AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996.
REGISTRATION NO. 333-05273
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GKN HOLDING CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6211 13-3414302
(State of Incorporation) (Primary Standard Industrial (IRS Employer I.D. No.)
Classification Code Number)
</TABLE>
------------------------
61 BROADWAY
NEW YORK, NEW YORK 10006
(212) 509-3800
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
DAVID M. NUSSBAUM
CHAIRMAN OF THE BOARD
GKN HOLDING CORP.
61 BROADWAY
NEW YORK, NEW YORK 10006
(212) 509-3800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
<TABLE>
<S> <C>
DAVID ALAN MILLER, ESQ. ALAN R. DYNNER, ESQ.
GRAUBARD MOLLEN & MILLER KIRKPATRICK & LOCKHART
600 THIRD AVENUE 1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10020
(212) 818-8800 (212) 536-3900
FAX: (212) 818-8881 FAX: (212) 536-3901
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Act"), check the following box. X
Shares of Common Stock have also been registered on Registration Statement
No. 33-80224 on Form S-1 pursuant to Rule 429 of the Act.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 29, 1996
PROSPECTUS
2,500,000 SHARES
[LOGO]
COMMON STOCK
------------------------
Prior to this Offering, there has been no public market for the Common
Stock of GKN Holding Corp. (the "Company") and there can be no assurance that
any such market will develop. The Company has applied for the Common Stock to
be quoted on the Nasdaq National Market under the symbol "GKNS". It is
currently anticipated that the initial public offering price of the shares
will be between $6.00 and $8.00. For information regarding the factors
considered in determining the initial public offering price of the Common
Stock, see "Underwriting."
------------------------
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO
TO PUBLIC AND COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $
.
(2) The Company has granted the Underwriters an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 375,000 additional
shares on the same terms set forth above solely to cover over-allotments, if
any. If such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to the approval of
certain legal matters by counsel and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify this Offering and to reject any
order in whole or in part. It is expected that delivery of certificates will be
made against payment therefor, at the offices of Pennsylvania Merchant Group Ltd
in Radnor, Pennsylvania on or about , 1996.
PENNSYLVANIA MERCHANT GKN SECURITIES
GROUP LTD
, 1996.
<PAGE>
THIS REGISTRATION STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. UNDER NO CIRCUMSTANCES SHALL THIS
REGISTRATION STATEMENT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
sa
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
FURTHER INFORMATION
The Company intends to furnish to its stockholders annual reports
containing audited financial statements, quarterly reports containing unaudited
financial information and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus. Certain of the information contained in this summary and elsewhere
in this Prospectus, including under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
For a discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors" and
"Management's Discussion and Anaylsis of Financial Condition and Results of
Operations." Each prospective investor is urged to read this Prospectus in its
entirety.
THE COMPANY
GKN Holding Corp. (the "Company") is primarily engaged in securities
brokerage, securities trading and investment banking through GKN Securities
Corp. ("GKN"), its principal operating subsidiary. GKN is a full service
securities brokerage and investment banking firm which is a registered
broker-dealer with the Securities and Exchange Commission ("Commission"), in all
50 states, the District of Columbia and Puerto Rico and a member firm of the
National Association of Securities Dealers, Inc. ("NASD"). GKN's principal
office is located in New York City, New York and its branch offices are located
in Great Neck, New York, Boca Raton, Florida, Miami, Florida, and Stamford,
Connecticut.
The Company began operations in 1987 following the October stock market
decline, at which time the founders perceived an opportunity for the creation of
a high quality investment bank serving emerging growth and small capitalization
corporate clients and investors. From its inception, the Company's plan has been
to develop a high quality firm serving this market niche. Since October 1990,
when GKN managed its first underwriting, GKN has acted as managing or
co-managing underwriter in a total of 43 public offerings, raising approximately
$430 million. GKN also regularly participates as a selling group member or
participating underwriter in public offerings managed by other underwriters,
including national and regional firms. Thirteen of the offerings managed or
co-managed by GKN (raising approximately $170 million) were for Specified
Purpose Acquisition Companies(R) ("SPAC(R)"), a new publicly-traded financing
vehicle developed and introduced by GKN in 1993. A SPAC combines the
characteristics of a traditional acquisition or buyout fund and a more liquid,
publicly traded industry-specific investment vehicle. The Company believes that
the number and dollar amount of GKN's underwritings and the introduction of
SPACs have contributed significantly to increased public and industry awareness
of the Company and has resulted in increased demand for GKN's investment banking
services, although it should be noted that GKN is not currently involved in any
new SPAC offerings and currently does not expect that future SPAC offerings, if
any, will represent a material portion of its revenues from investment banking
activities in subsequent periods. See "Business-- Investment Banking
Activities."
The Company has grown significantly over the last five years, primarily
through increasing the size of its sales force, but more recently by acquisition
and expansion into new areas of business. In March 1995, GKN Fund Management,
Inc., a wholly-owned subsidiary of the Company, entered the money management
business by becoming the general partner and administrator of Kaleidoscope
Partners, L.P., a "fund of funds" with approximately $8.1 million in assets at
April 30, 1996. In November 1995, the Company acquired all of the outstanding
stock of Shochet Securities, Inc. ("Shochet"), a full-service discount brokerage
firm with four branches operating in Southern Florida. In February 1996, GKN
Securities AG ("GKN AG"), a wholly-owned subsidiary of the Company, commenced
operations in Zurich, Switzerland, distributing securities and providing
brokerage services to European institutional money managers.
3
<PAGE>
As of April 30, 1996, the Company, through its three brokerage
subsidiaries, employed 260 registered representatives, serving primarily retail
and, to a lesser extent, institutional customers, representing, in the
aggregate, more than 27,000 active accounts.
The Company was incorporated under the laws of the State of Delaware on
January 30, 1987. GKN was incorporated under the laws of the State of New York
on May 31, 1985. The Company and GKN maintain their principal offices at 61
Broadway, New York, New York 10006, and their telephone number is (212)
509-3800.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered..................................... 2,500,000 Shares
Common Stock Outstanding Prior
to the Offering........................................ 5,559,125 Shares
Common Stock to be Outstanding
After the Offering..................................... 8,059,125 Shares
Use of Proceeds.......................................... The Company intends to apply the net proceeds of this
Offering to expand its existing business by: (i)
increasing GKN's equity capital to permit it to
underwrite larger offerings and increase its principal
trading and market making activities; (ii) expanding
GKN's retail and institutional sales forces and
Shochet's retail sales force; (iii) enhancing GKN's
investment banking and research capabilities; (iv)
expanding the Company's money management operations
and commencing merchant banking activities; and (v)
expanding the Company's international operations.
Proposed Nasdaq National Market Symbol................... GKNS
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. This information
should be read in conjunction with such financial statements, including the
notes thereto.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, APRIL 30,
------------------------------------------- ---------------------------
1996 1995 1994 1996 1995
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues.............................. $43,019,000 $32,410,000 $32,956,000 $18,444,000 $7,157,000
Total expenses.............................. 36,732,000 31,516,000 25,534,000 14,449,000 7,526,000
Income (loss) before provision for income
taxes....................................... 6,287,000 894,000 7,422,000 3,995,000 (369,000)
Net income (loss)........................... $3,469,000 $381,000 $4,006,000 $2,246,000 $(256,000)
Primary earnings (loss)
per share(1).............................. $0.61 $0.07 $0.72 $0.40 $(0.04)
Primary weighted average number of shares
outstanding(1).............................. 5,729,000 5,695,000 5,530,000 5,638,000 5,784,000
OTHER FINANCIAL DATA:
Ratio of total assets to stockholders'
equity...................................... 1.89 1.37 1.43 1.95 1.35
Pre-tax return on average
equity.................................... 47.4% 7.8% 80.3% 25.1% (3.2)%
Book value per common share outstanding..... $3.02 $2.30 $2.27 $3.34 $2.25
Registered Representatives(2)............... 224 163 126 260 175
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
APRIL 30, 1996
------------------------------
ACTUAL AS ADJUSTED(3)
-------------- --------------
<S> <C> <C>
Total assets..................................................................... $ 33,117,000 $ 46,117,000
Total liabilities (excluding subordinated debt).................................. 15,348,000 15,348,000
Subordinated debt................................................................ 868,000 868,000
Total stockholders' equity....................................................... $ 16,901,000 $ 29,901,000
</TABLE>
- ---------------
(1) Fully diluted earnings per share and fully diluted average number of shares
outstanding are not materially different from the primary numbers indicated
above.
(2) The Registered Representatives data is based upon unaudited personnel
records of the Company.
(3) Gives effect to the sale of the shares of Common Stock offered hereby
("Shares") at an assumed price of $6.00 per Share and the application of net
proceeds therefrom.
Unless otherwise indicated, the information in this Prospectus does not
give effect to the exercise of the Underwriters' over-allotment option and does
not include (i) 5,000,000 shares of Common Stock reserved for issuance under the
Company's 1991 Employee Incentive Plan ("1991 Plan"), of which options to
purchase 998,506 shares of Common Stock have been granted and are outstanding as
of June 30, 1996; (ii) 125,000 shares of Common Stock issuable upon exercise of
options and warrants issued outside of the 1991 Plan; or (iii) 1,000,000 shares
of Common Stock reserved for issuance under the Company's 1996 Incentive
Compensation Plan ("IC Plan").
5
<PAGE>
RISK FACTORS
The Shares offered hereby involve risk. Prospective purchasers of the
Shares should consider carefully the risk factors set forth below as well as the
other information set forth in this Prospectus.
INDUSTRY FACTORS; ECONOMIC AND MARKET CONDITIONS
The securities business is, by its nature, subject to various risks,
particularly in volatile or illiquid markets, including the risk of losses
resulting from the underwriting or ownership of securities, customer fraud,
employee errors and misconduct, failures in connection with the processing of
securities transactions and litigation. The Company's business and its
profitability are affected by many factors, including the volatility and price
level of the securities markets; the volume, size and timing of securities
transactions; the demand for investment banking services; the level and
volatility of interest rates; the availability of credit; legislation affecting
the business and financial communities; and the economy in general. Markets
characterized by low trading volumes and depressed prices generally result in
reduced commissions and investment banking revenues as well as losses from
declines in the market value of securities positions. Moreover, since a portion
of the Company's revenues are derived from underwriting the initial public
offerings ("IPOs") of companies, any decline in the overall IPO market, among
other factors, could have a material adverse effect on the operations of the
Company. See "Business-- Brokerage and Distribution Activities," "--Investment
Banking Activities" and "--Principal Transactions."
SMALL CAPITALIZATION COMPANIES
The Company's business is focused on the underwriting, brokerage and
trading of securities of small capitalization companies, a segment of the
securities industry which may be subject to greater risks than the securities
industry as a whole and, consequently, may be marketable to only a limited
segment of the investing public. The Company believes that certain small
capitalization companies have significant potential for growth, although such
companies generally have limited product lines, markets, market shares and
financial resources and their securities may trade less frequently and in more
limited volume than those of more established companies. Additionally, in recent
years, the stock market has experienced a high degree of price and volume
volatility for the securities of many small capitalization companies. In
particular, small capitalization companies that trade in the over-the-counter
markets have experienced wide price fluctuations not necessarily related to the
operating performance of such companies. See "Business--Brokerage and
Distribution Activities," "--Investment Banking Activities" and "--Principal
Transactions."
INVESTMENT BANKING
The Company's investment banking activities subject the Company's capital
to certain risks. Such risks include market, credit and liquidity risks, which
risks arise primarily when underwritten securities cannot be resold, for any
reason, at anticipated price levels. Further, under applicable securities laws
and court decisions with respect to underwriters' liability and limitations on
indemnification by issuers, an underwriter may be exposed to substantial
securities liability arising out of public and private offerings of equity and
debt instruments. See "Business--Investment Banking Activities" and "--Legal
Proceedings."
PRINCIPAL TRANSACTIONS
As a market maker, the Company uses its capital to maintain substantial
inventories of long and/or short positions in securities in order to engage in
principal transactions with customers as well as with other broker-dealers.
These securities are marked to market with resulting unrealized gains and
6
<PAGE>
losses reported as revenue from principal transactions. The maintenance of such
positions exposes the Company to the possibility of significant losses when
market prices of the securities comprising such positions change. See
"Business--Principal Transactions."
INVESTMENT ACCOUNT
The Company maintains an investment account in which securities are held
for potential long-term appreciation. Securities in this account consist
principally of common stock and warrants and rights to purchase same, most of
which are restricted and non-marketable for varying periods of time. As required
by generally accepted accounting principles for broker-dealers, these securities
are marked to market with resulting unrealized gains and losses being reported
as revenue from the investment account. Values of the securities in the
investment account are volatile. Fluctuations due to general market conditions,
the fundamentals of the issuer of such securities, or otherwise, may have a
material effect on the Company's earnings. The recent increase in the value of
the securities in the investment account represented a substantial portion of
the Company's earnings for the year ended January 31, 1996 and quarter ended
April 30, 1996. See "Business--Principal Transactions."
GOVERNMENT REGULATION; NET CAPITAL REQUIREMENTS
The Company's business, and the securities industry generally, are subject
to extensive regulation at both the federal and state levels. In addition,
self-regulatory organizations, such as the NASD, require strict compliance with
their rules and regulations. Among other things, these regulatory authorities
impose restrictions on sales methods, trading practices, use and safekeeping of
customer funds and securities, record keeping and the conduct of principals and
employees. The extensive regulatory framework applicable to broker-dealers, the
purpose of which is to protect customers and the integrity of the securities
markets, imposes significant compliance burdens on the Company. Failure to
comply with any of the laws, rules or regulations of any independent, state or
federal regulatory authority could result in a fine, injunction, suspension or
expulsion from the industry, which could have a material adverse impact upon the
Company. Although the Company has implemented procedures designed to achieve
compliance with such laws, rules and regulations, there can be no assurance that
any failure to so comply will not have a material adverse impact upon the
Company. The Commission and the NASD also have stringent provisions with respect
to net capital requirements applicable to the operation of securities firms. A
significant operating loss or any charge against the net capital of the Company
could adversely affect its ability to operate, expand or, depending upon the
magnitude of the loss or charge, maintain its present level of business.
Furthermore, amendments to existing statutes and regulations or the adoption of
new statutes and regulations could require the Company to alter its methods of
operation at costs which could be substantial. See "Business--Government
Regulation," "--Net Capital Requirements" and "--Legal Proceedings."
CREDIT RISKS
The Company's brokerage subsidiaries clear all transactions for their
customers on a fully disclosed basis with their clearing agent, which carries
and clears all customer securities accounts. The clearing firm also lends funds
to customers of the Company's brokerage subsidiaries through the use of margin
credit. These loans are made to customers on a secured basis, with the clearing
firm maintaining collateral in the form of saleable securities, cash or cash
equivalents. Pursuant to the terms of the agreement between the Company's
brokerage subsidiaries and the clearing agent, in the event that customers fail
to pay for their purchases, to supply the securities that they have sold, or to
repay funds they have borrowed, and the clearing agent satisfies any customer
obligations, the Company's brokerage subsidiaries would be obligated to
indemnify the clearing agent for any resulting losses. See "Business--Clearing
Agent."
7
<PAGE>
LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
potential liability and regulatory enforcement by state and federal regulators.
In recent years, there has been an increasing incidence of litigation involving
participants in the securities industry. Underwriters and agents are subject to
substantial potential liability for material misstatements and omissions in
prospectuses and other communications with respect to underwritten offerings of
securities. Claims by dissatisfied customers for fraud, unauthorized trading,
churning, mismanagement and breach of fiduciary duty are regularly made against
broker-dealers.
GKN is the subject of an investigation by the Commission arising primarily
from certain sales practices of GKN's registered representatives in 1991 and
1992. GKN is also the subject of an investigation by the NASD staff arising
primarily from mark-ups and mark-downs taken on customer transactions in
warrants of certain issuers whose offerings were underwritten by GKN, and sales
practices in connection with such transactions. There can be no assurance that
any such proceedings will not have a material adverse legal or economic effect
on the Company. Moreover, as a result of increased publicity regarding legal
proceedings against broker-dealers and the resulting heightened public awareness
of such matters, it is possible that certain legal proceedings which can be
settled or otherwise resolved without a material adverse economic effect on the
Company, could generate adverse publicity which in turn could have a material
adverse effect on the Company's operations. See "Business--Legal Proceedings."
CURRENT AND POTENTIAL REFORMS IN THE NASDAQ MARKET
The Nasdaq market has come under intense scrutiny in the media and
political arenas during the past few years and has been the subject of SEC
investigations into its operations. Concerns have been raised with respect to
the size of the spreads between the price paid by investors purchasing Nasdaq-
listed securities and the dealers who process the transactions. Concerns also
have been raised with respect to whether Nasdaq's listing requirements are
sufficiently stringent and whether the NASD, the trade organization controlling
the Nasdaq market, carefully polices Nasdaq-listed companies. In response, the
NASD has begun to boost its internal compliance and monitoring programs,
including establishing a new separate regulatory unit, NASD Regulation, Inc.
("NASDR"). More specifically, the NASDR has been hiring numerous new enforcement
aides to better monitor trading activities among dealers and to scrutinize
companies' compliance with applicable listing standards, and heightening its
overall monitoring of small capitalization companies. Additionally, Nasdaq is in
the process of developing an electronic audit system, expected to be in place by
1997, that will enable it to detect possible price manipulation and front
running by brokerage firms almost instantaneously. Nasdaq is also currently
evaluating the thorough revision of its listing standards for inclusion on the
Nasdaq Market to possibly make such requirements more stringent.
The effects of current and proposed Nasdaq reform on the operations of
brokerage firms, especially those specializing in the securities of small
capitalization companies, cannot be fully anticipated. The cost of compliance
with any new rules, regulations and procedures instituted by the NASDR could be
significant. Additionally, the implementation of stricter standards for initial
and continued inclusion of companies on Nasdaq could adversely affect the
prospects of small capitalization companies, the stock performance of such
companies, and the liquidity of investors' investments in such companies.
Increased compliance costs or the inability to attain or maintain the listing of
underwriting clients on the Nasdaq system, or a combination thereof, could
adversely affect the financial performance of the Company.
8
<PAGE>
INTERNATIONAL OPERATIONS
The Company, through GKN AG, has established an office in Zurich,
Switzerland, to facilitate the provision of the Company's financial services and
products in Europe. Although the Company attempts to structure its international
sales in dollar-denominated transactions only, certain transactions may be
denominated in the local currency. The Company's foreign revenues may be
disrupted by currency fluctuations or other events beyond the Company's control,
including political or regulatory changes. GKN AG is also subject to local rules
and regulations which can substantially affect the profitability or ability of
the Company to operate internationally. These rules and regulations could have
the effect of delaying the introduction of new services or products to European
customers, and increase the cost of the Company's operations in Europe. See
"Business--Government Regulation."
COMPETITION
The Company encounters intense competition in all aspects of the securities
business and competes directly with other securities firms, a significant number
of which have greater capital and other resources than the Company. In addition
to competition from firms currently in the securities business, recently there
has been increasing competition from other sources, such as commercial banks and
insurance companies offering financial services, and from other investment
alternatives. See "Business--Competition."
POTENTIAL CONFLICTS CAUSED BY SELF-UNDERWRITING; NEED FOR QUALIFIED INDEPENDENT
UNDERWRITER
Pennsylvania Merchant Group Ltd and GKN (which is a wholly-owned subsidiary
of the Company) are acting as Underwriters of this Offering. As a wholly-owned
subsidiary of the Company, GKN's role as an Underwriter may involve certain
conflicts of interest. Pursuant to the by-laws of the NASD, the Shares are being
offered at a price no higher than that recommended by Pennsylvania Merchant
Group Ltd, which, in addition to being an Underwriter of this Offering, is also
acting as a "qualified independent underwriter." Although Pennsylvania Merchant
Group Ltd has participated in the preparation of the Registration Statement of
which this Prospectus forms a part and is required to exercise the usual
standards of "due diligence" with respect thereto, there can be no assurance
that certain conflicts will not arise with respect to this Offering, or if
conflicts do arise, that they will be resolved in a manner favorable to
investors. See "Underwriting."
NO PRIOR PUBLIC MARKET FOR AND POSSIBLE PRICE VOLATILITY OF THE SHARES;
LIMITATIONS ON MARKET MAKING ABILITIES
Prior to this Offering, there has been no public trading market for the
Shares and there is no assurance that an active public market for the Shares
will develop or, if developed, that it will continue after the Offering. In the
absence of an active public trading market, an investor may be unable to
liquidate his investment. The trading prices of the Shares could be subject to
wide fluctuations in response to quarterly variations in operating results,
announcements of material business events by the Company or its competitors and
other events or factors. Moreover, due to regulatory stances of both the
Commission and the NASD relating to the circumstances under which a company may
engage in market making transactions in its own securities, GKN will not be
able, in the absence of a current market making prospectus, to engage in trading
or market making activities relating to the Shares following consummation of
this Offering. GKN has no present intention of maintaining a current market
making prospectus. The Underwriters believe that there will be sufficient
additional market makers to sustain an orderly and liquid market for the Shares.
No firms, however, are under any obligation to make a market in the Shares and
any firm which commences market making activities may cease such activities at
any time. Further, other rules, including those relating to the use of
"insider information," may prevent GKN's registered representatives from
recommending the Shares to its customers. To the extent that GKN is unable to
make a market in, or recommendations regarding,
9
<PAGE>
the Shares following this Offering, the ability of investors to sell the Shares
in the secondary market may be limited and the price of the Shares may be
adversely affected. See "Underwriting."
RECENT AND PROPOSED EXPANSION
The Company recently expanded through the acquisition of Shochet and the
opening of GKN AG's office in Zurich, Switzerland. Although Shochet has been an
established business for over 16 years, there can be no assurance that the
business of Shochet will be successfully integrated with that of the Company.
GKN AG's business commenced in February 1996. Accordingly, GKN AG has only a
limited operating history upon which an evaluation of future performance can be
made. GKN AG's prospects must be considered in light of the risks, expenses,
delays and difficulties frequently encountered in the establishment of a new
business in an industry characterized by intense competition. See
"Business--Brokerage and Distribution."
The Company intends to apply a portion of the net proceeds of this Offering
to further expand its operations. There can be no assurance that the Company
will be able to expand its operations successfully. Moreover, the proposed
expansion of the Company's operations may materially increase the Company's
operating expenses and could adversely affect the Company's profits.
The Company may seek to expand its operations by acquiring suitable
broker-dealers, research and/or trading firms or other complementary businesses,
or by establishing or acquiring additional branch offices. As of the date of
this Prospectus, the Company has no agreements, understandings or commitments,
and is not engaged in any negotiations, relating to potential acquisitions.
There can be no assurance that the Company will effect any acquisitions or that
the Company will be able to successfully integrate into its operations any
acquired business or branch office.
DEPENDENCE ON KEY PERSONNEL
For the foreseeable future, the Company will place substantial reliance
upon the personal efforts and abilities of David M. Nussbaum, Chairman of the
Board of the Company and GKN, Roger N. Gladstone, President of the Company and
GKN, and Peter R. Kent, Chief Operating and Financial Officer of the Company and
GKN. The loss of the services of any of them likely would have a material
adverse effect on the business, operations, revenues and/or prospects of the
Company. The Company maintains key man life insurance on each of Messrs.
Nussbaum and Gladstone in the amount of $1,000,000. The success of the Company
is also dependent upon its ability to retain and hire additional highly skilled
personnel. Competition among broker-dealers for experienced personnel is
intense. There can be no assurance that the Company will be able to retain such
personnel or hire and retain additional qualified and skilled personnel. See
"Business--Competition" and "Management."
CONTROL BY PRINCIPALS
David M. Nussbaum, Roger N. Gladstone and Robert Gladstone will
beneficially own in the aggregate approximately 36% of the outstanding shares of
Common Stock immediately after this Offering (assuming all options held by them
are exercised and no other options or warrants are exercised) and, accordingly,
will have significant influence over the outcome of all matters submitted to the
stockholders for approval, including the election of directors of the Company.
See "Management" and "Principal Stockholders."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to
10
<PAGE>
issue preferred stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company, which
could have the effect of discouraging bids for the Company and thereby prevent
stockholders from receiving the maximum value for their shares. Although the
Company has no present intention to issue any shares of its preferred stock,
there can be no assurance that the Company will not do so in the future. See
"Description of Capital Stock--Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of Common Stock outstanding prior to the date of this
Prospectus are "restricted securities", as that term is defined under Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
Substantially all of the shares outstanding prior to this Offering will be
available for resale in the public market under Rule 144 commencing on the date
of this Prospectus. Sales of a significant number of shares of Common Stock in
the public market could have an adverse effect on the market price of the Common
Stock. All of the officers and directors of the Company have agreed not to sell
the shares of Common Stock they currently own (an aggregate of 3,224,250 shares
of Common Stock) for a period of fifteen months from the date of this Prospectus
without the consent of Pennsylvania Merchant Group Ltd. Holders of the Common
Stock which own in the aggregate, 4,299,333 shares (including the shares held by
all of the officers and directors of the Company) and 760,834 shares have agreed
not to sell the shares of Common Stock owned by them for a period of fifteen and
six months, respectively, from the date of this Prospectus without the consent
of Pennsylvania Merchant Group Ltd. See "Shares Eligible for Future Sale."
DILUTION
This Offering involves immediate and substantial dilution of $2.49 per
share, or 41.5%, to investors because the net tangible book value per share of
Common Stock after completion of this Offering will be substantially less than
the per-share offering price, assuming a $6.00 per-share offering price. See
"Dilution."
OUTSTANDING OPTIONS
At June 30, 1996, options to purchase 998,506 shares of Common Stock at an
average exercise price of $4.62 per share were outstanding, of which options to
purchase 142,222 shares are presently exercisable, options to purchase an
additional 238,545 shares will become exercisable during the balance of 1996,
and options to purchase 262,163 shares will become exercisable during 1997. To
the extent that such options are exercised, dilution to the ownership interests
of the Company's stockholders will occur. Moreover, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected since the holders of the outstanding options can be expected to
exercise them, to the extent they are able, at a time when the Company would, in
all likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided in the options. See "Management--Executive
Compensation--1991 Employee Incentive Plan."
NO DIVIDENDS
To date, the Company has not paid any cash dividends on its Common Stock
and does not expect to declare or pay any cash dividends in the foreseeable
future. The Company intends to retain all earnings in the foreseeable future for
the Company's continued growth. Moreover, the Company's ability to pay dividends
in the future may be restricted by its brokerage subsidiaries' obligations to
comply with the net capital rules applicable to broker-dealers. See "Dividend
Policy" and "Business--Net Capital Requirements."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby,
assuming a $6.00 per share offering price, are estimated to be $13,000,000
($15,025,000 if the Underwriters' over-allotment option is exercised in full).
The Company expects to use the net proceeds principally to expand its existing
business, approximately as follows: (i) $4,000,000 to increase GKN's equity
capital to permit it to underwrite larger offerings of securities and increase
its principal trading and market making activities; (ii) $3,000,000 to expand
GKN's retail and institutional sales forces and Shochet's retail sales force;
(iii) $2,000,000 to expand GKN's investment banking and research capabilities;
(iv) $2,000,000 to expand the Company's money management operations and commence
merchant banking activities; and (v) $1,000,000 to expand the Company's
international operations. The balance of $1,000,000 of the net proceeds of this
Offering will be used by the Company for working capital and general corporate
purposes of the Company and its subsidiaries. If the Underwriters exercise their
over-allotment option in full, the Company will realize additional net proceeds
of $2,025,000, which will be added to the Company's working capital.
The Company may seek to expand its operations by acquiring suitable
broker-dealers, research and/or trading firms or other complementary businesses,
or by establishing or acquiring additional branch offices. As of the date of
this Prospectus, the Company has no agreements, understandings or commitments
and is not engaged in any negotiations relating to potential acquisitions. There
can be no assurance that the Company will effect any acquisitions or that the
Company will be able to successfully integrate into its operations any acquired
business or branch office.
The allocation of net proceeds of this Offering represents the Company's
best estimates based upon its current plans and certain assumptions regarding
industry and general economic conditions and the Company's future revenues and
expenditures. If any of these factors change, the Company may find it necessary
or advisable to reallocate some of the proceeds within the above-described
categories or to use portions thereof for other purposes or may be required to
seek additional financing. There can be no assurance that additional financing
will be available to the Company on acceptable terms, or at all. Any failure to
obtain additional financing, if required, could have an adverse effect on the
Company, including possibly requiring the Company to curtail its operations.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
12
<PAGE>
DILUTION
The difference between the public offering price per share of Common Stock
and the net tangible book value per share of Common Stock after this Offering
constitutes the dilution to investors in this Offering. Net tangible book value
per share is determined by dividing the net tangible book value (total tangible
assets less total liabilities) by the number of outstanding shares of Common
Stock.
At April 30, 1996, and after giving effect to subsequent exercise of
options, the Company had a net tangible book value of $15,320,000 or $2.76 per
share of Common Stock (based on 5,559,125 shares outstanding). After giving
effect to the sale of the Shares offered hereby at an assumed offering price of
$6.00 per share (less underwriting discounts and estimated expenses of this
Offering) the pro forma net tangible book value at that date would have been
$28,320,000 or $3.51 per share. This represents an immediate increase in net
tangible book value of $0.75 per share to existing stockholders and an immediate
dilution of $2.49 per share to new investors.
The following table illustrates the per share dilution without giving
effect to results of operations of the Company subsequent to April 30, 1996:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................................... $ 6.00
Net tangible book value before this Offering............................. $ 2.76
Increase attributable to new investors................................... 0.75
---------
Pro forma net tangible book value after this Offering...................... 3.51
---------
Dilution to new investors.................................................. $ 2.49
---------
---------
</TABLE>
The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company, the amount and percentage of
consideration paid and the average price per share paid by existing stockholders
and by new investors pursuant to this Offering, assuming a $6.00 per share
offering price:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 5,559,125 69.0% $ 3,636,000 19.5% $ 0.65
New investors....................... 2,500,000 31.0% 15,000,000 80.5% $ 6.00
----------- ----------- -------------- -----------
Total........................ 8,059,125 100.0% $ 18,636,000 100.0%
----------- ----------- -------------- -----------
----------- ----------- -------------- -----------
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at April
30, 1996, and as adjusted to give effect to the exercise of options after April
30, 1996, the sale of the Shares offered hereby at an assumed price of $6.00 per
share and the application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
-------------- --------------
<S> <C> <C>
Long Term Borrowings:
Subordinated seller notes............................................. $ 868,000 $ 868,000
Stockholders' equity:
Preferred stock--$.10 par value; 5,000,000 shares authorized, 0 shares
issued or outstanding............................................... -- --
Common stock--$.0001 par value; 35,000,000 shares authorized,
5,602,875 shares issued (5,054,125 shares outstanding); 8,842,875
shares issued (8,059,125 shares outstanding), as adjusted........... 1,000 1,000
Additional paid-in capital............................................ 3,487,000 16,691,000
Retained earnings..................................................... 14,164,000 14,164,000
Cumulative translation adjustment..................................... (18,000) (18,000)
Less cost of treasury stock (548,750 shares; 783,750 shares as
adjusted)........................................................... (733,000) (937,000)
-------------- --------------
Total stockholders' equity.......................................... 16,901,000 29,901,000
-------------- --------------
Total capitalization............................................. $ 17,769,000 $ 30,769,000
-------------- --------------
-------------- --------------
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid cash or other dividends on its
Common Stock and does not anticipate doing so in the foreseeable future. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
intends to retain all earnings in the foreseeable future for the Company's
continued growth. The Company's ability to pay dividends in the future also may
be restricted by its brokerage subsidiaries' obligation to comply with the net
capital requirements imposed on broker-dealers under regulations and rules
promulgated by both the Commission and the NASD.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below, as of and for the years ended
January 31, 1996, 1995, 1994, 1993 and 1992 have been derived from the Company's
Financial Statements which have been audited by KPMG Peat Marwick LLP for 1996
and 1995, and Goldstein Golub Kessler & Company, P.C. for 1994, 1993 and 1992,
each independent certified public accountants. The data for the three months
ended April 30, 1996 and 1995 has been derived from unaudited financial
statements of the Company. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the results of these periods.
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, APRIL 30,
-------------------------------------------------------------------- ------------------------
1996 1995 1994 1993 1992 1996 1995
------------ ------------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues........... $ 43,019,000 $ 32,410,000 $ 32,956,000 $ 25,278,000 $ 18,284,000 $ 18,444,000 $7,157,000
Total expenses........... 36,732,000 31,516,000 25,534,000 21,657,000 13,590,000 14,449,000 7,526,000
Income (loss) before
income taxes and
extraordinary item....... 6,287,000 894,000 7,422,000 3,621,000 4,694,000 3,995,000 (369,000)
Net income (loss)........ $3,469,000 $381,000 $4,006,000 $2,189,000 $2,779,000(1) $2,246,000 $(256,000)
Primary earnings
(loss) per share(2).... $0.61 $0.07 $0.72 $0.42 $0.58 $0.40 $(0.04)
Primary weighted average
number of shares
outstanding(2)......... 5,729,000 5,695,000 5,530,000 5,153,000 4,820,000 5,638,000 5,784,000
OTHER FINANCIAL DATA:
Ratio of total assets to
total stockholder
equity................... 1.89 1.37 1.43 1.81 2.95 1.95 1.35
Pre-tax return on average
equity................... 47.4% 7.8% 80.3% 65.6% 223.3% 25.1% (3.2)%
Book value per Common
Share outstanding........ $3.02 $2.30 $2.27 $1.46 $0.81 $3.34 $2.25
Registered
Representatives(3)....... 224 163 126 108 75 260 175
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30, 1996
-------------------------------------------------------------------- --------------------------
AS
1996 1995 1994 1993 1992 ACTUAL ADJUSTED(4)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets........... $ 27,853,000 $ 16,096,000 $ 16,123,000 $ 13,055,000 $ 11,278,000 $ 33,117,000 $46,117,000
Total liabilities
(excluding
subordinated debt)..... 12,143,000 4,339,000 4,685,000 5,683,000 7,224,000 15,348,000 15,348,000
Subordinated debt...... 934,000 -0- -0- -0- -0- 868,000 868,000
Convertible
subordinated notes..... -0- -0- 162,000 162,000 225,000 -0- -0-
Total stockholder's
equity................. $ 14,776,000 $ 11,757,000 $ 11,276,000 $ 7,210,000 $ 3,829,000 $ 16,901,000 $29,901,000
</TABLE>
- ---------------
(1) Includes an extraordinary item of income tax benefits of $271,000 arising
from the utilization of net operating loss carryforwards.
(2) Fully diluted earnings per share and fully diluted average number of shares
outstanding are not materially different from the primary numbers indicated
above.
(3) The Registered Representatives data is based upon unaudited personnel
records of the Company.
(4) Gives effect to the sale of the Shares offered hereby at an assumed price of
$6.00 per share and the application of net proceeds therefrom.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements, including the notes thereto, and the Selected Financial Data
included elsewhere in this Prospectus.
OVERVIEW AND GENERAL INDUSTRY CONDITIONS
The Company, which was incorporated in 1987, began meaningful operations
through GKN in the fiscal year ended January 31, 1991. That year, GKN underwrote
one public equity offering, raising $2.8 million for the issuer, and the
Company's financial results reflected $2.6 million of revenues and a net loss of
$511,000. As of June 30, 1996, GKN has managed or co-managed a total of 43
public offerings, raising approximately $430,000,000 for the issuers. In the
fiscal year ended January 31, 1996, the Company generated revenues of
$43,019,000, net income of $3,469,000, and a pre-tax return on average equity of
47.4%.
As did many firms in the investment banking and securities brokerage
industry, the Company has experienced a significant increase in the volume of
activity during the quarter ended April 30, 1996, primarily as a result of
declining interest rates and improving economic conditions. There is no
assurance that this environment will continue. During the quarter, the Company
experienced record revenues, income and returns on equity. First quarter
financial results reflected revenues of $18,444,000, net income of $2,246,000,
and a pre-tax return on average equity of 25.1%. As experienced during June and
July 1996, the securities market can be highly volatile. The Company's revenues,
including revenues from commissions, investment banking and principal
transactions could be adversely affected by the volatility and related price
level of the securities markets, which in turn would adversely affect the
business and profitability of the Company. See "Risk Factors--Industry Factors;
Economic and Market Conditions."
The Company's primary sources of revenues are commissions earned on the
brokerage of securities, investment banking fees, and gains and losses in the
investment account. The Company's principal business activities are, by their
nature, affected by many factors, including general economic and financial
conditions, the level and volatility of interest rates, security valuations in
the marketplace, competitive conditions, transactional volume and market
liquidity. Consequently, commission revenues, investment banking fees and
investment account results can be volatile. While the Company maintains
stringent cost controls, a significant portion of the Company's expenses are
fixed and do not vary with market activity. As a result, substantial
fluctuations can occur in the Company's revenues and net income from period to
period.
16
<PAGE>
RESULTS OF OPERATIONS
The following table reflects items in the Statements of Operations as
dollar amounts and as percentages of total revenues.
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS)
-------------------------------------------------------------------------------------------------
QUARTER
QUARTER ENDED ENDED
FISCAL 1996 FISCAL 1995 FISCAL 1994 4/30/96 4/30/95
-------------------- -------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Commissions............ $ 30,418 70.6% $ 21,804 67.4% $ 19,803 60.1% $ 12,068 65.5% $ 5,268
Investment banking..... 6,003 14.0% 9,607 29.6% 10,027 30.4% 3,413 18.5% 1,431
Principal
transactions.......... 5,683 13.2% 433 1.3% 2,739 8.3% 2,477 13.4% 266
Interest............... 717 1.7% 262 0.8% 203 0.6% 337 1.8% 126
Other.................. 198 0.5% 304 0.9% 184 0.6% 149 0.8% 66
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total.............. 43,019 100.0% 32,410 100.0% 32,956 100.0% 18,444 100.0% 7,157
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Expenses
Compensation &
benefits.............. 27,121 63.0% 22,856 70.5% 18,819 57.1% 10,728 58.2% 5,241
Communications......... 2,631 6.1% 2,563 7.9% 1,990 6.0% 839 4.5% 619
Brokerage, clearing and
exchange fees......... 1,350 3.1% 908 2.8% 695 2.1% 631 3.4% 267
Occupancy and
equipment............. 2,180 5.1% 1,711 5.3% 1,260 3.8% 655 3.6% 519
Business development... 851 2.0% 780 2.4% 702 2.1% 273 1.5% 208
Professional fees...... 703 1.6% 1,251 3.9% 917 2.8% 733 4.0% 237
Other.................. 1,896 4.4% 1,447 4.5% 1,151 3.5% 590 3.2% 435
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total.............. 36,732 85.3% 31,516 97.3% 25,534 77.4% 14,449 78.4% 7,526
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes............. 6,287 14.7% 894 2.7% 7,422 22.6% 3,995 21.6% (369)
Income taxes............. 2,818 6.6% 513 1.6% 3,416 10.4% 1,749 9.5% (113)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)........ $ 3,469 8.1% $ 381 1.1% $ 4,006 12.2% $ 2,246 12.1% $ (256)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
Revenues
Commissions............ 73.6%
Investment banking..... 20.0%
Principal
transactions............. 3.7%
Interest............... 1.8%
Other.................. 0.9%
---------
Total.............. 100.0%
---------
Expenses
Compensation &
benefits................. 73.2%
Communications......... 8.6%
Brokerage, clearing and
exchange fees............ 3.7%
Occupancy and
equipment................ 7.3%
Business development... 2.9%
Professional fees...... 3.3%
Other.................. 6.1%
---------
Total.............. 105.1%
---------
Income (loss) before
income taxes............. (5.1)%
Income taxes............. (1.6)%
---------
Net income (loss)........ (3.5)%
---------
---------
<CAPTION>
</TABLE>
Three Months Ended April 30, 1996 Compared to Three Months Ended April 30,
1995
Total revenues for the first three months of fiscal 1997 increased by
157.7% to $18,444,000 from $7,157,000, or an increase of $11,287,000. Revenues
increased in all of the Company's major areas of activity during the first three
months of fiscal 1997.
Commission revenues increased by $6,800,000, or 129.1%, to $12,068,000 over
the first three months of fiscal 1996 as a result of increased business with the
Company's retail customers. The Company's total volume of trades processed
during the three months increased by 147.6% over the same period in fiscal 1996.
Investment banking revenues increased to $3,413,000 from $1,431,000, an
increase of $1,982,000, or 138.5%. During the first three months of fiscal 1997,
the Company raised $31,900,000 for corporate clients through two public
offerings and three private placements. During the same period of the prior year
the Company raised $12,700,000 for corporate clients through one public offering
and one private placement.
Principal transaction revenues increased by $2,211,000 from $266,000 to
$2,477,000. This increase was primarily generated through market making
activities for over-the-counter equity securities, which increased by $1,437,000
to $1,553,000. This increase was generated by widespread gains across the
Company's market making universe and is reflective of general market conditions.
During the
17
<PAGE>
same periods, the Nasdaq Composite Index and Russell 2000 Index increased by
41.1% and 30.8%, respectively, year over year. Additionally, revenue from the
Company's investment account was $924,000 during the quarter, reflecting a
$774,000 increase over the same period in the prior year. The increase was
directly reflective of the increases in the prices of the shares underlying the
underwriter warrants the Company holds, all of which are issued by companies
which are or were investment banking clients.
Interest income increased by $211,000 to $337,000. The increase is due to
the Company's increased cash balances, the increased utilization of margin loans
by the Company's customers, and a renegotiated interest sharing arrangement with
the Company's clearing firm.
Total expenses for the first three months of fiscal 1997 were $14,449,000,
representing an increase of $6,923,000, or 92.0%, over the same period in fiscal
1996. As a percentage of revenues, total expenses for the period decreased to
78.4% of revenues as compared to 105.1% of revenues for the same period in the
prior year.
Compensation and benefit expenses increased by $5,487,000, or 104.7%, to
$10,728,000. These expenses decreased to 58.2% of revenues from 73.2% for the
prior period. Compensation expenses are largely variable in nature, as they
represent percentage payments on commissions generated. Commissions generated,
including sales commissions on underwritings and private placements, increased
by 118.3% and the percentage of commissions paid to brokers increased to 47.5%
from 42.2%, accounting for the majority of the change in compensation and
benefit expense. The remainder of the increase was due to the higher number of
employees. As of April 30, 1996, the Company had 469 employees, of which 260, or
55.4%, were registered representatives who were paid on commission. As of April
30, 1995, the Company had 336 employees, of which 175, or 52.1%, were registered
representatives.
Communications expenses increased by 35.5% to $839,000, from $619,000. This
was caused by the 39.6% increase in the number of employees and the 147.6%
increase in the number of trades processed for the comparable periods.
Brokerage, clearing and exchange fees increased by 136.3% to $631,000, from
$267,000. This increase is attributable to the aforementioned increase in the
number of trades processed and registered representatives employed by the
Company.
Occupancy and equipment expenses increased by 26.2%, to $655,000 from
$519,000, due to the four new locations acquired in the Shochet acquisition.
Business development expenses increased by $65,000, or 31.3% due to
increased promotional activities.
Professional fees increased to $733,000 from $237,000, or by $496,000, as
the result of increased legal fees and reserves provided for potential
settlement of the SEC and NASD investigations. Management believes that the
Company has adequately provided for any financial exposure related to these
matters. See "Business--Legal Proceedings."
Other expenses increased by $155,000 to $590,000, or by 35.6%. This
increase was attributable to the first two months of operation of GKN AG and
interest expense of $26,000 recognized on the note issued in the Shochet
acquisition.
The Company's income tax provision for the first three months of fiscal
1997 was $1,749,000, representing an effective income tax rate of 43.8%,
compared to an income tax benefit of $113,000 recognized in the same period of
the prior year.
Net income for the first three months of fiscal 1997 was $2,246,000, an
increase of $2,502,000 over a loss of $256,000 for the first three months of
fiscal 1996.
18
<PAGE>
Fiscal Year Ended January 31, 1996 Compared to Fiscal Year Ended January 31,
1995
Revenues for the twelve months ended January 31, 1996 totaled $43,019,000
versus $32,410,000 for the twelve months ended January 31, 1995, representing an
increase of $10,609,000, or 32.7%. The overall increase is entirely attributable
to an increase in commission revenue of $8,614,000 and increases in revenue from
the investment account of $4,873,000.
Commissions increased by $8,614,000, or 39.5%, from $21,804,000 to
$30,418,000. The increase reflects an overall change in general market
conditions, a 37.4% increase in the number of registered representatives
employed by the Company, and a 35.3% increase in the volume of trades processed
by the Company.
Revenues from investment banking decreased from $9,607,000 to $6,003,000,
or $3,604,000 and 37.5%. During fiscal 1996 the Company raised $72,728,000 for
its investment banking clients through five public underwritings and five
private placements, representing a significant decrease from fiscal 1995 when
the Company raised $122,032,000 for its investment banking clients through
eleven public underwritings and six private placements. The decrease in
underwriting activity was the result of general market conditions and the
reorientation of the Company's underwriting efforts from the SPAC program to
operating companies. See "Business--Investment Banking Activities."
Revenues associated with principal transactions increased by $5,250,000,
from $433,000. Market making activities contributed to the increase by $377,000,
or 85.5%, from $441,000 to $818,000. The increase was attributable to an
increased capital commitment by the Company to market making activities and a
general improvement in market conditions in fiscal 1996 versus fiscal 1995. More
significantly, the Company's investment account generated revenues of $4,865,000
in fiscal 1996 versus a loss of $8,000 in fiscal 1995. The increase was due to
the general stock price performance of the Company's underwriting clients during
the year, which, in turn, was reflected in the valuation of the underwriter
warrants contained in the Company's investment account.
Interest income increased by $455,000, from $262,000 to $717,000. The
increase was due to increased cash and cash equivalent positions held by the
Company and increased utilization of margin loans by the Company's customers.
Other revenues decreased by $106,000, from $304,000 to $198,000.
Total expenses for fiscal 1996 were $36,732,000 versus $31,516,000 for
fiscal 1995, an increase of $5,216,000, or 16.6%. As a percentage of total
revenues, total expenses for the period decreased to 85.3% as compared to 97.3%
of revenues.
Compensation and benefit expenses increased $4,265,000, or 18.7%, from
$22,856,000 to $27,121,000. As a percent of revenues, compensation and benefit
expenses decreased from fiscal 1995 to fiscal 1996, from 70.5% to 63.0%.
Compensation expenses are largely variable in nature as they represent
percentage payments on commissions generated. Although the percentage of
commissions paid to brokers decreased slightly by 1.4%, the total amount of
commissions paid increased by 25.8%, as a result of commissions generated which
increased by $7,831,000 or 29.7% (including sales concessions on underwritings
and private placements).
Communications expenses for fiscal 1996 were $2,631,000, compared to
$2,563,000 for fiscal 1995, reflecting an increase of $68,000, or 2.7%. During
fiscal 1996, the Company negotiated an improved cost structure with its long
distance voice communications carrier.
Brokerage, clearing and exchange fees increased by $442,000, or 48.7%, from
$908,000 to $1,350,000. This was caused by a 35.3% increase in the volume of
trades processed by the Company and an overall decrease in the amounts charged
to brokers for processing trades.
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Occupancy and equipment expenses increased by 27.4%, or $469,000, from
$1,711,000 to $2,180,000. Contractual increases in the per square foot lease
rate in the Company's New York location and the impact of a full year's lease
expense for the Company's Stamford, Connecticut location caused the majority of
the increase.
Business development expenses were $851,000 in fiscal 1996 versus $780,000
in fiscal 1995, an increase of $71,000, or 9.1%. The increase was due to
additional promotional expenses.
Professional fees decreased by $548,000, or 43.8%, from $1,251,000 to
$703,000. This was primarily caused by the higher costs incurred during fiscal
1995 related to the filing of documents for an initial public offering of the
Company's securities, which was postponed until market conditions improved.
Other expenses increased from $1,447,000 to $1,896,000, an increase of
$449,000, or 31.0%, reflecting the recognition of recruiting payments made to
new registered representatives.
The Company's fiscal 1996 income tax provision was $2,818,000 and
represented an effective tax rate of 44.8%. In fiscal 1995, the income tax
provision was $513,000 and represented an effective tax rate of 57.4%. The
higher effective rate in fiscal 1995 was the result of minimum taxes due.
Net income for fiscal 1996 was $3,469,000, an increase of $3,088,000
compared to fiscal 1995.
Fiscal Year Ended January 31, 1995 Compared to Fiscal Year Ended January 31,
1994
Revenues for the twelve months ended January 31, 1995 totaled $32,410,000
versus $32,956,000 for the twelve months ended January 31, 1994, representing a
decrease of $546,000, or 1.7%. The decrease is entirely attributable to a
decrease in revenue generated from principal transactions and the investment
account.
Commissions increased by $2,001,000, or 10.1%, from $19,803,000 to
$21,804,000. The increase represents the impact of a 29.4% increase in the
number of registered representatives and a 7.1% increase in the volume of trades
processed by the Company.
Revenues from investment banking activities decreased from $10,027,000 to
$9,607,000, a change of $420,000, or 4.2%. In fiscal 1995, the Company raised
$122,032,000 for its investment banking clients through eleven public offerings
and six private placements, while in fiscal 1994 the Company raised $115,196,000
for its investment banking clients through eleven public offerings. While the
gross amounts raised for clients increased, the average underwriting discount
decreased, thereby causing the decrease in the associated revenue.
Principal transactions generated revenues of $433,000 in fiscal 1995 and
$2,739,000 in fiscal 1994, a decrease of $2,306,000, or 84.2%. This decrease was
in part attributable to a decrease in revenues generated by market making
activities of $1,266,000 from fiscal 1994 to fiscal 1995. Similarly, the
investment account generated a loss of $8,000 in fiscal 1995 versus gains of
$1,032,000 in fiscal 1994. These significant decreases were caused by weak
general market conditions, particularly as they applied to small capitalization
stocks. The Nasdaq Composite Index and the Russell 2000 each decreased by 5.7%
and 7.4%, respectively, during the relevant fiscal periods.
Interest income increased by $59,000, or 29.1%, from $203,000 to $262,000.
This increase was primarily due to higher average cash balances held by the
Company during fiscal 1995 versus fiscal 1994.
Other income increased from $184,000 to $304,000.
Total expenses increased to $31,516,000 in fiscal 1995 from $25,534,000 in
fiscal 1994, an increase of $5,982,000, or 23.4% and represented 97.3% of
revenues as compared to 77.4% of revenues.
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Compensation and benefit expenses increased from $18,819,000 to
$22,856,000, an increase of $4,037,000, or 21.5%. Fiscal 1995 was a year in
which the Company experienced substantial growth. Employees increased from 231
at January 31, 1994 to 335 at January 31, 1995, an increase of 45.0%. The
increase in the employee base and a 4% increase in the percentage of commissions
paid to brokers were the primary causes for the increase in the compensation and
benefit expenses.
During fiscal 1994 and fiscal 1995, the Company significantly expanded its
physical facilities, through the opening of its Great Neck, New York office in
June 1993, a doubling of its office space in Boca Raton, Florida in November
1993, and the opening of its Stamford, Connecticut office in June 1994. This
expansion, in conjunction with the aforementioned increase in employees, was the
direct cause of the increases in communication expenses and occupancy expenses.
Communication expenses increased from $1,990,000 to $2,563,000, an increase of
$573,000, or 28.8%, while occupancy and equipment expenses increased by
$451,000, or 35.8%, from $1,260,000 to $1,711,000.
Brokerage, clearing and exchange fees increased from $695,000 to $908,000,
an increase of $213,000, or 30.6%. This was directly related to the 7.1%
increase in the volume of trades processed by the Company.
Business development expenses stayed relatively constant as a percentage of
revenues from fiscal 1994 to fiscal 1995, as the absolute dollar amounts
increased by $78,000, or 11.1%, from $702,000 to $780,000.
Professional fees increased significantly in fiscal 1995 to $1,251,000 from
$917,000 in fiscal 1994, an increase of $334,000, or 36.4%. This increase was
primarily caused by the costs incurred during fiscal 1995 related to the filing
of documents for an initial public offering of the Company's securities, which
was postponed until market conditions improved.
Other operating expenses remained relatively constant as a percentage of
revenues, from $1,151,000, or 3.5% of revenues to $1,447,000 or 4.5% of
revenues.
The Company's income tax provision for fiscal 1995 was $513,000,
representing an effective tax rate of 57.4%, while its income tax provision for
fiscal 1994 was $3,416,000, representing an effective tax rate of 46.0%. The
high effective rate in fiscal 1995 was the result of minimum taxes due on a
significantly lower tax base.
Net income for fiscal 1995 was $381,000, a decrease of $3,625,000 from
results in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are highly liquid with the majority consisting of
securities inventories, receivables from other broker-dealers and the Company's
clearing firm, and cash and cash equivalents, all of which fluctuate depending
upon the levels of customer business and trading activity. Receivables from
broker-dealers and the Company's clearing firm turn over rapidly. As a
securities dealer, the Company may carry significant levels of trading
inventories to meet customer needs. The Company's inventory of market making
securities is readily marketable; however, holding large blocks of the same
security may limit liquidity and prevent realization of full market value for
the securities. Securities owned, but not readily marketable, represent
underwriter warrants and the securities underlying such warrants. The liquidity
of these securities is limited. A relatively small percentage of the Company's
total assets are fixed. The Company's total assets or the individual components
of total assets may vary significantly from period to period because of changes
relating to customer demand, economic and market conditions, and proprietary
trading strategies. The Company's total assets at April 30, 1996, January 31,
1996, and January 31, 1995, were $33,117,000, $27,853,000, and $16,096,000,
respectively.
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GKN and Shochet, the Company's operating broker-dealer subsidiaries, are
subject to the net capital rules of the NASD. As such, they and the Company are
subject to certain restrictions on the use of capital and its related liquidity.
GKN's and Shochet's respective net capital positions as of April 30, 1996 were
$10,807,000 and $491,000, which were $10,557,000 and $391,000 in excess of their
respective net capital requirements. See "Business--Government Regulation."
Historically, the Company has financed its operations through the private
placement of debt and equity securities and cash flow from operations. The
Company has not employed any significant leverage or debt. In conjunction with
the Company's acquisition of Shochet, the Company issued the seller a
subordinated note for $934,000 as part of the purchase price. The Company
intends to use debt prudently in the future and intends to arrange for lines of
credit following this Offering. During the twelve months ended April 30, 1996,
the Company repurchased 261,250 shares at a price of $2.00 per share, resulting
in a total repurchase of $522,500. These repurchases were funded from cash flow
from operations.
The Company's overall capital and funding needs are continually reviewed to
ensure that its capital base can support the estimated needs of its business
units. These reviews take into account business needs as well as regulatory
capital requirements of the subsidiaries. Based upon these reviews, management
believes that the Company's capital structure is adequate for current
operations.
CASH FLOWS
The Company's statements of consolidated cash flows classify cash flow into
three broad categories: cash flows from operating activities, investing
activities and financing activities. The Company's net cash flows are
principally associated with operating and investing activities, which support
the Company's brokerage and distribution, investment banking and principal
transactions activities.
Three Months Ended April 30, 1996 and 1995
Cash and cash equivalents at April 30, 1996 and 1995 totaled $10,923,000
and $5,358,000, respectively, an increase of $3,050,000 and $2,235,000,
respectively, for the comparable three month periods. The increases are all
primarily the result of cash provided by operating activities.
Cash provided by operating activities totaled $3,381,000 in the three
months ended April 30, 1996. This was primarily generated from net income,
adjusted for non cash items, of $2,026,000, a decrease in securities owned, at
market value, of $2,460,000, and increases in securities sold, not yet
purchased, of $2,152,000, commissions payable of $657,000, and income taxes
payable of $1,790,000. These amounts were partially offset by an increase in
receivables due from the Company's clearing firm of $5,388,000 and a decrease in
accrued expenses and liabilities of $1,500,000. For the three months ended April
30, 1995, cash provided from operating activities totaled $2,277,000. This was
primarily generated by decreases in receivables from the Company's clearing firm
of $543,000, securities owned, at market value, of $3,155,000, and an increase
in deferred compensation of $684,000. These amounts were partially offset by a
decrease in net cash from a net loss, adjusted for non cash items, of $163,000,
increases in loans receivable of $460,000 and other assets of $754,000, and a
decrease in accrued expenses and other liabilities of $585,000.
Cash used in investing activities was $162,000 and $42,000 in the periods,
respectively. Both of these amounts represent purchases of office furniture,
equipment and leasehold improvements.
For the three months ended April 30, 1996, cash used in financing
activities totaled $169,000. This amount primarily reflects the repayment of
promissory notes. No cash was generated or used in financing activities during
the three months ended April 30, 1995.
