UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 30, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission file number 0-21105
GKN HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3414302
- --------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
61 Broadway, New York, New York 10006
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(212)509-3800
- ----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 30, 1997
- -------------------------------- -----------------------------
Common Stock, $.0001 par value 8,093,899 shares
Exhibit index on page 15
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Index
Part I - Financial Information Page
----
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
April 30, 1997 (Unaudited) and January 31, 1997 3
Consolidated Statements of Income for the three
months ended April 30, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Changes in Stockholders'
Equity for the year ended January 31, 1997 and the
three months ended April 30, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the three
months ended April 30, 1997 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
April 30, January 31,
1997 1997
------------- -----------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents ...................................................... $ 8,936,000 $ 17,856,000
Receivable from brokers and dealers ............................................ 2,436,000 9,357,000
Securities owned, at market value .............................................. 12,558,000 14,610,000
Securities owned, not readily marketable, at fair value ........................ 639,000 1,365,000
Investments .................................................................... 2,689,000 2,692,000
Office furniture, equipment and leasehold improvements, net .................... 1,241,000 1,251,000
Goodwill, net .................................................................. 3,928,000 1,619,000
Loans receivable ............................................................... 2,819,000 1,451,000
Income taxes receivable ........................................................ 1,457,000 --
Other assets ................................................................... 1,885,000 1,432,000
------------ ------------
Total assets ................................................................... $ 38,588,000 $ 51,633,000
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased, at market value ........................... $ 2,551,000 $ 6,997,000
Commissions payable ........................................................... 1,035,000 2,186,000
Deferred compensation ......................................................... 262,000 1,409,000
Income taxes payable .......................................................... -- 238,000
Deferred tax liability ........................................................ -- 636,000
Accrued expenses and other liabilities ........................................ 2,869,000 4,403,000
------------ ------------
6,717,000 15,869,000
Liability subordinated to the claims of general creditors ..................... 632,000 738,000
------------ ------------
Total liabilities ............................................................. 7,349,000 16,607,000
------------ ------------
Stockholders' equity:
Preferred stock, $.10 par value; 1,200,000 and no shares
authorized, issued, and outstanding ....................................... 1,152,000 --
Common stock, $.0001 par value; 35,000,000 shares
authorized; 9,217,875 shares issued; 8,093,899 and
8,225,512 shares outstanding .............................................. 1,000 1,000
Additional paid-in capital .................................................... 19,249,000 19,931,000
Retained earnings ............................................................. 15,794,000 18,247,000
Cumulative translation adjustment ............................................. (11,000) (3,000)
------------ ------------
36,185,000 38,176,000
Less treasury stock, at cost; 1,123,976 and 992,363 shares .................... (4,946,000) (3,150,000)
------------ ------------
Total stockholders' equity .................................................... 31,239,000 35,026,000
------------ ------------
Total liabilities and stockholders' equity ..................................... $ 38,588,000 $ 51,633,000
============ ============
</TABLE>
See accompanying notes to consolidated financial
statements.
3
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30,
-----------------------------
1997 1996
------------- ----------
<S> <C> <C>
Revenues:
Commissions ................................... $ 8,104,000 $12,216,000
Investment banking ............................ 676,000 3,413,000
Principal transactions ........................ (754,000) 2,477,000
Interest ...................................... 425,000 285,000
Other ......................................... 98,000 9,000
------------ -----------
Total revenues ................................... 8,549,000 18,400,000
------------ -----------
Expenses:
Compensation and benefits ..................... 7,754,000 10,691,000
Communications ................................ 1,225,000 840,000
Brokerage, clearing and
exchange fees .............................. 673,000 631,000
Occupancy and equipment ....................... 700,000 605,000
Business development .......................... 654,000 273,000
Professional fees ............................. 1,028,000 812,000
Other ......................................... 656,000 553,000
------------ -----------
Total expenses ................................... 12,690,000 14,405,000
------------ -----------
Income before income taxes ....................... (4,141,000) 3,995,000
Income taxes ..................................... (1,688,000) 1,749,000
------------ -----------
Net income ....................................... $ (2,453,000) $ 2,246,000
============ ===========
Earnings per common share ........................ $ (0.30) $ 0.40
============ ===========
Weighted average common
shares outstanding ............................ 8,171,856 5,638,260
============ ===========
</TABLE>
See accompanying notes to consolidated financial
statements.
