATION
The Company has decided to permit any holder of Rights that has
exercised the Basic Subscription Privilege and, if applicable, the
Oversubscription Privilege, prior to 5:00 p.m. on Friday, November 6, 1998 to
revoke either or both such exercise(s) prior to the Extended Expiration Date. In
order to effect
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such a revocation, a written or facsimile transmission notice of revocation must
be received by the Subscription Agent, American Stock Transfer & Trust Company,
at its address set forth in this Prospectus, prior to the Extended Expiration
Date. Any such notice of revocation must (i) specify the name of the person who
has exercised the Basic Subscription and/or Oversubscription Privilege being
revoked, (ii) identify the Subscription Certificate(s) for which a subscription
exercise is being revoked (including the certificate number or numbers and the
number of shares of Common Stock for which such Subscription Certificate(s) may
be exercised) and (iii) be signed by the holder in the same manner as the
original signature on the Subscription Certificate(s) previously tendered
(including any required signature guarantees). All questions as to the validity,
form and eligibility (including time of receipt thereof) of such notices will be
determined by the Company in its sole discretion, which determination shall be
final and binding on all parties. Any Subscription Certificate for which a right
of exercise has been revoked will be deemed not to have been validly tendered
for purposes of this offering and no shares of Common Stock will be issued with
respect thereto unless such Subscription Certificate is validly retendered.
Properly revoked Subscription Certificates may be retendered by following the
procedures described in the Prospectus under "The Rights Offering - Exercise of
Rights" at any time prior to the Extended Expiration Date. NO EXERCISE OF THE
BASIC SUBSCRIPTION PRIVILEGE AND, IF APPLICABLE, THE OVERSUBSCRIPTION PRIVILEGE
AFTER FRIDAY, NOVEMBER 6, 1998 MAY BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. The Rights have traded and it is anticipated that
the Rights will continue to trade on the Nasdaq SmallCap Market and in the
over-the-counter market. The Rights traded 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 Extended 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 Monday, December 14, 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 Extended Expiration Date for (i)
the transfer instructions to be received and processed
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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 Extended
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 and the
Oversubscription Privilege may be effected through the facilities of the
Depository Trust Company.
LISTING AND TRADING
The outstanding shares of Common Stock are listed on the Nasdaq
SmallCap Market. The Rights have traded and it is anticipated that the Rights
will continue to 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
continue 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 Monday,
December 14, 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 and non-vested options by a percentage calculated by dividing the number
of shares of Common Stock issued pursuant to this 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 this 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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OPINION OF FINANCIAL ADVISOR
The Company has retained Advest, Inc. ("Advest") to act as its
exclusive financial advisor in connection with this offering. On July 27, 1998,
Advest delivered to the Company its opinion that, from a financial point of
view, this 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 July 27, 1998, Advest
delivered its oral opinion 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 July 30, 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 this offering
with the financial terms of certain other relevant recent transactions.
In addition, Advest undertook the following analyses in determining the
structure of this 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 July 30, 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 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 (June 30,
1998) and earnings growth relative to such peer group. Based on the Company's
closing share price of $10.875 on July 22, 1998, the Company trades at a
price/LTM EPS of 60.4X, which is above the peer median of 19.4X. However, the
Company's financial performance as measured by return on average assets ("ROA")
and return on average equity ("ROE") of 16.2% and 31.2% is significantly above
its peers median ROA and ROE of 2.8% and 14.9%, respectively. In addition, the
Company's earnings per share growth over the last three years has been 61.3%,
which is significantly above its peers' median growth rate of 13.7%. 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 24.7% and 26.9%, respectively. Based upon this
analysis we came up with three companies which trade at a median price/LTM EPS
of 22.2X and a median three year growth in EPS of 26.9%, median ROA of 14.1% and
median ROE of 26.0%. The Company's three year EPS growth, ROA and ROE is
significantly above the high growth peer group median levels. Therefore, based
upon the Company's above 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 this offering to the expiration date of this offering. The
analysis yielded the following statistics: (1) the median discount to market for
all rights offerings was 22% (2) the discount to market for rights which were
transferable was 17.1% (3) the median price decline of an issuer's common stock
price was 3.4% 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
$10.44 on July 22, 1998, this represents a 28.2% discount to market at a $7.50
subscription price, which is above the median discount to market for the
seventeen rights offerings of 22% and above median discount of 17.1% for rights
offerings with transferability of rights. Assuming the Company's common stock
price declines at median levels, this represents a 28.6% discount to market,
which is above 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
this offering. Pursuant to an engagement letter dated June 17, 1998 with Advest,
the Company paid Advest an initial fee for its advisory services of $25,000 and
became obligated to pay Advest an additional fee of $45,000 upon the closing of
this 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 this 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 their own tax advisors
with respect to the consequences to them of this 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
54
<PAGE>
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 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.