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Fiscal Years 1996, 1995 and 1994
Cash and cash equivalents at January 31, 1996, 1995, and 1994 totaled
$7,873,000, $3,123,000, and $2,922,000, respectively, reflecting increases of
$4,750,000, $201,000, and $208,000 in each of the respective years. The
increases are all the result of cash provided by operating activities, partially
offset by the use of cash in investing activities.
Cash provided by operating activities totaled $6,078,000, $909,000, and
$528,000 in fiscal 1996, 1995, and 1994, respectively. In fiscal 1996, cash
provided by operating activities was primarily generated from net income,
adjusted for non cash items, of $5,090,000, and increases in securities sold,
not yet purchased, of $2,222,000, commissions payable of $788,000, and accrued
expenses and other liabilities of $3,418,000. These were partially offset by
increases in amounts due from the Company's clearing firm of $1,209,000,
securities owned, at market value, of $2,712,000, and securities owned, not
readily marketable, of $1,270,000. In fiscal 1995, cash provided by operating
activities was primarily generated through a decrease in securities purchased
under agreements to resell of $3,057,000, which was partially offset by
increases in securities owned, at market value, of $1,867,000 and loans
receivable of $1,205,000, and a decrease in accrued expenses and other
liabilities of $568,000. In fiscal 1994, cash provided by operating activities
was generated from net income, adjusted for non cash items, of $4,349,000, a
decrease in the receivable from the Company's clearing firm of $1,888,000, and
an increase in accrued expenses and liabilities of $598,000. These amounts were
offset by increases in securities purchased under agreements to resell of
$3,057,000, securities owned, not readily marketable, of $550,000, and other
assets of $645,000, and a decrease in securities sold, not yet purchased, of
$1,993,000.
In fiscal 1996, 1995, and 1994, the Company used cash in investing
activities of $1,812,000, $646,000, and $380,000, respectively. All of these
amounts represent the purchase of office furniture, equipment, and leasehold
improvements, except that in fiscal 1996 the Company used cash of $1,606,000 in
its acquisition of Shochet resulting in goodwill.
The Company generated cash from financing activities of $484,000 in fiscal
1996 and $60,000 in fiscal 1994, while it used cash in financing activities of
$62,000 in fiscal 1995. In fiscal 1996, the Company generated cash through the
issuance of a subordinated note of $934,000, in conjunction with its acquisition
of Shochet, which was partially offset by the purchase of stock into treasury.
The amounts provided by, or used in financing activities for fiscal 1995 and
1994, represent the issuance or retirement of common shares.
EFFECTS OF INFLATION
The Company's assets are, to a large extent, liquid in nature, and, as a
result, are not significantly affected by inflation. To the contrary, market
prices of securities are generally influenced by changes in inflation. Moreover,
the rate of inflation affects the Company's expenses, such as employee
compensation, occupancy expenses and communications costs, which may not be
readily recoverable in the prices of services offered to the Company's
customers. To the extent inflation results in rising interest rates or has
adverse effects upon the securities markets, it may adversely affect the
Company's financial position and results of operations.
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BUSINESS
GENERAL
The business of GKN Holding Corp. (the "Company") is transacted primarily
through four operating subsidiaries: GKN Securities Corp. ("GKN"), Shochet
Securities, Inc. ("Shochet"), GKN Securities AG ("GKN AG") and GKN Fund
Management, Inc. ("GKN Fund"). Collectively, GKN, Shochet and GKN AG are all
involved in various aspects of the investment banking and stock brokerage
business. GKN Fund is involved in money management.
The Company began operations in 1987 following the October stock market
decline, at which time the founders perceived an opportunity for the creation of
a high quality investment bank serving emerging growth and small capitalization
corporate clients and investors. Since its inception, the Company's plan has
been to develop a high quality firm serving this market niche. Since October
1990, when GKN managed its first underwriting, GKN has acted as managing or
co-managing underwriter in a total of 43 public offerings, raising approximately
$430 million.
The Company anticipates that acquisitions will be an integral part of its
future growth. In November 1995, the Company acquired all of the outstanding
stock of Shochet, a full-service discount brokerage firm with four branches
operating in Southern Florida. Shochet has been in business since 1980. During
the twelve-month period ended January 31, 1996, Shochet generated approximately
$5.5 million in revenue (only $1,128,000 of which is included in the Company's
financial statements for the year ended January 31, 1996). The Shochet
acquisition was the Company's first in the investment banking and securities
brokerage business.
The Company has also grown recently by expanding into other areas of
business. In March 1995, GKN Fund entered the money management business by
becoming the general partner and administrator of Kaleidoscope Partners, L.P., a
"fund of funds" with approximately $8.1 million in assets at April 30, 1996. In
February 1996, GKN AG commenced operations in Zurich, Switzerland, distributing
securities and providing brokerage services to European institutional money
managers.
The Company intends to continue its emphasis on investment banking
opportunities for emerging growth and small capitalization companies. While
enhancing this core capability, the Company plans to further expand its related
distribution, brokerage, research, money management and merchant banking
functions, either through internal growth or by acquisition.
BROKERAGE AND DISTRIBUTION ACTIVITIES
A significant portion of the Company's revenues are derived from
commissions, concessions, mark-ups and mark-downs (collectively "commissions").
For the fiscal year ended January 31, 1996, commissions accounted for
approximately 70.6% of the Company's revenues. Commissions are charged to the
Company's individual and institutional clients for executing buy and sell orders
of securities on national and regional exchanges and in the over-the-counter
("OTC") markets. When a buy or sell order for a security in which GKN makes a
market or has inventory is received, GKN may act as a principal and purchase
from, or sell to, its customers the desired security on a disclosed basis at a
price set in accordance with applicable securities regulations. The Company's
brokerage and distribution activities are performed through GKN, Shochet and GKN
AG, its brokerage subsidiaries. As of April 30, 1996, these brokerage
subsidiaries employed an aggregate of 260 registered representatives and
serviced more than 27,000 active customer accounts. Each of these brokerage
subsidiaries serves a diverse clientele with different investment
characteristics.
GKN
As of April 30, 1996, GKN had 214 registered representatives located in
five offices in New York City and Great Neck, New York, Stamford, Connecticut,
and Boca Raton and Miami, Florida. During fiscal 1996, GKN's registered
representatives generated approximately $29,500,000 in commissions on secondary
trades and $6,000,000 in sales concessions on public offerings and private
placements (such
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$6,000,000 are included in Investment Banking Revenues on the Company's
Financial Statements). GKN's sales force serves a clientele which is primarily
composed of individuals who invest primarily in OTC equity securities. GKN
intends to expand its brokerage business through the continued recruitment and
hiring of additional registered representatives for existing offices, as well as
potentially opening or acquiring additional offices in new geographic locations.
GKN believes that it can add an aggregate of approximately 45 brokers in its
various branch offices without acquiring any additional space.
Shochet
As of April 30, 1996, Shochet had 45 registered representatives located in
four offices in Hallandale, Miami Beach, South Miami and Tamarac, Florida.
During fiscal 1996, Shochet's registered representatives generated approximately
$5 million in commissions, primarily on secondary trades. Shochet sets
commissions to its customers on a discounted basis. The clientele served by
Shochet's registered representatives is generally older, retired individuals who
invest in exchange-listed equity securities, fixed income securities and mutual
funds. The Company intends to expand Shochet's business through the recruitment
and hiring of additional registered representatives for existing offices, as
well as potentially opening or acquiring additional offices in new geographic
locations.
GKN AG
In February 1996, the Company opened its first international office in
Zurich, Switzerland, through GKN AG. The primary emphasis of this office is to
serve European institutional money managers and clients investing in U.S.-traded
small capitalization equity securities. GKN AG currently has one registered
representative. The Company plans to expand its international operations through
the recruitment and hiring of additional registered representatives and
potentially opening additional international offices.
Institutional Sales
Historically, institutional sales have represented an insignificant source
of revenue for GKN. During 1995, GKN established an Institutional Sales
Department to develop and service institutional money manager clients. The firm
intends to expand this business through the recruitment and hiring of additional
registered representatives, the development of new institutional client
relationships and the potential acquisition of brokerage firms whose primary
emphasis is serving institutional clients.
INVESTMENT BANKING ACTIVITIES
Corporate Finance
GKN's investment banking revenues are principally derived from managing or
co-managing public offerings of equity securities, although the private
placement of equity or equity-related securities for both private and
publicly-held companies has recently become an increasingly important source of
investment banking revenues. For the fiscal year ended January 31, 1996,
investment banking activities, including sales concessions, accounted for
approximately 14.0% of the Company's revenues. The Company's underwriting
activities have historically focused on public equity underwritings for small
capitalization, emerging growth companies in a variety of industries. GKN
believes that its expertise and proven ability to assist emerging growth
companies (which often have limited access to other sources of capital) has
created a significant source of ongoing and potential new investment banking
clients. GKN intends to continue this small capitalization emphasis,
concentrating its activities on certain core industries, initially the
communications/technology and leisure/ entertainment/recreation industries.
In 1993, GKN developed and introduced a new publicly-traded financing
vehicle known as the Specified Purpose Acquisition Company(R) ("SPAC(R)"). A
SPAC combines the characteristics of a traditional acquisition or buyout fund
and a more liquid, publicly traded industry-specific investment
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vehicle. The purpose of a SPAC is to acquire an operating business in a
specified target industry. Each SPAC is managed by a management team combining
operating experience and mergers and acquisitions expertise in the specified
target industry. SPACs feature important investor safeguards, including (i) a
conversion right which entitles SPAC common stock investors to the return of a
substantial portion of their initial investment (81%, plus interest) should a
target acquisition not be made within 24 months from the closing of the SPAC's
public offering, (ii) a requirement that 90% of the net proceeds of the SPAC
offering be placed in trust and invested in short-term government securities and
released only upon the successful consummation by the SPAC of the acquisition of
a target business or the liquidation of the SPAC (the balance of the net
proceeds are used to pay the costs incurred in connection with identifying and
evaluating prospective acquisition candidates, and structuring, negotiating and
consummating a business combination), (iii) a requirement for stockholder
approval by the outside stockholders of the target acquisition and (iv) various
other requirements eliminating or reducing potential conflicts of interests
between SPAC management and the investors in SPAC offerings. Since the
introduction of the SPAC, GKN has lead-managed public offerings for thirteen
SPACs, raising approximately $170 million in aggregate gross proceeds. As of the
date of this Prospectus, nine of the 13 SPACs have consummated their mergers,
one SPAC is in the process of liquidation, two mergers are pending and one SPAC
management team continues its acquisition search.
The Company is not currently involved in any new SPAC offerings and
currently does not expect that future SPAC offerings, if any, will represent a
material portion of its revenues from investment banking activities in
subsequent periods.
Corporate Advisory
To date, the Company has not derived significant revenues from corporate
advisory services. Through its relationships with its investment banking
clients, GKN intends to expand this business with a concentration on mergers and
acquisitions, strategic partnering, fairness opinions and corporate
recapitalizations.
Syndicate
GKN has a Syndicate Department which has historically served as an
additional source of product (through selling group or underwriter
participation) for distribution through the Company's various distribution
channels. GKN anticipates that the emphasis of this department will shift to
enhance the marketing and distribution of GKN's underwritings to other
broker-dealers. To date, revenues generated by the Syndicate Department have
been insignificant.
PRINCIPAL TRANSACTIONS
A portion of GKN's revenue is derived from various principal trading
activities, including making markets in equity securities, proprietary position
trading, and the results of an investment account. For the fiscal year ended
January 31, 1996, these activities accounted for 13.2% of the Company's
revenues.
Market Making
GKN's market making activities have been primarily an accommodation to its
retail customers. Inventories of securities are carried to facilitate brokerage
transactions with customers and other dealers and principal transactions with
customers are effected at prices in accordance with applicable security
regulations. As of April 30, 1996, GKN made markets in more than 80 securities.
For the fiscal year ended January 31, 1996, principal transactions related to
securities in which GKN makes a market, including realized and unrealized gains
and losses, accounted for $818,000, or 1.9%, of the Company's revenues.
Proprietary Trading
Historically, GKN has devoted insignificant amounts of capital and derived
insignificant revenues from taking proprietary trading positions. During fiscal
1996, GKN employed a maximum of
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$1 million of capital at any one time to proprietary trading positions. GKN
intends to increase its capital allocation to principal trading activities after
this Offering.
Investment Account
In connection with its investment banking activities, GKN usually receives
warrants which entitle it to purchase securities of the companies for which GKN
raises capital or provides advisory services. These warrants, which are placed
in GKN's investment account, vary in value based upon the market prices of the
underlying securities. Warrants are usually exercisable for four years beginning
one year after issuance and are valued by management based on a significant
discount to the current market values of the underlying securities. As of April
30, 1996, GKN owned warrants to purchase securities of 45 companies for which it
has performed investment banking services. These warrants had an underlying
market value of $3,143,000, as of April 30, 1996, of which GKN recognized
$1,779,000 in value, or 56.6%. During the fiscal year ended January 31, 1996 and
quarter ended April 30, 1996, GKN recognized gains (both realized and
unrealized) on such warrants of $4,865,000, or 11.3% of revenues, and $924,000,
or 5.0% of revenues, respectively. From inception through April 30, 1996, GKN
has recognized, in the aggregate, more than $9,100,000 in realized and
unrealized gains from such warrants.
RESEARCH SERVICES
GKN's research activities are an integral part of, and provide significant
support to, its investment banking, and securities brokerage activities.
Research services are directed primarily towards creating support, sponsorship
and independent analysis for the securities of companies which have been
underwritten by GKN and identifying attractive investment opportunities in the
securities of other companies. The research department conducts a review and
analysis of fundamental elements of individual company performance, industry
trends and economic events and incorporates its findings into published reports.
GKN distributes its research publications through each of its brokerage
subsidiaries--GKN, Shochet and GKN AG.
OTHER RETAIL PRODUCTS AND SERVICES
GKN is a registered Investment Adviser under the Investment Advisers Act of
1940 and provides retirement planning and mutual fund investment services
through its Retirement Services department. This department assists clients with
establishing retirement plans tailored to their specific needs, solving problems
with their existing plans, locating appropriate plan administrators, and
performing asset allocation studies for investment allocations. Retirement
services also sources and administers the relationships with third party mutual
funds, as well as advising customers concerning such investments. In February
1996, GKN introduced a "wrap-investment" product known as "NavigatorTM."
Navigator performs asset allocation models for customers based on their
individual risk profiles. Based upon each investor's specific model results,
investments are made in a number of specified third party mutual funds. To date,
revenues generated by retirement services and mutual fund investments have been
insignificant.
Both Shochet and GKN source and execute buy and sell orders for fixed
income securities, which are purchased on an agency or principal basis. Amounts
retained in inventory overnight and on an intraday basis are not significant.
During fiscal 1996, the execution of buy and sell orders for fixed income
securities accounted for 12% of Shochet's revenues and an insignificant
percentage of GKN's revenues.
MONEY MANAGEMENT
In 1995, the Company entered the money management business through the
establishment of GKN Fund Management, Inc., which serves as the general partner
and administrator of Kaleidoscope Partners, L.P. ("Kaleidoscope"), a "fund of
funds" investment partnership which invests its capital in
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other funds managed by independent money managers. The primary investment
objective of Kaleidoscope is to achieve superior investment returns and
diversification by placing its capital in a number of different carefully
selected investment funds. As of April 30, 1996, Kaleidoscope had total assets
of approximately $8.1 million invested in eight independent funds. GKN intends
to expand its money management activities after this Offering.
MERCHANT BANKING
The Company intends to enter into the merchant banking business by using a
portion of the proceeds of this Offering to invest in development-stage and
operating companies. Such investments may represent a minority or controlling
interest in the subject companies. It is anticipated that most companies in
which investments would be made will be privately-held at the time of the
investment. The Company will attempt to focus on those companies for which GKN
might be willing to manage offerings sometime after the Company's original
investment. As of the date of this Prospectus, the Company has no specific plans
with respect to any particular investment opportunity.
MARKETING STRATEGY
In October 1987, after the stock market decline, the founders of the
Company perceived an opportunity for the creation of a high-quality investment
bank serving emerging growth and small capitalization corporate clients and
investors. Since its inception, the Company's plan has been to develop a
high-quality firm serving this market niche. The Company's marketing strategy is
to capitalize on this positioning within this market niche.
When marketing its services to prospective investment banking clients, GKN
highlights the success of its prior underwritings and refers the principals of
the prospective clients to principals of existing and prior investment banking
clients. When marketing to prospective brokerage clients, GKN promotes its small
capitalization market niche and attempts to distinguish itself from other
similar investment banks through its research and other services.
CLEARING AGENT
The Company's brokerage subsidiaries currently utilize, on a fully
disclosed basis, the services of Schroder Wertheim & Co. Incorporated as its
clearing agent, which, on a fee basis, processes all securities transactions and
maintains the accounts of its customers. Customer accounts are protected through
the Securities Investor Protection Corporation for up to $500,000, of which
coverage for cash balances is limited to $100,000. Additional protection is
provided by the clearing agent through Aetna Casualty and Surety Co. for an
aggregate amount of coverage of up to $25,000,000 per account. The services of
the clearing agent include billing, credit control, receipt, and custody and
delivery of securities. The clearing agent provides operational support
necessary to process, record, and maintain securities transactions for the
Company's brokerage and distribution activities. The clearing agent provides
these services to the Company and its customers at a total cost which is less
than it would cost the Company to process such transactions on its own.
CUSTOMER CREDIT
The clearing firm for the Company's brokerage subsidiaries lends funds to
the Company's customers through the use of margin credit. These loans are made
to customers on a secured basis, with the clearing firm maintaining collateral
in the form of saleable securities, cash or cash equivalents. Under the terms of
the clearing agreements, the Company's brokerage subsidiaries indemnify the
clearing firm for any loss on these credit arrangements. As of April 30, 1996,
the Company had $52 million of margin credit outstanding to its customers
through its clearing firm. In the fiscal year ended January 31, 1996, the
Company's losses from the margin credit activity were de minimus, while net
interest earned totaled $199,000.
28
<PAGE>
RISK MANAGEMENT/CONTROL STRUCTURE
The Company maintains a management structure which includes an Operating
Committee, which meets weekly to monitor the results of operations, levels of
risk exposure and other key management decisions. Additionally, the Company
maintains a rigorous and comprehensive risk management and control structure for
all three operating brokerage subsidiaries through its risk management group,
legal and compliance departments, and financial control mechanisms.
Risk Management Group
In conjunction with the staff of the clearing agent, the Company monitors
and maintains firm-wide and customer margin credit and securities concentration
exposure, and monitors firm adherence to the appropriate securities and lending
regulations. Position limits in trading and inventory accounts are established
and monitored on an ongoing basis. Current and proposed underwriting, corporate
development and other commitments are subject to due diligence reviews by senior
management and, if appropriate, professionals in the appropriate industry.
Legal and Compliance
The Company currently maintains a full time staff of seven individuals,
including two attorneys, in its legal and compliance departments to monitor the
Company's compliance position. These individuals are supplemented by the daily
compliance and control functions of the local branch managers. As the Company
continues to expand, it intends to appropriately increase the relative size of
these departments.
Financial Control Group
The Company's finance and accounting department, consisting of nine
full-time staff, maintains a comprehensive system of internal controls
concerning its financial, operational and trading activities.
GOVERNMENT REGULATION
The securities business is subject to extensive and frequently changing
federal and state laws and substantial regulation under such laws by the
Commission and various state agencies and self-regulatory organizations, such as
the NASD. GKN and Shochet are registered as broker-dealers with the Commission
and are member firms of the NASD. Much of the regulation of broker-dealers has
been delegated to self-regulatory organizations, principally the NASD, which has
been designated by the Commission as the Company's primary regulator. The NASD
adopts rules (which are subject to approval by the Commission) that govern its
members and conducts periodic examinations of member firms' operations.
Securities firms are also subject to regulation by state securities
administrators in those states in which they conduct business. GKN is registered
as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico.
Shochet is registered as a broker-dealer in 15 states.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods and supervision, trading practices
among broker-dealers, use and safekeeping of customers' funds and securities,
capital structure of securities firms, record keeping and the conduct of
directors, officers and employees. Additional legislation, changes in rules
promulgated by the Commission and self-regulatory organizations, or changes in
the interpretation or enforcement of existing laws and rules, may directly
affect the mode of operation and profitability of broker-dealers. The
Commission, self-regulatory organizations and state securities commissions may
conduct administrative proceedings which can result in censure, fine, the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker-dealer, its officers or employees. The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the
integrity of the securities markets.
GKN AG is subject to certain Swiss Federal and Cantonal (State) laws.
Securities trading and brokerage in Switzerland is currently governed by the
provisions of Cantonal law. Residing in Zurich,
29
<PAGE>
Switzerland, GKN AG is regulated by The Law on Professional Trading of
Securities in the Canton of Zurich. In order to transact security trades in
Switzerland, GKN AG must be granted a "B-license." GKN AG has made application
for such license and believes that it will be granted the license in the near
future; however, there can be no assurances that GKN AG will receive the
license. In the interim, the brokerage of securities are executed and settled
through GKN's principal office in New York City.
Under The Law on Professional Trading of Securities, GKN AG must initially
have equity capital equal to 500,000 Swiss francs (approximately $400,000).
According to the draft of the Ordinance to the Federal Stock Exchange and
Security Dealer's Law, the equity capital will have to be increased to the
amount of 1,500,000 Swiss francs (approximately $1,200,000). Distributions of
equity capital by GKN AG are governed by the Swiss Code of Obligations, wherein
any distributions are limited to profits or reserves created for such purpose.
GKN AG was initially capitalized in February 1996 with 500,000 Swiss francs
(approximately $400,000). If the equity capital of GKN AG and its legal reserves
fall to less than half the initial requirement, it must be recapitalized. (Swiss
francs have been converted to U.S. dollars in the foregoing parentheticals
utilizing the July 1, 1996 spot rate.)
Net Capital Requirements
As registered broker-dealers and member firms of the NASD, GKN and Shochet
are subject to the Commission's net capital rule. The net capital rule, which
specifies minimum net capital requirements for registered brokers and dealers,
is designed to measure the general financial integrity and liquidity of a
broker-dealer and requires that at least a minimum part of its assets be kept in
relatively liquid form. Net capital is essentially defined as net worth (assets
minus liabilities), plus qualifying subordinated borrowings and less certain
mandatory deductions that result from excluding assets not readily convertible
into cash and from valuing certain other assets, such as a firm's positions in
securities, conservatively. Among these deductions are adjustments in the market
value of securities to reflect the possibility of a market decline prior to
disposition.
GKN has elected to compute its net capital using the alternative method
permitted by the Rule, which requires that GKN maintain minimum net capital, as
defined, to be greater than or equal to, $250,000. At April 30, 1996, GKN had
net capital of $10,807,000, which was $10,557,000 in excess of required net
capital of $250,000.
Shochet has elected to compute net capital under the standard aggregate
indebtedness method permitted by the Rule, which requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed
15-to-1. At April 30, 1996, Shochet had net capital and a net capital
requirement of $491,000 and $100,000, respectively. Shochet's net capital ratio
was 0.75-to-1.
Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the Commission and other regulatory bodies
and ultimately may require its liquidation. The net capital rule also prohibits
payments of dividends, redemption of stock and the prepayment or payment in
respect of principal of subordinated indebtedness if net capital, after giving
effect to the payment, redemption or repayment, would be less than specified
percentage (120%) of the minimum net capital requirement. Compliance with the
net capital rule could limit those operations of the Company's brokerage
subsidiaries that require the intensive use of capital, such as underwriting and
trading activities, and also could restrict the Company's ability to withdraw
capital from its operating subsidiaries, which in turn, could limit the
Company's ability to pay dividends, repay debt and redeem or purchase shares of
its outstanding capital stock.
COMPETITION
The Company encounters intense competition in all aspects of the securities
business and competes directly with other securities firms, a significant number
of which have greater capital and other resources. In addition to competition
from firms currently in the securities business, there has recently been
increasing competition from other sources, such as commercial banks and
insurance companies
30
<PAGE>
offering financial services, and from other investment alternatives. The Company
believes that the principal factors affecting competition in the securities
industry are the quality and abilities of professional personnel, including
their ability to effectuate a firm's commitments, and the quality, range and
relative prices of services and products offered.
OTHER OPERATIONS
Historically, the Company has maintained limited operations in the
acquisition, management, syndication and operation of real estate projects,
through its subsidiaries, GKN Realty Corp. and GKN Property Management, Inc. To
date, the operations of GKN Realty and GKN Property have had no significant
impact on the Company. The Company intends to wind down its real estate
operations over the next several years.
PERSONNEL
At April 30, 1996, the Company had 469 full-time employees, including 260
registered representatives. None of the Company's personnel is covered by a
collective bargaining agreement. The Company considers its relationships with
its employees to be very good.
PROPERTIES
The principal executive offices of the Company and GKN are located at 61
Broadway, New York, New York 10006 where the Company leases or subleases
approximately 25,000 square feet of office space. The sublease and leases for
these premises all expire in February 1998. The following information relates to
the branch offices of GKN and Shochet:
GKN
<TABLE>
<CAPTION>
<S> <C> <C>
OFFICE LOCATION APPROXIMATE SQUARE FOOTAGE EXPIRATION
- --------------------------------------------------------------- --------------------------- -------------------
Boca Raton, Florida............................................ 10,000 October 1999
1,500 October 1997
Great Neck, New York........................................... 5,000 September 1998
Stamford, Connecticut.......................................... 5,000 November 2004
Miami, Florida................................................. 4,000 June 2003
</TABLE>
Shochet
<TABLE>
<CAPTION>
<S> <C> <C>
OFFICE LOCATION APPROXIMATE SQUARE FOOTAGE EXPIRATION
- ---------------------------------------------------------------- --------------------------- -------------------
Hallandale, Florida............................................. 5,000 February 2006
Miami Beach, Florida............................................ 3,000 April 1998
South Miami, Florida............................................ 3,000 November 1998
Tamarac, Florida................................................ 3,000 June 2001
</TABLE>
LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
liability, including exposure under federal and state securities laws in
connection with the underwriting and distribution of securities. The Company
does not presently maintain an errors and omissions insurance policy insuring it
against these risks. In recent years, there has been an increasing incidence of
litigation involving the securities industry, including class actions which
generally seek rescission and substantial damages. Additionally, securities
brokerage firms, including the Company, become parties to arbitrations brought
by dissatisfied customers in the general course of business.
31
<PAGE>
GKN is the subject of an NASD staff investigation which, the Company
believes, arises primarily from mark-ups and mark-downs taken on customer
transactions in warrants of certain issuers whose offerings were managed by GKN,
and sales practices in connection with such transactions. The purpose of the
investigation is to determine whether GKN or any persons associated with the
firm have engaged in any violation of the federal securities laws or the NASD
Rules of Fair Practice. The NASD staff has not advised GKN whether it intends to
recommend any enforcement action and GKN cannot predict when the investigation
might end, or its outcome. GKN is cooperating fully with the NASD staff in the
investigatory process. The NASD has broad authority to sanction persons subject
to its jurisdiction, including the levying of financial penalties, disgorgement,
the imposition of censures, suspensions or bars on its supervisors and
principals, and frequently imposes material sanctions in cases of this nature.
The outcome of the NASD investigation could have a substantial adverse financial
impact on GKN, result in restrictions on the business activities of GKN and its
supervisors and principals and otherwise have a material adverse effect on the
Company.
GKN is the subject of an SEC staff investigation that arose primarily from
certain sales practices and the supervision of certain registered
representatives in 1991 and 1992. GKN expects to submit to the Commission
shortly an Offer of Settlement that is being discussed with the SEC staff. There
is no assurance that the SEC staff will support the proposed settlement nor that
the Commission will agree to it. Under the Offer of Settlement that is being
discussed, without admitting or denying the findings, GKN and Robert Gladstone
would agree to the entry of an Order finding that, during 1991 and 1992, GKN and
Robert Gladstone failed reasonably to supervise a number of registered
representatives with a view to preventing certain securities law violations. In
such a settlement, the Order would recite as the factual basis for the
Commission's findings that from 1990 through 1992, GKN hired a large number of
registered representatives and that the number of customer complaints received
by GKN rose substantially and included multiple complaints against certain of
the registered representatives. Such complaints included unauthorized trading in
customer accounts and the failure to execute appropriately customer sale orders.
All of GKN's registered representatives reported to and were supervised by
Robert Gladstone. The proposed Order will recite that GKN and Robert Gladstone
failed to establish adequate supervisory procedures to monitor the sales
practices of the registered representatives during the period and that they
failed to have in place procedures to track customer complaints, to identify
multiple complaints against particular registered representatives or to
adequately respond to the sales practice violations reflected by the customer
complaints. In such a settlement, the Order would also contain GKN's
representation that, since the latter part of 1992, it has undertaken a number
of specific efforts to improve its supervisory and compliance systems and its
undertaking to maintain these policies and procedures.
Under the terms of the settlement being discussed, GKN would pay a penalty
of $100,000, implement and maintain the policies and procedures previously
undertaken, and retain an independent consultant to conduct a review of the
firm's policies and procedures and report its recommendations to GKN and the SEC
staff. GKN has agreed (subject to certain safeguards) to adopt the independent
consultant's recommendations. Under the proposed settlement, without admitting
or denying the findings of the SEC investigation, Robert Gladstone would pay a
$50,000 penalty. In addition, he may agree not to be associated in a supervisory
capacity with any broker-dealer, municipal securities dealer, investment company
or investment adviser, in addition to any brokerage firm, with a right to
reapply after 18 months, or alternatively, agree to be suspended from all
association in any capacity with any broker-dealer, municipal securities dealer,
investment company or investment adviser, in addition to any brokerage firm, for
30 days and thereafter not to be so associated in a supervisory capacity for the
next 11 months. Mr. Gladstone would remain an officer and principal stockholder
of the Company. The terms of the Offer of Settlement, are the subject of
continuing discussions with the SEC staff and there is no assurance that any
proposed settlement will be accepted by the SEC staff.
In addition, the outcome of the SEC and NASD investigations could generate
adverse publicity which in turn could have a material adverse effect on the
Company's operations.
32
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----------- -----------------------------------------------------------
<S> <C> <C>
David M. Nussbaum......................... 42 Chairman of the Board and Chief Executive Officer of the
Company and GKN
Roger N. Gladstone........................ 42 President and Director of the Company and GKN
Peter R. Kent............................. 43 Chief Operating Officer, Chief Financial Officer and
Director of the Company and GKN
Lester Rosenkrantz........................ 55 Executive Vice President and Director of the Company and
GKN
Robert H. Gladstone....................... 38 Executive Vice President of the Company and GKN
James I. Krantz........................... 41 Director of the Company
John P. Margaritis........................ 47 Director of the Company*
Arnold B. Pollard......................... 53 Director of the Company*
</TABLE>
- ---------------
* Will become a Director upon consummation of the Offering.
DAVID M. NUSSBAUM has been Chairman of the Board and Chief Executive
Officer of the Company since September 1990 and a Director of the Company since
January 1987. He is also Chairman of the Board and Chief Executive Officer of
GKN and is the principal executive officer of GKN's New York operations. He is
also a director of Shochet and a director and executive officer of GKN Fund. Mr.
Nussbaum serves on the Board of Arbitrators of the National Association of
Securities Dealers, Inc. He is also a member of the Young Presidents
Organization and a member of the Board of Directors of the Sid Jacobson Jewish
Community Center in Roslyn, New York. From 1984 through 1986, Mr. Nussbaum was
engaged primarily in the acquisition, management, syndication and operation of
real estate projects. In connection with Mr. Nussbaum's real estate activities,
he was an executive officer and director of the corporate general partners of
River Village Associates ("River Village") and Frontage Realty Limited
Partnership ("Frontage"), limited partnerships formed to acquire real estate.
River Village and Frontage filed for protection under Chapter 11 of the
bankruptcy law in 1992 and 1993, respectively. From 1980 through 1984, Mr.
Nussbaum was engaged in the private practice of law at the firm of Rosenman
Colin Freund Lewis & Cohen in New York. Mr. Nussbaum graduated from the
University of Michigan, magna cum laude. He received his law degree (cum laude;
Order of the Coif) from New York University School of Law.
ROGER N. GLADSTONE has been President and a Director of the Company since
January 1987. He is also President and a Director of GKN and is the principal
executive officer of GKN's Florida operations. He is also a director and
executive officer of Shochet, GKN AG and GKN Fund. Mr. Gladstone serves on the
Board of Arbitrators of the National Association of Securities Dealers, Inc. He
is also a member of the Young Presidents Organization and a member of the Board
of Directors of the Sid Jacobson Jewish Community Center in Roslyn, New York.
Mr. Gladstone is the Director of No Small Affair South, a charitable foundation
which provides positive experiences for disadvantaged children. From 1984
through 1986, Mr. Gladstone was engaged primarily in the acquisition,
management, syndication and operation of real estate projects. Mr. Gladstone was
an executive officer and director of the corporate general partners of River
Village and Frontage. River Village and Frontage filed for protection under
Chapter 11 of the Bankruptcy law in 1992 and 1993, respectively. From 1980
through 1984, Mr. Gladstone was engaged in the private practice of law in New
York. Mr. Gladstone graduated from Stanford University. He received his Masters
Degree in Business Administration from New York University and his law degree
from the Benjamin N. Cardozo School of Law, Yeshiva University.
33
<PAGE>
PETER R. KENT has been Chief Financial Officer of the Company and GKN since
July 1995, Chief Operating Officer of the Company and GKN since February 1996
and a Director of the Company and GKN since May 1996. He has also served as
Chief Financial Officer and director of Shochet since its acquisition in
November 1995. From September 1991 through February 1995, Mr. Kent served
initially as Chief Financial Officer, and subsequently as President, Chairman of
the Board, and Chief Executive Officer, of Consolidated Waste Services of
America, Inc., a solid waste management and recycling company. From 1988 until
1991, Mr. Kent was employed by the securities firm of Wessels, Arnold &
Henderson, where he served as a member of the Corporate Finance Department in
charge of its Environmental Services Group. From 1984 to 1988, Mr. Kent was
employed by Henry Ansbacher, Inc., a firm involved in the field of media mergers
and acquisitions, initially as Chief Financial Officer and subsequently, as its
President and Chief Operating Officer. Previous to 1984, Mr. Kent had been
employed by Sutro & Co. Incorporated, Wells Fargo Bank, and Arthur Andersen &
Co. Mr. Kent is a Certified Public Accountant. Mr. Kent graduated from the
University of California at Berkeley, where he also received his Masters in
Business Administration.
LESTER ROSENKRANTZ has been a Director and Executive Vice President of the
Company and GKN since February 1994. Mr. Rosenkrantz was Vice Chairman and
Director of Corporate Finance of Reich & Co., Inc. (formerly Vantage
Securities), a member of the New York Stock Exchange ("NYSE"), from November
1990 until January 1994. He has also served in various management positions at
Rosenkrantz, Lyon and Ross, Incorporated, a NYSE member firm from 1973 to 1990,
serving as Vice Chairman at the time of completion of his tenure. Mr.
Rosenkrantz was employed by Andresen & Company from 1963 to 1973, lastly as a
General Partner and head of institutional and retail sales. Mr. Rosenkrantz
graduated from Pennsylvania State University.
ROBERT H. GLADSTONE has been the Executive Vice President of the Company
since November 1993 and a Director of the Company from January 1992 to May 1996.
He has also been an executive officer of GKN since January 1990 and is now
Executive Vice President of GKN. Mr. Gladstone was employed by Stuart James &
Co. from July 1984 until December 1989, starting as an account executive,
becoming Branch Manager of the Darien, Connecticut office in January 1986 and
Area Manager supervising four branch offices employing more than 100 registered
representatives in 1989. Prior to July 1984, Mr. Gladstone was an account
executive at Ladenburg, Thalmann & Co. (October 1983 to June 1984) and at
Advest, Inc. (October 1980 to September 1983). Mr. Gladstone graduated from
Boston University. Mr. Gladstone is involved in an SEC Staff investigation of
GKN that arose primarily from certain sales practices and the supervision of
certain registered representatives in 1991 and 1992. Under a proposed
settlement, which has been discussed with the SEC Staff, Mr. Gladstone would pay
a $50,000 penalty and agree not to be associated in a supervisory capacity with
any broker-dealer, municipal securities dealer, investment company or investment
advisor, in addition to any brokerage firm, with a right to reapply after 18
months, or alternatively, agree to be suspended from all association in any
capacity with any broker-dealer, municipal securities dealer, investment company
or investment advisor, in addition to any brokerage firm, for 30 days and
thereafter not to be associated in a supervisory capacity for the next 11
months. The proposed settlement remains under discussion with the SEC and may be
modified. Mr. Gladstone would remain an officer and principal stockholder of the
Company. See "Business--Legal Proceedings."
JAMES I. KRANTZ has been a Director of the Company since September 1990.
Since 1977, Mr. Krantz has served as a Property, Casualty and Life Insurance
Broker and has been engaged in real estate management and investment. Mr. Krantz
was an executive officer and director of the corporate general partner of River
Village. River Village filed for protection under Chapter 11 of the bankruptcy
law in 1992. Mr. Krantz is currently President and Chief Executive Officer of
York International Agency, Inc., a full service insurance agency located in
Westchester, New York. Mr. Krantz graduated from Syracuse University. He
received his Chartered Property Casualty Underwriter (CPCU) designation in 1989.
34
<PAGE>
JOHN P. MARGARITIS will become a Director of the Company upon consummation
of this Offering. Mr. Margaritis has been the President and Chief Executive
Officer of Ogilvy Adams & Rinehart, a public relations firm, since January 1994,
and was the President and Chief Operating Officer from January 1992 to January
1994. From July 1988 until January 1992, Mr. Margaritis was Chairman and Chief
Executive Officer of Ogilvy & Mathers, Public Relations. Mr. Margaritis is a
director of the Young President's Organization/Metro Chapter, the Arthur Ashe
Institution for Urban Health and Research America, a non-profit organization to
promote government's support of medical research. Mr. Margaritis is a member of
the President's Advisory Counsel for the Museum of Television and Radio. Mr.
Margaritis is also a trustee of Washington and Jefferson College. Mr. Margaritis
graduated from Washington and Jefferson College and received his masters degree
from the New School for Social Research.
ARNOLD B. POLLARD will become a Director of the Company upon consummation
of this Offering. Since 1993, he has been the President and Chief Executive
Officer of Chief Executive Group, which publishes "Chief Executive" magazine.
For nearly 20 years, he has been President of Decision Associates, a management
consulting firm specializing in organizational strategy and structure. Mr.
Pollard was a founding member of the Strategic Decision Analysis Group of SRI, a
company engaged in management consulting and contract research. From 1989 to
1991, Mr. Pollard served as Chairman and Chief Executive Officer of Biopool
International, a biodiagnostic company focusing on blood related testing. From
1970 to 1973, Mr. Pollard served as an adjunct professor at the Columbia
Graduate School of Business. Mr. Pollard graduated from Cornell University (Tau
Beta Pi) and received his Masters and Ph.D degrees from Stanford University.
The Board of Directors of the Company is divided into three classes, each
of which generally serves for a term of three years, with only one class of
directors being elected in each year. The term of the office of the first class
of directors (Class I), presently consisting of Lester Rosenkrantz , James
Krantz and Arnold Pollard will expire in 1997; the term of the second class of
directors (Class II), presently consisting of Peter R. Kent and John Margaritis,
will expire in 1998; and the term of office of the third class of directors
(Class III), presently consisting of David M. Nussbaum and Roger N. Gladstone,
will expire in 1999. In each case, each director will hold office until the next
meeting of stockholders at which his/her class of directors is to be elected or
until his/her successor is duly appointed and qualified. Roger N. Gladstone is
the brother of Robert H. Gladstone and the brother-in-law of David M. Nussbaum.
No other family relationships exist between any executive officers or directors
of the Company or its subsidiaries.
The Board of Directors has designated an Audit Committee of the Board of
Directors consisting initially of Mr. Roger Gladstone, Mr. John P. Margaritis
and Mr. Arnold B. Pollard, which will review the scope of accounting audits,
review with the independent auditors the corporate accounting practices
and policies and recommend to whom reports should be submitted within the
Company, review with the independent auditors their final report, review with
internal and independent auditors overall accounting and financial controls, and
be available to the independent auditors during the year for consultation
purposes. The Board of Directors has designated a Compensation Committee of the
Board of Directors consisting initially of Mr. David M. Nussbaum, Mr. John P.
Margaritis and Mr. Arnold B. Pollard, which will review and make recommendations
to the Board regarding salaries, compensation and benefits (other than with
respect to the 1991 Plan and IC Plan) of executive officers and key employees of
the Company, and review any related party transaction on an ongoing basis for
potential conflicts of interest. The Board of Directors has also designated an
Employee Incentive Committee of the Board of Directors consisting initially of
Mr. John P. Margaritis and Mr. Arnold B. Pollard, which will administer and make
all decisions with respect to the grant of awards under, the 1991 Plan and IC
Plan. The responsibilities of the aforementioned committees will commence upon
the consummation of this Offering.
It is anticipated that Messrs. Margaritis and Pollard will be paid $2,500
per fiscal quarter during their terms as directors.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company and its
subsidiaries, as well as certain other compensation paid or accrued, during the
fiscal years ended January 31, 1996, 1995 and 1994, to the Chief Executive
Officer of the Company and the four most highly compensated executive officers
(other than the Chief Executive Officer) whose compensation was $100,000 or
greater during the fiscal year ended January 31, 1996 ("Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
FISCAL ------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION (1)
- --------------------------------------------- --------- ----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
David M. Nussbaum............................ 1996 $ 240,000 $ 250,000 20,000 $ 521,000
Chairman of the Board and Chief 1995 240,000 50,000 -0- 482,000
Executive Officer of the 1994 163,000 -0- -0- 811,000
Company and GKN
Roger N. Gladstone........................... 1996 240,000 250,000 20,000 534,000
President of the Company and GKN 1995 240,000 50,000 -0- 505,000
1994 163,000 -0- -0- 775,000
Peter R. Kent (2)............................ 1996 92,000 85,000 70,000 -0-
Chief Operating and Financial 1995 -0- -0- -0- -0-
Officer of the Company 1994 -0- -0- -0- -0-
and GKN
Lester Rosenkrantz (3)....................... 1996 150,000 20,000 -0- 19,000
Executive Vice President of the 1995 150,000 15,000 25,000 26,000
Company and GKN 1994 -0- -0- -0- -0-
Robert H. Gladstone.......................... 1996 240,000 250,000 20,000 549,000
Executive Vice President of the 1995 240,000 50,000 -0- 553,000
Company and GKN 1994 $ 138,000 $ -0- -0- $ 829,000
</TABLE>
- ---------------
(1) Primarily commissions paid on the brokerage of securities.
(2) Mr. Kent began employment with the Company on July 24, 1995.
(3) Mr. Rosenkrantz began employment with the Company on February 1, 1994.
36
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made by the
Company during the fiscal year ended January 31, 1996 to each of the Named
Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED TO EXERCISE PRICE
OPTION/SARS EMPLOYEES IN OR BASE PRICE EXPIRATION 5% 10%
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE (1) (1)
- ----------------------------------- ------------- ----------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David M. Nussbaum.................. 20,000(2) 5.42% $ 4.95 1/31/00 $ 27,400 $ 60,800
Chairman of the Board and
Chief Executive Officer
of the Company and GKN
Roger N. Gladstone................. 20,000(2) 5.42% $ 4.95 1/31/00 $ 27,400 $ 60,800
President of the Company
and GKN
Peter R. Kent...................... 70,000(3) 18.98% $ 4.50 7/23/05 $ 198,800 $ 504,000
Chief Operating and
Financial Officer of the
Company and GKN
Lester Rosenkrantz................. -0- 0% -0- -- -0- -0-
Executive Vice President
of the Company and GKN
Robert H. Gladstone................ 20,000(4) 5.42% $ 4.50 1/31/05 $ 56,800 $ 144,000
Executive Vice President
of the Company and GKN
</TABLE>
- ---------------
(1) Represents potential realizable value at the indicated assumed annual rates
of stock price appreciation for the term of the options.
(2) Options become exercisable in three equal annual installments on December
31, 1996, December 31, 1997, and December 31, 1998.
(3) 44,444 of these options are exercisable. 22,222 become exercisable on July
24, 1997. The remainder become exercisable on July 24, 1998.
(4) Options become exercisable on February 1, 2000. However, in May 1996 these
options were converted into 6,666 options which become exercisable in three
equal annual installments on December 31, 1996, December 31, 1997, and
December 31, 1998. The exercise price and expiration date remain the same.
37
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the number and value
of unexercised options held by each of the Named Officers as of January 31,
1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED IN-THE-
ACQUIRED UNEXERCISED OPTIONS/SARS MONEY OPTIONS/SARS
ON AT FISCAL YEAR-END (#)(1) FISCAL YEAR-END (2)
EXERCISE ---------------------------- ---------------------------
NAME (#) EXERCISABLE(3) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
David M. Nussbaum................................ -0- 250,000 20,000 $1,280,000 $ 21,000
Chairman of the Board and Chief Executive
Officer of the Company and GKN
Roger N. Gladstone............................... -0- 250,000 20,000 $1,280,000 $ 21,000
President of the Company and GKN
Peter R. Kent.................................... -0- 22,222 47,778 $33,333 $ 71,667
Chief Operating and Financial Officer of the
Company and GKN
Lester Rosenkrantz............................... -0- -0- 25,000 -0- -0-
Executive Vice President of the Company
and GKN
Robert H. Gladstone.............................. -0- 125,000 20,000 $650,000 $ 30,000
Executive Vice President of the Company
and GKN
</TABLE>
- ---------------
(1) Represents shares issuable upon exercise of options granted under the 1991
Plan. See "Management--1991 Employee Incentive Plan."
(2) Based on the difference between the $6.00 assumed initial offering price of
the Shares and the exercise price of the option multiplied by the number of
shares of Common Stock subject to the option.
(3) In May 1996, David M. Nussbaum, Roger N. Gladstone and Robert H. Gladstone
exercised options to purchase 250,000, 250,000 and 125,000 shares,
respectively, at an exercise price of $0.88 per share for David Nussbaum and
Roger Gladstone, and $0.80 per share for Robert Gladstone.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, dated as of May 1,
1996, with each of David M. Nussbaum, Roger N. Gladstone and Robert H.
Gladstone, which expire on April 30, 1999. The agreements provide for an annual
salary of $240,000 to each and the issuance to each of up to 15% of any
underwriter warrants issuable to the Company in connection with its corporate
finance and investment banking activities. Messrs. Nussbaum, Gladstone and
Gladstone each receive payments of 20% of the gross brokerage commissions
generated under any of his or each other's customer accounts and they are also
entitled to bonuses under the IC Plan, described below. The Company has entered
into an employment agreement, dated as of May 1, 1996, with Peter R. Kent, which
expires April 30, 1999. The agreement provides for an annual salary of $200,000.
Mr. Kent is also entitled to bonuses under the IC Plan. The agreements with
Messrs. David Nussbaum, Roger N. Gladstone, Robert H. Gladstone and Peter R.
Kent contain non-compete provisions which expire one year after termination of
employment. The non-compete provisions prohibit, without the prior written
permission of the Company, these persons from being employed by, or rendering
services to, or otherwise being associated with, any business anywhere in the
world which is directly in competition with the Company or any of its
subsidiaries, or otherwise engaging in any such competitive business anywhere in
the world for his
38
<PAGE>
own account. The Company has entered into an employment agreement, dated as of
July 1, 1996, with Lester Rosenkrantz, which expires June 30, 1997. The
agreement provides for an annual salary of $157,500, plus commissions earned.
Mr. Rosenkrantz is also entitled to bonuses under the IC Plan.
UNDERWRITER WARRANTS
As discussed under "Employment Agreements" above, each of David M.
Nussbaum, Roger N. Gladstone and Robert H. Gladstone are issued up to 15% of the
underwriter warrants issuable to GKN in connection with its corporate finance
and investment banking activities (prior to May 1996, each were issued between
15% and 20% of such warrants). Generally, the balance of the underwriter
warrants (55%) are held by GKN, except that in certain circumstances, up to 20%
of the aggregate number of underwriter warrants issued by a client, issued on a
particular deal, may be issued to certain GKN employees involved in the
transaction.
1996 INCENTIVE COMPENSATION PLAN
In July 1996, the Company adopted and its stockholders approved the 1996
Incentive Compensation Plan ("IC Plan"). The IC Plan establishes an incentive
compensation pool equal to 25% of all pre-tax, pre-incentive compensation
profits, once a 10% pre-tax, pre-incentive return on beginning equity has been
achieved. The pool will be distributed to executive management and business unit
managers on the basis of business unit and individual performance, as determined
by the Employee Incentive Committee. In the discretion of the Employee Incentive
Committee, approximately 25% of all awards may be paid in "restricted" shares of
Common Stock that will not vest, except in limited circumstances, until three
years after the date of grant. A total of 1,000,000 shares of Common Stock is
currently reserved for issuance under the IC Plan, of which none has been issued
as of the date of this Prospectus.
1991 EMPLOYEE INCENTIVE PLAN
In June 1991, the Company adopted and its stockholders approved the 1991
Plan which, as amended, provides for the issuance of stock, stock options and
other stock purchase rights to executive officers and other key employees and
consultants who render significant services to the Company and its subsidiaries.
The 1991 Plan was adopted to provide the Board of Directors with sufficient
flexibility regarding the forms of incentive compensation which the Company will
have at its disposal to reward these persons. Under the 1991 Plan, both options
intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified options may be granted.
Directors of the Company who are not employees of the Company or its
subsidiaries are not eligible to receive any awards under the 1991 Plan. The
Board of Directors determines the distribution of awards under the 1991 Plan.
Management believes that, in view of the anticipated expansion of the
Company's operations over the next several years, the Company will be faced with
an increasing need for additional qualified personnel. The Company believes that
its ability to offer employees potential equity ownership through the grant of
stock, stock options and other stock purchase rights will enhance the Company's
ability to attract and retain qualified personnel, without unnecessarily
depleting the Company's cash reserves.
A total of 5,000,000 shares of Common Stock is currently reserved for
issuance under the Plan. At June 30, 1996 there were outstanding options under
the 1991 Plan to purchase an aggregate of 998,506 shares, exercisable at an
average exercise price of $4.62 per share, of which more than half are held by
non-executive officers and other employees of the Company. The Company's
executive officers and directors own options to purchase an aggregate of 152,666
shares of Common Stock at exercise prices ranging from $2.20 per share to $6.00
per share, with expiration dates ranging from January 2000 through July 2005.
OTHER OPTIONS AND WARRANTS
Messrs. Margaritis and Pollard, each of whom will become a director upon
the consummation of this Offering, were awarded options to purchase 10,000
shares of Common Stock at a price equal to the
39
<PAGE>
per share offering price. These options become exercisable on the day the
optionees become directors of the Company and remain exercisable for a period of
ten years.
In connection with the Company's acquisition of Shochet, the Company agreed
to issue to the sellers, upon consummation of this Offering, five-year warrants
to purchase 25,000 shares of Common Stock at an exercise price equal to the
per-share Offering price.
In February 1996, the Company issued warrants to purchase 80,000 shares of
the Company's Common Stock to Mr. Joachim Stahler, the Managing Director of GKN
AG, in connection with his employment by GKN AG. These warrants are exercisable
until January 30, 2001 at the per-share Offering price.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Restated Certificate of Incorporation limits the personal liability of
a director of the Company for monetary damages for breach of fiduciary duty of
care as a director. Liability is not eliminated for (i) any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or stock purchases or
redemptions pursuant to Section 174 of the DGCL, or (iv) any transaction from
which the director derived an improper personal benefit.
The Company's Restated Certificate of Incorporation permits the Company to,
and the Company will, indemnify a director and/or officer of the Company against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
any civil, criminal, administrative or investigative action, suit or proceeding,
including a derivative action, if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interest of the Company, and, with respect to any criminal action, had no
reasonable cause to believe his conduct was unlawful. The Company also has
entered into indemnification agreements with each of its directors and executive
officers. The indemnification agreements provide that the directors and
executive officers will be indemnified to the fullest extent permitted by
applicable law against all expenses (including attorneys' fees), judgments,
fines and amounts reasonably paid or incurred by them for settlement in any
civil, criminal, administrative or investigative action, suit or proceeding,
including a derivative action. No indemnification will be provided under the
indemnification agreements, however, to any director or executive officer in
certain limited circumstances, including on account of knowingly fraudulent,
deliberately dishonest or willful misconduct. To the extent the provisions of
the indemnification agreements exceed the indemnification permitted by
applicable law, such provisions may be unenforceable or may be limited to the
extent they are found by a court of competent jurisdiction to be contrary to
public policy.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of June 30, 1996, and as
adjusted to reflect the sale of the Shares offered hereby by (i) each person
known by the Company to own beneficially 5% or more of its outstanding shares of
Common Stock, (ii) each director and director-nominee, (iii) the Chief Executive
Officer and each of the Company's next four most highly compensated executive
officers whose individual compensation exceeded $100,000 in the fiscal year
ended January 31, 1996, and (iv) all directors and executive officers of the
Company as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES BENEFICIALLY OWNED
BENEFICIALLY ------------------------
OWNED BEFORE BEFORE AFTER
<S> <C> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OFFERING(2) OFFERING OFFERING
- ------------------------------------------------------------------ ------------------ ----------- -----------
David M. Nussbaum(3).............................................. 1,226,111(4) 21.7% 15.0%
Roger N. Gladstone(3)............................................. 1,226,111(4) 21.7% 15.0%
c/o GKN Securities Corp.
433 Plaza Real
Suite 245
Boca Raton, Florida 33432
Peter R. Kent..................................................... 44,444(5) * *
Lester Rosenkrantz................................................ -0-(6) * *
Robert H. Gladstone(3)(7)......................................... 452,778(7) 8.0% 5.5%
James I. Krantz................................................... 152,375(8) 2.7% 1.9%
c/o York International Agency, Inc.
1 Executive Boulevard
Yonkers, NY 10701
John P. Margaritis................................................ 10,000(9) * *
c/o Ogilvy, Adams & Rinehart
708 Third Avenue
New York, NY 10017
Arnold B. Pollard................................................. 10,000(9) * *
c/o Chief Executive Magazine
733 Third Avenue
New York, NY 10017
All Executive Officers and Directors (8 persons) (10)............. 3,121,819 54.9% 38.1%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Unless otherwise indicated, the holders' address is c/o GKN Holding Corp.,
61 Broadway, New York, New York 10006.
(2) Each stockholder has sole voting and sole investment power with respect to
all shares for which beneficial ownership is shown, except where otherwise
indicated.
(3) Roger N. Gladstone and Robert H. Gladstone are brothers. David M. Nussbaum
is Roger N. Gladstone's brother-in-law.
(Footnotes continued on following page)
41
<PAGE>
(Footnotes continued from preceding page)
(4) Does not include shares issuable upon exercise of options to purchase 20,000
shares at $4.95 per share, which become exercisable in three annual
installments commencing December 31, 1996.
(5) Represents shares issuable upon exercise of options at $4.50 per share. Does
not include 25,556 shares issuable upon exercise of options exercisable at
$4.50 per share, which become exercisable in two annual installments
beginning in July 1997.
(6) Does not include 25,000 shares issuable upon exercise of options exercisable
at $6.00 per share, which become exercisable in three equal annual
installments beginning in January 1997.
(7) Includes 50,000 shares issuable upon exercise of options held by Shawn
Gladstone, Robert H. Gladstone's wife, at $2.20 per share. Does not include
2,500 shares issuable upon exercise of other options held by Mrs. Gladstone,
which do not become exercisable until December 1996, and options to purchase
6,666 shares at $4.50 per share, which become exercisable in three annual
installments commencing December 31, 1996.
(8) Includes 3,125 shares held by Mr. Krantz' wife and 10,000 shares issuable
upon exercise of options, 5,000 of which are exercisable at $2.20 per share
and 5,000 of which are exercisable at $6.00 per share. Does not include
shares issuable upon exercise of options to purchase 1,000 shares at $4.50
per share, which become exercisable February 2000.
(9) Includes 10,000 shares issuable upon exercise of options at $6.00 per share.
(10) Includes the shares subject to options and included in the table, as set
forth in footnotes (5), (7), (8), and (9), and excludes those shares
indicated in footnotes (4), (5), (6), (7) and (8) as being excluded
therefrom.
CERTAIN TRANSACTIONS
In March 1991, the Company agreed to lend to Messrs. David M. Nussbaum,
Roger N. Gladstone, James I. Krantz and Jonathan Krantz (James Krantz' brother)
up to an aggregate of $250,000 to cover capital calls made on them in their
capacity as limited partners of Heather Croft Associates Limited Partnership
("Heather Croft"). All such loans are due and payable three years from the date
each loan was made, together with interest at 10% per annum. All such loans had
been repaid as of January 31, 1996. Prior to such repayment, the maximum amount
outstanding under this arrangement, including accrued interest was $305,000.
