<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 1996
--------------
CZECH INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-26202 521807562
---------- --------- -----------
(State or other jurisdiction (Commission File Number.) (IRS Employer
of incorporation) Identification No.)
15245 Shady Grove Road, Suite 340, Rockville, MD 20850
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 527-1110
---------------
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
THE DATE AND MANNER OF THE ACQUISITION. On August 1, 1996, Czech
Industries, Inc. (the "Company") purchased eighty percent (80%) of the issued
and outstanding capital stock of Eastbrokers Beteiligungs AG ("Eastbrokers"), a
Vienna, Austria based investment banking and brokerage firm. The Company issued
5.4 million newly issued, fully paid and non-assessable shares of common stock
of the Company as consideration for the shares of Eastbrokers. As further
described below, the consideration is subject to adjustment upon the earnings of
certain net profit targets and upon the receipt of certain net cash proceeds
from the future sale of the Company's interest in the Hotel Fortuna a.s.. The
shares issued have not been registered under the Securities Act of 1933 (the
"Act") and the holders have agreed not to sell these shares in any U.S. public
trading market for a period of two years from the closing.
Management believes the acquisition of Eastbrokers represents a unique
strategic fit between the Company and Eastbrokers. The Company has access to
and knowledge of the US capital markets and cash available to finance increased
trading activities and for expansion of Eastbrokers into other regions.
Eastbrokers has an historical record of growth and earnings, strong management
and the ability to conduct business and provide emerging market investment
opportunities not ordinarily available to US investors. In reaching its
conclusions, the board considered among other things, (i) information concerning
the financial performance and condition, business operations, capital levels
and prospects of the Company and Eastbrokers, their projected future results
as separate entities and on a combined basis, (ii) the current state of the
financial services industry in Eastern and Central Europe, including the
likelihood of increased competition and the potential of losing key employees to
competitors, (iii) the structure of the transaction, (iv) the potential
political and economic risk in the post communist and emerging markets of
Eastern and Central Europe, (v) the existing relationship between the Company
and Eastbrokers and any potential conflict of interest leading up to, during,
and subsequent to the consummation of the transaction, (vi) and the opinions of
its financial advisors described below as to the fairness from a financial
perspective of the consideration. In reaching its decision to approve the
Agreement, the board did not assign any relative weight to the various factors
considered and individual directors may have given differing weights to
different factors.
BRIEF DESCRIPTION OF EASTBROKERS. Eastbrokers is a holding company that,
through its subsidiaries, provides financial services in Eastern and Central
Europe. Eastbrokers was founded in 1991 after the fall of communism and upon
the commencement of privatization of the economies in the region. The principal
strategic objective of Eastbrokers has been to establish controlling ownership
of independent broker-dealers and to create a network that provides access to
emerging market investment opportunities in Eastern and Central Europe. The
company markets these investment opportunities to Western European institutional
and commercial investors.
Eastbrokers' primary business is to provide its customers with stock
brokering and investment banking services. The company conducts business
through its head office in Vienna, Austria and in regional offices located in
(a) Vienna, Austria, (b) Prague, Czech Republic, (c) Budapest, Hungary, (d)
Bratislava, Slovakia, (e) Almaty, Kazakhstan, (f) Istanbul, Turkey, (g) Moscow,
Russia, (h) Bucharest, Romania, (i) Sofia, Bulgaria, (j) Ljubljana,
Slovenia, (k) Zagreb, Croatia, and (l) Warsaw, Poland. Eastbrokers is a member
of the Vienna Stock Exchange, the Budapest Stock Exchange, the Bratislava Stock
Exchange, the Zagreb Stock Exchange, the Ljubljana Stock Exchange, Bucharest
Stock Exchange, the Central Asian Stock Exchange, the Warsaw Stock Exchange and
a shareholder and member of the Prague Stock Exchange. Eastbrokers also owns
48 percent of WMP Borsenmakler AG, a publicly held Austrian investment banking
and brokerage firm which is included in the Eastbrokers acquisition.
-2-
<PAGE>
Eastbrokers' brokerage, trading and market making business accounts for
approximately 80% of all revenues. Eastbrokers conducts its sales activities as
principal and agent on behalf of its clients. The company primarily distributes
and trades Eastern and Central European equity securities and to a lesser degree
debt securities. The company, through its subsidiary WMP Borsenmakler AG,
actively makes a market for the securities of more than 400 companies on the
Vienna Exchange.
Eastbrokers is also a leading Eastern and Central European investment
banking firm which provides advice to, and raises capital for Eastern and
Central European companies. The company provides advisory services on key
strategic matters such as mergers, acquisitions, privatizations, joint ventures
as well as long range financial planning. The company raises much of its
capital in Western Europe through institutional and commercial investors.
The new board of directors and the management of the Company are as
follows:
Petr Bednarik, Ing., Director
Randall F. Greene, Director
Wolfgang M. Kossner, Executive Vice President, Director
August A. de Roode, Chief Executive Officer, Director
Peter Schmid, President, Director
Martin A. Sumichrast, Chief Financial Officer, Executive Vice
President, Director
Michael Sumichrast, Ph.D., Chairman of the Board
A designee of Eastbrokers
August A. de Roode, a new member of the board of directors and the new
Chief Executive Officer of the Company, is 28 and one of three principal
shareholders of Eastbrokers Beteiligungs AG. Mr. de Roode joined Eastbrokers
as a managing director in 1993, and presently serves on the Supervisory
Boards of Eastbrokers' subsidiaries in Vienna, Budapest, Sofia and Moscow.
From 1990 to 1993, Mr. de Roode was an independent asset manager.
Wolfgang M. Kossner, also a new member of the board of directors, is 27
and a founder and one of three principal shareholders of Eastbrokers
Beteiligungs AG. From 1991 to 1993, Mr. Kossner served as the manager of
securities trading at WMP Borsenmakler AG, a Vienna based subsidiary of
Eastbrokers Beteiligungs AG. In 1993, Mr. Kossner became the managing director
of WMP Borsenmakler AG, and presently serves on the Supervisory Boards of
Eastbrokers' subsidiaries in Vienna, Budapest, Ljubljana and Zagreb. Prior to
1991, Mr. Kossner was a bond and derivatives trader for Raiffeisen Zentralbank,
an Austrian bank.
The other individuals listed above are continuing directors of the Company.
Peter Schmid, a continuing director of the Company, is a founder, one of three
principal shareholders of Eastbrokers, and the current President of Eastbrokers.
The Company's Bylaws have been amended to require the affirmative vote of
sixty-six and two thirds percent of the directors present at a meeting at which
a quorum is present to act upon
-3-
<PAGE>
Material Events. A Material Event is defined in the Bylaws as (i) any
merger, consolidation or other business combination to which the Corporation
or any Subsidiary is a party; (ii) any increase or reduction in the
authorized capital of the Corporation or any recapitalization of the
Corporation, or the creation of any additional class of stock of the
Corporation, or the sale, issuance, exchange, purchase or redemption of
shares of capital stock of any class of the Corporation now or hereafter
authorized, or any securities exchangeable for, or convertible into such
shares, or warrants or other instruments evidencing rights or options to
subscribe for, or otherwise acquire such shares; (iii) any sale, lease,
exchange, transfer or other disposition, directly or indirectly, in a single
transaction or series of related transactions, of any asset or assets of the
Corporation or any Subsidiary equivalent to or greater than 20% of the net
worth of the Corporation as reflected on the balance sheet most recent to the
date of such transaction; (iv) any purchase, lease, exchange or other
acquisition, directly or indirectly, in a single transaction or a series of
related transactions, of assets by the Corporation or any Subsidiary
equivalent to or greater than 20% of the net worth of the Corporation as
reflected on the balance sheet most recent to the date of such transaction;
(v) the nomination of a person or persons to serve as a member of the board
of directors of the Corporation or to act as chairman of the board; (vi) the
removal of any member of the board of directors of the Corporation; (vii) the
amendment of any employment agreement between the Corporation and any of its
officers; (viii) the designation of an Executive Committee and the
authorization or revision of the powers of such committee; or (ix) the
amendment of the Corporation's Certificate of Incorporation or Bylaws of
comparable governing instruments. Prior to the amendment, the Bylaws had no
provision relating to Material Events. Consequently, the above actions which may
have a significant and long term effect on the Company, including a change in
the control of the board of directors, will require a larger consensus of the
board of directors.
Further, the Eastbrokers shareholders who received the Company's stock have
agreed that for the three year period following the closing of the transaction,
they will vote their shares in favor of any recommendation of the board of
directors. Also, in respect of any vacancy created by the resignation, removal
or expiration of term of Dr. Michael Sumichrast, Martin A. Sumichrast, Randall
F. Greene and Ing. Petr Bednarik or any successor to such persons, such former
Eastbrokers shareholders will vote their shares in favor of the person
designated by the majority of the above mentioned directors.
The Bylaws have also been amended to provide at least five days notice
to each director of the time and place of regular board meetings and at least
five days notice of special board meetings called by the President or by the
Secretary on the written request of any two directors. Prior to this
amendment, the Bylaws did not require any notice to directors in the case of
regular meeting and at least two days notice of special meetings called by
the President or by the Secretary on the written request of any two directors.
The Bylaws have also been amended to require, for purposes of
constituting a quorum, a majority of directors composed of at least two Buyer
directors and two Seller directors. Further, in the event an equal number of
directors each favor and oppose an item of business upon which a vote is
called, and a deadlock results, the status quo shall be maintained until a
vote of the majority of the board of directors at a meeting at which a
quorum is present alters the status quo. For purposes of the section of the
Bylaws describing the quorum provision only, the term Buyer director means
lng. Petr Bednarik, Randall F. Greene, Michael Sumichrast, Ph.D., Martin A.
Sumichrast, or any successor to such person. The term Seller Director means
August A. de Roode, Wolfgang Kossner, Peter Schmid, any designee of
Eastbrokers Beteiligungs AG and successor to such person. Prior to this
amendment, a majority of the board of directors constituted a quorum, and the
Bylaws had no specific provision as to resolving potential deadlock vote of
the board of directors.
As soon as practicable, the Company intends to organize a Delaware
corporation ("Eastbrokers US"), and this subsidiary will act as a merchant
banking operation for the Company and its subsidiaries. Eastbrokers US intends
to facilitate investment by U.S. entities into companies targeted by Eastbrokers
for investment, facilitate merger and acquisition and related activities of the
Company, organize, raise investment capital for and manage offshore funds as
market conditions prevail and provide business consulting services to US based
companies. The Company intends to contribute from cash on hand, $100,000 to the
capital of Eastbrokers US in consideration of being issued 1,000,000 shares of
Eastbrokers US (representing 100% of its issued and outstanding shares).
Concurrently, the Company will also contribute from cash on hand, $900,000 to
Eastbrokers US in consideration of being issued 900,000 redeemable (at the
Company's option, after three years) preferred shares of Eastbrokers US.
Management of Eastbrokers US will include, among other persons, Martin A.
Sumichrast and Randall F.Greene. SEE the discussion below regarding material
relationships.
THE NATURE AND AMOUNT OF CONSIDERATION GIVEN. Subject to the terms and
conditions of the Stock Purchase Agreement dated June 14, 1996 (the
"Agreement"), a copy of which is attached to this Current Report on Form 8-K as
Exhibit 2, the Company has issued to shareholders of Eastbrokers 5,400,000
shares of newly issued, fully paid and non-assessable shares of common stock of
the Company (the "Purchase Price"). This Purchase Price is subject to the
following adjustments.
First, in the event that Eastbrokers earns Net Profits, as defined in the
Agreement, aggregating US $4 million or more (net of any loss incurred for the
fiscal year ending December 31,
-4-
<PAGE>
1996) for the two fiscal years ending December 31, 1998, the Company will issue
as additional Purchase Price an amount of shares not to exceed 600,000 of newly
issued, fully paid and non-assessable shares of common stock of the Company to
the shareholders of Eastbrokers. The Company's independent certified public
accountants will determine Net Profits and such determination will be binding
upon the parties. Second, the Purchase Price is subject to further adjustment
depending upon the net proceeds received from the possible future sale of the
Hotel Fortuna a.s. and the timing of such sale.
THE PRINCIPLE FOLLOWED IN DETERMINING THE AMOUNT OF SUCH CONSIDERATION.
The Company retained Randall F. Greene, an outside director and member of the
Company's audit committee, to lead a team of personnel to conduct a due
diligence investigation of Eastbrokers. The due diligence team reviewed and
evaluated the nature of Eastbrokers' and its subsidiaries' business from an
operations and financial point of view, provided an analysis to the board as
to the valuation of Eastbrokers, and reported to the board its recommendation as
to the advisability of the acquisition.
The Company also retained the investment banking firm of Heritage Capital
Corp. ("Heritage") to analyze and render an opinion concerning the fairness
from a financial point of view of the acquisition of Eastbrokers to the
shareholders of the Company. No limitations were imposed by the board of
directors upon Heritage with respect to the investigations made or procedures
followed by it in rendering its opinions. In arriving at its opinion,
Heritage reviewed the financial terms of the Agreement and discussed with
certain senior officers, representatives and advisors of the Company and
Eastbrokers the business, operations and prospects of the Company and
Eastbrokers. Heritage examined certain publicly available business and
financial information relating to Eastbrokers as well as certain financial
forecasts and other data provided by the Company and Eastbrokers. Heritage
reviewed the financial terms of the Acquisition as set forth in the Agreement
in relation to, among other things: current and historical market prices of
the common stock of the Company, the book value and earnings per share of
common stock of the Company and Eastbrokers, and the capitalization and
financial condition of the Company and Eastbrokers. Heritage did not
undertake an independent appraisal or evaluation of the assets or liabilities
of the Company or Eastbrokers.
In arriving at its opinion, Heritage stated that it believed that the
price/earnings, price/book value and price/revenue ratios are the best
indication of the value of Eastbrokers and the discounted cash flows tend to
support these values. Heritage also stated that it believed that the 1996 pro
forma earnings per share for the Company stand alone and the Company combined
with Eastbrokers are the best indications of the relative value of the Company
stand alone and the Company combined with Eastbrokers. Heritage put no
weight on comparable acquisitions of publicly traded U.S. regional brokerage and
investment banking firms. Based on its analysis, Heritage concluded that the
acquisition of Eastbrokers and the consideration paid therefore was fair from
a financial point of view to the shareholders of the Company.
The statement in this Report regarding certain procedures followed in
determining the amount of consideration paid for the acquisition of Eastbrokers
is not the opinion, in whole or in part, of Heritage or of the Company. This
statement describes only the primary procedures, and not all of
-5-
<PAGE>
the factors, used by Heritage in determining whether the acquisition was from a
financial point of view fair to the stockholders of the Company.
IDENTITY OF PERSONS FROM WHOM THE ASSETS WERE ACQUIRED. The shares of
Eastbrokers were acquired from the following persons:
(a) KHS Beteiligungs AG
(b) Central and Eastern Europe Fund
(c) Karntner Landes und Hypothekenbank AG (for their own account and as
nominee)
(d) A. A. de Roode
(e) VCH Vermogensverwaltung und Holding Ges.m.b.H.
KHS Beteiligungs AG is controlled by Wolfgang Kossner and Peter Schmid. VCH
Vermogensverwaltung und Holding Ges.m.b.H. is controlled by August Andre de
Roode.
THE NATURE OF ANY MATERIAL RELATIONSHIPS BETWEEN THE PERSONS LISTED ABOVE
AND THE COMPANY, ITS OFFICERS, DIRECTORS, AFFILIATES OR ANY ASSOCIATES OF
SUCH OFFICER OR DIRECTOR. Peter Schmid, a director of the Company and the
President and a principal shareholder of Eastbrokers, has received, either
directly or indirectly, a proportionate share of the 2,094,125 newly issued,
fully paid and non-assessable shares of common stock of the Company issued to
KHS Beteiligungs AG as consideration for his shares of Eastbrokers (KHS
Beteiligungs AG is controlled by Wolfgang M. Kossner and Peter Schmid). As
further consideration, Mr. Schmid may receive additional shares of common
stock of the Company subject to the earnings of certain net profit targets
and upon the receipt of certain net cash proceeds from the future sale of the
Hotel Fortuna a.s., as described above. The shares Mr. Schmid has received
have not been registered under the Securities Act of 1933 (the "Act") and Mr.
Schmid has agreed not to sell these shares in any U.S. public trading market
for a period of two years from the closing. Mr. Schmid has also agreed not
to sell his shares on any United States public trading market for a period of
two years from August 1, 1996, and the shares issued to Mr. Schmid bear a
legend restricting their sale or transfer in accordance with such agreement.
The Company has also entered into employment agreements with Mr. de
Roode, Mr. Schmid and Mr. Kossner, effective as of August 1, 1996. Mr. de
Roode will become the Chief Executive Officer of the Company, Mr. Schmid will
become the President and Chief Operating Officer and Mr. Kossner will become
an Executive Vice President. The employment agreements will expire on
August 1, 1999, and will have an additional three-year renewal option
following the expiration date, unless contrary notice is given by either
party. The annual salaries under the employment agreements are $120,000. The
salaries will be paid by a subsidiary of the Company and guaranteed by the
Company. The salaries may be increased to reflect annual cost of living
increases and may be supplemented by discretionary merit and performance
increases as determined by a Compensation Committee, which consists of three
outside directors of the Company, except that during the first three years
following August 1, 1996 the salaries may not exceed $150,000. Under the
employment agreements Messrs. de Roode, Schmid and Kossner will be eli-
-6-
<PAGE>
gible to receive an annual bonus of $30,000, which will not be subject to any
performance criteria. The agreements provide, among other things, for
participation in an equitable manner in any profit-sharing or retirement plan
for employees or executives and for participation in other employee benefits
applicable to employees and executives of the Company. The agreements provide
that the Company will establish a performance incentive bonus plan providing
Messrs. de Roode, Schmid and Kossner the opportunity to earn an annual bonus of
up to five percent of the increase in the Company's pretax income, based upon
the attainment of performance goals to be established by the Compensation
Committee of the Company. The Agreements further provide for the use of an
automobile and other fringe benefits commensurate with their duties and
responsibilities. The Agreements also provide for benefits in the event of
disability.
Pursuant to the Stock Purchase Agreement dated June 14, 1996, the Company
issued an aggregate of 1.0 million Stock Options ("Options") to Wolfgang
Kossner, August A. de Roode, Peter Schmid, and Sumichrast Enterprises, Inc.,
a holding company owned and controlled by Martin A. Sumichrast. The Options
are non-qualified stock options. The exercise price of the Options are
$2.00. At the time the Options were granted, the price of the Company's
stock was approximately $1.50. The Options may not be exercised until the
expiration of six months from the date of August 1, 1996, and the Options are
no longer exercisable five years from the date of August 1, 1996. The Options
are subject to a number of restrictions, including continued employment, and
shall not be transferred other than by will or by the laws of descent and
distribution. The Options are exercisable, during the grantees' lifetime,
only by the grantee or by the legal guardian or legal representative of the
grantee. The Company has agreed to file a Form S-8 Registration Statement
under the Securities Act of 1933 (the "Act") with respect to the shares of
common stock subject to the Options. Any fees or expenses arising out of
or resulting from the filing of such registration statement will be the
responsibility of the Company. In the event such registration statement
cannot be filed or is not effective with respect to such shares at the time
the Option is exercised, the Company will require that the offer and sale of
such shares be exempt from the registration provisions of the Act.
The Company issued to Randall F. Greene, a director of the Company, 50,000
shares of fully paid and non-assessable shares of common stock of the Company
and paid Mr. Greene a $20,000 expense allowance as consideration for providing
professional and advisory services to the Company. Mr. Greene reviewed and
evaluated the nature of the business of Eastbrokers' and its subsidiaries,
assisted in a due diligence investigation, provided an analysis to the board as
to the advisability of the acquisition of Eastbrokers by the Company, and
provided advice, support and assistance to the board and such financial,
accounting and legal advisors as retained by the board in investigating,
evaluating, negotiating and closing the agreement.
As stated above, the Company intends to organize a Delaware corporation
("Eastbrokers US"), and this subsidiary will act as a merchant banking operation
for the Company and its subsidiaries. Management of this subsidiary will
include, among other persons, Martin A. Sumichrast, Chief Financial Officer and
a director of the Company, and Randall F. Greene, a director of the Company
("Sumichrast" and "Greene," respectively). Eastbrokers US intends to issue to
its management an amount of Class A Warrants to purchase Eastbrokers US common
stock that will allow management to buy a 52% controlling equity interest over a
three year period. Sumichrast and Greene shall be granted 330,000 (or 30%) and
275,000 (or 25%), respectively, of the total amount of Class A
-7-
<PAGE>
Warrants issued. The remaining class of warants shall be granted to other
members of management. If each person exercises the full amount of Options
granted at the earliest possible date, Sumichrast and Greene shall own
approximately 15.7% and 13.1%, respectively, of Eastbrokers US at the end of
a three year period commencing on June 14, 1996. Thirty (30%) percent of
the Class A Warrants issued shall vest and become exercisable commencing one
year from the date of June 14, 1996, thirty (30%) percent of the Class A
Warrants shall vest and become exercisable commencing two years from the date
of June 14, 1996 and forty (40%) percent of the Class A Warrants shall vest
and become exercisable commencing three years from the date of June 14, 1996.
Vesting shall be conditioned upon the holders continued management
participation in Eastbrokers US during the vesting period and will accelerate
in the event of termination without cause. Each Class A Warrant entitles the
holder to purchase one share of common stock of Eastbrokers US for $.15 each
for a period of five years from the date of June 14, 1996. Other terms and
conditions of the Class A Warrants shall be subject to a mutually
satisfactory warrant agreement. No additional shares of Eastbrokers US shall
be issued during the three years from the date of June 14, 1996, unless
unanimously agreed upon by the Board of Directors of the Company. Sumichrast
and Greene shall also receive performance based compensation tied to the
earnings of the Eastbrokers US. At the time of this filing, Eastbrokers US
paid no salary to Sumichrast or Greene.
OTHER INFORMATION. The Company has been advised by the NASDAQ Stock
Market, Inc. ("Nasdaq") that in the view of Nasdaq, the company's acquisition of
Eastbrokers will result in a change of control of the Company. Based upon
this, Nasdaq has indicated that, in order to maintain its listing, the Company
must meet all of the criteria for initial listing on the NASDAQ SmallCap Market
System. The Company believes that the acquisition of Eastbrokers does not
trigger the need to meet initial listing requirements and intends to request a
hearing before the Nasdaq Listing Qualifications Committee. Although the
Company meets all the initial listing criteria with the exception of the $3.00
bid price, there can be no assurance that a favorable decision by the committee
will be obtained.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The financial statements being filed with this Report are as follows:
(1) Czech Industries, Inc. Pro Forma Condensed Financial Statements
For the Year Ended December 31, 1995 and the Three Months Ended March 31, 1996;
(2) Eastbrokers Beteiligungs Aktiengesellschaft For the Years Ended
December 31, 1994 and 1995 (unaudited) and the Three Months Ended March 31, 1996
(unaudited); and
(3) WMP Borsenmakler Aktiengesellschaft for the Years Ended December
31, 1994 and 1995 (unaudited) and the Three Months Ended March 31, 1996
(unaudited).
(b) Exhibits required by Item 601 of Regulation S-B.
Exhibit No. Exhibit
- ------------ -------
(2) Stock Purchase Agreement dated as of June 14, 1996 and
Exhibits a through j.
-8-
<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 hereunto duly authorized.
Czech Industries, Inc.
------------------------------------------
(Registrant)
Date August 7, 1996 By: Martin A. Sumichrast
----- -------- --------------------------------------
(Signature)
Martin A. Sumichrast, Chief Financial Officer
-9-
<PAGE>
EXHIBIT INDEX
Exhibit Number Document Page Number
- -------------- -------- -----------
(2) Stock Purchase Agreement dated 44
as of June 14, 1996 and Exhibits A-J
-10-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-------
Pro forma Condensed Consolidated Statements
of Operations F-2 & 3
Notes to Pro forma Condensed Consolidated
Statements of Operations F-4
Pro forma Condensed Consolidated Statement
of Financial Condition F-5 & 6
Notes to Pro forma Condensed Consolidated
Statements of Operations F-7
F-1
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
The following unaudited Pro forma Condensed Consolidated Statements of
Operations are presented as if Czech Industries, Inc. (the "Company") had owned
Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers AG") as of January 1,
1995 and the purchase for stock by Czech Industries, Inc. had occurred at the
beginning of each period. The unaudited Pro forma Condensed Consolidated
Statements of Operations should be read in conjunction with the historical
financial statements of the Company included elsewhere herein. In management's
opinion, all adjustments necessary to reflect the acquisition transactions have
been made.
These unaudited Pro forma Condensed Consolidated Statements of Operations are
not necessarily indicative of what the actual results of operations the Company
would have been assuming the acquisition transactions had been consummated as of
the beginning of each period, nor does it purport to represent the results of
operations attainable for future periods.
F-2
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
CZECH EASTBROKERS PRO FORMA PRO FORMA
INDUSTRIES, INC. AG ADJUSTMENT AS ADJUSTED
---------------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Investment bank revenues $ - $4,220,481 $ - $4,220,481
Hotel revenues 2,470,077 - - 2,470,077
Gain on sales of investments 637,417 - - 637,417
Equity in earnings of affiliates - 644,904 - 644,904
Other 615,994 1,376,068 - 1,992,062
----------- ----------- ----------- -----------
Total revenues 3,723,488 6,241,453 - 9,964,941
----------- ----------- ----------- -----------
Expenses
Cost of sales 277,051 - - 277,051
Compensation and benefits 889,536 1,183,471 - 2,073,007
General and administrative 1,092,494 3,154,564 - 4,247,058
Interest 395,493 558,815 - 954,308
Depreciation and amortization 400,847 135,882 - 536,729
Loss on foreign currency exchange 161,571 - - 161,571
----------- ----------- ----------- -----------
Total expenses 3,216,992 5,032,732 - 8,249,724
----------- ----------- ----------- -----------
Income before provision for income
taxes and minority interest in
earnings of consolidated
subsidiaries 506,496 1,208,721 - 1,715,217
Provision for (benefit from)
income taxes 70,383 253,721 - 324,104
----------- ----------- ----------- -----------
Income before minority interest
in earnings of consolidated
subsidiaries 436,113 955,000 - 1,391,113
Minority interest in earnings of
consolidated subsidiaries (180,315) (84,973) (174,005)(d) (439,293)
----------- ----------- ----------- -----------
Net income $ 255,798 $ 870,027 $ (174,005) $951,820
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Pro forma weighted average
shares outstanding 8,905,000 528,913 - 14,405,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Pro forma earnings per share $ 0.03 $ 1.64 $ - $ 0.07
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------------
CZECH EASTBROKERS PRO FORMA PRO FORMA
INDUSTRIES, INC. AG ADJUSTMENT AS ADJUSTED
---------------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Investment bank revenues $ - $1,081,902 $ - $1,081,902
Hotel revenues 478,044 - - 478,044
Gain on sales of investments 327,104 - - 327,104
Equity in earnings of affiliates - 179,516 - 179,516
Other 79,954 253,476 - 333,430
----------- ---------- ------------ ----------
Total revenues 885,102 1,514,894 - 2,399,996
----------- ---------- ------------ ----------
Expenses
Cost of sales 39,525 - - 39,525
Compensation and benefits 233,267 241,149 - 474,416
General and administrative 341,036 910,155 - 1,251,191
Interest 46,920 108,289 - 155,209
Depreciation and amortization 99,742 17,482 - 117,224
Loss on foreign currency exchange 12,653 - - 12,653
----------- ---------- ------------ ----------
Total expenses 773,143 1,277,075 - 2,050,218
----------- ---------- ------------ ----------
Income before provision for income
taxes and minority interest in
earnings of consolidated
subsidiaries 111,959 237,819 - 349,778
Provision for (benefit from)
income taxes - 63,966 - 63,966
----------- ---------- ------------ ----------
Income before minority interest
in earnings of consolidated
subsidiaries 111,959 173,853 - 285,812
Minority interest in earnings of
consolidated subsidiaries (5,727) (109,906) (12,789)(d) (128,422)
----------- ---------- ------------ ----------
Net income $ 106,232 $ 63,947 $ (12,789) $157,390
----------- ---------- ------------ ----------
----------- ---------- ------------ ----------
Pro forma weighted average
shares outstanding 8,905,000 528,913 - 14,405,000
----------- ---------- ------------ ----------
----------- ---------- ------------ ----------
Pro forma earnings per share $ 0.01 $ 0.12 $ - $ 0.01
----------- ---------- ------------ ----------
----------- ---------- ------------ ----------
</TABLE>
See notes to pro forma consolidated financial statements.
