<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-KSB
-----------------------
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------
Commission file number 0-26202
EASTBROKERS INTERNATIONAL INCORPORATED
(Exact name of small business issuer as specified in its charter)
-----------------------
Delaware 52-1807562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15245 Shady Grove Road, Suite 340, Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
(301) 527-1110
(Issuer's telephone number, including area code)
CZECH INDUSTRIES, INC.
(Former name, if changed since last report)
-----------------------
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.05 par value
Class A Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-QSB or any
amendment to this Form 10-QSB. [ ]
State issuer's revenues for its most recent fiscal year: $5,552,069.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average of the bid and ask price of such stock on June 27,
1997 was $10,162,084.
The total number of shares of the registrant's Common Stock, $.05 par value,
outstanding on June 27, 1997, was 3,003,000.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
================================================================================
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
Index to Form 10-KSB
<TABLE>
<CAPTION>
Page
PART I
<S> <C>
Item 1. Description of Business................................................................................ 3
Item 2. Description of Property................................................................................ 12
Item 3. Legal Proceedings...................................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............................................... 13
Item 6. Management's Discussion and Analysis or Plan of Operation.............................................. 15
Item 7. Financial Statements
Historical Financial Statements
Independent Auditor's Report..................................................................... 21
Consolidated Statements of Financial Condition................................................... 22
Consolidated Statements of Operations
Year Ended December 31, 1995, Transition Period Ended March 31, 1996,
and Year Ended March 31, 1997............................................................... 23
Consolidated Statements of Changes in Stockholders' Equity....................................... 24
Consolidated Statements of Cash Flows............................................................ 25
Notes to Consolidated Financial Statements....................................................... 27
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure................... 40
PART III
Item 9. Directors and Executive Officers of the Registrant..................................................... 41
Item 10. Executive Compensation................................................................................. 43
Item 11. Security Ownership of Certain Beneficial Owners and Management......................................... 46
Item 12. Certain Relationships and Related Transactions......................................................... 47
Item 13. Exhibits and Reports on Form 8-K....................................................................... 49
Signatures........................................................................................................ 50
</TABLE>
- 2 -
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
GENERAL
Certain information set forth in this report under the captions "Item 1.
Description of Business," and "Item 6. Management's Discussion and Analysis or
Plan of Operation" includes "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and is subject to certain
risks and uncertainties, including but not limited to the effect of political,
economic and market conditions both domestically and in Eastern and Central
Europe. Readers are cautioned not to place undue reliance on these forward
looking statements, which are made as of the date hereof and are referred to in
the discussion of risks and uncertainties set forth under the caption "Risk
Factors" which appears later in this Item 1. The Company undertakes no
obligation to release any revisions to the forward looking statements to reflect
events or circumstances after the date hereof or to reflect unanticipated events
or developments.
REVERSE STOCK SPLIT
At a Special Meeting of the Company's shareholders held on September 10,
1996, the shareholders approved a one-for-five reverse split of the Company's
Common Stock. Unless otherwise indicated, the information contained herein gives
effect to the one-for-five reverse stock split of the issued and outstanding
Common Stock and the reduction in the authorized number of shares of Common
Stock from 50,000,000 to 10,000,000.
CHANGE OF NAME
At the 1996 Annual Meeting of Shareholders held on December 10, 1996, the
shareholders of Czech Industries, Inc. approved the change of the Corporation's
name to Eastbrokers International Incorporated (the "Company" or "Eastbrokers").
The Board of Directors of the Company believes that the change of name more
accurately reflects the nature and scope of the Company's business and will
serve to enhance the Company's recognition by reflecting the expansion of its
business activities in Central and Eastern Europe.
BACKGROUND
Eastbrokers International Incorporated (the "Company") was incorporated in
the State of Delaware on January 20, 1993, as the Czech Fund in order to take
advantage of the rapid growth in business opportunities arising from the
privatization of the newly-democratized Czech Republic by merging with or
acquiring Czech businesses.
In July 1993, the Company had a small initial public offering, following
which it purchased a controlling interest in Hotel Fortuna, a.s., a Czech
corporation owning a hotel located in Prague, and was renamed Czech Industries,
Inc. The Company also entered into an agreement to acquire a controlling
interest in Moravacentrum, a collection of eight department stores in Brno. This
acquisition was consummated using a portion of the $15 million gross proceeds
from a secondary public offering in June 1995.
Later in 1995, however, the Company shifted its focus in response to
changes in the marketplace. As major institutional investors began to appreciate
the investment opportunities available in the Czech Republic, most of such
opportunities were seized by a limited number of major institutions which now
control much of the Czech economy. This development made it very difficult for
smaller players such as the Company to effectively take advantage of available
opportunities.
In 1996, the Company received what it considered an attractive offer for
its interest in Moravacentrum. The Company accepted this offer to sell
Moravacentrum, determining that the sale proceeds could be better applied
towards other acquisitions which would provide better prospects for return on
investment.
Having considered a variety of investments, the Company decided on the
acquisition of Eastbrokers Beteiligungs AG ("Eastbrokers Vienna"), an Austrian
brokerage company with offices throughout Central and Eastern Europe. This
transaction enhanced the Company's prospects by both providing the Company with
a vehicle for its existing acquisition strategy while extending its
opportunities beyond the Czech Republic to the entirety of Central and Eastern
Europe. The acquisition was completed on August 1, 1996. Following the
acquisition, the Company's name was changed to Eastbrokers International
Incorporated.
- 3 -
<PAGE>
The Company, through its Vienna-based subsidiary, Eastbrokers Vienna,
provides financial services in Eastern and Central Europe. The principal
strategic objective of the Company is 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. Through
its U.S. subsidiary, Eastbrokers North America, Inc., the Company intends to
market these investment opportunities to Western European and United States
institutional and commercial investors.
Eastbrokers Vienna's primary business is to provide its customers with
stock brokering and investment banking services. Eastbrokers Vienna conducts
business through its head office in Vienna, Austria and in its subsidiary and
affiliate offices located in (a) Prague, Czech Republic (b) Budapest, Hungary,
(c) Bratislava, Slovakia, (d) Almaty, Kazakhstan, (e) Istanbul, Turkey, (f)
Moscow, Russia, (g) Bucharest, Romania, (h) Sofia, Bulgaria, (i) Ljubljana,
Slovenia, (j) Zagreb, Croatia, and (k) Warsaw, Poland. Through its subsidiaries
and affiliate offices, the Company is a member of the Vienna Stock Exchange, the
Budapest Stock Exchange, the Bratislava Stock Exchange, the Zagreb Stock
Exchange, the Ljubljana Stock Exchange, the Bucharest Stock Exchange, the
Central Asian Stock Exchange, the Warsaw Stock Exchange and a shareholder and
member of the Prague Stock Exchange. Eastbrokers Vienna also owns 49% of WMP
Borsenmakler AG ("WMP"), a publicly-held Austrian investment banking and
brokerage firm.
Through its Vienna affiliate, Eastbrokers Vienna's brokerage, trading and
market making business generates approximately 10% of all revenues. Eastbrokers
Vienna conducts its sales activities as principal and agent on behalf of its
clients. Eastbrokers Vienna primarily distributes and trades Eastern and Central
European equity securities and to a lesser degree, debt securities. Eastbrokers
Vienna, through WMP, actively makes a market for the securities of more than 400
companies on the Vienna Stock Exchange.
Eastbrokers Vienna is also a leading Eastern and Central European
investment banking firm which provides advice to, and raises capital for Eastern
and Central European companies. Eastbrokers Vienna provides advisory services on
key strategic matters such as mergers, acquisitions, privatizations, joint
ventures as well as long range financial planning. Eastbrokers Vienna seeks to
raise much of its capital in Western Europe through institutional and commercial
investors.
Additionally, through its recently acquired subsidiary in the United
States, Eastbrokers North America, Inc. ("Eastbrokers NA", member NASD, the
Company intends to provide added value, performance-driven research, trading,
asset management and corporate finance services in the emerging markets of
Central and Eastern Europe to North American institutional investors (buyside
and sellside) and high net worth individuals. The U.S. based broker dealer is
expected to complement the existing European based units. Eastbrokers NA intends
to focus on seeking out North American companies whose primary focus is Central
and Eastern Europe. Differentiation of the services provided will be emphasized
in an effort to enable Eastbrokers NA to fulfill its objective of assisting
existing foreign units by accessing and transacting with North American capital
markets, which represent a source of emerging market capital, through quality
research and by establishing relationships that would evolve naturally into
other financial related products and services. The Company has not previously
operated a broker dealer in the United States and there can be no assurance that
Eastbrokers NA can be successfully established or operated.
ACQUISITIONS AND DISPOSITIONS DURING THE FISCAL YEAR
Through a series of stock purchase transactions beginning July 1995, the
Company purchased a 42.75% equity interest in Moravacentrum a.s., a joint stock
company which owns a major quality department store chain based in Brno, Czech
Republic. In December 1995, the Company entered into an agreement to sell its
shares in Moravacentrum a.s. for approximately $8.73 million. The parties agreed
upon an installment sale, and, the final installment was paid in April 1996. The
Company recorded a gain from the sale aggregating approximately $1.2 million.
The Company determined that the sale of Moravacentrum a.s. presented a unique
opportunity to accelerate further mergers and acquisitions through increased
working capital.
On August, 1, 1996, the Company acquired 80 percent of the outstanding
stock of Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers Vienna")
through the issuance of 1,080,000 shares of the Company's common stock valued at
$5,400,000. As a participant in Eastbrokers Vienna's capital increase, the
Company subsequently acquired an additional 245,320 of an available 270,000
shares for cash increasing its ownership percentage to 83.62 percent. In three
separate transactions in November and December 1996 and March 1997, the Company
purchased 81,550 additional shares, increasing its ownership percentage to
approximately 94 percent.
The fair value of the net assets acquired under these transactions
approximated $8,400,000. The acquisition has been accounted for under the
purchase method of accounting. The excess of the purchase price over the fair
value of the
- 4 -
<PAGE>
net assets acquired resulted in the Company recording approximately $1,950,000
in goodwill, which is being amortized over 25 years on a straight-line basis.
These consolidated financial statements include the results of operations of
Eastbrokers Vienna from the date of acquisition through December 31, 1996. See
Item 7 - Financial Statements. The purchase agreements contain certain
provisions whereby the selling shareholders may be eligible to receive an
additional 120,000 shares of the Company's common stock in the event certain
earnings targets are achieved.
On October 1, 1996, the Company entered into an agreement with Y.S.E. a.s.
to dispose of the Company's controlling equity interest in the Hotel Fortuna
a.s. The Company had owned 251,000 shares of Common Stock of the Hotel Fortuna
a.s., which owns and operates a 242 room hotel, restaurant and lounge located in
Prague, Czech Republic. The disposition of the Company's interest in the Hotel
Fortuna a.s. is deemed to be a disposition of a significant amount of the
Company's assets.
In return for its equity interest in the Hotel Fortuna a.s., the Company
received 100,000 shares of Common Stock of Ceske energeticke zavody a.s.,
nominal value 1,100 CZK ("CEZ"), a Czech utility company, and 86,570 shares of
Common Stock of Vodni stavby Praha a.s., nominal value 1,000 CZK ("VS"), a Czech
construction company. Both CEZ and VS are actively traded on the Prague Stock
Exchange's ("PSE") Main Market. The VS shares were transferred to the Company on
or about October 15, 1996, and the CEZ shares were transferred to the Company
about November 5, 1996. Although the Company received the shares at various
dates, the title to these shares did not transfer until the delivery of the
Hotel Fortuna, a.s. shares. The Company transferred its shares of the Hotel
Fortuna a.s. to Y.S.E. a.s. on or about November 6, 1996 which also represents
the final closing of the sale.
The Company determined the cost basis of the Hotel Fortuna a.s. shares by
adding the Company's historical cost basis in the hotel with the Company's
proportionate share of the hotel's earnings it received through June 30, 1996.
Based on this computation, the Company determined that the cost basis of its
interest in the hotel was approximately $9,400,000 USD. In negotiating the sale
of the Company's interest in Hotel Fortuna, a.s., the Purchaser offered shares
of CEZ and VS as consideration for the shares of Hotel Fortuna, a.s. The Company
negotiated the number of the CEZ and VS shares it was to receive as
consideration by utilizing the then current market values of the shares as
quoted on the PSE on October 1, 1996, the date of the signing of the contract.
On October 1, 1996, the PSE quoted prices of CEZ and VS were 1,040 CZK and 1,900
CZK per share, respectively. Based on these October 1, 1996 quoted prices, the
value of the consideration to be received was approximately $9,800,000 USD.