4
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended January 31, 1997 and the Three Months Ended April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Cumulative
Preferred Common Paid-in Retained Translation Treasury Unearned
Stock Stock Capital Earnings Adjustment Stock Compensation Total
---------- -------- ---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 31, 1996 ...... $ -- $1,000 $ 3,487,000 $ 11,918,000 $ -- $ (630,000) $ -- $ 14,776,000
Net income ............... -- -- -- 6,329,000 -- -- -- 6,329,000
Stock issued ............. -- -- 16,011,000 -- -- -- -- 16,011,000
Warrants issued .......... -- -- 1,000 -- -- -- -- 1,000
Stock options
granted ............... -- -- 36,000 -- -- -- -- 36,000
Notes receivable ......... -- -- (221,000) -- -- -- -- (221,000)
Stock options exercised .. -- -- 617,000 -- -- 95,000 -- 712,000
Purchase of
treasury stock ........ -- -- -- -- -- (2,615,000) -- (2,615,000)
Translation adjustment ... -- -- -- -- (3,000) -- -- (3,000)
------------ ---------- ------------ ------------ ----------- ------------ ------------ ------------
Balance at
January 31, 1997 ...... -- 1,000 19,931,000 18,247,000 (3,000) (3,150,000) -- 35,026,000
Net income ............... -- -- -- (2,453,000) -- -- -- (2,453,000)
Stock issued for
acquisition ........... 1,152,000 -- 443,000 -- -- 517,000 -- 2,112,000
Stock options exercised .. -- -- (23,000) -- -- 80,000 -- 57,000
Stock issued
under incentive
compensation plans .... -- -- 541,000 -- -- 1,193,000 (1,734,000) --
Amortization of
unearned
compensation .......... -- -- -- -- -- -- 96,000 96,000
Purchase of
treasury stock ........ -- -- -- -- -- (3,586,000) -- (3,586,000)
Change in trans-
lation adjustment ..... -- -- -- -- (8,000) -- -- (8,000)
Other .................... -- -- (5,000) -- -- -- -- (5,000)
------------ ---------- ----------- ------------ ----------- ------------ ------------ ------------
Balance at
April 30, 1997 ........$1,152,000 $1,000 $ 20,887,000 $ 15,794,000 $(11,000) $(4,946,000) $(1,638,000) $ 31,239,000
============ ========= ============ ============ =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated
financial statements.
5
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30,
1997 1996
--------------- ----------
<S> <C> <C>
Operating activities:
Net income/(loss) $ (2,453,000) $ 2,246,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 163,000 131,000
Deferred taxes and other (537,000) (342,000)
-------------- --------------
(2,827,000) 2,035,000
(Increase) decrease in operating assets:
Receivable from brokers and dealers 7,575,000 (5,108,000)
Securities owned, at market value 2,219,000 2,460,000
Securities owned, not readily marketable 725,000 (37,000)
Loans receivable (1,368,000) 674,000
Income taxes receivable (1,457,000) -
Other assets 127,000 (314,000)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased (4,456,000) 2,152,000
Commissions payable (1,788,000) 657,000
Deferred compensation (1,148,000) 458,000
Income taxes payable (229,000) 1,790,000
Accrued expenses and other liabilities (2,359,000) (1,500,000)
Translation adjustment (9,000) (18,000)
--------------- -------------
Net cash provided by (used in) operating activities (4,995,000) 3,249,000
------------- -------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (51,000) (162,000)
Limited partnerships 3,000 132,000
Acquisition, net of cash acquired (197,000) -
Goodwill resulting from acquisition (33,000) -
-------------- --------------
Net cash used in investing activities (278,000) (30,000)
------------- --------------
Financing activities:
Issuance of common shares 53,000 -
Purchase of treasury stock (3,586,000) (103,000)
Repayment of subordinated debt (114,000) (66,000)
-------------- --------------
Net cash provided by (used in) financing activities (3,647,000) (169,000)
-------------- -------------
Net change in cash and cash equivalents (8,920,000) 3,050,000
Cash and cash equivalents at beginning of year 17,856,000 7,873,000
------------- -------------
Cash and cash equivalents at end of period $ 8,936,000 $10,923,000
============= ===========
</TABLE>
See accompanying notes to consolidated financial
statements.
6
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include the accounts of GKN Holding
Corp. and its subsidiaries (the Company). All significant intercompany accounts
and transactions are eliminated in consolidation. In the opinion of management,
the consolidated financial statements reflect all adjustments, which are all of
a normal recurring nature, necessary for a fair statement of the Company's
financial position and results of operations for the interim periods presented.
These consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto for the year ended
January 31, 1997, in its annual report on Form 10-K. Certain reclassifications
have been made to the prior year amounts to conform to the current presentation.
The financial statements conform with generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity with
GAAP requires the Company to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could vary from these estimates.
The Company's principal business activities are affected by many factors,
including general economic and market conditions, which can result in
substantial fluctuations in the Company's revenues and net income. Therefore,
the results of operations for the three months ended April 30, 1997, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Acquisition
On March 13, 1997, the Company acquired all of the outstanding stock of
Southeast Research Partners, Inc. ("Southeast") for $520,000 cash, 160,000
shares of common stock, and 1,200,000 shares of Series A Preferred Stock. This
preferred stock was authorized by the Company's Board of Directors on March 3,
1997. Southeast is a research and institutional brokerage boutique, located in
Boca Raton, Florida, which maintains research coverage primarily focused on
small and mid capitalization companies located in the Southeastern United
States.
3. Net Capital Requirements
GKN Securities Corp. ("GKN"), Southeast, and another wholly-owned
subsidiary, Shochet Securities, Inc. (Shochet), are registered broker-dealers
with the Securities and Exchange Commission (the SEC) and member firms of the
National Association of Securities Dealers, Inc. (NASD). As such, GKN,
Southeast, and Shochet are subject to the SEC's net capital rule, which requires
the maintenance of minimum net capital.
