April 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: National Discount Brokers Group, Inc.
Report on Form 10-Q for the Three Months Ended February 28, 1999
Gentlemen:
Enclosed please find the following material submitted on behalf of National
Discount Brokers Group, Inc. ("Company"):
One complete copy of the Company's report on Form 10-Q for the Three Months
Ended February 28, 1999 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, 1999
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
---------------------------------------------------------------------
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 required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
13,981,191 shares of Common Stock, par value $.01 per share, were outstanding
on March 31, 1999.
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC.
AND SUBSIDIARIES
INDEX
PAGE
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Statements of Financial Condition -
February 28, 1999 (Unaudited) and May 31, 1998 3
Consolidated Statements of Operations and Comprehensive Income (Unaudited) -
Three Months and Nine Months Ended February 28, 1999 and 1998 4 - 5
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended February 28, 1999 and 1998 6 - 7
Notes to Consolidated Financial Statements (Unaudited) -
February 28, 1999 8 - 10
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 16
Part II - Other Information
Item 1. - Legal Proceedings 16
Item 6. - Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
February 28,
1999 May 31,
ASSETS (Unaudited) 1998
------------------ -------------------
<S> <C> <C>
Cash $ 1,975,501 $ 1,039,121
Receivables:
Brokers and dealers 103,862,826 67,742,508
Other 1,167,352 727,099
Securities owned, at market value 80,854,888 67,969,111
Investment securities available for sale, at market value 100,000 2,615,000
Investment securities not readily marketable, at fair value 501,320 1,001,320
Loans and notes receivable 1,098,654 760,409
Furniture, fixtures, equipment and leasehold improvements - at
cost, net of accumulated depreciation and amortization of
$14,035,228 at February 28, 1999 and $11,832,763 at
May 31, 1998 14,945,704 18,011,262
Computer software - at cost, net of accumulated amortization of
$2,904,399 at February 28, 1999 and $1,388,843 at May 31, 1998 3,602,039 2,683,635
Identified intangible assets, net of accumulated amortization of
$1,674,224 at February 28, 1999 and $1,275,041 at May 31, 1998 15,184,140 5,988,770
Exchange memberships (market value $11,467,500 at February 28,
1999 and $9,243,500 at May 31, 1998) 7,416,496 7,416,496
U.S. Treasury Obligations, held as collateral 7,702,287 7,667,463
Subordinated notes receivable 3,500,000 3,500,000
Deferred tax asset 707,501 282,886
Other assets 1,001,198 1,068,534
------------------ -------------------
243,619,906 $ 188,473,614
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 39,358,930 $ 28,687,486
Accounts payable and accrued expenses, including
compensation payable to officers and employees of
$18,372,603 at February 28, 1999 and $11,216,667
at May 31, 1998 32,487,403 20,203,279
Loan payable 15,000,000 -
Secured demand notes payable 3,500,000 3,500,000
Income taxes payable 2,913,112 1,189,260
Minority interest in Equitrade 17,021,118 9,465,741
------------------ -------------------
Total liabilities 110,280,563 63,045,766
------------------ -------------------
Commitments and contingencies (Note 4)
Stockholders' equity (Note 5):
Preferred stock - $.01 par value;
authorized 1,000,000 shares; none issued - -
Common stock - $.01 par value; authorized
50,000,000 shares; issued 14,343,201 shares 143,432 143,432
Additional paid-in capital 65,522,767 65,050,817
Cumulative other comprehensive income-
unrealized gain on securities available for sale 100,000 2,615,000
Retained earnings 71,895,891 59,176,152
------------------ -------------------
137,662,090 126,985,401
Less: Treasury stock - at cost, 362,010 shares at
February 28, 1999 and 162,924 shares at May 31, 1998 (4,322,747) (1,557,553)
------------------ -------------------
Total stockholders' equity 133,339,343 125,427,848
------------------ -------------------
$ 243,619,906 $ 188,473,614
================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
(3)
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended February 28, Nine Months Ended February 28,
--------------------------------------- ----------------------------------
1999 1998 1999 1998
------------------ ------------------- ------------------ --------------
Revenues:
<S> <C> <C> <C> <C>
Firm securities transactions - net $ 46,529,165 $ 22,544,219 $ 96,087,492 $ 72,526,721
Commission income 12,593,098 8,065,034 30,992,390 27,358,479
Floor brokerage income 4,724,300 3,872,545 13,226,000 12,073,144
Investment securities gains realized 424,685 63,625 1,753,550 63,625
Interest income 2,525,598 1,944,346 6,671,042 5,728,192
Fee income 1,148,466 1,108,698 3,042,604 2,644,885
Other revenues 290,839 121,735 487,678 250,839
------------------ ------------------- ------------------ ----------------
68,236,151 37,720,202 152,260,756 120,645,885
------------------ ------------------- ------------------ ----------------
Expenses:
Compensation and benefits 26,283,282 13,900,807 57,729,844 39,357,852
Clearing and related charges 13,867,919 9,991,233 36,185,916 38,738,646
Communications 2,878,355 2,837,254 8,368,028 7,795,447
Advertising and professional fees 3,481,007 1,464,536 9,273,239 3,224,148
Depreciation and amortization 2,952,191 1,902,084 6,761,554 5,382,613
Occupancy costs and equipment rental 834,727 587,433 2,442,216 1,810,859
Other expenses 2,390,271 1,875,092 7,108,382 6,236,185
Interest expense 281,638 211,783 511,717 595,806
------------------ ------------------- ------------------ ----------------
52,969,390 32,770,222 128,380,896 103,141,556
------------------ ------------------- ------------------ ---------------
Income before minority interest and income taxes 15,266,761 4,949,980 23,879,860 17,504,329
(Income) loss of Equitrade allocated to minority partners 19,706 (1,362,300) (122,574) (4,512,453)
------------------ ------------------- ------------------ ----------------
Income from continuing operations before income taxes 15,286,467 3,587,680 23,757,286 12,991,876
------------------ ------------------- ------------------ ----------------
Income taxes:
Federal, currently payable 4,876,027 1,133,140 7,455,747 4,109,037
State and local, currently payable 2,550,871 510,215 4,006,415 1,617,031
------------------ ------------------- ------------------ ----------------
Total current income tax expense 7,426,898 1,643,355 11,462,162 5,726,068
------------------ ------------------- ------------------ ----------------
Federal, deferred (225,624) (161,078) (302,034) (97,361)
State and local, deferred (86,456) 201,875 (122,581) 229,465
----------------- ------------------- ------------------ ----------------
Total deferred income tax expense (benefit) (312,080) 40,797 (424,615) 132,104
------------------ ------------------- ------------------ ----------------
Total income taxes from continuing operations 7,114,818 1,684,152 11,037,547 5,858,172
------------------ ------------------- ------------------ ----------------
Net income from continuing operations 8,171,649 1,903,528 12,719,739 7,133,704
------------------ ------------------- ------------------ ----------------
Discontinued operations
Loss from discontinued operations (net of tax benefit) - (386,928) - (821,339)
Gain on sale of discontinued operations (net of taxes) - 2,704,085 - 2,704,085
------------------ ------------------- ------------------ ----------------
- 2,317,157 - 1,882,746
------------------ ------------------- ------------------ ----------------
Net income 8,171,649 4,220,685 12,719,739 9,016,450
------------------ ------------------- ------------------ ----------------
</TABLE>
(Continued)
(4)
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Continued)
Three Months Ended February 28, Nine Months Ended February 28,
-------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on investment securities
available for sale:
Unrealized holding gains (losses) arising during period 147,239 2,427,600 (261,784) 2,427,600
Less: reclassification adjustment for gains included
in net income (424,685) (1,753,550) -
------------ --------------- --------------- -------------
Other comprehensive income (loss), before tax (277,446) 2,427,600 (2,015,334) 2,427,600
Income tax expense (benefit) related to items of other
comprehensive income (loss) (127,625) 1,116,696 (927,054) 1,116,696
------------- --------------- ---------------- -------------
Other comprehensive income (loss), net of tax (149,821) 1,310,904 (1,088,280) 1,310,904
-------------- --------------- ---------------- -------------
Comprehensive income $ 8,021,828 $ 5,531,589 $ 11,631,459 $ 10,327,354
=============== ================ ================ ============
Net income (loss) per common and common
equivalent share
Basic:
Net income from continuing operations $ 0.58 $ 0.14 $ 0.91 $ 0.54
Net loss from discontinued operations - (0.03) - (0.06)
Gain on sale of discontinued operations - 0.19 - 0.20
------------------ ------------------ ------------------ ------------
Net income $ 0.58 $ 0.30 $ 0.91 $ 0.68
================== ================= ================== ============
Weighted average common shares outstanding 14,001,718 14,116,572 14,028,253 13,168,693
================== ================= ================== ============
Diluted (a):
Net income from continuing operations $ 0.58 $ 0.14 $ 0.90 $ 0.54
Net loss from discontinued operations - (0.03) - (0.06)
Gain on sale of discontinued operations - 0.19 - 0.20
------------------ ----------------- ------------------ -------------
Net income $ 0.58 $ 0.30 $ 0.90 $ 0.68
================== ================= ================== =============
Weighted average common shares outstanding 14,204,529 14,144,593 14,101,184 13,254,140
================== ================= ================== =============
<FN>
(a) The sum of the individual quarters' diluted earnings per common share does
not equal the total amount for the nine months ended February 28, 1999 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)
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
---------------------------------------
1999 1998
------------------ -------------------
Cash flows from operating activities:
<S> <C> <C>
Net income from continuing operations $ 12,719,739 $ 7,133,704
Net loss from discontinued operations - (821,339)
Non-cash items included in net income:
Equity income in partnerships - (500)
Depreciation and amortization 6,761,554 5,999,057
Gain on sale of investment securities available for sale (2,173,517) -
Loss on sale/write-off of investment securities not readily marketabl419,967 (63,625)
Income of Equitrade allocated to minority partners 122,574 4,512,453
Provision for deferred taxes (424,615) 132,104
Provision for losses on notes receivable 102,865 -
(Increase) decrease in operating assets:
Funds segregated for customers - 29,203
Receivables:
Brokers and dealers (36,120,318) (20,726,461)
Other (440,253) (593,904)
Securities owned (8,934,558) (15,282,714)
U.S. Treasury Obligations, held as collateral (34,824) 236,555
Other assets (net of deposits made on furniture, fixtures,
equipment and leasehold improvements) 72,335 353,899
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased 9,322,287 13,786,653
Accounts payable and accrued expenses 12,284,124 (9,400,957)
Income taxes payable 2,055,277 1,340,889
------------------ -------------------
Net cash used in operating activities (4,267,363) (13,364,983)
------------------ -------------------
Cash flows from investing activities:
Proceeds from sale of investment securities available for sale 2,173,517 -
Proceeds from sale of investment securities not readily marketable 80,033 63,625
Purchase of investment securities not readily marketable - (333,000)
Loans made (906,000) (60,000)
Principal collected on notes receivable 464,890 69,975
Purchases of furniture, fixtures and
equipment, and leasehold improvements, net (1,573,104) (3,533,424)
Deposits made on furniture, fixtures, equipment and
leasehold improvements (5,000) (38,603)
Purchases of computer software (2,453,332) (1,572,373)
Payment for purchase of identified intangible asset (450,000) -
Issuance of subordinated note (3,500,000) -
Principal collected on subordinated note 897,938 -
------------------ -------------------
Net cash used in investing activities (5,271,058) (5,403,800)
------------------ -------------------
</TABLE>
(Continued)
(6)
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Continued)
Nine Months Ended February 28,
---------------------------------------
1999 1998
------------------ -------------------
Cash flows from financing activities:
<S> <C> <C>
Sale of treasury stock - 19,267,500
Purchase of treasury stock (3,231,647) (49,760)
Proceeds from exercise of options 606,978
Proceeds from loan payable 15,000,000 -
Capital contributions by minority interest 362,527 275,087
Capital withdrawals by minority interest (2,263,057) (2,540,303)
------------------ -------------------
Net cash provided by financing activities 10,474,801 16,952,524
------------------ -------------------
Net increase (decrease) in cash 936,380 (1,816,259)
Cash surrendered on sale of MXNet - (117,747)
Cash at beginning of period 1,039,121 3,033,818
------------------ -------------------
Cash at end of period $ 1,975,501 $ 1,099,812
================== ===================
Supplemental disclosure of non-cash operating, investing and financing
activities:
Between July 1998 and December 1998, Equitrade loaned RSF Partners an aggregate
of $3,500,000, under nine subordination ageements, each with interest payable
at 8% per annum and a one-year term. Effective January 1, 1999, Equitrade
acquired the trading rights to equity securites in which RSF specialized on The
New York Stock Exchange. Equitrade issued a 13% membership interest in exchange
for these trading rights which were valued at $9,333,333. Concurrent with this
acquisition, Equitrade received from RSF $2,602,062 in net market value of
securities ($3,951,219 in securites owned less $1,349,157 in securities sold,
not yet purchased) and $897,938 in cash, which was applied against the
outstanding balance of the subordinated loans. Equitrade has disclosed that it
is in preliminary negotiations to be acquired by Spear, Leeds & Kellogg
Specialists L.L.C., a wholly owned subsidiary of Spear, Leeds & Kellogg, L.P.
The Company can give no assurance that the transaction will proceed or that if
a definitive agreement is signed that the transaction will close.
Between December 1998 and February 1999, various employees of the Company
exercised an aggregate of 45,736 options for the purchase of 45,736 shares of
the Company's common stock with exercise prices ranging from $11.00 per share
to $13.50 per share. In connection with these exercises, the Company has
estimated an income tax benefit of $331,425, which has been utilized to reduce
the Company's current liability for income taxes.
The accompanying notes are an integral part of these statements.
(7)
</TABLE>
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 28, 1999
Note 1 - Business and organization
National Discount Brokers Group, Inc. ("NDBG") and its subsidiaries
(collectively, the "Company") are primarily engaged in the securities business
and in providing related financial services. The Company has two principal
registered broker-dealer wholly owned subsidiaries, Sherwood Securities Corp.
("Sherwood Securities") and Triak Services Corp., doing business as National
Discount Brokers ("NDB"). In addition, NDBG and its wholly owned subsidiary, SHD
Corp., own membership interests in Equitrade Partners L.L.C. ("Equitrade"),
which is a specialist for securities listed on The New York Stock Exchange
("NYSE").
On September 4, 1998, Equitrade signed a letter of intent with RSF
Partners, L.P. ("RSF") to acquire certain assets of RSF including all of RSF's
rights to act as a specialist on the NYSE. RSF was a specialist in 39
securities. As of December 31, 1998, RSF and Equitrade, together with the
general partners of RSF, entered into a Contribution Agreement. Pursuant to the
Contribution Agreement, on December 31, 1998, RSF contributed its specialist
rights to Equitrade in exchange for a 13% membership interest in Equitrade. The
Company's membership interest in Equitrade after the transaction with RSF is
46.84%. As a result of this transaction, the NYSE required Equitrade to increase
its capital to $55,000,000. In order to increase Equitrade's capital, a
$22,000,000 subordinated loan was made to Equitrade by NDBG. NDBG obtained the
funds by borrowing $15,000,000 from Spear, Leeds & Kellogg, L.P., with a
six-month maturity, and the balance was provided by internally generated funds
of the Company. In addition, Equitrade acquired the inventory of securities of
RSF, the fair market value of which (approximately $2,700,000) was applied to
satisfy $3,500,000 in subordinated loans from Equitrade to RSF. RSF repaid the
remaining approximately $800,000 of the subordinated loan by a cash transfer to
Equitrade. (See "Management's Discussion and Analysis of Financial Condition and
Results of 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 1998 Annual Report on Form 10-K. Certain prior year
amounts have been reclassified to conform to the three and nine months ended
February 28, 1999 presentations.
Note 3 - Net income per common share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement
128"), for periods ending after December 15, 1997. Statement 128 requires a
calculation of basic earnings per share, as well as a dual presentation of basic
and diluted earnings per share on the face of the statement of income. Basic
earnings per share differs from diluted earnings per share in that dilution for
common stock equivalents is excluded.
Net income per common share is computed using the weighted average number
of shares of common stock and common stock equivalents outstanding. Common stock
equivalents include stock issuable under stock options. The treasury stock
method of accounting was used in computing the common stock equivalents for the
computation of diluted earnings per common share.
Note 4 - Commitments and contingencies
Certain significant legal proceedings and matters were previously disclosed
in Item 3, Legal Proceedings, of the Company's 1998 Annual Report on Form 10-K,
and the disclosures regarding such matters are incorporated herein by reference.
NDBG's subsidiaries, and in some cases NDBG, have been named as defendants in
lawsuits and arbitrations and are the subject of investigations, that allege,
among other things, violations of Federal and state securities and related laws
and other laws.
(8)
<PAGE>
Weiss, Peck & Greer, L.L.C. ("WPG") has filed a Statement of Claim dated
March 22, 1999 in an arbitration before the National Association of Securities
Dealers, Inc. titled In the Matter of the Arbitration of Weiss, Peck & Greer,
L.L.C., Claimant against Sherwood Securities Corp., Respondent. In the Statement
of Claim, WPG alleges that Sherwood Securities contravened all standards of
"commercial reasonableness" and "just and equitable principles of trade" in
connection with trades of approximately 1.5 million shares of Amazon.com, Inc.
entered into with Carnegie, Childs & Co. L.L.C. on January 8, 1999. WPG was
Carnegie's clearing broker. WPG alleges that the trades resulted in Carnegie
having a net short position in Amazon.com, Inc. shares of 1,462,000. WPG covered
the short position on January 11, 1999 and alleges it sustained losses in excess
of $11,000,000. WPG has requested relief of compensatory damages in excess of
$11,000,000 plus consequential damages and interest, WPG's costs and attorneys'
fees and such other relief as the arbitration panel deems just and appropriate.
Management of Sherwood Securities intends to vigorously defend against these
claims and believes it has valid defenses to these claims and intends to assert
counterclaims, including a claim of approximately $1,300,000 for losses it
suffered in connection with trades in Amazon.com, Inc. shares executed by
Sherwood Securities for Carnegie on January 8, 1999.
The Company is also involved in other litigation and, except as set forth
above, although there can be no assurance that such lawsuits, arbitrations and
investigations involving the Company will not have a material, adverse effect on
the results of operations of the Company in any future period, depending in part
on the results for such period, based on information currently available,
management of the Company believes that any such lawsuits, arbitrations and
investigations are not likely to have a material adverse effect on the
consolidated financial condition and results of operations or liquidity of the
Company in future periods.
Note 5 - Net capital requirements
As registered broker-dealers, Sherwood Securities, NDB and Equitrade are
subject to the Securities Exchange Act of 1934 Uniform Net Capital Rule 15c3-1
(the "Rule"). As of February 28, 1999, the net capital of Sherwood Securities,
NDB and Equitrade exceeded their required net capital under the Rule by
$52,287,000, $4,128,000 and $51,746,000, respectively.
The Rule also provides that equity capital may not be withdrawn or cash
dividends be paid if the resulting net capital of a broker-dealer would be less
than the amount required under the Rule. Accordingly, at February 28, 1999 the
payment of dividends and advances to the Company by Sherwood Securities, NDB and
Equitrade is limited to $52,087,000, $4,078,000 and $51,696,000, respectively,
under the most restrictive of these requirements. The SEC may by order restrict,
for a period of up to 20 business days, any withdrawal by a broker-dealer of
equity capital, as defined, if such withdrawal, when aggregated with all other
withdrawals of equity capital on a net basis during a thirty calendar day
period, exceeds 30% of the broker-dealer's net capital or if the SEC determines
that such withdrawal would be detrimental to the financial integrity of the
broker-dealer or the financial community. The NYSE has the authority to set
minimum levels of capitalization for specialists on the NYSE, including
Equitrade. The NYSE has imposed a minimum capital requirement on Equitrade of
$55,000,000 as a result of its transaction with RSF Partners, L.P. Equitrade's
adjusted net capital, for NYSE purposes, was $55,672,956 as of February 28,
1999.
Note 6 - New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("Statement 130"), for periods beginning after December 15, 1997.
Statement 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. Statement 130 has been implemented by the Company for the nine months
ended February 28, 1999. The adoption of this standard did not have a material
impact on the Company's consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). This standard establishes the criteria for determining an
operating segment and the required financial information to be disclosed.
Statement 131 also establishes standards for disclosing related information
regarding products and services, geographic areas and major customers. This
standard
(9)
<PAGE>
supercedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting of Segments for a Business Enterprise". The Company will adopt
Statement 131 as of May 31, 1999. This standard is limited to issues of
reporting and presentation and does not address recognition or measurement. Its
adoption, therefore, will not have an effect on the Company's earnings,
liquidity, or capital resources.
Under the provisions of Statement 131, the Company will have three
reportable segments: market-making, discount brokerage and specialist
activities. Sherwood Securities represents the Company's wholesale market-making
segment, which primarily derives its revenues through trading profits from
institutional customers. NDB transacts all business that will be reported in the
Company's discount brokerage segment. Its revenues are principally in the form
of retail commission income, and interest and fee income earned on its
customers' balances. Equitrade, the Company's NYSE specialist, primarily derives
its revenues in the form of trading profits and floor brokerage income. The
income and expense from this activity will comprise the specialist segment.
These segments comprise 66%, 25% and 8%, respectively, of total revenue after
intersegment eliminations during the nine months ended February 28, 1999.
The accounting policies of the segments will be the same as those described
in Note 2, "Summary of Significant Accounting Policies", in the Company's Report
on Form 10-K for the year ended May 31, 1998. The Company will evaluate the
performance of its segments based on profit or loss from operations before
income taxes. Information on segment assets will not be disclosed because it
will not be used for evaluating segment performance and deciding how to allocate
resources to segments. Intersegment revenues and expenses will be eliminated
between segments.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and for
determining when specific costs should be capitalized and when they should be
expensed. SOP 98-1 has been implemented by the Company as of the beginning of
fiscal 1999. The adoption of SOP 98-1 did not have a material impact on the
Company's consolidated financial statements.
(10)
<PAGE>
Item - 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The results of continuing operations of National Discount Brokers Group,
Inc. and subsidiaries (collectively the "Company") for the three and nine months
ended February 28, 1999 reflect primarily the activities of Sherwood Securities
Corp. ("Sherwood Securities"), Triak Services Corp., doing business as National
Discount Brokers ("NDB"), and Equitrade Partners L.L.C. ("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 an
on-line discount brokerage firm specializing in trade execution for individual
investors. Equitrade is a registered specialist in equity securities on The New
York Stock Exchange ("NYSE").
The Company's consolidated net income from continuing operations for the
three months ended February 28, 1999 was $8,172,000 compared to $1,904,000 for
the three months ended February 28, 1998, an increase of 329%. For the quarter
ended February 28, 1999, Sherwood Securities had net income of $9,278,000
compared to net income of $1,130,000 for the quarter ended February 28, 1998
while NDB had net income of $786,000 for the quarter ended February 28, 1999,
compared to a net loss of $67,000 for the quarter ended February 28, 1998.
Equitrade had a net profit of $166,000 for the three months ended February 28,
1999 (of which the Company's share, inclusive of that earned by SHD, was
$186,000) as compared to a net profit of $2,617,000 for the three months ended
February 28, 1998 (of which the Company's share was $1,254,000).
The Company's consolidated net income from continuing operations for the
nine months ended February 28, 1999 was $12,720,000 compared to $7,134,000 for
the nine months ended February 28, 1998, an increase of 78%. For the nine months
ended February 28, 1999, Sherwood Securities had net income of $13,746,000
compared to net income of $2,045,000 for the nine months ended February 28, 1998
while NDB had a net loss of $763,000 for the nine months ended February 28,
1999, compared to net income of $1,383,000 for the nine months ended February
28, 1998. Equitrade had a net profit of $896,000 for the nine months ended
February 28, 1999 (of which the Company's share, inclusive of that earned by
SHD, was $773,000) as compared to a net profit of $9,497,000 for the nine months
ended February 28, 1998 (of which the Company's share was $4,985,000).
Total revenue for the Company increased by approximately $30,516,000, or
81%, for the three months ended February 28, 1999, as compared with February 28,
1998, and increased $31,615,000, or 26%, for the nine months ended February 28,
1999 as compared with February 28, 1998. The reasons for the increase in
revenues are set forth below.
Revenue from firm securities transactions increased by $23,985,000, or
106%, and by $23,561,000, or 32%, for the three and nine months ended February
28, 1999, respectively, as compared with the same periods in the previous year.
The increased activity in the equity markets, particularly trading volume in
internet and high technology related stocks, resulted in increases in both the
Company's ticket and share volume for the quarter and nine month period ended
February 28, 1999, as compared to both the third quarter and nine month period
of a year ago. Revenues from firm securities transactions at Sherwood Securities
increased approximately $26,459,000, or 129%, and $31,598,000, or 49%, for the
three and nine month periods ended February 28, 1999, respectively, when
compared to the same periods in the prior year. Sherwood Securities' overall
ticket volume increased approximately 74% and 36% for the same periods. Trading
profits per ticket also increased. Revenues from securities transactions at
Equitrade decreased by $2,597,000, or 122%, to a loss of $476,000 for the three
months ended February 28, 1999 from a gain of $2,121,000 for the three months
ended February 28, 1998. For the nine months ended February 28, 1999,
Equitrade's revenues from firm securities transactions decreased by $8,490,000,
or 129%, from a gain of $6,584,000 for the nine months ended February 28, 1998
to a loss of $1,906,000 for the nine months ended February 28, 1999.
The Company's commission income, primarily generated by NDB, increased by
$4,528,000, or 56%, and by $3,634,000, or 13%, for the three and nine months
ended February 28, 1999, respectively, when compared with the same periods in
the prior year. These increases occurred primarily due to the increase in NDB's
average daily ticket count, which was approximately 9,300 tickets per day for
the three months ended February 28, 1999 and 7,200 tickets per day for the nine
months ended February 28, 1999 as compared to approximately 5,700 for the three
months ended February 28, 1998 and 6,000 for the nine months ended February 28,
1998. Correspondent rebates received by NDB from Sherwood Securities, which are
included as part of commission income and which were eliminated in
consolidation, totaled $1,974,000 and $4,810,000 for the three and nine months
ended February 28, 1999, respectively,
(11)
<PAGE>
as compared to $1,486,000 and $5,586,000 for the three and nine months ended
February 28, 1998, respectively.
Floor brokerage income, generated by Equitrade, increased by approximately
$852,000, or 22%, and by $1,153,000, or 10%, for the three and nine months ended
February 28, 1999, respectively, when compared to same periods in the prior
year. The increases were the result of a rise in the volume of transactions in
the stocks in which Equitrade acts as a specialist on the NYSE. However,
although share volume was up 53% and 45% for the three and nine months ended
February 28, 1999, respectively, over the comparable periods of the prior year,
due to increased competition, floor brokerage rates have been decreasing as a
trend and discounts are often given to high volume customers. The increase in
the number of shares traded is attributed primarily to the number of stocks
traded as a specialist, which increased by 47 (up 30%) from the prior year
mainly due to the acquisition of RSF Partners.
Realized investment securities gains for the three and nine months ended
February 28, 1999 resulted from sales of an aggregate of 124,500 shares of
common stock of Eurotech Ltd. (none during the quarter ended February 28, 1999)
and 250,100 shares of common stock of Astropower, Inc. (80,100 shares during the
quarter ended February 28, 1999). These gains were offset by the write-off of
the Company's investment in 500,000 shares of common stock of Award Track, Inc.,
which management deemed as worthless. 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 50,000 shares of common
stock of Eurotech Ltd.
Interest income increased by approximately $581,000, or 30%, and $943,000,
or 16%, for the three and nine months ended February 28, 1999, respectively, as
compared to the previous year. The increases are primarily due to a rise in
NDB's average customer debit and credit balances held with NDB's clearing
broker. These larger average amounts of cash available to earn interest were
offset by a decrease in average interest rates.
Fee income, generated by NDB, increased by $40,000, or 4%, and $398,000, or
15%, for the three and nine months ended February 28, 1999, respectively, as
compared to the prior year. The increases are principally due to the NDB
receiving higher distribution assistance fees (previously referred to as 12b-1
fees) from money market funds as customers' balances in those funds have
increased since the prior year. The increases would have been even higher,
except that in the quarter ended February 28, 1998, Sherwood Securities received
$275,000 for consulting services rendered in connection with the sale of its
AMEX specialist business.
Total expenses for the three months ended February 28, 1999 increased
approximately $20,199,000, or 62%, from $32,770,000 in the quarter ended
February 28, 1998 to $52,969,000 during the quarter ended February 28, 1999.
Total expenses for the nine months ended February 28, 1999 increased
approximately $25,239,000, or 24%, from $103,142,000 in 1998 to $128,381,000 in
1999. The reasons for the increase in expenses are set forth below.
Compensation and benefits increased $12,382,000, or 89%, and $18,372,000,
or 47% for the three and nine months ended February 28, 1999, respectively,
compared with the same periods in the prior year. As a percentage of revenue,
employee compensation increased to 39% and 38% for the three and nine months
ended February 28, 1999, respectively, from 37% and 33% for the comparable
periods in fiscal 1998. The increases were primarily due to a rise in
compensation to Sherwood Securities' traders and salesmen resultant from the
increase in Sherwood Securities' net trading revenue and profitability.
Similarly, based on the increasing profitability of the Company, management and
employee bonuses have increased. Finally, the number of employees increased to
622 employees as of February 28, 1999, from 542 employees as of February 28,
1998.
While clearing and related charges increased by approximately $3,877,000,
or 39%, for the three months ended February 28, 1999, as compared to the same
period last year, these charges decreased by approximately $2,553,000, or 7%,
for the nine months ended February 28, 1999, as compared to the prior year. As a
percentage of revenue, clearing and related charges decreased to 20% and 24% for
the three and nine months ended February 28, 1999, respectively, from 26% and
32% for the same periods in fiscal 1998. The increase in clearing and related
charges for the three months ended February 28, 1999 was mainly due to increases
in Sherwood Securities' and NDB's ticket counts of 74% and 61%, respectively,
for the period which more than offset negotiated decreases in clearance charges
per ticket and in rates paid to Sherwood Securities' correspondents for order
flow. The decrease for the nine months ended February 28, 1999 is due
principally to two factors. First, there was the reduction in clearance charges
due to decreases in per ticket rates negotiated during the nine months ended
February 28, 1998. And second, was the reduction in
(12)
<PAGE>
correspondent fees paid by Sherwood Securities based upon the overall size and
type of the order flow received. These rate reductions were more than enough to
compensate for increases of 36% and 20% in total trades executed by Sherwood
Securities and NDB, respectively, during the nine months ended February 28, 1999
over the prior year.
Communications expense, which includes market data services, increased by
approximately $41,000, or 1%, and $573,000, or 7%, for the three and nine months
ended February 28, 1999, as compared to the prior year. The increase is mainly
due to an increase in the cost of real-time quotations now being offered on NDB
WebstationTM.
Advertising and professional fees increased by approximately $2,016,000, or
138%, and $6,049,000, or 188%, for the three and nine months ended February 28,
1999, respectively, as compared to the same periods of the prior year. The
increases are primarily due to a rise in the costs associated with the NDB's new
advertising and marketing plan, in addition to legal and professional fees
associated with the conversion of Equitrade from a limited partnership ("Old
Equitrade") to a limited liability company and the acquisition of RSF Partners,
L.P.
Depreciation and amortization increased by approximately $1,050,000, or
55%, and $1,379,000, or 26%, for the three and nine months ended February 28,
1999, respectively, as compared to the prior year. These increases can be
attributed to three main factors. First, NDB incurred additional charges for the
disposition of abandoned assets. Second, the useful lives for all of Sherwood
Securities' and NDB's computer-related equipment were reduced. This revision was
necessary due to the fact that these assets are becoming obsolete faster (due to
speed and capacity limitations) in view of the higher volume and volatility
conditions of current markets. Finally, also contributing to the increase is
depreciation and amortization incurred on fixed asset, leasehold improvement and
computer software additions by Sherwood Securities and NDB aggregating
approximately $2,100,000 and $3,400,000, respectively, during the period from
March 1998 through February 1999.
Occupancy costs and equipment rental expenses increased $247,000, or 42%,
and $631,000, or 35%, for the three and nine month periods ended February 28,
1999, respectively, as compared to the prior year. The increase is principally
due to an increase in the cost of rental of various computer hardware and
software systems related to NDB WebstationTM.
Other expenses increased by approximately $515,000, or 27%, and $872,000,
or 14%, for the three and nine month periods ended February 28, 1999,
respectively, as compared to the prior year. These increases can be attributed
to an increase in Sherwood Securities' travel and entertainment charges, as well
as an increase in NDB's maintenance service contract fees paid in order to
maintain infrastructures as the original warranties on the various systems
continue to expire.
While interest expense increased by approximately $70,000, or 33%, for the
three months ended February 28, 1999, as compared to the previous year, interest
expense decreased $84,000, or 14%, for the nine months ended February 28, 1999,
as compared to the previous period. On December 31, 1998, NDBG borrowed
$15,000,000, at an interest rate of 6% per annum, from Spear, Leeds & Kellogg,
L.P. in order to increase the capital of Equitrade as a result of Equitrade's
acquisition of RSF Partners, L.P. 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 owed in connection with its
settlement agreement, as amended, in the case entitled In Re: NASDAQ
Market-Makers Antitrust Litigation. In addition, the Company incurred interest
expense during the three and nine months ended February 28, 1998 on short-term
borrowings made in connection with its trading activities.
Income of Equitrade allocated to minority partners represents the share of
Equitrade's net income allocated to the partners of Equitrade, other than the
Company and one of its subsidiaries. Prior to December 1998, Equitrade's
partners shared different percentages of Equitrade's three specialist lists. In
conjunction with Equitrade becoming a limited liability company, the specialist
lists were merged, with each member being allocated a single profit or loss
percentage. Equitrade's net income was down for the three and nine months ended
February 28, 1999, respectively, as compared with the same periods of the prior
year.
The Company's effective tax rate was approximately 47% for each of the
three month periods ended February 28, 1999 and February 28, 1998, and increased
from approximately 45% for the nine months ended February 28, 1998 to
approximately 46% for the nine months ended February 28, 1999.
For the three and nine months ended February 28, 1999, deferred tax
benefits of approximately $312,000 and $425,000, respectively, included in
income tax expense, relate to the future taxability of certain temporary book to
tax
(13)
<PAGE>
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 more than 76% of these
tangible assets consisting of cash or assets readily convertible into cash. The
Company's operations have generally been financed by internally-generated funds.
In addition, at February 28, 1999, margin account borrowings of approximately
$384,000,000 were available to the Company from its clearing brokers.
The Company's broker-dealer subsidiaries and affiliates, Sherwood
Securities, NDB and Equitrade, are subject to the SEC's minimum net capital
requirement, which is designed to measure the general financial soundness and
liquidity of broker-dealers. As of February 28, 1999, Sherwood Securities, NDB
and Equitrade had approximately $52,287,000, $4,128,000 and $51,746,000,
respectively, in excess of the SEC 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. The NYSE also has the authority to set minimum levels of
capitalization for specialists on the exchange, which includes Equitrade. The
NYSE has imposed a minimum capital requirement on Equitrade of $55,000,000 as a
result of its transaction with RSF. As a result, on December 31, 1998, NDBG
borrowed $15,000,000 in order to increase Equitrade's capital to the required
levels. The borrowing has a six-month maturity and bears interest at the rate of
6% per annum, with the interest payable monthly. Equitrade's adjusted net
capital, for NYSE purposes, was $55,672,956 as of February 28, 1999.