The Company valued the consideration received on the sale of its interest
in Hotel Fortuna, a.s. as of November 6, 1996, which is the date title to these
shares was transferred to the Company. This is consistent with the provisions of
current accounting literature which describes the conditions required to be met
for a sale to be considered consummated. As of November 6, 1996, the per share
prices of the CEZ and VS were 950 CZK and 1,300 CZK, respectively, which
represented approximately $7,957,012 USD at the then current exchange rates. The
Company classified these shares as available for sale securities.
On a date subsequent to obtaining the shares, the Company used 2,500 shares
of CEZ and 30,302 shares of VS to repay the balance of the principal and
interest due under a Note payable owed to Finn s.r.o. in the approximate amount
of $2.1 million USD. Also, the Company sold 13,900 shares of VS at 1,800 CZK per
share for approximately $910,000 USD.
In January and February 1997, the Company sold its entire interest in CEZ
in a series of transactions with a total value of approximately $3,700,000 USD.
The average sales price per share was 1,067 CZK.
On March 6, 1997, the Company purchased a 90% interest of Financial
Planning Services International, Inc. ("FPS"), a Delaware corporation and member
of the National Association of Securities Dealers, Inc. ("NASD"), from Mr.
Robert Sass, a non-affiliate. In consideration of the 90% interest, the Company
issued to Mr. Sass, 22,500 shares of the Company's common stock. The Company
subsequently renamed FPS to Eastbrokers North America, Inc. ("Eastbrokers NA").
Mr. John Paul DeVito, Vice President of Brokerage and Sales and President and
CEO of Eastbrokers NA purchased the balance of the 10% of FPS for 2,500 shares
of the Company's Common Stock. Mr. DeVito purchased the 2,500 shares from the
Company at $4.00 per share for an aggregate amount of $10,000, $9,875 of which
was loaned to Mr. DeVito by the Company in exchange for a promissory note. Mr.
Sass is a board member of the Eastbrokers NA and serves as an advisor to the
Chairman of the Board of the Company.
GOVERNMENT REGULATION
The Company has operations based in 12 foreign countries. The Company is
exposed to the risk of changes in social, political and economic conditions
inherent in foreign operations, including changes in the laws and policies that
- 5 -
<PAGE>
govern foreign investment in countries where it has operations as well as, to a
lesser extent, changes in United States laws and regulations relating to foreign
trade and investment. There can be no assurance as to the future effect of
changes in social, political and economic conditions on the Company's business
or financial condition.
COMPETITION
The Company encounters substantial competition from both foreign and
domestic businesses in Central and Eastern Europe. A large number of established
and well-financed entities including multinational businesses and investment
banking firms such as Creditanstaldt, Credit Suisse-First Boston, ING Bearings
and ABN Amro, have recently and substantially increased their business
activities in Central and Eastern Europe. Nearly all of such entities have
substantially greater financial resources, technical expertise and managerial
capabilities than the Company, and consequently, the Company may be at a
substantial competitive disadvantage in the conduct of its business in Central
and Eastern Europe.
EMPLOYEES
The Company currently has 207 full-time employees and 28 part-time
employees.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company must comply with various federal, state and local regulations
relating to the protection of the environment. Federal, state, and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environnment or otherwise relating to the protection of the
environment will not, in the opinion of the Company, have a material effect on
the capital expenditures, earnings, or the competitive position of the Company.
RISK FACTORS
Volatile Nature of Securities Business
The securities business is, by its nature, subject to various risks,
particularly in volatile or illiquid markets, including the risk of losses
resulting from the underwriting or ownership of securities, trading, arbitrage
and merchant banking activities, counterparty failure to meet commitments,
customer fraud, employee fraud, misconduct and errors, failures in connection
with the processing of securities transactions and litigation.
The Company's principal business activities, investment banking, securities
sales and trading and correspondent brokerage services are, by their nature,
highly competitive and subject to various risks, volatile trading markets and
fluctuations in the volume of market activity. Consequently, the Company's net
income and revenues have been, and may continue to be, subject to wide
fluctuations, reflecting the impact of many factors beyond the Company's
control, including securities market conditions, the level and volatility of
interest rates, competitive conditions and the size and timing of transactions.
The securities business and its profitability are affected by many factors
of a national and international nature, including economic and political
conditions, broad trends in business and finance, legislation and regulation
affecting the national and international business and financial communities,
currency values, inflation, market conditions, the availability of short-term or
long-term funding and capital, the credit capacity or perceived creditworthiness
of the security industry in the marketplace and the level and volatility of
interest rates.
A securities firm's business and its profitability are also affected by the
firm's credit capacity or perceived creditworthiness and competitive factors,
including its ability to attract and retain highly skilled employees. These and
other factors may contribute to reduced levels of new issue or merger,
acquisition, restructuring, and leveraged capital activities, including
leveraged buyouts and high-yield financing, or the level of participation in
financing and investment related to such activities, generally resulting in
lower revenues from investment and merchant banking fees and underwriting and
corporate development investments. Reduced volume of securities transactions and
reduced market liquidity generally result in lower revenues from dealer and
trading activities and commissions.
Lower price levels of securities may result in a reduced volume of
transactions and in losses from declines in the market value of securities held
in trading, investment and underwriting positions. Sudden sharp declines in
market values of securities and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets. In such markets, the
Company may not be able to sell securities and may have difficulty in covering
its
- 6 -
<PAGE>
securities positions. Such markets, if prolonged, may also lower the Company's
revenues from investment banking, merchant banking and other investments, and
could have a material adverse effect on the Company's results of operations and
financial condition.
Significant Competition Within the Securities Industry
The Company encounters significant competition in all aspects of the
securities business and competes worldwide directly with other domestic and
foreign securities firms, a number of which have greater capital, financial and
other resources than the Company. In addition to competition from firms
currently in the securities business, there has been increasing competition from
other sources, such as commercial banks and investment boutiques.
As a result of anticipated legislative and regulatory initiatives in the
U.S. to remove or relieve certain restrictions on commercial banks, it is
possible that competition in some markets currently dominated by investment
banks may increase in the near future.
Such competition could also affect the Company's ability to attract and
retain highly skilled individuals to conduct its various businesses. The
principal competitive factors influencing the Company's business are its
professional staff, the Company's reputation in the marketplace, its existing
client relationships, the ability to commit capital to client transactions and
its mix of market capabilities. The Company's ability to compete effectively in
securities brokerage and investment banking activities will also be influenced
by the adequacy of its capital levels. In addition, the Company's ability to
expand its business may depend on its ability to raise additional capital. See
"Description of Business - Competition".
Business Subject to Extensive Federal, State and Foreign Regulations
The Company's business is, and the securities industry generally is,
subject to extensive regulation in Austria and all other Central and Eastern
European states where its subsidiaries operate at the state level, as well as by
industry self-regulatory organizations ("SROs"). The company is also subject to
regulation by various foreign financial regulatory authorities in the
jurisdictions outside of Austria or Central and Eastern Europe where it does
business, including by The Securities and Futures Authority of the United
Kingdom and the Securities and Exchange Commission of the United States of
America. See "Description of Business - Governmental Regulation".
Compliance with many of the regulations applicable to the Company involves
a number of risks, particularly in areas where applicable regulations may be
unclear. The Austrian Ministry of Finance (the "Ministry"), other governmental
regulatory authorities, including state securities regulators, and SROs,
including the Vienna Stock Exchange Chamber, may institute administrative or
judicial proceedings or arbitrations which may result in censure, fine, civil
penalties (including treble damages in the case of insider trading violations),
the issuance of cease-and-desist orders, the de-registration or suspension of a
broker-dealer, investment adviser or futures commission merchant, the statutory
disqualification of its officers or employees or other adverse consequences,
and, even if none of such actions is taken, could have a material adverse effect
on the Company's perceived creditworthiness, reputation and competitiveness.
Customers of the Company or others who allege that they have been damaged by the
Company's violation of applicable regulations also may seek to obtain
compensation from the Company, including the unwinding of any transactions with
the Company.
Additional legislation and regulations, including those relating to the
activities of affiliates of broker-dealers, changes in rules promulgated by the
Ministry or other Austrian or foreign governmental regulatory authorities and
SROs or changes in the interpretation or enforcement of existing laws and rules
may adversely affect the manner of operation and profitability of the Company.
The Company's businesses may be materially affected not only by regulations
applicable to it as a financial market intermediary, but also by regulations of
general application. For example, the volume of the Company's underwriting,
merger and acquisition and merchant banking business in any year could be
affected by, among other things, existing and proposed tax legislation,
antitrust policy and other governmental regulations and policies (including the
interest rate policies of the Austrian Central Bank) and changes in
interpretation or enforcement of existing laws and rules that affect the
business and financial communities. From time to time, various forms of
anti-takeover legislation and legislation that could affect the benefits
associated with financing leveraged transactions with high-yield securities have
been proposed that, if enacted, could adversely affect the volume of merger and
acquisition and investment banking business, which in turn could adversely
affect the Company's underwriting, advisory and trading revenues related
thereto.
- 7 -
<PAGE>
Market, Credit and Liquidity Risks Associated with Underwriting and Trading
Activities
The Company's underwriting, securities trading, market-making and arbitrage
activities are conducted by the Company as principal and subject the Company's
capital to significant risks, including market, credit (including counterparty)
and liquidity risks.
The Company's underwriting, securities trading, market-making and arbitrage
activities often involve the purchase, sale or short-sale of securities as
principal in markets that may be characterised by relative illiquidity or that
may be particularly susceptible to rapid fluctuations in liquidity. The Company
from time to time has large position concentrations in certain types of
securities or commitments and in the securities of or commitments to a single
issuer, including sovereign governments and other entities, issuers located in a
particular country or geographic area, or issuers engaged in a particular
industry. Through its subsidiaries and affiliate offices, the Company engages in
proprietary trading of Eastern European securities with an emphasis on
government and corporate bonds, local debt instruments and Central and Eastern
European equity securities, which involve risks associated with the political
instability and relative currency values of the nations in which the issuer
principally engages in business as well as the risk of nationalisation. In
addition, the Company has, from time to time, substantial position
concentrations in or commitments to high-yield issuers.
These securities generally involve greater risk than investment-grade debt
securities due to credit considerations, liquidity of secondary trading markets
and vulnerability to general economic conditions. The level of the Company's
high-yield securities inventories and the impact of such activities upon the
Company's results of operations can fluctuate from period to period as a result
of customer demands and economic and market considerations.
In addition, the trend in all major capital markets, for competitive and
other reasons, toward larger commitments on the part of lead underwriters means
that, from time to time, an underwriter may retain significant position
concentrations in individual securities. Such concentrations increase the
Company's exposure to specific credit, market and political risks. In addition,
material fluctuations in foreign currencies vis-a-vis the U.S. dollar, in the
absence of countervailing covering or other procedures, may result in losses or
gains in the carrying value of certain of the Company's assets located or
denominated in non-U.S. jurisdictions or currencies. See "Management's
Discussion and Analysis or Plan of Operation".
Capital Intensive Nature of and Potential Losses Resulting from Merchant Banking
Activities
Securities firms, including the Company, increasingly facilitate major
client transactions and transactions sponsored by their proprietary pools of
capital by using their own capital in a variety of investment activities that
have been broadly described as merchant banking.
Such activities include, among other things, purchasing equity or debt
securities or making commitments to purchase such securities in merger,
acquisition, restructuring and leveraged capital transactions, including
leveraged buyouts and high-yield financing. Such positions and commitments may
involve substantial amounts of capital and significant exposure to any one
issuer or business, as well as market, credit and liquidity risks. Equity
securities purchased in these transactions generally are held for appreciation,
are not readily marketable and typically do not provide dividend income. Debt
securities purchased in such transactions typically rank subordinate to bank
debt of the issuer and may rank subordinate to other debt of the issuer. In
addition, the Company also provides and arranges bridge financing, which assures
funding for major transactions, with the expectation that refinancing will be
obtained through the placement of high-yield debt or other securities. Such
activities may also involve substantial amounts of capital and significant
exposure to any one issuer as well as various risks associated with credit
conditions and vulnerability to general economic conditions.
There can be no assurance that the Company will not experience significant
losses as a result of such activities. See "Management's Discussion and Analysis
or Plan of Operation".
Derivative Financial Instruments
At the present time, the Company does not engage in the use of derivatives
financial instruments. In many of the countries where the Company has
operations, the local currencies are referred to as "soft" or "exotic". As such,
there are very few, if any, cost effective hedging strategies available to the
Company or potential investors. The Company's inability to engage in currency
hedging activities, in a cost effective manner, may result in its earnings being
subject to greater volatility due to exchange rate fluctuations against the U.S.
dollar.
