<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended January 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-21105
RESEARCH PARTNERS INTERNATIONAL, INC.
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(Name of small business issuer in Its charter)
Delaware 13-3414302
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One State Street Plaza, New York, New York 10004
- ------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
(215) 509-3800
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
The Registrant hereby amends the following items, financial statements,
exhibits or other portions of its Annual Report on Form 10-K for the fiscal
year ended January 31, 1999 as set forth in the pages attached hereto:
Item 6. Selected Financial Data (to correct a
typographical error in the pre-tax return on
average equity line item)
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (to correct
typographical errors)
To Add:
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes five years of consolidated financial data of
the Company (in thousands, except per share amounts and other data):
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues $50,170 $48,676 $67,750 $43,019 $32,410
Total expenses $59,341 $58,632 $56,394 $36,732 $31,516
Pre-tax (loss) income $(9,171) $(9,956) $11,356 $ 6,287 $894
Net (loss) income $(7,383) $(6,513) $ 6,329 $ 3,469 $381
Basic (loss) earnings
per common share $ (0.90) $ (0.80) $ 0.93 $ 0.69 $ 0.08
Diluted (loss) earnings
per common share $ (0.90) $ (0.80) $ 0.88 $ 0.60 $ 0.07
Weighted average shares
outstanding - basic 8,207 8,114 6,824 5,037 5,063
Weighted average shares
outstanding - diluted 8,207 8,114 7,175 5,737 5,695
Balance Sheet Data:
Total assets $28,280 $36,972 $51,633 $27,853 $16,096
Total liabilities (excluding
subordinated debt) $ 5,918 $ 8,775 $15,869 $12,143 $ 4,339
Subordinated debt $ 408 $ 576 $ 738 $ 934 $ -
Stockholders' equity $21,954 $27,621 $35,026 $14,776 $11,757
Other Data:
Ratio of assets to stockholders'
Equity 1.29 1.34 1.47 1.89 1.37
Return on average equity (29.0%) (19.9%) 25.0% 26.1% 3.3%
Pre-tax return on average equity (36.0%) (30.4%) 44.9% 47.4% 7.8%
Book value per share $2.61 $3.41 $4.26 $3.02 $2.30
Registered representatives 227 253 275 224 163
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is an analysis of the consolidated results of operations and
financial condition of our company, including all of our subsidiaries. It
should be read in conjunction with the consolidated financial statements
included in Item 8 of this document.
Business Environment
Our primary business activities, institutional research, investment banking,
securities brokerage and securities trading, with an emphasis on
small-and-mid-capitalization companies, are subject to general economic and
market conditions and volatility of trading markets, specifically the
small-and-mid-capitalization market. The fiscal year ended January 31, 1999
experienced some of the most volatile market conditions in years, with highs
reached in the second quarter, lows reached in the third quarter, and a
significant rebounding in the fourth quarter. The effect of internet related
stocks combined with overseas economic difficulties contributed greatly to
U.S. market volatility. The overseas economic difficulties experienced during
the third quarter resulted in a significant reduction of IPO market activity
during the second half of the year.
During the year, several of our business activities proved to be unprofitable.
In an effort to return to profitability, we closed certain unprofitable
business activities that were no longer part of the long-term strategy. During
the year, these business activities incurred $3,025,000 of developmental costs
and costs associated with shutdowns, and are not expected to recur in the
future. Further, as a result of these losses and our current tax position, we
were unable to recognize $2,440,000 of tax benefits that represents timing
differences and net operating loss carryforwards.
Results of any individual period should not be considered representative of
future profitability. A significant portion of our expenses is fixed and does
not vary with market activity. Substantial fluctuations could occur in our
revenues and net income from period to period.
3
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Results of Operations
Year Ended January 31, 1999 vs. Year Ended January 31, 1998
Basic and diluted loss per share of common stock for the year ended January
31, 1999, was $0.90 as compared to $0.80 for the year ended January 31, 1998.
The significant loss in the current year was primarily attributable to
operations of several business activities that have subsequently been
terminated and we were unable to recognize certain tax benefits.
Revenues
Total revenues increased by $1,494,000, or 3.1%, to $50,170,000 for the fiscal
year, led by significant increases in commission and other revenues, offset by
decreases in investment banking revenues.
Commission revenues increased by $3,758,000, or 9.8%, to $42,086,000. The
increase was primarily attributable to an increase in the number of trades,
offset by a decrease in average commissions per trade.
Investment banking revenues decreased by $2,051,000, or 34%, to $3,973,000. We
raised $26 million for our clients in fiscal 1999 through 2 public offerings
and 2 private placements, a decrease from fiscal 1998, during which we raised
$113 million through six public offerings and seven private placements. The
decrease in the current year reflected the general reduction of IPO market
activity during the second half of the year.
Revenues from principal transactions decreased by $1,320,000, or 77%, to
$395,000. This decrease was primarily due to a decline in revenues from the
investment account of $1.2 million.
Interest income decreased by $5,000, or 0.4%, to $1,334,000, primarily due to
lower interest rates.
Other revenues increased by $1,112,000 or 88%, to $2,382,000, primarily as a
result of revenue from merchant banking and asset management activities, as
well as a gain on the sale of GKN Asset Management AG, one of our Swiss
subsidiaries.
Expenses
Total expenses for fiscal 1999 were $59,341,000, a 1.2% increase over fiscal
1998. Total expenses as a percentage of revenues decreased to 118% from 120%.
Included in fiscal 1999 expenses were $3,025,000 of business development costs
and costs associated with shutdowns. We do not expect to incur these expenses
in the future. Total operating expenses for fiscal 1999 would have been $56.3
million versus the comparable operating expenses of $53.3 million in fiscal
1998, reflecting a 5.6 % increase.
Compensation and benefit expense increased by $2,272,000, or 6.5%, to
$37,323,000. These expenses are primarily variable as commissions to brokers
are paid as a percentage of commission revenues generated. The expense
increase in fiscal 1999 is consistent with the increase in commission
revenues.
Communications expenses increased by $308,000, or 6.5%, to $5,079,000. This
increase was primarily a result of our new business ventures and expanded
facilities.
Brokerage clearing and exchange fees increased by $343,000 or 10%, to
$3,783,000. This increase was primarily attributable to the increase in trade
volume for the year.
4
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Occupancy expense increased by $2,323,000, or 66%, to $5,843,000. The increase
was caused by the addition of new branch offices, the move of our
headquarters, and the investment made to upgrade our technological
infrastructure.
Business development expense decreased by $89,000, or 4.3%, to $1,983,000. This
decrease was attributable to decreased promotional expenses.