F-3
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
Assumptions:
1. Czech Industries, Inc. acquired eighty percent of the outstanding
capital stock of Eastbrokers Beteiligungs Aktiengesellschaft as of the
beginning of each period for five million four hundred thousand shares
of Czech Industries, Inc. (The value assigned to this transaction by
the Board of Directors was $5,400,000.)
Adjustments:
(d) Adjustment to recognize the minority shareholders interest in the net
income of Eastbrokers Beteiligungs Aktiengesellschaft for each of the
periods presented.
F-4
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
The following unaudited Pro forma Condensed Consolidated Statement of Financial
Condition is presented as if Czech Industries, Inc. (the "Company") had owned a
controlling interest in Eastbrokers Beteiligungs Aktiengesellschaft
("Eastbrokers AG") as of March 31, 1996. This unaudited Pro forma Condensed
Consolidated Statement of Financial Condition should be read in conjunction with
the historical financial statements of the Company included elsewhere herein.
In management's opinion, all adjustments necessary to reflect the acquisition
transactions have been made.
This unaudited Pro forma Condensed Consolidated Statement of Financial Condition
is not necessarily indicative of what the actual financial position of the
Company would have been assuming the acquisition transactions had been
consummated as of March 31, 1996, nor does it purport to represent the future
financial position of the Company.
F-5
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
CZECH EASTBROKERS ADJUSTMENT PROFORMA PROFORMA
INDUSTRIES, INC. AG FOR PURCHASE ADJUSTMENT AS ADJUSTED
---------------- ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 5,316,258 $ 1,605,950 $ - $ 2,448,366 (c) $ 9,370,574
Securities purchased under
agreements to resell - 78,443 - - 78,443
Receivables 319,017 18,074,974 - - 18,393,991
Securities owned, at value - 2,547,512 - - 2,547,512
Inventories 29,883 - - - 29,883
Investments held for resale 1,677,623 2,448,366 - (2,448,366)(c) 1,677,623
Other current assets 235,517 137,710 - - 373,227
------------ ------------ ------------ ------------ -----------
Total current assets 7,578,298 24,892,955 - - 32,471,253
Property and equipment, net 18,329,273 644,843 - - 18,974,116
Investments in affiliated companies - 5,736,600 5,400,000 (a) (5,400,000)(b) 5,736,600
Other assets 33,236 94,737 - 302,180 (b) 430,153
------------ ------------ ------------ ------------ -----------
Total Assets $ 25,940,807 $ 31,369,135 $ 5,400,000 $ (5,097,820) $57,612,122
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ - $ 3,666,617 $ - $ - $ 3,666,617
Payables - 16,884,258 - - 16,884,258
Accounts payable and accrued expenses 195,778 363,368 - - 559,146
Other liabilities and deferred amounts - - - - -
------------ ------------ ------------ ------------ -----------
Total current liabilities 195,778 20,914,243 - - 21,110,021
------------ ------------ ------------ ------------ -----------
Long-term borrowings 2,026,432 3,235,347 - - 5,261,779
------------ ------------ ------------ ------------ -----------
Total liabilities 2,222,210 24,149,590 - - 26,371,800
------------ ------------ ------------ ------------ -----------
Minority interest in consolidated
subsidiaries 9,358,955 847,270 - 1,274,455 (b) 11,480,680
------------ ------------ ------------ ------------ -----------
Stockholders' equity 14,359,642 6,372,275 5,400,000(a) (6,372,275)(b) 19,759,642
------------ ------------ ------------ ------------ -----------
Total Liabilities and
Stockholders' Equity $ 25,940,807 $ 31,369,135 $ 5,400,000 $ (5,097,820) $ 57,612,122
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
</TABLE>
See notes to consolidated pro forma financial statements.
F-6
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
Assumptions:
1. Czech Industries, Inc. acquired eighty percent of the outstanding
capital stock of Eastbrokers Beteiligungs Aktiengesellschaft
("Eastbrokers AG") as of March 31, 1996 for five million four hundred
thousand shares of Czech Industries, Inc. common stock. (The value
assigned to this transaction by the Board of Directors was
$5,400,000.)
2. Investments held for resale by Eastbrokers AG were sold at their
carrying value for cash.
Adjustments:
(a) Purchase of eighty percent of the outstanding capital stock of
Eastbrokers AG for five million four hundred thousand shares of Czech
Industries, Inc. common stock valued at five million four hundred
thousand dollars ($5,400,000).
(b) Consolidation of Eastbrokers AG into Czech Industries, Inc.,
recognition of minority interest in the equity of Eastbrokers AG, and
recording the goodwill related to the purchase as March 31, 1996.
Common stock valued at $5,400,000 was used to acquire net assets of
$5,097,820 leaving goodwill acquired of $302,180.
(c) Cash is increased by $2,448,366 as of March 31, 1996 to reflect the
sale of investments held for resale by Eastbrokers AG.
F-7
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----------
Report of Independent Public Accountants F-2
Financial Statements
Consolidated Statements of Financial Condition F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Eastbrokers Beteiligungs Aktiengesellschaft
The consolidated statements of financial condition of Eastbrokers Beteiligungs
Aktiengesellschaft, as of December 31, 1994 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended have been prepared from the consolidated
financial statements, which are not presented separately herewith, of
Eastbrokers Beteiligungs Aktiengesellschaft presented in accordance with
generally accepted accounting principles in Austria, as described in Note 1. We
have reviewed for compilation only the consolidated financial statements, and,
in our opinion, those statements have been properly compiled from the amounts
and notes of the underlying financial statements of Eastbrokers Beteiligungs
Aktiengesellschaft and its subsidiaries, on the basis described in Note 1.
The financial statements for Eastbrokers Beteiligungs Aktiengesellschaft and its
subsidiaries, presented in accordance with generally accepted accounting
principles in Austria were audited by other auditors as set forth in their
reports included elsewhere herewith. We have not been engaged to audit the
consolidated financial statements of Eastbrokers Beteiligungs Aktiengesellschaft
in accordance with generally accepted auditing standards and to render an
opinion as to the fair presentation of such consolidated financial statements in
accordance with generally accepted accounting principles in Austria.
The consolidated financial statements of Eastbrokers Beteiligungs
Aktiengesellschaft in accordance with generally accepted accounting principles
in Austria have been converted to the accompanying consolidated financial
statements presented in accordance with generally accepted accounting principles
in the United States of America, on the basis described in Note 1. We have
reviewed this conversion and, in our opinion, the compiled consolidated
financial statements described in the first paragraph of this report have been
properly converted to a presentation in accordance with generally accepted
accounting principles in the United States of America.
The United States dollar amounts shown in the accompanying consolidated
financial statements have been translated solely for convenience. We have
reviewed this translation and, in our opinion, the compiled consolidated
financial statements expressed in Austrian Schillings have been translated into
dollars on the basis described in Note 1.
July 15, 1996
F-2
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------- -------------
1994 1995 1996
------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,169,542 $ 751,329 $ 1,559,217
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations 6,168 43,385 46,733
Securities purchased under agreements to resell 2,067,267 1,530,020 1,364,842
Receivables
Customers 1,429,007 14,893,133 14,694,205
Broker dealers and other 553,471 2,184,644 2,569,065
Affiliated companies 1,104,235 741,740 811,704
Securities owned, at value
Equities and other 328,272 3,168,924 1,261,113
Furniture and equipment, at cost (net of accumulated
depreciation and amortization of $235,493,
$346,242 and $389,522 respectively) 356,089 653,971 644,843
Deferred taxes 168,532 142,000 137,710
Investments held for resale 19,807 2,668,594 2,668,594
Investments in affiliated companies 2,010,558 5,546,822 5,516,372
Other assets 82,498 245,797 94,737
-------------- -------------- -------------
Total Assets $ 9,295,446 $ 32,570,359 $ 31,369,135
-------------- -------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings
Lines of credit $ 640,527 $ 1,624,961 $ 1,814,434
Affiliated companies 421,173 1,947,845 1,948,371
Payables
Customers 3,315,192 17,232,222 14,396,558
Broker dealers and other 527,819 1,223,827 2,487,700
Accounts payable and accrued expenses 348,707 888,376 1,080,027
-------------- --------------- -------------
5,253,418 22,917,231 21,727,090
Long-term borrowings - 2,422,500 2,422,500
-------------- --------------- -------------
Total liabilities 5,253,418 25,339,731 24,149,590
-------------- --------------- -------------
Minority interest in consolidated subsidiaries 613,559 794,615 847,270
-------------- --------------- -------------
Stockholders' equity
Capital stock 3,018,000 4,803,600 4,803,600
Paid-in capital - 178,560 178,560
Unrestricted retained earnings 160,742 1,030,769 1,094,716
Restricted retained earnings 14,934 14,934 14,934
Cumulative translation adjustment 234,793 408,150 280,465
------------- ------------- -------------
Total stockholders' equity 3,428,469 6,436,013 6,372,275
-------------- --------------- -------------
Total Liabilities and Stockholders' Equity $ 9,295,446 $ 32,570,359 $ 31,369,135
-------------- --------------- -------------
-------------- --------------- -------------
</TABLE>
See report of Independent Public Accountants.
See notes to consolidated financial statements.
F-3
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------------------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>>
Revenues
Commissions $ 603,384 $ 1,506,946 $ 192,650 $ 467,383
Interest and dividends 146,008 629,881 22,758 184,374
Principal transactions-net
Trading 1,941,560 2,818,947 385,929 573,874
Investment 38,693 (105,412) (17,205) 40,645
Management fees - 481,353 48,050 7,056
Other 243,662 264,834 21,100 62,046
Equity in earnings (loss) of unconsolidated affiliates 311,843 644,904 (15,411) 179,516
------------ ------------ ------------ ------------
Total revenues 3,285,150 6,241,453 637,871 1,514,894
------------ ------------ ------------ ------------
Costs and expenses
Compensation and benefits 265,790 1,183,471 91,142 241,149
Interest 158,927 558,815 33,020 108,289
Brokerage, clearing, exchange fees, and other 115,326 954,169 44,979 279,179
Occupancy and equipment 37,919 386,533 7,625 151,360
Communications 15,680 109,624 8,500 24,206
General and administrative 1,967,715 1,704,238 513,740 455,410
Depreciation and amortization 53,806 135,882 7,158 17,482
------------ ------------ ------------ ------------
Total costs and expenses 2,615,163 5,032,732 706,164 1,277,075
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes
and minority interest in earnings of subsidiaries 669,987 1,208,721 (68,293) 237,819
Provision for income taxes 113,646 253,721 22,472 63,966
Minority interest in earnings of subsidiaries 90,845 84,973 32,535 109,906
------------ ------------ ------------ ------------
Net income (loss) $ 465,496 $ 870,027 $ (123,300) $ 63,947
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Weighted capital shares outstanding
Registered (par value 500,000 ATS) 2 2 2 2
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Registered (par value 1,000 ATS) 1 1 1 1
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Bearer (par value 1,000 ATS) 120 120 120 120
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Bearer (par value 100 ATS) 348,790 528,790 348,790 528,790
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Earnings (loss) per capital share
Registered (par value 500,000 ATS) $ 6,465.22 $ 8,055.81 $ (1,712.50) $ 592.10
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Registered (par value 1,000 ATS) $12.93 $ 16.11 $ (3.43) $ 1.18
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Bearer (par value 1,000 ATS) $12.93 $ 16.11 $ (3.43) $ 1.18
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Bearer (par value 100 ATS) $1.29 $ 1.61 $ (0.34) $ 0.12
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
See Report of Independent Public Accountants.
See notes to consolidated financial statements.
F-4
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (UNAUDITED) AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
UNRESTRICTED RESTRICTED CUMULATIVE
CAPITAL PAID-IN RETAINED RETAINED TRANSLATION
STOCK CAPITAL EARNINGS EARNINGS ADJUSTMENT TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 1,965,600 $ - $ (293,016) $ 3,196 $ 14,509 $ 1,690,289
Net income - - 465,496 - - 465,496
Restriction of retained earnings in
accordance with regulatory
requirements - - (11,738) 11,738 - -
Issuance of capital stock 1,052,400 - - - - 1,052,400
Translation adjustment - - - - 220,284 220,284
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1994 3,018,000 - 160,742 14,934 234,793 3,428,469
Net income - - 870,027 - - 870,027
Issuance of capital stock 1,785,600 178,560 - - - 1,964,160
Translation adjustment - - - - 173,357 173,357
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1995 4,803,600 178,560 1,030,769 14,934 408,150 6,436,013
Net income - - 63,947 - - 63,947
Translation adjustment - - - - (127,685) (127,685)
------------ ------------ ------------ ------------ ------------ ------------
Balances at March 31, 1996 $ 4,803,600 $ 178,560 $ 1,094,716 $ 14,934 $ 280,465 $ 6,372,275
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
See Report of Independent Public Accountants.
See notes to consolidated financial statements.
F-5
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- ---------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 465,496 $ 870,027 $ (123,300) $ 63,947
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 53,806 135,882 7,158 17,482
Deferred taxes 1,091 26,532 (22,238) 4,290
Equity in earnings (loss) of unconsolidated affiliates 311,843 644,904 (15,411) 179,516
------------ ------------ ------------ ------------
832,236 1,677,345 (153,791) 265,235
Changes in operating assets and liabilities
Cash and securities segregated for
regulatory purposes (6,168) (37,217) - -
Securities purchased to resell (2,067,267) 537,247 (22,229) 165,178
Receivables
Customers 8,384,951 (13,464,126) 842,580 198,928
Broker dealers and other (398,007) (1,631,173) (147,675) (384,421)
Affiliated companies (495,210) 362,495 (166,115) (69,964)
Securities owned, at value 1,055,514 (2,840,652) 45,329 1,907,811
Other assets (12,299) (163,299) 4,199 151,060
Payables
Customers (10,251,656) 13,917,030 (114,516) (2,835,664)
Affiliated companies 237,940 696,008 (526,938) 1,263,873
Accounts payable and accrued expenses 246,369 539,669 96,450 191,651
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (2,473,597) (406,673) (142,706) 853,687
------------ ------------ ------------ ------------
Cash flows from investing activities
Net proceeds from (payments for)
Investments in affiliates (1,028,731) (4,181,168) (238,921) (149,066)
Investments held for resale 64,617 (2,648,787) - -
Purchases of furniture and equipment (276,863) (433,764) (34,652) (8,354)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (1,240,977) (7,263,719) (273,573) (157,420)
------------ ------------ ------------ ------------
Cash flows from financing activities
Net proceeds from (payments for)
Short-term financings 692,769 2,511,106 (97,634) 189,999
Other long-term debt - 2,422,500 281,941 -
Issuance of capital stock for cash 1,052,400 1,964,160 - -
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 1,745,169 6,897,766 184,307 189,999
------------ ------------ ------------ ------------
Foreign currency translation adjustment 440,264 354,413 419,592 (78,378)
------------ ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (1,529,141) (418,213) 187,620 807,888
Cash and cash equivalents at beginning of period 2,698,683 1,169,542 1,169,542 751,329
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,169,542 $ 751,329 $ 1,357,162 $ 1,559,217
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 93,191 $ 213,262 $ 22,472 $ 63,966
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash paid for interest $ 158,927 $ 558,815 $ 33,020 $ 108,289
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See Report of Independent Public Accountants.
See notes to consolidated financial statements.
F-6
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Eastbrokers Beteiligungs
Aktiengesellschaft and its subsidiaries ("Eastbrokers" or the "Company").
All significant intercompany balances and transactions have been
eliminated. These consolidated financial statements reflect, in the
opinion of management, all adjustments (consisting of normal, recurring
accruals) necessary for a fair presentation of the consolidated financial
position and the results of the operations of the Company.
The Company's financial statements have been converted to generally
accepted accounting principles in the United States ("U.S. GAAP"). The
financial statements which were converted were prepared in accordance with
the Austrian Commercial Code, which represents generally accepted
accounting principles in Austria ("Austrian GAAP"). Generally accepted
accounting principles in Austria vary in certain significant respects from
generally accepted accounting principles in the United States. The primary
significant differences are related to deferred income taxes and the
valuation of the securities portfolios.
Substantially all of the Company's financial assets and liabilities, as
well as financial instruments with off-balance sheet risk, are carried at
market or fair values or are carried at amounts which approximate current
fair value because of their short-term nature. Estimates of current value
are made at a specific point in time, based on relevant market information
and information about the financial instrument, specifically, the value of
the underlying financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument.
Accounts receivable from and payable to customers include amounts due on
cash transactions. Securities owned by customers are held as collateral
for these receivables. Such collateral is not reflected in the
consolidated financial statements.
Securities sold under agreements to resell are treated as financing
arrangements and are carried at contract amounts reflecting the amounts at
which the securities will be subsequently resold as specified in the
respective agreements. The Company takes possession of the underlying
securities purchased under agreements to resell and obtains additional
collateral when the market value falls below the contract value.
Government and agency securities and certain other debt obligations
transactions are recorded on a trade date basis. All other securities
transactions are recorded on a settlement date basis and adjustments are
made to a trade date basis, if significant.
Securities owned are carried at market value. Changes in unrealized
appreciation (depreciation) arising from fluctuations in market value or
upon realization of security positions are reflected in revenues, principal
transactions-net, investment.
Furniture and equipment are carried at cost and are depreciated on a
straight-line basis over the estimated useful life of the related assets
ranging from four to ten years.
Deferred income taxes in the accompanying financial statements reflect
temporary differences in reporting results of operations for income tax and
financial accounting purposes.
The assets and liabilities of the consolidated financial statements were
translated into the U.S. dollar currency from the Austrian Schilling at the
exchange rates prevailing at the respective dates of the consolidated
statements of financial condition. Revenues and expenses are translated at
the average exchange rates during the corresponding periods. The gains or
losses resulting from translating foreign currency financial statements
into U.S. dollars are included as a separate component of stockholders'
equity. Gains or losses resulting from foreign currency transactions are
included in the consolidated statements of operations.
Assets and liabilities of the Company's foreign subsidiaries were
translated into the Austrian Schilling from the respective foreign currency
at the exchange rates prevailing at the respective dates of the statements
of financial condition. Revenues and expenses are translated at the
average exchange rates during the
F-7
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
corresponding periods. The gains or losses resulting from translating
foreign currency financial statements into U.S. dollars are included as a
separate component of stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in the consolidated statements
of operations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
For purposes of the consolidated statement of cash flows, the Company
considers all demand deposits held in banks and highly liquid investments
with original maturities of ninety days or less other than those held for
sale in the ordinary course of business to be cash and cash equivalents.
2. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company provides brokerage services
including clearance, investment banking and related activities for some of
its affiliates. The amounts related to such activities are not
significant.
3. CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
Cash of $6,168 and $43,385 as of December 31, 1994 and 1995, respectively,
have been segregated in special reserve bank accounts for the benefit of
customers in accordance with regulations under Austrian law.
4. INVESTMENTS HELD FOR RESALE
The Company is currently holding two investments in the capital stock of
unconsolidated affiliated companies for sale, at cost, to certain
stockholders of the Company. These investments are being carried at the
Company's original cost which approximates the estimated market value of
these investments.
5. INVESTMENTS IN AFFILIATED COMPANIES
Investment in WMP Borsenmakler Aktiengesellschaft
During the years ended December 31, 1994, and 1995, the Company had
acquired a total of twenty-two percent and forty-eight percent,
respectively, of the outstanding capital stock of WMP Borsenmakler
Aktiengesellschaft ("WMP"). The total cost of this acquisition was
36,756,375 Austrian Schillings (approximately $3,600,000). WMP is a stock
broker-dealer in Vienna, Austria. WMP is licensed as a Class B bank under
Austrian law. A Class B bank may, at its discretion, conduct any of the
normal activities associated with a bank with one major exception: it
cannot accept customer deposits. Although WMP has the ability to lend
funds to unrelated third parties, it has chosen not to actively pursue this
line of business.
The Company accounts for this investment using the equity method of
accounting. The carrying value of this investment was $1,770,983 and
$4,663,741 at December 31, 1994 and 1995, respectively. Summarized
statements of financial condition and statements of operations information
for WMP for the years ended December 31, 1994 and 1995 were as follows:
1994 1995
------------ ----------
Summarized Statements of Financial Condition
Total assets $ 11,470,504 $ 14,971,955
------------ -----------
Total liabilities 1,565,835 2,868,778
------------ ------------
Stockholders' equity $ 9,904,669 $ 12,103,177
------------ ------------
------------ ------------
F-8
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
5. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
Investment in WMP Borsenmakler Aktiengesellschaft (continued)
1994 1995
-------------- ------------
Summarized Income Statement
Revenues $ 4,257,821 4,832,466
Expenses 2,853,124 3,463,296
-------------- ------------
Net income $ 1,404,697 $ 1,369,170
-------------- ------------
-------------- ------------
Investments in Other Unconsolidated Affiliates
The Company also has other investments in unconsolidated affiliates
accounted for using the equity method of accounting. These investments are
primarily in the start-up phase and were not actively operating at December
31, 1994 and 1995. Unconsolidated affiliate investments included here are
as follows: Eastbrokers - Sofia, Eastbrokers - Ljubljana, Eastbrokers -
Zagreb, Eastbrokers - Kazakhstan, Eastbrokers - Moskow, Slovakia
Industries, and TRUD Investments. The combined carrying amount of these
investments was $239,575 and $883,081 at December 31, 1994 and 1995,
respectively.
6. INCOME TAXES
Income taxes at statutory rates included in the consolidated statements of
operations represent the following:
Current Deferred Total
------------ ------------ ------------
Year ended December 31, 1994 $ 93,191 $ 20,455 $ 113,646
------------ ------------ ------------
------------ ------------ ------------
Year ended December 31, 1995 $ 213,262 $ 40,459 $ 253,721
------------ ------------ ------------
------------ ------------ ------------
The temporary differences giving rise to the deferred tax asset at December
31, 1994 and 1995 are primarily from the valuation of the securities
portfolios and net operating loss carryforwards for tax purposes. The net
operating loss carryforwards are approximately 5,400,000 Austrian
Schillings and 4,200,000 Austrian Schillings, respectively. These net
operating losses are available for carryforward indefinitely. These
carryforwards are available to reduce future income taxes in Austria of
approximately 1,800,000 Austrian Schillings and 1,400,000 Austrian
Schillings, respectively at the current statutory rates. This is
equivalent to approximately $170,000 and $142,000.
The significant components of the net deferred tax assets as of December 31
were as follows:
1994 1995
----------- ------------
Deferred tax asset
Net operating loss carryforwards $ 236,708 $ 142,000
Deferred tax liability
Valuation adjustment to market value for
the securities portfolios (68,176) --
----------- ------------
Net deferred tax asset $ 168,532 $ 142,000
------------ ------------
------------ ------------
F-9
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
6. INCOME TAXES (CONTINUED)
There are no valuation allowances recorded against deferred tax assets at
December 31, 1994 and 1995 since management believes there will be
sufficient taxable income in future years to fully utilize this tax
benefit.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company's customer, trading and
correspondent clearance activities involve the execution, settlement and
financing of various securities and financial instrument transactions. The
execution of these transactions includes the purchase and sale of
securities. These activities may expose the Company to off-balance sheet
risk in the event the customer or counterparty to the transaction is unable
to fulfill its contractual obligations and the collateral is not sufficient
to fully cover losses. In these situations, the Company may be required to
purchase or sell financial instruments at prevailing market prices which
may not fully cover the obligations of its customers or counterparties.
The Company limits this risk by requiring customers and counterparties to
maintain a satisfactory level of collateral as determined by the Company.
8. CONCENTRATIONS OF CREDIT RISK
As a securities broker and dealer in Eastern Europe, the Company is engaged
in various securities trading and brokerage activities servicing a diverse
group of domestic and foreign corporations, governments, institutional and
individual investors substantially all of whom are located in Western
Europe. Generally, substantially all of the Company's transactions are
collateralized. The Company's exposure to credit risk associated with the
non-performance of these customers in fulfilling their contractual
obligations pursuant to these securities transactions, can be directly
impacted by volatile securities markets, credit markets and regulatory
changes. Credit risk is the amount of accounting loss the Company would
incur if a counterparty failed to perform its obligations under contractual
terms and the collateral held, if any, was deemed insufficient.
At various times throughout the year, the Company maintained balances in
various financial institutions in excess of insured limits. The insured
limit per account is 200,000 Austrian Schillings.
9. SHORT-TERM BORROWINGS
Lines of Credit
Short-term borrowings are from financial institutions and are demand
obligations at interest rates between 7.50 percent and 13.50 percent. As
of December 31, 1994 and 1995, the amounts borrowed under these
arrangements totaled $640,527 and $1,624,961, respectively.
Affiliated Companies
At various times throughout the year, the Company received operating
advances from its affiliates. These advances are due on demand, typically
short-term in nature and not subject to interest charges.
10. LONG-TERM BORROWINGS
During 1995, the Company issued bonds with a face value of 25,000,000
Austrian Schillings in a public offering. These bonds are unsecured and
bear interest at ten percent payable on an annual basis. These bonds and
the corresponding unpaid accrued interest are due and payable in full on
July 31, 1997.
11. OFFICE LEASES
The Company and its subsidiaries lease their office space at the various
locations under operating leases. The various operating leases contain
cancellation clauses whereby the Company may cancel the lease with
F-10
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
11. OFFICE LEASES (CONTINUED)
ninety days written notice. For the years ended December 31, 1994 and
1995, rent expense under these leases was approximately $73,000 and
$173,000, respectively.
