April 13, 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 Nine Months Ended February 28, 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 nine
months ended February 28, 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 February 28, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
-------------- -------------
Commission file number 1-9480
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National Discount Brokers Group, Inc.
----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 22-2394480
----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Exchange Place Centre, Jersey City, New Jersey 07302
----------------------------------------------------------------------------
(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 require
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.
14,226,260 shares of Common Stock, par value $.01 per
share, were outstanding on March 31, 1998.
NATIONAL DISCOUNT BROKERS GROUP, INC.
AND SUBSIDIARIES
INDEX
PAGE
--------
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Statements of Financial Condition -
February 28, 1998 (Unaudited) and May 31, 1997 3
Consolidated Statements of Income (Unaudited) -
Three Months and Nine Months Ended February 28, 1998 and 1997 4 - 5
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended February 28, 1998 and 1997 6 - 7
Notes to Consolidated Financial Statements (Unaudited) -
February 28, 1998 8 - 9
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
Part II - Other Information
Item 2. - Changes in Securities and Use of Proceeds 14
Item 4. - Submission of Matters to a Vote of Security Holders 14
Item 6. - Exhibits and Reports on Form 8-K 15
Signatures 16
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
February 28,
1998 May 31,
ASSETS (Unaudited) 1997
------------------ ------------------
<S> <C> <C>
Cash $ 1,099,812 3,033,818
Funds segregated for customers - 29,203
Receivables:
Brokers and dealers 78,773,644 58,047,183
Other 1,054,714 599,725
Securities owned, at market value 60,979,150 45,696,436
Investment securities available for sale, at market value 2,427,600 -
Investment securities not readily marketable, at fair value 834,320 501,320
Investment in partnerships 13,484 12,984
Notes receivable 7,523,558 830,589
Furniture, fixtures, equipment, and leasehold improvements - at
cost, net of accumulated depreciation and amortization of $10,592,405
at February 28, 1998 and $7,674,370 at May 31, 1997 17,936,759 20,263,511
Computer software - at cost, net of accumulated amortization of
$1,085,831 at February 28, 1998 and $929,942 at May 31, 1997 2,716,275 1,853,693
Identified intangible assets, net of accumulated amortization of
$1,121,706 at February 28, 1998 and $535,853 at May 31, 1997 6,142,104 6,727,958
Exchange memberships (market value $11,120,000 at February 28,
1998 and $7,957,750 at May 31, 1997) 7,416,496 7,416,496
U.S. Treasury Obligations, held as collateral 7,578,699 7,815,254
Subordinated notes receivable 3,500,000 3,000,000
Deferred tax asset (net of valuation allowance) 2,088,366 2,220,472
Other assets 1,600,943 2,112,083
------------------ ------------------
$ 201,685,924 $ 160,160,725
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 38,915,943 $ 25,129,290
Accounts payable and accrued expenses, including
compensation payable to officers and employees of
$8,231,456 at February 28, 1998 and $11,831,551
at May 31, 1997 23,588,741 31,734,213
Secured demand notes payable 3,500,000 3,000,000
Income taxes payable 2,852,667 302,501
Minority interest in Equitrade 9,967,473 7,720,236
------------------ ------------------
Total liabilities 78,824,824 67,886,240
------------------ ------------------
Commitments and contingencies (Note 4)
Stockholders' equity (Note 5):
Preferred stock - $.01 par value;
authorized 1,000,000 shares; none issued - -
Class A common stock - $.01 par value; authorized
50,000,000 shares at May 31, 1997 and none at
February 28, 1998; 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 57,189,985
Unrealized gain on securities available for sale 2,427,600 -
Retained earnings 56,232,283 47,215,833
------------------ ------------------
123,854,132 104,549,250
Less: Treasury stock - at cost, 113,445 shares at
February 28, 1998 and 1,648,536 shares at May 31, 1997 (993,032) (12,274,765)
------------------ ------------------
Total stockholders' equity 122,861,100 92,274,485
------------------ ------------------
$ 201,685,924 $ 160,160,725
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
(3)
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended February 28, Nine Months Ended February 28,
-------------------------------------- -------------------------------------
1998 1997 1998 1997
------------------ ------------------ ---------------- -----------------
Revenues:
<S> <C> <C> <C> <C>
Firm securities transactions - net $ 22,680,785 $ 35,930,363 $ 72,777,010 $ 92,368,915
Commission income 8,065,034 9,271,776 27,358,479 25,024,168
Floor brokerage income 4,047,304 3,946,786 12,456,787 10,320,924
Equity gain (loss) in partnerships - (10,844) 500 (26,176)
Investment securities gains realized 63,625 - 63,625 -
Interest income 1,944,346 1,981,003 5,728,192 5,899,232
Fee income 1,407,725 759,668 3,382,992 1,848,266
Other revenues 73,809 136,184 202,413 624,490
------------------ ------------------ ---------------- -----------------
38,282,628 52,014,936 121,969,998 136,059,819
------------------ ------------------ ---------------- -----------------
Expenses:
Compensation and benefits 14,189,936 15,200,418 40,423,458 43,677,551
Clearing and related charges 10,016,733 15,643,471 38,801,946 43,589,723
Communications 3,045,383 2,898,138 8,299,974 8,650,941
Litigation settlement - 9,187,500 - 9,187,500
Depreciation and amortization 2,212,053 1,276,153 5,999,057 3,300,386
Occupancy costs and equipment rental 611,387 638,146 1,874,735 2,039,686
Other expenses 3,430,794 4,621,176 9,522,615 10,589,902
Interest expense 211,780 140,274 595,803 273,872
------------------ ------------------ ---------------- -----------------
33,718,066 49,605,276 105,517,588 121,309,561
------------------ ------------------ ---------------- -----------------
Income before minority interest and income taxes 4,564,562 2,409,660 16,452,410 14,750,258
Income of Equitrade allocated to minority partners (1,362,300) (2,113,802) (4,512,453) (2,866,762)
------------------ ------------------ ---------------- -----------------
Income from continuing operations before income taxes 3,202,262 295,858 11,939,957 11,883,496
------------------ ------------------ ---------------- -----------------
Income taxes (benefit):
Federal, currently payable 1,118,207 3,259,257 3,891,226 6,838,384
State and local, currently payable 526,658 1,726,388 1,604,262 3,436,573
------------------ ------------------ ---------------- --------------
Total current income tax expense 1,644,865 4,985,645 5,495,488 10,274,957
------------------ ------------------ ---------------- --------------
Federal, deferred (161,078) (3,107,540) (97,361) (3,107,540)
State and local, deferred 201,875 (1,339,895) 229,465 (1,339,895)
------------------ ----------------- ----------------- ---------------
Total deferred income tax expense (benefit) 40,797 (4,447,435) 132,104 (4,447,435)
---------------- ------------------ ---------------- ---------------
Total income taxes from continuing operations 1,685,662 538,210 5,627,592 5,827,522
------------------ ------------------ ---------------- --------------
Net income (loss) from continuing operations 1,516,600 (242,352) 6,312,365 6,055,974
Discontinued operations (note 7)
Gain from sale of discontinued operations (net) 2,704,085 - 2,704,085 -
------------------ ------------------ ---------------- ---------------
Net income (loss) $ 4,220,685 $ (242,352) $ 9,016,450 $ 6,055,974
================== ================== ================ ==============
</TABLE>
(Continued)
(4)
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended February 28, Nine Months Ended February 28,
---------------------------------- -------------------------------------
1998 1997 1998 1997
------------------ ------------------ ---------------- --------------
Net income per common and common
equivalent share (a)
Basic:
<S> <C> <C> <C> <C>
Net income from continuing operations $ 0.11 $ (0.02) $ 0.48 $ 0.47
Net income from discontinued operations - gain 0.19 - 0.20 -
================== ================== ================ ==============
Net income (loss) $ 0.30 $ (0.02) $ 0.68 $ 0.47
================== ================== ================ ==============
Weighted average common shares outstanding 14,116,572 12,832,835 13,168,693 12,941,668
================== ================== ================ ==============
Diluted:
Net income from continuing operations $ 0.11 $ (0.02) $ 0.48 $ 0.47
Net income from discontinued operations - gain 0.19 - 0.20 -
================== ================== ================ ==============
Net income (loss) $ 0.30 $ (0.02) $ 0.68 $ 0.47
================== ================== ================ ==============
Weighted average common shares outstanding 14,144,593 12,885,774 13,254,140 12,991,743
================== ================== ================ ==============
<FN>
(a) The sum of the individual quarters' earnings per common share does not
equal the total amount for the nine months ended February 28, 1998 or
February 28, 1997 due to the effect of averaging the number of shares of
common stock equivalents throughout the year.