- 8 -
<PAGE>
Dependence upon Availability of Capital and Funding
A substantial portion of the Company's total assets consists of highly
liquid marketable securities and short-term receivables arising from securities
transactions. The highly liquid nature of these assets provides the Company with
flexibility in financing and managing its business. However, certain of the
Company's activities such as merchant banking frequently involve substantial
capital commitments in securities which are often illiquid. The funding needs of
the Company are satisfied from internally generated funds and capital, including
equity, long-term debt and short-term borrowings which consist of securities
sold under agreements to repurchase ("repurchase agreements"), master notes and
committed and uncommitted lines of credit.
All repurchase transactions and a portion of the Company's bank borrowings
are made on a collateralized basis. Liquidity management includes the monitoring
of assets available to hypothecate or pledge against short-term borrowing. The
Company maintains borrowing relationships with a broad range of banks, financial
institutions, counterparties and others. The volume of the Company's borrowings
generally fluctuates in response to changes in the amount of resale transactions
outstanding, the level of the Company's securities inventories and overall
market conditions. Availability of financing to the Company can vary depending
upon market conditions, the volume of certain trading activities, credit
ratings, credit capacity and the overall availability of credit to the
securities industry and there can be no assurance that adequate financing to
support the Company's businesses will continue to be available in the future.
See "Management's Discussion and Analysis or Plan of Operation".
Potential Restrictions on Business of, and Withdrawal of Capital from, Regulated
Subsidiaries Resulting from Net Capital Requirements
As a registered broker-dealers and member of numerous stock exchanges
throughout Central and Eastern Europe, the Company is required to comply with
each of the countries' regulatory authorities and net capital rules of the stock
exchanges. These rules, which specify minimum net capital requirements for
registered broker-dealers and stock exchange members, are designed to assure
that broker-dealers maintain adequate regulatory capital in relation to their
liabilities and the size of their customer business and have the effect of
requiring that at least a substantial portion of their assets be kept in cash or
highly liquid investments. Compliance with such net capital requirements could
limit operations that require the intensive use of capital, such as underwriting
and trading activities. These rules also could restrict the Company's ability to
withdraw capital from the regulatory authorities, even in circumstances where
these authorities hold more than the minimum amount of the Company's required
capital, which in turn, could limit the Company's ability to pay dividends,
repay debt and redeem or repurchase shares of its outstanding capital stock.
Potential Securities Laws Liability
Many aspects of the Company's business involve substantial risks of
liability. In recent years, there has been increasing incidence of litigation
involving the securities industry, including class actions that generally seek
substantial damages. Companies engaged in the underwriting and distribution of
securities are exposed to substantial liability under applicable securities
laws.
Dependence on Personnel and Certain Key Management
Most aspects of the Company's business are dependent on highly-skilled
individuals. The Company devotes considerable resources to recruiting, training
and compensating such individuals and has taken further steps to encourage such
individuals to remain in the Company's employ. Individuals employed by the
Company may, however, choose to leave the Company at any time to pursue other
opportunities. In addition, the operation of the Company's business is
principally dependent on certain key management personnel. In particular, Martin
A. Sumichrast and Peter Schmid have played significant roles in the promotion,
development and management of the Company. If the employment by the Company of
either of these two people terminates, or they are unable to perform their
duties, there may be a significant adverse effect on the performance of the
Company as a whole. At the present time, the Company does not have a key-man
life insurance policy in effect with respect to Mr. Schmid. See "Item 9".
Operating Losses and Financial Condition
Since its formation, the Company has suffered substantial cash flow
deficits and operating losses. The net loss
- 9 -
<PAGE>
for the year ended March 31, 1997 was $866,411. As of such date, the Company had
cash and cash equivalents of $4,755,723 and net working capital of approximately
$6,500,000. There can be no assurance that the Company's future operations will
be profitable or that it will have available funds adequate to fund its
operations. Should the operations of the Company be profitable, it is likely
that the Company would retain much or all of its earnings to finance future
growth and expansion.
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability of
Securities
The Securities and Exchange Commission ("Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
less than $5.00 per share, subject to certain exceptions. The Company's Common
Stock is currently listed in the Nasdaq SmallCap Market and, as a result, such
securities are currently exempt from the definition "penny stock." If the Common
Stock is removed from listing on Nasdaq at any time, the Company's securities
may become subject to rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally, those persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, $300,000 together with
their spouse). For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of such securities and
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities in the
secondary market.
Proposed Changes to Nasdaq Listing Requirements
On November 6, 1996, the Board of Directors of Nasdaq approved proposed
changes to the entry standards necessary to qualify for listing on both the
Nasdaq National Market (the "National Market") and the Nasdaq SmallCap Market.
Following a 30-day comment period, the Nasdaq Board of Directors has considered
comments, made modifications of the proposed changes and filed the rule changes
with the Securities and Exchange Commission for final approval. Among the
proposed changes to the Nasdaq SmallCap Market listing and maintenance criteria
are the following: eliminating the alternative test to the $1 minimum bid price;
extending the corporate governance standards currently required by the National
Market to the SmallCap issuers; increasing the quantitative standards; and
implementing a requirement that auditors of Nasdaq-listed companies be subject
to proper review. If the proposed or other changes to the listing and
maintenance criteria are approved by the Securities and Exchange Commission,
there can be no assurance that the Company will be able to fulfill such
criteria.
Delisting of Securities to Adversely Affect Market
In the event that the Common Stock were to no longer meet applicable Nasdaq
requirements and were delisted from Nasdaq, the Company would attempt to have
its securities traded in the over-the-counter market via the Electronic Bulletin
Board or the "pink sheets." In such event, holders of the Company's securities
would likely encounter greater difficulty in disposing of these securities
and/or obtaining accurate quotations as to the prices of the Company's
securities.
Specific Risks of the Geographic Area Covered by the Company
The Company's investments will be primarily in securities of issuers
resident in an area which is currently in a state of flux - Central and Eastern
Europe and Central Asia. Its political institutions and economic policies now
face the challenges of rapid change. Its population is ethnically diverse and
cultural and religious tensions abound. Memories of conflicts, past injustices
and the legacy of the denial of justice and the expropriation of property will
continue to create tension for years to come. These problems will compound the
difficulties of the change from a centrally planned economy to a market economy.
For these reasons the Company's investments will be subject to risks of a nature
and degree not normally encountered in relation to more developed economies and
additional to those inherent in any equity investment. Specific examples of some
of these risks are described below:
- 10 -
<PAGE>
Liquidity of the Company's Investments: The nature of the Company's
investments limits their potential secondary market. Accordingly, the
Company may not be able to achieve the full value of its investments on
disposal. Once local stock markets are operational, it is anticipated that
liquidity will improve, but there exists no guarantee that the markets
should be as liquid as those of developed countries. Due to the risks of
illiquidity of its investments, the Company could be faced with a risk of
non-reimbursement of its loans.
Political and Economic Factors: The countries in which the Company's
operations are concentrated had centrally-planned, socialist economies for
many years. Attempts at political and economic reform have been made with
limited success and it is impossible to foresee if such reforms will
achieve their intended aims. Restrictions may be imposed on investing in
specific companies or industries which may be considered to be important or
sensitive to national interests and which may also represent the best
investment opportunities. In addition, investments may be expropriated on a
change of government policy.
Valuation Risk: Accounting and financial reporting standards in the
selected countries are not equivalent to International Accounting Standards
and consequently, less information is available to investors in the
selected countries than in more developed capital markets. Nevertheless,
the Company will use for the valuation, financial reports issued by
international auditing firms and all other means will be applied in order
to monitor the unlisted investments.
Problems of Transition and Business Failure: Until very recently, virtually
all industrial output within the Comecon and Warsaw Pact countries was from
state-owned industry. As a result, few individuals understand basic
capitalistic management skills and techniques. Privatization of much of the
region's industry and the transition to a more market-orientated economy
will be difficult. Industry in the region is considerably less developed
and less efficient than industry in Western Europe and, in addition to
doubts as to the continuing viability of much of the region's industry,
those businesses which survive are likely to require considerable capital
investment and restructuring. The failure of one or more businesses in
which the Company has invested may have a significant adverse effect on the
performance of the Company as a whole.
Legal Infrastructure: The Company and its advisors will be reliant on legal
advisors in the jurisdictions in which it invests. Due to the inadequacy or
immaturity of legal systems in some jurisdictions and the difficulty of
obtaining adequate or satisfactory legal advice, it may be impossible to be
certain that the Company has valid legal title to the investments located
in such jurisdictions or to be able to protect its interests in such
investments.
Changes in Law and Enforcement of Rights: Legislation relating to
securities, stock markets and property rights is either non existent or has
been introduced very recently in several of the countries where the
Company's operations are located. Existing legislation is likely to be
subject to extensive amendment and significant new legislation may be
introduced at any time. It may be difficult to enforce the Company's rights
in cases where competing claims arise or in case of re-nationalization.
Investment and Repatriation Restrictions: Repatriation of investment
income, capital and the proceeds of sales by foreign investors may require
governmental registration and/or approval. A number of countries in which
the Company may invest do not have freely convertible currencies or their
currencies may only be convertible at rates determined by their
governments. Repatriation restrictions may also be imposed at any time.
Changes in the value of currencies in which the Company's investments are
denominated will result in a corresponding change in the value of the
Company's assets which are generally denominated in the local functional
currencies. Investors should note that the local currencies involved may be
subject to rapid devaluation against the major "hard" currencies, with the
result that delays in currency conversion may cause significant losses.
Taxation: Taxation of dividends and capital gains received by non-residents
varies among the selected countries. In addition, the selected countries
generally have less well-defined tax laws and procedures, and such laws may
permit retroactive taxation. As a result, the Company could in the future
become subject to local tax liabilities that had not been anticipated in
conducting its investment activities or valuing its assets. The Company
may, if, in the opinion of the Directors and the Company's Tax Advisor, it
is likely to be fiscally beneficial for the Company, invest via one or more
wholly owned subsidiaries located in any jurisdiction in the world.
- 11 -
<PAGE>
Enforceability of Civil Liabilities
A substantial portion of the Company's assets are located outside the
United States. It may be difficult for investors to enforce outside of the
United States judgments against the Company obtained in the United States in any
actions, including actions predicated upon the civil liability provisions of the
securities laws of the United States. In addition, certain of the officers and
directors of the Company are not citizens or residents of the United States and
all or a substantial portion of the assets of such persons are or may be located
outside the United States. As a result, it may be difficult for investors to
effect service of process within the United States against such persons or to
enforce judgments obtained in the United States, including judgments predicated
upon the civil liability provisions of the securities laws of the United States.
Item 2. DESCRIPTION OF PROPERTY
The Company does not own any properties and is not a party to any material
leases.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the Company's fiscal
year to a vote of security holders through the solicitation of proxies or
otherwise.
- 12 -
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ SmallCap Market under
the symbol "EAST" (previously, the symbol was "CZCH").
The following table sets forth the reported high and low bid quotations (as
adjusted for the one-for-five reverse split of the Company's Common Stock) of
the Common Stock for the periods indicated, commencing with the date the Common
Stock became listed on the NASDAQ SmallCap Market (June 8, 1995). Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
High Low
-------------------- --------------------
<S> <C> <C>
1995
Second Quarter $ 32.5000 $ 20.0000
(June 8-June 30)
Third Quarter $ 26.2500 $ 8.1250
Fourth Quarter $ 11.8750 $ 5.0000
1996
First Quarter $ 9.0625 $ 5.0000
Second Quarter $ 13.7500 $ 5.6250
Third Quarter $ 11.2500 $ 4.5625
Fourth Quarter $ 6.0000 $ 3.5000
1997
First Quarter $ 5.2500 $ 3.3750
Second Quarter $ 7.5000 $ 4.3125
(through June 27, 1997)
</TABLE>
On June 27, 1997, the Company's Common Stock as reported on the NASDAQ
SmallCap Market system was $6.375 (closing bid price). On that date there were
approximately 70 holders of record of Common Stock (including entities which
hold stock in street name on behalf of other beneficial owners).
The Company has not paid any cash dividends on its Common Stock to date,
and does not anticipate declaration or payment of any dividends in the
foreseeable future. The Company anticipates that for the foreseeable future it
will follow a policy of retaining earnings, if any, in order to finance the
expansion and development of its business. Payment of dividends is within the
discretion of the Company's Board of Directors and will depend upon the
earnings, capital requirements and operating and financial condition of the
Company, among other factors.