Professional fees increased by $440,000, or 26%, to $2,153,000. This increase
was mainly as a result of costs associated with expanding the firm's business,
complying with regulatory requirements, and supporting the firm's
technological infrastructure.
Investigations and settlement expenses were eliminated as the prior regulatory
investigatory matters have been settled.
Other expenses decreased by $2,628,000, or 45%, to $3,177,000 primarily due to
decreased write-off of recruiting payments to brokers offset by increased
reserve for potential litigation.
Weighed average common shares outstanding
The average numbers of common shares and common stock equivalent used in the
computation of basic and diluted earnings per share were 8,206,652 in fiscal
1999 compared with 8,114,245 in fiscal 1998.
Year Ended January 31, 1998 vs. Year Ended January 31, 1997
Basic (loss) earnings per share of common stock for the year ended January 31,
1998, were ($0.80) as compared to $0.93 for the year ended January 31, 1997.
Correspondingly, diluted (loss) earnings per share of common stock for the
comparable periods were ($0.80) and $0.88, respectively. The significant loss
in the fiscal 1998 was attributable to the deteriorating climate for micro-cap
stocks, which resulted in substantial decreases in revenue for the Company, as
well as expenses recognized for litigation, write-off of recruiting payment
receivables deemed uncollectible and severance to terminated employees.
Revenues
Total revenues decreased by $19,074,000, or 28%, to $48,676,000 for the fiscal
year, led by significant decreases in commission and investment banking
revenues. Fiscal 1998 revenues include $5,464,000 generated by Southeast,
which was not part of our company in fiscal 1997. Hence, without Southeast our
revenues would have decreased by $24,538,000, or 36%.
Commission revenues decreased by $11,825,000, or 24%. The decrease reflects
deteriorating market conditions in the micro-cap marketplace throughout the
year, causing a 28% decrease in the average commission per trade.
5
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Investment banking revenues decreased by $5,367,000, or 47%. We raised $112.6
million for our clients in fiscal 1998 through six public offerings and seven
private placements, a decrease from fiscal 1997, during which we raised $136.3
million through ten public offerings and ten private placements. The current
year reflected the beginning of a transition from being the sole manager on
underwritings to a co-manager on larger transactions. This transition
potentially decreases the average revenue per transaction.
Revenues from principal transactions decreased by $2,562,000, or 60%.
Market-making activities generated $3,770,000 less revenue in fiscal 1998 than
in fiscal 1997. This decrease was partially offset by an increase in revenues
from the investment account of $1,208,000. The decrease in revenues
attributable to market-making was the direct result of regulatory changes
mandating smaller spreads between "bid" and "offer" prices and more
restrictive trading rules. A majority of the revenues generated in the
investment account was the result of profits on positions in one investment.
Interest income decreased by $281,000, or 17%, primarily due to lower cash
balances.
Other revenues increased by $961,000, primarily due to enhanced payment for
order flow on third market trades.
Expenses
Total expenses for fiscal 1998 were $58,632,000, a 4% increase over fiscal
1997. Total expenses as a percentage of revenues increased from 83% to 120%.
Included in fiscal 1998 expenses is $5,295,000 in one-time charges. These
charges are composed of $2,260,000 related to litigation, $2,931,000 related
to the write-off of recruiting payments to brokers and $104,000 related to
severance payments to terminated employees. The recruiting payment write-off
represents the write-off of receivables from 98 terminated brokers and a
reserve for receivables deemed uncollectible based on historical loss
experience from 55 non-terminated brokers. These receivables would have
otherwise been written off over periods up to 36 months. The
litigation-related expenses are entirely related to our settlement with the
NASDR, resolving a previously disclosed NASDR investigation concerning markups
on warrants of seven companies GKN underwrote during the period December 1993
through April 1996. Without the one time expenses, total operating expenses
for fiscal 1998 would have been $53,337,000 versus the comparable operating
expenses of $55,082,000 in fiscal 1997, reflecting a 3% decrease.
Southeast was not part of our company in fiscal 1997. As a result, no expenses
for Southeast are included in fiscal 1997 results. During fiscal 1998,
Southeast generated $6,041,000 in expenses. As a result, comparable operating
expenses were $47,296,000 in fiscal 1998 versus $55,082,000 in fiscal 1997,
representing a 14% decrease.
Compensation and benefit expense decreased 15% to $35,051,000. These expenses
are primarily variable as commissions to brokers are paid as a percentage of
commission revenues generated. The expense decrease in fiscal 1998 is
consistent with the decrease in commission revenues, partially offset by the
addition of Southeast. Additionally, in accordance with our 1996 Incentive
Compensation Plan, a portion of annual incentive awards payable to executive
management and business unit managers are made in restricted shares of our
common stock, which are subject to a minimum three-year vesting period. Such
awards are recognized as compensation expense over the three-year vesting
period. There was no such compensation expense recognized in fiscal 1997,
while during fiscal 1998 we recognized $530,000 of such expenses. No stock
awards were made relating to fiscal 1998 under our 1996 Incentive Compensation
Plan.
Communications expenses increased by $925,000, or 24%. This increase was
primarily caused by the addition of Southeast.
6
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Brokerage clearing and exchange fees increased by $1,116,000 or 48%. This
increase was primarily caused by the addition of Southeast.
Occupancy expense increased by 28% to $3,520,000. The increase was caused by
the additional four Southeast locations, one additional and one upgraded
location in Shochet and internal growth at GKN.
Business development expense increased by 37% to $2,072,000. This increase was
attributable to the addition of Southeast and increased promotional expenses.
Professional fees increased by $599,000 or 54% to $1,713,000. This increase
was entirely attributable to increased expenses incurred regarding litigation
and arbitrations.
Investigations and settlements increased by $948,000, or 72% to $2,260,000 as
a result of GKN's settlement of the NASDR investigatory matter concerning
markups.
Other expenses increased by $3,458,000 to $5,805,000 primarily due to the
write-off of broker recruiting payments and the addition of Southeast.
Weighed average common shares outstanding
The average numbers of common shares and common stock equivalent used in the
computation of earnings per share were 8,114,245 for basic earnings per share
in fiscal 1998 compared with 6,824,156 in fiscal 1997. Correspondingly, the
amounts used for diluted earning per share were 8,114,245 in fiscal 1998
compared with 7, 175,267 in fiscal 1997. The 19% increase in the outstanding
shares utilized in the basic earnings per share calculation and the 13%
increase in the outstanding shares utilized in the diluted earning per share
calculation were both attributable to the full-year impact of the 2,875,000
shares of common stock issued in our public offering in July 1996.