GKN has elected to compute net capital using the alternative method
permitted by the net capital rule, which requires that it maintain minimum net
capital, as defined, to be greater than or equal to $250,000. At April 30,1997,
GKN had net capital of $ 7,083,000.
Southeast has elected to compute net capital under the standard aggregate
indebtedness method permitted by the net capital rule, which requires that the
ratio of aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to 1. At April 30, 1997, Southeast had net capital of $ 2,202,000 and
a net capital requirement of $100,000. Southeast's net capital ratio at April
30, 1997, was 0.45 to 1.
7
<PAGE>
Shochet has also elected to compute net capital under the standard
aggregate indebtedness method permitted by the net capital rule. At April 30,
1997, Shochet had net capital of $ 530,000 and a net capital requirement of
$100,000. Shochet's net capital ratio at April 30, 1997, was 0.98 to 1.
4. Earnings Per Share
Weighted average common shares outstanding used in the calculation of
earnings per common share reflects common stock equivalents, consisting of stock
options and warrants, when their effect is dilutive. The difference between
primary and fully diluted earnings per share is not material. In March 1997 the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128), effective beginning in the
fiscal year ending January 31, 1998. This statement changes the calculation and
presentation of earnings per common share (EPS). The new presentation will
consist of basic EPS, which includes no dilution and is computed by dividing net
income by the weighted-average number of common shares outstanding for the
period, and diluted EPS, which is similar to the current fully diluted EPS. The
disclosed EPS for the current quarter would be the same under the new
pronouncement; the common stock equivalents are anti-dilutive given the net loss
for the period.
5. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Three Months Ended April 30,
1997 1996
------------ ---------
<S> <C> <C>
Cash paid for:
Income taxes ................................ $ 731,000 $1,551,000
Interest .................................... 17,000 17,000
Non-cash financing activities:
Treasury stock issued for Incentive
Compensation Plan ........................ $ 3,586,000 $ --
Details of acquisition:
Fair value of assets acquired ............... $ 1,479,000 $ --
Liabilities assumed ......................... (1,474,000) --
Common stock issued in acquisition .......... ( 960,000) --
Preferred stock issued in acquisition ....... (1,152,000) --
Goodwill .................................... 2,304,000 --
------------- --
Net cash used for acquisition ............... 197,000 --
</TABLE>
6. Commitments and Contingencies
The National Association of Securities Dealers Regulation, Inc. (NASDR)
recently conducted an investigation of GKN Securities. The NASDR staff informed
the Company a District Business Conduct Committee has authorized the filing of a
complaint against GKN Securities, members of GKN Securities' senior management,
supervisory personnel, and current and former brokers. The Company expects that
the complaint will allege that GKN Securities violated the anti-fraud provisions
of the Securities Exchange Act and the fair pricing provisions of the NASDR
Conduct Rules by charging excessive markups in the sale of certain warrants it
underwrote and for which it acted as a market maker. The Company understands
that the NASDR staff will allege that the aggregate amount of such excessive
markups was approximately $1.1 million. The Company anticipates that the
complaint will seek monetary restitution from GKN Securities to its customers
and monetary and non-monetary sanctions and other relief against GKN Securities
and individuals. The NASDR staff has not suggested to the Company that it will
seek any sanctions that would restrict the business activities of GKN
Securities. Based upon the amounts provided for in the consolidated financial
statements, the Company believes that the resolution of the NASDR investigation
will not have a material adverse effect on the Company's financial condition.
8
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Three Months Ended April 30, 1997 vs. Three Months Ended April 30, 1996
- ------------------------------------------------------------------------
Earnings per share of common stock for the three months ended April 30, 1997,
were $(0.30) as compared to $0.40 for the three months ended April 30, 1996. The
decrease in earnings was directly attributable to the continued weakness in the
small cap market: the Company experienced lower trade volumes, executed fewer
investment banking deals, and suffered losses in the investment account.
The Company's principal business activities are affected by many factors,
including general economic and market conditions, which can result in
substantial fluctuations in the Company's revenues and net income. Therefore,
the results of operations for the quarter are not necessarily indicative of the
results which may be expected for the entire fiscal year.
Revenues
Total revenues decreased by 54% to $8,549,000 for the first quarter of fiscal
1998, mainly as a result of lower commission revenues and investment banking
fees, and investment account losses.
Commission revenues decreased by $4,112,000, or 34%, for the first quarter,
reflecting the weak market conditions in the small capitalization stock sector
during the period. The Company executed 18% fewer trades during the period as
opposed to the same period in the prior year.
Investment banking revenues decreased by $2,737,000, or 80%. During the first
quarter of fiscal 1998 the Company raised $5.8 million for corporate clients
through two private placements. In the same period in fiscal 1997 the Company
raised $32 million for its clients through two public offerings and three
private placements.