12. CAPITAL STOCK
The Company was authorized to issue shares with a total combined par value
of 36,000,000 and 54,000,000 Austrian Schillings at December 31, 1994 and
1995, respectively. In the event additional shares will be offered to the
public, the Board of Directors will determine which type and the
corresponding par value of the shares to be issued. Total par value of the
shares issued and outstanding was 36,000,000 and 54,000,000 Austrian
Schillings at December 31, 1994 and 1995, respectively. The authorized,
issued, and outstanding shares of capital stock at December 31, 1994 and
1995 were as follows:
REGISTERED SHARES
Two classes of registered shares have been issued as of December 31, 1994
and 1995. The primary difference between these two classes is in the par
value. One class has a par value of 500,000 Austrian Schillings and the
other has a par value of 1,000 Austrian Schillings. Total par value of the
authorized, issued, and outstanding registered shares was 1,001,000
Austrian Schillings at December 31, 1994 and 1995.
There are two authorized, issued, and outstanding shares with a par value
of 500,000 Austrian Schillings. Total par value of this class of issued
registered shares was 1,000,000 Austrian Schillings at December 31, 1994
and 1995. Each of these registered shares grants the right to name one
person to the board of directors.
There is one authorized, issued, and outstanding share with a par value of
1,000 Austrian Schillings. Total par value of this class of issued
registered shares was 1,000 Austrian Schillings at December 31, 1994 and
1995. Each of these registered shares grants the right to name one person
to the board of directors.
BEARER SHARES
Two classes of bearer shares have been issued as of December 31, 1994 and
1995. The primary difference between these two classes is in the par
value. One class has a par value of 1,000 Austrian Schillings and the
other has a par value of 100 Austrian Schillings. Total par value of the
authorized, issued, and outstanding bearer shares was 34,999,000 and
52,999,000 Austrian Schillings at December 31, 1994 and 1995, respectively.
There are 120 authorized, issued, and outstanding shares with a par value
of 1,000 Austrian Schillings. Total par value of this class of issued
bearer shares was 120,000 Austrian Schillings at December 31, 1994 and
1995.
There are 348,790 and 528,790 authorized, issued, and outstanding shares
with a par value of 100 Austrian Schillings at December 31, 1994 and 1995,
respectively. Total par value of this class of issued bearer shares was
34,879,000 Austrian Schillings and 52,879,000 Austrian Schillings at
December 31, 1994 and 1995, respectively.
13. NET CAPITAL REQUIREMENTS
The Company along with certain Austrian and foreign subsidiaries of the
Company are subject to minimum net capital requirements of their respective
regulatory agencies. As of December 31, 1994 and 1995, the Company and its
subsidiaries were in compliance with all applicable regulatory capital
adequacy requirements.
F-11
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
14. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by dividing net income (loss)
applicable to capital stock by the proportionate share of the cumulative
par value of each class of stock outstanding for each period presented.
15. SUBSEQUENT EVENTS
In June 1996, the Company purchased a Warsaw, Poland based securities
company WDM Securities. This purchase allows the Company to be a full
member and shareholder of the Warsaw Stock Exchange. The total investment
is approximately $1.2 million and provides for an 89% ownership interest in
this new subsidiary. The Company expects to assume control of this new
subsidiary's operations in September 1996.
In April 1996, the Company entered into a preliminary agreement with a U.S.
Company, Czech Industries, Inc. to provide financing to the Company. Under
the terms of this agreement, Czech Industries, Inc. will provide up to $5.5
million at terms yet to be negotiated. This agreement contains various
covenants and conditions which will be fulfilled prior to the receipt of
financing by Czech Industries, Inc.
F-12
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
FINANCIAL STATEMENTS
MARCH 31, 1996
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Public Accountants F-2
Financial Statements
Statements of Financial Condition F-3
Statements of Operations F-4
Statements of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
WMP Borsenmakler Aktiengesellschaft
The statements of financial condition of WMP Borsenmakler Aktiengesellschaft, as
of December 31, 1994 and 1995, and the related statements of operations, changes
in stockholders' equity and cash flows for the years then ended have been
prepared from the financial statements, which are not presented separately
herewith, of WMP Borsenmakler Aktiengesellschaft presented in accordance with
generally accepted accounting principles in Austria, as described in Note 1. We
have reviewed for compilation only the financial statements, and, in our
opinion, those statements have been properly compiled from the amounts and notes
of the underlying financial statements of WMP Borsenmakler Aktiengesellschaft,
on the basis described in Note 1.
The financial statements for WMP Borsenmakler Aktiengesellschaft, presented in
accordance with generally accepted accounting principles in Austria were audited
by other auditors as set forth in their reports included elsewhere herewith. We
have not been engaged to audit the financial statements of WMP Borsenmakler
Aktiengesellschaft in accordance with generally accepted auditing standards and
to render an opinion as to the fair presentation of such financial statements in
accordance with generally accepted accounting principles in Austria.
The statements of WMP Borsenmakler Aktiengesellschaft in accordance with
generally accepted accounting principles in Austria have been converted to the
accompanying financial statements presented in accordance with generally
accepted accounting principles in the United States of America, on the basis
described in Note 1. We have reviewed this conversion and, in our opinion, the
compiled financial statements described in the first paragraph of this report
have been properly converted to a presentation in accordance with generally
accepted accounting principles in the United States of America.
The United States dollar amounts shown in the accompanying financial statements
have been translated solely for convenience. We have reviewed this translation
and, in our opinion, the compiled financial statements expressed in Austrian
Schillings have been translated into dollars on the basis described in Note 1.
July 1, 1996
F-2
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- ----------
1994 1995 1996
-------- -------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 2,557,039 $3,278,718 $64,801
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations 643,505 696,838 690,321
Securities borrowed - - 42,372
Receivables
Affiliated companies 1,683,193 2,767,978 2,971,492
Other 285,315 1,091,440 2,221,634
Securities owned, at value
Government and agencies 46,946 158,862 256,163
Corporate debt 27,790 15,511 15,550
Equities and other 2,229,528 3,744,566 5,736,612
Furniture and equipment, at cost (net of accumulated
depreciation and amortization of $235,493,
$346,242, and $373,929, respectively) 343,887 248,177 259,242
Deferred taxes 3,123,916 2,676,781 2,405,307
Investments held for resale 258,732 - -
Other assets 270,653 293,084 284,229
---------- ---------- ----------
---------- ---------- ----------
Total Assets $11,470,504 $14,971,955 $14,947,723
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $140,691 $101,507 $96,300
Payables
Customers - - 95,322
Affiliated companies - 311,131 300,084
Other - 203,406 193,312
Accounts payable and accrued expenses 352,988 1,061,134 999,589
---------- ---------- ----------
493,679 1,677,178 1,684,607
Long-term borrowings 1,072,156 1,191,600 1,155,600
---------- ---------- ----------
Total liabilities 1,565,835 2,868,778 2,840,207
---------- ---------- ----------
Stockholders' equity
Capital stock
Registered (2 shares at 500,000 ATS) 91,700 91,700 91,700
Bearer (890,000 shares at 100 ATS) 8,161,300 8,161,300 8,161,300
Unrestricted retained earnings 1,512,183 2,798,235 3,170,537
Restricted retained earnings 136,633 219,751 219,751
Cumulative translation adjustment 2,853 832,191 464,228
---------- ---------- ----------
Total stockholders' equity 9,904,669 12,103,177 12,107,516
---------- ---------- ----------
Total Liabilities and Stockholders' Equity $11,470,504 $14,971,955 $14,947,723
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Report of Independent Public Accountants.
See notes to financial statements.
F-3
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- ---------------------
1994 1995 1995 1996
-------- -------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 751,558 $ 955,302 $ 264,401 $ 217,189
Interest and dividends 94,662 109,071 13,173 16,013
Principal transactions-net
Trading 3,033,905 3,603,650 223,952 440,311
Investment (46,190) (354,674) (59,410) 362,587
Management fees 368,340 298 - -
Other 55,546 518,819 3,214 1,177
---------- ---------- ---------- ----------
Total revenues 4,257,821 4,832,466 445,330 1,037,277
---------- ---------- ---------- ----------
Costs and expenses
Compensation and benefits 484,706 1,343,014 115,884 203,668
Consulting fees 579,785 124,079 - -
Interest 110,604 128,389 174,622
Brokerage, cleaning, exchange fees, and other 121,293 129,912 21,447 -
Occupancy and equipment 166,493 177,116 52,155 33,759
Communications 83,905 115,368 31,504 21,524
Professional fees 132,527 144,498 - -
General and administrative 339,641 485,637 244,822 174,622
Depreciation and amortization 88,538 109,953 24,594 12,858
---------- ---------- ---------- ----------
Total costs and expenses 2,129,492 2,757,966 493,763 473,183
---------- ---------- ---------- ----------
Income (loss) before provision for
(benefit from) income taxes 2,128,329 2,074,500 (48,433) 564,094
Provision for (benefit from) income taxes 723,632 705,330 (16,466) 191,792
---------- ---------- ---------- ----------
Net income (loss) $1,404,697 $ 1,369,170 $ (31,967) $ 372,302
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted capital shares outstanding
Registered 2 2 2 2
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Bearer 890,000 890,000 890,000 890,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per capital share
Registered $ 7,803.87 $ 7,606.50 $ (177.59) $2,068.34
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Bearer $ 1.56 $ 1.52 $ (0.04) $ 0.41
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See report of Independent Public Accountants.
See notes to financial statements.
F-4
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (UNAUDITED) AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
UNRESTRICTED RESTRICTED CUMULATIVE
CAPITAL RETAINED RETAINED TRANSLATION
STOCK EARNINGS EARNINGS ADJUSTMENT TOTAL
------------ ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $8,253,000 $ 174,843 $69,276 $ (962,763) $7,534,356
Net income - 1,404,697 - - 1,404,697
Restriction of retained earnings in
accordance with regulatory requirements - (67,357) 67,357 - -
Translation adjustment - - - 965,616 965,616
------------ ---------- ---------- ----------- ---------
Balances at December 31, 1994 8,253,000 1,512,183 136,633 2,853 9,904,669
Net income - 1,369,170 - - 1,369,170
Restriction of retained earnings in
accordance with regulatory requirements - (83,118) 83,118 - -
Translation adjustment - - - 829,338 829,338
------------ ---------- ---------- ----------- ---------
Balances at December 31, 1995 8,253,000 2,798,235 219,751 832,191 12,103,177
Net income - 372,302 - - 372,302
Translation adjustment - - - (367,963) (367,963)
------------ ---------- ---------- ----------- ---------
Balances at March 31, 1996 $8,253,000 $ 3,170,537 $ 219,751 $464,228 $12,107,516
------------ ---------- ---------- ----------- ---------
------------ ---------- ---------- ----------- ---------
</TABLE>
See Report of Independent Public Accountants.
See notes to financial statements.
F-5
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- -------------------------
1994 1995 1995 1996
------------ ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,404,697 $1,369,170 $ (31,967) $ 372,302
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 88,538 109,953 24,594 12,858
Deferred taxes 723,632 705,330 (16,466) 191,792
------------ ----------- ----------- -----------
2,216,867 2,184,453 (23,839) 576,952
Changes in operating assets and liabilities
Cash and securities segregated for
regulatory purposes (119,345) (53,333) (100,579) 6,517
Securities borrowed - - - (42,372)
Receivables
Affiliated companies (1,518,284) (1,084,785) (787,233) (203,514)
Other 9,140,628 (806,125) (197,256) (1,130,194)
Securities owned, at value (1,287,884) (1,614,675) (1,962,491) (2,089,386)
Other assets (24,500) (19,000) (30,250) 7,500
Payables
Customers (6,911,309) - - 95,322
Affiliated companies (977,970) 311,131 - (11,047)
Other (22,265) 203,406 - (10,094)
Accounts payable and accrued expenses (1,826,486) 708,146 17,576 (61,545)
------------ ----------- ----------- -----------
Net cash provided by (used in) operating activities (1,330,548) (170,782) (3,084,072) (2,861,861)
------------ ----------- ----------- -----------
Cash flows from investing activities
Net proceeds from (payments for)
Sales of investment property 101,158 354,442 258,732 -
Purchases of furniture and equipment (258,732) - (26,844) (11,065)
------------ ----------- ----------- -----------
Net cash provided by (used in) investing activities (157,574) 354,442 231,888 (11,065)
------------ ----------- ----------- -----------
Cash flows from financing activities
Net proceeds from (payments for)
Short-term financings (24,139) (39,184) 18,619 (5,207)
------------ ----------- ----------- -----------
Net cash provided by (used in) financing activities (24,139) (39,184) 18,619 (5,207)
------------ ----------- ----------- -----------
Foreign currency translation adjustment 654,012 577,203 764,572 (335,784)
------------ ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (858,249) 721,679 (2,068,993) (3,213,917)
Cash and cash equivalents at beginning of period 3,415,288 2,557,039 2,557,039 3,278,718
------------ ----------- ----------- -----------
Cash and cash equivalents at end of period $2,557,039 $ 3,278,718 $ 488,046 $ 64,801
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Supplemental disclosure of cash flow information
Cash paid for interest $ 110,604 $ 128,389 $ 3,357 $ -
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See Report of Independent Public Accountants.
See notes to financial statements.
F-6
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's financial statements have been converted to generally
accepted accounting principles in the United States ("U.S. GAAP"). The
financial statements which were converted were prepared in accordance with
the Austrian Commercial Code, which represents generally accepted
accounting principles in Austria ("Austrian GAAP"). Generally accepted
accounting principles in Austria vary in certain significant respects from
generally accepted accounting principles in the United States. The primary
significant differences are related to deferred income taxes and the
valuation of the securities portfolios. These financial statements
reflect, in the opinion of management, all adjustments (consisting of
normal, recurring accruals) necessary for a fair presentation of the
financial condition and results of operations of the Company.
Substantially all of the Company's financial assets and liabilities, as
well as financial instruments with off-balance sheet risk, are carried at
market or fair values or are carried at amounts which approximate current
fair value because of their short-term nature. Estimates of current value
are made at a specific point in time, based on relevant market information
and information about the financial instrument, specifically, the value of
the underlying financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument.
Accounts receivable from and payable to customers include amounts due on
cash transactions. Securities owned by customers are held as collateral
for these receivables. Such collateral is not reflected in the
consolidated financial statements.
Securities borrowed and securities loaned are financing arrangements which
are recorded at the amount of cash collateral advanced or received.
Securities borrowed transactions require the Company to deposit cash,
letters of credit or other collateral with the lender. With respect to
securities loaned, the Company receives collateral in the form of cash or
other collateral in an amount generally in excess of the market value of
securities loaned. The Company monitors the market value of securities
borrowed and loaned on a daily basis with additional collateral obtained or
refunded as necessary.
Government and agency securities and certain other debt obligations
transactions are recorded on a trade date basis. All other securities
transactions are recorded on a settlement date basis and adjustments are
made to a trade date basis, if significant.
Securities owned are carried at market value. Changes in unrealized
appreciation (depreciation) arising from fluctuations in market value or
upon realization of security positions are reflected in revenues, principal
transactions-net, investment.
Furniture and equipment are carried at cost and are depreciated on a
straight-line basis over the estimated useful life of the related assets
ranging from four to ten years.
Deferred income taxes in the accompanying financial statements reflect
temporary differences in reporting results of operations for income tax and
financial accounting purposes.
The assets and liabilities of the Company were translated into the U.S.
dollar currency from the Austrian Schilling at the exchange rates
prevailing at the respective dates of the statements of financial
condition. Revenues and expenses are translated at the average exchange
rates during the corresponding periods. The gains or losses resulting from
translating foreign currency financial statements into U.S. dollars are
included as a separate component of stockholders' equity. Gains or losses
resulting from foreign currency transactions are included in the statements
of operations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For purposes of the statement of cash flows, the Company considers all
demand deposits held in banks and highly liquid investments with original
maturities of ninety days or less other than those held for sale in the
ordinary course of business to be cash and cash equivalents.
2. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company provides brokerage services
including clearance, investment banking and related activities for some of
its affiliates. The amounts related to such activities are not
significant.
3. CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
Cash of $643,505 and $696,838 as of December 31, 1994 and 1995,
respectively, have been segregated in special reserve bank accounts for the
benefit of customers in accordance with regulations under Austrian law.
4. RECEIVABLES FROM RELATED PARTIES
At various times throughout the year, the Company provided operating
advances to its affiliates. These advances are due on demand, typically
short-term in nature and not subject to interest charges.
5. BORROWINGS
Short-term borrowings are from financial institutions and are demand
obligations at interest rates between 8.25 percent and 8.50 percent. As of
December 31, 1994 and 1995, the Company had borrowed approximately
1,500,000 Austrian Schillings and 1,022,000 Austrian Schillings,
respectively, under these arrangements.
The Company also finances its activities through a long-term borrowing
arrangement with a bank. Under this arrangement, the Company is required
to make annual interest payments in accordance with a formula provided by
the loan document. The principal amount of this loan, 12,000,000 Austrian
Schillings, is due and payable in its entirety on December 31, 2001, if not
paid earlier. Fluctuations in the balances listed in the accompanying
financial statements are due entirely to exchange rate differences between
the Austrian Schilling and the U.S. dollar.
6. INCOME TAXES
Income taxes at statutory rates included in the statements of operations
represent the following:
Current Deferred Total
------------ ------------ ------------
Year ended December 31, 1994 $ - $ 723,632 $ 723,632
------------ ------------ ------------
------------ ------------ ------------
Year ended December 31, 1995 $ - $ 705,330 $ 705,330
------------ ------------ ------------
------------ ------------ ------------
The temporary differences giving rise to the deferred tax asset at December
31, 1994 and 1995 are net operating loss carryforwards for tax purposes and
the market value adjustment of the securities portfolio. The net operating
loss carryforwards are approximately 100,000,000 Austrian Schillings and
80,000,000 Austrian Schillings, respectively. These net operating losses
are available for carryforward indefinitely. These carryforwards are
available to reduce future income taxes in Austria of approximately
34,700,000 Austrian Schillings and 27,000,000 Austrian Schillings,
respectively at the current statutory rates. This is equivalent to
approximately $3.1 million and $2.7 million U.S. dollars, respectively.
F-8
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
6. INCOME TAXES (CONTINUED)
The significant components of the net deferred tax assets as of December 31
were as follows:
1994 1995
-------------- -------------
Deferred tax asset
Net operating loss carryforwards $ 3,179,612 $ 2,746,717
Deferred tax liability
Valuation adjustment to market value for
the securities portfolios (55,696) (69,936)
-------------- --------------
Net deferred tax asset $ 3,123,916 $ 2,676,781
-------------- --------------
-------------- --------------
There are no valuation allowances recorded against deferred tax assets at
December 31, 1994 and 1995 since management believes there will be
sufficient taxable income in future years to fully utilize this tax
benefit.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company's customer, trading and
correspondent clearance activities involve the execution, settlement and
financing of various securities and financial instrument transactions. The
execution of these transactions includes the purchase and sale of
securities. These activities may expose the Company to off-balance sheet
risk in the event the customer or counterparty to the transaction is unable
to fulfill its contractual obligations and the collateral is not sufficient
to fully cover losses. In these situations, the Company may be required to
purchase or sell financial instruments at prevailing market prices which
may not fully cover the obligations of its customers or counterparties.
The Company limits this risk by requiring customers and counterparties to
maintain a satisfactory level of collateral as determined by the Company.
8. CONCENTRATIONS OF CREDIT RISK
As a securities broker and dealer in Eastern Europe, the Company is engaged
in various securities trading and brokerage activities servicing a diverse
group of domestic and foreign corporations, governments, institutional and
individual investors substantially all of whom are located in Western
Europe. Generally, substantially all of the Company's transactions are
collateralized. The Company's exposure to credit risk associated with the
non-performance of these customers in fulfilling their contractual
obligations pursuant to these securities transactions, can be directly
impacted by volatile securities markets, credit markets and regulatory
changes. Credit risk is the amount of accounting loss the Company would
incur if a counterparty failed to perform its obligations under contractual
terms and the collateral held, if any, was deemed insufficient.
At various times throughout the year, the Company maintained balances in
various financial institutions in excess of insured limits. The insured
limit per account is 200,000 Austrian Schillings.
9. CAPITAL STOCK
The Company was authorized to issue shares with a total combined par value
of 135,000,000 Austrian Schillings at December 31, 1994 and 1995. In the
event additional shares will be offered to the public, the Board of
Directors will determine which type and the corresponding par value of the
shares to be issued. Total par value of the shares issued and outstanding
was 90,000,000 Austrian Schillings at December 31, 1994 and 1995. The
authorized, issued, and outstanding shares of capital stock at December 31,
1994 and 1995 were as follows:
F-9
<PAGE>
WMP BORSENMAKLER AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
9. CAPITAL STOCK (CONTINUED)
REGISTERED SHARES
Two authorized, issued, and outstanding shares with a par value of 500,000
Austrian Schillings. Total par value of issued registered shares was
1,000,000 Austrian Schillings at December 31, 1994 and 1995. Each of these
registered shares grants the right to name one person to the board of
directors.
BEARER SHARES
890,000 authorized, issued, and outstanding shares with a par value of 100
Austrian Schillings. Total par value of issued bearer shares was 89,000,000
Austrian Schillings at December 31, 1994 and 1995.
10. NET CAPITAL REQUIREMENTS
The Company is subject to the minimum net capital requirements of its
regulatory agencies. As of December 31, 1994 and 1995, the Company was in
compliance with all applicable regulatory capital adequacy requirements.
11. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by dividing net income applicable to
capital stock by the proportionate share of the cumulative par value of
each class of stock outstanding for each period presented.
F-10
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of the 14th day of June, 1996 between
CZECH INDUSTRIES, INC., a Delaware corporation having an office at 15245 Shady
Grove Road, Rockville, Maryland 20850 (the "Buyer"), and the persons listed on
the signature page hereof (the "Sellers").
W I T N E S S E T H
WHEREAS, each of the Sellers owns directly, and Hypo Karntner Landesbank
holds indirectly as agent, the number of issued and outstanding shares of common
stock, which in the aggregate represent 80% of the issued and outstanding
capital ("Eastbrokers Stock"), of EASTBROKERS BETEILIGUNGS AG, an Austrian
corporation having an office at Schlickgasse 1, A-1090 Vienna, Austria
(hereinafter referred to as "Eastbrokers"); and
WHEREAS, Eastbrokers is a Vienna, Austria based investment banking and
brokerage holding firm ("Eastbrokers Business"); and
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, free and
clear of all liens, claims, charges or encumbrances of any nature whatsoever,
the Eastbrokers Stock, on the terms and subject to the conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and covenants herein contained, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms shall have the meanings set forth
below for the purposes of this Agreement:
"Agreement" shall mean this Stock Purchase Agreement, including all
exhibits and schedules hereto, as it may be amended from time to time.
"Buyer Stock" shall mean the common stock of Buyer, $.01 par value per
share.
"Closing" and "Closing Date" shall have the meanings set forth in Section
2.2.
<PAGE>
"Fortuna Shares" shall mean the 251,000 shares of Fortuna Hotel AS
currently owned by the Buyer, which term shall include for this purpose any
securities received as a dividend in respect of such shares or in exchange or
upon conversion of such shares.
"Governmental Authority" shall mean the governments of the United States,
Austria, any other foreign country, any state or any political subdivision of
any of the foregoing, and any agency, entity, body, court, instrumentality or
other authority exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including quasi-
governmental entities established to perform such functions.
"Law" shall mean any law, statute, code, regulation, ordinance, rule,
order, decree, judgment, consent decree, injunction, settlement agreement or
governmental requirement enacted, promulgated, entered into, agreed or imposed
by any Governmental Authority.
"Lien" shall mean any mortgage, lien, charge, right of set-off,
restriction, pledge, security interest, option, lease or sublease, claim, right
of any third party, easement, encroachment or encumbrance, or other restriction
of any kind, other than Permitted Encumbrances.
"Material Adverse Change" shall mean a change in the business, operations,
assets, liabilities, results of operations, cash flows, condition (financial or
otherwise) or prospects of the Buyer or Eastbrokers, as the case may be, which
is materially adverse.
"Material Adverse Effect" shall mean an effect on the business, operations,
assets, liabilities, results of operations, cash flows, condition (financial or
otherwise) or prospects of the Buyer or Eastbrokers, as the case may be, which
is materially adverse.
"Material Event" shall mean (i) any merger, consolidation or other business
combination to which the subject entity or any subsidiary is a party; (ii) any
increase or reduction in the authorized capital of the subject entity or any
recapitalization of the subject entity, or the creation of any additional class
of stock of the subject entity, or the sale, issuance, exchange, purchase or
redemption of shares of capital stock of any class of the subject entity now or
hereafter authorized, or any securities exchangeable for, or convertible into
such shares, or warrants or other instruments evidencing rights or options to
subscribe for, or otherwise acquire such shares; (iii) any sale, lease,
exchange, transfer or other disposition, directly or indirectly, in a single
transaction or series of related transactions, of any asset or assets of the
subject entity or any subsidiary equivalent to or greater than 20% of the net
worth of the subject entity as reflected on the balance sheet most recent to the
date of such transaction; (iv) any purchase, lease, exchange or other
acquisition, directly or indirectly, in a single transaction or a series of
related transactions, of assets by the subject entity or any subsidiary
equivalent to or greater than 20% of the net worth of the subject entity as
reflected on the balance sheet most recent to the date of such
-2-
<PAGE>
transaction (v) the nomination of a person or persons to serve as a member of
the board of directors of the subject entity; (vi) the removal of any member of
the board of directors of the subject entity; (vii) the amendment of any
employment agreement between the subject entity and any of its officers; (viii)
the designation of an Executive Committee and the authorization or revision of
the powers of such committee; or (ix) the amendment of the subject entity's
Certificate of Incorporation or Bylaws or comparable governing instruments.
"Net Cash Flow" shall mean the net cash flow before interest, Taxes and
depreciation of Fortuna Hotel AS, as determined by an independent auditor to be
mutually selected by the Buyer and the Sellers. The fees and expenses of such
auditor shall be paid by the Buyer. If the Buyer and the Sellers cannot agree
on an auditor, then the Buyer shall select an auditor and the Sellers shall
select an auditor and these two auditors shall in turn select a third auditor.
In such event, each party shall pay the fees and expenses of the auditor
selected by it and shall share equally the fees and expenses of the third
auditor. The determination of the three auditors, which shall be by majority
vote, shall be binding upon all parties.
"Net Cash Proceeds" shall mean the sum of (i) the gross cash price less
only applicable transfer taxes and fees and other closing costs payable by
reason of the sale of the Fortuna Shares and (ii) any cash dividends received by
the Buyer in respect of the Fortuna Shares following the Closing.
"Net Profits" for any year shall mean Eastbrokers' consolidated net income
after Taxes for that year determined as though Eastbrokers and its subsidiaries
were a separate consolidated group determined in accordance with United States
generally accepted accounting principles consistently applied from year to year,
as audited and reported upon by the Buyer's independent certified public
accountants.
"Permitted Encumbrances" shall mean Liens (i) listed on Schedule 1.1, (ii)
which do not individually or in the aggregate materially interfere with the
current or proposed operations of the Eastbrokers Business or of the Buyer, as
the case may be, (iii) for Taxes and other governmental charges and assessments
which are not yet due and payable, or (iv) immaterial mechanic's, materialmen's
and similar liens.
"Person" or "person" shall mean any individual, corporation,
proprietorship, firm, partnership, limited partnership, limited liability
company, trust, association or other entity.