</FN>
</TABLE>
The accompanying notes are an integral part of these statements.
(5)
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
--------------------------------------
1998 1997
------------------ ------------------
Cash flows from operating activities:
<S> <C> <C>
Net income from continuing operations $ 6,312,365 $ 6,055,974
Non-cash items included in net income:
Equity (income) loss in partnerships (500) 26,176
Depreciation and amortization 5,999,057 3,300,386
Income of Equitrade allocated to minority partners 4,512,453 2,866,762
Provision for deferred taxes 132,104 (4,447,435)
(Increase) decrease in operating assets:
Funds segregated for customers 29,203 -
Receivables:
Brokers and dealers (20,726,461) 20,803,603
Other (593,904) (66,918)
Securities owned, at market value (15,282,714) (14,888,440)
U.S. Treasury Obligations, held as collateral 236,555 (88,263)
Other assets (net of deposits made on furniture, fixtures
and equipment, and leasehold improvements) 353,899 337,284
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at market value 13,786,653 (979,368)
Accounts payable and accrued expenses (9,400,957) 8,529,299
Income taxes payable 1,340,889 (4,241,744)
------------------ ------------------
Net cash (used in) provided by operating activities (13,301,358) 17,207,316
------------------ ------------------
Cash flows from investing activities:
Purchase of investment securities not readily marketable (333,000) (100,000)
Distributions from partnerships, net - 5,150
Loans made (60,000) (105,740)
Principal collected on notes receivable 69,975 102,340
Purchases of furniture, fixtures and
equipment, and leasehold improvements (3,533,424) (9,007,891)
Deposits made on furniture, fixtures and equipment,
and leasehold improvements (38,603) (1,569,347)
Purchases of computer software (1,572,373) (326,502)
Payment for purchase of non-compete agreement - (188,780)
Purchase of exchange membership - (1,450,000)
Issuance of subordinated note - (500,000)
------------------ ------------------
Net cash used in investing activities (5,467,425) (13,140,770)
------------------ ------------------
</TABLE>
(Continued)
(6)
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
--------------------------------------
1998 1997
------------------ ------------------
Cash flows from financing activities:
<S> <C> <C>
Sale of treasury stock 19,267,500 -
Purchase of treasury stock (49,760) (2,239,421)
Capital contributions by minority interest 275,087 135,659
Capital withdrawals by minority interest (2,540,303) (1,536,000)
------------------ ------------------
Net cash provided by (used in) financing activities 16,952,524 (3,639,762)
------------------ ------------------
Net (decrease) increase in cash (1,816,259) 426,784
Cash acquired due to consolidation of Anvil - 22,740
Cash surrendered on sale of MXNet (117,747) -
Cash at beginning of period 3,033,818 470,313
------------------ ------------------
Cash at end of period $ 1,099,812 $ 919,837
================== ==================
Supplemental disclosure of non-cash investing and financing activities:
During September 1997, the Company sold the remaining net assets of its
subsidiary, Anvil Institutional Services, Inc., and received a note in the
amount of $102,945 which is due in December 1998.
During October 1997 and December 1997, certain executives of the Company
exercised an aggregate of 294,758 options for the purchase of 294,758 shares
of the Company's common stock with exercise prices ranging from $7.9375 per
share to $10.125 per share. In order to pay for the exercise price
($2,701,705) and to reimburse the Company for the personal income taxes
($441,389) on the gain related to the transaction, the executives remitted to
the Company 255,450 shares of the Company's common stock with a market value
of $3,143,094.
During October 1997, Equitrade entered into a $500,000 subordination agreement
with an unrelated party. The note has a stated interest rate of 4% and a
maturity date of October 1, 1998.
On December 8, 1997, the Company received net cash proceeds of $19,267,500
from the sale of 1,500,000 shares of its common stock to IAT Reinsurance
Syndicate Ltd.
During February 1998, the Company sold the remaining net assets of its
subsidiary, MXNet, Inc., and received a promissory note for $6,600,000 with
interest accrued at 6% from the date of sale, due and payable in full in April
1998. In addition, Sherwood Securities sold its American Stock Exchange
specialist business, in February 1998, for $325,000 which was subsequently
received in March 1998. Sherwood Securities also received $275,000 for
consulting services provided to the buyer in connection with the sale.
During February 1998, certain available-for-sale securities appreciated due to
the entity's succesful initial public offering. As such, the Company has
relected these securities at fair market value on the consolidated statements
of financial condition. The unrealized gain of $2,427,600 associated with
marking these securities to fair market value is reflected as a separate
component of stockholders' equity on the consolidated statements of financial
condition.
</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)
February 28, 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. NDBG has a principal registered broker-dealer wholly
owned subsidiary, Sherwood Securities Corp. ("Sherwood Securities"). National
Discount Brokers ("NDB"), another registered broker-dealer, is a division of
NDBG's wholly owned subsidiary, Triak Services Corp. On January 24, 1997, the
Company acquired, from its joint venture partner, the remaining 51% of Anvil
Institutional Services Company (the "Anvil Joint Venture") that it did not
previously own. The Company, therefore, became the 100% owner of Anvil
Institutional Services Inc. ("Anvil"), a broker-dealer previously owned by the
Anvil Joint Venture.
On September 5, 1997, the Company sold all of the stock of Anvil for
$217,000, which approximated book value. In connection with the sale, the
Company's $250,000 subordinated loan agreement with Anvil was cancelled. As
such, the Company liquidated the $300,000 face value of U.S. Treasury securities
that had been pledged as collateral for the agreement and such funds were
transferred back to the Company.
In addition, NDBG has a 60% special limited partnership interest in
Equitrade Partners ("Equitrade"), which is a specialist for securities listed on
The New York Stock Exchange ("NYSE"). The Company acquired a further limited
partnership interest in Equitrade on May 2, 1997 upon the acquisition of all of
the stock of SHD Corporation (formerly Dresdner-NY Incorporated), which was
engaged in the specialist business of the NYSE. The assets, including four seats
on the NYSE, except cash, and liabilities of SHD Corporation ("SHD") were then
contributed by SHD to Equitrade in exchange for a limited partner interest. Two
employees of SHD retained a portion of the specialist book of SHD and also
became limited partners of Equitrade. SHD is entitled to 38.4% of the net
profits and losses from the activities of this specialist book.
On February 13, 1998, MXNet, Inc. ("MXNet"), another wholly owned
subsidiary of NDBG was sold. In addition, on February 27, 1998, Sherwood
Securities sold its American Stock Exchange ("AMEX") specialist business. See
"Note 7 - Discontinued Operations".
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 1997 Annual Report on Form 10-K. Certain prior year
amounts have been reclassified to conform to the three and nine months ended
February 28, 1998 presentations.
Note 3 - Net income per common share
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 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 1997 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 that allege violations of Federal and state securities and related
laws. Sherwood Securities has received additional subpoenas in
(8)
connection with the SEC's ongoing investigation In the Matter of Certain Market
Making Activities on NASDAQ, HO-2974. Sherwood Securities is continuing to
cooperate with the SEC's investigation. Although there can be no assurance that
such lawsuits 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 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 February 28, 1998, the net capital of Sherwood Securities,
NDB and Equitrade exceeded their required net capital by $26,713,000,
$3,897,000, and $28,732,000, respectively. On July 10, 1997, SHD filed its
notice of withdrawal from registration as a broker-dealer with the SEC. As such,
SHD is no longer required to compute net capital.
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 February 28, 1998, the
payment of dividends and advances to NDBG by Sherwood Securities, NDB and
Equitrade is limited to $26,513,000, $3,826,000, and $28,682,000, 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 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
replaces the current standard used to calculate primary earnings per share,
Accounting Principles Board Opinion No. 15 ("APB 15"). 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 primary earnings per share under APB 15 in that
dilution for common stock equivalents is excluded.
Note 7 - Discontinued Operations
On February 13, 1998, NDBG sold 100% of the common stock of its
subsidiary, MXNet, to IPC Information Systems, Inc. NDBG received a promissory
note of $6,600,000 with interest accrued at 6% from the date of sale, due and
payable in full in April 1998. In addition, during February 1998, Sherwood
Securities disposed of its AMEX specialist business for $325,000, which was
subsequently received in March 1998. Sherwood Securities also received $275,000
from the buyer for consulting services rendered in connection with the sale. The
aggregate net gain on the aforementioned sales was $2,704,000, net of $2,353,000
of applicable income taxes and other expenses directly related to the sales.