Principal transactions generated losses of $754,000 in the first quarter of
fiscal 1998, a 130% decrease from the fiscal 1997 quarter. The lower revenues
resulted from weakened market conditions for small capitalization stocks during
the fiscal 1998 period. Revenues generated through market making activities for
over-the-counter equity securities decreased $1,994,000 to $(441,000) for the
quarter while revenues from the Company's investment account decreased
$1,237,000 to $(313,000). The investment account revenue decrease was directly
related to decreases in the prices of the shares underlying underwriter warrants
held by the Company, all of which were issued by investment banking clients.
Interest income increased $140,000 due to higher cash balances, a greater use of
margin loans by the Company's customers, and a renegotiated interest sharing
arrangement with the Company's clearing firm.
Expenses
Total expenses for the quarter in fiscal 1998 were $12,690,000, a 12% decrease
over the first quarter in fiscal 1997. This decrease is tied to the decrease in
revenues; compensation expenses are directly correlated with actual results.
Compensation and benefits expense decreased 27% to $7,754,000. These expenses
are primarily variable as commissions to brokers are paid as a percentage of
commission revenues generated and incentive compensation is directly related to
net income. The expense decrease in fiscal 1998 is consistent with the decreases
9
<PAGE>
in commission and investment banking revenues and the net loss for the period.
Communications expense increased by $385,000, or 46%, as a result of the
Company's expansion. The 328 registered representatives employed by the Company
at April 30, 1997, represent a 26% increase from April 30, 1996. During the same
period total employees increased by 16% to 543.
Brokerage, clearing and exchange fees and occupancy and equipment expenses
increased by 7% and 16%, respectively. These increases were primarily due to the
March 1997 acquisition of Southeast Research Partners and the growth of existing
offices.
Business development expenses increased by 140% to $654,000 due to increased
promotional activities and expenses incurred directly related to the growth of
the Company.
Professional fees increased by $216,000, or 27%, mainly as a result of
additional reserves taken relating to the potential settlement of the NASD
investigation.
Other expenses increased $103,000 primarily due to increased expenses associated
with the Company's growth.
Weighted average common shares outstanding
The average number of common shares and common stock equivalents outstanding
used in the computation of earnings per common share was 8,171,856 in the first
quarter of fiscal 1998, compared with 5,638,260 in fiscal 1997. The 45% increase
in the weighted average in fiscal 1998 resulted mainly from the 2,875,000 shares
of common stock issued in the Company's initial public offering on July 30,
1996.
Liquidity and Capital Resources
The Company's assets are highly liquid with the majority consisting of cash and
cash equivalents, securities inventories, and receivables from other
broker-dealers and the Company's clearing firm, all of which fluctuate depending
upon the levels of customer business and trading activity. Approximately 62% of
the Company's assets at April 30, 1997, were highly liquid. 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.
GKN, Southeast, and Shochet, the Company's operating broker-dealer subsidiaries,
are subject to the net capital rules of the NASD and the SEC. As such, they and
the Company are subject to certain restrictions on the use of capital and its
related liquidity. GKN's, Southeast's, and Shochet's respective net capital
positions as of April 30, 1997, were $7,083,000, $2,202,000 and $530,000, which
were $6,833,000, $2,102,000, and $430,000 in excess of their respective net
capital requirements.
Prior to its initial public offering, the Company 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 November 1995 acquisition of Shochet, the Company
10
<PAGE>
issued the seller a subordinated note as part of the purchase price, of
which $632,000 was outstanding at April 30, 1997. The Company intends to use
debt prudently in the future and to arrange for lines of credit in the near
future. On March 12,1997, the Company authorized the repurchase of up to 10% of
the current outstanding shares, or approximately 825,000 shares. As of April 30,
1997, 385,000 shares had been repurchased. All 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
and reasonably foreseeable future needs.
Safe Harbor Cautionary Statement
The Company occasionally makes forward-looking statements such as forecasts and
projections of expected future performance or statements of its plans and
objectives. When used in this quarterly report and in future filings by the
Company with the SEC, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "the Company expects," "will continue,"
"is anticipated," "estimated," "project," or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Factors
which could affect the Company's results of operations and cause its results to
differ from these statements include 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. For a more complete
discussion of these and other factors, see the Company's registration statement
filed on Form S-1, as amended (No. 333-05273). The Company has no obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
11
<PAGE>
Part II - OTHER INFORMATION
Item 2. Changes in Securities
(c) During the period from February 1, 1997 through April 30, 1997, the
Company issued the following securities without registration under the
Securities Act of 1933, as amended ("Act"):
(1) On March 12, 1997, the Company granted options to purchase
an aggregate of 279,250 shares of Common Stock to employees under its 1991
Employee Incentive Plan at exercise prices of $6.00 per share. No consideration
will be received by the Company until the options are exercised. The options
vest March 12, 2000 (except for options to purchase 24,000 shares which vest in
three annual installments commencing on the first anniversary of the date of
grant) and have maximum terms of ten years.
(2) On March 12, 1997, the Company granted an aggregate of
288,944 restricted shares of Common Stock to employees pursuant to its 1996
Incentive Compensation Plan at a value of $6.00 per restricted share. No
consideration was received by the Company. The restricted shares do not vest,
except in limited circumstances, until March 12, 2000.