"Purchase Price" shall mean the aggregate number of shares of Buyer Stock
paid to the Stockholders pursuant to Section 2.1, as adjusted pursuant to
Sections 2.3 and 2.4.
-3-
<PAGE>
"Subsidiary" shall mean any corporation or other Person at least 20% of
which is owned (whether by reason of the ownership of stock or otherwise) by the
Buyer or Eastbrokers, as the case may be.
"Taxes" shall mean all taxes, charges, fees, duties, levies or other
assessments, including income, gross receipts, net proceeds, ad valorem,
turnover, real and personal property (tangible and intangible), sales, use,
franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel,
excess profits, occupational, interest equalization, windfall profits,
severance, employee's income withholding, unemployment and Social Security taxes
and other withholding taxes, which are imposed by any Governmental Authority,
and such term shall include any interest, penalties or additions to tax
attributable thereto.
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 Upon the terms and subject to the conditions contained herein, at the
Closing, each of the Sellers shall sell and transfer, or cause to be sold and
transferred to the Buyer all of the Eastbrokers Stock and the Buyer shall issue
and sell, or cause to be issued and sold, to the Sellers as Purchase Price
5,400,000 shares of newly issued, fully paid and non-assessable Buyer Stock in
exchange therefor as set forth on EXHIBIT A.
2.2 The sale and purchase contemplated hereunder and the execution and
delivery of this Agreement shall take place at the offices of Gould & Wilkie,
One Chase Manhattan Plaza, New York, New York on July 31, 1996, or such other
date and place as shall be mutually agreed upon by the Buyer and the Sellers
(the "Closing" or the "Closing Date").
2.3 In the event that Eastbrokers earns Net Profits aggregating US$ 4
million or more (net of any loss incurred for the fiscal year ending December
31, 1996) for the two fiscal years ending December 31, 1998, the Company shall
issue to each of the Sellers, on the written instructions of the Sellers, as
additional Purchase Price 200,000 shares of Buyer Stock for a nominal value of
US$ 0.01 per share. Such additional Purchase Price shall not exceed 600,000
shares of Buyer Stock. These shares shall be issued within 30 days following
the release of the Buyer's audited financial statements for the year ending
December 31, 1998. The determination of Net Profits by the Buyer's independent
certified public accountants shall be binding upon all parties.
2.4 In addition to the adjustment to the Purchase Price contemplated by
Section 2.3 of this Agreement, the Purchase Price shall be further adjusted as
follows:
(a) in the event that the Buyer closes on the sale of the Fortuna
Shares within one year of the Closing and the Net Cash Proceeds from such sale
are less than or equal to US$ 7,445,000 but greater than or equal to US$
6,736,000, then no further adjustment to the Purchase Price shall be made.
(b) in the event that the Buyer closes on the sale of the Fortuna
Shares within one year of the Closing and the Net Proceeds are greater than US$
7,445,000, then the
-4-
<PAGE>
Purchase Price shall be reduced by the number of shares of Buyer Stock equal to
the excess (the "Excess") (converted to US$ at the then current exchange rate)
of the Net Proceeds over US$ 7,445,000 and dividing the Excess by US$ 2 times
the fraction derived from dividing the aggregate number of shares of Buyer Stock
issued to the Sellers pursuant to Sections 2.1 and 2.3 of this Agreement by the
total number of shares of Buyer Stock outstanding as of the Closing (including
for this purpose the number of shares included in the Purchase Price pursuant to
Sections 2.1 and 2.3). Shares of Buyer Stock aggregating such amount shall be
returned pro rata by the Sellers to the Buyer for cancellation within ten days
of their receipt of notice from the Buyer as to the completion of the sale of
the Fortuna Shares. In the event that any of the Sellers shall then own an
insufficient number of shares of Buyer Stock for this purpose, such Stockholders
shall make such payment in cash with each share to have a deemed value of $2.
In no event shall the Excess be greater than US$ 3,436,000 (converted to US$ at
the then current exchange rate) for the purpose of making this calculation.
(c) in the event that the Net Cash Proceeds are less than
US$ 6,736,000, then the Buyer shall issue to the Sellers on a pro rata basis an
additional number of shares of Buyer Stock equal to the difference (the
"Difference") (converted to US$ at the then current exchange rate) between US$
6,736,000 and the Net Cash Proceeds divided by US$ 2 times the fraction derived
from dividing the aggregate number of shares of Buyer Stock issued to the
Sellers pursuant to Sections 2.1 and 2.3 of this Agreement by the total number
of shares outstanding as of the Closing (including for this purpose the number
of shares included in the Purchase Price pursuant to Sections 2.1 and 2.3). In
no event shall the Difference be greater than US$ 3,436,000 (converted to US$ at
the then current exchange rate) for the purpose of making this calculation.
(d) in the event that the Company does not sell the Fortuna Shares
within one year of the Closing, then the target amounts set forth in subsections
2.4(a), (b) and (c) shall be increased by 10% as follows:
Subsection 2.4(a): "US$ 7,445,000" shall be "US$ 8,190,000"
"US$ 6,736,000" shall be "US$ 7,410,000"
Subsection 2.4(b): "US$ 7,445,000" shall be "US$ 8,190,000"
"US$ 3,436,000" shall remain the same
Subsection 2.4(c): "US$ 6,736,000" shall be "US$ 7,410,000"
"US$ 3,436,000" shall remain the same
(e) in the event that the sale of the Fortuna Shares occurs more than
two years after the Closing, the Net Cash Proceeds shall be deemed to equal 51%
of ten times the average Net Cash Flow of Fortuna Hotel AS for the years 1996
and 1997. These deemed Net Cash Proceeds shall then be the basis for the
calculation contemplated by Subsection 2.4(d). The issuing or returning of
shares of Buyer Stock to or from the Sellers shall take place within ten days
following the second anniversary of the Closing.
-5-
<PAGE>
ARTICLE III
REPRESENTATIONS OF BUYER
3. REPRESENTATIONS OF BUYER. The Buyer represents, warrants, covenants
and agrees as of the date of this Agreement as follows:
3.1 EXISTENCE, CORPORATE AUTHORITY AND GOOD STANDING. The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and duly qualified to conduct business in the State of
Maryland. The Buyer has the power and authority to own its property and to
carry on its business as now being conducted. This Agreement has been duly
authorized, executed and delivered by the Buyer and is the legal, valid and
binding obligation of the Buyer, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy and other laws of
general application relating to creditors' rights or general principles of
equity. Maryland is the only jurisdiction in which the character and location
of the properties owned or leased by the Buyer or the nature of the business
conducted by the Buyer makes qualification necessary.
3.2 CAPITAL STOCK. The Buyer has an authorized capitalization consisting
of 50,000,000 shares of common stock, par value $.01 per share, of which
8,905,000 shares are issued and outstanding; zero shares are held in the Buyer's
treasury. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable. Except as set forth on Schedule
3.2 heretofore delivered by the Buyer to the Sellers, no shares of capital stock
of the Buyer are reserved for issuance, and there are no outstanding options,
warrants, rights, calls commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of the capital stock of the Buyer, other than as
contemplated by this Agreement.
3.3 SUBSIDIARIES AND INVESTMENTS. Set forth in Schedule 3.3 heretofore
furnished by the Buyer to Eastbrokers is a list of each of the Buyer's direct
and indirect Subsidiaries. Each Subsidiary set forth on such schedule is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation (as indicated on such schedule), and
has all requisite power and authority to own its property and to carry on its
business as presently conducted. Each Subsidiary is qualified to do business in
all jurisdictions in which the character and location of the properties owned or
leased by it or the nature of the business conducted by it makes such
qualification necessary except such jurisdictions where the failure to so
qualify will not have a Material Adverse Effect on the Buyer and its
Subsidiaries. Except as set forth in Schedule 3.3, all of the outstanding
capital stock of each Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable, and is owned, of record and beneficially, by the
Buyer, free and clear of all Liens whatsoever. Except as set forth in Schedule
3.3, no shares of capital stock of any Subsidiary are reserved for issuance, and
there are no outstanding options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of the
capital stock of any Subsidiary. Except as set forth in Schedule 3.3, neither
the Buyer nor any Subsidiary listed therein owns, directly or indirectly, any
capital stock or other equity or ownership or proprietary interest in any other
corporation, association, trust, partnership, joint venture or other Person.
-6-
<PAGE>
3.4 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. The Buyer has
heretofore furnished the Sellers with the balance sheet of the Buyer as of
December 31 in each of the years 1995 and 1994, and the related consolidated
statements of operations, statement of changes in stockholders' equity and
statements of cash flows for the years then ended, all audited by Pannell Kerr
Forster, PC. (The balance sheet of the Buyer, as of December 31, 1995, is
hereinafter referred to as the "Balance Sheet".) Such financial statements,
including the footnotes thereto, except as indicated therein, have been prepared
in accordance with United States generally accepted accounting principles
consistently applied throughout the periods indicated. Such balance sheets
fairly present the financial condition of the Buyer at the respective dates
thereof and, except as indicated therein, reflect all claims against and all
debts and liabilities of the Buyer, fixed or contingent, as at the respective
dates thereof which were required to be reflected therein in accordance with
United States generally accepted accounting principles, and such statements of
operations fairly present the results of the operations of the Buyer for the
periods indicated. Since December 31, 1995 (the "Balance Sheet Date"), there
has been no Material Adverse Change of the Buyer, except as disclosed in or
pursuant to this Agreement.
3.5 BOOKS AND RECORDS. All accounts, books, ledgers and official and
other records material to the business of the Buyer have been fully, properly
and accurately kept and completed in all material respects, and there are no
material inaccuracies or discrepancies contained or reflected therein, and,
taken as a whole, they give and reflect a true and fair view of the financial
position of the Buyer. The minute books of the Buyer, as previously made
available to the Sellers, contain accurate records of all meetings of and
written consents by the shareholders and boards of directors of the Buyer and
its Subsidiaries. Except as set forth in Schedule 3.5 heretofore delivered by
the Buyer to the Sellers, the Buyer does not have any of its respective records,
systems, controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Buyer. The Buyer keeps its
records and books of account in conformity with United States generally accepted
accounting principles.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. The Buyer and each Subsidiary has
good title to (a) all its respective properties and assets, including, without
limitation, all the properties and assets reflected in the Balance Sheet, except
as indicted in the notes thereto and except for properties disposed of since the
Balance Sheet Date in the ordinary course of business, and (b) all the
properties and assets purchased by the Buyer and each Subsidiary since the
Balance Sheet Date (except for properties and assets acquired since the Balance
Sheet Date which have been sold or otherwise disposed of in the ordinary course
of business), in each case subject to no Lien of any kind or character, except
for Permitted Encumbrances.
3.7 REAL PROPERTY AND PLANT. Schedule 3.7 heretofore delivered by the
Buyer to the Sellers contains an accurate and complete list of all real property
owned in whole or in part by the Buyer or any Subsidiary and includes the name
of the record title holder thereof and a list of all indebtedness secured by a
Lien thereon. Except as disclosed in a title report with respect to any
property listed on Schedule 3.7 heretofore delivered by the Buyer to the
Sellers, the Buyer and its Subsidiaries, respectively, have good and marketable
title in fee simple to all of the real
-7-
<PAGE>
property specified as owned by each on Schedule 3.7, free and clear of all Liens
of any kind or character, except for Permitted Encumbrances.
3.8 LEASES. Schedule 3.8 heretofore delivered by the Buyer to the Sellers
contains an accurate and complete list and a brief description of the terms of
all material leases to which the Buyer or any Subsidiary is a party (as lessee
or lessor). Except as set forth in said Schedule 3.8, each lease listed therein
is in full force and effect; all rents and additional rents due to date on each
such lease have been paid; in each case, the lessee has been in peaceable
possession since the commencement of the original terms of such lease and is not
in default thereunder and no waiver, indulgence or postponement of the lessee's
obligations thereunder has been granted by the lessor; and there exists no event
of default or event, occurrence, condition or act (including completion of the
transactions contemplated by this Agreement) which, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a material default under such lease. Neither the Buyer nor any
Subsidiary has violated any of the terms or conditions under any such lease in
any material respect, and to the best knowledge, information and belief of the
Buyer all of the covenants to be performed by any other party under any such
lease have been fully performed in all material respects. The property leased
by the Buyer or any Subsidiary is adequate and suitable for the purposes for
which it is presently being used.
3.9 AGREEMENTS, CONTRACTS, COMMITMENTS, INVESTMENTS, LOANS, GUARANTIES.
Except as set forth in Schedule 3.9 heretofore delivered by the Buyer to the
Sellers, neither the Buyer nor any Subsidiary has or is bound by (a) any
agreement, contract or commitment relating to the employment of any person, or
any bonus, deferred compensation, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit plan, (b) any
agreement, indenture or other instrument pursuant to which the Buyer or any
Subsidiary has borrowed money or which contains restrictions with respect to
payment of dividends or any other distribution in respect of its capital stock,
(c) any agreement, contract or commitment relating to capital expenditures, (d)
any loan or advance to, or investment in any other Person (other than
investments of the Buyer in the capital stock of its Subsidiaries), or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment, (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any other Person (other than the
endorsement of negotiable instruments for collection in the ordinary course of
business), (f) any management service, consulting or other similar type of
contract, (g) any agreement, contract or commitment limiting the freedom of the
Buyer or any of its Subsidiaries to conduct its business as presently conducted
or to compete with any other Person, or (h) any agreement, contract or
commitment which involves the payment of $100,000 or more and is not cancelable
without penalty within 90 days, or (i) any agreement, contract or commitment
relating to the disposition or acquisition of assets or any interest in any
business enterprise. Except as set forth in Schedule 3.9, each such contract or
agreement is in full force and effect, and there exists no material event of
default or event, occurrence, condition, or act which, with the giving of
notice, the lapse of time or the happening of any other event or condition,
would become a material default thereunder. To the best knowledge, information
and belief of the Buyer, neither the Buyer nor any Subsidiary has violated any
of the terms or conditions thereof in any material respect, and all of the
material covenants to be performed by any other party thereto have been fully
performed excepted for waivers granted in the ordinary course of business.
-8-
<PAGE>
3.10 RESTRICTIVE DOCUMENTS. Except as set forth in Schedule 3.10
heretofore delivered by the Buyer to the Seller, neither the Buyer nor any
Subsidiary is subject to, or a party to, any charter, by-law, mortgage, lien,
lease, license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character which would prevent (i) the consummation of the transactions
contemplated by this Agreement, (ii) compliance by the Buyer or any of its
Subsidiaries with the terms, conditions and provisions hereof or (iii) the
continued operation of the Buyer or any Subsidiary's business after the date
hereof or the Closing Date on substantially the same basis as heretofore
operated.
3.11 LITIGATION. There is no action, suit or proceeding, at law or in
equity, by any person or entity, or any arbitration or any administrative or
other proceeding by or before any governmental or other instrumentality or
agency, pending, or, to the best of the knowledge, information and belief of the
Buyer, threatened, against or affecting the Buyer or any of its Subsidiaries, or
any property or the rights of any thereof, which could materially and adversely
affect the right or ability of the Buyer or any of its Subsidiaries to carry on
its business as now conducted, or which could have a Material Adverse Effect on
the Buyer and its Subsidiaries; and to the best knowledge, information and
belief of the Buyer, it does not know of any valid basis for any such action,
suit or proceeding or recognize a basis on which one should reasonably
anticipate any investigation by any governmental or other instrumentality or
agency. Neither the Buyer nor any of its Subsidiaries is subject to any
judgment, order or decree entered in any lawsuit or proceeding which may have a
Material Adverse Effect on their businesses.
3.12 TAXES. The Buyer has filed or caused to be filed, within the times
and in the manner prescribed by law, all federal, state and local tax returns
and tax reports which are required to be filed by, or with respect to, the Buyer
or any of its Subsidiaries. Such returns and reports are, to the best knowledge
and belief of the Buyer, true, correct and complete. All federal, state and
local income, profits, franchises, sales, use, occupancy, excise and other Taxes
and assessments (including interest and penalties) payable by, or due from, the
Buyer or any of its Subsidiaries have been fully paid or adequately disclosed
and fully provided for in the books and financial statements of the Buyer and
its Subsidiaries. No examination of any tax return of the Buyer or any of its
Subsidiaries is currently in progress and there are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of the Buyer or any of its Subsidiaries.
3.13 INSURANCE. Set forth in Schedule 3.13 heretofore delivered by the
Buyer to the Sellers is a complete list of insurance policies which the Buyer
and its Subsidiaries maintain with respect to their businesses, properties or
employees. Such policies are in full force and effect. All premiums of such
insurance policies have been paid to date and no notices of cancellation or non-
renewal have been issued. The Buyer has not made any claims on such policies at
any time during the years of 1994, 1995 and 1996 through the date of the
Closing.
3.14 INTELLECTUAL PROPERTIES. Neither the Buyer nor any of its
Subsidiaries owns any patents, trademarks, trade names, service marks or
copyrights. The Buyer and its Subsidiaries have all rights to trade secrets and
confidential information required to carry on their respective businesses as
presently conducted. No claim of infringement or misappropriation of
intellectual property has been made against the Buyer or any of its
Subsidiaries, and none of them is infringing or misappropriating any
intellectual property.
-9-
<PAGE>
3.15 EMPLOYEE BENEFIT PLANS. Set forth in Schedule 3.15 heretofore
delivered by the Buyer to the Sellers is an accurate and complete list of all
employee benefit plans, established, maintained or contributed to by the Buyer
or any of its Subsidiaries.
3.16 INTERESTS IN CLIENTS, SUPPLIERS, ETC. Except as set forth on
Schedule 3.16 heretofore delivered by the Buyer to the Sellers, no officer or
director of the Buyer or its Subsidiaries, possesses, directly or indirectly,
any financial interest exceeding $50,000 in, or is a director, officer or
employee of, any corporation, firm, association or business organization which
is a client, supplier, customer, lessor, lessee, or competitor of the Buyers or
its Subsidiaries.
3.17 BANK ACCOUNTS, POWERS OF ATTORNEY AND COMPENSATION OF EMPLOYEES.
Set forth in Schedule 3.17 heretofore delivered by the Buyer to the Sellers is
an accurate and complete list showing (a) the name and address of each bank in
which the Buyer or any of its Subsidiaries has an account or safe deposit box,
the number of any such account or any such box and the names of all persons
authorized to draw thereon or to have access thereto, and (b) the names of all
persons, if any, holding powers of attorney from the Buyer or any of its
Subsidiaries and a summary statement of the terms thereof. There has been made
available to the Sellers an accurate and complete list showing the names of all
persons whose base salary from the Buyer or any of its Subsidiaries for the
fiscal year ended on the Balance Sheet Date exceeded an annualized rate of
$100,000 together with a statement of the full amount paid or payable to each
such person for services rendered during such fiscal year.
3.18 NO CHANGES PRIOR TO DATE OF THIS AGREEMENT. Except as expressly
contemplated hereby, during the period from the Balance Sheet Date to the date
of the execution and delivery of this Agreement neither the Buyer nor any of its
Subsidiaries has (i) incurred any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise), except in the ordinary course of
business, (ii) permitted any of its assets to be subjected to any Lien of any
kind, except in the ordinary course of business, (iii) sold, transferred or
otherwise disposed of any assets, except in the ordinary course of business,
(iv) made any capital expenditure or commitment therefor except in the ordinary
course of business, (v) declared or paid any dividend or made any distribution
on any shares of its capital stock, or redeemed, purchased or otherwise acquired
any shares of its capital stock, or granted any option, warrant or other right
to purchase or acquire any such shares, (vi) made any bonus or profit sharing
distribution or payment of any kind, (vii) increased its indebtedness for
borrowed money, except current borrowings from banks in the ordinary course of
business, or made any loan to any Person, (viii) written down the value of any
work-in-progress, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
business, none of which, individually or in the aggregate, is material to the
Buyer and its Subsidiaries, (ix) granted any increase in the rate of wages,
salaries, bonuses or other remuneration of any executive employee or other
employees, except in the ordinary course of business and except as provided for
in (vi) above, (x) cancelled or waived any claims or rights of substantial
value, (xi) made any significant change in any method of accounting or auditing
practice, (xii) otherwise conducted its business, or entered into any
transaction, except in the ordinary course of business, or (xiii) agreed to do
any of the foregoing.
3.19 DISCLOSURE. None of this Agreement, the financial statements
referred to in 3.4 above, or any schedule, exhibit, certificate, document or
statement in writing which has been
-10-
<PAGE>
supplied by or on behalf of the Buyer or any of its Subsidiaries, or by any of
their directors or officers, in connection with the transactions contemplated
hereby, taken as a whole, contains any untrue statement of a material fact, or
omits any statement of a material fact required to be stated or necessary in
order to make the statements contained herein or therein not misleading.
3.20 BROKER'S OR FINDER'S FEES. Except as set forth on Schedule 3.20
previously furnished by the Buyer to the Sellers, no agent, broker, person or
firm acting on behalf of the Buyer is, or will be, entitled to any commission or
broker's or finder's fee from any of the parties hereto, or from any person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement.
3.21 COPIES OF DOCUMENTS. The Buyer has caused to be made available for
inspection and copying by the Sellers and their advisers true, complete and
correct copies of all documents referred to in this Article III or in any
schedule furnished by the Buyer to the Sellers as stated in this Agreement or
otherwise requested by the Sellers.
ARTICLE IV
REPRESENTATIONS OF SELLERS
4. REPRESENTATIONS OF SELLERS. The Sellers jointly and severally
represent, warrant, covenant and agree as of the date of this Agreement as
follows:
4.1 EXISTENCE, CORPORATE AUTHORITY AND GOOD STANDING. Eastbrokers is a
corporation duly organized, validly existing and has and the Sellers guarantee
the existence of the requisite corporate licenses under the laws of Austria.
Eastbrokers has the power and authority to own its property and to carry on its
business as now being conducted. This Agreement has been duly authorized,
executed and delivered by Eastbrokers and is the legal, valid and binding
obligation of Eastbrokers and each of the Sellers, enforceable in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy
and other laws of general application relating to creditors' rights or general
principles of equity. Austria is the only jurisdiction in which the character
and location of the properties owned or leased by Eastbrokers or the nature of
the business conducted by Eastbrokers makes qualification necessary.
4.2 CAPITAL STOCK. Eastbrokers has an authorized capitalization
consisting of two (2) registered shares, nominal value per share 500,000
Austrian schillings; one (1) registered share, nominal value 1,000 Austrian
schillings; one hundred twenty (120) bearer shares, nominal value per share
1,000 Austrian schillings; and five hundred twenty-eight thousand seven hundred
ninety (528,790) bearer shares, nominal value per share 100 Austrian schillings;
zero shares are held in Eastbrokers treasury. All such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable.
Except as set forth on Schedule 4.2 heretofore delivered by the Sellers to
Buyer, no shares of capital stock of Eastbrokers are reserved for issuance, and
there are no outstanding options, warrants, rights, calls commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of the
capital stock of Eastbrokers, other than as contemplated by this Agreement.
-11-
<PAGE>
4.3 TITLE TO SHARES. Prior to the Closing, the Sellers shall deliver to
the Buyer EXHIBIT A setting forth the number of shares owned directly by each
Seller, and the number of shares held indirectly by Hypo Karntner Landesbank as
agent, which shares shall, in the aggregate, represent eighty percent (80%) of
the issued and outstanding capital stock of Eastbrokers. As of the Closing,
each of the Sellers shall own valid, good and marketable title to the number of
shares of Eastbrokers stock set forth opposite his name on EXHIBIT A, free and
clear of all Liens whatsoever, and Hypo Karntner Landesbank shall hold
indirectly as agent, and shall have the authority and right to enter into this
Agreement and to sell and transfer, good and marketable title to the number of
shares of Eastbrokers stock set forth opposite its name on EXHIBIT A, free and
clear of all Liens whatsoever.
4.4 SUBSIDIARIES AND INVESTMENTS. Set forth in Schedule 4.4 heretofore
furnished by the Sellers to Buyer is a list of each Eastbrokers' direct and
indirect Subsidiaries. Each Subsidiary set forth on such schedule is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation (as indicated on such schedule), and has all
requisite power and authority to own its property and to carry on its business
as presently conducted. Each Subsidiary is qualified to do business in all
jurisdictions in which the character and location of the properties owned or
leased by it or the nature of the business conducted by it makes such
qualification necessary except such jurisdictions where the failure to so
qualify will not have a materially adverse effect on the business of Eastbrokers
and its Subsidiaries. Except as set forth in Schedule 4.4, all of the
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable, and is owned, of record and
beneficially, by Eastbrokers, free and clear of all Liens whatsoever. Except as
set forth in Schedule 4.4, no shares of capital stock of any Subsidiary are
reserved for issuance, and there are no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans or other
agreements of any character providing for the purchase, issuance or sale of any
shares of the capital stock of such Subsidiary. Except as set forth in Schedule
4.4, neither Eastbrokers nor any Subsidiary listed therein owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any other corporation, association, trust, partnership, joint
venture or other Person.
4.5 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. Set forth in Schedule
4.5 heretofore furnished by the Sellers to the Buyer is a list of each of
Eastbrokers' material subsidiaries and investments accounted for under the
equity method ("Eastbrokers' Material Subsidiaries" and "Equity Investments,"
respectively) for the years ended December 31, 1994 and 1995, and the quarters
ended March 31, 1996 and 1995, as determined under United States generally
accepted accounting principles. The Sellers have heretofore furnished or intend
to furnish the Buyer with the following financial statements:
(i) the consolidated (includes Eastbrokers' Material Subsidiaries and
Equity Investments) balance sheets of Eastbrokers as of December 31 in each of
the years 1995 and 1994, and for the quarters ended March 31, 1996 and 1995, and
the related statements of operations, statement of changes in stockholders'
equity and statements of cash flows for the years and the quarters then ended,
all compiled and consolidated under Austrian generally accepted accounting
principles and converted to United States generally accepted accounting
principles by Pannell Kerr Forster, PC;
-12-
<PAGE>
(ii) the unconsolidated balance sheet of Eastbrokers as of December 31,
1995 and the related statement of operations, statement of changes in
stockholders' equity and statement of cash flows for the year then ended audited
by Deloitte & Touche (the balance sheet of Eastbrokers as of December 31, 1995
is hereinafter referred to as the "Eastbrokers Balance Sheet");
(iii) the unconsolidated balance sheet of Eastbrokers as of December
31, 1994 and the related statement of operations, statement of changes in
stockholders' equity and statement of cash flows for the year then ended audited
by Arthur Andersen.
(iv) the balance sheets of WMP Borsenmakler AG as of December 31, 1995
and 1994 and the related statements of operations, statements of changes in
stockholders' equity and statements of cash flows for the years then ended
audited by Deloitte &Touche.
(v) the balance sheets of Eastbrokers' Material Subsidiaries as of
December 31 in each of the years 1995 and 1994, and for the quarters ended March
31, 1996 and 1995, and the related statements of operations, statements of
changes in stockholders' equity and statements of cash flows, all audited by
certified public accountants of the country in which the entity was
incorporated. (The balance sheets of Eastbrokers' Material Subsidiaries as of
December 31, 1995, are hereinafter referred to as the "Eastbrokers' Material
Subsidiary Balance Sheets").