(9)
Item - 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The results of operations of National Discount Brokers Group, Inc.
("NDBG"), and its subsidiaries (the "Company"), for the three and nine months
ended February 28, 1998 reflect primarily the activities of Sherwood Securities
Corp. ("Sherwood Securities"), National Discount Brokers ("NDB"), a division of
the Company's subsidiary, Triak Services Corp. ("Triak") 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 deep discount brokerage firm specializing in
trade execution for individual investors and Equitrade is a registered
specialist in equity securities on The New York Stock Exchange ("NYSE").
On February 13, 1998, MXNet, Inc. ("MXNet"), another wholly owned
subsidiary of NDBG was sold. (See "Note 7 - Discontinued Operations".)
The Company's consolidated net income for the three months ended February
28, 1998 was $4,221,000 compared to net loss of $(242,000) for the three months
ended February 28, 1997. The Company's consolidated net income for the nine
months ended February 28, 1998 was $9,016,000 compared to $6,056,000 for the
nine months ended February 28, 1997.
The Company's third quarter and nine-month results for fiscal years 1998
and fiscal 1997 include benefits or charges from non-recurring events. In the
quarter ended February 28, 1998, the Company benefited from gains on the sale of
its information technology subsidiary, MXNet, and the AMEX specialist business
of Sherwood Securities. Absent the gains recognized from these dispositions, net
of increased bonus accruals and tax expenses, net income for the third quarter
and nine months ended February 28, 1998 would have been $1,517,000, or $0.11 per
share, and $6,312,000, or $0.48 per share, respectively. In the quarter ended
February 28, 1997, the Company incurred a one-time litigation charge of
approximately $9,187,500. Absent the charge and associated professional fees,
net of reduced bonus accruals and tax expenses, net income for the third quarter
and nine months ended February 28, 1997 would have been $4,342,000, or $0.34 per
share, and $10,640,000, or $0.82 per share, respectively.
Total revenue for the Company decreased by approximately $13,732,000, or
26%, for the three months ended February 28, 1998, and $14,090,000, or 10%, for
the nine months ended February 28, 1998 as compared with the previous year's
respective periods. The reasons for the variances in revenues are set forth
below.
Revenue from firm securities transactions decreased $ 13,250,000, or 37%,
and $19,592,000, or 21%, for the three and nine month periods ended February 28,
1998, respectively, as compared with the previous year, even though Sherwood
Securities' overall ticket volume increased approximately 16% and 29% for the
same periods as trading profits per ticket continued to decline. Several factors
contributed to this decrease. Regulatory changes enacted by the Securities and
Exchange Commission ("SEC") and the National Association of Securities Dealers,
such as limit order protection, have resulted in an increase in the number of
transactions executed on an "even" basis. Tightened spreads between "bid" and
"ask" prices, the new limit order display rules, increased volatility in the
marketplace and increased Small Order Execution Systems ("SOES") activity have
also been factors in the decrease in trading profits per ticket. These changes
are having an adverse impact on Sherwood Securities' trading profits. A decrease
in Equitrade's revenues from securities transactions for the quarter ended
February 28, 1998 versus the comparable period last year also had an adverse
effect on overall revenue from securities transactions for the current quarter.
However, for the nine months ended February 28, 1998, an increase in revenues
from securities transactions at Equitrade, partially offset the decrease in
trading profits at Sherwood Securities.
The Company's commission income decreased by $1,207,000, or 13%, for the
three months ended February 28, 1998 and increased $2,334,000, or 9%, for the
nine months ended February 28, 1998, when compared with the comparable periods
in the prior year. These results occurred even though NDB's average daily ticket
count rose from approximately 5,400 to 5,660 tickets per day, an increase of 5%,
for the three months ended February 28, 1998 and from 4,800 to 6,000 tickets per
day, an increase of 25%, for the nine months ended February 28, 1998 when
compared with the previous year's comparable periods. The variances in
commission income do not correspond directly to the increases in NDB's ticket
count as the mix of NDB's trades has trended more toward electronic trading
(i.e.-IVR telephone and Internet trading), on which the commission charged is
lower than for trades executed by a live sales representative.
(10)
Floor brokerage income increased by approximately $101,000, or 3%, and
$2,136,000, or 21%, respectively, for the three and nine months ended February
28, 1998, when compared to the prior year. The increases were the result of an
increase in the volume of Equitrade's transactions due in part to an increase in
the number of stocks in which Equitrade serves as a specialist. The increase
from 100 stocks at February 28, 1997 to 156 stocks at February 28, 1998 was due
principally to the acquisition by NDBG, on May 2, 1997, of SHD Corporation,
which added 54 stocks to Equitrade's specialist list.
On January 24, 1997, NDBG acquired, from its joint venture partner, the
remaining 51% of Anvil Institutional Services Company (the "Anvil Joint
Venture") that it did not previously own. NDBG, therefore, became the 100% owner
of Anvil Institutional Services Inc. ("Anvil"), a broker-dealer previously owned
by the Anvil Joint Venture. On September 5, 1997, NDBG sold all of the stock of
Anvil for $217,000, which approximated book value. In connection with the sale,
NDBG's $250,000 subordinated loan agreement with Anvil was cancelled. As such,
NDBG liquidated the $300,000 face value of U.S. Treasury securities that had
been pledged as collateral for the agreement and such funds were transferred
back to NDBG.
For the three and nine months ended February 28, 1997, the principal
portion of equity loss in partnerships was an equity loss from the Company's 49%
limited partnership interest it held in the Anvil Joint Venture. For the nine
months ended February 28, 1998, Anvil's results were consolidated with those of
the Company until Anvil was sold on September 5, 1997.
Realized investment securities gains for the three and nine months ended
February 28, 1998 resulted entirely from sales during December 1997 and January
1998 of an aggregate of 50,00 shares of common stock of Eurotech Ltd. There were
no realized investment securities gains or losses during the three or nine month
periods ended February 28, 1997.
Interest income decreased by approximately $37,000, or 2%, and $171,000, or
3%, for the three and nine months ended February 28, 1998, respectively, as
compared to the previous year. The decreases are primarily due to the
availability of lesser average amounts of cash for investment. Since February
28, 1997, the Company has used approximately $21,322,000 for capital
expenditures, including $4,800,000 for four NYSE seats. A significant rise in
NDB's customer debit and credit balances held with the Company's clearing broker
led to an increase in interest earned from that source and substantially offset
the decline in interest income as described above.
Fee income increased by $648,000, or 85%, and $1,535,000, or 83%, for the
three and nine months ended February 28, 1998, respectively, as compared to the
prior year. The increases are due to several factors. First, NDB received higher
12b-1 fees from mutual funds as NDB's customers' balances in those funds have
increased since the prior year, as well as the negotiated rates used to
calculate the fees rebated thereon. Second, MXNet began to service its customers
during the current year, leading to their earning revenue for subscription and
other related fees. Finally, in connection with Sherwood Securities' sale of its
AMEX specialist business, Sherwood Securities performed certain consulting
services during the transition period for the purchaser. A fee of $275,000 was
received for these services.
Total expenses for the three months ended February 28, 1998 decreased
approximately $15,887,000, or 32%, from $49,605,000 in 1997 to $33,718,000 in
1998. Total expenses for the nine months ended February 28, 1998 decreased
approximately $15,792,000, or 13%, from $121,310,000 in 1997 to $105,518,000 in
1998. The reasons for the net decreases in expenses are set forth below.
Compensation and benefits decreased $1,010,000, or 7%, and $3,254,000, or
7%, for the three and nine month periods ended February 28, 1998, respectively,
compared with the prior year. The decreases are due primarily to lower
commissions paid to Sherwood Securities' traders because of the decrease in
trading profits for that subsidiary. Partially offsetting the decrease in
commissions were increases in staff and officer salaries, as well as in
hospitalization and other insurance benefits.
Clearing and related charges decreased by approximately $5,627,000, or 36%,
and $4,788,000, or 11%, for the three and nine month periods ended February 28,
1998, respectively, as compared to the prior year. The decreases are due
principally to lower correspondent fees being paid by Sherwood Securities based
on the overall size and type of the order flow received. Also contributing to
the decrease are lower clearance charges for Sherwood Securities, which despite
increased ticket counts, decreased due to newly negotiated rates with both its
former and its new clearing brokers.