Liquidity and Capital Resources
Approximately 51% of our assets at January 31, 1999 were highly liquid,
consisting primarily of cash and cash equivalents, securities inventories and
receivables from other broker-dealers, all of which fluctuate depending upon
the levels of customer business and trading activity. Receivables from
broker-dealers, which are primarily from our clearing broker, turn over
rapidly. As a securities dealer, we may carry significant levels of securities
inventories to meet customer needs. Our 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 our
total assets are fixed. The 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.
7
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Our brokerage subsidiaries, GKN, Southeast and Shochet, are subject to the net
capital rules of the NASD and SEC. As such, we are subject to certain
restrictions on the use of capital. GKN's net capital position as of January
31, 1999, was $1,220,000, which was $970,000 in excess of its net capital
requirement. Southeast's net capital position as of January 31, 1999, was
$1,302,000 which was $1,202,000 in excess of its net capital requirement.
Shochet's net capital position as of January 31, 1999, was $612,000, which was
$512,000 in excess of its net capital requirement.
In conjunction with our corporate headquarters relocation in New York, we have
significantly upgraded our technological infrastructure. The combined costs of
the move and the technological investment were financed through a series of
operating leases. These leases total $4.8 million. As security for these
leases, we arranged for a standby letter of credit. As collateral for the
standby letter of credit, we have placed $2.4 million in a restricted cash
escrow account with the provider. We intend to use debt and lease financing
prudently in the future.
Our overall capital and funding needs are continually reviewed to ensure that
our 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 our capital structure is adequate for current operations and
reasonably foreseeable future needs.
During fiscal 2000, we intend to offer a day trading service over the
internet. This new venture, in addition to others, may require us to raise
additional capital.
Other Matters
Year 2000 Computer Issue
We initiated a firm-wide program to address the "Year 2000 Computer Issue" in
order to prepare our computer systems and applications for properly processing
dates after December 31, 1999. This program consists of a series of steps to
identify all critical & non-critical systems, determine Y2K compliance through
inquiries and testing and change non-compliant systems. Our program is
proceeding on schedule and it is our expectation that we will have our
firm-wide Year 2000 solution substantially in place by July 1, 1999.
We have completed our identification phase. Third party vendors and service
providers provide all of our computer programs and services. Most of the
programs were purchased after the year 2000 Computer Issue became widely
recognized. We have contacted approximately 75% of our third party vendors and
service providers and have received written confirmation from approximately
50% of them that the Year 2000 Computer Issue has been appropriately managed.
Schroder, our clearing firm, is our largest and most important computer
services related vendor. Schroder has provided us with assurances that it
expects to appropriately manage the Year 2000 Computer Issue on a timely
basis.
The Year 2000 Computer Issue creates a risk for us from unforeseen problems in
our own computer systems, third-party vendors and service providers, and from
third parties with whom we deal worldwide. We are continuing to communicate
with our third-party vendors and service providers to determine the likely
extent to which we may be affected by third parties' Year 2000 plans and
target dates. In this regard, while we do not now expect material financial
exposure as a result of the Year 2000 problem, there can be no guarantee that
the systems of other entities on which we rely will be remediated on a timely
basis, or that a failure to remediate by another party, would not have a
material adverse effect on us. Such failures could have a material impact on
our ability to conduct business.
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We are developing contingency plans in the event that significant external
parties fail to achieve their Year 2000 plans by the targeted dates. We
anticipate that beginning on January 1, 2000, Year 2000 related failures may
result in sporadic disruption of communications, power or other external
infrastructure worldwide that could compromise the timely performance of
specific business functions and/or limit the flow of business opportunities
across the organization. We intend to have contingency plans and crisis
management teams in place to coordinate our response to those events likely to
present material risks to us. The process is currently underway, but there can
be no assurance that any such contingency plans will fully mitigate the
effects of any third party failure.
Based on information currently available, we do not expect our Year 2000
expenditures for 1999 to be a material cost to us. To date, we have spent less
than $100,000, and expect that the entire program will not exceed $200,000.
The expected costs of the Year 2000 program are based on management's current
estimates; however, actual results could differ materially from those plans.
Quantitative and qualitative disclosures about market risk
Our market making, investing and underwriting activities often involve the
purchase, sale or short sale of securities as principal. Such activities
subject our capital to significant risks from markets that may be
characterized by relative illiquidity or may be particularly susceptible to
rapid fluctuations in liquidity. Such market conditions could limit our
ability to resell securities purchased or to purchase securities sold short.
These activities subject our capital to significant risks, including market,
credit counterparty and liquidity risks. Market risk relates to the risk of
fluctuating values based on market prices without action on our part. Our
primary credit risk is settlement or counterparty risk, which relates to
whether a counterparty will fulfill its contractual obligations, such as
delivery of securities or payment of funds. Liquidity risk relates to our
inability to liquidate assets or redirect the deployment of assets contained
in illiquid investments. In addition, our market and liquidity risks
associated with asset revaluation are increased because these risks associated
with asset revaluation are increases because these risks for us are
concentrated and thus subject us to increased risks if market conditions
deteriorate.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130), effective beginning in the
fiscal year ending January 31, 1999. This statement establishes standards for
the reporting and display of comprehensive income and its components. Total
comprehensive income measures all changes in stockholders' equity resulting
from transactions of the period, other than transactions with stockholders.
Our financial statements reflect the implementation of SFAS 130.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 established standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information. SFAS 131 is effective for financial statement periods
beginning after December 15, 1997. Our financial statements reflect
implementation of SFAS 131.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits," which revises and standardizes
pensions and other post-retirement benefit plan disclosures. The Statement is
effective for fiscal years beginning after December 15, 1997. The effect of
SFAS 132 is not expected to be material to our financial statement
disclosures.
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In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 establishes standards for accounting and
reporting of derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS 133 is effective for
fiscal quarters beginning after June 15, 1999. We expect to adopt this
standard when required in fiscal year 2000. The effect of SFAS 133 is not
expected to be material to our financial statement disclosures.
Safe Harbor Cautionary Statement
We occasionally make forward-looking statements such as forecasts and
projections of expected future performance or statements of our plans and
objectives. When used in this annual report and in future filings with the
SEC, in our press releases and in oral statements made with the approval an
authorized executive officer, the words or phrases "will likely result," "the
Company expects," "we intend or expect," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions, including
confirmations by one of our authorized executive officers of any such
expressions made by a third party regarding us with respect to the company are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We want to caution you not
to place undue reliance on these forward-looking statements, each of which
speaks only as of the date made. These 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 that
could affect our results of operations and cause its results to differ from
these statements include:
o the volatility and price level of the securities markets
o the volume, size and timing of securities transactions
o the demand for investment banking services
o the level and volatility of interest rates
o the availability of credit
o legislation affecting the business and financial
communities, and
o the economy in general.
