October 12, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: National Discount Brokers Group, Inc.
Report on Form 10-Q for the Three Months Ended August 31, 1998
Gentlemen:
Enclosed please find the following material submitted on behalf of National
Discount Brokers Group, Inc. ("Company"):
One complete copy of the Company's report on Form 10-Q for the Three Months
Ended August 31, 1998 including financial statements and exhibits.
Thank you for your attention to this matter.
Very truly yours,
/s/ Denise Isaac
Denise Isaac
Chief Financial Officer and
Principal Accounting Officer
CONFORMED
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
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Commission file number 1-9480
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National Discount Brokers Group, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2394480
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Exchange Place Centre, Jersey City, New Jersey 07302
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(Address of principal executive offices) (Zip code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
13,991,055 shares of Common Stock, par value $.01 per share,
were outstanding on September 30, 1998.
NATIONAL DISCOUNT BROKERS GROUP, INC.
AND SUBSIDIARIES
INDEX
PAGE
--------
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Statements of Financial Condition -
August 31, 1998 (Unaudited) and May 31, 1998 3
Consolidated Statements of Operations and
Comprehensive Income (Unaudited) -
Three Months Ended August 31, 1998 and 1997 4 - 5
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended August 31, 1998 and 1997 6 - 7
Notes to Consolidated Financial Statements (Unaudited) -
August 31, 1998 8 - 9
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
Part II - Other Information
Item 1. - Legal Proceedings 14
Item 6. - Exhibits and Reports on Form 8-K 15
Signatures 16
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
August 31,
1998 May 31,
ASSETS (Unaudited) 1998
------------------ ------------------
<S> <C> <C>
Cash $ 1,044,228 1,039,121
Receivables:
Brokers and dealers 25,169,579 67,742,508
Other 823,188 727,099
Securities owned, at market value 75,396,785 67,969,111
Investment securities available for sale, at market value 1,723,162 2,615,000
Investment securities not readily marketable, at fair value 1,001,320 1,001,320
Loans and notes receivable 1,645,736 760,409
Furniture, fixtures, equipment, and leasehold improvements - at
cost, net of accumulated depreciation and amortization of $13,032,603
at August 31, 1998 and $11,832,763 at May 31, 1998 16,503,634 18,011,262
Computer software - at cost, net of accumulated amortization of
$1,715,525 at August 31, 1998 and $1,388,843 at May 31, 1998 2,784,065 2,683,635
Identified intangible assets, net of accumulated amortization of
$1,429,298 at August 31, 1998 and $1,275,041 at May 31, 1998 6,284,513 5,988,770
Exchange memberships (market value $7,714,500 at August 31,
1998 and $9,243,500 at May 31, 1998) 7,416,496 7,416,496
U.S. Treasury Obligations, held as collateral 7,790,612 7,667,463
Subordinated notes receivable 4,400,000 3,500,000
Deferred tax asset (net of valuation allowance) 337,059 282,886
Other assets 1,516,093 1,068,534
------------------ ------------------
$ 153,836,470 $ 188,473,614
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 7,860,537 $ 28,687,486
Accounts payable and accrued expenses, including
compensation payable to officers and employees of
$4,685,857 at August 31, 1998 and $11,216,667
at May 31, 1998 15,770,115 20,203,279
Secured demand notes payable 3,500,000 3,500,000
Income taxes payable (864,017) 1,189,260
Minority interest in Equitrade 6,064,443 9,465,741
------------------ ------------------
Total liabilities 32,331,078 63,045,766
------------------ ------------------
Commitments and contingencies (Note 4)
Stockholders' equity (Note 5):
Preferred stock - $.01 par value;
authorized 1,000,000 shares; none issued - -
Common stock - $.01 par value; authorized
50,000,000 shares; issued 14,343,201 shares 143,432 143,432
Additional paid-in capital 65,050,817 65,050,817
Cumulative other comprehensive income-
unrealized gain on securities available for sale 1,723,162 2,615,000
Retained earnings 57,840,829 59,176,152
------------------ ------------------
124,758,240 126,985,401
Less: Treasury stock - at cost, 318,583 shares at
August 31, 1998 and 162,924 shares at May 31, 1998 (3,252,848) (1,557,553)
------------------ ------------------
Total stockholders' equity 121,505,392 125,427,848
------------------ ------------------
$ 153,836,470 $ 188,473,614
================== ==================
The accompanying notes are an integral part of these statements.
</TABLE>
(3)
<TABLE>
<CAPTION>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended August 31,
--------------------------------------
1998 1997
--------------------------------------
Revenues:
<S> <C> <C>
Firm securities transactions - net $ 13,765,576 $ 23,803,352
Commission income 8,844,094 9,702,707
Floor brokerage income 3,908,000 4,195,900
Investment securities gains realized 49,075 -
Interest income 2,009,020 1,900,016
Fee income 894,660 637,792
Other revenues 73,030 170,074
------------------ ------------------
29,543,455 40,409,841
------------------ ------------------
Expenses:
Compensation and benefits 13,122,372 12,367,449
Clearing and related charges 10,596,624 13,568,382
Communications 2,748,497 2,432,045
Advertising and professional fees 2,501,440 758,923
Depreciation and amortization 1,845,820 1,661,312
Occupancy costs and equipment rental 762,368 606,376
Other expenses 2,398,383 2,352,047
Interest expense 116,768 215,078
------------------ ------------------
34,092,272 33,961,612
------------------ ------------------
Income (loss) before minority interest and income taxes (4,548,817) 6,448,229
(Income) loss of Equitrade allocated to minority partners 2,521,904 (1,141,407)
------------------- ------------------
Income (loss) from continuing operations before income taxes (2,026,913) 5,306,822
------------------- ------------------
Income taxes (benefit):
Federal, currently payable (530,084) 1,625,553
State and local, currently payable (107,333) 635,680
------------------- ------------------
Total current income tax expense (benefit) (637,417) 2,261,233
------------------ ------------------
Federal, deferred (38,332) 70,341
State and local, deferred (15,841) 35,696
------------------ ------------------
Total deferred income tax expense (benefit) (54,173) 106,037
------------------ ------------------
Total income taxes from continuing operations (691,590) 2,367,270
------------------ ------------------
Net income (loss) from continuing operations (1,335,323) 2,939,552
Discontinued operations
Loss from discontinued operations (net of tax benefit) - (231,080)
------------------ ------------------
Net income (loss) (1,335,323) 2,708,472
------------------ ------------------
</TABLE>
(Continued)
(4)
<TABLE>
<CAPTION>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(Continued)
Three Months Ended August 31,
--------------------------------------
1998 1997
--------------------------------------
<S> <C> <C>
Other comprehensive income (loss), before tax:
Unrealized loss on investment securities available
for sale (891,838) -
------------------- ------------------
Other comprehensive income (loss), before tax (891,838) -
Income tax benefit related to items of other