On December 10, 1996, the Board of Directors approved a plan whereby the
Company was authorized to begin a buy-back program of its common stock. Under
the terms of this plan, the Company was authorized to redeem up to $1,000,000 of
common stock at a price not to exceed $5.00 per share beginning in January 1997.
On January 23, 1997, the Company redeemed 45,000 of its outstanding shares at
$4.75 per share. Currently, the Company's common stock is trading at a price in
excess of the approved plan and no additional buy-backs are anticipated.
On March 20, 1997 the Company entered into a consulting agreement with JB
Sutton Group, Inc. ("Sutton"). Pursuant to the Agreement, the Company granted to
Sutton 150,000 warrants (the "Warrants'). Each Warrant entitles Sutton to
purchase one share of the Company's Common Stock at a price equal to $4.00 per
share. The Warrants are exercisable for the three year period beginning on
January 1, 1999 and ending on December 31, 2001.
In April 1997, the Company issued 125,002 shares of common stock, par value
$.05, of the Company ("Common Stock"). The securities were sold to three
individuals: Calvin S. Caldwell, Frank Huang and Jay Raubvogel for a total
- 13 -
<PAGE>
offering price of $750,012 or $6.00 per share. The net proceeds to the Company
were $725,012. There were no underwriting discounts or commissions. The Offering
was made pursuant to an exemption from registration under Rule 506 of the
Securities Act of 1933, as amended (the "Securities Act"). The Offering was made
only to selected "accredited investors" as that term is defined in Rule 501(a)
of the Securities Act.
- 14 -
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the financial statements and
notes thereto appearing elsewhere in this Form 10-KSB.
The Company's principal activities have changed dramatically during the
past fiscal year. During the fiscal year ending March 31, 1997, the Company
completely disposed of its interest in the Hotel Fortuna, a.s. and acquired
Eastbrokers Beteiligungs AG, an Austrian based securities broker-dealer
providing financial services in Central and Eastern Europe through its network
of subsidiaries and affiliate offices.
The earnings of the Company are subject to wide fluctuations since many
factors over which the Company has little or no control, particularly the
overall volume of trading and the volatility and general level of market prices,
may significantly affect its operations.
The Company's assets have increased from $26,242,561 at December 31, 1995
to $32,014,929 at March 31, 1997, the Company's liabilities increased from
$2,300,136 at December 31, 1995 to $12,613,492 at March 31, 1997, and the
Company's minority interest in consolidated subsidiaries decreased from
$9,353,228 at December 31, 1995 to $1,549,386 at March 31, 1997. The increase in
assets and liabilities is primarily attributable to the Company's acquisition of
Eastbrokers Beteiligungs AG in 1996. The decrease in minority interest is
primarily due to the Company's disposition of its interest in the Hotel Fortuna,
a.s. during 1996.
The information contained in this Item contains forward looking statements.
Readers are cautioned not to place undue reliance on this information which
speaks only as of the date hereof. The matters referred to in such statements
could be affected by the risks and uncertainties inherent in the Company's
business, including (without limitation) the effects of political, economic and
market conditions both domestically and in Eastern and Central Europe. See the
discussion of risks and uncertainties set forth under the caption "Risk Factors"
which appears in Item 1. Further, the Company undertakes no obligation to
release publicly any revisions to these forward looking statements to reflect
events occurring after the date hereof or to reflect unanticipated events or
developments.
Plan of Operation
On August 1, 1996, the Company consummated its acquisition of Eastbrokers
AG reflecting its previously stated objective of seeking to invest into, merge
with or acquire one or more companies in growth oriented industries. Although
the Company's focus had been primarily in the Czech Republic, its original
mission was to pursue such investment opportunities throughout Eastern and
Central Europe. Eastbrokers AG is a holding company providing financial services
in Eastern and Central Europe through its network of subsidiaries. The
acquisition of Eastbrokers AG is intended to not only provide an earnings stream
from its core brokerage business, but also positions the Company to provide
investment banking and corporate finance services in an emerging market
infrastructure and growth industries.
The Company's business strategy is to (1) utilize its marketing and Central
and Eastern Europe emerging market expertise to take advantage of opportunities
for growth in this sector of the global securities market; (2) develop the base
of its asset management business through concentrating on Central and Eastern
European debt and equity securities; (3) enhance and develop the Company's
merchant banking activities; (4) identify potential corporate finance candidates
for investment banking opportunities; and (5) utilize its expertise in the
privatization activities still available in Central and Eastern Europe.
Management also believes there are significant opportunities available in this
region for specialized account and institutional sales.
The Company believes that investment in the emerging markets of Central and
Eastern Europe will continue to grow rapidly in the coming years. Currently,
Hungary, Romania, and Poland are enjoying enhanced interest on the part of
foreign investors. The Company has successfully marketed its NIF Trud
Privatization Fund of Bulgaria. NIF Trud has approximately 120,000 shareholders
and owns interests in 78 Bulgarian companies. The Company currently is the
exclusive management company for NIF Trud. The Company intends to provide
ongoing management services to NIF Trud and investment banking services to the
companies in its portfolio.
While investing in the emerging markets of Central and Eastern Europe
involves risk considerations not typically associated with investing in
securities of U.S. issuers, the Company believes that such considerations are
outweighed by the benefits of diversification and potentially superior returns.
- 15 -
<PAGE>
Among the considerations involved in investing in emerging markets such as
Central and Eastern Europe is that less information may be available about
foreign companies than about domestic companies. Foreign companies are also not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. In addition, unlike investing in U.S.
companies, securities of non-U.S. companies are generally denominated in foreign
currencies, thereby subjecting each security to changes in value when the
underlying foreign currency strengthens or weakens against the U.S. dollar.
Currency exchange rates can also be affected unpredictably by intervention of
U.S. or foreign governments or central banks or by currency controls or
political developments in the U.S. and abroad.
The value of international fixed income products also responds to interest
rate changes in the U.S. and abroad. In general, the value of such products will
rise when interest rates fall, and fall when interest rates rise. However,
interest rates in each foreign country and the U.S. may change independently of
each other.
Debt and equity securities in emerging markets such as Central and Eastern
Europe may also not be as liquid as U.S. securities and their markets.
Securities of some foreign companies may involve greater risk than securities of
U.S companies. Investing in Central and Eastern European securities may further
result in higher expenses than investing in domestic securities because of costs
associated with converting foreign currencies to U.S. dollars and expenses
related to foreign custody procedures. Investment in Central and Eastern
European securities may also be subject to local economic or political risks,
including instability of some foreign governments, inadequate market controls,
the possibility of currency blockage or the imposition of withholding taxes on
dividend or interest payments and the potential for expropriation,
re-nationalization or confiscatory taxation and limitations on the use or
repatriation of funds or other assets.
The Company is also in the process of building its research department to
include reviewing the general market conditions, specific industries, and
individual companies and providing timely, cost effective information with
respect thereto in monthly newsletters, which will discuss Central and Eastern
European economic and currency trends and give readers specific investment
recommendations and ideas. The potential fee for this service, if any, has not
yet been determined.
During the year ended March 31, 1997, management continued its program of
augmenting mid-level personnel, leasing additional office space, and enhancing
the management information systems in several of our Eastern European offices.
Management also began preparations to offer certain services and products to
firms and individuals associated with the U.S. capital markets.
The Company intends to have its North American offices fully operational
prior to the end of the fiscal year ending March 31, 1998. This subsidiary will
act as an introducing broker in that it does not clear its own securities
transactions, but instead, it contracts to have such transactions cleared
through a clearing broker on a fully disclosed basis. In a fully disclosed
clearing transaction, the identity of the Company's client is known to the
clearing broker. Generally, a clearing broker physically maintains the client's
account and performs a variety of services as agent for the Company, including
clearing all securities transactions (delivery of securities sold, receipt of
securities purchased and transfer of related funds). The Company intends to
utilize the services of the Bear Stearns Companies, Inc. ("Bear Stearns") as its
fully disclosed clearing broker. Bear Sterns is recognized as one of the leading
firms in clearing transactions in emerging markets such as Central and Eastern
Europe.
Results of Operations
Fiscal Year 1997 Compared with the Fiscal Year 1995
The Company is comparing the calendar year ending December 31, 1995 with
the fiscal year ending March 31, 1997. Since the transition period ended March
31, 1996 represents only a short period, it will be left out of this analysis
except where a material transaction has occurred.
As noted in the "General" sections, the Company's principal activities have
changed dramatically during the past fiscal year. During the fiscal year ended
March 31, 1997, the Company completely disposed of its interest in the Hotel
Fortuna, a.s. and acquired Eastbrokers Beteiligungs AG, an Austrian based
securities broker-dealer providing financial services in Central and Eastern
Europe through its network of subsidiaries and affiliate offices. As such, a
comparison between Fiscal Year Ended March 31, 1997 and the Fiscal Year Ended
December 31, 1995 provides minimal meaningful information.
- 16 -
<PAGE>
A non-recurring item reflected in the operations of the Company for the
year ended December 31, 1995, the transition period ended March 31, 1996, and
the year ended March 31, 1997 is the gain on the disposition of available for
sale securities of Moravacentrum a.s. of $637,417, $327,104, and $229,574,
respectively.
Other non-recurring items reflected in the operations for the year ended
March 31, 1997 are the loss on discontinued operations of approximately
($1,300,000) on the disposition of the Company's entire interest in the Hotel
Fortuna a.s. and the gain on the disposition of available for sale securities
which resulted in a fourth quarter gain of approximately $655,000.
As an overview of the year ended March 31, 1997, Eastbrokers Beteiligungs
AG was first consolidated on August 1, 1996 and has a calendar year end. It is
important to note that the Consolidated Statements of Operations includes the
revenues and expenses of Eastbrokers Beteiligungs AG for the period from the
date of acquisition (August 1, 1996) through December 31, 1996 (a five month
period) in accordance with Note 1 to the financial statements. See Item 7.
Financial Statements.
The overall increase in the volume of revenue and expenses is indicative of
a change from a one location, single operating unit to a multi-location, diverse
entity.
Calculation of Earnings Per Share
The calculation of earnings per share on the financial statements included
in this report is based on the weighted average number of shares outstanding, as
calculated.
Viability of Operating Results
The Company, like many other securities firms, is directly affected by
general economic conditions and market conditions, changes in levels of interest
rates, and demand for the Company's investment and merchant banking services in
the countries where its primary operations are located. The Company is further
affected by changes in valuations of the local currencies to the U.S. dollar
(the functional currency of the Company) in the regions in which it operates,
the interest of foreign investors in the local economies, and governmental
regulations restricting the repatriation of profits. In many of the countries
where the Company's primary operations are located, the local currency is
considered to be "soft" or "exotic". As such, there are very few, if any, cost
effective hedging strategies available to the Company or potential investors.
All of these factors have an impact on the Company's net gain from
securities transactions, underwriting, and commissions revenues. In periods of
reduced market activity, profitability is adversely affected because certain
expenses, consisting primarily of non-officer compensation and benefits,
communications, occupancy, and general and administrative expenses remain
relatively constant.
Currently, the Czech Republic and Slovak Republic markets are experiencing
extremely difficult economic conditions and market reforms may be necessary to
restore these economies to health. In light of these developments, the Company
has reduced the level of its operations in these countries. The Company
recognizes that it may be necessary to support negative cash flow from these
operations in the next 12 to 24 months.
Liquidity and Capital Resources
The Company's statements of financial position reflect a liquid financial
position as cash and assets readily convertible to cash represent 9 percent, 20
percent, and 28 percent of total assets at December 31, 1995, March 31, 1996,
and March 31, 1997, respectively.
The Company is subject to net capital and liquidity requirements in the
local jurisdictions in which it operates. As of March 31, 1997, the Company was
in excess of its minimum net capital and liquidity requirements in all
jurisdictions in which it operates.
The Company finances its operations primarily with existing capital and
funds generated from its diversified operations.
In the opinion of management, the Company's existing capital and cash flow
from operations will be adequate to meet its capital needs for at least the next
12 months in light of currently known and reasonably estimable trends. The
- 17 -
<PAGE>
Company is currently exploring its options with regards to additional debt or
equity financing and there can be no assurance such financing will be available.
However, the Company recognizes that with increased liquidity it may be better
positioned to take advantage of potential opportunities in the markets where it
maintains its operations. No assurances can be made as to the Company's ability
to meet its cash requirements subsequent to any further business combinations.
