<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No. 0-15521
September 29, 1995
NATIONAL SECURITIES CORPORATION
(Exact Name of Registrant as specified in its charter)
WASHINGTON 91-0519466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fourth Avenue, Suite 2200, Seattle, WA 98154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 206-622-7200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock $.02 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (228.405) of this chapter is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
For the fiscal year ended September 29, 1995, the Company's revenues were
$14,275,000.
As of December 18, 1995, 530,454 shares of the Company's common stock were held
by non-affiliates, having an aggregate market value of $1,989,203.
Number of common shares outstanding as of December 18, 1995 was 689,438 at a par
value of $.02.
Transitional Small Business Disclosure Format:
Yes_______ No X
<PAGE> 2
PART I
ITEM 1 - BUSINESS
GENERAL
National Securities and Subsidiary (collectively "the Company") conducts a
national securities brokerage business through its main office in Seattle,
Washington and through its 30 other offices located in 20 states. The Company's
business includes securities brokerage for individual clients, market-making
trading activities and corporate finance services. The Company concentrates upon
retail brokerage with an emphasis on personalized service. The Company's
executive office, which is also its largest sales office, is located in Seattle,
Washington. The majority of the Company's transactions with the public involves
solicited trades and approximately 70% of these involve sales of securities to
customers.
Brokerage services to retail clients are provided through the Company's sales
force of Investment Executives which the Company believes is the key factor to
the success of its business. The Company is organized to meet the needs of its
Investment Executives and their clients. To foster individual service,
flexibility and efficiency, and to reduce the Company's fixed costs, Investment
Executives act as independent contractors responsible for providing their own
office facilities, sales assistants, telephone service, supplies and other items
of overhead. Investment Executives are given broad discretion to structure their
own practices and to specialize in different areas of the securities market
subject to the Company's supervisory procedures. In addition, Investment
Executives have direct access to the Company's research materials, management,
traders, and all levels of support personnel.
During fiscal 1995, the Company began providing corporate finance and investment
banking services, including underwriting the sale of securities to the public
and arranging for the private placement of securities with investors. It is
anticipated the Company will expand its corporate finance operations to provide
a broad range of financial and corporate advisory services, including mergers
and acquisitions, project financing, capital structure and specific financing
opportunities. These activities require a substantial commitment of capital and
expose the Company to additional risk. Therefore, all such activities are
reviewed by the Board of Directors and a newly formed Capital Commitment
Committee comprised of both officers and directors.
It is not the Company's policy to recommend particular securities to customers.
Recommendations to customers are determined by individual Investment Executives
based upon their own research and analysis, and subject to applicable NASD
customer suitability standards and Company supervision. Most Investment
Executives perform fundamental (as opposed to technical) analysis. Solicitations
may be by telephone, seminars or newsletters. Investment Executives may request
the Company to acquire an inventory position to facilitate sales to customers
(subject to the Investment Executive's own risk). Customers receive confirmation
disclosure that the Company may hold such positions. Supervisory personnel
review trading activity from inventory positions to ensure compliance with
applicable standards of conduct.
<PAGE> 3
ITEM 1 - BUSINESS (CONTINUED)
Salespersons in the brokerage industry are traditionally compensated on the
basis of set percentages of total commissions and mark- ups generated. Most
brokerage firms bear substantially all of the costs of maintaining their sales
forces, including providing office space, sales assistants, telephone service
and supplies. The average commission paid to the salespersons in the brokerage
industry generally ranges from 30% to 40% of total commissions generated.
Since the Company requires its Investment Executives to absorb their own
overhead and expenses, it is able to pay an average of 65% of commissions and
mark-ups generated by the Investment Executive. This arrangement also reduces
the Company's fixed costs and lowers risk of operational losses for
non-production.
The Company is registered as a broker/dealer with the Securities and Exchange
Commission ("SEC") and in 50 states, the District of Columbia and Puerto Rico.
The Company is also a member of the National Association of Securities Dealers,
Inc. ("NASD"), the Municipal Securities Rulemaking Board ("MSRB") the Securities
Investor Protection Corporation ("SIPC"), and the Chicago Stock Exchange
("CSE"). New Investment Executives are required to take examinations
administered by the NASD and state securities authorities in order to be
registered.
PRINCIPAL TRANSACTIONS
The Company buys and maintains inventories in equity securities as a "market
maker" for sale of those securities to other dealers and to customers. The
Company also maintains inventories in corporate and municipal debt securities
for sale to customers. A staff of three traders and three assistants at its
Seattle headquarters, and two traders in Spokane, Washington, manage the
Company's inventory of securities, and conduct market-making activities. As of
September 29, 1995, the Company made a market in approximately 100 equity
securities, the majority of which were quoted on the NASDAQ system.
The Company's trading department activities require a substantial commitment of
capital. Most principal transactions place the Company's capital at risk.
Profits and losses are dependent upon the skill of the traders, price movement,
trading activity and the size of inventories. Because the Company's trading
activities occasionally may involve speculative and thinly capitalized stocks,
the Company imposes position limits to reduce its potential for loss.
In executing customer orders to buy or sell a security in which the Company
makes a market, the Company may sell or purchase from customers at a price which
is substantially equal to the current inter-dealer market price plus or minus a
mark-up or mark-down. The Company may also act as agent and execute a customer's
purchase or sale order with another broker/dealer market-maker at the best
inter-dealer market price available and charge a commission. The Company's
mark-ups, mark-downs, and commissions are competitive based on the services it
provides to its customers.
<PAGE> 4
ITEM 1 - BUSINESS (CONTINUED)
The following table sets forth for the years ended September 29, 1995 and
September 30, 1994, the highest, lowest and average quarter-end security
positions owned by the Company by type of security.
<TABLE>
<CAPTION>
Year Ended Highest Lowest Average
September 24, 1995 Inventory Inventory Inventory
------------------ ----------- ----------- ----------
<S> <C> <C> <C>
Corporate stocks $ 964,000 $ 504,000 $ 697,000
Corporate obligations $ 10,000 $ 5,000 $ 7,000
State and municipal obligations $ 236,000 $ 57,000 $ 147,000
Year Ended Highest Lowest Average
September 30, 1994 Inventory Inventory Inventory
------------------ ---------- ---------- ----------
Corporate stocks $ 602,000 $ 424,000 $ 529,000
Corporate obligations $ 48,000 $ 21,000 $ 35,000
State and municipal obligations $ 284,000 $ 112,000 $ 171,000
Commercial paper $ 1,200,000 - $ 300,000
</TABLE>
AGENCY TRANSACTIONS
In executing customers' orders to buy or sell listed securities and securities
in which it does not make a market, the Company generally acts as agent and
charges commissions, which the Company believes are competitive based on the
services the Company provides to its customers.
OPERATIONS, CLEARINGS AND SYSTEMS
The Company's operations include execution of orders, processing of
transactions, receipt, identification and delivery of funds and securities,
custody of customer securities, internal financial controls and compliance with
regulatory and legal requirements.
The Company's data processing is supplied by an independent vendor on a
time-sharing basis to process orders, reports, confirmations and statements as
well as to maintain the Company's general ledger and files of customer, and
other market data. The Company owns other computers which are used for
Investment Executive payroll and telephone cost allocation, including word
processing and other office applications.
<PAGE> 5
ITEM 1 - BUSINESS (CONTINUED)
The volume of transactions handled by the operations staff fluctuates
substantially. The Company believes its operations staff is adequate to service
the number of transactions anticipated in the foreseeable future. The following
table sets forth the number of monthly purchase and sale transactions processed
for the periods indicated:
<TABLE>
<CAPTION>
Number of Monthly Transactions
------------------------------
Fiscal Year Ended High Low Average
------------------- ------ ----- ---------
<S> <C> <C> <C>
September 29, 1995 15,000 6,000 10,000
September 30, 1994 11,000 7,000 9,000
September 24, 1993 12,000 7,000 9,000
September 25, 1992 9,000 5,000 7,000
September 27, 1991 9,000 4,000 6,000
</TABLE>
The Company has established internal controls and safeguards against securities
theft, including use of depositories and periodic securities counts. As required
by the NASD and other authorities, the Company carries fidelity bonds in the
amount of $500,000 covering loss or theft of securities, embezzlement and
forgery. This amount exceeds regulatory requirements by $165,000.
The Company clears most of its own securities transactions and posts its books
and records daily. Periodic reviews of controls are conducted, and
administrative and operations personnel meet frequently with management to
review operating conditions. Operations personnel monitor compliance with
applicable laws, rules, and regulations.
SUPERVISION
The Securities Exchange Act of 1934 and NASD Rules of Fair Practice require the
Company to supervise the activities of its Investment Executives. As part of
providing such supervision, the Company maintains an Operations and Procedures
Manual that all Investment Executives must read and sign. Compliance personnel
from the Company's main office conduct inspections of branch offices no less
frequently than annually to review compliance with the Company's procedures. A
registered principal provides continuous supervision at each of the Company's
larger offices (the Seattle home office and the eight largest branches). The
other offices (averaging two Investment Executives per office) are not required
by NASD rules to have a registered principal on site and are therefore
supervised by registered principals at the Seattle office. Traders and other
personnel review each Investment Executive's order ticket to ensure compliance
with the NASD Rules of Fair Practice including mark-up guidelines. Although the
Company classifies its Investment Executives as independent contractors, this
treatment does not limit the Company's liability for Investment Executive's
violations of applicable securities laws.
<PAGE> 6
ITEM 1 - BUSINESS (CONTINUED)
EMPLOYEES
As of September 29, 1995, the Company had 206 employees and independent
contractors, 6 had executive and administrative responsibilities, 138 were
Investment Executives compensated primarily on a commission basis (independent
contractors), 60 were involved in operations trade processing, and 2 were
support staff. Persons who have entered into independent contractor agreements
are not considered employees for purposes of determining the Company's
obligations for Federal and state withholding, unemployment and social security
taxes. The Company's independent contractor arrangements conform with accepted
industry practice and therefore does not believe there is a material risk of an
adverse determination from the tax authorities which would have a significant
effect on the Company's ability to recruit and retain Investment Executives, or
the Company's operations or financial results of operations. No employees are
covered by collective bargaining agreements and the Company believes its
employee relations are good.
COMPETITION
The Company is engaged in a highly competitive business. With respect to one or
more aspects of its business, its competitors include member organizations of
the New York Stock Exchange, Inc. and other registered securities exchanges in
the United States and Canada, and the members of the NASD. Many of these
organizations have substantially greater personnel and financial resources and
more sales offices than the Company. Discount brokerage firms affiliated with
commercial banks provide additional competition. In many instances, the Company
is also competing directly for customer funds with investment opportunities
offered by real estate, insurance, banking, and savings and loans industries.
ITEM 2 - PROPERTIES
The Company leases office space in Seattle and Spokane, Washington, and Maynard,
Massachusetts. The Company's other offices are leased by the Investment
Executives operating from those locations.
Leases expire at various times between November 1995 and July 1999. The Company
believes its rent is at current market rates. At current production levels, the
Company believes its leased space is suitable and adequate, however, increased
activity could require additional space to be leased.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a defendant in various arbitration and administrative
proceedings, lawsuits and claims which arise in the normal course of business.
The Company believes it has substantial defenses to each of the actions and also
believes the final resolution of these matters will not have a material adverse
impact on the Company's financial position and results of operations.
<PAGE> 7
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's initial public offering of its common stock was completed
September 1986. From the initial offering to June 22, 1987, the Company's common
stock was traded over-the-counter and was not quoted in the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"). Effective June 23,
1987, the Company's common stock became eligible to list on NASDAQ. The
Company's common stock trades on the NASDAQ Small-Cap Market using the symbol
NATS. As of September 29, 1995, the Company had approximately 300 shareholders
of record. This amount includes those shareholders holding stock in street name
and trust accounts. Currently, there are three market makers in the Company's
stock, including the Company.
Washington law authorizes the Board of Directors to declare dividends with
respect to the Company's common stock if, after giving effect to the payment of
the dividend, (i) the Company would be able to pay its debts as they become due
in the usual course of business, and (ii) the Company's total assets would
exceed the sum of its total liabilities plus the amount which would be needed to
satisfy any shareholder's preferential rights in liquidation were the Company in
liquidation at the time of the payment of the dividend. As of this time, no
shareholder holds preferential rights in liquidation. In determining whether to
declare dividends, the Board considers among other things, the financial
condition of the Company, future capital needs, and the capital requirements
established and enforced by the Securities and Exchange Commission for brokers
and dealers registered under the Securities Exchange Act of 1934. The Company
has not declared dividends during the last nine years and has no intention to do
so in the foreseeable future.