comprehensive income (loss) (303,225) -
------------------ ------------------
Other comprehensive income (loss), net of tax (588,613) -
------------------- ------------------
Comprehensive income (loss) $ (1,923,936) $ 2,708,472
================== ==================
Net income (loss) per common and common
equivalent share
Basic:
Net income (loss) from continuing operations $ (0.09) $ 0.23
Net loss from discontinued operations - (0.02)
================== ==================
Net income (loss) $ (0.09) $ 0.21
================== ==================
Weighted average common shares outstanding 14,090,148 12,694,665
================== ==================
Diluted:
Net income (loss) from continuing operations $ (0.09) $ 0.23
Net loss from discontinued operations - (0.02)
================== ==================
Net income (loss) $ (0.09) $ 0.21
================== ==================
Weighted average common shares outstanding 14,103,516 12,845,523
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
(5)
<TABLE>
<CAPTION>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended August 31,
--------------------------------------
1998 1997
------------------ ------------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) from continuing operations $ (1,335,323) $ 2,939,552
Net loss from discontinued operations - (231,080)
Non-cash items included in net income (loss):
Depreciation and amortization 1,845,820 1,807,304
Gain on sale of investment securities not readily marketable (49,075) -
Income (loss) of Equitrade allocated to minority partners (2,521,904) 1,141,407
Provision for deferred taxes (54,173) 106,037
(Increase) decrease in operating assets:
Funds segregated for customers - 29,203
Receivables:
Brokers and dealers 42,572,929 3,366,597
Other (96,089) 17,684
Securities owned, at market value (7,427,674) (3,318,840)
U.S. Treasury Obligations, held as collateral (123,149) 184,495
Other assets (net of deposits made on furniture, fixtures
and equipment, and leasehold improvements) (160,412) 222,434
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at market value (20,826,949) 836,873
Accounts payable and accrued expenses (4,433,164) (7,321,651)
Income taxes payable (2,053,277) 1,362,908
------------------ ------------------
Net cash provided by operating activities 5,337,560 1,142,923
------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of investment securities not readily marketable 49,075 -
Loans made (900,000) -
Principal collected on notes receivable 14,673 20,139
(Purchases) sales of furniture, fixtures and
equipment, and leasehold improvements, net 165,345 (1,228,012)
Deposits made on furniture, fixtures and equipment,
leasehold improvements and computer software (287,147) (187,629)
Purchases of computer software (449,710) (367,400)
Payment for purchase of identified intangible asset (450,000) -
Issuance of subordinated note (900,000) -
------------------ ------------------
Net cash used in investing activities (2,757,764) (1,762,902)
------------------ ------------------
</TABLE>
(Continued)
(6)
<TABLE>
<CAPTION>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three Months Ended August 31,
--------------------------------------
1998 1997
------------------ ------------------
Cash flows from financing activities:
<S> <C> <C>
Purchase of treasury stock (1,695,295) -
Capital contributions by minority interest - 50,000
Capital withdrawals by minority interest (879,394) (984,576)
------------------ ------------------
Net cash used in financing activities (2,574,689) (934,576)
------------------ ------------------
Net increase (decrease) in cash 5,107 (1,554,555)
Cash at beginning of period 1,039,121 3,033,818
------------------ ------------------
Cash at end of period $ 1,044,228 $ 1,479,263
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
(7)
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
August 31, 1998
Note 1 - Business and organization
National Discount Brokers Group, Inc. ("NDBG") and its subsidiaries (the
"Company") are primarily engaged in the securities business and in providing
related financial services. The Company has two principal registered
broker-dealer wholly owned subsidiaries, Sherwood Securities Corp. ("Sherwood
Securities") and Triak Services Corp., doing business as National Discount
Brokers ("NDB"). In addition, NDBG and another wholly owned subsidiary, SHD
Corp., own limited partnership interests in Equitrade Partners ("Equitrade"),
which is a specialist for securities listed on The New York Stock Exchange
("NYSE"). Effective August 14, 1998, NDBG acquired an additional partnership
interest in Equitrade from one of Equitrade's minority partners for $450,000. In
the aggregate, the Company's limited partnership interests comprised
approximately 78% of Equitrade's capital as of August 31, 1998.
Note 2 - Basis of presentation
The accompanying unaudited consolidated financial statements do not include
all of the information and notes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation of
consolidated financial condition and results of operations for the periods
presented have been included. All adjustments are of a normal and recurring
nature. It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the related notes
included in the Company's 1998 Annual Report on Form 10-K. Certain prior year
amounts have been reclassified to conform to the three months ended August 31,
1998 presentation.
Note 3 - Net income per common share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement
128"), for periods ending after December 15, 1997. Statement 128 requires a
calculation of basic earnings per share, as well as a dual presentation of basic
and diluted earnings per share on the face of the statement of income. Basic
earnings per share differs from diluted earnings per share in that dilution for
common stock equivalents is excluded.
Net income per common share is computed using the weighted average number
of shares of common stock and common stock equivalents outstanding. Common stock
equivalents include stock issuable under stock options. The treasury stock
method of accounting was used in computing the common stock equivalents for the
computation of diluted earnings per common share.
Note 4 - Commitments and contingencies
Certain significant legal proceedings and matters were previously disclosed
in Item 3, Legal Proceedings, of the Company's 1998 Annual Report on Form 10-K,
and the disclosures regarding such matters are incorporated herein by reference.
NDBG's subsidiaries, and in some cases NDBG, have been named as defendants in
lawsuits and arbitrations and are the subject of investigations, that allege,
among other things, violations of Federal and state securities and related laws.
Further, management of the Company believes, based upon discussions with the
staff of the Securities and Exchange Commission ("SEC"), that the previously
disclosed SEC investigation In the Matter of Certain Market Making Activities on
NASDAQ, HO-2974, may be resolved through a settlement with the SEC and that the
reserve established by the Company during the fiscal year ended May 31, 1998 is
likely to be sufficient to cover the fines or disgorgement currently believed by
management of the Company to likely arise out of such a settlement. Of course,
there can be no assurance that a settlement will, in fact, be consummated or
that if such a settlement is reached that the fines or disgorgements will not
exceed the Company's reserve.