Communications expense, which includes market data services, increased by
approximately $147,000, or 5%, and
(11)
decreased by approximately $351,000, or 4%, for the three and nine months ended
February 28, 1998, respectively, as compared to the previous year. The decrease
for the nine-month period is mainly due to the upgrade of the mainly due
Powerbrokersm IVR System and development of an in-house quote server at NDB. The
increase in the third quarter is to billings on certain market data services,
which were being used in addition to the regularly used services while being
considered for a possible change by Sherwood Securities, which caused the
expense to rise.
Litigation settlement, for the three and nine months ended February 28,
1997, represents a charge in connection with the case In Re: NASDAQ
Market-Makers Antitrust Litigation, 94 Civ. 3996(RWS) as discussed in the
Company's 1997 Annual Report on Form 10-K. No such charge has been incurred in
the current year.
Depreciation and amortization increased by approximately $936,000, or 73 %,
and $2,699,000, or 82%, for the three and nine months ended February 28, 1998,
respectively, as compared to the prior year. These increases can be attributed
to depreciation and amortization incurred on fixed asset, leasehold improvement,
computer software and intangible asset additions by the Company aggregating
approximately $12,930,000 during the period from March 1997 through February
1998 primarily in conjunction with the upgrade of NDB's infrastructure and the
purchase of a NYSE specialist unit.
Occupancy and equipment rental expenses decreased $27,000, or 4%, and
$165,000, or 8%, for the three and nine month periods ended February 28, 1998,
as compared to the prior year. The declines are due to a decrease for NDB which,
last year, incurred rent concurrently, through November 1997, on two main office
locations as it awaited the move of its new headquarters to 7 Hanover Square in
New York City. In addition, the closing of NDB's branch offices as of October
31, 1997 has led to a reduction in rent expense.
Other expenses decreased by approximately $1,190,000, or 26%, and
$1,067,000, or 10%, for the three and nine months ended February 28, 1998,
respectively, as compared to the prior year. The decreases are mainly due to
lower legal and other professional fees paid in the current year than in the
prior year. Partially offsetting this decrease is an increase in expenses for
service contracts, which is a result of the recent upgrade of NDB's
technological infrastructure. Also, there was an increase in NDB customer
accomodations related to trade executions, and in public relations expenses.
Interest expense increased by approximately $72,000, or 51%, and $322,000,
or 118%, for the three and nine months ended February 28, 1998, respectively, as
compared to the previous year. During the three and nine months ended February
28, 1998, Sherwood Securities incurred interest charges on the remaining unpaid
balance of approximately $4,600,000, due in April 1998, 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 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 its subsidiary, SHD, during the three and nine months ended February
28, 1998 and 1997, respectively.
The Company's effective tax rate decreased from approximately 182% and 49%
for the three and nine months ended February 28, 1997 to approximately 53% and
47% for the three and nine months ended February 28, 1998, respectively. The
unusually high tax rate for the three months ended February 28, 1997 arose due
to the low taxable income basis which was the result of the litigation
settlement charge taken that quarter. When coupled with permanent tax
differences (such as meals and entertainment expenses, which are only partially
tax deductible while fully deductible for book purposes), the effective tax rate
for the quarter ended February 28, 1997 appears unusually high.
For the three and nine months ended February 28, 1998, deferred tax expense
of approximately $41,000 and $132,000, included in income tax expense, relates
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.
Liquidity
The Company's tangible assets are highly liquid with approximately 70% of
these tangible assets consisting of cash or assets readily convertible into
cash. The Company's operations have generally been financed by internally
generated
(12)
funds. In addition, at February 28, 1998, margin account borrowings of
approximately $118,000,000 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. On July 10, 1997, SHD filed its notice of withdrawal from
registration as a broker-dealer with the SEC. As such, SHD is no longer required
to compute net capital. As of February 28, 1998, Sherwood Securities, NDB and
Equitrade had approximately $26,713,000, $3,897,000 and $28,732,000,
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. On December 5, 1997, the
Company entered into an agreement with IAT Reinsurance Syndicate Ltd. ("IAT"), a
Bermuda corporation, for the sale of 1,500,000 shares of the Company's common
stock at $12.875 per share. IAT, an entity controlled by investor Peter Kellogg,
received shares from the Company's treasury stock. The transaction increased Mr.
Kellogg's beneficial ownership of the Company's common stock from approximately
8% to 17.8%. The proceeds from the transaction of approximately $19,300,000,
which were received by the Company on December 8, 1997, are being used for
general corporate purposes and marketing activities to support the expansion of
NDB.
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 security 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.
Cash flows from the Company's investment activities are directly related to
market conditions.
During the three and nine months ended February 28, 1998, the Company
repurchased 4,217 additional shares in connection with its December 1992 plan to
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. As of February
28, 1998, 1,355,699 shares had been reacquired under this plan. The source of
funds for these purchases was internally generated.
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 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. In the event there are higher interest rates, which
normally result from inflation, such additional interest would offset some of
the costs related to inflation.
New Accounting Pronouncement
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 replaces the
current standard used to calculate primary earnings per share, Accounting
Principles Board Opinion No. 15 ("APB 15"). 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 under APB 15 in that dilution for
common stock equivalents is excluded.
(13)
Year 2000 Compliance
The Company is preparing for the issues associated with the year 2000,
including possible 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 to some degree 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 is utilizing both internal and external sources to identify,
correct or reprogram, and to test the systems for year 2000 compliance. While
management anticipates that internal reprogramming efforts will be substantially
complete by December 31, 1998, there can be no assurance that all reprogramming
efforts will be completed on a timely basis. The Company plans to mail
notification letters to our existing vendors apprising them of our requirements
for year 2000 compliance. Thereafter, the Company plans to assess the year 2000
compliance expense and its related potential effect on the Company's earnings,
if any.
Forward Looking Statement
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 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 29, 1998, NDBG sold 1,500,000 shares of its common stock to IAT
Reinsurance Syndicate Ltd., a corporation formed under the laws of the
Commonwealth of Bermuda ("IAT"), for a price of $12.875 per share, or
$19,312,500. IAT is controlled by investor Peter R. Kellogg. The proceeds of the
sale were delivered to NDBG on December 8, 1997. The transaction increased Mr.
Kellogg's beneficial ownership of the Company's common stock from approximately
8% to 17.8% as of the date of purchase. The common stock sold to IAT was exempt
from registration under the Securities Act of 1933, as amended by virtue of
Section 4(2) and Regulation D thereunder.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held a Special Meeting of its Stockholders on December
12, 1997.
(b) (i) The shareholders ratified an amendment to The Company's
Restated Certificate of Incorporation to change the Company's name from The
Sherwood Group, Inc. to National Discount Brokers Group, Inc. The following was
the shareholder vote on this matter:
<TABLE>
<CAPTION>
<S> <C>
For: 11,212,871
Against: 15,040
Withheld: 4,425
Broker Non-Vote: 0
</TABLE>
(14)
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10 - Stock Purchase Agreement dated as of February 13,
1998 between MXNet, Inc., the Company and IPC
Information Systems, Inc.
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed two reports on Form 8-K during the quarter
ended February 28, 1998, dated December 5, 1997 and January 29, 1998,
respectively. Both reports were in respect to the sale of 1,500,000 shares
of the Company's common stock.
(15)
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: April 10, 1998 By: Dennis Marino
-------------------- -------------------------------------
Dennis Marino
Executive Vice President
and Chief Administrative Officer
Date: April 10, 1998 By: Denise Isaac
-------------------- -------------------------------------
Denise Isaac
Chief Financial Officer and
Principal Accounting Officer
17
EXHIBIT 10
STOCK PURCHASE AGREEMENT
AMONG
MXNET, INC.,
NATIONAL DISCOUNT BROKERS GROUP, INC.
AND
IPC INFORMATION SYSTEMS, INC., a Delaware corporation
Dated as of February 13, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of February 13, 1998 by and among MXNET, Inc., a
Delaware corporation (the "Company"), National Discount Brokers Group, Inc., a
Delaware corporation ("Seller") and IPC, Inc., a Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, Buyer desires to acquire from Seller all of the outstanding
shares of capital stock of the Company (the "Shares"); and
WHEREAS, Seller desires to sell to Buyer all of the Shares;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"Balance Sheet" means the balance sheet of the Company as of
December 31, 1997 referred to in
Section 3.07.
"Balance Sheet Date" means December 31, 1997.
"Buyer" means IPC, Inc., a Delaware corporation.
"Closing Date" means the date of this Agreement.
"Company" means MXNet, Inc., a Delaware corporation.