High and low bid quotations from September 25, 1993 to September 29, 1995 have
been obtained from NASDAQ.
<PAGE> 8
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS (CONTINUED)
The range of market prices for each quarter of fiscal years ended September 29,
1995 and September 30, 1994 are as follows:
<TABLE>
<CAPTION>
Period High Low
--------------------------- --------- --------
<S> <C> <C>
October 1, 1994/December 31, 1994 $ 4.25 $ 3.00
January 1, 1995/March 31, 1995 $ 3.75 $ 3.00
April 1, 1995/June 30, 1995 $ 4.50 $ 3.50
July 1, 1995/September 29, 1995 $ 4.50 $ 3.50
</TABLE>
<TABLE>
<CAPTION>
Period High Low
--------------------------- --------- --------
<S> <C> <C>
September 25, 1993/December 31, 1993 $ 5.00 $ 3.00
January 1, 1994/March 25, 1994 $ 5.75 $ 4.50
March 26, 1994/June 24, 1994 $ 4.50 $ 3.00
June 25, 1994/September 30, 1994 $ 3.13 $ 2.50
</TABLE>
<PAGE> 9
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994
The Company underwent three significant changes during fiscal 1995. First, in
May, several investors purchased an aggregate of 48% of the Company's common
stock; 215,830 outstanding shares from two directors and 100,000 newly issued
shares from the Company, all at $5.00 per share. Second, in June the Company
negotiated terms under which approximately 60 new Investment Executives,
formerly affiliated with a Massachusetts broker-dealer, became affiliated with
the Company. And finally, the Company established a Corporate Finance Department
to underwrite and/or otherwise assist companies seeking to raise capital. While
the Company anticipates future benefits from these activities, year-end results
were adversely impacted by expenses of consummating these events.
Although the Company's fiscal year exhibited a significant increase in revenues
as compared to the prior year, earnings declined. Net income fell $253,000 or
50%, to $257,000 in 1995 from $510,000 in 1994, while earnings per share fell to
$0.40 in 1995 from $0.82 in 1994. The decrease in earnings was largely the
result of non-recurring obligations which the Company incurred during fiscal
1995 due to the change in control and the acquisition of additional Investment
Executives. The Company estimates these expense totaled approximately $300,000.
Revenues increased $2,788,000, or 24% to $14,275,000 from $11,487,000. This
increase is due to both favorable market conditions and the acquisition of
additional Investment Executives. Revenues earned on securities transactions
also climbed, increasing by 17% to $11,631,000 in 1995 from $9,977,000 in the
prior year. The Company's interest revenue increased significantly, rising to
$1,610,000 in 1995 from $931,000 in 1994, a $679,000 or 73% increase over the
prior year. This increase was largely offset by higher interest expenses
incurred by the Company.
Total securities transactions processed by the Company increased by 5% to
approximately 114,000 in 1995 from 109,000 in 1994. At the same time, the
average revenue per trade increased by $21.00 to $126.00 from $105.00. This
increase is the result of the Company's continuing success in increasing its
average transaction size, as well as additional transactions related to
corporate finance.
Concurrent with the 24% increase in revenues, overall expenses grew by 29% or
$3,146,000. This significant rise in expenses was not unexpected. The primary
component of the Company's expenses is commission payout to brokers which
increased from $6,596,000 to $7,621,000, an increase of $1,025,000 or 16% over
the prior year.
More meaningful was the increase in the Company's non-commission, non-interest
expenses during the fiscal year. These expenses rose from $3,735,000 in fiscal
1994 to $5,225,000 in 1995, a 40% increase. Much of this increase is the result
of the Company's change in control and its acquisition of additional Investment
Executives. These increases are non-recurring and not typical to the Company's
operations. This also explains the jump in the Company's overall cost per trade
ticket which increased from $34.00 to $46.00.
<PAGE> 10
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994 (Continued)
The Company made several improvements during 1995 which also impacted overall
expenses. For instance, the Company spent more on research materials to assist
its Investment Executives and upgraded its information and quotation systems.
Despite the increase in expenses and the decrease in earnings per share,
Management is optimistic the Company will derive future benefit from the
investments it has made. Some of these investments are already exhibiting
positive results, as evidenced by the Company's increase in revenues. At the
same time, however, the Company's financial performance is greatly influenced by
market conditions. The risks inherent in developing new business opportunities
make it difficult to predict the Company's short-term future performance.
FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1993
Even though management is pleased with fiscal 1994 results when compared to
current industry trends, the Company's performance in fiscal 1994 did not match
fiscal 1993's record setting levels. The Company reported record revenues during
the first half of fiscal 1994, but interest rate increases and fears of
inflation during the second half of the year weakened the Company's year-end
performance figures. These factors have caused retail investors, the core of the
Company's revenue base, to remain on the sidelines as returns from both the debt
and equity markets declined.
Net income dropped $170,000 or 25%, to $510,000 in 1994 from $680,000 in 1993,
while fully diluted earnings per share fell to $0.82 in 1994 from $0.99 in 1993.
Overall revenues remained stable, increasing by less than 1% to $11,487,000 in
1994 from $11,438,000 in 1993. Revenues earned on securities transactions were
also fairly constant, declining by less than 1% to $9,977,000 in 1994 from
$10,043,000 in the prior year. The Company's interest revenue did increase
significantly, rising to $931,000 during 1994 from $769,000 in 1993, a $162,000
(21%) increase. However, this increase is largely offset by higher interest
expenses incurred by the Company.
Total securities transactions processed by the Company decreased by only 4% to
approximately 109,000 in 1994 from 113,000 in 1993. Because of the market
climate discussed above, management is not alarmed by this decrease. At the same
time, the average revenue per trade increased by $4.00 to $105.00 from $101.00.
This highlights the Company's continuing success in increasing its average
transaction size.
The Company's decline in net income was not a function of lower revenue, but
rather due to an increase in expenses. Total expenses rose by 3% to $10,746,000
in 1994 from $10,438,000 during fiscal 1993. The primary component of this
increase was commission expenses which also rose by 3% to $6,596,000 from
$6,412,000.
<PAGE> 11
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (Continued)
FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1993 (Continued)
Commission expenses increased while commission revenues decreased because the
average commission paid to the Investment Executive increased to 66% of
commission and dealer inventory income from 64%. This larger payout corresponds
to an increase in the quality of the securities traded and the size of the
transactions processed, both of which often result in higher payouts to the
Investment Executive. For these reasons, management is comfortable with this
particular increase in expenses.
During 1994 the Company's interest expense rose 25% to $415,000 from $332,000 in
1993. This increase is directly attributable to increases in interest rates, and
had no net negative effect because interest revenues rose correspondingly.
All other expenses, that is, all non-interest and non-commission expenses,
remained stable in 1994, increasing about 1% to $3,735,000 from $3,694,000 in
1993. Therefore, the average cost per ticket, which factors all such expenses,
also remained stable, rising to $34 in 1994 from $33 in 1993. Although the
expense per ticket rose slightly, management believes this figure is positive
when compared to earlier years.
The Company made several improvements during 1994 which also impacted its
overall expenses. For instance, the Company spent more on research to assist its
Investment Executives (a cost increase of $35,000 in 1994), and upgraded its
trading department by adding a new order transaction system increasing expenses
by approximately $52,000 which improves trade efficiencies for customers and the
Company.
Management is hopeful the Company will achieve similarly positive results in the
upcoming year. However, the current climate of rising interest rates and
declining equities markets has created a challenging environment for the
industry as a whole. This environment has dramatically impacted the individual
investor's desire to commit funds in securities markets. Management shall
continue efforts to improve and grow its sales staff in order to meet these
challenges.
LIQUIDITY AND CAPITAL RESOURCES
As with most brokerage firms, a substantial portion of the Company's assets are
liquid, consisting mainly of cash or assets readily convertible into cash. These
assets are financed primarily by the Company's interest-bearing and
non-interest-bearing customercredit balances, loan of securities, other payables
and equity capital. Occasionally, the Company has utilized short-term bank
financing to supplement its ability to meet day-to-day operating cash
requirements. Such financings have been used to equalize cash flows and are,
therefore, regularly repaid.The Company has no long-term cash borrowings.
The objective of liquidity management is to ensure the Company has ready access
to sufficient funds to meet commitments and future obligations, fund deposit
withdrawals and efficiently provide for the credit needs of customers. Cash flow
from operations and earnings contribute significantly to liquidity. Liquidity is
also partially obtained through utilizing interest bearing and non-
interest-bearing customer credit balances by maintaining assets that are readily
convertible to cash at minimal costs through maturities and sales under
agreements to repurchase.
<PAGE> 12
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company pays interest to customers on their funds held awaiting investment
in securities. At September 29, 1995, these customer credit balances increased
by approximately $22,038,000. The result of this increase in customer funds led
the Company to increase its investment in U.S. Treasury and GNMA securities by
approximately $16,235,000. The Company charges interest to customers on balances
in margin accounts which increased by $6,879,000 during 1995.
In the normal course of business, the Company loans and borrows securities to
meet customer purchase and sale needs. With respect to securities loaned and
borrowed, the cash collateral received or paid approximates the market value of
the related securities loaned or borrowed. Additionally, the Company maintains a
net receivable from or payable to its clearing corporation to meet normal
settlement requirements of securities transactions. At September 29, 1995, the
net effect of these transactions was an increase in cash of approximately
$305,000. The result of this availability of cash led the Company to increase
its investment in U.S. Treasury securities and Reverse Repurchase Agreements.
The Company believes its internally generated liquidity, together with access to
external capital and debt resources, will be sufficient to satisfy existing
commitments and plans, and to provide adequate financial flexibility to take
advantage of potential strategic business opportunities should they arise.
The Company requires its Investment Executives to be responsible for
substantially all of the overhead expenses associated with their sales efforts,
including office furniture, sales assistants, telephone service and supplies.
The Company does not maintain a high level of fixed assets.
The Company is subject to the net capital requirements of the Securities and
Exchange Commission which are designed to measure the general financial
soundness and liquidity of broker/dealers from a conservative view. As of
September 29, 1995, the Company's net capital exceeded the SEC's requirement of
$250,000 by $1,244,000.
As of September 29, 1995, the Company had no outstanding balance on its
$2,000,000 revolving line of credit with Seafirst Bank. Borrowings under the
line of credit bear interest at the prime rate plus .5%.
<PAGE> 13
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INFLATION
The Company has determined that the effect of inflation on its assets,
consisting of cash, securities, office equipment, leasehold improvements, and
computers has not been significant over the last three years.
Whereas inflation has not had a materially adverse impact on the costs or the
operations of the Company, inflation does have an effect on the Company's
business. Increases in inflation are generally accompanied by increases in
precious metal prices. As a result, there is investor interest in precious
metal-related securities, which is a significant revenue source for the Company.
At the same time, however, increases in inflation may be accompanied by
increases in interest rates, both of which may adversely effect short-term stock
prices and performance and, thereby, adversely effect the Company's performance.
It is, therefore, difficult to predict the net impact of inflation on the
Company.
ITEM 7 - FINANCIAL STATEMENTS
See part III, Item 13(a)(1) for a list of financial statements filed as part of
this report.
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors
National Securities Corporation and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of National Securities Corporation and Subsidiary as of September 29, 1995 and
September 30, 1994 and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended September 29, 1995. These consolidated 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National Securities
Corporation and Subsidiary as of September 29, 1995 and September 30, 1994, and
the results of its consolidated operations and cash flows for each of the years
in the three-year period ended September 29, 1995, in conformity with generally
accepted accounting principles.