All of the foregoing financial statements, including the footnotes thereto,
except as indicated therein, have been or shall be prepared in accordance with
generally accepted accounting principles of Austria, or in accordance with the
generally accepted accounting principles of the country in which Eastbrokers or
the Eastbrokers' Material Subsidiary was incorporated, consistently applied
throughout the periods indicated. The Eastbrokers Balance Sheet and the
Eastbrokers' Material Subsidiary Balance Sheets shall fairly present the
financial condition of Eastbrokers and the Eastbrokers' Material Subsidiaries at
the respective dates thereof and, except as indicated therein, shall reflect all
claims against and all debts and liabilities of Eastbrokers and the Eastbrokers'
Material Subsidiaries, fixed or contingent, as at the respective dates thereof
and related statements of income shall fairly present the results of the
operation of Eastbrokers and the Eastbrokers' Material Subsidiaries for the
periods indicated. The Eastbrokers Balance Sheet and such statements of income
were or shall be required to be reflected therein in accordance with United
States generally accepted accounting principles, Since December 31, 1995 (the
"Balance Sheet Date"), there has been no Material Adverse Change in Eastbrokers
or the Eastbrokers' Material Subsidiaries, except as disclosed in or pursuant to
this Agreement.
4.6 BOOKS AND RECORDS. Except as set forth in the Schedule 4.6 heretofore
delivered by the Sellers to the Buyer, all accounts, books, ledgers and official
and other records material to the business of Eastbrokers and its Subsidiaries
have been fully, properly and accurately kept and completed in all material
respects, and there are no material inaccuracies or discrepancies contained or
reflected therein, and, taken as a whole, they give and reflect a true and fair
view of the financial position of Eastbrokers and its Subsidiaries. The minute
books of Eastbrokers and its Subsidiaries, as previously made available to the
Buyer, contain accurate records of all meetings of and written consents by the
shareholders and boards of directors of Eastbrokers and its Subsidiaries.
Except as set forth in Schedule 4.6 heretofore delivered by the Sellers to the
Buyer, Eastbrokers and its Subsidiaries do not have any of their respective
records, systems, controls, data or information recorded, stored, maintained,
operated or otherwise wholly or partly depen-
-13-
<PAGE>
dent upon or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not) which (including all means of
access thereto and therefrom) are not under the exclusive ownership and direct
control of Eastbrokers and its Subsidiaries. Eastbrokers and its Subsidiaries
keep their respective records and books of account in conformity with generally
accepted accounting principles of the country in which Eastbrokers or its
Subsidiaries is incorporated.
4.7 TITLE TO PROPERTIES; ENCUMBRANCES. Eastbrokers and each Subsidiary
has good title to (a) all its respective properties and assets, including,
without limitation, all the properties and assets reflected in the Eastbrokers
Balance Sheet and the Subsidiary Balance Sheets, except as indicated in the
notes thereto and except for properties disposed of since the Balance Sheet Date
in the ordinary course of business, and (b) all the properties and assets
purchased by Eastbrokers and each Subsidiary since the Balance Sheet Date
(except for properties and assets acquired since the Balance Sheet Date which
have been sold or otherwise disposed of in the ordinary course of business), in
each case subject to no Lien of any kind or character, except for Permitted
Encumbrances.
4.8 REAL PROPERTY AND PLANT. Schedule 4.8 heretofore delivered by the
Sellers to the Buyer contains an accurate and complete list of all real property
owned in whole or in part by Eastbrokers or any Subsidiary and includes the name
of the record title holder thereof and a list of all indebtedness secured by a
Lien thereon. Eastbrokers and the Subsidiaries, respectively, have good and
marketable title to all of the real property specified as owned by each on
Schedule 4.8, free and clear of all Liens of any kind or character, except for
Permitted Encumbrances.
4.9 LEASES. Schedule 4.9 heretofore delivered by the Sellers to the Buyer
contains an accurate and complete list and, a brief description of the terms of
all material leases to which Eastbrokers or any Subsidiary is a party (as lessee
or lessor). Except as set forth in said Schedule 4.9, each lease listed therein
is in full force and effect; all rents and additional rents due to date on each
such lease have been paid; in each case, the lessee has been in peaceable
possession since the commencement of the original terms of such lease and is not
in default thereunder and no waiver, indulgence or postponement of the lessee's
obligations thereunder has been granted by the lessor; and there exists no event
of default or event, occurrence, condition or act (including completion of the
transactions contemplated by this Agreement) which, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a material default under such lease. Neither Eastbrokers nor any
Subsidiary has violated any of the terms or conditions under any such lease in
any material respect, and to the best knowledge, information and belief of the
Sellers all of the covenants to be performed by any other party under any such
lease have been fully performed in all material respects. The property leased
by Eastbrokers or any Subsidiary is adequate and suitable for the purposes for
which it is presently being used.
4.10 AGREEMENTS, CONTRACTS, COMMITMENTS, INVESTMENTS, LOANS, GUARANTIES.
Except as set forth in Schedule 4.10 heretofore delivered by the Sellers to the
Buyer, neither Eastbrokers nor any Subsidiary has or is bound by (a) any
agreement, contract or commitment relating to the employment of any person, or
any bonus, deferred compensation, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit plan, (b) any
agreement, indenture or other instrument pursuant to which Eastbrokers or any
Subsidiary has borrowed
-14-
<PAGE>
money or which contains restrictions with respect to payment of dividends or any
other distribution in respect of its capital stock, (c) any agreement, contract
or commitment relating to capital expenditures, (d) any loan or advance to, or
investment in any other Person (other than investments of Eastbrokers in the
capital stock of its Subsidiaries), or any agreement, contract or commitment
relating to the making of any such loan, advance or investment, (e) any
guarantee or other contingent liability in respect of any indebtedness or
obligation of any other Person (other than the endorsement of negotiable
instruments for collection in the ordinary course of business), (f) any
management service, consulting or other similar type of contract, (g) any
agreement, contract or commitment limiting the freedom of Eastbrokers or any of
its Subsidiaries to conduct its business as presently conducted or to compete
with any other Person, or (h) any agreement, contract or commitment which
involves the payment of $100,000 or more and is not cancelable without penalty
within 90 days, (i) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise.
Except as set forth in Schedule 4.10, each such contract or agreement is in full
force and effect, and there exists no material event of default or event,
occurrence, condition, or act which, with the giving of notice, the lapse of
time or the happening of any other event or condition, would become a material
default thereunder. To the best knowledge, information and belief of the
Sellers, neither Eastbrokers nor any Subsidiary has violated any of the terms or
conditions thereof in any material respect, and all of the material covenants to
be performed by any other party thereto have been fully performed excepted for
waivers granted in the ordinary course of business.
4.11 RESTRICTIVE DOCUMENTS. Neither Eastbrokers nor any Subsidiary is
subject to, or a party to, any charter, by-law, mortgage, lien, lease, license,
permit, agreement, contract, instrument, law, rule, ordinance, regulation,
order, judgment or decree, or any other restriction of any kind or character
which would prevent (i) the consummation of the transactions contemplated by
this Agreement, (ii) compliance by Eastbrokers or any of its Subsidiaries with
the terms, conditions and provisions hereof or (iii) the continued operation of
Eastbrokers or any Subsidiary's business after the date hereof or the Closing
Date on substantially the same basis as heretofore operated; provided, however,
that Eastbrokers is required to give notice of this transaction to the
appropriate Austrian banking authorities regarding ownership of WMP. None of
the Sellers is subject to, or a party to, any such restriction that would have
any of the consequences described in the preceding sentence.
4.12 LITIGATION. Except as set forth in Schedule 4.12 heretofore delivered
by the Sellers to the Buyer, there is no action, suit or proceeding, at law or
in equity, by any person or entity, or any arbitration or any administrative or
other proceeding by or before any governmental or other instrumentality or
agency, pending, or, to the best of the knowledge, information and belief of the
Sellers, threatened, against or affecting Eastbrokers or any of its
Subsidiaries, or any property or the rights of any thereof, which could
materially and adversely affect the right or ability of Eastbrokers or any of
its Subsidiaries to carry on its business as now conducted, or which could have
a Material Adverse Effect on Eastbrokers and its Subsidiaries; and to the best
knowledge, information and belief of the Sellers, they do not know of any valid
basis for any such action, suit or proceeding or recognize a basis on which one
should reasonably anticipate any investigation by any governmental or other
instrumentality or agency. Neither Eastbrokers nor any of its Subsidiaries is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which may have a Material Adverse Effect on their businesses.
-15-
<PAGE>
4.13 TAXES. Eastbrokers has filed or caused to be filed, within the times
and in the manner prescribed by law, all federal, state and local tax returns
and tax reports which are required to be filed by, or with respect to,
Eastbrokers or any of its Subsidiaries. Such returns and reports are, to the
best knowledge and belief of the Sellers, true, correct and complete. All Taxes
(including interest and penalties) payable by, or due from, Eastbrokers or any
of its Subsidiaries have been fully paid or adequately disclosed and fully
provided for in the books and financial statements of Eastbrokers and its
Subsidiaries. The federal income tax liability of Eastbrokers and its
Subsidiaries has been finally determined for all fiscal years to and including
the fiscal year ended 1994. No examination of any tax return of Eastbrokers or
any of its Subsidiaries is currently in progress and there are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return of Eastbrokers or any of its Subsidiaries.
4.14 INSURANCE. Set forth in Schedule 4.14 heretofore delivered by the
Sellers to the Buyer is a complete list of insurance policies having annual
premiums in excess of $25,000 which Eastbrokers and its Subsidiaries maintain
with respect to their businesses, properties or employees. Such policies are in
full force and effect. All premiums of such insurance policies have been paid to
date and no notices of cancellation or non-renewal have been issued. The Seller
has not made any claims on such policies at any time during the years 1994, 1995
and 1996 through the date of the Closing.
4.15 INTELLECTUAL PROPERTIES. Except as set forth in Schedule 4.15
heretofore delivered by the Sellers to the Buyer, neither Eastbrokers nor any of
its Subsidiaries owns any patents, trademarks, trade names, service marks,
copyrights or rights in any of the foregoing. Eastbrokers or its Subsidiaries
is the true and lawful owner of each item listed on Schedule 4.15, and said
Schedule lists all intellectual property of the foregoing types required to
carry on their respective businesses as presently conducted. Further,
Eastbrokers and its Subsidiaries have all rights to trade secrets and
confidential information required to carry on their respective businesses as
presently conducted. No claim of infringement or misappropriation of
intellectual property has been made against Eastbrokers or any of its
Subsidiaries, and none of them is infringing or misappropriating any
intellectual property.
4.16 CLIENT RELATIONS. There has not been, and neither Eastbrokers, its
Subsidiaries nor the Sellers have received any oral or written notice from any
of its clients indicating any material adverse change in relations between
Eastbrokers or any of its Subsidiaries and its clients as a result of the
announcement or completion of the transactions contemplated by this Agreement.
4.17 ACCOUNTS RECEIVABLE; WORK-IN PROGRESS. The amount of all accounts
receivable and unbilled invoices of Eastbrokers and its Subsidiaries as being
due to Eastbrokers and its Subsidiaries as at the Closing Date (less the amount
of any provision or reserve therefor made in the records and books of account of
Eastbrokers and its Subsidiaries and reflected therein as of the Closing Date)
will be good and collectible in full in the ordinary course of business. The
amount of all work-in-progress appearing in the records and books of account of
Eastbrokers and its Subsidiaries as at the Closing Date (less the amount of any
provision or reserve therefor made in such records and books of account) will be
good and collectible in full in the ordinary course of business; and none of the
accounts receivable or other debts arising therefrom will be subject to any
counterclaim or set-off except to the extent of any such provision or reserve.
There has
-16-
<PAGE>
been no material change since the Balance Sheet Date in the amount of the
accounts receivable or other debts due to Eastbrokers and its Subsidiaries,
work-in-progress or the allowances with respect thereto, or accounts payable of
Eastbrokers and its Subsidiaries, from that reflected in the Balance Sheet other
than in the ordinary course of business of Eastbrokers and its Subsidiaries.
4.18 EMPLOYMENT RELATIONS. (a) Eastbrokers and each of its Subsidiaries
is in substantial compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and, to the best knowledge, information and belief of the Sellers, is not
engaged in any unfair labor practice; (b) there is no labor strike, dispute,
slowdown or stoppage actually pending or, to the best knowledge, information and
belief of the Sellers, threatened against or involving Eastbrokers or any of its
Subsidiaries; (c) no union currently demands representation as bargaining agent
for any employees of Eastbrokers or any of its Subsidiaries; (d) no grievance
which might have a Material Adverse Effect on Eastbrokers or any of its
Subsidiaries, or the conduct of its business nor any arbitration proceeding
arising out of or under any collective bargaining agreement is pending and no
claim therefor has been asserted; (e) no collective bargaining agreement is
currently being negotiated by Eastbrokers or any of its Subsidiaries; and (f)
neither Eastbrokers nor any of its Subsidiaries has experienced any work
stoppage during the last three years. The Sellers do not believe that there has
been any basis on which one should reasonably anticipate any Material Adverse
Change in relations with employees, taken as a group, as a result of the
announcements of the transactions contemplated by this Agreement.
4.19 EMPLOYEE BENEFIT PLANS. Set forth in Schedule 4.19 heretofore
delivered by the Sellers to the Buyer is an accurate and complete list of all
employee benefit plans, established, maintained or contributed to by Eastbrokers
or any of its Subsidiaries.
4.20 INTERESTS IN CLIENTS, SUPPLIERS, ETC. Except as set forth on Schedule
4.20 heretofore delivered by the Sellers to the Buyer, no Seller, nor any
officer or director of Eastbrokers or its Subsidiaries, possesses, directly or
indirectly, any financial interest exceeding $50,000 in, or is a director,
officer or employee of, any corporation, firm, association or business
organization which is a client, supplier, customer, lessor, lessee, or
competitor of Eastbrokers or its Subsidiaries.
4.21 BANK ACCOUNTS, POWERS OF ATTORNEY AND COMPENSATION OF EMPLOYEES.
Set forth in Schedule 4.21 heretofore delivered by the Sellers to the Buyer is
an accurate and complete list showing (a) the name and address of each bank in
which Eastbrokers or any of its Subsidiaries has an account or safe deposit box,
the number of any such account or any such box and the names of all persons
authorized to draw thereon or to have access thereto, and (b) the names of all
persons, if any, holding powers of attorney from Eastbrokers or any of its
Subsidiaries and a summary statement of the terms thereof. There has been made
available to the Buyer an accurate and complete list showing the names of all
persons whose base salary from Eastbrokers or any of its Subsidiaries for the
fiscal year ended on the Balance Sheet Date exceeded an annualized rate of
$100,000 together with a statement of the full amount paid or payable to each
such person for services rendered during such fiscal year.
4.22 INVESTMENT ADVISOR. Set forth on Schedule 4.22 heretofore delivered
by the Sellers to the Buyer is an accurate and complete list of all funds as to
which Eastbrokers or any of its Subsidiaries acts as an investment advisor.
Eastbrokers or the subject subsidiary has a valid, binding and enforceable
investment advisory agreement for all funds listed on such Schedule.
-17-
<PAGE>
4.23 NO CHANGES PRIOR TO DATE OF THIS AGREEMENT. Except as expressly
contemplated hereby, during the period from the Balance Sheet Date to the date
of the execution and delivery of this Agreement neither Eastbrokers nor any of
its Subsidiaries has (i) incurred any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except in the ordinary
course of business, (ii) permitted any of its assets to be subjected to any Lien
of any kind, except in the ordinary course of business, (iii) sold, transferred
or otherwise disposed of any assets, except in the ordinary course of business,
(iv) made any capital expenditure or commitment therefor except in the ordinary
course of business, (v) declared or paid any dividend or made any distribution
on any shares of its capital stock, or redeemed, purchased or otherwise acquired
any shares of its capital stock, or granted any option, warrant or other right
to purchase or acquire any such shares, (vi) made any bonus or profit sharing
distribution or payment of any kind, (vii) increased its indebtedness for
borrowed money, except current borrowings from banks in the ordinary course of
business, or made any loan to any Person, (viii) written down the value of any
work-in-progress, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
business, none of which, individually or in the aggregate, is material to
Eastbrokers and its Subsidiaries, (ix) granted any increase in the rate of
wages, salaries, bonuses or other remuneration of any executive employee or
other employees, except in the ordinary course of business and except as
provided for in (vi) above, (x) cancelled or waived any claims or rights of
substantial value, (xi) made any significant change in any method of accounting
or auditing practice, (xii) otherwise conducted its business, or entered into
any transaction, except in the ordinary course of business, or (xiii) agreed to
do any of the foregoing.
4.24 DISCLOSURE. None of this Agreement, the financial statements referred
to in 4.5 above, or any exhibit, schedule, certificate, document or statement in
writing which has been supplied by or on behalf of the Sellers or Eastbrokers or
any of its Subsidiaries, or by any of their directors or officers, in connection
with the transactions contemplated hereby, taken as a whole, contains any untrue
statement of a material fact, or omits any statement of a material fact required
to be stated or necessary in order to make the statements contained herein or
therein not misleading.
4.25 FORECAST. Eastbrokers has delivered to the Buyer a written forecast
showing billings, operating income, pretax profits and consolidated net income
for Eastbrokers and its Subsidiaries for the twelve months ending December 31,
1996 and 1997. Such forecast was prepared in good faith after due and careful
inquiry.
4.26 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on
behalf of the Sellers, Eastbrokers is, or will be, entitled to any commission or
broker's or finder's fee from any of the parties hereto, or from any person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement.
4.27 COPIES OF DOCUMENTS. The Sellers have caused to be made available
for inspection and copying by the Buyer and its advisers true, complete and
correct copies of all documents referred to in this Article IV or in any
schedule furnished by the Sellers to the Buyer as stated in this Agreement or
otherwise requested by the Buyer.
-18-
<PAGE>
ARTICLE V
OTHER AGREEMENTS
5.1 EMPLOYMENT AGREEMENTS. Prior to or simultaneously with the execution
and delivery of this Agreement, Buyer shall enter into employment agreements, or
guarantee the terms and conditions of employment agreements entered into between
Eastbrokers, or one of its Subsidiaries, and Wolfgang Kossner, August A. de
Roode and Peter Schmid in the forms of EXHIBITS B, C AND D, respectively. The
employment agreements of Dr. Michael Sumichrast and Martin A. Sumichrast shall
be affirmed in there entirety and are attached as EXHIBITS E AND F,
respectively. The employment agreement of Ing. Petr Bednarik shall be
terminated as of the Closing.
5.2 RESTRICTED SECURITIES. Sellers hereby acknowledge that the Buyer
Stock being issued to them pursuant to this Agreement has not been registered
under the Securities Act of 1933 (the "Act") and will constitute "restricted
securities" within the meaning of Rule 144 under the Act. The certificates
evidencing these shares will bear a legend restricting their transfer in
violation of the Act. The certificates evidencing these shares will also bear a
legend restricting their sale on any United States public trading market for a
period of two years from the Closing date.
5.3 GRANT OF OPTIONS. At the Closing, options to acquire 500,000 shares
of Buyer Stock at $2 per share will be granted to those persons designated by
Sellers and options to acquire an equal number of shares at the same price will
be granted to those persons designated by the Buyer. These options will be
evidenced by option agreements substantially in the form of EXHIBIT G and will
be exercisable for a period of three years.
5.4 WMP SHARES. The Sellers hereby acknowledge that as of the date of
this Agreement the Sellers or Eastbrokers either owns in the aggregate 51% of
the issued and outstanding shares of WMP Borsenmakler AG ("WMP") or, in
conjunction with the shares owned, has or shares, direct or indirect, voting
control of 51% of the issued and outstanding shares of WMP (such shares of WMP
together with any additional shares of WMP of which any of the Sellers may
hereinafter, directly or indirectly, acquire or otherwise have obtained or
shared beneficial ownership shall be collectively referred to as the "Sellers'
WMP Shares"). The Buyer acknowledges and agrees that Eastbrokers ownership of
WMP may be reduced at or prior to the Closing to 40% of the issued and
outstanding capital stock of such company (on a fully diluted basis). Each of
the Sellers hereby covenants and agrees with Buyer that, for the three year
period following the Closing, he shall vote any of the Sellers' WMP Shares over
which he has or shares, direct or indirect, voting control in favor of any
recommendation adopted by two thirds of the Board of Directors of the Buyer with
respect to a Material Event involving WMP. The foregoing agreement shall also
apply to any Sellers' WMP Shares which are sold, assigned or otherwise
transferred to an affiliate of a Seller. Unless otherwise required by mandatory
statutory law, Eastbrokers and the Sellers covenant and agree that, effective as
of the Closing Date, the Bylaws of WMP (or other governing instrument) shall be
amended to provide that any vote cast otherwise than as contemplated by this
section 5.4 shall be null and void and of no force or effect. The certificates
evidencing the Sellers WMP Shares shall bear a legend reflecting the pro-
-19-
<PAGE>
visions of this Section 5.4.
5.5 AMENDMENT OF BYLAWS. Effective as of the Closing, the Bylaws of the
Buyer and Eastbrokers shall be amended so as to substantially conform with the
terms and conditions of this Agreement. Buyer and Sellers agree to negotiate in
good faith regarding any appropriate amendment to the bylaws of the Buyer and
Eastbrokers which may be necessary to conform with the terms and conditions of
this Agreement.
5.6 COMPOSITION OF THE BUYER'S BOARD OF DIRECTORS. Effective as of the
Closing, the Board of Directors of the Buyer shall consist of the Sellers,
Michael Sumichrast, Martin Sumichrast, Randall Greene, Petr Bednarik and a
designee of the Sellers. At the closing, Buyer will deliver to the Sellers a
letter agreement signed by each of the Buyer Directors (as defined in Section
5.8) whereby they agree, at the written request of the Chief Executive Officer
of Buyer delivered subsequent to the expiration of three years from the Closing
Date, to resign from the Buyer's Board of Directors.
5.7 OFFICERS OF THE BUYER. Effective as of the Closing, the officers of
the Buyer shall be as follows: Michael Sumichrast - Chairman of the Board;
August de Roode - Chief Executive Officer and Chief Operating Officer; Peter
Schmid - President; and Martin Sumichrast - Executive Vice President and Chief
Financial Officer.
5.8 VOTING OF BUYER STOCK. The shares of Buyer Stock to be received
pursuant to Sections 2.1, 2.3 and 2.4 of this Agreement, together with any
additional shares of Buyer Stock of which any of the Sellers may hereinafter,
directly or indirectly, acquire or otherwise obtain beneficial ownership shall
be collectively referred to as the "Sellers' Shares". Each of the Sellers
hereby covenants and agrees with Buyer that, for the three year period following
the Closing, he shall vote any of the Sellers' Shares over which he has or
shares, direct or indirect, voting control in favor of (i) any recommendation
adopted by the Board of Directors of the Buyer with respect to a Material Event
involving Buyer; and (ii) in respect of any vacancy created in the Board of
Directors of the Buyer by reason of the resignation, removal or expiration of
term of any of Michael Sumichrast, Martin A. Sumichrast, Randall F.Greene or
Petr Bednarik or any successor to such person ("Buyer Directors"), in favor of
the election to Buyer's Board of Directors of the individual(s) designated by a
majority of the remaining Buyer Directors. The foregoing agreement shall also
apply to any Sellers' Shares which are sold, assigned or otherwise transferred
to an affiliate of a Seller. Sellers also covenant and agree that, effective as
of the Closing Date, the Bylaws of Buyer shall be amended to provide that any
votes cast otherwise than as contemplated by this Section 5.8 shall be null and
void and of no force or effect. The certificates evidencing the Sellers' Shares
shall bear a legend reflecting the provisions of this Section 5.8.
5.9 BLACKBURN & GREENE FEE. The Buyer and the Sellers acknowledge and
agree that the investment banking firm of Blackburn & Greene shall be paid at
the Closing a fee for advisory services rendered to the Buyer, which fee shall
consist of 100,000 shares of Buyer Stock.
5.10 BRIDGE LOAN DOCUMENTS. Contemporaneous to the execution of this
Agreement, the Buyer shall enter into an agreement providing Eastbrokers a
bridge loan in the amount of US$ 1.5 million which shall bear a simple interest
rate of 10% per annum. The principal and any accrued interest on the loan shall
be due and payable six months from the date of such loan. The loan shall be
secured by the personal guarantees of each of the Sellers. The loan shall be
-20-
<PAGE>
evidenced by a Loan Agreement, Non-Negotiable Promissory Note and Unconditional
Guarantee (collectively, the "Bridge Loan Documents") substantially in the form
of EXHIBITS H, I AND J.
5.11 BUSINESS OF BUYER AND SELLER; ALLOCATION OF FUNDS; EASTBROKERS US.
Upon the Closing, the Buyer intends to provide financing, accounting, legal,
regulatory, investor relations and general administrative support to Eastbrokers
and its Subsidiaries. Eastbrokers intends to continue to provide brokerage and
investment banking services to its existing client base. Buyer intends to
organize a Delaware corporation ("Eastbrokers US"), and this subsidiary will act
as a merchant banking operation for the Seller and Eastbrokers. Management of
Eastbrokers US shall be Messrs. William Blackburn, N. Bradley Fleisher, Randall
F. Greene and Martin A. Sumichrast. Eastbrokers US intends to facilitate
investment by U.S. entities into companies targeted by Eastbrokers for
investment, facilitate merger and acquisition and related activities of Buyer
and Eastbrokers, organize, raise investment capital for and manage offshore
funds as market conditions prevail and provide business consulting services to
US based companies.
Upon the Closing, the Buyer presently anticipates that it will have
approximately $5.0 million cash (net of the $1.5 million Bridge Loan described
in section 5.10). As soon as practicable after the Closing, the Buyer intends
to invest, through a capital stock purchase, an additional $5.0 million into
Eastbrokers for purposes of on-lending and on-investing into Eastbrokers'
Subsidiaries. Of this amount, $3.5 million will be funded through cash on hand
and $1.5 million will be funded upon repayment of the Bridge Loan. Prior to the
closing, the Buyer intends to contribute from cash on hand, $100,000 to the
capital of Eastbrokers US in consideration of being issued 1,000,000 shares of
Eastbrokers US (representing 100% of its issued and outstanding shares).
Concurrently, Buyer will also contribute from cash on hand, $900,000 to
Eastbrokers US in consideration of being issued 900,000 redeemable (at the
Buyer's option, after three years) preferred shares of Eastbrokers US. Upon the
sale of the Hotel Fortuna a.s., the Buyer will allocate $2,000,000 to
Eastbrokers' related projects and $2,000,000 to Eastbrokers US related projects.
Any remaining proceeds from the sale of the Hotel Fortuna a.s. shall be
determined by resolution of the board of directors of the Buyer. To authorize
and approve the allocation of any funds other than as substantially provided in
this Section shall require the vote of sixty-six and two thirds (66 2/3%) of the
directors of the Buyer present at a meeting at which a quorum is present.