On March 3, 1999, Equitrade disclosed that it is in preliminary
negotiations to be acquired by Spear, Leeds & Kellogg Specialists L.L.C. The
Company can give no assurance that the transaction will proceed or that if a
definitive agreement is signed that the transaction will close.
From time to time, the Company has borrowed funds in connection with its
trading activities. The Company currently has no committed lines of credit and
such borrowings were done on an "as needed" basis. Management is reviewing
alternatives to meeting these funding requirements.
Cash flows from operations will vary on a daily basis as the Company's
portfolio of marketable securities changes. The Company's ability to convert
marketable securities owned into cash is determined by the depth of the market
and the size of the Company's securities positions in relation to the market as
a whole. The portfolio mix also affects the regulatory capital requirements
imposed on Sherwood Securities, NDB and Equitrade, which directly affects the
amount of funds available for operating, investing and financing activities.
Effective August 14, 1998, NDBG purchased an additional interest in Old
Equitrade from one of Old Equitrade's limited partners for $450,000. Concurrent
with this purchase, NDBG loaned $900,000 to another limited partner to enable
the partner to purchase an additional limited partnership interest in Old
Equitrade. The loan, which is due on December 31, 2003, bears interest at the
rate of 7% per annum and is secured by a pledge of the limited partner's
partnership interest.
The Company anticipates that it will spend an additional $1,000,000 over
the next 3 months for its subsidiaries' ongoing technological infrastructure
upgrades and intends to finance these upgrades with internally generated funds.
Cash flows from the Company's investment activities are directly related to
market conditions.
Between July 1998 and December 1998, Old Equitrade and Equitrade loaned RSF
an aggregate of $3,500,000, under nine subordination agreements, each with
interest payable at 8% per annum and a one-year term. As part of the acquisition
of RSF, Equitrade received approximately $2,700,000 in market value of
securities and $800,000 in cash, which were applied against the outstanding
balance of the subordinated loans.
In December 1992, the Company announced it would buy back up to 1,500,000
shares of the Company's common stock from time to time in the open market or
through privately negotiated transactions. In June 1998, the Board of Directors
authorized an interim program to repurchase up to an additional 150,000 shares
of the Company's common stock. As of February 28, 1999, 1,650,000 shares had
been reacquired, of which 244,822 shares were repurchased during the nine months
ended February 28, 1999. The source of funds for these purchases was internally
generated.
(14)
<PAGE>
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 which, in the
event there are higher interest rates, which normally result from inflation,
would offset some of the costs.
Year 2000 Compliance
This material is subject to the Year 2000 Information and Readiness Disclosure
Act of 1998.
State of Readiness - The Company is preparing for the issues associated
with the year 2000, including changes in the programming of internal and vendor
computer systems. The "year 2000" problem is pervasive and complex as virtually
every computer operation will be affected by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Company's plan to deal with the year 2000 issue is a
five-step plan, which includes both information technology ("IT") and
non-information technology ("non-IT") systems. IT systems include the Company's
trading system, the Company's accounting software and the NDB WebstationTM.
Non-IT systems include the Company's headquarters' water, sprinkler and elevator
systems. The five steps are awareness, assessment, renovation, validation and
implementation. Awareness required the notification of all employees,
particularly senior management, of the potential year 2000 problem. Assessment
included taking inventory of every product or service produced or used by the
Company that relies on the use of dates. The date could be used to store,
search, retrieve or calculate information. The awareness and assessment phases
of the plan were 100% complete as of February 28, 1999. Renovation, which has
also been substantially completed as of February 28, 1999, includes the
conversion of year 2000 non-compliant systems into year 2000 compliant systems.
The Company believes that internal software and hardware identified as
non-compliant have been made compliant or replaced as of February 28, 1999
with the exception of one software application which was upgraded by April 9,
1999. The Company has not yet internally verified compliance of its new NDB
WebstationTM which is expected to be completed by May 31, 1999.
Validation comprises the testing of all systems by using test data with dates
that include the year 2000. This is the certification phase of the Company's
production platforms. Implementation will be a final review of all year 2000
production systems, IT and non-IT, in service. The Company has constructed a
dedicated year 2000 test development environment to eliminate any potential
risks to the production platforms for use in the validation phase of this plan.
The Company expects the validation and implementation phases to be completed by
June 1999. The Company is dependent upon services rendered by third parties,
such as telecommunications, electric and clearance, which may have a material
effect on operations. These essential service providers have indicated to the
Company that they will be year 2000 compliant in time to meet the Company's
schedule although management presently has no assurance that such plans will be
implemented on a timely basis.
As a NYSE specialist, Equitrade utilizes the computer systems of the NYSE
except for its accounting functions. All of the functions utilized by Equitrade
for accounting have been tested and are currently year 2000 compliant. With
regard to the trading, market data and comparison systems of the NYSE, Equitrade
has been informed by the NYSE that the modifications to these systems have been
made and are year 2000 compliant.
Costs - The Company estimates that it will spend $500,000 for software
modifications, hardware and testing related to year 2000. Through February 28,
1999, the Company has spent approximately $145,000 of which $52,000 was incurred
during the three months ended February 28, 1999. The Company does not track
internal costs related to year 2000 issues, which consist primarily of payroll
expenses and, as a result, the foregoing estimate and actual expenditures do not
include such internal costs.
The Company has assessed that business interruption is the most reasonably
likely worst case year 2000 scenario, although the effect upon the Company's
results of operations, liquidity and financial condition is unknown.
(15)
<PAGE>
Contingency Plan - At this time, the Company has formulated a preliminary
contingency plan should internal systems, vendors or customers fail to become
compliant or fail to operate as a result of year 2000 problems. In case of a
non-replaceable vendor suffering a failure in the year 2000, the Company could
be materially affected.
Forward Looking Statements
Statements regarding the Company's expectations as to its future operations
and financial condition and certain other information contained in this Form
10-Q or in documents incorporated herein by reference constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operation, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include a general downturn in the economy, changes in
the level of activity of securities markets in which the Company participates,
changes in government policy or regulation and unforeseen costs and other
effects related to legal proceedings or investigations of governmental and
self-regulatory organizations.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
Certain significant legal proceedings and matters were previously disclosed
in Item 3, Legal Proceedings, of the Company's 1998 Annual Report on Form 10-K,
and the disclosures regarding such matters are incorporated herein by reference.
NDBG's subsidiaries, and in some cases NDBG, have been named as defendants in
lawsuits and arbitrations and are the subject of investigations, that allege,
among other things, violations of Federal and state securities and related laws
and other laws.
Weiss, Peck & Greer, L.L.C. ("WPG") has filed a Statement of Claim dated
March 22, 1999 in an arbitration before the National Association of Securities
Dealers, Inc. titled In the Matter of the Arbitration of Weiss, Peck & Greer,
L.L.C., Claimant against Sherwood Securities Corp., Respondent. In the Statement
of Claim, WPG alleges that Sherwood Securities contravened all standards of
"commercial reasonableness" and "just and equitable principles of trade" in
connection with trades of approximately 1.5 million shares of Amazon.com, Inc.
entered into with Carnegie, Childs & Co. L.L.C. on January 8, 1999. WPG was
Carnegie's clearing broker. WPG alleges that the trades resulted in Carnegie
having a net short position in Amazon.com, Inc. shares of 1,462,000. WPG covered
the short position on January 11, 1999 and alleges it sustained losses in excess
of $11,000,000. WPG has requested relief of compensatory damages in excess of
$11,000,000 plus consequential damages and interest, WPG's costs and attorneys'
fees and such other relief as the arbitration panel deems just and appropriate.
Management of Sherwood Securities intends to vigorously defend against these
claims and believes it has valid defenses to these claims and intends to assert
counterclaims, including a claim of approximately $1,300,000 for losses it
suffered in connection with trades in Amazon.com, Inc. shares executed by
Sherwood Securities for Carnegie on January 8, 1999.
The Company is also involved in other litigation and, except as set forth
above, although there can be no assurance that such lawsuits, arbitrations and
investigations involving the Company will not have a material, adverse effect on
the results of operations of the Company in any future period, depending in part
on the results for such period, based on information currently available,
management of the Company believes that any such lawsuits, arbitrations and
investigations are not likely to have a material adverse effect on the
consolidated financial condition and results of operations or liquidity of the
Company in future periods.
(16)
<PAGE>
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.1 - Amended and Restated Operating Agreement of
Equitrade Partners, L.L.C. dated as of
December 31, 1998
Exhibit 10.2 - Contribution Agreement, dated as of December 31,
1998, among Equitrade Partners, L.L.C., RSF
Partners, L.P., Joseph Rodriguez, James Bowen,
Isidore Fields and Robert Prosser
Exhibit 10.3 - Employment Agreement dated as of April 1, 1999
between Frank E. Lawatsch, Jr. and the Company
Exhibit 10.4 - Change of Control Agreement dated as of April 1,
1999 between Frank E. Lawatsch, Jr.and the Company
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 27 - Financial Data Schedule
(b) The Company filed two reports on Form 8-K during the quarter ended
February 28, 1999. The reports, dated February 12, 1999 and February
22, 1999, were filed in regard to the Company's change in its
independent auditors, from KPMG Peat Marwick LLP to
PricewaterhouseCoopers LLP.
(17)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Discount Brokers Group, Inc.
----------------------------------------
Date: April 13, 1999 By: Dennis Marino
- ---------------------- ----------------------------------------
Dennis Marino
Executive Vice President
and Chief Administrative Officer
Date: April 13, 1999 By: Denise Isaac
- ---------------------- ----------------------------------------
Denise Isaac
Chief Financial Officer and
Principal Accounting Officer
(18)
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
EQUITRADE PARTNERS, L.L.C.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1 Formation 2
2 Name; Registered Office and Agent 2
3 Purpose; Powers 2
4 Principal Office 3
5 Term 3
6 Capital Contributions; Membership
Interests 3
7 Capital Accounts; Allocations of Profits
and Losses and Distributions of Cash 6
8 Fiscal Year and Accounting Method 22
9 Books and Records 22
10 Bank Accounts 22
11 Management 23
12 Tax Matters and Accounting Partner 33
13 Transfer of Interests in Company 34
14 Right of First Refusal 45
15 Buy-Out of Active Member 48
15A Green's Membership Interest 53
16 Continuation of Company 56
17 Dissolution and Liquidation of Company 57
18 Additional Provisions 59
19 Arbitration 62
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
EQUITRADE PARTNERS, L.L.C.
THIS AGREEMENT is made effective as of December 31, 1998 by and among
NATIONAL DISCOUNT BROKERS GROUP, INC., a Delaware corporation with its principal
office at Ten Exchange Place Centre, 15th Floor, Jersey City, New Jersey
07302-3913 ("NDB Group, Inc.") as a member; SHD CORP., a Delaware corporation
with its principal office at Ten Exchange Place Centre, Jersey City, New Jersey
07302-3913, as a member; STEPHEN J. DILASCIO ("Dilascio"), currently residing at
67 Hilton Ave. Apt. C-7, Garden City, NY 11530, as a member; GERARD J. DREYER
("Dreyer"), currently residing at 178 Park Ave., Leonia NJ 07605, as a member,
JOHN F. NICOLOSI ("Nicolosi"), currently residing at 28 Anne Drive, Hicksville
NY 11801, as a member; PHILIP J. KOPP, III ("Kopp"), currently residing at
181-63 Tudor Road, Jamaica Estates NY 11432, as a member; JAMES C. EMRICH,
currently residing at 1927 Decatur Ave., N. Bellmore, NY 11710, as a member;
DAVID GREEN ("Green"), currently residing at 3 Tanager Run, Kinnelon, NJ 07405,
as a member; CYNTHIA KELLOGG, currently residing at 39 Steward Road, Short
Hills, NJ 07920, as a member; HARVEY SILVERMAN, currently residing at 750 Park
Avenue, Apt. 17A, New York, NY 10021, as a member; JOHN DUFFY, currently
residing at 116AA Youngs Road, Basking Ridge, NJ 07920, as a member; JOSEPH A.
RODRIGUEZ ("Rodriguez"), currently residing at 776 Livingston Drive, Brick, New
Jersey, as a member; JAMES F. BOWEN, III ("Bowen"), currently residing at 776
Lexington Drive, Brick, New Jersey, as a member; ISIDORE FIELDS ("Fields"),
currently residing at 62 Bunker Hill Drive, Middletown, New Jersey, as a member;
and, ROBERT L. PROSSER SR.,("Prosser"), currently residing at 205 Sago Palm
Road, Vero Beach, Florida 32963, as a member (all the members collectively, the
"Members," and individually, a "Member").
WHEREAS, the Members desire to restate and amend the Operating
Agreement, effective as of November 30, 1998 of a limited liability company
formed under the Delaware Limited Liability Company Act, Delaware Code ss.18-101
et seq., as amended from time to time, (the "Act") named EQUITRADE PARTNERS,
L.L.C. (the "Company").
NOW, THEREFORE, in consideration of the foregoing premises and the
promises contained in this Agreement, the parties agree as follows:
SECTION 1
Formation
The Members shall organize the Company as a limited liability company
under the provisions of the Act and upon the terms and conditions set forth in
this Operating Agreement.
SECTION 2
Name: Registered Office and Agent
The business of the Company is to be conducted under the name EQUITRADE
PARTNERS, L.L.C., or under such other name as the Committee from time to time
decides. The registered office and registered agent in Delaware of the Company
is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
SECTION 3
Purpose; Powers
3.1 The purpose and business of the Company is to act as a trader,
dealer, specialist, and market maker in securities, options, and commodities,
including without limitation buying, selling, holding, trading, investing and
dealing in such securities, options, and commodities, and in general conducting
all such businesses as are customarily conducted by market makers and dealers in
securities, options, and commodities, including without limitation acting as a
specialist on the New York Stock Exchange, Inc. (the "Exchange" or the "NYSE"),
and all such activities as are related or incidental to the foregoing. Subject
to the applicable provisions of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and the regulations thereunder and to the
Constitution and rules of the Exchange and such other exchanges on which the
Company may trade, the Company may engage in any transaction necessary or
appropriate to the accomplishment of its purposes, including without limitation
borrowing money and engaging in margin or short sale transactions. The Company
may engage in all other activities as may be necessary to carry out the business
of the Company.
3.2 The Company has all the powers available to it as a limited
liability company under the laws of the State of Delaware, and may become
authorized to do business in other states as is necessary or appropriate in the
conduct of its business.
SECTION 4
Principal Office
The principal office of the Company is located at 14 Wall Street, 27th
Floor, New York, New York 10005 or at such other place as may be required by law
or as the Committee from time to time designates.
SECTION 5
Term
The term of the Company commences upon the filing of the Certificate of
Formation for the Company in the office of the Secretary of State of the State
of Delaware. The term of the Company is perpetual; provided, however, that the
Company liquidates and dissolves upon the occurrence of any event set forth in
Section 17.
SECTION 6
Capital Accounts; Membership Interests
6.1 The Members shall have the following Capital Accounts as of
December 31, 1998:
(a) NDB GROUP, INC., $15,320,148.00;
(b) SHD CORP., $9,733,390.00;
(c) STEPHEN J. DILASCIO, $2,363,004.00;
(d) GERARD J. DREYER, $1,750,079.00;
(e) JOHN F. NICOLOSI, $1,105,762.00;
(f) PHILIP J. KOPP, III $1,099,115.00;
(g) JAMES C. EMRICH, $1,788,349.00;
(h) DAVID GREEN, $(339,748.00);
(i) CYNTHIA KELLOGG, $627.00;
(j) HARVEY SILVERMAN, $627.00;
(k) JOHN DUFFY, $627.00;
(l) JOSEPH A. RODRIGUEZ, $2,520,000.00;
(m) JAMES F. BOWEN, III, $2,520,000.00;
(n) ISIDORE FIELDS, $2,893,333.00; and
(o) ROBERT L. PROSSER, SR., $1,400,000.00.
6.2 The term "Membership Interest" means the ownership and profit and
loss percentage set forth next to each Member's name below:
(a) NDB GROUP, INC., 41.84%;
(b) SHD CORP., 5%;
(c) STEPHEN J. DILASCIO, 11.36%;
(d) GERARD J. DREYER, 9.63%;
(e) JOHN F. NICOLOSI, 4.57%;
(f) PHILIP J. KOPP, III 4.13%;
(g) JAMES C. EMRICH, 5.65%;
(h) DAVID GREEN, 4.79%;
(i) CYNTHIA KELLOGG, .01%;
(j) HARVEY SILVERMAN, .01%;
(k) JOHN DUFFY, .01%;
(l) JOSEPH A. RODRIGUEZ, 3.51%;
(m) JAMES F. BOWEN, III, 3.51%;
(n) ISIDORE FIELDS, 4.03%; and
(o) ROBERT L. PROSSER, SR., 1.95%.
6.3 (a) A Member who regularly performs services for the Company is an
Active Member of the Company (collectively, the "Active Members").
(b) NDB Group, Inc. and SHD Corp. (collectively, "NDB"),
Isidore Fields and Robert L. Prosser Sr. are Non-Active Members of the Company.
Isidore Fields and Robert L. Prosser Sr. shall be referred to herein
individually as an "Individual Non-Active Member" and collectively as the
"Individual Non-Active Members."
(c) Cynthia Kellogg, Harvey Silverman and John Duffy are
Special Members of the Company. NDB has the exclusive right to purchase the
entire or any interest therein of the Membership Interest of a Special Member at
any time and from time to time, at any price and on such other terms and
conditions as determined by NDB in its exclusive discretion. Special Members
shall not be entitled to notice of any Member or Committee meetings or to vote
upon any matter presented to the Members or to the Committee for a vote.
6.4 (a) Except as otherwise provided in this Agreement, Capital
Contributions to the Company made by the Members and all other payments by the
Members to the Company or any creditor thereof do not change the respective
Membership Interests of the Members, nor otherwise increase, decrease, or affect
the entitlement of the Members to any allocation of Profits, Losses, and other
items of income, gain, credit, loss, and deduction, and to distributions of cash
and other Company assets.
(b) Except as otherwise provided in this Agreement, (i) the
Members are not entitled to payment or return of their Capital Accounts and
Capital Contributions from receipts of the Company; (ii) no Member is entitled
to receive distributions of Company assets other than cash; and (iii) no Member
is entitled to be credited with or receive any interest on his Capital Account
and Capital Contributions.
(c) Except as otherwise provided in this Agreement, at any
time during the term of the Company and on its liquidation, each Member shall
look only to the assets of the Company, and not to the assets of any Member, for
the payment or return of his Capital Account and Capital Contributions. Other
than for any unpaid mandatory Capital Contributions, no Member has any
obligation to restore an Adjusted Capital Account Deficit. Except as otherwise
provided in this Agreement, no Member has any obligation to make Capital
Contributions or loans to the Company.
(d) No Member shall be required to make any Capital
Contributions in addition to any amounts contributed to the capital of the
Company at the time of his or her admission as a Member.
(e) No Member is entitled to any allocation of Profits,
Losses, and other items of income, gain, credit, loss and deductions, and to
distributions of cash and other Company assets with respect to specialty stocks
traded by any Member.
SECTION 7
Capital Accounts; Allocations of Losses And Distributions of Cash
7.1 Definitions. For purposes of this Agreement, the following
definitions apply:
7.1.1 (a) "Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in the Member's Capital Account as of
the end of the applicable fiscal year, after giving effect to the following
adjustments:
(i) Credit to the Capital Account any amounts that the
Member is obligated to restore under any provision of this Agreement or his
share of Company Minimum Gain and Member Nonrecourse Debt Minimum Gain that the
Member is deemed to be obligated to restore under Treas. Reg. ss.l.704-2(g)(1)
and (i)(5); and
(ii) Debit to the Capital Account (A) allocations of loss
and deduction that, as of the end of such year, reasonably are expected to be
made to the Member under Code Section 704(e)(2), Code Section
706(d), and Treas. Reg. ss.1.751-1(b)(2)(ii); and (B) distributions that,
as of the end of the year, reasonably are expected to be made to the Member
to the extent they exceed offsetting increases to the Member's Capital
Account that reasonably are expected to occur during or prior to the
Company fiscal years in which the distributions reasonably are expected to be
made, other than increases under a Minimum Gain Chargeback or Member Minimum
Gain Chargeback; provided, however, that increases to a Member's Capital
Account under a Minimum Gain Chargeback are taken into account as an offset
to distributions of nonrecourse liability proceeds that are reasonably
expected to be made and that are allocable to an increase in Company Minimum
Gain.
(b) The foregoing definition of Adjusted Capital Account Deficit
is intended to comply with the provisions of Treas. Reg. ss.1.704-1(b)(2)(ii)(d)
and is to be interpreted consistently therewith.
7.1.2 "Agreement" or "Operating Agreement" means this Agreement as it
may be amended from time to time. Words such as "herein," "hereinafter,"
"hereof," "hereto," and "hereunder" refer to this Agreement as a whole unless
the context otherwise requires.
7.1.3 "Assumption Agreement" means any agreement among the Company, any
of the Members, and any Person to whom the Company is indebted under a loan
agreement or any seller financing with respect to an installment sale, a
reimbursement agreement, or any other arrangement (collectively referred to as a
"Loan") under which any Member expressly assumes any personal liability with
respect to the Loan. The amount of any Loan is treated as assumed by the Members
in the proportions set forth in the Assumption Agreement and their respective
amounts so assumed are credited to their respective Capital Accounts under
Section 7.l.4(a)(i). To the extent the Loan is repaid by the Company, the
Members' Capital Accounts are debited under Section 7.1.4(a)(ii) with their
respective shares of the repayments. To the extent the Loan is repaid by some or
all of the Members from their own funds, there are no adjustments to their
Capital Accounts.
7.1.4 (a) "Capital Account" means, with respect to any Member, the
Capital Account maintained for the Member in accordance with the following
provisions:
(i) To each Member's Capital Account there is credited the
Member's Capital Contributions, the Member's allocable share of Profits and
any items of income or gain that are specially allocated under Section 7.2.3
or Section 7.2.4, and the amount of any Company liabilities assumed by the
Member or that are secured by any Company asset distributed to the Member;
(ii) To each Member's Capital Account there is
debited the amount of cash and the Gross Asset Value of any Company asset
distributed to the Member under any provision of this Agreement, the
Member's allocable share of Losses and any items of deduction or loss that are
specially allocated under Section 7.2.3 or Section 7.2.4, and the amount of
any liabilities of the Member assumed by the Company or that are secured by
any asset contributed by the Member to the Company;
(iii) If the Gross Asset Value of any Company asset
is adjusted under Section 7.1.10(b), or Section 7.1.10(d), the appropriate
adjustments to the Capital Accounts of the Members are to be made;
(iv) If any Member transfers his or her entire or any
interest in his Membership Interest in accordance with the provisions of
this Agreement, his or her Transferee succeeds to the Capital Account of the
Transferor to the extent it relates to the transferred interest;
(v) In determining the amount of any liability for purposes
of Section 7.1.4 hereof, there is taken into account Code Section 752 and the
Regulations thereunder;
(vi) Each Member's Capital Account is credited with
interest monthly at the rate equal to the sum of one-half the prime rate charged
by the principal bank of the Company to its most favored customers plus
one (1%) percent, compounded annually, or at any other rate and on such
other terms as determined by the Committee at any time and from time to
time in its exclusive discretion. Interest is credited only through the
date of closing of the purchase, redemption or other transfer of a Member's
Membership Interest. Notwithstanding the foregoing provisions, interest is
neither credited or paid on any amounts distributed to any Member under Section
7.3.2(a) and (b) and on all allocations of Profits and any other item of
income or gain attributable to amounts distributed under Section 7.3.2(a)
and (b). Notwithstanding the foregoing provisions, the Initial Capital
Contribution, other than cash and readily marketable securities, of
Rodriguez, Bowen, Fields, and Prosser shall not be credited with any
interest. Notwithstanding the foregoing provisions, the Initial Capital
Contribution of NDB Group, Inc. and SHD shall not be credited with any
interest. The Initial Capital Contribution of a Member shall mean the
Capital Contribution made by the Member on the date of his or her admission as a
Member of the Company.;
(vii) SHD Corp. is credited with NYSE membership fees
each calendar year, to be calculated upon execution of this Agreement
and every year thereafter, or pro-rata for a period of less than twelve
months, in an amount equal to the product of (A) the Average Yearly Rental
Fee, multiplied by (B) the number of A Seats held by the Company during such
year. The term "Average Yearly Rental Fee" shall mean the average of the rental
fees for the last five membership leases contracted immediately prior to the
effective date of this Agreement for the first calendar year and immediately
prior to such anniversary for the subsequent calendar years as published in the
NYSE Membership Bulletin, the highest and lowest rental fees of the five
leases being excluded from this calculation; and
(viii) The Company shall keep separate Capital
Accounts that reflect (A) allocations of Profits and Losses (as defined in
Section 7.1.18) and (B) allocations of GAAP Profits and Losses ("GAAP Capital
Accounts"). The GAAP Capital Accounts shall be maintained in accordance with all
the same rules described in this Agreement for the maintenance and adjustment
of Capital Accounts. All references to the Capital Account of a Member in
Sections 13, 15, 15A and 17 shall mean the GAAP Capital Account of that Member.
(b) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Treas. Reg. ss.1.704-1(b), and are to be interpreted and applied in a
manner consistent with these Regulations. If the Committee reasonably determines
that it is prudent to modify the manner in which the Capital Accounts, or any
debits or credits thereto, including without limitation debits or credits
relating to liabilities that are secured by contributed or distributed assets or
that are assumed by the Company or the Members, are computed to comply with the
Regulations, the Committee may make the modification, provided that it is not
likely to have a material effect on the amounts distributable to any Member
under Section 17 on the liquidation of the Company. The Committee shall also (i)
make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Members and the amount of Company capital
reflected on the Company's balance sheet, as computed for book purposes, in
accordance with Treas. Reg. ss.1.704-1(b)(2)(iv)(q), and (ii) make any
appropriate modifications if unanticipated events might otherwise cause this
Agreement not to comply with Treas. Reg. ss.1.704-1(b).
7.1.5 "Capital Contributions" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any asset (other than
money) contributed to the Company by the Member. The principal amount of a
promissory note that is not readily traded on an established securities market
and that is contributed to the Company by the maker of the note is not included
in the Capital Account or Capital Contribution of any Member until the Company
makes a taxable disposition of the note or until and to the extent principal
payments are made on the note, all in accordance with Treas. Reg.
ss.1.704-1(b)(2)(iv)(d)(2). The value of the A Seats shall be $4,800,000.
7.1.6 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor corresponding provisions. Any reference to any
section of the Code or any Regulation includes all legal authorities that
constitute substantial authority under Code Section 6662 with respect to the
section or Regulation.
7.1.7 "Company" means the limited liability company formed under this
Agreement and the Certificate of Formation, and the limited liability company
continuing the business of this Company on a dissolution.
7.1.8 "Company Minimum Gain" means with respect to each Nonrecourse
Liability of the Company, the amount of gain (of whatever character), if any,
that would be realized by the Company if it disposed of, in a taxable
transaction, the Company asset subject to the liability in full satisfaction of
the liability (and for no other consideration), and then aggregating the amounts
so computed.
7.1.9 "Depreciation" means, for each fiscal year, an amount equal to
the depreciation, amortization, or other cost recovery deduction allowable for
an asset for the fiscal year, except that if Gross Asset Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of the fiscal year, Depreciation is an amount that bears the same ratio to the
beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for the fiscal year bears to the
beginning adjusted tax basis. If the adjusted basis for federal income tax
purposes of an asset at the beginning of the fiscal year is zero, Depreciation
is determined by reference to the beginning Gross Asset Value using any
reasonable method selected by the Committee.
7.1.10 "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Member to the Company is the gross fair market value of the asset, as
determined by the contributing Member and the Committee;
(b) The Gross Asset Values of all Company assets are adjusted
to equal their respective gross fair market values as of the following times:
(i) the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimis Capital Contribution;
(ii) the distribution by the Company to a Member of more than a de minimis
amount of Company assets as consideration for an interest in the Company; (iii)
the liquidation of the Company on the earlier of the date on which the Company
is terminated under Code Section 708(b)(1), or the date on which the Company
ceases to be a going concern even though it may continue in existence for
winding up its affairs, paying its debts, and distributing any remaining assets
to the Members;
(c) The Gross Asset Value of any Company asset distributed to
any Member is the gross fair market value of the asset on the date of
distribution; and
(d) The Gross Asset Values of Company assets are increased or
decreased to reflect any adjustments to the adjusted basis of the assets under
Code Section 734(b) or Code Section 743(b), but only to the extent that the
adjustments are taken into account in determining Capital Accounts under Treas.
Reg. ss.1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values are not
adjusted under this Section 7.1.10(d) to the extent the Committee determines
that an adjustment under Section 7.1.10(b) is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment under
this Section 7.1.10(d).
7.1.11 "Member Minimum Gain" means an amount, with respect to each
Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if
the Member Nonrecourse Debt were treated as a Nonrecourse Liability.
7.1.12 "Member Nonrecourse Debt" means any Company liability to the
extent the liability is nonrecourse (under Code Section 1001) and a Member or
related person (under Treas. Reg. ss.1.752-4(b)) bears the economic risk of
loss.
7.1.13 "Member Nonrecourse Deductions" means, for any Company fiscal
year, the net increase during the year in Member Minimum Gain attributable to
the Member Nonrecourse Debt reduced, but not below zero, by proceeds of the
liability (a) distributed during the year to the Member bearing the economic
risk of loss for the liability, and (b) that are attributable to the liability
and allocable to an increase in the Member Minimum Gain.
7.1.14 "Net Cash From Operations" means the gross cash proceeds from
Company operations, including, without limitation, sales and dispositions of
assets in the ordinary course of business, less the portion used to pay or
establish reserves for capital improvements, contingencies, debt service,
expenses, Salaries as determined under Section 7.3.1, and the requirements of
administrative agencies, exchanges, and self-regulatory organizations, all as
determined by the Committee in its exclusive discretion. "Net Cash From
Operations" is not reduced by amortization, cost recovery deductions,
depreciation, or similar allowances, but is increased by any reductions of
reserves previously established.
7.1.15 "Nonrecourse Deductions" means, for any Company fiscal year, the
net increase in Company Minimum Gain during the Company fiscal year reduced, but
not below zero, by the aggregate distributions made during the year of proceeds
of a Nonrecourse Liability that are allocable to an increase in Company Minimum
Gain.
7.1.16 "Nonrecourse Liability" means a liability for which no Member
or related person (under Treas. Reg. ss.1.752-4(b)) bears the economic risk of
loss.
7.1.17 "Person" means a business trust, corporation, estate, general
partnership, individual, limited liability company, limited liability
partnership, limited partnership, trust, or other entity.
7.1.18 "Profits" and "Losses" means, for each fiscal year or other
period, an amount equal to the Company's taxable income or loss for the year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss, or deduction required to be stated separately under
Code Section 703(a)(1) are included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
under this Section 7.1.18 is added to the taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B), amounts paid or incurred to organize a limited liability company
or to promote the sale of an interest in such a limited liability company, and a
deduction for a loss incurred in connection with the sale or exchange of Company
assets disallowed to the Company under Code Section 267(a)(1) or 707(b) that are
treated as Code Section 705(a)(2)(B) expenditures under Treas. Reg.
ss.1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits and Losses under this Section 7.1.18, are subtracted from taxable income
or loss;
(c) Gain or loss resulting from any disposition of Company
assets with respect to which gain or loss is recognized for federal income tax
purposes is computed by reference to the Gross Asset Value of the asset disposed
of, notwithstanding that the adjusted tax basis of the asset differs from its
Gross Asset Value; and
(d) Notwithstanding any other provision of this Section
7.1.18, any items that are specially allocated pursuant to Section 7.2.3 or
Section 7.2.4 are not taken into account in computing Profits or Losses.
7.1.19 "Regulations" mean the income tax regulations and temporary
regulations promulgated under the Code as these regulations may be amended from
time to time and the corresponding provisions of succeeding regulations.
7.2 Allocations.
7.2.1 Profits. After giving effect to the special allocations set forth
in Sections 7.2.3 and 7.2.4, Profits for any fiscal year are allocated as
follows:
(a) First Tier Profits:
The First-Tier Profits for any fiscal year, if any, are to be allocated
to NDB in proportion to the fraction, the numerator of which is the Membership
Interest owned by NDB Group, Inc. or SHD Corp., as the case may be, and the
denominator of which is the total Membership Interests owned by NDB. The first
$800,000 of Profits are the First Tier Profits for the 1998 fiscal year. For the
1999 fiscal year and all subsequent fiscal years, the First Tier Profits are
equal to eighty (80%) percent of the total Salaries for such fiscal year paid to
the Active Members.
(b) Second Tier Profits:
The remaining Profits for each fiscal year (the "Second Tier Profits")
are to be allocated to the Active Members, Non-Active Members, and the Special
Members in proportion to their Membership Interests. Of the Second Tier Profits
allocated to the Active Members, eighty-five (85%) percent of these Profits is
to be allocated among the Active Members in proportion to their Membership
Interests. The remaining fifteen (15%) percent of the Profits allocated to the
Active Members is to be allocated in accordance with Section 11.1(e) ("Float
Interest").
7.2.1(A) GAAP Profits. GAAP Profits for any fiscal year are the profits
for such fiscal year as determined under the generally accepted accounting
principles consistently used by the Company. GAAP Profits for any fiscal year
are allocated as follows:
(a) First Tier GAAP Profits:
The First Tier GAAP Profits for any fiscal year, if any, are to be
allocated to NDB in proportion to the fraction, the numerator of which is the
Membership Interest owned by NDB Group, Inc. or SHD Corp., as the case may be,
and the denominator of which is the total Membership Interests owned by NDB. The
first $800,000 of GAAP Profits are the First Tier GAAP Profits for the 1998
fiscal year. For the 1999 fiscal year and all subsequent fiscal years, the First
Tier GAAP Profits are equal to eighty (80%) percent of the total Salaries for
such fiscal year paid to the Active Members.
(b) Second Tier GAAP Profits:
The remaining GAAP Profits for each fiscal year (the "Second Tier GAAP
Profits") are to be allocated to the Active Members, Non-Active Members, and the
Special Members in proportion to their Membership Interests. Of the Second Tier
GAAP Profits allocated to the Active Members, eighty-five (85%) percent of these
GAAP Profits is to be allocated among the Active Members in proportion to their
Membership Interests. The remaining fifteen (15%) percent of the GAAP Profits
allocated to the Active Members is to be allocated in accordance with Section
11.1(e) ("Float Interest").
7.2.2 Losses. After giving effect to the special allocations set forth
in Sections 7.2.3 and 7.2.4, Losses for any fiscal year are allocated to the
Members in proportion to their Membership Interests. GAAP Losses for any fiscal
year are allocated to the Members in proportion to their Membership Interests.
GAAP Losses for any fiscal year are the losses for such fiscal year as
determined under the generally accepted accounting principles consistently used
by the Company.