On July 16, 1996, Sherwood Securities entered into a Stipulation and Order
resolving a civil complaint filed in the United States District Court for the
Southern District of New York (the "Complaint") by the United States Department
of Justice ("DOJ") alleging that Sherwood Securities and 23 other NASDAQ market
makers violated Section 1 of the Sherman Act in connection with certain market
making practices. The Complaint alleges, among
(8)
<PAGE>
other things, that NASDAQ market makers reached a common understanding to adhere
to a "quoting convention" relating to the manner in which bids and asks would be
displayed on NASDAQ. The relief sought in the Complaint was a declaration that
the defendants have violated Section 1 of the Sherman Act, as well as injunctive
relief and such other relief as the court deemed appropriate. In entering into
the Stipulation and Order, Sherwood Securities did not admit that the DOJ's
allegations were correct, but agreed that it would not engage in certain types
of activities in connection with its NASDAQ market making and it undertook
specified steps to assure compliance with the agreement. The Stipulation and
Order was approved by the United States District Court of the Southern District
of New York following a public hearing and that approval was affirmed on appeal
by the United States Court of Appeals for the Second Circuit. While no petition
for review by the United States Supreme Court has been filed, the deadline for
doing so has not yet passed. If such review is sought, there can be no assurance
that the United States Supreme Court will affirm the Court of Appeals' decision.
The Company is also involved in other litigation and, except as set forth
above, although there can be no assurance that such lawsuits, arbitrations and
investigations involving the Company are not likely to have a material, adverse
effect on the results of operations of the Company in any future period,
depending in part on the results for such period, based on information currently
available, management of the Company believes that any such lawsuits,
arbitrations and investigations are not likely to have a material adverse effect
on the consolidated financial condition and results of operations or liquidity
of the Company in future periods.
Note 5 - Net capital requirements
As registered broker-dealers, Sherwood Securities, NDB and Equitrade are
subject to the Securities Exchange Act of 1934 Uniform Net Capital Rule 15c3-1
(the "Rule"). As of August 31, 1998, the net capital of Sherwood Securities, NDB
and Equitrade exceeded their required net capital by $43,832,000, $3,474,000 and
$19,080,000, respectively.
The Rule also provides that equity capital may not be withdrawn or cash
dividends be paid if the resulting net capital of a broker-dealer would be less
than the amount required under the Rule. Accordingly, at August 31, 1998 the
payment of dividends and advances to the Company by Sherwood Securities, NDB and
Equitrade is limited to $43,632,000, $3,424,000 and $19,030,000, respectively,
under the most restrictive of these requirements. The SEC may, by order,
restrict the withdrawal of equity capital on a net basis if the SEC determines
that such withdrawal would be detrimental to the financial integrity of the
broker-dealer or the financial community.
Note 6 - New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"), for periods beginning after December 15, 1997. Statement 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. Statement 130
has been implemented by the Company for the quarter ended August 31, 1998.
Note 7 - Subsequent Event
On September 4, 1998, Equitrade Partners, L.L.C., a newly formed Delaware
limited liability company ("New Equitrade") (which is proposed to be the
survivor of a merger with Equitrade) signed a letter of intent to acquire
certain assets of RSF Partners ("RSF"), a New York limited partnership. RSF is a
specialist on the NYSE in 39 securities. The consideration for the acquired
assets would be 13.45% membership interest in New Equitrade. The Company's
membership interest in New Equitrade after the transaction with RSF will be
46.73%. The transaction is subject to several conditions including the merger of
New Equitrade with Equitrade, the approval of the NYSE of the acquisition of RSF
and the execution of a definitive agreement between New Equitrade and RSF. There
can be no assurance these conditions will be satisfied or that the transaction
will be consummated. The staff of the NYSE has contacted Equitrade and NDBG to
advise them the NYSE will require New Equitrade to increase its capital if it
acquires RSF. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".)
(9)
Item - 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The results of continuing operations of National Discount Brokers Group,
Inc. and subsidiaries (the "Company") for the three months ended August 31, 1998
reflect primarily the activities of Sherwood Securities Corp. ("Sherwood
Securities"), Triak Services Corp., doing business as National Discount Brokers
("NDB"), and Equitrade Partners ("Equitrade"). Sherwood Securities is primarily
engaged in the securities business as a wholesale market maker in NASDAQ
National Market System and Small-Cap securities. NDB is a discount brokerage
firm specializing in trade execution for individual investors while Equitrade is
a registered specialist in equity securities on The New York Stock Exchange
("NYSE").
The Company's consolidated net loss from continuing operations for the
three months ended August 31, 1998 was $1,335,000 compared to net income of
$2,940,000 for the three months ended August 31, 1997.
Total revenue for the Company decreased by approximately $10,866,000, or
27%, for the three months ended August 31, 1998, as compared with the same
period of the previous year. The reasons for the decrease in revenues are set
forth below.
Revenue from firm securities transactions decreased $10,038,000, or 42%,
for the three month period ended August 31, 1998, as compared with the same
period of the previous year, even though overall NASDAQ and NYSE listed ticket
volume increased approximately 24% and 59%, respectively, for that same period.
The decline in revenue from firm securities transactions is the result of the
sharp decline in the various market indices (i.e.-Dow Jones, NASDAQ) during the
quarter ended August 31, 1998, which had a direct, negative impact on the
Company's profitability, as the value of the Company's trading portfolios
declined.
The Company's commission income decreased by $859,000, or 9%, for the three
months ended August 31, 1998, when compared with the prior year, although
average daily ticket count remained consistent at approximately 5,800 tickets
per day for the three months ended August 31, 1998, when compared with the
previous year. The decline in commission income is primarily attributable to a
continued shift in the way customers trade with NDB, as more customers traded
utilizing NDB's lower-priced, automated systems, Power BrokerTM and
WebstationTM, as opposed to using live representatives at higher commission
rates.
Floor brokerage income decreased by approximately $288,000, or 7%, for the
three months ended August 31, 1998, when compared to the prior year despite a
rise in the volume of transactions and the number of stocks in which the Company
acts as a specialist. Due to increased competition, floor brokerage rates have
been decreasing and discounts are often given to high volume customers.