As soon as practicable after the execution of this Agreement, the Buyer and
Eastbrokers US intend to enter into a three year, merchant banking agreement
whereby Eastbrokers US shall be the exclusive merchant banking representative of
the Buyer, Eastbrokers and its Subsidiaries in the United States. The scope of
such Agreement shall include any management contract of U.S. funds organized on
behalf of the Buyer, Eastbrokers or its Subsidiaries. In addition, Eastbrokers
US will agree to issue 1,100,000 Class A Warrants ("Class A Warrants") to
management, as set forth in Schedule 5.11. The Class A Warrants will be subject
to a mutually satisfactory warrant agreement. Thirty (30%) percent of the Class
A Warrant shall vest and become exercisable commencing one year from the date of
this Agreement, thirty (30%) percent of the Class A Warrants shall vest and
become exercisable commencing two years from the date of this Agreement and
forty (40%) percent of the Class A Warrant shall vest and become exercisable
commencing three years from the date of this Agreement. Vesting will be
conditioned upon the holders continued management participation in Eastbrokers
US during the vesting period and will accelerate in the event of termination
without
-21-
<PAGE>
cause. Each Warrant entitles the holder to purchase one share of common stock of
Eastbrokers US for $.15 each for a period of five years from the date of this
Agreement. No additional shares of Eastbrokers US will be issued during the
three years from the date of this Agreement, unless unanimously agreed upon by
the Board of Directors of the Buyer. Management of Eastbrokers US will be
compensated on a performance based formula. Management and buyer intend to
enter into a mutually satisfactory buyout agreement with respect to Eastbrokers
US.
ARTICLE VI
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW
6.1 CONDUCT OF BUSINESS OF THE PARTIES. During the period from the date
of this Agreement to the Closing Date, each of the Buyer and Eastbrokers shall,
and shall cause each of their respective Subsidiaries to, conduct its operations
only according to its ordinary and usual course of business and use its best
efforts to preserve intact its business organization, keep available the
services of its officers and employees and maintain satisfactory relationships
with licensors, suppliers, distributors, clients and others having business
relationships with it. Notwithstanding the immediately preceding sentence,
pending the Closing Date and except as is otherwise permitted or required by
this Agreement, each of the Buyer and Eastbrokers will not, and will not permit
any of its respective Subsidiaries to (a) amend its Certificate of Incorporation
or By-Laws, (b) incur any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise), except in the ordinary course of
business, (c) permit any of its assets to be subjected to any Lien of any kind
except in the ordinary course of business, (d) sell, transfer or otherwise
dispose of any assets, except in the ordinary course of business, (e) make any
capital expenditure or commitment therefor, except in the ordinary course of
business, (f) declare or pay any dividend or make any distribution on any shares
of its capital stock, or redeem, purchase or otherwise acquire any shares of its
capital stock or grant any option, warrant or other right to purchase or acquire
any such shares, (g) make any bonus, pension or profit sharing distribution or
payment of any kind that was not accrued for in its respective Balance Sheet,
(h) increase its indebtedness for borrowed money, except current borrowings from
banks in the ordinary course of business, or make any loan to any Person except
in the ordinary course of business, (i) write down the value of any work-in-
progress or write off as uncollectible any notes or accounts receivable, except
write-downs and write-offs in the ordinary course of business, none of which,
individually or in the aggregate, is material to the Buyer, Eastbrokers or their
respective Subsidiaries, (j) grant any increase in the rate of wages, salaries,
bonuses or other remuneration of any executive employee or other employees
except in the ordinary course of business, (k) increase the compensation payable
or to become payable by the Buyer, Eastbrokers or any of their respective
Subsidiaries to any officer, employee or agent, (l) make any retirement or
insurance payment or arrangement to or with any such persons except those that
may have already been accrued, in the ordinary course of business, (m) enter
into any contract or commitment except contacts and commitments in the ordinary
course of business, (n) cancel or waive any claims or rights of substantial
value except in the ordinary course of business, (o) make any change in any
method of accounting, (p) make any change affecting any bank, safe deposit or
power of attorney arrangements of the Buyer, Eastbrokers or their respective
Subsidiaries, (q) otherwise conduct its busi-
-22-
<PAGE>
ness or enter into any transaction, except in the usual and ordinary manner and
in the ordinary course of its business, or (r) agree, whether or not in writing,
to do any of the foregoing. During the period from the date of this Agreement
to the Closing Date, the Buyer and the Sellers shall confer on a regular and
frequent basis to report material operational matters and to report the general
status of ongoing operations. The Buyer and the Sellers shall each notify the
other of any unexpected emergency or other change in the normal course of the
business or in the operation of the properties of the Buyer or Eastbrokers or
any of their respective subsidiaries and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), adjudicatory proceedings, budget meetings or submissions
involving any material property of the Buyers, Eastbrokers or their respective
subsidiaries, and shall keep each other fully informed of such events and permit
each other's representatives reasonable access to all materials prepared in
connection therewith.
6.2. EXCLUSIVE DEALING. During the period from the date of this Agreement
to the Closing Date, the Sellers shall not, and shall cause Eastbrokers to
refrain from taking any action to, directly or indirectly, encourage, initiate
or engage in discussions or negotiations with, or provide any information to,
any Person, or other entity or group, other than the Buyer, concerning any
purchase of Eastbrokers Common Stock or any merger, sale of substantial assets
or similar transaction involving Eastbrokers. During the period from the date
of this Agreement to the Closing Date, the Buyer, to the extent consistent with
the fiduciary responsibilities of its directors under Delaware law, shall not,
directly or indirectly, encourage, initiate or engage in discussions or
negotiations with, or provide any information to, any Person, or other entity or
group, other than the Sellers, concerning any purchase of Buyers Stock or any
merger, sale of substantial assets or similar transaction involving the Buyer.
6.3 REVIEW OF EASTBROKERS. The Buyer may, prior to the Closing Date,
through its representatives, review the properties, books and records of
Eastbrokers and its Subsidiaries and their financial and legal condition as they
deem necessary or advisable to familiarize themselves with such properties and
other matters; such review shall not, however, affect the representations and
warranties made by the Sellers hereunder. Eastbrokers shall, and the Sellers
shall cause Eastbrokers and its Subsidiaries, permit the Buyer and its
representatives to have reasonable access to the premises and to all the books
and records of Eastbrokers and its Subsidiaries and to cause the officers of
Eastbrokers to furnish the Buyer with such financial and operating data and
other information with respect to the business and properties of Eastbrokers and
its Subsidiaries as the Buyer shall from time to time reasonably request. In
the event of termination of this Agreement, the Buyer shall not, directly or
indirectly, use any information to its or any third party's benefit and shall
keep confidential any material information obtained from the Sellers or
Eastbrokers concerning the properties, operations and business of Eastbrokers
and its Subsidiaries (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be material or becomes so
ascertainable and shall return to the Sellers any schedules, statements,
documents or other written information obtained in connection therewith.
6.4. REVIEW OF BUYER. The Sellers may, prior to the Closing Date, through
their representatives, review the properties, books and records of the Buyer and
its Subsidiaries and their financial and legal condition as they deem necessary
or advisable to familiarize themselves with such properties and other matters;
such review shall not, however, affect the representations and
-23-
<PAGE>
warranties made by the Buyer hereunder. The Buyer shall permit the Sellers and
their representatives to have reasonable access to the premises and to all the
books and records of the Buyer and its Subsidiaries and to cause the officers of
the Buyer to furnish the Sellers with such financial and operating data and
other information with respect to the business and properties of the Buyer as
the Sellers shall from time to time reasonably request. In the event of
termination of this Agreement, the Sellers shall not use any information to its
or any third party's benefit and shall keep confidential any material
information obtained from the Buyer concerning the properties, operations and
business of the Buyer and its Subsidiaries (unless readily ascertainable from
public or published information or trade sources) until the same ceases to be
material or becomes so ascertainable and shall return to the Buyer any
schedules, statements, documents or other written information obtained in
connection therewith.
6.5. FURTHER ASSURANCES. The Buyer, Eastbrokers and the Sellers shall
deliver or cause to be delivered on the Closing Date, and at such other times
and places as shall be reasonably agreed on, such additional instruments as the
Buyer or the Sellers, respectively, may reasonably request for the purpose of
carrying out this Agreement.
ARTICLE VII
CONDITIONS TO THE BUYER'S OBLIGATIONS
7. CONDITIONS TO THE BUYER'S OBLIGATIONS. The performance by the Buyer
at the Closing is conditioned upon satisfaction of the conditions set forth
below:
7.1 OPINION OF EASTBROKERS' COUNSEL. Eastbrokers and the Sellers shall
have furnished the Buyer with a favorable opinion, dated the Closing Date, of
Messrs. Marks & Murase, as shall be negotiated in good faith by the mutual
agreement of the parties and their counsel.
7.2 GOOD STANDING AND TAX CERTIFICATES. Eastbrokers and the Sellers shall
have delivered to the Buyer (a) copies of Eastbrokers' and each Subsidiary's
respective Certificates of Incorporation, including all amendments thereto, each
certified by the appropriate governmental official of its jurisdiction of
incorporation, and each certified by an officer of Eastbrokers or the
Subsidiary, and (b) copies of a license or business permit each certified by the
appropriate authority providing that Eastbrokers and its Subsidiaries are
entitled to carry on business in the jurisdiction of incorporation.
7.3 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there shall be
no Material Adverse Change in the business or to the property of Eastbrokers and
its Subsidiaries, and Eastbrokers and the Sellers shall have delivered to the
Buyer a certificate, dated the Closing Date, to such effect.
7.4 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Sellers contained in this Agreement or in any schedule or
exhibit delivered pursuant hereto shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, and the Sellers shall have delivered to
the Buyer on the Closing Date a certificate, dated the Closing Date, to such
effect.
-24-
<PAGE>
7.5 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of
Eastbrokers and the Sellers to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed unless the
performance thereof shall have been waived, and the Sellers shall have delivered
to the Buyer a certificate, dated the Closing Date, to such effect.
7.6 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted or, to the best knowledge, information and belief of the Sellers
shall have been threatened before a Governmental Authority to restrain or
prohibit any of the transactions contemplated hereby, and the Sellers shall have
delivered to the Buyer a certificate, dated the Closing Date, to such effect.
7.7 EMPLOYMENT AGREEMENTS. The employment agreements of the Sellers shall
have been delivered to the Buyer in accordance with Section 5.1 hereof, shall be
in full force and effect and shall not have been amended or changed in any way;
and Buyer and Sellers agree to negotiate in good faith a letter to the Buyer
containing a restrictive covenant which shall become effective as of the Closing
Date.
7.8 CONSENTS AND APPROVALS. All governmental and other consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received.
7.9 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Buyer and its
counsel, and the Buyer shall have received copies of all such documents and
other evidences as it or its counsel may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
7.10 FAIRNESS OPINION. The Buyer shall have received a Fairness Opinion,
dated the closing date, of an investment banking firm selected by the Buyer, in
form and substance satisfactory to it.
7.11 APPROVAL OF FINANCIAL STATEMENTS BY BUYER'S BOARD OF DIRECTORS.
Eastbrokers and the Sellers shall have furnished the Buyer with the financial
statements set forth and described in Section 4.5. The financial condition of
Eastbrokers, Eastbrokers' Material Subsidiaries and Equity Investments, as
reflected in such financial statements, shall be satisfactory to Buyer's Board
of Directors, in its sole discretion.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF EASTBROKERS AND THE SELLERS
8. CONDITIONS OF THE OBLIGATIONS OF EASTBROKERS. The performance by
Eastbrokers and the Sellers at the Closing is conditioned upon the satisfaction
of the conditions set forth below:
8.1 OPINIONS OF THE BUYER'S COUNSEL. The Buyer shall have furnished
Eastbrokers and the Sellers with an opinion of Gould & Wilkie, dated the Closing
Date, as shall be negotiated in
-25-
<PAGE>
good faith by the mutual agreement of the parties and their counsel.
8.2 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date there shall be
no Material Adverse Change in the business or the property of the Buyer and its
Subsidiaries and the Buyer shall have delivered to the Sellers a certificate
dated the Closing Date to such effect.
8.3 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Buyer contained in this Agreement or in any schedule or
exhibit delivered pursuant hereto shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date and the Buyer shall have delivered to the
Sellers on the Closing Date a certificate, dated the Closing Date, to such
effect.
8.4 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of the
Buyer to be performed on or before the Closing Date pursuant to the terms hereof
shall have been duly performed unless the performance thereof shall have been
waived and the Buyer shall have delivered to the Sellers a certificate, dated
the Closing Date, to such effect.
8.5 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted or, to the best knowledge, information and belief of the Buyer shall
have been threatened before a Governmental Authority to restrain or prohibit any
of the transactions contemplated hereby, and the Buyer shall have delivered to
the Sellers a certificate, dated the Closing Date, to such effect.
8.6 EMPLOYMENT AGREEMENTS. The employment agreements of the Sellers
delivered to the Buyer in accordance with Section 5.1 hereof shall be in full
force and effect and shall not have been amended or changed in any way and the
Buyer shall have delivered to the Sellers a certificate, dated the Closing Date,
to such effect.
8.7 CONSENTS AND APPROVALS. All governmental and other consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received.
8.8 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Sellers and their
counsel, and the Sellers shall have received copies of all such documents, and
other evidences as it or its counsel may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
ARTICLE IX
DELIVERIES AT CLOSING
9.1 SELLERS' OBLIGATIONS. At the Closing, Sellers shall deliver, or cause
to be delivered to the Buyer each of the following (any of which may be waived
by written agreement of the Buyer):
(a) DOCUMENTS OF TRANSFER. Stock certificates representing the
number of issued and outstanding shares of capital stock of Eastbrokers set
forth on EXHIBIT A duly endorsed
-26-
<PAGE>
in or accompanied by stock powers duly endorsed in proper form for transfer.
(b) OTHER DOCUMENTS. The documents, agreements and certificates
contemplated by Article VII hereof.
9.2 OBLIGATIONS OF BUYER. At the Closing, the Buyer shall execute and
deliver or cause to be executed and delivered to the Sellers each of the
following (any of which may be waived by written agreement of the Sellers):
(a) DOCUMENTS OF TRANSFER. Stock certificates representing the
number of shares of Buyer Stock, set forth on EXHIBIT A.
(b) OTHER DOCUMENTS. The other documents, agreements and
certificates contemplated by Article VIII hereof.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNITY
10.1 SURVIVAL OF REPRESENTATIONS. Subject to the provisions of Section
10.2(d), the respective representations, warranties and covenants of the Buyer
and Sellers contained in of this Agreement or in any exhibit, schedule or
certificate delivered pursuant hereto shall survive the completion of the
transactions contemplated hereby.
10.2 INDEMNIFICATION. (a) Sellers (it being understood and agreed that
for purposes of this Section 10.2, the term Sellers shall not include Hypo
Karntner Landesbank) jointly and severally agree to indemnify and hold the Buyer
and its officers, directors and agents harmless from damages, losses or expenses
(net after tax benefit) suffered or paid, directly or indirectly through
application of the assets of the Buyer and its Subsidiaries as a result of any
and all claims, demands, suits, causes of action, proceedings, judgments and
liabilities, including reasonable counsel fees incurred in litigation or
otherwise, assessed, incurred or sustained by or against any of them with
respect to or arising out of the failure of any representation, warranty or
covenant made by Sellers in Article IV of this Agreement or in any exhibit,
schedule or certificate delivered pursuant thereto to be true and correct in all
respects as of the date of this Agreement if the same shall result in indemnity
claims hereunder that exceed $250,000 in aggregate amount, in which event all
costs, losses and expenses (net after tax benefit) associated therewith shall be
reimbursed through the payment of indemnification hereunder. Seller shall not
be liable for any amount in excess of the aggregate consideration received by
all of the Sellers, including but not limited to, Hypo Karntner Landesbank
(b) Buyer agrees to indemnify and hold the Sellers harmless from
damages, losses or expenses (net after tax benefit) suffered or paid, directly
or indirectly, as a result of any and all claims, demands, suits, causes of
action, proceedings, judgments and liabilities, including reasonable counsel
fees incurred in litigation or otherwise, assessed, incurred or sustained by or
against Sellers with respect to or arising out of the failure of any
representation, warranty or covenant made by Buyer in Article III of this
Agreement to be true and correct in all respects as of the date of this
Agreement if the same shall result in indemnity claims hereunder that exceed
-27-
<PAGE>
$250,000 in aggregate amount, in which event all costs, losses and expenses (net
after tax benefit) associated therewith shall be reimbursed through the payment
of indemnification hereunder.
(c) The obligations to indemnify and hold harmless pursuant to
paragraphs (a) and (b) of this Section 10.2 shall survive the consummation of
the transactions contemplated by this Agreement, but shall terminate thirty-six
months following the Closing Date, (except for any claim(s) for indemnification
then pending, as evidenced in written notice to the prospective indemnifying
party or parties, and for breach of the representations, warranties and
covenants with respect to tax matters set forth in Sections 3.12 and 4.13
hereof) and the obligation to indemnify and hold harmless for breach of the
representations and warranties with respect to tax matters set forth in such
Sections hereof shall continue in effect beyond such thirty-six month period.
(d) Each party agrees to give the other prompt written notice of any
event or assertion of which it has knowledge concerning any such loss,
liability, expense, claim, Lien or other obligation and as to which it may
request indemnification under this Section 10.2. Each party will cooperate with
the other in determining the validity of any such claim or assertion and in
defending against third parties with respect to the same. The indemnifying
party shall have the right to elect to join in the defense of any such third
party claim at its sole expense. A party's failure to give timely notice or to
provide copies of documents or to furnish relevant data in connection with any
such third party claim shall not constitute a defense (in part or in whole) to
any claim for indemnification by such party, except and only to the extent that
such failure shall result in any prejudice to the indemnifying party. Each
party agrees not to settle or compromise any such third party suit, claim or
proceeding for which the other has an obligation to indemnify without the prior
written consent of the other, which consent shall not be unreasonably withheld.
(e) For the purpose of calculating under paragraph (b) of this
Section 10.2 the damage, loss or expense (net after tax benefit) suffered or
paid by a Seller, the damage, loss or expense shall be determined by calculating
the damage, loss or expense (net after tax benefit) (a "Loss" suffered by the
Buyer, dividing the same by the total number of shares of Buyer Stock
outstanding at the time of such Loss and multiplying the result by the
percentage of such outstanding shares owned by the Seller.
ARTICLE XI
AMENDMENT AND WAIVER
11.1 AMENDMENT. This Agreement and the exhibits and schedules hereto may
not be amended except by an instrument in writing signed by or on behalf of each
of the parties hereto.
11.2 WAIVER. Any agreement on the part of a party hereto to any extension
or waiver shall be valid only if set forth in an instrument in writing signed by
or on behalf of such party.
-28-
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.1 KNOWLEDGE OF BUYER AND SELLERS. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the
knowledge, information and belief of the Buyer or the Sellers, the appropriate
party shall confirm that they have made due and diligent inquiry as to the
matters that are the subject of such representations and warranties.
12.2 GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York.
12.3 CAPTIONS. The Article and Section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
12.4 PUBLICITY. None of the parties hereto shall issue any press release
or make any other public statement, in each case relating to or connected with
or arising out of this Agreement or the matters contained herein, without
obtaining the prior approval of the other parties to the contents and the manner
of presentation and publication thereof. Notwithstanding the foregoing, Seller
and Buyer shall be permitted, on prior notice to the other party, to make
disclosures to the Governmental Authorities as their respective counsel shall
deem necessary to maintain compliance with, or to prevent violation of,
applicable laws.
12.5 COSTS. Except as otherwise expressly provided by this Agreement,
each of the Buyer and the Sellers shall bear the costs incurred by them in
connection with the Agreement and the transactions contemplated hereby
(including but not limited to counsel fees and expenses).
12.6 NOTICES. Any notice or other communications required or permitted
hereunder shall be sufficiently given if sent by reputable overnight courier
service or registered mail, postage prepaid, addressed as follows:
If to Buyer: MARTIN A. SUMICHRAST
C/O Czech Industries, Inc.
15245 Shady Grove Road, Suite 340
Rockville, Maryland 20850
with a copy to: Gould & Wilkie
One Chase Manhattan Plaza, 58th Floor
New York, New York 10005-1401
Attention: Frederick W. London, Esq.
If to Sellers: August A. de Roode
c/o Eastbrokers Beteiligungs AG
Schlickgasse 1
A-1090 Vienna
Austria
-29-
<PAGE>
with a copy to: Marks & Murase L.L.P.
399 Park Avenue
New York, New York 10022-4689
Attn: Alan J. Bernstein, Esq.
or such other address as shall be furnished in writing by any such party. If
sent by courier, such notice or communication shall be deemed to have been given
as of the next business day after it was deposited with the courier service and
if mailed such notice or communication shall be deemed to have been given as of
the third business day after the date mailed.
12.7 PARTIES IN INTEREST. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
12.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
12.9 ENTIRE AGREEMENT. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
12.10 SEVERABILITY. If any of the provisions of or covenants contained in
this Agreement are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalid portions or the unenforceability in such
other jurisdiction.
12.11 FURTHER ASSURANCES. Upon the reasonable request of Buyer or Seller,
the other party will on and after the Closing Date execute and deliver or cause
to be executed and delivered such documents, releases, assignments and other
instruments as may reasonably be required to effectuate the transactions
contemplated by this Agreement.
12.12 TERMINATION. Any party may terminate this Agreement upon 30 days
prior written notice to the other parties hereto in the event that the Closing
Date has not occurred by August 30, 1996; provided, however, that either the
Buyer or the Sellers may, provided that the parties are making good faith
efforts to consummate the Closing, may extend this date for a period of 90 days
after August 30, 1996 by notice to the other.
12.13 ARBITRATION. Any disputes arising out of or in connection with this
Agreement shall be settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by three arbitrators in accordance with
said rules. The arbitration shall be held in Paris, France and in the English
language. The ruling by such arbitrators shall be binding upon the parties in
the absence of fraud.
12.14 TRANSFER TAXES. Any transfer tax liabilities resulting from or
arising out of the transfer of the Eastbrokers Stock to the Buyer shall be the
responsibility of the Sellers and any transfer tax liabilities resulting from or
arising out of the issuance of Buyer Stock to the Sellers shall be the
responsibility of the Buyer.
-30-
<PAGE>
IN WITNESS WHEREOF, each of the Buyer and Eastbrokers has caused its
corporate name to be hereunto subscribed by its officer thereunto duly
authorized, and the Sellers have executed this Agreement, all as of the day and
year first above written.
EASTBROKERS BETEILIGUNGS AG CZECH INDUSTRIES, INC.
By:______________________________ By: _______________________________
Name: August A. de Roode Name: Michael Sumichrast, Ph.D.
Title: Chief Executive Officer Title: Chairman of the Board
By:______________________________
Name: Peter Schmid
Title: President
SELLERS:
_________________________________
Wolfgang Kossner
_________________________________
August A. de Roode
_________________________________
Peter Schmid
-31-
<PAGE>
SCHEDULE 3.2
The following is a list of the shares of capital stock of the Buyer reserved for
issuance:
1. 5,505,000 shares of Common Stock of the Buyer are reserved for issuance
pursuant to the Class A Warrant Agreement;
2. 1,250,000 shares of Common Stock of the Buyer are reserved for issuance
pursuant to the Class B Warrant Agreement.
3. 270,000 shares of Common Stock of the Buyer are reserved for issuance
pursuant to the Unit Purchase Option between Czech Industries, Inc. and
Daniel Porush, dated June 1995;
4. 50,000 shares of Common Stock of the Buyer are reserved for issuance
pursuant to the Unit Purchase Option between Czech Industries, Inc. and
Elliot Loewenstern, dated June 1995;
5. 50,000 shares of Common Stock of the Buyer are reserved for issuance
pursuant to the Unit Purchase Option between Czech Industries, Inc. and
Richard Bronson, dated June 1995;
6. 1,000,000 shares of Common Stock of the Buyer shall be reserved for
issuance pursuant to the Stock Option Agreement described in Section 5.3 of
the Agreement and attached hereto as Exhibit G.
<PAGE>
SCHEDULE 3.5
The books and records of the Hotel Fortuna a.s. are not under the exclusive
ownership and control of the Buyer and are not kept in conformity with U.S.
generally accepted accounting principles.
<PAGE>
SCHEDULE 3.7
The Buyer owns no real property. The Buyer's Subsidiary owns the hotel building
which is considered real property under US Generally Accepted Accounting
Principles. The real property (land) on which the hotel is situated is leased
(see Schedule 3.8).
<PAGE>
SCHEDULE 3.9
The following is a list of agreements, contracts, commitments, investments,
loans or guaranties to which the Buyer is bound:
a. Underwriting Agreement;
b. Warrant Agreement for Class A Warrants and Class B Warrants;
c. Unit Purchase Option between Czech Industries, Inc. and Daniel Porush,
dated June 1995;
d. Unit Purchase Option between Czech Industries, Inc. and Elliot Loewenstern,
dated June 1995;
e. Unit Purchase Option between Czech Industries, Inc. and Richard Bronson,
dated June 1995;
f. Employment Agreement, Michael Sumichrast, Ph.D., dated February 1995;
g. Employment Agreement, Peter Bednarik, Ing., dated February 1995;
h. Employment Agreement, Martin A. Sumichrast, dated February 1995;
i. Note Payable to Finn s.r.o. requiring semi-annual interest payment of nine
(9) percent, principal due at maturity on September 30, 1997; note secured
by 73,200 shares of the Buyer's Fortuna Hotel a.s. common stock.
The following is a list of agreements, contracts, commitments, investments,
loans or guaranties to which the Buyer's Subsidiary is bound:
a. Rental Agreement providing operator the right to operate a parking lot on
the premises of the hotel;
b. Contract with Komercni banka providing for the collection and acceptance of
travellers' cheques;
c. Contract with Intergram providing audio recordings in the hotel;
d. Contract with KASA providing for maintenance of hotel computer system;
e. Franchise Agreement with Choice Hotels International;
f. Legal retainer contract with JUDr. Usnul;
g. Contract with INTERCLUB providing individual transportation services to
hotel guests.
<PAGE>
SCHEDULE 3.10
The following is a list restrictive documents to which the Buyer or its
Subsidiary is subject:
1. Underwriting Agreement between Czech Industries, Inc. and Stratton Oakmont,
dated June 8. 1995.
<PAGE>
SCHEDULE 3.15
The following is a list of employee benefit plans established, maintained or
controlled by the Buyer or its Subsidiary:
a. the Buyer reimburses certain employees for health insurance benefits.
<PAGE>
SCHEDULE 3.16
The following is a list of the officers or directors of the Buyer or its
Subsidiary who have interests in clients, suppliers, etc..
a. Stratego Invest a.s. owns 20.6% of the Buyer's subsidiary, the Hotel
Fortuna a.s.. Stratego Invest a.s. is more than 50% owned by Stratego a.s.,
which is controlled by Ing. Petr Bednarik, the President, CEO and a director of
the Company.
b. Buyer leases, on a month to month basis, office space in Prague, Czech
Republic from Stratego Invest a.s.. Stratego Invest a.s. is more than 50% owned
by Stratego a.s., which is controlled by Ing. Petr Bednarik, the President, CEO
and a director of the Company.
c. The Buyer maintains two bank accounts at Velkomoravska banka a.s.. Ing.
Petr Bednarik is member of the supervisory board of Velkomoravska banka a.s..
Stratego a.s. which is controlled by Ing. Petr Bednarik is a shareholder of
Velkomoravska banka a.s.