MOSS ADAMS LLP
Seattle, Washington
November 4, 1995
<PAGE> 15
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
---- ----
<S> <C> <C>
CASH, subject to immediate withdrawal $ 204,000 $ 1,671,000
CASH, CASH EQUIVALENTS AND SECURITIES) 25,394,000 9,159,000
DEPOSITS 179,000 59,000
RECEIVABLES
Brokers and dealers 1,244,000 565,000
Customers 13,108,000 6,229,000
Other 232,000 11,000
FEDERAL INCOME TAX RECEIVABLE 40,000 --
SECURITIES HELD FOR RESALE, at market 829,000 557,000
FIXED ASSETS, net 414,000 278,000
DEFERRED COST 154,000 --
OTHER ASSETS 93,000 98,000
----------- -----------
$41,891,000 $18,627,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
PAYABLES
Brokers and dealers $ 676,000 $ 691,000
Customers (Note 3) 36,813,000 14,775,000
FEDERAL INCOME TAX PAYABLE -- 15,000
SECURITIES SOLD, BUT NOT YET PURCHASED, at market 195,000 121,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES 922,000 505,000
CAPITAL LEASE OBLIGATION -- 11,000
----------- -----------
38,606,000 16,118,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
ISSUABLE COMMON STOCK 105,000 --
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 5,000,000 shares authorized, 676,938 and
597,688 shares issued and outstanding, respectively 14,000 12,000
Additional paid-in capital 918,000 400,000
Retained earnings 2,248,000 2,097,000
----------- -----------
3,180,000 2,509,000
----------- -----------
$41,891,000 $18,627,000
=========== ===========
</TABLE>
<PAGE> 16
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND
SEPTEMBER 24, 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES
Commissions $ 9,014,000 $ 7,699,000 $ 7,822,000
Net dealer inventory gains 2,617,000 2,278,000 2,221,000
Interest and dividends 1,610,000 931,000 769,000
Transfer fees and clearing services 401,000 400,000 438,000
Underwriting 392,000 -- --
Other 241,000 179,000 188,000
------------ ------------ ------------
14,275,000 11,487,000 11,438,000
------------ ------------ ------------
EXPENSES
Commissions 7,621,000 6,596,000 6,412,000
Employee compensation and related expenses 1,801,000 1,487,000 1,474,000
Clearance fees paid to nonbrokers 521,000 396,000 415,000
Communications 381,000 315,000 309,000
Occupancy and equipment costs 1,069,000 850,000 788,000
Interest 1,046,000 415,000 332,000
Underwriting 366,000 -- --
Professional fees 293,000 255,000 261,000
Other 794,000 432,000 447,000
------------ ------------ ------------
13,892,000 10,746,000 10,438,000
------------ ------------ ------------
INCOME BEFORE INCOME TAX 383,000 741,000 1,000,000
INCOME TAX PROVISION (126,000) (231,000) (320,000)
------------ ------------ ------------
NET INCOME $ 257,000 $ 510,000 $ 680,000
============ ============ ============
EARNINGS PER SHARE OF COMMON STOCK
Primary $ .40 $ .82 $ 1.04
============ ============ ============
Fully diluted $ .40 $ .82 $ .99
============ ============ ============
</TABLE>
<PAGE> 17
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND
SEPTEMBER 24, 1993
<TABLE>
<CAPTION>
Additional
Common Stock
-------------------------------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
-------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, September 25,
1992 647,088 $ 13,000 $ 300,000 $ 1,243,000 $ 1,556,000
Net income - - - 680,000 680,000
Redemption of common
stock (100,000) (2,000) (47,000) (251,000) (300,000)
-------- -------- -------- ----------- -----------
BALANCE, September 24,
1993 547,088 11,000 253,000 1,672,000 1,936,000
Net income
510,000 510,000
Exercise of stock options,
including $35,000 income
tax benefit 106,725 2,000 260,000 262,000
Redemption of common
stock (56,125) (1,000) (113,000) (85,000) (199,000)
-------- -------- -------- ----------- -----------
BALANCE, September 30,
1994 597,688 12,000 400,000 2,097,000 2,509,000
Issuance of common stock 100,000 2,000 498,000 - 500,000
Exercise of stock options,
including $16,000 income
tax benefit 25,750 1,000 69,000 - 70,000
Redemption and retirement
of common stock (46,500) (1,000) (49,000) (106,000) (156,000)
Net income - - - 257,000 257,000
-------- -------- --------- ----------- -----------
BALANCE, SEPTEMBER 29, 1995 676,938 $ 14,000 $ 918,000 $ 2,248,000 $ 3,180,000
======== ======== ========= =========== ===========
</TABLE>
<PAGE> 18
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 29, 1995, SEPTEMBER 30,1994 AND SEPTEMBER 24, 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 257,000 $ 510,000 $ 680,000
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 171,000 142,000 142,000
Loss on disposal of fixed assets 68,000 -- --
Changes in assets and liabilities
Cash, cash equivalents and securities (16,235,000) (2,147,000) (879,000)
Deposits (120,000) (2,000) (5,000)
Receivables (7,779,000) 2,072,000 (3,631,000)
Federal income taxes receivable/payable (55,000) (263,000) 341,000
Securities held for resale (272,000) 123,000 (68,000)
Other assets 5,000 2,000 (19,000)
Payables 22,023,000 813,000 4,127,000
Securities sold, but not yet purchased 74,000 (134,000) 136,000
Accounts payable, accrued expenses and other liabilities 417,000 (353,000) 218,000
------------ ----------- -----------
(1,446,000) 763,000 1,042,000
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (324,000) (122,000) (52,000)
Deferred cost payments (100,000) -- --
------------ ----------- -----------
(424,000) (122,000) (52,000)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital lease payments (11,000) (68,000) (106,000)
Issuance of common stock 500,000
Redemption and retirement of common stock (156,000) (199,000) (300,000)
Exercise of stock options 70,000 262,000 --
------------ ----------- -----------
403,000 (5,000 (406,000)
------------ ----------- -----------
INCREASE (DECREASE) IN CASH (1,467,000) 636,000 584,000
CASH BALANCE
Beginning of year 1,671,000 1,035,000 451,000
------------ ----------- -----------
End of year $ 204,000 $ 1,671,000 $ 1,035,000
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the year for
Interest $ 1,046,000 $ 415,000 $ 332,000
============ =========== ===========
Income tax $ 165,000 $ 459,000 $ (21,000)
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Deferred cost and issuable common stock (Note 7) $ 105,000 $ -- $ --
============ =========== ===========
Secured demand notes received for liabilities subordinated to
claims of general creditors $ -- $ 200,000 $ --
============ =========== ===========
</TABLE>
<PAGE> 19
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF BUSINESS - National Securities Corporation and
Subsidiary (collectively the Company) was incorporated in 1947 under the laws of
the State of Washington. Its primary business is to provide financial services
and products to the general public and to the financial community as a
registered broker-dealer in accordance with the Securities and Exchange Act of
1934. Its principal office is located in Seattle, Washington.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of National Securities Corporation and its
wholly-owned subsidiary National Asset Management, Inc. All significant
intercompany accounts and transactions have been eliminated.
ACCOUNTING METHOD - Customer security transactions and the related
commission income and commission expense are recorded on a settlement date
basis. The financial condition and results of operations using the settlement
date basis are not materially different from that of the trade date basis.
SECURITIES HELD FOR RESALE - Securities held for resale are marked
to market at month-end and the unrealized appreciation or depreciation is
included in the consolidated statement of operations.
OTHER ASSETS - The Company records its stock exchange membership
at its estimated realizable value of $42,000 for the years ended 1995 and 1994.
The Company purchased the membership for $47,000.
DEPRECIATION - Fixed assets are stated at cost and are depreciated
over their estimated useful lives of 3 to 5 years. Depreciation is computed
using straight-line and accelerated methods.
EARNINGS PER SHARE - Primary earnings per common share is based
upon the net income for the year divided by the weighted average number of
common shares and common stock equivalents outstanding during the year. For
fiscal years ended 1995, 1994 and 1993, the number of shares used in the primary
earnings per share calculation was 636,106, 624,416, and 654,654, respectively.
The weighted average number of shares outstanding, assuming full dilution,
includes common stock equivalents which would arise from the exercise of stock
options and assumes that all have been converted to common shares using the
treasury stock method at the beginning of the year. For fiscal years 1995, 1994
and 1993, the number of shares used in the fully diluted earnings per share
calculation was 636,106, 624,416, and 688,434, respectively.
<PAGE> 20
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INCOME TAXES - The Company utilizes Statement of Financial Accounting
Standard No. 109, Accounting for Income Taxes, which requires an asset and
liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on currently
enacted tax laws and rates. State income taxes are expensed as paid and are not
significant.
FISCAL YEAR - The Company has a fifty-two or fifty-three week year,
ending on the last Friday in September.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash
flows, the Company considers only cash subject to immediate withdrawal. Cash,
cash equivalents and securities as discussed in Note 2 are not considered a
change in cash for this purpose.
RECLASSIFICATION - Certain balances for the years ended September 30,
1994 and September 24, 1993 on the accompanying Consolidated Statement of
Operations have been reclassified to conform to the September 29, 1995
presentation. These reclassifications have no impact on the results of
operations.
NOTE 2 - CASH, CASH EQUIVALENTS AND SECURITIES
Cash, cash equivalents, and securities have been segregated in special
reserve bank accounts for the exclusive benefit of customers under Rule 15c3-3
of the Securities and Exchange Commission and consist of:
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
U.S. Treasury and GNMA securities $23,323,000 $ 7,070,000
Reverse repurchase agreement 2,071,000 2,089,000
----------- -----------
$25,394,000 $ 9,159,000
=========== ===========
</TABLE>
The United States treasury and GNMA securities mature at various dates
through April 2023 and are stated at current market values. The Company has a
policy to take possession of all securities purchased under agreements to
resell. These securities are carried at cost which approximates market value.
<PAGE> 21
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 3 - CUSTOMER RECEIVABLES AND PAYABLES
The Company seeks to protect itself from the risks associated with
customer activities by requiring customers to maintain margin collateral in
compliance with regulatory and its own internal guidelines, which are more
stringent than regulatory margin requirements. Margin levels are monitored daily
and additional collateral must be deposited as required. Where customers cannot
meet collateral requirements, the Company will liquidate underlying financial
instruments sufficient to bring the accounts in compliance.
Exposure to credit risk is affected by the markets for financial
instruments, which can be volatile and may impair the ability of clients to
satisfy their obligations to the Company. Credit limits are established and
closely monitored for customers and broker-dealers engaged in transactions
deemed to be credit-sensitive.
Included in amounts receivable from and payable to customers are
balances in accounts of officers and directors totaling:
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Receivable from customers $ 16,000 $106,000
======== ========
Payables to customers $461,000 $275,000
======== ========
</TABLE>
NOTE 4 - BROKER-DEALER RECEIVABLES AND PAYABLES
Amounts receivable from and payable to brokers and dealers include:
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Deposits paid for securities borrowed $ 858,000 $ 536,000
Securities failed to deliver 298,000 29,000
Other 88,000 --
---------- ----------
Total receivable $1,244,000 $ 565,000
========== ==========
Due to clearing organization $ 48,000 $ 675,000
Securities failed to receive 622,000 12,000
Other 6,000 4,000
---------- ----------
Total payable $ 676,000 $ 691,000
========== ==========
</TABLE>
Securities borrowed and securities loaned are recorded at the amount of
cash collateral advanced or received. With respect to securities loaned, the
cash collateral received approximates the market value of securities loaned. The
Company monitors the market value of securities borrowed and loaned on a daily
basis and obtains additional collateral from counterparties as necessary.
<PAGE> 22
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 4 - BROKER-DEALER RECEIVABLES AND PAYABLES (CONTINUED)
The Company has receivables and payables for financial instruments sold
to and purchased from broker-dealers. The Company is exposed to risk of loss
from the inability of broker-dealers to pay for purchases or to deliver
financial instruments sold, in which case the Company would have to sell or
purchase the financial instruments at prevailing market prices.
NOTE 5 - SECURITIES HELD FOR RESALE
Securities held for resale and securities sold, but not yet purchased
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, 1995 September 30, 1994
------------------------ ------------------------
SOLD, BUT Sold, But
NOT YET Not Yet
OWNED PURCHASED Owned Purchased
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Certificate of deposit $ 50,000
State and municipal
obligations 57,000 $113,000 $ 7,000
Corporate obligations 10,000 29,000 --
Corporate stocks 712,000 $195,000 415,000 114,000
-------- -------- -------- --------
$829,000 $195,000 $557,000 $121,000
======== ======== ======== ========
</TABLE>
Securities held for resale are recorded at their current market values.
Securities sold, but not yet purchased must be acquired in the marketplace at
prevailing prices. Accordingly, these transactions result in off-balance sheet
market risk since the ultimate purchase price may exceed the amount recognized
in the statement of financial condition.