(3) Effective March 13, 1997, the Company issued an aggregate
of 160,000 shares Common Stock and 1,200,000 shares of the Company's Series A
Preferred Stock to 15 persons in consideration of the acquisition of 100% of the
stock of Southeast Research Partners, Inc., a research and institutional
brokerage boutique. Each share of Series A Preferred Stock is convertible into
shares of Common Stock at the rate of 0.16 shares of Common Stock for each share
of Series A Preferred stock subject to adjustment as provided in the Company's
Certificate of Designation of Series A Preferred Stock, dated March 4, 1997.
The exemption claimed for the issuances described in
paragraphs (1) through (3) above is Section 4(2) of the Act. Section 4(2)
exempts from registration a security sold in accordance with its criteria for
private offerings.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1(b) - Certificate of Elimination of Series A Preferred Stock dated
January 14, 1997 (old)
3.1(c) - Certificate of Designation of Series A Preferred Stock dated
March 4, 1997 (new)
27 - Financial Data Schedule BD
(b) Reports on Form 8-K:
None
13
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GKN HOLDING CORP.
Date: June 13, 1997 /s/ David M. Nussbaum
---------------------
David M. Nussbaum
Chairman of the Board and
Chief Executive Officer
/s/ Peter R. Kent
-------------------------
Peter R. Kent
Chief Operating Officer and
Chief Financial Officer
14
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Exhibit Index
Number Description
3.1(b) Certificate of Elimination of Series A Preferred Stock dated
January 14, 1997 (old)
3.1(c) Certificate of Designation of Series A Preferred Stock dated
March 4, 1997 (new)
27 Financial Data Schedule BD (4/30/97)
15
<PAGE>
EXHIBIT 3.1(b)
GKN HOLDING CORP.
CERTIFICATE OF ELIMINATION OF
SERIES A PREFERRED STOCK
-----------------------------------------------------
Pursuant to Section 151 of the
Delaware General Corporation Law
-----------------------------------------------------
GKN Holding Corp., a corporation organized and existing under
the Delaware General Corporation Law of the State of Delaware ("Corporation"),
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is:
GKN Holding Corp.
SECOND: That the Corporation was originally incorporated in
Delaware on January 30, 1987 under its present name.
THIRD: That a class of Series A Preferred Stock, par value
$.10 per share ("Series A Preferred Stock") was established by the Corporation's
Restated Certificate of Incorporation as filed with the Delaware Secretary of
State on June 6, 1991, as amended by Certificate of Amendment as filed with the
Delaware Secretary of State on September 15, 1992, with such terms and
conditions as set forth in such Restated Certificate of Incorporation, as
amended.
FOURTH: That no issued shares of the Series A Preferred Stock
remain outstanding and the Corporation no longer desires to issue any shares of
Series A Preferred Stock.
FIFTH: That pursuant to the authority so vested in the board
of directors pursuant to Section 151(g) of the Delaware General Corporation Law,
the board of directors by unanimous written consent dated January 13, 1997, duly
adopted the following resolution:
RESOLVED, that, since no Series A Preferred Stock are
outstanding and none will be issued in accordance with the
Corporation's Restated Certificate of Incorporation previously filed
which established the Series A Preferred Stock, the Corporation's Board
of Directors, pursuant to the authority vested in it by the provisions
of Section 151(g) of the Delaware General Corporation Law, hereby
eliminates from the Corporation's Restated Certificate of
Incorporation, as amended, all matters set forth therein with respect
to the Series A Preferred Stock and the Corporation, by its Board of
Directors, deems such Series A Preferred Stock to be cancelled.
Such resolution was signed by the Chairman and Chief Executive
Officer and Secretary of the Corporation.
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IN WITNESS WHEREOF, we have executed this Certificate on
behalf of the Corporation, under penalties of perjury, and believe the facts
stated herein to be true, this 14th day of January 1997.
GKN Holding Corp.
By: /s/ David Nussbaum
--------------------------
Name: David M. Nussbaum
Title: Chairman and Chief
Executive Officer
By: /s/ Katherine Nathan
---------------------------
Name: Katherine Nathan
Title: Secretary
CORPORATE ACKNOWLEDGEMENTS
STATE OF New York)
) ss.:
COUNTY OF New York)
On the 17th day of January 1997, before me personally came
David M. Nussbaum, to me known, who, being by me duly sworn, did depose and say
that he believes the facts stated in the Certificate of Elimination to be true;
that he is the Chairman and Chief Executive Officer of GKN Holding Corp., the
corporation described in and which executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of said
corporation.
/s/ Carl Goodman March 30, 1998
- ---------------------------- -----------------------------
Notary Public Commission Expiration Date
STATE OF New York)
) ss.:
COUNTY OF New York)
On the 17th day of January 1997, before me personally came
Katherine Nathan, to me known, who, being by me duly sworn, did depose and say
that she believes the facts stated in the Certificate of Elimination to be true;
that she is the Secretary of GKN Holding Corp., the corporation described in and
which executed the foregoing instrument; and that she signed her name thereto by
order of the board of directors of said corporation.
/s/ Carl Goodman March 30, 1998
- -------------------------- ----------------------------
Notary Public Commission Expiration Date
2
<PAGE>
EXHIBIT 3.1(c)
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
OF
GKN HOLDING CORP.