<PAGE>
SCHEDULE 3.20
The following is a list of persons who will be entitled to any commissions,
broker's or finder's fees from any of the parties in connection with any of the
transactions contemplated by the Agreement:
a. Blackburn and Greene shall be entitled to fees as described in Section 5.9
of the Agreement.
<PAGE>
SCHEDULE 4.5
<TABLE>
<CAPTION>
Eastbrokers' Subsidiary March 31, 1996 December 31, 1995 December 31, 1994
- ----------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Eastbrokers Prague plc. material material material
Eastbrokers Budapest ltd. material material not material
Eastbrokers Romania plc. material material not material
Eastbrokers Slovakia plc. material material not material
Eastbrokers' Equity ******** ******** ********
- ------------------
Investment
- ----------
WMP Borsenmakler AG material material material
Eastbrokers Ljubljana plc material not material not material
Eastbrokers Zagreb plc material not material not material
</TABLE>
<PAGE>
Schedule 4.5
The following is a list of the financial statements of Eastbrokers and
Eastbrokers' Material Subsidiaries and Equity Investments included in the
financial statements turned over to the Buyer.
Audited statements included in the consolidation:
(a) Eastbrokers Beteiligungs AG (Austria) 1995 and 1994;
(b) Eastbrokers a.s. (Czech Republic) 1995 and 1994;
(c) Eastbrokers Budapest (Hungary) 1995 and 1994; and
(d) Eastbrokers Slovakia a.s. (Slovakia) 1995.
Unaudited statements included in the consolidation:
(a) Eastbrokers Wertpapiervermittlungs Ges.m.b.H. (Austria) 1995 and 1994;
and
(b) Eastbrokers a.s. (Romania) 1995.
Audited statements inlcuded in the financial statements accounted for the equity
method:
(a) WMP Borsenmakler Aktiengeselllschaft (Austria) 1995 and 1994;
(b) Eastbrokers d.d. Ljubljana (Slovenia) 1995 and 1994; and
(c) Eastbrokers Zagreb d.d. (Croatia) 1995.
<PAGE>
SCHEDULE 5.11
1. William B. Blackburn, 330,000 Class A Warrants
2. N. Bradley Fleisher, 165,000 Class A Warrants
3. Randall F. Greene, 275,000 Class A Warrants
4. Martin A. Sumichrast, 330,000 Class A Warrants
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Shares of Buyer Shares of
Turned Over Eastbrokers
To Seller Turned Over
And Agent To Buyer
-------- ---------
<S> <C> <C>
1. KHS Beteiligungs AG 2,094,125 167,530
2. Central & Eastern Europe Fund 162,500 13,000
3. Karntner Landes und
Hypothekenbank AG (own account) 222,500 17,800
4. A.A. de Roode 700,000 56,000
5. VCH Vermogenssverwaltung und
Holding Ges.m.b.H 357,500 28,600
6. Karntner Landes und
Hypothekenbank AG (nominee) 1,863,375 149,070
--------- -------
5,400,000 432,000 X 100 ATS=
43,200,000 ATS
</TABLE>
<PAGE>
EXHIBIT B - F
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of ______________, 1996, between _____________________,
a Delaware corporation ("Company"), and _______________________ ("Employee").
WHEREAS, the Employee is currently serving as _________________________ of
the Company;
WHEREAS, the parties desire to enter into this Agreement setting forth the
terms and conditions for the employment relationship of the Employee with the
Company;
WHEREAS, the Board of Directors of the Company ("Board") has approved and
authorized the entry into this Agreement with the Employee;
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. During the term of this Agreement the Employee shall be
employed as __________________________________ of the Company. The Employee
shall render executive, policy and other management services to the Company of
the type customarily performed by persons serving in similar executive officer
capacities. The Employee shall devote such portion of his working time to the
Company as is reasonably necessary to the business of the Company. During the
term of this Agreement, there shall be no material increase or decrease in the
duties and responsibilities of the Employee otherwise than as provided herein,
unless the parties otherwise agree in writing. The Company shall use its best
efforts during the term of this Agreement to cause the Employee to be elected to
the Board.
2. COMPENSATION.
(a) SALARY. The Company shall cause its subsidiary, Eastbrokers
Beteiligungs AG, to pay the Employee during the term of this Agreement a salary
at an annual rate equal to $120,000, with such subsequent increases in salary
during the term of this Agreement as may be determined by the Board; provided,
however, that during the first three years following the closing date of the
Stock Purchase Agreement executed on June ___, 1996 with respect to the
acquisition of Eastbrokers Beteiligungs AG by the Company, the Employee's salary
hereunder shall not exceed $150,000 per annum without the approval of the Board.
In determining salary increases, the Board may compensate the Employee for
increases in the cost of living and may also provide for performance or merit
increases. The salary of the Employee shall not be decreased at any time
during the term of this Agreement from the amount then in effect, unless the
Employee otherwise agrees in writing. Participation in deferred compensation,
discretionary bonus, retirement and other employee benefit plans and in fringe
benefits shall not reduce the salary payable
<PAGE>
to the Employee under this Section 2(a). The salary under this Section 2(a)
shall be payable to the Employee not less frequently than monthly. The Employee
shall not be entitled to receive fees for serving as a director of the Company
or of any subsidiary or affiliate of the Company or for serving as a member of
any committee of any such board of directors.
(b) ANNUAL BONUS. In addition to his salary under Section 2(a)
above, the Company may cause Eastbrokers Beteiligungs AG to pay to the Employee
an annual bonus of up to 25% of his salary under such subsection, the amount of
any such bonus to be determined by the Board. The annual bonus shall be payable
in January following each calendar year during the term of this Agreement and
shall be prorated for any partial years.
(c) GUARANTY OF PAYMENT BY THE COMPANY. In the event that
Eastbrokers Beteiligungs AG fails to pay the Employee any compensation due and
owing pursuant to this Agreement, the Company shall immediately pay all amounts
due thereunder and otherwise proceed to complete the same and satisfy all of
Eastbrokers Beteiigungs AG obligations under this Agreement.
3. DISCRETIONARY AND PERFORMANCE INCENTIVE BONUSES. During the term of
this Agreement, the Employee shall be entitled to participate in an equitable
manner with all other executive employees of the Company in such discretionary
bonuses as may be authorized, declared and paid by the Board to its executive
employees.
4. INSURANCE, RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE BENEFITS;
BUSINESS EXPENSES.
(a) LIFE INSURANCE. The Company will pay the premiums on a life
insurance policy on the life of the Employee providing a death benefit of not
less than $1,000,000 ("Policy"). The Company will be the owner of such life
insurance policy, and upon the death of the Employee, the Company would be paid
from the insurance proceeds an amount equal to the total premiums it paid under
the Policy, with the remaining proceeds to be paid to the Employee's designated
beneficiary.
(b) OTHER BENEFITS AND PERQUISITES. The Employee shall be entitled
to participate in any plan of the Company relating to stock options, restricted
stock, employee stock purchase or ownership, pension, thrift, profit sharing,
group life insurance, medical coverage, education or other retirement or
employee benefit plans or arrangements that the Company has adopted or may adopt
for the benefit of its employees or executive officers. The Employee shall also
be entitled to participate in, or enjoy the benefit of, any other fringe
benefits or perquisites that are now or may be or become applicable to the
Company's executive employees. The Employee shall also be provided with the use
of a suitable automobile at Company expense and will be entitled to have access
to and use, consistent with the rules and regulations of such facility, a club
membership to be obtained in the name of the Company. The Employee shall
account to the Company for the business use of such automobile and club.
(c) BUSINESS EXPENSES. During the term of the Employee's employment
by the Company, the Company shall promptly reimburse the Employee for all
reasonable and custom-
-2-
<PAGE>
ary expenses incurred by the Employee in performing services for the Company,
including all expenses of travel and living expenses while away from home on
business or at the request of and in the service of the Company, provided that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
5. TERM. The initial term of employment under this Agreement shall be
for the three year period from the date hereof. This Agreement shall be
automatically renewed for an additional three year term, unless either Employee
or the Company gives contrary written notice to the other party hereto not less
than 180 days before the scheduled expiration of the term of this Agreement.
Each term and all such renewed terms are collectively referred to herein as the
term of this Agreement.
6. VOLUNTARY ABSENCES; VACATIONS. The Employee shall be entitled,
without loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this Agreement.
All such voluntary absences shall count as paid vacation time, unless the Board
otherwise approves. The Employee shall be entitled to an annual paid vacation
of at least six weeks per year or such longer period as the Board may approve.
The timing of paid vacations shall be scheduled in a reasonable manner by the
Employee.
7. TERMINATION OF EMPLOYMENT. The Employee's employment may be
terminated without any breach of this Agreement only under the following
circumstances:
(a) DEATH. The Employee's employment shall terminate upon his death.
(b) DISABILITY. The Company may terminate the Employee's employment
because of disability. For this purpose, "Disability" shall mean the inability
of the Employee to perform his duties under this Agreement because of physical
or mental illness or incapacity for a continuous period of six months during
which the Employee shall have been absent from his duties under this Agreement
on a substantially full-time basis.
(c) CAUSE. The Company may terminate the Employee's employment for
Cause. For purposes of this Agreement, the Company shall have "Cause" to
terminate the Employee's employment only in the event of (1) the willful and
continued failure by the Employee to substantially perform his duties hereunder
(other than any such failure resulting from the Employee's inability to perform
such duties as a result of physical or mental illness or incapacity or any such
actual or anticipated failure after the delivery of a Notice of Termination, as
defined in Section 7(e), by the Employee for Good Reason, as defined in Section
7(d)(2)), after delivery to the Employee of a written demand for substantial
performance that specifically identifies the manner in which the Company
believes that the Employee has not substantially performed his duties and a
reasonable opportunity to cure; (2) willful misconduct by the Employee that
causes substantial and material injury to the business and operations of the
Company, the continuation of which, in the reasonable judgment of the Board,
will continue to substantially and materially injure the business and operations
of the Company in the future; or (3) conviction of the Employee of a felony. No
act or failure to act shall be considered "willful" for this purpose unless
done, or omitted to be done, by the Employee other than in good faith and other
than with a reasonable belief that his action or omission was in the best
interests of the Company. The Employee shall not be deemed to have been
terminated for Cause unless the
-3-
<PAGE>
Employee shall have been provided with (i) a reasonable notice setting forth the
reasons that the Company believes constitute Cause for the termination of his
employment; (ii) a Notice of Termination as defined in Section 7(e), from the
Board finding that, in the reasonable good faith opinion of the Board, Cause for
the termination exists and specifying the particulars thereof in reasonable
detail. In the event that the Employee's employment has been terminated by the
Company for Cause and the Employee disputes in good faith whether such Cause has
occurred, the Company shall continue to make to the Employee the payments
contemplated by this Agreement as if his employment had not been terminated upon
the Company's receipt of a written undertaking by the Employee to repay to the
Company any amounts to which it is ultimately determined that he was not
entitled under this Agreement.
(d) TERMINATION BY THE EMPLOYEE.
(1) The Employee may terminate his employment (A) for Good
Reason by giving ten days prior written notice to the Company or (B) at any time
by giving 120 days prior written notice to the Company.
(2) For this purposes, "Good Reason" shall mean (A) the
assignment to the Employee of any duties inconsistent with the Employee's titles
and duties as set forth in Section 1 of this Agreement or any substantial
adverse alteration in the nature or status of the Employee's responsibilities;
(B) any change in the Employee's reporting responsibility such that the Employee
is required to report other than exclusively to the Board; (C) any purported
termination of the Employee's employment by the Company that is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 7(e)
hereof; (D) any other failure by the Company to comply with any material
provision of this Agreement which failure continues for more than ten days after
written notice of such noncompliance from the Employee; or (E) any notices given
by the Company to the Employee under Section 5 hereof that this Agreement will
not be renewed on any anniversary date.
(e) NOTICE OF TERMINATION. Any termination of the Employee's
employment by the Company or by the Employee (other than termination pursuant to
Section 7(a) hereof) shall be communicated to the other party by a written
Notice of Termination. Any Notice of Termination given by a party shall specify
the particular termination provision of this Agreement relied upon by such party
and shall set forth in reasonable detail the facts and circumstances relied upon
as providing a basis for the termination under the provision so specified.
(f) TERMINATION DATE. The Termination Date shall mean (1) if the
Employee's employment is terminated by his death, the date of his death; (2) if
the Employee's employment is terminated pursuant to Section 7(b) hereof, the
date specified in the Notice of Termination, which shall be after the expiration
of the six-month period specified in that subsection; or (3) if the Employee's
employment is terminated by the Company for Cause, the date specified in the
Notice of Termination.
8. COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) TERMINATION BECAUSE OF DEATH FOR CAUSE OR WITHOUT GOOD REASON.
If the Employee's employment is terminated because of his death, by the Company
for Cause or by the Employee other than for Good Reason, the Company shall pay
the Employee his salary and a pro
-4-
<PAGE>
rata portion of the bonus specified in Section 2(b) (based upon the bonus paid
in respect of the preceding year) through the Termination Date and the Company
shall have no further obligation to the Employee hereunder.
(b) TERMINATION BECAUSE OF DISABILITY. If the Employee's employment
is terminated by the Company because of Disability under Section 7(b) hereof the
Company shall pay the Employee an annual disability benefit equal to the excess
of (1) 60 percent of his salary at the rate in effect under Section 2(a) hereof
on the Termination Date plus 60 percent of the bonus amount specified in Section
2(b) hereof (based upon the bonus paid in respect of the preceding year) over
(2) the amount of the long term disability benefit that is payable to the
Employee under any policy of disability insurance provided for the Employee by
the Company at its expense. The disability benefit shall be paid for such
period as is determined by the Board for the Company's senior executives but
shall not be less than the remainder of the scheduled term of employment.
(c) TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (i) in breach
of this Agreement, the Company shall terminate the Employee's employment other
than (A) for Cause or (B) because of Disability or (ii) the Employee shall
terminate his employment for Good Reason; then:
(1) The Company shall pay the Employee his salary and a pro rata
portion of the bonus specified in Section 2(b) hereof (based upon the bonus paid
in respect of the preceding year) through the Termination Date and all other
unpaid and pro rata amounts to which the Employee is entitled as of the
Termination Date under any compensation plan or program of the Company,
including, without limitation, any incentive performance bonus and all accrued
vacation time;
(2) The Company shall pay as liquidated damages to the Employee,
and in lieu of any further salary payments hereunder for periods after the
Termination Date, the Employee's then current salary (payable in installments in
accordance with the Company's normal payroll practices) for the remainder of the
scheduled term of employment and the product of (A) the sum of (i) the
Employee's annual bonus specified in Section 2(b) hereof (based upon the bonus
paid in respect of the preceding year) and (ii) the maximum annual bonus amount
that could have been paid to the Employee under the Company's performance
incentive bonus plan for the year in which the Termination Date occurs, and (B)
the number of years (and any fraction of a year) remaining in the term of this
Agreement under Section 5 hereof as of the Termination Date, which amount shall
be payable in equal monthly installments during the remainder of the scheduled
term of employment;
(3) In addition to the liquidated amounts that are payable to
the Employee, the following shall apply: (A) the Employee shall continue to
participate in, and accrue benefits under, all retirement, pension, profit
sharing, employee stock ownership, thrift and other deferred compensation plans
of the Company for the remaining term of this Agreement as if the termination of
employment of the Employee had not occurred (with the Employee being deemed to
receive annually for the purposes of such plans the Employee's then current
salary and bonus (at the time of his termination) under Section 2(a) and (b) of
this Agreement), except to the extent that such continued participation and
accrual is expressly prohibited by law, or to the extent such plan constitutes a
"qualified plan" under Section 401 of the
-5-
<PAGE>
Internal Revenue Code of 1986, as amended ("Code"), by the terms of the plan, in
which case the Company shall provide the Employee a substantially equivalent,
unfunded, non-qualified benefit; (B) the Employee shall be entitled to continue
to receive all other employee benefits and then existing fringe benefits
referred to in Section 4(a) and (b) hereof for the remaining term of this
Agreement as if the termination of employment had not occurred; and (C) all
insurance or other provisions for indemnification, defense or hold-harmless of
officers or directors of the Company that are in effect on the date the Notice
of Termination is sent to the Employee shall continue for the benefit of the
Employee with respect to all of his acts and omissions while an officer or
director as fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation against
action which may be applicable to such acts or omissions; and
(4) The liquidated amount and other benefits provided for in
this Section 8(c) shall not be reduced by any compensation or benefits that the
Employee may receive for other employment with another employer or through self-
employment after termination of employment with the Company.
(d) COST OF ENFORCEMENT. In the event the employment of the Employee
is terminated by the Company because of Disability or without Cause, or by the
Employee for Good Reason, and the Company fails to make timely payment of the
amounts owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including attorney's fees,
incurred by the Employee in taking action to collect such amounts or otherwise
to enforce this Agreement, plus interest on such amounts at the rate of one
percent above the prime rate (defined as the base rate on corporate loans at
large U.S. money center commercial banks as published by The Wall Street
Journal), compounded monthly, for the period from the date of employment
termination until payment is made to the Employee. Such reimbursement and
interest shall be in addition to all rights to which the Employee is otherwise
entitled under this Agreement.
(e) PARACHUTE PAYMENT LIMITATION. If any payment or benefit to the
Employee under this Agreement would be considered a "parachute payment" within
the meaning of Section 280G(b)(2) of the Code and if, after reduction for any
applicable federal excise tax imposed by Section 4999 of the Code ("Excise Tax")
and federal income tax imposed by the Code, the Employee's net proceeds of the
amounts payable and the benefits provided under this Agreement would be less
than the amount of the Employee's net proceeds resulting from the payment of the
Reduced Amount described below, after reduction for federal income taxes, then
the amount payable and the benefits provided under this Agreement shall be
limited to the Reduced Amount. The "Reduced Amount" shall be the largest amount
that could be received by the Employee under this Agreement such that no amount
paid to the Employee under this Agreement and any other agreement, contract or
understanding heretofore or hereafter entered into between the Employee and the
Company ("Other Agreements") and any formal or informal plan or other
arrangement heretofore or hereafter adopted by the Company for the direct or
indirect provision of compensation to the Employee (including groups or classes
of participants or beneficiaries of which the Employee is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit to
or for the Employee ("Benefit Plan") would be subject to the Excise Tax. In the
event that the amount payable to the Employee shall be limited to the
-6-
<PAGE>
Reduced Amount, then the Employee shall have the right, in the Employee's sole
discretion, to designate those payments or benefits under this Agreement, any
other Agreements, and/or any Benefit Plans, that should be reduced or eliminated
so as to avoid having the payment to the Employee under this Agreement be
subject to the Excise Tax.
9. CONFIDENTIALITY. In consideration of the willingness of the Company
to employ the Employee and the compensation to be paid and benefits to be
received therefor, any for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the Employee agrees as follows:
(a) THE COMPANY OWNS ALL OF THE EMPLOYEE'S WORK. All improvements,
discoveries, inventions, designs, documents, licenses and patents, or other data
devised, conceived, made, developed, obtained, filed, perfected, acquired, or
first reduced to practice, in whole or in part, or in the regular course of
employment by the Employee during the term of this Agreement, and related in any
way to the business, including development and research, of the Company or any
subsidiary or affiliate engaged in business substantially similar to that of the
Company shall be promptly disclosed to the Company. The Employee hereby assigns
and transfers to the Company all his right, interest and title thereto, and such
improvements, discoveries, inventions, designs, documents, licenses and patents,
or other data shall become the property of the Company. During the term of this
Agreement and at any time thereafter, upon request of the Company, the Employee
will join and render assistance in any proceedings and execute any papers
necessary to file and prosecute applications for, and to acquire, maintain and
enforce, letters patent, trademarks, registrations and/or copyrights, both
domestic and foreign, with respect to such improvements, discoveries,
inventions, designs, documents, licenses and patents, or other data as required
for vesting and maintaining title to same in the Company.
(b) NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Employee agrees
and acknowledges that the term "Confidential and Proprietary Information" shall
mean any and all information not in the public domain, in any form, emanating
from or relating to the Company and its subsidiaries and affiliates, including,
but not limited to, trade secrets, technical information, costs, designs,
drawings, processes, systems, methods of operation and procedures, formulae,
test data, know-how, improvements, price lists, financial data, code books,
invoices and other financial statements, computer programs, discs and printouts,
sketches, and plans (engineering, architectural or otherwise), customer lists,
telephone numbers, names, addresses, information about equipment and processes
(including specifications and operating manuals), or any other compilation of
information written or unwritten that is used in the business of the Company or
any subsidiary or affiliate that gives the Company or any subsidiary or
affiliate any opportunity to obtain an advantage over competitors of the Company
who do not know or use such information. The Employee agrees and acknowledges
that all Confidential and Proprietary Information, in any form, and all copies
and extracts thereof, is and are and shall remain the sole and exclusive
property of the Company and, upon termination of his employment with the
Company, the Employee hereby agrees to return to the Company the originals and
all copies of any Confidential and Proprietary Information provided to or
acquired by the Employee during the period of his employment. Except as ordered
by a court of competent jurisdiction, the Employee expressly agrees never to
disclose to any person (except to other Company employees,
-7-
<PAGE>
and then only on a "need to know" basis) or entity any Confidential and
Proprietary Information either during the term of this Agreement or at any time
after termination of his employment, except with the express written
authorization and consent of the Company.
(c) CUSTOMERS' INFORMATION. The Employee understands and
acknowledges that each customer of the Company or its subsidiaries or affiliates
will disclose information that will be within the Company's control in
connection with the Company's furnishing of services to its customer. The
Employee covenants and agrees to hold such information in the strictest
confidence and shall treat such information in the same manner and be obligated
by the provisions of this Agreement as if such information were Confidential and
Proprietary Information, as defined in Section 9(b) hereof.
10. COVENANT NOT TO COMPETE. During the term of employment, the Employee
shall not directly or indirectly own, manage, operate, control or be employed by
or participate in the ownership, management, operation or control of any
business which is of the type and character engaged in and competitive with that
of the Employer. The Employee shall not, during the term of this Agreement,
have any other paid employment other than with a subsidiary or affiliate of the
Company, except with the prior approval of the Board; provided, however, that
the Employee shall be permitted to serve as a director on the boards of other
corporations.
11. AMENDMENTS OR ADDITIONS; ACTION BY BOARD. No amendments or additions
to this Agreement shall be binding unless in writing and signed by all parties
hereto. The prior approval by a majority affirmative vote of the full Board
shall be required in order for the Company to authorize any amendments or
additions to this Agreement, to give any consents or waivers of provisions of
this Agreement, or to take any other action under this Agreement including any
Notice of Termination.
12. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be personally delivered or mailed by first class
registered or certified mail, postage prepaid, return-receipt-requested, or
transmitted by facsimile or reputable overnight courier, addressed to the
Company at the address set forth on the signature page of this Agreement and to
the Employee at the address maintained on the Company's payroll records, or at
such other addresses as such party may designate by five business days advance
written notice to the other party.
Each notice or communication that shall have been transmitted in the manner
described above shall be deemed sufficiently served, sent or received for all
purposes at such time as it is sent to the addressee or at such time as delivery
is refused by the addressee upon presentation.
(b) SEVERABILITY. Nothing in this Agreement shall be construed so as
to require the commission of any act contrary to law and wherever there is any
conflict between any provision of this Agreement and any law, statute,
ordinance, order or regulation, the latter shall prevail, but in such event any
necessary action will be taken to bring it within applicable legal
-8-
<PAGE>
requirements. If any provision of this Agreement should be held invalid or
unenforceable, the remaining provisions shall be unaffected by such a holding.
(c) COMPLETE AGREEMENT. This Agreement contains the entire Agreement
and understanding between the parties relating to the subject matter hereof, and
supersedes any prior understandings, agreements or representations by or between
the parties, written or oral, relating to the subject matter hereof.
(d) SUCCESSORS AND ASSIGNS. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by way of reorganization, merger or
consolidation and any assignee of all or substantially all of its business and
assets, but except as to any such successor or assignee of the Company, neither
this Agreement nor any rights or benefits hereunder may be assigned by the
Company or the Employee. However, in the event of the death of the Employee all
rights to receive payments hereunder shall become rights of the Employee's
estate.
(e) SECTION HEADINGS. The section headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the day and year first above written.
CZECH INDUSTRIES, INC. EMPLOYEE
15245 Shady Grove Road, Suite 340
Rockville, MD 20850
By:
------------------------------ --------------------------------
Authorized Officer
-9-
<PAGE>
EXHIBIT G
NO. OF SHARES:
CZECH INDUSTRIES, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, made as of ____________,1996, between CZECH
INDUSTRIES, INC., a Delaware corporation, with an address of 15245 Shady Grove
Road, Suite 340, Rockville, Maryland 20850 and ____________________________
("Employee"), an employee of the Company, with an address of
_________________________________.
1. DEFINITIONS.
For purposes of this Stock Option Agreement, the following terms are
defined as set forth below:
(a) "AFFILIATE" means a corporation or other entity controlled directly,
or indirectly through one or more intermediaries, by the Company and designated
as such by the board of directors of the Company.
(b) "CAUSE" shall have the same meaning as that set forth in any
employment or severance agreement in effect between the Company and the
Employee. Otherwise, "Cause" shall mean (1) the conviction of the Employee for
committing a felony under Federal law or the law of the jurisdiction in which
such action occurred, (2) dishonesty in the course of fulfilling the Employee's
employment duties or (3) willful and deliberate failure on the part of the
Employee to perform his or her employment duties in any material respect.
(c) "COMMON STOCK" OR "STOCK" means common stock, $.01 per share par
value, of the Company.
(d) "COMPANY" means Czech Industries, Inc., a Delaware corporation, and
its subsidiaries and Affiliates.
(e) "DISABILITY" means permanent and total disability as determined under
procedures established by the board of directors of the Company.
(f) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
(g) "FAIR MARKET VALUE" means the average, as of any given date, between
the highest and lowest reported closing bid and asked prices of the Stock on
NASDAQ or the closing sale price as of any given date if the Stock is listed on
a national securities exchange or the NASDAQ National Market System. If there
is no regular public trading-market for such Stock under circumstances specified
above, the Fair Market Value of the Stock shall be determined by the board of
directors of the Company in good faith.
<PAGE>
(h) "OPTION AGREEMENT" OR "OPTION" means this Stock Option Agreement and
the rights, terms and conditions contemplated herein.
(i) "TERMINATION OF EMPLOYMENT" means the termination of the Employee's
employment with the Company and any Affiliate. An employee by an Affiliate
shall also be deemed to incur a Termination of Employment if the Affiliate
ceases to be an Affiliate and the employee does not immediately thereafter
become an employee of the Company or another Affiliate.
2. GRANT OF OPTION
The Company, effective June __, 1996 ("Date of Grant"), hereby grants to
the Employee the Option to purchase all or any part of an aggregate of
___________ shares of Common Stock, on the terms and conditions herein set
forth. The Option is a non-qualified stock option.
3. PURCHASE PRICE
The purchase price of the shares of Common Stock subject to this Option
shall be $2.00 per share subject to adjustment as follows. In the event of any
merger, reorganization, consolidation, recapitalization (including but not
limited to the issuance of Stock or any securities convertible into Stock in
exchange for securities of the Company), stock dividend, stock split or reverse
stock split, extraordinary distribution with respect to the Stock or other
similar change in corporate structure affecting the Stock, such substitution or
adjustments shall be made in the number and option price of shares subject to
this Option; provided, however, that the number of shares subject to this Option
shall always be a whole number.