7.2.3 Special Allocations. The following special allocations are made
in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Treas. Reg. ss.1.704-2(f) and notwithstanding any other provision of this
Section 7.2, if there is a net decrease in Company Minimum Gain during any
Company fiscal year, each Member must be specially allocated items of Company
income and gain for the fiscal year (and, if necessary, subsequent years) in an
amount equal to that Member's share of the net decrease in Company Minimum Gain
as determined under Treas. Reg. ss.1.704-2(g). Allocations under the previous
sentence must be made in proportion to the respective amounts required to be
allocated to each Member. The items to be allocated are to be determined in
accordance with Treas. Reg. ss.ss.1.704-2(f)(6) and 1.704-2(j)(2).
(b) Member Minimum Gain Chargeback. Except as otherwise
provided in Treas. Reg. ss.1.704-2(j)(4) and notwithstanding any other provision
of this Section 7.2, if there is a net decrease in Member Minimum Gain
attributable to a Member Nonrecourse Debt during any Company fiscal year, each
Member who has a share of the Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treas. Reg. ss.1.704-2(i)(5),
must be specially allocated items of Company income and gain for such year (and,
if necessary, subsequent years) in an amount equal to that Member's share of the
net decrease in the Member Minimum Gain as determined under Treas. Reg.
ss.1.704-2(i)(4). Allocations under the previous sentence must be made in
proportion to the respective amounts required to be allocated to each Member.
The items to be allocated are to be determined in accordance with Treas. Reg.
ss.ss.1.704-2(i)(4) and 1.704-2(j)(2).
(c) Qualified Income Offset. If any Member unexpectedly
receives any adjustments, allocations, or distributions described in Treas. Reg.
ss.ss.1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)
(6), items of Company income and gain must be specially allocated to each
such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Member's Adjusted Capital Account Deficit as
quickly as possible; provided, however, that an allocation under this Section
7.2.3(c) is to be made only if and to the extent that the Member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Section 7.2.3 have been tentatively made and as if this Section
7.2.3(c) were not part of this Agreement.
(d) Gross Income Allocation. If any Member has a deficit
Capital Account at the end of any Company fiscal year that is in excess of the
sum of (i) the amount the Member is obligated to restore under any provision of
this Agreement, and (ii) the amount of the Member's share of Company Minimum
Gain and Member Nonrecourse Debt Minimum Gain, each Member must be specially
allocated items of Company income and gain in the amount of the excess as
quickly as possible; provided, however, that an allocation under this Section
7.2.3(d) is to be made only if and to the extent that the Member would have a
deficit Capital Account in excess of this sum after all other allocations
provided for in this Section 7.2.3 have been tentatively made and as if Section
7.2.3(c) and this Section 7.2.3(d) were not part of this Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other period are allocated to the Members in accordance with
their Membership Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year or other period must be specially allocated to
the Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which the Member Nonrecourse Deductions are attributable.
(g) Section 754 Adjustments. If an adjustment to the adjusted
tax basis of an asset of the Company under Code Section 734(b) or 743(b) is
required under Treas. Reg.ss.l.704-1(b)(2)(iv)(m)(2) or ss.l.704-l(b)(2)(iv)(m)
(4) to be taken into account in determining Capital Accounts as the result
of a distribution to a Member in complete liquidation of his Membership
Interest, the amount of the adjustment to Capital Accounts is treated as an
item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases the basis) and the gain or loss is specially
allocated to the Members in accordance with their Membership Interests if Treas.
Reg. ss.l.704(b)(2)(iv)(m)(2) applies, or to the Member to whom the
distribution was made if Treas. Reg. ss.l.704-l(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Membership
Interests. Any income, gain, loss, or deduction realized from the issuance of an
interest in the Company by the Company to a Member (the "Issuance Items") must
be allocated among the Members so that, to the extent possible, the net amount
of the Issuance Items, together with all other allocations under this Agreement
to each Member, are equal to the net amount that would have been allocated to
each Member if the Issuance Items had not been realized.
(i) Imputed Interest. To the extent the Company has taxable
interest income under Code Section 483 or Sections 1271 through 1288 with
respect to any promissory note given for a Capital Contribution: (i) the
interest income is specially allocated to the Member who is the maker of the
promissory note, and (ii) the amount of the interest income is excluded from the
Capital Contributions credited to the maker's Capital Account for payments of
principal on the promissory note.
(j) Whenever a Member receives an increase or decrease in his
Capital Account with respect to a sale of an NYSE Seat (as hereinafter defined),
or a distribution of sales proceeds from a sale of an NYSE Seat, that Member is
to be specially allocated the gain or loss attributable to the sale in an amount
equal to the increase or decrease to the extent not provided for under Section
7.2.6; provided, however, that a Member's Capital Account is to be adjusted only
once with respect to a sale of such NYSE Seat.
7.2.4 Curative Allocations. The allocations set forth in Section
7.2.3(a), 7.2.3(b), 7.2.3(c), 7.2.3(d), 7.2.3(e), 7.2.3(f), and 7.2.3(g) (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations are to be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss, or deduction under this Section 7.2.4. Therefore, notwithstanding any
other provision of Section 7.2 (other than the Regulatory Allocations), the
Committee shall make offsetting special allocations of Company income, gain,
loss, or deduction in whatever manner it reasonably determines appropriate so
that after the offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance the
Member would have had if the Regulatory Allocations were not part of the
Agreement and all Company items were allocated under Sections 7.2.l, 7.2.2,
7.2.3(h), 7.2.3(i), and 7.2.3(j). In exercising discretion under this Section
7.2.4, the Committee shall take into account future Regulatory Allocations under
Sections 7.2.3(a) and 7.2.3(b) that, although not yet made, are likely to offset
other Regulatory Allocations previously made under Sections 7.2.3(e) and
7.2.3(f).
7.2.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any
other items allocable to any period, Profits, Losses, and any other items are to
be determined on a daily, monthly, or other basis, determined by the Committee
using any permissible method under Code Section 706 and the Regulations
thereunder.
(b) For purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company under Treas. Reg.
ss.1.752-3(a)(3), the interests in Company Profits of the Members are equal to
the Membership Interests of the Members.
(c) To the extent permitted by Treas. Reg. ss.1.704-2(h)(3),
the Committee shall endeavor to treat distributions of Net Cash From Operations
as having been made from the proceeds of a Nonrecourse Liability or a Member
Nonrecourse Debt only to the extent that the distributions would cause or
increase an Adjusted Capital Account Deficit for any Member.
7.2.6 Tax Allocations: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
promulgated thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Company must, exclusively for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of the property to the Company for federal income tax
purposes and its initial Gross Asset Value (computed in accordance with Section
7.l.10(a)).
(b) If the Gross Asset Value of any Company asset is adjusted
under Section 7.1.10(b), subsequent allocations of income, gain, loss, and
deduction with respect to the asset must take account of any variation between
the adjusted basis of the asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c) and the Regulations
thereunder.
(c) Any elections or other decisions relating to allocations
must be made by the Committee in a manner that reflects the purpose of this
Agreement. Allocations under this Section 7.2.6 are exclusively for purposes of
federal, state, and local taxes, and are not taken into account in computing any
Member's Capital Account or share of Profits, Losses, other items, or
distributions under any provision of this Agreement.
7.3 Salaries and Distributions.
7.3.1 Salaries.
Each Active Member shall receive, for so long as the person is an
Active Member in the Company, as a guaranteed payment, an annual salary payable
in such installments as determined by the Committee ("Salary"). For 1998, the
Company shall pay $1,032,000 to the Active Members as Salary to be allocated
among the Active Members as determined by the Committee. For the fiscal year
1999 and all subsequent fiscal years, the Committee shall determine the annual
Salary to be paid to the Active Members. For the fiscal year 1999 and all
subsequent fiscal years, the Company shall pay Fields an annual salary of
$20,000 payable in such installments as determined by the Committee as long as
Fields is an Individual Non-Active Member and is leasing an NYSE Seat to the
Company.
7.3.2 Net Cash From Operations.
Except as otherwise provided in Sections 11.1(e) and 17, the Company
shall distribute Net Cash From Operations in the following order and priority:
(a) First, within sixty (60) days after the end of each fiscal
year, to NDB in proportion to the First Tier GAAP Profits allocated to NDB
Group, Inc. and SHD Corp., as the case may be, under Section 7.2.1A(a) for that
fiscal year.
(b) Second, within sixty (60) days after the end of each
fiscal year, to the Active Members, Non-Active Members and Special Members, in
proportion to and to the extent of fifty (50%) percent of the Second Tier GAAP
Profits allocated to these Members under Section 7.2.1A(b) for that fiscal year.
(c) Third, at such times as the Committee determines
appropriate in its exclusive discretion to the Active Members, Non-Active
Members, and Special Members, in proportion to and to the extent of fifty (50%)
percent of the Second Tier GAAP Profits allocated to these Members under Section
7.2.1A(b) for that fiscal year.
(d) Fourth, at such times as the Committee determines
appropriate in its exclusive discretion, to the Members in proportion to their
GAAP Capital Accounts.
7.3.3 Amounts Withheld. All amounts withheld under the Code or any
provision of any state or local tax law with respect to any payments or
distributions to the Company or the Members are treated as amounts distributed
to the Members under this Section 7.3. The Committee may allocate these amounts
among the Members in any manner in accordance with applicable law.
7.4 Return of Capital Contribution
(a) Notwithstanding any other provision of this Agreement, without the
prior written approval of the NYSE, no portion of any Capital Contribution of a
Member may be withdrawn on less than six (6) months prior written notice, given
no earlier than six (6) months after the contribution was made. The Capital
Contribution must not be withdrawn nor can any unsecured loan or advance be made
by the Company to a Member or employee at any time when the withdrawal, loan or
advance would be prohibited by the provisions of any applicable rule or
regulation of the NYSE or the Securities and Exchange Commission including,
without limitation, the provisions of SEC Rule 15c3-1.
(b) Notwithstanding any other provision of this Agreement, in the event
of the termination of the Company on the expiration of the term of this
Agreement, or any extension or renewal thereof, any withdrawal of capital on any
termination that would cause the Member's aggregate indebtedness' to exceed the
percentages specified in Rules 326(a) and 326(b) of the Rules of the Board of
Directors of the NYSE during the six months prior to the date of termination,
may be postponed for up to six (6) months after the stated date of termination.
The Committee shall, in its exclusive discretion, determine whether to postpone
the withdrawal to ensure compliance with these rules. Any capital so retained by
the Company after the date of termination shall continue to be subject to all
debts and obligations of the Company.
(c) No breach of this Agreement occurs if any distributions to Members,
Selling Members or Transferees are delayed or prohibited by the NYSE or any
regulatory agency with jurisdiction over the Company.
7.5 Payment on the Assumed RSF Debt
Notwithstanding any other provision of Section 7, distributions of Net
Cash From Operations to each of Rodriguez, Bowen, Fields and Prosser shall be
retained by the Company and applied to the amounts owing on the Assumed RSF Debt
by such Member until the Assumed RSF Debt of such Member is satisfied in full.
For the purposes of this Section 7.5, the Assumed RSF Debt is the principal and
accrued interest on the obligation owed by RSF Partners L.P. to the Company
which was assumed by Rodriguez, Bowen, Fields, and Prosser as a result of the
transaction contemplated by the Contribution Agreement dated as of December 31,
1998 among the Company, RSF Partners L.P., Rodriguez, Bowen, Fields and Prosser.
SECTION 8
Fiscal Year and Accounting Method
The fiscal year of the Company is the calendar year, and the books of
the Company are to be kept on the accrual method of accounting.
SECTION 9
Books and Records
9.1 The Committee shall keep or cause to be kept complete and accurate
books with respect to the business of the Company. The books of the Company must
be maintained at all times at the principal office of the Company. Each Member
and his duly authorized representative have the free and unimpeded right to
examine and inspect, and make copies of, the books and records of the Company at
reasonable times on seventy-two (72) hours prior notice to the President.
9.2 As soon as practicable after the end of each fiscal year, the
Committee shall deliver to each Member Schedule K-1 of IRS Form 1065 and any
other statement of each Member's share of income, credits, deductions, and
losses required by law to be delivered to the Members.
SECTION 10
Bank Accounts
The funds of the Company are to be deposited in the name of the Company
in the bank account or accounts as may be designated by the Committee. The
Committee shall use the funds exclusively for the business of the Company. Funds
may be withdrawn from bank accounts of the Company only on the signatures of any
one Active Member designated by the Committee and the chief financial officer,
or any two Active Members designated by the Committee.
SECTION 11
Management
11.1 (a) The Management Committee shall consist of four members, each
of whom must be a Member; provided however, that NDB may appoint a maximum of
two members of the Committee who may or may not have Membership Interests. NDB
has the exclusive right to appoint two Committee members (collectively the "NDB
Committee Members" and individually, a "NDB Committee Member."). The President
shall be a member of the Committee (the "First Active Member Committee Member").
Dilascio shall serve as the First Active Member Committee Member so long as he
is President. A majority of the Membership Interests of all the Active Members
shall appoint a Committee member from among the Active Members (the "Second
Active Member Committee Member"). If at any meeting a member of the Committee is
not permitted under this Agreement or the Act to vote, is not present for the
meeting, or is otherwise unable to vote, then, for that meeting only, (i) if the
member of the Committee is an NDB Committee Member, NDB may appoint a temporary
substitute NDB Committee Member to be a member of the Committee, or, (ii) if the
member of the Committee is an Active Member, a majority of the Membership
Interests of the Active Members may appoint a temporary substitute member of the
Committee from among the Active Members. The members of the Committee shall
serve without compensation.
(b) NDB has the exclusive right to remove, with or without cause, the
NDB Committee Members and fill a vacancy with respect to its appointees. If NDB
transfers its entire Membership Interest to a Membership Interest Purchaser
under Section 13.3(c) or to an NDB Interest Purchaser under Section 14, or if
NDB's entire Membership Interest is redeemed under Section 13.3(e), the majority
of the Membership Interests of all Active Members have the right to remove, with
or without cause, the NDB Committee Members and fill a vacancy with respect to
its appointees from among the Active Members. Dilascio may be removed for cause
as a member of the Committee by the Committee and a majority of the Membership
Interests of the Active Members. A majority of the Membership Interests of
Active Members may remove, with or without cause, the Second Active Member
Committee Member and fill any vacancy with respect to this appointee from among
the Active Members.
(c) For purposes of Section 11.1(b), the term "cause" means removal for
any one of the following reasons:
(i) a final judgment of conviction of Dilascio for a felony
entered by a trial court regardless of whether Dilascio appeals the judgment.
(ii) the issuance of a final award, judgment, or order by an
administrative agency, arbitrator, exchange, governmental body,
governmentally-owned corporation, mediator, self-regulatory organization, or
trial court that Dilascio is prohibited from performing any material duty as a
member of the Committee for any period of time in excess of six months.
(iii) the material breach by Dilascio of any provisions of
this Agreement that causes or threatens to cause a material loss to the business
of the Company in the reasonable judgment of the Committee and a majority of the
Membership Interests of the Active Members and either (A) if the breach is
curable, the breach has not been cured by Dilascio within thirty (30) days after
the Committee gives written notice to Dilascio of the nature of the breach and
of the curative action required or (B) Dilascio commits or continues to commit
the breach despite prior written notice by the Committee that the proposed
action by Dilascio would constitute a breach and requesting that he refrain from
such action;
(iv) the failure of Dilascio, other than by reason of his
disability (as defined in Section 13.5) or legal incompetency (as defined in
Section 13.6), to carry out the business directions of the Committee as
determined by a majority of the members of the Committee, other than Dilascio,
and the failure continues for more than thirty (30) days after the Committee
gives written notice to Dilascio specifying the nature of the failure and
requesting Dilascio to cure it;
(v) any act or acts or failure or failures to act that (A)
Dilascio intends to cause or threatens to cause separately or in the aggregate a
material loss to the business of the Company; or (B) constitutes gross
negligence by Dilascio and causes or threatens to cause separately or in the
aggregate a material loss to the business of the Company;
(vi) appropriation of the business opportunities of the
Company for the personal benefit of Dilascio or any person or entity in which
Dilascio has an interest;
(vii) any act of dishonesty or falsification of any
information submitted to the Company, any member of the Committee, the NYSE, any
administrative agency or any self-regulatory organization; or
(viii) any act by Dilascio directed against the Company of
bribery, embezzlement, fraud, misappropriation of assets, or the receipt of
kickbacks. Dilascio shall have the right to have any determination of removal
for cause reviewed by arbitration under Section 19. During the pendancy of
arbitration, Dilascio shall not act as President of the Company and an interim
President shall be appointed from among the Active Members by the Committee and
a majority of the Membership Interests of the Active Members. If the arbitration
proceeding determines that the removal for cause was not permissible under this
Agreement, Dilascio shall be reinstated as President and a member of the
Committee.
(d) A Change in Control of NDB or any other change in the
ownership of or management of NDB will not result in a change in NDB's rights
and obligations under the Act or this Agreement. A Change in Control of NDB
means (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
NDB or a subsidiary of NDB, or a person engaging in a transaction of the type
described in clause (iii) but which does not constitute a change in control
under such clause, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of NDB
representing fifty (50%) percent or more of the combined voting power of NDB's
then outstanding securities; or (ii) during any period of two consecutive years,
individuals who at the beginning of this period constitute the board of
directors of NDB and any new director (other than a director designated by a
person who has entered into an agreement with NDB to effect a transaction
described in clauses (i) or (iii)) whose election by the board of directors of
NDB or nomination for election by NDB shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the board of directors of NDB; or (iii) the shareholders of NDB
approve or, if no shareholder approval is required or obtained, NDB or a
subsidiary of NDB completes a merger, consolidation, or similar transaction with
or into any other corporation, or a binding share exchange involving NDB's
securities, other than any such transaction which would result in the voting
securities of NDB outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least seventy-five (75%) percent of the combined voting
power of the voting securities of NDB or such surviving entity outstanding
immediately after such transaction, or the shareholders of NDB approve a plan of
complete liquidation of NDB or an agreement for the sale or disposition by NDB
of all or substantially all the NDB's assets.
(e) Except as otherwise provided in this Agreement, the Committee shall
act by a majority vote, on a per capita basis, of all the members of the
Committee who are permitted to vote on the matter before the Committee. Except
as otherwise provided in this Agreement and except for the authority delegated
to the President in Section 11.1(g), the Committee shall have the authority and
discretion to, (i) manage the business of the Company, and (ii) unless otherwise
provided for in this Agreement, to determine any Member's right of withdrawal
from the Company, distribution, withdrawal, and return of all or any portion of
any Member's Capital Account, and all other matters relating exclusively to a
Member's rights and obligations under this Agreement and the Act. Within
forty-five (45) days after the close of the fiscal year of the Company, the
Committee, after receipt of the President's recommendation, shall determine the
Float Interest of each Active Member for that fiscal year based upon each Active
Member's trading performance. In a deadlock on any vote of the Committee
regarding the determination of the Float Interest for any Active Member, the
majority of Membership Interests held by all Active Members must resolve the
deadlock. In a deadlock on any vote of the Committee regarding the disability or
the legal incompetency of any Active Member, the vote of sixty (60%) percent of
the Membership Interests held by all Members, other than the Member whose
disability or legal competency is at issue, is required to resolve the deadlock.
In no event shall a deadlock cause the dissolution of the Company. Except as
otherwise provided in this Agreement or the Act, the Committee has the exclusive
authority and discretion to bind the Company, and a Member who is not a member
of the Committee does not have the authority and discretion to bind the Company
except with respect to transactions of the Company in the ordinary course of
business or as otherwise authorized by this Agreement.
(f) The members of the Committee shall meet monthly. Special meetings
may be called by any member of the Committee. All members of the Committee must
be provided with reasonable notice of all meetings. Committee members may attend
a meeting by telephone. Meetings may be held at the principal place of business
of the Company or at any other place that a majority of the members of the
Committee determine and may be held by telephone conference. A quorum consists
of at least three Committee members who are permitted to vote on the matter
before the Committee. If only three Committee members are present for any
meeting, no action may be taken by the Committee unless at least one Active
Member Committee Member and at least one NDB Committee Member approve the
proposed action. In lieu of holding a meeting, the Committee may vote or
otherwise take action by the unanimous written consent of the members of the
Committee.
(g) Dilascio shall serve as the initial President of the Company
effective as of the effective date of this Agreement. Except as otherwise
provided in this Agreement, the President shall have the primary authority and
discretion to control, manage, and operate the day-to-day business of the
Company, including without limitation the authority and discretion (i) to
control and manage the day-to-day trading operations of the Company; and (ii) to
control and manage all agreements, contacts, discussions, and negotiations with,
and all submissions to all exchanges, administrative agencies, and
self-regulatory organizations. The President shall provide monthly reports to
the Committee detailing the Company's operations and all items described in
clause (ii) above. Upon Dilascio's resignation or removal from the Committee, or
upon his withdrawal from the Company, a majority of the Membership Interests
held by all Active Members and the then sitting members of the Committee, by
unanimous consent, shall designate an Active Member to serve as President of the
Company for the remainder of Dilascio's three year term as President and to
assume and exercise the foregoing authority and discretion.
(h) If Dilascio is suspended by the issuance of a final award,
judgment, or order by an administrative agency, arbitrator, exchange,
governmental body, governmentally-owned corporation, mediator, self-regulatory
organization, or trial court, then the Committee and a majority of the
Membership Interests of the Active Members shall elect an interim President to
serve for the period of such suspension. If the suspension is for a period of
six (6) months or less, Dilascio shall resume his functions as the Company's
President immediately following the period of suspension. If the suspension is
for a period of more than six (6) months, the Committee and a majority of the
Membership Interests of the Active Members shall then determine whether it would
be in the best interests of the Company for Dilascio to resume his functions as
President or to be replaced in that capacity after the end of the period of
suspension. Dilascio's ineligibility under this subparagraph to act as President
of the Company shall not become effective if the decision imposing such
suspension is under appeal and the suspension has been stayed by the appellate
tribunal, unless a responsible officer of the NYSE has informed the Company in
writing that Dilascio's continuance as President of the Company is not
permitted.
(i) Dilascio shall serve as President for the three year period
beginning on the effective date of this Agreement unless such term is terminated
earlier as provided in this Agreement. At the end of this three year period,
and, at the end of each subsequent three year period, if Dilascio is not elected
President by a majority of the Membership Interests of all the Active Members,
the person elected President shall be elected as President from among Active
Members by a majority of the Membership Interests of all the Active Members and
a majority of the members of the Committee for a term of three years subject to
earlier termination or suspension as provided in this Agreement. If the
President, other than Dilascio, is suspended by the issuance of a final award,
judgment, or order by an administrative agency, arbitrator, exchange,
governmental body, governmentally-owned corporation, mediator, self regulatory
organization, or trial court (the "Suspended President"), then the majority of
the Membership Interests of all the Active Members and a majority of the members
of the Committee shall appoint a President from among the Active Members to
replace the Suspended President for the remainder of the Suspended President's
three year term. The President, if a person other then Dilascio, may be removed
with or without cause by a majority of the Membership Interests of all the
Active Members (the "Removed President"). In such a case, a majority of the
Membership Interests of all the Active Members and a majority of members of the
Committee shall appoint a President from among the Active Members to replace the
Removed President for the remainder of the Removed President's three year term.
(j) Any Person dealing with the Company or the Committee may rely upon
a written certificate signed by the President or a member of the Committee as
to:
(i) the identity of the President or a member of the Committee;
(ii) the existence or nonexistence of any facts that are a
condition precedent to acts by the Company or the Committee
or are pertinent to the business of the Company; (iii) the
Persons that are authorized to execute and deliver any
instrument of or on behalf of the Company; or
(iv) any act or omission of the Company or the Committee.
(k) The Committee has the exclusive discretion to decide whether to
sell a membership interest in the NYSE (a "NYSE Seat") held by the Company. An
"A Seat" is an NYSE Seat held by the Company that was contributed to Equitrade
Partners, L.P., the predecessor of the Company, by SHD. Any NYSE Seat held by
the Company, other than an A Seat, is a B Seat. If the Committee decides to sell
an NYSE Seat, NDB shall, in its exclusive discretion, determine which NYSE Seat
will be sold. If NDB determines that an A Seat is to be sold, SHD shall receive
an amount of cash or other immediately available funds equal to the excess, if
any, of the sale proceeds for the A Seat over $1,200,000 ("Net A Seat Payment").
If the sale proceeds for the A Seat are less than $1,200,000, SHD's Capital
Account shall be reduced by the amount of the shortfall. No sale of an NYSE Seat
may be made without any required approval of the NYSE and subject to compliance
with the terms of any ABC agreement or lease related to the NYSE Seat.
11.2 (a) The following actions or decisions require the unanimous
consent of the members of the Committee, the consent of a majority of the
Membership Interests of the Active Members, and the consent of a majority of the
Membership Interests of the Non-Active Members.
(i) the sale or other disposition of all or substantially all of
the assets of the Company;
(ii) the merger, consolidation, or reorganization of the Company;
and (iii) except as otherwise provided in Section 17, the liquidation and
dissolution of the Company.
(b) A meeting of the Members may be called at any time and
from time to time by any Member. Unless determined otherwise by the Committee,
meetings of Members are to be held at the Company's principal place of business.
Not less than ten (10) nor more than thirty (30) days before each meeting, the
Member calling the meeting must give written notice of the meeting to each
Member entitled to vote at the meeting. The notice must state the time, place,
and purpose of the meeting. Notwithstanding the foregoing provisions, each
Member, who is entitled to notice, waives notice if before or after the meeting
the Member signs a waiver of the notice that is filed with the records of
Members' meetings, or is present at the meeting in person or by proxy. Except as
otherwise provided in this Agreement, at a meeting of Members the presence in
person or by written proxy of Members holding (i) a majority of the Membership
Interests of the Non-Active Members, and (ii) a majority of the Membership
Interests of the Active Members, constitutes a quorum. A Member may vote either
in person or by written proxy signed by the Member or by his or her duly
authorized attorney-in-fact.
(c) In lieu of holding a meeting of the Members, the Members
may vote or otherwise take action by a written instrument providing the consent
of (i) Members holding a majority of the Membership Interests of the Non-Active
Members, and (ii) Members holding a majority of the Membership Interests of the
Active Members.
(d) Except as otherwise provided in this Agreement, whenever
the Act provides for unanimous consent of the Members to approve or take any
action unless otherwise provided in an operating agreement, that consent must be
given in writing and, in all cases means, rather than the consent of all
Members, the unanimous consent of the Committee, the consent of the Members
holding a majority of the Membership Interests of the Active Members, and the
consent of the Members holding a majority of the Membership Interests of the
Non-Active Members.
11.3 Each Non-Active Member shall devote such time to the business of
the Company as is necessary to perform the Member's obligations under this
Agreement, any other agreement with the Company, and the Act. Each Active Member
shall devote substantially all his or her business time and effort exclusively
for the Company and shall devote the whole of his or her time and ability during
usual business hours of the Company and outside these hours when reasonably
necessary to the competent and diligent performance of the Member's obligations.
11.4 Any Member may engage in any activity in any capacity as long as
it does not compete with or adversely affect any business of the Company. The
Member may engage in this activity without any obligation to offer any interest
in the activity to the Company or any other Member. Nothing contained in this
Agreement or arising by virtue of the operation of the Company shall prevent any
Member from trading for his or her own account subject to the Constitution and
Rules of the NYSE or any other applicable law, rule, or regulation.
Notwithstanding the foregoing provisions of this Section 11.4, each Active
Member and each Individual Non-Active Member must sign a covenant not to compete
providing that the Active Member or Individual Non-Active Member, as the case
may be, shall not trade as a specialist in the securities for which the Company
is engaged in as a specialist for any person or entity other than the Company
while he is a Member of the Company and for a period of two years after ceasing
to be an Active Member or Individual Non-Active Member, as the case may be.
11.5 Except as otherwise provided in this Agreement, no Member of the
Company or member of the Committee is liable to any other Member or the Company
for any act or omission made in good faith and reasonably believed by the Member
to be within the scope of authority conferred on the Member by this Agreement.
This exculpation applies to any act or omission arising out of or related to the
Member's status as a Member of the Company or member of the Committee, and the
exercise and performance of the Member's rights and obligations under this
Agreement or the Act. Notwithstanding the foregoing exculpation, and except as
otherwise provided in Section 11.6, a Member of the Company or member of the
Committee is liable for any act or omission resulting from the Member's fraud,
gross negligence, willful misconduct or willful violation of any provision of
this Agreement or the Act.
11.6 Notwithstanding any other provision of this Agreement, no Member
of the Company or member of the Committee is liable to any other Member or the
Company for any act or omission made in reliance on information, opinions, or
reports provided to the Company as long as:
(a) the Member acts in good faith;
(b) the Member reasonably believes that his or its reliance is
within the scope of authority conferred on the Member by this Agreement;
(c) the Person who provides the information, opinions, or
reports to the Company is an expert or professional;
(d) the Member reasonably believes that the information,
opinions, or reports are within the expert or professional competence of the
Person that provides the information, opinions, or reports to the Company; and
(e) if the Member selected or maintained the retention of the
Person who provides the information, opinions, or reports to the Company, the
Member exercised reasonable care in making the selection or maintaining the
retention.
11.7 The Company shall indemnify and hold each Member harmless for and
from all assessments, costs, damages, expenses, fines, judgments, liabilities,
losses, penalties, and reasonable attorney's and paralegal's fees and
disbursements that the Member incurs as a result of the Member's status as a
Member of the Company or member of the Committee, or in the course of the
exercise and performance of the Member's rights and obligations as a Member of
the Company or member of the Committee under this Agreement and the Act;
provided, however, that the Company shall not indemnify any Member for any
amount resulting from the Member's fraud, gross negligence, willful misconduct,
or willful violation of any provision of this Agreement or the Act. Any amount
paid by the Company to indemnify a Member must be taken into account according
to the Company's normal accounting method in computing Profits and Losses and,
notwithstanding this Section 11.7, the Member receiving the indemnification
payment must bear the portion of the cost thereof to the extent that his or her
share of Profits or Losses and distributions is affected. The Company shall pay
expenses incurred by a Member in defending any criminal, civil, administrative
or investigative action, suit or proceeding in advance of the final disposition
of the action, suit, or proceeding only upon receipt of a written undertaking by
the Member to repay the expenses advanced if it is ultimately determined that
the Member is not entitled to be indemnified by the Company under this Section
11.7.
SECTION 12
Tax Matters Partner
12.1 NDB is designated to act as the "Tax Matters Partner" ("TMP")
under the Code and in any similar capacity under state or local law. If NDB is
no longer a Member, the Committee shall appoint the TMP. The powers of the TMP
shall consist of all powers assigned to the TMP under the Code state or local
law with respect to persons acting in the same capacity and shall include, the
authority and discretion, subject to the approval of the Committee to:
(a) enter into a settlement agreement with the Internal
Revenue Service (the "Service") or other tax authority, with respect to
determination of Company tax items that bind each Member who is not entitled to
receive notice of the proceedings from the Service, who is not a member of a
notice group as defined in Code Section 6223(b)(2), and who has not timely filed
a statement with the Secretary of the Treasury (or his or her delegate)
providing that the TMP does not have the authority to bind the Member, which
settlement may be on the terms as the TMP reasonably determines to be in the
best interests of the Members;
(b) decide whether to commence judicial action for review of
Company items included in a notice of final partnership administrative
adjustment;
(c) determine whether to appeal from an adverse decision in an
action commenced under Section 12.1(b) and to prosecute the appeal; and
(d) extend the statute of limitations for assessment of tax
deficiencies against Members with respect to adjustments to the Company's
federal, state, or local tax returns.
SECTION 13
Transfer of Interests in Company
13.1 No transfer by any Member (the "Transferor") to any Person (the
"Transferee") of his or its Membership Interest or any interest therein is
permitted or effective to make the Transferee a Member or entitle the Transferee
to any benefits or rights under this Agreement or the Act, including without
limitation any voting rights of Members, unless the transfer satisfies the
requirements of this Section 13.1 and all other applicable provisions of Section
13. For purposes of this Agreement, a "transfer" means, whether involuntarily by
operation of law or otherwise, or voluntarily, to assign, devise, distribute,
encumber, exchange, hypothecate, pledge, redeem, sell, or otherwise dispose of
any Membership Interest or any interest therein. An involuntary transfer
includes without limitation a transfer under any law of community property or
equitable distribution, or under a final judgment of divorce or separation. A
transfer pursuant to a final judgment of divorce or separation of a trial court
or an intermediate appellate court is a transfer unless the transfer obligation
is stayed pending appeal. A transfer must satisfy the following requirements:
(a) Each transfer is by instruments satisfactory to counsel to
the Company. The instruments must contain the written agreement of the
Transferee of his or its acceptance of all the provisions of this Agreement as
it may have been amended, and must also provide for the payment by the
Transferee of all reasonable expenses of the transfer, including without
limitation the cost of preparing and filing any amendment to this Agreement and
the Certificate of Formation; and
(b) The Transferor satisfied in full any obligation to make
Capital Contributions that accrued prior to the transfer.
13.2 (a) An Active Member or an Individual Non-Active Member may
transfer during life at any time and from time to time his or her entire
Membership Interest or any interest therein only with the unanimous written
consent of all members of the Committee, which consent may be granted or
withheld by the Committee in its exclusive discretion. Except as otherwise
provided in this Agreement, an Active Member or Individual Non-Active Member
shall not transfer his or her Membership Interest during the one year period
beginning on the date of admission as a Member. ,
(b) NDB may transfer its entire Membership Interest in
accordance with the provisions of Section 14 or in an Exempt Transaction as
defined in Section 14.1(b).
(c) NDB may pledge or subject to a lien its Membership
Interest. If the pledgee or lienholder seeks to foreclose or realize upon NDB's
Membership Interest, the transfer of the Membership Interest shall be subject to
the provisions of Section 13.3.
(d) NDB has the exclusive right to purchase the entire or any
interest therein of the Membership Interest of a Special Member at any time and
from time to time, at any price and on such other terms and conditions as
determined by NDB in its exclusive discretion.
13.3 (a) Other than as provided in Section 15A ("Green's Membership
Interest"), the purchase and redemption provisions of this Section 13.3 apply to
any one of the following events with respect to a Member:
(i) the transfer or attempted transfer by a Member of any
Membership Interest or any interest in a Membership
Interest that is not permitted under Section 13.2 or is
in violation of Section 13.1;
(ii) the death or dissolution of a Member;
(iii) the disability (as defined in Section 13.5) of a Member;
(iv) the legal incompetency (as defined in Section 13.6) of a
Member;
(v) the Member seeks or consents to the appointment of a
liquidation, receiver, or trustee of all or substantially
all of the Member's assets;
(vi) the ninety-first (91st) day following the appointment of
a liquidator, receiver, or of trustee of all or
substantially all of the Member's assets without the
Member's consent, and the appointment is not vacated
or stayed within ninety (90) days after the appointment;
(vii) the appointment referred to in clause (vi) is not vacated
within ninety (90) days after the expiration of any stay;
(viii) assignment for the benefit of creditors by a Member;
(ix) the commencement of a voluntary bankruptcy proceeding
by a Member;
(x) the ninety-first (91st) day following the commencement of
an involuntary bankruptcy proceeding against a Member
that is not dismissed within ninety (90) days of
commencement;
(xi) the material breach by a Member of any provision of this
Agreement if not cured within thirty (30) days after
written notice of such material breach from the
Company, a Member, or the Committee (such thirty (30) day
period applies only to breaches capable of being cured in
the reasonable judgment of the Committee);
(xii) the termination of the Member's full-time employment with
the Company. A full-time employee is any employee who is
regularly scheduled to work thirty five (35) hours a
week;
(xiii) the withdrawal of a Member from the Company one (1) year
or more after admission as a Member;
(xiv) the issuance of a final award, judgment, or order by an
administrative agency, arbitrator, exchange, governmental
body, governmentally-owned corporation, mediator,
self-regulatory organization, or trial court that the
Member is prohibited from performing any material duty
as a member of the Committee or as a Member of the
Company for any period of time, regardless of whether the
Member appeals the award, judgment, or order; or
(xv) the request of an Individual Non-Active Member that his
Membership Interest be redeemed one (1) year or more
after admission as a Member. The Committee, by a majority
vote on a per capita basis, and a majority of the
Membership Interests of the Active Members, shall
determine whether an event described in this Section
13.3(a) has occurred with respect to a Member. The
Committee and the Active Members shall make their
determination after they give the Member written notice
and an opportunity to be heard. If the Member for whom
an event set forth in this Section 13.3(a) is at
issue is a member of the Committee, that Member shall
not vote or otherwise participate in the
Committee's actions and decisions under this Section
13.3(a). Notwithstanding the foregoing, no Committee
or Active Member vote is necessary with respect to
Section 13.3(a)(xv).