-----------------------------------------
Pursuant to Section 151 of the
Delaware General Corporation Law
-----------------------------------------
GKN Holding Corp., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
Delaware General Corporation Law by unanimous written consent dated March 3,
1997:
RESOLVED, that pursuant to the authority granted to
and vested in the Board of Directors of this Corporation
(hereinafter called the "Board of Directors" or the "Board")
in accordance with the provisions of the Certificate of
Incorporation, as amended, the Board of Directors hereby
creates a series of Preferred Stock, par value $0.10 per
share, of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights,
preferences, and limitations thereof (in addition to any
provisions set forth in the Certificate of Incorporation of
the Cor poration, which are applicable to the Preferred Stock
of all classes and series) as follows:
Series A Preferred Stock:
1. Designation and Amount. The shares of such series
shall be designated as "Series A Pre ferred Stock" and the
number of shares constituting the Series A Preferred Stock
shall be 1,200,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided,
that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities
issued by the Corporation and con vertible into Series A
Preferred Stock.
2. No Dividends. The holders of shares of
Series A Preferred Stock shall not be entitled to
receive any dividends.
3. Voting Rights. So long as at least
600,000 shares of Series A Preferred Stock are
outstanding, the holders of Series A Preferred
Stock shall have the following voting rights:
(a) The holders of record thereof, acting as
a single series by the vote of the hold ers of a majority
thereof, shall be entitled, (i) to nominate one person for
election as a director of the Corporation at all meetings of
stockholders at which directors are elected, who shall be
Robert McAleer or Peter McMullin or another person reasonably
acceptable to the Corporation, and (ii) to designate one other
person, who shall be Robert McAleer or Peter McMullin or
another person reasonably acceptable to the Corporation, who
may be an observer at all meetings of the Board of Directors.
Such person designated to be an observer shall be entitled to
receive copies of all
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notices and other communications given to the directors and
shall execute and deliver to the Corporation such agreements
respecting the con fidentiality of information pertaining to
the Corporation as are reasonably appropriate in the
circumstances.
(b) In all matters presented for a vote or
consent of the holders of the Common Stock of the Corporation,
including the election of directors, each holder of record of
the Series A Preferred Stock shall be entitled to cast the
number of votes equal to the number of shares of Common Stock,
$.0001 par value, of the Corporation ("Common Stock"),
issuable upon conversion of his shares of Series A Preferred
Stock pursuant to Section 7 at the record date for
determination of shareholders entitled to vote thereon. Such
votes shall be counted with the votes of the holders of the
Common Stock in determining the adoption of any such matter.
(c) Except as set forth herein, holders
of Series A Preferred Stock shall have no voting
rights.
4. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. The
Corporation shall cause all such shares upon their
cancellation to become authorized but unissued shares of
Preferred Stock which may be reissued as part of a new series
Preferred Stock subject to the conditions and restrictions on
issuance set forth herein, in the Certificate of
Incorporation, in any other Cer tificate of Designation
establishing a series of Preferred Stock or any similar stock
or as other wise required by law.
5. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of
stock ranking junior (either as to dividends or upon
liquidation, dis solution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares
of Series A Preferred Stock shall have received $0.50 per
share, or (2) to the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock,
except dis tributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled
upon such liquidation, dis solution or winding up.
6. Redemption of Series A Preferred Stock.
(a) At any time after the fifth anniversary
of the date ("Closing Date") on which Southeast Research
Partners, Inc. ("SERP") becomes a wholly-owned subsidiary of
the Corporation, the Corporation shall have the option (unless
otherwise prevented by law) to redeem all, but not less than
all, of the Series A Preferred Stock then outstanding as
provided in Section 6(b), at a redemption price equal to $0.50
per share of Series A Preferred Stock.
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(b) Notice of any Series A Preferred Stock
redemption pursuant to this Section 6 shall be sent by the
Corporation by first-class certified mail, return receipt
requested, postage prepaid, to the holders of record of shares
of Series A Pre ferred Stock at their respective addresses as
the same shall appear on the books of the Corporation. Such
notice shall be mailed no less than 10 days in advance of the
applicable Series A Preferred Stock redemption date which
shall be set forth in the notice. On the Series A Preferred
stock redemption date, the holders of record of shares of
Series A Preferred Stock to be redeemed shall deliver to the
Corporation or its agents the certificates representing the
shares to be redeemed and shall be entitled to receive from
the Corporation the applicable redemption price. Thereafter,
such certificates shall represent only the right to receive
payment at the rate of $0.50 per share of Series A Preferred
Stock.
7. Conversion of Series A Preferred Stock.
(a) Each of the holders of Series A
Preferred Stock shall have the right, at any such holder's
option, at any time prior to the fifth anniversary of the
Closing Date, to convert each share of Series A Preferred
Stock into shares of Common Stock at the rate of 0.16 shares
of Common Stock for each share of Series A Preferred Stock
(the "Conversion Rate"), subject to adjustment as hereinafter
provided.