"Executive Employment Agreements" means the Executive
Employment Agreements to be entered into between the Company and each of Paul
Pluschkell, Steve Schiff, Dan Diversey and Eric Goebelbecker at the Closing,
substantially in the form set forth on Exhibit A.
"Intellectual Property Right" means any trademark, trade name,
trade dress, service mark, service name, logo, and corporate name, registration
therefor application for registration therefor; invention, patent, patent
application, patent disclosure and any related continuation,
continuation-in-part, divisional, reissue, re-examination, utility, model,
certificate of invention and design patent, patent application, registration and
application for registration; mask work and registration and application for
registration thereof; computer software, data and documentation; trade secret,
know-how, and confidential business information, whether patentable or
nonpatentable and whether or not reduced to practice, know-how, manufacturing
and product processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information; copyright, copyright registration, application for copyright
registration; or-any other similar type of proprietary intellectual property
right, (including without limitation associated goodwill and remedies against
infringements thereof and rights of protection of an interest therein under the
laws of all jurisdictions) in each case which is owned or licensed by the
Company.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, restriction or encumbrance of any kind in
respect of such asset.
"Material Adverse Change" means a material adverse change in
the business, assets or financial condition or results of operations of the
Company.
"Material Adverse Effect" means a material adverse effect on
the business, assets, condition (financial or otherwise), results of operations
or prospects of the Company.
"Person" means an individual, corporation, partnership,
association trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Seller" means National Discount Brokers Group, Inc., a
Delaware corporation.
"Shares" means all outstanding capital stock or other equity
interests of the Company.
ARTICLE II
PURCHASE AND SALE
2.01. Purchase and Sale. Upon the terms and subject to the conditions
of this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, at the Closing, all of the Shares. The aggregate purchase price, to be
paid by delivery of a promissory note, the form of which is attached hereto as
Annex 1 (the "Promissory Note"), shall be $6,660,000 (the "Purchase Price"). The
Purchase Price shall be paid as provided in Section 2.02.
2.02. Closing. The closing (the "Closing") of the purchase and sale
of the Shares hereunder shall take place at the offices of Gibbons, Del Deo,
Dolan, Griffinger & Vecchione, One Riverfront Plaza, Newark, New Jersey 07102.
At the Closing,
(a) Buyer shall deliver to Seller the Promissory Note.
(b) Seller shall deliver to Buyer certificates for the Shares
duly endorsed and signature guaranteed, accompanied by stock powers duly
endorsed and signature guaranteed in blank, with any required transfer stamps
affixed thereto.
2.03. Transfer Taxes. Buyer shall pay any and all sales, documentary,
use, filing, transfer and other taxes payable as a result of the transfer of the
Shares to Buyer by Seller (including any such state taxes that may be imposed on
the Company by reason of a deemed transfer of assets).
2.04. Books and Records. On the Closing Date, Seller shall deliver to
Buyer, or its representatives, all minutes books, stock record books and
corporate seals of the Company, and the original copies of all books of account,
leases, other agreements, securities, customer lists, files and other documents,
instruments and papers of any kind or nature belonging to or relating to the
Company or its business.
2.05. Resignations. The Company will deliver to Buyer the resignations
of all officers and directors of the Company from their positions with the
Company at or prior to the Closing Date, except those persons who have signed
Executive Employment Agreements, unless otherwise specified by Buyer.
2.06. Balance Sheet Adjustment. At the Closing Date, the balance sheet
of the Company shall be adjusted to remove all receivables from Seller and
affiliates to the Company and all payables to Seller and affiliates. At the
Closing Date, the balance sheet of the Company shall be adjusted to reflect
working capital of $1.00 (i. e.accounts receivable, cash and certain agreed upon
deposits and prepaid expenses less accounts payable).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SELLER
The Company and Seller hereby jointly and severally represent and
warrant to Buyer as of the date hereof and as of the Closing Date that:
3.01. Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in the United
States where the character of the property owned or leased by it or the nature
of its activities make such qualification necessary, except for those
jurisdictions where failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. The Company has heretofore delivered
to Buyer true and complete copies of the certificate of incorporation and bylaws
of the Company as currently in effect.
3.02. Corporate Authorization. The execution, delivery and performance
by the Company and Seller of this Agreement and the consummation by the Company
and Seller of the transactions contemplated hereby are within the Company's and
Seller's corporate powers and have been duly authorized by all necessary
corporate action on the part of the Company and Seller. This Agreement
constitutes a valid and binding agreement of the Company and Seller.
3.03. Governmental Authorization; Consents.
(a) The execution and delivery of this Agreement by Seller,
and the performance by the Company and Seller of their obligations under this
Agreement, require no action by or in respect of, or filing with, any
governmental body, agency, official or authority or any other Person.
(b) Except as set forth on Schedule 3.03, no consent,
approval, waiver or other action by any Person under any contract, agreement,
indenture, lease, instrument or other document to which the Company is a party
or by which it is bound is required or necessary for the execution and delivery
of this Agreement by Seller, the performance by the Company and Seller of their
obligations under this Agreement or the consummation of the transactions
contemplated hereby.
3.04. Non-Contravention. The execution and delivery of this Agreement
by the Company and Seller, the performance by the Company and Seller of their
obligations under this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) contravene or conflict with the
corporate charter or bylaws of the Company, (ii) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company; or (iii)
except as set forth on Schedule 3.04, constitute a default under or give rise to
any right of termination, cancellation or acceleration of any right or
obligation of the Company or to a loss of any benefit to which the Company is
entitled under any provision of any agreement, contract or other instrument
binding upon the Company or any permit held by the Company.
3.05. Capitalization. The authorized capital stock of the Company
consists of 3,000 shares of common stock, $.01 par value. As of the date hereof,
there were outstanding 100 shares of common stock. All outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and are owned by Seller. Except as set forth in this Section
3.05, there are no outstanding (i) shares of capital stock, other securities or
phantom or other equity interests of the Company, (ii) securities of the Company
convertible into or exchangeable for shares of capital stock or other securities
of the Company or (iii) options or other rights to acquire from the Company any
capital stock, other securities or phantom or other equity interests of the
Company (the items in clauses (i), (ii) and (iii) being referred to collectively
as the "Company Securities"). There are no outstanding obligations of the
Company, actual or contingent, to issue or deliver or to repurchase, redeem or
otherwise acquire any Company Securities.
3.06. Subsidiaries. The Company does not have and never has had any
Subsidiaries or any ownership or equity interest in or control of (direct or
indirect) any other person.
3.07. Financial Statements. The Company has previously furnished Buyer
with a true and complete copy of (i) the balance sheet of the Company as of
December 31, 1997 and the statements of operations of the Company for the fiscal
year then ended (collectively, the "Financial Statements" which are attached
hereto as Schedule 3.07). The consolidated balance sheet included in the
Financial Statements fairly presents in all material respects the financial
position of the Company as of its date, and the other statements included in the
Financial Statements fairly present in all material respects the results of
operations of the Company for the periods therein set forth. The Financial
Statements were prepared in accordance with the books and records of the Company
and were prepared in accordance with generally accepted accounting principles,
consistently applied. The balance sheet of the Company as of the Closing Date
will reflect at least $1.00 of working capital.
3.08. Absence of Certain Changes. Since the Balance Sheet Date, the
Company has conducted its business in the ordinary course consistent with past
practices and, except as set forth on Schedule 3.08, there has not been:
(a) any Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any Company Securities or any repurchase,
redemption or other acquisition by the Company of any outstanding shares of
capital stock or other securities of, or other ownership interests in, the
Company;
(c) any amendment of any outstanding security of the Company;
(d) any incurrence, assumption or guarantee by the Company of
any indebtedness for borrowed money other than in the ordinary course of
business and in amounts and on terms consistent with past practices;
(e) any creation or assumption by the Company of any Lien on
any asset;
(f) any making of any loan, advance or capital contributions
to or investment in any Person; or
(g) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the Company which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect.
3.09. Property and Equipment. The Company has good title to, or in the
case of leased property have valid leasehold interests in, all property and
assets (whether real or personal, tangible or intangible) reflected on the
Balance Sheet or acquired after the Balance Sheet Date.
3.10. No Undisclosed Material Liabilities. Except as set forth in
Schedule 3.10, there are no liabilities of the Company of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability, other than:
(i) liabilities provided for in the Balance Sheet; and
(ii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date, which in
the aggregate are not material to the Company.
3.1 1. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Seller threatened against or
affecting, the Company or any of its properties or the transactions contemplated
hereby before any court or arbitrator or any governmental body, agency, official
or authority.