55
<PAGE>
If this 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 this offering. In such case, this offering may result in dividend
income to the Holders of Common Stock if this 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 this 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 this
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 this 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 this 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 THIS OFFERING TO SUCH HOLDER'S OWN PARTICULAR
TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME
AND OTHER TAX LAWS.
56
<PAGE>
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 this 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 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.
57
<PAGE>
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 THIS 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."
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for this 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:
58
<PAGE>
<TABLE>
<CAPTION>
AMERICAN STOCK TRANSFER & TRUST COMPANY
<S> <C> <C> <C>
By Mail: By Facsimile Transmission: By Hand:
American Stock Transfer & Trust Company (718) 234-5001 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 this 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 this offering. Any questions or requests for additional copies of this
Prospectus, the Instructions or this 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 this offering.
59
<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"). There are
currently approximately 21,007,000 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.
60
<PAGE>
PLAN OF DISTRIBUTION
The Company has distributed 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 entitles 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 has waived the receipt of the Rights to which she would
otherwise be entitled. See "THE RIGHTS OFFERING -- Subscription Privileges."
The Company anticipates receiving approximately $8,015,000 in proceeds
from this offering, after payment of approximately $235,000 of fees and expenses
incurred in connection with this 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."
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.
61
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report............................................F-2
Consolidated Statements of Financial Condition at
September 30, 1998 (unaudited) and December 31, 1997 and 1996 ........F-3
Consolidated Statements of Income for the nine months
ended September 30, 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 nine months ended September 30, 1998 (unaudited).........F-6
Consolidated Statements of Cash Flows for the nine months
ended September 30, 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>
INDEPENDENT AUDITORS' REPORT
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 enumerated 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>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1998 -------------------------
(unaudited) 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 7,417,039 $ 4,394,142 $ 231,029
Cash equivalents - restricted 1,300,000 1,300,000 --
Receivable from broker-dealers 2,522,722 2,134,839 1,141,439
Securities owned, at market value 3,870,848 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 606,881 475,553 450,254
Investment in affiliate 819,419 392,000 --
Prepaid expenses and other assets 449,879 620,387 433,738
----------- ----------- -----------
$18,986,788 $17,881,589 $14,372,708
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 638,460 $ 2,037,547 $ 1,447,143
Accounts payable and accrued liabilities 2,405,679 3,171,485 2,824,000
----------- ----------- -----------
3,044,139 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, 21,004,960 shares outstanding at September 30, 1998,
20,950,440 shares outstanding at December 31, 1997,
and 20,943,588 shares outstanding at December 31, 1996 210,049 209,504 209,436
Additional paid-in capital 6,691,002 6,584,963 6,613,972
Retained earnings 6,041,598 2,878,090 278,157
----------- ----------- -----------
12,942,649 9,672,557 7,101,565
----------- ----------- -----------
$18,986,788 $17,881,589 $14,372,708
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended
September 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Commissions and fees $13,998,015 $13,815,520
Investment banking 3,042,887 2,975,917
Trading profits 960,658 1,704,976
Income from equity investee 427,419 --
Interest and dividends 535,307 508,817
----------- -----------
18,964,286 19,005,230
----------- -----------
Expenses:
Employee compensation and benefits 6,041,361 5,825,992
Clearing fees, including floor brokerage 1,987,846 3,415,125
Advertising and promotion 1,269,085 2,180,593
Communications 1,269,020 1,211,702
Occupancy 413,012 490,025
Interest 267,915 284,760
Other general and administrative 2,166,734 2,245,177
----------- -----------
13,414,973 15,653,374
----------- -----------
Income before provision for income taxes 5,549,313 3,351,856
Provision for income taxes 2,305,935 1,474,485
----------- -----------
Net income $ 3,243,378 $ 1,877,371
=========== ===========
Net income per share of common stock - basic and diluted $ .15 $ .09
Weighted average shares outstanding - basic 20,995,999 20,949,160
Weighted average shares outstanding - diluted 21,674,383 20,949,160
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
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
See notes to consolidated financial statements.