<PAGE> 23
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 6 - FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Office machines $ 245,000 $ 241,000
Furniture and fixtures 429,000 368,000
Electronic equipment 735,000 480,000
Leasehold improvements 42,000 38,000
Equipment held under capital lease -- 187,000
---------- ----------
1,451,000 1,314,000
Less accumulated depreciation and amortization 1,037,000 1,036,000
---------- ----------
$ 414,000 $ 278,000
========== ==========
</TABLE>
NOTE 7 - DEFERRED COST AND ISSUABLE COMMON STOCK
During 1995, the Company entered into an agreement with a brokerage
firm and its principal stockholder. Under the terms of the agreement, the
principal stockholder will assist in causing the transfer of the registered
representatives and the customer accounts to the Company. The Company obtained
no assets, tangible or intangible, and assumed no liabilities, with the
exception of a short-term office lease. In exchange, the Company paid cash of
$100,000 and may issue up to 100,000 unregistered shares of the Company's stock
plus options to purchase an additional 50,000 shares. The shares and options are
contingent upon the stockholder meeting certain obligations and the registered
representatives meeting certain revenue criteria.
At September 29, 1995, substantially all requirements of the
contingency related to the $100,000 payment and issuance of 30,000 shares common
stock have been satisfied. Accordingly, the Company has recorded the cash
payment and issuance of stock as a deferred cost to be amortized over twelve
months. The deferred cost of $154,000 on the balance sheet is net of $51,000
related amortization. Additionally, the Company has recorded issuable common
stock of $105,000 which will be issued on June 30, 1996. No liability has been
recorded for the remaining shares of stock and options as the related
contingencies have not yet been satisfied.
<PAGE> 24
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 8 - LINE OF CREDIT
The Company has a line of credit of up to $2,000,000, which at the
bank's discretion may require collateral for the amount borrowed. The line is
subject to renewal in March 1996. Borrowings bear interest at the bank's prime
rate plus .5%. Interest is payable monthly. At September 29, 1995 and September
30, 1994, the Company had no outstanding borrowings on the secured line of
credit.
NOTE 9 - FEDERAL INCOME TAX
The income tax provision varies from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30, September 24,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Statutory Federal rate $(130,000) $(252,000) $(340,000)
Unsettled securities claims -- -- 29,000
Other 4,000 21,000 (9,000)
--------- --------- ---------
Income tax expense $(126,000) $(231,000) $(320,000)
========= ========= =========
</TABLE>
NOTE 10 - NET CAPITAL REQUIREMENTS
The Company is subject to the Securities and Exchange Commission's
Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net
capital. The Company has elected to use the alternative method permitted by the
rule. This requires that the Company maintain minimum net capital equal to the
greater of $250,000 or 2% of aggregate debit balances. The net capital amount
and percentage for the Company is:
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net capital $1,523,000 $1,860,000
========== ==========
Excess net capital $1,244,000 $1,610,000
========== ==========
Percentage of net capital to aggregate
debit balances 11% 28%
=== ===
</TABLE>
<PAGE> 25
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 11 - COMMITMENTS
As of September 29, 1995, the Company is committed under operating
leases to future minimum lease payments as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending
------------------
<S> <C>
1996 $ 664,000
1997 438,000
1998 444,000
1999 333,000
----------
$1,879,000
==========
</TABLE>
Rental expense for operating leases for the years ended September 29,
1995, September 30, 1994, and September 24, 1993, was $369,000, $373,000, and
$348,000, respectively.
During 1995, the Company became involved in underwriting securities for
new issues. At September 29, 1995, the Company has no outstanding commitment
relating to underwriting transactions.
NOTE 12 - CONTINGENCIES
The Company is a defendant in various arbitration and administrative
proceedings, lawsuits and claims which arise in the normal course of business.
The Company believes it has substantial defenses to each of the actions and also
believes the final resolution of these matters will not have a material adverse
impact on the Company's financial position or its results of operations.
<PAGE> 26
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 13 - STOCKHOLDERS' EQUITY
The Company has reserved 450,000 shares of common stock for issue to
key employees, investment executives, and registered representatives under the
Company's Stock Option Plans. The following is a table of changes in stock
options outstanding:
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------- Price Per
Authorized Granted Available Share
---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, September 24,
1993 249,026 168,000* 81,026 $2.00-$2.38
Creation of new plan 200,000 -- 200,000 --
Exercised (106,725) (106,725) -- $2.00-$2.38
Expired -- (3,500) 3,500 $ 2.00
-------- -------- -------- -----------
Balance, September 30,
1994 342,301 57,775* 284,526 $2.00-$2.38
Issued -- 229,000 (229,000) 5.00
Exercised (25,750) (25,750) -- $2.00-$2.16
-------- -------- -------- -----------
BALANCE, SEPTEMBER 29,
1995 316,551 261,025* 55,526 $2.00-$5.00
======== ======== ======== ===========
</TABLE>
*At September 29, 1995, September 30, 1994 and September 24, 1993,
options to purchase 89,275, 50,832 and 116,125 shares, respectively, were
exercisable.
During 1995, a group of individuals acquired operational control of the
Company through the purchase of outstanding common shares. Contemporaneously,
the Company issued 100,000 shares to the group for consideration of $500,000.
Additionally, the group received 175,000 stock options with an exercise price of
$5.00 per share.
During 1994, the Board of Directors created a new incentive stock
option plan. In accordance with the plan, the Company authorized options to
purchase for a period of five years up to 200,000 shares of common stock with
exercise prices equal to at least its fair market value at the time such options
are granted. At September 29, 1995, 175,000 options had been granted while at
September 30, 1994, no options had been granted under this plan.
<PAGE> 27
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1995, SEPTEMBER 30, 1994, AND SEPTEMBER 24, 1993
(CONTINUED)
NOTE 14 - COMMON STOCK SPLIT
On January 13, 1994, the shareholders authorized a two-for-one stock
split for stockholders of record as of the close of business February 15, 1994.
The stock split increased the number of issued and outstanding common stock to
597,688 at September 30, 1994, and decreased the par value of each share from
$.04 to $.02. All references in the accompanying financial statements to the
number of common shares and per-share amounts have been restated to reflect the
above stock split.
NOTE 15 - EMPLOYEE BENEFITS
The Company has a 401(k) salary savings plan which covers substantially
all employees. Participants may contribute up to 25% of eligible compensation,
as defined in the plan. The Company's annual contributions are made at the
discretion of the Board of Directors. During fiscal years September 29, 1995,
September 30, 1994, and September 24, 1993, the Company made no contribution to
the plan.
NOTE 16 - RELATED PARTY TRANSACTIONS
Included in other receivables are advances to employees of $46,000,
which will be repaid through commissions, and a note receivable of $74,000 from
a director, bearing interest at 6% and maturing May 1996.
<PAGE> 28
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The following sets forth the names and ages of all directors and executive
officers of the Company, all positions and offices with the Company held by such
persons and the principal occupations of each during the past five years. All
directors and executive officers are elected annually to serve one-year terms
until their successors are elected and qualified.
Steven A. Rothstein 45 Chairman
Mr. Rothstein became a member of the Company's Board in May 1995 and was
appointed Chairman on August 1, 1995. From 1979 through 1989, Mr. Rothstein was
a registered representative, and Limited Partner at Bear Stearns and Company,
Inc. in Chicago, Illinois and Los Angeles, California. From 1989 to 1992, Mr.
Rothstein was a Senior Vice President in the Chicago office of Oppenheimer and
Company, Inc. In December 1992 he joined Rodman and Renshaw, Inc., a
Chicago-based broker/dealer serving as Managing Director, and joined H.J.
Meyers, Inc. in Beverly Hills, California, a New York Stock Exchange member firm
in March 1994. He resigned H.J. Meyers and Company in March 1995 to associate
with National Securities.
Mr. Rothstein is a 1972 graduate of Brown University, Providence, Rhode Island.
Robert I. Kollack 48 President, CEO and Director
Mr. Kollack was elected Chairman of the Board and Chief Executive Officer in
August 1987. From February 1981 to August 1987, Mr. Kollack acted as President
and a Director of the Company. He joined the Company as an Investment Executive
in 1972. From 1968 to 1972, he was an Investment Executive for Foster &
Marshall, Inc., which at that time was a Seattle-based brokerage firm. On March
31, 1991, Mr. Kollack became President of the Company.
Jay W. Hanville 40 Chief Financial Officer,
Chief Accounting Officer, and Treasurer
Mr. Hanville joined the Company as Chief Financial Officer in August 1987. From
1983 to 1987, Mr. Hanville was a Senior Examiner with the National Association
of Securities Dealers. From 1980 to 1983, Mr. Hanville was Accounting Manager at
the regional brokerage firm of Hammerbeck & Co.
<PAGE> 29
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
Alexander H. Slivka 35 Executive Vice President and Secretary
Mr. Slivka was elected Administrative Vice President in August 1987 and was made
Vice President in charge of compliance in October 1989. From January 1983 to
August 1988, Mr. Slivka worked on the trading desk and acted as assistant to the
President.
Mark McCloskey 47 Executive Vice President and Chief
Operating Officer
Mr. McCloskey was appointed Executive Vice President and Chief Operating Officer
in November 1995. Between 1993 and 1995 he served as President of G.R. Stuart &
Co., Inc., a Massachusetts-based broker/dealer. Mr. McCloskey worked as a broker
at Tucker Anthony between August 1990 and May 1993, and as Manager of Paine
Webber's Newport, Rhode Island office from November 1987 to August 1990.
Joanne M. Salisbury 31 Chief Operations Officer
Ms. Salisbury joined the Company as a cashier in 1983, and has worked for the
Company ever since in various positions in the Company's back office. Ms.
Salisbury was promoted to the position of Assistant Operations Manager in 1986,
Operations Manager in 1989, and finally to Chief Operations Officer on August 1,
1995.
Norman S. Lynn 45 Director
Mr. Lynn became a director in May 1995. Mr. Lynn received his B.S. with high
honors in 1972 from the University of Illinois, and his J.D. in 1975 from
Northwestern University. He is and has been actively engaged in the private
practice of law in the Chicago area for the past 20 years. Since July 1991 he
has been a principal of the law firm of Siegel, Lynn & Capitel, Ltd. in
Northbrook, Illinois. Mr. Lynn also participates in various real estate
developments and other entrepreneurial ventures.
Mark Roth 34 General Counsel
Mr. Roth was appointed General Counsel in October 1995. He received his B.S. in
1984 from the University of California, Irvine, and his J.D. in 1989 from
Pepperdine University School of Law. Mr. Roth began the private practice of law
in Southern California in 1989. Among other clients, he has represented the
Company in transactional and litigation matters since he moved to Seattle in
September 1992.
<PAGE> 30
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The bylaws of the Company provide that each director and officer of the Company
who was, is or is threatened to be made a named defendant or respondent in a
proceeding shall be indemnified to the fullest extent permitted by the laws of
the State of Washington. At present, indemnification of officers and directors
of Washington corporations is governed by RCW 23A.08.025, which permits
indemnification if, among other things, the director or officer acted in good
faith with reasonable belief that the conduct was in, or at least not opposed
to, the best interests of the corporation, and in the case of a criminal
proceeding, with a reasonable belief that the conduct was not unlawful. The
Company is authorized to obtain insurance on behalf of any person who is or was
a director, officer, employee or agent of the Company or is or was serving at
the request of the Company as an officer, employee, or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, against any liability arising out of that person's status as such,
whether or not the Company would have the power to indemnify that person against
such liability.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company's Executive Vice President, Secretary Alexander H. Slivka and its
Chief Financial Officer/Treasurer, Jay W. Hanville both inadvertently failed to
timely file Forms 4 and/or 5 during the fiscal year for two transactions (each)
in Company stock. Prior to the filing of this Form 10-KSB, both officers have
reported their transactions on Form 5.
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to each
of its most highly compensated officers during the fiscal year ended 1995, 1994
and 1993:
<TABLE>
<CAPTION>
Year- Other
Name and Capacity Ended Salary Bonus Compensation*
----------------- ----- -------- -------- -------------
<S> <C> <C> <C> <C>
Steven A. Rothstein
Chairman 1995 $ 48,000 $ -- $138,000
Robert I. Kollack
President, CEO and Director 1995 $170,000 $ 58,000 $ 27,000
1994 $108,000 $ 56,000 $ 85,000
1993 $ 99,000 $ 92,000 $ 94,000
Alexander H. Slivka
Vice President, Compliance 1995 $ 80,000 $ 13,000 $ 11,000
1994 $ 72,000 $ 28,000 $ 8,000
1993 $ 67,000 $ 46,000 $ 7,000
</TABLE>
<PAGE> 31
ITEM 10 - EXECUTIVE COMPENSATION (CONTINUED)
<TABLE>
<CAPTION>
Year- Other
Name and Capacity Ended Salary Bonus Compensation*
----------------- ----- -------- -------- -------------
<S> <C> <C> <C> <C>
Jay W. Hanville
Chief Financial Officer, Chief
Accounting Officer, and
Treasurer 1995 $ 79,000 $ 12,000 $20,000**
1994 $ 56,000 $ 28,000 $21,000
1993 $ 56,000 $ 46,000 $29,000
</TABLE>
* Amounts relate to commissions earned in the normal course of business.