For a more complete discussion of these and other factors, see our
registration statement filed on Form S-1, as amended (No. 333-05273). We have
no obligation to publicly release the result of any revisions that may be made
to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of these statements.
10
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our current executive officers, key employees and directors are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David M. Nussbaum 45 Chairman of the Board and Chief Executive Officer
Roger N. Gladstone 45 President and Director
Peter R. Kent 46 Executive Vice President, Chief Operating Officer and Director
Lester Rosenkrantz 58 Executive Vice President and Director
Robert H. Gladstone 41 Executive Vice President
Richard M. Feldman 38 Senior Vice President and Chief Financial Officer
Peter R. McMullin 56 Executive Vice President, Chief Investment Officer and Director
Robert T. McAleer 66 Executive Vice President and Director
James I. Krantz 44 Director
John P. Margaritis 49 Director
Arnold B. Pollard 56 Director
Richard Y. Roberts 47 Director
</TABLE>
David M. Nussbaum has been our Chairman of the Board and Chief Executive
Officer since September 1990, served as our Executive Vice President from
January 1987 until September 1990 and has served as one of our directors since
January 1987. He is also Chairman of the Board and Chief Executive Officer of
GKN Securities Corp. He is a director of Shochet Securities, Inc. He has been
a director and executive officer of Dalewood Associates, Inc. since our
acquisition of Dalewood in December 1996 and a director and executive officer
of Southeast Research Partners, Inc. since our acquisition of Southeast in
March 1997. 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. 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. In August 1997, Mr. Nussbaum
concluded a settlement with NASD Regulation, Inc. ("NASDR") resolving an NASDR
investigation, discussed below.
Roger N. Gladstone has been our President and one of our directors since
January 1987. He is also President and a director of GKN Securities. He is
also a director and executive officer of Shochet and Dalewood. 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 an
honorary member of the board of directors of the Sid Jacobson Jewish Community
Center in Roslyn, New York. Mr. Gladstone is a 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. From 1980 through 1984, Mr. Gladstone was engaged in the
private practice of law in New York. Mr. Gladstone graduated from Stanford
University, received a Master of Business Administration from New York
University and received his law degree from the Benjamin N. Cardozo School of
Law, Yeshiva University. In August 1997, Mr. Gladstone concluded a settlement
with the NASDR resolving an NASDR investigation, discussed below.
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Peter R. Kent has served as the Chief Operating Officer of our Company
and GKN Securities since February 1996, as a director of our Company and GKN
Securities since May 1996 and as Executive Vice President of our Company and
GKN Securities since June 1998. He served as Chief Financial Officer of our
Company and GKN Securities from July 1995 through October 1998. He has served
as Chief Financial Officer of Shochet from November 1995 until October 1998
and director of Shochet since we acquired it in November 1995, as an executive
officer and director of Dalewood since we acquired it in December 1996 and as
an executive officer and director of Southeast since we acquired it in March
1997. He was elected a director of Research Partners International AG,
hereinafter referred to as RPII-AG, in January 1998. 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 our
Company and GKN Securities since February 1994. Mr. Rosenkrantz has been a
director of Southeast since our acquisition of Southeast in March 1997. 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 end 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 served as an Executive Vice President of our
Company since November 1993 and a director of our Company from January 1992 to
May 1996. He has also been an executive officer of GKN Securities since
January 1990. Mr. Gladstone is a member of the board of directors of the Sid
Jacobson Jewish Community Center in Roslyn, New York. Mr. Gladstone graduated
from Boston University and received a Bachelor of Arts in Business
Administration. In January 1997, Mr. Gladstone concluded a settlement with the
Securities and Exchange Commission, hereinafter referred to as SEC, resolving
an SEC investigation and in August 1997, he concluded a settlement with the
NASDR resolving an NASDR investigation, both of which are discussed below.
Richard M. Feldman has served as our Senior Vice President and Chief
Financial Officer and Chief Financial Officer of GKN Securities and Shochet
since joining our Company in October 1998. From August 1992 to October 1998,
Mr. Feldman had served in similar capacities at several broker dealers,
including Waterhouse Securities, Inc. and Muriel Siebert & Co., Inc., two
national brokerage firms. From 1982 through July 1992, Mr. Feldman was
employed by Deloitte & Touche, LLP, an international accounting firm. Mr.
Feldman is a Certified Public Accountant, and a member of the New York State
Society of CPAs, the American Institute of CPAs and the Security Industry
Association. Mr. Feldman graduated from the University of Massachusetts and
received a Bachelor of Arts in Business Administration.
Peter R. McMullin has served as a director of our Company since May 1997
and our Executive Vice President and Chief Investment Officer since June 1998.
He is a co-founder of Southeast and has served as Executive Vice President and
Managing Director of Southeast since its inception in June 1990. Previously, Mr.
McMullin served as a Research Director for various firms, including Gulfstream
Financial, Inc., Alan Bush Brokerage Company, Inc. and Dominion Securities
Limited. Mr. McMullin received a
12
<PAGE>
Bachelor of Science and a Master of Business Administration from the University
of Toronto. Mr. McMullin is a Chartered Financial Analyst.
Robert T. McAleer has been an Executive Vice President and a director of
our Company since June 1998. He is a co-founder of Southeast and has served as
President and Managing Director of Southeast since its inception in June 1990.
Prior to founding Southeast, Mr. McAleer served as Executive Vice President of
Gulfstream Financial, Inc. and was previously employed by Prescott Ball
Turben, Inc. He graduated from Bucknell University and received a Bachelor of
Science.
James I. Krantz has been one of our directors 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. Since September
1997, Mr. Krantz served as President and Chief Executive Office of York
International Agency, Inc., a full service insurance agency and from 1993 to
September 1997, Mr. Krantz served as Vice President of York International
Agency. Mr. Krantz graduated from Syracuse University. He received his Chartered
Property Casualty Underwriter designation in 1989.
John P. Margaritis has served as a director of our Company since August
1996. Since September 1998, Mr. Margaritis served as President and Chief
Executive Officer of The Hawthorn Group New York, an international public
relations firm. From June 1997 until September 1998, Mr. Margaritis served as
Chief Executive Officer of Margaritis & Associates, a public relations
consulting firm. Mr. Margaritis was the President and Chief Executive Officer of
Ogilvy Adams & Rinehart (currently known as Ogilvy Public Relations Worldwide),
a public relations firm from January 1994 through February 1997, 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 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 has been our director since August 1996. Since June
1993, he has been the President and Chief Executive Officer of Chief Executive
Group, which publishes "Chief Executive" magazine. For over 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. Since October 1996,
Mr. Pollard has served as a director and a member of the compensation
committee of Delta Financial Corp., a public company engaged in the business
of mortgage financing, of Sonic Foundry, a public company which develops audio
software, and International Management Education Foundation, a non-profit
educational organization. From 1989 to 1991, Mr. Pollard served as Chairman
and Chief Executive Officer of Biopool International, a biodiagnostic public
company focusing on blood related testing. From 1970 to 1973, Mr. Pollard
served as adjunct professor at the Columbia Graduate School of Business. Mr.