(b) Within thirty (30) days after the Committee and the Active
Members determine that an event described in Section 13.3(a) has occurred with
respect to a Member (the "Selling Member") or after the Company receives a
written notice of a redemption request from an Individual Non-Active Member
under Section 13.3(a)(xv) (the "Selling Member"), NDB may so elect to purchase
the entire or any portion of the Membership Interest of the Selling Member such
that, when this Membership Interest is added to the sum of NDB's and the Special
Member's Membership Interests, these Membership Interests do not exceed a
fifty-three and eight hundred seventy-five thousandths (53.875%) percent
Membership Interest in the Company and thereafter NDB's right to acquire
Membership Interests shall be as provided elsewhere in this Agreement.
(c) Within thirty (30) days after the expiration of the thirty
(30) day period set forth in Section 13.3(b), Dilascio may select one or more
Active Members, any one or more persons or entities seeking to become Active
Members ("New Active Members"), or any combination of Active Members and New
Active Members (collectively, the "Membership Interest Purchasers") to purchase
the entire or any portion of the Selling Member's Membership Interest that NDB
did not elect to purchase under Section 13.3(b), in such proportions as
determined by Dilascio in his exclusive discretion. Dilascio may be a Membership
Interest Purchaser, subject to the approval of a majority of the Membership
Interests of the Active Members. Upon the resignation or removal of Dilascio as
a member of the Committee, or upon his withdrawal from the Company, within
thirty (30) days after the expiration of the thirty (30) day period set forth in
Section 13.3(b), (i) the President shall recommend to the Committee the persons
who are to be the Membership Interest Purchasers and the portion of the Selling
Member's Membership Interest that each Membership Interest Purchaser may
purchase, and (ii) a unanimous vote of the Committee and a majority of the
Membership Interests of the Active Members must approve this recommendation for
it to be effective. The Membership Interest Purchasers may elect to purchase the
entire or any portion of the Selling Member's Membership Interest that NDB did
not elect to purchase under Section 13.3(b) within the thirty (30) day period
following the selection of the last Membership Interest Purchaser.
(d) If the Membership Interest Purchasers do not elect to
purchase the entire remaining Membership Interest of the Selling Member, then
NDB may elect to purchase the entire or any portion of the remaining Membership
Interest held by the Selling Member that was not purchased under Sections
13.3(b) and 13.3(c). NDB's election period under this Section 13.3(d) begins at
the end of the last applicable thirty (30) day period under Section 13.3(c) and
expires thirty (30) days thereafter.
(e) If the Membership Interest Purchasers under Section
13.3(c) and NDB under Sections 13.3(b) and (d) do not elect to purchase the
Selling Member's entire Membership Interest, the Company shall redeem the entire
remaining Membership Interest of the Selling Member. The books of the Company
shall be adjusted as of the date of the redemption to reflect a pro rata
adjustment in the Membership Interests of the Members.
(f) Other than as provided in Section 15A with respect to the
Green Interest, the purchase and redemption price of the Selling Member's entire
Membership Interest is equal to the sum of (i) the product of the Selling
Member's Membership Interest (expressed as a percentage) multiplied by the
Company Value Amount (as hereinafter defined) (the "Membership Interest Value"),
plus (ii) the Selling Member's Capital Account as of the date of the closing;
provided, however, that the Committee shall determine whether the purchaser of
the Membership Interest of the Selling Member shall in addition make a Capital
Contribution to the Company. The purchase and redemption price shall be
allocated among NDB, the Membership Interest Purchasers, and the Company as the
case may be, based upon the percentage of the Selling Member's Membership
Interest that each party purchases or redeems. For purposes of this Section
13.3(f), with respect to purchases and redemptions resulting from the occurrence
of an event described in Section 13.3(a), the Company Value Amount is equal to
the fair market value of the Company as of the end of the month preceding the
Committee's determination of the Company Value Amount, taking into consideration
all criteria customarily involved in determining the fair market value of a NYSE
specialist business (including its entire portfolio of securities in which the
Company is engaged as a specialist and the right to act as a specialist with
respect thereto) less (i) the amount of all Capital Accounts, (ii) good will
reflected on the balance sheet of the Company related to acquisitions by the
Company of specialist businesses, (iii) intangible asset value reflected on the
balance sheet of the Company assigned to covenants not to compete related to
acquisitions by the Company of specialist businesses, and (iv) the value of NYSE
Seats owned by the Company, in each case determined as of the end of the month
preceding the Committee's determination of the Company Value Amount. For
purposes of determining the Company Value Amount, the value of securities owned
by the Company as part of its specialist business must be marked to market. The
Company Value Amount with respect to the Membership Interests of Dilascio,
Dreyer, Nicolosi and Kopp owned on the date of this Agreement shall be adjusted
up or down, as the case may be, by the Net B Seat Value (as defined in this
Section) multiplied by the number of B Seats held by the Company at the closing,
and multiplied by 16% in the case of Dilascio, 13.6% in the case of Dreyer, 6.4%
in the case of Nicolosi, and 4% in the case of Kopp. The Net B Seat Value shall
be the difference between the fair market value of a B Seat at closing and
$1,125,000. Notwithstanding the foregoing, the Company Value Amount for Fields,
Prosser, Rodriguez or Bowen shall be the Company Value Amount as determined
under this Section 13.3(f) plus $9,333,333 minus $71,794,869. The Committee
shall provide written notice of its determination of Company Value Amount to the
Selling Member and all other Members by the earlier of (i) thirty (30) days
after the last election to purchase is made under Section 13.3 that causes the
entire Membership Interest of the Selling Member to be purchased by NDB, the
Membership Interest Purchasers, or any combination thereof, or (ii) thirty (30)
days after the expiration of the election period under Section 13.3(d). Within
thirty (30) days after receipt of the Committee's determination of the Company
Value Amount, the Selling Member must elect to accept the Company Value Amount,
or submit the determination of Company Value Amount to arbitration under Section
19.
(g) The closing of the purchase and redemption must take place at the
principal office of the Company within sixty (60) days after Committee provides
written notice of its determination of the Company Value Amount or within sixty
(60) days after the date of the determination of the Company Value Amount by
arbitration if an arbitration proceeding is promptly commenced (or as soon
thereafter, in either instance, as approved by the NYSE, provided a diligent
effort by the Committee and Membership Interest Purchasers to obtain NYSE
approval was made within the sixty (60) day period). At closing, provided that
the Selling Member's Capital Account is positive on the date of closing, the
Membership Interest Purchasers, NDB, and the Company, as the case may be, shall
pay the Selling Member an amount in cash or other immediately available funds
equal to the sum of (i) twenty (20%) percent of the Membership Interest Value
plus (ii) the Selling Member's Capital Account as of the date of the closing.
The Membership Interest Purchasers, NDB, and the Company, as the case may be,
shall also deliver nonnegotiable
promissory notes at closing for the remaining balance of the Membership Interest
Value without any stated interest thereon (the "Notes"). The Notes are to be
paid in four equal annual installments over four (4) consecutive years with the
first payment due on the first anniversary of the closing. Notwithstanding the
foregoing, if the Membership Interest Value for Fields, Prosser, Rodriguez or
Bowen is a negative number, then Fields, Prosser, Rodriguez or Bowen, as the
case may be, shall only be paid his Capital Account on the date of closing
reduced by that negative number. At closing, if the Selling Member has an
Adjusted Capital Account Deficit as of the date of closing, the Membership
Interest Purchasers, NDB, and the Company, as the case may be, shall pay the
Selling Member an amount in cash or immediately available funds equal to twenty
(20%) percent of the excess, if any, of the Membership Interest Value after
reduction by the amount of the Adjusted Capital Account Deficit ("Excess
Amount"). The Membership Interest Purchasers, NDB, and the Company, as the case
may be, shall also deliver nonnegotiable promissory notes at closing for the
remaining balance of the Excess Amount without any stated interest thereon (the
"Excess Amount Notes"). The Excess Amount Notes are to be paid in four equal
annual installments over four (4) consecutive years with the first payment due
on the first anniversary of the closing. The total payments due to the Selling
Member at closing and on the Notes or the Excess Amount Notes shall be paid by
the Membership Interest Purchasers, NDB, and the Company based upon the portion
of the Selling Member's Membership Interest purchased by each party. All amounts
paid to the Selling Member under this Section 13.3(g) are subject to any
required approval of the NYSE, any other applicable self-regulatory
organization, and any applicable administrative agency, and must be made in
compliance with the Uniform Net Capital Rule and the Constitution and Rules of
the NYSE. The parties acknowledge that all installments due under the Notes or
Excess Amount Notes may be subject to the imputed interest rules under the Code.
The Membership Interest Purchasers, NDB, or the Company may prepay without
penalty or premium any portion of or the entire amount of the Notes or Excess
Amount Notes at any time and from time to time in multiples of at least Five
Thousand ($5,000) Dollars. All prepayments are credited against installments due
in the inverse order of maturity (i.e., applied first against last payment due).
The Notes or Excess Amount Notes must provide that on a default in any payment
that is not cured within fourteen (14) days the Notes or Excess Amount Notes
become immediately due and payable in full at the election of the holder of the
Notes or
Excess Amount Notes. The Notes or Excess Amount Notes must also provide that its
maker shall pay the reasonable expenses of collection on any default, including
without limitation reasonable attorney's and paralegal's fees and disbursements.
(h) If NDB's Membership Interest is purchased or redeemed
under this Section 13.3, NDB must be paid in cash or other immediately available
funds an amount equal to the excess, if any, of the fair market value of an A
Seat over $1,200,000 ("Net A Seat Value") multiplied by the number of A Seats
then held by the Company. The payment under this Section 13.3(h) shall be made
at closing and is in addition to, and not in lieu of, payments of the redemption
or purchase price to NDB. If the fair market value of an A Seat held by the
Company at the time of closing is less than $1,200,000 then the Company Value
Amount with respect to the Membership Interest of NDB shall be reduced by this
shortfall multiplied by the number of A Seats then held by the Company. In
addition to the foregoing payments, NDB must be paid the product of the Net B
Seat Value multiplied by the number of B Seats held by the Company at closing,
multiplied by sixty (60%) percent. Such payment shall be paid in cash at
closing.
(i) If a Selling Member or its appointees is a member of the
Committee, the Selling Member and its appointees shall not vote or otherwise
participate in the Committee's actions and decisions under Section 13.3(f).
(j) At the closing of the purchase or redemption, the Selling
Member shall transfer his or her entire Membership Interest to the Membership
Interest Purchasers, NDB, or the Company free and clear of all claims and
encumbrances. The Selling Member shall also deliver a written document
containing a surviving representation and warranty regarding the absence of
claims and encumbrances, and a provision indemnifying and holding harmless the
Company and all other Members for and from all assessments, costs, damages,
expenses, fines, judgments, liabilities, losses, penalties, and reasonable
attorney's and paralegal's fees and disbursements incurred by reason of any
breach of this representation and warranty. The Selling Member shall also
deliver to the Membership Interest Purchasers, NDB, or the Company all other
documents that, in the opinion of counsel to the Company, are reasonably
necessary to transfer the entire Membership Interest to the Membership Interest
Purchasers, NDB, or the Company free and clear of all claims and encumbrances.
In the case of a redemption, each Member's Membership Interest will be increased
pro rata.
(k) All elections under this Section 13.3 must be made by
written notice to the Company, the Committee, and all the Members.
(l) The fair market value of an NYSE Seat shall be determined
by the Committee and if the Committee does not fix a fair market value it shall
be the mean between the bid and asked price for an NYSE Seat as reported in the
NYSE Membership Bulletin immediately prior to the date the fair market value is
to be determined with respect to such NYSE Seat.
13.4 (a) Any purported transfer of a Membership Interest or any
interest therein that is not permitted by this Agreement or the Act is null and
void and of no force and effect; provided, however, that if the Company is
required by law to recognize a transfer that is not permitted by this Agreement
or the Act, the Transferee of the interest transferred is limited to the
Transferor's rights to allocations and distributions with respect to the
transferred interest, which allocations and distributions are to be applied to
satisfy all debts, liabilities, and obligations that the Transferor or
Transferee may have to the Company. The Transferee does not have any rights
under this Agreement or the Act to vote, provide or withhold consents, make any
elections, or exercise any rights and powers of Members. In addition, any
transfer or attempted transfer described in this Section 13.4 is subject to the
redemption provisions of Section 13.3.
(b) In the case of a transfer or attempted transfer of a
Membership Interest or any interest therein that is not permitted by this
Agreement or the Act, the Persons engaging or attempting to engage in the
transfer shall indemnify and hold harmless the Company and all Members for and
from all assessments, costs, damages, expenses, fines, judgments, liabilities,
losses, penalties, and reasonable attorney's and paralegal's fees and
disbursements that any of the indemnified Persons incur as a result of the
transfer or attempted transfer and the efforts to enforce the indemnity granted
under this Section 13.4.
13.5 For purposes of this Agreement, a Member who is a natural person
incurs a "disability" if he or she (a) receives disability income benefits for
six (6) consecutive months from any disability income insurance policy or
disability income plan maintained by the Company, NDB, any entity controlled by
NDB, or any entity that controls NDB (the last day of the sixth (6th) month is
the date of disability); (b) has been found to be disabled under a Disability
Determination; or (c) does not perform substantially all of his or her regular
duties as a Member of the Company or a member of the Committee for one hundred
eighty (180) days within a twelve (12) month period because of a medically
determinable disease, injury, or other mental or physical condition as
determined by the written opinion of the physician selected by the Committee
(the three hundred sixty-fifth (365th) day is the date of disability). A
Disability Determination under clause (b) means a finding that the Member,
because of a medically determinable disease, injury, or other mental or physical
condition, is unable to perform substantially all of his or her regular duties
as a Member of the Company or a member of the Committee and that the disability
is reasonably expected to last at least six (6) consecutive months. The
Disability Determination must be made by the written opinion of the physician
selected by the Committee, and the date of issuance of the written opinion is
the date of disability. For purposes of the determinations under clauses (b) and
(c), the Member shall cooperate fully with all medical personnel and submit to
all medical examinations and tests reasonably required by them. If a Member
whose disability is at issue is also a member of the Committee, this Member
shall not vote or otherwise participate in the Committee's actions and decisions
under this Section 13.5.
13.6 For purposes of this Agreement, "legal incompetency" means that a
Member is unable to exercise and perform his rights and obligations as a Member
effectively because of (a) advanced age, chronic intoxication, chronic use of
drugs, mental deficiency, mental illness, or physical illness or disability, as
determined by the written certification of the physician selected by the
Committee; or (ii) confinement, detention by a foreign power, or disappearance
for the period of 180 consecutive days. Each Member shall cooperate fully with
all medical personnel and submit to all medical examinations and tests
reasonably required by all medical personnel. If a Member whose legal competency
is at issue is also a member of the Committee, this Member shall not vote or
otherwise participate in the Committee's actions and decisions under this
Section 13.6.
13.7 On a transfer described in Section 13 or any other provision of
the Agreement, the right to use the Company's name or any portion thereof shall
remain an asset of the Company.
SECTION 14
Right of First Refusal
14.1 (a) If NDB receives a bona fide written offer to purchase or
transfer its entire Membership Interest from a third party unrelated to NDB, NDB
must provide to the Committee and all other Members a copy of the bona fide
written offer and a written notice specifying the name and address of the
prospective transferee, the interest to be transferred, the proposed purchase
price, and all other terms of the proposed transfer.
(b) This Section 14, other than Section 14.8, shall not apply to
an Exempt Transaction. "Exempt Transaction" shall mean (i) the merger,
consolidation, reorganization, sale of securities, or sale of substantially all
of the assets of NDB Group, Inc. or SHD Corp., (ii) the transfer of the
Membership Interests held by NDB Group, Inc. or SHD Corp. to an Affiliated
Entity, (iii) the merger, consolidation, reorganization, sale of securities, or
sale of substantially all of the assets of an NDB Successor; or (iv) the
transfer of the Membership Interest held by an NDB Successor to an Affiliated
Entity. "Affiliated Entity" means any entity that has a relationship to NDB
Group, Inc., SHD Corp., or any NDB Successor described in any provision of Code
Sections 267(b) and 707(b), as the same are in effect on September 1, 1998. In
making this determination, the attribution rules of Code Sections 267(c) and
707(b)(3) apply, as the same are in effect on September 1, 1998, and if a person
or entity holds an option to acquire any interest in another person or entity,
that interest is treated as owned by the option holder. "NDB Successor" means
any successor to NDB Group, Inc. or SHD Corp. as a result of an Exempt
Transaction described in clauses (i) or (ii) of the definition of Exempt
Transaction or any successor to an NDB Successor as a result of a transaction
described in such clauses (iii) or (iv).
14.2 If the prospective transferee is not a natural person acting on his
own behalf, the written notice must contain the names, addresses, and telephone
and facsimile numbers of (a) all the prospective transferee's principals, if
any, and (b) all persons and entities that actually own, and all persons and
entities that constructively own, a five (5%) percent or greater in value or
vote beneficial, capital, equity, or profits interest in the prospective
transferee and the prospective transferee's principals. Constructive ownership
is determined under the attribution rules of Code Sections 267(c) and 318 by
substituting five (5%) percent every time that a percentage appears in these
Code Sections. A person or entity has constructive ownership if this ownership
results under any provision of these Code Sections.
14.3 The term "bona fide written offer" means an arm's length, written
offer from a prospective transferee who is a third party unrelated to NDB. A
bona fide written offer must contain the agreement of the unrelated third party
to be bound by all the provisions of this Agreement. A third party is unrelated
to NDB if the third party does not have a relationship described in any
provision of Code Sections 267(b) and 707(b). In determining related party
status, the attribution rules of Code Sections 267(c) and 707(b)(3) apply, and
if a person or entity holds an option to acquire any interest in another person
or entity, that interest is treated as owned by the option holder.
14.4 Within thirty (30) days after NDB presents the bona fide written
offer and written notice to the Committee and the Members, NDB must offer to
sell its entire Membership Interest at the price and on the terms contained in
the bona fide written offer to the Active Members and New Active Members
selected by Dilascio ("NDB Interest Purchasers"). Dilascio may be an NDB
Interest Purchaser, subject to the approval of a majority of the Membership
Interests of the Active Members. Upon the resignation or removal of Dilascio as
a member of the Committee, or upon his withdrawal from the Company, within
thirty (30) days after NDB presents the bona fide written offer and written
notice to the Committee and the Members, the President shall recommend the
persons who are to be the NDB Interest Purchasers, and a unanimous vote of the
Committee and a majority of the Membership Interests of the Active Members must
approve this recommendation.
14.5 For thirty (30) days after their selection, the NDB Interest
Purchasers may elect to purchase the entire Membership Interest of NDB on the
same terms provided in the offer as modified by the provisions of this
Agreement.
14.6 The closing of any purchase by the NDB Interest Purchasers must
take place at the Company's principal place of business within the sixty (60)
days following the expiration of the election period (or as soon thereafter as
approved by the NYSE, provided a diligent effort by the NDB Interest Purchasers
and the Committee to obtain NYSE approval was made within the sixty (60) day
period). The expiration of the election period occurs at the end of the thirty
(30) day election period under Section 14.5, or on the date written notice is
given to NDB of the election of NDB Interest Purchasers to purchase the entire
Membership Interest of NDB, whichever is earlier. If the closing date is a
Saturday, Sunday, or national holiday, the closing must take place on the next
succeeding business day. If the terms of the bona fide offer contain installment
payments, the amount of each installment, when paid, is credited first to the
payment of interest and the balance to principal. In addition, the NDB Interest
Purchasers may prepay without penalty or premium any portion of or the entire
price at any time and from time to time. All prepayments are credited against
installments due in the inverse order of maturity (i.e., applied first against
the last payment due). Furthermore, the NDB Interest Purchasers must satisfy the
price with cash regardless of the type of consideration provided for in the bona
fide written offer. If the purchase price contained in the bona fide written
offer contemplates installment payments over a number of years, the NDB Interest
Purchasers can make installment payments so long as the obligation is secured by
a letter of credit or other credit enhancement satisfactory to NDB. All actions
and decisions of the Company under this Section 14.6 are to be made by the
Committee without the participation and vote of any member of the Committee
appointed by NDB.
14.7 If an election to purchase under Section 14.5 is not made, then NDB
may sell or otherwise transfer its entire Membership Interest, subject to NYSE
approval, but only pursuant to the bona fide written offer presented to the
Company, and only if the transaction closes within sixty (60) days following the
end of the thirty (30) day election period under Section 14.5 (or as soon
thereafter as approved by the NYSE, provided a diligent effort by NDB was made
within the sixty (60) day period). In addition, NDB and the prospective
transferee must satisfy the requirements of Section 13.1(a) and (b). If NDB does
not sell or otherwise transfer its entire Membership Interest pursuant to the
bona fide written offer within the foregoing period, then a new offer must be
made to the Company and its Members, and the provisions of this Section 14 again
apply before NDB may sell or otherwise transfer its entire Membership Interest.
14.8 In the event of a transfer of its entire Membership Interest by
NDB, an NDB Successor, or any Affiliated Entity (an "NDB Transfer") pursuant to
Sections 13 and 14 or by an Exempt Transaction, the acquiror of a Membership
Interest as a result of an NDB Transfer (an "NDB Transferee") must agree to be
bound by the provisions of this Agreement, as it may be amended, shall have the
same rights and obligations as NDB for all purposes, and all references to NDB
in the Agreement, as it may be amended, shall be deemed to be a reference to the
NDB Transferee.
SECTION 15
Buy-Out of Active Member
15.1 The determination to Buy-Out an Active Member's entire Membership
Interest or any interest therein is to be made in accordance with the following
provisions of Section 15 ("Buy-Out Determination"). Dilascio may, in his
exclusive discretion at any time and from time to time, make a written
recommendation to the Committee that an Active Member's entire Membership
Interest, including his own, or any interest therein ("Selling Member") be
subject to a Buy-Out. In his recommendation Dilascio must set forth the
percentage of the Selling Member's Membership Interest subject to the Buy-Out.
Upon the resignation or removal of Dilascio as a member of the Committee, or
upon his withdrawal from the Company, the President shall make the written
recommendation to the Committee. The Buy-Out must then be approved by a
unanimous vote of the Committee and a vote of the majority of the Membership
Interests of the Active Members, other than the Selling Member. Within fourteen
(14) days after receipt of the recommendation of Dilascio or the President, the
Committee must give the Active Members written notice of its approval or
disapproval (the "Committee Determination"). Within fourteen (14) days of notice
of the Committee Determination, the majority of the Membership Interests of the
Active Members, other than the Selling Member, must approve or disapprove the
Committee Determination. The fiscal year in which a majority of the Membership
Interests of the Active Members approve the Buy-Out is the fiscal year in which
the Buy-Out Determination occurs.
15.2 If a Buy-Out is approved by the unanimous vote of the Committee
and a majority of the Membership Interests of the Active Members under Section
15.1, the following provisions apply:
(a) Within the fourteen (14) day period beginning on the day following
the last day of the Company's fiscal year in which the Buy-Out Determination
occurs, NDB may elect to purchase the entire or any portion of the Membership
Interest subject to Buy-Out so that, when this Membership Interest is added to
the sum of NDB's and the Special Member's Membership Interests, the Membership
Interests of these Members do not exceed a fifty-three and eight hundred
seventy-five thousandths (53.875%) percent Membership Interest and thereafter
NDB's right to acquire Membership Interests shall be as provided elsewhere in
this Agreement.
(b) Within fourteen (14) days after the expiration of the fourteen (14)
day period set forth in Section 15.2(a), Dilascio shall select any one or more
Active Members, any one or more persons or entities seeking to become Active
Members in the Company ("New Active Members"), or any combination of Active
Members and New Active Members (the "Membership Interest Purchasers") to elect
to purchase the entire or any portion of the Membership Interest subject to the
Buy-Out that NDB did not elect to purchase under Section 15.2(a). Dilascio may
be a Membership Interest Purchaser, subject to the approval of a majority of the
Membership Interests of the Active Members. Upon the resignation or removal of
Dilascio as a member of the Committee, or upon his withdrawal from the Company,
within fourteen (14) days after the expiration of the fourteen (14) day time
period set forth in Section 15.2(a), the President shall recommend the persons
who are to be the Membership Interest Purchasers, and a unanimous vote of the
Committee and a majority of the Membership Interests of the Active Members must
approve this recommendation. The Membership Interest Purchasers may, within the
fourteen (14) day period following the selection of the last Membership Interest
Purchaser, elect to purchase the entire or any portion of the Membership
Interest subject to Buy-Out that NDB did not elect to purchase under Section
15.2(a). If the Membership Interest Purchasers make the election under this
Section 15.2(b), each Membership Interest Purchaser may purchase all or the
percentage of the Selling Member's Membership Interest as determined by Dilascio
in his exclusive discretion. Upon the resignation or removal of Dilascio as a
member of the Committee, or upon his withdrawal from the Company, the President
shall recommend the percentage of the Selling Member's Membership Interest that
each Membership Interest Purchaser may purchase, and a unanimous vote of the
Committee and a majority of the Membership Interests of the Active Members must
approve this recommendation. The recommendation and approval must occur within
the same fourteen (14) day period in which the majority must select the
Membership Interest Purchasers.
(c) If the Membership Interest Purchasers do not elect to purchase the
entire remaining Membership Interest of the Selling Member, then NDB may elect
to purchase the entire Membership Interest that was not purchased under Sections
15.2(a) and (b). NDB's election period under this Section 15.3(c) begins at the
end of the last applicable fourteen (14) day period under Section 15.2(b), and
expires (14) days thereafter.
(d) In the event that the Selling Member's entire Membership Interest
in the Company is subject to Buy-Out under this Section 15, if the Membership
Interest Purchasers under Section 15.2(b) and NDB under Sections 15.2(a) and (c)
do not elect to purchase the entire Membership Interest subject to the Buy-Out,
the Company shall redeem the entire remaining Membership Interest subject to the
Buy-Out. In the event that only a portion of the Selling Member's entire
Membership Interest in the Company is subject to Buy-Out under this Section 15,
the Company may, upon the unanimous consent of the Committee, elect not to
redeem the remaining Membership Interest where an event under Section 13.3(a)
has not occurred with respect to the Selling Member. The books of the Company
shall be adjusted as of the date of the redemption to reflect a pro-rata
adjustment of the Membership Interests of the Members.
(e) The purchase price and redemption price of the entire Membership
interest subject to Buy-Out shall be determined pursuant to the valuation
procedures set forth in Section 13.3(f). The purchase and redemption price shall
be allocated among NDB, the Membership Interest Purchasers, and the Company, as
the case may be, pro-rata based upon the percentage of the Selling Member's
Membership Interest subject to Buy-Out that each party purchases or redeems. In
the case of a redemption, each Member's Membership Interest will be increased
pro-rata.
(f) The closing of the purchase and redemption must take place at the
principal office of the Company within sixty (60) days after Committee provides
written notice of its determination of the Company Value Amount or within sixty
(60) days after the determination of the Company Value Amount by arbitration if
an arbitration proceeding is promptly commenced (or as soon thereafter, in each
instance, as approved by the NYSE, provided a diligent effort by the Committee,
NDB and the Membership Interest Purchasers to obtain NYSE approval was made
within the sixty (60) day period). At closing, provided that the Selling
Member's Capital Account is positive on the day of closing, the Membership
Interest Purchasers, NDB, and the Company, as the case may be, shall pay the
Selling Member an amount, in cash or other immediately available funds, equal to
the sum of (i) twenty (20%) percent of the Membership Interest Value plus (ii)
the Selling Member's Capital Account allocable to the Membership Interest
subject to Buy-Out as of the day of closing. The Membership Interest Purchasers,
NDB and the Company, as the case may be, shall also deliver nonnegotiable
promissory notes at closing for the remaining balance of the Membership Interest
Value without any stated interest thereon (the "Notes"). The Notes are to be
paid in four equal annual installments over four (4) consecutive years, with the
first payment due on the first anniversary of the closing. At closing, if the
Selling Member has an Adjusted Capital Account Deficit as of the day of closing,
the Membership Interest Purchasers, NDB, and the Company, as the case may be,
shall pay the Selling Member an amount in cash or immediately available funds
equal to twenty (20%) percent of the excess, if any, of the Membership Interest
Value over the Adjusted Capital Account Deficit ("Excess Amount"). The
Membership Interest Purchasers, NDB, and the Company, as the case may be, shall
also deliver nonnegotiable promissory notes at closing for the remaining balance
of the Excess Amount, without any stated interest thereon (the "Excess Amount
Notes"). The Excess Amount Notes are to be paid in four equal annual
installments over four (4) consecutive years with the first payment due on the
first anniversary of the closing. The total payments due to the Selling Member
at closing and on the Notes or the Excess Amount Notes shall be paid by the
Membership Interest Purchasers, NDB, and the Company based upon the portion of
the Selling Member's Membership Interest subject to Buy-Out purchased by each
party. All amounts paid to the Selling Member under this Section 15.2(f) are
subject to any required approval of the NYSE, any applicable self-regulatory
organization, and any applicable administrative agency, and must be made in
compliance with the Uniform Net Capital Rule, the Constitution and Rules of the
NYSE, and the Act. The parties acknowledge that these installments may be
subject to the imputed interest rules under the Code. The Membership Interest
Purchasers, NDB, or the Company may prepay without penalty or premium any
portion of or the entire amount of the Note at any time and from time to time in
multiples of at least Five Thousand ($5,000) Dollars. All prepayments are
credited against installments due in the inverse order of maturity. The Notes or
Excess Amount Notes must provide that on a default in any payment that is not
cured within fourteen (14) days the Notes or Excess Amount Notes become
immediately due and payable in full at the election of the holder. The Notes or
Excess Amount Notes must also provide that its maker shall pay the reasonable
expenses of collection on any default, including without limitation reasonable
attorney's and paralegal's fees and disbursements.
(g) At the closing of the purchase or redemption, the Selling Member
shall transfer his or her Membership Interest subject to Buy-Out to the
Membership Interest Purchasers, NDB, or the Company free and clear of all claims
and encumbrances. The Selling Member shall also deliver a written document
containing a surviving representation and warranty regarding the absence of
claims and encumbrances, and a provision indemnifying and holding harmless the
Company and all other Members for and from all assessments, costs, damages,
expenses, fines, judgments, liabilities, losses, penalties, and reasonable
attorney's and paralegal's fees and disbursements incurred by reason of any
breach of this representation and warranty. The Selling Member shall also
deliver to the Membership Interest Purchasers, NDB, or the Company all other
documents that, in the opinion of counsel to the Company, are reasonably
necessary to transfer the Membership Interest subject to Buy-Out to the
Membership Interest Purchasers, NDB, or the Company free and clear of all claims
and encumbrances.
(h) All elections under this Section 15 must be made by written notice
to the Company, the Committee, and all Members. If a Selling Member or its
appointees is a member of the Committee, the Selling Member is subject to any
event in Section 13.3(a), and the entire Membership Interest of the Selling
Member is subject to the Buy-Out, neither the Selling Member nor its appointees
shall vote or otherwise participate in the Committee's actions and decisions
under this Section 15.
(i) For purposes of Section 15, beginning on the date of the first
anniversary of this Agreement, an Individual Non-Active Member shall be deemed
to be an Active Member subject to the provisions of Section 15.
SECTION 15A
Green's Membership Interest
15A.1 Notwithstanding any other provision in this Agreement, upon the
occurrence of (i) any one of the events specified in Section 13.3(a) with
respect to Green, (ii) a Buy-Out Determination as specified in Section 15 with
respect to Green, (iii) an Event of Default with respect to Green as defined in
the promissory note between Green and NDB Group, Inc. dated August 31, 1998 or
any replacement thereof (the "Green Note"), or (iv) an Event of Default with
respect to Green as defined in the Assignment Agreement dated August 31, 1998,
or any replacement thereof between Green and NDB Group, Inc. (the "Green
Assignment") that portion of Green's Membership Interest equal to a two (2%)
percent Membership Interest in the Company (the "Green Interest") shall be
subject to the provisions of this Section 15A.
15A.2 Within thirty (30) days after the occurrence of an event set
forth in Section 15A.1 with respect to Green, NDB may elect to purchase the
entire or any portion of the Membership Interest of the Selling Member such
that, when this Membership Interest is added to the sum of NDB's and the Special
Member's Membership Interests, these Membership Interests do not exceed a
fifty-three and eight hundred seventy-five thousandths (53.875%) percent
Membership Interest in the Company and thereafter NDB's right to acquire
Membership Interests shall be as provided elsewhere in this Agreement.
15A.3 Within thirty (30) days after the expiration of the thirty (30)
day period set forth in Section 15A.2, the Active Members may elect to purchase
the Green Interest.
15A.4 If the Active Members do not elect to purchase the entire or any
portion of the Green Interest within the thirty (30) day period set forth in
Section 15A.3, then NDB may elect to purchase the entire or any portion of the
remaining Green Interest that was not purchased under Sections 15A.2 and 15A.3.
NDB's right to purchase the Green Interest expires at the end of the thirty (30)
day period following the end of the thirty (30) day period set forth in Section
15A.3.
15A.5 If the Active Members under Section 15A.3 and NDB under Sections
15A.2 and 15A.4 do not elect to purchase the entire Green Interest, the Company
shall redeem the remaining Green Interest.
15A.6 If an event described in Section 15A.1 occurs with respect to
Green prior to May 2, 1999, the purchase price or redemption price of the Green
Interest shall be $900,000. If NDB elects to purchase the Green Interest under
Section 15A.3 and an event described in Section 15A.1 occurs with respect to
Green prior to May 2, 1999, the purchase price for the Green Interest shall be
$900,000 less any outstanding principal and accrued interest under the Green
Note. On or after May 2, 1999, the Green Interest shall be valued as provided in
Section 13.3(f) less, in the case of NDB, the outstanding principal and accrued
interest under the Green Note.
15A.7 The Membership Interest of Green, other than the Green Interest
prior to May 2, 1999, shall be valued in accordance with 13.3(f).