** Includes $11,500 profit from the sale of the Company's stock obtained
during the year through the exercise of employee stock options.
The Company has an executive and employee bonus program under which no bonuses
will be paid on the first $200,000 of pretax earnings. After that point, the
following percentages of pretax earnings would be placed in a "bonus pool" to be
divided among the executives and employees.
<TABLE>
<CAPTION>
Pretax Earnings Amount to Bonus Pool
--------------- --------------------
<S> <C>
$200,000 - 500,000 20%
$500,000 - 1,000,000 25%
$1,000,000 - 5,000,000 30%
</TABLE>
Bonuses of $53,000, $162,000, and $264,000 were granted under this plan for
fiscal year 1995, 1994 and 1993, respectively.
The Company has granted options to certain officers, employees, and Investment
Executives. The options granted to officers are as follows:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Stock Options At Stock Options At
September 29, 1995 September 29, 1995
Officer Exercisable/Unexercisable Exercisable/Unexercisable
--------------- ------------------------- -------------------------
<S> <C> <C>
Robert Kollack 9,900 / 50,000 $ 11,088 / $ -
Alex Slivka 6,500 / - $ 8,710 / $ -
</TABLE>
The options expire within five years from date granted or upon termination of
employment, whichever comes first. The options become vested over a three-year
period beginning with the date of grant. The market price of the stock on the
date of the grant was less than the option price.
<PAGE> 32
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following information is furnished as of December 8, 1995, as to any person
who the Company knows to be the beneficial owner of more than 5% of the
Company's common stock:
<TABLE>
<CAPTION>
Amount Of
Name/Address Of Beneficial Percent
Title of Class Beneficial Owner Ownership* Of Class
-------------- ---------------- ---------- --------
<S> <C> <C> <C>
Common stock Steven A. Rothstein 97,174 14.09%
2737 Illinois Road
Wilmette, IL 60091
Common stock Norman S. Lynn 47,656*** 6.91%
P.O. Box 1675
Highland Park, IL 60035
Common stock Larry Wells 47,500** 6.89%
10600 N. DeAnza Blvd.
Cupertino, CA 95014
</TABLE>
* All securities are beneficially owned directly by the persons listed in
the table (except as otherwise indicated).
** Includes shares owned by Anacapa Venture Partners and Sundance Venture
Partners
*** Includes shares owned by N.D. Management Co.
<PAGE> 33
MANAGEMENT
The following information is furnished as of December 8, 1995 as to each class
of equity securities of the Company beneficially owned by all directors, and
directors and officers of the Company as a group.
<TABLE>
<CAPTION>
Amount Of
Beneficial Percent
Name and Title of Beneficial Owner Ownership Of Class
- -------------------------------------------------------- ---------- --------
<S> <C> <C>
Steven Rothstein - Chairman of the Board 97,174 14.09%
Norman Lynn - Director 47,656 6.91
Reed W. Smith - V.P. of Trading 7,600 1.10
Alexander H. Slivka - Executive V.P. and Secretary 5,154 .75
Joanne Salisbury - V.P. of Operations 1,400 .20
------- -----
All officers and directors of the Company as a group 158,984 23.05%
======= =====
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II Item 7:
1. Financial Statements
Independent Auditors' Report
Consolidated Financial Statements
Financial Condition, September 29, 1995 and September 30, 1994
Operations, Years ended September 29, 1995, September 30, 1994
and September 24, 1993
Changes in Stockholders' Equity, Years ended September 29, 1995,
September 30, 1994 and September 24, 1993
Cash Flows, Years ended September 29, 1995,
September 30, 1994 and September 24, 1993
Notes to Financial Statements
2. Exhibits See Exhibit Index.
(b) Reports on Form 8-K
The Company filed Form 8-K on November 1, 1994 under Item 5 on Form
8-K. No financial statements were filed with the Form 8-K.
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(a) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONAL SECURITIES CORPORATION
(Registrant)
Date: December 20, 1995 By Robert I. Kollack
-----------------------------------------
Robert I. Kollack, President
Chief Executive Officer, and Director
Date: December 20, 1995 By Jay W. Hanville,
-----------------------------------------
Jay W. Hanville, Chief Financial Officer,
Chief Accounting Officer, and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: Decmeber 20, 1995 By Robert I. Kollack
-------------------------------------------
Robert I. Kollack, President,
Chief Executive Officer, and Director
Date: December 20, 1995 By Steven A. Rothstein
-------------------------------------------
Steven A. Rothstein, Chairman
Date: December 20, 1995 By Norman S. Lynn
-------------------------------------------
Norman S. Lynn, Director
<PAGE> 35
EXHIBIT INDEX
3.1* The Company's Articles of Incorporation
3.2* The Company's Bylaws
3.3* Amendment to the Articles of Incorporation dated February 25, 1992
5.1* Opinion of legal counsel
10.1* Line of credit arrangements between
the Company and Seattle-First Bank dated May 1, 1989
10.2* Lease agreement between the Company and 1001 Fourth Avenue
Associates dated January 31, 1989
10.3* Lease agreement between the Company and Sixth Colonial Property
Investments, Inc. dated May 1, 1989
10.4* Lease agreement between the Company and United States Leasing
Corporation dated December 28, 1988
10.5* Agreement between the Company and Computer Research, Inc. dated
December 5, 1988
10.6* Agreement between the Company and Midwest Clearing Corporation
dated May 13, 1987
10.7* Agreement between the Company and Jeffrey Pritchard dated November
20, 1990
10.8* Secured demand note collateral agreement between Mary Judith Block
and the Company dated August 25, 1989
10.9* Secured demand note collateral agreement between Howard W. Jones
Jr. and the Company dated July 25, 1989
10.10* Secured demand note collateral agreement between Robert I. Kollack
and the Company dated July 25, 1989
10.11* Secured demand note collateral agreement between Jeffrey J.
Pritchard and the Company dated August 2, 1989
10.12* Master repurchase agreement between Seattle-First National Bank and
the Company
10.13* Secured demand note collateral agreement between Block Foundation,
Inc. and the Company dated September 20, 1991
10.14* Secured demand note collateral agreement between Esther I. Block
and the Company dated September 24, 1991
10.15* Extension of secured demand note collateral agreement between Block
Foundation, Inc. and the Company dated October 22, 1992
10.16* Extension of secured demand note collateral agreement between
Esther I. Block and the Company dated October 22, 1992
10.17* Lease agreement between the Company and Tucker Leasing - Capital
Corporation dated July 31, 1992
10.18 Agreement with G.R. Stuart
11. Computation of Earnings per Share
27. Financial Data Schedule
*Previously filed.
<PAGE> 1
AGREEMENT
THIS AGREEMENT (the "Agreement") dated as of June 1, 1995, is entered
into by and among NATIONAL SECURITIES CORPORATION, a Washington corporation
("National"), JOSEPH STUART ("Stuart"), and G.R. STUART & COMPANY, INC., a
Massachusetts corporation (the "Company").
W I T N E S S E T H:
WHEREAS, National desires to obtain from the Company, and the Company
desires to transfer to National, all of the Company's existing customer
accounts listed on Schedule 1 ("Customer Accounts"), attached hereto and made a
part hereof;
WHEREAS, National desires to retain the services of all or
substantially all of the Company's brokers/independent sales representatives,
and the Company desires to assist National in retaining the services of all or
substantially all of the Company's brokers/independent sales representatives
listed on Schedule 2 ("Representatives"), attached hereto and made a part
hereof; and
WHEREAS, Stuart is a shareholder of the Company, and in consideration
for National's agreements herein, Stuart is willing to assist National in
consummating the transactions herein and to give National the covenants set
forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, National, Stuart and
the Company hereby agree as follows:
STATEMENT OF AGREEMENT
1. RECITALS. The aforementioned recitals are incorporated into
and made a part of this Agreement.
2. ACQUISITION OF CUSTOMER ACCOUNTS, AND REPRESENTATIVES. At the
Closing (as hereinafter defined):
a. The Company shall transfer and/or cause the transfer
of all of the Customer Accounts free and clear of any
and all unsecured debit balances to National.
b. At National's direction, the Company will terminate
or assign to National the registered
representative/agent agreements of, and National
shall have the absolute right and option to obtain
the services of, any or all of the Representatives as
National shall, in its sole and absolute discretion,
determine. In that regard, National shall effectuate
the clearing of trading functions of the
Representatives
<PAGE> 2
customers through the Company's present clearing
firm, Bear, Stearns & Co. ("BSC") for a period only
as long as reasonably necessary as determined by
National.
c. The Company shall assist National in (i) causing the
transfer of all of the Customer Accounts to National;
(ii) terminating any of the Representatives,
assigning to National the registered
representative/agent agreements of any
Representatives, or attempting to cause any of the
Representatives to become and/or remain
representatives of National on a going forward basis,
as National shall determine in its sole discretion;
and (iii) in the transfers of the clearing function
firm BSC to National, all as expeditiously as
possible.
d. No assets, tangible or intangible, of the Company
will be purchased by National, unless specifically
described herein.
e. Except as specifically agreed to herein, National
shall not assume, or in any way become liable for,
any liabilities or obligations of the Company of any
kind or nature, whether accrued, absolute, contingent
or otherwise, or whether due or to become due, or
otherwise, whether known or unknown, whether
disclosed or undisclosed, or arising out of events,
transactions, or facts which shall have occurred,
arisen or existed on or prior to the date hereof, or
at any time thereafter, which liabilities and
obligations, if ever in existence, shall continue to
be liabilities and obligations of the Company.
Specifically, but without limiting the foregoing,
National shall not assume, or be liable for any
accounts payable and accrued liabilities of the
Company whether accrued in the ordinary course of the
Company's business or otherwise; debts, obligations
or liabilities which arise or exist in violation of
any of the representations, warranties, covenants or
agreements of the Company or Stuart contained in this
Agreement or in any statement or certificate
delivered to National by or on behalf of the Company;
contingent liabilities of the Company of any kind
arising or existing on or prior to the date hereof or
thereafter, including, but not limited to claims,
proceedings or causes of actions which are currently
or hereafter become, the subject of claims,
assertions, litigation or arbitration; debts,
obligations or liabilities of the Company whether
absolute, accrued, contingent or otherwise, for
federal and state income taxes, all taxes relating to
any real property, all franchise taxes of the
Company, and any other taxes of the Company; any
liability or obligation of the Company arising out of
any wrongful or unlawful violation or infringement of
any proprietary right of any person or entity; any
liabilities or obligations in respect of the
borrowing of money or issuance of any note, bond,
indenture, loan, credit agreement
2
<PAGE> 3
or other evidence of indebtedness or direct or
indirect guarantee or assumption of indebtedness,
liabilities or obligations of others, whether or not
disclosed in this Agreement or otherwise of the
Company; and debts, expenses, obligations or
liabilities of the Company arising out of any claim,
action, suit or proceeding pending as of the date
hereof or arising out of or relating to matters or
events occurring on or prior to the date hereof or at
anytime thereafter. The Company agrees to satisfy
all of its liabilities in an expeditious manner.
3. PURCHASE PRICE. The purchase price ("Purchase Price") to be
paid shall be as follows:
a. A cash payment in the amount of $100,000.00 will be
made to the Company at the Closing ("Cash Payment).
b. Up to 150,000 shares of the common stock, $0.02 par
value of National ("Shares") will be issued as
follows, subject to reduction or set-off as described
in this Agreement:
(i) 30,000 Shares shall be issued to the Company
on the first anniversary date of the Closing
Date.
(ii) 30,000 Shares shall be issued to the Company
on June 30, 1996, provided, that, the gross
revenues generated (a) by the Representatives
joining National, and (b) by any new
representatives joining National that were
introduced to National by the Company and/or
any individual who is as of the Closing Date
an officer, director, shareholder, employee,
agent and/or Representative of the Company as
of the Closing Date (referred to as a
"Referral Source") shall equal or exceed $3
million dollars during the period commencing
from the Closing Date and ending on the first
anniversary of the Closing Date ("First Year
Gross Revenues").