Pollard graduated from Cornell University (Tau Beta Pi) and holds a doctorate
in Management Science from Stanford University.
Richard Y. Roberts has served as a director of our Company since December
1997. Mr. Roberts became affiliated with Thelen Reid & Priest LLP (then known
as Reid & Priest LLP) in January 1997, as counsel, where he participates in
their Business and Finance, Infrastructure and Government, and Utility and
Energy Practice Groups. From August 1995 to December 1996, Mr. Roberts served
as General Counsel to Princeton Venture Research, Inc., a venture capital
securities consulting firm. From October 1990 to July 1995, Mr. Roberts served
as a Commissioner of the United States Securities and Exchange Commission.
13
<PAGE>
Prior to his term as Commissioner, Roberts served as the administrative
assistant and the legislative director for then Congressman and later Senator
Richard Shelby. Mr. Roberts is a member of the Legal Advisory Board of the
National Association of Securities Dealers, Inc., the Advisory Board of
Securities Regulation & Law Reports, the Editorial Board of the Municipal
Finance Journal, and the National Board of Policy Advisors of the Institute of
Law and Economic Policy. He is a graduate of Auburn University where he earned a
Bachelor of Science in Electrical Engineering. He received his Juris Doctorate
from the University of Alabama School of Law and his Master of Laws from the
George Washington University Law Center. Mr. Roberts is a member of the Alabama
Bar and the District of Columbia Bar.
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 of our or our subsidiaries' executive officers or directors.
In January 1997, GKN Securities and Robert H. Gladstone concluded a
settlement with the SEC resolving an SEC investigation arising out of customer
complaints against certain brokers and alleged related supervisory failures
during 1991 and 1992. The settlement was entered in to without admitting or
denying the SEC's findings. Under the terms of the settlement, GKN Securities
paid a penalty of $100,000, engaged an independent consultant to review the
firm's supervisory and compliance policies and procedures and agreed to
implement the recommendations of the independent consultant. Robert H.
Gladstone agreed to pay a penalty of $50,000 and agreed to a suspension from
all association in any capacity with any broker, dealer, investment advisor,
investment company or municipal securities dealer for a period of thirty days,
and agreed not to be associated in a supervisory capacity for eleventh months
thereafter. In August 1997, GKN Securities and certain of its executive
officers, senior managers or former and present brokers (including David M.
Nussbaum, Roger N. Gladstone and Robert H. Gladstone) reached settlements with
the NASDR resolving an NASDR investigation concerning alleged excessive
markups on warrants of several companies GKN Securities underwrote and for
which it made a market during the period 1993 through 1996. The settlement was
entered into without admitting or denying the NASDR's allegations. Under the
settlement, GKN Securities consented to sanctions including censure, the
payment of restitution, interest and fines of $1,723,000 and engaged an
independent consultant to review GKN Securities' policies, practices and
procedures relating to the fair pricing and commissions charged to customers
and to related supervisory and compliance policies and structure and agreed to
implement the recommendations of the independent consultant. Each of David M.
Nussbaum and Roger N. Gladstone consented to censure, a fine of $50,000 and a
suspension from association in any capacity with any member of the NASD for
thirty days. Robert H. Gladstone consented to a censure, a fine of $100,000, a
suspension from association in any capacity with any member of the NASD for a
period of thirty days and a suspension from association, with any member in a
principal or supervisory capacity for a period of three months. In addition,
he agreed to requalify by examination as a General Securities Principal if he
decided to become associated as a principal or supervisor following the
termination of his suspension. He has requalified.
Meetings of the Board of Directors:
During fiscal 1999, our Board of Directors held seven meetings and acted
by unanimous written consent on one occasion.
Committees of the Board of Directors:
Audit Committee
Current members: R. Gladstone, J. Margaritis, A. Pollard and R. Roberts
Number of Meetings in fiscal 1999: Two
14
<PAGE>
Functions:
o reviews the scope of accounting audits
o reviews with the independent auditors the corporate
accounting practices and policies and recommends to whom
reports should submitted
o reviews with the independent auditors their final report
o reviews with the internal and independent auditors overall
accounting and financial controls, and
o are available to the independent auditors during the year
for consultation purposes.
Compensation Committee
Current Members: D. Nussbaum, J. Margaritis and A. Pollard
Number of Meetings in Fiscal 1999: Three
Functions:
o reviews and makes recommendations to our Board of Directors
regarding salaries, compensation benefits (other than with
respect to the Company's 1991 Employee Incentive Plan ("1991
Plan") and IC Plan), and
o will review any related party transactions on an ongoing
basis for potential conflicts of interest.
Employee Incentive Committee
Current Members: J. Margaritis and A. Pollard
Number of Meetings in Fiscal 1999: One
Functions:
o makes all decisions regarding grants of awards under the
1991 Plan and IC Plan
Executive Committee
Current Members: D. Nussbaum, R. Gladstone and P. Kent
Number of Acts by Written Consent in Fiscal 1999: Four
Functions:
o may address any and all matters handled by our Board of
Directors
15
<PAGE>
Director Compensation
Directors who are employed by us are not compensated for their services as
our directors nor for any committee participation. Directors who are not
employed by us are paid $2,500 per quarter.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers, directors and persons who beneficially own more than ten percent
of our common stock to file reports of ownership and changes in ownership with
the SEC. These reporting persons also are required to furnish us with copies
of all Section 16(a) forms they file. To our knowledge, based solely on our
review of the copies of such forms furnished to us and representations that no
other reports were required, all Section 16(a) reporting requirements were
complied with during fiscal 1999, except that an initial report which reported
the grant of options to Richard M. Feldman, our then recently appointed Chief
Financial Officer, was filed late.