Realized investment securities gains for the three months ended August 31,
1998 resulted entirely from sales during July 1998 and August 1998 of an
aggregate of 60,500 shares of common stock of Eurotech Ltd. There were no
realized investment securities gains or losses during the three-month period
ended August 31, 1997.
Interest income increased by approximately $109,000, or 6%, for the three
months ended August 31, 1998, as compared to the previous year. The increase is
primarily due to a rise in average customer debit and credit balances held with
the Company's clearing broker that led to an increase in interest earned.
Fee income increased by $257,000, or 40%, for the three months ended August
31, 1998, as compared to the prior year. The increase is principally due to the
Company receiving higher Rule 12b-1 fees from money market funds as customers'
balances in those funds have increased since the prior year.
Total expenses for the three months ended August 31, 1998 increased
approximately $130,000, or 1%, from $33,962,000 in the quarter ended August 31,
1997 to $34,092,000 during the quarter ended August 31, 1998. The reasons for
the increase in expenses are set forth below.
(10)
Compensation and benefits increased $755,000, or 6%, for the three month
period ended August 31, 1998, compared with the same quarter in the prior year.
The increase is due primarily to a rise in compensation paid to traders and
salesmen despite the decrease in revenues from securities transactions. In
September 1997, Sherwood Securities began to pay its traders and certain sales
personnel under a new "Annual Trading/Sales Production Guarantee" program. Under
the program, these traders and salesmen are guaranteed a minimum salary
regardless of trading profitability. Prior to September 1997, they were paid a
percentage of trading profits generated as compensation. In addition, officer
and staff salaries were higher than in the prior year due to recent technology
personnel hires. Partially offsetting these increases were reduced accruals for
executive and staff bonuses as a result of the Company's decreased net income.
Clearing and related charges decreased by approximately $2,972,000, or 22%,
for the three month period ended August 31, 1998, as compared to the same period
of the prior year. The decrease is due principally to two factors. First, there
was a reduction in clearance charges due to a decrease in per ticket rates
negotiated subsequent to August 31, 1997. Also contributing to the decrease are
lower correspondent fees paid based upon the overall size and type of the order
flow received.
Communications expense, which includes market data services, increased by
approximately $316,000, or 13%, for the three months ended August 31, 1998, as
compared to the same quarter in the previous year. The increase is mainly due to
an increase in the cost of real-time quotations now being offered on NDB
WebstationTM.
Advertising and professional fees increased by approximately $1,743,000, or
230%, for the three months ended August 31, 1998, as compared to the same period
of the prior year. The increase is primarily due to a rise in the costs
associated with the Company's new advertising and marketing plan.
Depreciation and amortization increased by approximately $185,000, or 11%,
for the three months ended August 31, 1998, as compared to the comparable period
of the prior year. This increase is primarily attributable to depreciation and
amortization incurred on fixed asset, leasehold improvement, computer software
and intangible asset additions by the Company aggregating approximately
$5,700,000 during the period from September 1997 through August 1998.
Occupancy and equipment rental expenses increased $156,000, or 26%, for the
three month period ended August 31, 1998, as compared to the comparable period
in the prior year. The increase is principally due to an increase in the cost of
rental of various computer hardware and software systems.
Interest expense decreased by approximately $98,000, or 46%, for the three
months ended August 31, 1998, as compared to the same period in the previous
year. During the three months ended August 31, 1997, Sherwood Securities
incurred interest charges on the remaining unpaid balance of approximately
$4,600,000 owed in connection with its settlement agreement, as amended, in the
case entitled In Re: NASDAQ Market-Makers Antitrust Litigation. In addition, the
Company incurred interest expense during the quarter ended August 31, 1997 on
short-term borrowings made in connection with its trading activities.
Income of Equitrade allocated to minority partners represents the share of
Equitrade's net income allocated to the partners of Equitrade, other than the
Company and one of its subsidiaries, during the three months ended August 31,
1998 and 1997, respectively. Although the net income of Equitrade declined
significantly versus the same quarter of the prior year, a larger portion of
Equitrade's income for the quarter ended August 31, 1997 was generated in the
specialist book where the Company's percentage interest was higher and losses
were incurred in the specialist book where the Company's participation was
lower. Conversely, in the current quarter, a larger portion of the losses was
incurred in the specialist book in which the Company's participation interest
was lower.
The Company's effective tax rate decreased from approximately 45% for the
three months ended August 31, 1997 to approximately 34% for the three months
ended August 31, 1998. Even though the Company recognized a loss before income
taxes this quarter, certain expenses are not deductible for tax purposes. This
has the effect of offsetting some of the tax benefit that, otherwise, would have
been available to the Company.
For the three months ended August 31, 1998, deferred tax benefits of
approximately $54,000, included in income tax expense, relate to the future
taxability of certain temporary book to tax basis differences. In conjunction
with the deferred tax asset the Company has recorded, no valuation allowance has
been established because in management's judgment, it was concluded that it was
more likely than not that the benefit would be realized.
(11)
Liquidity
The Company's tangible assets are highly liquid with more than 66% of these
tangible assets consisting of cash or assets readily convertible into cash. The
Company's operations have generally been financed by internally-generated funds.
In addition, at August 31, 1998, margin account borrowings of approximately
$243,000,000 were available to the Company from its clearing brokers.
The Company's broker-dealer entities, Sherwood Securities, NDB and
Equitrade, are subject to the SEC's minimum net capital requirement, which is
designed to measure the general financial soundness and liquidity of
broker-dealers. As of August 31, 1998, Sherwood Securities, NDB and Equitrade
had approximately $43,832,000, $3,474,000 and $19,080,000, respectively, in
excess of the required minimum net capital. The net capital rule imposes
financial restrictions upon Sherwood Securities', NDB's and Equitrade's
businesses, which are more severe than those imposed on most other businesses.
From time to time, the Company has borrowed funds in connection with its
trading activities. The Company currently has no committed lines of credit and
such borrowings were done on an "as needed" basis. Management is reviewing
alternatives to meeting these funding requirements.
Cash flows from operations will vary on a daily basis as the Company's
portfolio of marketable securities changes. The Company's ability to convert
marketable securities owned into cash is determined by the depth of the market
and the size of the Company's securities positions in relation to the market as
a whole. The portfolio mix also affects the regulatory capital requirements
imposed on Sherwood Securities, NDB and Equitrade, which directly affects the
amount of funds available for operating, investing and financing activities.