(b) Before any holder of Series A Pre ferred
Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall
3
<PAGE>
surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer
agent for the Series A Preferred Stock, and shall give written
notice to the Cor poration at its principal corporate office,
of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Preferred Stock, or to
the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares
of Series A Preferred Stock to be con verted, and the person
or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of
Common Stock as of such date.
(c) The Corporation shall not be required to
issue fractions of shares of Common Stock upon conversion of
the Series A Preferred Stock. If any fractions of a share
would, but for this Section, be issuable upon any conversion
of Series A Preferred Stock, in lieu of such frac tional share
the Company shall pay to the holder, in cash, an amount equal
to the same fraction of the current market price (determined
as provided in Section 7(e)(iii)) per share of Common Stock.
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<PAGE>
(d) The Corporation shall reserve and shall
at all times have reserved out of its authorized but unissued
shares of Common Stock sufficient shares of Common Stock to
permit the conversion of the then outstanding shares of the
Series A Preferred Stock pursuant to this Section 7. All
shares of Common Stock which may be issued upon conversion of
shares of the Series A Preferred Stock pursuant to this
Section 7 shall be validly issued, fully paid and
nonassessable. In order that the Corporation may issue shares
of Common Stock upon conversion of shares of the Series A
Preferred Stock, the Corporation will endeavor to list such
shares of Common Stock to be issued upon conversion on Nasdaq
(as hereinafter defined) and on each securities exchange on
which Common Stock is listed and endeavor to maintain such
listing for such period of time as either the Series A Pre
ferred Stock or Common Stock underlying such Series A
Preferred Stock remains outstanding.
(e) The Conversion Rate in effect at any
time for conversion of Series A preferred Stock into Common
Stock pursuant to this Section 7 shall be subject to
adjustment from time to time as follows:
(i) In the event that the Cor
poration shall (1) pay a dividend in shares of Common Stock to
holders of Common Stock, (2) make a distribution in shares of
Common Stock to holders of Common Stock, (3) subdivide the
outstanding shares of Common Stock into a greater number of
shares of Common Stock or (4) combine the out standing shares
of Common Stock into a smaller number of shares of Common
Stock, the Conversion
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<PAGE>
Rate in effect pursuant to this Section 7 im mediately prior
to such action shall be adjusted so that the holder of any
shares of the Series A Preferred Stock thereafter surrendered
for con version pursuant to this Section 7 shall be en titled
to receive the number of shares of Common Stock which he would
have owned immediately fol lowing such action had such shares
of the Series A Preferred Stock been converted immediately
prior thereto. Such adjustment shall be made whenever any
event listed above shall occur and shall become effective (A)
immediately after the record date in the case of a dividend or
a distribution and (B) immediately after the effective date in
the case of a subdivision or combination.
(ii) For purposes of calculating any
adjustment of the Conversion Rate pursuant to this Section 7,
the current market price per share of Common Stock on any date
shall be deemed to be the average of the daily Closing Prices
(as hereinafter defined) for thirty consecutive trading days
ending the last trading day before the day in question. The
"Closing Price" for each day shall be the last reported sale
price on the principal national securities exchange on which
Common Stock is listed or admitted to trading or on the Nasdaq
National Market or SmallCap Market ("Nasdaq"), the NASD
Electronic Bulletin Board (the "Bulletin Board"), or in case
no reported sale takes place, the average of the closing bid
and asked prices. If Common Stock is not quoted on Nasdaq, the
Bulletin Board or any comparable system, the Board of
Directors shall in good faith determine the current market
price on such basis as it considers appropriate.
6
<PAGE>
(f) No adjustment in the conversion Rate
shall be required until cumulative adjustments result in a
concomitant change of 1% or more of the Conversion Rate as in
effect prior to the last adjustment of the Conversion Rate;
provided, how ever, that any adjustments which by reason of
this Section 7(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
All calculations under this Section 7 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as
the case may be. No adjustment to the Conversion Rate shall be
made for cash dividends.
(g) Whenever the Conversion Rate is adjusted
pursuant to this Section 7, the Cor poration shall promptly
mail first class to all holders of record of shares of the
Series A Pre ferred Stock a notice of the adjustment and shall
cause to be prepared a certificate signed by a principal
financial officer of the Corporation setting forth the
adjusted Conversion Rate and a brief statement of the facts
requiring such ad justment and the computation thereof. Such
cer tificate shall forthwith be filed with each trans fer
agent for the shares of the Series A Preferred Stock.
(h) If any of the following shall occur: (i)
any reclassification of outstanding shares of Common Stock
(other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a
subdivision or combination), or (ii) any consolidation or
merger to which the Corporation is a party other than a merger
in which the Corporation is the
7
<PAGE>
continuing corporation and which does not result in any such
reclassification, or (iii) a sale or conveyance of all or
substantially all of the assets of the Corporation, then in
addition to all of the rights granted to the holders of the
Series A Preferred Stock as designated herein, the Cor
poration, or such successor or purchasing cor poration, as the
case may be, shall, as a condition precedent to such
reclassification, consolidation, merger, sale or conveyance,
provide in its cer tificate of incorporation or other charter
document that each share of the Series A Preferred Stock shall
be convertible into the kind and amount of shares of capital
stock and other securities and property (including cash)
receivable upon such reclassification, merger, consolidation,
sale or conveyance by a holder of the number of shares of
Common Stock deliverable upon conversion of such share of the
Series A Preferred Stock immediately prior to such
reclassification, consolidation, merger, sale or conveyance.