15A.8 If the purchase price or redemption price is determined under
Section 15A.6, the closing of the purchase or redemption must take place at the
principal office of the Company within sixty (60) days from the earlier of (i)
the day the Active Members and NDB elect to purchase the Green Interest, or (ii)
the expiration of the time period set forth in Section 15A.4 (or as soon
thereafter as approved by the NYSE, provided a diligent effort by the Committee,
the Active Members, and NDB to obtain NYSE approval was made within the sixty
(60) day period). If the purchase price or redemption price is determined under
Section 15A.7, the closing of the purchase or redemption must take place at the
principal office of the Company within sixty (60) days after the Committee
provides written notice of its determination of the Company Value Amount, or
after the date of the determination of the Company Value Amount by arbitration
(or as soon thereafter, in each instance, as approved by the NYSE, provided a
diligent effort by the Committee and Active Members to obtain NYSE approval was
made within the sixty (60) day period). At a closing, with respect to the Green
Interest, Green shall receive a certified check or other immediately available
funds in an amount of the purchase price or redemption price as determined under
Section 15A.6. If the closing relates to the Membership Interest of Green, other
than the Green Interest, Green shall be paid in the same manner as other
Members. Notwithstanding the preceding sentence, if Green has a Capital Account
Deficit as of the date of closing, and the purchase price or redemption price of
the Green Interest is determined under Section 15A.7, Green shall receive an
amount of cash or other immediately available funds equal to the excess of the
Green Interest Value after reduction by the amount of the Capital Account
Deficit allocable to the Green Interest. If NDB does not elect to purchase the
Green Interest under Sections 15A.2 and 15A.4, Green must satisfy all
outstanding principal and accrued interest under the Green Note with the
proceeds of the purchase price or redemption price at closing.
15A.9 If NDB elects to purchase the Green Interest under Sections 15A.2
and 15A.4, the members of the Committee appointed by NDB shall not vote or
otherwise participate in the Committee's actions and decisions under this
Section 15A. If the Active Members elect to purchase the Green Interest under
Section 15A.3, and an Active Member or his or her appointees is a member of the
Committee, the Active Member, or its appointees shall not vote or otherwise
participate in the Committee's actions and decisions under this Section 15A. If
Green is a member of the Committee, Green shall not vote or otherwise
participate in the Committee's actions and decisions under this Section 15A.
15A.10 At the closing or redemption, Green shall transfer the Green
Interest to the Active Member, NDB, or the Company, as the case may be, free and
clear of all claims and encumbrances. Green shall also deliver a written
document containing a surviving representation and warranty regarding the
absence of claims and encumbrances, and a provision indemnifying and holding
harmless the Company and all other Members for and from all assessments, costs,
damages, expenses, fines, judgments, liabilities, losses, penalties and
reasonable attorney's and paralegal's fees and disbursements incurred by reason
of any breach of this representation and warranty. Green shall also deliver to
the Active Members, NDB, or the Company, as the case may be, all other documents
that, in the opinion of counsel to the Company, are reasonably necessary to
transfer the Green Interest to the Active Members, NDB or the Company free and
clear of all claims and encumbrances.
15A.11 All elections under this Section 15A must be made by written
notice to the Company, the Committee, and all Members.
SECTION 16
Continuation of Company
Upon the occurrence of any event set forth in Sections 13.3(a), 15 or
15A.1, or the retirement or expulsion under the Act of a Member, the Company
shall not dissolve and the business of the Company shall continue without
interruption.
SECTION 17
Dissolution and Liquidation of Company
17.1 The Company liquidates and dissolves upon the earlier of: (a) the
sale or other disposition of all or substantially all of the assets of the
Company and receipt of full payment on any deferred portion of the sales or
disposition price; (b) the written unanimous consent of the members of the
Committee and the consent of a majority of the Membership Interests of the
Active Members and the consent of a majority of the Membership Interests of the
Non-Active Members to terminate the business operations of the Company and
dissolve the Company; and (c) as otherwise provided in this Agreement. The
proceeds of liquidation and any Company assets are to be applied and distributed
as follows:
17.1.1 First, to the payment of the debts, liabilities, and
obligations of the Company (other than any loans or advances that may have been
made by any Member to the Company) and the expenses of liquidation;
17.1.2 Second, to the setting up of any reserves that the
Committee determines are appropriate for any contingent or unforeseen
liabilities or obligations of the Company;
17.1.3 Third, to the payment of any loans or advances that may
have been made by any Member to the Company;
17.1.4 Fourth, if a positive number an amount equal to the Net
A Seat Value multiplied by the number of A seats then held by the Company, and
sixty percent (60%) of the Net B Seat Value multiplied by the number of B Seats
then held by the Company shall be distributed to NDB, and if a positive number
an amount equal to the Net B Seat Value multiplied by the number of B Seats then
held by the Company shall be distributed to the following Members in the
following percentages: 16% to Dilascio, 13.6% to Dreyer, 6.4% to Nicolosi, and
4% to Kopp;
17.l.5 Fifth, the balance, if any, to the Members in
proportion to their Capital Accounts as of the day of the distribution after
giving effect to all contributions, distributions, and allocations for all
fiscal years, including the fiscal year or years of liquidation and dissolution
and reduced by the Net A Seat Value or the Net B Seat Value if it is a negative
number allocated to Capital Accounts as provided in Section 17.1.4.
17.1.6 If the Company is liquidated by termination of the
Company under Code Section 708(b)(1), or when the Company ceases to be a going
concern even though it may continue in existence for the purpose of winding up
its affairs, paying its debts, and distributing any remaining assets to the
Members, distributions must be made only to the Members who have positive
Capital Accounts determined after taking into account all Capital Account
adjustments for the fiscal year in which the liquidation occurs, and the
distributions must be made by the end of this fiscal year or, if later, within
ninety (90) days after the date of the liquidation. If any Member has an
Adjusted Capital Account Deficit after giving effect to all contributions,
distributions, and allocations for all fiscal years, including the year in which
the liquidation occurs, other than for unpaid mandatory Capital Contributions
the Member does not have any obligation to make a contribution to the capital of
the Company, to restore the deficit, or make a payment to any Member who has a
positive Capital Account.
17.2 If any Company asset is not sold, but instead is distributed in
kind, for purposes of determining the amount to be distributed to the Members
and the allocations under Section 7.2 with respect to the distribution, the
Company asset must be revalued on the Company books by the Committee to reflect
its then current fair market value and distributed under Section 17.1 based upon
this value. For the purposes of this Section 17.2, the value of securities owned
by the Company as part of its specialist business must be marked to market.
17.3 A reasonable time is to be allowed for the orderly liquidation of
the assets of the Company and the discharge of liabilities to creditors so as to
enable the Company to minimize the losses attendant upon a liquidation. Each of
the Members must be furnished with a statement prepared by the Company's then
certified public accountants, which must set forth the assets and liabilities of
the Company as of the date of completion of liquidation. Upon compliance with
the distribution plan set forth in Section 17 the Members cease to be such, and
the Members shall execute and cause to be filed a Certificate of Cancellation of
the Company.
SECTION 18
Other Provisions
18.1 Integration. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous oral and written agreements. Any provision that is not contained
in this Agreement does not affect and is not effective to change, construe,
define, extend, interpret, or limit any provision of this Agreement. This
Agreement includes all amendments to this Agreement.
18.2 Notices. All notices given under this Agreement must be in
writing. All periods of time begin or end, as the case may be, on the day the
notice is sent via facsimile transmission and receipt confirmed, the date
personally delivered to any recipient, the date deposited with an overnight
delivery service with tracking capability, or on the date of mailing by
certified mail, return receipt requested, addressed to the recipient at the
address set forth in this Agreement or other address the Person has provided to
the Committee and all Members by written notice. In computing the period of
days, the date of facsimile transmission and receipt confirmed, the date of
personal delivery, the date of deposit with an overnight delivery service with
tracking capability, or the date of mailing of a notice is included. Any Person
may waive in writing any notice required to be given under this Agreement or the
Act, either before or after the time of the required notice.
18.3 Further Assurances. All parties shall execute and deliver such
other instruments, provide such information, and do such other acts as may be
necessary or appropriate to carry out the provisions of this Agreement.
18.4 Number and Gender. Whenever the context may require, any pronouns
used herein include the corresponding masculine, feminine, or neuter forms, and
the singular includes the plural and vice versa.
18.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which is deemed to be an original, but all of which
together constitute one Agreement. The signature of any party to any counterpart
is deemed to be a signature to, and may be appended to, any other counterpart.
18.6 Headings, Captions and Capitalized Terms. The headings and
captions contained in this Agreement have been inserted only as a matter of
convenience, and do not construe, define, extend, interpret, or limit any
provision of this Agreement. Capitalized terms are defined in Section 7.1 and
elsewhere in the Agreement.
18.7 Severability. All rights and obligations must be exercised and
performed only to the extent that the exercise or performance does not violate
any applicable law. All rights and obligations are limited to the extent
necessary so that they do not render this Agreement, or any provision hereof,
invalid or unenforceable under any applicable law. If any provision of this
Agreement is held to be invalid or unenforceable, the validity and
enforceability of all other provisions are not affected.
18.8 Governing Law. This Agreement is governed by the laws of the State
of Delaware regardless of the laws that might otherwise govern under the
applicable principles of conflict of laws.
18.9 Amendment and Waiver.
18.9.1 This Agreement may not be amended without the unanimous
written consent of all Members. 18.9.2 Any waiver by any party
of any act or omission that is a default under or breach of
any
provision of this Agreement is a waiver only of that particular act or omission
at that particular time, and is not a waiver of any other act or omission.
18.10 Successors. This Agreement is binding on, inures to the benefit
of, and is enforceable by and against the parties and their respective
administrators, agents, beneficiaries, devisees, distributees, executors, heirs,
permitted assigns, personal representatives, and successors.
18.11 Ratification. All actions taken by the Members with respect to
the organization and business of the Company prior to the date of execution of
this Agreement are ratified.
18.12 Enforcement of Indemnification Obligations. If any Person brings
an action to recover on any claim under an indemnification obligation contained
in this Agreement or under law, the indemnifying person or entity shall pay all
costs, expenses, and reasonable attorney's and paralegal's fees and
disbursements incurred by the Person in bringing the indemnification claims on
which the Person substantially prevails.
18.13 Remedies. Except as otherwise provided in this Agreement, the
remedies granted in this Agreement are cumulative, and are in addition to and
without prejudice to any other remedy that any Person may have under law,
equity, or this Agreement.
18.14 Subordinated Loans. The Committee may, in its exclusive
discretion, enter into with the Non-Active Members and subordinated creditors,
who need not be Members, cash subordination agreements, secured demand notes,
registered subordinated debentures, or other instruments, in such amounts, and
on such terms and conditions consistent with regulatory requirements for
treatment of these items as net capital of the Company.
18.15 Covenant Not To Compete. With respect to all transfers described
in this Agreement, other than by reason of death, the Selling Member who is or
was an Active Member, must sign or be subject to a previously signed covenant
not to compete or engage in business as a specialist, or apply for registration
as a specialist, on any exchange, in any securities in which the Company is
engaged as a specialist, commencing on the date that the Active Member ceases to
trade as a specialist on behalf of the Company and terminating two years after
the date of the closing of the transfer. With respect to all transfers described
in this Agreement, other than by reason of death, the Selling Member who is or
was an Individual Non-Active Member, must sign or be subject to a previously
signed covenant not to compete or engage in business as a specialist, or apply
for registration as a specialist, on any exchange, in any securities in which
the Company is engaged as a specialist, commencing on the date of the closing of
the transfer and terminating two years later.
18.16 Power of Attorney. Each Active Member designates the President as
such Member's irrevocable attorney-in-fact, with the right to execute for such
Active Member in such Active Member's name and to file all instruments,
documents and certificates relating to the Company which may, from time to time
be required by law, or by any governmental, administrative or other body,
including, without limitation, the NYSE and any securities exchange or
association of which the Company is a member firm and any state agency
regulating the business of the Company, to effectuate, implement, and continue
the valid and subsisting evidence of the Company, including, without limitation,
the Certificate of Formation and any amendments thereto that may be required to
be filed with the State of Delaware, the State of New York, and any document
necessary to cause the existing Certificate of Formation to be amended to show
the withdrawal of the Selling Member or any other appropriate matters therein.
18.17 Conflicts with this Agreement. Any conflict between the
provisions of this Agreement, as it may be amended, and the provisions of (a)
any other agreement entered into by the Company or any of its Members, or (b)
the Certificate of Formation of the Company, shall be resolved in favor of
provisions of the Agreement, as it may be amended.
18.18 Transfers by NDB, NDB Successors or any Affiliated Entity. In the
event of a transfer of its entire Membership Interest by NDB, an NDB Successor,
or any Affiliated Entity (an "NDB Transfer"), the acquiror of a Membership
Interest as a result of an NDB Transfer (an "NDB Transferee") must agree to be
bound by the provisions of this Agreement, as it may be amended, shall have the
same rights and obligations as NDB for all purposes, and all references to NDB
in the Agreement, as it may be amended, shall be deemed to be a reference to the
NDB Transferee.
SECTION 19
Arbitration
(a) All claims and disputes arising out of or related to (i) the
construction or interpretation of this Agreement; (ii) the exercise and
performance of the rights and obligations of any party under this Agreement, the
Act, or any law governing any business of the Company, any relationship between
or among any of the Members, and (iii) any relationship between or among any of
the Members and the Company must be submitted to arbitration in accordance with
the Constitution, By-Laws, and Rules then in effect of the New York Stock
Exchange.
(b) Any arbitration pursuant to this Section 19 shall be conducted on
an expedited basis. All hearings and discovery shall take place within a period
of not more than thirty (30) days after commencement of the arbitration, or
within such other time as may be convenient for the NYSE arbitrators. All
arbitration fees or costs shall be subject to award or allocation among the
parties in the arbitrators' decision or award. In case of a settlement, the
parties shall share the fees or costs equally.
(c) In any arbitration between the parties, the arbitrators shall have
the authority to render a binding decision with regard to all issues in
controversy and to award any and all relief which they may consider just and
proper, including without limitation an award of monetary, injunctive or
declaratory relief but not punitive or exemplary damages. The arbitrators' award
may thereafter be converted to a judgment before any court of competent
jurisdiction.
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Agreement on _________ , 1998 effective as of December 31, 1998.
WITNESS:
STEPHEN J. DILASCIO, Member
GERARD J. DREYER, Member
JOHN F. NICOLOSI, Member
PHILIP J. KOPP, III, Member
JAMES C. EMRICH, Member
DAVID GREEN, Member
CYNTHIA KELLOGG, Member
HARVEY SILVERMAN, Member
JOHN DUFFY, Member
WITNESS:
JOSEPH A. RODRIGUEZ, Member
JAMES F. BOWEN, III, Member
ISIDORE FIELDS, Member
ROBERT L. PROSSER, SR., Member
NATIONAL DISCOUNT BROKERS
GROUP, INC., Member
By:
SHD CORP., Member
By:
<PAGE>
EXHIBIT 10.2
CONTRIBUTION AGREEMENT
dated as of
December 31, 1998
among
EQUITRADE PARTNERS, L.L.C.
and
RSF PARTNERS L.P.
JOSEPH RODRIGUEZ
JAMES BOWEN
ISIDORE FIELDS
and
ROBERT PROSSER
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
CONTRIBUTION
1.1 Assets....................................................................1
1.2 Consideration.............................................................2
1.3 Additional Transfer at Closing............................................2
1.4 Post Closing Adjustments..................................................2
ARTICLE 2
CLOSING
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS
3.1 Organization..............................................................3
3.2 Authorization.............................................................3
3.3 No Consents...............................................................3
3.4 Non-Contravention.........................................................3
3.5 Partners..................................................................4
3.6 Due Organization of the Partnership: Capitalization......................4
3.7 Litigation................................................................4
3.8 Compliance With Law.......................................................4
3.9 Financial Statements......................................................5
3.10 No Undisclosed Liabilities...............................................5
3.11 Taxes....................................................................5
3.12 Operations of the Partnership............................................6
3.13 Brokers..................................................................6
3.14 Partial Liquidation of the Partnership...................................6
3.15 Investment Representation................................................6
3.16 Releases and Dismissal of Suit...........................................7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF RECIPIENT
4.1 Organization..............................................................7
4.2 Authorization.............................................................7
4.3 No Consents...............................................................8
4.4 Non-Contravention.........................................................8
4.5 Litigation................................................................8
4.6 Disclosure................................................................8
4.7 Financial Statements......................................................8
4.8 Operations of Equitrade...................................................9
4.9 Agreements with General Partners..........................................9
ARTICLE 5
COVENANTS AND AGREEMENTS OF CONTRIBUTORS
5.1 Affirmative Covenants.....................................................9
5.2 Negative Covenants........................................................10
5.3 Noncompetition; Nonsolicitation...........................................11
5.4 Break-Up Fee..............................................................11
5.5 Fields Seat...............................................................12
ARTICLE 6
COVENANTS AND AGREEMENTS OF RECIPIENT
6.1 Affirmative Covenants.....................................................12
6.2 Negative Covenants........................................................12
6.3 Transfer Taxes and Other Fees.............................................12
ARTICLE 7
JOINT COVENANTS AND AGREEMENTS
7.1 Required Consents ...................................................... .13
7.2 Press Releases............................................................13
7.3 Confidential Information..................................................13
7.4 Reasonable Commercial Efforts: Further Assurances.........................13
7.5 Notifications......................................................... ...14
ARTICLE 8
CONDITIONS TO CLOSING
8.1 Mutual Conditions.........................................................14
8.2 Recipient's Conditions....................................................14
8.3 The Contributors'Conditions...............................................16
ARTICLE 9
TERMINATION
9.1 Termination...............................................................17
9.2 Effect of Termination.....................................................18
9.3 Right to Proceed..........................................................18
ARTICLE 10
MISCELLANEOUS
10.1 Notices..................................................................18
10.2 Survival.................................................................19
10.3 Indemnification..........................................................19
10.4Expenses..................................................................21
10.5Governing Law.............................................................21
10.6Assignment................................................................21
10.7 Counterparts.............................................................21
10.8 Titles and Headings......................................................21
10.9 Entire Agreement.........................................................21
10.10 Amendment and Modification..............................................21
10.11 Waiver..................................................................21
10.12 Severability............................................................22
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is dated as of December 31, 1998, by and
among Equitrade Partners, L.L.C., a Delaware limited liability company
("Recipient"), and RSF Partners L.P., a New York limited partnership (the
"Partnership"), and Joseph A. Rodriguez, James F. Bowen, III, Isidore Fields and
Robert L. Prosser, all of the general partners of the Partnership (the "General
Partners" and, collectively with the Partnership, the "Contributors").
W I T N E S S E T H:
WHEREAS, the Partnership has been allocated and assigned by the New
York Stock Exchange ("NYSE") the specialist book rights (the "Rights") in the
issues set forth on the NYSE and listed on Exhibit A hereto, together with all
additions thereto (if any) prior to the Closing Date (as hereinafter defined)
(the "Issues"); and
WHEREAS, the Contributors desire to contribute to Recipient, and
Recipient desires to receive from the Partnership, the Rights to the Issues upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, Recipient and the
Contributors agree as follows:
ARTICLE 1
CONTRIBUTION
1.1......Assets. Subject to the terms and conditions set forth in this
Agreement, including but not limited to, the approval of the NYSE of the
transactions contemplated by this Agreement, the Partnership agrees, and the
General Partners agree to cause the Partnership, to convey, transfer, assign and
deliver to Recipient, and Recipient agrees to receive from the Partnership, at
the Closing (as hereinafter defined), all of the Rights to the Issues and the
Net Position to be transferred to Recipient pursuant to Section 1.3, all of
which are sometimes collectively referred to in this Agreement as the "Assets"
including, but not limited to, the following:
(i) all papers, computerized databases, books and records in
any of the Contributor's'care, custody or control relating to any or all of the
above described Assets, including but not limited to all trading and regulatory
records, tax, accounting and financial records, personnel records,
correspondence and other similar documents and records, and
(ii) all authorizations, consents and permits issued by, and
all registrations and filings with, any court or any federal, state, local or
governmental or other regulatory or self-regulatory agency, authority, body,
board, bureau, commission, department or instrumentality, including but not
limited to the Securities and Exchange Commission ("SEC"), and the NYSE
("Governmental Authority").
1.2......Consideration. In consideration for the conveyance, transfer,
assignment and delivery of the Assets to Recipient, Recipient grants, conveys,
transfers and assigns to the Partnership an aggregate of 13% membership interest
(the "Membership Interest") in Recipient (the "Consideration"), which
Consideration must be allocated among the General Partners as provided in
Schedule 1.2 hereto and pursuant to the Partnership's Agreement of Liquidation
(as hereinafter defined) on the Closing Date (as hereinafter defined).
1.3......Additional Transfer at Closing. On the Closing Date, the
Partnership will mark to market all positions held by it in the Issues on a
trade date basis, whether long or short and whether settled or open (the "Net
Position"). The Net Position shall be calculated on a settlement date basis
against delivery of such positions to the account of Recipient. Valuation of the
Net Position shall be by reference to the NYSE composite tape as of the close of
business on the Closing Date using the last sale price regular way of each
security. That portion of the Net Position which settles on or prior to the
Closing Date shall be delivered to Recipient at the Closing. That portion of the
Net Position which settles after the Closing Date will be delivered to Recipient
by the Partnership when settled. The Partnership and the General Partners agree
to execute such further documents of transfer of the Net Position to Recipient
as Recipient may reasonably request. That portion of the Net Position which
settled on or before the Closing Date will be compared to the outstanding amount
plus accrued interest on the subordinated indebtedness owed by the Partnership
to Recipient as of the Closing Date (the "Outstanding Debt"). If that portion of
the Net Position settled on or before the Closing Date is a positive number and
exceeds the Outstanding Debt, Recipient will pay such excess to the Partnership.
If that portion of the Net Position settled on or before the Closing Date is a
negative number or if a positive number is less than the Outstanding Debt,
Recipient will debit the capital accounts of the General Partners in Recipient
with the sum of each negative number and the Outstanding Debt or the net of such
positive number and the Outstanding Debt, as the case may be, (the "Deficit")
and allocate the Deficit to the General Partners in each case as provided in
Schedule 1.3.
1.4......Post Closing Adjustments. After the Closing Date, Recipient
and the Partnership will promptly reconcile commissions paid by the NYSE and the
National Securities Clearing Corporation respecting the Issues, such that
commissions related to transactions occurring on or prior to the Closing Date
will be paid to the Partnership and commissions related to transactions
occurring after the Closing Date are paid to Recipient. As the result of
settlements of the Net Position occurring after the Closing Date, net cash
received from such settlements will be applied first to reduce the Deficit then
remaining (if any) and then paid to the Partnership. Notwithstanding the
foregoing, to the extent there is a Deficit after the foregoing Post Closing
adjustments, each of the General Partners will be required by the Operating
Agreement of Recipient to repay the Deficit allocated to him from cash
distributions from Recipient.
ARTICLE 2
CLOSING
The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur at the offices of Recipient, 14 Wall Street, (27th
Floor), New York, New York, at 5:00 p.m. on the later of (i) December 31, 1998,
and (ii) the first business day after the satisfaction of the conditions
contained in Article 8 hereof, or at such other time and place as is mutually
agreed in writing by Recipient and each of the Contributors. The time and date
of the Closing is herein called the "Closing Date."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS
Each of the Contributors, jointly and severally (except representations
and warranties in Section 3.11 with respect to Tax Returns of each General
Partner are made severally by such General Partner only with respect to
himself), represents and warrants to Recipient that:
3.1......Organization. The Partnership is a limited partnership duly
organized, validly existing and in good standing as a limited partnership under
the laws of the State of New York.
3.2......Authorization. Each of the Contributors has the full power and
authority to enter into and perform this Agreement and to perform its or his
obligations hereunder. The execution and delivery of this Agreement and of all
documents and instruments required hereby and the consummation of the
transactions contemplated hereby by each of the Contributors have been duly
authorized by all necessary action of each of the Contributors and no other
proceedings on the part of any of the Contributors are necessary to authorize
the execution, delivery and performance of this Agreement on the part of each of
the Contributors or by each of the Contributors to consummate the transactions
contemplated hereby. This Agreement and the other documents and instruments to
be delivered by each of the Contributors have been, or will be, duly and validly
executed and delivered by each of the Contributors and constitute, or upon the
execution and delivery thereof will constitute, the valid and binding
obligations of each of the Contributors, enforceable against him or it in
accordance with their respective terms, subject to the qualification, however,
that enforcement of the rights and remedies created hereby is subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws of general applicability relating to or affecting creditors rights
and to general equity principles.
3.3......No Consents. Other than as contemplated in Sections 7.1 and
7.2 hereof, no notice to, filing with, or authorization, consent or approval of
any Governmental Authority or other person or entity is required of any of the
Contributors in connection with the execution, delivery and performance by each
of the Contributors of this Agreement or the other documents and instruments to
be delivered by each of the Contributors pursuant to this Agreement or the
consummation by each of the Contributors of the transactions contemplated herein
or therein.
3.4......Non-Contravention. The execution, delivery and performance of
this Agreement by each of the Contributors and the consummation of the
transactions contemplated hereby by each of the Contributors do not and will not
contravene, result in a violation, loss of rights or default under, constitute
an event creating rights of acceleration, termination, repayment or cancellation
under, entitle a party to receive any payment or benefit pursuant to, or result
in the creation of any claim, lien, encumbrance, mortgage, charge, security
interest, option, right, restriction or other interest or any other interest or
imperfection of title (each, an "Encumbrance") upon any of the Assets under (i)
the organizational documents or partnership agreement of the Partnership or (ii)
any applicable law, regulation or administrative order, contract, judgment,
decree, or ruling to which any of the Contributors or the Partnership is a party
or by which either of them or their respective assets or properties is bound or
affected (subject to receipt of the relevant approvals and other matters
addressed in Sections 7.1 and 7.2 hereof).
3.5......Partners. The General Partners are the only general partners
of the Partnership and the limited partners of the Partnership are listed on
Schedule 3.5 hereto (the "Limited Partners").
3.6......Due Organization of the Partnership: Capitalization. The
Partnership is a limited partnership duly organized, validly existing and in
good standing as a limited partnership under the laws of the State of New York,
with full power and authority to own and operate the Assets and to carry on its
business as presently conducted by it. The respective share of each General
Partner's interest in the profits and losses of the Partnership and each Limited
Partner's interest in the profits and losses of the Partnership is set forth in
Schedule 3.6. Except for rights created pursuant to this Agreement, there are no
outstanding rights to acquire, or any outstanding securities or obligations
convertible into or exchangeable for, any interest in the Partnership. Other
than the transactions contemplated by this Agreement, there are no outstanding
contracts or obligations to restructure or recapitalize the Partnership. The
Partnership is duly qualified to do business and, with respect to jurisdictions
that recognize the concept of "good standing," is in good standing as a foreign
legal entity in all jurisdictions where such qualification is required. The
Partnership does not control, directly or indirectly, any other person. The
Partnership is not a party to any joint venture or partnership arrangement and
does not own or control any interest in any other person.
3.7......Litigation. Except as disclosed in Schedule 3.7 hereto, there
are no lawsuits, actions, proceedings, inquiries, claims, orders or
investigations by or before any Governmental Authority pending or, to any of the
Contributors' knowledge, threatened against the Partnership or any of the
Contributors which could reasonably be expected to have a material adverse
effect on the Assets, financial condition, results of operations or properties
of the Partnership nor are there any facts or circumstances known to any of the
Contributors that are likely to result in a claim for damages or equitable
relief which, if decided adversely, are likely to, individually or in the
aggregate, have a material adverse effect on the Assets, financial condition,
results of operations or properties of the Partnership or impair in any material
respect the ability of any of the Contributors to perform its obligations
hereunder. Except as disclosed in Schedule 3.7 hereto, none of the Contributors
is subject to or in default with respect to any judgment, order, writ,
regulation, injunction or decree of any Governmental Authority which could have
a material adverse effect on the Assets, financial condition, results of
operations or properties of the Partnership or materially impair the ability of
any of the Contributors to perform its obligations hereunder.
3.8......Compliance With Law. The Partnership is and each of the
Contributors, with respect to his operation of the Partnership are, in
compliance in all material respects with all applicable federal and state laws,
regulations and administrative orders, and the rules of all Governmental
Authorities applicable to the Partnership or to any of the Contributors with
respect to his operation of the Partnership. Each of the Contributors has and
the Partnership has obtained all material licenses, permits, approvals,
authorizations, waivers, grants, exemptions and orders required to be obtained
by him or it from any Governmental Authority. The Partnership has the minimum
net capital necessary to conduct, and is in compliance with all net capital
requirements in connection with the operation of, the Assets.
3.9......Financial Statements. The Contributors have previously
furnished to Recipient true and complete copies of the compiled balance sheet
for the Partnership at December 31, 1997 and the related compiled income
statements for the one-year period then ended compiled by the Partnership's
certified public accountant (the "Annual Financial Statements") and an unaudited
balance sheet for the Partnership at November 30, 1998 and the related unaudited
income statements for the nine months then ended (the "Interim Financial
Statements"). The Annual Financial Statements and the Interim Financial
Statements, copies of which have previously been provided to Recipient, have
been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis (except for changes, if any, disclosed
therein). The Annual Financial Statements and the Interim Financial Statements
present fairly, in all material respects, the results of operations of the
Partnership for the respective periods covered (subject in the case of the
Interim Financial Statements to normal year-end audit adjustments) and the
financial condition of the Partnership as of their respective dates.
3.10.....No Undisclosed Liabilities. As of the Closing Date, the
Partnership will not be subject to any obligation or liability of any nature,
whether absolute, accrued, contingent or otherwise and whether due or to become
due except as disclosed in the Annual Financial Statements and the Interim
Financial Statements, except those incurred in the ordinary course of business
since the respective dates thereof.
3.11.....Taxes.
(a) (i) All Tax Returns with respect to Taxes that are
required to be filed by the Partnership and by the General Partners on or before
the Closing Date have been or will be timely filed on or before the Closing
Date, and all such Tax Returns are or shall be true, correct and complete in all
material respects, (ii) all Taxes due from or in respect of the Partnership and
by the General Partners for the periods covered by the Tax Returns referred to
in clause (i) and for the taxable periods or portions thereof ending on or
before the Closing Date have been or shall be paid in full on or before the
Closing Date, (iii) all deficiencies asserted or assessments made on or before
the Closing Date as a result of examinations by federal, state, local or foreign
taxing authorities have been or will be paid in full on or before the Closing
Date and (iv) no issues that have been raised by the United State Internal
Revenue Service or any other taxing authority in a writing received by the
Partnership or any of the General Partners on behalf of the Partnership, in
connection with the examination of any of the Tax Returns referred to in clause
(i) are currently pending.
(b) With respect to all periods through the most recently
completed fiscal quarter of the Partnership for which Tax Returns have not yet
been filed in the taxable years of the Partnership and the General Partners in
which the Closing occurs, and for which Taxes are not yet due or owing, the
Partnership and the General Partners made due and sufficient current accruals
for such Taxes in accordance with GAAP, and have or shall have sufficient funds
to pay such Taxes when due. In addition, the General Partners have filed and
shall file their own Tax Returns consistent with all Tax Returns filed by the
Partnership.
(c) As of the Closing Date, the Partnership will not be a
party to, will not be bound by, and will have no obligation under, any tax
sharing agreement or contract.
(d) For purposes of this Agreement, "Taxes" shall mean all
federal, state, local, or foreign income, franchise, sales, use, gross receipts,
license, payroll, employment, withholding, disability, social security,
property, excise or other taxes, fees, charges or similar assessments imposed by
any governmental authority, and any interest or penalties thereon with respect
to the Partnership and the General Partners with respect to their allocable
shares of items of Partnership income, profits, gains, and distributions. For
purposes of this Agreement, "Tax Returns" shall mean all reports, information
returns, and other returns required to be filed with respect to the Taxes of the
Partnership and Taxes of the General Partners with respect to their allocable
shares of items of Partnership income, profit, gains and distributions,
including any schedule or attachment thereto and including any amendment
thereof.
3.12.....Operations of the Partnership. Except as otherwise
contemplated by this Agreement, since December 31, 1997, the Partnership has
conducted its operations and each action it has taken has been, in the ordinary
course consistent with past practice and there has not been, occurred or arisen
any change in the business, the Assets, operations, or condition of the
Partnership that, individually or in the aggregate, has had or is reasonably
likely to have a material adverse effect on the Partnership, other than changes
resulting from a change in general economic or market conditions. The NYSE has
not reallocated any Rights with respect to any Issue from the Partnership or any
General Partner. The report by the Partnership of the positions of the
Partnership in the Issues as of the Closing Date will be true, accurate and
correct. The Partnership clears its trades of securities without the use of a
clearing broker.
3.13.....Brokers. None of the Contributors has retained any broker,
finder, investment banker or financial advisor in connection with this Agreement
or any transactions contemplated hereby that would be entitled to a broker's,
finder's, investment banker's, financial advisor's or similar fee in connection
therewith.
3.14.....Partial Liquidation of the Partnership. The Partnership has
adopted an Agreement of Liquidation in the form attached hereto as Exhibit D
(the "Agreement of Liquidation") and has performed all acts necessary to effect
the distribution of the Membership Interests to the General Partners as provided
herein effective as of the Closing.
3.15.....Investment Representation. Each of the Partnership and the
General Partners is an "accredited investor" within the meaning of Rule 501(a)
of Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"), and the Partnership is receiving the Membership Interest solely with a
view to distribute the same to the General Partners as provided in this
Agreement and the Partnership's Agreement of Liquidation and the General
Partners are receiving their share of the Membership Interest not with a view to
any distribution thereof in a transaction that would violate the Securities Act
or the securities laws of any state of the United States or any other applicable
jurisdiction. Each of the General Partners is a resident of the State of New
Jersey except Robert L. Prosser, who is a resident of the State of Florida. Each
of the Contributors understands that a Membership Interest bears a high degree
of risk and each of the Contributors represents that he or it has such knowledge
and experience in financial and business matters that he or it is capable of
evaluating the merits and risks of owning the Membership Interest, and is able
to bear this economic risk of this investment for an indefinite period of time.
Each Contributor has had access to such financial and other information, and has
been afforded the opportunity to ask such questions of representatives of
Recipient and receive answers thereto, as he or it deems necessary in connection
with the receipt of the Membership Interest.
3.16.....Releases and Dismissal of Suit. The parties to the matter
before the New York Stock Exchange, Inc. Board of Arbitration, captioned RSF
Partners L.P., Robert L. Prosser, Joseph A. Rodriguez, James E. Bowen, III, Anne
M. Prosser and Robert L. Prosser, Jr., claimants against Isidore Fields,
Respondent (the "Arbitration") have caused the Arbitration to be dismissed
without prejudice and no party hereto who is a party to the Arbitration (the
"Arbitration Parties") will take any action to institute proceedings relating to
the facts and circumstances which are the subject of the Arbitration so long as
this Agreement has not been terminated. Each of the Arbitration Parties has duly
executed a release (in form and substance satisfactory to the Recipient) in
favor of the other Arbitration Parties releasing all claims which are the
subject of the Arbitration (the "Releases") and delivered the Releases to the
appropriate Arbitration Parties at the Closing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF RECIPIENT
Recipient represents and warrants to each of the Contributors as
follows:
4.1......Organization. Recipient is a limited liability company duly
formed and validly existing under the laws of the State of Delaware.