In April 1997, the Company issued 125,002 shares of common stock, par value
$.05, of the Company ("Common Stock"). The securities were sold to three
individuals: Calvin S. Caldwell, Frank Huang and Jay Raubvogel for a total
offering price of $750,012 or $6.00 per share. The net proceeds to the Company
were $725,012. There were no underwriting discounts or commissions. The Offering
was made pursuant to an exemption from registration under Rule 506 of the
Securities Act of 1933, as amended (the "Securities Act"). The Offering was made
only to selected "accredited investors" as that term is defined in Rule 501(a)
of the Securities Act.
At March 31, 1997, the Company had $1,200,793 outstanding under repurchase
agreements. The weighted average interest rate on these repurchase agreements
was 12.91 percent. Securities listed on the Prague Stock Exchange Main Market
with a market value of approximately $1,700,000 were used to collateralize this
arrangement.
Effects of Inflation
The Company maintains operations in several economies that are considered
inflationary. To the extent that inflation results in rising interest rates and
devaluation of the local currencies in relation to the U.S. dollar have other
adverse affects on the securities markets and on the value of securities held in
inventory, it may affect the Company's financial position and results of
operations.
- 18 -
<PAGE>
Selected Financial Data
The historical selected financial data set forth below for the respective
periods are derived from the Company's financial statements included elsewhere
in this Form 10-KSB and should be read in conjunction with those financial
statements and notes thereto. Those financial statements have been audited by
Pannell Kerr Forster PC, independent certified public accountants, whose report
with respect thereto appears elsewhere in this Form 10-KSB.
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Balance Sheet Data
Assets $ 26,242,561 $ 26,251,364 $ 32,014,929
Liabilities 2,300,136 2,208,481 12,613,492
Minority interest in consolidated subsidiaries 9,353,228 9,353,228 1,549,386
Stockholders' equity 14,589,197 14,689,655 17,852,051
Statement of Operations Data
December 31, March 31, March 31,
1995 1996 1997
-------------- -------------- --------------
Revenues
Principal transactions, net $ 637,417 $ 327,104 $ 1,872,767
Commissions, underwritings & fees -- -- 1,588,726
Interest, dividends & other revenues 314,191 72,114 2,486,785
Equity in earnings of unconsolidated affiliates -- -- (396,209)
-------------- -------------- --------------
951,608 399,218 5,552,069
-------------- -------------- --------------
Expenses
Compensation and benefits 342,904 106,583 1,712,308
Commissions -- -- 469,111
Professional and consulting fees -- -- 867,302
General and administrative 229,906 133,929 642,897
Other operating costs 310,248 58,248 1,801,005
-------------- -------------- --------------
883,058 298,760 5,492,623
-------------- -------------- --------------
Net income from continuing operations
before income taxes and minority interest 68,550 100,458 59,446
Provision for income taxes 5,484 -- 249,911
Minority interest in earnings of subsidiaries -- -- 105,416
-------------- -------------- --------------
Income (loss) from continuing operations 74,034 100,458 414,773
Discontinued operations 181,764 -- (1,281,184)
-------------- -------------- --------------
Net income (loss) $ 255,798 $ 100,458 $ (866,411)
============== ============== ==============
</TABLE>
- 19 -
<PAGE>
Item 7. Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Historical Financial Statements
Independent Auditor's Report........................................................... 21
Consolidated Statements of Financial Condition......................................... 22
Consolidated Statements of Operations
Year Ended December 31, 1995, Transition Period Ended March 31, 1996,
and Year Ended March 31, 1997..................................................... 23
Consolidated Statements of Changes in Stockholders' Equity............................. 24
Consolidated Statements of Cash Flows.................................................. 25
Notes to Consolidated Financial Statements............................................. 27
</TABLE>
- 20 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Eastbrokers International Incorporated
We have audited the accompanying consolidated statements of financial condition
of Eastbrokers International Incorporated and subsidiaries (formerly Czech
Industries, Inc.) as of December 31, 1995, March 31, 1996, and March 31, 1997,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the years ended December 31, 1995 and March 31, 1997
and the three month transition period ended March 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eastbrokers
International Incorporated and subsidiaries as of December 31, 1995, March 31,
1996 and March 31, 1997, and the results of operations and its cash flows for
the years ended December 31, 1995 and March 31, 1997 and the three month
transition period ended March 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Pannell Kerr Forster PC
June 23, 1997
- 21 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware Corporation)
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1996 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 2,316,991 $ 5,190,586 $ 4,755,723
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations - - 119,274
Securities purchased under agreements to resell - - 408,865
Receivables
Customers 325,942 325,942 1,904,112
Broker dealers and other - - 572,399
Affiliated companies - - 3,623,818
Other 1,225,500 - 2,043,306
Securities owned, at value
Equities and other - - 4,253,164
Buildings, furniture and equipment, at cost (net of
accumulated depreciation and amortization of
$604,374, $604,374 and $840,217, respectively) 18,560,155 18,565,670 926,565
Deferred taxes 82,565 82,565 289,938
Available for sale securities 3,258,413 1,677,623 2,378,054
Investments in affiliated companies - - 7,064,064
Goodwill - - 2,453,454
Other assets and deferred amounts 472,995 408,978 1,222,193
---------------- ---------------- -----------------
Total Assets $ 26,242,561 $ 26,251,364 $ 32,014,929
================ ================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings
Lines of credit $ - $ - $ 1,602,182
Affiliated companies - - 1,480,700
Securities sold under agreements to repurchase - - 1,200,793
Bonds payable - - 2,307,500
Payables
Customers - - 1,051,810
Broker dealers and other - - 960,226
Accounts payable and accrued expenses 200,478 182,049 1,573,104
Other liabilities and deferred amounts - - 1,502,803
---------------- ---------------- -----------------
200,478 182,049 11,679,118
Long-term borrowings 2,099,658 2,026,432 934,374
---------------- ---------------- -----------------
Total liabilities 2,300,136 2,208,481 12,613,492
---------------- ---------------- -----------------
Minority interest in consolidated subsidiaries 9,353,228 9,353,228 1,549,386
---------------- ---------------- -----------------
Stockholders' equity
Common stock; $.05 par value; 10,000,000 shares authorized; 1,781,000,
1,781,000, and 2,923,000 shares issued and and outstanding at
December 31, 1995, March 31, 1996 and
March 31, 1997, respectively 89,050 89,050 146,150
Paid-in capital 13,693,733 13,693,733 19,314,883
Retained earnings (accumulated deficit) 248,324 348,782 (517,629)
Treasury stock, at cost - - (213,750)
Unrealized loss on available for sale investments - - (246,794)
Cumulative translation adjustments 558,090 558,090 (630,809)
---------------- ---------------- -----------------
Total stockholders' equity 14,589,197 14,689,655 17,852,051
---------------- ---------------- -----------------
Total Liabilities and Stockholders' Equity $ 26,242,561 $ 26,251,364 $ 32,014,929
================ ================ =================
</TABLE>
See notes to consolidated financial statements.
- 22 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware Corporation)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the
For the Transition For the
Year Ended Period Ended Year Ended
December 31, March 31, March 31,
1995 1996 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Revenues
Commissions $ - $ - $ 439,531
Underwritings - - 343,998
Fees - - 805,197
Interest and dividends - - 557,188
Principal transactions, net
Trading - - 1,616,872
Investment 637,417 327,104 1,872,767
Other 314,191 72,114 312,725
Equity in losses of unconsolidated affiliates - - (396,209)
------------------ ------------------ -------------------
Total revenues 951,608 399,218 5,552,069
------------------ ------------------ -------------------
Costs and expenses
Compensation and benefits 342,904 106,583 1,712,308
Commissions - - 469,111
Interest 148,677 45,595 236,235
Occupancy - - 333,096
Office supplies and expenses - - 240,448
Communications - - 177,473
Advertising - - 163,159
Professional fees - - 123,905
Consulting fees - - 743,397
Travel - - 209,977
General and administrative 229,906 133,929 642,897
Depreciation and amortization - - 274,573
Loss on foreign currency transactions 161,571 12,653 166,044
------------------ ------------------ -------------------
Total costs and expenses 883,058 298,760 5,492,623
------------------ ------------------ -------------------
Income from continuing operations
before provision for income taxes and
minority interest in earnings of subsidiaries 68,550 100,458 59,446
Benefit from income taxes 5,484 - 249,911
Minority interest in earnings of subsidiaries - - 105,416
------------------ ------------------ -------------------
Income from continuing operations 74,034 100,458 414,773
Discontinued operations
Income from discontinued operations (net of income taxes of $75,867 for the
year ended December 31, 1995 and
$0 for the year ended March 31, 1997) 181,764 - 41,899
Loss on sale of discontinued operations - - (1,323,083)
------------------ ------------------ -------------------
Net income (loss) $ 255,798 $ 100,458 $ (866,411)
================== ================== ===================
Weighted average number of shares outstanding 1,781,000 1,781,000 2,497,137
================== ================== ===================
Income from continuing operations per share $ 0.04 $ 0.06 $ 0.17
================== ================== ===================
Net income (loss) per share $ 0.14 $ 0.06 $ (0.35)
================== ================== ===================
</TABLE>
See notes to consolidated financial statements.
- 23 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware Corporation)
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended December 31, 1995, the Transition Period Ended March 31, 1996
and the Year Ended March 31, 1997
<TABLE>
<CAPTION>
Unrealized
Retained Loss
Common Stock Earnings Available Cumulative
----------------------- Paid-in (Accumulated Treasury For Sale Translation
Shares Par value Capital Deficit) Stock Investments Adjustment Total
----------- ----------- ----------- ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 865,083 $ 43,254 $ 2,034,193 $ (7,474) $ - $(111,083) $ 310,905 $2,269,795
Redemption of stock, January 1995 (200,083) (10,004) (239,996) - - - - (250,000)
Redemption of initial warrants - - (200,000) - - - - (200,000)
Stock issued to bridge lenders 250,000 12,500 (12,500) - - - - -
Recovery of unrealized losses - - - - - 111,083 - 113,083
Proceeds of secondary offering, net 866,000 43,300 12,112,036 - - - - 12,155,336
Net income - - - 255,798 - - - 255,798
Cumulative translation adjustment - - - - - - 247,185 247,185
----------- --------- ------------ ---------- ---------- ---------- ---------- -----------
Balances, December 31, 1995 1,781,000 89,050 13,693,733 248,324 - - 558,090 14,589,197
Net income, transition period - - - 100,458 - - - 100,458
----------- --------- ------------ ---------- ---------- ---------- ---------- -----------
Balances, March 31, 1996 1,781,000 89,050 13,693,733 348,782 - - 558,090 14,689,197
Issuance of common stock in
Eastbrokers AG acquisition 1,080,000 54,000 5,346,000 - - - - 5,400,000
Issuance of common stock in
Eastbrokers NA acquisition 25,000 1,250 98,750 - - - - 100,000
Issuance of common stock
in compensation for services 37,000 1,850 176,400 - - - - 178,250
Acquisition of treasury stock - - - - (213,750) - - (213,750)
Net unrealized loss on investments - - - - - - - (246,794)
Net income - - - (866,411) - - - (866,411)
Cumulative translation adjustment - - - - - - (1,188,899) (1,188,899)
----------- --------- ------------- ---------- ---------- ---------- ---------- -----------
Balances at March 31, 1996 2,923,000 $146,150 $19,314,883 $(517,629) $(213,750) $(246,794) $(630,809) $17,852,051
=========== ========= ============= ========== ========== ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
- 24 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware Corporation)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the
For the Transition For the
Year Ended Period Ended Year Ended
December 31, March 31, March 31,
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 255,798 $ 100,458 $ (866,411)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interest in earnings of subsidiaries 180,315 - (105,416)
Gain on the sale of investments (706,869) (327,104) (884,530)
Loss on sale of discontinued operations - - 1,323,083
Depreciation and amortization 420,795 - 274,573
Deferred taxes 69,117 - (69,377)
Equity in (earnings) loss of unconsolidated affiliates (87,072) - 396,209
----------------- ----------------- -----------------
132,084 (226,646) 68,131
Changes in operating assets and liabilities
Cash and securities segregated for regulatory purposes
or deposited with regulatory agencies - - (85,696)
Securities purchased under agreements to resell - - 6,278,371
Receivables
Customers 129,713 - 1,093,680
Brokers, dealers and others - - 202,244
Other - - 745,297
Securities owned, at value - - (3,285,493)
Other assets (191,624) 64,017 (214,931)
Payables
Customers - - (8,529,846)
Brokers, dealers and others - - 77,726
Accounts payable and accrued expenses (19,109) (18,429) 1,374,879
----------------- ----------------- -----------------
Net cash provided by (used in) operating activities 51,064 (181,058) (2,275,638)
----------------- ----------------- -----------------
Cash flows from investing activities
Net proceeds from (payments for)
Acquisition of net assets of Eastbrokers
Beteiligungs AG, net of cash acquired - - (1,389,577)
Investments in affiliates (6,467,388) - (5,731,038)
Proceeds from the disposition of affiliate 2,662,609 3,099,403 -
Available for sale securities 1,045,279 - 6,277,191
Furniture and equipment (302,908) (5,515) (503,336)
----------------- ----------------- -----------------
Net cash provided by (used in) investing activities (3,062,408) 3,093,888 (1,346,760)
----------------- ----------------- -----------------
Cash flows from financing activities
Net proceeds from (payments for)
Net proceeds from public offering 12,155,336 - -
Capital contributions by minority interests 1,056,295 - 304,166
Common stock and warrants reacquired (450,000) - -
Short-term borrowings - - 568,303
Securities sold under agreements to repurchase - - 1,200,793
Other long-term debt (6,755,685) - -
Repurchase of common stock - - (213,750)
----------------- ----------------- -----------------
Net cash provided by (used in) financing activities 6,005,946 - 1,859,512
----------------- ----------------- -----------------
Foreign currency translation adjustment (889,875) (39,235) 1,328,023
----------------- ----------------- -----------------
Increase (decrease) in cash and cash equivalents 2,104,727 2,873,595 (434,863)
Cash and cash equivalents, beginning of period 212,264 2,316,991 5,190,586
----------------- ----------------- -----------------
Cash and cash equivalents, end of period $ 2,316,991 $ 5,190,586 $ 4,755,723
================= ================= =================
</TABLE>
See notes to consolidated financial statements.