3.12. Material Contracts.
Except for agreements, contracts, plans, leases, arrangements
or commitments disclosed in Schedule 3.12, the Company is not a party to or
subject to:
(i) any lease providing for annual rentals of $25,000 or more;
(ii) any contract for the purchase of materials, supplies,
goods, services, equipment or other assets providing for annual
payments by the Company of $25,000 or more;
(iii) any-partnership, joint venture or other similar
arrangement or agreement or any license agreement under which the
Company is the licensee, or any agency, distributor, dealer, franchise,
sales representative or other similar contract or commitment; or
(iv) except for trade indebtedness incurred in the ordinary
course of business, any loan or credit agreements or any instrument
evidencing or related in any way to indebtedness incurred in the
acquisition of any asset, business, company or other entity or
indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or
otherwise, or agreement relating to the mortgaging, pledging or
otherwise placing a lien on any assets of the Company or any guaranty
of indebtedness or performance of others by the Company.
3.13. Insurance Coverage. The Company has furnished to Buyer a list of,
and true and complete copies of, all insurance policies covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company.
3.14. Compliance with Laws.
The Company is not currently in violation of any applicable
provisions of any laws, statutes, ordinances or regulations except for
violations that have not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
3.15. Finder' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Seller or the Company who might be entitled to any fee or commission from
Buyer, the Company or any of their respective Affiliates upon consummation of
the transactions contemplated by this Agreement.
3.16. Intellectual Property.
(a) Schedule 3.16 includes a list of all Intellectual Property
Rights which are material to the operations of the Company.
(b) The execution, delivery and performance of this Agreement
and the consummation of the other transactions contemplated hereby will not
breach, violate or conflict with any instrument or agreement governing any
Intellectual Property Right, will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Intellectual Property
Right or in any way impair the right of the Company to sue, sell, license or
dispose of, or to bring any action for other infringement of, any Intellectual
Property Right or portion thereof.
(c) There is no pending or, to the knowledge of the Company
and Seller, threatened claim or litigation against the Company or Seller,
contesting the validity, ownership or right to use, sell, license or dispose of
any Intellectual Property Right nor, to the knowledge of the Company or Seller,
is there any basis that may reasonably be expected to give rise to any such
claims, nor has either Seller or the Company received any notice asserting that
the proposed use, sale, license or disposition of any of the Company's products
conflicts or will conflict with the rights of any other party, nor is there, to
the knowledge of Seller or the Company, any basis that may reasonably be
expected to give rise to any such assertion.
(d) Schedule 3.16 contains a complete and accurate list of all
computer software and databases owned by the Company (the "Owned Software"). The
Company has exclusive title to the Owned Software, free and clear of all Liens
or claims, including claims or rights of employees, agents, consultants,
customers, licensees or other parties involved in the development, creation,
marketing, maintenance, enhancement or licensing of such computer software.
(e) Schedule 3.16 contains a complete and accurate list of all
software and databases material to the Company's business (other than standard
office software such as word processing programs) for which the Company is a
licensee, lessee or otherwise has obtained from a third party the right to use,
market, distribute, sublicense or otherwise transfer the right to use such
software and databases (the "Licensed Software").
(f) The Owned Software and License Software constitute all
software and databases used by the Company in the conduct of its business.
3.17. Inventories. The Company has no inventories.
3.18. Receivables. All accounts, notes receivable and other receivables
(other than receivables collected since the Balance Sheet Date) reflected on the
Balance Sheet are, and all accounts and notes receivable of the Company at the
Closing Date will be, valid, genuine and fully collectible (using commercially
reasonable collection efforts) within ninety (90) days in the aggregate amount
thereof, subject to normal and customary trade discounts, less any reserves for
doubtful accounts recorded on the Balance Sheet. All accounts, notes receivable
and other receivables of the Company at the Balance Sheet Date have been
included in the Balance Sheet.
3.19. Taxes.
(a) The term "Taxes" as used herein means all federal, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs duties, or other Taxes, fees, assessments or
other charges of any kind whatever, together with any interest and any
penalties, additions to Tax or additional amounts with respect thereto, and the
term "Tax" means any one of the foregoing taxes. The term "Returns" as used
herein, means all returns, declarations, reports, statements and other documents
required to be filed in respect of Taxes, and "Return" means any one of the
foregoing Returns. The term "Code" means the Internal Revenue Code of 1986, as
amended. All citations to the Code, or the Treasury regulations promulgated
thereunder, shall include any amendments or any substitute or successor
provisions thereto.
(b) The Company has filed all Returns required to be filed by
it by the due date for such Return and has paid all Taxes owed (whether or not
shown as due on such returns) (or has paid or resolved any interest or related
penalties relative to such returns), including, without limitation, all Taxes
which the Company is obligated to withhold for amounts owing to employees,
creditors and third parties. Adequate reserves have been established for all
Taxes accrued but not yet payable. The Company has not received and Seller has
not received any written notices or inquiries from any taxing authority in
connection with any of the Returns that have not been successfully resolved. No
waivers of statutes of limitation with respect to any of the Returns have been
given by or requested from the Company. All deficiencies asserted or assessments
made as a result of any examinations have been fully paid, or are fully
reflected as a liability in the financial statements of the Company, or are
being contested and an adequate reserve therefor has been established and is
fully reflected in the financial statements of the Company. There are no liens
for Taxes (other than for current taxes not yet due and payable) upon the assets
of the Company. All material elections with respect to Taxes affecting the
Company, as of the date hereof, are set forth in the financial statements of the
Company, or are set forth on Schedule 3.19. The Company has not agreed to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. The Company does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country.
(c) Neither the Company nor any Seller has ever filed a
consent pursuant to Section 341(f) of the Code, relating to collapsible
corporations.
ARTICLE IV
ADDITIONAL REPRESENTATIONS
AND WARRANTIES OF SELLER
Seller represents and warrants to, and agrees with, Buyer as of the
date hereof and as of the Closing Date as follows:
4.01. Title to and Validity of Shares. Seller has good and marketable
title to and unrestricted power to vote and sell the Shares, free and clear of
any Lien and, upon purchase and payment therefor and delivery to Buyer thereof
in accordance with the terms of this Agreement, Buyer will obtain good and
marketable title to the Shares free and clear of any Lien. All shares are
registered in the name of Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and Seller that:
5.01. Organization and Existence. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
5.02. Corporate Authorization. The execution, delivery and performance
by Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby are within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a valid and binding agreement of Buyer.
5.03. Governmental Authorization. The execution, delivery and
performance by Buyer of this Agreement require no action by or in respect of, or
filing with, any governmental body, agency, official or authority. No consent,
approval, waiver or other action by any Person under any contract, agreement,
indenture, lease, instrument or other document to which Buyer is party or by
which it is bound is required or necessary for the execution, delivery and
performance of this Agreement by Buyer or the consummation of the transactions
contemplated hereby.
5.04. Non-Contravention. The execution, delivery and performance by
Buyer of this Agreement do not and will not (i) contravene or conflict with the
corporate charter or bylaws of Buyer or (ii) contravene or conflict with any
material provision of any material law, regulation, judgment, injunction, order
or decree binding upon Buyer.
5.05. Finders' Fees. There is no investment banker,-broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Buyer who might be entitled to any fee or commission from the Company, Seller
or any or any Affiliate thereof upon consummation of the transactions
contemplated by this Agreement.
5.06. Litigation. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Buyer overtly threatened against, Buyer
before any court or arbitrator or any governmental body, agency or official
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the transactions contemplated hereby.
5.07. Accredited Investor. Buyer is an "accredited investor" as such
term is defined in Rule 501 of Regulation D promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), or has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of an investment in the Company, or has employed the services of an
independent investment advisor, attorney or accountant to read all of the
documents furnished or made available by the Company and to evaluate the merits
and risks of such investment on Buyer's behalf. Buyer is able to bear the
economic risk of an investment in the Company, including the loss of the entire
investment.
5.08. Investment for Own Account. The Shares are being purchased by
Buyer for its own account for investment and not for distribution or resale or
fractionalization thereof or reselling thereof or any part thereof within the
meaning of the Securities Act other than in compliance therewith or in
accordance with an exemption therefrom. Buyer further represents that it
understands that (i) the Shares have not been registered under the Securities
Act by reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act, and (ii) such securities may only be
transferred pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under Section 5 of the
Securities Act or an exemption from such registration.