4.2......Authorization. Recipient has the full power and authority to
enter into and perform this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement and all documents and instruments
acquired hereby and the consummation of the transactions contemplated hereby by
Recipient have been duly authorized by all necessary action of Recipient and no
other proceedings on the part of Recipient are necessary to authorize the
execution, delivery and performance of this Agreement on the part of Recipient
or by Recipient to consummate the transactions contemplated hereby. This
Agreement and the other documents and instruments to be delivered by Recipient
hereunder have been, or will be duly and validly executed and delivered by
Recipient and constitute, or upon the execution and delivery thereof will
constitute, the valid and binding obligations of Recipient, enforceable against
it in accordance with their respective terms, subject to the qualification,
however, that enforcement of the rights and remedies created hereby is subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws of general applicability relating to or effecting creditors' rights
and to general equity principles.
4.3......No Consents. Other than as contemplated in Sections 7.1 and
7.2 hereof, no notice to, filing with, or authorization, consent or approval of
any Governmental Authority or other person or entity is required of Recipient in
connection with the execution, delivery and performance by Recipient of this
Agreement or the other documents and instruments to be delivered by Recipient
pursuant to this Agreement or the consummation by Recipient of the transactions
contemplated herein or therein.
4.4......Non-Contravention. The execution, delivery and performance of
this Agreement by Recipient and the consummation of the transactions
contemplated hereby by Recipient do not and will not contravene, result in a
violation, loss of rights or default under, constitute an event creating rights
of acceleration, termination, repayment or cancellation under, entitle a party
to receive any payment or benefit pursuant to, or result in the creation of any
Encumbrance upon any of the assets of Recipient under (i) the certificate of
formation or other charter or organizational documents of Recipient or (ii)
violate any applicable law, regulation or administrative order, contract,
judgment, decree, order or ruling to which Recipient is a party or by which it
or its respective assets or properties is bound or affected (subject to receipt
of the relevant approvals and other matters addressed in Sections 7.1 and 7.2).
4.5......Litigation. There are no lawsuits, actions, proceedings,
inquiries, claims, orders or investigations by or before any Governmental
Authority pending or, to Recipient's knowledge, threatened against Recipient and
there are no facts or circumstances known to Recipient that are likely to result
in a claim for damages or equitable relief which, if decided adversely, are
likely to, individually or in the aggregate, impair in any material respect the
ability of Recipient to perform its obligations under this Agreement. Recipient
is not subject to or in default with respect to any judgment, order, writ,
regulation, injunction or decree of any Governmental Authority which could
impair materially the ability of the Recipient to perform its obligations under
this Agreement.
4.6......Disclosure. There are no facts or circumstances concerning
Recipient known to Recipient that Recipient has not disclosed to the
Contributors and that could reasonably be expected to impair materially the
ability of Recipient to perform its obligations under this Agreement.
4.7......Financial Statements. Recipient has furnished to the
Contributors true and complete copies of the audited balance sheet for Equitrade
Partners, L.P., a New York limited partnership which is the predecessor of
Recipient ("Equitrade") at December 31, 1997 and the related auditors income
statement for the one-year period then ended (the "Equitrade Audited Financial
Statements") and an unaudited balance sheet for Equitrade at September 30, 1998
and the related unaudited income statements for the nine months then ended (the
"Equitrade Unaudited Financial Statements"). The Equitrade Audited Financial
Statements and the Equitrade Unaudited Financial Statements have been prepared
in conformity with GAAP applied on a consistent basis (except for changes, if
any, disclosed therein). The Equitrade Audited Financial Statements and the
Equitrade Unaudited Financial Statements present fairly, in all material
respects, the results of operations of Equitrade for the respective periods
covered (subject in the case of the Unaudited Financial Statements to normal
year-end audit adjustments) and the financial condition of Equitrade as of their
respective dates.
4.8......Operations of Equitrade and Recipient. Except as contemplated
by this Agreement, the obtaining of financing to increase the capital of
Recipient as a result of the transactions contemplated by this Agreement and the
merger of Equitrade with the Recipient, since September 30, 1998, Recipient and
Equitrade have conducted their operations, and each action they have taken has
been, in the ordinary course of business consistent with past practice and there
has not been, occurred or arisen any change in the business, operations or
conditions of Recipient that individually or in the aggregate, has had or is
reasonably likely to have a material adverse effect on Recipient, other than
changes resulting from a change in general economic or market conditions.
4.9......Agreements with General Partners. Except as specifically
contemplated by this Agreement, Recipient has not entered into an agreement with
any General Partner regarding the subject matter of this Agreement except the
letter of intent dated September 4, 1998 between Recipient and the Contributors,
as amended.
ARTICLE 5
COVENANTS AND AGREEMENTS OF CONTRIBUTORS
5.1......Affirmative Covenants. Prior to the Closing, except as
otherwise specifically contemplated by this Agreement, each of the Contributors
shall, or shall cause the Partnership to:
(a) conduct its business only in the ordinary course of
business consistent with past practices (subject, however, to compliance with
any applicable requirements imposed by the SEC, NYSE or other Governmental
Authority or other applicable law);
(b) maintain the books, accounts and records of the
Partnership consistent with past practices;
(c) maintain all of the Partnership's existing material
licenses and regulatory approvals and the minimum net capital necessary to
conduct its business as currently conducted by the Partnership and comply in all
material respects with all regulatory requirements applicable to its business,
except for any failure to comply that would not have a material adverse effect
on the Assets;
(d) use reasonable commercial efforts to maintain intact its
business organization and the Assets and the good will of persons having
business relationships with the Partnership;
(e) upon reasonable notice, afford Recipient and its
Representatives during normal business hours, reasonable access to such of the
Partnership's properties, books, contracts, and records, and a reasonable
opportunity to discuss the Partnership's business affairs, condition (financial
and otherwise), assets and liabilities with such third persons, including,
without limitation, its Representatives, as is reasonably necessary or
appropriate in connection with the consummation of the transactions contemplated
by this Agreement (including as necessary or appropriate in connection with
Recipient's investigation and review of the Partnership's files and any
investigation undertaken by Recipient to verify that the representations and
warranties of each of the Contributors and the Partnership remain true and
correct as of the Closing Date); and to make copies of such information to the
extent reasonably necessary. Recipient agrees that it will not use any
information obtained pursuant to this Section 5.1(e) for purposes of trading in
securities;
(f) use best efforts to obtain the approvals of the NYSE
for the transactions contemplated by this Agreement; and
(g) operate the Partnership such that the transactions
contemplated by this Agreement shall not require review by the Federal Trade
Commission and the Department of Justice pursuant to the Hart-Scott-Rodino
Antitrust Improvement Act of 1976 (the HSR Act").
In addition, if in connection with any filing required by
federal securities law Recipient or an affiliate of Recipient is required to
present separate or combined financial statements for the business operations of
the Partnership which Recipient is receiving, the General Partners will furnish
or cause the Partnership to furnish to Recipient such financial information as
Recipient may reasonably request to enable Recipient to prepare at Recipient's
sole cost and expense, financial statements of the operations of the Partnership
which Recipient is receiving for the Partnership's fiscal year end next
preceding the Closing and will reasonably cooperate with Recipient, at
Recipient's sole cost and expense, to obtain an audit of such financial
statements.
5.2......Negative Covenants. Prior to the Closing, without the prior
written consent of Recipient, except as otherwise specifically contemplated by
this Agreement, each General Partner shall not and shall not permit the
Partnership to:
(a) enter into any contract, agreement or commitment which, if
entered into prior to the date of this Agreement, would render untrue any of the
representations and warranties contained in Article 3;
(b) take any action which could reasonably be anticipated to
have a material adverse effect on the Assets, financial condition, results of
operations or properties of the Partnership;
(c) enter into any contract, agreement or commitment, other
than in the ordinary course of business consistent with the Partnership's past
practices, or amend, modify or terminate (except upon expiration in accordance
with the terms thereof) any material contract or agreement to which the
Partnership is a party;
(d) terminate the employment of any employee of the
Partnership except for good cause or upon a voluntary departure;
(e) dispose of any interest in the Partnership;
(f) dispose of any assets of the Partnership, except in
the ordinary course of business consistent with past practices;
(g) increase the annual level of compensation of any partner
or employee of the Partnership or grant any unusual or extraordinary bonuses,
benefits or other forms of direct or indirect compensation to any partner,
employee or consultant to the Partnership;
(h) increase, terminate, amend or otherwise modify any plan
for the benefit of any partners or employees of the Partnership;
(i) add or agree to add any new partners to the Partnership;
(j) distribute any funds to any partner or employee of the
Partnership except by way of compensation consistent with past practice and with
this Section 5.2;
(k) effect any dissolution, winding up, liquidation or
termination of the Partnership; or
(l) directly or indirectly, through any Representative or
otherwise, solicit or entertain offers from, negotiate with or in any manner
encourage, discuss, accept or consider any proposal of any other person relating
to the acquisition of the Partnership, the Assets, in whole or in part, whether
through direct purchase, merger, consolidation or other business combination
(other than sales of securities in the ordinary course of the Partnership's
business).
5.3......Noncompetition; Nonsolicitation. Each of the Contributors
covenants and agrees to enter into a non-competition agreement with Recipient
for a period of two (2) years following the Closing Date in the form attached
hereto as Exhibit B.
5.4......Break-Up Fee. The Contributors shall pay Recipient $50,000 in
reimbursement for its out-of-pocket expenses related to the transactions
contemplated by this Agreement if the transaction does not close, except if
failure to close is due solely to the fault of Recipient or except if the
Closing does not occur because Recipient is unable to meet the condition set
forth in Section 8.2(i) or the condition set forth in Section 8.2(c); provided,
however with respect to Section 8.2(c) such failure to meet such conditions is
not as a result of a misrepresentation or breach of a warranty or covenant made
by a Contributor in this Agreement or in a document contemplated by this
Agreement. In the event that any of the Contributors breaches Section 5.2(m)
herein or any of the Contributors terminates this Agreement pursuant to Section
9.1(e) herein and if within twelve (12) months after such breach or termination,
any of the Contributors or the Partnership closes a transaction relating to the
acquisition of a material portion of the partnership interests of the
Partnership, or of the Partnership, its assets or its business, in whole or in
part, whether through direct purchase, merger, consolidation or other business
combination (an "Alternative Transaction"), then, immediately upon such closing,
the General Partners shall pay, or cause the Partnership to pay, to Recipient
the amount equal to the purchase price paid on the Alternative Transaction less
$9.333 million times ten (10) percent.
5.5......Fields Seat. Isidore Fields covenants that he will lease the
NYSE seat owned by him (the "Fields Seat") pursuant to the lease agreement
attached as Exhibit E hereto effective as of the Closing Date.
ARTICLE 6
COVENANTS AND AGREEMENTS OF RECIPIENT
6.1......Affirmative Covenants. During the period from the date hereof
to the Closing Date, Recipient shall and shall cause its affiliates to maintain
all existing licenses and regulatory approvals and the minimum net capital
necessary to permit Recipient to acquire the Assets as contemplated by this
Agreement.
6.2......Negative Covenants. During the period from and including the
date hereof to the Closing, without the prior written consent of all the
Contributors, Recipient shall not:
(a) create, incur, assume or suffer to exist any Encumbrance
on any of its respective assets that could materially impair Recipient's ability
to perform its obligations under this Agreement;
(b) except with Equitrade, enter into any merger,
consolidation or other form of combination with any other individual,
corporation, partnership or other entity (each, a "Person"), dispose of its
assets substantially as an entirety or engage in any transaction which is
reasonably likely to materially impair Recipient's ability to perform its
obligations under this Agreement.
6.3......Transfer Taxes and Other Fees. Recipient will pay any
transfer, sales, purchase, use or similar Tax under the laws of the United
States or any state, and any city or political subdivision thereof arising out
of the transfer of the Assets to it contemplated by this Agreement (excluding
Taxes measured by the income of a Contributor or the gain by a Contributor as a
result of the transactions contemplated by this Agreement), any filing or
recording fees payable in connection with the instruments of transfer provided
for herein and any fees or expenses required in connection with obtaining the
approvals contemplated by Section 7.1 hereof. Recipient shall prepare and file
the required Tax Returns and other required documents with respect to Taxes and
fees required to be paid pursuant to the preceding sentence and shall promptly
provide each of the Contributors with copies of such Tax Returns and other
documents with evidence of the payment of such Taxes and fees.
ARTICLE 7
JOINT COVENANTS AND AGREEMENTS
7.1......Required Consents. All the parties hereto acknowledge that
consummation of the transactions contemplated by this Agreement will require
approvals from the NYSE as set forth on Schedule 7.1 hereto. Accordingly, each
of the Contributors and Recipient will use its respective reasonable commercial
efforts and cooperate with one another to obtain all consents, licenses or
permits from Governmental Authorities including, without limitation, the NYSE as
set forth on Schedule 7.1, and to obtain all consents or approvals from any
third parties (collectively, "Required Consents") necessary for the consummation
of the transactions contemplated by this Agreement.
7.2......Press Releases. Except for disclosures by National Discount
Brokers Group, Inc., a member of Recipient in accordance with the Securities
Exchange Act of 1934, as amended, or NYSE rules all press releases or other
public communications of any of the Contributors or any of its employees of any
sort relating to this Agreement or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior approval of Recipient, unless counsel for any of the Contributors advises
the Contributors that they are required by law to make the disclosure. All press
releases or other public communications of Recipient or of any of its respective
employees, of any sort relating to this Agreement or the transactions
contemplated herein, and the method and timing of release for publication
thereof, will be subject to the prior approval of all the Contributors, unless
counsel for Recipient advises Recipient it is required by law to make the
disclosure.
7.3......Confidential Information. In the event that the Closing is not
consummated, except as and to the extent required by law or Governmental
Authority, Recipient shall not disclose or use, and shall cause its
Representatives not to disclose or use, any Confidential Information (as
hereinafter defined) with respect to the Partnership furnished or to be
furnished, by any of the Contributors or their respective Representatives to
Recipient or its Representatives in connection herewith. For purposes of this
Agreement, "Confidential Information" means any information with respect to the
Partnership stamped "confidential" or identified in writing as such to Recipient
by any of the Contributors; provided, however, that "Confidential Information"
does not include information which (i) is or becomes publicly available through
no fault of Recipient or (ii) is obtained by Recipient from a source other than
any of the Contributors, provided that such source was not bound by a duty of
confidentiality to any of the Contributors with respect to such information.
7.4......Reasonable Commercial Efforts: Further Assurances. Subject to
the terms and conditions herein provided, and in addition to its obligations
under Section 7.1 hereof, each of the parties hereto agrees to use its
reasonable commercial efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
7.5......Notifications. Recipient agrees to promptly notify each of
the Contributors and each of the Contributors agrees to promptly notify
Recipient of:
(a) any fact, condition, event or occurrence known to any of
the Contributors that will or reasonably may be expected to result in the
failure of any of the conditions contained in Sections 8.1, 8.2 or 8.3 to be
satisfied;
(b) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(c) any filing or registration with or any notice or other
communication from, any Governmental Authority in connection with the
transactions contemplated by this Agreement; and
(d) any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of any of the Contributors or Recipient, as the
case may be, threatened against, relating to or involving or otherwise affecting
any of the Contributors or the Partnership or Recipient, as the case may be,
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Article 3 or Article 4, as the case may be, or
which relate to the transactions contemplated by this Agreement.
ARTICLE 8
CONDITIONS TO CLOSING
8.1......Mutual Conditions. The respective obligations of each party to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to Closing of the following conditions:
(a) All Required Consents shall have been obtained;
(b) No Governmental Authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order which prohibits
consummation of the transactions contemplated by this Agreement. No litigation
or threatened litigation challenging this Agreement or the transactions
contemplated thereby shall exist.
(c) Each of the General Partners shall have entered into an
Operating Agreement with Recipient in the form attached hereto as Exhibit C.
8.2......Recipient's Conditions. The obligation of Recipient to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment prior to or at Closing of each of the following conditions:
(a) All representations and warranties made by each of the
Contributors in this Agreement shall be true, correct and complete in all
material respects on the date hereof and as of the Closing Date as though such
representations and warranties were made as of the Closing Date, and each of the
Contributors shall have duly performed or complied in all material respects with
all of the covenants, obligations and conditions to be performed or complied
with by it under the terms of this Agreement at or prior to Closing.
(b) Each General Partner shall have entered into a
non-competition agreement with Recipient in the form attached hereto as Exhibit
B.
(c) The due diligence investigation of the Partnership by
Recipient shall be reasonably satisfactory to Recipient.
(d) There shall not have been any pending or threatened
litigation regarding this Agreement or the transactions contemplated hereby.
(e) The arbitration proceeding before the NYSE Board of
Arbitration titled RSF Partners L.P., Robert Prosser, Joseph A. Rodriguez, James
F. Bowen III, Anne M. Prosser and Robert L. Prosser, Jr., Claimants against
Isidore Fields, Respondent shall have been dismissed with prejudice and the
Arbitration Parties shall have authorized the delivery of the Releases by the
Escrow Agent.
(f) Effective as of the Closing Date, the Partnership shall
have adopted the Agreement of Liquidation and shall have performed all acts
necessary to effect the distribution of the Membership Interest to the General
Partners as contemplated by this Agreement.
(g) Each General Partner shall have executed and delivered to
Recipient an investment letter in the form attached hereto as Exhibit F and a
non-competition agreement substantially in the form of Exhibit B hereto.
(h) The Contributors shall have delivered to Recipient the
following documents:
(i) such instruments of sale, transfer, assignment, conveyance
and delivery, in for and substance reasonably satisfactory to counsel for
Recipient, as are required to transfer to Recipient good and marketable
title to the Assets, free and clear of all Encumbrances;
(ii) certificates of each of the Contributors, or in the case
of the Partnership, a certificate by a general partner in the name of and on
behalf of the Partnership, dated the Closing Date, to the effect that (1) he
is familiar with this Agreement and (2) to the best of his knowledge after
reasonable investigation, the conditions specified Section 8.2(a) have been
satisfied;
(iii) certified copies of (1) the certificate of limited
partnership or other charter documents of the Partnership and all amendments
thereto and (2) documents evidencing the Partnership's authority with respect to
the execution, delivery and consummation of this Agreement and the transactions
contemplated hereby;
(iv) an opinion of counsel for the Contributors in form and
content satisfactory to Recipient;
(v) instruments of transfer to Recipient regarding the
securities constituting positions with respect to the Issues as of the Closing
Date;
(vi) such other documents or instruments as Recipient
reasonably requests to effect the transactions contemplated hereby; and
(vii) A certificate signed by all the General Partners
respecting the positions with respect to the Issues marked to market as of
the Closing Date.
(i) Recipient shall have received financial resources
sufficient to expand its capital to satisfy requirements of the NYSE in form and
substance reasonably satisfactory to Recipient.
(j) Except for the Fields Seat, the two other leases of NYSE
seats used on the date hereof by the Partnership to conduct its specialist
business shall have been amended to permit their use in connection with the
specialist activities of Recipient after the Closing and such amended leases
shall be in form and substance satisfactory to Recipient. Isidore Fields shall
have leased the Fields Seat pursuant to the lease agreement attached as Exhibit
E hereto.
(k) The Partnership shall have delivered and transferred to
Recipient the long and short positions constituting the Net Position.
(l) Approval of Proceedings. All proceedings to be taken in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, including the Agreement of Liquidation of the
Partnership, shall be reasonably satisfactory in form and substance to Recipient
and its counsel, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C. (the
"Agreement of Liquidation"); and Recipient shall have received copies of all
documents or other evidence which it and such counsel may reasonably request in
connection with such transactions and of all records of partnership proceedings
in connection therewith in form and substance reasonably satisfactory to
Recipient and such counsel.
8.3......The Contributors' Conditions. The obligation of each of the
Contributors to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment at or prior to the Closing of each of the
following conditions:
(a) All representations and warranties made by Recipient in
this Agreement shall be true, correct and complete in all material respects on
the date hereof and as of the Closing Date as though such representations and
warranties were made as of the Closing Date, and Recipient shall have duly
performed or complied in all material respects with all of the covenants,
obligations and conditions to be performed or complied with by it under the
terms of this Agreement at or prior to Closing.
(b) All authorizations or approvals or other actions required
in connection with the execution, delivery and performance of this Agreement by
Recipient and the consummation by Recipient of the transactions contemplated
hereby, shall have been obtained.
(c) Recipient shall have delivered to the Contributors the
following documents:
(i) a certificate of the President of Recipient,
dated the Closing Date, to the effect that
(1) he is familiar with this Agreement, and
(2) to the best of his knowledge after
reasonable investigation, the conditions
specified in Section 8.3(a) have been
satisfied;
(ii) certified copies of (1) the certificate of
formation or other charter documents of
Recipient and all amendments thereto and (2)
documents evidencing Recipient's authority
with respect to the execution, delivery and
consummation of this Agreement and the
transactions contemplated hereby;
(iii) an opinion of counsel for Recipient in form
and content satisfactory to the
Contributors.
(iv) such other documents or instruments as the
Contributors reasonably request to effect
the transactions contemplated hereby.
(d) Recipient shall have paid to the Contributors the
Consideration, as set forth in Section 1.2.
(e) All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to the Contributors and
their respective counsel, and the Contributors shall have received copies of all
documents or other evidence which it and such counsel may reasonably request.
ARTICLE 9
TERMINATION
9.1......Termination. This Agreement may be terminated at any time
prior to Closing as follows:
(a) by mutual consent of all of the Contributors and Recipient;
(b) by all of the Contributors if Recipient shall breach, or
by Recipient if any of the Contributors shall breach, in any material respect
any of its representations, warranties or obligations contained in this
Agreement; provided that such breach is not cured in all material respects
within a 10-day period commencing on the date written notice of such breach is
received by the breaching party;
(c) by all of the Contributors, on the one hand, or by
Recipient, on the other, if all Required Consents have not been obtained by
December 31, 1998 but not by a party hereto where the failure to obtain a
Required Consent is a result of a breach of this Agreement by such party;
(d) by all of the Contributors, if any condition to Closing
set forth in Section 8.3 shall have become impossible of fulfillment through no
fault of the Contributors, or by Recipient, if any condition to Closing set
forth in Section 8.2 shall have become impossible of fulfillment through no
fault of Recipient; or
(e) by all of the Contributors, on the one hand, or by
Recipient, on the other, if the Closing shall not have occurred on or before
December 31, 1998 but not by a party hereto where the failure to close is a
result of a breach of this Agreement by such party (or such later date as may be
agreed upon in writing by Recipient and the Contributors).
Notwithstanding the foregoing, no Contributor may terminate
this Agreement unless on the date of termination all loans by Recipient to the
Partnership shall have been paid in full together with all interest therein or,
in the case of subordinated loans or notes, terminated and securities securing
such loans or notes have been returned to Recipient.
9.2......Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1, all rights and obligations of the Contributors and
Recipient hereunder shall terminate and no party shall have any liability to the
other party, except for obligations of the parties in Section 5.4, Section 7.3
and Article 10, and except that nothing herein will relieve any party from
liability for any breach of any representation or warranty herein contained
prior to such termination.
9.3......Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 8.2 have not been
satisfied at or prior to the Closing, Recipient shall have the right to proceed
with the transaction contemplated hereby without waiving any of its rights
hereunder, and if any of the conditions specified in Section 8.3 have not been
satisfied at or prior to the Closing, the Contributors shall have the right to
proceed with the transactions contemplated hereby without waiving any of its
rights hereunder.
ARTICLE 10
MISCELLANEOUS
10.1.....Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express air mail, postage
prepaid, and shall be deemed given when so delivered personally or telecopied,
or if mailed, five days after the date of mailing, as follows (or to such other
address as any party hereto shall have duly notified the other parties):
If to Recipient: Equitrade Partners, L.L.C.
14 Wall Street, 27th Floor
New York, New York 10005
Tel: (212) 964-0700
Fax: (212) 964-5911
Attn: Stephen DiLascio, President
If to the RSF Partners
Contributors: 50 Broadway
New York, New York 10004
Tel: 212-269-1025
Attn: Isidore Fields and
Joseph A. Rodriguez
A copy of any notice delivered to Recipient shall be sent to
Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C., One Riverfront Plaza,
Newark, New Jersey 07102. Attention: Frank E. Lawatsch, Jr., Esq., Telecopier
No. (973) 639-6249, and a copy of any notice delivered to Seller shall be sent
to Kelly Drye & Warren LLP, 101 Park Avenue, New York, New York 10178,
Attention: Paul F. McCurdy, Esq., Telecopier (212) 808-7897 and The Goldstein
Law Group P.C., 65 Broadway, New York, New York 10006, Attention: Sheldon E.
Goldstein, Esq., Telecopier (212) 809-4228 (or to such other addressee as any
party hereto shall have duly notified the other parties).
10.2.....Survival. The representations and warranties provided for in
Article 3 of this Agreement shall survive for one year following the Closing for
the benefit of the parties hereto and their successors and assigns.
10.3.....Indemnification.
(a) Each of the Contributors hereby agrees to indemnify and
hold harmless Recipient and its affiliates, members, employees and agents from
and against any and all losses, liabilities, claims, expenses (including
reasonable attorney's fees and expenses) and damages ("Losses") to the extent
such Losses arise from or out of or are related to (i) any claims, known or
unknown, relating to the Assets which occur prior to the Closing Date, (ii) any
breach of any of the representations, warranties of, or (iii) any breach of any
of the covenants or agreements of, the Partnership or any of the Contributors
contained in this Agreement or any Schedule or Exhibit hereto which survive the
Closing.
(b) Recipient agrees to indemnify and hold harmless the
Contributors from and against all Losses to the extent that such Losses arise
from or out of or are related to (i) any breach of the representations and
warranties of Recipient contained in this Agreement or (ii) any breach of any of
the covenants and agreements of Recipient contained in this Agreement which
survive the Closing.
(c) In order for a party (the "Indemnified Party") to be
entitled to any indemnification provided for under this Agreement in respect of,
arising out of or involving a claim or demand made by, or an action, proceeding
or investigation instituted by, any person not a party to this Agreement (a
"Third Party Claim"), such Indemnified Party must notify the other party (the
"Indemnifying Party") in writing, and in reasonable detail, of the Third Party
Claim within ten days after such Indemnified Party learns of the Third Party
Claim; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure (except that the Indemnifying Party shall not be liable for any expenses
incurred during the period in which the Indemnified Party failed to give such
notice). Thereafter, the Indemnified Party shall deliver to the Indemnifying
Party, within five days after the Indemnified Party's receipt thereof, copies of
all notices and documents (including court papers) received by the Indemnified
Party relating to the Third Party Claim.
(d) If a Third Party Claim is made against an Indemnified
Party, the Indemnifying Party will be entitled to participate in the defense
thereof (unless (i) the Indemnifying Party is also a party to such Third Party
Claim and the Indemnified Party determines in good faith that joint
representation would be inappropriate or (ii) the Indemnifying Party fails to
provide reasonable assurance to the Indemnified Party of its financial capacity
to defend such Third Party Claim and provide indemnification with respect to
such Third Party Claim) and, if it so chooses, to assume the defense thereof
with counsel selected by the Indemnifying Party and reasonably satisfactory to
the Indemnified Party. Should the Indemnifying Party so elect to assume the
defense of a Third Party Claim, (i) it shall be conclusively established for
purposes of this Agreement that the claims made in such Third Party Claim are
within the scope of and subject to indemnification; and (ii) the Indemnifying
Party will not as long as it legitimately conducts such defense be liable to the
Indemnified Party in connection with the defense thereof. If the Indemnifying
Party assumes such defense, the Indemnified Party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Party. The Indemnifying
Party shall be liable for the fees and expenses of counsel employed by the
Indemnifying Party for any period during which the Indemnifying Party has not
legitimately assumed the defense thereof (other than during any period in which
the Indemnified Party shall have failed to give notice of the Third Party Claim
as provided above). If the Indemnifying Party chooses to defend or prosecute any
Third Party Claim, all of the parties hereto shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
Indemnifying Party's request) the provision to the Indemnifying Party of records
and information which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Whether or not
the Indemnifying Party shall have assumed the defense of a Third Party Claim,
the Indemnifying Party shall have no liability with respect to any compromise or
settlement of such claims effected without its written consent (such consent not
to be unreasonably withheld); the Indemnifying Party shall not admit any
liability with respect to, or settle, compromise or discharge, such Third Party
Claim without the Indemnified Party's prior written consent (which consent shall
not be unreasonably withheld) unless (A) there is not finding or admission of
any violation of law or any violation of the rights of any person and no effect
on any other claims that may be made against the Indemnified Party, or (B) the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Party.
(e) The amount of any Losses for which indemnification is
provided under this Agreement shall be net of any amounts recovered or
recoverable by the Indemnified Party under insurance policies with respect to
such Losses.
(f) The parties agree that any indemnification payments made
pursuant to this Agreement shall be treated for tax purposes as an adjustment to
the Consideration.
10.4.....Expenses Regardless of whether the transactions provided for
in this Agreement are consummated, except as otherwise provided herein, each
party hereto shall pay its own expenses incident to this Agreement and the
transactions contemplated herein.
10.5.....Governing Law This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without
reference to conflict of law principles thereof.
10.6.....Assignment. Except as otherwise provided herein, this
Agreement may not be assigned by operation of law or otherwise. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
successors and assigns.
10.7.....Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original agreement, but all of which together
shall constitute one and the same instrument.
10.8.....Titles and Headings. The headings and table of contents in
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
10.9.....Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) and the agreements referred to herein shall together constitute
the entire agreement among the parties with respect to the matters covered
hereby and shall supersede all previous written, oral or implied understandings
among them with respect to such matters.
10.10....Amendment and Modification. This Agreement may only be amended
or modified in writing signed by the party against which enforcement of such
amendment or modification is sought.
10.11....Waiver. Any of the terms or conditions of this Agreement may
be waived at any time by the party or parties entitled to the benefit thereof,
but only by a written notice signed by the party or parties waiving such terms
or conditions.
10.12....Severability. The invalidity of any portion hereof shall not
affect the validity, force or effect of the remaining portions hereof. If it is
ever held that any restriction hereunder is too broad to permit enforcement of
such restriction to its fullest extent, each party agrees that an arbitrator may
construe, and a court of competent jurisdiction may enforce, such restriction to
the maximum extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EQUITRADE PARTNERS, L.L.C.
By:________________________________
Name: Steve DiLascio
Title: President
RSF PARTNERS L.P.
By: _______________________________
Name:
Title:
-------------------------------
Joseph Rodriguez
-------------------------------
James Bowen
-------------------------------
Isidore Fields
-------------------------------
Robert Prosser
<PAGE>
Exhibit A
NYSE Issues
<PAGE>
Exhibit B
Noncompetition Agreement
<PAGE>
Exhibit C
Operating Agreement
<PAGE>
Exhibit D
Agreement of Liquidation
<PAGE>
Exhibit E
Form of Seat Lease
<PAGE>
Exhibit F
Form of Investment Letter
<PAGE>
Schedule 1.2
Allocation of Membership Interest to the Contributors
Percentage Type of Membership
---------- ------------------
Joseph A. Rodriguez 3.51% Active
James F. Bowen, III 3.51% Active
Isidore Fields.... 4.03% Non-Active
Robert L. Prosser. 1.95% Non-Active
<PAGE>
Schedule 1.3
Allocation of Deficit
Name Percentage
---- ----------
Joseph A. Rodriguez 27.00%
James F. Bowen, III 27.00%
Isidore Fields.... 31.00%
Robert L. Prosser, Sr. 15.00%
<PAGE>
Schedule 3.5
Limited Partners
Anne M. Prosser
Robert L. Prosser, Jr.
<PAGE>
Schedule 3.6
Each Partners' Interest in the Partnership
Name Percentage
---- ----------
Isidore Fields.... 31.00%
James F. Bowen, III 27.00%
Joseph A. Rodriguez 27.00%
Robert L. Prosser, Sr. 12.78%
Anne M. Prosser... .74%
Robert L. Prosser, Jr. 1.48%
<PAGE>
Schedule 3.7
Litigation
Arbitration proceeding before the NYSE Board of Arbitration titled RSF Partners
L.P., Robert Prosser, Joseph A. Rodriguez, James F. Bowen III, Anne M. Prosser
and Robert L. Prosser, Jr., Claimants against Isidore Fields, Respondent
On or about June 26, 1998 the NYSE Market Surveillance Division opened an
investigation which it referred to the NYSE Division of Enforcement
("Enforcement") on or about September 25, 1998 involving the Firm's compliance
with NYSE Rules 106 and 342. The Partnership and Enforcement have agreed in
principle to settle the matter in its entirety in exchange for the Firm paying
the NYSE $30,000 and a censure. In addition, the NYSE will issue letters of
admonition to Messrs. Rodriguez and Fields.
<PAGE>
Schedule 7.1
Approvals needed from New York Stock Exchange
Market Performance Committee Approval
Quality of Markets Committee Approval
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 1, 1999 by and between NATIONAL DISCOUNT
BROKERS GROUP, INC., a Delaware corporation, with its principal offices located
at Ten Exchange Place Centre, Jersey City, New Jersey 07302 (the "Company"), and
Frank E. Lawatsch, Jr., with an address at 11 The Fairway, Upper Montclair, New
Jersey 07043 ("Employee");
R E C I T A L S:
WHEREAS, the Company desires to employ Employee and Employee is desirous
of and wishes to accept such employment on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "Affiliate" shall mean a corporation which, directly or indirectly,
controls, is controlled by or is under common control with the Company, and for
purposes hereof, "control" shall mean the ownership of 20% or more of the Voting
Stock of the corporation in question.
1.2 "Basic Salary" shall have the meaning assigned to that term in
Section 5.1 of this Agreement.
1.3 "Board" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "Business" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly.
1.5 "Cause" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful
commission by Employee of a criminal act or other act that in the reasonable
judgment of the Board causes or will likely cause substantial economic damage to
the Company or substantial injury to the business reputation of the Company;
(b) The commission by Employee of an act of fraud in the
performance of Employee's duties on behalf of the Company;
(c) The continuing willful failure of Employee to perform the
substantive duties of Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the compensation committee of the Board, or
(d) the order of a federal or state regulatory agency or a
court of competent jurisdiction requiring the termination of Employee's
employment.
For purposes of this subparagraph, no act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company or a Subsidiary.
1.6 "Change of Control" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Act")), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, Mr. Arthur Kontos and any Affiliate of Mr. Kontos, or a person
engaging in a transaction of the type described in clause (C) of this subsection
but which does not constitute a change in control under such clause, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(B) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a person who has
entered into as agreement with the Company to effect a transaction described in
clauses (A), (C) or (D) of this subsection) whose election by the Board or
nomination for election by the Company shareholders was approved by a vote of at
least two-thirds of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
(C) the shareholders of the Company approve, or if no shareholder
approval is required or obtained, the Company or a subsidiary of the Company
completes a merger, consolidation or similar transaction of the Company or a
subsidiary of the Company with or into any other corporation, or a binding share
exchange involving the Company's securities occurs, other than any such
transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
(D) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "Commencement Date" shall be April 1, 1999
1.9 "Confidential Information" shall include, without limitation by
reason of specification, any information, including, without limitation, trade
secrets, operational methods, methods of doing business, technical processes,
formulae, designs and design projects, inventions, research projects, strategic
plans, possible acquisition information and other business affairs of the
Company or its Affiliates, which (i) is or are designed to be used in, or are or
may be useful in connection with, the Business of the Company, any Subsidiary or
any Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.10 "Date of Termination" shall mean the Term Date, or any date upon
which this Agreement shall terminate pursuant to Section 7 hereof.