16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation paid by us and our subsidiaries,
as well as certain other compensation paid or accrued, during the fiscal years
ended January 31, 1999, 1998 and 1997, to our Chief Executive Officer and to
our other four most highly compensated executive officers whose compensation
was $100,000 or greater during fiscal 1999. The following individuals are
referred to as the "Named Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Restricted Securities All
Fiscal Stock Underlying Other
Year Ended Salary Bonus Awards(1) Options/SARS Compensation (2)(3)
Name and Principal Position January 31, ($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David M. Nussbaum 1999 240,000 -0- -0- -0- 1,132,416(4)
Chairman of the Board and Chief 1998 240,000 -0- -0- -0- 453,987(5)
Executive Officer of the Company 1997 240,000 252,986 337,986 -0- 1,314,090
and GKN Securities
- ------------------------------------------------------------------------------------------------------------------------------------
Roger N. Gladstone 1999 240,000 -0- -0- -0- 577,692(4)
President of the Company and GKN 1998 240,000 -0- -0- -0- 703,736(5)
Securities 1997 240,000 252,986 252,986 -0- 1,337,000
- ------------------------------------------------------------------------------------------------------------------------------------
Peter R. Kent 1999 200,000 -0- -0- -0- 2,400
Chief Operating Officer of the 1998 200,000 -0- -0- -0- -0-
Company and GKN Securities 1997 200,000 444,210 270,523 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Robert H. Gladstone 1999 240,000 -0- -0- -0- 868,023(4)
Executive Vice President of the 1998 240,000 -0- -0- -0- 415,008(5)
Company and GKN Securities 1997 240,000 252,986 337,986 6,666 1,301,359
- ------------------------------------------------------------------------------------------------------------------------------------
Lester Rosenkrantz 1999 175,000 -0- -0- -0- 22,536
Executive Vice President of the 1998 175,000 -0- -0- -0- 23,323(5)
Company and GKN Securities 1997 157,500 140,746 98,582 -0- 86,164
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts shown in fiscal 1997 represent dollar values of restricted shares
issued pursuant to the IC Plan based on the closing price our common stock on
the date of grant. The IC Shares reported in the Summary Compensation Table
vest, in whole, on the third year anniversary from the date of grant. The
holders of the IC Shares have the right to vote such shares and to receive
dividends paid with respect to such shares. See "Compensation Arrangements -
1996 Incentive Compensation Plan."
(2) Amounts shown for fiscal 1998 and 1997 consist primarily of commissions
paid on the brokerage of securities. Amounts shown for fiscal 1999 also include,
to a lesser extent, contributions pursuant to our 401(k) plan consisting of (a)
cash in the amount of $1,200, $1,200, $1,200, $1,200 and $470, and (b) dollar
values of common stock in the amounts of $1,200, $1,200, $1,200, $1,200 and
$470, all on behalf of David M. Nussbaum, Roger N. Gladstone, Peter R. Kent,
Robert H. Gladstone and Lester Rosenkrantz, respectively, to match, based upon a
formula set forth in the 401(k) plan, fiscal 1999 pre-tax salary reduction
deferral contributions (included herein under the column Salary). Dollar values
of our common stock contributed by us are based upon the closing price of our
common stock on the last trading day prior to our 1999 fiscal year end. The
matching contribution vests based upon years of service in accordance with a
formula set forth in our 401(k) plan,
17
<PAGE>
but the salary reduction deferral amount contributed by the employee is 100%
immediately vested upon deferral by such employee.
(3) Amounts shown in fiscal 1999 also represent dollar values of restricted
shares contributed by us and allocated to the account of four of the Named
Officers pursuant to the Deferred Compensation Plan of GKN Securities, our
wholly-owned subsidiary. Dollar values of common stock in the amounts of
$9,240, $8,957 and $8,962 were contributed by us in April 1999 to the GKN
Securities' Deferred Compensation Plan on behalf of David M. Nussbaum, Roger
N. Gladstone and Robert H. Gladstone, respectively, to match the amount of
fiscal 1999 pre-tax commission payout which was deferred (included herein
under the column All Other Compensation) by each of such persons,
respectively, and contributed by them to their respective accounts under the
Deferred Compensation Plan. Both the Named Officers' commission payout
deferred amount and the related GKN Securities matching contribution of our
Common Stock have a three year vesting period beginning at the end of the
applicable deferral year. Therefore, if a Named Officer leaves the employ of
GKN Securities prior to the end of the three year vesting period, such Named
Officer loses both GKN's Securities' matching contribution and the amount of
the commission payout which was deferred by such Named Officer pursuant to the
Deferred Compensation Plan. See "Compensation Arrangements - 1998 Deferred
Compensation Plan."
(4) Includes a payment in securities in various companies with a market value
of $876,250, $330,000 and $617,500 to David M. Nussbaum, Roger N. Gladstone
and Robert H. Gladstone, respectively.
(5) Includes a payment from the proceeds of the sale of options to purchase
securities in various companies of $147,911, $375,711, $92,703 and $7,811, to
David M. Nussbaum, Roger N. Gladstone, Robert H. Gladstone and Lester
Rosenkrantz, respectively.
Management cannot determine, without unreasonable effort or expense, the
specific amount of certain personal benefits afforded to its employees, or the
extent to which benefits are personal rather than business. Management has
concluded that the aggregate amounts of such personal benefits which cannot be
specifically or precisely ascertained do not in any event exceed, as to each
individual named in the preceding table, the lesser of $50,000 or 10% of the
compensation reported in the preceding table for such individual, and that
such information set forth in the preceding table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
Option Grants in Last Fiscal Year
No stock options were granted to the Named Officers during fiscal 1999.
18
<PAGE>
Option Exercises and Holdings
The following table sets forth information concerning the number and value
of unexercised options held by each of the Named Officers as of January 31,
1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options/SARs
Shares Options/SARs at at Fiscal Year-End ($)(2)
Acquired Value Fiscal Year-End (#)(1) --------------------------
on Exercise Realized ----------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David M. Nussbaum -0- -0- 20,000 -0- -0- -0-
Roger N. Gladstone -0- -0- 20,000 -0- -0- -0-
Peter R. Kent -0- -0- 70,000 -0- -0- -0-
Lester Rosenkrantz -0- -0- 25,000 -0- -0- -0-
Robert H. Gladstone -0- -0- 6,666 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares issuable upon exercise of options granted under the
1991 Plan.
(2) Based on the difference between the closing sale price of our common
stock on January 29, 1999 ($1 3/4) and the exercise price of the option
multiplied by the number of shares of common stock subject to the
option.
19
<PAGE>
Compensation Arrangements
o Employment Agreements Regarding Named Officers
We have employment agreements with each of David M. Nussbaum, Roger
N. Gladstone and Robert H. Gladstone which expired on April 30, 1999 but were
extended on a month-to-month basis by an employment letter agreement between
us and each of such persons, dated as of April 28, 1999. Each agreement
provides for a salary at the minimum rate of $20,000 per month and the
issuance of up to 15% of any underwriter warrants issuable to us in connection
with our 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 (an aggregate 60% pay-out) and they are also entitled to bonuses
under the IC Plan discussed below. The agreements continue until either we or
the employee gives the other notice to terminate the employment agreement at
the end of any month, at least thirty days prior to the end of such month,
unless terminated earlier under conditions set forth in the agreement.