ARTICLE VI
COVENANTS OF THE COMPANY AND SELLER
The Company and Seller agree that:
6.01. Continued Use of Facilities. From the date hereof until the date
which is 90 days after the date hereof, Seller and its Affiliates will allow the
Company to utilize, in accordance with past practice, all of the Company's
current facilities (including its current space in Seller's data center)
rent-free. Thereafter the Company's current facilities will be rented pursuant
to the letter attached as Exhibit B hereto or pursuant to a direct lease from
Seller's landlord. Seller agrees to use its reasonable best efforts to obtain
the consent of its landlord to lease the Company's current facility to the
Company in accordance with the terms of Exhibit B.
6.02 Non-Competition Agreement.
(a) The Seller agrees that for the period of two (2) years
following the Closing Date, the Seller shall not directly or indirectly own,
manage, control, participate in, consult with, render services for, or in any
manner engage in the Business. Nothing herein shall prohibit the Seller from
being a passive owner of not more than 4% of the outstanding stock of any class
of a corporation which is publicly traded, so long as the Seller has no active
participation in the business of such corporation. For purposes of this section,
the term "Business" means distribution of market data to the financial
community.
(b) In addition, for a period of two (2) years commencing on
the Closing Date, the Seller shall not (i) induce or attempt to induce any
senior manager of the Company to leave the employ of the Company, or in any way
interfere with the relationship between the Company and any senior manager
thereof, (ii) hire directly or through another entity any person who was a
senior manager of the Company at any time during the six month period preceding
the final date of the two-year term, (iii) approach any such senior manager for
any of the foregoing purposes, (iv) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, as the case may be, or in any way interfere with the
relationship between any such customer, supplier, licensee or business relation
and the Company related to the Business, or (v) authorize or assist in the
taking of any of the foregoing actions by any third party.
(c) The Seller acknowledges that the Company is capable of
serving customers throughout the United States and the world. The Seller agrees
that these restrictions on competition and solicitation shall be deemed to be a
series of separate covenants not-to-compete and a series of separate
non-solicitation covenants for each month within the specified periods, separate
covenants not-to-compete and non-solicitation covenants for each state within
the United States, and each county within each such state and each country in
the world, and separate covenants not-to-compete for each area of competition.
If any court of competent jurisdiction shall determine any of the foregoing
covenants to be unenforceable with respect to the term thereof or the scope of
the subject matter or geography covered thereby, such remaining covenants shall
nonetheless be enforceable by such court against such other party or parties or
upon such shorter term or within such lesser scope as may be determined by the
court to be enforceable. If the scope of any restriction contained in this
Section 6.02 is too broad to permit enforcement of such restriction to its full
extent, then such restriction shall be enforced to the maximum extent permitted
by law, and the Seller hereby consents and agrees that such scope may be
judicially modified accordingly in any proceeding brought to enforce such
restriction. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
(d) Because the Seller has had access to confidential
information and strategic plans of the Company of the most valuable nature, the
parties agree that the covenants contained in this Section 6.02 are necessary to
protect the value of the business of the Company and that a breach of any such
covenant would result in irreparable and continuing damage for which there would
be no adequate remedy at law. The parties agree therefore that in the event of a
breach or threatened breach of this Agreement, the Company may, in addition to
other rights and remedies existing in their favor, apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any violations of, the provisions hereof.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
7.01. Access. After the Closing Date, Buyer agrees to give Seller
reasonable access to the books and records provided by Seller to Buyer pursuant
to Section 2.04 hereof to enable Seller to make required filings with, and
respond to any inquiries from, state or federal tax or other regulatory
authorities.
7.02. Indemnification. Buyer hereby agrees to indemnify and hold
harmless Seller from and against any and all costs, expenses and liabilities
arising out of or related to Seller's obligations under Sections 8(d) and/or
13(a) of the Agreement among Seller, the Company and Reuters America, Inc.,
dated May 7, 1997 ("Reuters Agreement") as in effect on the Closing Date. Seller
agrees to give Buyer written notice of any claims against Seller under this
Section of the Agreement and Buyer shall assume the defense of any such claims.
Seller shall not settle any claims which are indemnified hereunder without the
prior written consent of Buyer. Seller's failure to give timely notice of a
claim hereunder shall not be a defense to Buyer's obligations hereunder.
ARTICLE VIII
COVENANTS OF ALL PARTIES
The parties hereto agree that:
8.01. Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use commercially reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Each of Buyer and Seller, after the Closing,
agrees to execute and deliver such other documents, certificates, agreements and
other writings and to take such other actions as may be necessary or desirable
in order to consummate or implement expeditiously the transactions contemplated
by this Agreement.
8.02. Certain Filings. The Company, Seller and Buyer shall cooperate
with each other (a) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
8.03. Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
8.04. Tax Treatment. The parties agree to work together with their
advisors to obtain a mutually advantageous tax treatment for the transactions
contemplated by this Agreement. Seller agrees that it will cooperate on such
matters to Buyer's advantage so long as such cooperation does not cause Seller
any disadvantage.
8.05 Generator. Seller and Buyer agree to use commercially reasonable
efforts to have the Company become a party to the Expense and Operating Sharing
Agreement, dated August 1997 between Sherwood Securities Corp. and Spear, Leeds
& Kellogg L.P., with the rights to receive services under such agreement. Until
Buyer becomes a party to such agreement Seller shall provide Buyer with the
services of the generator it requires to operate the business of the Company as
currently operated and to operate a data room in the Additional Space (as
defined in Exhibit B); provided that the Company shall pay any costs necessary
to provide such service and Seller shall under no circumstances be obligated to
increase the capacity of the generator.
ARTICLE IX
RELEASE
9.01. Release. EXCEPT AS PROVIDED IN SECTION 5.08, ARTICLE VI, ARTICLE
VII, ARTICLE VIII AND ARTICLE X AND THE PROMISSORY NOTE WHICH OBLIGATIONS ARE
NOT RELEASED HEREBY, EFFECTIVE AS OF THE CLOSING, EACH OF SELLER, ON THE ONE
HAND, AND BUYER (AND, AFTER THE CLOSING, THE COMPANY), ON THE OTHER HAND, DOES
FOR ITSELF, AND FOR EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS, STOCKHOLDERS,
EMPLOYEES, AGENTS AFFILIATES, PARTNERS, HEIRS, SUCCESSORS AND ASSIGNS, IF ANY,
RELEASE AND ABSOLUTELY FOREVER DISCHARGE EACH OTHER AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, STOCKHOLDERS, EMPLOYEES, AGENTS AFFILIATES, PARTNERS,
HEIRS, SUCCESSORS AND ASSIGNS, IF ANY, FROM AND AGAINST ALL RELEASED MATTERS.
"RELEASED MATTERS" MEANS ANY AND ALL CLAIMS, DEMANDS, DAMAGES, DEBTS,
LIABILITIES, OBLIGATIONS, COSTS, EXPENSES (INCLUDING ATTORNEYS' AND ACCOUNTANTS'
FEES AND EXPENSES), ACTIONS AND CAUSES OF ACTION OF ANY NATURE WHATSOEVER,
WHETHER NOW KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, THAT EITHER BUYER OR
SELLER NOW HAS, OR AT ANY TIME PREVIOUSLY HAD, OR SHALL OR MAY HAVE IN THE
FUTURE ARISING BY VIRTUE OF OR 1N ANY MATTER RELATED TO ANY ACTION OR INACTION
WITH RESPECT TO THEIR MUTUAL CONTRACTUAL OR OTHER BUSINESS AFFAIRS RELATED TO
THE COMPANY ON OR BEFORE THE DATE OF THIS AGREEMENT; EXCEPT ANY CLAIMS, RIGHTS
OR REMEDIES AVAILABLE TO EITHER SELLER OR BUYER RESULTING FROM BUYER'S OR
SELLER'S BREACH OF THIS AGREEMENT. IT IS THE INTENTION OF THE BUYER AND SELLER
IN EXECUTING THIS AGREEMENT, AND IN GIVING AND RECEIVING THE CONSIDERATION
CALLED FOR HEREIN, THAT THE RELEASE CONTAINED IN THIS SECTION SHALL BE EFFECTIVE
AS A FULL AND FINAL ACCORD AND SATISFACTION AND GENERAL RELEASE OF AND FROM ALL
RELEASED MATTERS AND THE FINAL RESOLUTION BY BUYER AND SELLER OF ALL RELEASED
MATTERS. BUYER AND SELLER EACH HEREBY REPRESENTS AND WARRANTS TO EACH OTHER THAT
SUCH PARTY HAS NOT VOLUNTARILY OR INVOLUNTARILY ASSIGNED OR TRANSFERRED OR
PURPORTED TO ASSIGN OR TRANSFER TO ANY PERSON ANY RELEASED MATTER.