Messrs. Nussbaum, Gladstone, Krantz and Krantz, in the aggregate, own 66% of the
limited partnership interests of Heather Croft. In consideration of the Company
agreeing to make the above-described loans, each of Messrs. Nussbaum and
Gladstone agreed to pay to the Company, when and as received by him, 25% of any
distributions from Heather Croft (other than repayment of indebtedness) over and
above his original capital contribution to Heather Croft ("Partner's Profits")
and each of James Krantz and Jonathan Krantz agreed to pay 10% of his Partner's
Profits to the Company. As of the date hereof, no Partner's Profits have been
distributed.
The Company has purchased and continues to purchase insurance using York
International Agency, Inc. ("York") as its agent. James Krantz, a director of
the Company, is President and Chief Executive Officer, a director and a
stockholder of York. In the years ended January 31, 1994, 1995 and 1996, the
Company paid premiums for insurance policies purchased through York (a portion
of which amounts are paid by the insurer to York) of $92,000, $114,000 and
$98,000, respectively.
In the fiscal year ended January 31, 1995, the Company loaned Mr. Lester
Rosenkrantz, Executive Vice President and a Director of the Company, an
aggregate of $99,000. An additional $25,000 loan was made in the year ended
January 31, 1996. Mr. Rosenkrantz repaid $10,000 in December 1995 and $20,000 in
March 1996, leaving an aggregate outstanding principal balance as of May 31,
1996 of $94,000. These loans are payable without interest and are collateralized
through the pledge by Mr. Rosenkrantz of his interest in certain underwriter
warrants.
42
<PAGE>
In March 1995, the Company loaned Mr. Roger Gladstone $200,000, which was
repaid by Mr. Gladstone by offset against his salary over a period of ten
months, without interest.
In October 1995, the Company repurchased from the mother of Messrs. Roger
and Robert Gladstone an aggregate of 100,000 shares of Common Stock for
$200,000, or $2.00 per share. The shares were originally purchased in 1991 at a
price of $.80 per share.
In May 1996, David Nussbaum, Roger Gladstone and Robert Gladstone exercised
stock options to purchase 250,000 shares, 250,000 shares and 125,000 shares of
Common Stock, respectively, at purchase prices of $.88, $.88 and $.80,
respectively, which purchase prices were paid by delivery to the Company of
shares of the Company's Common Stock owned by optionholders, valued for this
purpose at $4.50 per share.
In connection with its corporate finance and investment banking activities,
GKN is often issued warrants to purchase securities of the issuer for whom its
services are rendered ("Underwriter Warrants"). Generally, a portion of the
Underwriter Warrants issuable to GKN are issued to its executive officers and,
in certain circumstances, to other personnel involved in the transaction
(collectively the "Individual Holders"). GKN has, in the past, and may, in the
future, purchase Underwriter Warrants from the Individual Holders at a price
equal to the market price of the underlying securities less the exercise price
of the Underwriter Warrants. Additionally, GKN has, in the past, and may, in the
future, lend to the Individual Holders funds to pay the exercise price of the
Underwriter Warrants, which loans are repaid, without interest, within a period
of no more than two weeks.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares
of Common Stock, par value $.0001 per share, and 5,000,000 shares of Preferred
Stock, par value $.10 per share ("Preferred Stock").
COMMON STOCK
There are currently 5,559,125 shares of Common Stock issued and outstanding
(excluding 783,750 shares held in the Company treasury), held of record by 78
stockholders. After completion of this Offering, there will be 8,059,125 shares
of Common Stock issued and outstanding.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Stockholders do not
have cumulative voting rights. Subject to preferences that may be applicable to
any then outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. See "Dividend Policy." In
the event of a dissolution, liquidation or winding-up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no right to convert their Common Stock into
any other securities. The Common Stock has no preemptive or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the Common Stock
to be outstanding upon completion of this Offering will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption,
43
<PAGE>
liquidation preferences and the number of shares constituting any series or the
designation of such series. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and could have the effect of
delaying, deferring or preventing a change in control of the Company.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Upon the closing of this Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
this statute prohibits a publicly-held Delaware corporation from engaging, under
certain circumstances, in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless either (i) prior to
the date at which the stockholder became an interested stockholder the Board of
Directors approved either the business combination or the transaction in which
the person becomes an interested stockholder, (ii) the stockholder acquires more
than 85% of the outstanding voting stock of the corporation (excluding shares
held by directors who are officers or held in certain employee stock plans) upon
consummation of the transaction in which the stockholder becomes an interested
stockholder or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent) held on or subsequent to the date of
the business combination. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 15% or more of the corporation's voting stock. Section 203
defines a "business combination" to include, without limitation, mergers,
consolidations, stock sales and asset based transactions and other transactions
resulting in a financial benefit to the interested stockholder.
The Company's Amended and Restated Certificate of Incorporation and its
By-laws also contain provisions relating to corporate governance and to the
rights of stockholders. Certain of these provisions may be deemed to have a
potential "anti-takeover" effect, in that such provisions may delay, defer or
prevent a change of control of the Company. These provisions include the
authority of the Board of Directors to issue series of Preferred Stock with such
voting rights and other powers as the Board of Directors may determine, a
staggered board of directors consisting of three classes, such that after the
next annual meeting of stockholders only one class of directors is elected at
any one annual meeting of stockholders, and a provision requiring that
notification of nominations for directors made by stockholders be furnished to
the Company at least 90 days prior to the date of the meeting at which the
election of such nominees is to be considered and voted upon by the stockholders
of the Company. See "Management."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
8,059,125 shares of Common Stock. All shares acquired in this Offering, other
than shares that may be acquired by "affiliates" of the Company as defined by
Rule 144 under the Act, will be freely transferable without restriction or
further registration under the Act.
All of the shares of Common Stock outstanding prior to the date of this
Prospectus are "restricted securities," as that term is defined under Rule 144
promulgated under the Act. Substantially all of the 5,559,125 shares outstanding
prior to this Offering will be available for resale in the public market under
Rule 144 commencing on the date of this Prospectus; however, all of the officers
and directors of the Company have agreed not to sell the shares they currently
own (an aggregate of 3,224,250 shares of Common Stock) for a period of fifteen
months from the date of this Prospectus without the prior written consent of
Pennsylvania Merchant Group Ltd. Holders of the Common Stock which own in the
aggregate 4,229,333 shares (including the shares held by all of the officers and
directors) and 760,834 shares have agreed not to sell the shares of Common Stock
owned by them for a period of fifteen and six months, respectively, from the
date of the Prospectus without the consent of Pennsylvania Merchant Group Ltd.
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise capital through the sale of its equity
securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, who beneficially owns "restricted shares" for a period of at least two
years is entitled to sell within any three-month period, shares equal in number
to the greater of (i) 1% of the then-outstanding shares of Common Stock
(approximately 80,591 shares immediately after this Offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of the required notice of sale with the Securities and
Exchange Commission. The seller also must comply with the notice and manner of
sale requirements of Rule 144, and there must be current public information
available about the Company. In addition, any person (or persons whose shares
are aggregated) who is not, at the time of the sale, nor during the preceding
three months, an affiliate of the Company, and who has beneficially owned
restricted shares for at least three years, can sell such shares under Rule 144
without regard to notice, manner of sale, public information or the volume
limitations described above.
UNDERWRITING
Pennsylvania Merchant Group Ltd and GKN (collectively, the "Underwriters")
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company a total of 2,500,000 Shares. Each of
Pennsylvania Merchant Group Ltd and GKN has agreed to purchase one-half of the
Shares offered hereby. The Underwriting Agreement provides that the obligations
of the Underwriters are subject to approval of certain legal matters by counsel
and various other conditions precedent, and that the Underwriters are obligated
to purchase all of the Shares offered by this Prospectus (other than the Shares
covered by the over-allotment option described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Shares to the public at the initial offering price set forth on the cover page
of this Prospectus and to certain dealers at that price less a concession not in
excess of $ per Share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per Share to certain
other dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Underwriters.
45
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Act. The Company has also agreed to
pay to the Underwriters an expense allowance on a nonaccountable basis equal to
2% of the gross proceeds derived from the sale of the Shares underwritten
(including the sale of any Shares subject to the Underwriters' over-allotment
option). The Company also has agreed to pay all expenses in connection with
qualifying the Shares offered hereby for sale under the laws of such states as
the Underwriters may designate, including fees and expenses of counsel retained
for such purposes by the Underwriters.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period after the date of this Prospectus, to purchase from the
Company at the offering price, less underwriting discounts and the
nonaccountable expense allowance, up to an aggregate of 375,000 additional
Shares for the sole purpose of covering over-allotments, if any.
DETERMINATION OF PUBLIC OFFERING PRICE
Under Schedule E of the By-Laws of the NASD, when a member of the NASD,
such as GKN, participates in the public distribution of securities of an
"affiliate," such as the Company, the public offering price can be no higher
than recommended by a qualified independent underwriter. In accordance with this
requirement, Pennsylvania Merchant Group Ltd has agreed to act in such role and
to recommend an initial public offering price in compliance with the
requirements of Schedule E. Pennsylvania Merchant Group Ltd, in its role as
qualified independent underwriter, has participated in the preparation of the
Registration Statement of which this Prospectus forms a part and has performed
"due diligence" with respect thereto. Pennsylvania Merchant Group Ltd has agreed
to undertake the legal responsibilities and liabilities of an underwriter under
the Act, specifically including those inherent in Section 11 thereof.
Prior to this Offering, there has been no public market for the Common
Stock. The initial price to the public for the shares of Common Stock offered
hereby has been determined by negotiation between the Company and Pennsylvania
Merchant Group Ltd. The factors considered in determining the initial price to
the public include the history of and the prospects for the industry in which
the Company and its subsidiaries compete, the past and present operations of the
Company, the historical results of operations of the Company, the prospects for
future earnings of the Company, market valuations of other companies engaged in
activities similar to the Company, the Company's management and the general
condition of the securities market at the time of the Offering.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for the
Company by Graubard Mollen & Miller. Kirkpatrick & Lockhart has acted as counsel
for the Underwriters in connection with this Offering. Graubard Mollen & Miller
represents GKN, one of the Underwriters, in other matters.
EXPERTS
The financial statements of the Company as of January 31, 1995 and 1996 and
for each of the two years in the period ended January 31, 1996 have been
included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The financial
statements of the Company for the year ended January 31, 1994 have been included
herein in reliance upon the report of Goldstein Golub Kessler & Company, P.C.,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
46
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement under the Act with respect to the Shares offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and this Offering, reference is made to the Registration
Statement, including the exhibits filed therewith, copies of which may be
obtained at prescribed rates from the Commission at the public reference
facilities maintained by the Commission at Judiciary Plaza Building, 450 Fifth
Street, N.W., Washington, D.C. 20549; and its regional offices located at Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661, and Seven World Trade Center, 13th Floor, New York, New York 10048.
Descriptions contained in this Prospectus as to the contents of any contract or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete and each such description is qualified by reference to such
contract or document.
47
<PAGE>
========================================= ====================================
- ----------------------------------------- ------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE 2,500,000 SHARES
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECUR ITY [GKN LOGO] HOLDING CORP.
OTHER THAN THE SECURITIES OFFERED BY THIS
PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS COMMON STOCK
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL
NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 3
Risk Factors............................ 6 ------------------
Use of Proceeds......................... 12 PROSPECTUS
Dilution................................ 13 ------------------
Capitalization.......................... 14
Dividend Policy......................... 14
Selected Financial Data................. 15
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................. 16
Business................................ 24
Management.............................. 33
Principal Stockholders.................. 41
Certain Transactions.................... 42
Description of Capital Stock............ 43
Shares Eligible for Future Sale......... 45 PENNSYLVANIA MERCHANT
Underwriting............................ 45 GROUP LTD
Legal Matters........................... 46
Experts................................. 46 GKN SECURITIES
Additional Information.................. 47
Index to Financial Statements........... F-1
------------------------
UNTIL , 1996 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN , 1996
THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
========================================= ====================================
- ----------------------------------------- ------------------------------------
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGES
-----------
Consolidated Statements of Financial Condition as of January 31, 1996 and 1995, and as of April 30, 1996
(Unaudited)............................................................................................... F-2
Consolidated Statements of Operations for the years ended January 31, 1996, 1995 and 1994, and the three
months ended April 30, 1996 and 1995 (Unaudited).......................................................... F-3
Consolidated Statements of Changes in Stockholders' Equity for the years ended
January 31, 1994, 1995 and 1996, and the three months ended April 30, 1996 (Unaudited).................. F-4
Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1995 and 1994, and the three
months ended April 30, 1996 and 1995 (Unaudited).......................................................... F-5
Notes to Consolidated Financial Statements................................................................ F-6
Independent Auditors' Report (KPMG Peat Marwick LLP)...................................................... F-13
Independent Auditor's Report (Goldstein Golub Kessler & Company, P.C.).................................... F-14
</TABLE>
F-1
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
----------------------------
1996 1995 1996
------------- ------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents......................................... $ 7,873,000 $ 3,123,000 $ 10,923.000
Due from clearing firm............................................ 4,338,000 3,129,000 9,726,000
Commissions receivable............................................ 106,000 128,000 152,000
Syndicate fees receivable......................................... 369,000 -- 43,000
Securities owned, at market value................................. 8,152,000 5,440,000 5,692,000
Securities owned, not readily marketable, at fair value........... 1,744,000 474,000 1,781,000
Investments, at cost.............................................. 292,000 -- 160,000
Office furniture, equipment and leasehold improvements
(net of accumulated depreciation and amortization of $1,027,000,
$690,000 and $1,109,000, respectively)............................ 964,000 1,162,000 1,008,000
Goodwill (net of accumulated amortization of $11,000 at January
31, 1996 and $27,000 at April 30, 1996)........................... 1,595,000 -- 1,581,000
Loans receivable.................................................. 1,435,000 1,566,000 761,000
Income taxes receivable (including deferred taxes of $22,000 at
January 31, 1995)................................................. -- 448,000 --
Other assets...................................................... 985,000 626,000 1,290,000
------------- ------------- -------------
Total assets............................................... $ 27,853,000 $ 16,096,000 $ 33,117,000
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value............. $ 4,015,000 $ 1,793,000 $ 6,167,000
Commissions payable............................................. 1,992,000 1,204,000 2,649,000
Deferred compensation........................................... 331,000 144,000 789,000
Income taxes payable (including deferred taxes of $1,292,000 and
$940,000 at January 31, 1996
and April 30, 1996).......................................... 1,610,000 -- 3,048,000
Accrued expenses and other liabilities.......................... 4,195,000 1,198,000 2,695,000
------------- ------------- -------------
12,143,000 4,339,000 15,348,000
Liability subordinated to the claims of general creditors....... 934,000 -- 868,000
------------- ------------- -------------
Total liabilities.......................................... 13,077,000 4,339,000 16,216,000
------------- ------------- -------------
Stockholders' equity:
Series A preferred stock $.10 par value; 5,000,000 shares
authorized, 1,000 shares issued and outstanding at January
31, 1995 (liquidation value $1 per share)......................... -- -- --
Common stock, $.0001 par value; 35,000,000 shares authorized,
5,397,875, 5,397,875 and 5,602,875 shares issued,
respectively, and 4,885,375, 5,110,375 and 5,054,125 shares
outstanding, respectively......................................... 1,000 1,000 1,000
Additional paid-in capital...................................... 3,487,000 3,487,000 3,487,000
Retained earnings............................................... 11,918,000 8,449,000 14,164,000
Cumulative translation adjustment............................... -- -- (18,000)
------------- ------------- -------------
15,406,000 11,937,000 17,634,000
Less treasury stock--at cost; 512,500, 287,500 and 548,750
shares, respectively.............................................. (630,000) (180,000) (733,000)
------------- ------------- -------------
Total stockholders' equity................................. 14,776,000 11,757,000 16,901,000
------------- ------------- -------------
Total liabilities and stockholders' equity................. $ 27,853,000 $ 16,096,000 $ 33,117,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JANUARY 31, APRIL 30,
---------------------------------------------- -----------------------------
1996 1995 1994 1996 1995
-------------- -------------- -------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions.................... $ 30,418,000 $ 21,804,000 $ 19,803,000 $ 12,068,000 $ 5,268,000
Investment banking............. 6,003,000 9,607,000 10,027,000 3,413,000 1,431,000
Principal transactions......... 5,683,000 433,000 2,739,000 2,477,000 266,000
Interest....................... 717,000 262,000 203,000 337,000 126,000
Other.......................... 198,000 304,000 184,000 149,000 66,000
-------------- -------------- -------------- -------------- -------------
Total revenues............ 43,019,000 32,410,000 32,956,000 18,444,000 7,157,000
-------------- -------------- -------------- -------------- -------------
Expenses:
Compensation and benefits...... 27,121,000 22,856,000 18,819,000 10,728,000 5,241,000
Communications................. 2,631,000 2,563,000 1,990,000 839,000 619,000
Brokerage, clearing and
exchange fees.................... 1,350,000 908,000 695,000 631,000 267,000
Occupancy and equipment........ 2,180,000 1,711,000 1,260,000 655,000 519,000
Business development........... 851,000 780,000 702,000 273,000 208,000
Professional fees.............. 703,000 1,251,000 917,000 733,000 237,000
Other.......................... 1,896,000 1,447,000 1,151,000 590,000 435,000
-------------- -------------- -------------- -------------- -------------
Total expenses............ 36,732,000 31,516,000 25,534,000 14,449,000 7,526,000
-------------- -------------- -------------- -------------- -------------
Income (loss) before
provision (benefit)
for income taxes.... 6,287,000 894,000 7,422,000 3,995,000 (369,000)
-------------- -------------- -------------- -------------- -------------
Income tax expense (benefit):
Current........................ 1,612,000 747,000 3,262,000 2,101,000 (117,000)
Deferred....................... 1,206,000 (234,000) 154,000 (352,000) 4,000
-------------- -------------- -------------- -------------- -------------
Provision (benefit) for
income taxes..................... 2,818,000 513,000 3,416,000 1,749,000 (113,000)
-------------- -------------- -------------- -------------- -------------
Net income (loss)...... $ 3,469,000 $ 381,000 $ 4,006,000 $ 2,246,000 $ (256,000)
-------------- -------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------- -------------
Income (loss) per common
share*........................... $ .61 $ .07 $ .72 $ .40 $ (.04)
-------------- -------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------- -------------
Weighted average common shares
outstanding...................... 5,729,360 5,694,966 5,529,684 5,638,260 5,784,300
-------------- -------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------- -------------
</TABLE>
- ---------------
* Represents primary earnings per share. The difference between primary and
fully diluted earnings per share is not material.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1994, 1995 AND 1996 AND THREE MONTHS ENDED APRIL 30,
1996 (UNAUDITED)
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK PREFERRED STOCK ADDITIONAL CUMULATIVE STOCK
---------------------- ---------------------- PAID-IN RETAINED TRANSLATION ---------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SHARES
----------- --------- --------- ----------- ------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1993.................... 5,241,000 $ 1,000 1,000 $ -- $ 3,327,000 $ 4,062,000 $ -- 287,500
Net income.............. -- -- -- -- -- 4,006,000 -- --
Stock issued............ 10,000 -- -- -- 60,000 -- -- --
----------- --------- --------- ----------- ------------- -------------- ----------- ---------
Balance at January 31,
1994.................... 5,251,000 1,000 1,000 -- 3,387,000 8,068,000 -- 287,500
Net income.............. -- -- -- -- -- 381,000 -- --
Stock issued in
conversion of
subordinated debt....... 162,500 -- -- -- 162,000 -- -- --
Retirement of shares
issued.................. (15,625) -- -- -- (62,000) -- -- --
----------- --------- --------- ----------- ------------- -------------- ----------- ---------
Balance at January 31,
1995.................... 5,397,875 1,000 1,000 -- 3,487,000 8,449,000 -- 287,500
Net income.............. -- -- -- -- -- 3,469,000 -- --
Expiration of preferred
shares.................. -- -- (1,000) -- -- -- -- --
Purchase of treasury
shares.................. -- -- -- -- -- -- -- 225,000
----------- --------- --------- ----------- ------------- -------------- ----------- ---------
Balance at January 31,
1996.................... 5,397,875 1,000 -- -- 3,487,000 11,918,000 -- 512,500
Net income.............. -- -- -- -- -- 2,246,000 -- --
Stock issued............ 205,000 -- -- -- 342,000 -- -- --
Subscription
receivable.............. -- -- -- -- (121,000) -- -- --
Notes receivable........ -- -- -- -- (221,000) -- -- --
Purchase of treasury
shares.................. -- -- -- -- -- -- -- 36,250
Translation
adjustment.............. -- -- -- -- -- -- (18,000) --
----------- --------- --------- ----------- ------------- -------------- ----------- ---------
Balance at April 30,
1996.................... 5,602,875 $ 1,000 -- $ -- $ 3,487,000 $ 14,164,000 $ (18,000) 548,750
----------- --------- --------- ----------- ------------- -------------- ----------- ---------
----------- --------- --------- ----------- ------------- -------------- ----------- ---------
<CAPTION>
AMOUNT TOTAL
------------ --------------
<S> <C> <C>
Balance at January 31,
1993.................... $ (180,000) $ 7,210,000
Net income.............. -- 4,006,000
Stock issued............ -- 60,000
------------ --------------
Balance at January 31,
1994.................... (180,000) 11,276,000
Net income.............. -- 381,000
Stock issued in
conversion of
subordinated debt....... -- 162,000
Retirement of shares
issued.................. -- (62,000)
------------ --------------
Balance at January 31,
1995.................... (180,000) 11,757,000
Net income.............. -- 3,469,000
Expiration of preferred
shares.................. -- --
Purchase of treasury
shares.................. (450,000) (450,000)
------------ --------------
Balance at January 31,
1996.................... (630,000) 14,776,000
Net income.............. -- 2,246,000
Stock issued............ -- 342,000
Subscription
receivable.............. -- (121,000)
Notes receivable........ -- (221,000)
Purchase of treasury
shares.................. (103,000) (103,000)
Translation
adjustment.............. -- (18,000)
------------ --------------
Balance at April 30,
1996.................... $ (733,000) $ 16,901,000
------------ --------------
------------ --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JANUARY 31, APRIL 30,
------------------------------------------- ---------------------------
1996 1995 1994 1996 1995
------------- ------------- ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 3,469,000 $ 381,000 $ 4,006,000 $ 2,246,000 $ (256,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred taxes............................. 1,206,000 (234,000) 154,000 (352,000) 4,000
Depreciation............................... 138,000 287,000 189,000 68,000 33,000
Amortization............................... 277,000 -- -- 64,000 56,000
------------- ------------- ------------- ------------- ------------
5,090,000 434,000 4,349,000 2,026.000 (163,000)
(Increase) decrease in operating assets:
Securities purchased under agreements to
resell......................................... -- 3,057,000 (3,057,000) -- --
Due from clearing firm..................... (1,209,000) 404,000 1,888,000 (5,388,000) 543,000
Commissions receivable..................... 22,000 (20,000) -- (46,000) (17,000)
Syndicate fees receivable.................. (369,000) -- -- 326,000 --
Securities owned, at market value.......... (2,712,000) (1,867,000) (303,000) 2,460,000 3,155,000
Securities owned, not readily marketable... (1,270,000) 277,000 (550,000) (37,000) (127,000)
Investments................................ (292,000) -- -- 132,000 --
Loans receivable........................... 131,000 (1,205,000) -- 674,000 (460,000)
Income taxes receivable.................... 448,000 (448,000) -- -- 448,000
Other assets............................... (359,000) 387,000 (645,000) (305,000) (754,000)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased......... 2,222,000 171,000 (1,993,000) 2,152,000 (137,000)
Commissions payable........................ 788,000 178,000 156,000 657,000 (306,000)
Deferred compensation...................... 187,000 (27,000) -- 458,000 684,000
Income taxes payable....................... (17,000) 136,000 85,000 1,790,000 (4,000)
Accrued expenses and other liabilities..... 3,418,000 (568,000) 598,000 (1,500,000) (585,000)
Translation adjustment..................... -- -- -- (18,000) --
------------- ------------- ------------- ------------- ------------
Net cash provided by operating
activities..................................... 6,078,000 909,000 528,000 3,381,000 2,277,000
------------- ------------- ------------- ------------- ------------
Cash flows from investing activities:
Purchase of office furniture, equipment and
leasehold improvements......................... (206,000) (646,000) (380,000) (162,000) (42,000)
Goodwill resulting from acquisition.......... (1,606,000) -- -- -- --
------------- ------------- ------------- ------------- ------------
Net cash used in investing activities... (1,812,000) (646,000) (380,000) (162,000) (42,000)
------------- ------------- ------------- ------------- ------------
Cash flows from financing activities:
Issuance (retirement) of common shares....... -- (62,000) 60,000 -- --
Purchase of treasury stock................... (450,000) -- -- (103,000) --
Issuance in subordinated debt................ 934,000 -- -- -- --
Repayment of subordinated debt............... -- -- -- (66,000) --
------------- ------------- ------------- ------------- ------------
Net cash provided by (used) in financing
activities..................................... 484,000 (62,000) 60,000 (169,000) --
------------- ------------- ------------- ------------- ------------
Net increase in cash and cash
equivalents.................................... 4,750,000 201,000 208,000 3,050,000 2,235,000
Cash and cash equivalents at beginning of
period......................................... 3,123,000 2,922,000 2,714,000 7,873,000 3,123,000
------------- ------------- ------------- ------------- ------------
Cash and cash equivalents at end of period..... $ 7,873,000 $ 3,123,000 $ 2,922,000 $ 10,923,000 $ 5,358,000
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Supplemental disclosures of cash flow
information:
Cash paid during the period for income
taxes.......................................... $ 900,000 $ 1,456,000 $ 2,837,000 $ 1,551,000 $ --
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Cash paid during the period for interest..... $ -- $ -- $ 25,000 $ 17,000 $ --
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Non cash financing activities:
Conversion of subordinated notes to common
shares......................................... $ -- $ 162,000 $ -- $ -- $ --
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF APRIL 30, 1996 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS
GKN Holding Corp. and subsidiaries (the "Company") are primarily engaged in
securities brokerage, investment banking and trading. The Company's principal
wholly owned subsidiaries, GKN Securities Corp. ("GKN Securities") and Shochet
Securities, Inc. ("Shochet"), are both broker-dealers registered with the
Securities and Exchange Commission. Through its broker-dealer subsidiaries, the
Company executes principal and agency transactions, makes markets in
over-the-counter securities and performs underwriting and investment banking
services. GKN Securities' and Shochet's customers are located throughout the
United States. Both companies execute and clear all customer transactions with
the same unaffiliated broker-dealer on a fully disclosed basis. As discussed in
note 12, Shochet was acquired at the close of business, November 30, 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of GKN Holding
Corp. and its subsidiaries. All intercompany accounts and transactions are
eliminated in consolidation. These consolidated financial statements reflect, in
the opinion of management, all adjustments (consisting of normal, recurring
accruals) necessary for a fair presentation of the consolidated financial
position of the Company.
The Company records securities transactions, including due from clearing
firm, income from security transactions and commission revenue and expense on a
trade-date basis.
Securities owned and securities sold, not yet purchased, principally
comprised of equities, are stated at quoted market values. Securities owned, not
readily marketable, principally comprised of warrants, are carried at
management's estimate of fair value based on a percentage of the market value of
the underlying securities. Changes in unrealized appreciation (depreciation)
arising from fluctuations in market value or upon realization of security
positions are reflected in the statements of operations. Included in revenues
from principal transactions is unrealized appreciation (depreciation) of
$3,130,000, ($250,000) and $472,000 for the years ended January 31, 1996, 1995
and 1994, respectively, and ($816,000) and $64,000 for the quarters ended April
30, 1996 and 1995, respectively.
Investment banking revenues from management fees and underwriting fees are
recognized on a trade-date basis. Advisory fee revenues are recorded when
services are substantially completed and the revenues are reasonably
determinable.
Primary income per common share is calculated based on the weighted average
number of shares of common stock and common stock equivalents outstanding.
Common stock equivalents represent the dilutive effect of the assumed exercise
of certain outstanding stock options. All assumed exercises of the outstanding
stock options were done using the treasury stock method.
Investments primarily represent the Company's investment in limited
partnerships which are shown at cost.
Office furniture and equipment is depreciated using the modified
accelerated cost recovery method over their estimated useful lives. Leasehold
improvements are amortized over the terms of the applicable leases or the useful
lives of the assets, whichever is less. Goodwill, representing the difference
F-6
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
between the purchase price of Shochet and the underlying net assets at the date
of acquisition, is amortized over 25 years on a straight-line basis.
For purposes of the consolidated statements of cash flows, the Company
considers all demand deposits held in banks and highly liquid investments with
maturities of 90 days or less to be cash equivalents.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Certain reclassifications have been made to prior year financial statements
to conform to the 1996 presentation.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting for Stock Based
Compensation, in October, 1995. The adoption of FAS 123, which will become
effective for fiscal years beginning after December 15, 1995, would not have a
material effect on the Company's consolidated financial statements.
(3) DUE FROM CLEARING FIRM
The clearing and depository operations for brokerage transactions are
provided by an unaffiliated broker-dealer. At January 31, 1996 and 1995,
substantially all of the securities owned, securities sold, not yet purchased,
and the amount due from the clearing firm reflected in the consolidated
statements of financial condition are positions with and amounts due from this
firm.
The Company's broker-dealer subsidiaries have agreed to indemnify its
clearing firm for losses that the clearing firm may sustain from the customer
accounts introduced by the broker-dealers. As of January 31, 1996 and 1995,
substantially all of the amounts owed to the clearing firm by these customers
are collateralized by securities owned by the customers.
(4) RELATED PARTY TRANSACTIONS
Included in loans receivable, at January 31, 1996 and 1995, and at April
30, 1996, are amounts due from officers of the Company amounting to
approximately $198,000, $186,000 and $94,000, respectively. At January 31, 1996
and 1995, and at April 30, 1996, $557,000, $939,000 and $382,000, respectively,
included in loans receivable represent payments made to brokers in anticipation
of these brokers generating commission revenue in accordance with the loan
agreement over the life of the agreement. Until the specified amount of
commission revenue is generated, the broker is liable to the Company for all
amounts advanced to the broker. These advances are not collateralized, nor do
they bear interest. All amounts are amortized on a monthly basis over the time
period specified in the agreement. At January 31, 1996 advances were being
amortized over a period of five months to three years.
F-7
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) NET CAPITAL REQUIREMENTS
The broker-dealers are subject to the Securities and Exchange Commission's
Uniform Net Capital Rule 15c3-1 (the "Rule"), which requires the maintenance of
minimum net capital.
GKN Securities has elected to compute its net capital using the alternative
method permitted by the Rule, which requires that GKN Securities maintain
minimum net capital, as defined, to be greater than or equal to $250,000. At
January 31, 1996, GKN Securities had net capital of $9,407,000, which was
$9,157,000 in excess of required net capital of $250,000. At January 31, 1995,
GKN Securities had net capital of $4,327,000, which was $4,077,000 in excess of
required net capital of $250,000. At April 30, 1996, GKN Securities had net
capital of $10,807,000, which was $10,557,000 in excess of required net capital
of $250,000.
Shochet has elected to compute net capital under the standard aggregate
indebtedness method permitted by the Rule, which requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. At January 31, 1996, Shochet had net capital of $314,000 and a net capital
requirement of $100,000. Shochet's net capital ratio at January 31, 1996 was 1.4
to 1.
(6) COMMITMENTS AND CONTINGENCIES
The Company is obligated under noncancelable leases or subleases for office
facilities. The leases are subject to escalations for the Company's share of
increases in operating costs. Rent expense included in occupancy and equipment
expense for the years ended January 31, 1996, 1995 and 1994, and for the three
months ended April 30, 1996 and 1995, totaled $1,218,000, $977,000, $752,000,
$362,000 and $319,000, respectively.
The future aggregate minimum rental commitments under these leases are as
follows:
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDING JANUARY 31, AMOUNT
- ------------------------------------------------------------------------------ -------------
1997.......................................................................... $ 1,146,000
1998.......................................................................... 1,089,000
1999.......................................................................... 482,000
2000.......................................................................... 243,000
2001.......................................................................... 127,000
Thereafter.................................................................... 506,000
-------------
$ 3,593,000
-------------
-------------
</TABLE>
Various legal proceedings are pending against the broker-dealers.
Management believes that, other than as reflected in the consolidated financial
statements, the aggregate liability resulting from these proceedings will not be
material.
(7) STOCKHOLDERS' EQUITY
Effective May 31, 1994, the Company approved a 1-for-2 reverse stock split
of its common stock (the "Reverse Split") and amended and restated the
Certificate of Incorporation to effect such Reverse Split and to reduce the
number of authorized shares to 40,000,000, consisting of 35,000,000 shares of
common stock, $.0001 par value ("Common Stock") and 5,000,000 shares of
preferred stock, $.10 par value ("Preferred Stock"). All references in the
consolidated financial statements and related notes to
F-8
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) STOCKHOLDERS' EQUITY--(CONTINUED)
number of shares and exercise, conversion and purchase prices have been restated
to reflect the Reverse Split on a retroactive basis.
The 1991 Employee Incentive Plan of the Company (the "Incentive Plan")
currently provides for the granting of up to 5,000,000 shares of common stock by
the Board of Directors, at its discretion, in the form of incentive stock
rights, stock options, stock appreciation rights, limited stock appreciation
rights or the sale of shares of common stock pursuant to restricted stock
purchase agreements (collectively such rights, options and shares are referred
to herein as "Awards"). Stock options granted under the Incentive Plan may
qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue
Code of 1986, as amended. Awards may be granted to executive officers, employees
and consultants of the Company and its subsidiaries.
The exercise price of all stock options granted under the Incentive Plan is
determined by the Board of Directors of the Company at the time of grant.
However, the exercise price of all Incentive Stock Options granted under the
Incentive Plan must be at least equal to the fair market value of the common
stock on the date of grant or, in the case of Incentive Stock Options granted to
a holder of more than 10% of the Company's common stock, at least 110% of the
fair market value of such shares on the date of the grant. In the case of other
options granted under the Incentive Plan, the exercise price must be at least
equal to 65% of the fair market value of the common stock on the date of grant.
The maximum exercise period for which options may be granted under the Incentive
Plan is ten years from the date of grant for Incentive Stock Options (five years
in the case of Incentive Stock Options granted to an individual owning more than
10% of the Company's common stock) and 13 years for other options. At January
31, 1996, the Company had 1,896,673 stock options outstanding, of which
1,813,173 are Incentive Stock Options and 83,500 are nonqualified stock options.
At January 31, 1995, the Company had 1,662,086 stock options outstanding, of
which 1,579,586 are Incentive Stock Options and 82,500 are nonqualified stock
options.
The following table summarizes activity in the Company' s stock options:
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
----------- --------------
Balance at January 31, 1994.................................... 1,814,249 $ .80-$6.00
Options granted during the year................................ 105,000 $6.00
Options canceled during the year............................... (257,163) $ 2.20-$6.00
-----------
Balance at January 31, 1995.................................... 1,662,086 $ .80-$6.00
Options granted during the year................................ 368,825 $ 2.00-$2.30
Options canceled during the year............................... (134,238) $ 2.20-$6.00
-----------
Balance at January 31, 1996.................................... 1,896,673 $ .80-$6.00
-----------
-----------
</TABLE>
Note 13, Subsequent Events, discusses a subsequent event related to the
change in terms of certain options previously granted.
At January 31, 1995, the Company had outstanding 1,000 shares of Preferred
Stock designated as Series A Preferred Stock, which were held by the two largest
common stockholders of the Company, and are entitled to one vote per share. All
of the shares of Series A Preferred Stock expired on October 4, 1995.
F-9
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The Company files consolidated Federal income tax returns and combined New
York State and New York City income tax returns.
The deferred income tax asset of $22,000 at January 31, 1995, included in
income taxes receivable, principally results from depreciation expense. No
valuation allowance was recorded as management has established a plan by which
the Company will be able to utilize the deferred tax asset. The deferred tax
liability of $1,292,000 and $940,000 at January 31, 1996 and April 30, 1996,
included in income taxes payable, results primarily from unrealized gains on
securities.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------------- ----------- -------------
Current:
Federal........................................................... $ 1,110,000 $ 492,000 $ 2,011,000
State and local................................................... 502,000 255,000 1,251,000
------------- ----------- -------------
Total current................................................ 1,612,000 747,000 3,262,000
Deferred tax expense (benefit)......................................... 1,206,000 (234,000) 154,000
------------- ----------- -------------
Total........................................................ $ 2,818,000 $ 513,000 $ 3,416,000
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
The difference between income taxes computed at the statutory Federal rate
of 34% for the years ended January 31, 1996, 1995 and 1994 and the provision for
income taxes relates to the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ------------------------- ---------------------------
PERCENT PERCENT PERCENT
OF PRE-TAX OF PRE-TAX OF PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------------ ------------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Provision at Federal statutory rate........ $ 2,138,000 34% $ 304,000 34% $ 2,523,000 34%
State income taxes, net of Federal income
tax benefit................................ 326,000 5 166,000 18 853,000 11
Other...................................... 354,000 6 43,000 5 40,000 1
------------ ----- ---------- ----- ------------ -----
Total............................ $ 2,818,000 45% $ 513,000 57% $ 3,416,000 46%
------------ ----- ---------- ----- ------------ -----
------------ ----- ---------- ----- ------------ -----
</TABLE>
(9) CONCENTRATION OF CREDIT RISK AND OFF-BALANCE-SHEET RISKS
In the normal course of business, the broker-dealers execute securities
transactions on behalf of customers through a clearing broker. The execution of
these transactions includes the purchase and sale (including "short sales") of
securities. These activities may expose the Company to off-balance-sheet risk in
the event the customer is unable to fulfill its contractual obligations and
margin requirements are not sufficient to fully cover losses. In these
situations, the Company may be required to purchase or sell financial
instruments at prevailing market prices which may not fully cover the
obligations of its customers. Subsequent market fluctuations may require
purchasing the securities sold, not yet purchased, at prices that differ from
the market value that is reflected on the statements of financial condition. The
Company limits its risk by requiring customers to maintain margin collateral
that is in compliance with regulatory and internal guidelines and by making
credit inquiries when establishing customer relationships.
F-10
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) CONCENTRATION OF CREDIT RISK AND OFF-BALANCE-SHEET RISKS--(CONTINUED)
Additionally, securities sold, not yet purchased, expose the broker-dealers
to off-balance-sheet market risk, in that subsequent market fluctuations may
require purchasing the securities at prices which differ from the market value
reflected in the consolidated statements of financial condition.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments, which requires that all entities disclose the fair value of
financial instruments, as defined, for both assets and liabilities recognized
and not recognized in the statement of financial condition. Virtually all of the
Company's financial instruments, as defined, are carried at, or approximate,
fair value because of their short-term nature. Fair value for these financial
instruments is based on quoted market prices for similar financial instruments.
(11) 401(K) PLAN
The Company, excluding Shochet, is covered under the GKN Securities Corp.
401(k) Plan (the "Plan"). Under the provisions of the Plan, all covered
employees who have attained the age of 21 are eligible to participate in the
plan after one full year of employment. Contributions to the Plan by employees
are determined based on an elected percentage of annual compensation, subject to
an annual limit prescribed by the Internal Revenue Service. GKN Securities may
make contributions on behalf of the employees, which are determined on an annual
basis, but in no event can such contributions exceed 1% of a participant's
annual compensation or 25% of the elected deferral, as defined, of a
participant. GKN Securities has reserved the right to terminate the Plan at its
discretion. For the years ended January 31, 1996, 1995 and 1994 and for the
three months ended April 30, 1996 and 1995, GKN Securities made contributions of
approximately $62,000, $31,000, $20,000, $16,000 and $15,000 to the Plan,
respectively.
(12) ACQUISITION OF SHOCHET
As of the close of business, November 30, 1995, the Company acquired 100%
of the issued and outstanding shares of Shochet for approximately $2,099,000.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the Company's results of operations include the results of Shochet
from the acquisition date. The Company recognized $1,605,000 of goodwill in
connection with the acquisition, which will be amortized on a straight line
basis over 25 years.
In connection with the purchase of Shochet, the Company has signed a 7%
$1,000,000 subordinated note due in three years. Payments are made quarterly.
The estimated fair value of the subordinated note is $934,000 and $868,000 at
January 31, 1996 and April 30, 1996, respectively.
Pro forma information with respect to this acquisition has not been
presented in the accompanying consolidated financial statements as it would not
differ materially from historical information.
F-11
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) SUBSEQUENT EVENTS
Commitments and Contingencies
The Company has entered into employment arrangements with three officers of
the Company who are also stockholders of the Company. These arrangements provide
for annual salaries and bonuses at the discretion of the Board of Directors, up
to 18% each of the stock purchase warrants or options that may be issued to GKN
Securities in connection with any public offering and private placement or other
transactions, as well as certain other benefits. In May 1996, the percentage was
changed to 15%.
Stockholders' Equity
In May 1996, the Board of Directors set the exercise price of options
granted during the year ended January 31, 1996 at $4.50 per share.
At April 30, 1996, the Company had 1,758,673 stock options outstanding, of
which 1,675,173 are Incentive Stock Options and 83,500 are nonqualified stock
options.
During May 1996, the Company offered certain of its option holders the
opportunity to swap their options for new options. Option holders could receive
one new option for every two or three options exchanged, depending upon the
original grant date. The new options have accelerated vesting dates and strike
prices equal to the estimated fair value of $4.50 at April 30, 1996.
During May 1996, 625,000 options were exercised by certain of the firm's
principals. 120,000 shares of previously owned stock were delivered as payment
for the option exercise. The shares accepted as payment were valued at $4.50 per
share.
The following table summarizes activity in the Company's stock options
during the first quarter of fiscal year 1997 and to May 28, 1996, the last day
of the option swap offer:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
----------- --------------
<S> <C> <C>
Balance at January 31, 1996.................................... 1,896,673 $ .80-$6.00
Options granted during the period.............................. --
Options canceled during the period............................. (13,000) $ 2.20-$6.00
Options exercised during the period............................ (125,000) $.80
-----------
Balance at April 30, 1996...................................... 1,758,673 $ .80-$6.00
Options granted during the period.............................. 184,845 $4.50
Options canceled during the period............................. (444,380) $ 4.50-$6.00
Options exercised during the period............................ (625,000) $ .80-$ .88
-----------
Balance at May 28, 1996........................................ 874,138 $ 2.20-$6.00
-----------
-----------
</TABLE>
401(k) Plan
On May 1, 1996, the Shochet 401(k) Plan merged into the GKN Securities
Corp. 401(k) Plan. All account balances of former participants in the Shochet
401(k) Plan were transferred into the GKN Securities Corp. 401(k) Plan.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
GKN Holding Corp.:
We have audited the accompanying consolidated statements of financial
condition of GKN Holding Corp. and subsidiaries as of January 31, 1996 and 1995
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the two-year period ended January
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The accompanying
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year ended January 31, 1994 were audited by other auditors whose
report thereon dated March 29, 1994 expressed an unqualified opinion on those
financial statements. A copy of the report of the other auditors is attached
hereto.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of GKN Holding Corp. and subsidiaries as of January 31, 1996 and 1995
and the results of their operations and their cash flows for each of the years
in the two-year period ended January 31, 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
April 12, 1996,
except as to Note 13, which is
as of May 28, 1996
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
GKN Holding Corp.
We have audited the accompanying consolidated statements of income, changes
in stockholders' equity, and cash flows of GKN Holding Corp. and Subsidiaries
for the year ended January 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of GKN Holding Corp. and Subsidiaries for the year ended January 31, 1994
in conformity with generally accepted accounting principles.
/S/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 29, 1994
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by it in connection with the
offering described in this registration statement (other than the underwriting
discount and commissions and reasonable expense allowance) will be as follows:
<TABLE>
<CAPTION>
EXHIBIT NO.
- ---------------------------------------------------------------------------------------------
<S> <C>
SEC registration fee......................................................... $ 4,124.14
NASD filing fee.............................................................. 1,696.00
Printing and engraving expenses.............................................. 75,000.00
Accounting fees and expenses................................................. 90,000.00
Legal fees and expenses (including Blue Sky)................................. 185,000.00
Miscellaneous................................................................ 44,179.86
--------------
Total................................................................. $ 400,000.00
--------------
--------------
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated Certificate of Incorporation eliminates, to the
fullest extent permitted by Delaware law, personal liability of directors to the
Registrant and its stockholders for damages arising out of certain alleged
breaches of the directors' duty to the corporation.
The Registrant's Restated Certificate of Incorporation also provides that
the Registrant shall, to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law ("DGCL"), as the same may be amended and
supplemented, indemnify any and all persons whom it shall have the power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by Section 145 of the
DGCL. Section 145(a) of the DGCL provides in relevant part that "a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful." With respect to
derivative actions, Section 145(b) of the DGCL provides in relevant part that
"[a] corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor ... [by
reason of his service in one of the capacities specified in the preceding
sentence] against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but
II-1
<PAGE>
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which the Court of Chancery
or such other court shall deem proper."
The Company also has entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorney's
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any civil, criminal, administrative or investigative action, suit
or proceeding, including any derivative action. No indemnification will be
provided under the indemnification agreements, however, to any director or
executive officer in certain limited circumstances, including on account of
knowingly fraudulent, deliberately dishonest or willful misconduct. To the
extent the provisions of the indemnification agreements exceed the
indemnification permitted by applicable law, such provisions may be enforceable
or may be limited to the extent they are found by a court of competent
jurisdiction to be contrary to the public policy.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Registrant has agreed to indemnify the Underwriters
and the Underwriters have agreed to indemnify the Registrant and its directors,
officers and controlling persons against certain civil liabilities that may be
incurred in connection with this offering, including certain liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following securities were issued by the
Registrant without registration under the Securities Act:
From February 1, 1993 to April 30, 1996, the Registrant, in the usual
course of its business, issued options to purchase 948,243 shares of its Common
Stock to its employees and consultants under its 1991 Employee Incentive Plan at
prices ranging from $4.50 to $6.00 per share. A number of such options were
terminated and in May 1996, the Registrant offered employees the opportunity to
convert their options into options for a fewer number of shares, but with lower
exercise prices and/or shorter vesting periods. As a result of such offer, the
aggregate number of outstanding options under the Plan decreased (after giving
effect to the exercises described below) from 1,758,673 (the aggregate amount of
shares, subject to options issued since inception of the plan) to 866,388. In
May and June 1996, additional options to purchase 145,000 shares were granted to
employees in the usual course of business at exercise prices of $4.50 per share
and options to purchase 12,882 shares were forfeited by terminated employees. At
June 30, 1996, options to purchase 998,506 shares of Common Stock were
outstanding. The exemptions claimed for these issuances are Rule 701 and Section
3(a)(9) of the Securities Act. Rule 701 of the Securities Act provides an
exemption for offers and sales of securities pursuant to certain compensatory
benefit plans and contracts relating to compensation. Four conditions must be
satisfied in order to claim the Rule 701 exemption, (1) the issuer cannot be a
reporting or investment company, (2) the securities were issued pursuant to the
terms of (a) a written compensatory benefit plan, or (b) a written contract, (3)
offerees and purchasers must be an employee, officer, director, partner,
consultant or advisor of the Company, and (4) the aggregate amount of securities
offered and sold during any twelve-month period pursuant to Rule 701 is a
minimum of $500,000 and a maximum of $5,000,000. Section 3(a)(9) of the
Securities Act exempts from the registration requirements any security that a
company exchanges voluntarily and exclusively for its outstanding
securities--with no commission or other remuneration for soliciting such an
exchange.
In February 1993, the Registrant issued 10,000 shares of Common Stock
pursuant to a private offering in the aggregate amount of $60,000. In June 1994,
the Registrant issued 162,500 shares of Common Stock in the conversion of
$162,500 of subordinated debt. The exemptions claimed for this issuance is
Section 4(2) under the Securities Act and Regulation D promulgated under the
Securities
II-2
<PAGE>
Act. Section 4(2) provides an exemption from the registration requirements of
the Securities Act for "private" offerings. Specific objective criteria for
determining whether an offering is "private" and therefore outside the
registration requirements of the Securities Act, includes, whether the number of
purchasers in the transaction are limited, a prohibition against general
solicitation or general advertising and whether the purchaser or purchaser's
representative has a certain level of financial and business sophistication.
Regulation D promulgated under the Securities Act provides an exemption for
private offerings. There are several general conditions that apply to all offers
and sales effected pursuant to Regulation D, including, availability of
information, prohibition against general solicitation and general advertising
and limitation on resale. Regulation D provides an exemption for limited offers
and sales of securities (1) not exceeding an annual aggregate amount of $1
million, (2) to a limited number of people in an aggregate amount not exceeding
$5 million, and (3) in an unlimited amount to an unlimited number of accredited
investors (as such term is defined in Rule 501 of Regulation D) and a limited
number of nonaccredited investors.
In connection with Registrant's acquisition of Shochet in November 1995,
Registrant agreed to issue to the sellers of the Shochet business, upon
consummation of this Offering, five-year warrants to purchase 25,000 shares of
Common Stock at an exercise price equal to the per-share offering price. The
exemption claimed for this issuance was Section 4(2) of the Securities Act.
In January 1996, in connection with Mr. Joachim Stahler's employment with
the Registrant, the Registrant agreed to sell 80,000 shares of Common Stock to
Mr. Joachim Stahler, the Managing Director of GKN AG, at a purchase price of
$3.02 per share, payable 50% in cash and 50% by promissory note. The shares were
issued in April 1996. The Registrant also issued to Mr. Stahler, in connection
with his employment, warrants to purchase 80,000 shares of Common Stock,
exercisable until January 30, 2001, at a purchase price equal to the per-share
offering price. The exemption claimed for these issuances is Section 4(2) of the
Securities Act.
In February 1996, Richard Buonocore, a Vice President and the head trader
of GKN, exercised an option to purchase 125,000 shares of Common Stock at $.80
per share, which purchase price was paid by promissory note. The exemption
claimed for the issuance of the shares pursuant to the option exercise is
Section 4(2) of the Securities Act.
In May 1996, David Nussbaum, Roger Gladstone and Robert Gladstone exercised
stock options to purchase 250,000 shares, 250,000 shares and 125,000 shares of
Common Stock, respectively, at purchase prices of $.88, $.88 and $.80,
respectively, which purchase prices were paid by delivery to Registrant of
shares of Registrant's Common Stock owned by optionholders, valued for this
purpose at $4.50 per share. The exemption claimed for the issuance of the shares
pursuant to the option exercises is Section 4(2) of the Securities Act.
In May 1996, the Company agreed to issue to Messrs. Margaritis and Pollard,
each of whom will become a director upon the consummation of this Offering,
options to purchase 10,000 shares of Common Stock, at a price equal to the
per-share offering price. The exemption claimed for these issuances is Section
4(2) of the Securities Act.
All of the foregoing securities were issued under exemption from the
registration requirements of the Securities Act pursuant to Section 4(2) of the
Securities Act and the rules and regulations promulgated under Section 4(2),
Regulation D promulgated under the Securities Act, Rule 701 promulgated under
the Securities Act, and/or Section 3(a)(9) of the Securities Act.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1 + Form of Underwriting Agreement.
1.2 + Form of Selected Dealers Agreement.
3.1 ++ Registrant's Restated Certificate of Incorporation.
3.1 (a) ++ Amendment, effective as of May 31, 1994, to Registrant's Restated Certificate of Incorporation.
3.2 ++ Registrant's By-laws.
3.2 (a)+ Amendment to Registrant's By-laws.
4.1 + Form of Common Stock Certificate.
5.1 + Opinion of Graubard Mollen & Miller.
10.1 ++ Lease for 61 Broadway, New York, New York 10006.
10.2 ++ Lease for Mizner Park (Suite 245), Boca Raton, Florida office space.
10.3 + Lease for Mizner Park (Suite 405), Boca Raton, Florida office space.
10.4 ++ Lease for Great Neck, New York office space.
10.5 ++ Lease for Stamford, Connecticut office space.
10.6 ++ Lease for Hallandale, Florida office space.
10.7 ++ Assignment of Sublease and Master Lease Termination Agreement for Miami Beach, Florida office space.
10.8 ++ Lease Agreement for Miami Beach, Florida office space.
10.9 ++ Agreement between GKN Securities Corp. and managers of Miami, Florida branch office.
10.10 + Employment Agreement between the Company and David M. Nussbaum.
10.11 + Employment Agreement between the Company and Roger N. Gladstone.
10.12 + Employment Agreement between the Company and Robert H. Gladstone.
10.13 + Employment Agreement between the Company and Peter R. Kent.
10.14 ++ Warrant Agreement with Joachim Stahler.
10.15 ++ Stock Purchase Agreement with Marvin and Sally Shochet, including form of Option Agreement.
10.16 + Option Agreement with director nominees.
10.17 ++ 1991 Employee Incentive Plan.
10.18 ++ Clearing Agent Agreement.
10.19 ++ Form of Stock Option Agreement.
10.20 + 1996 Incentive Compensation Plan
10.21 + Form of Indemnification Agreement.
21 / / Subsidiaries of the Registrant.
23.1 ++ Consent of KPMG Peat Marwick LLP.
23.2 ++ Consent of Goldstein Golub Kessler & Company, P.C.
23.3 + Consent of Graubard Mollen & Miller (included in Exhibit 5.1).
23.4 ++ Consent of John P. Margaritis.
23.5 ++ Consent of Arnold B. Pollard.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
EXHIBIT NO. DESCRIPTION
- -------------------- -----------------------------------------------------------------------------------------------------
24 / / Power of Attorney [Reference is made to the signature page of the Registration Statement]
27 / / Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Filed herewith.
/ / Previously filed (unless otherwise indicated) as the same number of exhibit
included in the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on June 5, 1996 (Reg. No. 333-05273).
++ Previously filed as the same number of exhibit included in the Company's
Amendment No. 1 for its Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on July 18, 1996.
(b) Financial Statement Schedules: None
Other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate Offering
price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
II-5
<PAGE>
(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Act"), the registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on July 29, 1996.
GKN HOLDING CORP.
By: /s/ DAVID M. NUSSBAUM
..................................
David M. Nussbaum, Chief Executive
Officer
Pursuant to the requirements of the Act, the Amendment No. 2 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ DAVID M. NUSSBAUM Chairman of the Board, Chief Executive July 29, 1996
................................................ Officer and Director (Principal Executive
David M. Nussbaum Officer)
/s/ ROGER N. GLADSTONE* President and Director July 29, 1996
................................................
Roger N. Gladstone
/s/ PETER R. KENT* Chief Operating Officer, Chief Financial July 29, 1996
................................................ Officer and Director
Peter R. Kent (Principal Accounting and Financial
Officer)
/s/ LESTER ROSENKRANTZ* Executive Vice President and Director July 29, 1996
................................................
Lester Rosenkrantz
/s/ JAMES KRANTZ* Director July 29, 1996
................................................
James Krantz
*By /s/ DAVID M. NUSSBAUM Attorney-in-Fact July 29, 1996
...........................................
David M. Nussbaum
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C> <C>
EXHIBIT NO. DESCRIPTION PAGE NO.
- -------------------- --------------------------------------------------------------------------------------------- ---------
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
3.2 (a) Amendment to Registrant's By-laws.
4.1 Form of Common Stock Certificate.
5.1 Opinion of Graubard Mollen & Miller.
10.3 Lease for Mizner Park (Suite 405), Boca Raton, Florida office space.
10.1 0 Employment Agreement between the Company and David M. Nussbaum.
10.1 1 Employment Agreement between the Company and Roger N. Gladstone.
10.1 2 Employment Agreement between the Company and Robert H. Gladstone.
10.1 3 Employment Agreement between the Company and Peter R. Kent.
10.1 6 Option Agreement with director nominees.
10.2 0 1996 Incentive Compensation Plan
10.2 1 Form of Indemnification Agreement.
23.3 Consent of Graubard Mollen & Miller (included in Exhibit 5.1).
</TABLE>
EXHIBIT 1.1
2,500,000 Shares
GKN HOLDING CORP.
Common Stock
___________________________
UNDERWRITING AGREEMENT
___________________________
Radnor, Pennsylvania
_________, 199__
Pennsylvania Merchant Group Ltd
GKN Securities Corp.