Notwithstanding the foregoing, effective February 1, 1999, each of Messrs.
Nussbaum, Gladstone and Gladstone voluntarily agreed to waive one-half of
their base-salary until such time as we report two consecutive profitable
quarters. We also have an employment agreement with Peter R. Kent which
expired on April 30, 1999 but which was extended on a month-to-month basis by
an employment letter agreement between us and Mr. Kent, dated as of April 28,
1999. The agreement provides for a salary at a minimum rate of $16,666.67 per
month. Mr. Kent is also entitled to bonuses under the IC Plan. The agreement
continues until either we or Mr. Kent gives the other notice to terminate the
employment agreement at the end of any month at least thirty days prior to the
end of such month, unless terminated earlier under conditions set forth in the
agreement. The agreements with Messrs. Nussbaum, Gladstone, Gladstone and Kent
contain non-compete provisions, expiring one year after termination of
employment, which prohibit these persons from competing with us without our
prior written consent. Our Board approved the annual salary of Lester
Rosenkrantz as $175,000 for fiscal 1999 and fiscal 2000. Mr. Rosenkrantz is
also entitled to commissions on his brokerage business and bonuses under the
IC Plan.
o 1991 Employee Incentive Plan
In June 1991, we adopted and our 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 us and our subsidiaries. The
1991 Plan was adopted to provide our Board with sufficient flexibility
regarding the forms of incentive compensation which we will have at our
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.
Our Board has designated the Employee Incentive Committee to administer and
determine the distribution and terms of awards granted under the 1991 Plan,
pursuant to guidelines set forth in the 1991 Plan. During fiscal 1999, options
to purchase a total of 322,000 shares of our common stock at exercise prices
ranging from $2.63 to $4.50 were granted under the 1991 Plan. As of January
31, 1999, a total of 4,184,170 shares of our common stock remain reserved for
future issuance pursuant to the 1991 Plan.
o 1996 Incentive Compensation Plan
In July 1996, we adopted and our stockholders approved the IC Plan
which, as amended, 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. If our pre-tax,
pre-incentive compensation profits are sufficient to establish a bonus pool,
such bonus pool would then be distributed to management and business unit
managers, in majority part based upon a pre-fixed percentage determined in the
beginning of the fiscal year in question and to a lesser extent, based upon
the discretion of the Employee
20
<PAGE>
Incentive Committee after such fiscal year has ended. In the discretion of the
Employee Incentive Committee, up to 50% of the value of any award may be paid
in restricted shares of our common stock, and up to 100% may be paid in
restricted shares with the consent of the recipient. The "restricted" shares
will not vest, except in limited circumstances, until three years after the
date of grant. During fiscal 1999, no grants were made pursuant to the IC
Plan. A total of 714,950 shares of our common stock is currently reserved for
issuance under the IC Plan.
o 1998 Deferred Compensation Plan
In March 1998, our subsidiary, GKN Securities, adopted a deferred
compensation plan which was amended in March 1999, pursuant to which
management level employees or highly compensated employees of GKN Securities
may defer a percentage of his or her commission payout for a fiscal year. The
maximum deferral percentage is based upon the employee's prior year's annual
production, calculated in accordance with a formula set forth in the deferred
compensation plan, and his or her years with GKN Securities. Based upon the
actual deferral percentage by the employee, GKN Securities will match the
dollar amount of such deferral with a like amount of our Common Stock.
Both the employee's deferred commission payout amount and the related
GKN Securities matching contribution of our common stock have a three-year
vesting period commencing at the end of the applicable deferral year. Payment
of the deferred account balance is made after the completion of the three-year
vesting period, or earlier upon death.
We have deposited our shares in the deferred account balance and have
made a book entry of the amount deferred by eligible employees. However, the
deferred account balances are considered to be unfunded until they are
distributed by or vested in an employee because until then, they are subject
to forfeiture upon the occurrence of events referenced in the deferred
compensation plan.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The table which follows sets forth certain information as of May 28,
1999, with respect to the stock ownership of (i) those persons or groups known
to us to beneficially own more than 5% of our voting securities, (ii) each of
our director and director nominees, (iii) our Chief Executive Officer and our
other four most highly compensated executive officers whose compensation was
$100,000 or greater during fiscal 1999 (such persons are referred to as "Named
Officers") and (iv) all of our directors and executive officers as a group.
The information is determined in accordance with Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, based upon information furnished by the
persons listed or contained in filings made by them with the Securities and
Exchange Commission.
As of May 28, 1999, we had issued and outstanding 8,540,919 shares of
common stock and 1,140,000 shares of Series A Preferred Stock, referred to
hereinafter as Preferred Shares. As of May 28, 1999, each Preferred Share was
convertible into 0.16 shares of our common stock or 182,400 shares of our
common stock, in the aggregate. As of May 28, 1999, the outstanding common
stock and Preferred Shares collectively had voting power equivalent to
8,723,319 shares of our common stock, which is reflected in the information
set forth below in the table.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership* Voting Securities
<S> <C> <C>
David M. Nussbaum(1) .............................. 1,202,442 (2) 13.8%
Roger N. Gladstone(1) ............................. 1,188,275 (3) 13.6
Peter R. Kent ..................................... 115,087 (4) 1.3
Lester Rosenkrantz ................................ 41,430 (5) **
Robert H. Gladstone(1) ....... 498,275 (6) 5.7
James I. Krantz ................................... 171,875 (7) 2.0
Peter R. McMullin ................................. 100,112 (8) 1.1
Robert T. McAleer ................................. 90,112 (8) 1.0
John P. Margaritis ................................ 10,000 (9) **
Arnold B. Pollard ................................. 10,000 (9) **
Richard Y. Roberts ................................ 10,000 (9) **
Dr. Ernst Muller-Mohl(10) ......................... 1,150,000 13.2
All Executive Officers
and Directors as a group 3,437,608(11) 38.4%
(12 persons).....................................
</TABLE>
- ------------------------------
* For purposes of the information set forth above, all shares of our
Common Stock that an individual or group has a right to acquire within
60 days pursuant to the exercise of warrants or options or other
convertible securities are deemed to be currently owned and outstanding
for purposes of computing the percentage ownership of such individual or
group, but are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person shown in the table. Except
as indicated in the footnotes to the table, the securityholders listed
above possess sole voting and investment power with respect to their
securities, subject to community property laws where applicable.