(iii) 40,000 Shares shall be issued to the Company
on June 30, 1997, provided, that, the gross
revenues generated (a) by the Representatives
joining National and (b) by any new
representatives joining National introduced
to National by a Referral Source shall equal
or exceed $5 million dollars during the
period commencing on the day after the first
anniversary of the Closing Date and ending on
the second anniversary of the Closing Date.
3
<PAGE> 4
(iv) National will grant Stuart an option to
purchase 50,000 Shares at a exercise price of
$5.00 per share ("Option"), provided that the
aggregate gross revenues generated (a) by the
Representatives joining National and (b) by
any new representatives joining National
introduced to National by a Referral Source
equal or exceed $13 million within four (4)
years from the Closing Date. The Option will
be issued at the time this condition
precedent is satisfied.
c. Subject to paragraph 8 hereof, it is expressly
understood by the Company that the Shares and Option
will not be registered at the present time.
d. National's payment of the Purchase Price is
contingent on the Company's seventeen (17)
Representatives listed on Schedule 3, attached hereto
and made a part hereof ("Top Representatives"),
agreement to become registered representatives of
National within the thirty (30) day period from the
Closing Date and to remain as registered
representatives of National for at least six (6)
months after joining National. In this connection,
the Company will receive credits ("Credits") to be
applied against the Cash Payment made by National at
the Closing equal to (a) Five Thousand Eight Hundred
Eighty-Two Dollars and 35/100 ($5,832.35) for each
Top Representative that agrees to become a registered
representative of National within the thirty (30) day
period from the Closing and remains a registered
representative of National for at least six (6)
months after joining National, and (b) seven percent
(7%) of the amount by which the First Year Gross
Revenues exceed Three Million Nine Hundred Forty-Two
Thousand Eight Hundred Fifty-Seven Dollars
($3,942,857.00). In the event the aggregate Credits
are less than the Cash Payment made by National at
the Closing ("Credit Shortfall"), the total Shares to
be issued by National to the Company or Stuart will
be reduced accordingly. The Share reduction will
equal that number of Shares when multiplied by $5.00
per share equals the Credit Shortfall. In the event
the aggregate Credits equal or exceed the Cash
Payment, National will not have the right to reduce
the total Shares to be issued hereunder except as
otherwise provided in this Agreement.
e. In the event the First Year Gross Revenues are less
than $3,942,857.00 ("Revenue Shortfall"), National
will receive a refund of the Purchase Price equal to
seven percent (7%) of the amount of the First Year
Gross Revenue Shortfall. Any such refund will be
satisfied by reducing the number of Shares to be
issued hereunder. The Share reduction
4
<PAGE> 5
will equal that number of Shares when multiplied by
$5.00 per share equals the refund amount.
4. LEASE FOR EXISTING PREMISES OF THE COMPANY.
a. National hereby agrees from and after the Closing
Date and for a period not to exceed twelve (12)
months from the Closing Date to sublease from the
Company the premises located at 100 Main Street,
Maynard, Massachusetts ("Premises") and the
furniture, fixtures and equipment under the terms and
provisions of the Company's existing lease dated May
25, 1993 ("Lease"); provided that National receives
written confirmation within the sixty (60) day period
from the Closing Date that not less than twenty (20)
of the Representatives agree to become registered
representatives of National. The aggregate gross
rent shall not exceed $276,000 ($23,000 per month).
The sublease shall be subject to the terms and
conditions of the sublease agreement attached hereto
asExhibit "A".
b. It is expressly understood that if National elects to
close the office at the Premises following the
Closing, that Stuart shall use his best efforts to
list for immediate sale the real estate where the
Premises are located, at a price reasonably related
to the fair market value of such real estate and/or
sublet, in whole or in part, the Premises, and
National shall be entitled to a credit against the
foregoing obligation. In that regard, Stuart shall
immediately inform and transmit to National any and
all bona fide offers to sell the real estate and/or
sublet the Premises. In that regard, it is expressly
understood by and between the parties that National
shall be entitled to a credit for the "net effective
rent" of any sublease calculated over the term from
the commencement date of such sublease if it occurs
during the period within one (1) year following the
Closing taking into account any amortization of any
free or reduced rent during the initial month or
months of such sublease.
5. THE CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall occur as soon as practicable, and all parties
shall use their best efforts to achieve the Closing on June 5, 1995, but in no
event shall the Closing be later than June 15, 1995, unless the parties hereto
mutually agree to an extension of such date. The date on which the Closing
occurs is referred to herein as the "Closing Date".
5
<PAGE> 6
6. DELIVERIES AT CLOSING.
6.1 At the Closing, National shall deliver to the
Company:
a. the Cash Payment, and
b. an executed Sublease Agreement.
6.2 At the Closing, the Company shall deliver to
National:
a. evidence that the Customer Accounts are being
transferred to National free and clear of all unsecured debit
balances;
b. an assignment or termination of those
registered representative/agent agreements of Representatives,
as National may decide in its sole discretion;
c. certified copies of the Company's Articles of
Incorporation and By-Laws, together with any amendments
thereto, certified board and shareholder resolutions
authorizing the Agreement and the transactions contemplated
herein, and current Certificates of Good Standing for the
Company from each jurisdiction in which the Company is
licensed or qualified to transact business; and
d. termination of the Company's clearing
agreement with BSC.
7. CONDUCT OF BUSINESS. From and after the date hereof and until
the Closing Date, the Company shall use its best efforts to preserve and
maintain its assets and shall conduct its business only in the normal and
ordinary course. The Company shall not, among other things, without the
consent of National, do any of the following:
a. enter into any transactions outside the ordinary
course of business;
b. enter into, assume or become bound or obligated by
any agreement, contract or commitment or extend or
modify the terms of any presently existing agreement
which (i) involves the payment of greater than
$25,000 per annum or which extends for more than one
year, (ii) increases the compensation or benefits of
any employee of the Company except in the ordinary
course of business and consistent with past practice
but in no event shall the compensation of Joseph
Stuart, Greg Stuart, Mark McClosky or Alan Sales be
increased in any manner whatsoever, (iii) involves
any payment or obligation to any affiliate of
6
<PAGE> 7
the Company, or (iv) involves the sale of any
material assets of the Company;
c. establish any new or modify any existing employee
benefit or compensation plan; and
d. declare or pay any dividend or make any distribution
of assets to its shareholders or pay any bonuses or
make any other extraordinary payments to its
officers, directors or employees.
8. REGISTRATION OF SHARES OF COMMON STOCK. National will use its
best efforts to register the Shares or Option, as the case may be, owned by the
Company and/or Stuart under the Securities Act of 1933, as amended, and any
applicable state securities laws within twelve months after the date of
issuance. It is further intended that the costs of these efforts will be borne
by National.
9. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS. Except as required
by applicable law, no party hereto shall disclose or permit their respective
officers, representatives, agents or employees to discuss the existence or
terms of this Agreement to any third party without the prior written consent of
the other parties hereto, which consent will not be unreasonably withheld. The
parties hereto will mutually agree in advance on the form, timing and contents
of announcement and disclosures regarding the proposed transaction.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STUART AND THE
COMPANY. Stuart and the Company, jointly and severally, represent, warrant and
covenant to National as follows:
10.1 The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Massachusetts, has the power and authority to own and operate its
properties and to conduct its business, all as such properties are now
owned and operated and such business is conducted, and is qualified to
do business as a foreign corporation in any and all states where
non-qualification would have a materially adverse affect on the
Company. Neither Stuart nor the Company has any investment or
ownership whatsoever in any other corporation, association,
partnership, subsidiary, joint venture or other entity which is in a
related or similar business to that of the Company. The Company owns
no subsidiaries.
10.2 The execution, delivery and performance of this
Agreement by the Company has been duly authorized by all necessary
board and shareholder action on the part of the Company. This
Agreement has been duly executed and delivered by
7
<PAGE> 8
the Company, and constitutes a legal, valid and binding obligation of
the Company enforceable in accordance with its terms. No stockholder
or director of the Company dissented with respect to the vote
authorizing and approving this Agreement and the transactions
contemplated hereby.
10.3 At least three (3) days before the Closing, the
Company will furnish National with true and complete copies of, or
make available to its counsel for inspection, (a) the Company's
Articles of Incorporation and By-laws, together with any and all
amendments thereto, (b) all minutes of meetings and records of actions
of the directors and shareholders of the Company, (c) all records of
issuance and transfers of the capital stock of the Company, and (d)
copies of all Customer Account information and of all signed
registered representative/agent agreements with the Representatives.
Further, attached hereto, asSchedule 1 and Schedule 2, is a complete
and current list showing all Customer Accounts, and the names of each
Representative, respectively. Except as set forth on Schedule 2,
Stuart and the Company represent and warrant that each of said
Representatives may be terminated at any time upon immediate notice,
and in the event of such termination no severance pay or other cost or
expense relating to such termination shall in any way become due and
owing.
10.4 Since January 1, 1990, the Company has filed all
required forms, reports, statements and documents with the Securities
and Exchange Commission ("SEC"), National Association of Securities
Dealers ("NASD") and the Boston Stock Exchange ("BSE"), all of which
have complied in all material respects with all applicable
requirements of the Securities Act of 1933 (the "Securities Act"), the
Exchange Act of 1934 (the "Exchange Act") and any other applicable
regulations and rules (referred to herein as the "Reports"). As of
their respective dates, the Reports did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The financial statements (including any related notes) included in the
Reports are true, complete and correct and were prepared in accordance
with generally accepted accounting principles applied on a consistent
basis (except as otherwise stated in such financial statements or, in
the case of audited statements, the related report of independent
certified public accountants for the Company), and present fairly the
financial position, results of operations and changes in financial
position of the Company as of the dates and for the periods indicated,
subject, in the case of unaudited interim financial statements, to
normal year end audit adjustments, none of which either singly or in
the aggregate are material or would have a material adverse effect on
the Company.
10.5 Since January 1, 1990, the Company has not suffered
any material adverse change or conducted its business or operations
other than in the ordinary and usual course of business and consistent
with past practice.
8
<PAGE> 9
10.6 Except for applicable requirements of the NASD, the
Exchange Act and other requirements of federal and state securities
laws, no filing or registration with, no notice to and no permit,
authorization, consent or approval of any public or governmental body
or authority is known to be necessary for the consummation by the
Company of the transactions contemplated by this Agreement.
10.7 The Company is duly registered as a broker/dealer
with the SEC under the Exchange Act and as a broker or dealer under
the securities laws of each state in the United States, the District
of Columbia and Puerto Rico. The Company is a member firm in good
standing of the NASD and the BSE.
10.8 Since January 1, 1990, the Company has conducted its
business in compliance in all material respects with all laws and
governmental regulations and with all applicable regulations and rules
of the NASD and the BSE, and no claims or notices of noncompliance
have been received and no non-routine inquiries or investigations have
been conducted.
10.9 The Company conducts its trading activities in
substantial compliance with applicable statutes, rules and regulations
including the Securities Act, the Exchange Act, the NASD rules and
regulations, the BSE rules and regulations, or any other applicable
statute, rule, regulation, or by-laws of any governmental entity or
regulatory body, and in the usual and ordinary course of business of
the Company in accordance with past practices and general industry
standards.
10.10 The Company does not have on file with the SEC, NASD,
or any other regulatory body any notice of capital inadequacy under
Rule 17(a)(i), Rule 17(a)(5) or any other applicable statute, rule,
regulation or by laws of any governmental entity or regulatory body
except as noted on the Company's audited financial statements.
10.11 Since January 1, 1990, neither the Company nor any
officer or director of the Company nor any other person directly or
indirectly affiliated with the Company, including Representatives, is
disqualified, for any period of time, from acting as, or from being
associated or affiliated with, a member of any securities exchange or
securities clearing organization, a registered broker/dealer under the
Exchange Act or a member of a national securities association.
10.12 The Company's FOCUS II Report Form for the three
months ended March 31, 1995, which has been delivered to National, is
true and correct in all material respects.