- 25 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware Corporation)
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
For the
For the Transition For the
Year Ended Period Ended Year Ended
December 31, March 31, March 31,
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Cash paid for income taxes $ - $ 12,847 $ 371,534
----------------- ----------------- -----------------
Cash paid for interest $ 395,493 $ - $ 87,795
----------------- ----------------- -----------------
Non-cash transactions
Common shares of CEZ and Vodni Stavby, Praha
received in the disposition of the Hotel Fortuna $ - $ - $ 7,957,012
----------------- ----------------- -----------------
Common shares of CEZ and Vodni stavby, Praha transferred
in lieu of cash payment for debt and accrued interest $ - $ - $ 1,550,508
----------------- ----------------- -----------------
Eastbrokers International shares issued for acquisition
of net assets of Eastbrokers Beteiligungs AG $ - $ - $ 5,400,000
----------------- ----------------- -----------------
Eastbrokers International shares issued in
compensation for services $ - $ - $ 178,250
----------------- ----------------- -----------------
Eastbrokers International shares issued for acquisition
of net assets of Eastbrokers North America, Inc. $ - $ - $ 90,000
----------------- ----------------- -----------------
Valuation adjustment of available for sale securities $ - $ - $ 246,794
----------------- ----------------- -----------------
Stock subscription payable assumed on
purchase of Moravacentrum, a.s. $ (864,024) $ - $ -
----------------- ----------------- -----------------
Stock subscription payable transferred to
purchaser on sale of Moravacentrum, a.s. $ 864,024 $ - $ -
----------------- ----------------- -----------------
</TABLE>
See notes to consolidated financial statements.
- 26 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements
For the Year Ended March 31, 1997
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
The consolidated financial statements include Eastbrokers International
Incorporated (formerly Czech Industries, Inc.) and its U.S. and
international subsidiaries (collectively, "Eastbrokers" or the "Company").
The shareholders of the Company approved the name change on December 10,
1996 at its Annual Meeting of Shareholders.
These consolidated financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial position and the results of the operations of the
Company. All significant intercompany balances and transactions have been
eliminated in consolidation. 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. Management
believes that the estimates utilized in the preparation of the consolidated
financial statements are prudent and reasonable. Actual results could
differ from these estimates.
The Company, through its subsidiaries, provides a wide range of financial
services primarily in the United States, Central Europe, and Eastern
Europe. Its businesses include securities underwriting, distribution and
trading; merger, acquisition, restructuring, and other corporate finance
advisory activities; asset management; merchant banking and other principal
investment activities; brokerage and research services; and securities
clearance services. These services are provided to a diversified group of
clients and customers, including corporations, governments, financial
institutions, and individuals. Substantially all of the Company's revenues
and expenses are generated through its European subsidiaries and
affiliates. Accordingly, no segment information has been provided.
Change in Fiscal Year-End
On February 10, 1996, the Board of Directors unanimously approved a change
in the Company's fiscal year-end from December 31 to March 31. This change
became effective for the fiscal period ended March 31, 1996. Accordingly,
this report includes the results for the fiscal year ended December 31,
1995, the transition period ended March 31, 1996 and the fiscal year ended
March 31, 1997.
The fiscal year-end of the Company's domestic subsidiary was also changed
to March 31.
Fiscal Year-End of the Company's European Subsidiaries
The fiscal year-end of the Company's European Subsidiaries is December 31.
These subsidiaries are included on the basis of closing dates that precede
the Company's closing date by three months.
Financial Instruments
Substantially all of the Company's financial assets and liabilities and the
Company's trading positions, as well as financial instruments with
off-balance sheet risk, are carried at market or fair values or are carried
at amounts which approximate fair value because of their short-term nature.
Estimates of fair 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. The Company has no investments in derivatives.
Equity securities purchased in connection with merchant banking and other
principal investment activities are initially carried as their original
costs. The carrying value of such equity securities is adjusted when
changes in
- 27 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
1. Summary of Significant Accounting Policies (continued)
Financial Instruments (continued)
the underlying fair values are readily ascertainable, generally as
evidenced by listed market prices or transactions which directly affect the
value of such equity securities. Downward adjustments relating to such
equity securities are made in the event that the Company determines that
the eventual realizable value is less than the carrying value.
Securities classified as available for sale are carried at fair value with
unrealized gains and losses reported as a separate component of
stockholders' equity. Realized gains and losses on these securities are
determined on a specific identification basis and are included in earnings.
Collateralized Securities Transactions
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.
Securities Transactions
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.
Translation of Foreign Currencies
Assets and liabilities of operations having non-U.S. dollar functional
currencies are translated at year-end rates of exchange, and the income
statements are translated at weighted average rates of exchange for the
year. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 52, "Foreign Currency Translation," gains or losses resulting
from translating foreign currency financial statements, net of hedge gains
or losses and their related tax effects, are reflected in cumulative
translation adjustments, a separate component of stockholders' equity.
Gains or losses resulting from foreign currency transactions are included
in net income.
Buildings, Furniture, and Equipment
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. Buildings are carried at cost and
depreciated on a straight-line basis over a period of 50 years.
Common Stock Data
Earnings (loss) per share is based on the weighted average number of common
stock and stock equivalents outstanding. Common stock data for the fiscal
year ended December 31, 1995 and the transition period ended March 31, 1996
have been retroactively adjusted throughout these consolidated financial
statements to reflect a one-for-five reverse common stock split in
September 1996. The outstanding warrants and stock options are currently
excluded from the earnings (loss) per share calculation as their effect
would be antidilutive.
- 28 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
1. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has elected to account for its stock-based
compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25). Under the provisions of APB No. 25, compensation
cost for stock options is measured as the excess, if any, of the quoted
market price of the Company's common stock at the date of grant over the
amount an employee must pay to acquire the stock.
Deferred Income Taxes
Deferred income taxes in the accompanying financial statements reflect
temporary differences in reporting results of operations for income tax and
financial accounting purposes.
Cash and Cash Equivalents
For purposes of the consolidated financial statements, the Company
considers all demand deposits held in banks and certain highly liquid
investments with maturities of 90 days or less other than those held for
sale in the ordinary course of business to be cash equivalents.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are amortized on a straight-line basis
over periods from five to 25 years and are periodically evaluated for
impairment.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
2. Cash and Securities Segregated Under Federal and Other Regulations
Cash and securities segregated for regulatory purposes or as deposits with
clearing organizations was $119,274 as of March 31, 1997. There were no
such amounts segregated as of December 31, 1995 and March 31, 1996.
3. Financial Instruments
Financial instruments owned consist of the Company's proprietary trading
and investment accounts, securities purchased under agreements to resell,
and investments held for resale. The Company's financial instruments, at
fair value, are as follows:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Securities purchased under agreements to resell
Sovereign government debt - Hungary $ -- $ -- $ 228,965
Corporate equities - Hungary -- -- 179,900
-------------- -------------- --------------
$ -- $ -- $ 408,865
============== ============== ==============
</TABLE>
- 29 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
3. Financial Instruments (continued)
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Securities owned at value
Corporate equities - Austria $ -- $ -- $ 2,208,623
Corporate equities - Czech Republic -- -- 871,638
Corporate equities - Slovak Republic -- -- 485,141
Corporate equities - Poland -- -- 687,762
-------------- -------------- --------------
$ -- $ -- $ 4,253,164
============== ============== ==============
Available for sale securities
Corporate equities - Austria $ -- $ -- $ 40,321
Corporate equities - Czech Republic 3,258,413 1,677,623 1,893,115
Corporate equities - Hungary -- -- 189,610
Corporate equities - Slovak Republic -- -- 255,008
-------------- -------------- --------------
$ 3,258,413 $ 1,677,623 $ 2,378,054
============== ============== ==============
</TABLE>
4. Buildings, Furniture and Equipment
Buildings, furniture and equipment are summarized below:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Buildings $ 18,624,248 $ 18,624,248 $ --
Furniture and equipment 540,281 545,796 1,766,782
-------------- -------------- --------------
19,164,529 19,170,044 1,766,782
Less accumulated depreciation (604,374) (604,374) (840,217)
-------------- -------------- --------------
$ 18,560,155 $ 18,565,670 $ 926,565
============== ============== ==============
</TABLE>
Depreciation expense for the year ended December 31, 1995, the transition
period ended March 31, 1996, and the year ended March 31, 1997 was
$227,586, $0, and $108,915, respectively.
5. Business Acquisitions
Eastbrokers Beteiligungs Aktiengesellschaft
Eastbrokers Vienna is an Austrian based holding company that has
established a presence in 12 Central and Eastern European countries through
its network of subsidiaries and affiliate offices. On August, 1, 1996, the
Company acquired 80 percent of the outstanding stock of Eastbrokers
Beteiligungs Aktiengesellschaft ("Eastbrokers Vienna") through the issuance
of 1,080,000 shares of the Company's common stock valued at $5,400,000. As
a participant in Eastbrokers Vienna's capital increase, the Company later
acquired an additional 245,320 of an available 270,000 shares for cash
increasing its ownership percentage to 83.62 percent. In three separate
transactions in November and December 1996 and March 1997, the Company
purchased 81,550 additional shares, increasing its ownership percentage to
approximately 94 percent.
The fair value of the net assets acquired under these transactions
approximated $8,400,000. The acquisition has been accounted for under the
purchase method of accounting. The excess of the purchase price over the
- 30 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
5. Business Acquisitions (continued)
Eastbrokers Beteiligungs Aktiengesellschaft (continued)
fair value of the net assets acquired resulted in the Company recording
approximately $1,950,000 in goodwill, which is being amortized over 25
years on a straight-line basis. The significant equity investment of the
Company, WMP, was written up to book value, which approximated estimated
market value at the date of acquisition. The amount of this net write-up
was approximately $607,000 USD. These consolidated financial statements
include the consolidated results of operations of Eastbrokers Vienna from
the date of acquisition through December 31, 1996 in accordance with Note
1. The purchase agreement contains certain provisions whereby the selling
shareholders may be eligible to receive an additional 120,000 shares of the
Company's common stock in the event certain earnings targets are achieved.
Eastbrokers North America, Inc.
On March 6, 1997, the Company acquired a 90 percent interest in Financial
Planning Services, Inc. ("FPSI"), a Delaware corporation and member firm of
the National Association of Securities Dealers, Inc. ("NASD") from Mr.
Robert Sass. As consideration for this 90 percent interest in FPSI, the
Company issued 22,500 shares of the Company's common stock. The value
assigned to this stock as of the date of transfer was $4.00 per share. FPSI
has been renamed Eastbrokers North America, Inc. ("Eastbrokers NA") to
reflect its affiliation.
The net assets acquired under this transaction approximated $90,000 and the
acquisition has been accounted for under the purchase method of accounting.
There was no excess of the purchase price over the fair value of the net
assets received at the date of acquisition. These consolidated financial
statements include the results of operations of Eastbrokers NA from the
date of acquisition through March 31, 1997 in accordance with Note 1.
Pro forma Results of Operations
The following summarized, unaudited, pro forma results of operations for
the years ended December 31, 1995 and March 31, 1997 assumes the above
listed acquisitions occurred at the beginning of the respective periods.