As Representatives of the Several Underwriters
Named in Schedule l Attached Hereto
Suite 390, Fidelity Court
259 Radnor-Chester Road
Radnor, Pennsylvania 19087
Dear Sirs:
GKN Holding Corp., a Delaware corporation (the "Company"), proposes to
issue and sell an aggregate of 2,500,000 shares of the Company's Common Stock,
$.0001 par value (the "Common Shares"), to Pennsylvania Merchant Group Ltd
("PMG") and GKN Securities Corp. (collectively, the "Representatives") and the
several underwriters named in Schedule I hereto (collectively with the
Representatives, the "Underwriters" and individually, an "Underwriter," which
terms shall also include any Underwriter substituted as hereinafter provided in
Section 11 hereof). The aforementioned 2,500,000 Common Shares to be sold to the
several Underwriters by the Company are hereinafter referred to as the "Offered
Shares." The Offered Shares shall be offered to the public at an offering price
of $ per Offered Share (the "Offering Price").
In addition, the several Underwriters, in order to cover over-allotments in
the sale of the Offered Shares, may purchase up to an additional 375,000 Common
Shares from the Company (the "Optional Shares") within 30 business days after
the Effective Date (as hereinafter defined), for their own account for offering
to the public at the Offering Price, upon the terms and conditions set forth in
Section 4 hereof. The Offered Shares and the Optional
<PAGE>
Shares are hereinafter collectively referred to as the "Shares." The Company,
intending to be legally bound hereby, confirms its agreements with each of the
Underwriters as follows:
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) The Company has prepared in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules,
regulations, releases and instructions (collectively, the "Regulations") of
the Securities and Exchange Commission (the "SEC") under the Act in effect
at all applicable times and has filed with the SEC a registration statement
on Form S-1 (File No. 33-05273) and one or more amendments thereto
registering the sale of Shares under the Act. Any preliminary prospectus
included in such registration statement or filed with the SEC pursuant to
Rule 424(a) of the Regulations is hereinafter called a "Preliminary
Prospectus." The various parts of such registration statement, including
all exhibits thereto and the information incorporated therein or contained
in any form of final prospectus filed with the SEC pursuant to Rule 424(b)
of the Regulations in accordance with Section 5(a) of this Agreement and
deemed by virtue of Rule 430A or Rule 434(d) of the Regulations to be part
of such registration statement at the time it was declared effective, each
as amended at the time such registration statement became effective, in
addition to any registration statement and any post effective amendment
thereto filed to register additional Shares for the same offering pursuant
to Rule 462(b) of the Regulations, are hereinafter collectively referred to
as the "Registration Statement." The final prospectus in the form included
in the Registration Statement or first filed with the SEC pursuant to Rule
424(b) of the Regulations and any amendments, term sheets or supplements
thereto is hereinafter referred to as the "Prospectus."
(ii) The Registration Statement has become effective under the Act as
of the Effective Date (as defined below), and the SEC has not issued any
stop order suspending the effectiveness of the Registration Statement or
preventing or suspending the use of any Preliminary Prospectus nor has the
SEC instituted, threatened to institute or, to the Company's knowledge,
contemplated proceedings with respect to such an order. No stop order
suspending the sale of the Shares in any jurisdiction designated by the
Representatives pursuant to Section 5(f) hereof has been issued, and no
proceedings for that purpose have been instituted or are threatened or, to
the Company's knowledge, contemplated. The Company has complied
- 2 -
<PAGE>
with any request of the SEC, or any state securities commission in a state
designated by the Representatives pursuant to Section 5(f) hereof, for
additional information to be included in the Registration Statement or
Prospectus or otherwise. Each Preliminary Prospectus conformed to the
requirements of the Act and the Regulations as of its date and did not as
of its date contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except the foregoing shall not apply to statements in
or omissions from any Preliminary Prospectus in reliance upon and in
conformity with information furnished to the Company in writing by or on
behalf of any Underwriter through the Representatives expressly for use
therein. The Registration Statement, on the date on which it was declared
effective by the SEC or became automatically effective upon filing (the
"Effective Date") conformed, and any post-effective amendment thereof on
the date it shall become effective, and the Prospectus at the time it is
filed with the SEC pursuant to Rule 424(b) of the Regulations and on the
Closing Date (as defined in Section 3 hereof) and any Option Closing Date
(as defined in Section 4(b) hereof), will conform to the requirements of
the Act and the Regulations, and neither the Registration Statement, any
post-effective amendment thereof nor the Prospectus will, on any of such
respective dates, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, except that this representation
and warranty does not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by or on
behalf of any Underwriter through the Representatives expressly for use
therein. It is understood that the statements appearing in any Preliminary
Prospectus, the Prospectus or the Registration Statement (A) on the inside
front cover page with respect to stabilization (B) in the second paragraph
in the section entitled "Underwriting," with respect to the amount of the
dealers' concession and allowance and reallowance discount and (C) in the
section entitled "Legal Matters" with respect to the identity of counsel
for the Underwriters constitute the only information furnished in writing
by or on behalf of any Underwriter for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement.
(iii) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Delaware with all necessary power
and authority, corporate and
- 3 -
<PAGE>
other, and all required licenses, permits, certifications, registrations,
approvals, consents and franchises to own or lease and operate its
properties and to conduct its business as described in the Prospectus and
to execute, deliver and perform this Agreement. There is no proceeding
pending or to the knowledge of the Company, threatened (and, to the
knowledge of the Company, there are no facts or circumstances which,
individually or in the aggregate, may form the basis therefor) which may
cause any such license, permit, certification, registration, approval,
consent or franchise to be withdrawn, cancelled, suspended or not renewed.
The Company is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company and the Subsidiaries (as hereinafter
defined), considered as one enterprise.
(iv) The Company does not own any stock or other equity interest in,
or control, directly or indirectly, any corporation, partnership or other
entity other than the subsidiaries listed in Schedule II hereto
(collectively, the "Subsidiaries"). All of the issued and outstanding stock
of each Subsidiary has been duly authorized and validly issued and is fully
paid and non-assessable. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization as set forth opposite the name of such Subsidiary in
Schedule II hereto, with all necessary power and authority, corporate and
other, and all required licenses, permits, certifications, registrations,
approvals, consents and franchises to own or lease and operate its
properties and to conduct its business as described in the Prospectus.
There is no proceeding pending or to the knowledge of the Company
threatened (and, to the knowledge of the Company, there are no facts or
circumstances which, individually or in the aggregate, may form the basis
therefor) which may cause any such license, permit, certification,
registration, approval, consent or franchise to be withdrawn, cancelled,
suspended or not renewed. Except as described in the Prospectus, the
Company or a wholly owned Subsidiary owns all of the outstanding capital
stock of each Subsidiary free and clear of all claims, liens, charges and
encumbrances. Each Subsidiary is duly qualified and is in good standing as
a foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse
- 4 -
<PAGE>
effect on the Company and the Subsidiaries, considered as one enterprise.
(v) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes its legal, valid and binding obligation,
enforceable against the Company in accordance with its terms, except as
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws or principles of public policy. This Agreement
conforms to the description thereof in the Prospectus.
(vi) The execution, delivery and performance of this Agreement by the
Company does not and will not, with or without the giving of notice or the
lapse of time, or both, (A) conflict with any terms or provisions of the
Certificate of Incorporation or By-laws of the Company or any Subsidiary,
as amended to the date hereof and the Closing Date or Option Closing Date,
as the case may be; (B) result in a breach of, constitute a default under,
result in the termination or modification of or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any
of the properties of the Company or any Subsidiary pursuant to any
indenture, mortgage, deed of trust, contract, commitment or other agreement
or instrument to which the Company or any Subsidiary is a party or by which
any of their respective properties or assets are bound or affected; (C)
violate any law, rule, regulation, judgment, order or decree of any
government or governmental agency, instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of
their respective properties or businesses; or (D) result in a breach,
termination or lapse of the power and authority of the Company or any
Subsidiary to own or lease and operate their respective properties and
conduct their respective businesses as described in the Prospectus.
(vii) The Company has authorized and outstanding capital stock, and as
of the date or dates indicated, the Company and the Subsidiaries, on a
consolidated basis, had the capitalization, set forth under the caption
"Capitalization" in the Prospectus and will have the as adjusted
capitalization set forth under the caption "Capitalization" in the
Prospectus. On the Effective Date, the Closing Date and any Option Closing
Date, there will be no options or warrants for the purchase of, other
outstanding rights to purchase, agreements or obligations to issue or
agreements or other rights to convert or exchange any obligation or
security into, capital stock of the Company or any Subsidiary or securities
convertible into or exchangeable for capital stock of the Company or any
Subsidiary, except as described in the
- 5 -
<PAGE>
Prospectus with respect to the outstanding options (the "Options") that
have been granted to employees and directors to purchase Common Shares and
the outstanding warrants granted (the "Warrants") to purchase an aggregate
of Common Shares and the Over-allotment Option (as hereinafter defined).
(viii) The authorized capital stock of the Company, including,
without limitation, the outstanding Common Shares and the Shares being
issued on the Closing Date and Option Closing Date (if any and to the
extent applicable), conforms to the descriptions thereof in the Prospectus,
and such descriptions conform to the descriptions thereof set forth in the
instruments defining the same. The information in the Prospectus insofar as
it relates to the Options and the Warrants, in each case as of the
Effective Date, the Closing Date and any Option Closing Date, is true,
correct and complete.
(ix) The outstanding Common Shares have been duly authorized and are
validly issued, fully paid and non-assessable. The Options and the Warrants
have been duly authorized, and are validly issued and are legal, valid and
binding obligations enforceable against the Company in accordance with
their terms. The Common Shares issuable pursuant to the Options and the
Warrants, when issued in accordance with the terms thereof, will be duly
authorized, validly issued, fully paid and non-assessable. None of such
outstanding Common Shares, Options or Warrants were, and none of such
issuable Common Shares will be, issued in violation of any preemptive
rights of any security holder of the Company that have not been waived. The
Company has reserved a sufficient number of Common Shares for issuance
pursuant to the Options and the Warrants. The holders of the outstanding
Common Shares are not, and will not be, subject to personal liability
solely by reason of being such holders, and the holders of the Common
Shares issuable pursuant to the Options and the Warrants will not be
subject to personal liability solely by reason of being such holders. The
offers and sales of the outstanding Common Shares, the Options and the
Warrants were, and the issuance of the Common Shares pursuant to the
Options and the Warrants will be, made in conformity with applicable
registration requirements or exemptions therefrom under federal and
applicable state securities laws.
(x) The issuance and sale of the Shares by the Company have been duly
authorized and, when the Shares have been duly delivered against payment
therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and non-assessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders.
- 6 -
<PAGE>
None of the Shares will be issued in violation of any preemptive rights of
any security holder of the Company. The certificates representing the
Shares are in proper legal form under, and conform to the requirements of
the Delaware General Corporation Law, as amended. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives any security holder of the Company any
rights for, or relating to, the registration of any Common Shares or other
security of the Company.
(xi) No consent, approval authorization, order, registration, license
or permit of any court, government, governmental agency, instrumentality or
other regulatory body or official is required for the valid authorization,
issuance, sale and delivery by the Company of any of the Shares, or for the
execution, delivery or performance by the Company of this Agreement, except
such as may be required for the registration of the Shares under the Act,
the Regulations and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and which has been obtained, and for compliance with the
applicable state securities or Blue Sky laws, or the By-laws, rules and
other pronouncements of the National Association of Securities Dealers,
Inc. (the "NASD") or the listing requirements, rules and regulations of the
NASDAQ National Market (the "NASDAQ NM") of the Nasdaq Stock Market. The
Common Shares are duly registered pursuant to Section 12(g) of the Exchange
Act and listed on the NASDAQ NM and, upon the effectiveness of the
Registration Statement, the Shares will be listed for trading on the NASDAQ
NM. The Company has taken no action designed, or likely, to have the
effect of terminating the registration of the Common Shares under Section
12(g) of the Exchange Act or the listing of the Common Shares on the NASDAQ
NM, nor has the Company received any notification that the SEC or the
NASDAQ NM is contemplating terminating such registration or listing.
(xii) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of or references to contracts, agreements
or other documents, are accurate in all material respects and present or
summarize fairly, the information required to be disclosed under the Act
and the Regulations, and there are no contracts, agreements or other
documents required to be described or referred to in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration
Statement under the Act or the Regulations that have not been so described,
referred to or filed, as required.
(xiii) The consolidated financial statements of the Company and the
Subsidiaries (including the notes thereto)
- 7 -
<PAGE>
filed as part of any Preliminary Prospectus, the Prospectus and the
Registration Statement present fairly the financial position of the
Company, on a consolidated basis, as of the respective dates thereof, and
the results of operations and cash flows of the Company, on a consolidated
basis, for the periods indicated therein, all in conformity with generally
accepted accounting principles consistently applied. The supporting
schedules included in the Registration Statement, if any, fairly state the
information required to be stated therein in relation to the basic
financial statements taken as a whole. The financial information included
in the Prospectus under the captions "Prospectus Summary - Summary
Financial Data" and "Selected Financial Data" present fairly the
information shown therein and has been compiled on a basis consistent with
that of the audited financial statements included in the Registration
Statement.
(xiv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been any (A) material adverse change (including,
whether or not insured against, any material loss or damage to any assets),
or development involving a prospective material adverse change, in the
general affairs, properties, assets, management, condition (financial or
otherwise), results of operations, stockholders' equity, business or
prospects of the Company and the Subsidiaries, considered as one
enterprise, (B) transaction entered into by the Company or any Subsidiary
that is material to the Company and the Subsidiaries, considered as one
enterprise, (C) dividend or distribution of any kind declared, paid or made
by the Company on its capital stock, (D) liabilities or obligations, direct
or indirect, incurred by the Company or any Subsidiary that are material to
the Company and the Subsidiaries, considered as one enterprise, or (E)
material change in the short-term debt or long-term debt of the Company or
the Subsidiaries, on a consolidated basis. Neither the Company nor any
Subsidiary has any contingent liabilities or obligations that are material
and that are not disclosed in the Prospectus.
(xv) The Company has not distributed and, prior to the later to occur
of the Closing Date, the Option Closing Date or the completion of the
distribution of the Shares, will not distribute any offering material in
connection with the offering or sale of the Shares other than the
Registration Statement, each Preliminary Prospectus and the Prospectus, in
any such case only as permitted by the Act and the Regulations.
- 8 -
<PAGE>
(xvi) The Company and the Subsidiaries have filed with the appropriate
federal, state and local governmental agencies, and all foreign countries
and political subdivisions thereof, all tax returns that are required to be
filed, or have duly obtained extensions of time for the filing thereof and
have paid all taxes shown on such returns and all assessments received by
any of them to the extent that the same have become due. Neither the
Company nor any Subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes, is a party to any pending action or
proceeding by any foreign or domestic governmental agencies for the
assessment or collection of taxes, and no claims for assessment or
collection of taxes have been asserted against the Company or any
Subsidiary, nor is the Company aware of any tax deficiency for which a
claim might be asserted, that might materially adversely affect the general
affairs, properties, assets, condition (financial or otherwise), results of
operations, stockholders' equity, business or prospects of the Company and
the Subsidiaries, considered as one enterprise.
(xvii) KPMG Peat Marwick LLP, which is certifying certain of the
financial statements included in the Prospectus and forming a part of the
Registration Statement, and Goldstein Golub Kessler & Company, P.C., which
is certifying certain other financial statements included in the Prospectus
and forming a part of the Registration Statement, are firms of independent
public accountants as required by the Act and the Regulations.
(xviii) Neither the Company nor any Subsidiary is in violation of, or
in default under, any of the terms or provisions, of (A) its Certificate of
Incorporation or By-laws, each as amended to the date hereof, the Closing
Date and the Option Closing Date, as the case may be, (B) any indenture,
mortgage, deed of trust, contract, commitment or other agreement or
instrument to which the Company or any Subsidiary is a party or by which
any of them or their properties are bound or affected, (C) any law, rule,
regulation, judgment, order or decree of any government or governmental
agency, instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their properties or businesses
or (D) any license, permit, certification, registration, approval, consent
or franchise referred to in subsections (iii) or (iv) of this Section 1(a).
(xix) Except as disclosed in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations,
- 9 -
<PAGE>
investigations or inquiries pending before, or threatened or, to the
Company's knowledge, contemplated by, any governmental agency, regulatory
authority, instrumentality, court or tribunal, domestic or foreign, or
before any private arbitration tribunal, relating to or affecting the
Company or any Subsidiary or their properties or businesses that might
affect the issuance or validity of any of the Shares or the validity of any
of the outstanding Common Shares, or that, if determined adversely to the
Company or any Subsidiary, would, in any case or in the aggregate, result
in any material adverse change in the general affairs, properties, assets,
condition (financial or otherwise), results of operations, stockholders'
equity, business or prospects, of the Company and the Subsidiaries,
considered as one enterprise; nor is there any reasonable basis for any
such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any
court, governmental agency, instrumentality or other tribunal enjoining the
Company or any Subsidiary from, or requiring the Company or any Subsidiary
to take or refrain from taking any action, or to which the Company or any
Subsidiary, or any of their properties, assets or businesses is bound or
subject.
(xx) The Company and the Subsidiaries own, or possess adequate rights
to use, all patents, patent applications, trademarks, trademark
registrations, applications for trademark registration, trade names,
service marks, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential technology, information, systems, design methodologies and
devices or procedures developed or derived from the Company's or the
Subsidiaries' businesses), trade secrets, confidential information,
processes and formulations necessary for, used in or proposed to be used in
the conduct of their businesses as described in the Prospectus
(collectively, the "Intellectual Property") that, if not so owned or
possessed, would materially adversely affect the general affairs,
properties, condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company and its
Subsidiaries, considered as one enterprise. Neither the Company nor any
Subsidiary has infringed, is infringing or has received any notice of
conflict with the asserted rights of others with respect to the
Intellectual Property, and no others have infringed upon or are in conflict
with the Intellectual Property.
(xxi) The Company has obtained all permits, licenses and other
authorizations that are required, to the extent required, under all
environmental laws, including but not
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<PAGE>
limited to the Federal Water Pollution Control Act (33 U.S.C. 1251 et
seq.), Resource Conservation & Recovery Act (42 U.S.C. 6901 et seq.), Safe
Drinking Water Act (21 U.S.C. 349, 42 U.S.C. 201, 300f), Toxic Substances
Control Act (15 U.S.C. 2601 et seq. ), Clean Air Act (42 U.S.C. 7401 et
seq.), Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. 7401 et seq.), other appropriate laws of jurisdictions in which
the Company's or its Subsidiaries' products have been used or located and
any other laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes under any
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder
(collectively, the "Environmental Laws"). The Company and each Subsidiary
are in compliance with all terms and conditions of any required permits,
licenses and authorizations, and are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in the
Environmental Laws, except where the failure to so comply would not have a
material adverse effect on the general affairs, properties, assets,
condition (financial or otherwise) results of operations, stockholders'
equity, business or prospects of Company and the Subsidiaries, considered
as one enterprise.
(xxii) There are no present or, to the Company's knowledge, past
events, conditions, circumstances, activities, practices, incidents,
actions or plans relating to the business as presently being conducted by
the Company and its Subsidiaries that interfere with or prevent compliance
with or continued compliance with the Environmental Laws, or which would be
reasonably likely to give rise to any material legal liability (whether
statutory or common law) or otherwise would be reasonably likely to form
the basis of any claim, action, demand, suit, proceeding, hearing, notice
of violation, study, investigation, remediation, or clean up based on or
related to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission,
discharge, release into the workplace, community or environment of any
pollutant, contaminant, chemical or industrial, toxic, or hazardous
substance or waste.
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(xxiii) The Company and each Subsidiary have good and marketable title
to all personal property (tangible and intangible) described in the
Prospectus as being owned by it, free and clear of all liens, security
interests, charges or encumbrances, except such as are described in the
Prospectus. The Company has adequately insured the personal property of the
Company and each Subsidiary against loss or damage by fire or other
casualty and maintains, in adequate amounts, insurance against such other
risks as management of the Company has reasonably deemed appropriate.
Neither the Company nor any Subsidiary owns any real property, and all real
property used or leased by the Company or the Subsidiaries, as described in
the Prospectus (the "Premises"), is held by the Company or the Subsidiaries
under a valid, subsisting and enforceable lease. The Premises, and all
operations conducted thereon, are now and, since the Company or any
Subsidiary began to use such Premises, always have been and, to the
Company's knowledge, prior to when the Company began to use such Premises,
always had been, in compliance with the Environmental Laws. There is no,
and neither the Company nor any Subsidiary has received notice of any,
claim, demand, investigation, regulatory action, suit or other action
instituted or threatened against any of them or the Premises relating to
any of the Environmental Laws. Neither the Company nor any Subsidiary has
received any notice of material violation, citation, complaint, order,
directive, request for information or response thereto, notice letter,
demand letter or compliance schedule to or from any governmental or
regulatory agency arising out of or in connection with hazardous substances
(as defined by applicable Environmental Laws) on, about, beneath, arising
from or generated at the Premises.
(xxiv) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization,
(B) transactions are recorded as necessary in order to permit preparation
of financial statements in accordance with generally accepted accounting
principles and to maintain accountability for assets, (C) access to assets
is permitted only in accordance with management's general or specific
authorization and (D) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(xxv) No unregistered securities of the Company have been sold by the
Company, or on behalf of the Company, by any person or persons controlling,
controlled by or under common control with the Company within the three
years prior to the
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date hereof, except as disclosed in the Registration Statement.
(xxvi) Each contract or other instrument (however characterized or
described) to which the Company or any Subsidiary is a party or by which
any of the properties or businesses of any of them is bound or affected and
to which reference has been made in the Prospectus or which has been filed
as an exhibit to the Registration Statement has been duly and validly
executed by the Company or such Subsidiary, as the case may be, and by the
other parties thereto. Except as described in the Prospectus, each such
contract or other instrument is in full force and effect and is enforceable
against the parties thereto in accordance with its terms, and neither the
Company, any Subsidiary nor any other party is in default thereunder and no
event has occurred that, with the lapse of time or the giving of notice, or
both would constitute a default thereunder.
(xxvii) Except for the Company's 401(k), disability, health and life
insurance plans, neither the Company nor any Subsidiary has had any
employee benefit plan, profit sharing plan, employee pension benefit plan
or employee welfare benefit plan or deferred compensation arrangements
(collectively, "Plans") that are subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended, or the rules and
regulations thereunder ("ERISA"). All Plans that are subject to ERISA are,
and have been at all times since their establishment, in compliance with
ERISA and, to the extent required by the Internal Revenue Code of 1986, as
amended (the "Code"), in compliance with the Code. Neither the Company nor
any Subsidiary has had any employee pension benefit plan that is subject to
Part 3 of Subtitle B of Title I of ERISA or any defined benefit plan or
multi-employer plan. Neither the Company nor any Subsidiary has maintained
retiree life and retiree health insurance plans that are employee welfare
benefit plans providing for continuing benefit or coverage for any employee
or any beneficiary of any employee after such employee's termination for
employment, except as required by Section 4980B of the Code. No fiduciary
or other party in interest with respect to any of the Plans has caused any
of such Plans to engage in a "prohibited action" as defined in Section 406
of ERISA. As used in this subsection, the terms "defined benefit plan,"
"employee benefit plan," "employee pension benefit plan," "employee welfare
benefit plan," "fiduciary" and "multi-employer plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
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(xxviii) No labor dispute exists with the employees of the Company or
any Subsidiary and no such labor dispute is imminent. There is no existing
or, to the Company's knowledge, imminent labor disturbance by the employees
of any of the Company's or any Subsidiaries principal suppliers,
contractors or customers (including, without limitation, any distributors
or end-users of its or their products).
(xxix) The Company has not incurred any liability for any finder's
fees or similar payments in connection with the transactions contemplated
herein.
(xxx) Except as described in the Prospectus, neither the Company nor
any Subsidiary is a party to, and none of them is bound by, any agreement
pursuant to which any material royalties, honoraria or fees are payable by
the Company or any Subsidiary to any person by reason of the ownership or
use of any Intellectual Property.
(xxxi) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation SK of the Regulations.
(xxxii) The Company is familiar with the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
continue to conduct, its affairs in such a manner to ensure that it will
not become an "investment company" within the meaning of the 1940 Act and
such rules and regulations.
(xxxiii) Neither the Company, any Subsidiary nor any director,
officer, agent, employee or other person associated with or acting on
behalf of the Company or any Subsidiary has, directly or indirectly, (A)
used any corporate funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to any political activity, (B) made any
unlawful payment to foreign or domestic governments or governmental
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, (C) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (D) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
Any certificate signed by any officer of the Company in such capacity and
delivered to the Representatives or to counsel for the Underwriters pursuant to
this Agreement shall be deemed a representation and warranty by the Company to
the several Underwriters as to the matters covered thereby.
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2. Purchase and Sale of Offered Shares. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company shall sell the
Offered Shares to the several Underwriters at the Offering Price less the
underwriting discount shown on the cover page of the Prospectus (the
"Underwriting Discount"), and the Underwriters, severally and not jointly, shall
purchase from the Company, on a firm commitment basis, at the Offering Price
less the Underwriting Discount, the respective Offered Shares set forth opposite
their names on Schedule I hereto. In making this Agreement, each Underwriter is
contracting severally, and not jointly, and, except as provided in Sections 4
and 11 hereof, the agreement of each Underwriter is to purchase only that number
of Offered Shares specified with respect to that Underwriter in Schedule I
hereto. The Underwriters shall offer the Offered Shares to the public as set
forth in the Prospectus.
3. Payment and Delivery. Payment for the Offered Shares shall be made to
the Company by certified or official bank check payable to the order of the
Company, in next day funds, or in immediately available funds wired to such
account or accounts as the Company may specify (with all costs and expenses
incurred by the Underwriters in connection with such settlement in immediately
available funds (including, but not limited to interest or cost of funds
expenses) to be born by the Company, against delivery of the Offered Shares to
the Representatives at the offices of PMG, Suite 390, Fidelity Court, 259
Radnor-Chester Road, Radnor, Pennsylvania 19087 (or at such other location as
shall be agreed upon by the Company and the Representatives) for the respective
accounts of the Underwriters. Such payments and delivery will be made at 10:00
A.M., Philadelphia time, on the third business day after the date of this
Agreement or at such other time and date not later than three business days
thereafter as the Representatives and the Company shall agree upon. Such time
and date are referred to herein as the "Closing Date." The certificates
representing the Offered Shares to be sold and delivered will be in such
denominations and registered un such names as the Representatives request not
less than two full business days prior to the Closing Date, and will be made
available to the Representatives for inspection, checking and packaging at the
office of the Company's Transfer Agent, not less than one full business day
prior to the Closing Date.
4. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in connection
With the distribution and sale of the Offered Shares as contemplated by the
Prospectus, subject to the terms and conditions herein set forth the
several Underwriters are hereby granted an option by the Company to
purchase all or any part of the 375,000 Optional Shares from the Company
(the
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"Over-allotment Option"). The purchase price per share to be paid for the
Optional Shares shall be the Offering Price less the Underwriting Discount.
The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters as to all or any part
of the Optional Shares at any time and from time to time within 30 business
days after the Effective Date. No Underwriter shall be under any obligation
to purchase any Optional Shares prior to an exercise of the Over-allotment
Option.
(b) The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters by giving notice to
the Company by a letter sent by registered or certified mail postage
prepaid, telex, telegraph, telegram or facsimile (such notice to be
effective when sent), addressed as provided in Section 13 hereof, setting
forth the number of Optional Shares to be purchased, the date and time for
delivery of and payment for the Optional Shares and stating that the
Optional Shares referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale of
the Offered Shares. If such notice is given prior to the Closing Date, the
date set forth therein for such delivery and payment shall not be earlier
than either three full business days thereafter or the Closing Date,
whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment shall be a
date selected by the Representatives that is not later than three full
business days after the exercise of the Over-allotment Option. The date and
time set forth in such a notice is referred to herein as an "Option Closing
Date," and a closing held pursuant to such a notice is referred to herein
as an "Option Closing." The number of Optional Shares to be sold to each
Underwriter pursuant to each exercise of the Over-allotment Option shall be
the number that bears the same ratio to the aggregate number of Optional
Shares being purchased through such Over-allotment Option exercise as the
number of Offered Shares opposite the name of such Underwriter in Schedule
I hereto bears to the total number of all Offered Shares; subject, however,
to such adjustment as the Representatives may approve to eliminate
fractional shares and subject to the provisions for the allocation of
Optional Shares purchased for the purpose of covering over-allotments set
forth in Sections 9 and 12 of the Agreement Among Underwriters. Upon each
exercise of the Over-allotment Option, the Company shall become obligated
to issue and sell to the Representatives for the respective accounts of the
Underwriters, and on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the s
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<PAGE>
everal Underwriters shall become severally, but not jointly, obligated to
purchase from the Company, the number of Optional Shares specified in each
notice of exercise of the Over-allotment Option.
(c) Payment for the Optional Shares shall be made to the Company by
certified or official bank check payable to the order of the Company in
next day funds or in immediately available funds wired to such account as
the Company may specify (with all costs and expenses incurred by the
Underwriters in connection with such settlement in immediately available
funds (including, but not limited to, interest or cost of funds expenses)
to be borne by the Company against delivery of the Optional Shares to the
Representatives at the offices of PMG, Suite 390, Fidelity Court, 259
Radnor-Chester Road, Radnor, Pennsylvania 19087 (or such other location as
shall be agreed upon by the Company and the Representatives) for the
respective accounts of the Underwriters. The certificates representing the
Optional Shares to be issued and delivered will be in such denominations
and registered in such names as the Representatives request not less than
two full business days prior to the Option Closing Date, and will be made
available to the Representatives for inspection, checking and packaging at
the office of the Company's Transfer Agent not less than one full business
day prior to the Option Closing Date.
5. Certain Covenants and Agreements of the Company. The Company covenants
and agrees with the several Underwriters as follows:
(a) If Rule 430A or Rule 434 of the Regulations is employed, the
Company will timely file the Prospectus pursuant to and in compliance with
Rule 424(b) of the Regulations and will advise the Representatives of the
time and manner of such filing.
(b) The Company will not at any time, whether before or after the
Registration Statement shall have become effective, during such period as,
in the opinion of counsel for the Underwriters, the Prospectus is required
by law to be delivered in connection with sales by the Underwriters or a
dealer, file or publish any amendment or supplement to the Registration
Statement or Prospectus of which the Representatives have not been
previously advised and furnished a copy, or which is not in compliance with
the Regulations, or, during the period before the distribution of the
Offered Shares and the Optional Shares is completed, file or publish any
amendment or supplement to the Registration Statement or
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Prospectus to which the Representatives reasonably object in writing.
(c) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time and date that this Agreement is
executed and delivered by the parties hereto, to become effective and will
advise the Representatives immediately, and confirm such advice in writing,
(i) when the Registration Statement, or any post-effective amendment to the
Registration Statement, is filed with the SEC, (ii) of the receipt of any
comments from the SEC, (iii) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective,
or when any supplement or term sheet to the Prospectus or any amended
Prospectus has been filed, (iv) of any request of the SEC for amendment or
supplementation of the Registration Statement or Prospectus or for
additional information, (v) during the period when the Prospectus is
required to be delivered under the Act and Regulations, of the happening of
any event which in the Company's judgment makes any material statement in
the Registration Statement or the Prospectus untrue or which requires any
changes to be made in the Registration Statement or Prospectus in order to
make any material statements therein not misleading and (vi) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus or the Prospectus, the suspension of the
qualification of any of the Shares for offering or sale in any jurisdiction
in which the Underwriters intend to make such offers or sales, or of the
initiation or threatening of any proceedings for any such purposes. The
Company will use its best efforts to prevent the issuance of any such stop
order or of any order preventing or suspending such use and, if any such
order is issued, to obtain as soon as possible the lifting thereof.
(d) The Company has delivered to the Representatives, without charge,
and will continue to deliver from time to time until the Effective Date, as
many copies of each Preliminary Prospectus as the Representatives may
request. The Company will deliver to the Representatives, without charge,
as soon as possible after the Effective Date, and thereafter from time to
time during the period when delivery of the Prospectus is required under
the Act, such number of copies of the Prospectus (as supplemented or
amended, if the Company makes any supplements or amendments to the
Prospectus) as the Representatives may reasonably request. The Company
hereby consents to the use of such copies of each Preliminary Prospectus
and the Prospectus for purposes permitted by the Act, the Regulations and
the securities or Blue Sky laws of
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<PAGE>
the jurisdictions in which the Shares are offered or sold by the several
Underwriters and by all dealers to whom Shares may be offered or sold, both
in connection with the offering and sale of the Shares and for such period
of time thereafter as the Prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer. The Company has
furnished or will furnish to the Representatives three signed copies of the
Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Effective Date, three copies of all
exhibits filed therewith and three signed copies of all consents and
certificates of experts, and will deliver to the Representatives such
number of conformed copies of the Registration Statement including
financial statements and exhibits, and all amendments thereto, as the
Representatives may reasonably request.
(e) The Company will comply with the Act, the Regulations, the
Exchange Act and the rules and regulations thereunder so as to permit the
continuance of offers and sales of, and dealings in, the Shares for as long
as may be necessary to complete the distribution of the Shares as
contemplated hereby.
(f) The Company will furnish such information as may be required and
otherwise cooperate in the registration or qualification of the Shares, or
exemption therefrom, for offering and sale by the several Underwriters and
by dealers under the securities or Blue Sky laws of such jurisdictions in
which the Representatives determine to offer the Shares, after consultation
with the Company, and will file such consents to service of process or
other documents necessary or appropriate in order to effect such
registration or qualification; provided, however, that no such
qualification shall be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to taxation or qualification
as a foreign corporation doing business in such jurisdiction where it is
not now so qualified or to take any action that would subject it to service
of process in suits, other than those arising out of the offering or sale
of the Shares, in any jurisdiction where it is not now so subject. The
Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect
for so long a period as is required under the laws of such jurisdiction for
such offering and sale.
(g) Subject to subsection (b) of this Section 5, in case of any
event, at any time within the period during which, in the opinion of
counsel for the Underwriters, a prospectus
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<PAGE>
is required to be delivered under the Act and Regulations, as a result of
which event any Preliminary Prospectus or the Prospectus, as then amended
or supplemented, would contain, in the judgment of the Company or in the
opinion of counsel for the Underwriters, an untrue statement of a material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or, if it is necessary at any time to amend any
Preliminary Prospectus or the Prospectus to comply with the Act and
Regulations or any applicable securities or Blue Sky laws, the Company
promptly will prepare and file with the SEC, and any applicable state
securities commission, an amendment or supplement that will correct such
statement or omission or an amendment that will effect such compliance and
will furnish to the Representatives such number of copies of such amendment
or amendments or supplement or supplements to such Preliminary Prospectus
or the Prospectus (in form and substance satisfactory to the
Representatives and counsel for the Underwriters) as the Representatives
may reasonably request. For purposes of this subsection, the Company will
furnish such information to the Representatives, the Underwriters' counsel
and counsel for the Company as shall be necessary to enable such persons to
consult with the Company with respect to the need to amend or supplement
any Preliminary Prospectus or the Prospectus, and shall furnish to the
Representatives and the Underwriters' counsel such further information as
each may from time to time reasonably request. If the Company and the
Representatives agree that any Preliminary Prospectus or the Prospectus
should be amended or supplemented, the Company, if requested by the
Representatives, will if and to the extent required by law, promptly issue
a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(h) The Company will make generally available to its security holders
as soon as practicable and in any event not later than 45 days after the
end of the period covered thereby, an earnings statement of the Company
(which need not be audited unless required by the Act, the Regulations, the
Exchange Act or the rules or regulations thereunder) that shall comply with
Section 11(a) of the Act and Rule 158 of the Regulations and cover a period
of at least 12 consecutive months beginning not later than the first day of
the first month following the Effective Date.
(i) For a period of five years from the Effective Date, the Company
will deliver to the Representatives: (i) a copy of each report or document,
including, without limitation, reports on Forms 8-K, 10-K and 10-Q (or such
similar forms as may be designated by the SEC), registration statements and
any
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<PAGE>
exhibits thereto, filed with or furnished to the SEC or the NASDAQ NM or
any other securities exchange or the NASD, on the date each such report or
document is so filed or furnished, (ii) as soon as practicable, copies of
any reports or communications (financial or other) of the Company mailed to
its security holders and (iii) every material press release in respect of
the Company or its affairs that was released or prepared by the Company.
(j) For a period of three years from the Effective Date, the Company
will deliver to the Representatives, subject to execution of an appropriate
confidentiality agreement, such additional information concerning the
business and financial condition of the Company and its subsidiaries as the
Representatives may from time to time reasonably request in writing, and
which can be prepared or obtained by the Company without unreasonable
effort or expense.
(k) During the course of the distribution of the Shares, the Company
has not taken, nor will it take, directly or indirectly, any action
designed to or that might, in the future, reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common
Shares.
(l) The Company will cause each person listed on Schedule III hereto
to execute a legally binding and enforceable agreement (a "lockup
agreement") to, for a period of fifteen months from the Effective Date, not
sell offer to sell, contract to sell, grant any option for the sale of or
otherwise transfer or dispose of any Common Shares, any options to purchase
Common Shares or any securities convertible into or exchangeable for Common
Shares (excluding the issuance of Common Shares pursuant to the Options and
Warrants) without the prior written consent of PMG, which lockup agreement
shall be in form and substance satisfactory to the Representatives and the
Underwriters' counsel, and deliver such lockup agreement to the
Representatives prior to the Effective Date. Appropriate stop transfer
Instructions will be issued by the Company to the transfer agent for the
securities affected by the lockup agreements.
(m) The Company will not sell, issue, contract to sell, offer to sell
or otherwise dispose of any Common Shares, options to purchase Common
Shares or any other security convertible into or exchangeable for Common
Shares, from the Effective Date through the period ending 180 days after
the Effective Date, without the prior written consent of PMG, except for
the sale of the Shares as contemplated by this Agreement, the granting of
options, and the issuance of Common
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<PAGE>
Shares upon their exercise, under the Company's stock option plan described
in the Prospectus and the issuance of Common Shares pursuant to the Options
and Warrants.
(n) The Company will use all reasonable efforts to maintain the
listing of the Common Shares on the NASDAQ NM. The Company shall, at its
sole cost and expense, prepare and file a Notification Form for Listing
Additional Shares and any other necessary documentation with the NASDAQ NM
in order to qualify the Shares for listing on the NASDAQ NM.
(o) The Company shall, at its sole cost and expense, supply and
deliver to the Representatives and the Underwriters' counsel (in the form
they require), within a reasonable period after the Closing Date, five
transaction binders, each of which shall include the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, each Preliminary Prospectus, the Prospectus, the Preliminary
Blue Sky Memorandum and any supplement thereto and all underwriting and
other closing documents.
(p) Upon the Representatives' request, individually and not as the
Representatives of the several Underwriters, the Company shall make
available its stock transfer records for examination by the Representatives
at the offices of the Company's transfer agent for a period of 12 months
after the Effective Date.
(q) The Company will use the net proceeds from the sale of the Shares
to be sold by it hereunder substantially in accordance with the description
thereof set forth in the Prospectus.
(r) [For a period of 24 months following the Closing Date, the Company
hereby grants PMG the right of first refusal to act as Managing Underwriter
for any and all future public offerings (excluding offerings to Company
employees, or to others as considerations for the purchase of assets for
use in the Company's business, or in one or more business combinations) of
any securities of the Company, or any successor to or any subsidiary of the
Company. PMG agrees that it will notify the Company of its decision whether
or not to exercise the right of first refusal granted in this subparagraph
(r) within thirty (30) days after receipt by PMG of written notice of the
intention of the Company, or its successor or subsidiary to offer
securities for sale.]
6. Payment of Expenses.
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<PAGE>
(a) Whether or not the transactions contemplated by this Agreement are
consummated and regardless of the reason this Agreement is terminated, the
Company will pay or cause to be paid, and bear or cause to be borne, all costs
and expenses incident to the performance of the obligations of the Company under
this Agreement, including: (i) the fees and expenses of the accountants and
counsel for the Company, incurred in the preparation of the Registration
Statement and any post-effective amendments thereto (including financial
statements and exhibits), each Preliminary Prospectus and the Prospectus and any
amendments or supplements thereto; (ii) printing and mailing expenses associated
with the Registration Statement and any post-effective amendments thereto, each
Preliminary Prospectus, the Prospectus (including any supplement or amendment
thereto), this Agreement, the Agreement Among Underwriters, the Underwriters'
Questionnaire, the Power of Attorney, the Selected Dealer Agreement and related
documents and the Preliminary Blue Sky Memorandum and any supplement thereto;
(iii) the costs (other than fees and expenses of the Underwriters' counsel
except in connection with Blue Sky filings or exemptions as provided herein)
incident to the authentication, issuance, sale and delivery of the Shares to the
Underwriters; (iv) all taxes, if any, on the issuance, delivery and transfer of
the Shares to be sold by the Company; (v) the fees, expenses and all other costs
of qualifying the Shares for the sale under the securities or Blue Sky laws of
those jurisdictions in which the Shares are to be offered or sold including the
reasonable fees and disbursements of Underwriters' counsel and such local
Counsel as may have been reasonably required and retained for such purpose; (vi)
the fees, expenses and other costs of, or incident to, securing any review or
approvals by or from the NASD exclusive of fees of the Underwriters' counsel;
(vii) the filing fees of the SEC; (viii) the cost of furnishing to the
Underwriters copies of the Registration Statement, each Preliminary Prospectus
and the Prospectus (including any supplement or amendment thereto) as herein
provided; (ix) the Company's travel expenses in connection with meetings with
the brokerage community and institutional investors; (x) the costs and expenses
associated with settlement in same day funds (including, but not limited to,
interest or cost of funds expenses), if desired by the Company; or (xi) the fees
and costs for listing of the Shares for trading on the NASDAQ NM including the
costs associated with the preparation and filing of a Notification Form for
Listing Additional Shares; (xii) the cost of printing and engraving certificates
for the Shares; (xiii) the cost and charges of any transfer agent; (xiv) the
costs of advertising the offering, including any "tombstone" advertisements;
(xv) the fees, expenses and other costs incurred by the Underwriters and their
counsel for review of the Company's patents and patent applications, if any, and
related matters and (xvi) all other costs and expenses reasonably incident to
the performance of their obligations hereunder that are not otherwise
specifically provided
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for in this Section 6, provided that, except as specifically set forth in
subsection (c) of this Section 6, the Underwriters shall be responsible for
their out-of-pocket expenses, including those associated with meetings with the
brokerage community and institutional investors, other than the Company's travel
expenses, and the fees and expenses of their counsel for other than Blue Sky
work.
(b) The Company shall pay as due any registration, qualification and
filing fees and any accountable out-of-pocket disbursements in connection with
such registration, qualification or filing in the jurisdictions in which the
Representatives determine, after consultation with the Company, to offer or sell
the Shares.
(c) [In order to reimburse the Representatives for those costs and
expenses customarily incurred during the registration process, (i) if the
issuance and sale of the Offered Shares to the several Underwriters is
consummated as contemplated by this Agreement, then the Company shall pay to the
Representatives on the Closing Date a non-accountable expense allowance in the
amount equal to two percent of the gross proceeds from the sale of the Offered
Shares, (ii) if the sale of any Optional Shares to the Underwriters is
consummated as contemplated by this Agreement, then the Company shall pay to the
Representatives on each Option Closing Date a non-accountable expense allowance
in the amount equal to two percent of the gross proceeds from the sale of the
Optional Shares sold on such Option Closing Date and, (iii) in the event that
the Underwriters are willing to proceed with the offering of the Offered Shares
and the Company elects not to proceed with the offering of the Offered Shares
for any reason, (A) the Company will promptly reimburse PMG for its
out-of-pocket expenses relating to the offering of the Offered Shares (including
but not limited to the fees and disbursements of Underwriters' counsel) in an
amount not to exceed $150,000 in the aggregate; and, in addition, (B) if, within
one year of the date of this Agreement, the Company enters into an agreement
whereby the Company agrees, except in connection with a public offering, that
more than 20 percent of its then outstanding Common Shares or assets will be
sold or that a change in control will otherwise be effected (any of the
foregoing is referred to hereinafter as a "Transaction"), then the Company shall
retain PMG to advise it in connection with such Transaction and shall pay to PMG
for services rendered in connection with such Transaction a fee equal to 2.5
percent of the aggregate consideration paid pursuant to such Transaction. For
purposes of the preceding sentence, the value of the "aggregate consideration"
paid pursuant to any Transaction shall be determined at the closing date for
such Transaction and shall include all cash, equity securities, earn outs,
non-compete agreements, all indebtedness assumed, acquired, retired or deceased,
and the face value of debt
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securities issued in connection with such Transaction. For purposes of this
subsection (c), "change in control" shall mean (i) the time that any person or
group, within the meaning of Section 14(d)(2) of the Exchange Act (other than
any person who was at the date hereof an officer or director of the Company or a
group consisting solely of persons who were at the date hereof officers or
directors of the Company) has acquired direct or indirect beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of 25 percent or more
of the outstanding voting capital stock of the Company, or (ii) the first day on
which a majority of the members of the Company's Board of Directors are not
persons who (A) were at the date hereof members of such Board of Directors or
(B) were nominated for election and elected to such Board of Directors with the
affirmative vote of the greater of a majority of persons referred to in clause
(A) or (B) of this sentence.]
7. Conditions Of Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Offered Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which its right to purchase under Section 4 has been exercised on
an Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date, to the continuing accuracy of the representations and
warranties of the Company set forth herein, to the performance by the Company of
its covenants, agreements and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. Philadelphia time, on the date of this Agreement, or at such
later time or on such later date as the Representatives may agree to in
writing; if required by the Regulations, the Prospectus shall have been
filed with the SEC pursuant to Rule 424(b) of the Regulations within the
applicable time period prescribed for such filing by the Regulations and in
accordance with subsection (a) of Section 5 hereof; on or prior to the
Closing Date or any Option Closing Date, as the case may be, no stop order
or other order preventing or suspending the effectiveness of the
Registration Statement or the sale of any of the Shares shall have been
issued under the Act or any state securities law and no proceedings for
that purpose shall have been initiated or shall be pending or, to the
Representatives' knowledge or the knowledge of the Company, shall be
contemplated by the SEC or any authority in any jurisdiction designated by
the Representatives pursuant to subsection (f) of Section 5 hereof and any
request on the part of the SEC for additional information shall have been
complied with to the reasonable satisfaction of counsel for the
Underwriters.
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<PAGE>
(b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement and the Shares and the
form of the Registration Statement, each Preliminary Prospectus and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby, shall be satisfactory in all respects to
counsel to the Underwriters; the Company shall have furnished to such
counsel all documents and information that they may reasonably request to
enable them to pass upon such matters; and the Representatives shall have
received from the Underwriters' counsel, Kirkpatrick & Lockhart LLP, a
favorable opinion, dated as of the Closing Date and any Option Closing
Date, as the case may be, and addressed to the Representatives individually
and as the Representatives of the several Underwriters with respect to the
due authorization, execution and delivery of this Agreement, that the
issuance and sale of the Shares have been duly authorized by the Company,
that when the Shares have been duly delivered against payment there for as
contemplated by this Agreement, they will be validly issued, fully paid and
non-assessable and that the Registration Statement has become effective
under the Act.
(c) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of any of the Shares.
(d) The Representatives shall have received copies of the lockup
agreements described in subsection (l) of Section 5 signed by those persons
set forth on Schedule IV hereto.
(e) The Representatives shall have received at or prior to the
Closing Date from counsel a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the securities or
Blue Sky laws of such jurisdictions designated by the Representatives
pursuant to subsection (f) of Section 5 hereof.
(f) On the Closing Date and any Option Closing Date, there shall have
been delivered to the Representatives a signed opinion of Graubard Mollen &
Miller, counsel for the Company ("Company Counsel"), dated as of each such
date and addressed to the Representatives individually and as the
Representatives of the several Underwriters to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware
with all necessary corporate power and authority to own or lease and
operate its properties
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and to conduct its business as described in the Prospectus and to
execute, deliver and perform this Agreement. The Company is duly
qualified to do business as a foreign corporation and is in good
standing in all jurisdictions in which it owns or leases properties,
or conducts any business, so as to require such qualification, except
where the failure so to qualify or be in good standing would not have
a material adverse effect on the general affairs, properties,
condition (financial or otherwise), results of operations,
stockholders' equity or business of the Company and the Subsidiaries,
considered as one enterprise.
(ii) The Company does not own any stock or other equity interest
in, or control, directly or indirectly, any corporation, partnership
or other entity other than the Subsidiaries. Except as described in
the Prospectus, the Company or a wholly owned Subsidiary owns all of
the outstanding capital stock of each Subsidiary free and clear of all
claims, liens, charges and encumbrances. Each Subsidiary has been duly
organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its organization, with all
necessary corporate power and authority to own or lease and operate
its properties and to conduct its business as described in the
Prospectus. Each Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in
which it owns or leases properties, or conducts any business, so as to
require such qualification, except where the failure so to qualify or
be in good standing would not have a material adverse effect on the
general affairs, properties, condition (financial or otherwise),
results of operations, stockholders' equity, or business of the
Company and the Subsidiaries, considered as one enterprise.
(iii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes its legal, valid and binding
agreement, enforceable against the Company in accordance with its
terms, except as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or principles of public
policy.
(iv) The execution, delivery and performance of this Agreement by
the Company does not and will not, with or without the giving of
notice or the lapse of time, or both, (A) conflict with any terms or
provisions of the Company's Certificate of Incorporation or By-laws,
as
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<PAGE>
amended to the date hereof and the Closing Date or the Option Closing
Date, as the case may be; (B) result in a breach of, constitute a
default under, result in the termination or modification of or result
in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the properties of the Company or any
Subsidiary pursuant to any indenture, mortgage, deed of trust,
contract, commitment or other agreement or instrument known to Company
Counsel to which the Company or any Subsidiary is a party or by which
any of their respective properties or assets are bound or affected,
(C) violate any law, rule or regulation, or any judgment, order or
decree known to Company Counsel of any government or governmental
agency, instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their
respective properties or assets or (D) result in a breach, termination
or lapse of the corporate power or authority of the Company or any
Subsidiary to own or lease and operate their respective properties and
conduct their respective businesses as described in the Prospectus.
(v) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the captions
"Capitalization" and "Description of Capital Stock." As of the date or
dates indicated, the Company and the Subsidiaries, on a consolidated
basis, had the capitalization, and will have the as adjusted
capitalization, set forth in the Prospectus under the caption
"Capitalization." To the knowledge of Company Counsel on the Effective
Date, there were, and on the Closing Date and any Option Closing Date,
there will be, no options or warrants for the purchase of, other
outstanding rights to purchase, agreements or obligations to issue or
agreements or other rights to convert or exchange any obligation or
security into, capital stock of the Company or any Subsidiary or
securities convertible into or exchangeable for capital stock of the
Company or any Subsidiary, except as described in the Prospectus.
(vi) The authorized capital stock of the Company, including,
without limitation, the outstanding Common Shares and the Shares being
issued on the Closing Date and any Option Closing Date, conforms, in
all material respects, with the descriptions thereof in the
Prospectus, and such descriptions conform with the descriptions
thereof set forth in the instruments defining the same. The
information in the Prospectus insofar as it relates to the Options and
Warrants in each
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<PAGE>
case as of the Effective Date, the Closing Date and any Option Closing
Date, is true, correct and complete, in all material respects.
(vii) The Common Shares outstanding immediately prior to the
Closing Date or the Option Closing Date, as the case may be, have been
duly authorized and are validly issued, fully paid and non-assessable.
The Options and Warrants have been duly authorized, are validly issued
and are legal, valid and binding obligations, enforceable against the
Company in accordance with their terms. The Common Shares issuable
pursuant to the Options and Warrants when issued in accordance with
the terms thereof, will be duly authorized and validly issued, fully
paid and non-assessable. The Company has reserved a sufficient number
of Common Shares for issuance pursuant to the Options and Warrants.
None of the outstanding Common Shares or Options and Warrants were,
and none of such issuable Common Shares will be, issued in violation
of any preemptive rights of any security holder of the Company and
there are no contractual preemptive rights that exist with respect to
the Common Shares. The holders of the outstanding Common Shares are
not, and will not be, subject to personal liability solely by reason
of being such holders, and the holders of the Common Shares issuable
pursuant to the Options and Warrants will not be subject to personal
liability solely by reason of being such holders. The offers and sales
of the outstanding Common Shares and the Options and Warrants were
made in conformity with applicable registration requirements or
exemptions therefrom under federal and applicable state securities
laws.
(viii) The issuance and sale of the Shares by the Company have
been duly authorized and, when the Shares have been duly delivered
against payment there for as contemplated by this Agreement, the
Shares will be validly issued, fully paid and non-assessable. None of
the Shares will be issued in violation of any preemptive rights of any
stockholder of the Company pursuant to the Certificate of
Incorporation or By-laws of the Company, as amended to the date
hereof, the Closing Date or the Option Closing Date, as the case may
be, and, to the knowledge of Company Counsel there are no contractual
preemptive rights that exist with respect to the Shares. The
certificates representing the Shares are in proper legal form under,
and conform in all respects to the requirements of, the Delaware
General Corporation Law. Neither the filing of the Registration
Statement nor the
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<PAGE>
offering or sale of the Shares as contemplated by this Agreement gives
any security holder of the Company any rights for or relating to the
registration of any security of the Company.
(ix) No consent, approval, authorization, order, registration,
license or permit of any court, government, governmental agency,
instrumentality or other regulatory body or official is required for
the valid authorization, issuance, sale and delivery by the Company of
any of the Shares or for the execution, delivery or performance by the
Company of this Agreement, except such as may be required for the
registration of the Shares under the Act, the Regulations or the
Exchange Act, for the listing of the Shares on the NASDAQ NM, or for
compliance with the applicable state securities or Blue Sky laws, or
by the By-laws, rules and other pronouncements of the NASD. The Common
Shares are duly registered pursuant to Section 12(g) of the Exchange
Act and listed on the NASDAQ NM and, upon the effectiveness of the
Registration Statement, the Shares will be listed for trading on the
NASDAQ NM.
(x) Neither the Company nor any Subsidiary is in violation of, or
in default under, any of the terms or provisions, of (A) its
Certificate of Incorporation or By-laws, each as amended to the date
hereof, and the Closing Date or the Option Closing Date, as the case
may be, (B) any indenture, mortgage, deed of trust, contract,
commitment or other agreement or instrument known to Company Counsel
to which the Company or any Subsidiary is a party or by which of them
or any of their properties are bound or affected, (C) any law, rule,
regulation, judgment, order or decree of any government or
governmental agency, instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or any of their
properties or businesses, or (D) any license, permit, certification,
registration, approval, consent or franchise, referred to in
subsections (iii) or (iv) of Section 1(a) of this Agreement.
(xi) The descriptions contained in the Registration Statement and
Prospectus of statutes or regulations, legal and governmental and
regulatory proceedings and of contracts and other documents are
accurate in all material respects and fairly present in all material
respects the information required to be shown. To the knowledge of
Company CounseL there are no contracts, agreements or other documents
required to be described or
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<PAGE>
referred to in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement under the Act or the
Regulations that have not been so described, referred to or filed as
required.
(xii) To the knowledge of Company Counsel, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries
pending before, or threatened or contemplated by, any governmental
agency, instrumentality, court or tribunal, domestic or foreign, or
before any private arbitration tribunal to which the Company or any
Subsidiary is a party or is threatened to be made a party that can be
reasonably expected, or, if determined adversely to the Company or any
Subsidiary, would, in any individual case or in the aggregate, result
in any material adverse change in the general affairs, properties,
condition (financial or otherwise), results of operations,
stockholders' equity or business of the Company and the Subsidiaries,
considered as one enterprise. To the knowledge of Company Counsel
there are no outstanding orders, judgments or decrees of any court,
governmental agency, instrumentality or other tribunal enjoining the
Company or any Subsidiary from, or requiring the Company or any
Subsidiary to take or refrain from taking any action, or to which the
Company or any Subsidiary, or any of their properties, assets or
businesses is bound or subject.
(xiii) The Company and the Subsidiaries own or possess adequate
rights to use all Intellectual Property that, if not so owned or
possessed, would materially adversely affect the general affairs,
properties, condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company and the
Subsidiaries, considered as one enterprise.
(xiv) To the knowledge of Company Counsel, neither the Company
nor its Subsidiaries own any real property. All real property used or
leased by the Company or its Subsidiaries, as described in the
Prospectus, is held by the Company or a Subsidiary under a valid,
subsisting and enforceable lease
(xv) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, nor, by receipt of the
proceeds from the sale by it of the Shares pursuant to this Agreement,
will the
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<PAGE>
Company become or be deemed to be an "investment company" under such
act.
(xvi) The Registration Statement has become effective under the
Act, as of the Effective Date, and, to Company Counsel's knowledge,
the SEC has not issued any stop order suspending the effectiveness of
the Registration Statement nor has the SEC instituted or threatened to
institute proceedings with respect to any such order. Any and all
filings required to be made by Rules 424, 434, 430A and 462 under the
Act have been made.