</TABLE>
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> <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 -- -- -- 2,168,684 2,168,684
Issuance of shares in connection with
Restricted Stock Award Plan, net of
5,600 shares forfeited 39,600 396 (396) -- --
Noncash compensation in connection
with Restricted Stock Award Plan -- -- 43,961 -- 43,961
Issuance of shares in connection with exercise
of employee stock options 6,400 64 14,736 -- 14,800
Dividends on common stock -- -- -- (49,245) (49,245)
---------- -------- ----------- ----------- ------------
BALANCE - JUNE 30, 1998 (UNAUDITED) 20,996,440 $209,964 $ 6,643,264 $ 4,997,529 $ 11,850,757
========== ======== =========== =========== ============
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,243,378 $ 1,877,371
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 125,798 108,334
Noncash compensation 68,381 --
Income from equity investee (427,419) --
Changes in operating assets and liabilities:
Net decrease (increase) in securities owned, at market value 2,693,820 (1,458,199)
Net change in receivable from broker-dealers (387,883) 796,704
Decrease (increase) in prepaid expenses and other assets 170,508 (189,804)
Net increase (decrease) in securities sold, not yet purchased,
at market value (1,399,087) 210,107
(Decrease) increase in accounts payable and accrued
liabilities (765,806) 662,917
----------- -----------
Net cash provided by operating activities 3,321,690 2,007,430
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash equivalents -- (1,300,000)
Loan to or investment in affiliate (3,000,000) (392,000)
Repayment of loan to affiliate 3,000,000
Purchase of furniture, equipment and leasehold improvements (257,126) (56,282)
----------- -----------
Net cash (used in) investing activities (257,126) (1,748,282)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 38,203 --
Dividends on common stock (79,870) --
Issuance of shares, net of expenses -- (28,941)
----------- -----------
Net cash (used in) financing activities (41,667) (28,941)
----------- -----------
Net increase in cash and cash equivalents 3,022,897 230,207
Cash and cash equivalents - beginning of period 4,394,142 231,029
----------- -----------
Cash and cash equivalents - end of period $ 7,417,039 $ 461,236
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 267,915 $ 306,427
Income taxes 2,829,649 868,900
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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
</TABLE>
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
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 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 nine months ended September
30, 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.
Statement of operations for the nine months ended September 30, 1997 has
been reclassified to conform to 1998 classifications.
[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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 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 (See Note B). 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. ("SBS LLC"), an affiliated registered broker dealer.
NOTE B - INVESTMENT IN AFFILIATE
In March 1997, Siebert and two individuals (the "Principals") formed SBS LLC 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
SBS LLC. Siebert operated the SBS division business in
F-11
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE B - INVESTMENT IN AFFILIATE (CONTINUED)
accordance with the terms of the agreements with the Principals.
Effective July 1, 1998, SBS LLC met the regulatory requirements and commenced
operations. In connection therewith, on June 30, 1998, Siebert, pursuant to a
Temporary Subordination Agreement expiring on August 14, 1998, loaned $3,000,000
to SBS LLC, which it subsequently repaid.
Siebert's investment in SBS LLC is accounted for on the equity method.