There was no effect for the transition period ended March 31, 1996.
Year Ended Year Ended
December 31, 1995 March 31, 1997
----------------- ----------------
Revenues $ 7,185,561 $8,696,423
Net income (loss) 936,634 (1,167,465)
Net income (loss) per share 0.61 (.47)
6. Investments in Affiliated Companies
Investment in WMP Borsenmakler Aktiengesellschaft
Through its subsidiary, Eastbrokers Vienna, the Company owns a 49 percent
interest in the outstanding capital stock of WMP Borsenmakler
Aktiengesellschaft ("WMP"). WMP is a stock broker-dealer and market maker
in Vienna, Austria and 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.
The Company accounts for this investment using the equity method of
accounting. The carrying value of
- 31 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
6. Investments in Affiliated Companies (continued)
Investment in WMP Borsenmakler Aktiengesellschaft (continued)
this investment was $6,547,821 on March 31, 1997. The summarized statement
of financial condition and statement of operations information for WMP for
the year ended December 31, 1996 was as follows:
1996
-----------
Summarized Statement of Financial Condition
Total assets $18,938,275
Total liabilities 4,513,957
-----------
Stockholders' equity $14,424,318
===========
Summarized Statement of Operations
Revenues $ 4,559,675
Expenses 4,240,310
-----------
Net income $ 319,365
===========
Investments in Other Unconsolidated Affiliates
The Company also has other investments in unconsolidated affiliates through
Eastbrokers Vienna. These affiliates are accounted for using the equity
method of accounting. These investments are predominantly start-up
operations. At December 31, 1996, these unconsolidated affiliate
investments included the following offices: Zagreb, Croatia; Ljubljana,
Slovenia; Almaty, Kazakstan; Moscow, Russia; Sofia, Bulgaria; Slovakia
Industries; and NIF TRUD Investment Fund. The combined carrying amount of
these investments was $516,243.
7. Short-Term Borrowings
The Company meets its short-term financing needs through lines of credit
with financial institutions, advances from affiliates, and by entering into
repurchase agreements whereby securities are sold with a commitment to
repurchase at a future date.
Lines of Credit
The Company had outstanding advances on its lines of credit totaling
$1,602,182 at year end. These lines of credit carry interest rates between
7.00 percent and 12.00 percent as computed on an annual basis. There were
no lines of credit outstanding at December 31, 1995 or March 31, 1996.
Advances from Affiliated Companies
Periodically, the Company's subsidiaries and affiliates will provide
operating advances to other members in the affiliated group. These advances
are generally due on demand and are not subject to interest charges.
Securities Sold Under Agreements to Repurchase
At March 31, 1997, the Company had $1,200,793 outstanding under repurchase
agreements. The weighted average interest rate on these repurchase
agreements was 12.91 percent. Securities listed on the Prague Stock
Exchange Main Market with a market value of approximately $1,700,000 were
used to collateralize this arrangement.
- 32 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
7. Short-Term Borrowings (continued)
Unsecured Bonds Payable
The Company has unsecured bonds with a face value of 25 million Austrian
Schillings requiring annual interest payments at 10 percent per annum which
mature on July 31, 1997. At March 31, 1997, the amount due under these
obligations was $2,307,500.
8. Long-Term Borrowings
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
Note payable to a finance company, requiring semi-annual interest payments
of 9.00 percent, principal due at maturity on September 30, 1997, secured
by 73,200
shares of Fortuna Hotel, a.s. common stock $ 2,099,658 $ 2,026,432 $ --
Note payable to a financial institution
requiring quarterly interest payments
computed at 6.50 percent on a 360 day
year, collateralized by 157,061 shares of
WMP Borsenmakler Aktiengesellschaft,
principal of 10,000,000 Austrian
Schillings and accrued interest payable in
full at November 30, 2001 -- -- 934,374
------------ ------------ ------------
$ 2,099,658 $ 2,026,432 $ 934,374
============ ============ ============
</TABLE>
9. Commitments and Contingencies
Leases and Related Commitments
The Company occupies office space under leases which expire at various
dates through 2001. The various leases contain provisions for periodic
escalations to the extent of increases in certain operating and other
costs. The Company incurred rent expense under non-cancelable operating
leases in the approximate amounts of $19,000, $12,000, and $35,000 for the
periods ended December 31, 1995, March 31, 1996, and March 31, 1997,
respectively.
Minimum future rentals under these non-cancelable leases for the fiscal
years ending 1998 through 2002 are approximately as follows: 1998 --
$130,000; 1999 -- $144,000; 2000 -- $144,000; 2001 -- $104,000; and 2002 --
$84,000 and in the aggregate $606,000.
The Company's subsidiaries occupy office space under various operating
leases which contain cancellation clauses whereby the Company may cancel
the lease with thirty to ninety days written notice.
Hotel Fortuna Leases
During the years ended December 31, 1995 and March 31, 1997, the Fortuna
Hotel, a.s. (Fortuna) was subject to land and equipment leases. Under the
terms of these leases, Fortuna incurred rent expense in the approximate
amounts of $350,000 and $310,000, respectively.
- 33 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
10. Stockholders' Equity
On December 10, 1996, the Board of Directors approved a plan whereby the
Company was authorized to begin a buy-back program of its common stock.
Under the terms of this plan, the Company was authorized to redeem up to
$1,000,000 of common stock at a price not to exceed $5.00 per share
beginning in January 1997. On January 23, 1997, the Company redeemed 45,000
of its outstanding shares at $4.75 per share. Currently, the Company's
common stock is trading at a price in excess of the approved plan and no
additional buy-backs are anticipated.
In connection with its secondary offering in June 1995, the Company issued
5,505,000 Class A Warrants and 1,250,000 Class B Warrants. Both Classes of
Warrants expire in June 2000.
Certain U.S. and non-U.S. subsidiaries are subject to various securities,
commodities and banking regulations, and capital adequacy requirements
promulgated by the regulatory and exchange authorities of the countries in
which they operate. These subsidiaries have consistently operated in excess
of their local capital adequacy requirements.
On August 1, 1996, the Company issued 1,080,000 shares of its common stock
to the selling security holders of Eastbrokers Beteiligungs AG in a
transaction valued at $5,400,000. During the period surrounding the
acquisition, the Company's common stock was trading approximately between
$6.25 and $8.00 per share for its fully registered and unrestricted shares.
Due to the nature of restricted shares and the various covenants
restricting the transfer of these shares, the Board of Directors assigned a
value of $5,400,000 to this transaction.
On March 6, 1997, the Company issued 22,500 shares of common stock value
relating to the acquisition of Eastbrokers North America, Inc. In a
separate but related transaction to the Eastbrokers North America, Inc.
acquisition, the Company sold 2,500 shares of the Company's stock to an
officer of the Company in exchange for a promissory note. These shares were
transferred to the selling shareholder of Eastbrokers North America, Inc.
as part of the acquisition. The shares were valued in accordance with the
terms of the Stock Purchase Agreement of Eastbrokers North America, Inc. As
of the date of the closing, the total amount of the common stock
transferred was $100,000.
During the year ended March 31, 1997, the Company issued a total of 37,000
shares of common stock at a per share price approximating the then current
market price for services rendered to the Company.
Cumulative translation adjustments include gains or losses resulting from
translating foreign currency financial statements from their respective
functional currencies to U.S. dollars, net of hedge gains or losses and
related tax effects. Increases or decreases in the value of the Company's
net foreign investments generally are tax-deferred for U.S. purposes, but
the related hedge gains and losses are taxable currently. The primary
markets in which the Company operates are generally economies reliant on
the "soft" or "exotic" currencies prevalent in these markets. The Company
generally elects not to hedge its net monetary investments in these markets
due to the lack of availability of various currency contracts at acceptable
costs.
11. Stock Option Plan
During 1996, the Company adopted a non-qualified stock option plan (the
"plan") as part of an overall compensation strategy designed to facilitate
a pay-for-performance policy and promote internal ownership in order to
align the interests of employees with the long-term interests of the
Company's stock holders.
Under the terms of the plan, stock options granted will have an exercise
price not less than the fair value of the Company's common stock (as
defined in the plan) on the date of grant. Such options generally become
exercisable over a three-year period and expire 5 years from the date of
grant.
A total of 35,000 options at a weighted average exercise price of $6.64 per
share were granted under this plan during the fiscal year ended March 31,
1997. The fair value of the options at the date of grant was estimated
using the Black-Scholes option pricing model utilizing the following
weighted average assumptions: risk-free interest rate - 5 percent; expected
option life in years - 5 years; expected stock price
- 34 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
11. Stock Option Plan (continued)
volatility - 97.7 percent; and expected dividend yield - 0.0 percent.
An additional 200,000 options were granted outside of the plan at a
weighted average exercise price of $10.00 per share.
Had the Company elected to recognize compensation expense based on the fair
value of the options at the date of grant as prescribed by SFAS No. 123,
the net loss for the year would have been $1,553,935, the net loss per
share from continuing operations would have been ($0.11), and the net loss
per share for the year would have been ($0.62).
12. Related Party Transactions
Prior to the sale by the Company of the Hotel Fortuna a.s. (the "Hotel") on
October 1, 1996, the Company previously owned 50.2 % of the Hotel. See Item
3. Stratego Invest a.s. owned 20.6 % of the Hotel. Stratego Invest a.s. is
more than 50% owned by Stratego a.s., which is controlled by Ing. Petr
Bednarik, former President and CEO of the Company.
The sales transaction between the Company and Y.S.E. a.s. was arranged by
Stratego Invest a.s., a broker-dealer and financial consulting company
organized under the laws of the Czech Republic. Ing. Petr Bednarik, a
director and shareholder of the Company, is the Chairperson of the
Supervisory Board and a beneficial owner of Stratego Invest a.s. For
providing services related to the transaction, Stratego Invest a.s. was to
have received a commission fee of 1,000,000 CZK (approximately $37,000
USD). Stratego Invest a.s. has agreed to waive its commission related to
this transaction.
In September 1996, Mr. Schmid received from Eastbrokers Beteiligungs AG
3,511,422 Austrian Schillings (approximately $340,000 USD) for his 49.95
percent ownership interest in Eastbrokers
Wertpapiervermittlungs-gesellschaft mbH ("Eastbrokers GmbH"), an Austrian
Securities Brokerage Company with limited liability. The nominal value of
these shares was 500,000 Austrian Schillings. Mr. Schmid, Chairman,
President, Chief Executive Officer, and Director of the Company.
Eastbrokers GmbH holds the ownership interest for Eastbrokers Prague.
In September 1996, Mr. Schmid received 376,275 Austrian Schillings
(approximately $36,500 USD) for his 5.60 percent ownership interest in
Easbrokers Slovakia a.s., Bratislava ("Eastbrokers Slovakia"). Eastbrokers
Slovakia is the Company's subsidiary operating in the Slovak Republic. The
nominal value of these shares was 280,000 Slovak Koruna.
In September 1996, Mr. de Roode received 1,110,250 Austrian Schillings
(approximately $107,500 USD) for his 24.40 percent ownership interest in
Easbrokers Slovakia a.s., Bratislava ("Eastbrokers Slovakia"). Eastbrokers
Slovakia is the Company's subsidiary operating in the Slovak Republic. The
nominal value of these shares was 1,220,000 Slovak Koruna. Mr. de Roode was
Chief Executive Officer, Chief Operating Officer and Director of the
Company.
The Company has entered into a number of agreements with Randall F. Greene,
a former director of the Company. Mr. Greene provided consulting services
pursuant to an agreement dated July 26, 1996 in connection with the
Company's acquisition of Eastbrokers Vienna. Pursuant to this agreement,
Mr. Green received $20,000 as a non-accountable expense allowance and
10,000 shares of the Company's common stock. In addition, Mr. Greene was
paid $37,000 for consulting services provided to the Company in connection
with potential mergers and/or acquisitions. In December 1996, Mr. Greene
entered into an agreement with the Company and certain stockholders of the
Company pursuant to which he was to analyze and evaluate the Company's
operations and to assist the Company in evaluating certain possible
business combination
- 35 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
12. Related Party Transactions (continued)
transactions. Mr. Greene was to be compensated under this agreement only in
the event that such a business combination transaction was succesfully
completed. No such transactions have occurred, no compensation was paid to
Mr. Greene thereunder and the agreement has been terminated. In addition,
in connection with Mr. Greene's resignation from the Board of Directors of
the Company, the Company entered into a consulting agreement dated March
27, 1997 pursuant to which Mr. Greene is to provide business and financial
advisory services to the Company and into a related letter agreement also
dated March 27, 1997, as amended by a letter dated April 29, 1997. Under
the consulting agreement, Mr. Greene is to be compensated at the rate of
$4,000 per month for the six month term of the agreement which commenced on
April 1, 1997. As additional compensation under this agreement, Mr. Greene
was granted options to purchase 7,750 shares of the Company's common stock
at $6.50 per share. Under the related letter agreement, Mr. Greene was paid
$13,750 and granted 12,500 shares in full satisfaction for consulting
services rendered during the period August 1, 1996 through March 31, 1997.