(xvii) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment, term sheet or supplement thereto
as of its effective or issue date (other than the financial statements
and related schedules and other financial data included therein, as to
which Company Counsel need not express an opinion) comply as to form
in all material respects with the applicable requirements of the Act
and Regulations.
(xviii) Company Counsel has participated in the preparation of
the Registration Statement and the Prospectus, including reviews and
discussions of the contents thereof, and in the course of such reviews
and discussions, no facts came to its attention that would cause it to
have reason to believe that (A) the Registration Statement or any
post-effective amendment thereto, on the date it became effective and
on the Closing Date or the Option Closing Date, as the case may be,
contained any untrue statement of a material fact or omitted any
material fact necessary to make the statements therein not misleading
or that (B) the Prospectus on the Effective Date, on the date it was
filed pursuant to Rule 424(b) under the Act and on the Closing Date or
Option Closing Date, as the case may be, contained any untrue
statement of a material fact or omitted any material fact necessary to
make the statements therein, in light of the circumstances under which
made, not misleading (except, in each case, for the financial
statements and related schedules and other financial data included
therein as to which Company Counsel need not express an opinion).
The foregoing opinion may be Limited to the laws of the United States,
Switzerland, Florida, the State of Delaware and the Commonwealth of
Pennsylvania, and Company Counsel may rely as to certain legal matters on other
counsel to the Company provided that in each case, Company Counsel shall state
that they believe that
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<PAGE>
they and the Underwriters are justified in relying on such other counsel and
shall deliver signed copies of any such opinion to the Representatives and as to
questions of fact upon the representations of the Company set forth in this
Agreement and upon certificates of officers of the Company and of governmental
officials, all of which certificates must be reasonable and satisfactory in form
and scope to counsel for the Underwriters provided that in each case, Company
Counsel shall deliver signed copies of any such certificate to the
Representatives.
(h) At the Closing Date and any Option Closing Date: (A) the Registration
Statement and any post-effective amendment thereto and the Prospectus and any
amendments, term sheets or supplements thereto shall contain all statements that
are required to be stated therein in accordance with the Act and the Regulations
and shall conform, in all material respects, to the requirements of the Act and
the Regulations, and neither the Registration Statement nor any post-effective
amendment thereto nor the Prospectus and any amendments, term sheets or
supplements thereto shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, (B) since the respective dates as of which information is
given in the Registration Statement and any post-effective amendment thereto and
the Prospectus and any amendments, term sheets or supplements thereto, except as
otherwise stated therein, there shall have been no material adverse change in
the properties, condition (financial or otherwise), earnings, results of
operations, stockholders' equity, business or management of the Company and
the Subsidiaries, considered as one enterprise, from that set forth therein,
whether or not arising in the ordinary course of business, other than as
referred to in the Registration Statement or Prospectus, (C) since the
respective dates as of which information is given in the Registration
Statement and any post-effective amendment thereto and the Prospectus or any
amendment, term sheet or supplement thereto, there shall have been no
transaction, contract or agreement entered into by the Company or any
Subsidiary, other than in the ordinary course of business and as set forth in
the Registration Statement or Prospectus that has not been, but would be
required to be, set forth in the Registration Statement or Prospectus; (D) no
action, suit or proceeding at law or in equity shall be pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary that
would be required to be set forth in the Prospectus, other than as set forth
therein, and no proceedings shall be pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
properties, condition (financial or
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<PAGE>
otherwise), results of operations, stockholders' equity or business of the
Company and the Subsidiaries, considered as one enterprise, other than as set
forth in the Prospectus. The Representatives shall have received at the Closing
Date and any Option Closing Date certificates of each of the Chief Executive
Officer and the Chief Financial Officer of the Company dated as of the Closing
Date or Option Closing Date, as the case may be, and addressed to the
Representatives, individually and as the Representatives of the several
Underwriters, to the effect, that the conditions set forth in this subsection
have been satisfied and as to the accuracy and performance, as of the Closing
Date or the Option Closing Date, as the case may be, of the agreements,
representations and warranties of the Company set forth herein.
(i) At the time this Agreement is executed and at the Closing Date and any
Option Closing Date, the Representatives shall have received a letter addressed
to the Representatives, individually and as the Representatives of the several
Underwriters, and in form and substance satisfactory to the Representatives in
all respects (including the nonmaterial nature of the changes or decreases, if
any, referred to in clause (iii) below) from KPMG Peat Marwick LLP dated as of
the date of this Agreement, the Closing Date or Option Closing Date, as the case
may be:
(i) confirming that they are independent public accountants within the
meaning of the Act and the Regulations and stating that the section of the
Registration Statement under the caption "Experts" is correct insofar as it
relates to them;
(ii) stating that, in their opinion, the consolidated financial
statements of the Company audited by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the Regulations;
(iii) stating that, on the basis of specified procedures, which
included a reading of the latest available unaudited interim consolidated
financial statements of the Company (with an indication of the date of the
latest available unaudited interim consolidated financial statements), a
reading of the minutes of the meetings of the stockholders and the Board of
Directors of the Company and audit and compensation committees of such
Boards if any, and inquiries to certain officers and other employees of the
Company who are responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention
that would cause them to believe that (A) the unaudited consolidated
financial statements and related schedules of the Company included in the
Registration Statement, if any, (I) do
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<PAGE>
not comply in form in all material respects with the applicable accounting
requirements of the Act and the Regulations or (II) were not fairly
presented in conformity with generally accepted accounting principles on a
basis substantially consistent with that of the audited consolidated
financial statements and related schedules included in the Registration
Statement or (B) (I) at a specified date, not more than five business days
prior to the date of such letter there was any change in the capital stock
or short-term or long-term debt of the Company, or any decease (increase)
in net current assets, total assets or stockholders' equity as compared
with the amounts shown in the April 30, 1996 consolidated balance sheet of
the Company included in the Registration Statement, other than as set forth
in or contemplated by the Registration Statement and Prospectus, and (II)
during the period from April 30, 1996 to a specified date not more than
five business days prior to the date of such letter, there has been any
decrease (increase), as compared with the corresponding period in the
preceding year, in revenues, operating income or income before income taxes
or in total or per share amounts of net income of the Company, if there was
any such change or decrease (increase), setting forth the amount of such
change or decrease (increase); and
(iv) stating that they have compared specific dollar amounts, numbers
of shares and other information pertaining to the Company and the
Subsidiaries on a consolidated basis set forth in the Registration
Statement and Prospectus that have been specified by the Representatives
prior to the date of this Agreement, to the extent that such amounts,
numbers, percentages and information may be derived from the general
accounting or other records of the Company and the Subsidiaries on a
consolidated basis, as the case may be, with the result obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an audit in accordance with
generally accepted auditing standards) set forth in the letter, and found
them to be in agreement.
(j) At the time this Agreement is executed and at the Closing Date and any
Option Closing Date, the Representatives shall have received a letter addressed
to the Representatives, individually and as the Representatives of the several
Underwriters, and in form and substance satisfactory to the Representatives in
all respects from Goldstein Golub Kessler & Company, P.C. dated as of the date
of this Agreement, the Closing Date or Option Closing Date, as the case may be:
(i) confirming that they are independent public accountants within the
meaning of the Act and the Regulations
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<PAGE>
and stating that the section of the Registration Statement under the
caption "Experts" is correct insofar as it relates to them;
(ii) stating that, in their opinion, the consolidated financial
statements of the Company audited by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the Regulations;
(iii) stating that they have compared specific dollar amounts, numbers
of shares and other information pertaining to the Company and the
Subsidiaries on a consolidated basis set forth in the Registration
Statement and Prospectus that have been specified by the Representatives
prior to the date of this Agreement, to the extent that such amounts,
numbers, percentages and information may be derived from the general
accounting or other records of the Company with the result obtained from
the application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an audit in accordance with
generally accepted auditing standards) set forth in the letter, and found
them to be in agreement.
(k) There shall have been duly tendered to the Representatives for the
respective accounts of the Underwriters certificates representing all of the
Shares to be purchased by the Underwriters on the Closing Date or any Option
Closing Date, as the case may be.
(l) At the Closing Date and any Option Closing Date, the Representatives
shall have been furnished such additional documents and certificates as they
shall reasonably request.
(m) No action shall have been taken by the NASD the effect of which is to
make it improper, at any time prior to the Closing Date or any Option Closing
Date, for members of the NASD to execute transactions as principal or as agent
in the Shares or to trade or deal in the Shares, and no proceedings for the
purpose of taking such action shall have been instituted or shall be pending or,
to the Company's or the Representatives' knowledge, shall be contemplated by the
NASD.
If any conditions to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or any Option Closing Date, as the
case may be, shall not have been fulfilled, the Representatives may on behalf of
the several Underwriters terminate this Agreement or, if they so elect, waive
any such conditions which have not been fulfilled or extend the time for their
fulfillment.
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<PAGE>
8. Indemnification.
(a) The Company shall indemnify and hold harmless each Underwriter, each of
the directors, managing directors and officers of each Underwriter and each
other person, if any, who controls each Underwriter within the meaning of the
Act or the Exchange Act against any and all loss, liability, claim, damage and
expense whatsoever, including, but not limited to, any and all expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever or in connection
with any investigation or inquiry of, or action or proceeding that may be
brought against, the respective indemnified parties, arising out of or based
upon any untrue statements or alleged untrue statements of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any application or other document (in this Section 8 collectively
called "application") executed by the Company and based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify all or any part of the Shares under the securities laws thereof or filed
with the SEC or the NASD, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing indemnity (i) shall not apply
in respect of any statement or omission made in reliance upon, and in conformity
with, written information furnished to the Company by any Underwriter through
the Representatives expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in any application or in any communication to the SEC, as the case may be, and
(ii) with respect to any Preliminary Prospectus, shall not inure to the benefit
of any Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Shares that are the subject
thereof (or to the benefit of any person controlling such Underwriter) if at or
prior to the written confirmation of the sale of such Shares a copy of an
amended Preliminary Prospectus or the Prospectus (or the Prospectus as amended
or supplemented) was not sent or delivered to such person and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the amended Preliminary Prospectus or Prospectus (or
the Prospectus as amended or supplemented). In addition to its other obligations
under this Section 8(a), the Company agrees that, as an interim measure during
the pendency of any such claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 8(a), it will reimburse
each Underwriter on a monthly basis for all reasonable legal and other expenses
incurred in connection with investigating or defending any
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<PAGE>
such claim, action, investigation, inquiry or other proceeding. Such monthly
reimbursement is conditioned upon receipt by the Company of an undertaking by
each Underwriter so affected, that it will as promptly as reasonably possible,
repay such expenses advanced by the Company pursuant to this Section 8(a) in the
event it has been determined by a court of competent jurisdiction or pursuant to
binding arbitration that such Underwriter was not entitled to indemnification.
This indemnity agreement will be in addition to any liability the Company may
otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, each of the directors of the Company, each of the officers
of the Company who shall have signed the Registration Statement and each other
person, if any, who controls the Company within the meaning of the Act or the
Exchange Act to the same extent as the foregoing indemnities from the Company to
the several Underwriters, but only with respect to any loss, liability, claim,
damage or expense resulting from (i) statements or omissions, or alleged
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereof
or any application in reliance upon, and in conformity with written information
furnished to the Company by any Underwriter through the Representatives with
respect to any Underwriter by or on behalf of such Underwriter expressly for use
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment or supplement thereof or any application, as the case may be, or
(ii) the failure of any Underwriter at or prior to the written confirmation of
the sale of Shares to send or deliver a copy of an amended Preliminary
Prospectus or the Prospectus (or the Prospectus as amended or supplemented) to
the person asserting any such losses, claims, damages, liabilities or expenses
who purchased the Shares that are the subject thereof and the untrue statement
or omission of a material fact contained in such Preliminary Prospectus was
corrected in the amended Preliminary Prospectus or Prospectus (or the Prospectus
as amended or supplemented). This indemnity agreement will be in addition to any
liability such Underwriter may otherwise have.
(c) If any action, inquiry, investigation or proceeding is brought against
any person in respect of which indemnity may be sought pursuant to any of the
two preceding paragraphs, such person (hereinafter called the "indemnified
party") shall, promptly after formal notification of, or receipt of service of
process for, such actions inquiry, investigation or
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<PAGE>
proceeding, notify in writing the party or parties against whom indemnification
is to be sought (hereinafter called the "indemnifying party") of the institution
of such actions inquiry, investigation or proceeding and the indemnifying party,
upon the request of the indemnified party, shall assume the defense of such
action, inquiry, investigation or proceeding, including the employment of
counsel (reasonably satisfactory to such indemnified party) and payment of
expenses. No indemnification provided for in this Section 8 shall be available
to any indemnified party who shall fail to give such notice if the indemnifying
party does not have knowledge of such action, inquiry, investigation or
proceeding and shall have been materially prejudiced by the failure to give such
notice, but the omission so to notify the indemnifying party shall not relieve
the indemnifying party otherwise than under this Section 8. Such indemnified
party or controlling person shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action or the indemnifying party shall not have
employed counsel to have charge of the defense of such action, inquiry,
investigation or proceeding or such indemnified party or parties shall have been
advised by counsel that there is a conflict of interest that would prevent
counsel to the indemnifying party from representing both parties, in any of
which events the reasonable fees and expenses of such counsel shall be borne by
the indemnifying party. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate
counsel (in addition to one local counsel in each jurisdiction in which any
proceeding may be brought) for all indemnified parties. In the case of any such
separate counsel for the Underwriters, such firm shall be designated in writing
by the Representatives. Expenses covered by the indemnification in this
subsection (c) of this Section 8 shall be paid by the indemnifying party as they
are incurred by the indemnified party. Anything un this subsection to the
contrary not withstanding, the indemnifying party shall not be liable for any
settlement of any such claim effected without its written consent. The
indemnifying party shall promptly notify the indemnified party of the
commencement of any litigation, inquiry, investigation or proceeding against the
indemnifying party or any of its officers or directors in connection with the
issue and sale of any of the Shares or in connection with such Preliminary
Prospectus, Registration Statement or Prospectus, or any amendment thereto or
supplement thereof or any such application.
(e) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsections (a) or
(b) of this Section 8 in respect of any losses, liabilities, claims, damages or
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) referred to therein except either by reason of the proviso set forth in
subsections (a) or (b) or the failure to give notice as required in subsection
(c) (provided that the indemnifying party
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<PAGE>
does not have knowledge of the action, inquiry, investigation or proceeding and
has been materially prejudiced by the failure to give such notice), then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, liabilities, claims, damages or
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, liabilities, claims or reasonable expenses (or
actions, inquiries, investigations or proceedings in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) of this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to above in this
subsection (d) of this Section 8. The amount paid or payable by an indemnified
party as a result of the losses, liabilities, claims, damages or reasonable
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) referred to above in this subsection (d) of this Section 8 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d) of this Section
8, (i) the provisions of the Agreement Among Underwriters shall govern
contribution among Underwriters, (ii) no Underwriter (except as provided in the
Agreement Among
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<PAGE>
Underwriters) shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (iii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligation in this subsection (d) of this
Section 8 to contribute are several in proportion to their respective
underwriting obligations and not joint.
9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date; and such
representations, warranties and agreements of the Underwriters, and the Company,
including without limitation the indemnity and contribution agreements contained
in Section 8 hereof and the agreements contained in Sections 6, 9, 10 and 13
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person,
and shall survive delivery of the Shares and termination of this Agreement,
whether before or after the Closing Date or any Option Closing Date.
10. Effective Date or this Agreement and Termination Thereof.
(a) This Agreement shall become effective immediately as to Sections
6, 8, 9, 10 and 13 and, as to all other provisions, (i) if at the time of
execution and delivery of this Agreement the Registration Statement has not
become effective, at 11:00 A.M., Philadelphia time, on the first business
day following the Effective Date, or (ii) if at the time of execution and
delivery of this Agreement the Registration Statement has been declared
effective, at 11:00 A.M., Philadelphia time, on the date of execution of
this Agreement; but this Agreement shall nevertheless become effective at
such earlier time after the Registration Statement becomes effective as the
Representatives may determine by notice to the Company or by release of any
of the Shares for sale to the public. For the purposes of this Section 10,
the Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon
the release by the Representatives of telegrams (i) advising the
Underwriters that the Shares are released for public offering or (ii)
offering the Shares for sale to securities dealers, whichever may occur
first. The Representatives may prevent the provisions of this Agreement
(other than those contained in Sections 6, 8, 9, 10 and 13) hereof from
becoming effective
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<PAGE>
without liability of any party to any other party, except as noted below,
by giving the notice indicated in subsection (c) of this Section 10 before
the time the other provisions of this Agreement become effective.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date as provided in Sections 7
and 11 hereof or if any of the following have occurred: (i) since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company or any Subsidiary, or
the earnings, business affairs, management or business prospects of the
Company and the Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business; (ii) any outbreak of
hostilities or other national or international calamity or crisis or change
in economic, political or financial market conditions if such outbreak,
calamity, crisis or change would, in the Representatives' reasonable
judgment, have a material adverse effect on the Company, the financial
markets of the United States or the offering or delivery of the Shares;
(iii) suspension of trading generally in securities on the New York Stock
Exchange, the American Stock Exchange, the NASDAQ NM or the over-the--
counter market or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities or the promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in the Representatives' reasonable opinion
materially and adversely affects trading on any such exchange or the
over-the-counter market; (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in the Representatives'
reasonable opinion materially and adversely affects or will materially and
adversely affect the business or operations of the Company and the
Subsidiaries, considered as one enterprise; (v) declaration of a banking
moratorium by either federal or state authorities; (vi) the taking of any
action by any federal, state or local government or agency in respect of
its monetary or fiscal affairs which in the Representatives' reasonable
opinion has a material adverse effect on the securities markets in the
United States; (vii) declaration of a moratorium in foreign exchange
trading by major international banks or other institutions; or (viii)
trading in any securities of the Company shall have been suspended or
halted by the NASD or the SEC.
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<PAGE>
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 10, the Representatives shall notify the Company thereof promptly
by telephone, telex, telegraph or facsimile, confirmed by letter.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Offered Shares or Optional Shares hereunder, and if the
Offered Shares or Optional Shares with respect to which such default relates do
not exceed the aggregate of 10 percent of the number of Offered Shares or
Optional Shares, as the case may be, that all Underwriters have agreed to
purchase hereunder, then such Offered Shares or Optional Shares to which the
default relates shall be purchased severally by the non-defaulting Underwriters
in proportion to their respective commitments hereunder.
(b) If such default relates to more than 10 percent of the Offered Shares
or Optional Shares, as the case may be, the Representatives may in their
discretion arrange for another party or parties (including a non-defaulting
Underwriter) to purchase such Offered Shares or Optional Shares to which such
default relates, on the terms contained herein. In the event that the
Representatives do not arrange for the purchase of the Offered Shares or
Optional Shares to which a default relates as provided in this Section 11, this
Agreement may be terminated by the Representatives or by the Company without
liability on the part of the several Underwriters (except as provided in Section
8 hereof) or the Company (except as provided in Sections 6 and 8 hereof), but
nothing herein shall relieve a defaulting Underwriter of its liability, if any,
to the other several Underwriters and to the Company for damages occasioned by
its default hereunder.
(c) If the Offered Shares or Optional Shares to which the default relates
are to be purchased by the non-defaulting Underwriters, or are to be purchased
by another party or parties as aforesaid, the Representatives or the Company
shall have the right to postpone the Closing Date or any Option Closing Date, as
the case may be, for a reasonable period but not in any event exceeding seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment to the
Registration Statement or supplement to the Prospectus which in the opinion of
counsel for the Underwriters may thereby be made necessary. The terms
"Underwriters" and "Underwriter" as used in this Agreement shall include any
party substituted under this Section 11 with like
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<PAGE>
effects as if it had originally been a party to this Agreement with respect to
such Offered Shares or Optional Shares.
12. Information Furnished by Underwriters. It is acknowledged that the
statements appearing in any Preliminary Prospectus, the Prospectus or the
Registration Statement (a) on the inside front cover page with respect to
stabilization, (b) in the second paragraph in the section entitled
"Underwriting," with respect to the amount of the dealers' concession and
allowance and reallowance discount and (c) in the section entitled "Legal
Matters" with respect to the identity of counsel for the Underwriters constitute
the only information furnished in writing by or on behalf of any Underwriter for
inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement referred to in subsection (ii) of Section 1(a) and subsections (a),
(b) or (c) of Section 8 hereof.
13. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to such Underwriter, c/o Pennsylvania Merchant Group Ltd, Suite 390,
Fidelity Court, 259 Radnor-Chester Road, Radnor, Pennsylvania 19087, Attention:
Richard A. Hansen, President, with a copy to Kirkpatrick & Lockhart LLP, 1251
Avenue of the Americas, New York, New York, Attention: Alan Roy Dynner, Esquire;
if sent to the Company shall be mailed, delivered, telexed, telegrammed,
telegraphed or telecopied and confirmed to GKN Holding Corp.,
______________________________________________, with a copy to Graubard Mollen &
Miller, _____________________________________, Attention: David R. Miller,
Esquire.
14. Parties. This Agreement shall inure solely to the benefit of, and shall
be binding upon, the several Underwriters, the Company, and the controlling
persons, managing directors, directors and officers referred to in Section 8
hereof, and their respective successors, assigns, heirs and legal
representatives, and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provision herein contained. The terms "successors" and
"assigns" shall not include any purchaser of the Shares merely because of such
purchase.
15. Definition of Business Day. For purposes of this Agreement, "business
days" means any day on which the New York Stock Exchange is opened for trading.
16. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
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<PAGE>
17. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within such Commonwealth.
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement by and
among the Underwriters and the Company.
Very truly yours,
GKN HOLDING CORP.
By: ____________________________(SEAL)
President
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
PENNSYLVANIA MERCHANT GROUP LTD
GKN SECURITIES CORP.
By: PENNSYLVANIA MERCHANT GROUP LTD
By: ________________________________(SEAL)
Name:
Title:
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<PAGE>
SCHEDULE I
Underwriters
Number of Offered
Shares to be
Underwriter Purchased
----------- ---------
Pennsylvania Merchant Group Ltd . . . . .
GKN Securities Corp. . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . 2,500,000
=========
<PAGE>
SCHEDULE II
Subsidiaries
Jurisdiction of Subsidiaries Class of Shares Shares
------
Name Incorporation Capital Stock Authorized Outstanding
---- ------------- ------------- ---------- -----------
<PAGE>
SCHEDULE III
Persons Subject to Lock-Up Agreements
EXHIBIT 1.2
PENNSYLVANIA MERCHANT GROUP LTD GKN SECURITIES CORP.
259 Radnor Chester Road 61 Broadway
Radnor, PA 19087 New York, NY 10006
________________________________________________
SELECTED DEALER AGREEMENT
________________________________________________
Ladies and Gentlemen:
1. Registration under the Securities Act of 1933, as amended
("Act"), of the 2,500,000 Shares of Common Stock*, of GKN Holding Corp.
("Company"), as more fully described in the Preliminary Prospectus, dated July
3, 1996, and in the final prospectus, which will be forwarded to you (the final
prospectus being hereinafter referred to as the "Prospectus"), which was
declared effective by the Securities and Exchange Commission at _____ a.m. on
__________, _________ __, 1996. We, as underwriters, are offering for sale the
Shares which we have agreed to purchase from the Company, for purchase by a
selected group of dealers ("Selected Dealers") on the terms and conditions
stated herein.
Authorized Public Offering Price: $____ per Share.
Dealers' Selling Concession: Not to exceed $____ per Share payable upon
termination of this Agreement, except as
provided below. We reserve the right not to
pay such concession on any of the Shares
purchased by any of the Selected Dealers from
us and repurchased by us at or below the
price stated above prior to such termination.
Reallowance: You may reallow not in excess of $____ per
Share as a selling concession to dealers who
are members in good standing of the National
Association of Securities Dealers, Inc.
("NASD") or to foreign dealers who are not
eligible for membership in the NASD and who
have agreed (i) not to sell the Shares within
the United States of America, its territories
or possessions or to persons who are citizens
thereof or residents
--------------------
* Plus an option to acquire an additional 375,000
Shares of Common Stock pursuant to the Underwriter's over-
allotment option.
<PAGE>
therein, and (ii) to abide by the applicable
Rules of Fair Practice of the NASD.
Delivery and Payment: Delivery of the Shares shall be made on or
about __________ __, 1996 or such later date
as we may advise on not less than one day's
notice to you, at the office of Pennsylvania
Merchant Group Ltd ("PMG"), 259 Radnor
Chester Road Radnor, PA 19087, or at such
other place as we shall specify on not less
than one day's notice to you. Payment for
the Shares is to be made, against delivery,
at the authorized public offering price
stated above, or, if we shall so advise you,
at the authorized public offering price less
the dealers' selling concession stated above,
by a certified or official bank check in New
York Clearing House Funds payable to the
order of PMG.
Termination: This Agreement shall terminate at the close
of business on the 45th day following the
effective date of the Registration Statement
(of which the enclosed Prospectus forms a
part), unless extended at our discretion for
a period or periods not to exceed in the
aggregate 30 additional days. We may
terminate this Agreement, whether or not
extended, at any time without notice.
2. Any of the Shares purchased by you hereunder are to be offered by
you to the public at the public offering price, except as herein otherwise
provided and except that a reallowance from such public offering price not in
excess of the amount set forth on the first page of this Agreement may be
allowed as consideration for services rendered in distribution to dealers that
(a) are actually engaged in the investment banking or securities business; (b)
execute the written agreement prescribed by Section 24(c) of Article III of the
Rules of Fair Practice of the NASD; and (c) are either members in good standing
of the NASD or foreign banks, dealers or institutions not eligible for
membership in the NASD which represent to you that they will promptly reoffer
such Shares at the public offering price and will abide by the conditions with
respect to foreign banks, dealers and institutions set forth in paragraph 9
below.
3. You, by becoming a member of the Selected Dealers, agree (a) upon
effectiveness of the Registration Statement and your receipt of the Prospectus,
to take up and pay for the number of Shares allotted and confirmed to you, (b)
not to use any of the Shares to reduce or cover any short position you may have,
(c) upon our request, to advise us of the number of Shares purchased from us as
manager of the Selected Dealers remaining unsold by you and to resell to us any
or all of such unsold Shares at the public offering price stated above, less all
or such part of the concession allowed you as we may determine, and (d) to
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<PAGE>
make available a copy of the Prospectus to all persons who on your behalf will
solicit orders for the Shares prior to the making of such solicitations by such
persons. You are not authorized to give any information or to make any
representations other than those contained in the Prospectus or any supplements
or amendments thereto.
4. As contemplated by Rule 15c2-8 under the Securities Exchange Act
of 1934, as amended, we agree to mail a copy of the Prospectus to any person
making a written request therefor during the period referred to in the rules and
regulations adopted under such Act, the mailing to be made to the address given
in the request. You confirm that you have delivered all preliminary prospectuses
and revised preliminary prospectuses, if any, required to be delivered under the
provisions of Rule 15c2-8 and agree to deliver all copies of the Prospectus
required to be delivered thereunder. We have heretofore delivered to you such
preliminary prospectuses as have been required by you, receipt of which is
hereby acknowledged, and will deliver such further prospectuses as may be
requested by you.
5. You agree that until termination of this Agreement you will not
make purchases or sales of the Shares except (a) pursuant to this Agreement, (b)
pursuant to authorization received from us, or (c) in the ordinary course of
business as broker or agent for a customer pursuant to any unsolicited order.
6. Additional copies of the Prospectus and any supplements or
amendments thereto shall be supplied in reasonable quantity upon request.
7. The Shares are offered by us for delivery when, as and if sold
to, and accepted by, us and subject to the terms herein and in the Prospectus or
any supplements or amendments thereto, to our right to vary the concessions and
terms of offering after their release for public sale, to approval of counsel as
to legal matters and to withdrawal, cancellation or modification of the offer
without notice.
8. Upon written application to us, you shall be informed as to the
jurisdictions under the securities or blue sky laws of which we believe the
Shares are eligible for sale, but we assume no responsibility as to such
eligibility or the right of any member of the Selected Dealers to sell any of
the Shares in any jurisdiction. We have caused to be filed a Further State
Notice relating to such of the Shares to be offered to the public in New York in
the form required by, and pursuant to, the provisions of Article 23A of the
General Business Law of the State of New York. Upon the completion of the public
offering contemplated herein, each member of the Selected Dealers agrees to
promptly furnish to us, upon our request, territorial distribution reports
setting forth each jurisdiction in which sales of the Shares were made by such
member, the number of Shares sold in such jurisdiction, and any further
information as we may request, in order to permit us to file on a timely basis
any report which we as underwriters of the offering or manager of the Selected
Dealers may be required to file pursuant to the securities or blue sky laws of
any jurisdiction.
9. You, by becoming a member of the Selected Dealers, represent that
you actually engaged in the investment banking or securities business and that
you are (a) a member in good standing of the NASD and will comply with Section
24 of Article III of the
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<PAGE>
NASD's Rule of Fair Practice, or (b) a foreign dealer or institution which is
not eligible for membership in the NASD and which has agreed (i) not to sell
Shares within the United States of America, its territories or possessions or to
persons who are citizens thereof or residents therein; (ii) that any and all
sales shall be in compliance with the NASD's Interpretation with Respect to
Free-Riding and Withholding; (iii) to comply, as though it were a member of the
NASD, with Sections 8, 24 and 36 of Article III of the NASD's Rules of Fair
Practice, and to comply with Section 25 thereof as that Section applies to a
non-member broker or dealer in a foreign country.
10. Nothing herein shall constitute any members of the Selected
Dealers partners with us or with each other, but you agree, notwithstanding any
prior settlement of accounts or termination of this Agreement, to bear your
proper proportion of any tax or other liability based upon the claim that the
Selected Dealers constitute a partnership, association, unincorporated business
or other separate entity and a like share of any expenses of resisting any such
claim.
11. We shall be the underwriters of the offering and manager of the
Selected Dealers and shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the offering or the
Selected Dealers or any members of them. Except as expressly stated herein, or
as may arise under the Act, we shall be under no liability to any member of the
Selected Dealers as such for, or in respect of (i) the validity or value of the
Shares (ii) the form of, or the statements contained in, the Prospectus, the
Registration Statement of which the Prospectus forms a part, any supplements or
amendments to the Prospectus or such Registration Statement, any preliminary
prospectus, any instruments executed by, or obtained or any supplemental sales
data or other letters from, the Company, or others, (iii) the form or validity
of the Underwriting Agreement, or this Agreement, (iv) the eligibility of any of
the Shares for sale under the laws of any jurisdiction, (v) the delivery of the
Shares, (vi) the performance by the Company, or others of any agreement on its
or their part, (vii) or any matter in connection with any of the foregoing,
except our own want of good faith.
12. If for federal income tax purposes the Selected Dealers, among
themselves or with the several underwriters, should be deemed to constitute a
partnership, then we elect to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1986, as amended, and we
agree not to take any position inconsistent with such selection. We authorize
you, in your discretion, to execute and file on our behalf such evidence of such
selection as may be required by the Internal Revenue Service.
13. All communications from you shall be addressed to us at
Pennsylvania Merchant Group Ltd, 259 Radnor Chester Road, Radnor, PA 19087,
Attention: Richard A. Hansen, and GKN Securities Corp., 61 Broadway, New York,
New York, 10006, Syndicate Department, Attention: David Nussbaum. Any notice
from us to you shall be deemed to have been fully authorized by the several
underwriters and to have been duly given if mailed, telegraphed or sent by
facsimile transmittal to you at the address to which this letter is
-4-
<PAGE>
mailed. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws. Time is of the
essence in this Agreement.
14. The offering of the Common Stock of the Company is being made in
compliance with Schedule E to the By-laws of the National Association of
Securities Dealers, Inc. ("Schedule E"). In accordance with Section 12 to
Schedule E, you may not engage in any transactions in the Common Stock with any
of your discretionary accounts without prior written approval of the customer.
-------
The approval must indicate the number of shares of Common Stock purchased and
the customer's specific approval should be permanently attached to the order
ticket when it is furnished to your compliance manager.
If you desire to become a member of the Selected Dealers, please
advise us to that effect immediately by facsimile transmission and sign and
return to us the enclosed counterpart of this letter.
Very truly yours,
PENNSYLVANIA MERCHANT GROUP LTD
By:_______________________________
Name:
Title:
GKN SECURITIES CORP.
By:_______________________________
Name:
Title:
We accept membership in the Selected Dealers on the terms specified above.
Dated: ___________ __, 1996
___________________________________________
(Selected Dealer)
By: _______________________________________
Name:
Title:
-5-
Exhibit 3.2(A)
Section 3.2 Number, Method of Election and Classification of Directors
(a) The number of Directors which shall constitute the Board of
Directors shall be fixed by resolution of the Board of Directors.
Directors need not be stockholders.
(b) The Board of Directors shall be divided, equally or as nearly
equal in number as possible, into three classes each of which shall
serve for a term of three years. Each term shall continue for the
number of years stated and until their successors are elected and
have qualified. A majority of Directors in office may increase or
decrease the number of directors in each class. A Director's term of
office shall begin immediately after election.
Exhibit 4.1
GKN Holding Corp.
GKN
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 361753 10 6
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON SHARES,
PAR VALUE $.0001 PER SHARE, OF
GKN HOLDING CORP.
(hereinafter the "Corporation") transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney, upon surrender of
this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Katherine Nathan David M. Nussbaum
SECRETARY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
GKN HOLDING CORP.
CORPORATE SEAL
1987 DELAWARE
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, NJ)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
GKN HOLDING CORP.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or
series thereof of the Corporation and the qualifications, limitations or
restrictions of such preferences and/or rights. Such request may be made to the
Corporation or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -- __________ Custodian __________
(Cust) (Minor)
under Uniform Gifts to Minors Act
_________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________________
______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
_________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
EXHIBIT 5.1
July 29, 1996
GKN Holding Corp.
61 Broadway
New York, New York 10006
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-1, File
Number 333-05273 ("Registration Statement"), filed by GKN Holding Corp.
("Company") under the Securities Act of 1933, as amended ("Act"), with
respect to an aggregate of 2,500,000 shares (including up to an additional
375,000 shares issuable upon exercise of the underwriters' overallotment
option ("Shares") of common stock, par value $.0001 per share ("Common
Stock") to be offered by the Company in its initial public offering ("IPO").
We have examined such documents and considered such legal matters
as we have deemed necessary and relevant as the basis for the opinion set
forth below. With respect to such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as reproduced or certified copies, and the authenticity of
the originals of those latter documents. As to questions of fact material
to this opinion, we have, to the extent deemed appropriate, relied upon
certain representations of certain officers of the Company.
Based upon the foregoing, it is our opinion that:
The Shares to be issued by the Company in the IPO in the manner
provided in the Registration Statement, will be legally issued, fully paid
and nonassessable.
In giving this opinion, we have assumed that all certificates for
the Company's Shares will, prior to their issuance, be duly executed on
behalf of the Company by the Company's transfer agent and registered by
the Company's registrar, if necessary, and conform, or will conform, except
as to denominations, to specimens which we have examined.
<PAGE>
GKN Holding Corp.
July 29, 1996
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement, to the use of our name as your counsel, and to all
references made to us in the Registration Statement and in the Prospectus
forming a part thereof. In giving this consent, we do not hereby admit
that we are in the category of persons whose consent is required under
Section 7 of the Act, or the rules and regulations promulgated thereunder.
Very truly yours,
GRAUBARD MOLLEN & MILLER
EXHIBIT 10.3
MIZNER PARK
RETAIL LEASE AGREEMENT
By and between
CROCKER DOWNTOWN DEVELOPMENT ASSOCIATES
as Landlord
and
GKN HOLDINGS CORP.
as Tenant
DATE: 2-10, 1992
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Summary of Lease Provisions .............................. 1
1.1 Basic Data ............................................... 1
Section 2. Basic Lease Provisions ................................... 2
2.1 Premises ................................................. 2
2.2 Use of Common Areas ...................................... 3
2.3 Length of Term ........................................... 3
2.4 Commencement of Rent and Term ............................ 3
2.5 Obligations of Tenant before
Lease Term Begins ...................................... 4
2.6 Failure of Tenant to Open ................................ 4
2.7 Excuse of Landlord's Performance ......................... 5
Section 3. Rent and Assessments of Tenant ........................... 5
3.1 Fixed Minimum Annual Rent ................................ 5
3.2 Percentage Rent .......................................... 5
3.3 Sales, Use and Rent Taxes,
Personal Property Taxes ................................ 7
3.4 Real Estate Taxes and Improvement
Assessments ............................................ 7
3.5 Tenant to Bear Proportionate
Share of Common Costs .................................. 8
3.6 Additional Rent .......................................... 11
3.7 Rent Defined ............................................. 11
3.8 Tenant's Records ......................................... 11
3.9 Reports by Tenant ........................................ 12
3.10 Right to Examine Books ................................... 12
3.11 Audit .................................................... 13
Section 4. Common Areas ............................................. 14
4.1 Use of Center Common Areas
and Project Common Areas ............................... 14
4.2 License to Use Common Areas .............................. 14
Section 5. Construction of Premises ................................. 14
5.1 Landlord's Work .......................................... 14
5.2 (a) Tenant's Work ............................................ 15
(b) Mechanics Liens .......................................... 15
5.3 Acceptance by Tenant ..................................... 16
5.4 Changes to Center and Center
Common Areas ........................................... 16
Section 6. Conduct of Business by Tenant ............................ 16
6.1 Use of Premises .......................................... 16
6.2 Operation of Business .................................... 16
(i)
<PAGE>
Page
----
Section 7. Security Deposit ......................................... 17
7.1 Amount and Use of Deposit ................................ 17
7.2 Return of Deposit ........................................ 17
7.3 Transfer of Deposit ...................................... 17
Section 8. Signs, Awnings, Canopies,
Fixtures, Alterations .................................. 18
8.1 Installation by Tenant ................................... 18
8.2 Responsibility of Tenant ................................. 18
8.3 Bonds .................................................... 18
8.4 Signs .................................................... 18
Section 9. Repairs and Maintenance of
Premises ............................................... 19
9.1 Responsibilities of Landlord ............................. 19
9.2 Responsibilities of Tenant ............................... 19
Section 10. Insurance and Indemnity .................................. 22
10.1 Liability Insurance ...................................... 22
10.2 Plate Glass Insurance .................................... 22
10.3 Fire and Extended Coverage
Insurance .............................................. 22
10.4 Increase in Fire Insurance
Premium ................................................ 23
10.5 Indemnification of Landlord .............................. 23
10.6 Waiver of Subrogation .................................... 24
Section 11. Services and Utilities ................................... 24
Section 12. Subordination and Attornment ............................. 25
12.1 Subordination ............................................ 25
12.2 Attornment ............................................... 25
12.3 Financing Agreements ..................................... 25
Section 13. Assignment and Subletting ................................ 25
13.1 Consent Required ......................................... 25
13.2 Significant Change of
Ownership .............................................. 25
Section 14. Waste, Governmental Regulations .......................... 26
14.1 Waste or Nuisance ........................................ 26
14.2 Governmental Regulations ................................. 26
14.3 Hazardous Substances ..................................... 26
Section 15. Tenant's Compliance ...................................... 26
Section 16. Advertising, Promotion Fund .............................. 26
16.1 Solicitation of Business ................................. 26
16.2 Advertised Name and Address .............................. 26
16.3 Letters and Marks ........................................ 27
16.4 Promotion Fund ........................................... 27
(ii)
<PAGE>
Page
----
Section 17. Destruction of Leased Premises ........................... 27
17.1 Total or Partial Destruction ............................. 27
17.2 Destruction of Shopping Center ........................... 28
17.3 Damage Near End of Term .................................. 28
17.4 Reconstruction of Improvements ........................... 28
17.5 Termination .............................................. 29
Section 18. Eminent Domain ........................................... 29
18.1 Total Condemnation ....................................... 29
18.2 Partial Condemnation ..................................... 29
18.3 Landlord's Damages ....................................... 29
18.4 Tenant's Damages ......................................... 29
18.5 Sale Under Threat of
Condemnation ........................................... 30
Section 19. Default of Tenant ........................................ 30
19.1 Event(s) of Default ...................................... 30
19.2 Remedies of Landlord ..................................... 31
19.3 Waiver ................................................... 32
19.4 Expenses of Enforcement .................................. 32
19.5 Legal Expenses ........................................... 33
Section 20. Access by Landlord ....................................... 33
20.1 Right of Entry ........................................... 33
Section 21. Tenant's Property ........................................ 34
21.1 Taxes of Leasehold ....................................... 34
21.2 Loss of Damage ........................................... 34
21.3 Notice by Tenant ......................................... 34
21.4 Lien for Rent ............................................ 34
Section 22. Holding Over, Successors ................................. 34
22.1 Holding Over ............................................. 34
22.2 Successors ............................................... 35
Section 23. Quiet Enjoyment .......................................... 35
Section 24. Miscellaneous ............................................ 35
24.1 Accord and Satisfaction .................................. 35
24.2 Entire Agreement ......................................... 35
24.3 No Partnership ........................................... 36
24.4 Notices .................................................. 36
24.5 Captions and Section Numbers ............................. 36
24.6 Use of Pronoun ........................................... 36
24.7 Brokers Commission ....................................... 37
24.8 Partial Invalidity ....................................... 37
24.9 Estoppel Certificate ..................................... 37
24.10 Recording ................................................ 38
24.11 Liability of Landlord .................................... 38
24.12 Waiver by Tenant ......................................... 38
24.13 Time of Essence .......................................... 38
24.14 Guaranty ................................................. 38
(iii)
<PAGE>
EXHIBITS
- --------
Exhibit A - Site Plan of Project
Exhibit B - Floor Plan
Exhibit C - Schedule of Adjustments in Fixed Minimum
Annual Rent
Exhibit D - Landlord's Work and Tenant's Work
Exhibit F - Rules and Regulations
RIDERS
- ------
Rider No. 1 - Tenant Finish Work Requirements
Rider No. 2 - Radon Disclosure
Rider No. 3 - Renewal Option
Rider No. 4 - Subletting and Assignment
Rider No. 5 - Tenant's Right to Terminate
(iv)
<PAGE>
INDEX OF DEFINED TERMS
Section (or page)
Additional Rent............................................... 3.6
Agency ....................................................... 3.4(b)
Agency Intangibles Tax........................................ 3.4(b)
Agency Payment................................................ 3.4(b)
Annual Report................................................. 3.9
Anticipated Lease Term Commencement Date...................... 1.1(a)
Association................................................... 3.5(a)
Center ....................................................... 1.1(b)
Center Common Areas........................................... 4.1
Center Operating Costs........................................ 3.5(a)
Commencement Date............................................. 2.4
Declaration................................................... 3.5(a)
Event of Default.............................................. 19.1
Fixed Minimum Annual Rent..................................... 1.1(c)
Gross Leasable Area of the Premises........................... 1.1(d)
Gross Sales................................................... 3.2(c)
Ground Lease.................................................. 3.4(b)
Guarantor(s).................................................. 1.1(e)
Guarantor's Address........................................... 1.1(e)
Landlord...................................................... 1
Landlord's Address............................................ 1.1(f)
Landlord's Work............................................... 5.1
Lease Term.................................................... 1.1(g)
Leasing Broker................................................ 1.1(h)
Minimum Gross Sales........................................... 1.1(i)
Parking Spaces................................................ 1.1(j)
Percentage Rent Factor........................................ 1.1(k)
Permitted Use of Premises..................................... 1.1(l)
Premises...................................................... 1.1(m)
Project....................................................... 2.1(a)
Project Common Areas.......................................... 4.1
Promotion Fund................................................ 16.4(a)
Proportionate Share........................................... 1.1(n)
Quarterly Report.............................................. 3.9
Rent ......................................................... 3.7
Security Deposit.............................................. 1.1(o)
Substantially Ready For Occupancy............................. 2.4
Substituted Space............................................. 2.1(c)
Tenant ....................................................... 1
Minimum Tenant Business Hours................................. 1.1(q)
Tenant's Address.............................................. 1.1(p)
Tenant's General Office Address............................... 1.1(r)
Tenant's Trade Name........................................... 1.1(s)
Tenant's Work................................................. 5.2(a)
(v)
<PAGE>
MIZNER PARK
RETAIL LEASE AGREEMENT
THIS LEASE, made as of the 10 day of FEB, 1992, by CROCKER DOWNTOWN
DEVELOPMENT ASSOCIATES, a Florida general partnership, ("Landlord"), and GKN
HOLDINGS CORP ("Tenant").
W I T N E S S E T H:
Section 1. Summary of Lease Provisions.
1.1 Basic Data. All references in this Lease to the following terms will be
accorded the meanings hereinafter provided, as though such meaning was fully set
forth in the text hereof. This subsection, together with the terms herein
referenced shall constitute an integral part of this Lease.
(a) Anticipated Lease Term Commencement Date: June 1, 1992 (see
Section 2.4).
(b) Center: The retail and professional office center located in the
Project and the parking areas and other improvements appurtenant thereto, as
illustrated on Exhibit "A" attached hereto.
(c) Fixed Minimum Annual Rent: See Exhibit "C" attached hereto,
together with all applicable sales tax thereon (see Section 3.1).
(d) Gross Leasable Area of the Premises: Approximately 1,500 square
feet (see Section 2.1).
(e) Guarantor(s): None (see Section 24.14).
Guarantor's Address: __________________________________________________________
________________________________________________________________________________
(f) Landlord's Address: 5355 Town Center Road, Suite 600, Boca Raton,
Florida 33486 (see Section 24.4).
(g) Lease Term: Sixty (60) calendar months (see Section 2.3).
(h) Leasing Broker: None (see Section 24.7).
(i) Minimum Gross Sales: N/A (see Section 3.2).
(j) Parking Spaces: Two (2) reserved
(k) Percentage Rent Factor: N/A (see Section 3.2).
<PAGE>
(l) Permitted Use of Premises: Office space for securities brokerage
firm. Landlord shall lease no other retail space for such permitted use. (see
Section 6.1).
(m) Premises: Suite No. 405 located on the _______ floor of the
Center, all within the Project, as delineated in Exhibit "A" of this Lease (see
Section 2.1).
(n) Proportionate Share: Tenant's Proportionate Share of amounts
allocable to tenants of the Center shall be One and three tenths percent (1.3%).
Landlord reserves the right, in its reasonable discretion, to change Tenant's
Proportionate Share percentage, such that charges shall be equitably borne by
tenants of the Center. (See Section 3.4, 3.5).
(o) Security Deposit: $2,500.00 (See Section 7.1).
(p) Tenant's Address: 61 Broadway - 12th Floor New York, New York
10006 (see Section 24.4).
(q) Tenant Business Hours:
8:00 a.m. - 6:00 p.m., Monday - Friday
(r) Tenant's General Office Address (if different from above):
_______________________________________________________________________________.
(s) Tenant's Trade Name: GKN SECURITIES (see Section 16.1).
Section 2. Basic Lease Provisions.
2.1 Premises.
(a) In consideration of the rents, covenants and agreements hereafter
reserved and contained on the part of Tenant to be observed and performed,
Landlord demises and leases to Tenant, and Tenant rents from Landlord, the
Premises, as specified in Section 1.1(m), now existing or hereafter to be
erected in Boca Raton, Palm Beach County, Florida, located within and being a
portion of a mixed-use development known as Mizner Park (the "Project"). No
deduction or exclusion from leasable area shall be made in computing Gross
Leasable Area of the Premises as specified in Section 1.1(d) by reason of
columns, stairs, or other interior construction or equipment, or alteration of
the Premises in any manner by Tenant, and all dimensions shall be measured from
the center line of interior walls or from the exterior face of the exterior
lease line, as shown on the Floor Plan attached hereto as Exhibit "B". The Gross
Leasable Area of the Premises as specified in Section 1.1(d) shall be used in
the calculation of rent and other sums as appropriate under this Lease.
(b) Landlord reserves the right to make such amendments, changes and
revisions to the site plan or
-2-
<PAGE>
buildings of the Project as Landlord, in its sole discretion, may deem proper.
2.2 Use of Common Areas. The use and occupation by Tenant of the Premises
shall include the non-exclusive use (subject to Section 2.1(b)), in common with
other persons or entities entitled thereto, of the Center Common Areas and the
Project Common Areas (as hereinafter defined) as such common areas now exist or
as such common areas may hereafter be constructed for the benefit of or as a
part of the Center, and other facilities as may be designated from time to time
by Landlord, subject, however, to the terms and conditions of this Lease and to
the rules and regulations for the use thereof as prescribed from time to time.
2.3 Length of Term. The term of this Lease shall be as provided in Section
1.1(g) hereof.
2.4 Commencement of Rent and Term. The term of this Lease (and Tenant's
obligation to pay rent and all forms of additional rent due hereunder for all of
the Premises unless otherwise set forth herein) shall commence one hundred
eighty (180) days after Landlord has delivered to Tenant a fully executed Lease,
at which time Tenant shall have access to the Premises to commence construction.
Landlord shall, in accordance with the foregoing, fix the
-3-
<PAGE>
Commencement Date of the term of this Lease (the "Commencement Date"), and shall
notify Tenant of the date so fixed. The parties agree, if Landlord so requests,
thereafter to execute a written memorandum confirming such Commencement Date as
well as the expiration date of this Lease, which memorandum shall become a part
of this Lease. The failure of the parties to execute such memorandum shall not
affect the validity of the Commencement Date as fixed by Landlord. The
Commencement Date notwithstanding, Tenant may occupy the Premises upon issuance
of a Certificate of Occupancy.
The Premises shall be deemed Substantially Ready for Occupancy on the date
that a Certificate of Occupancy or equivalent instrument is issued with respect
to the Premises by the City of Boca Raton, Florida, notwithstanding that minor
punchlist or insubstantial details of construction, decoration or mechanical
adjustment remain to be performed.
Under no circumstances, however, may Tenant enter into possession of the
Premises prior to receipt by Tenant from Landlord of the notice that the
Premises are ready for Tenant's Work or otherwise upon the express written
consent of Landlord and subject to any terms of such consent. Should the term of
this Lease and Tenant's obligation to pay rent commence on day other than the
first day of a month, then the term of this Lease, for purposes of Section 2.3
only, shall commence on the first day of the following month. Tenant shall pay
rent for the fractional month preceding the Commencement Date if the
Commencement Date is on a day other than the first day of a month, on a per diem
basis (calculated on the basis of a thirty-day month) payable upon occupancy of
the Premises by Tenant. Any rent payment hereunder for any other fractional
month shall likewise be calculated and paid on such per diem basis.
2.5 Obligations of Tenant Before Lease Term Begins. Tenant shall observe
and perform all of its obligations under this Lease (except its obligations to
conduct business and to pay Fixed Minimum Annual Rent, Annual Percentage Rent,
its Proportionate Share of the Center Operating Costs as provided in Section
3.5, and its pro rata share of real estate taxes as provided in Section 3.4)
from the date upon which the Premises are delivered to Tenant for its Tenant's
Work until the Commencement Date (if same shall occur thereafter) in the same
manner as though the Lease Term began when the Premises were delivered to
Tenant.
-4-
<PAGE>
2.7 Excuse of Landlord's Performance. Anything in this Lease to the
contrary notwithstanding, Landlord shall not be deemed in default with respect
to failure to perform any of the terms, covenants and conditions of this Lease
if such failure to perform shall be due to any strike, lockout, civil commotion,
war-like operation, invasion, rebellion, hostilities, military or usurped power,
sabotage, government regulations or controls, inability to obtain any material,
utilities, service or financing, through Act of God or other cause beyond the
control of Landlord. If construction of the Center is not commenced within one
(1) year after the date of this Lease as evidenced by the issuance of a building
permit therefor, this Lease may be terminated at the option of either party by
written notice to the other within (10) days subsequent to the expiration of the
said one (1) year period, whereupon this Lease shall cease and terminate and the
parties shall be released and discharged from any and all liability hereunder.
Section 3. Rent and Assessments of Tenant.
3.1 Fixed Minimum Annual Rent. The Fixed Minimum Annual Rent as provided in
Section 1.1(c) hereof shall be payable by Tenant during the term of this Lease,
in equal monthly installments, together with all applicable sales taxes thereon,
on the first day of each month, in advance, at Landlord's Address as provided in
Section 1.1(f) of this Lease, or at such other place designated by Landlord,
without any prior demand therefor and without any deduction, holdback, setoff or
defense whatsoever. The Fixed Minimum Annual Rent payable hereunder shall be
adjusted in accordance with the terms and provisions of Exhibit "C" attached
hereto as a part of this Lease.
-5-
<PAGE>
3.3 Sales, Use and Rent Taxes, Personal Property Taxes. Tenant shall pay,
as additional rent, its Proportionate Share, as defined in Section 1.1(n), of
all sales, use and other taxes imposed by any governmental authorities upon the
manufacture, sale, use, transmission, distribution or other process necessary or
incidental to the furnishing of sewer, water, electricity, and domestic water or
other services to the Premises. Tenant shall pay before delinquency all personal
taxes and assessments on the furniture, fixtures, equipment, and other property
of Tenant located in the Premises and on additions and improvements in the
Premises belonging to Tenant. Tenant shall also pay, as Additional Rent, if
applicable, even though the taxing statute or ordinance may purport to impose
such sales tax against Landlord. The payment of all sales tax shall be made by
Tenant on a monthly basis, concurrently with payment of the Fixed Minimum Annual
Rent.
3.4 Real Estate Taxes and Improvements Assessments.
(a) Tenant shall pay as Additional Rent during the term of this Lease
its Proportionate Share, as provided in Section 1.1(n) of this Lease, of all ad
valorem and real property taxes levied or assessed by any lawful authority
against all the real property which is now or hereafter becomes a part of the
Center, or Center Common Areas, and all other costs and fees incurred by
Landlord in contesting any such taxes, assessments, or charges and/or
negotiating with any such lawful authority with respect thereto. In the event
any governmental authority having jurisdiction shall levy any general or special
assessment against the real property, including without limitation capital
improvements which is now or hereafter becomes a part of the Center for public
betterments or improvements, Tenant shall also pay to Landlord as Additional
Rent its
-6-
<PAGE>
Proportionate Share of such assessment. Landlord shall have the option to take
the benefit of any statute or ordinance permitting any such assessment for
public betterment or improvements to be paid over a period of time in which case
Tenant shall be obligated to pay only the said fraction of the installments of
any such assessments which shall become due and payable during the term of this
Lease. Landlord shall estimate the taxes and assessments referred to in this
Section and Tenant shall pay one-twelfth (1/12) thereof monthly in advance,
together with the payment of Fixed Minimum Annual Rent. After the end of each
Lease Year Landlord shall furnish Tenant a statement of the actual taxes and
assessments, and there shall be an adjustment between Landlord and Tenant with
payment to or repayment by Landlord, as the case may require, to the end that
Landlord shall receive the entire amount of Tenant's Proportionate Share for
such annual period.
(b) Tenant acknowledges that the real property upon which the Center
is constructed is ground leased by Landlord from the Boca Raton Community
Redevelopment Agency, a governmental subdivision of the State of Florida (the
"Agency"), pursuant to an Agreement of Lease dated as of May 1, 1989 (the
"Ground Lease"). Pursuant to Section 199.023(d) of the Florida Statutes, the
leasehold interest of Landlord in such real property evidenced by the Ground
Lease may be subject to a tax as intangible personal property (the "Agency
Intangibles Tax"). In addition, the Ground Lease provided that if the real
property upon which the Center is constructed is exempted from the payment of
real property taxes as a result of the ownership thereof by a governmental
entity, Landlord is required to pay to the Agency each year in lieu of such tax
payment an amount equal to the amount of real property tax that would be payable
if the real property were not exempt (the "Agency Payment"). Without limiting
the generality of Section 3.4(a), Tenant agrees to pay as Additional Rent in the
manner set forth in Section 3.4(a) its Proportionate Share of (i) the Agency
Intangibles Tax levied or assessed against the leasehold interest of Landlord
evidenced by the Ground Lease and (ii) the Agency Payment payable by Landlord
pursuant to the Ground Lease. Notwithstanding the foregoing, the sum of Tenant's
Proportionate Share of the Agency Intangibles Tax (if any) and the Agency
Payment (if any) shall not exceed the amount of real property taxes that would
otherwise be payable.