Summarized financial data (unaudited) of SBS LLC as of September 30, 1998 and
for the three months then ended is as follows:
Total assets $3,197,000
Total liabilities including subordinated liability
of $1,200,000 1,973,000
Total members' capital 1,224,000
Total revenues 1,896,000
Net income 427,000
NOTE C - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE
The subordinated borrowings are payable to an affiliate and consist of the
following:
<TABLE>
<CAPTION>
December 31,
September 30, ---------------------------
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 "Commission") 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 $120,000 and $120,000
for the nine months ended September 30, 1998 and 1997, respectively, and
$160,000, $123,000 and $160,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
F-12
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE C - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE (CONTINUED)
The secured demand note receivable of $2,000,000 at September 30, 1998, December
31, 1997 and December 31, 1996 is collateralized by marketable securities with a
market value of approximately $2,429,000, $2,446,000 and $2,363,000,
respectively.
NOTE D - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Equipment $781,029 $638,534 $569,471
Leasehold improvements 132,114 128,655 70,576
Furniture and fixtures 84,468 84,468 61,539
-------- -------- --------
997,611 851,657 701,586
Less accumulated depreciation and amortization 390,730 376,104 251,332
-------- -------- --------
$606,881 $475,553 $450,254
======== ======== ========
</TABLE>
Depreciation and amortization expense for the nine months ended September 30,
1998 and 1997 amounted to approximately $126,000 and $108,000 , 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>
Nine Months Ended
September 30, Year Ended December 31,
----------------------------- --------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Federal income tax $ 1,672,000 $ 953,000 $ 1,360,000 $ 624,000 $ 359,000
State and local income tax 634,000 522,000 697,000 329,000 189,000
------------ ------------ ------------ ---------- ----------
Income tax expense $ 2,306,000 $ 1,475,000 $ 2,057,000 $ 953,000 $ 548,000
============ ============ ============ ========== ==========
</TABLE>
F-13
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE E - INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Expected income tax
provision at statutory
Federal tax rate $ 1,887,000 $ 1,140,000 $ 1,590,000 $ 736,000 $ 423,000
State and local taxes, net of
Federal tax effect 529,000 335,000 467,000 217,000 125,000
Effect of refund of prior year's
local taxes net of Federal and
state tax effect (110,000) -- -- -- --
----------- ----------- ----------- ----------- -----------
Income tax expense $ 2,306,000 $ 1,475,000 $ 2,057,000 $ 953,000 $ 548,000
=========== =========== =========== =========== ===========
</TABLE>
There are no significant temporary differences which give rise to deferred tax
assets or liabilities at September 30, 1998, December 31, 1997 and December 31,
1996.
NOTE F - SHAREHOLDERS' EQUITY
Siebert is subject to the Commission's Uniform Net Capital Rule (Rule 15c3-1),
which requires the maintenance of minimum net capital. Siebert has elected to
use the alternative method, permitted by the rule, which requires that Siebert
maintain minimum net capital, as defined, equal to the greater of $250,000 or 2
percent of aggregate debit balances arising from customer transactions, as
defined. (The net capital rule of the New York Stock Exchange also provides that
equity capital may not be withdrawn or cash dividends paid if resulting net
capital would be less than 5 percent of aggregate debits.) At September 30,
1998, December 31, 1997 and December 31, 1996, Siebert had net capital of
approximately $11,223,000, $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.
F-14
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE F - SHAREHOLDERS' EQUITY (CONTINUED)
On December 22, 1997, March 16, 1998 June 23, 1998 and September 25, 1998, the
Company declared quarterly dividends of $.0225, $.0225, $.03 and $.03 per share,
respectively. 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.
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 September 30, 1998 and
December 31, 1997 settled with no adverse effect on Siebert's financial
condition.
F-15
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
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 $381,000 and $378,000 for each of the nine months ended September
30, 1998 and 1997, respectively, 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.
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 nine month periods ended September 30, 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
F-16
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE I - OPTIONS (CONTINUED)
"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 September 30, 1998, approximately 135,000 employee options
were exercisable.