** Less than 1%.
22
<PAGE>
(1) The business address of David M. Nussbaum and Robert H. Gladstone is
c/o GKN Securities Corp., One State Street Plaza, New York, New York
10004. The business address of Roger N. Gladstone is c/o GKN
Securities Corp., 433 Plaza Real, Boca Raton, Florida 33432.
(2) Includes 20,000 shares issuable upon exercise of options and 56,331
restricted shares issued to Mr. Nussbaum under the Company's 1996
Incentive Compensation Plan ("IC Plan"). The holders of the
restricted shares issued under the IC Plan ("IC Shares") have the
power to vote and the right to receive dividends with respect to such
shares but the IC Shares do not vest until March 2000 and may not be
transferred prior to that date. Does not include 35,000 shares held
by The Nussbaum Family Foundation, Inc., one of whose directors is
the spouse of Mr. Nussbaum. Mr. Nussbaum disclaims beneficial
ownership of the shares held by such foundation.
(3) Includes 20,000 shares issuable upon exercise of options and 42,164
IC Shares. Does not include 27,500 shares held by The Lisa and Roger
Gladstone Foundation, one of whose directors is the spouse of Roger
Gladstone. Roger Gladstone disclaims beneficial ownership of the
shares held by such foundation.
(4) Represents 70,000 shares issuable upon exercise of options and 45,087
IC Shares.
(5) Represents 25,000 shares issuable upon exercise of options and 16,430
IC Shares.
(6) Includes (i) 52,500 shares issuable upon exercise of options which
are held by Robert Gladstone's spouse, (ii) 56,331 IC Shares, and
(iii) 6,666 shares issuable upon exercise of options. Does not
include 5,000 shares held by The Robert Gladstone Family Foundation,
one of whose directors is the spouse of Robert Gladstone. Mr.
Gladstone disclaims beneficial ownership of the shares held by such
foundation.
(7) Includes 3,125 shares held by Mr. Krantz's spouse and 10,000 shares
issuable upon exercise of options. Does not include 1,000 shares
issuable upon exercise of options which become exercisable in
February 2000.
(8) Includes 49,152 shares of Common Stock which are issuable upon
conversion of 307,200 Preferred Shares.
(9) Represents 10,000 shares issuable upon exercise of options.
(10) The business address of Dr. Ernst Muller Mohl is Ramistr. 18, Zurich
8001, Switzerland.
(11) Includes the shares issuable upon exercise of options and included in
the table, as described in the above footnotes, and 98,304 shares of
Common Stock, in the aggregate, issuable upon conversion of Messrs.
McMullin's and McAleer's Preferred Shares, and excludes those shares
subject to options as indicated in the above footnotes as being
excluded from the table.
23
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with its corporate finance and investment banking
activities, GKN Securities is often issued warrants to purchase securities of
the issuer for whom its services are rendered ("Underwriter Warrants"). Less
than half of the aggregate number of Underwriter Warrants issuable to GKN
Securities are issued to its executive officers and other personnel involved
in the transaction (collectively the "Individual Holders"). GKN Securities
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 Securities 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.
We have purchased and continue to purchase insurance using York
International Agency, Inc. ("York") and York Financial Concepts, Inc. ("York
Financial") as our agent. James I. Krantz, one of our directors, is President
and Chief Executive Officer, a director and a stockholder of York and a
majority shareholder of York Financial. In fiscal 1999, we paid to York and
York Financial, respectively, premiums of $156,510 and $50,760 for insurance
policies purchased through York and York Financial, respectively (a portion of
which amounts are paid by the insurer to York and York Financial).
In the fiscal year ended January 31, 1995, we loaned to Mr. Lester
Rosenkrantz, our Executive Vice President and director, an aggregate of
$99,000. An additional $25,000 loan was made in the fiscal year ended January
31, 1996. Mr. Rosenkrantz repaid $10,000 in December 1995 and $20,000 in March
1996. In February 1998, we loaned to Mr. Rosenkrantz an additional $50,000. As
of January 31, 1999, the principal aggregate outstanding amount of the loans
to Mr. Rosenkrantz, amounted to $169,000. These loans are payable without
interest and are collateralized through the pledge by Mr. Rosenkrantz of his
interest in certain Underwriter Warrants.
Effective October 1, 1998, we sold to Dr. Ernst Muller-Mohl, a person
who beneficially owns more than 5% of our outstanding stock, all of the stock
we owned in GKN Asset Management AG, for Swiss francs 1 million (U.S.
$728,000). GKN Asset Management AG served as an investment advisor to Early
Bird, an investment company listed on the Swiss stock exchange. Also effective
October 1, 1998, Dr. Ernst Muller-Mohl purchased 300,000 shares of our common
stock for $1,050,000. In connection with this purchase, Dr. Muller-Mohl agreed
not to sell any shares of our common stock owned by him until September 30,
1999 without our consent and agreed not to purchase any additional shares of
our common stock until January 31, 2001 without our consent.
24
<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.
Dated: May 28, 1999 RESEARCH PARTNERS INTERNATIONAL, INC.
By:/s/ Richard M. Feldman
----------------------------------
Richard M. Feldman, Senior Vice
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ David M. Nussbaum Chairman of the Board and Chief Executive May 28, 1999
- --------------------------- Officer (Principal Executive Officer)
David M. Nussbaum
/s/ Roger N. Gladstone President and Director May 28, 1999
- ---------------------------
Roger N. Gladstone
/s/ Peter R. Kent Executive Vice President, Chief Operating May 28, 1999
- --------------------------- Officer and Director
Peter R. Kent
/s/ Lester Rosenkrantz Executive Vice President and Director May 28, 1999
- ---------------------------
Lester Rosenkrantz
/s/ Richard M. Feldman Senior Vice President and Chief Financial May 28, 1999
- --------------------------- Officer (Principal Accounting and Financial
Richard M. Feldman Officer)
/s/ Peter R. McMullin
- --------------------------- Executive Vice President, Chief Investment May 28, 1999
Peter R. McMullin Officer and Director
/s/ Robert T. McAleer
- --------------------------- Executive Vice President and Director May 28, 1999
Robert T. McAleer
/s/ James I. Krantz
- --------------------------- Director May 28, 1999
James I. Krantz
/s/ John P. Margaritis
- --------------------------- Director May 28, 1999
John P. Margaritis
/s/ Arnold B. Pollard Director May 28, 1999
- ---------------------------
Arnold B. Pollard
/s/ Richard Y. Roberts
- --------------------------- Director May 28, 1999
Richard Y. Roberts
</TABLE>
25