Effective August 14, 1998, NDBG purchased an additional interest in
Equitrade from one of Equitrade's limited partners for $450,000. Concurrent with
this purchase, NDBG loaned $900,000 to another limited partner to enable the
partner to purchase an additional limited partnership interest in Equitrade. The
loan, which is due on December 31, 2003, bears interest at the rate of 7% per
annum and is secured by a pledge of the limited partner's partnership interest.
The Company anticipates that it will spend an additional $1,100,000 over
the next 3 months for its subsidiaries' ongoing technological infrastructure
upgrades and intends to finance these upgrades with internally generated funds.
Cash flows from the Company's investment activities are directly related to
market conditions.
During July 1998 and August 1998, Equitrade loaned RSF Partners ("RSF"), a
NYSE specialist firm, an aggregate of $900,000 under three subordination
agreements, each with interest payable at 8% per annum and a one-year term.
In December 1992, the Company announced it would buy back up to 1,500,000
shares of the Company's common stock from time to time in the open market or
through privately negotiated transactions. In June 1998, the Board of Directors
authorized an interim program to repurchase up to an additional 150,000 shares
of the Company's common stock. As of August 31, 1998, 1,560,837 shares had been
reacquired, of which 155,659 shares were repurchased during the three months
ended August 31, 1998. The source of funds for these purchases was internally
generated.
In conjunction with the proposed purchase of RSF by Equitrade Partners,
L.L.C. ("New Equitrade"), the staff of the NYSE has advised the Company that the
capital of New Equitrade will have to be increased. Management of NDBG currently
believes NDBG will have to provide a substantial portion of any additional
capital. NDBG intends to raise this capital principally through borrowings. A
portion of the capital may be supplied by internally generated funds. NDBG does
not have any commitments from financial institutions to make funds available to
it for this purpose. There can be no assurance that NDBG will be able to obtain
the funds or obtain the funds on terms satisfactory to NDBG. Equitrade may also
seek to raise a portion of this capital requirement. There can be no assurance
Equitrade will be able to raise capital for the acquisition of RSF.
Effects of Inflation
The Company's assets are not significantly affected by inflation because
they are primarily monetary in nature. Management believes that replacement
costs of furniture, equipment and leasehold improvements will not
(12)
materially affect operations. However, the rate of inflation affects the
Company's principal expenses such as employee compensation, rent and
communication, which may not be readily recoverable from increased revenues.
Because of market forces and competitive conditions in the securities industry,
a broker-dealer may be unable to restructure its profit margins in order to
recover increased costs related to inflation. Consequently, the Company must
rely on increased volume for this purpose. However, the Company has significant
cash balances on deposit with its principal clearing brokers on which interest
is paid which, in the event there are higher interest rates, which normally
result from inflation, would offset some of the costs.
Year 2000 Compliance
The Company is preparing for the issues associated with the year 2000,
including changes in the programming of internal and vendor computer systems.
The "year 2000" problem is pervasive and complex as virtually every computer
operation will be affected by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company's plan to deal with the year 2000 issue is a five-step plan,
which includes both information technology ("IT") and non-information technology
("non-IT") systems. IT systems include the Company's trading system, the
Company's accounting software and the NDB WebstationTM. Non-IT systems include
the Company's headquarters' water, sprinkler and elevator systems. The five
steps are awareness, assessment, renovation, validation and implementation.
Awareness required the notification of all employees, particularly senior
management, of the potential year 2000 problem. Assessment included taking
inventory of every product or service produced or used by the Company that
relies on the use of dates. The date could be used to store, search, retrieve or
calculate information. The awareness and assessment phases of the plan were 100%
complete as of August 31, 1998. Renovation, which was approximately 80% complete
as of August 31, 1998 and scheduled for completion by November 1998, includes
the conversion of those systems that have year 2000 problems into year 2000
compliant systems. Validation comprises the testing of all new systems by using
test data with dates that include the year 2000. This is the certification phase
of the Company's production platforms. Implementation will be a final review of
all year 2000 production systems, IT and non-IT, in service. The Company is in
the process of constructing a dedicated year 2000 test development environment
to eliminate any potential risks to the production platforms for use in the
validation phase of this plan. The Company expects the validation and
implementation phases to be completed by June 1999. The Company is dependent
upon services rendered by third parties, such as telecommunications, electric
and clearance, which may have a material effect on operations. These essential
service providers have indicated to the Company that they will be year 2000
compliant in time to meet the Company's schedule although management presently
has no assurance that such plans will be implemented on a timely basis.
The Company estimates that it will spend $500,000 for software
modifications, hardware and testing related to year 2000. Through August 31,
1998, the Company has spent approximately $80,000 of which $40,000 was incurred
during the three months ended August 31, 1998.
The Company has assessed that business interruption is the most reasonably
likely worst case year 2000 scenario although the effect upon the Company's
results of operations, liquidity and financial condition is unknown.
At this time, the Company is in the process of formulating contingency
plans should vendors or customers fail to become compliant although no set
timetable has been established. In case of a non-replaceable vendor suffering a
failure in the year 2000, the Company could be materially affected.
(13)
Forward Looking Statements
Statements regarding the Company's expectations as to its future operations
and financial condition and certain other information contained in this Form
10-Q or in documents incorporated herein by reference constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operation, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include a general downturn in the economy, changes in
the level of activity of securities markets in which the Company participates,
changes in government policy or regulation and unforeseen costs and other
effects related to legal proceedings or investigations of governmental and
self-regulatory organizations.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
Certain significant legal proceedings and matters were previously disclosed
in Item 3, Legal Proceedings, of the Company's 1998 Annual Report on Form 10-K,
and the disclosures regarding such matters are incorporated herein by reference.
NDBG's subsidiaries, and in some cases NDBG, have been named as defendants in
lawsuits and arbitrations and are the subject of investigations, that allege,
among other things, violations of Federal and state securities and related laws.
Further, management of the Company believes, based upon discussions with the
staff of the Securities and Exchange Commission ("SEC"), that the previously
disclosed SEC investigation In the Matter of Certain Market Making Activities on
NASDAQ, HO-2974, may be resolved through a settlement with the SEC and that the
reserve established by the Company during the fiscal year ended May 31, 1998 is
likely to be sufficient to cover the fines or disgorgement currently believed by
management of the Company to likely arise out of such a settlement. Of course,
there can be no assurance that a settlement will, in fact, be consummated or
that if such a settlement is reached that the fines or disgorgements will not
exceed the Company's reserve.