1.11 "Disability" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 90 consecutive days or
an aggregate of 120 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to Employee or
his agent.
1.12 "Duties" shall have the meaning assigned to that term in Section
2.1 of this Agreement.
1.13 "Employment Year" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
1.14 "Good Reason" shall have the meaning given such term in Section
7.6.
1.15 "Normal Retirement Date" shall mean the month in which Employee
turns age 62 or such earlier date as Employee may elect to retire under the
retirement plan(s) of the Company without the consent of the Company.
1.16 "Panel" shall have the meaning given such terms in Section 8.
1.17 "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
1.18 "Subsidiary" shall mean a corporation of which more than 50% of the
Voting Stock is owned, directly or indirectly, by the Company.
1.19 "Term" shall mean the term of employment of Employee under this
Agreement.
1.20 "Term Date" shall have the meaning assigned to that term in
Section 3 of this Agreement.
1.21 "Voting Stock" shall mean capital stock of a corporation which
gives the holder the right to vote in the election of directors for such
corporation in the ordinary course of business and not as the result of, or
contingent upon, the happening of any event.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 Employment; Title; Duties. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Executive Vice President, Secretary and
General Counsel of the Company. The duties of Employee shall be to have general
supervisory authority over the legal and regulatory affairs of the Company and
its Subsidiaries, mergers and acquisitions involving the Company or its
Subsidiaries, due diligence on acquisition proposals, corporate secretarial
duties for the Company and its Subsidiaries, those responsibilities assigned to
him by the Board or the Chief Executive Officer of the Company, and to render
services as are necessary and desirable to protect and to advance the best
interests of the Company and its Subsidiaries (collectively, the "Duties"),
acting, in all instances, under the supervision of and in accordance with the
policies set by the Board or the Chief Executive Officer of the Company.
2.2 Performance of Duties. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the Board or the Chief Executive Officer of the Company. During
the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules
and regulations relating to the Business, and (ii) shall not engage in or become
employed, directly or indirectly, in a business which competes with the Business
of the Company and its Subsidiaries, without the prior written consent of the
Board or the Chief Executive Officer of the Company, nor shall he act as a
consultant to or provide any services to, whether on a remunerative basis or
otherwise, the commercial or professional business of any other Person which
competes with the Business of the Company and its Subsidiaries, without such
written consent, which, in both instances, may be given or withheld by the Board
in its absolute discretion. It shall not be a violation of the foregoing
provisions of this Agreement for Employee to render legal services (including
service on board of directors) to a list of clients delivered to the Chief
Executive Officer by Employee from time to time.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement commenced as of
the Commencement Date and shall end two years thereafter, unless sooner
terminated pursuant to Section 7 (the "Term Date").
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the services
to be rendered by him hereunder during the Term, and in consideration of the
various restrictions imposed upon Employee during the Term and the Restricted
Period, and otherwise under this Agreement, the Basic Salary and other benefits
as provided for and determined pursuant to Sections 5 and 6, inclusive, of this
Agreement; provided, however, that no compensation shall be paid to Employee
under this Agreement for any period subsequent to the termination of employment
of Employee for any reason whatsoever, except as provided in Section 7.
5. BASIC SALARY/BONUS
5.1 Basic Salary. The Company shall pay Employee, as compensation for
all of the services to be rendered by him hereunder during each Employment Year,
a salary of $225,000 per Employment Year (as adjusted upward by the Board from
time to time) (the "Basic Salary"), payable in substantially equal semi-monthly
payments, less such deductions or amounts as are required to be deducted or
withheld by applicable laws or regulations, deductions for employee
contributions to welfare benefits provided by the Company to Employee and such
other deductions or amounts, if any, as are authorized by Employee. The Basic
Salary shall be prorated for the month in which employment by the Company or a
Subsidiary commences or terminates, and for any Employment Year which is less
than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board and, once increased, shall not thereafter be reduced.
The Basic Salary shall be reviewed at least once in every Employment Year by a
committee of the Board responsible for determining compensation of senior
management of the Company, each of the members of which is a
"non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange
Commission under the Act (the "Committee"). Any increase in Basic Salary shall
not serve to offset or reduce any other obligation to Employee under this
Agreement.
5.2 Bonus. Employee will be awarded and, unless deferred by Employee,
paid a cash bonus (the "Bonus") for each Employment Year within ninety days
after the close of the fiscal year of the Company ending within such Employment
Year in an amount determined in accordance with the Company's then-current bonus
or incentive compensation plan in an amount appropriate for the general counsel
of the Company, but not less than $75,000 (pro rated for any portion of an
Employment Year of less than 12 months). The Committee in consultation with
Employee shall establish in advance of each fiscal year of the Company during
the Term goals and levels of the Bonus for such fiscal year which shall be
related to the estimated budget for the Company for such fiscal year.
5.3 Equity Participation. The Company hereby grants to Employee a stock
option in the form attached as Exhibit A hereto for 15,000 shares of common
stock of the Company.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 Additional Benefits. The Company shall provide the following
additional benefits to Employee during the Term:
(i) provision of a comprehensive medical indemnity policy for
Employee and his family having terms no less favorable than the coverage made
available to other executives of the Company;
(ii) a comprehensive disability policy for Employee having terms
no less favorable than coverage made available to other executives of the
Company;
(iii) payment of the rental of an unreserved parking space at
the office in which the Company has its principal executive offices;
(iv) twenty working days of paid vacation; and
(v) such other benefits as the Board shall lawfully adopt and
approve for Employee; and
6.2 Reimbursement for Expenses. The Company shall pay or reimburse
Employee for all reasonable expenses actually incurred or paid by him during the
Term in the performance of his services under this Agreement, upon presentation
of such bills, expense statements, vouchers or such other supporting information
as the Board may reasonably require. In the event the Company requires Employee
to travel on business during the Term, Employee shall be reimbursed for any
travel expenses in accordance with this Section 6.2.
7. TERMINATION OF EMPLOYMENT
7.1 Death. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Basic Salary for
a period through the third full month following the date of death, provide
welfare benefits to his family for the balance of the stated Term (but not less
than one year) as if Employee had not died, and pay accrued and unpaid Bonus for
any completed Employment Year and provide for the payment of the life insurance
benefit provided to him by the Company.
7.2 Disability. If, during the Term, Employee has a Disability, the
Company may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated, this Agreement shall terminate except that the Company shall
continue to pay Employee's Basic Salary for a period through the third full
month following the date of the termination of his employment, pay any accrued
and unpaid Bonus for any completed Employment Year and provide welfare benefits
to his family for the balance of the stated Term (but not less than one year),
as if Employee had not been terminated for Disability, pay accrued and unpaid
Bonus for any completed Employment Year and pay or provide for the payment of
the disability benefit provided for him, until Employee reaches age 65.
7.3 Voluntary Termination. This Agreement may be terminated by Employee
at any time with or without cause upon sixty (60) days prior written notice to
the Company. After such sixty day period, the Company shall have no further
liability to make payments hereunder except those required by law or which were
accrued and unpaid at the end of the Term (including any accrued and unpaid
Bonus).
7.4 Termination for Cause. The Company may terminate Employee's
employment hereunder for Cause at any time by written notice given to Employee
by the Board. Upon such termination Employee shall not have any right to receive
any further payments hereunder except for amounts accrued and unpaid hereunder
prior thereto and provide welfare benefits as required by law and except as
provided in Section 7.8.
7.5 Termination Without Cause. If Employee's employment by the Company
is terminated by the Company without Cause, Employee shall be entitled to
continued payment of (i) the Basic Salary and (ii) the Bonus (at the rate
currently in effect but not less than $75,000), each for the balance of the
stated Term of this Agreement as if this Agreement had not been terminated or
one year whichever is greater and provide the benefits described in Section 6.1
for greater of the balance of the then stated Term as if this Agreement had not
been terminated or one year.
7.6. Termination for Good Reason. In the event Employee terminates his
employment with the Company for Good Reason, Employee shall receive the same
payments and benefits as he would have received if his employment by the Company
was terminated without Cause pursuant to Section 7.5. Good Reason for purposes
of this Agreement means:
(a) (i) The assignment by the Company to Employee of duties
which are materially different than those of the general counsel of the Company
as described in this Agreement, (ii) the removal of Employee from, or any
failure to reappoint or reelect Employee to, the highest title held by Employee,
except in connection with a termination of Employee's employment by the Company
for Cause, or by reason of Employee's death or Disability,
(b) A reduction or non-payment of Employee's Basic Salary or
failure to review Employee's Basic Salary as required in this Agreement or
failure to pay the Bonus;
(c) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(d) Requiring Employee to be based anywhere other than the
Company's then current principal executive office except for required travel on
the Company's business,
(e) The failure by the Company to continue to provide Employee
with substantially the same welfare benefits (which for purposes of this
Agreement shall mean benefits under all welfare plans as that term is defined in
Section 3(1) of Employee Retirement Income Security Act of 1974, as amend), any
prerequisites, including participation on a comparable basis in retirement
plans, stock option plans, stock award plans, and other plans in which
executives of the Company of comparable title and salary participate, or with a
package of welfare benefits and prerequisites, that, though one or more of such
benefits or prerequisites may vary from those, including participation on a
comparable basis in such retirement plans, stock option plans and stock award
plans, is substantially comparable in all material respects to such welfare
benefits and prerequisites, including participation on a comparable basis in the
Company's retirement plans, stock option plans and stock award plans, taken as a
whole;
(f) The failure of the Company to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 13 hereof; or
(h) A Change of Control shall occur.
7.7 Notice of Termination. Any purported termination of Employee's
employment by the Company by reason of Employee's Disability or for Cause, or by
Employee for Good Reason shall be communicated by written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice given by Employee or the Company, which shall
indicate the specific basis for termination of employment and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement.
7.8 Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be modified pursuant to the
following two sentences. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of Termination notifies
the other party that a Dispute exists (a "Notice of Dispute"), the Date of
Termination shall be the date on which the Dispute is finally determined, either
by mutual written agreement of the parties, by the Panel, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected); provided
that the Date of Termination shall be extended by a Notice of Dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such Dispute with reasonable diligence, and provided further that
pending the resolution of any such Dispute, the Company shall continue to pay
Employee the same Basic Salary and to provide Employee with the same or
substantially comparable welfare benefits and prerequisites, including
participation in the Company's retirement plans, profit sharing plans, to the
extent then so available at the date of such determination, stock option plans,
stock award plans or stock appreciation right plans that Employee was paid and
provided to the extent that such continued participation is possible under the
general terms and provisions of such plans, programs and benefits but in no
event beyond the Term Date. Should a Dispute ultimately be determined in favor
of the Company, then all sums (net of tax withholdings by the Company from such
sums) paid by the Company to Employee from the Date of Termination specified in
the Notice of Termination until final resolution of the Dispute pursuant to this
paragraph shall be repaid promptly by Employee to the Company, all options,
rights and stock awards granted to Employee during such period shall be canceled
or returned to the Company, and no service as an employee shall be credited to
Employee for such period for pension purposes. Employee shall not be obligated
to pay to the Company the cost of providing Employee with welfare benefits and
prerequisites for such period, unless the final judgment, order or decree of a
court arbitration panel or other body resolving the Dispute determines that
Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute
ultimately be determined in favor of Employee, then Employee shall be entitled
to retain all sums paid to Employee under this subparagraph pending resolution
of the Dispute and shall be entitled to receive, in addition, the payments and
other benefits provided for in Section 7 to the extent not previously paid
hereunder and the payment of Employee's reasonable legal fees incurred as a
result of such Dispute upon submission to the Company of a detailed statement of
fees from Employee's attorneys.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
Dispute or any dispute regarding the rights and obligations of any party under
this Agreement or under any law governing the relationship created by this
Agreement, including without limitation Employee's challenge of a purported
termination for Cause or Disability, must be resolved pursuant to this Section
8. Within seven (7) days of either party's written notice to the other of his or
its desire to submit any Dispute or arbitrable matter as set forth herein to
arbitration, the parties will meet to attempt to amicably resolve their
differences and, failing such resolution, either or both of the parties may
submit the matter to mandatory and binding arbitration with the Center for
Public Resources ("CPR"). The issue(s) in dispute shall be settled by
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by a panel of three
arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will
be those issues specifically submitted to the Panel. The Panel will not extend,
modify or suspend any of the terms of this Agreement. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment
upon the award rendered by the Panel may be entered by any court having
jurisdiction thereof. A determination of the Panel shall be by majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon
any award rendered by the Panel may be entered in any court having jurisdiction.
The decision of the Panel within the scope of the submission is final and
binding on all parties, and any right to judicial action on any matter subject
to arbitration hereunder hereby is waived (unless otherwise provided by
applicable law), except suit to enforce this arbitration award or in the event
arbitration is not available for any reason or in the event the Company shall
seek equitable relief to enforce Section 9 of this Agreement. If the rules of
the CPR differ from those of this Section 8, the provisions of this Section 8
will control. The Company shall pay all the costs of arbitration including the
fees of the arbitrators, and the arbitrators shall award reasonable legal fees
to Employee, unless the arbitrators or a judicial forum shall finally determine
that Employee acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 Acknowledgment of Confidentiality. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within one year after the Date of
Termination (the "Restricted Period"), (i) use or disclose any such Confidential
Information outside the Company, its Subsidiaries and Affiliates; or (ii) except
as required in the proper performance of his services hereunder, remove or aid
in the removal of any Confidential Information or any property or material
relating thereto from the premises of the Company or any Subsidiary or
Affiliate.
The foregoing confidentiality provisions shall cease to be applicable to
any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
9.2 Delivery of Material. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
11. SURVIVAL
The provisions of Sections 7, 8, 9, 10 and 14 shall survive termination
of this Agreement and remain enforceable according to their terms.
11. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
12. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company:
National Discount Brokers Group, Inc.
10 Exchange Place Centre
15th Floor
Jersey City, New Jersey 07302
with a copy to:
Gibbons, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102-5497
Attn: Ralph N. Del Deo, Esq.
If to Employee:
Frank E. Lawatsch, Jr.
11 The Fairway
Upper Montclair, New Jersey 07043
By notifying the other parties in writing, given as aforesaid, any party
may from time-to-time change its address or the name of any person to whose
attention notice is to be given, or may add another person to whose attention
notice is to be given, in connection with notice to any party.
13. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may be
assigned or delegated by Employee. This Agreement is not assignable by the
Company, including, without limitation, to any successor in interest which takes
over all or substantially all of the business of the Company, as it is conducted
at the time of such assignment, without the written consent of Employee. Any
corporation into or with which the Company is merged or consolidated or which
takes over all or substantially all of the business of the Company shall be
deemed to be a successor of the Company for purposes hereof and the Company
shall require as a condition thereof that such corporation assume this Agreement
in form and substance satisfactory to Employee. This Agreement shall be binding
upon and, except as aforesaid, shall inure to the benefit of the parties and
their respective successors and permitted assigns.
14. LIMITATION ON PAYMENTS
In the event that any payment or benefit received or to be received by
Employee in connection with the termination of Employee's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such person)
(collectively with the payments and benefits hereunder, "Total Payments") would
not be deductible (in whole or part) as a result of section 280G of the Code by
the Company, an affiliate or other person making such payment or providing such
benefit, the payments and benefits hereunder shall be reduced until no portion
of the Total Payments is not deductible, or the payments and benefits hereunder
are reduced to zero. At Employee's request, such reduction may be effected by
extending the date the payment would otherwise be due by not more than five
years or by decreasing the amount of the payment or benefit otherwise due and
payable. For purposes of this limitation (i) no portion of the Total Payments
the receipt or enjoyment of which Employee shall have effectively waived in
writing prior to the date of payment shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which, in the opinion
of tax counsel selected by Employee and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (iii) the payments and benefits hereunder
shall be reduced only to the extent necessary so that, in the opinion of the tax
counsel referred to in clause (ii), the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety are likely to constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not likely to be subject to
disallowance as deductions; and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
15. ENTIRE AGREEMENT, WAIVER AND OTHER
15.1. Integration. This Agreement together with the Change of Control
Agreement dated the date hereof between the Company and Employee contains the
entire agreement of the parties hereto on its subject matter and supersedes all
previous agreements between the parties hereto, written or oral, express or
implied, covering the subject matter hereof. No representations, inducements,
promises or agreements, oral or otherwise, not embodied herein, shall be of any
force or effect.
15.2. No Waiver. No waiver or modification of any of the provisions of
this Agreement shall be valid unless in writing and signed by or on behalf of
the party granting such waiver or modification. No waiver by any party of any
breach or default hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed a waiver of any other breach or default,
nor shall it in any way affect any of the other terms or conditions of this
Agreement or the enforceability thereof. No failure of the Company to exercise
any power given it hereunder or to insist upon strict compliance by Employee
with any obligation hereunder, and no custom or practice at variance with the
terms hereof, shall constitute a waiver of the right of the Company to demand
strict compliance with the terms hereof.
Employee shall not have the right to sign any waiver or modification of
any provisions of this Agreement on behalf of the Company, nor shall any action
taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by instrument
in writing signed by all of the parties hereto after the date hereof. Neither
this Agreement nor any of the rights of any of the parties hereunder may be
terminated except as provided herein.
16. MISCELLANEOUS
16.1 Governing Law. This Agreement shall be governed by and construed,
and the rights and obligations of the parties hereto enforced, in accordance
with the laws of the State of New Jersey.
16.2 Headings. The Section and Subsection headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
16.3 Severability. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
16.4 Obligations of Company. The Company's obligation to pay Employee
the compensation and to make the arrangements provided herein shall be absolute
and unconditional and shall not be affected by any circumstances, including,
without limitation, any setoff, counterclaim, recoupment, defense or other right
which the Company may have against Employee or anyone else. All amounts payable
by the Company hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Company waives all rights which it may now have
or may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as provided in
Section 7.8 herein, each and every payment made hereunder by the Company shall
be final and the Company will not seek to recover for any reason all or any part
of such payment from Employee or any person entitled thereto. Employee shall not
be required to mitigate the amount of any payment or other benefit provided for
in this Agreement by seeking other employment or otherwise.
16.5 Rights of Beneficiaries of Employee. This Agreement shall inure to
the benefit of, and be enforceable by, Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts would still be
payable to Employee hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee or other designee or, if there be
no such designee, to Employee's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
National Discount Brokers Group, Inc.
By:____________________________________
Name: Arthur Kontos
Title: Chief Executive Officer
-------------------------------------
Frank E. Lawatsch, Jr.
<PAGE>
EXHIBIT A
NATIONAL DISCOUNT BROKERS GROUP, INC.
1995 Stock Option Plan
National Discount Brokers Group, Inc. a Delaware corporation (the
"Corporation"), hereby grants to the person named below an option to purchase
shares of Common Stock, $.01 par value per share, of the Corporation (the
"Option") under and subject to the Corporation's 1995 Stock Option Plan (the
"Plan") exercisable on the following terms and conditions and those set forth on
the attached terms and conditions (the "Agreement") and the Plan:
Name of Optionee: Frank E. Lawatsch, Jr.
Address: 11 The Fairway, Upper Montclair, New Jersey 07043
Social Security No.: ###-##-####
Number of Shares: 15,0001
Option Price: Fair Market Value on April 1, 1999
Date of Grant: April 1, 1999
Exercisability Schedule: 1/3; 1/3; 1/3; ie, a third of the
total each anniversary date with any
remainder added to last date e.g. April 1,
2000, 2001, 2002; provided, however, that
this option shall vest in its entirety upon
a Change of Control as defined in the Change
of Control Agreement between the Company and
the Optionee or in the Plan.
Expiration Date: March 31, 2010
Progressive stock options. This Option shall have the benefit of
Section 5(j) of the Plan.
<PAGE>
By Acceptance of this Option, the Optionee agrees to the terms and
conditions hereof.
NATIONAL DISCOUNT BROKERS GROUP, INC.
By:_________________________________
Name: James Lynch, Jr.
Title: Member of the Compensation
Committee
ACCEPTED:
- --------------------------
- --------
1 The Option shall be an incentive stock option except that to the extent the
option will exceed Code Section 422 limitation on incentive stock options, the
option shall be non-qualified stock option.
<PAGE>
EXHIBIT 10.4
NATIONAL DISCOUNT BROKERS GROUP, INC.
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT dated and entered into on February 8, 1999 effective as
of the 1st day of April, 1999, by and between National Discount Brokers Group,
Inc., a Delaware corporation (together with any successor, the "Company"), and
Frank E. Lawatsch, Jr. residing at the address set forth below his or her
signature, (the "Employee").
WITNESSETH:
WHEREAS, should the Company receive a proposal from, or engage in
discussions with, a third person, whether solicited by the Company or
unsolicited, concerning a possible business combination with or the acquisition
of a substantial portion of voting securities of either party, the Board of
Directors of the Company (the "Board") has deemed it imperative that it and the
Company be able to rely on the Employee to continue to serve in his or her
position, and that the Board and the Company be able to receive and rely upon
his or her advice, if they request it, as to the best interests of the Company
and its shareholders, without concern that the Employee might be distracted by
the personal uncertainties and risks that such a proposal or discussions might
otherwise create; and
WHEREAS, the Company desires to enhance employee morale and its
ability to retain existing management; and
WHEREAS, the Company desires to reward the Employee for his or her
valuable, dedicated service to the Company should his or her service be
terminated under circumstances hereinafter described; and
WHEREAS, the Employee is presently a key employee with whom the Company
has been authorized by the Board to enter into this Agreement;
NOW, THEREFORE, to assure the Company of the Employee's continued
dedication and the availability of his or her advice and counsel in the event of
any such proposal, to induce the Employee to remain in the employ of the
Company, and to reward the Employee for his or her valuable, dedicated service
to the Company should his or her service be terminated under circumstances
hereinafter described, and for other good and valuable consideration, the
receipt and adequacy whereof each party acknowledges, the Company and the
Employee agree as follows:
1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT
(a) This Agreement shall commence on the date hereof and continue in
effect until two years after a Change of Control shall occur.
(b) This Agreement is effective and binding on both parties as of the
date hereof. Notwithstanding its present effectiveness, the provisions of
paragraphs 3 and 4 of this Agreement shall become operative only when, as and if
there has been a "Change in Control". For purposes of this Agreement, a "Change
in Control" shall be deemed to have occurred if (X) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, Mr. Arthur Kontos and
any Affiliate of Mr. Kontos, or a person engaging in a transaction of the type
described in clause (Z) of this subsection but which does not constitute a
change in control under such clause, is or become the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities entitled to vote in the election of
directors; or (Y) during any period of two consecutive years during the term of
this Agreement, individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction described in
clauses (X) or (Z) of this Subsection) whose election by the Board or nomination
for election by the Company shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved ("Continuing Members"), cease for any reason to
constitute a majority thereof; or (Z) the shareholders of the Company approve
or, if no shareholder approval is required or obtained, the Company or a
subsidiary of the Company completes a merger, consolidation or similar
transaction of the Company or such a subsidiary with or into any other
corporation, or a binding share exchange involving the Company's securities,
other than any such transaction which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least 66 2/3% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such transaction, or the shareholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.
2. EMPLOYMENT OF THE EMPLOYEE
Nothing herein shall affect any right which the Employee or the Company
may otherwise have to terminate the Employee's employment by the Company at any
time in any lawful manner, subject always to the Company's providing to the
Employee the payments and benefits specified in paragraphs 3 and 4 of this
Agreement to the extent hereinbelow provided.
In the event any person commences a tender or exchange offer,
circulates a proxy statement to the Company's shareholders or takes other steps
designed to effect a Change in Control as defined in paragraph 1 of this
Agreement, the Employee agrees that he or she will not voluntarily leave the
employ of the Company, and will continue to perform his or her regular duties
and to render the services specified in the recitals of this Agreement, until
such person has abandoned or terminated its efforts to effect a Change in
Control or until a Change in Control has occurred. Should the Employee
voluntarily terminate his or her employment before any such effort to effect a
Change in Control has commenced, or after any such effort has been abandoned or
terminated without effecting a Change in Control and no such effort is then in
process, this Agreement shall lapse and be of no further force or effect.
3. TERMINATION FOLLOWING CHANGE IN CONTROL
(a) If any of the events described in paragraph 1 hereof constituting a
Change in Control shall have occurred, the Employee shall be entitled to the
benefits provided in paragraph 4 hereof upon the subsequent termination of his
or her employment within the applicable period set forth in paragraph 4 hereof
following such Change in Control unless such termination is (i) due to the
Employee's death or Retirement; or (ii) by the Company by reason of the
Employee's Disability or for Cause; or (iii) by the Employee other than for Good
Reason.
(b) If following a Change in Control, the Employee's employment is
terminated by reason of his or her death or Disability, the Employee shall be
entitled to death or long-term disability benefits, as the case may be, from the
Company no less favorable than those benefits to which he or she would have been
entitled had the death or termination for Disability occurred during the
six-month period prior to the Change in Control. If prior to any such
termination for Disability, the Employee fails to perform his or her duties as a
result of incapacity due to physical or mental illness, he or she shall continue
to receive his or her Base Salary less any benefits as may be available to him
or her under the Company's disability plans until his or her employment is
terminated for Disability.
(c) If the Employee's employment shall be terminated by the Company for
Cause or by the Employee other than for Good Reason, the Company shall pay to
the Employee his or her full Base Salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given, and the Company shall
have no further obligations to the Employee under this Agreement.
(d) For purposes of this Agreement:
(i) "Disability" shall mean the Employee's incapacity due to
physical or mental illness such that the Employee shall have become qualified to
receive benefits under the Company's long-term disability plans or any
equivalent coverage required to be provided to the Employee pursuant to any
other plan or agreement, whichever is applicable.
(ii) "Retirement" shall mean that the Employee shall have
reached age 65 and shall voluntarily retire under the Company's retirement plans
applicable to such Employee or any earlier actual voluntary retirement by the
Employee from his or her employment with the Company.
(iii) "Cause" shall mean:
(A) the conviction of the Employee for a felony, or the
willful commission by the Employee of a criminal or other act that in the
judgment of the Board causes or will likely cause substantial economic damage to
the Company or substantial injury to its business reputation;
(B) the commission by the Employee of an act of fraud in the
performance of the Employee's duties on behalf of the Company;
(C) the continuing willful failure of the Employee to perform
the duties of the Employee to the Company (other than any such failure resulting
from the Employee's incapacity due to physical or mental illness) after written
notice thereof (specifying the particulars thereof in reasonable detail) and a
reasonable opportunity to be heard and cure such failure are given to the
Employee by the compensation committee of the Board; or
(D) the order of a federal or state regulatory agency or a
court of competent jurisdiction requiring the termination of the Employee's
employment.
For purposes of this subparagraph (d)(iii), no act, or failure
to act, on the Employee's part shall be considered "willful" unless done, or
omitted to be done, by him or her not in good faith and without reasonable
belief that his or her action or omission was in the best interests .
(iv) "Good Reason" shall mean:
(A) The assignment by the Company to the Employee of duties,
without the Employee's express written consent, which (i) are materially
different or require travel significantly more time-consuming or extensive than
the Employee's duties or business travel obligations immediately prior to the
Change in Control, or (ii) result, in either a significant reduction in the
Employee's authority and responsibility as a senior corporate executive when
compared to the highest level of authority and responsibility assigned to the
Employee at any time during the six (6) month period prior to the Change in
Control, or, (iii) without the Employee's express written consent, the removal
of the Employee from, or any failure to reappoint or reelect the Employee to,
the highest title held since the date six (6) months before the Change in
Control, except in connection with a termination of the Employee's employment by
the Company for Cause, or by reason of the Employee's death, Disability or
Retirement;
(B) A reduction by the Company of the Employee's Base Salary,
or the failure to grant increases in the Employee's Base Salary on a basis at
least substantially comparable to those granted to other employees of comparable
title, salary and made in good faith or non-payment of the Employee's Base
Salary or the Bonus;
(C) The relocation of the Company's principal executive
offices to a location outside northern New Jersey or the Borough of Manhattan,
New York City, or the Company's requiring the Employee to be based anywhere
other than the Company's principal executive offices except for required travel
on the Company's business to an extent substantially consistent with the
Employee's business travel obligations immediately prior to the Change in
Control, or in the event of any relocation of the Employee with the Employee's
express written consent, the failure by the Company to pay (or reimburse the
Employee for) all reasonable moving expenses by the Employee relating to a
change of principal residence in connection with such relocation and to
indemnify the Employee against any loss realized in the sale of the Employee's
principal residence in connection with any such change of residence, all to the
effect that the Employee shall incur no loss upon such sale on an after tax
basis;
(D) The failure by the Company to continue to provide the
Employee with substantially the same welfare benefits (which for purposes of
this Agreement shall mean benefits under all welfare plans as that term is
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended), and perquisites, including participation on a comparable basis in
the Company's stock options plan and other plans in which executives of the
Company of comparable title and salary participate and as were provided to the
Employee immediately prior to such Change in Control, or with a package of
welfare benefits and perquisites, that, though one or more of such benefits or
perquisites may vary from those, including participation on a comparable basis
in the Company's stock option plan, is substantially comparable in all material
respects to such welfare benefits and perquisites, including participation on a
comparable basis in the Company's stock option plan taken as a whole; or
(E) The failure of the Company to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in subparagraph 5(d) hereof.
(v) "Dispute" shall mean (i) in the case of
termination of employment of the Employee with the Company or a Subsidiary by
the Company for Disability or Cause, that the Employee challenges the
existence of Disability or Cause and (ii) in the case of termination of
employment of an Employee with the Company by the Employee for Good Reason,
that the Company challenges the existence of Good Reason.
(vi) "Base Salary" shall mean the amount determined
by multiplying the Employee's highest semi-monthly or other periodic rate
of base pay paid to the Employee during the twelve-month period immediately
prior to the giving of the Notice of Termination by the number of pay periods
per year. The following items are not part of base pay, as used herein:
reimbursed expenses, any amount paid on account of overtime or holiday work,
payment on account of insurance premiums or other contributions made to other
welfare of benefit plans, any year-end or other bonuses, commissions and gifts.
(vii) "Affiliate" shall have the meaning given such
term in Rule 405 under the Securities Act of 1933, as amended.
(viii) "Total Annual Compensation" shall mean Base
Salary plus the highest annual cash bonus paid to, or budgeted for, the
Employee during the twelve-month period immediately prior to the giving of
the Notice of Termination but in no event less then $75,000.
(e) Any purported termination of employment by the Company by reason of
the Employee's Disability or for Cause, or by the Employee for Good Reason shall
be communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice given
by the Employee or the Company, as the case may be, which shall indicate the
specific basis for termination and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for determination of any
payments under this Agreement. An Employee shall not be entitled to give a
Notice of Termination that the Employee is terminating his or her employment
with the Company for Good Reason more than two (2) years following the
occurrence of the event alleged to constitute Good Reason.
(f) For purposes of this Agreement, "Date of Termination" shall mean
the date specified in the Notice of Termination, which shall not be more than
ninety (90) days after such Notice of Termination is given, as such date may be
modified pursuant to the following two sentences. If within thirty (30) days
after any Notice of Termination is given, the party who receives such Notice of
Termination notifies the other party that a Dispute (as heretofore defined)
exists, the Date of Termination shall be the date on which the Dispute is
finally determined, either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected);
provided that the Date of Termination shall be extended by a notice of Dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such Dispute with reasonable diligence and provided
further that pending the resolution of any such Dispute, the Company shall
continue to pay the Employee the same Base Salary and to provide the Employee
with the same or substantially comparable welfare benefits and perquisites,
including participation in the Company's stock option plan, that the Employee
was paid and provided immediately prior to the Change in Control. Should a
Dispute ultimately be determined in favor of the Company then all sums paid by
the Company to the Employee from the date of termination specified in the Notice
of Termination until final resolution of the Dispute pursuant to this paragraph
shall be repaid promptly by the Employee to the Company, with interest at 70% of
the prime rate charged from time to time by Citibank, N.A., New York, New York,
all stock options granted to the Employee during such period shall be canceled
or returned to the Company, and no service as an employee shall be credited to
the Employee for such period for pension purposes. The Employee shall not be
obligated to pay back the welfare benefits and perquisites for such period
unless the final judgment, order or decree of a court or other body resolving
the Dispute determines that the Employee acted in bad faith in giving a notice
of Dispute. Should a Dispute ultimately be determined in favor of the Employee,
then the Employee shall be entitled to retain all sums paid to the Employee
under this subparagraph (f) pending resolution of the Dispute and shall be
entitled to receive, in addition, the payments and other benefits provided for
in paragraph 4 hereof to the extent not previously paid hereunder.
4. PAYMENTS UPON TERMINATION
If within two years after a Change in Control, the Company shall
terminate the Employee's employment, other than by reason of the Employee's
death, Disability, Retirement or for Cause, or if the Employee shall terminate
his or her employment for Good Reason then,
(a) the Company will pay to the Employee as compensation for services
rendered, (subject to any applicable payroll or other taxes required to be
withheld) commencing on the first day of the month following the month of
termination, one-twelfth (1/12) of Total Annual Compensation of the Employee
payable once monthly for a period of twenty-four months; provided, however, that
if the exercise price of the option granted to the Employee to purchase shares
of common stock of the Company on February 8, 1999 is $19 or less cash payments
hereunder shall be reduced dollar for dollar for payments made pursuant to
Section 7.5 or 7.6 of the Employment Agreement between the Employee and the
Company dated the date hereof.
(b) In the event that any payment or benefit received or to be received
by the Employee in connection with a Change in Control or the termination of the
Employee's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any person whose actions
result in a Change in Control or any person affiliated with the Company or such
person) (collectively with the payments and benefits hereunder, "Total
Payments") would not be deductible (in whole or part) as a result of section
280G of the Internal Revenue Code of 1986, as amended and the regulations
thereunder (the "Code") by the Company, an affiliate or other person making such
payment or providing such benefit, the payments and benefits hereunder shall be
reduced until no portion of the Total Payments is not deductible, or the
payments and benefits hereunder are reduced to zero. At the Employee's request,
such reduction may be effected by extending the date the payment would otherwise
be due by not more than five years or by decreasing the amount of the payment or
benefit otherwise due and payable or a combination thereof. For purposes of this
limitation (i) no portion of the Total Payments the receipt or enjoyment of
which the Employee shall have effectively waived in writing prior to the date of
payment under subsection (a) shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which, in the opinion of tax counsel
selected by the Employee and acceptable to the Company's independent auditors,
is not likely to constitute a "parachute payment" within the meaning of section
280G(b)(2) of the Code, (iii) the payments and benefits hereunder shall be
reduced only to the extent necessary so that, in the opinion of the tax counsel
referred to in clause (ii), the Total Payments (other than those referred to in
clauses (i) or (ii)) in their entirety are likely to constitute reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code or are otherwise not likely to be subject to disallowance
as deductions; and (iv) the value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Company's independent auditors in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
(c) In the event that any payment or benefit received or to be received
by the Employee in connection with a Change in Control or the termination of the
Employee's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any person whose actions
result in a Change in Control or any person affiliated with the Company or such
person) (collectively with the payments and benefits hereunder, "Total
Payments") would not be deductible (in whole or part) as a result of Section
162(m) of the Code, or any combination of Section 162(m) and Section 280G of the
Code, by the Company, an affiliate or other person making such payment or
providing such benefit, the payments and benefits hereunder shall be reduced
until no portion of the Total Payments is not deductible, or the payments and
benefits hereunder are reduced to zero. At the Employee's request, such
reduction may be effected by extending the date the payment would otherwise be
due by not more than five years or by decreasing the amount of the payment or
benefit otherwise due and payable or a combination of the foregoing. For
purposes of this limitation (i) no portion of the Total Payments the receipt or
enjoyment of which the Employee shall have effectively waived in writing prior
to the date of payment under subsection (a) shall be taken into account, and
(ii) the payments and benefits hereunder shall be reduced only to the extent
necessary so that, in the opinion of tax counsel selected by the Employee and
acceptable to the Company's independent auditors, the Total Payments (other than
those referred to in clause (i)) in their entirety are likely to constitute
performance-based compensation or remuneration payable on a commission basis
within the meaning of Section 162(m)(4) of the Code, do not exceed the
$1,000,000 limitation of Section 162(m)(1) of the Code, or are otherwise not
likely to be subject to disallowance as deductions.