3.5 Tenant to Bear Proportionate Share of Common Costs.
(a) In each Lease Year or partial Lease Year, as defined herein,
Tenant will pay to Landlord, in addition to all other rentals specified in this
Section 3, as Additional Rent, Tenant's Proportionate Share of the "Center
Operating Costs," as hereinafter defined. "Center Operating Costs" means an
amount equal to Fifty-Four percent (54%) of the total cost and expense incurred
in operating, managing, maintaining and repairing the Center Common Areas,
available for use by Tenant and the employees, agents, servants, customers and
other invitees of Tenant, including, without limitation, the total amount
assessed against Landlord by the Mizner Park Maintenance Association, Inc. (the
"Association") pursuant to the Mizner Park Declaration of Covenants,
Restrictions and Reciprocal Easements, dated May 1, 1989, as recorded in the
Public Records of Palm Beach County, Florida, in Official Records Book 6065, at
Page 1509 (the "Declaration"). The items and
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charges comprising Center Operating Costs shall specifically include, without
limitation, gardening and landscaping; the cost of public liability, business
interruption, property damage and other insurance; repairs and maintenance; line
painting, paving and resurfacing; lighting; electricity; sewer and water
allocable to the Center Common Areas, sign maintenance; Center advertising;
music systems; sanitary control; removal of trash, rubbish, garbage and other
refuse from the Center Common Areas; depreciation on machinery and equipment
used in such maintenance; reasonable operating reserves; janitorial services for
the Center Common Areas; service and maintenance agreements for the Center and
Center Common Areas; attorneys' and accountants' fees; and the cost of
personnel, including management and administrative charges, necessary or
convenient to implement the services specified in this Lease, with all
employment and normal retirement benefits incident thereto, including without
limitation, pension and medical and life insurance benefits, and personnel
necessary to direct parking and to police the Center Common Areas, including
watchmen and security personnel, if such equipment and personnel are employed.
Landlord shall have the right with regard to any and all management and
maintenance obligations of Landlord under this Lease, to contract with such
person(s) or entity or entities for the performance and accomplishment of such
of the obligations as Landlord shall deem proper, including entities in which
Landlord may hold an ownership or other interest. The following costs and
expenses are expressly excluded from Center Operating Costs:
(i) leasing commissions, rent concessions to tenants, tenant
improvements and advertising expenses;
(ii) expenditures for capital improvements, except those which under
generally accepted accounting principles are expenses or regarded as
deferred expenses and except for capital expenditures required by law, in
either of which cases the cost thereof shall be included in expenses for
the calendar year in which the costs are incurred and subsequent years,
appropriately allocated to such years on a straight-line basis, to the
extent that such items are amortized over an appropriate period, but not
more than ten (10) years, within an interest factor equal to the prime rate
of the Chase Manhattan Bank, N.A., but in no event greater than the highest
rate of interest permitted to the charged by law at the time of Landlord's
having incurred said expenditure;
(iii) painting, redecorating or other work which Landlord performs for
any tenant or prospective tenant of the Center other than painting,
redecorating or other work which is standard for the Center Common Areas
and performed for a tenant in connection with its initial occupancy;
(iv) repairs or other work (including rebuilding) occasioned by fire,
windstorm or other casualty or condemnation;
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(v) depreciation;
(vi) interest on, and amortization of, any mortgages placed upon the
Center by Landlord;
(vii) rent payable under any lease to which this lease is subject;
(viii) costs and expenses of enforcing leases against lessees,
including attorneys' fees; and
(ix) penalties for the late payment of any real estate taxes.
If Landlord shall purchase any item of capital equipment or make any
capital expenditure designed to result in savings or reductions in any of the
elements of Center Operating Costs, then the costs for such capital equipment or
capital expenditure are to be included within the definition of "Center
Operating Costs" for the Lease Year in which the costs are incurred and
subsequent years, on a straight-line basis, to the extent that such items are
amortized over such period of time as reasonably can be estimated as the time in
which such savings or reductions in Center Operating Costs are expected to equal
Landlord's costs for such capital equipment or capital expenditure, with an
interest factor equal to the prime rate of the Chase Manhattan Bank, N.A., but
in no event greater than the highest rate of interest permitted to be charged by
law at the time of Landlord's having incurred said costs. If Landlord shall
lease any such item of capital equipment designed to result in savings or
reductions in Center Operating Costs, then the rentals and other costs paid
pursuant to such leasing shall be included in Center Operating Costs for the
year in which they are incurred.
(b) Tenant also agrees to pay to Landlord Tenant's Proportionate Share
of the total costs and expenses (other than Center Operating Costs) incurred in
operating, managing, maintaining and repairing all or any portion of the Center
that are attributable to, or are for the exclusive or primary benefit of, the
retail tenants of the Center located on the ground floor of the Center.
(c) Tenant shall be informed as to Tenant's Proportionate Share which
shall be based upon Landlord's estimate thereof, and Tenant shall pay
one-twelfth (1/12) thereof monthly in advance, together with the payment of
Fixed Minimum Annual Rent. After the end of each Lease Year, Landlord shall
furnish Tenant, upon request, a reasonably detailed statement of the actual
Center Operating Costs, and there shall be an adjustment with payment by or
credit to Tenant, as the case may require. Any payment adjustment owed by Tenant
will be due within thirty (30) days of Landlord's request for reimbursement. Any
refund will be credited against Tenant's monthly rent obligation. Tenant
covenants and agrees that Tenant shall remain liable for and shall pay its
Proportionate Share of Center Operating Costs in the amounts and times as set
forth herein, notwithstanding the expiration or earlier termination of this
Lease.
(d) Tenant acknowledges that Center Operating Costs, or any item or
component of assessment of charge thereunder, may be made or assessed by either
Landlord and/or the owner or other entity controlling the Project Common Areas,
and Tenant shall pay such charge to the party making such assessment.
Additionally, Tenant
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*1 - reasonable detailed
*2 - within thirty (30) days of Landlord's request for reimbursement.
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acknowledges that Tenant's Proportionate Share of charges and assessments (other
than Fixed Minimum Annual Rent) under this Lease may be as specified in Section
1.1(n) of this Lease, or may be based upon one or more of the following manners
of assessment: (i) direct charge for services provided for the exclusive benefit
of the Premises which are subject to precise cost measurement; (ii) allocation
of charges based upon relative intensity or quantity of use of services shared
with others; (iii) pro rata based upon the proportion that the gross square
footage of leasable area of the Premises bears to the gross square footage of
leasable area within the Center; (iv) pro rata based upon the proportion that
the gross square footage of leasable area of the Premises bears to the gross
square footage of leasable area within the Project for services provided tenants
or other users of services within the Project. Landlord and the owner or other
entity controlling the Project Common Areas reserve the right at all times and
from time to time to change Tenant's Proportionate Share or other method of
allocation of any costs, charges or assessments, including without limitation,
Center Operating Costs, in any manner which they may, in their reasonable
discretion, deem to be a fairer or more equitable allocation thereof.
(e) The provisions of this Lease notwithstanding, starting one (1)
year after the Commencement Date, in no event shall Tenant's Proportionate Share
of "controllable" Center Operating Costs be increased in any Lease Year in
excess of five percent (5%) per annum. For purposes of this Lease, Controllable
Center Operating Costs shall include costs within the reasonable control of
Landlord and shall exclude utilities, insurance and Real Estate Taxes/Agency
Intangible Tax.
3.6 Additional Rent. Any and all sums of money, assessments or charges
required to be paid by Tenant under this Lease other than Fixed Minimum Annual
Rent and Annual Percentage Rent shall be considered "Additional Rent" whether or
not the same be so designated and Landlord shall have all rights to enforce due
and timely payment by Tenant of Additional Rent as are available to Landlord
with regard to Fixed Minimum Annual Rent. If such amounts or charges are not
paid at the time provided in this Lease, they shall nevertheless be collectible
as Additional Rent with the next installment of Fixed Minimum Annual Rent
thereafter falling due hereunder, but nothing herein contained shall be deemed
to suspend or delay the payment of any amount of money or charges as the same
becomes due and payable hereunder, or limit any remedy of Landlord for
enforcement of the immediate collection of same, nor any other remedy available
to Landlord therefor. Terms of this subsection shall survive the expiration or
earlier termination of this Lease.
3.7 Rent Defined. The term "rent" as used in this Lease shall mean Fixed
Minimum Annual Rent, and all monies and sums due to Landlord hereunder as
Additional Rent.
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Section 4. Common Areas.
4.1 Use of Center Common Areas and Project Common Areas. The use and
occupation by Tenant of the Premises shall include the non-exclusive use, in
common with other entitled thereto, of the elevators, stairways, malls, waiting
areas and other areas for the non-exclusive use of tenants, and agents,
employees, customers and invitees of Tenants, within the Center (collectively,
the "Center Common Areas") as such Center Common Areas now exist or as may
hereafter be constructed for the benefit of or as a part of the Center, and
other facilities as may be designated from time to time by Landlord, subject,
however, to the terms and conditions of this Lease and the rules and regulations
for the use thereof as prescribed from time to time by Landlord. All Center
Common Areas shall at all times be subject to the exclusive control and
management of Landlord, and Landlord shall have the full right and authority to
employ all personnel and to make all rules and regulations as Landlord may in
its sole discretion deem proper, pertaining to the proper operation and
maintenance of the Center Common Areas. Additionally, the use by Tenant of the
Premises shall include the non-exclusive use of the "Common Areas" as such term
is defined in the Declaration (herein referred to as the "Project Common
Areas"), as such Project Common Areas now exist or as may hereafter be
constructed for the benefit of or as a part of the Project, subject, however, to
the terms and conditions of this Lease, the Declaration and the rules and
regulations for the use thereof as prescribed from time to time. Tenant
acknowledges that the Project Common Areas shall at all times be subject to the
exclusive control and management of the owner or other entity controlling the
Project Common Areas which shall have the right to do and perform such acts in
and to the Project Common Areas and improvements thereon as, in the use of good
business judgment, it shall determine to be advisable with a view to the
improvement of the convenience and use thereof by authorized users of the
Project Common Areas.
4.2 License to Use Common Areas. All Center Common Areas and Project Common
Areas, as constituted from time to time, which Tenant may be permitted to use
and occupy, are to be used and occupied under a license, revocable under default
of this Lease, and if such license is revoked, or if the amount of such areas be
temporarily closed or permanently diminished, Tenant shall not be entitled to
any compensation, damages or diminution or abatement of rent, nor shall such
revocation or diminution of such area be deemed constructive or actual eviction.
Section 5. Construction of Premises.
5.1 Landlord's Work. Landlord agrees that it will supply, at its own
expense, its standard space, as more
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particularly described and set forth on Exhibit "D" annexed hereto and made a
part hereof ("Landlord's Work").
5.2 (a) Tenant's Work. Tenant agrees to perform, at its own cost and
expense, all work other than Landlord's Work, including without limitation that
work, as particularly described in Exhibit "D" annexed hereto ("Tenant's Work"),
which is necessary to make the Premises conform with Tenant's plans as approved
by Landlord. Within sixty (60) days after the execution of this Lease, Tenant
shall furnish to Landlord, for Landlord's written approval within five (5)
business days thereafter (which, if no response is given, shall be deemed a
consent), which approval shall not be unreasonably withheld, plans and
specifications for Tenant's Work, showing a layout, lighting plan, fixturing
plan, interior finish and material samples, typical display technique, interior
and exterior signage plan, store front and any work or equipment to be done or
installed by Tenant affecting any structural, mechanical or electrical part of
the Premises or the Center; and failure to deliver the same within such period
will constitute an Event of Default. Design elements as aforesaid will be
displayed in color renderings in detail as may be sufficient for Landlord's
needs. Tenant's Premises will be fixtured, designed and laid out so as not to be
a detriment to the other tenants in the Center and Tenant's Work shall not be
detrimental to the construction of improvements by Landlord or other tenants
therein, and Landlord's approval of the plans and specifications as aforesaid
for Tenant's Work shall be at Landlord's sole discretion. Tenant agrees and
acknowledges that all Tenant's Work, improvements, alterations or additions
performed by Tenant (collectively, the "Alterations") whether pursuant to this
Section or otherwise, is performed and accomplished solely for the benefit and
convenience of Tenant, and not for the benefit of Landlord, such Alterations
being nevertheless subject to each and every of the provisions of this Lease.
(b) Mechanic's Lien. Nothing contained in this Lease shall be
construed as a consent on the part of Landlord to subject the estate of Landlord
to liability under the Mechanics' Lien Law of the State of Florida, it being
expressly understood that Landlord's estate shall not be subject to such
liability. Tenant shall strictly comply with Chapter 713, Florida Statutes, as
modified from time to time. In the event that a mechanics', laborers' or
materialmen's claim of lien if filed against the Premises or the Center in
connection with any work performed or material supplies by or on behalf of
Tenant, Tenant shall satisfy such claim, or shall transfer same to security,
within ten (10) days from the date of filing. In the event that Tenant fails to
satisfy or transfer same to security, within said ten (10) day period, Landlord
may do so and thereafter charge Tenant, as Additional Rent, all costs incurred
by Landlord in connection with the satisfaction or transfer of such claim,
including attorney's fees, and an administrative charge of fifteen percent (15%)
of all sums incurred by Landlord in the satisfaction or transfer of such claim.
Further, Tenant agrees to indemnify, defend and save Landlord harmless from and
against any damage or loss incurred by Landlord as a result of any such
mechanics' claim of lien. If so requested by Landlord, Tenant shall execute a
short form or memorandum of this Lease, which may, in Landlord's discretion be
recorded in the Public Records of Palm Beach County, Florida, for the purpose of
protecting Landlord's estate from mechanics' claims of lien, as provided in
Section 713.10, Florida Statutes. In the event such short form of Memorandum of
Lease is executed, Tenant hereby grants to Landlord a power of attorney, which
shall be a
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power coupled with an interest, to execute and deliver to Landlord an instrument
terminating Tenant's interest in the real property upon which the Premises are
located, which instrument may be recorded by Landlord at the expiration of the
term of this Lease, or such earlier termination hereof. The security deposit
paid by Tenant may be used by Landlord for the satisfaction or transfer of any
mechanics' claim of lien, as provided in this Section. This Section shall
survive the termination of this Lease.
5.3 Acceptance by Tenant.
(a) If Landlord's Work has been completed at the time this Lease is
executed, Tenant certifies that it has inspected the Premises and accepts same
in its existing condition. No repair, work, alterations or remodeling of the
Premises is required to be done by Landlord as a condition of this Lease.
(b) If Landlord's Work is not completed at the time this Lease is
executed, Tenant agrees that the acceptance by Tenant of possession of the
Premises for the purpose of construction of Tenant improvement, shall be deemed
an acceptance of the Premises in its then existing condition.
5.4 Changes to Center and Center Common Areas. Landlord hereby reserves the
right, at any time, to perform maintenance operations and to make repairs,
alterations, or additions to, and to build additional stories on, the Center and
to construct buildings and/or other improvements adjoining the same. Landlord
also reserves the right to construct other buildings or improvements, including,
but not limited to, structures for motor vehicle parking. Tenant agrees to
cooperate with Landlord, permitting Landlord to accomplish any such maintenance,
repairs, alterations, additions or construction. The purpose of the site plan
attached hereto as Exhibit "A" is to show the approximate location of the
Premises. Landlord reserves the right, at any time, to add to or reduce or to
relocate the various buildings (other than the Premises), automobile parking
areas, and other Center Common Areas as shown on the site plan. The foregoing
notwithstanding, Landlord shall take reasonable measures to minimize any
disruption of Tenant's business.
Section 6. Conduct of Business by Tenant.
6.1 Use of Premises. Tenant shall occupy the Premises without delay upon
commencement of the term of this Lease, and covenants continuously to conduct
its permitted business therein. Tenant shall use the Premises solely for the
permitted use as stated in Section 1.1(l) of this Lease. Tenant shall not use,
permit or suffer the use of the Premises for any other business or purpose.
Tenant further agrees to conduct its business in the Premises solely under the
name or trade name as stated in Section 1.1(s) of this Lease, and under no other
name or trade name except such as may be first approved by Landlord in writing.
Tenant agrees to conduct its business upon the Premises in accordance with the
highest ethical and operating standards of the retail industry, and the
standards, rules and regulations of the Center, as the same may be determined in
Landlord's sole discretion, and further to correct any deficiencies or failures
to adhere to such standards within twenty-four (24) hours of notice by Landlord
of such deficiencies.
6.2 Operation of Business. Tenant shall operate its business at the
Premises
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during the entire term of this Lease. Tenant shall not perform any acts or carry
on any practices which may damage the Project or Center, its physical plant, its
reputation or its customers, employees or invitees, or which will result in an
increase of casualty insurance premiums. Tenant shall not use the Center Common
Areas or the Project Common Areas for the sale of goods and other promotions.
Section 7. Security Deposit.
7.1 Amount and Use of Deposit. Tenant, simultaneously with the execution of
this Lease, has deposited with Landlord as a Security Deposit the sum stated in
Section 1.1(o) of this Lease. The Security Deposit shall be held by Landlord,
may be commingled with other funds of Landlord, and Landlord shall have no
liability for the accrual or payment of any interest thereon. If at any time
during the term of this Lease any of the rent herein reserved shall be overdue
and unpaid, or any other sum payable by Tenant to Landlord hereunder shall be
overdue and unpaid, or if Tenant shall fail to keep and perform any of the
terms, covenants and conditions of this Lease to be kept and performed by
Tenant, then Landlord, at its option may appropriate and apply said deposit, or
so much thereof as Landlord may deem necessary, to the payment of such overdue
rent or other sum, or to compensate Landlord for all loss or damage sustained or
suffered by Landlord due to such default or failure on the part of Tenant.
Should the entire Security Deposit, or any portion thereof, be appropriated and
applied by Landlord for the payment of overdue Fixed Minimum Annual Rent or
Additional Rent, or to other sums due and payable by Tenant hereunder, then
Tenant shall, upon demand by Landlord, forthwith remit to Landlord a sufficient
amount in order to restore said Security Deposit to the original sum deposited,
and Tenant's failure to do so within five (5) days after receipt of such demand
shall constitute an Event of Default.
7.2 Return of Deposit. Should Tenant comply with all of said terms,
covenants and conditions and promptly pay all of the Fixed Minimum Annual Rent
and Additional Rent herein provided for as it fails due, and all other sums
payable by Tenant to Landlord hereunder, the Security Deposit shall be returned
in full promptly to Tenant at the end of the term of this Lease, or upon the
earlier termination hereof.
7.3 Transfer of Deposit. Landlord may deliver the Security Deposit to the
purchaser of Landlord's interest in the Premises, in the event that such
interest be sold, and thereupon Landlord shall be discharged from any further
liability with respect thereto.
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Section 8. Signs, Awnings, Canopies, Fixtures, Alterations.
8.1 Installation by Tenant. All fixtures and equipment installed in the
Center by Tenant shall be new. Tenant shall not make or cause to be made any
Alterations, or install or cause to be installed any exterior signs, exterior
lighting, plumbing fixtures, shades or awnings, or make any changes to the
Center or install, create or alter any interior improvements or displays visible
outside the Premises without first obtaining Landlord's written approval and
consent, which consent may be arbitrarily withheld by Landlord; it being the
intention of Landlord and Tenant that Landlord shall maintain complete aesthetic
control over any and every portion of the Premises visible from outside the
Premises. Tenant shall present to Landlord complete plans and specifications for
work at the time approval is sought and if approved, the work will comply in all
respects with the approved plan.
8.2 Responsibility of Tenant. All Alterations made by Tenant, or made by
Landlord on Tenant's behalf by agreement under this Lease, shall remain the
property of Tenant for the term of this Lease, or any extension or renewal
hereof. Tenant shall at all times maintain fire insurance with extended coverage
in the name of Landlord and Tenant, in an amount adequate to cover the cost of
replacement of all Alterations in the event of fire or extended coverage loss.
Tenant shall deliver to Landlord certificates of such insurance policies which
shall contain a clause requiring the insurer to give Landlord thirty (30) days
notice of cancellation of such policies. Alterations shall not be removed from
the Premises without prior consent in writing from Landlord. Tenant, at the
expiration of the Lease, provided Tenant shall not be in default under the
Lease, may remove non-structural Alterations as long as such removal shall not
damage the Premises.
8.3 Bonds. Tenant shall furnish a payment bond and a performance bond or
other security, in form satisfactory to Landlord, for the prompt and faithful
performance by Tenant of all Tenant's Work, within seven (7) days of Landlord's
approval of Tenant's plans and specifications for Tenant's Work.
8.4 Signs.
(a) Tenant will not place or permit to be placed or maintained on any
exterior door, wall or window of the Premises, or within the interior of the
Premises, any signage or advertising matter of any kind, without first obtaining
Landlord's written approval and consent, which may be arbitrarily withheld.
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(b) Tenant shall at its cost promptly erect an exterior sign of type,
composition and design in conformance with Landlord's Center standard signage,
within the area designated by Landlord, which sign shall be subject to the prior
written approval of Landlord. Tenant further agrees that such signs, awning,
canopy, decoration, lettering, advertising matter or other thing as may be
approved shall be maintained in good condition and repair at all times and shall
conform to the criteria established from time to time by Landlord for the
section of the Center within which the Premises is located.
Section 9. Repairs and Maintenance of Premises.
9.1 Responsibilities of Landlord.
(a) Landlord agrees to repair and maintain in good order and
condition, ordinary wear and tear excepted, the roof, roof drains, outside walls
and the structural portions (both interior and exterior) of the Premises. There
is excepted from the preceding covenant, however: (i) repair or replacement of
broken plate or window glass (except in case of damage by fire or other casualty
covered by Landlord's fire and extended coverage insurance policy); (ii) repair
of damage caused by Tenant, its employees, agents, contractors, customers,
licensees or invitees; and (iii) interior repainting, refixturing, remodeling
and redecoration. In no event, however, shall Landlord be liable for damages or
injuries arising from the failure to make said repairs, nor shall Landlord be
liable for damages or injuries arising from defective workmanship or materials
in making any such repairs. Landlord shall have no obligation to repair until a
reasonable time after the receipt by Landlord of written notice of the need for
repairs. Tenant waives the provision of any law, or any right Tenant may have
under common law, permitting Tenant to make repair at Landlord's expense. Such
repair and maintenance obligations of Landlord shall be included in and
constitute "Center Operating Costs."
(b) Except as provided in Subsection (a), Landlord shall not be
obligated or required to make any other repairs, and all other portions of the
Premise(s) shall be kept in good repair and condition by Tenant, and at the end
of the term of this Lease, Tenant shall deliver the Premises to Lessor in good
repair and condition, reasonable wear arising from Tenant's permitted use of the
Premises as specified herein only excepted.
9.2 Responsibilities of Tenant.
(a) Without limiting the generality of the foregoing Section 9.1(a),
Tenant agrees to repair and maintain in good and operational order and condition
the non-structural interior portions of the Premises, including the store front,
store windows, doors, windows, plate and window glass, floor coverings,
facilities, appliances, plumbing, heating, air conditioning, electrical and
sewerage system, but only those portions of said systems servicing the Premises.
Tenant, at its sole cost, shall maintain the air conditioning unit(s) and
duct(s) for the Premises (including heating unit(s) and duct(s) for the
Premises) in good and operational condition and repair throughout the term of
this Lease but only to the extent servicing the Premises. Landlord shall make
available to Tenant manufacturer or other warranties, if any, covering the air
conditioning and heating unit(s) serving the Premises. As a part of its air
conditioning maintenance obligation, Tenant shall enter into an annual contract
within an air conditioning repair
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firm, fully licensed to repair air conditioning units in the State of Florida,
which firm shall:
(i) regularly service and inspect the air conditioning unit(s) on the
Premises on a monthly basis, changing belts, filters and other parts as
required;
(ii) perform emergency and extraordinary repairs on the air
conditioning unit(s); and
(iii) keep a detailed record of all air conditioning unit services
performed on the Premises and prepare a yearly service report to be
furnished to Tenant at the end of each calendar year.
Tenant shall furnish to Landlord, at the end of each calendar year, a copy of
said yearly service report. Not later than thirty (30) days prior to the
Commencement Date and annually thereafter, Tenant shall furnish to Landlord a
copy of the air conditioning maintenance contract described above, and proof
that the annual premium for the maintenance contract has been paid. Nothing
stated hereinabove shall limit Tenant's obligation to maintain the air
conditioning unit(s) in good condition and repair throughout the term of this
Lease.
(b) Tenant will not install any equipment which exceeds the capacity
of the utility lines leading into the Premises or the Center.
(c) Tenant, its employees or agents shall not mark, paint, drill or in
any way deface any walls, ceilings, roof, partitions, floors, wood, stone,
plaster or drywall or ironwork without Landlord's specific prior written
consent.
(d) Tenant shall comply with the requirements of all laws, orders,
ordinances and regulations of all governmental authorities and will not permit
any waste of or upon the Premises or the Project Common Areas or Center Common
Areas to be committed and will take good care of and keep in a neat, clean and
sanitary condition, the Premises at all times.
(e) If Tenant refuses or neglects to maintain and/or repair properly
as required hereunder and to the reasonable satisfaction of Landlord, or its
representative, as soon as reasonably possible after written demand, Landlord,
or its representative, may perform such maintenance and/or make such repairs
without liability to Tenant for any loss or damage that may occur to Tenant's
merchandise, fixtures or other property, or to Tenant's business by reason
thereof, and upon completion thereof, Tenant shall pay as additional rent
Landlord's cost for making such repairs plus ten percent (10%) for overhead,
upon presentation of a bill therefor. Said bill shall include interest at
fifteen percent (15%) on said cost from the date of the expenditure by Landlord.
In the event that Landlord shall undertake any maintenance or repair in the
course of which it shall be determined that such maintenance or repair work was
made necessary by the negligence or willful act of Tenant or any of its
employees or agents or that the maintenance or repair is, under the terms of
this Lease, the responsibility of Tenant, Tenant shall pay
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Landlord's costs therefore plus overhead and interest as above provided in this
Section.
(f) Tenant shall give Landlord prompt written notice of any accident,
fire or damage occurring on or to the Premises, and of any lawsuits or claims,
notices, complaints, summons filed against or received by Tenant with regard to
same and of any notices, complaints, citations or the like received from any
governmental or quasi-governmental agency, board of fire underwriters, or any
other person or entity, concerning or alleging any condition existing upon or
around the Premises in violation of any statute, law, ordinance or regulation or
presenting any risk of injury to persons or property.
(g) Neither Landlord nor Landlord's agents or servants shall be liable
for any damages caused by or growing out of any breakage, leakage, or defective
condition of the electric wiring, air conditioning or heating pipes and
equipment, closets, plumbing, appliances, sprinklers, other equipment, or other
facilities, serving the Premises or the Project unless caused by the gross
negligence or willful misconduct of Landlord. Neither Landlord nor Landlord's
agents or servants shall be liable for any damages caused by, or growing out of,
any defect in the Center, the Project or any part thereof, or in said Premises
or any part thereof attributable to fire, rain, wind or other cause.
(h) All property belonging to Tenant or any occupant of the Premises
or the Center shall be there at the risk of Tenant or such other person only,
and Landlord shall not be liable for damage thereto or theft or misappropriation
thereof.
(i) At the expiration of the tenancy hereby created, Tenant shall
surrender the Premises in good condition, reasonable wear arising from Tenant's
permitted use of the Premises as specified herein excepted, and shall surrender
all keys for the Premises to Landlord. Tenant shall remove all its trade
fixtures, and shall repair any damage to the Premises caused thereby. Tenant
shall remove only those Alterations and improvements constituting Tenant's Work
as shall be requested by Landlord for removal, and all such Alterations and
improvements remaining upon the Premises upon the expiration or termination of
this Lease shall become the property of Landlord. Tenant's obligation to observe
or perform this covenant shall survive the expiration or other termination of
the term of this Lease.
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Section 10. Insurance and Indemnity.
10.1 Liability Insurance. Tenant shall, during the entire term hereof, keep
in full force and effect: bodily injury and public liability insurance in an
amount not less than Five Hundred Thousand Dollars ($500,000)/One Million
Dollars ($1,000,000) per injury and accident, respectively; property damage
insurance in an amount not less than One Hundred Thousand Dollars ($100,000);
and worker's compensation insurance in the maximum amount permitted under
Florida law. The policy shall name Landlord and Tenant as insured and shall
contain a clause that the insurer will not cancel or change the insurance
without first giving Landlord thirty (30) days prior written notice. The
insurance shall be with an insurance company approved by Landlord and a copy of
the policy or a certificate of insurance shall be delivered to Landlord prior to
the commencement of the term of this Lease. The foregoing notwithstanding,
Tenant may maintain one (1) policy for both the retail and professional space it
leases at the Project or insure both spaces through a blanket policy acceptable
to Landlord. In no event shall the limits of said insurance policies be
considered as limiting the liability of Tenant under this Lease. In the event
that Tenant shall fail to obtain or maintain in full force and effect any
insurance coverage required to be obtained by Tenant under this Lease, Landlord
may, but will not be obligated to, procure same from such insurance carriers as
Landlord may deem proper, irrespective that a lesser premium for such insurance
coverage may have been obtained from another insurance carrier, and Tenant shall
pay as Additional Rent, upon demand of Landlord, any and all premiums, costs,
charges and expenses incurred or expended by Landlord in obtaining such
insurance. Notwithstanding the foregoing sentence, in the event Landlord shall
procure insurance coverage required of Tenant hereunder, Landlord shall in no
manner be liable to Tenant for any insufficiency, failure or non-renewal of
coverage with regard to such insurance or any loss to Tenant occasioned thereby,
and additionally, the procurement of such insurance by Landlord shall not
relieve Tenant of its obligations under this Lease to maintain insurance
coverage in the types and amounts herein specified, and Tenant shall
nevertheless hold Landlord harmless from any loss or damage incurred or suffered
by Landlord from Tenant's failure to maintain such insurance.
10.3 Fire and Extended Coverage Insurance. Tenant shall at all times during
the term hereof, and at its
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cost and expense, maintain in effect policies of insurance covering all
Alterations made by or on behalf of Tenant (including without limitation all
Tenant's Work) and Tenant's fixtures and equipment located on the Premises, in
an amount not less than eighty (80%) percent of their full replacement value,
providing protection against any peril included within the standard
classification of "Fire and Extended Coverage," together with insurance against
sprinkler damage, vandalism, theft and malicious mischief. The proceeds of such
insurance, so long as this Lease remains in effect, shall be used to repair or
replace the Alterations, fixtures and equipment so insured.
10.4 Increase in Fire Insurance Premium. Tenant agrees that it will not
keep, use, sell or offer for sale in or upon the Premises any article which may
be prohibited by standard form of fire and extended risk insurance policy.
Tenant agrees to pay any increase in premiums for fire and extended coverage
insurance that may be charged during the term of this Lease on the amount of
such insurance which may be carried by Landlord on the Premises or the Center
resulting from Tenant's use of the Premises, whether or not Landlord has
consented to the same. In determining whether increased premiums are the result
of Tenant's use of the Premises, a schedule issued by the organization making
the insurance rate on the Premises, showing the various components of such rate,
shall be conclusive evidence of the several items and charges which make up the
fire insurance rate on the Premises. Tenant agrees to promptly make, at Tenant's
cost, any repairs, alterations, changes and/or improvements to fixtures and
equipment in the Premises required by the company issuing Landlord's fire
insurance so as to avoid the cancellation of, or the increase in premiums on
said insurance.
In the event Tenant's occupancy and use of the Premises causes any increase
of premium for the fire, boiler and/or casualty insurance rates on the Premises
or any part thereof above the rate for the least hazardous type of occupancy
legally permitted in the Premises, Tenant shall pay the additional premium on
the fire, boiler and/or casualty insurance policies by reason thereof. Tenant
also shall pay in such event, any additional premium on the rent insurance
policy that may be carried by Landlord for its protection against rent loss
through fire. Bills for such additional premiums shall be rendered by Landlord
to Tenant at such times as Landlord may elect and shall be due from, and payable
by, Tenant when rendered, and the amount thereof shall be deemed to be
Additional Rent.
10.5 Indemnification of Landlord. Tenant shasll indemnify, defend and save
Landlord harmless from and against any and all claims, actions, damages,
liability and expense in connection with loss of life, personal injury and/or
damage to or destruction of property arising from or out of any occurrence in,
upon or at the Premises, or the occupancy or use by Tenant of the Premises or
any part thereof, or occasioned wholly or in part by any act or omission of
Tenant, its agents, contractors, employees, servants, customers, invitees,
licensees, lessees or concessionaires. In case Landlord shall be made a party to
any litigation commenced by or against Tenant, then Tenant shall protect and
hold Landlord harmless and pay all costs and attorney's fees incurred by
Landlord in connection with such litigation, and any appeals thereof. Tenant
shall also pay all costs, expenses and reasonable attorneys' fees that
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may be incurred or paid by Landlord in enforcing the covenants and agreements in
this Lease provided Tenant prevails in litigation.
10.6 Waiver of Subrogation. Landlord and Tenant waive, unless said waiver
should invalidate any such insurance, their right to recover damages against
each other for any reason whatsoever to the extent the damaged party recovers
indemnity from its insurance carrier. Any insurance policy procured by either
Tenant or Landlord which does not name the other as a named insured shall, if
obtainable, contain an express waiver of any right of subrogation by the
insurance company, including but not limited to Tenant's worker's compensation
insurance carrier, against Landlord or Tenant, whichever the case may be. All
public liability and property damage policies shall contain an endorsement that
Landlord, although named as insured, shall nevertheless be entitled to recover
for damages caused by the negligence of Tenant.
Section 11. Services and Utilities.
Landlord shall not be required to make any alteration to any service or
utility system of the Center on behalf of Tenant. Landlord shall not be liable
for temporary failure of services due to circumstances not within the direct
control of Landlord, and same shall not be deemed to constitute actual or
constructive eviction, nor entitle Tenant to any abatement or diminution in rent
payable under this Lease.
Tenant shall be solely responsible for and promptly pay all charges for
water, electricity or any other utility used or consumed in the Premises. In the
event that any utility to the Premises shall not be separately metered, Landlord
shall apportion the cost of such utility among the various lessees served
thereby on either a square footage basis (based upon the proportion of the Gross
Leasable Area of the Premises as to the gross leasable area of the areas of the
Center served by the utility) or based upon the intensity of use by Tenant, such
basis to be determined by Landlord in its sole discretion. In the event of such
apportionment, Tenant shall pay to Landlord monthly, as Additional Rent,
Tenant's portion of the cost of such utility, within three (3) days of receipt
of a statement from Landlord therefor. In no event shall Landlord be liable for
an interruption or failure in the supply quality or quantity of any utilities or
failure in the supply quality or quantity of any utilities within the Premises
or Center, and same shall in no manner constitute an actual or constructive
eviction of Tenant, nor entitle Tenant to any abatement of any rent under this
Lease; provided, however, Landlord shall use reasonable efforts to restore
supply.
Tenant covenants and agrees that at all times its use of electric current
shall not exceed the capacity of actual feeders to the Center or the Center
risers or wiring installation. Tenant agrees not to connect any additional
electrical equipment to the Center electric distribution system, other than
lamps, typewriters, computers and other standard machines which consume
comparable amounts of electricity, office without Landlord's express prior
written consent.
Section 12. Subordination and Attornment.
12.1 Subordination. Tenant hereby subordinates its rights hereunder to the
lien of any ground or underlying leases, any mortgage or mortgages, or the lien
resulting from any other method of financing or refinancing, now or
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hereafter in force against the Project and the Center, and to all advances made
or hereafter to be made upon the security thereof. This Section shall be
self-operative and no further instrument of subordination shall be required by
any mortgages, but Tenant agrees upon request of Landlord, from time to time, to
promptly execute and deliver any and all documents evidencing such
subordination, and failure to do so shall constitute an Event of Default under
this Lease.
12.2 Attornment. In the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any
mortgage made by Landlord or for the termination of any ground lease covering
the Premises or in the event of a deed is given in lieu of foreclosure of any
such mortgage, Tenant shall attorn to the purchaser, or grantee in lieu of
foreclosure, upon any such foreclosure or sale and recognize such purchaser or
ground lessor, or grantee in lieu of foreclosure, as the lessee under this
Lease.
12.3 Financing Agreements. Tenant shall not enter into, execute or deliver
any financing agreement that can be considered as having priority over any
mortgage or deed of trust that Landlord may have placed upon the Premises.
Section 13. Assignment and Subletting.
13.1 Consent Required. Tenant may not assign this Lease in whole or in
part, nor sublet all or any portion of the Premises. This prohibition against
assignment or subletting shall be construed to include prohibition against any
assignment or subleasing by operation of law, legal process, receivership,
bankruptcy or otherwise, whether voluntary or involuntary and a prohibition
against any encumbrance of all and any part of Tenant's leasehold interest.
Tenant acknowledges and agrees that any and all right and interest of the
Landlord in an to the Premises, the Center and the Project, and all right and
interest of the Landlord in this Lease, may be conveyed, assigned or encumbered
at the sole discretion of the Landlord at any time.
Section 14. Waste, Governmental Regulations.
14.1 Waste or Nuisance. Tenant shall not commit or suffer to be committed
any waste upon the Premises or any nuisance or other act or thing which may
disturb the quiet enjoyment of any other tenant in the Center, or which may
adversely affect Landlord's fee interest in the Premises, the Center or the
Project.
14.2 Governmental Regulations. Tenant shall, at Tenant's sole cost and
expense, comply with all regulations of all county, municipal, state, federal
and other applicable governmental authorities, now in force, or which
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may hereafter be in force, pertaining to Tenant or its use of the Premises, and
shall faithfully observe in the use of the Premises or in the performance of any
Alterations (including, without limitation, Tenant's Work) all municipal and
county ordinances, codes and regulations and state and federal statutes and
regulations now in force or which may hereafter be in force. Tenant shall
indemnify (and such indemnity will survive the termination or expiration of the
Lease), defend and save Landlord harmless from penalties, fines, costs,
expenses, suits, claims, or damages resulting from Tenant's failure to perform
its obligations in this Section.
14.3 Hazardous Substances. Tenant shall not generate, store, keep, maintain
or use or dispose of or deposit in or upon the Premises or the Center any
"hazardous substance" or other toxic substance or matter, including, without
limitation, any such substance defined in the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601.
Section 15. Tenant's Compliance.
Tenant agrees to comply with all Rules and Regulations set forth in Exhibit
"F" attached hereto and by this reference incorporated herein. Landlord shall
have the right from time to time to prescribe additional rules and regulations,
which in its judgment, may be desirable for the use, entry, operation and
management of the Premises, the Center and the Project, each of which rules and
regulations shall be deemed incorporated herein and made a part hereof by this
reference and which rules and regulations shall be uniformly enforced by
Landlord. No failure of Landlord to enforce such rules and regulations against
any other tenant will be deemed a default by Landlord hereunder, or excuse
compliance therewith by Tenant.
Section 16. Advertising, Promotion Fund.
16.1 Solicitation of Business. Tenant shall not distribute any handbills or
other advertising matter to customers or to automobiles parked in the Center
Common Areas or Project Common Areas.
16.2 Advertised Name and Address. Tenant shall not acquire any property
right in or to any name which contains the name of the Center or Project as a
part thereof. Any permitted use by Tenant of the name of the Center or Project
during the term of this Lease shall not permit Tenant to use, and Tenant shall
not use, such name of the Center or Project either after the termination of this
Lease or at any other location. Tenant shall not use the name of Landlord in any
advertisement or otherwise.
16.3 Letters and Marks. Landlord shall have the right to prohibit the use
by Tenant of the name, marks and symbols of the Center or Project in
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any manner determined to be unacceptable to Landlord in its sole discretion.
Section 17. Destruction of Leased Premises.
17.1 Total or Partial Destruction. If the Premises shall be damaged by
fire, the elements, accident or other casualty, without the fault of Tenant, but
are not thereby rendered untenantable in whole or in part, Landlord shall at its
own expense cause such damage, except to Tenant's equipment and trade fixtures,
to be repaired in a reasonable period of time, but only to the extent of
Landlord's original obligation to construct pursuant hereto, and the rent
payable by Tenant hereunder shall not be abated. If by reason of such
occurrence, the Premises shall be rendered untenantable only in part, Landlord
shall at its own expense cause the damage, except to Tenant's equipment and
trade fixtures, to be repaired, but only to the extent of Landlord's original
obligation to construct pursuant hereto, and the Fixed Minimum Annual Rent
meanwhile shall be abated proportionately as to the portion of the Premises
rendered untenantable, until the Premises has been restored as required hereby.
If the Premises shall be rendered wholly untenantable by reason of such
occurrence, Landlord shall at its own expense cause such damage, except to
Tenant's equipment and trade fixtures, to be repaired, but only to the extent of
Landlord's original obligation to construct pursuant hereto and the Rent
meanwhile shall be abated in whole, until the Premises has been restored as
required hereby, except that Landlord shall have the right, to be exercised by
notice in writing delivered to Tenant within ninety (90) days after said
occurrence, to elect not to reconstruct the destroyed Premises, and in such
event this Lease and the tenancy hereby created shall cease as of the date of
the said occurrence. Nothing in this
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Section shall be construed to permit any abatement in Additional Rent or Fixed
Minimum Annual Rent if such damage is caused by an act or omission of Tenant.
17.2 Destruction of Center. In the event that fifty (50%) percent or more
of the rentable area of the Center shall be damaged or destroyed by fire or
other cause, notwithstanding any other provisions contained herein and that the
Premises may be unaffected by such fire or other cause, Landlord shall have the
right, to be exercised by notice in writing delivered to Tenant within ninety
(90) days after said occurrence, to elect to cancel and terminate this Lease.
Upon the giving of such notice to Tenant, the term of this Lease shall expire by
lapse of time upon the third day after such notice is given, and Tenant shall
vacate the Premises and surrender the same to Landlord.
17.3 Damage Near End of Term. If the Premises are destroyed or damaged
during the last eighteen (18) months of the term of this Lease and the estimated
cost of repair exceeds ten percent (10%) of the Fixed Minimum Annual Rent then
remaining to be paid by Tenant for the balance of the term, Landlord may at its
option cancel and terminate this Lease as of the date of occurrence of such
damage by giving written notice to Tenant of its election to do so within thirty
(30) days after the date of occurrence of such damage. If Landlord shall not so
elect to terminate this Lease, the repair of such damage shall be governed by
Section 17.1.
17.4 Reconstruction of Improvements. In the event of any reconstruction of
the Premises under this Article, said reconstruction shall be in substantial
conformity with the provisions of Exhibit "D" hereof to the extent of the work
as therein set forth as Landlord's Work. Tenant, at its sole cost and expense,
shall be responsible for the repair and restoration of all items set forth as
Tenant's Work in Exhibit "D" and the replacement of its trade fixtures,
furniture, furnishing and equipment. Tenant shall commence the installation of
fixtures, equipment, and merchandise hereof promptly upon delivery to it of
possession of the Premises and shall diligently prosecute such installation to
completion.
17.5 Termination. Upon any termination of this Lease under any of the
provisions of this Article, the parties shall be released thereby without
further obligation to the other party coincident with the surrender of
possession of the Premises to Landlord, except all indemnities for matters which
have theretofore accrued and are then unpaid, for which Tenant shall remain
liable to Landlord.
Section 18. Eminent Domain.
18.1 Total Condemnation. If the whole of the Premises shall be acquired or
condemned by eminent domain or under threat thereof, then the term of this Lease
shall cease and terminate as of the date of title vesting in the condemning
governmental body or other authority pursuant to such proceeding and all rentals
and other charges shall be paid up to that date and Tenant shall have no claim
against
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Landlord or the condemning authority (except as specifically set forth in
Section 18.4) for the value of any unexpired term of this Lease.
18.2 Partial Condemnation. If a part of the Premises shall be acquired or
condemned by eminent domain or under threat thereof, and such partial taking or
condemnation shall render the Premises unsuitable for the business of Tenant,
then the term of this Lease shall cease and terminate as of the date of title
vesting in the condemning govenmental body or other authority pursuant to such
proceeding and Tenant shall have no claim against Landlord or the condemning
authority (except as specifically set forth in Section 18.4) for the value of
any unexpired term of this Lease. In the event of a partial taking or
condemnation which is not extensive enough to render the Premises unsuitable for
the business of Tenant, then Landlord shall promptly restore the Premises to a
condition comparable to its condition at the time of such condemnation less the
portion lost in the taking, and this Lease shall continue in full force and
effect except that the Fixed Minimum Annual Rent shall be reduced in proportion
to the portion of the Premises lost in the taking and, if appropriate, there
shall be equitable reduction in Additional Rent as a result of such partial
taking or condemnation.
18.3 Landlord's Damages. In the event of any condemnation or taking as
herein before provided, whether whole or partial, Tenant shall not be entitled
to any part of the award, as damages or otherwise, for such condemnation and
Landlord is to receive the full amount of such award, Tenant hereby expressly
waives any right or claim to any part thereof.
18.4 Tenant's Damages. Although all damages in the event of any
condemnation are to belong to Landlord whether such damages are awarded as
compensation for diminution in value of the leasehold or the fee of the
Premises, Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately awarded
or recoverable by Tenant in Tentant's own right on account of any damage to
Tenant's business by reason of the condemnation and for or on account of any
cost or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures, leasehold improvements and equipment from the Premises.
18.5 Sale Under Threat of Condemnation. A sale by Landlord to any authority
having the power of eminent domain, either under threat of condemnation or while
condemnation proceedings are pending, shall be deemed a taking under the power
of eminent domain for all purposes under this Article.
Section 19. Default of Tenant.
19.1 Event(s) of Default. Upon the happening of one or more of the events
set forth below in (a) to (i), inclusive (each, an "Event of Default"), Landlord
shall have any and all rights and remedies hereinafter set forth:
(a) In the event Tenant should fail to pay any installment of Fixed
Minimum Annual Rent, Annual Percentage Rent or any other sums required to be
paid hereunder as Additional Rent, within five (5) days of as and when the same
become due;
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(c) In the event a petition in bankruptcy under any present or future
bankruptcy laws (including but not limited to reorganization proceedings or
voluntary insolvency filing) be filed by or against Tenant or any Guarantor and
such petition is not dismissed within sixty (60) days from the filing thereof,
or in the event Tenant or any Guarantor is adjudged a bankrupt;
(d) In the event an assignment for the benefit of creditors is made by
Tenant;
(e) In the event of an appointment by any court of a receiver of other
court officer of Tenant's property and such receivership is not dismissed within
sixty (60) days from the date of such appointment;
(f) In the event Tenant removes, attempts to remove, or permits to be
removed from the Premises, except in the usual course of trade, the goods,
furniture, effects or other property of Tenant brought thereon;
(g) In the event Tenant, before the expiration of the term of this
Lease, and without the written consent of Landlord, vacates the Premises or
abandons the possession thereof, or uses the same for purposes other than the
purposes for which the same are hereby leased, or ceases to use the Premises for
the purposes herein contained;
(h) In the event an execution or other legal process is levied upon
the goods, furniture, effects or other property of Tenant brought on the
Premises, or upon the interest of Tenant brought on the Premises, or upon the
interest of Tenant in this Lease, and the same is not satisfied or dismissed
within ten (10) days from such levy; or
(i) In the event Tenant violates any other term, condition or covenant
herein on the part of Tenant to be performed, and fails to commence and proceed
with diligence and dispatch to remedy the same within thirty (30) days after
written notice thereof is given by Landlord to Tenant.
19.2 Remedies of Landlord.
(a) If any Event of Default occurs, Landlord shall have the right, at
the option of Landlord, to terminate this Lease upon three (3) days written
notice to Tenant, and to thereupon re-enter and take possession of the Premises
with or without legal process. If any Event of Default occurs, Landlord shall
have the right, at its option, from time to time, without terminating this
Lease, to re-enter and re-let the Premises, or any part thereof, with or without
legal process, as the agent and for the account of Tenant upon such terms and
conditions as Landlord may deem advisable or satisfactory, in which event the
rents received on such re-letting shall be applied first to the expenses of such
re-letting and collection including but not limited to, necessary renovation and
alterations of the Premises, reasonable attorneys' fees, any real estate
commission paid, and thereafter toward payment of all sums due or to become due
to Landlord hereunder, and if a sufficient sum shall not be thus realized or
secured to pay
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such sums and other charges, (i) at Landlord's option, Tenant shall pay Landlord
any deficiency immediately upon demand therefor, notwithstanding that Landlord
may have received periodic rental in excess of the periodic rental stipulated in
this Lease in previous or subsequent rental periods, and Landlord may bring an
action therefore as such deficiency shall arise, or (ii) at Landlord's option,
the entire deficiency, which is subject to ascertainment for the remaining term
of this Lease, shall be immediately due and payable by Tenant. Nothing herein,
however, shall be construed to require Landlord to re-enter and re-let the
Premises in any event. Landlord shall not, in any event, be required to pay
Tenant any surplus of any sums received by Landlord on a re-letting of said
Premises in excess of the rent provided in this Lease.
(b) If any Event of Default occurs, Landlord shall have the right to
obtain injunctive and declaratory relief, temporary and/or permanent, against
Tenant or any acts, conduct or omissions of Tenant, and to further obtain
specific performance of any term, convenant or condition of this Lease.
(c) If any Event of Default occurs, Landlord shall have the right, at
it option, to declare all rent (or any portion thereof) for the entire remaining
term, and other indebtedness owing by Tenant to Landlord, if any, immediately
due and payable without regard to whether possession of the Premises shall have
been surrendered to or taken by Landlord, and may commence action immediately
thereupon and recover judgment therefor.
(d) If any Event of Default occurs, Landlord, in addition to other
rights and remedies it may have, shall have the right to remove all or any part
of Tenant's property from the Premises and any property removed may be stored in
any public warehouse or elsewhere at the cost of, and for the account of Tenant
and Landlord shall not be responsible for the care or safekeeping thereof
whether in transport, storage or otherwise, and Tenant hereby waives any and all
claim against Landlord for loss, destruction and/or damage or injury which may
be occasioned by any of the aforesaid acts.
(e) No such re-entry or taking possession of the Premises by Landlord
shall be contrued as an election on Landlord's part to terminate this Lease
unless a written notice of such intention is given to Tenant. Notwithstanding
any such re-letting without termination, Landlord may at all times thereafter
elect to terminate this Lease for such previous default. Any such re-entry shall
be allowed by Tenant without hindrance, and Landlord shall not be liable in
damages for any such re-entry, or guilty of trespass or forcible entry.
(f) Any rent which may be due Landlord, whether by acceleration or
otherwise, as herein provided in this Article, shall include Fixed Minimum
Annual Rent, Annual Percentage Rent and any other rents, costs and expenses
denominated as Additional Rent in this Lease.
(g) It is expressly agreed that the forbearance on the part of
Landlord in the institution of any suit or entry of judgment for any part of the
rent herein reserved to Landlord, shall not serve as a defense against nor
prejudice a subsequent action for such rent. Tenant hereby expressly waives
Tenant's right to claim a
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merger or waiver of such subsequent action in any previous suit or in the
judgment entered therein. Furthermore, it is expressly agreed that claim for
liquidated Fixed Minimum Annual Rent may be regarded by Landlord, if it so
elects, as separate and independent claims capable of being separately assigned.
(h) Any and all rights, remedies and options given in this Lease to
Landlord shall be cumulative and in addition to and without waiver of, or in
derogation of, any right or remedy given to it under laws now or hereafter in
effect.
19.3 Waiver. The waiver (either expressed or implied by law) by Landlord of
any default of any term, condition or convenant herein contained shall not be a
waiver of any subsequent default of the same or any other term, condition or
covenant herein contained. The consent or approval by Landlord to or of any act
by Tenant requiring Landlord's consent or approval shall not be deemed to waive
or render unnecessary Landlord's consent to or approval of any subsequent
similar act by Tenant. No re-entry hereunder shall bar the recovery of rents or
damages for the default or delay on the part of Landlord to enforce any right
hereunder shall not be deemed a waiver of any preceding default by Tenant of any
term, covenant or condition of this Lease, or a waiver of the right of Landlord
to annul this Lease or to re-enter the Premises or to re-let same.
19.4 Expenses of Enforcement. In the event any payment due Landlord under
this Lease shall not be paid within five days of due date, Tenant agrees to pay,
in addition to the payment then due, the greater of (i) the sum of Ten and
00/100 Dollars ($10.00), or (ii) one-half percent (.5%) of the monthly
installment of Fixed Minimum Annual Rent, for each day and for each such
delinquent payment until made, and in the event that any check, bank draft,
order for payment or negotiable instrument given to Landlord for any payment
under this Lease shall be dishonored for any reason whatsoever not attributable
to Landlord, Landlord shall be entitled to make an administrative charge to
Tenant of One Hundred and 00/100 Dollars ($100.00). In the event that it shall
be necessary for Landlord to give more than one (1) written notice to Tenant of
any violation of this Lease, Landlord shall be entitled to make an
administrative charge to Tenant of Twenty-Five and 00/100 Dollars ($25.00) for
each such notice. Tenant recognizes and agrees that the charges which Landlord
is entitled to make upon the conditions stated in this Section represent, at the
time this Lease is made, a fair and reasonable estimate and liquidation of the
costs of Landlord in the administration of the Center resulting from the events
described which costs are not contemplated or included in any rent or other
charges provided to be paid by Tenant to Landlord in this Lease. Any charges
becoming due under this Section of this Lease shall be added to and become due
with the late payment for which the charge was assessed and shall be collectible
as a part thereof.
19.5 Legal Expenses. In the event that it shall become necessary for
Landlord to employ the services of an attorney to enforce any of its right under
this Lease or to remedy the breach of any covenant of this Lease on the part of
Tenant to be kept or performed, regardless of whether suit be brought, Tenant
shall pay to Landlord such reasonable fees and costs as shall be charged by
Landlord's attorney or
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paralegals for such services. Should suit be brought for the recovery of
possession of the Premises, or for rent or any other sum due Landlord under this
Lease, or because of the default of any of Tenant's covenants under this Lease,
Tenant shall pay to Landlord all expenses of such suit and any appeal thereof,
including a reasonable attorneys' fee. Notwithstanding the foregoing, in the
event of any litigation between Landlord and Tenant hereunder, the prevailing
party shall be entitled to recover reasonable attorneys' fees.
Section 20. Access by Landlord.
20.1 Right of Entry. Landlord and Landlord's agents shall have the right to
enter the Premises at all reasonable times upon reasonable notice (except in the
case of an emergency when no notice is required), to examine the same, and to
show them to prospective purchasers or lessees of the Center, and to make such
repairs, alterations, improvements or additions as Landlord may deem necessary
or desirable, and Landlord shall be allowed to take all material into and upon
the Premises that may be required therefor without the same constituting an
eviction of Tenant in whole or in part, and the rent reserved shall not abate
while said repairs, alterations, improvements, or additions are being made
unless Tenant is prevented in any material respect or for any material length of
time from operating in the Premises in whole or in part, in which event Rent
shall be proportionately abated during said period. Landlord shall use
reasonable efforts to minimize disruption to Tenant's business and, to the
extent practical, shall give prior notice of the need to perform work. During
the six (6) months prior to the expiration of term of this Lease or any renewal
term, Landlord may exhibit the Premises to prospective tenants or purchasers,
and place upon the Premises to prospective tenants or purchasers, and place upon
the Premises the usual notices "To Let" or "For Sale," or similar notices, which
notices Tenant shall permit to remain thereon without molestation. If Tenant
shall not be personally present to open and permit entry into the Premises at
any time when for any reason an entry therein shall be necessary or permissible,
Landlord or Landlord's agents may enter the same without in any manner affecting
the obligations and covenants of this Lease. Nothing herein contained, however,
shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever, for the care, maintenance or repair of
the Premises or the Center or any part thereof, except as otherwise herein
specifically provided.
Section 21. Tenant's Property.
21.1 Taxes on Leasehold. Tenant shall be responsible for and shall pay
before deliquent all municipal, county or state taxes assessed during the term
of their Lease against any leasehold interest or personal property of any kind,
owned by or placed in, upon or about the Premises by Tenant.
21.2 Loss and Damage. Unless caused by the gross negligence or willful
misconduct of Landlord, Landlord shall not be responsible for any damage to any
property of Tenant (including without limitation appliances, equipment,
machinery, stock, inventory, fixtures, furniture, improvements, displays,
decorations, carpeting and painting) or of others located on the Premises, nor
for the loss of or damage to any property of Tenant or of others by theft or
otherwise. Landlord shall not be liable for any injury or damage to persons or
property resulting from fire, smoke, explosion, falling plaster, steam, gas,
electricity, water, rain, or leaks from any part of the Premises or from the
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pipes, appliances or plumbing works or from the roof, street or subsurface or
from any other place of by dampness or by any other cause of whatsoever nature.
Landlord shall not be liable for any such damage caused by other tenants or
persons on the Premises, occupants of the adjacent property, of the Center, or
the public, or caused by operations or construction of any private, public or
quasi-public works, or for failure to enforce against any other tenant the
provisions of such tenant's lease for Premises in the Center or Project.