ARTICLE X
MISCELLANEOUS
10.01. Notices. All notices and other communications which by any
provision of this Agreement are required or permitted to be given shall be given
in writing and shall be (a) mailed by first-class or express mail, postage
prepaid, (b) sent by telex, telegram, telecopy or other form of rapid
transmission, confirmed by mailing (by first class or express mail, postage
prepaid) written confirmation at substantially the same time as such rapid
transmission, or (c) personally delivered to the receiving party (which if other
than an individual shall be an officer or other responsible party of the
receiving party). All such notices and communications shall be mailed, sent or
delivered as follows:
if to Buyer, to:
IPC Information Systems, Inc.
88 Pine Street
New York, New York 10005
Telecopy: (212) 858-7990
Attention: Terry Clontz
with a copy to:
IPC Information Systems, Inc.
88 Pine Street
New York, New York 10005
Telecopy: (212) 858-7990
Attention: David Walsh
Daniel Utersky
if to the Company, to:
MXNet, Inc.
10 Exchange Place Centre
Jersey City, NJ 07302
Telecopy: (201) 946-4498
Attention: Paul Pluschkell, President
with a copy to:
National Discount Brokers Group, Inc.
10 Exchange Place Centre
Jersey City, NJ 07302
Telecopy: (201) 946-4510
Attention: William Karsh, Executive Vice President
if to Seller:
National Discount Brokers Group, Inc.
10 Exchange Place Centre
Jersey City, NJ 07302
Telecopy: (201) 946-4510
Attention: Laura Singer, General Counsel
Notices shall be deemed duly delivered three business days after being
sent by first class mail, postage prepaid, or one business day after being sent
via a reputable nationwide express mail service. Notice delivered via any other
means shall be deemed duly delivered upon actual receipt by the individual for
whom such notice is intended. Any notice sent to a party hereto shall be sent
simultaneously, by the same means, to such party's counsel, as set forth above.
10.02. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived
prior to the Closing Date if, and only if, such amendment or waiver is in
writing and signed by Buyer, the Company and Seller.
(b) No failure or delay by either party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
10.03. Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense;
provided, however, that if the Closing shall occur all such costs and expenses
incurred by the Company shall be paid or reimbursed by Seller.
10.04. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of his or its rights or obligations under this
Agreement without the consent of the other parties hereto.
10.05. Further Assurances. From time to time after the Closing, at the
request of Buyer and without further consideration, Seller will execute and
deliver to Buyer such other documents, and take such other action, at Buyer's
cost and expense, as Buyer may reasonably request in order to consummate more
effectively the transactions contemplated hereby and to vest in Buyer good,
valid and marketable title to the Shares.
10.06. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICT OF LAW) APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WITHIN SUCH STATE EXCEPT THAT INSOFAR AS THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE WOULD OTHERWISE PURPORT TO GOVERN ANY MATTER EXISTING UNDER
THIS AGREEMENT, SUCH LAW SHALL GOVERN.
10.07. Jurisdiction. ANY SUIT, ACTION OR PROCEEDING SEEKING TO ENFORCE
ANY PROVISION OF, OR BASED ON ANY MATTER ARISING OUT OF OR IN CONNECTION WITH,
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MAY BE BROUGHT IN ANY
FEDERAL COURT SITTING IN THE STATE OF NEW YORK EACH OF THE PARTIES HEREBY
CONSENTS TO THE JURISDICTION OF SUCH COURTS (AND OF THE APPROPRIATE APPELLATE
COURTS THEREFROM) IN ANY SUCH SUIT, ACTION OR PROCEEDING AND IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT ANY SUCH SUIT, ACTION OR PROCEEDING WHICH IS BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. PROCESS IN ANY SUCH
SUIT, ACTION OR PROCEEDING MAY BE SERVED ON ANY PARTY ANYWHERE IN THE WORLD,
WHETHER WITHIN OR WITHOUT THE JURISDICTION OF ANY SUCH COURT. WITHOUT LIMITING
THE FOREGOING, EACH PARTY AGREES THAT SERVICE OF PROCESS ON SUCH PARTY SHALL BE
DEEMED EFFECTIVE SERVICE OF PROCESS ON SUCH PARTY IT DELIVERED TO SUCH PARTY AT
THE ADDRESS SPECIFIED IN SECTION 10.01.
10.08 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.09. Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
<PAGE>
10.10. Entire Agreement. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings and negotiations, whether written or oral, between the parties
with respect to the subject matter hereof. No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by either party hereto. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
10.11. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
10.12. Survival of Representations and Warranties. The representations
and warranties of the Company shall not survive the Closing.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
IPC INFORMATION SYSTEMS, INC.
By:
Name:
Title:
MXNET, INC.
By:
Name:
Title:
By:
NATIONAL DISCOUNT BROKERS GROUP, INC.
By:
Name:
Title:
EXHIBIT 11
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended February 28,
Basic Diluted
------------- ------------------ ---------------- -----------------
1998 1997 1998 1997
------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Common stock and common stock equivalents:
Average common stock outstanding 14,116,572 12,832,835 14,116,572 12,832,835
Average common stock equivalents
issuable under stock options - - 28,021 52,939
------------- ------------------ ---------------- -----------------
Total average common stock and common stock
equivalents used for earnings per share computation 14,116,572 12,832,835 14,144,593 12,885,774
============= ================== ================ =================
Income:
Net income from continuing operations $ 1,516,600 $ (242,352) $ 1,516,600 $ (242,352)
Net income from discontinued operations 2,704,085 - 2,704,085 -
--------------- ---------------- ------------- ---------------
Net Income $ 4,220,685 $ (242,352) $ 4,220,685 (242,352)
=============== ================= ================ ================
Net income per common and common equivalent share:
Net income from continuing operations $ 0.11 $ (0.02) $ 0.11 $ (0.02)
Net income from discontinued operations 0.19 - 0.19 -
============== ================== ================ ================
Net Income $ 0.30 $ (0.02) $ 0.30 $ (0.02)
============== ================== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended February 28,
Basic Diluted
-------------------------------------- ----------------------------------
1998 1997 1998 1997
------------------ ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Common stock and common stock equivalents:
Average common stock outstanding 13,168,693 12,941,668 13,168,693 12,941,668
Average common stock equivalents
issuable under stock options - - 85,447 50,075
--------------- ------------------ ---------------- -------------
Total average common stock and common stock
equivalents used for earnings per share computation 13,168,693 12,941,668 13,254,140 12,991,743
=============== ================== ================ =================
Income:
Net income from continuing operations $ 6,312,365 $ 6,055,974 $ 6,312,365 $ 6,055,974
Net income from discontinued operations 2,704,085 - 2,704,085 -
=============== ================== ================ =================
Net Income $ 9,016,450 $ 6,055,974 $ 9,016,450 $ 6,055,974
=============== ================== ================ ==================
Net income per common and common equivalent share:
Net income from continuing operations $ 0.48 $ 0.47 $ 0.48 $ 0.47
Net income from discontinued operations 0.20 - 0.20 -
--------------- --------------- ---------------- ----------------
Net Income $ 0.68 $ 0.47 $ 0.68 $ 0.47
=============== ================== ================ ================
<FN>
(a) The sum of the individual quarters' earnings per common share does not
equal the total amount for the nine months ended February 28, 1998 or
February 28, 1997 due to the effect of averaging the number of shares of
common stock equivalents throughout the year.
</FN>
</TABLE>
(16)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the nine months ended February 28, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 1,099,812
<RECEIVABLES> 90,851,916
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 60,979,150
<PP&E> 17,936,759
<TOTAL-ASSETS> 201,685,924
<SHORT-TERM> 0
<PAYABLES> 26,441,408
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 38,915,943
<LONG-TERM> 3,500,000
0
0
<COMMON> 143,432
<OTHER-SE> 122,717,668
<TOTAL-LIABILITY-AND-EQUITY> 201,685,924
<TRADING-REVENUE> 72,777,010
<INTEREST-DIVIDENDS> 5,728,192
<COMMISSIONS> 27,358,479
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 3,382,992
<INTEREST-EXPENSE> 595,803
<COMPENSATION> 40,423,458
<INCOME-PRETAX> 11,939,957
<INCOME-PRE-EXTRAORDINARY> 9,016,450
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,016,450
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>