On July 16, 1996, Sherwood Securities entered into a Stipulation and Order
resolving a civil complaint filed in the United States District Court for the
Southern District of New York (the "Complaint") by the United States Department
of Justice ("DOJ") alleging that Sherwood Securities and 23 other NASDAQ market
makers violated Section 1 of the Sherman Act in connection with certain market
making practices. The Complaint alleges, among other things, that NASDAQ market
makers reached a common understanding to adhere to a "quoting convention"
relating to the manner in which bids and asks would be displayed on NASDAQ. The
relief sought in the Complaint was a declaration that the defendants have
violated Section 1 of the Sherman Act, as well as injunctive relief and such
other relief as the court deemed appropriate. In entering into the Stipulation
and Order, Sherwood Securities did not admit that the DOJ's allegations were
correct, but agreed that it would not engage in certain types of activities in
connection with its NASDAQ market making and it undertook specified steps to
assure compliance with the agreement. The Stipulation and Order was approved by
the United States District Court of the Southern District of New York following
a public hearing and that approval was affirmed on appeal by the United States
Court of Appeals for the Second Circuit. While no petition for review by the
United States Supreme Court has been filed, the deadline for doing so has not
yet passed. If such review is sought, there can be no assurance that the United
States Supreme Court will affirm the Court of Appeals' decision.
The Company is also involved in other litigation and, except as set forth
above, although there can be no assurance that such lawsuits, arbitrations and
investigations involving the Company are not likely to have a material, adverse
effect on the results of operations of the Company in any future period,
depending in part on the results for such period, based on information currently
available, management of the Company believes that any such lawsuits,
arbitrations and investigations are not likely to have a material adverse effect
on the consolidated financial condition and results of operations or liquidity
of the Company in future periods.
(14)
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 2 - Letter of Intent of Equitrade Partners,
L.L.C. and RSF Partners
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 27 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended
August 31, 1998.
(15)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Discount Brokers Group, Inc.
-------------------------------------
Date: October 12, 1998 By: Dennis Marino
---------------------------- -------------------------------------
Dennis Marino
Executive Vice President
and Chief Administrative
Officer
Date: October 12, 1998 By: Denise Isaac
----------------------------- ------------------------------------
Denise Isaac
Chief Financial Officer and
Principal Accounting Officer
(16)
EHIBIT 2
RSF Partners
50 Broadway
New York, NY 10004
Re: Proposal to Purchase the Assets of RSF Partners
Gentlemen:
The purpose of this letter (the Letter") is to set forth
certain nonbinding understandings and certain binding agreements between
Equitrade Partners, LLC, a Delaware limited liability company ("Prospective
Buyer"), and RSF Partners, a New York limited partnership (the "Company") and
Joseph Rodriguez, James Bowen, Isidore Fields and Robert Prosser, all the
general partners of the Company (the general partners of the Company and the
Company are referred to collectively herein as "Prospective Sellers") with
respect to the possible acquisition of substantially all of the assets of the
Company. The assets of the Company shall include the right to make a market on
The New York Stock Exchange (the "NYSE") in the securities set forth in Exhibit
A hereto (the "Specialist Securities").
PART ONE - NONBINDING PROVISIONS
The following numbered paragraphs of this Letter
(collectively, the "Nonbinding Provisions") reflect our mutual understanding of
the matters described in them, but each party acknowledges that the Nonbinding
Provisions are not intended to create or constitute any legally binding
obligation between Prospective Buyer and Prospective Sellers, and neither
Prospective Buyer nor Prospective Sellers shall have any liability to the other
party with respect to the Nonbinding Provisions until a fully integrated,
definitive agreement (the "Definitive Agreement"), and other related documents,
are prepared, authorized, executed and delivered by and between all parties. If
the Definitive Agreement is not prepared, authorized, executed or delivered for
any reason, no party to this Letter shall have any liability to any other party
to this Letter based upon, arising from, or relating to the Nonbinding
Provisions except as indicated herein.
1. Basic Transaction. Prospective Buyer would acquire
substantially all of the assets and certain liabilities of the Company. The
parties intend that the closing of the proposed transaction would occur before
October 31, 1998 (the "Closing").
2. Proposed Purchase Price. Based on the information known to
Prospective Buyer on the date hereof, the total consideration for assets
(including the right to make a market on the NYSE in the Specialist Securities)
would be a 13.45% member interest in the Prospective Buyer (the "Purchase
Price").
<PAGE>
The Purchase Price, would be divided between Prospective
Sellers who are partners of the Company pro rata in accordance with the
following schedule upon dissolution of the Company: Joseph Rodriguez (3.63%);
James Bowen (3.63%); Isidore Fields (4.17%) and Robert Prosser (2.02%).
3. Due Diligence. Prospective Buyer has commenced, and intends
to continue, its due diligence investigation of the prospects, business, assets,
contracts, rights, liabilities and obligations of the Company, including
financial, marketing, employee, legal, regulatory and environmental matters.
4. Proposed Form of Agreement. Prospective Buyer and
Prospective Sellers intend promptly to begin negotiating to reach a written
Definitive Agreement, subject to the approval of members, containing
comprehensive representations, warranties, indemnities, conditions and
agreements by each Prospective Seller. The representations and warranties of
Prospective Sellers shall survive the Closing for one year. Each Prospective
Seller will indemnify the Prospective Buyer from liabilities incurred by
Prospective Buyer for breaches by any Prospective Seller of his, or the
Company's representations and warranties.
5. A. Conditions to Proposed Transaction. The parties do not
intend to be bound to the Nonbinding Provisions or any provisions covering the
same subject matter until the execution and delivery of the Definitive
Agreement, which, if successfully negotiated, would provide that the proposed
transaction would be subject to customary terms and conditions, including the
following:
a. receipt of all necessary consents and
approvals of governmental bodies,lenders, lessors and other third parties
including the NYSE and compliance by the parties with the Hart-Scott-Rodino
Antitrust Improvements Act (the "H-S-R Act"), if necessary;
b. absence of any material adverse change in
the Company's business, financial condition, prospects, assets or operations
since August 31, 1998;
c. absence of pending or threatened litigation
regarding the Definitive Agreement or the transactions to be contemplated
thereby; and
d. delivery of customary legal opinions,
closing certificates and other documentation.