10.13 The Company has heretofore furnished the Purchaser
with an audited balance sheet for the Company as of December 31, 1994,
the income statement for the twelve-month period then ended, the
unaudited income statements of the Company for the periods ended
January 31, 1995, February 28, 1995, and March 31,
9
<PAGE> 10
1995, and the unaudited balance sheet of the Company as of March 31,
1995 (together the "Financial Statements"). The Company has good and
marketable title to all property and assets reflected as the Company
assets on the Financial Statements, free and clear of all rights of
others, except liens and liabilities reflected on the Financial
Statements, or otherwise disclosed herein. The Company has no
liabilities, contingent or otherwise, including, without limitation,
liabilities for taxes due or to become due, accrued vacation pay and
employment retirement plans and contracts, except as (a) reflected as
the Company liabilities on the Financial Statements and not heretofore
discharged, (b) incurred in the normal course of the Company's
business since March 31, 1995, none of which is materially adverse.
The Financial Statements are true and correct, having been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, and fairly and accurately present the financial
position of the Company as of the points in time referred to in the
Financial Statements, and the results of its operations for the
periods then ended.
10.14 There is no litigation, arbitration proceeding, or
governmental, regulatory or administrative proceeding, order, decree,
investigation, review, claim or complaint pending, outstanding, or, to
the best knowledge of Stuart and the Company, threatened against or
with respect to Stuart or the Company, or their respective business,
operations or affairs, or their respective rights, properties, assets
or liabilities; and, to the best knowledge of Stuart and the Company,
there is no basis for any such litigation, proceeding, order, decree,
investigation, review, claim or complaint except as noted on Schedule
4, attached hereto and made a part hereof.
10.15 The Company has heretofore furnished the Purchaser
with a true and complete schedule (a copy of which is attached hereto
as Schedule 5) listing any and all agreements, contracts, leases,
commitments, guarantees, arrangements and plans to which the Company
is a party or is subject or bound and is existing, which individually
involve payments to or by the Company in excess of two thousand
dollars ($2,000.00) in any twelve (12) month period including those
with the Company's Representatives. The Company is not in breach of,
nor in default under, any of the existing agreements, contracts,
leases, commitments and arrangements listed on Schedule 5, and, to the
best knowledge of Stuart and the Company, no other party to such
existing agreements, contracts, leases, commitments and arrangements
is in breach thereof or in default thereunder; and all existing
agreements, contracts, leases and arrangements listed on Schedule 5
are valid and subsisting and in full force and effect in accordance
with their terms. The Company will furnish to National prior to the
Closing, a copy of each of such documents (or a description thereof if
the arrangement or agreement is oral).
10.16 Neither the execution and delivery of this Agreement,
nor the consummation of any of the transactions contemplated hereby,
will result in any breach of, or change or modification in, or require
any consent, waiver, authorization
10
<PAGE> 11
or approval under, or constitute a default under, any agreement or
result in the creation or imposition of any lien, pledge, mortgage,
security interest, claim, charge, encumbrance, assessment or other
adverse interest upon any of the rights, properties or assets, of
Stuart or the Company.
10.17 The Company is not in default in the payment of the
principal (or premium, if any) of, or interest on, any note,
debenture, bond or other indebtedness, nor is in default under, or in
breach or violation of, its Articles of Incorporation or By-laws or,
to the extent that it may have a materially adverse effect on its
financial condition, operations, properties or assets, any contract,
agreement, commitment, guarantee, arrangement or plan to which it is a
party or by which it may be subject or bound; and the business and
affairs of the Company is not presently being, and has not heretofore
been, carried on or conducted in violation of any law, ordinance,
rule, regulation, order, judgment or decree, the violation of which
might have a material adverse effect on its financial condition,
operations, properties or assets.
10.18 As of the date hereof and to and including the
Closing, the Company is a tenant of the Premises pursuant to the
Lease. The Company is not a party to any lease, sublease, and there
are no contracts, agreements, leases, subleases, options or
commitments, oral or written, affecting the Lease. The Company has
been in peaceable possession of the Premises covered by the Lease.
The Company has delivered to National accurate, correct and complete
copies of the Lease, real estate tax assessment, existing insurance
policies, title reports, surveys, physical inspections, environmental
audits and similar reports in the Company's possession for the
Premises. At or prior to the Closing, the Company shall deliver to
National any consents or approvals of any parties required in
connection with this transaction with respect to the sublease of the
Premises. As of the Closing the heating, ventilating, air
conditioning, mechanical, electrical, plumbing, septic systems and all
other systems and fixtures located on or which are a part of the
Premises were each in good operating condition and repair.
10.19 The Company conducts it business in accordance with
any and all patents, trademarks, trade names or copyrights of the
Company. No operation or activity of the Company has resulted or, if
conducted in accordance with the past practices of the Company, will
result, in any suit, alleging the Company has infringed any patent,
trademark, trade name or copyright of any other person or entity.
10.20 The Company maintains insurance with responsible
carriers on its equipment, properties and other assets, and upon its
business and operations, against loss or damage, risks, hazards and
liabilities of the kinds customarily insured against by corporations
engaged in the same or similar businesses in adequate amounts. The
Company maintains in effect all insurance required to be carried by it
by law or by any contract to which it is a party.
11
<PAGE> 12
10.21 The Company has duly filed and submitted any and all
tax returns and reports required to be filed or submitted, and has
paid in full any and all taxes, assessments, fees, penalties and
charges upon it, or in respect of its properties, assets, income or
franchises, which are due and payable. No controversy is pending or,
threatened in respect of additional taxes, assessments, fees,
penalties or charges upon the Company in respect of any of their
respective properties, assets, income or franchises. The Company has
not been audited with respect to its federal income tax returns or
with respect to its State or municipal income tax returns.
10.22 Without in any way limiting the warranties,
representations, covenants and agreements made by Stuart and the
Company in this Agreement, no warranty, representation, covenant or
agreement made by Stuart or the Company in this Agreement, no
financial statement, financial data or other information contained in
any certificate, document or instrument furnished, or to be furnished
to National pursuant to this Agreement or in connection with any of
the transactions contemplated hereby, contains or will contain any
untrue statement of a material fact or omits or will omit to state any
material fact necessary in order to make the statements included
herein or therein not misleading.
10.23
a. The Company has no liability which would have
a material adverse effect on the business or assets of the
Company (contingent or otherwise and whether as a result of
the actions of the Company or the actions of others) under,
and is presently in compliance with, all federal, state and
local environmental laws, regulations, ordinances, and other
requirements relating to the storage, spilling, release,
discharge, management, control, and reporting of pollutants,
contaminants, hazardous wastes, hazardous materials, hazardous
substances, oil, petroleum, products, and other materials
which may pose a risk to human health or the environment.
b. Neither the Company nor any other person for
whose conduct the Company is or may be held responsible, has
received any notice related to or connected with the operation
of the business of the Company or the Company's assets:
(i) of a violation of any federal,
state, or local environmental law, regulation,
ordinance, or other requirement which has not been
cured or which had a material adverse effect on the
Company's business; or
12
<PAGE> 13
(ii) of any suit, action, claim,
liability (contingent or otherwise), or legal,
administrative, or other proceeding concerning
environmental conditions or matters which has not
been cured or which had a material adverse effect on
the Company's business.
11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF NATIONAL.
National represents, warrants and covenants to the Company as follows:
11.1 National is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Washington and has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
11.2 The execution and delivery of this Agreement and the
performance by National of National's obligations hereunder has been
duly authorized by National's Board of Directors. This Agreement
constitutes the legal, valid and binding obligations of National
enforceable against National in accordance with its terms (subject, as
to the enforcement of remedies to bankruptcy, reorganization,
insolvency, moratorium and other similar laws relating to or affecting
the enforcement of creditors' rights generally and subject to the
availability of equitable remedies). Neither the execution and
delivery of this Agreement nor the performance by National of
National's obligations hereunder will result in any violation of its
Articles of Incorporation and do not constitute a default under or a
violation of or give rise to a power to cancel any material
commitment, agreement, order, award, judgment, decree or regulation or
any other instrument to which National is a party or by which National
or its property is bound or is subject.
12. CLOSING CONDITIONS FOR THE BENEFIT OF NATIONAL AND THE
COMPANY. National's and the Company's obligations to consummate the
transactions contemplated by this Agreement are subject to the satisfaction on
or prior to the Closing, of the following conditions:
12.1 The satisfaction of any applicable federal, state or
National Association of Securities Dealers ("NASD") filing or
licensing requirements and the receipt of any applicable approvals
which are required in connection with the proposed transactions.
13. CLOSING CONDITIONS FOR THE BENEFIT OF NATIONAL. National's
obligations to consummate the transactions contemplated by this Agreement are
subject to the satisfaction, on or prior to the Closing, of the following
conditions (compliance with any of which National may waive):
13
<PAGE> 14
13.1 The representations and warranties of Stuart, and the
Company contained herein or otherwise made in writing by or on behalf
of Stuart, or the Company pursuant hereto shall be true when made and
on and as of the Closing with the same force and effect as though made
on and as of the Closing; and as of the Closing, Stuart, and the
Company shall have performed and complied with all covenants,
agreements and conditions required to be performed and complied with
by Stuart, and the Company prior to or on the Closing.
13.2 The execution of employment or independent sales
representative agreements between National and each of Greg Stuart,
Mark McClosky and Alan Sales upon terms mutually agreed to between
such parties.
13.3 The execution of the Sublease Agreement attached
hereto as Exhibit "A."
13.4 The assignment of all Customer Accounts to National.
13.5 The termination of the Company's clearing agreement
with BSC.
13.6 The assignment to National of the Company's rights,
title and interest to the registered representative/agent agreements
with the Representatives.
14. CLOSING CONDITIONS FOR THE BENEFIT OF THE COMPANY. The
obligations of the Company to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, on or prior to the Closing, of the
following conditions (compliance with any of which may be waived):
14.1 The representations and warranties of National
contained herein or otherwise made in writing by or on behalf of
National pursuant hereto shall be true when made and on and as of the
Closing with the same force and effect as though made on and as of the
Closing; and as of the Closing, the Purchaser shall have performed and
complied with all the covenants, agreements and conditions required to
be performed and complied with by it prior to or on the Closing.
15. CONTINUING OBLIGATIONS. Following the Closing, the Company
and Stuart agree to provide National, or its representatives, with access
during normal business hours to the books and records of the Company, and to
carry out their duties hereunder as required. The Company agrees not to
destroy any of the books and records of the Company without giving National
reasonable prior notice of its intent to do so and an opportunity to take
possession, or make abstracts, of such books and records.
14
<PAGE> 15
16. RESTRICTIVE COVENANTS.
16.1 Non-Competition/Non-Solicitation. Stuart and the
Company, jointly and severally, covenant and agree that for a period
of five (5) years after the Closing Date (the "Non-Competition
Period"), Stuart or the Company, individually or collectively, will
not own, manage, or operate any registered broker/dealer as a
proprietor, partner, shareholder, director or officer anywhere within
the United States of America, including its territories and
possessions. During the Non-Competition Period, Stuart or the
Company, individually or collectively, shall not directly or
indirectly recruit, solicit or otherwise induce any officer, employee
or broker/independent sales representative of National, or any
Representative, or any representative that was referred to National by
any Referral Source, to discontinue such relationship with National.
16.2 Confidentiality of Trade Secrets and Other Materials.
Other than in the performance of Stuart's or the Company's duties
hereunder, Stuart and the Company, jointly and severally, agree, to
hold in confidence and not to disclose, at any time, to any person, or
entity, or use or otherwise exploit for his or its own benefit or the
benefit of any person or entity, any confidential or proprietary
information of National, including, without limitation, Customer
Accounts, customer and vendor lists, brokers/independent sales
representative lists, financial statements and information, trade
secrets or marketing arrangements and plans, any information
concerning the business affairs, the Representatives list, or similar
information of National. Any technique, method, process, technology
or customer compilation of list used by National shall be considered a
"trade secret" for purposes of this Agreement.
16.3 Non-Circumvention. Stuart and the Company, jointly
and severally, agree, not in any way to circumvent or interfere with
the Customer Accounts, Representatives or any representative that
joins National that was referred to National by a Referral Source, or
with any transactions that National may have with any person or
entity.
16.4 Specific Performance. Stuart and the Company,
jointly and severally, agree, that any violation of this section of
the Agreement would be highly injurious to National and would cause
irreparable harm to National. By reason of the foregoing, Stuart and
the Company, jointly and severally, consent and agree that if Stuart
or the Company, jointly or severally, violate any provision of this
Section, National shall be entitled, in addition to any rights or
remedies that it may have, including monetary damages, to apply to any
court of competent jurisdiction for specific performance or injunctive
or other relief in order to enforce or prevent any continuing
violation of the provisions of this section.