Such certificate of incorporation or other charter document
shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided
for in this Section 7. If, in the case of any such
reclassification, consolidation, merger, sale or conveyance,
the stock or other securities and property (including cash)
receivable thereupon by a holder of Common Stock includes
shares of capital stock or other securities and property of a
corporation other than the successor or purchasing
corporation, as the case may be, in such re classification,
consolidation, merger, sale or conveyance, then the
certificate of incorporation or other charter document of such
other corporation shall contain such additional provisions to
protect
8
<PAGE>
the interests of the holders of shares of the Series A
Preferred Stock as the Board of Directors shall reasonably
consider necessary by reason of the foregoing. The provisions
of this Section 7(j) shall similarly apply to successive
consolidations, mergers, sales or conveyances.
(i) In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 7
hereof, the shares so converted shall be canceled.
(j) If the Closing Price of the Common Stock
(determined as provided in Section 7(e)(ii)) (i) at any time
exceeds $10.00 per share for at least five consecutive trading
days, or (ii) during the period commencing February 1, 1998
and ending January 31, 2000, exceeds $9.00 for at least five
consecutive trading days, or (iii) during the period
commencing February 1, 2000 and ending January 31, 2002,
exceeds $7.50 for at least five consecutive trading days (such
Closing Prices being subject to adjustment in each instance
upon the occurrence of any event referred to in clauses (1)
through (4) of Section 7(e)(i)), then, in any such event, upon
notice given to the holders of the Series A Preferred Stock by
the Corporation within 30 days after the end of any such five
day period, such shares of Series A Preferred Stock shall,
without further action on the part of the holders thereof, be
automatically converted into shares of Common Stock at the
Conversion Rate then in effect. After the giving of such
notice, the certificates representing shares of Series A
Preferred Stock shall represent only the right to receive such
number of shares of Common Stock.
9
<PAGE>
(k) If, within three years (or, in the case
of Robert McAleer, two years) after the Clos ing Date, the
employment with SERP of a holder of Series A Preferred Stock
is terminated (other than termination without cause by SERP or
the Cor poration), at the election of the Corporation,
effected by notice given to such holder by the Corporation
within 30 days after the effective date of such termination,
the Corporation may redeem the shares of Series A Preferred
Stock held by such holder at a redemption price of $0.50 per
share or may require such holder to convert his shares of
Series A Preferred Stock into shares of Common Stock at the
Conversion Rate in effect on the effective date of
termination. After the giving of such notice, the certificates
representing shares of Series A Preferred Stock shall
represent only the right to receive cash at the rate of $0.50
per share of Series A Preferred Stock or such number of shares
of Common Stock, as the case may be. As used herein, "cause"
shall have the meaning ascribed to it in the Merger Agreement
among the Corporation, the holders of Series A Preferred
Stock, as Stockholders, and SERP pursuant to which SERP
becomes a subsidiary of the Corporation.
8. Rank. The Series A Preferred Stock shall
rank junior with respect to the payment of dividends and the
distribution of assets to all series of the Corporation's
Preferred Stock or any similar stock that specifically provide
that they shall rank senior or prior to the Series A Preferred
Stock. Nothing herein shall preclude the Board
10
<PAGE>
from creating any series of Preferred Stock or any similar
stock ranking on a parity with or senior or prior to the
Series A Preferred Stock as to the payment of dividends or the
distribution of assets.
9. Amendment. The Certificate of Designation of the
Series A Preferred Stock shall not be amended in any manner
which would materially alter or change the powers, preferences
or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the
holders of at least two-thirds of the out standing shares of
Series A Preferred Stock, voting together as a single series.
11
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IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be executed in its name by the undersigned, thereunto duly
authorized, this 4th day of March, 1997.
GKN HOLDING CORP.
By: /s/ David Nussbaum
------------------------------
David Nussbaum, Chairman
[S E A L] By: /s/ Katherine Nathan
---------------------------------
Katherine Nathan, Secretary
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Apr-30-1997
<CASH> 8,936,000
<RECEIVABLES> 6,712,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 15,886,000
<PP&E> 1,241,000
<TOTAL-ASSETS> 38,588,000
<SHORT-TERM> 0
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 2,551,000
<LONG-TERM> 632,000
0
1,152,000
<COMMON> 1,000
<OTHER-SE> 30,086,000
<TOTAL-LIABILITY-AND-EQUITY> 38,588,000
<TRADING-REVENUE> (754,000)
<INTEREST-DIVIDENDS> 425,000
<COMMISSIONS> 8,104,000
<INVESTMENT-BANKING-REVENUES> 676,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 7,754,000
<INCOME-PRETAX> (4,141,000)
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<EXTRAORDINARY> 0
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<NET-INCOME> (2,453,000)
<EPS-PRIMARY> 0.30
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</TABLE>