4. TERMS OF OPTION
A. EXERCISE DATES. This Option shall not be exercisable until the
expiration of six months from the Date of Grant.
B. FINAL TERMINATION. Notwithstanding anything herein to the contrary,
the Option shall no longer be exercisable ________ (__) years from the date
hereof.
C. RESTRICTIONS. This Option is subject to the following terms and
conditions:
i. This Option shall not be transferrable by the Employee other than
by will or by the laws of descent and distribution, and all Options shall be
exercisable, during the Employee's lifetime, only by the Employee or by the
guardian or legal representative of the Employee.
ii. This Option lapses upon the Employee's Termination of Employment
(other than due to Disability or death), and this Option shall thereupon
terminate, except that this Option, to the extent then exercisable, may be
exercised for the lesser of twelve months and one day from the date of such
Termination of Employment or the balance of such Option's term if such
Termination of Employment of the Employee is involuntary and without Cause.
iii. This Option may be exercised by the Employee's legal
representative for a period of one year and one day from the date of the
Employee's Termination of Employment by
-2-
<PAGE>
reason of Employee's death, or until the expiration of the stated term of this
Option Agreement, whichever period is the shorter.
iv. If Employee's employment terminates by reason of Disability, this
Option may thereafter be exercised by the Employee to the extent it was
exercisable at the time of termination for a period or one year and one day from
the date of such termination of employment, or until the expiration of the
stated term of this Option Agreement, whichever period is the shorter; provided,
however, that if the Employee dies within such one year and one day period (or
such shorter period ending upon the expiration of the stated term of this Option
Agreement), any unexercised Option held by the Employee shall, notwithstanding
the expiration of such one year and one day period, continue to be exercisable
to the extent to which it was exercisable at the time of death for a period of
one year and one day from the date of such death or until the expiration of the
stated term of this Option Agreement, whichever period is the shorter.
D. EXERCISE. This Option shall be exercised, in whole, or, from time to
time, in part, by written notice received by the Secretary or Treasurer of the
Company not later than 5:00 P.M. prevailing local time, on or prior to the day
the Option is to expire, specifying the number of shares of Common Stock to be
purchased, and accompanied by full payment by certified or bank check or such
other instrument as the Company may accept. Payment in full or in part may also
be made in the form of shares of Common Stock owned by the Employee, which shall
be free and clear of all liens, encumbrances and restrictions of any kind
whatsoever and Employee may be requested to represent and warrant to such effect
and to take such other steps with respect to this form of payment as the board
of directors shall require.
The Employee shall have all of the rights of a stockholder of the Company
holding the class of Stock that is subject to this Option Agreement (including,
if applicable, the right to vote the shares and the right to receive dividends),
when the Employee has given written notice of exercise, and has paid in full for
such shares. In the discretion of the board of directors of the Company,
payment for any Stock subject to this Option may also be made by delivering a
properly executed exercise notice to the Company together with a copy of
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the purchase price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms. The value of previously owned Stock exchanged in
full or partial payment for the shares purchased upon the exercise of this
Option shall be equal to the aggregate Fair Market Value of such shares on the
date of the exercise of the Option.
On receipt of written notice of exercise, the board of directors of the
Company may, in its sole discretion, elect to cash out all or part of this
Option to be exercised by paying the Employee an amount, in cash or Stock, equal
to the excess of the Fair Market Value of the Stock that is the subject of the
Option over the Option price times the number of shares of Stock subject to the
option on the effective date of such cash out. Cash outs relating to Options
held by and Employee who is actually or potentially subject to Section 16(b) of
the Exchange Act shall comply with the "window period" provisions of Rule 16b-3,
to the extent applicable.
Any such exercise shall also be subject to receipt by the Company of the
representation and undertaking set forth in Section E hereof.
-3-
<PAGE>
E. SECURITIES LAW RESTRICTIONS. As soon as practicable following the
grant of the Options herein, the Company agrees to file a Form S-8 Registration
Statement under the Securities Act of 1933 with respect to the shares of Common
Stock subject to this Option. Any fees or expenses arising out of or resulting
from the filing of such registration statement shall be the responsibility of
the Company. In the event such a registration statement under the Act cannot
be filed and or is not effective with respect to such shares at the time the
Option is exercised, the Company shall require that the offer and sale of such
shares be exempt from the registration provisions of the Act. As a condition of
such exemption, the Company shall require a representation and undertaking, in
form and substance satisfactory to counsel for the Company, that the Employee is
acquiring the shares for the Employee's own account for investment and not with
a view to the distribution or resale thereof and shall otherwise require such
representations and impose such conditions as shall establish to the Company's
satisfaction that the offer and sale of such shares issuable upon the exercise
of the Option will not constitute a violation of the Act or any similar state
act affecting the offer and sale. If such shares are issued in an exempt
transaction, such shares shall bear the following restrictive legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
sold, pledged, or otherwise transferred except pursuant to
an effective registration statement under said Act, SEC Rule
144 or an opinion of counsel acceptable to the Company that
some other exemption from registration is available."
If said shares are registered under the Act, to the extent that Employee is
an "affiliate" of the Company, any reoffers or resales of Common Stock acquired
pursuant to this Option, must be held indefinitely unless (i) distribution of
said Stock has been made registered under the Act, (ii) a sale of said Stock is
made in conformity with the provisions of Rule 144 issued by the Securities and
Exchange Commission under the Act, or (iii) in the opinion of counsel acceptable
to the Company some other exemption from registration is available.
5. ACCEPTANCE OF PROVISIONS
The execution of this Agreement by the Employee shall constitute the
Employee's acceptance of and agreement to all of the terms and conditions of
this Option Agreement.
6. NOTICES
All notices and other communications required or permitted under this
Option Agreement shall be in writing and shall be given either by (i) personal
delivery or regular mail or, (ii) first class registered or certified mail,
return receipt requested. Except as otherwise provided in paragraph 4(D) hereof
on the exercise, in whole or in part, of the Option, any such communication
shall be deemed to have been given on the date of receipt in the cases referred
to in clause (i) of the preceding sentence and on the second day after the date
of mailing in the cases referred to in clause (ii) of the preceding sentence.
All such communications to the Company shall be addressed to it, to the
attention of its Secretary or Treasurer, at its principal office at the address
first set forth above, and to the Employee at his last address appearing on the
-4-
<PAGE>
records of the Company or, in each case, to such other person or address as may
be designated by like notice hereunder.
7. MISCELLANEOUS
This Option Agreement contains a complete statement of all the arrangements
between the parties with respect to their subject matter. This Option Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware applicable to agreements made and to be performed exclusively in
Delaware. The headings in this Agreement are solely for convenience of
reference and shall not affect its meaning or interpretation.
ATTEST: CZECH INDUSTRIES, INC.
By:
- ------------------------------ -----------------------------
Secretary President
By:
- ------------------------------ -----------------------------
Witness , Employee
-5-
<PAGE>
EXHIBIT H
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of this ____ day of June, 1996 by and
between CZECH INDUSTRIES, INC., a Delaware corporation (the "Lender"), and
EASTBROKERS BETEILIGUNGS AG, an Austrian corporation (the "Borrower").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and covenants contained herein, the parties hereto agree as follows:
1. THE LOAN. The Lender agrees to loan one million five hundred thousand
dollars ($1,500,000) ("the Loan") to the Borrower, pursuant to the terms herein
and the terms of the Non-Negotiable Promissory Note and Unconditional Guaranty
attached hereto. This Loan Agreement, the Non-Negotiable Promissory Note and
the Unconditional Guaranty shall be referred to collectively as the "Loan
Documents." Concurrently, the Borrower shall execute and deliver or shall have
caused the execution and delivery of the Loan Documents to the Lender.
2. REPAYMENT OF LOAN. The Loan shall be evidenced by and repaid in
accordance solely with the terms of the Loan Documents and shall not be subject
to or conditioned upon the execution, satisfaction, performance or completion of
any other event or instrument.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. The
representations, warranties and covenants of the Borrower contained in the Stock
Purchase Agreement between Czech Industries, Inc., Eastbrokers Beteiligungs AG
and the other parties named therein dated June ___, 1996 shall be true and
correct on and as of the date hereof, and such representations, warranties and
covenants shall survive the completion of the transaction contemplated in the
Loan Documents.
4. USE OF PROCEEDS. Borrower shall use the proceeds of the Loan only for
the acquisition of one hundred percent (100%) of I.S. Bohemia a.s. and related
transactions and the acquisition of eighty-nine percent (89%) of Warszawski Dom
Malderski S.A., a broker-dealer firm located in Warsaw, Poland and related
transactions which shall be become the subsidiary Eastbrokers Warsaw. Borrower
shall furnish to the Lender, from time to time, such information concerning the
use of proceeds as the Lender may reasonably request. Borrower shall seek the
prior written consent and approval of the Lender to use the proceeds in a manner
other than as substantially set forth above.
5. EVENTS OF DEFAULT. Borrower shall be in default of the Loan upon the
occurrence of any event set forth in the Non-Negotiable Promissory Note attached
hereto.
<PAGE>
6. REMEDIES. Upon the occurrence of any event or condition of default
hereunder, or at any time thereafter, Lender at its option may accelerate the
maturity of the Loan and declare all of the indebtedness or any portions thereof
to be immediately due and payable, together with accrued interest thereon, and
payment thereof may be enforced by suit or other process of law.
7. NO WAIVER. No failure by the Lender to insist upon the strict
performance of any term, condition, covenant or agreement of the Loan Documents,
or to exercise any right or remedy shall constitute a waiver of any such right
or remedy at any time. By accepting payment after the date at which time all
principal and interest of the Loan shall be due and owing, the Lender shall not
be deemed to waive the right either to require prompt payment when due of all
other amounts payable under the Loan Documents or to declare an event of default
for failure to effect such prompt payment of any such other amount.
8. RECOURSE UNDER NOTE. Recourse under the Loan Documents for the Lender
shall be against, jointly and severally, the Borrower and the individuals whose
names are affixed to the Unconditional Guaranty ("Guarantors"); provided,
however, that the Lender shall not be obligated to seek recourse against the
Borrower or any Guarantor prior to or simultaneously with seeking recourse
against one or more Guarantors.
9. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, until
payment in full of outstanding amounts due under the Loan Documents, Borrower
shall:
(A) Maintain its and each of its subsidiaries' corporate existence
and good standing in its jurisdiction of incorporation;
(B) Borrower shall comply and shall cause each of its subsidiaries to
comply with all statutes, laws, ordinances and governmental rules and
regulations to which it is subject;
(C) Borrower shall deliver to Lender as soon as possible, but in any
event within 30 days after the end of each fiscal quarter, a Borrower prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, certified by an executive officer of Borrower;
(D) Borrower shall promptly upon its receipt of notice thereof submit
to Lender a report with respect to any pending or threatened legal proceedings
relating to Borrower or any of its subsidiaries;
(E) Borrower shall and shall cause each of its subsidiaries to make
due and timely payment of all federal, state and local taxes required by
applicable law, including any stamp duty charged in Austria in connection with
the Loan Documents;
(F) Borrower shall at its expense maintain adequate insurance of a
nature and
-2-
<PAGE>
in amounts customary for businesses of its type and shall provide lender with a
certificate of insurance relating to the same. Borrower shall also provide its
insurers with written instructions to notify Lender in the event of any change
in or cancellation of such insurance.
(G) At any time and from time to time, Borrower shall execute and
deliver to Lender such further instruments and take such further action as may
be reasonably requested by the Lender.
10. NEGATIVE COVENANTS. Borrower covenants and agrees that, until payment
in full of all outstanding amounts due under the Loan Documents, Borrower shall
not:
(A) Convey, sell, lease, transfer or otherwise dispose of or permit
any of its subsidiaries to do so all or any part of its business or properties
except transfers in the ordinary course of business;
(B) Engage in any business or permit any of its subsidiaries to
engage in any business other then businesses currently engaged in by Borrower
and its subsidiaries;
(C) Suffer a material change in the ownership of Borrower or relocate
its principal executive officer;
(D) Merge or consolidate or permit any of its subsidiaries to merger
or consolidate with another entity;
(E) Create, incur, assume or become liable with respect to any
indebtedness or permit any of its subsidiaries to do so other than Permitted
Indebtedness. For the purposes of this Loan Agreement, "Permitted Indebtedness"
shall mean (i) indebtedness of Borrower in favor Lender arising under this
Agreement or the Loan Documents; (ii) indebtedness disclosed on Schedule 1.0
attached hereto; (iii) subordinated debt; and (iv) indebtedness to trade
creditors incurred in the ordinary course of business.
(F) Create, incur, assume or suffer to exist any lien with respect to
any of its property or permit any of its subsidiaries to do so other than
Permitted Liens. For the purposes of this Loan Agreement, "Permitted Liens"
shall mean (i) liens listed on Schedule 1.1 attached hereto, (ii) which do not
individually or in the aggregate materially interfere with the current or
proposed operation of the business of Borrower, (iii) for taxes, fees
assessments or other governmental charges or levies which are not yet due and
payable, or (iv) immaterial mechanic's, materialmen's and similar liens.
(G) Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any of its capital stock;
(H) Engage in any transactions, directly or indirectly, with any
affiliate of Borrower or permit any of its subsidiaries to do so.
11. Any notice or other communications required or permitted in the Loan
Documents shall be sufficiently given if sent by reputable overnight carrier
service or registered mail, postage prepaid, addressed as follows:
-3-
<PAGE>
If to Lender: Martin A. Sumichrast
c/o Czech Industries, Inc.
15245 Shady Grove Road, Suite 340
Rockville, Maryland 20850
With a copy to: Gould & Wilkie
One Chase Manhattan Plaza, 58th Floor
New York, New York 10005-1401
Attn: Frederick W. London, Esq.
If to Borrower: August A. de Roode
c/o Eastbrokers Beteiligungs AG
Schlickgasse 1
A-1090 Vienna, Austria
With a copy to: Marks & Murase L.L.P.
399 Park Avenue
New York, New York 10022-4689
Attn: Alan J. Bernstein, Esq.
12. AMENDMENTS. The Loan Documents may not be amended except by an
instrument in writing signed on or on behalf of the each of the parties hereto.
13. GOVERNING LAW. Regardless of the place of execution or performance,
the interpretation and construction of the Loan Documents shall be governed by
the laws of the State of New York without giving effect to such State's
conflicts of laws provisions.
14. ILLEGALITY UNDER NEW YORK OR AUSTRIAN LAW. If any provision of the
Loan Documents shall be invalid, illegal or unenforceable under the law of the
State of New York or of the Nation of Austria, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if any clause or
provision contained in the Loan Documents operates or would prospectively
operate to invalidate the Loan Documents in whole or in part under the laws of
the State of New York or the Nation of Austria, then such clause or provision
only shall be void, as though not herein contained, and the remainder of the
Loan documents shall remain operative and in full force and effect.
15. ARBITRATION. Any disputes arising out of or in connection with the
Loan Documents shall be settled under the Rules of Conciliation and Arbitration
of the International Chamber of Commerce by three arbitrators in accordance with
said rules. The arbitration shall be held in Paris, France and in the English
language. The ruling by such arbitrators shall be binding upon the parties in
the absence of fraud.
-4-
<PAGE>
IN WITNESS Whereof, the Lender and Borrower have caused this Loan Agreement
to be executed as of the day and year first written above.
WITNESS: Borrower:
EASTBROKERS BETEILIGUNGS AG
- ------------------------------ ----------------------------------
By: August A. de Roode
Chief Executive Officer
- ------------------------------ ----------------------------------
By: Peter Schmid
President
WITNESS: Lender:
CZECH INDUSTRIES, INC.
- ----------------------------- -----------------------------------
By: Michael Sumichrast, Ph.D.
Chairman of the Board
-5-
<PAGE>
EXHIBIT I
NON-NEGOTIABLE PROMISSORY NOTE
US$ 1,500,000 June ___, 1996
New York, New York
FOR VALUE RECEIVED, EASTBROKERS BETEILIGUNGS AG, an Austrian corporation
("Maker"), promises to pay to CZECH INDUSTRIES, INC. ("Holder"), a Delaware
corporation, at such place as Holder may designate in writing, the entire
principal sum of one million five hundred thousand dollars ($1,500,000),
together with interest at the rate of ten percent (10%) per annum, on
__________________, 1996 at which time all principal and interest shall be due
and owing. All payments of principal and interest hereunder shall be payable in
lawful money of the United States.
All payments made by the Maker shall apply first to interest accrued and
then to principal. Any principal or interest not paid when due shall be paid on
demand. If any payment of principal or interest is not paid on the date due and
is not paid within five (5) business days of the Maker's receipt after such date
of a written demand from the Holder to make such payment, then the Maker shall
pay the Holder an amount of interest, computed on a 360 day calendar year, equal
to the prime rate on the date of such demand as announced by Citibank plus five
percent (5%) times the principal amount then due and payable for the number of
days from the date of demand until payment is made.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the failure by Maker to use the proceeds of the Loan
substantially in the manner or in accordance with the terms set forth in section
4 of the Loan Agreement, (iii) a breach of any of the representations,
warranties and covenants of the Maker made in the Stock Purchase Agreement as
referred to in section 3 of the Loan Agreement which has a material adverse
effect causing a loss or expense in excess of $1,000,000 on the business of
Maker (iii) the entering into of a decree or order by a court of competent
jurisdiction adjudicating Maker a bankrupt or the appointing of a receiver or
trustee of Maker upon the application of any creditor in an insolvency or
bankruptcy proceeding or other creditors' suit; (iv) a court of competent
jurisdiction approving as properly filed a petition for reorganization or
arrangement and such decree or order not being vacated within thirty (30) days;
(v) the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (vi) a petition or answer seeking reorganization or arrangement under the
federal bankruptcy laws with respect to Maker; (vii) an assignment for the
benefit of creditors by Maker; (viii) Maker consents to the appointment of a
receiver or trustee in an insolvency or bankruptcy proceeding or other
creditors' suit; (ix) the existence of any uncured event of default under the
terms of the
<PAGE>
instruments in writing evidencing a debt in excess of $250,000 provided, that
Maker is not contesting in good faith by appropriate proceedings such uncured
event of default; or (x) the existence of any judgment against, or any
attachment of property of Maker which has a material adverse effect causing a
loss or expense in excess of $1,000,000 on the business of Maker.
Upon the occurrence of any event or condition of default hereunder, or at
any time thereafter, Holder at its option may accelerate the maturity of this
Note and declare all of the indebtedness or any portions thereof to be
immediately due and payable, together with accrued interest thereon, and payment
thereof may be enforced by suit or other process of law.
If this Note is not paid when due, whether at maturity or by acceleration,
Maker agrees to pay all reasonable costs of collection and such costs shall
include without limitation all costs, attorneys' fees and expenses incurred by
Holder hereof whether in connection with any insolvency, bankruptcy,
reorganization, arrangement or similar proceedings involving Holder, or
involving any endorser or guarantor hereof or otherwise, which in any way
affects the exercise by Holder hereof of its rights and remedies under this
Note.
Presentment, demand, protest, dishonor and non-payments of this Note and
all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
This Note is being given pursuant to a Loan Agreement of even date, the
terms of which are hereby incorporated by reference and made a part hereof.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF REGISTRATION UNDER THE ACT OR AN OPINION SATISFACTORY TO MAKER
THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
Regardless of the place of execution or performance, this letter and the
Note shall be governed by, and construed with the laws of the State of New York
without giving effect to such state's conflicts of laws provisions.
Any disputes arising out of or in connection with the Loan Documents shall
be settled under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce by three arbitrators in accordance with said rules. The
arbitration shall be held in Paris, France and in the English language. The
ruling by such arbitrators shall be binding upon the parties in the absence of
fraud.
This Promissory Note and the attached Unconditional Guaranty consists of
seven (7) pages.
-2-
<PAGE>
WITNESS: EASTBROKERS BETEILIGUNGS AG
By:
- ------------------------------- -------------------------------
August A. de Roode
Chief Executive Officer
By:
- ------------------------------- -------------------------------
Peter Schmid
President
-3-
<PAGE>
EXHIBIT J
UNCONDITIONAL GUARANTY
For and in consideration of the loan by CZECH INDUSTRIES, INC. (the
"Company") to EASTBROKERS BETEILIGUNGS AG ("Eastbrokers"), which loan is made
pursuant to a Loan Agreement of even date herewith between Eastbrokers and the
Company (the "Agreement"), the undersigned guarantors ("Guarantors") hereby
jointly and severally unconditionally and irrevocably guarantee the prompt and
complete payment of all amounts that Eastbrokers owes to the Company and
performance by Eastbrokers of the Agreement and the related Non-Negotiable
Promissory Note ("Note") as amended from time to time (collectively referred to
as the "Loan Documents"), in strict accordance with their respective terms.
1. If an Event of Default occurs under the Loan Documents, Guarantors
shall immediately pay all amounts due thereunder (including, without limitation,
all principal, interest, and fees) and otherwise proceed to complete the same
and satisfy all of Eastbrokers' obligations under the Loan Documents.
2. The obligations hereunder are independent of the obligations of
Eastbrokers, and a separate action or actions may be brought and prosecuted
against Guarantors whether action is brought against Eastbrokers or whether
Eastbrokers be joined in any such action or actions. Guarantors waive the
benefit of any statute of limitations affecting their liability hereunder or the
enforcement thereof, to the extent permitted by law. Guarantors' liability
under this Guaranty is not conditioned or contingent upon the genuineness,
validity, regularity or enforceability of the Loan Documents.
3. Guarantors authorize the Company, without notice or demand and without
affecting their liability hereunder, from time to time to renew or extend the
term of the Loan Documents.
4. Guarantors waive any right to require the Company to (a) proceed
against Eastbrokers; (b) proceed against or exhaust any security held from
Eastbrokers; or (c) pursue any other remedy in the Company's power whatsoever.
The Company may, at its election, exercise or decline or fail to exercise any
right or remedy it may have against Eastbrokers or any security held by the
Company, including without limitation the right to foreclose upon any such
security by judicial or nonjudicial sale, without affecting or impairing in any
way the liability of Guarantors hereunder. Guarantors waive any defense arising
by reason of any disability or other defense of Eastbrokers or by reason of the
cessation from any cause whatsoever of the liability of Eastbrokers other than
satisfaction by Eastbrokers of obligations under the Loan Documents.
<PAGE>
Guarantors waive any setoff, defense or counterclaim that Eastbrokers may have
against the Company. Guarantors waive any defense arising out of the absence,
impairment or loss of any right of reimbursement or subrogation or any other
rights against Eastbrokers. Until all obligations under the Loan Documents have
been satisfied in full, Guarantors shall have no right of subrogation or
reimbursement, contribution or other rights against Eastbrokers, and Guarantors
waive any right to enforce any remedy that the Company now has or may hereafter
have against Eastbrokers. Guarantors waive all right to participate in any
security now or hereafter held by the Company. Guarantors waive all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
Guaranty and of the existence, creation, or incurring of new or additional
indebtedness. Guarantors assume the responsibility for being and keeping
themselves informed of the financial condition of Eastbrokers and of all other
circumstances bearing upon the risk of nonpayment of any indebtedness or
nonperformance of any obligation of Eastbrokers, warrant to the Company that
they will keep so informed, and agree that absent a request for particular
information by Guarantors, the Company shall have no duty to advise Guarantors
of information known to the Company regarding such conditions or any such
circumstances.
5. Guarantors acknowledge that, to the extent Guarantors have or may have
certain rights of subrogation or reimbursement against Eastbrokers, those rights
may be impaired or destroyed if the Company elects to proceed against any real
property security of Eastbrokers by non-judicial foreclosure. That impairment
or destruction could, under certain judicial cases and based on equitable
principles of estoppel, give rise to a defense by Guarantors against their
obligations under this Guaranty. Guarantors waive that defense and any others
arising from the Company's election to pursue non-judicial foreclosure.
6. If Eastbrokers becomes insolvent or is adjudicated bankrupt or files a
petition for reorganization, arrangement, composition or similar relief under
any present or future provision of any applicable bankruptcy code, or if such a
petition is filed against Eastbrokers, and in any such proceeding some or all of
any indebtedness or obligations under the Agreements are terminated or rejected
or any obligation of Eastbrokers is modified or abrogated, or if Eastbrokers'
obligations are otherwise avoided for any reason, Guarantors agree that
Guarantors' liability hereunder shall not thereby be affected or modified and
such liability shall continue in full force and effect as if no such action or
proceeding had occurred. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if any payment must be returned by the Company
upon the insolvency, bankruptcy or reorganization of Eastbrokers, Guarantors,
any other guarantor, or otherwise, as though such payment had not been made.
7. Any indebtedness of Eastbrokers now or hereafter held by Guarantors is
hereby subordinated to any indebtedness of Eastbrokers to the Company; and such
indebtedness of Eastbrokers to Guarantors shall be collected, enforced and
received by Guarantors as trustee for the Company and be paid over to the
Company on account of the indebtedness of Eastbrokers to the Company but without
reducing or affecting in any manner the liability of Guarantors
-2-
<PAGE>
under the other provisions of this Guaranty.
8. Guarantors agree to pay a reasonable attorneys' fee and all other
costs and expenses which may be incurred by the Company in the enforcement of
this Guaranty. No terms or provisions of this Guaranty may be changed, waived,
revoked or amended without the Company's prior written consent. Should any
provision of this Guaranty be determined by a court of competent jurisdiction to
be unenforceable, all of the other provisions shall remain effective. This
Guaranty embodies the entire agreement among the parties hereto with respect to
the matters set forth herein, and supersedes all prior agreements among the
parties with respect to the matters set forth herein. No course of prior
dealing among the parties, no usage of trade, and no parol or extrinsic evidence
of any nature shall be used to supplement, modify or vary any of the terms
hereof. There are no conditions to the full effectiveness of this Guaranty.
The Company may assign this Guaranty without in any way affecting Guarantors'
liability under it. This Guaranty shall inure to the benefit of the Company and
its successors and assigns. This Guaranty is in addition to the guaranties of
any other guarantors and any and all other guaranties of Eastbrokers'
indebtedness or liabilities to the Company.
9. Guarantors represent and warrant to the Company that this Guaranty
constitutes a valid and binding obligation, enforceable against Guarantors in
accordance with its terms.
10. At any time and from time to time, Guarantors shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by the Company to effect the purposes of this Guaranty.
11. Regardless of the place of execution or performance, the
interpretation and construction of this Guaranty shall be governed by the laws
of the State of [New York] without giving effect to such State's conflicts of
laws provisions.
12. Any disputes arising out of or in connection with this Guaranty shall
be settled under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce by three arbitrators in accordance with said rules. The
arbitration shall be held in Paris, France and in the English language. The
ruling by such arbitrators shall be binding upon the parties in the absence of
fraud.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as
of this ____ day of June, 1996.
WITNESS: GUARANTOR:
- ----------------------------- -------------------------------
Wolfgang M. Kossner
- ----------------------------- -------------------------------
August A. de Roode
- ----------------------------- ----------------------------------
Peter Schmid
-4-