B. The arbitration proceeding before The New York Stock
Exchange, Inc. Board of Arbitration titled RSF Partners L.P., Robert Prosser,
Joseph A. Rodriguez, James F. Bowen, III, Anne M. Prosser and Robert L. Prosser,
Jr., Claimants, against Isidore Fields, Respondent shall be dismissed with
prejudice on or before the date the Definitive Agreement is executed and all
parties to such proceeding shall execute general releases with respect to claims
made therein.
6. Proposed Noncompetition Agreement. At the Closing,
Prospective Buyer and each Prospective Seller would enter into a two year
noncompetition agreement, pursuant to which each Prospective Seller would agree
that he will not compete with the Prospective Buyer for two years after the
Closing in the specialist business, and containing confidentiality and other
customary provisions.
7. Prospective Sellers acknowledge the Prospective Buyer is in
formation and intends to acquire the assets and liabilities of Equitrade
Partners, L.P., a New York limited partner. This acquisition has not been
approved by the NYSE or the partners of Equitrade Partners, L.P.
PART TWO - BINDING PROVISIONS.
Upon execution by Prospective Sellers of this Letter or
counterparts thereof, the following lettered paragraphs of this Letter
(collectively, the "Binding Provisions") will constitute the legally binding and
enforceable agreement of Prospective Buyer and each Prospective Seller (in
recognition of the significant costs to be borne by Prospective Buyer and
Prospective Sellers in pursuing this proposed transaction and further in
consideration of their mutual undertakings as to the matters described herein).
A. Nonbinding Provisions Not Enforceable. The Nonbinding
Provisions do not create or constitute any legally binding obligations between
Prospective Buyer and Prospective Sellers, and neither Prospective Buyer nor
Prospective Sellers shall have any liability to the other party with respect to
the Nonbinding Provisions until the Definitive Agreement, if one is successfully
negotiated, is executed and delivered by and between all parties. If the
Definitive Agreement is not prepared, authorized, executed or delivered for any
reason, no party to this Letter shall have any liability to any other party to
this Letter based upon, arising from, or relating to the Nonbinding Provisions.
B. Definitive Agreement. Prospective Buyer and its counsel
shall be responsible for preparing the initial draft of the Definitive
Agreement. Subject to the final sentence of Paragraph C below, Prospective Buyer
and each Prospective Seller shall negotiate in good faith to arrive at a
mutually acceptable Definitive Agreement for approval, execution and delivery on
the earliest reasonably practicable date.
C. Access. Prospective Sellers shall cause the Company to
provide to Prospective Buyer complete access to the Company's facilities, books
and records and shall cause the directors, employees, accountants, and other
agents and representatives (collectively, "Representatives") of the Company to
cooperate fully with Prospective Buyer and Prospective Buyer's Representatives
in connection with Prospective Buyer's due diligence investigation of the
Company and the Company's assets, contracts, liabilities, operations, records
and other aspects of its business (as described in Paragraph 4 of the Nonbinding
Provisions). Prospective Buyer shall be under no obligation to continue with its
due diligence investigation or negotiations regarding the Definitive Agreement
if, at any time, the results of its due diligence investigation are not
satisfactory to Prospective Buyer for any reason in its sole discretion.
D. Exclusive Dealing. Prospective Sellers shall not and shall
cause the Company not to, directly or indirectly, through any Representative or
otherwise, solicit or entertain offers from, negotiate with or in any manner
encourage, discuss, accept or consider any proposal of any other person relating
to the acquisition of the Company, its assets or business, in whole or in part,
whether through direct purchase, merger, consolidation or other business
combination (other than sales of securities in the ordinary course) nor should
any Prospective Seller dispose of any interest of his in the Company, nor shall
they or any of them take any steps to dissolve, liquidate or wind up the affairs
of the Company.
E. Break-up Fee. The Prospective Sellers shall pay the
Prospective Buyer $50, 000 in reimbursement for its out-of-pocket expenses
related to the transaction envisioned by this Letter if the Letter is terminated
and the transaction does not close, except if the failure to close is the fault
solely of the Prospective Buyer. In the event that Prospective Sellers breach
Paragraph D or the Binding Provisions are terminated by Prospective Sellers
pursuant to Paragraph K(ii) below and if within twelve (12) months after such
breach or termination, either Prospective Sellers or the Company close a
transaction relating to the acquisition of a material portion of the partnership
interests of the Company, or of the Company, its assets or business, in whole or
in part, whether through direct purchase, merger, consolidation or other
business combination (an "Alternative Transaction"), then, immediately upon such
closing, Prospective Sellers shall pay, or cause the Company to pay, to
Prospective Buyer in the amount equal to the purchase price of the Alternative
Transaction less $9.333 million times ten percent.
F. Conduct of Business. Until the Definitive Agreement has
been duly executed and delivered by all of the parties or the Binding Provisions
have been terminated pursuant to Paragraph K below, Prospective Sellers shall
cause the Company to conduct its business only in the ordinary course, and not
to engage in any extraordinary transactions without Prospective Buyer's prior
consent, including
(i) not disposing of any assets of the Company,
except in the ordinary course of business;
(ii) not increasing the annual level of
compensation of any partner or employee, and not granting any unusual or
extraordinary bonuses, benefits or other forms of direct or indirect
compensation to any partner, employee or consultant;
(iii) not increasing, terminating, amending or
otherwise modifying any plan for the benefit of partners or employees;
(iv) not permitting a person to become a partner
of the Company;
(v) not distributing any funds to any partner of
the Company except by way of compensation to partners within the limitations set
forth in Paragraph (iii) above; and
(vii) Disclosure. Except as and to the extent
required by law, without the prior written consent of the other party,
neither Prospective Buyer nor either Prospective Seller shall, and each
shall direct its Representatives not to, directly or indirectly, make any
public comment, statement or communication with respect to, or otherwise
disclose or permit the disclosure of the existence of discussions regarding, a
possible transaction between the parties or any of the terms, conditions or
other aspects of the transaction proposed in this Letter.