A summary of the Company's stock option transactions for the nine months ended
September 30, 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 (75,880) $2.31 (33,800) $2.31
Exercised (16,520) $2.31 -- --
------- -------
Outstanding - end of period 908,800 $2.34 925,200 $2.31
======= =======
Exercisable at end of period 254,560 $2.34 120,000 $2.31
Weighted average fair value of options granted $1.16 $1.18
</TABLE>
F-17
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE I - OPTIONS (CONTINUED)
The following table summarizes information related to options outstanding at
September 30, 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>
$2.31 792,800 7.89 Years $2.31 254,560 $2.31
$2.22 40,000 9.17 Years $2.22 -- --
$2.69 76,000 9.42 Years $2.69 -- --
--------- --------
$2.22 - $2.69 908,800 8.07 Years $2.34 254,560 $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 25% to 39%, risk-free interest rates ranging from 6.20% to 6.43%,
and expected lives ranging from 5 to 10 years.
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 pro forma net income for
the year ended December 31, 1997 and the nine months ended September 30, 1998 is
not necessarily representative of the effects on reported net
F-18
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1998 and 1997 and Years Ended December 31, 1997, 1996
and 1995 (information with respect to June 30, 1998 and the six month periods
ended June 30, 1998 and 1997 is unaudited)
NOTE I - OPTIONS (CONTINUED)
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.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Net Income As reported $3,243,378 $2,618,101
Pro forma 3,110,153 $2,397,101
Net Income Per Share - basic As reported $.15 $.12
Pro forma .15 $.11
Net Income Per Share - diluted As reported $.15 $.12
Pro forma $.14 $.11
</TABLE>
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.
NOTE K - CLEARING AGREEMENT
In June 1998, Siebert signed a new one year agreement with its clearing broker
which provides, among other things, for reduced ticket charges and execution
fees. Such arrangement provides for retroactive effect of the new charges and
execution fees and resulted in a refund of $1,000,000 which Siebert recorded
during the nine months ended September 30, 1998.
F-19
<PAGE>
ANNEX A
ADVEST, INC.
One Rockefeller Plaza
New York, New York 10020
-------------------
July 30, 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 July 29,
1998, transferable subscription rights to subscribe for and purchase 1,016,560
shares of common stock for a price of $7.50 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,
/s/ ADVEST, INC.
-------------------------
ADVEST, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------ ----------------------
23(a) Consent of Richard A. Eisner & Company, LLP.
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this Post-Effective Amendment No. 3 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
November, 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 Post-Effective Amendment No. 3 to Registration Statement on Form S-1 has
been signed below by the following persons, in the capacities indicated, on
November 6, 1998.
Name Title
---- -----
/s/ MURIEL F. SIEBERT Chair, President and Director
- ------------------------------------ (principal executive, financial and
Muriel F. Siebert accounting officer)
/s/ NICHOLAS P. DERMIGNY Executive Vice President, Chief
- ------------------------------------ Operating Officer and Director
Nicholas P. Dermigny
/s/ Patricia L. Francy* Director
- ------------------------------------
Patricia L. Francy
/s/ Jane H. Macon* Director
- ------------------------------------
Jane H. Macon
/s/ Monte E. Wetzler* Director
- ------------------------------------
Monte E. Wetzler
- ----------
* Muriel F. Siebert, pursuant to a Power of Attorney executed by each of the
directors and officers noted above and filed with the Securities and
Exchange Commission, by signing her name hereto, does hereby sign and
execute this Post-Effective Amendment No. 3 to Registration Statement on
Form S-1 on behalf of each of the persons noted above, in the capacities
indicated.
/s/ Muriel F. Siebert
------------------------------
Muriel F. Siebert
<PAGE>
Exhibit Index
Exhibit
Number Description of Exhibit
- ------ ----------------------
23(a) Consent of Richard A. Eisner & Company, LLP.
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this post effective amendment No. 3 to
Registration Statement on Form S-1 (Registration 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
November 4, 1998