15
<PAGE> 16
17. STUART'S AND THE COMPANY'S INDEMNIFICATIONS. The Company and
Stuart covenant and agree with National that they, jointly and severally, shall
reimburse and indemnify and hold National harmless from, against and in respect
of the following:
a. Any and all damage, loss, liability, claim or
deficiency incurred by National resulting from, or
which exists or arises due to, any untruth,
inaccuracy, breach or omission of, from or in, the
representations and warranties made by the Company or
Stuart herein or any nonfulfillment of any covenant
or agreement of the Company or Stuart under this
Agreement, or from any untruth, material inaccuracy,
breach or omission of, from or in, any representation
or warranty, or any nonfulfillment of any covenant or
agreement made by the Company or Stuart in this
Agreement, the Schedules or any other written
statement, list, certificate or other instrument
furnished to National by or on behalf of the Company
or Stuart pursuant to this Agreement;
b. Any liability or obligation of or claim against
National of any nature, whether accrued, absolute,
contingent or otherwise, of the Company's and (i)
arising or to be performed on or prior to the date
hereof, or (ii) arising or to be performed after the
date hereof (whether known or unknown to the Company,
Stuart or National);
c. Any taxes of the Company's of any kind whatsoever, or
expenses, interest or penalties relating thereto and
are imposed under any law, ordinance, statute, rule
or regulation;
d. Any attempt (whether or not successful) by any person
to cause or require National to pay or discharge any
debt, obligation, liability or commitment of either
of the Company or Stuart not assumed by National
pursuant to this Agreement;
e. Any claim, damage, liability and expense incurred by
National, arising from or in connection with or
related to any of the Company's employee benefit
plans (including, but not limited to, any termination
or discontinuance thereof);
f. Any and all damage, loss, liability, claim or
deficiency incurred by National arising from a
Representative's registered representative/agent
agreement or a Customer Account prior to the
assignment of such agreement or account to National;
16
<PAGE> 17
g. Any liability or obligation of or claim against
National relating to the termination by National
and/or the Company of any Representative's registered
representative/agent agreement assigned to National;
and
h. Any and all actions, suits, claims, proceedings,
investigations, audits, demands, assessments, fines,
judgments, costs and other expenses (including,
without limitation, reasonable audit and legal fees)
incurred by National resulting from the circumstances
described in paragraphs a. through g. above. In
addition, National shall have a right of set-off
against the Purchase Price to be delivered hereunder.
18. NATIONAL'S INDEMNIFICATION. National shall indemnify and hold
harmless the Company, its successors and assigns from and against any and all
claims, liabilities, obligations, damages, losses, costs and expenses
whatsoever (including reasonable attorneys' fees and disbursements) arising out
of or resulting from the non-performance of duties and obligations for which
National is responsible under this Agreement and any violation by National of
its representations, warranties, covenants and agreements contained in this
Agreement or any instrument delivered pursuant hereto.
19. METHOD OF ASSERTING CLAIMS. The party seeking indemnity
hereunder ("Indemnitee") will give prompt written notice to the party providing
indemnity ("Indemnitor") of any claim which it discovers or of which it
receives notices after the date hereof and which might give rise to a claim by
it against Indemnitor under this Agreement, stating the nature, basis and (to
the extent known) amount thereof. In case of any claim or suit by a third
party or by any governmental body, or any legal, administrative or arbitration
proceeding with respect to which Indemnitor may have liability under the
indemnity agreements contained in this Agreement, Indemnitor shall be entitled
to participate therein, and, to the extent desired by it or them, to assume the
defense thereof, and after notice from Indemnitor to Indemnitee of the election
so to assume the defense thereof, Indemnitor will not be liable to Indemnitee
for any legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof, other than reasonable costs of
investigation, unless Indemnitor does not actually assume the defense thereof
following notice of such election. Indemnitee and Indemnitor will render to
each other such assistance as may reasonably be required of each other in order
to ensure proper and adequate defense of any such suit, claim or proceedings.
Indemnitee will not make any settlement of any claim which might give rise to
liability of an Indemnitor under the indemnity agreements contained in this
Agreement without the written consent of Indemnitor, which consent shall not be
unreasonably withheld, unless Indemnitor in the good faith exercise of its
discretion, deems itself insecure with respect to Indemnitor's ability to pay
the claim. If Indemnitor shall desire and be able to effect a bona fide
compromise or settlement of any such suit, claim or proceedings and Indemnitee
shall unreasonably refuse to consent to such compromise or settlement, then the
Indemnitor's liability with respect to such suit, claim or proceeding shall be
limited to the amount so offered in
17
<PAGE> 18
compromise or settlement together with all legal and other expenses which may
have been incurred prior to the date on which Indemnitee has refused to
consent to such compromise or settlement.
20. TERMINATION PRIOR TO CLOSING. This Agreement and the
transactions contemplated hereby may be terminated at any time prior to the
Closing:
a. by mutual consent of the parties hereto;
b. by the Company, if there has been a material
misrepresentation or breach of warranty by National under this
Agreement which shall not have been waived, or if the conditions
specified in Sections 12 or 14 hereof have not been satisfied; or
c. by National, if there has been a material
misrepresentation or breach of warranty by Stuart or the Company under
this Agreement which shall not have been waived, or if the conditions
specified in Sections 12 or 13 hereof have not been satisfied.
21. BROKERS.
21.1 The Company (i) represents and warrants that it has
retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and
hold harmless National from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other
person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the Company, or any of its
agents, are responsible.
21.2 Stuart (i) represents and warrants that he has
retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and
hold harmless National from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other
person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which Stuart, or any of his
agents, are responsible.
21.3 National (i) represents and warrants that it has
retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and
hold harmless the Company from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other
person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which National, or any of its
agents, are responsible.
18
<PAGE> 19
22. SURVIVAL. All statements contained in any certificate,
instrument, schedule or document delivered by or on behalf of any of the
parties at the Closing shall be deemed representations and warranties by such
party or parties. Such representations and warranties and all representations,
warranties and covenants made by the parties in this Agreement shall survive,
except to the extent waived in writing, the Closing and the consummation of the
transactions contemplated by this Agreement.
23. ENTIRE AGREEMENT. This Agreement, including all Schedules and
Exhibits attached hereto constitutes the entire agreement between the parties,
and supersedes any prior and/or written agreements between the parties. All
Schedules and Exhibits attached hereto are hereby incorporated into and made a
part of this Agreement. No amendment, modification, waiver, termination or
cancellation of this Agreement shall be binding unless in writing signed by the
party against whom enforcement of any such amendment, modification, waiver,
termination or cancellation is sought.
24. NOTICES. Any notice or other communication required,
permitted or desirable hereunder, shall be deemed sufficiently given if
personally delivered, or if sent by facsimile transmission or by certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
To Stuart:
Joseph Stuart
G.R. Stuart & Company, Inc.
--------------------------------
--------------------------------
To the Company: Copy to:
G.R. Stuart & Company, Inc.
-----------------------
105 Main Street
-----------------------
Maynard, Massachusetts 01754
-----------------------
Attn: Joseph Stuart
-----------------------
To Purchaser: Copy to:
National Securities Corporation Norman S. Lynn, Esq.
1001 Fourth Avenue Siegel, Lynn & Capitel, Ltd.
Suite 2200 60 Revere Drive, Suite 800
Seattle, Washington 98154 Northbrook, IL 60062
Attn: Robert I. Kollack
19
<PAGE> 20
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
Any notice given in accordance with the above shall be deemed to have been
given upon personal delivery if so delivered, upon receipt of confirmation if
sent via facsimile transmission or on the third day after mailing if mailed,
but if given otherwise than as set forth above, such notice shall be deemed to
have been given when actually received.
25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the parties hereto,
and shall not be assigned by any party without the written consent of the other
party to this Agreement.
26. CONSTRUCTION. This Agreement shall be construed and enforced
in accordance with the laws of the State of Washington, without respect to its
conflicts of laws provisions.
27. EXPENSES. Whether or not the transactions contemplated herein
shall be consummated, the parties shall pay their own expenses incident to
preparing for, entering into and carrying into effect this Agreement and for
the consummation of said transactions.
28. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
29. COUNTERPARTS. This Agreement may be executed in one (1) or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which shall constitute one and the same agreement. This Agreement may
be executed and delivered via electronic facsimile transmission with the same
force and effect as if it were executed and delivered by the parties
simultaneously in the presence of one another.
30. WAIVER. Waiver of any term or condition of this Agreement by
any party shall only be effective if in writing and shall not be construed as a
waiver of any subsequent breach or failure of the same term or condition, or a
waiver of any other term or condition of this Agreement.
20
<PAGE> 21
31. AMBIGUITIES. Each party to this Agreement waives any common
law or statutory presumption against the drafter of a document. The parties
agree that they have each participated in the drafting of this Agreement. Each
party acknowledges that they have had the opportunity to seek independent
advice and counsel before executing this Agreement.
THIS AGREEMENT CONSISTS OF TWENTY-TWO (22) PAGES (INCLUDING THE SIGNATURE
PAGE), AND THE EXHIBITS AND SCHEDULES ATTACHED HERETO.
***SIGNATURE PAGE FOLLOWS***
- --------------------------------------------------------------------------------
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
PURCHASER:
NATIONAL SECURITIES CORPORATION STUART:
By:
------------------------------ -------------------------------------
Joseph Stuart, individually
Its:
-----------------------------
COMPANY:
G.R. STUART & COMPANY, INC.
By:
------------------------------
Its:
-----------------------------
22
<PAGE> 23
EXHIBIT 11
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
PRIMARY
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30, September 24,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net income for primary earnings
per share $257,000 $510,000 $680,000
======== ======== ========
Weighted average number of
common shares outstanding
during the year 602,674 597,493 644,348
Add common equivalent shares
upon exercise of stock options 33,432 26,923 10,306
-------- -------- --------
Weighted average number of
shares used in calculation
of primary earnings per share 636,106 624,416 654,654
======== ======== ========
Primary earnings per share $ .40 $ .82 $ 1.04
======== ======== ========
FULLY DILUTED
Weighted average number of
shares used in calculating
primary earnings per share 636,106 624,416 654,654
Add
Additional shares issuable
upon exercise of stock options * * 33,780
-------- -------- --------
Weighted average number of
shares used in calculation
of fully diluted earnings per share 636,106 624,416 688,434
======== ======== ========
Fully diluted earnings per share $ .40 $ .82 $ .99
======== ======== ========
</TABLE>
*No effect given to common stock equivalents, as their effect would increase the
income per share.
<PAGE> 1
EXHIBIT 11
NATIONAL SECURITIES CORPORATION AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
PRIMARY
<TABLE>
<CAPTION>
SEPTEMBER 29, September 30, September 24,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net income for primary earnings
per share $257,000 $510,000 $680,000
======== ======== ========
Weighted average number of
common shares outstanding
during the year 602,674 597,493 644,348
Add common equivalent shares
upon exercise of stock options 33,432 26,923 10,306
-------- -------- --------
Weighted average number of
shares used in calculation
of primary earnings per share 636,106 624,416 654,654
======== ======== ========
Primary earnings per share $ .40 $ .82 $ 1.04
======== ======== ========
FULLY DILUTED
Weighted average number of
shares used in calculating
primary earnings per share 636,106 624,416 654,654
Add
Additional shares issuable
upon exercise of stock options * * 33,780
-------- -------- --------
Weighted average number of
shares used in calculation
of fully diluted earnings per share 636,106 624,416 688,434
======== ======== ========
Fully diluted earnings per share $ .40 $ .82 $ .99
======== ======== ========
</TABLE>
*No effect given to common stock equivalents, as their effect would increase the
income per share.
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-29-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-29-1995
<CASH> 2,275,000
<RECEIVABLES> 14,584,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 24,152,000
<PP&E> 414,000
<TOTAL-ASSETS> 41,891,000
<SHORT-TERM> 0
<PAYABLES> 37,489,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 195,000
<LONG-TERM> 0
<COMMON> 14,000
0
0
<OTHER-SE> 3,166,000
<TOTAL-LIABILITY-AND-EQUITY> 41,891,000
<TRADING-REVENUE> 2,617,000
<INTEREST-DIVIDENDS> 1,610,000
<COMMISSIONS> 9,014,000
<INVESTMENT-BANKING-REVENUES> 392,000
<FEE-REVENUE> 642,000
<INTEREST-EXPENSE> 1,046,000
<COMPENSATION> 9,422,000
<INCOME-PRETAX> 383,000
<INCOME-PRE-EXTRAORDINARY> 383,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,000
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