5. GENERAL
(a) The Employee shall retain in confidence any proprietary or other
confidential information known to the Employee concerning the Company and its
business (including the Company's subsidiaries and their businesses) so long as
such information is not publicly disclosed and disclosure is not required by an
order of any governmental body or court.
(b) If litigation or other proceedings shall be brought to enforce or
interpret any provision contained herein or in connection with any tax audit to
the extent attributable to the application of Section 4999 of the Code to any
payment or benefit provided hereunder, the Company shall indemnify the Employee
for his or her reasonable attorney's fees and disbursements incurred in
connection therewith and pay prejudgment interest on any money judgment obtained
by the Employee calculated at Citibank, N.A., New York, prime rate of interest
in effect from time to time from the date that payment should have been made
under the Agreement; provided that if the Employee initiated the proceedings,
the Employee shall not have been found by the court or other fact finder to have
acted in bad faith in initiating such litigation or other proceeding, which
finding must be final without further rights of appeal.
(c) The Company's obligation to pay the Employee the compensation and
to make the arrangements provided herein shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, any
setoff, counterclaim, recoupment, defense or other right which the Company may
have against the Employee or anyone else. All amounts payable by the Company
hereunder shall be paid without notice or demand. Except as expressly provided
herein, the Company waives all rights which it may now have or may hereafter
have conferred upon it, by statute or otherwise, to terminate, cancel or rescind
this Agreement in whole or in part. Except as provided in paragraph 3(f) herein,
each and every payment made hereunder by the Company shall be final and the
Company will not seek to recover for any reason all or any part of such payment
from the Employee or any person entitled thereto. The Employee shall not be
required to mitigate the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise.
(d) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidated or otherwise) to all or substantially all of
the business and/or assets of the Company, by written agreement in form and
substance satisfactory to the Employee, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
As used in this Agreement "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
paragraph 5 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(e) This Agreement shall inure to the benefit of, and be enforceable
by, the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee should
die while any amounts would still be payable to the Employee hereunder if he or
she had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Employee's
devisee, legatee or other designee or, if there be no such designee, to the
Employee's estate. The obligations of the Employee hereunder shall not be
assignable by the Employee.
(f) Nothing in this Agreement shall be deemed to entitle the Employee
to continued employment with the Company and the rights of the Company to
terminate the employment of the Employee shall continue as fully as though this
Agreement were not in effect.
6. NOTICE
For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
at the address set forth after the Employee's
signature at the end of this Agreement
If to the Company:
National Discount Brokers Group, Inc.
Ten Exchange Place Centre
Jersey City, New Jersey 07302
Attention: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. MISCELLANEOUS
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing, signed by
the Employee and such officer of the Company as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No assurances or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. However, this
Agreement is in addition to, and not in lieu of, any other plan providing for
payments to or benefits for the Employee or any agreement now existing, or which
hereafter may be entered into, between the Company and the Employee. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of New Jersey. Except as specifically
provided in Section 4(a), cash payments made to the Employee pursuant to this
Agreement shall be in addition to and not in lieu of payments made to the
Employee under any employment agreement between the Employee and the Company.
8. FINANCING
All amounts due and benefits provided under this Agreement shall
constitute general obligations of the Company in accordance with the terms of
this Agreement. The Employee shall have only an unsecured right to payment
thereof out of the general assets of the Company. Notwithstanding the foregoing,
the Company may, by agreement with one or more trustees to be selected by the
Company, create a trust on such terms as the Company shall determine to make
payments to the Employee in accordance with the terms of this Agreement.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. Any provision in this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
Employee Name: Frank E. Lawatsch, Jr.
Employee Address: 11 The Fairway
Upper Montclair, N.J. 07043
NATIONAL DISCOUNT BROKERS GROUP, INC.
By___________________________________
Name: Arthur Kontos
Title: Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated February 8, 1999 effective as of April 1, 1999 by and
between NATIONAL DISCOUNT BROKERS GROUP, INC., a Delaware corporation, with its
principal offices located at Ten Exchange Place Centre, Jersey City , New Jersey
07302 (the "Company"), and Frank E. Lawatsch, Jr., with an address at 11 The
Fairway, Upper Montclair, New Jersey 07043 ("Employee");
R E C I T A L S:
WHEREAS, the Company desires to employ Employee and Employee desires to
accept employment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "Affiliate" shall mean a corporation which, directly or indirectly,
controls, is controlled by or is under common control with the Company, and for
purposes hereof, "control" shall mean the ownership of 20% or more of the Voting
Stock of the corporation in question.
1.2 "Basic Salary" shall have the meaning assigned to that term in
Section 5.1 of this Agreement.
1.3 "Board" shall mean the Board of Directors of the Company as duly
constituted from time to time. Any action of the Board hereunder with respect to
this Agreement shall require the approval of a majority of the whole Board of
Directors of the Company.
1.4 "Business" shall mean the business conducted by the Company or any
Subsidiary, directly or indirectly.
1.5 "Cause" shall mean any of the following:
(a) The conviction of Employee for a felony, or the willful
commission by Employee of a criminal act or other act that in the reasonable
judgment of the Board causes or will likely cause substantial economic damage to
the Company or substantial injury to the business reputation of the Company;
(b) The commission by Employee of an act of fraud in the
performance of Employee's duties on behalf of the Company;
(c) The continuing willful failure of Employee to perform the
substantive duties of Employee to the Company (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to
Employee by the compensation committee of the Board, or
(d) the order of a federal or state regulatory agency or a
court of competent jurisdiction requiring the termination of Employee's
employment.
For purposes of this subparagraph 1.5, no act, or failure to
act, on Employee's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith and without reasonable belief that his action
or omission was in the best interests of the Company or a Subsidiary.
1.6 "Change of Control" shall mean:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Act")), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, Mr. Arthur Kontos and any Affiliate of Mr. Kontos, or a person
engaging in a transaction of the type described in clause (C) of this subsection
but which does not constitute a change in control under such clause, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities entitled
to vote in the election of directors;
(B) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a person who has
entered into as agreement with the Company to effect a transaction described in
clauses (A), (C) or (D) of this subsection) whose election by the Board or
nomination for election by the Company shareholders was approved by a vote of at
least two-thirds of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
(C) the shareholders of the Company approve, or if no shareholder
approval is required or obtained, the Company or a subsidiary of the Company
completes a merger, consolidation or similar transaction of the Company or a
subsidiary of the Company with or into any other corporation, or a binding share
exchange involving the Company's securities occurs, other than any such
transaction which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such transaction; or
(D) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.8 "Commencement Date" shall be April 1, 1999
1.9 "Confidential Information" shall include, without limitation by
reason of specification, any information, including, without limitation, trade
secrets, operational methods, methods of doing business, technical processes,
formulae, designs and design projects, inventions, research projects, strategic
plans, possible acquisition information and other business affairs of the
Company or its Affiliates, which (i) is or are designed to be used in, or are or
may be useful in connection with, the Business of the Company, any Subsidiary or
any Affiliate of any thereof, or which, in the case of any of these entities,
results from any of the research or development activities of any such entity,
or (ii) is private or confidential in that it is not generally known or
available to the public, except as the result of unauthorized disclosure by or
information supplied by Employee, or (iii) gives the Company or a Subsidiary or
any Affiliate an opportunity or the possibility of obtaining an advantage over
competitors who may not know or use such information or who are not lawfully
permitted to use the same.
1.10 "Date of Termination" shall mean the Term Date, or any date upon
which this Agreement shall terminate pursuant to Section 7 hereof.
1.11 "Disability" shall mean the inability of Employee to perform
Employee's duties of employment for the Company, if employed by the Company or a
Subsidiary, pursuant to the terms of this Agreement and by-laws of the Company
as hereinafter provided, because of physical or mental disability, where such
disability shall have existed for a period of more than 180 consecutive days or
an aggregate of 270 days in any 365 day period. The existence of a Disability
means that Employee's mental and/or physical condition substantially interferes
with Employee's performance of his substantive duties for the Company and/or its
Subsidiaries as specified in this Agreement. The fact of whether or not a
Disability exists hereunder shall be determined by professionally qualified
medical experts selected by the Board and reasonably acceptable to Employee or
his agent.
1.12 "Duties" shall have the meaning assigned to that term in Section
2.1 of this Agreement.
1.13 "Employment Year" shall mean each twelve-month period, or part
thereof, during which Employee is employed hereunder, commencing on the
Commencement Date and on the same day of the subsequent calendar year and each
consecutive 12 month period thereafter.
1.14 "Good Reason" shall have the meaning given such term in Section
7.6.
1.15 "Normal Retirement Date" shall mean the month in which Employee
turns age 62 or such earlier date as Employee may elect to retire under the
retirement plan(s) of the Company without the consent of the Company.
1.16 "Panel" shall have the meaning given such terms in Section 8.
1.17 "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
1.18 "Subsidiary" shall mean a corporation of which more than 50% of the
Voting Stock is owned, directly or indirectly, by the Company.
1.19 "Term" shall mean the term of employment of Employee under this
Agreement.
1.20 "Term Date" shall have the meaning assigned to that term in
Section 3 of this Agreement.
1.21 "Voting Stock" shall mean capital stock of a corporation which
gives the holder the right to vote in the election of directors for such
corporation in the ordinary course of business and not as the result of, or
contingent upon, the happening of any event.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF EMPLOYEE
2.1 Employment; Title; Duties. The Company hereby employs Employee, and
Employee hereby accepts appointment, as Executive Vice President, Secretary and
General Counsel of the Company. The duties of Employee shall be to have general
supervisory authority over the legal and regulatory affairs of the Company and
its Subsidiaries, mergers and acquisitions involving the Company or its
Subsidiaries, due diligence on acquisition proposals, corporate secretarial
duties for the Company and its Subsidiaries, those responsibilities assigned to
him by the Board or the Chief Executive Officer of the Company, and to render
services as are necessary and desirable to protect and to advance the best
interests of the Company and its Subsidiaries (collectively, the "Duties"),
acting, in all instances, under the supervision of and in accordance with the
policies set by the Board or the Chief Executive Officer of the Company.
2.2 Performance of Duties. Employee shall devote substantially all his
working time to perform the Duties as an executive of the Company and for the
performance of such other executive duties as are assigned to him from
time-to-time by the Board or the Chief Executive Officer of the Company. During
the Term, Employee: (i) shall comply with all laws, statutes, ordinances, rules
and regulations relating to the Business, and (ii) shall not engage in or become
employed, directly or indirectly, in a business which competes with the Business
of the Company and its Subsidiaries, without the prior written consent of the
Board or the Chief Executive Officer of the Company, nor shall he act as a
consultant to or provide any services to, whether on a remunerative basis or
otherwise, the commercial or professional business of any other Person which
competes with the Business of the Company and its Subsidiaries, without such
written consent, which, in both instances, may be given or withheld by the Board
in its absolute discretion. It shall not be a violation of the foregoing
provisions of this Agreement for Employee to render legal services and serve on
board of directors in connection with entities identified by Employee from time
to time to the Chief Executive Officer. All fees collected shall be for the
account of Employee.
3. TERM OF EMPLOYMENT
The employment of Employee pursuant to this Agreement commenced as of
the Commencement Date and shall end two years thereafter, unless sooner
terminated pursuant to Section 7 (the "Term Date").
4. COMPENSATION AND BENEFITS
The Company shall pay Employee, as compensation for all of the services
to be rendered by him hereunder during the Term, and in consideration of the
various restrictions imposed upon Employee during the Term and the Restricted
Period, and otherwise under this Agreement, the Basic Salary and other benefits
as provided for and determined pursuant to Sections 5 and 6, inclusive, of this
Agreement; provided, however, that no compensation shall be paid to Employee
under this Agreement for any period subsequent to the termination of employment
of Employee for any reason whatsoever, except as provided in Section 7.
5. BASIC SALARY/BONUS
5.1 Basic Salary. The Company shall pay Employee, as compensation for
all of the services to be rendered by him hereunder for the Company during each
Employment Year, a salary of $225,000 per Employment Year (as adjusted upward by
the Board from time to time) (the "Basic Salary"), payable in substantially
equal semi-monthly payments, less such deductions or amounts as are required to
be deducted or withheld by applicable laws or regulations, deductions for
employee contributions to welfare benefits provided by the Company to Employee
and such other deductions or amounts, if any, as are authorized by Employee. The
Basic Salary shall be prorated for the month in which employment by the Company
or a Subsidiary commences or terminates, and for any Employment Year which is
less than twelve (12) months in duration. The Basic Salary may be increased from
time-to-time by the Board and, once increased, shall not thereafter be reduced.
The Basic Salary shall be reviewed at least once in every Employment Year by a
committee of the Board responsible for determining compensation of senior
management of the Company, each of the members of which is a
"non-employee-director" as defined in Rule 16b-3 of the Securities and Exchange
Commission under the Act (the "Committee"). Any increase in Basic Salary shall
not serve to offset or reduce any other obligation to Employee under this
Agreement.
5.2 Bonus. Employee will be awarded and, unless deferred by Employee,
paid a cash bonus (the "Bonus") for each Employment Year within ninety days
after the close of the fiscal year of the Company ending within such Employment
Year in an amount determined in accordance with the Company's then-current bonus
or incentive compensation plan in an amount appropriate for the general counsel
of the Company, but not less than $75,000 (pro rated for any portion of an
Employment Year of less than 12 months). The Committee in consultation with
Employee shall establish in advance of each fiscal year of the Company during
the Term goals and levels of the Bonus for such fiscal year which shall be
related to the estimated budget for the Company for such fiscal year.
5.3 Equity Participation. The Company hereby grants to Employee a stock
option in the form attached as Exhibit A hereto for 15,000 shares of common
stock of the Company as adjusted for recapitalizations of the Company between
the date of signing of this Agreement and the Commencement Date.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 Additional Benefits. The Company shall provide the following
additional benefits to Employee during the Term:
(i) provision of a comprehensive medical indemnity policy for
Employee and his family having terms no less favorable than the coverage made
available to other executives of the Company;
(ii) a comprehensive disability policy for Employee having terms
no less favorable than coverage made available to other executives of the
Company;
(iii) payment of the rental of an unreserved parking space at
the office in which the Company has its principal executive offices;
(iv) twenty working days of paid vacation; and
(v) such other benefits as the Board shall lawfully adopt and
approve for Employee.
6.2 Reimbursement for Expenses. The Company shall pay or reimburse
Employee for all reasonable expenses actually incurred or paid by him during the
Term in the performance of his services under this Agreement, upon presentation
of such bills, expense statements, vouchers or such other supporting information
as the Board may reasonably require. In the event the Company requires Employee
to travel on business during the Term, Employee shall be reimbursed for any
travel expenses in accordance with this Section 6.2.
7. TERMINATION OF EMPLOYMENT
7.1 Death. If Employee dies during the Term, this Agreement shall
terminate, except that the Company shall continue to pay to Employee's spouse,
or in the absence of a surviving spouse, his estate, Employee's Basic Salary for
a period through the third full month following the date of death, provide
welfare benefits to his family for the balance of the stated Term (but not less
than one year) as if Employee had not died, and pay accrued and unpaid Bonus for
any completed Employment Year, the Bonus for the Employment Year in which
Employee dies pro rated to the date of death, and provide for the payment of the
life insurance benefit provided to him by the Company.
7.2 Disability. If, during the Term, Employee has a Disability, the
Company may, at any time after Employee has a Disability, terminate Employee's
employment by written notice to him. In the event that Employee's employment is
terminated because Employee has a Disability, this Agreement shall terminate
except that the Company shall continue to pay Employee's Basic Salary for a
period through the third full month following the date of the termination of his
employment, provide welfare benefits to his family for the balance of the stated
Term (but not less than one year), as if Employee had not been terminated for
Disability, pay accrued and unpaid Bonus for any completed Employment Year, pay
the Bonus for the Employment Year in which Employee becomes Disabled pro rated
to the Date of Termination, and pay or provide for the payment of the disability
benefit provided for him, until Employee reaches age 65.
7.3 Voluntary Termination. This Agreement may be terminated by Employee
at any time with or without cause upon sixty (60) days prior written notice to
the Company. After such sixty day period, the Company shall have no further
liability to make payments hereunder except those required by law, those which
were accrued and unpaid at the end of the Term and any accrued and unpaid Bonus.
7.4 Termination for Cause. The Company may terminate Employee's
employment hereunder for Cause at any time by written notice given to Employee
by the Board. Upon such termination Employee shall not have any right to receive
any further payments hereunder except for amounts accrued and unpaid hereunder
prior thereto and provide welfare benefits as required by law and except as
provided in Section 7.8.
7.5 Termination Without Cause. If Employee's employment by the Company
is terminated by the Company without Cause, Employee shall be entitled to
continued payment of (i) the Basic Salary and (ii) the Bonus (at the rate
currently in effect but not less than $75,000), each for the balance of the
stated Term of this Agreement as if this Agreement had not been terminated or
one year whichever is greater and provide the benefits described in Section 6.1
for greater of the balance of the then stated Term as if this Agreement had not
been terminated or one year.
7.6 Termination for Good Reason. In the event Employee terminates his
employment with the Company for Good Reason, Employee shall receive the same
payments and benefits as he would have received if his employment by the Company
were terminated without Cause pursuant to Section 7.5. Good Reason for purposes
of this Agreement means:
(a) (i) The assignment by the Company to Employee of duties
which are materially different than those of the general counsel of the Company
as described in this Agreement, (ii) the removal of Employee from, or any
failure to reappoint or reelect Employee to, the highest title held by Employee,
except in connection with a termination of Employee's employment by the Company
for Cause, or by reason of Employee's death or Disability,
(b) A reduction or non-payment of Employee's Basic Salary or
failure to review Employee's Basic Salary as required in this Agreement or
failure to pay the Bonus;
(c) A breach by the Company of this Agreement which is not cured
within thirty (30) days after written notice thereof to the Board by Employee;
(d) Requiring Employee to be based anywhere other than the
Company's then current principal executive office except for required travel on
the Company's business or relocation of the Company's principal executive office
outside northern New Jersey or the Borough of Manhattan, City of New York,
(e) The failure by the Company to continue to provide Employee
with substantially the same welfare benefits (which for purposes of this
Agreement shall mean benefits under all welfare plans as that term is defined in
Section 3(1) of Employee Retirement Income Security Act of 1974, as amend), any
perquisites, including participation on a comparable basis in retirement plans,
stock option plans, stock award plans, and other plans in which executives of
the Company of comparable title and salary participate, or with a package of
welfare benefits and perquisites, that, though one or more of such benefits or
perquisites may vary from those, including participation on a comparable basis
in such retirement plans, stock option plans and stock award plans, is
substantially comparable in all material respects to such welfare benefits and
perquisites, including participation on a comparable basis in the Company's
retirement plans, stock option plans and stock award plans, taken as a whole;
(f) The failure of the Company to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 13 hereof; or
(h) A Change of Control shall occur.
7.7 Notice of Termination. Any purported termination of Employee's
employment by the Company by reason of Employee's Disability or for Cause, or by
Employee for Good Reason shall be communicated by written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice given by Employee or the Company, which shall
indicate the specific basis for termination of employment and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement.
7.8 Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean the date of termination of employment specified in the
Notice of Termination, which shall not be more than ninety (90) days after such
Notice of Termination is given, as such date may be modified pursuant to the
following two sentences. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of Termination notifies
the other party that a Dispute exists (a "Notice of Dispute"), the Date of
Termination shall be the date on which the Dispute is finally determined, either
by mutual written agreement of the parties, by the Panel, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected); provided
that the Date of Termination shall be extended by a Notice of Dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such Dispute with reasonable diligence, and provided further that
pending the resolution of any such Dispute, the Company shall continue to pay
Employee the same Basic Salary and to provide Employee with the same or
substantially comparable welfare benefits and prerequisites, including
participation in the Company's retirement plans, profit sharing plans, to the
extent then so available at the date of such determination, stock option plans,
stock award plans or stock appreciation right plans that Employee was paid and
provided to the extent that such continued participation is possible under the
general terms and provisions of such plans, programs and benefits but in no
event beyond the Term Date. Should a Dispute ultimately be determined in favor
of the Company, then all sums (net of tax withholdings by the Company from such
sums) paid by the Company to Employee from the Date of Termination specified in
the Notice of Termination until final resolution of the Dispute pursuant to this
paragraph shall be repaid promptly by Employee to the Company, all options,
rights and stock awards granted to Employee during such period shall be canceled
or returned to the Company, and no service as an employee shall be credited to
Employee for such period for pension purposes. Employee shall not be obligated
to pay to the Company the cost of providing Employee with welfare benefits and
prerequisites for such period, unless the final judgment, order or decree of a
court arbitration panel or other body resolving the Dispute determines that
Employee acted in bad faith in giving a Notice of Dispute. Should a Dispute
ultimately be determined in favor of Employee, then Employee shall be entitled
to retain all sums paid to Employee under this subparagraph pending resolution
of the Dispute and shall be entitled to receive, in addition, the payments and
other benefits provided for in Section 7 to the extent not previously paid
hereunder and the payment of Employee's reasonable legal fees incurred as a
result of such Dispute upon submission to the Company of a detailed statement of
fees from Employee's attorneys. The term "Dispute" for purposes of this
Agreement shall have the meaning given that term in the Change of Control
Agreement between the Company and Employee.
8. ARBITRATION
Except as otherwise provided herein, the parties hereby agree that any
Dispute or any dispute regarding the rights and obligations of any party under
this Agreement or under any law governing the relationship created by this
Agreement, including without limitation Employee's challenge of a purported
termination for Cause or Disability, must be resolved pursuant to this Section
8. Within seven (7) days of either party's written notice to the other of his or
its desire to submit any Dispute or arbitrable matter as set forth herein to
arbitration, the parties will meet to attempt to amicably resolve their
differences and, failing such resolution, either or both of the parties may
submit the matter to mandatory and binding arbitration with the Center for
Public Resources ("CPR"). The issue(s) in dispute shall be settled by
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by a panel of three
arbitrators (the "Panel"). The only issue(s) to be determined by the Panel will
be those issues specifically submitted to the Panel. The Panel will not extend,
modify or suspend any of the terms of this Agreement. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and judgment
upon the award rendered by the Panel may be entered by any court having
jurisdiction thereof. A determination of the Panel shall be by majority vote.
Promptly following receipt of the request for arbitration, CPR shall
convene the parties in person or by telephone to attempt to select the
arbitrators by agreement of the parties. If agreement is not reached, the
Company shall select one arbitrator and Employee shall select one other
arbitrator. These two arbitrators shall select a third arbitrator. If these two
arbitrators are unable to select the third arbitrator by mutual agreement, CPR
shall submit to the parties a list of not less than eleven (11) candidates. Such
list shall include a brief statement of each candidate's qualifications. Each
party shall number the candidates in order of preference, shall note any
objection they may have to any candidate, and shall deliver the list so marked
back to CPR. Any party failing without good cause to return the candidate list
so marked within ten (10) days after receipt shall be deemed to have assented to
all candidates listed thereon. CPR shall designate the arbitrator willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate.
This agreement to arbitrate is specifically enforceable. Judgment upon
any award rendered by the Panel may be entered in any court having jurisdiction.
The decision of the Panel within the scope of the submission is final and
binding on all parties, and any right to judicial action on any matter subject
to arbitration hereunder hereby is waived (unless otherwise provided by
applicable law), except suit to enforce this arbitration award or in the event
arbitration is not available for any reason or in the event the Company shall
seek equitable relief to enforce Section 9 of this Agreement. If the rules of
the CPR differ from those of this Section 8, the provisions of this Section 8
will control. The Company shall pay all the costs of arbitration including the
fees of the arbitrators, and the arbitrators shall award reasonable legal fees
to Employee, unless the arbitrators or a judicial forum shall finally determine
that Employee acted in bad faith.
9. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
9.1 Acknowledgment of Confidentiality. Employee understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. Accordingly, Employee agrees that he shall not,
either during the Term or at any time within one year after the Date of
Termination (the "Restricted Period"), (i) use or disclose any such Confidential
Information outside the Company, its Subsidiaries and Affiliates; or (ii) except
as required in the proper performance of his services hereunder, remove or aid
in the removal of any Confidential Information or any property or material
relating thereto from the premises of the Company or any Subsidiary or
Affiliate.
The foregoing confidentiality provisions shall cease to be applicable to
any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Employee of his
obligations under this Section 9).
In the event Employee is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such disclosure and, if the Company so elects, to
the extent that he is legally able, permit the Company an adequate opportunity,
at its own expense, to contest such law or court order.
9.2 Delivery of Material. Employee shall promptly, and without charge,
deliver to the Company on the termination of his employment hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company, its
Subsidiaries and its Affiliates, and all property associated therewith, which he
may then possess or have under his control.
11. SURVIVAL
The provisions of Sections 7, 8, 9, 10 and 14 shall survive termination
of this Agreement and remain enforceable according to their terms.
11. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
12. NOTICES
All notices, demands and requests required or permitted to be given
under the provisions of this Agreement shall be deemed duly given if made in
writing and delivered personally or mailed by postage prepaid certified or
registered mail, return receipt requested, accompanied by a second copy sent by
ordinary mail, which notices shall be addressed as follows:
If to the Company:
National Discount Brokers Group, Inc.
10 Exchange Place Centre
15th Floor
Jersey City, New Jersey 07302
with a copy to:
Gibbons, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102-5497
Attn: Ralph N. Del Deo, Esq.
If to Employee:
Frank E. Lawatsch, Jr.
11 The Fairway
Upper Montclair, New Jersey 07043
By notifying the other parties in writing, given as aforesaid, any party
may from time-to-time change its address or the name of any person to whose
attention notice is to be given, or may add another person to whose attention
notice is to be given, in connection with notice to any party.
13. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may be
assigned or delegated by Employee. This Agreement is not assignable by the
Company, including, without limitation, to any successor in interest which takes
over all or substantially all of the business of the Company, as it is conducted
at the time of such assignment, without the written consent of Employee. Any
corporation into or with which the Company is merged or consolidated or which
takes over all or substantially all of the business of the Company shall be
deemed to be a successor of the Company for purposes hereof and the Company
shall require as a condition thereof that such corporation assume this Agreement
in form and substance satisfactory to Employee. This Agreement shall be binding
upon and, except as aforesaid, shall inure to the benefit of the parties and
their respective successors and permitted assigns.
14. ENTIRE AGREEMENT, WAIVER AND OTHER
14.1. Integration. This Agreement together with the Change of Control
Agreement dated the date hereof between the Company and Employee contains the
entire agreement of the parties hereto on its subject matter and supersedes all
previous agreements between the parties hereto, written or oral, express or
implied, covering the subject matter hereof. No representations, inducements,
promises or agreements, oral or otherwise, not embodied herein, shall be of any
force or effect.
14.2. No Waiver. No waiver or modification of any of the provisions of
this Agreement shall be valid unless in writing and signed by or on behalf of
the party granting such waiver or modification. No waiver by any party of any
breach or default hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed a waiver of any other breach or default,
nor shall it in any way affect any of the other terms or conditions of this
Agreement or the enforceability thereof. No failure of the Company to exercise
any power given it hereunder or to insist upon strict compliance by Employee
with any obligation hereunder, and no custom or practice at variance with the
terms hereof, shall constitute a waiver of the right of the Company to demand
strict compliance with the terms hereof.
Employee shall not have the right to sign any waiver or modification of
any provisions of this Agreement on behalf of the Company, nor shall any action
taken by Employee reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by instrument
in writing signed by both of the parties hereto after the date hereof. Neither
this Agreement nor any of the rights of any of the parties hereunder may be
terminated except as provided herein.
15. MISCELLANEOUS
15.1 Governing Law. This Agreement shall be governed by and construed,
and the rights and obligations of the parties hereto enforced, in accordance
with the laws of the State of New Jersey.
15.2 Headings. The Section and Subsection headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
15.3 Severability. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or enforceability of any
other provisions hereof.
15.4 Obligations of Company. The Company's obligation to pay Employee
the compensation and to make the arrangements provided herein shall be absolute
and unconditional and shall not be affected by any circumstances, including,
without limitation, any setoff, counterclaim, recoupment, defense or other right
which the Company may have against Employee or anyone else. All amounts payable
by the Company hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Company waives all rights which it may now have
or may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as provided in
Section 7.8 herein, each and every payment made hereunder by the Company shall
be final and the Company will not seek to recover for any reason all or any part
of such payment from Employee or any person entitled thereto.
Employee shall not be required to mitigate the amount of any payment or other
benefit provided for in this Agreement by seeking other employment or
otherwise.
15.5 Rights of Beneficiaries of Employee. This Agreement shall inure to
the benefit of, and be enforceable by, Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts would still be
payable to Employee hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee or other designee or, if there be
no such designee, to Employee's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, to be effective as of the Commencement Date.
National Discount Brokers Group, Inc.
By:_________________________________
Name: Arthur Kontos
Title: Chief Executive Officer
----------------------------------
Frank E. Lawatsch, Jr.
<PAGE>
EXHIBIT A
NATIONAL DISCOUNT BROKERS GROUP, INC.
1995 Stock Option Plan
National Discount Brokers Group, Inc. a Delaware corporation (the
"Corporation"), hereby grants to the person named below an option to purchase
shares of Common Stock, $.01 par value per share, of the Corporation (the
"Option") under and subject to the Corporation's 1995 Stock Option Plan (the
"Plan") exercisable on the following terms and conditions and those set forth on
the attached terms and conditions (the "Agreement") and the Plan:
Name of Optionee: Frank E. Lawatsch, Jr.
Address: 11 The Fairway, Upper Montclair, New Jersey 07043
Social Security No.: ###-##-####
Number of Shares: 15,0001
Option Price: $24-1/4 (Fair Market Value on February 8, 1999)
Date of Grant: February 8, 1999
Exercisability Schedule: 1/3; 1/3; 1/3; i.e., a third of
the total each anniversary date with any
remainder added to last date e.g. February
8, 2000, 2001, 2002; provided, however, that
this option shall vest in its entirety upon
a Change of Control as defined in the Change
of Control Agreement between the Company and
the Optionee or in the Plan.
Expiration Date: February 7, 2010
Progressive stock options. This Option shall have the benefit of
Section 5(j) of the Plan.
<PAGE>
By Acceptance of this Option, the Optionee agrees to the terms and
conditions hereof.
NATIONAL DISCOUNT BROKERS GROUP, INC.
By:_________________________________
Name: James Lynch, Jr.
Title: Member of the Compensation
Committee
ACCEPTED:
- --------------------------
- --------
1 The Option shall be an incentive stock option except that to the extent the
option will exceed Code Section 422 limitation on incentive stock options, the
option shall be non-qualified stock option.
<PAGE>
NATIONAL DISCOUNT BROKERS GROUP, INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended February 28,
Basic Diluted
------------------ ------------------- ------------------ ----------------
1999 1998 1999 1998
------------------ ------------------- ------------------ ----------------
Common stock and common stock equivalents:
<S> <C> <C> <C> <C>
Average common stock outstanding 14,001,718 14,116,572 14,001,718 14,116,572
Average common stock equivalents
issuable under stock options - - 202,811 28,021
------------------ ------------------- ------------------ ----------------
Total average common stock and common stock
equivalents used for earnings per share computation 14,001,718 14,116,572 14,204,529 14,144,593
================== =================== ================== ================
Income:
Net income from continuing operations $ 8,171,649 $ 1,903,528 $ 8,171,649 $ 1,903,528
Net loss from discontinued operations - (386,928) (386,928)
Gain on sale of discontinued operations 2,704,085 2,704,085
------------------ ------------------- ------------------ ----------------
Net income $ 8,171,649 $ 4,220,685 $ 8,171,649 $ 4,220,685
================== =================== ================== ================
Net income (loss) per common and common equivalent share:
Net income from continuing operations $ 0.58 $ 0.14 $ 0.58 $ 0.14
Net loss from discontinued operations - (0.03) (0.03)
Gain on sale of discontinued operations - 0.19 - 0.19
------------------ ------------------- ------------------ ----------------
Net income $ 0.58 $ 0.30 $ 0.58 $ 0.30
================== =================== ================== ================
Nine Months Ended February 28,
Basic Diluted
------------------ ------------------- ------------------ ----------------
1999 1998 1999 1998
------------------ ------------------- ------------------ ----------------
Common stock and common stock equivalents:
Average common stock outstanding 14,028,253 13,168,693 14,028,253 13,168,693
Average common stock equivalents
issuable under stock options - - 72,930 85,447
------------------ ------------------- ------------------ ----------------
Total average common stock and common stock
equivalents used for earnings per share computation 14,028,253 13,168,693 14,101,184 13,254,140
================== =================== ================== ================
Income:
Net income from continuing operations $ 12,719,739 $ 7,133,704 $ 12,719,739 $ 7,133,704
Net loss from discontinued operations - (821,339) (821,339)
Gain on sale of discontinued operations 2,704,085 2,704,085
------------------ ------------------- ------------------ ----------------
Net income $ 12,719,739 $ 9,016,450 $ 12,719,739 $ 9,016,450
================== =================== ================== ================
Net income (loss) per common and common equivalent share (a):
Net income from continuing operations $ 0.91 $ 0.54 $ 0.90 $ 0.54
Net loss from discontinued operations - (0.06) (0.06)
Gain on sale of discontinued operations - 0.20 0.20
------------------ ------------------- ------------------ ----------------
Net income $ 0.91 $ 0.68 $ 0.90 $ 0.68
================== =================== ================== ================
<FN>
(a) The sum of the individual quarters' diluted earnings per common share does
not equal the total amount for the nine months ended February 28, 1999 due
to the effect of averaging the number of shares of common stock
equivalents throughout the year.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the nine months ended February 28, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 1975501
<RECEIVABLES> 109628832
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 80854888
<PP&E> 14945704
<TOTAL-ASSETS> 243619906
<SHORT-TERM> 15000000
<PAYABLES> 35400515
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 39358930
<LONG-TERM> 3500000
0
0
<COMMON> 143432
<OTHER-SE> 133195911
<TOTAL-LIABILITY-AND-EQUITY> 243619906
<TRADING-REVENUE> 96087492
<INTEREST-DIVIDENDS> 6671042
<COMMISSIONS> 30992390
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 3042604
<INTEREST-EXPENSE> 511717
<COMPENSATION> 57729844
<INCOME-PRETAX> 23757286
<INCOME-PRE-EXTRAORDINARY> 12719739
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12719739
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