H. Confidentiality. Except as and to the extend required by
law, Prospective Buyer shall not disclose or use, and it shall cause its
Representatives not to disclose or use, any Confidential Information (as defined
below) with respect to the Company furnished, or to be furnished, by either
Prospective Seller, the Company or their respective Representatives to
Prospective Buyer or its Representatives in connection herewith at any time or
in any manner other than in connection with its evaluation of the transaction
proposed in this Letter. For purposes of this Paragraph, "Confidential
Information" means any information about the Company stamped "confidential" or
identified in writing as such to Prospective Buyer by Prospective Sellers;
provided that it does include information which Prospective Buyer can
demonstrate (i) is generally available to or known by than as a result of
improper disclosure by Prospective Buyer or (ii) is obtained by Prospective
Buyer from a source other than Prospective Sellers or the Company, provided that
such source was not bound by a duty of confidentiality to Prospective Sellers or
the Company or another party with respect to such information. If the Binding
Provisions are terminated pursuant to Paragraph K below, Prospective Buyer shall
promptly return to Prospective Sellers or the Company any Confidential
Information in its possession.
I. Costs. Except as provided in Paragraph E, Prospective Buyer
and each Prospective Seller shall be responsible for and bear all of its own
costs and expenses (including any broker's or finder's fees) incurred in
connection with the proposed transaction, including expenses of its
Representatives, incurred at any time in connection with pursuing or
consummating the proposed transaction, and the Company shall not be responsible
for any such costs and expenses.
J. Consents. Prospective Buyer and each Prospective Seller
shall cooperate with each other and proceed, as promptly as is reasonably
practicable, to prepare and file the notifications required by the H-S-R Act, to
seek to obtain all necessary consents and approvals from lenders, landlords and
other third parties including the NYSE, and to endeavor to comply with all other
legal or contractual requirements for or preconditions to the execution and
consummation of the Definitive Agreement.
K. Termination. The Binding Provisions may be terminated:
(i) by mutual written consent of Prospective
Buyer and Prospective Sellers; or
(ii) upon written notice by any party to the
other party if the Definitive Agreement has not been executed by October 31,
1998;
provided, however that the termination of the Binding Provisions shall not
affect the liability of a party for breach of any of the Binding Provisions
prior to the termination. Upon termination of the Binding Provisions, the
parties shall have no further obligations hereunder, except as stated in
Paragraphs E, G, H and I, which shall survive any such termination.
Please sign and date this Letter in the space provided below
to confirm the mutual agreements set forth in the Binding Provisions and return
a signed copy to the undersigned.
Very truly yours,
EQUITRADE PARTNERS, LLC.
By:
Name: Steve DiLascio
Title: Managing Director
<PAGE>
Acknowledged and agreed as to the Binding Provisions:
RSF PARTNERS
By (Seal) By
Partner Partner
(Seal) By
Partner Partner
As Prospective Sellers
Joseph A. Rodriguez James F. Bowen, III Robert Prosser Isadore Fields
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
LISTED COMPANY ISSUES
<S> <C>
ACADIA REALTY TRUST AKR
AMERICAN RETIREMENT CORP. ACR
AMPCO-PITTSBURGH CORP. AP
ADVOCATE, INC. AVC
BANKBOSTON CORP. BKB
BARRETT RESOURCE CORP. BRR
BELL INDUSTRIES, INC. BI
BEST BUY CORP. BBY
CAPITAL TRUST CT
CENTURY TELEPHONE ENTERPRISES, INC. CTL
CHINA YUCHAI INTERNATIONAL LTD. CYD
CV REIT, INC. CVI
DUFF & PHELPS UTILITIES TAX-FREE INCOME FUND DTF DTF
DYNEGY DYN
GENERAL MILLS, INC. GIS
GUILFORD MILLS, INC. GFD
LSB INDUSTRIES, INC. LSB LSBprC
MANITOWOC COMPANY, INC. (THE) MTW
MARK CENTERS TRUST MCT
MAXIM GROUP, INC. (THE) MXG
MONTANA POWER COMPANY MTP MTPprA
MORRISON HEALTH CARE, INC. MHI
NEIMAN MARCUS GROUP, INC. (THE) NMG
NS GROUP, INC. NSS
NUVEEN CALIFORNIA MUNICIPAL VALUE FUND NCA
NUVEEN FLORIDA QUALITY INCOME MUNICIPAL FUND NUF
NUVEEN SELECT TAX FREE INCOME NXR
NYCOMED AMERSHAM plc NYE
OCCIDENTAL PETROLEUM CORPORATION OXY OXYprA
OLD REPUBLIC INTERNATIONAL CORPORATION ORI
PAMECO CORPORATION PCN
PROGRESSIVE CORPORATION (THE) PGR
PUTNAM DIVIDEND INCOME FUND PDI
REGENCY REALTY CORPORATION REG
RUBY TUESDAY, INC. RI
TAIWAN EQUITY FUND, INC. TYW
UNIVISION COMMUNICATIONS INC. UVN
YANKEE ENERGY SYSTEM, INC. YES
ZWEIG FUND ZF
</TABLE>
<TABLE>
<CAPTION>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
Three Months Ended August 31,
Basic Diluted
------------------ ------------------ ---------------- --------------
1998 1997 1998 1997
------------------ ------------------ ---------------- --------------
Common stock and common stock equivalents:
<S> <C> <C> <C> <C>
Average common stock outstanding 14,090,148 12,694,665 14,090,148 12,694,665
Average common stock equivalents
issuable under stock options - - 13,368 150,858
------------------ ------------------ ---------------- --------------
Total average common stock and common stock
equivalents used for earnings per share computation 14,090,148 12,694,665 14,103,516 12,845,523
================== ================== ================ ==============
Income:
Net income (loss) from continuing operations $ (1,335,323) $ 2,939,552 $ (1,335,323) $ 2,939,552
Net loss from discontinued operations - (231,080) - (231,080)
------------------ ------------------ ---------------- --------------
Net income (loss) $ (1,335,323) $ 2,708,472 $ (1,335,323) $ 2,708,472
================== ================== ================ ==============
Net income (loss) per common and common equivalent share:
Net income (loss) from continuing operations $ (0.09) $ 0.23 $ (0.09) $ 0.23
Net loss from discontinued operations - (0.02) - (0.02)
--------------- ------------------ ---------------- --------------
Net income (loss) $ (0.09) $ 0.21 $ (0.09) $ 0.21
================== ================== ================ ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the three months ended August 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 1,044,228
<RECEIVABLES> 32,038,503
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 75,396,785
<PP&E> 16,503,634
<TOTAL-ASSETS> 153,836,470
<SHORT-TERM> 0
<PAYABLES> 19,270,115
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 7,860,537
<LONG-TERM> 3,500,000
0
0
<COMMON> 143,432
<OTHER-SE> 121,361,960
<TOTAL-LIABILITY-AND-EQUITY> 153,836,470
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</TABLE>