Landlord shall not be liable for any latent defect in the Premises or in the
Center unless discovered within one (1) year from the Commencement Date. All
property of Tenant kept or stored on the Premises shall be so kept or stored at
the risk of Tenant only and Tenant shall hold Landlord harmless from any and all
claims arising out of damage to same, including subrogation claims by Tenant's
insurance carriers.
21.3 Notice by Tenant. Once Tenant discovers same, Tenant shall give
immediate notice to Landlord in case of fire or accidents in the Premises or of
defects therein or in any fixtures or equipment.
21.4 Lien for Rent. In consideration of the mutual benefits arising under
this Lease, Tenant hereby grants to landlord a lien on all property of Tenant
now or hereafter placed in or upon the Premises, and such property shall be and
remain subject to such lien of Landlord for payment of all rent and other sums
agreed to be paid by Tenant herein. Said lien shall be in addition to and
cumulative of Landlord's liens and other remedies provided by law.
Section 22. Holding Over, Successors.
22.1 Holding Over. In the event Tenant remains in possession of the
Premises after the expiration of the tenancy created hereunder, and without the
execution of a new Lease, Tenant, at the option of Landlord, shall be deemed to
be occupying the Premises as a tenant at sufferance at a monthly rental equal to
two (2) times the Fixed Minimum Annual Rent (or Annual Percentage Rent, if
greater) payable during the last month of the term hereof. In addition, Tenant
agrees to pay monthly (a) one-twelfth (1/12) of the taxes payable for the Lease
Year immediately prior to the Lease Year in which the expiration occurs, (b) the
monthly Center Operating Costs (and costs payable pursuant to Section 3.5(b)
hereof) charge payable for such month, (c) cost of insurance for which Tenant
would have been responsible if this Lease had been renewed on the same terms
contained herein, (d) all sales taxes assessed against such increased rent, and
(e) any and all Additional Rent otherwise payable by Tenant hereunder. Such
tenancy shall be subject to all the other conditions, provisions and obligations
of this Lease. Tenant's obligation to pay any rents or sums provided in this
Lease shall survive the expiration or earlier termination of this Lease.
22.2 Successors. All rights and liabilities herein given to, or imposed
upon, the respective parties hereto shall extend to and bind the several
respective heirs, executors, administrators, successors, and permitted assigns
of the said parties; and if there shall be more than one Tenant, they shall be
bound jointly and severally by the terms, covenants and agreements herein. No
rights, however, shall inure to the benefit of any assignee of Tenant unless the
assignment to such assignee has been approved by Landlord in writing as provided
herein. Nothing contained
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in this lease shall in any manner restrict Landlord's right to assign or
encumber this Lease and, in the event Landlord sells its interest in the Center
and the purchaser assumes Landlord's obligations and covenants, Landlord shall
thereupon be relieved of all further obligations hereunder.
Section 23. Quiet Enjoyment. Upon payment by Tenant of the rents and other
charges herein provided, and upon the observance and performance of all the
covenants, terms and conditions on Tenant's part to be observed and performed,
Tenant shall peaceably and quietly hold and enjoy the Premises for the term
hereby demised without material hindrance or interruption by Landlord or any
other person or persons lawfully or equitably claiming by, through or under
Landlord, subject, nevertheless, to the terms and conditions of this Lease.
Section 24. Miscellaneous.
24.1 Accord and Satisfaction. No payment by Tenant or receipt by Landlord
of a lesser amount than the rent herein stipulated to be paid shall be deemed to
be other than on account of the earliest stipulated rent, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided herein or by law.
24.2 Entire Agreement. This lease and the Exhibits attached hereto and
forming a part thereof as if fully set forth herein constitute all covenants,
promises, agreements, conditions and understandings between Landlord and Tenant
concerning the Premises and the Center and there are no covenants, promises,
conditions or understandings, either oral or written, shall be deemed to be
merged into this Lease. Except as herein otherwise provided, no subsequent
alteration, change or addtion to this Lease shall be binding upon Landlord or
Tenant unless reduced to writing and signed by them. This Agreement has been
negotiated "at arm's length" by and between Landlord and Tenant, each having the
opportunity to be represented by legal counsel of its choice and to negotiate
the form and substance of this Lease, and therefore in construing the provisions
of this Lease neither party will be deemed disproportionately responsible for
draftsmanship.
24.3 No Partnership. Landlord does not, in any way or for any purpose,
become a partner of Tenant in the conduct of its business, or otherwise, or
joint adventurer or a member of a joint enterprise with Tenant, nor does
anything in this Lease confer any interest in Landlord in the conduct of
Tenant's business. Nothing contained herein shall be deemed or construed by the
parties hereto, or by any third party, as creating the relationship of principal
and agent, or of partnership or of joint venture between the parties hereto, it
being understood and agreed that neither the method of computation of rent nor
any other provision contained herein, nor any acts of the parties hereto, shall
be deemed to create any relationship other than that of Landlord and Tenant.
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24.4 Notices.
(a) Any notice by Tenant to Landlord must be served by certified mail
return receipt requested, addressed to Landlord at Landlord's Address as
specified in Section 1.1(f) of this Lease or at such other address as Landlord
may designate by written notice.
(b) After the Commencement Date, notices by Landlord to Tenant may be
given, by certified mail, return receipt requested, or by contract carrier
providing proof of delivery, addressed to Tenant at the Premises or at such
other address as Tenant at the Premises or at such other address as Tenant shall
designate by written notice, or by delivery by Landlord to the Premises or to
such other address. Prior to the Commencement Date such notice may be given by
Landlord, by certified mail, return receipt requested, or by contract carrier
providing proof of delivery, delivered at Tenant's Address specified in Section
1.1(p) hereof.
(c) All notices given hereunder shall be effective and deemed to have
been given upon receipt by the party to which notice is being given, said
receipt being deemed to have occurred upon hand delivery or posting, or upon
such date as the postal authorities shall show the notice to have been
delivered, refused or undeliverable, as evidenced by the return receipt or proof
of delivery. Notwithstanding any other provision hereof, Landlord shall also
have the right to give notice to Tenant in any other manner provided by law. If
there shall be more than one Tenant, any notice required or permitted by the
terms of this Lease may be given by or to any one thereof, and shall have the
same force and effect as if given to all thereof.
24.5 Captions and Section Numbers. The captions, section numbers, and
article numbers appearing in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such sections or articles of this Lease nor in any way affect this
Lease.
24.6 Use of Pronoun.
(a) The word "Tenant" shall be deemed and taken to mean each and every
person or party mentioned as a Tenant herein, and the permitted sublessees,
assigns and successors thereof. The use of the neuter singular pronoun to refer
to Landlord or Tenant shall be deemed a proper reference even though Landlord or
Tenant shall be deemed a proper reference even though Landlord or Tenant may be
an individual, a partnership, a corporation, or a group of two or more
individuals or corporations. The necessary grammatical changes required to make
the provisions of this Lease apply in the plural sense where there is more than
one Landlord or Tenant and to either corporations, associations, partnerships,
or individuals, males or females, shall in all instances be assumed as though in
each case fully expressed.
(b) The word "Landlord" as used in this Lease shall mean only the
owner from time to time of Landlord's interest in this Lease. In the event of
any assignment of Landlord's interest in this Lease, the assignor shall no
longer be liable for the performance or observance of any agreements or
conditions on the part of Landlord to be performed or observed.
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24.7 Brokers Commission. Each party represents and warrants that there are
no claims for brokerage commissions or finders fees in connection with the
execution of this Lease, except as listed in Section 1.1(h) of this Lease, and
agrees to indemnify, defend and save the other harmless from all liabilities
arising from any such claim including, without limitation, the cost of counsel
fees, paralegal fees and costs in connection therewith.
24.8 Partial Invalidity. If any term, covenant or condition of this Lease
or the application thereof to any person or circumstances shall, to any extent,
be invalid or of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Lease shall be
valid and enforceable to the fullest extent permitted by law.
24.9 Estoppel Certificate. Tenant agrees that it will, at any time and from
time to time, within ten (10) days following written notice by Landlord
specifying that it is given pursuant to this Section, execute, acknowledge and
deliver to Landlord a statement in writing certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect and stating the modifications), and
the date to which the Fixed Minimum Annual Rent, Annual Percentage Rent and any
other payments due hereunder from Tenant have been paid in advance, if any, and
stating whether or not there are defenses or offsets claimed by Tenant and
whether or not to the best knowledge of Tenant, Landlord is in default in
performance of any covenant, agreement or condition contained in this Lease, and
if so, specifying each such default in performance of any covenant, agreement or
condition contained in this Lease, and if so specifying each such default of
which Tenant may have knowledge and if requested, such financial information
concerning Tenant and Tenant's business operations (and the Guarantor of this
Lease, if this Lease be guaranteed) as may be reasonably requested by any
mortgagee or prospective mortgagee or purchaser. The failure of Tenant to
execute, acknowledge and deliver to Landlord a statement in accordance with the
provisions of this Section within said ten (10) business day period shall
constitute an acknowledgment by Tenant, which may be relied on by any person
holding or proposing to acquire an interest in the Center or any party thereof
or the Premises of this Lease from or through the other party, that this Lease
is unmodified and in full force and effect and that such rents have been duly
and fully paid to and including the respective due dates immediately preceding
the date of such notice and shall constitute, as to any person entitled as
aforesaid to rely upon such statements, waiver of any defaults which may exist
prior to the date of such notice. It is agreed that nothing contained in the
provisions of this Section shall constitute waiver by Landlord of any default in
payment of rent or other charges existing as of the date of such notice and,
unless expressly consented to in writing by Landlord, and Tenant shall still
remain liable for the same. Tenant shall also have the right to obtain an
estoppel certificate in a commercially reasonably form from Landlord within
twenty (20) days after request.
24.10 Recording. Tenant shall not record this Lease, or any memorandum or
short form thereof, without the written consent and joinder of Landlord; and any
such recording shall constitute an Event of Default.
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24.11 Liability of Landlord. Tenant shall look solely to the estate and
property of Landlord in the Center for the collection of any judgment, or in
connection with any other judicial process, requiring the payment of money by
Landlord in the event of any default by Landlord with respect to any of the
terms, covenants and conditions of this Lease to be observed and performed by
Landlord, and no other property or estates of Landlord shall be subject to levy,
execution or other enforcement procedures for the satisfaction of Tenant's
remedies and rights under this Lease.
24.12 Waiver by Tenant. Tenant expressly waives all of the following: (a)
the requirement under Section 83.12 of the Florida Statutes that the plaintiff
in his distress for rent action file a bond payable to Tenant in at least double
the sum demanded by the plaintiff, it being understood that no bond shall be
required in any such action; (b) the right of tenant under Section 83.14 of the
Florida Statutes to replevy destrained property; (c) in the event of suit by or
against Landlord, then the venue of such suit shall be in Palm Beach County,
Florida, and Tenant hereby waives for itself whatever rights it may have in the
selection of venue; (d) TRIAL BY JURY IN CONNECTION WITH THE PROCEEDINGS OR
CLAIMS BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER, AND (e) the right of
non-compulsory counterclaim in any action brought by Landlord against Tenant for
damages or for possession of the Premises due to nonpayment of Fixed Minimum
Annual Rent or other sums required of Tenant under this Lease.
24.13 Time of Essense. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease, or have
caused the same to be executed as of the date and year first above written.
Signed, sealed and LANDLORD:
delivered in the presence CROCKER DOWNTOWN DEVELOPMENT
of: ASSOCIATES, a Florida general
partnership
By: CROCKER MIZNER PARK I, LTD.
A Florida limited partnership,
General Partner
By: CROCKER MIZNER PARK I,
INC., a Florida corporation,
General Partner
[ILLEGIBLE] 2/7/92 By: /s/ Thomas J. Crocker
- --------------------------- ----------------------------
Thomas J. Crocker
- --------------------------- President
TENANT: GKN HOLDINGS CORP.
[ILLEGIBLE] 1/28/92 By: [ILLEGIBLE]
- --------------------------- --------------------------------
- ---------------------------
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<PAGE>
EXHIBIT A
SITE PLAN
<PAGE>
EXHIBIT B - FLOOR PLAN
GKN HOLDINGS CORP.
NORTH
<PAGE>
EXHIBIT "C"
SCHEDULE OF ADJUSTMENTS IN FIXED ANNUAL RENT
GKN Holdings Corp.
Suite No. 405, 1,500 Approx. Gross Leasable Sq. Ft.
The term of this Lease shall be sixty months (60) and shall begin in accordance
with Section 2.4.
The rent rates and Fixed Minimum Annual Rent (stated monthly) during the initial
term shall be:
PERIOD RATE/S.F. RENT
Months 01-12 7/2/92 - 6/93 $16.00 NNN $2,000.00
13-24 7/93 - 6/94 $17.00 NNN $2,125.00
25-36 7/94 - 6/95 $23.34 NNN $2,905.00
37-48 7/95 - 6/96 $23.34 NNN $2,905.00
49-60 7/96 - 6/97 $23.34 NNN $2,905.00
<PAGE>
EXHIBIT D
TENANT/LANDLORD WORK
GKN Holdings Corp.
Landlord will provide tenant with a full vanilla box, including completed
concrete floors, front door, sheetrock perimeter walls, all utility conduits,
plumbing stumps to accommodate bathroom fixtures.
In addition to this base package, Landlord will provide tenant with an
additional allowance of $13,500 total. All construction must be done by a
licensed contractor providing a Performance and Payment Bond.
<PAGE>
EXHIBIT "F"
RULES AND REGULATIONS FOR
GKN HOLDINGS CORP.
1. The sidewalks and public portions of the Building, such as entrances,
passages, courts, parking areas, elevators, vestibules, stairways, corridors or
halls shall not be obtructed or encumbered by Tenant or its employees, agents,
invitees or guests nor shall they be used for any purpose other than ingress
and egress to and from the Premises.
2. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades, louvered openings or screens shall
be attached to or hung in, or used in connection with, any window or door of the
Premises, without the prior written consent of Landlord, unless installed by
Landlord. No aerial or antenna shall be erected on the roof or exterior walls of
the Premises or on the Building without the prior written consent of Landlord in
each instance.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
Premises or Building or on corridor walls or doors or mounted on the inside of
any windows without the prior written consent of Landlord. Signs on any entrance
door or doors shall conform to Building standards and shall, at Tenant's
expense, be inscribed, painted or affixed for Tenant by sign makers approved by
Landlord. In the event of the violation of the foregoing by Tenant, Landlord may
install and/or remove same without any liability and may charge the expense
incurred to Tenant.
4. The sashes, sash doors, skylights, windows, heating, ventilating and air
conditioning vents and doors that reflect or admit light and air into the halls,
passageways or other public places in the Building shall not be covered or
obstructed by Tenant, or its employees, agents, invitees or guests nor shall any
bottles, parcels, or other articles be placed outside of the Premises.
5. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the public halls,
corridors or vestibules without the prior written consent of Landlord.
6. From and after the Commencement Date, whenever Tenant shall submit to
Landlord any plan, agreement or other document for Landlord's consent or
approval, Tenant agrees to pay Landlord, on demand, a processing fee in a sum
equal to the reasonable fee for review of the same, including the services of
any architect, engineer or attorney employed by Landlord to review said plan,
agreement or document.
7. The water and wash closets and other plumbing fixtures shall not be used
for any purpose other than those for which they were constructed, and no
sweepings, rubbish
<PAGE>
rags, or other substances shall be thrown therein. All damages resulting from
any misuse of fixtures shall be borne by the Tenant who, or whose employees,
agents, invitees or guests shall have caused the same.
8. No animals of any kind (except seeing eye dogs) shall be brought upon
the Premises or Building. No cooking shall be done or permitted by Tenant on the
Premises except in conformity to law and then only in the utility kitchen (if a
utility kitchen was provided for in approved plans for the Premises or if
Landlord has consented in writing thereto), which is to be primarily used by
Tenant's employees for heating beverages and light snacks. No refrigeration or
heating equipment may be placed inside the Premises without the prior written
consent of Landlord in each instance. Tenant shall not cause or permit any usual
or objectionable odors to be produced upon or permeate from the Premises.
9. Tenant shall not make or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of the Building or neighboring
Premises or those having business with them, whether by the use of any musical
instrument, radio, talking machine, unmusical noise, whistling, singing, or in
any other way. Tenant shall not throw anything out of the doors or windows or
down the corridors, stairwells or elevator shafts of the Building.
10. Neither Tenant nor any of Tenant's employees, agents, invitees or
guests shall at any time bring or keep upon the Premises any inflammable,
combustible or explosive substance or any chemical substance, other than
reasonable amounts of cleaning fluids and solvents required in the normal
operation of Tenant's business.
11. Landlord shall have a valid pass key to all spaces within the Premises
at all times during the term of this Lease. No additional locks or bolts of any
kind shall be placed upon any of the doors or windows by Tenant, nor shall any
changes be made in existing locks or the mechanism thereof, without the prior
written consent of the Landlord and unless and until a duplicate key is
delivered to Landlord. Tenant must, upon the termination of its tenancy, restore
to the Landlord all keys to stores, offices and toilet rooms, either furnished
to or otherwise procured by such Tenant, and in the event of the loss of any
keys so furnished, Tenant shall pay Landlord for the cost thereof.
12. All deliveries, removals, and/or the carrying in or out of any safes,
freights, furniture or bulky matter of any description may be accomplished only
within the designated service corridor through the approved loading/service area
doors and during approved hours. Tenant shall assume all liability and risk with
respect to such movements.
13. Tenant shall not create or use any advertising mentioning or exhibiting
any likeness of the Building without the prior written consent of Landlord.
14. The Premises shall not be used for lodging or sleeping, or for any
immoral, disreputable or illegal purposes, or for any purpose which may be
dangerous to life, limb or property.
15. Any maintenance requirements of Tenant will be attended to by Landlord
only upon application at the
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Landlord's office at the Building. Landlord's employees shall not perform any
work or do anything outside of their regular duties, unless under specific
instructions from the office of Landlord.
16. Canvassing, soliciting and peddling within the Building or in Building
Common Areas is prohibited and Tenant shall cooperate to prevent the same.
17. In the event that, in Landlord's reasonable opinion, the replacement of
ceiling titles becomes necessary after they have been removed on behalf of
Tenant by telephone company installers or others (in both the Premises and the
public corridors), the cost of such replacements shall be charged to Tenant on a
per tile basis.
18. All panelling or other wood products not considered furniture which
Tenant shall install in the Premises shall be of fire-retardant materials. Prior
to the installation of any such materials, Tenant shall submit to Landlord a
satisfactory (in the reasonable opinion of Landlord) certification of such
materials' fire-retardant characteristics.
19. Usage of parking spaces shall be in common with all other Tenants of
the Building and their employees, agents, invitees and guests. All parking space
usage shall be subject to such reasonable rules and regulations for the proper
use thereof as Landlord may prescribe. Tenant's employees, agents, invitees and
guests shall abide by all posted roadway signs in and about the parking
facilities.
20. All trucks and delivery vans shall be parked in designated areas only
and not parked in spaces reserved for cars. All delivery service doors are to
remain closed except during the time that deliveries, garbage removal or other
approved uses are taking place therein. All loading and unloading of goods shall
be done only at such times, in the areas and through the entrances designated
for such purposes by Landlord.
21. Tenant shall be responsible for the removal and proper disposition of
all crates, trash, boxes and items termed garbage from the Premises. The
corridors, parking and delivery areas are to be kept clean from such items.
22. Tenant shall not conduct any business or any other work connected with
Tenant's business in any public areas.
23. If and when requested by Landlord, Tenant shall, at its sole cost and
expense, promptly cause the Premises to be treated for pests by a licensed pest
extermination contractor.
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<PAGE>
26. Tenant shall give Landlord prompt notice of all accidents to or defects
in air conditioning equipment, plumbing, electric facilities or any part or
appurtenance of the Premises.
27. Tenant agrees and fully understands that the overall aesthetic
appearance of the Project is of paramount importance; thus Landlord shall
maintain complete aesthetic control over any and every portion of the Premises
visible from outside the Premises including but not limited to all fixtures,
equipment, signs, exterior lighting, plumbing fixtures, shades, awnings,
merchandise, displays, art work, wall covering or any other object used in
Tenant's business. Landlord's control over the visual aesthetics shall be
complete and arbitrary. Landlord will notify Tenant in writing of any aesthetic
deficiencies and Tenant will have seven (7) days to correct the deficiencies to
Landlord satisfaction or Tenant shall be in default of this Lease and Section
19.02 shall apply.
28. Whenever and to the extent that the above Rules and Regulations
conflict with any of the rights or obligations of Tenant pursuant to the
provisions of the Lease, the provisions of the Lease shall govern.
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RIDER NO. 1 ANNEXED TO AND MADE A PART OF LEASE
CROCKER DOWNTOWN DEVELOPMENT ASSOCIATES, AS LANDLORD
GKN Holdings Corp., AS TENANT
DATED _____________, 19__
TENANT FINISH WORK REQUIREMENTS
LANDLORD'S CONSTRUCTION COMPANY DESIGNEE COMPLETION OF ALL IMPROVEMENTS
1. In the event Tenant elects Landlord's construction company designee to
construct the improvements to the Premises, Landlord shall proceed in accordance
with the Floor Plan approved by Landlord and Tenant. In connection herewith,
Tenant shall furnish to Landlord, in writing, the exact location of all
telephone and electrical outlets within sixty (60) days of the date hereof or
accept placement of same by Landlord in its sole discretion. Tenant shall
furnish to Landlord, in writing, any selections, specifications, or colors
required by Tenant including but not limited to millwork, flooring, wallpaper,
paint, carpet, and any other furnish details within sixty (60) days of the date
hereof or accepts selection and/or installation of same by Landlord in its sole
discretion.
2. The construction of the improvements to the Premises as stated above
shall proceed unless Tenant specifically requests at a meeting with a
representative of Landlord (at Landlord's place of business) in writing that
Landlord, if in its sole discretion deems necessary, halt all improvements to
the Premises and provide Tenant information regarding the feasibility, cost, and
time delay, if any (a "Change Estimate"), associated with any modification,
addition, change, or deletion to the Floor Plan and Cost Estimate and Scope of
Work Schedule. Tenant shall be responsible for any and all delays necessitated
by halting all improvements and providing such Change Estimate information.
Further, Tenant shall pay for the costs, if any, incurred with respect to such
Change Estimate information including but not limited to costs related to
obtaining governmental approvals, architectural/engineering fees, subcontractor
costs and costs of materials.
Tenant shall review such Change Estimate information at Landlord's place of
business and Tenant shall immediately approve or disapprove such Change
Estimate. Landlord's construction company designee shall only implement changes
to the Floor Plan and Cost Estimate and Scope of Work Schedule specifically
authorized in writing by Tenant. Tenant shall be responsible for any delay(s)
and/or increase in the cost of the improvements to the Premises resulting from
changes to the Floor Plan and Cost Estimate and Scope of Work Schedule.
3. Exhibit D to the Lease may provide an allowance for construction of
certain of the improvements to the Premises. Tenant shall not receive cash or
any credit against Fixed Minimum Annual Rent or Additional Rent for any unused
portion of such allowance.
4. Tenant shall adopt a schedule for construction and installation of any
work to be performed by Tenant's contractor in conformance with the schedule of
Landlord's contractor and conduct its work in such a manner as to maintain
harmonious labor relations and not as to unreasonably interfere with or delay
the work of Landlord's contractor. All of Tenant's contractors and
subcontractors shall employ union labor if required by Landlord. All said work
and labor to be performed by Tenant shall be subject to the administrative
supervision of Landlord's contractor (at no cost or expense to Tenant for such
administrative supervision).
5. Landlord shall give to Tenant and Tenant's contractors and
subcontractors access and entry to the Premises, reasonable use of the Building
facilities (including loading platforms, lifts, freight elevators, temporary
power, facilities for storage and protection of materials and all other
facilities available to subcontractors of Landlord's general contractor to the
same extent and upon the same terms and conditions as such facilities are
available for the use of subcontractors of Landlord's general contractor, in
order to allow Tenant to adapt the Premises for Tenant's use.
<PAGE>
6. Tenant shall not be allowed to install any plumbing, mechanical work,
electrical wiring or fixtures, or modify, alter or install any apparatus which
would affect the Building's systems (other than those previously approved in
writing in connection with Landlord's approval of the Floor Plans) without the
prior written approval of Landlord in each instance.
8. Any difference between the tenant finish work allowance stated in
Exhibit D and the total cost for tenant improvements shall be paid by Tenant to
Landlord prior to Tenant's occupancy of the Premises. Tenant shall not receive
cash or any credit against Fixed Minimum Annual Rent or Additional Rent for any
unused portion of such fixed price tenant finish work allowance. Any increase in
the cost of the improvements to the Premises resulting from modifications,
additions, changes or deletions authorized in writing by Tenant shall be paid to
Landlord, at Landlord's option, upon authorization of any changes or prior to
Tenant's taking possession of the Premises or any portion thereof. Until
Landlord has received full payment for any such increases and proof of insurance
as required under the Lease, Tenant shall not be permitted to occupy the
Premises notwithstanding that Tenant's obligation to pay Fixed Minimum Annual
Rent and Additional Rent under the Lease remain in full force and effect.
Additionally, no less than three (3) days prior to Tenant's occupancy of the
Premises, Landlord's construction company designee and Tenant shall agree upon
any punchlist or insubstantial details of construction, decoration or mechanical
adjustment remaining to be performed, completed, repaired or adjusted (based
upon the construction standards prevailing in the county for similar property),
and the existence of such punchlist items shall not in any event constitute a
basis for postponing the commencement of the term of, or the accrual of rent
pursuant to, the Lease, provided, however, that none of the punchlist items
would interfere with Tenant's ability to do its work or open for and conduct its
business.
<PAGE>
RIDER NO. 2 TO LEASE AGREEMENT
BETWEEN
CROCKER DOWNTOWN DEVELOPMENT ASSOCIATES AS LANDLORD
AND
GKN HOLDINGS CORP. AS TENANT
In accordance with the requirements of Florida Statutes Section 404.056(8),
the following notice is hereby given:
RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon testing may be obtained from your county public health unit.
LANDLORD: CROCKER DOWNTOWN DEVELOPMENT
ASSOCIATES
/s/ Thomas J. Crocker
--------------------------------------
By: Thomas J. Crocker, President
--------------------------------------
TENANT: GKN HOLDINGS CORP.
--------------------------------------
By: [ILLEGIBLE]
-----------------------------------
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RIDER NO. 3 ANNEXED TO AND MADE A PART OF LEASE
BETWEEN CROCKER DOWNTOWN DEVELOPMENT ASSOCIATES, AS LANDLORD
AND
GKN HOLDINGS CORP., AS TENANT
DATED ____________, 19__
RENEWAL OPTION
Landlord hereby grants to Tenant, so long as Tenant shall not be in default
of any terms, covenants, payments or conditions of this Lease, the right and
option to renew the term of this Lease for two (2) periods of sixty (60) months
each (the "Renewal Term(s)"), commencing upon the expiration of the initial term
of this Lease. The terms of Lease during the Renewal Term(s) shall be upon the
same terms and conditions as during the initial term hereof, except that the
Fixed Minimum Annual Rent payable by Tenant during each twelve (12) months of
the Renewal Term(s) shall be ninety percent (90%) of the then prevailing market
rate.
If Landlord and Tenant fail to agree on the Fixed Annual Rent for each year
of the Renewal Term(s) within thirty (30) days after Tenant's exercise of its
option to renew, Landlord and Tenant shall each designate a MAI Appraiser to
request a valuation of the fair market rental value of the Premises for the
coming Renewal Term. On the failure of either party to designate an appraiser
within sixty (60) days after Tenant's exercise of its option to renew, the other
party shall have the right to designate an appraiser for the non-designating
party. Each party shall advise the other of the choice of appraiser. Each party
shall bear the expense of its designated appraiser and shall furnish the other
party with a copy of its completed appraisal. The Fixed Annual Rent for each
year of the coming Renewal Term shall be the average of the fair market rental
value established by the two appraisals, provided, however, in the event the
parties fail to agree that such average is a fair rental for the Premises and
the two appraisals differ by more than $1.00 per square foot, then and in that
event, a third appraiser shall be mutually selected by the first two appraisers.
The third appraiser shall establish the Fixed Annual Rent for each year of the
coming Renewal Term by selecting the valuation of one or the other of the first
two appraisers. The third appraiser shall not have the right to establish any
other rental rate. The Fixed Annual Rent for each year of the coming Renewal
Term as determined by the third appraiser shall be final and binding on the
parties. The expense of the third appraiser shall be shared equally by Landlord
and Tenant.
Tenant shall exercise its option to any Renewal Term, if at all, by written
notice to Landlord received by Landlord on or before six (6) months prior to the
expiration of the existing term. Tenant may not exercise its option to renew
during any period in which Tenant is in default of this Lease beyond applicable
grace period, and upon any such default hereunder by Tenant, Landlord may revoke
any extension option of Tenant remaining hereunder. Failure of Tenant to duly
and timely exercise its renewal options hereunder shall be conclusively deemed
to constitute a waiver of all renewal rights of Tenant hereunder. Failure of
Tenant to exercise any renewal option shall be deemed a waiver of Tenant's right
to any further or future renewal options.
<PAGE>
RIDER NO. 4 ANNEXED TO AND MADE A PART OF LEASE
BETWEEN CROCKER DOWNTOWN DEVELOPMENT ASSOCIATES, AS LANDLORD
AND
GKN HOLDINGS CORP., AS TENANT
DATED _______________, 19__
Subletting and Assignment
Supplementing the provisions set forth in Section 13 of this Lease, after
the first three (3) years of the Lease Term, Landlord shall not unreasonably
withhold its consent to Tenant's request to assign the Lease or sublet a portion
of the Premises, or any part of the Premises provided that the following terms
and conditions are satisfied.
1. Tenant shall submit in writing to Landlord, not later than thirty (30)
days prior to any anticipated assignment or subletting, (i) the name and address
of the proposed assignee or sublessee, (ii) a counterpart of the proposed
assignment or sublease, (iii) reasonably satisfactory information as to the
nature and character of the business of the proposed assignee or sublessee, and
as to the nature and character of its proposed use of the space, and (iv)
banking, financial or other credit information relating to the proposed assignee
or sublessee reasonably sufficient to enable Landlord to reasonably determine
the financial responsibility and character of the proposed assignee or
sublessee. The information submitted in accordance with this paragraph must
indicate that the assignee or sublessee is, in Landlord's sole opinion,
compatible with the nature and quality of the other tenants of the Project, and
the financial ability of the assignee or sublessee is, in Landlord's sole
opinion, sufficient to perform the monetary obligations under the Lease.
2. There shall be no default by Tenant, beyond any grace period, under any
of the terms, covenants and conditions of this Lease at the time that Landlord's
consent to any such assignment or subletting is requested and on the date of the
commencement of the term of any such proposed assignment or sublease.
3. Any such assignment or sublease shall provide that the assignee or
sublessee shall comply with all applicable terms and conditions of this Lease to
be performed by Tenant hereunder and the form and substance of the proposed
agreement shall be reasonably satisfactory to Landlord's attorney in all other
respects.
4. In no event shall the rent, additional rent or other consideration
payable under the proposed assignment or sublease be less than the Fixed Annual
Rent and all forms of additional rent due hereunder (or a pro rata portion
thereof based upon the square footage subleased) then being paid by Tenant to
Landlord under this Lease.
5. No assignment or subletting shall be made:
(a) To any person or entity which shall at that time be a tenant,
subtenant or other occupant of any part of the Project, or who dealt with
Landlord (directly or through a broker) with respect to space in the Project
during the six (6) months immediately preceding Tenant's request for Landlord's
consent;
<PAGE>
(b) By the legal representatives or successors in interest, by
operation of law, of the Tenant, except in compliance with the provisions of
this Rider; or
(c) To any person or entity for the conduct of a business which is not
in keeping with the standards and the general character of the Project.
(d) Where Tenant, assignee or sublessee has an interest in the
possession, use, occupancy, or utilization of the Premises which provide for
rental or other payments for such use, occupancy, or utilization based, in whole
or in part, on the net income or profits derived by any person from the Premises
leased, used, occupied or utilized (other than an amount based on a fixed
percentage or percentages of receipts of sales), and any such proposed lease,
assignment, sublease, license, concession or other agreement shall be absolutely
void and ineffective as a conveyance of any right or interest in the possession,
use, occupancy or utilization of any part of the Premises.
6. In the event that Tenant effects such assignment or subletting, then
Tenant thereafter shall pay to Landlord any rent, additional rent or other
consideration paid to Tenant by any assignee or sublessee which is in excess of
the rent then being paid by Tenant to Landlord under this Lease for the portion
of the Premises so assigned or sublet (on a pro-rated, square footage basis).
All sums payable hereunder by Tenant shall be payable to Landlord as additional
rent immediately upon receipt thereof by Tenant.
7. In the event that Tenant effects a subletting, then, at any time Tenant
shall be in default under the Lease, all rental payments of any kind due
Tenant/sublessor from the sublessee shall be paid directly to the Lessor, until
such time that the default is cured. Tenant shall deliver a fully-executed
photographic copy of any assignment or sublease to Landlord within ten (10) days
of its execution.
8. The permitted use of the Premises shall not change and no other or
further assignment or subletting of the Premises shall be made except in
compliance with the provisions of this Rider.
9. Tenant shall remain liable to Landlord for the prompt and continuing
payment of all forms of rent, additional rent or considerations payable under
this Lease.
10. Notwithstanding anything hereinabove contained or contained in the body
of the Lease, Landlord agrees that an assignment of this Lease which is
delivered simultaneously to and in connection with assignments of substantially
all of the other assets of Tenant, to a single person or entity, so as to effect
an "asset transfer" of Tenant, shall not be an assignment as to which Landlord's
consent is required and such assignment can be made without Landlord's consent,
provided that Landlord shall be given not less than ten days prior written
notice of any such assignment.
<PAGE>
RIDER NO. 5 ANNEXED TO AND MADE A PART OF LEASE
BETWEEN CROCKER DOWNTOWN DEVELOPMENT ASSOCIATES, AS LANDLORD
AND
GKN HOLDINGS CORP., AS TENANT
DATED ___________, 19__
TENANT'S RIGHT TO TERMINATE
Provided Tenant shall not be in default under the Lease, at any time after
the expiration of the first Lease Year, the Tenant shall have the right, on one
hundred twenty (120) days prior written notice to the Landlord, to terminate
this Lease Agreement as of the end of the aforementioned one hundred twenty
(120) day notice period. In order to exercise this option to terminate, the
Tenant shall pay all costs related to the removal of the interior staircase and
the enclosure of slab staircase opening, the removal of exterior sign on west
elevation of the Building and shall forfeit Tenant's Security Deposit. Tenant
shall be responsible for restoring the Building facade and interior space upon
completion of the work set forth above.
Exhibit 10.10
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 1, 1996 between DAVID M. NUSSBAUM,
residing at 83 Village Road, Roslyn Heights, New York 11577 ("Executive"), and
GKN HOLDING CORP., a Delaware corporation having its principal office at 61
Broadway, New York, New York 10006 ("Company").
WHEREAS, the Company is engaged through its subsidiary corporations
in the business of operating and managing an investment banking and securities
brokerage firm, as well as other enterprises; and
WHEREAS, the Company employs and desires to continue the employment
of Executive for the purpose of securing for the Company and its subsidiary
corporations the experience, ability and services of Executive; and
WHEREAS, Executive desires to continue his present employment with
the Company, pursuant to the terms and conditions herein set forth, superseding
all prior agreements between the Company, its subsidiaries and/or predecessors
and Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as its Chairman of the
Board ("Chairman") and Chief Executive Officer ("CEO"). All of Executive's
powers and authority in any capacity shall at all times be subject to the
direction and control of the Company's Board of Directors.
1.2 The Board may assign to Executive such general management and
supervisory responsibilities and executive duties for the Company or any
subsidiary of the Company, including serving as an executive officer and/or
director of any subsidiary, as are consistent with Executive's status as
Chairman and CEO. The Company and Executive acknowledge that Executive's primary
functions and duties as Chairman and CEO shall be to
<PAGE>
establish policies and strategies for the Company's overall business and
operations, including plans for growth and strategic partnerships.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energies and attention to the
performance of his duties hereunder. Nothing herein shall be construed as
preventing Executive from making and supervising personal investments, provided
they will not interfere with the performance of Executive's duties hereunder or
violate the provisions of paragraph 5.4 hereof.
1.4 Executive shall be based in the New York Metropolitan area, and
shall undertake such occasional travel, within or without the United States, as
is reasonably necessary in the interests of the Company.
1.5 If, during the term hereof, Executive is nominated to serve as a
director of the Company but fails to be elected, he shall nonetheless be invited
to attend each meeting of the Board of Directors of the Company through the
remainder of the term hereof.
2. Compensation and Benefits.
2.1 The Company shall pay to Executive a salary at the minimum
annual rate of $240,000 for each twelve-month period during the term hereof
(i.e., $20,000 per month). Executive's compensation shall be paid in equal,
periodic installments in accordance with the Company's normal payroll
procedures.
2.2 The Company shall also pay to Executive such bonuses as may be
determined from time to time by the Board of Directors. In connection therewith,
the Executive shall be entitled to participate at the level of Chairman and CEO
in the Company's 1996 Incentive Compensation Plan as, when and in such form as
may be adopted by the Board of Directors, and thereafter as in effect from time
to time during the term hereof.
2.3 In addition to the foregoing, Executive shall be entitled to
receive (i) together with the Joint Reps referred to below, an aggregate of 60%
of the gross brokerage commissions on customer's stock brokerage accounts with
the Company or any subsidiary of the Company which are serviced by Executive or
jointly serviced by Executive and other registered
2
<PAGE>
representatives of the Company ("Joint Reps"); and (ii) 15% of the purchase
warrants, options or other equity-based compensation which may be paid or issued
to the Company or any subsidiary during the term of this Agreement in connection
with any corporate finance or investment banking activities.
2.4 Executive shall be entitled to such medical, life, disability
and other benefits as are generally afforded to other senior executives of the
Company, subject to applicable waiting periods and other conditions.
Additionally, the Company shall pay the premiums on a life insurance policy for
Executive, the death benefit of which shall be no less than $2,250,000 and shall
be payable to Executive's beneficiaries.
2.5 Executive shall be entitled to four weeks of vacation in each
calendar year and to a reasonable number of other days off for religious and
personal reasons.
2.6 Executive shall maintain a suitable automobile for business use.
The Company shall reimburse Executive for the costs of leasing such automobile
and for all other costs associated with the use of the vehicle, including
insurance costs, repairs and maintenance. These reimbursements shall be
considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.7 The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.
3. Term and Termination.
3.1 The term of this Agreement commences as of May 1, 1996 and shall
continue until April 30, 1999, unless sooner terminated as herein provided.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to the
legal representative of Executive's estate (i) the base salary due Executive
pursuant to paragraph 2.1 hereof through the date of
3
<PAGE>
Executive's death, (ii) a pro rata allocation of bonus payments under paragraph
2.2 during the year of death through the date of Executive's death, (iii) all
earned and previously approved but unpaid bonuses, (iv) all valid expense
reimbursements through the date of the termination of this Agreement, (v) all
accrued but unused vacation pay and (vi) all costs associated with terminating
the lease for Executive's automobile.
3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to render,
for six consecutive months, services of the character contemplated by this
Agreement. Notwithstanding such termination, the Company shall pay to Executive
(i) the base salary due Executive pursuant to paragraph 2.1 hereof through the
date of such notice, less any amount Executive receives for such period from any
Company- sponsored or Company-paid source of insurance, disability compensation
or government program, (ii) a pro rata allocation of bonus payments under
paragraph 2.2 during the year in which the disability commenced through the date
of such notice, (iii) all earned and previously approved but unpaid bonuses,
(iv) all valid expense reimbursements through the date of the termination of
this Agreement, (v) all accrued but unused vacation pay and (vi) all costs
associated with terminating the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate this
Agreement for cause. As used herein, "Cause" shall mean: (a) the refusal or
failure by Executive to carry out specific directions of the Board which are of
a material nature and consistent with his status as Chairman and CEO, or the
refusal or failure by Executive to perform a material part of Executive's duties
hereunder; (b) the commission by Executive of a material breach of any of the
provisions of this Agreement; (c) fraud or dishonest action by Executive in his
relations with the Company or any of its subsidiaries or affiliates ("dishonest"
for these purposes shall mean Executive's knowingly or recklessly making of a
material misstatement or omission for his personal benefit); or (d) the
conviction of Executive of any crime involving an act of moral turpitude, or the
imposition against Executive of a permanent bar from association with a
securities firm by any Federal, State or Regulatory Agency or Self-Regulatory
Body after the exhaustion of all judicial and administrative appeals therefrom.
Notwithstanding the foregoing, no "Cause" for termination shall be deemed to
exist with respect to Executive's acts described in clauses (a) or (b) above,
unless the Company shall have given written notice to Executive specifying the
"Cause" with reasonable particularity and, within thirty calendar days after
such notice, Executive shall not have cured or eliminated the problem or thing
giving rise to such "Cause;" provided, however, that a repeated breach after
4
<PAGE>
notice and cure of any provision of clauses (a) or (b) above involving the same
or substantially similar actions or conduct, shall be grounds for termination
for "Cause" without any additional notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
3.6 The Executive, by notice to the Company, may terminate this
Agreement if a "Good Reason" exists. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following circumstances without
the Executive's prior express written consent: (a) a substantial and material
adverse change in the nature of Executive's title, duties or responsibilities
with the Company that represents a demotion from his title, duties or
responsibilities as in effect immediately prior to such change; (b) Executive is
not nominated to serve as a director by the Company or is removed from service
as a director of the Company; (c) a substantial and material breach of this
Agreement by the Company; (d) a failure by the Company to make any payment to
Executive when due, unless the payment is not material and is being contested by
the Company, in good faith; (e) (i) any person or entity other than the Company
and/or any officers or directors of the Company as of the date of this Agreement
acquires securities of the Company (in one or more transactions) having 25% or
more of the total voting power of all the Company's securities then outstanding
and (ii) the Board of Directors of the Company does not authorize or otherwise
approve such acquisition; or (f) a liquidation, bankruptcy or receivership of
the Company. Notwithstanding the foregoing, no Good Reason shall be deemed to
exist with respect to the Company's acts described in clauses (a), (b), (c) or
(d) above, unless Executive shall have given written notice to the Company
specifying the Good Reason with reasonable particularity and, within thirty
calendar days after such notice, the Company shall not have cured or eliminated
the problem or thing giving rise to such Good Reason; provided, however, that a
repeated breach after notice and cure of any provision of clauses (a), (b), (c)
or (d) above involving the same or substantially similar actions or conduct,
shall be grounds for termination for Good Reason without any additional notice
from Executive.
3.7 In the event that Executive terminates this Agreement for Good
Reason, pursuant to the provisions of paragraph 3.6, or the Company terminates
this Agreement without "Cause," as defined in paragraph 3.4, the Company shall
continue to pay to Executive (or in the
5
<PAGE>
case of his death, the legal representative of Executive's estate or such other
person or persons as Executive shall have designated by written notice to the
Company), all payments, compensation and benefits required under paragraph 2
hereof through the term of this Agreement; provided, however, that (i) a minimum
bonus of no less than $240,000 per annum shall be paid through the term of this
Agreement; (ii) Executive's insurance coverage shall terminate upon the
Executive becoming covered under a similar program by reason of employment
elsewhere; and (iii) Executive shall use reasonable efforts to obtain employment
elsewhere as an employee or consultant and all compensation for services paid or
earned and deferred in connection therewith shall be a reduction against the
Company's then future obligations hereunder.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold Executive
harmless against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (other than settlements to which the Company
does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
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<PAGE>
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of his current and prior employment with the
Company, Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in this paragraph 5 as the "Company"),
including, without limitation, financial information, proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which will be
difficult to compute if, during the period of his employment with the Company or
thereafter, Executive should enter a business competitive with the Company or
divulge Confidential Information.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either during the
term of this Agreement or for a period of one year thereafter, divulge to any
person or entity any Confidential Information obtained or learned by him as a
result of his employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
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<PAGE>
5.3 Upon termination of his employment with the Company, Executive
will promptly deliver to the Company all memoranda, notes, records, reports,
manuals, drawings, blueprints and other documents (and all copies thereof)
relating to the business of the Company and all property associated therewith,
which he may then possess or have under his control; provided, however, that
Executive shall be entitled to retain copies of such documents reasonably
necessary to document his financial relationship with the Company.
5.4 During the period commencing on the date hereof and ending on
the one-year anniversary of the date Executive's employment hereunder is
terminated (and, if Executive is terminated with "Cause" or Executive terminates
this Agreement without "Good Reason," until April 30, 2000), Executive, without
the prior written permission of the Company, shall not, anywhere in the world,
(i) be employed by, or render any services to, any person, firm or corporation
engaged in any business which is directly in competition with the Company or any
of its subsidiaries ("Competitive Business"); (ii) engage in any Competitive
Business for his or its own account; (iii) be associated with or interested in
any Competitive Business as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity; (iv) employ or retain, or have or cause
any other person or entity to employ or retain, any person who was employed or
retained by the Company while Executive was employed by the Company; or (v)
solicit, interfere with, or endeavor to entice away from the Company, for the
benefit of a Competitive Business, any of its customers or other persons with
whom the Company has a contractual relationship. Notwithstanding the foregoing,
nothing in this Agreement shall preclude Executive from investing his personal
assets in any manner he chooses, provided, however, that Executive may not,
during the period referred to in this Section 5.4, own more than 4.9% of the
equity securities of any Competitive Business.
5.5 If Executive commits a breach, or threatens to commit a breach,
of any of the provisions of Sections 5.2 or 5.4, the Company shall have the
right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
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(b) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2 or
5.4, and Executive hereby agrees to account for and pay over such damages to the
Company.
Each of the rights and remedies enumerated in this Section 5.5 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out of or
relating to this Agreement, the prevailing party in such action or proceeding
shall be entitled to be reimbursed by the other party for the reasonable
attorneys' fees and costs incurred by the prevailing party.
5.6 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.7 The provisions of this paragraph 5 shall survive the termination
of this Agreement for any reason, except in the event Executive is terminated by
the Company without "Cause" in breach of this Agreement, or if Executive
terminates this Agreement with "Good Reason," in either of which events, this
paragraph 5 shall be null and void and of no further force or effect.
6. Miscellaneous Provisions.
6.1 All notices provided for in this Agreement shall be in writing,
and shall be deemed to have been duly given when (i) delivered personally to the
party to receive the same, or (ii) when mailed first class postage prepaid, by
certified mail, return receipt requested, addressed to the party to receive the
same at his or its address set forth below, or such other address as the party
to receive the same shall have specified by written notice given in the manner
provided for in this Section 6.1. All notices shall be deemed to have been given
as of the date of personal delivery or mailing thereof.
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If to Executive:
David Nussbaum
83 Village Road
Roslyn Heights, New York 11577
If to the Company:
GKN Holding Corp.
61 Broadway
New York, New York 10006
Attn: Chief Operating Officer
With a copy in either case to:
David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
6.2 This Agreement sets forth the entire agreement of the parties
relating to the employment of Executive and is intended to supersede all prior
negotiations, understandings and agreements. No provisions of this Agreement,
may be waived or changed except by a writing by the party against whom such
waiver or change is sought to be enforced. The failure of any party to require
performance of any provision hereof or thereof shall in no manner affect the
right at a later time to enforce such provision.
6.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.
6.4 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Executive, but shall inure to the benefit of and be binding upon
Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
------------------------------------------
DAVID M. NUSSBAUM
GKN HOLDING CORP.
------------------------------------------
By: Peter R. Kent, Chief Operating Officer
11
Exhibit 10.11
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 1, 1996 between ROBERT H. GLADSTONE,
residing at 64 Shortway Road, Roslyn Heights, New York 11577 ("Executive"), and
GKN HOLDING CORP., a Delaware corporation having its principal office at 61
Broadway, New York, New York 10006 ("Company").
WHEREAS, the Company is engaged through its subsidiary corporations
in the business of operating and managing an investment banking and securities
brokerage firm, as well as other enterprises; and
WHEREAS, the Company employs and desires to continue the employment
of Executive for the purpose of securing for the Company and its subsidiary
corporations the experience, ability and services of Executive; and
WHEREAS, Executive desires to continue his present employment with
the Company, pursuant to the terms and conditions herein set forth, superseding
all prior agreements between the Company, its subsidiaries and/or predecessors
and Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as an Executive Vice
President. All of Executive's powers and authority in any capacity shall at all
times be subject to the direction and control of the Company's Board of
Directors. Executive shall report directly to the Company's Chief Executive
Officer, President and Chief Operating Officer.
1.2 The Board, Chief Executive Officer, President and/or Chief
Operating Officer may assign to Executive such general management and executive
duties for the Company or any subsidiary of the Company, including serving as an
executive officer of any subsidiary, as are consistent with Executive's status
as Executive Vice President.
<PAGE>
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energies and attention to the
performance of his duties hereunder. Nothing herein shall be construed as
preventing Executive from making and supervising personal investments, provided
they will not interfere with the performance of Executive's duties hereunder or
violate the provisions of paragraph 5.4 hereof.
1.4 Executive shall be based in the New York Metropolitan area, and
shall undertake such occasional travel, within or without the United States, as
is reasonably necessary in the interests of the Company.
2. Compensation and Benefits.
2.1 The Company shall pay to Executive a salary at the minimum
annual rate of $240,000 for each twelve-month period during the term hereof
(i.e., $20,000 per month). Executive's compensation shall be paid in equal,
periodic installments in accordance with the Company's normal payroll
procedures.
2.2 The Company shall also pay to Executive such bonuses as may be
determined from time to time by the Board of Directors. In connection therewith,
the Executive shall be entitled to participate at the level of Executive Vice
President in the Company's 1996 Incentive Compensation Plan as, when and in such
form as may be adopted by the Board of Directors, and thereafter as in effect
from time to time during the term hereof.
2.3 In addition to the foregoing, Executive shall be entitled to
receive (i) together with the Joint Reps referred to below, an aggregate of 60%
of the gross brokerage commissions on customer's stock brokerage accounts with
the Company or any subsidiary of the Company which are serviced by Executive or
jointly serviced by Executive and other registered representatives of the
Company ("Joint Reps"); and (ii) 15% of the purchase warrants, options or other
equity-based compensation which may be paid or issued to the Company or any
subsidiary during the term of this Agreement in connection with any corporate
finance or investment banking activities.
2.4 Executive shall be entitled to such medical, life, disability
and other benefits as are generally afforded to other senior executives of the
Company, subject to applicable
2
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waiting periods and other conditions. Additionally, the Company shall pay the
premiums on a life insurance policy for Executive, the death benefit of which
shall be no less than $1,000,000 and shall be payable to Executive's
beneficiaries.
2.5 Executive shall be entitled to four weeks of vacation in each
calendar year and to a reasonable number of other days off for religious and
personal reasons.
2.6 Executive shall maintain a suitable automobile for business use.
The Company shall reimburse Executive for the costs of leasing such automobile
and for all other costs associated with the use of the vehicle, including
insurance costs, repairs and maintenance. These reimbursements shall be
considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.7 The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.
3. Term and Termination.
3.1 The term of this Agreement commences as of May 1, 1996 and shall
continue until April 30, 1999, unless sooner terminated as herein provided.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to the
legal representative of Executive's estate (i) the base salary due Executive
pursuant to paragraph 2.1 hereof through the date of Executive's death, (ii) a
pro rata allocation of bonus payments under paragraph 2.2 during the year of
death through the date of Executive's death, (iii) all earned and previously
approved but unpaid bonuses, (iv) all valid expense reimbursements through the
date of the termination of this Agreement, (v) all accrued but unused vacation
pay and (vi) all costs associated with terminating the lease for Executive's
automobile.
3
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3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to render,
for six consecutive months, services of the character contemplated by this
Agreement. Notwithstanding such termination, the Company shall pay to Executive
(i) the base salary due Executive pursuant to paragraph 2.1 hereof through the
date of such notice, less any amount Executive receives for such period from any
Company- sponsored or Company-paid source of insurance, disability compensation
or government program, (ii) a pro rata allocation of bonus payments under
paragraph 2.2 during the year in which the disability commenced through the date
of such notice, (iii) all earned and previously approved but unpaid bonuses,
(iv) all valid expense reimbursements through the date of the termination of
this Agreement, (v) all accrued but unused vacation pay and (vi) all costs
associated with terminating the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate this
Agreement for cause. As used herein, "Cause" shall mean: (a) the refusal or
failure by Executive to carry out specific directions of the Board which are of
a material nature and consistent with his status as Executive Vice President, or
the refusal or failure by Executive to perform a material part of Executive's
duties hereunder; (b) the commission by Executive of a material breach of any of
the provisions of this Agreement; (c) fraud or dishonest action by Executive in
his relations with the Company or any of its subsidiaries or affiliates
("dishonest" for these purposes shall mean Executive's knowingly or recklessly
making of a material misstatement or omission for his personal benefit); or (d)
the conviction of Executive of any crime involving an act of moral turpitude, or
the imposition against Executive of a permanent bar from association with a
securities firm by any Federal, State or Regulatory Agency or Self-Regulatory
Body after the exhaustion of all judicial and administrative appeals therefrom.
Notwithstanding the foregoing, no "Cause" for termination shall be deemed to
exist with respect to Executive's acts described in clauses (a) or (b) above,
unless the Company shall have given written notice to Executive specifying the
"Cause" with reasonable particularity and, within thirty calendar days after
such notice, Executive shall not have cured or eliminated the problem or thing
giving rise to such "Cause;" provided, however, that a repeated breach after
notice and cure of any provision of clauses (a) or (b) above involving the same
or substantially similar actions or conduct, shall be grounds for termination
for "Cause" without any additional notice from the Company.
4
<PAGE>
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign from any
directorship held by him with the Company or any of its subsidiaries, effective
upon the occurrence of such termination.
3.6 The Executive, by notice to the Company, may terminate this
Agreement if a "Good Reason" exists. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following circumstances without
the Executive's prior express written consent: (a) a substantial and material
adverse change in the nature of Executive's title, duties or responsibilities
with the Company that represents a demotion from his title, duties or
responsibilities as in effect immediately prior to such change; (b) a
substantial and material breach of this Agreement by the Company; (c) a failure
by the Company to make any payment to Executive when due, unless the payment is
not material and is being contested by the Company, in good faith; (d) (i) any
person or entity other than the Company and/or any officers or directors of the
Company as of the date of this Agreement acquires securities of the Company (in
one or more transactions) having 25% or more of the total voting power of all
the Company's securities then outstanding and (ii) the Board of Directors of the
Company does not authorize or otherwise approve such acquisition; or (e) a
liquidation, bankruptcy or receivership of the Company. Notwithstanding the
foregoing, no Good Reason shall be deemed to exist with respect to the Company's
acts described in clauses (a), (b) or (c) above, unless Executive shall have
given written notice to the Company specifying the Good Reason with reasonable
particularity and, within thirty calendar days after such notice, the Company
shall not have cured or eliminated the problem or thing giving rise to such Good
Reason; provided, however, that a repeated breach after notice and cure of any
provision of clauses (a), (b) or (c) above involving the same or substantially
similar actions or conduct, shall be grounds for termination for Good Reason
without any additional notice from Executive.
3.7 In the event that Executive terminates this Agreement for Good
Reason, pursuant to the provisions of paragraph 3.6, or the Company terminates
this Agreement without "Cause," as defined in paragraph 3.4, the Company shall
continue to pay to Executive (or in the case of his death, the legal
representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments,
compensation and benefits required under paragraph 2 hereof through the term of
this Agreement; provided, however, that (i) a minimum bonus of no less than
$240,000 per annum shall be paid through the term of this Agreement; (ii)
Executive's insurance coverage shall terminate upon the Executive
5
<PAGE>
becoming covered under a similar program by reason of employment elsewhere; and
(iii) Executive shall use reasonable efforts to obtain employment elsewhere as
an employee or consultant and all compensation for services paid or earned and
deferred in connection therewith shall be a reduction against the Company's then
future obligations hereunder.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold Executive
harmless against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (other than settlements to which the Company
does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's prior service as a director of the
Company; provided, however, that the Company shall not be required to indemnify
Executive for Losses incurred as a result of Executive's intentional misconduct
or gross negligence (other than matters where Executive acted in good faith and
in a manner he reasonably believed to be in and not opposed to the Company's
best interests). Executive shall promptly notify the Company of any claim,
action, proceeding or investigation under this paragraph and the Company shall
be entitled to participate in the defense of any such claim, action, proceeding
or investigation and, if it so chooses, to assume the defense with counsel
selected by the Company; provided that Executive shall have the right to employ
counsel to represent him (at the Company's expense) if Company counsel would
have a "conflict of interest" in representing both the Company and Executive.
The Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
6
<PAGE>
5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of his current and prior employment with the
Company, Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in this paragraph 5 as the "Company"),
including, without limitation, financial information, proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which will be
difficult to compute if, during the period of his employment with the Company or
thereafter, Executive should enter a business competitive with the Company or
divulge Confidential Information.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either during the
term of this Agreement or for a period of one year thereafter, divulge to any
person or entity any Confidential Information obtained or learned by him as a
result of his employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
5.3 Upon termination of his employment with the Company, Executive
will promptly deliver to the Company all memoranda, notes, records, reports,
manuals, drawings, blue-
7
<PAGE>
prints and other documents (and all copies thereof) relating to the business of
the Company and all property associated therewith, which he may then possess or
have under his control; provided, however, that Executive shall be entitled to
retain copies of such documents reasonably necessary to document his financial
relationship with the Company.
5.4 During the period commencing on the date hereof and ending on
the one-year anniversary of the date Executive's employment hereunder is
terminated (and, if Executive is terminated with "Cause" or Executive terminates
this Agreement without "Good Reason," until April 30, 2000), Executive, without
the prior written permission of the Company, shall not, anywhere in the world,
(i) be employed by, or render any services to, any person, firm or corporation
engaged in any business which is directly in competition with the Company or any
of its subsidiaries ("Competitive Business"); (ii) engage in any Competitive
Business for his or its own account; (iii) be associated with or interested in
any Competitive Business as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity; (iv) employ or retain, or have or cause
any other person or entity to employ or retain, any person who was employed or
retained by the Company while Executive was employed by the Company; or (v)
solicit, interfere with, or endeavor to entice away from the Company, for the
benefit of a Competitive Business, any of its customers or other persons with
whom the Company has a contractual relationship. Notwithstanding the foregoing,
nothing in this Agreement shall preclude Executive from investing his personal
assets in any manner he chooses, provided, however, that Executive may not,
during the period referred to in this Section 5.4, own more than 4.9% of the
equity securities of any Competitive Business.
5.5 If Executive commits a breach, or threatens to commit a breach,
of any of the provisions of Sections 5.2 or 5.4, the Company shall have the
right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a
8
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breach of any of the provisions of Sections 5.2 or 5.4, and Executive hereby
agrees to account for and pay over such damages to the Company.
Each of the rights and remedies enumerated in this Section 5.5 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out of or
relating to this Agreement, the prevailing party in such action or proceeding
shall be entitled to be reimbursed by the other party for the reasonable
attorneys' fees and costs incurred by the prevailing party.
5.6 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.7 The provisions of this paragraph 5 shall survive the termination
of this Agreement for any reason, except in the event Executive is terminated by
the Company without "Cause" in breach of this Agreement, or if Executive
terminates this Agreement with "Good Reason," in either of which events, this
paragraph 5 shall be null and void and of no further force or effect.
6. Miscellaneous Provisions.
6.1 All notices provided for in this Agreement shall be in writing,
and shall be deemed to have been duly given when (i) delivered personally to the
party to receive the same, or (ii) when mailed first class postage prepaid, by
certified mail, return receipt requested, addressed to the party to receive the
same at his or its address set forth below, or such other address as the party
to receive the same shall have specified by written notice given in the manner
provided for in this Section 6.1. All notices shall be deemed to have been given
as of the date of personal delivery or mailing thereof.
9
<PAGE>
If to Executive:
Robert H. Gladstone
64 Shortway Road
Roslyn Heights, New York 11577
If to the Company:
GKN Holding Corp.
61 Broadway
New York, New York 10006
Attn: Chief Operating Officer
With a copy in either case to:
David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
6.2 This Agreement sets forth the entire agreement of the parties
relating to the employment of Executive and is intended to supersede all prior
negotiations, understandings and agreements. No provisions of this Agreement,
may be waived or changed except by a writing by the party against whom such
waiver or change is sought to be enforced. The failure of any party to require
performance of any provision hereof or thereof shall in no manner affect the
right at a later time to enforce such provision.
6.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.
6.4 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Executive, but shall inure to the benefit of and be binding upon
Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
10
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
------------------------------------------
ROBERT H. GLADSTONE
GKN HOLDING CORP.
------------------------------------------
By: Peter R. Kent, Chief Operating Officer
11
Exhibit 10.12
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 1, 1996 between ROGER N. GLADSTONE,
residing at 8563 Horseshoe Lane, Boca Raton, Florida 33496 ("Executive"), and
GKN HOLDING CORP., a Delaware corporation having its principal office at 61
Broadway, New York, New York 10006 ("Company").
WHEREAS, the Company is engaged through its subsidiary corporations
in the business of operating and managing an investment banking and securities
brokerage firm, as well as other enterprises; and
WHEREAS, the Company employs and desires to continue the employment
of Executive for the purpose of securing for the Company and its subsidiary
corporations the experience, ability and services of Executive; and
WHEREAS, Executive desires to continue his present employment with
the Company, pursuant to the terms and conditions herein set forth, superseding
all prior agreements between the Company, its subsidiaries and/or predecessors
and Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as its President. All of
Executive's powers and authority in any capacity shall at all times be subject
to the direction and control of the Company's Board of Directors.
1.2 The Board may assign to Executive such general management and
supervisory responsibilities and executive duties for the Company or any
subsidiary of the Company, including serving as an executive officer and/or
director of any subsidiary, as are consistent with Executive's status as
President. The Company and Executive acknowledge that Executive's primary
functions and duties as President shall be to assist the Chief Executive Officer
of the Company in connection with the establishment of policies and strategies
for the Company's
<PAGE>
overall business and operations, including plans for growth and strategic
partnerships, and to be the principal executive officer of the Company's Florida
operations.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energies and attention to the
performance of his duties hereunder. Nothing herein shall be construed as
preventing Executive from making and supervising personal investments, provided
they will not interfere with the performance of Executive's duties hereunder or
violate the provisions of paragraph 5.4 hereof.
1.4 Executive shall be based in the Boca Raton, Florida area, and
shall undertake such occasional travel, within or without the United States, as
is reasonably necessary in the interests of the Company.
1.5 If, during the term hereof, Executive is nominated to serve as a
director of the Company but fails to be elected, he shall nonetheless be invited
to attend each meeting of the Board of Directors of the Company through the
remainder of the term hereof.
2. Compensation and Benefits.
2.1 The Company shall pay to Executive a salary at the minimum
annual rate of $240,000 for each twelve-month period during the term hereof
(i.e., $20,000 per month). Executive's compensation shall be paid in equal,
periodic installments in accordance with the Company's normal payroll
procedures.
2.2 The Company shall also pay to Executive such bonuses as may be
determined from time to time by the Board of Directors. In connection therewith,
the Executive shall be entitled to participate at the level of President in the
Company's 1996 Incentive Compensation Plan as, when and in such form as may be
adopted by the Board of Directors, and thereafter as in effect from time to time
during the term hereof.
2.3 In addition to the foregoing, Executive shall be entitled to
receive (i) together with the Joint Reps referred to below, an aggregate of 60%
of the gross brokerage commissions on customer's stock brokerage accounts with
the Company or any subsidiary of the Company which are serviced by the Executive
or jointly serviced by Executive and other registered
2
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representatives of the Company ("Joint Reps"); and (ii) 15% of the purchase
warrants, options or other equity-based compensation which may be paid or issued
to the Company or any subsidiary during the term of this Agreement in connection
with any corporate finance or investment banking activities.
2.4 Executive shall be entitled to such medical, life, disability
and other benefits as are generally afforded to other senior executives of the
Company, subject to applicable waiting periods and other conditions.
Additionally, the Company shall pay the premiums on a life insurance policy for
Executive, the death benefit of which shall be no less than $2,250,000 and shall
be payable to Executive's beneficiaries.
2.5 Executive shall be entitled to four weeks of vacation in each
calendar year and to a reasonable number of other days off for religious and
personal reasons.
2.6 Executive shall maintain a suitable automobile for business use.
The Company shall reimburse Executive for the costs of leasing such automobile
and for all other costs associated with the use of the vehicle, including
insurance costs, repairs and maintenance. These reimbursements shall be
considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.7 The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.
3. Term and Termination.
3.1 The term of this Agreement commences as of May 1, 1996 and shall
continue until April 30, 1999, unless sooner terminated as herein provided.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to the
legal representative of Executive's estate (i) the base salary due Executive
pursuant to paragraph 2.1 hereof through the date of
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Executive's death, (ii) a pro rata allocation of bonus payments under paragraph
2.2 during the year of death through the date of Executive's death, (iii) all
earned and previously approved but unpaid bonuses, (iv) all valid expense
reimbursements through the date of the termination of this Agreement, (v) all
accrued but unused vacation pay and (vi) all costs associated with terminating
the lease for Executive's automobile.
3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to render,
for six consecutive months, services of the character contemplated by this
Agreement. Notwithstanding such termination, the Company shall pay to Executive
(i) the base salary due Executive pursuant to paragraph 2.1 hereof through the
date of such notice, less any amount Executive receives for such period from any
Company- sponsored or Company-paid source of insurance, disability compensation
or government program, (ii) a pro rata allocation of bonus payments under
paragraph 2.2 during the year in which the disability commenced through the date
of such notice, (iii) all earned and previously approved but unpaid bonuses,
(iv) all valid expense reimbursements through the date of the termination of
this Agreement, (v) all accrued but unused vacation pay and (vi) all costs
associated with terminating the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate this
Agreement for cause. As used herein, "Cause" shall mean: (a) the refusal or
failure by Executive to carry out specific directions of the Board which are of
a material nature and consistent with his status as President, or the refusal or
failure by Executive to perform a material part of Executive's duties hereunder;
(b) the commission by Executive of a material breach of any of the provisions of
this Agreement; (c) fraud or dishonest action by Executive in his relations with
the Company or any of its subsidiaries or affiliates ("dishonest" for these
purposes shall mean Executive's knowingly or recklessly making of a material
misstatement or omission for his personal benefit); or (d) the conviction of
Executive of any crime involving an act of moral turpitude, or the imposition
against Executive of a permanent bar from association with a securities firm by
any Federal, State or Regulatory Agency or Self-Regulatory Body after the
exhaustion of all judicial and administrative appeals therefrom. Notwithstanding
the foregoing, no "Cause" for termination shall be deemed to exist with respect
to Executive's acts described in clauses (a) or (b) above, unless the Company
shall have given written notice to Executive specifying the "Cause" with
reasonable particularity and, within thirty calendar days after such notice,
Executive shall not have cured or eliminated the problem or thing giving rise to
such "Cause;" provided, however, that a repeated breach after
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notice and cure of any provision of clauses (a) or (b) above involving the same
or substantially similar actions or conduct, shall be grounds for termination
for "Cause" without any additional notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
3.6 The Executive, by notice to the Company, may terminate this
Agreement if a "Good Reason" exists. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following circumstances without
the Executive's prior express written consent: (a) a substantial and material
adverse change in the nature of Executive's title, duties or responsibilities
with the Company that represents a demotion from his title, duties or
responsibilities as in effect immediately prior to such change; (b) Executive is
not nominated to serve as a director by the Company or is removed from service
as a director of the Company; (c) a substantial and material breach of this
Agreement by the Company; (d) a failure by the Company to make any payment to
Executive when due, unless the payment is not material and is being contested by
the Company, in good faith; (e) (i) any person or entity other than the Company
and/or any officers or directors of the Company as of the date of this Agreement
acquires securities of the Company (in one or more transactions) having 25% or
more of the total voting power of all the Company's securities then outstanding
and (ii) the Board of Directors of the Company does not authorize or otherwise
approve such acquisition; or (f) a liquidation, bankruptcy or receivership of
the Company. Notwithstanding the foregoing, no Good Reason shall be deemed to
exist with respect to the Company's acts described in clauses (a), (b), (c) or
(d) above, unless Executive shall have given written notice to the Company
specifying the Good Reason with reasonable particularity and, within thirty
calendar days after such notice, the Company shall not have cured or eliminated
the problem or thing giving rise to such Good Reason; provided, however, that a
repeated breach after notice and cure of any provision of clauses (a), (b), (c)
or (d) above involving the same or substantially similar actions or conduct,
shall be grounds for termination for Good Reason without any additional notice
from Executive.
3.7 In the event that Executive terminates this Agreement for Good
Reason, pursuant to the provisions of paragraph 3.6, or the Company terminates
this Agreement without "Cause," as defined in paragraph 3.4, the Company shall
continue to pay to Executive (or in the
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case of his death, the legal representative of Executive's estate or such other
person or persons as Executive shall have designated by written notice to the
Company), all payments, compensation and benefits required under paragraph 2
hereof through the term of this Agreement; provided, however, that (i) a minimum
bonus of no less than $240,000 per annum shall be paid through the term of this
Agreement; (ii) Executive's insurance coverage shall terminate upon the
Executive becoming covered under a similar program by reason of employment
elsewhere; and (iii) Executive shall use reasonable efforts to obtain employment
elsewhere as an employee or consultant and all compensation for services paid or
earned and deferred in connection therewith shall be a reduction against the
Company's then future obligations hereunder.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold Executive
harmless against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (other than settlements to which the Company
does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
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into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of his current and prior employment with the
Company, Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in this paragraph 5 as the "Company"),
including, without limitation, financial information, proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which will be
difficult to compute if, during the period of his employment with the Company or
thereafter, Executive should enter a business competitive with the Company or
divulge Confidential Information.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either during the
term of this Agreement or for a period of one year thereafter, divulge to any
person or entity any Confidential Information obtained or learned by him as a
result of his employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
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5.3 Upon termination of his employment with the Company, Executive
will promptly deliver to the Company all memoranda, notes, records, reports,
manuals, drawings, blueprints and other documents (and all copies thereof)
relating to the business of the Company and all property associated therewith,
which he may then possess or have under his control; provided, however, that
Executive shall be entitled to retain copies of such documents reasonably
necessary to document his financial relationship with the Company.
5.4 During the period commencing on the date hereof and ending on
the one-year anniversary of the date Executive's employment hereunder is
terminated (and, if Executive is terminated with "Cause" or Executive terminates
this Agreement without "Good Reason," until April 30, 2000), Executive, without
the prior written permission of the Company, shall not, anywhere in the world,
(i) be employed by, or render any services to, any person, firm or corporation
engaged in any business which is directly in competition with the Company or any
of its subsidiaries ("Competitive Business"); (ii) engage in any Competitive
Business for his or its own account; (iii) be associated with or interested in
any Competitive Business as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity; (iv) employ or retain, or have or cause
any other person or entity to employ or retain, any person who was employed or
retained by the Company while Executive was employed by the Company; or (v)
solicit, interfere with, or endeavor to entice away from the Company, for the
benefit of a Competitive Business, any of its customers or other persons with
whom the Company has a contractual relationship. Notwithstanding the foregoing,
nothing in this Agreement shall preclude Executive from investing his personal
assets in any manner he chooses, provided, however, that Executive may not,
during the period referred to in this Section 5.4, own more than 4.9% of the
equity securities of any Competitive Business.
5.5 If Executive commits a breach, or threatens to commit a breach,
of any of the provisions of Sections 5.2 or 5.4, the Company shall have the
right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
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(b) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2 or
5.4, and Executive hereby agrees to account for and pay over such damages to the
Company.
Each of the rights and remedies enumerated in this Section 5.5 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out of or
relating to this Agreement, the prevailing party in such action or proceeding
shall be entitled to be reimbursed by the other party for the reasonable
attorneys' fees and costs incurred by the prevailing party.
5.6 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.7 The provisions of this paragraph 5 shall survive the termination
of this Agreement for any reason, except in the event Executive is terminated by
the Company without "Cause" in breach of this Agreement, or if Executive
terminates this Agreement with "Good Reason," in either of which events, this
paragraph 5 shall be null and void and of no further force or effect.
6. Miscellaneous Provisions.
6.1 All notices provided for in this Agreement shall be in writing,
and shall be deemed to have been duly given when (i) delivered personally to the
party to receive the same, or (ii) when mailed first class postage prepaid, by
certified mail, return receipt requested, addressed to the party to receive the
same at his or its address set forth below, or such other address as the party
to receive the same shall have specified by written notice given in the manner
provided for in this Section 6.1. All notices shall be deemed to have been given
as of the date of personal delivery or mailing thereof.
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If to Executive:
Roger N. Gladstone
8563 Horseshoe Lane
Boca Raton, Florida 33496
If to the Company:
GKN Holding Corp.
61 Broadway
New York, New York 10006
Attn: Chief Operating Officer
With a copy in either case to:
David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
6.2 This Agreement sets forth the entire agreement of the parties
relating to the employment of Executive and is intended to supersede all prior
negotiations, understandings and agreements. No provisions of this Agreement,
may be waived or changed except by a writing by the party against whom such
waiver or change is sought to be enforced. The failure of any party to require
performance of any provision hereof or thereof shall in no manner affect the
right at a later time to enforce such provision.
6.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.
6.4 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Executive, but shall inure to the benefit of and be binding upon
Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
------------------------------------------
ROGER N. GLADSTONE
GKN HOLDING CORP.
------------------------------------------
By: Peter R. Kent, Chief Operating Officer
11
Exhibit 10.13
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 1, 1996 between PETER R. KENT, residing at
50 Corn Lane, Shrewsbury, New Jersey 07702 ("Executive"), and GKN HOLDING CORP.,
a Delaware corporation having its principal office at 61 Broadway, New York, New
York 10006 ("Company").
WHEREAS, the Company is engaged through its subsidiary corporations
in the business of operating and managing an investment banking and securities
brokerage firm, as well as other enterprises; and
WHEREAS, the Company employs and desires to continue the employment
of Executive for the purpose of securing for the Company and its subsidiary
corporations the experience, ability and services of Executive; and
WHEREAS, Executive desires to continue his present employment with
the Company, pursuant to the terms and conditions herein set forth, superseding
all prior agreements between the Company, its subsidiaries and/or predecessors
and Executive;
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as its Chief Operating
Officer ("COO") and Chief Financial Officer ("CFO"). All of Executive's powers
and authority in any capacity shall at all times be subject to the direction and
control of the Company's Board of Directors. Executive shall report directly to
the CEO.
1.2 The Board may assign to Executive such general management and
supervisory responsibilities and executive duties for the Company or any
subsidiary of the Company, including serving as an executive officer and/or
director of any subsidiary, as are consistent with Executive's status as COO and
CFO. The Company and Executive acknowledge that Executive's primary functions
and duties as COO and CFO shall be the (i) management,
<PAGE>
oversight and supervision (subject to the employees of the Company who report to
Executive remaining primarily responsible for supervision of their designated
divisions and functions) of the day-to-day operations of the Company and its
subsidiaries and divisions, and (ii) the overall supervision of, and oversight
over, the consolidated financial operations of the Company.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energies and attention to the
performance of his duties hereunder. Nothing herein shall be construed as
preventing Executive from making and supervising personal investments, provided
they will not interfere with the performance of Executive's duties hereunder or
violate the provisions of paragraph 5.4 hereof.
1.4 Executive shall be based in the New York Metropolitan area, and
shall undertake such occasional travel, within or without the United States, as
is reasonably necessary in the interests of the Company.
2. Compensation and Benefits.
2.1 The Company shall pay to Executive a salary at the minimum
annual rate of $200,000 for each twelve-month period during the term hereof
(i.e., $16,666.67 per month). Executive's compensation shall be paid in equal,
periodic installments in accordance with the Company's normal payroll
procedures.
2.2 The Company shall also pay to Executive such bonuses as may be
determined from time to time by the Board of Directors. In connection therewith,
the Executive shall be entitled to participate at the level of COO and CFO in
the Company's 1996 Incentive Compensation Plan as, when and in such form as may
be adopted by the Board of Directors, and thereafter as in effect from time to
time during the term hereof.
2.3 [Intentionally Omitted]
2.4 Executive shall be entitled to such medical, life, disability
and other benefits as are generally afforded to other senior executives of the
Company, subject to applicable waiting periods and other conditions.
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2.5 Executive shall be entitled to four weeks of vacation in each
calendar year and to a reasonable number of other days off for religious and
personal reasons.
2.6 Executive shall maintain a suitable automobile for business use.
The Company shall reimburse Executive for the costs of leasing such automobile
and for all other costs associated with the use of the vehicle, including
insurance costs, repairs and maintenance. These reimbursements shall be
considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.7 The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.
3. Term and Termination.
3.1 The term of this Agreement commences as of May 1, 1996 and shall
continue until April 30, 1999, unless sooner terminated as herein provided.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to the
legal representative of Executive's estate (i) the base salary due Executive
pursuant to paragraph 2.1 hereof through the date of Executive's death, (ii) a
pro rata allocation of bonus payments under paragraph 2.2 during the year of
death through the date of Executive's death, (iii) all earned and previously
approved but unpaid bonuses, (iv) all valid expense reimbursements through the
date of the termination of this Agreement, (v) all accrued but unused vacation
pay and (vi) all costs associated with terminating the lease for Executive's
automobile.
3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to render,
for six consecutive months, services of the character contemplated by this
Agreement. Notwithstanding such termination, the Company shall pay to Executive
(i) the base salary due Executive pursuant to paragraph 2.1 hereof through
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the date of such notice, less any amount Executive receives for such period from
any Company- sponsored or Company-paid source of insurance, disability
compensation or government program, (ii) a pro rata allocation of bonus payments
under paragraph 2.2 during the year in which the disability commenced through
the date of such notice, (iii) all earned and previously approved but unpaid
bonuses, (iv) all valid expense reimbursements through the date of the
termination of this Agreement, (v) all accrued but unused vacation pay and (vi)
all costs associated with terminating the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate this
Agreement for cause. As used herein, "Cause" shall mean: (a) the refusal or
failure by Executive to carry out specific directions of the Board which are of
a material nature and consistent with his status as COO and CFO, or the refusal
or failure by Executive to perform a material part of Executive's duties
hereunder; (b) the commission by Executive of a material breach of any of the
provisions of this Agreement; (c) fraud or dishonest action by Executive in his
relations with the Company or any of its subsidiaries or affiliates ("dishonest"
for these purposes shall mean Executive's knowingly or recklessly making of a
material misstatement or omission for his personal benefit); or (d) the
conviction of Executive of any crime involving an act of moral turpitude, or the
imposition against Executive of a permanent bar from association with a
securities firm by any Federal, State or Regulatory Agency or Self-Regulatory
Body after the exhaustion of all judicial and administrative appeals therefrom.
Notwithstanding the foregoing, no "Cause" for termination shall be deemed to
exist with respect to Executive's acts described in clauses (a) or (b) above,
unless the Company shall have given written notice to Executive specifying the
"Cause" with reasonable particularity and, within thirty calendar days after
such notice, Executive shall not have cured or eliminated the problem or thing
giving rise to such "Cause;" provided, however, that a repeated breach after
notice and cure of any provision of clauses (a) or (b) above involving the same
or substantially similar actions or conduct, shall be grounds for termination
for "Cause" without any additional notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
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3.6 The Executive, by notice to the Company, may terminate this
Agreement if a "Good Reason" exists. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following circumstances without
the Executive's prior express written consent: (a) a substantial and material
adverse change in the nature of Executive's title, duties or responsibilities
with the Company that represents a demotion from his title, duties or
responsibilities as in effect immediately prior to such change; (b) a
substantial and material breach of this Agreement by the Company; (c) a failure
by the Company to make any payment to Executive when due, unless the payment is
not material and is being contested by the Company, in good faith; (d) (i) any
person or entity other than the Company and/or any officers or directors of the
Company as of the date of this Agreement acquires securities of the Company (in
one or more transactions) having 25% or more of the total voting power of all
the Company's securities then outstanding and (ii) the Board of Directors of the
Company does not authorize or otherwise approve such acquisition; or (e) a
liquidation, bankruptcy or receivership of the Company. Notwithstanding the
foregoing, no Good Reason shall be deemed to exist with respect to the Company's
acts described in clauses (a), (b) or (c) above, unless Executive shall have
given written notice to the Company specifying the Good Reason with reasonable
particularity and, within thirty calendar days after such notice, the Company
shall not have cured or eliminated the problem or thing giving rise to such Good
Reason; provided, however, that a repeated breach after notice and cure of any
provision of clauses (a), (b) or (c) above involving the same or substantially
similar actions or conduct, shall be grounds for termination for Good Reason
without any additional notice from Executive.
3.7 In the event that Executive terminates this Agreement for Good
Reason, pursuant to the provisions of paragraph 3.6, or the Company terminates
this Agreement without "Cause," as defined in paragraph 3.4, the Company shall
continue to pay to Executive (or in the case of his death, the legal
representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments,
compensation and benefits required under paragraph 2 hereof through the term of
this Agreement; provided, however, that (i) a minimum bonus of no less than
$200,000 per annum shall be paid through the term of this Agreement; (ii)
Executive's insurance coverage shall terminate upon the Executive becoming
covered under a similar program by reason of employment elsewhere; and (iii)
Executive shall use reasonable efforts to obtain employment elsewhere as an
employee or consultant and
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all compensation for services paid or earned and deferred in connection
therewith shall be a reduction against the Company's then future obligations
hereunder.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold Executive
harmless against all costs, expenses (including, without limitation, reasonable
attorneys' fees) and liabilities (other than settlements to which the Company
does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
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5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of his current and prior employment with the
Company, Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in this paragraph 5 as the "Company"),
including, without limitation, financial information, proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which will be
difficult to compute if, during the period of his employment with the Company or
thereafter, Executive should enter a business competitive with the Company or
divulge Confidential Information.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either during the
term of this Agreement or for a period of one year thereafter, divulge to any
person or entity any Confidential Information obtained or learned by him as a
result of his employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
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5.3 Upon termination of his employment with the Company, Executive
will promptly deliver to the Company all memoranda, notes, records, reports,
manuals, drawings, blueprints and other documents (and all copies thereof)
relating to the business of the Company and all property associated therewith,
which he may then possess or have under his control; provided, however, that
Executive shall be entitled to retain copies of such documents reasonably
necessary to document his financial relationship with the Company.
5.4 During the period commencing on the date hereof and ending on
the one-year anniversary of the date Executive's employment hereunder is
terminated (and, if Executive is terminated with "Cause" or Executive terminates
this Agreement without "Good Reason," until April 30, 2000), Executive, without
the prior written permission of the Company, shall not, anywhere within 100
miles of any office of the Company or any subsidiary at the time of termination,
(i) be employed by, or render any services to, any person, firm or corporation
engaged in any business which is directly in competition with the Company or any
of its subsidiaries ("Competitive Business"); (ii) engage in any Competitive
Business for his or its own account; (iii) be associated with or interested in
any Competitive Business as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity; (iv) employ or retain, or have or cause
any other person or entity to employ or retain, any person who was employed or
retained by the Company while Executive was employed by the Company; or (v)
solicit, interfere with, or endeavor to entice away from the Company, for the
benefit of a Competitive Business, any of its customers or other persons with
whom the Company has a contractual relationship. Notwithstanding the foregoing,
nothing in this Agreement shall preclude Executive from investing his personal
assets in any manner he chooses, provided, however, that Executive may not,
during the period referred to in this Section 5.4, own more than 4.9% of the
equity securities of any Competitive Business.
5.5 If Executive commits a breach, or threatens to commit a breach,
of any of the provisions of Sections 5.2 or 5.4, the Company shall have the
right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary
8
<PAGE>
character and that any such breach or threatened breach will cause irreparable
injury to the Company and that money damages will not provide an adequate remedy
to the Company; and
(b) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2 or
5.4, and Executive hereby agrees to account for and pay over such damages to the
Company.
Each of the rights and remedies enumerated in this Section 5.5 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out of or
relating to this Agreement, the prevailing party in such action or proceeding
shall be entitled to be reimbursed by the other party for the reasonable
attorneys' fees and costs incurred by the prevailing party.
5.6 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.7 The provisions of this paragraph 5 shall survive the termination
of this Agreement for any reason, except in the event Executive is terminated by
the Company without "Cause" in breach of this Agreement, or if Executive
terminates this Agreement with "Good Reason," in either of which events, this
paragraph 5 shall be null and void and of no further force or effect.
9
<PAGE>
6. Miscellaneous Provisions.
6.1 All notices provided for in this Agreement shall be in writing,
and shall be deemed to have been duly given when (i) delivered personally to the
party to receive the same, or (ii) when mailed first class postage prepaid, by
certified mail, return receipt requested, addressed to the party to receive the
same at his or its address set forth below, or such other address as the party
to receive the same shall have specified by written notice given in the manner
provided for in this Section 6.1. All notices shall be deemed to have been given
as of the date of personal delivery or mailing thereof.
If to Executive:
Peter R. Kent
50 Corn Lane
Shrewsbury, New Jersey 07702
If to the Company:
GKN Holding Corp.
61 Broadway
New York, New York 10006
Attn: Chief Executive Officer
With a copy in either case to:
David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
6.2 This Agreement sets forth the entire agreement of the parties
relating to the employment of Executive and is intended to supersede all prior
negotiations, understandings and agreements. No provisions of this Agreement,
may be waived or changed except by a writing by the party against whom such
waiver or change is sought to be enforced. The failure of any party to require
performance of any provision hereof or thereof shall in no manner affect the
right at a later time to enforce such provision.
10
<PAGE>
6.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.
6.4 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Executive, but shall inure to the benefit of and be binding upon
Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
----------------------------------------------
PETER R. KENT
GKN HOLDING CORP.
----------------------------------------------
By: David M. Nussbaum, Chief Executive Officer
11
Exhibit 10.16
GKN HOLDING CORP.
STOCK OPTION AGREEMENT
AGREEMENT, made as of the ___ day of ________________, 1996, between GKN
HOLDING CORP., a Delaware corporation ("Company"), and John P. Margaritis
("Director" or "Grantee").
WHEREAS, on May 22, 1996, the Board of Directors of the Company or a
committee thereof (in either event, "Company") authorized the grant to the
Director of an option to purchase an aggregate of 10,000 of the authorized but
unissued or treasury shares of the Common Stock of the Company ("Common Stock")
on the terms and conditions set forth in this Agreement.
WHEREAS, the Director desires to acquire said option on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. The Company hereby grants to the Director the right and option to
purchase all or any part of an aggregate of 10,000 shares of the Common Stock on
the terms and conditions set forth herein ("Option"). The Option is designed to
qualify as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended ("Code").
2. The purchase price of each share of Common Stock subject to the Option
("Option Shares") shall be equal to the per share offering price in the
Company's 1996 Initial Public Offering.
3. (a) The Option shall become exercisable on the day the Director becomes
a director of the Company, which shall occur upon the consummation of the
Company's Initial Public Offering. No Option Shares may be purchased hereunder
prior to such date. After the
<PAGE>
Option becomes exercisable, it shall remain exercisable, except as otherwise
provided herein, for a period of ten years ("Exercise Period"). The Option may
be exercised, except as provided in subparagraph (b) below, only if the Director
at the time of exercise is employed by the Company or any Subsidiary (as defined
in Section 424 of the Code) and shall have been so employed continuously since
the date on which the Director becomes a director of the Company.
(b) If the Director's employment with the Company or any Subsidiary
terminates for any reason prior to the time that the Option has been fully
exercised, any portion of the Option which is exercisable on the date of
termination of employment and which has not yet been exercised ("Exercisable
Portion") shall expire unless exercised within three months after such
termination, but in no event after expiration of the Exercise Period; provided,
however, that (i) in the event of the death of the Grantee during this three
month period, the person or persons to whom the Grantee's rights are transferred
by will or the laws of descent and distribution ("Heir") shall have a period of
three months from the date of the Grantee's death to exercise any Exercisable
Portion, but in no event after expiration of the Exercise Period; (ii) if the
Board of Directors determines that the Grantee's employment was terminated for
cause, the Exercisable Portion will immediately expire; (iii) if the Grantee's
employment is terminated by reason of the Grantee's permanent disability (as
determined by the Board of Directors), the Exercisable Portion may be exercised
by the Grantee within twelve months after such termination, but in no event
after expiration of the Exercise Period; and (iv) in the event of the death of
the Grantee while in the employment of the Company or any Subsidiary or during
the twelve (12) month period referred to in (iii) above, the Heir shall have a
period of twelve months from the date of Grantee's death to exercise the
Exercisable Portion, but in no event after expiration of the Exercise Period.
(c) The Option shall not be assignable or transferable except in the event
of the death of the Director, by will or by the laws of descent and
distribution. No transfer of the Option by the Director by will or by the laws
of descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of the
will and such other evidence as the Company may deem
2
<PAGE>
necessary to establish the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions of the Option.
4. The Director shall not have any of the rights of a stockholder with
respect to the Option Shares until such shares have been issued after the due
exercise of the Option.
5. In the event of a reorganization, recapitalization, reclassification,
stock split or exchange, stock dividend, combination of shares, or any other
similar change in the Common Stock of the Company, the Board of Directors of the
Company shall, in its sole discretion, make such equitable, proportionate
adjustments, if any, as it deems appropriate in the number and kind of shares
covered by the Option and in the option price thereunder, in order to preserve
the Director's proportionate interest in the Company and to maintain the
aggregate option price; provided, however, that upon the dissolution or
liquidation of the Company, or upon any merger, consolidation or other form of
reorganization, or upon the sale of all or substantially all of the Company's
assets, the Option may be terminated by the Company or its successor and be of
no further effect.
6. The Company hereby represents and warrants to the Director that the
Option Shares, when issued and delivered by the Company to the Director in
accordance with the terms and conditions hereof will be duly and validly issued,
fully paid and non-assessable.
7. The Director hereby represents and warrants to the Company that s/he is
acquiring the Option and shall acquire the Option Shares for his/her own account
and not with a view to the distribution thereof.
8. Anything in this Agreement to the contrary notwithstanding, the Director
hereby agrees that s/he shall not sell, transfer by any means or otherwise
dispose of the Option Shares acquired by him/her without registration under the
Securities Act of 1933, as amended ("Act"), or in the event that they are not so
registered, unless (a) an exemption from the Act is available thereunder, and
(b) the Director has furnished the Company with notice of such proposed transfer
and the Company's legal counsel, in its reasonable opinion, shall deem such
proposed transfer to be so exempt.
3
<PAGE>
9. The Director hereby acknowledges that:
(a) All reports and documents required to be filed by the Company with the
National Association of Securities Dealers, Inc. and Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934 and other applicable
laws within the last 12 months have been made available to the Director for
his/her inspection.
(b) If s/he exercises the Option, s/he must bear the economic risk of the
investment in the Option Shares for an indefinite period of time because the
Option Shares will not have been registered under the Act and cannot be sold by
him/her unless they are registered under the Act or an exemption therefrom is
available thereunder.
(c) In his/her position with the Company, s/he has had both the opportunity
to ask questions of and receive answers from the officers and directors of the
Company and all persons acting on its behalf concerning the terms and conditions
of the offer made hereunder and to obtain any additional information to the
extent the Company possesses or may possess such information or can acquire it
without unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to subparagraph (a) above.
(d) The Company shall place stop transfer orders with its transfer agent
against the transfer of the Option Shares in the absence of registration under
the Act or an exemption therefrom.
(e) The certificates evidencing the Option Shares shall bear the following
legends:
" The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933. The shares may not be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
4
<PAGE>
"The shares represented by this certificate have been acquired
pursuant to a Stock Option Agreement, dated as of [insert date which
appears at top of document], a copy of which is on file with the
Company, and may not be transferred, pledged or disposed of except in
accordance with the terms and conditions thereof."
10. Subject to the terms and conditions of the Agreement, the Option may be
exercised by written notice to the Company at its principal place of business.
Such notice shall state the election to exercise the Option and the number of
Option Shares in respect to which it is being exercised, shall contain a
representation and agreement by the person or persons so exercising the Option
that the Option Shares are being purchased for investment and not with a view to
the distribution or resale thereof, and shall be signed by the person or persons
so exercising the Option. Such notice shall be accompanied by payment of the
full purchase price of the Option Shares in cash or by bank or certified check,
unless otherwise agreed to by the Company. The Company shall issue a certificate
or certificates evidencing the Option Shares as soon as practicable after the
notice and payment is received. The certificate or certificates evidencing the
Option Shares shall be registered in the name of the person or persons so
exercising the Option.
11. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall either be delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the parties at
their respective addresses set forth below, or to such other address as either
shall have specified by notice in the writing to the other, and shall be deemed
duly given hereunder when so delivered or mailed, as the case may be.
12. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
5
<PAGE>
13. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter thereof.
14. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and to the extent not prohibited herein, their respective heirs,
successors, assigns and representatives. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto and
as provided above, their respective heirs, successors, assigns and
representatives any rights, remedies, obligations or liabilities.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
__ day of _____, 1996.
GKN HOLDING CORP. Address:
61 Broadway, 12th Floor
New York, New York 10006
By:_______________________________
Signature
Print Name:_______________________
Title:____________________________
Director: Address:
_________________________
_________________________
_________________________
__________________________________
7
Exhibit 10.20
GKN HOLDING CORP.
1996 INCENTIVE COMPENSATION PLAN
(Effective August 1, 1996)
Section 1. Purpose
The purpose of the 1996 Incentive Compensation Plan (the "Plan") is to advance
the interest of GKN Holding Corp. (the "Company") by providing officers and
other key executives of the Company and its Subsidiaries, as defined below, with
incentive to assist the Company and its Subsidiaries in meeting and exceeding
its business goals. "Subsidiary" shall mean any corporation or other business
organization in which the Company owns, directly or indirectly, 25% or more of
the voting equity. As used herein, Company shall mean the Company and/or its
Subsidiaries.
Section 2. Administration
The Plan shall be administered by an Employee Incentive Committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board")
from among its members and shall be comprised of not fewer than two members who
shall be "outside directors" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder.
The Committee may, subject to the provisions of the Plan, establish such rules
and regulations or take such action as it deems necessary or advisable for the
proper administration of the Plan. Each interpretation made or action taken
pursuant to the Plan shall be final and conclusive for all purposes and binding
upon all persons including, but not limited to, the Company, Committee, the
Board, the affected Participants (as defined in Section 3), and their respective
successors in interest.
In addition to such other rights of indemnification as they have as directors or
as members of the Committee, the members of the Committee shall be indemnified
by the Company against reasonable expenses (including, but not limited to,
attorneys' fees) incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal, to which they or any of them may
be a party by reason of any action taken or failure to act in connection with
the Plan, and against all amounts paid by them in settlement thereof (provided
such settlement is approved to the extent required by and in the manner provided
by the Certificate of Incorporation or By-laws of the Company relating to
indemnification of directors) or paid by them in satisfaction of a judgment in
any such action, suit, or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such Committee
member or members did not act in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Company.
Section 3. Eligibility
Incentive awards ("Awards") may be made under the Plan to persons who are
executive management and business unit managers of the Company
("Participants"), as designated by the Committee each year.
<PAGE>
Section 4. Bonus Pool
A bonus pool ("Pool") will be created after each fiscal year of the Company in
an amount equal to 25% of the consolidated pre-tax income of the Company and its
Subsidiaries, as determined by the Company's independent auditors, prior to
giving effect to any (i) incentive compensation under, or expense for, the Plan,
(ii) extraordinary items, (iii) cumulative effects of accounting changes, or
(iv) reserves for discontinued operations (such pre-tax income being referred to
herein as the "Plan Income"); provided, however, that no Pool will be created
unless the Plan Income for any fiscal year equals or exceeds 10% of the
Company's consolidated stockholders equity at the end of its prior fiscal year.
The Committee shall present to the Board written certification regarding the
calculation of the Pool prior to the granting of any Award made under the Plan.
Section 5. Determination of Awards
The Committee shall establish Award levels for Participants each year as a
percentage ("Award Percentage") of the Pool for the year, up to a maximum of
20%. The Award for each Participant will be calculated by multiplying the
Participant's Award Percentage by the total amount in the Pool. Amounts in the
Pool not paid as part of Awards for any year may, in the discretion of the
Committee, be carried over and included in the Awards for the following fiscal
year.
Section 6. Payment of Awards
Awards shall be made no later than 60 days following the end of the Company's
fiscal year. Awards shall be made to Participants in cash; provided, however,
that, in the discretion of the Committee, up to 25% of the value of any Award
may be paid by the issuance of restricted shares of Common Stock, valued for
this purpose at the closing sale price of the Common Stock on its principal
trading market on the last trading day prior to the date of issuance (or as
determined by the Committee if there is no public trading market). All shares of
restricted stock granted to Participants under the Plan shall be subject to the
following terms and conditions (and to such other terms and conditions
prescribed by the Committee):
(a) At the time of each Award of restricted shares, there shall be
established for the shares a restricted period, which shall be no less
than three years. Such restricted period may differ among Participants and
may have different expiration dates with respect to portions of shares
covered by the same Award. The restrictions shall automatically terminate
in the event that (i) any person or entity other than the Company and/or
any officers or directors of the Company as of August 1, 1996 acquires
securities of the Company (in one or more transactions) having 25% or more
of the total voting power of all the Company's securities then outstanding
and (ii) the Board of Directors of the Company does not authorize or
otherwise approve such acquisition.
(b) Shares of restricted stock awarded to Participants may not be
sold, assigned, transferred, pledged, hypothecated or otherwise encumbered
during the restricted period applicable to such shares. Except for such
restrictions on transfer, a Participant shall have all of the rights of a
shareholder in respect of restricted shares awarded to him including, but
not limited to, the right to receive (subject to the last paragraph in
this Section 6) any dividends on, and the right to vote, the shares.
2
<PAGE>
(c) If a Participant ceases to be an employee of the Company for any
reason (voluntary or involuntary, and with or without cause) other than
death, permanent disability or retirement at age 65 or more, all shares
theretofore awarded to the Participant which are still subject to
restriction shall, upon such termination of employment, be forfeited and
transferred back to the Company, without payment of any consideration by
the Company. In the event such employment is terminated by action of the
Company without cause or by agreement between the Company and the
Participant, however, the Committee may, in its discretion, release some
or all of the shares from restriction.
(d) If a Participant ceases to be an employee of the Company or a
Subsidiary by reason of death, permanent disability or retirement at age
65 or more, the restrictions shall lapse with respect to shares then
subject to such restrictions, unless otherwise determined by the
Committee.
(e) Stock certificates shall be issued in respect of shares of
restricted stock awarded hereunder and shall be registered in the name of
the Participant. Such certificates shall be deposited with the Company or
its designee, together with a stock power endorsed in blank, and in the
discretion of the Committee, a legend shall be placed upon such
certificates reflecting that the shares represented thereby are subject to
restrictions against transfer.
(f) At the expiration of the restricted period applicable to the
shares, the Company shall deliver to the Participant or the legal
representative of the Participant's estate the stock certificates
deposited with it or its designee and as to which the restricted period
has expired. If a legend with respect to the restrictions has been placed
on such certificates, the Company shall cause such certificates to be
reissued without such legend.
In the event of stock dividends, stock splits, recapitalizations, mergers,
consolidations or reorganizations of or by the Company, any stock, securities or
other property which a Participant receives or is entitled to receive by reason
of his or her ownership of restricted shares shall, unless otherwise determined
by the Committee, be subject to the same restrictions applicable to the
restricted shares and shall be deposited with the Company or its designee.
Section 7. Death, Disability and Retirement
Except as otherwise set forth herein, a Participant must be employed on the date
of payment in order to receive an Award for performance for the previously
completed fiscal year. A Participant whose employment is terminated prior to the
date of any Award shall receive an Award that is prorated for the period of time
the Participant was employed with the Company during the fiscal year for which
the Award is made, only if the reason for such termination was the Participant's
death, disability or retirement at age 65 or more, or if otherwise provided in
the Participant's employment contract.
Section 8. Maximum Number of Shares Subject to Plan
The maximum number of shares which may be awarded as restricted stock under the
Plan shall be 1,000,000 shares of Common Stock of the Company, which may be
issued from the Company's treasury or be previously authorized but unissued
shares. If shares of restricted stock
3
<PAGE>
are forfeited, the number of forfeited shares of restricted stock shall again
become available for the award of restricted stock under the Plan, unless the
Plan shall have been terminated.
The number of shares subject to each restricted stock award, and the aggregate
number of shares remaining available under the Plan shall be subject to such
adjustment as the Committee, in its discretion, deems appropriate to reflect
such events as stock dividends, stock splits, recapitalizations, mergers,
consolidations or reorganizations of or by the Company; provided, however, that
no fractional shares shall be issued pursuant to the Plan, no rights may be
granted under the Plan with respect to fractional shares, and any fractional
shares resulting from such adjustments shall be eliminated from any outstanding
restricted stock award.
Section 9. Written Agreement
Each restricted stock award shall be evidenced by a written agreement (each an
"Award Agreement") containing such provisions as may be approved by the
Committee. Each such Award Agreement shall constitute a binding contract between
the Company and the Participant and every Participant, upon acceptance of such
Award Agreement, shall be bound by the terms and restrictions of the Plan and of
such Award Agreement. The terms of each such Award Agreement shall be in
accordance with the Plan, but each Award Agreement may include additional
provisions and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan.
The Award Agreement shall contain representations and warranties that the
Participant's acquisition of shares of stock shall be for such person's own
account, for investment and not with a view to the resale or distribution
thereof and that any subsequent offer for sale or sale of any such shares shall
be made either pursuant to (a) a registration statement on an appropriate form
under the Securities Act of 1933, as amended (the "Securities Act"), which
registration statement has become effective and is current with respect to the
shares being offered and sold, or (b) a specific exemption from the registration
requirements of the Securities Act. The Company may endorse an appropriate
legend referring to the foregoing restriction upon the certificate or
certificates representing any shares issued to a Participant under the Plan.
Section 10. Amendments, Modification and Termination of the Plan
The Board or the Committee may terminate the Plan in whole or in part, may
suspend the Plan in whole or in part from time to time, and may amend the Plan
from time to time to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in the Awards made thereunder that does not
constitute the modification of a material term of the Plan, without the approval
of the shareholders of the Company. No action shall be taken, however, without
the approval of the shareholders unless the Committee determines that the
approval of shareholders would not be necessary to retain the benefits of
Section 162(m) of the Internal Revenue Code of 1986, as amended. Unless sooner
terminated, the Plan shall terminate on August 1, 2006 and no restricted shares
may be awarded thereafter. The termination of the Plan shall not affect the
validity of any restricted shares outstanding on the date of termination.
4
<PAGE>
Section 11. Tax Withholding
The Company shall have the right to deduct from the cash or stock portion of any
Award a sufficient amount to cover withholding of any federal, state or local
taxes required by law or to take such other action as may be necessary to
satisfy any such withholding obligations.
Section 12. Other Company Benefit and Compensation Programs
Unless otherwise determined by the Committee, payment of Awards under the Plan
shall not be deemed a part of a Participant's regular, recurring compensation
for purposes of calculating payments or benefits from any Company benefit or
severance program (or severance pay law of any country). The above
notwithstanding, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
Section 13. Future Rights
No person shall have any claim or rights to receive an Award under the Plan,
except otherwise provided in a Participant's employment agreement, and no
Participant shall have any rights under the Plan to be retained in the employ of
the Company. Nothing contained in the Plan or in any Award granted pursuant to
the Plan, nor any action taken by the Committee hereunder, shall interfere in
any way with the right of the Company to terminate a Participant's employment at
any time, subject to the provisions of any employment contract between the
Participant and the Company.
Section 14. Successors and Assigns
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
Section 15. Governing Law
The Plan and all determinations made and actions taken pursuant thereto shall be
governed by the laws of the State of New York and construed in accordance
therewith.
5
Exhibit 10.21
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into as of this __th day of ____,
199_ ("Agreement"), by and between GKN Holding Corp., a Delaware
corporation (the "Corporation"), and _________________ (the "Indemnitee"):
WHEREAS, recently highly competent persons have become more
reluctant to serve publicly-held corporations as directors, officers, or in
other capacities, unless they are provided with better protection from the risk
of claims and actions against them arising out of their service to and
activities on behalf of such corporation; and
WHEREAS, the current impracticability of obtaining adequate
insurance and the uncertainties related to indemnification have increased the
difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the inability to attract and retain such persons is detrimental
to the best interests of the Corporation's stockholders and that such persons
should be assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
to obligate itself contractually to indemnify such persons to the fullest extent
permitted by applicable law so that such persons will serve or continue to serve
the Corporation free from undue concern that they will not be adequately
indemnified; and
<PAGE>
WHEREAS, this Agreement is a supplement to and in furtherance of
Article VII of the By-laws of the Corporation, and Article IX of the Amended
and Restated Certificate of Incorporation of the Corporation and any resolutions
adopted pursuant thereto and shall neither be deemed to be a substitute therefor
nor to diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to
take an additional service for or on behalf of the Corporation on the condition
that he be indemnified according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
Section 1. Definitions. For purposes of this Agreement:
(a) "Change in Control" shall be deemed to have occurred if after the
date the Corporation consummates its initial public offering, (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Securities Act 1934,
as amended ("Act")) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the Corporations then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board in office immediately prior to such person attaining such
percentage interest; (ii) the Corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board in office immediately prior to such
transaction or event constitute less than a majority of the Board thereafter,
or (iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board (including for this purpose any
new director whose election or nomination for election by the Corporation's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period) cease
for any reason to constitute at least a majority of the Board; provided,
however, that, without limitation, "Change in Control" shall also mean at such
time as the Corporation is public, a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Act, whether or not the
Corporation is then subject to such reporting requirement.
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(b) "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Corporation.
(c) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
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(d) "Expenses" means all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the
Corporation or Indemnitee in any other matter material to either such party, or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(f) "Proceeding" means any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement.
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Section 2. Services by Indemnitee. Indemnitee agrees to serve as a
director and/or officer of the Corporation, and, at its request, as a director,
officer, employee, agent or fiduciary of certain other corporations and
entities. Indemnitee may at any time and for any reason resign from any such
position (subject to any other contractual obligation or any obligation imposed
by operation of law).
Section 3. Indemnification - General. The Corporation shall
indemnify, and advance Expenses to, Indemnitee as provided in this Agreement to
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may thereafter from time to time
permit. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other Sections
of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the Right of
the Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending or completed
Proceeding, other than a Proceeding by or in the right of the Corporation.
Pursuant to this Section, Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
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of the Corporation, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification will be
provided on account of knowingly fraudulent, deliberately dishonest or willful
misconduct.
Section 5. Proceedings by or in the Right of the Corporation.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to any threatened, pending or completed Proceeding brought by or
in the right of the Corporation to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with any such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation. No
indemnification will be provided on account of knowingly fraudulent,
deliberately dishonest or willful misconduct. Furthermore, no indemnification
against such Expenses shall be made in respect of any claim, issue or matter in
any such proceeding as to which Indemnitee shall have been adjudged to be liable
to the Corporation if applicable law prohibits such indemnification unless the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that
indemnification against Expenses may nevertheless be made by the Corporation.
Section 6. Indemnification for Expenses of Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred
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by him or on his behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as
to one or more but less than all claims, issues or matters in such Proceeding,
the Corporation shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf in connection with each successfully
resolved claim, issue or matter. For the purposes of this Section and without
limiting the foregoing, the termination of any claim, issue or matter in any
such Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
Section 7. Indemnification or Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
Section 8. Advancement of Expenses. The Corporation shall advance
all Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined
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that Indemnitee is not entitled to be indemnified against such Expenses.
Section 9. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement in connection
with any Proceeding, and for the duration thereof, Indemnitee shall submit to
the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of any such request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 9(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in such case: (i) if a
Change in Control shall have occurred, by Independent Counsel (unless Indemnitee
shall request that such determination be made by the Board or the stockholders,
in which case in the manner provided for in clauses (ii) or (iii) of this
Section 9(b) in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee); (ii) if a Change of Control shall not have occurred,
(A) by the Board by a majority vote of a quorum consisting of Disinterested
Directors, or (B) if a quorum of the Board consisting of Disinterested Directors
is not obtainable, or even
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if such quorum is obtainable, if such quorum of Disinterested Directors so
directs, either (x) by Independent Counsel in a written opinion to the Board, a
copy of which shall be delivered to Indemnitee, or (y) by the stockholders of
the Corporation, as determined by such quorum of Disinterested Directors, or a
quorum of the Board, as the case may be; or (iii) as provided in Section 10(b)
of this Agreement. If it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Corporation (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected as follows:
(i) if a Change of Control shall not have occurred, Independent Counsel shall be
selected by the Board, and the Corporation shall give written notice to
Indemnitee advising him of the identity of Independent Counsel so selected or
(ii) if a
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Change of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event (i) shall apply), and Indemnitee shall give written notice
to the Corporation advising it of the identity of Independent Counsel so
selected. In either event, Indemnitee or the Corporation, as the case may be,
may, within seven days after such written notice of selection shall have been
given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 9(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Corporation or Indemnitee may petition the Court of Chancery of the
State of Delaware, or other court of competent jurisdiction, for resolution of
any objection which shall have been made by the Corporation or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by such court or by such other person
as such court shall designate, and the person with respect to whom an
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objection is so resolved or the person so appointed shall act as Independent
Counsel under Section 9(b) hereof. The Corporation shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with its actions pursuant to this Agreement, and the
Corporation shall pay all reasonable fees and expenses incident to the
procedures of this Section 9(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement date of
any judicial proceeding or arbitration pursuant to Section 11(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
Section 10. Presumptions and Effects of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 9(a) of this
Agreement, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 9 of this Agreement to determine whether
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Indemnitee is entitled to indemnification shall not have made a determination
within 60 days after receipt by the Corporation of the request therefor, the
requisite determination of entitlement to indemnification shall be deemed to
have been made and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law provided, however, that
such 60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the person, persons or entity making the determination
with respect to entitlement to indemnification in good faith require(s) such
additional time for the obtaining or evaluating of documentation and/or
information relating thereto and provided, further, that the foregoing
provisions of this Section 10(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 9(b) of this Agreement and if (A) within 15 days after receipt by the
Corporation of the request for such determination the Board has resolved to
submit such determination to the stockholders for their consideration at an
annual meeting thereof to be held within 75 days after such receipt and such
determination is made thereat, or (B) a special meeting of stockholders is
called within 15 days after such receipt for the purpose of making such
determination, such meeting is held for such purpose within 60 days after having
been so called and such
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determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 9(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 9 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 8 of this Agreement, (iii) the determination of indemnification is to
be made by Independent Counsel pursuant to Section 9(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Corporation of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
7 of this Agreement within ten days after receipt by the Corporation of a
written request therefor, or (v) payment of indemnification is not made within
ten days after a determination has been made
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that Indemnitee is entitled to indemnification or such determination is deemed
to have been made pursuant to Section 9 or 10 of this Agreement, Indemnitee
shall be entitled to an adjudication in an appropriate court of the State of
Delaware, or in any other court of competent jurisdiction, of his entitlement to
such indemnification or advancement of Expenses. Alternatively, the Indemnitee,
at his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 11(a). The
Corporation shall not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
(b) In the event that a determination shall have been made pursuant
to Section 9 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section shall be conducted in all respects as a de novo trial or
arbitration on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred in any
judicial proceeding or arbitration commenced pursuant to this Section, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
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(c) If a determination shall have been made or deemed to have been
made pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled
to indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section, seeks a
judicial adjudication of, or an award in arbitration to enforce, his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the kinds described in the
definition of Expenses) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in such judicial adjudication or arbitration that Indemnitee is
entitled to receive less than all of the indemnification or advancement of
expenses
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sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated.
Section 12. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the certificate of incorporation or by-laws of the Corporation, any
agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
be effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
(b) To the extent that the Corporation maintains an insurance policy
or policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee, agent or fiduciary under such policy or policies.
(c) In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment
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to all of the rights of recovery of Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation to bring
suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 13. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) ten years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee, agent or
fiduciary of the Corporation or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which Indemnitee
served at the request of the Corporation; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and or any proceeding
commenced by Indemnitee pursuant to Section 11 of this Agreement. This Agreement
shall be binding upon the Corporation and its successors and assigns and shall
inure to the benefit of Indemnitee and his heirs, executors and administrators.
Section 14. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this
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Agreement (including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 15. Exception to Right of Indemnification or Advancement of
Expenses. Except as provided in Section 11(e), Indemnitee shall not be entitled
to indemnification or advancement of Expenses under this Agreement with respect
to any Proceeding, or any claim therein, brought or made by him against the
Corporation.
Section 16. Identical Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not
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be deemed to constitute part of this Agreement or to affect the construction
thereof.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to
notify the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom such
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to the address set forth below his or her
name on the signature page.
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(b) If to the Corporation, to:
GKN Holding Corp.
61 Broadway
New York, New York 10006
or to such other address or such other person as Indemnitee or the Corporation
shall designate in writing in accordance with this Section, except that notices
regarding changes in notices shall be effective only upon receipt.
Section 21. Governing Law. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of New York.
Section 22. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
GKN Holding Corp.
By:____________________________
Signature
Print Name:____________________
Title:_________________________
INDEMNITEE
_______________________________
Signature
Address:
_______________________________
_______________________________
_______________________________
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