Also pursuant to this agreement, the Company agreed to indemnify Mr. Greene
against certain liabilities, the parties exchanged mutual releases and Mr.
Greene agreed to sell his shares of the Company's common stock subject to
certain conditions.
The Company entered into a Consulting Agreement dated March 31, 1997 with
Dr. Sumichrast, a Director of the Company, pursuant to which Dr. Sumichrast
will provide services to the Company through March 31, 1998, and the
Company has granted him 20,000 shares of the Company's Common Stock to vest
ratably over the term of the Agreement.
In March 1997, Eastbrokers Vienna purchased 30,000 shares of Schneiders
1895 AG for 3,618,000 Austrian Schillings (approximately $302,000 USD). Mr.
Schmid is also a Director of Schneiders 1895 AG. Mr. Schmid's father is an
Officer and Director of Schneiders 1895 AG.
During 1996, the Company entered into a verbal agreement with RealWorld, an
internet software developer, to design and build an online stock exchange
game and online trading system. The initial deposit to begin development of
the game and system was 530,000 Austrian Schillings (approximately $50,000
USD). Currently the Company has a liability to RealWorld of 208,000
Austrian Schillings (approximately $20,000 USD) representing amounts due on
progress billings. The agreement recognizes costs will be charged on an
hourly basis and monthly progress billings will be made once the original
deposit has been depleted. Dr. Mueller-Tyl is a member of the Supervisory
Board for RealWorld. VCH and Messrs. Schmid, Kossner, and Mueller-Tyl are
all shareholders of Realworld and represent a combined ownership interest
of 26 percent.
In December 1996, Eastbrokers Vienna loaned Dr. Mueller-Tyl approximately
$72,000 USD. Interest on the outstanding balance of this obligation is
computed at 8 percent per annum until paid in full. Dr. Mueller-Tyl is
currently the Chief Operating Officer of the Company.
The Company leases office space from Residenz Realbesitz AG ("Residenz")
for its Vienna operations. Under the terms of the leases, the Company
incurred occupancy costs of approximately 1,200,000 Austrian Schillings
(approximately $114,000 USD). The terms of this lease were negotiated such
that the Company is subject to occupancy expenses no greater than the
current market rates. Residenz is a subsidiary of General Partners
Beteiligungs AG ("General Partners") (formerly KHS Beteiligungs AG). Mr.
Kossner owns 30 percent of the outstanding shares of GP. He is a member of
GP's Supervisory Board, WMP's Supervisory Board, the Eastbrokers AG
Supervisory Board, and is a Director of the Company.
- 36 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
12. Related Party Transactions (continued)
General Partners, of which Mr. Kossner is a principal stockholder and
member of the Supervisory Board, owns 535,539 shares of the Company's
outstanding shares.
At December 31, 1996, the Company has a receivable related to share
transactions from Mr. Kossner in the amount of 2,269,198 Austrian
Schillings (approximately $209,000 USD).
At December 31, 1996, the Company has a receivable related to share
transactions from Z.E. Beteiligungs AG. in the amount of 5,537,202 Austrian
Schillings (approximately $511,000 USD). Z.E. Beteiligungs AG is a
subsidiary of General Partners.
WMP is an Austrian broker-dealer, market maker, and member of the Vienna
Stock Exchange. WMP's common stock is publicly traded on the Main Market of
the Vienna Stock Exchange. From time to time, WMP will make a market in a
company's stock that has a direct relationship to the Company through its
directors.
13. Income Taxes
The Company's subsidiaries are subject to income taxes in the various
countries in which they operate.
The provision for (benefit from) income taxes is summarized as follows:
<TABLE>
<CAPTION>
Three Month
Transition
Year Ended Period Ended Year Ended
December 31, March 31, March 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Current
Federal $ -- $ -- $ --
State -- -- --
Foreign -- -- (180,534)
-------------- -------------- --------------
Total from continuing operations -- -- (180,534)
Deferred
Federal 19,304 -- --
State 4,274 -- --
Foreign 46,805 -- (69,377)
-------------- -------------- --------------
Total from continuing operations 70,383 -- (69,377)
-------------- -------------- --------------
$ 70,383 $ -- $ (249,911)
============== ============== ==============
</TABLE>
- 37 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
13. Income Taxes (continued)
The following is a reconciliation of income tax expense (benefit) at the
Federal statutory rates with income taxes recorded by the Company.
<TABLE>
<CAPTION>
Three Month
Transition
Year Ended Period Ended Year Ended
December 31, March 31, March 31,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Income taxes at Federal statutory rate $ 172,209 $ -- $ 20,212
State income taxes net of Federal tax benefit 23,400 -- 2,746
Change in valuation allowance (93,217) -- 697,301
Discontinued operations -- -- (510,975)
Other (32,009) -- (459,145)
-------------- -------------- --------------
$ 70,383 $ -- $ (249,911)
============== ============== ==============
</TABLE>
Temporary differences which give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
Three Month
Transition
Year Ended Period Ended Year Ended
December 31, March 31, March 31,
1995 1996 1997
------------- -------------- --------------
<S> <C> <C> <C>
Depreciation and amortization $ (141,747) $ -- $ 6,070
Basis difference on building 123,110 -- --
Basis difference on marketable securities -- -- (133,385)
Other -- -- (11,425)
Net operating losses available for carryforward 101,202 -- 938,033
------------- -------------- --------------
82,565 -- 799,243
Valuation allowance -- -- (697,301)
------------- -------------- --------------
82,565 -- 101,942
Eastbrokers AG deferred taxes acquired -- -- 187,996
------------- -------------- --------------
$ 82,565 $ -- $ 289,938
============= ============== ==============
</TABLE>
14. Discontinued Operations
In October 1996, the Company agreed to sell its interest in the Hotel
Fortuna, a.s. ("Fortuna") for 100,000 shares of Ceske energeticke zavody
a.s. ("CEZ") and 86,570 shares of Vodni stavby Praha a.s. based on the then
current market prices for each stock. In November 1996, the sales
transaction was completed. As of the sale date, the Company revised its
estimate of the net realizable value of the shares received based on the
then current market prices for each stock. As a result, the Company
recognized a loss on the sale of discontinued operations of ($1,323,083).
An income from discontinued operations was $41,899 through the sale date.
- 38 -
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A Delaware corporation)
Notes to Consolidated Financial Statements (continued)
For the Year Ended March 31, 1997
15. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per share".
The effective date is for financial statements with periods ending after
December 15, 1997 and changes the method by which earnings per share will
be computed. Adoption of this statement will not have a material effect on
earnings per share.
- 39 -
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has not had any changes in or disagreements with its principal
independent accountant within its two most recent fiscal years.
- 40 -
<PAGE>
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors and Executive Officers
Biographical information, including the age, position held with the
Company, term of office as officer or director, employment during the past five
years, and certain other directorships of each officer or director is set forth
below. Messr. Kossner has been elected to serve as director until the annual
meeting of stockholders to be held during the year 1999. Messrs. Michael
Sumichrast, Ph.D. and Martin A. Sumichrast have been elected as directors, each
to serve until the annual meeting of stockholders to be held during the year
1998. Messr. Schmid has been elected as director to serve until the annual
meeting of stockholders to be held during the year 1997. There are no family
relationships among any officers and directors of the Company, except that
Michael Sumichrast, Ph.D. and Martin A. Sumichrast are father and son,
respectively.
PETER SCHMID, 31, Chairman of the Board and Chief Executive Officer of the
Company since March 1997; President of the Company since August 1996; a Director
of the Company since January 1994. Since 1991, Mr. Schmid has been a founder,
Chairman of the Board, Chief Executive Officer, and Member of the Supervisory
Board of Eastbrokers Beteiligungs AG, a Vienna based securities brokerage firm
which was acquired by the Company in August 1996. Mr. Schmid is also Member of
the Supervisory Board of WMP Borsenmakler AG, a Vienna based investment firm;
Eastbrokers a.s. Prague, a subsidiary and Prague, Czech Republic based
securities brokerage firm; Eastbrokers Slovakia a.s., Bratislava, a subsidiary
and Bratislava, Slovak Republic based securities brokerage firm; Eastbrokers
Zagreb an affiliate office and Stock Company for Mediation, a Zagreb, Croatia
based securities brokerage firm; Eastbrokers WDM s.a., Warsaw, a subsidiary and
Warsaw, Poland based securities brokerage firm; NIF Trud (National Cooperative
Investment Fund plc, Sofia), an affiliate office and Sofia, Bulgaria based
investment fund; Eastbrokers Budapest Rt., a subsidiary and Budapest, Hungary
based securities brokerage firm; Eastbrokers s.a., Bucharest, a subsidiary and
Bucharest, Romania based securities brokerage firm; and Eastbrokers d.d.,
Ljubljana, an affiliate office and Ljubljana, Slovenia based securities
brokerage firm; and Schneiders 1895 AG, a retailing firm. Mr. Schmid is also a
Director of Eastbrokers North America, Inc., a subsidiary and New York, New York
based securities brokerage firm.
MARTIN A. SUMICHRAST, 30, Vice Chairman of the Company since March 1997;
Secretary, and a Director of the Company since its inception in 1993. Mr.
Sumichrast is a founder of the Company and was formerly Executive Vice President
and Chief Financial Officer of the Company. Mr. Sumichrast is also Chairman of
Eastbrokers North America, a subsidiary of the Company and New York, New York
based brokerage firm. From 1987 until 1992, Mr. Sumichrast served as the
President of Sumichrast Publications, Inc., a real estate publication located in
Rockville, Maryland. Mr. Sumichrast also serves as President of Sumichrast
Enterprises, Inc., a holding company located in Rockville, Maryland.
KEVIN D. MCNEIL, 37, Vice President, Treasurer and Chief Financial Officer since
March 1997. Since August 1996, Mr. McNeil had been the comptroller of the
Company. Mr. McNeil implemented an accounting system that consolidates the
financial statements of eleven different standards of accounting and currencies
into U.S. general accepted accounting principles for filing with the United
States Securities and Exchange Commission and the National Association of
Securities Dealers. Mr. McNeil is also Secretary/Treasurer of Eastbrokers North
America, Inc., a subsidiary of the Company and New York, New York based
securities brokerage firm. From 1994 to 1996, Mr. McNeil served as a supervising
auditor for Pannell Kerr Forster PC, an international accounting firm. From 1990
until 1994, Mr. McNeil served as a supervising auditor for Schoenadel, Marginot
& Company, CPAs, a large local accounting firm. Incident to a divorce, Mr.
McNeil filed for personal bankruptcy and was granted relief under Chapter 7 in
1994. Mr. McNeil is a member of the American Institute of Certified Public
Accountants, the Virginia Society of Certified Public Accountants and the
International Auditors Division of the Securities Industry Association. Mr.
McNeil holds a B.S. degree from Kansas State University.
FALKO MUELLER-TYL, 27, Vice President and Chief Operating Officer since March
1997. Dr. Mueller-Tyl joined Eastbrokers Beteiligungs AG in 1994, after
finishing his Ph.D. at the University of Economics and Business Administration
in Vienna, where he was also a teaching assistant. Formerly, he was involved in
various consulting projects with the Eastbrokers group and other companies. Dr.
Mueller-Tyl now is a member of the supervisory
- 41 -
<PAGE>
board of Eastbrokers Beteiligungs AG and Vice President and the Chief Operating
Officer of the Company, responsible for the supervision of the Eastern European
operations. Dr. Mueller-Tyl serves as General Manager of Eastbrokers
Wertpapiervermittlungs-gesellschaft mbH ("Eastbrokers GmbH"), an Austrian
Securities Brokerage Company with limited liability; WMP Vermogensverwaltungs
GmbH, an Austrian property management company; and VCH Vermogensverwaltund und
Holding GmbH ("VCH"), a property management and holding company. Dr. Mueller-Tyl
also serves on the supervisory boards of Eastbrokers Beteiligungs AG, a Vienna
based securities brokerage firm; Eastbrokers Slovakia a.s., Bratislava, a
subsidiary and Bratislava, Slovak Republic based securities brokerage firm;
Eastbrokers WDM s.a., Warsaw, a subsidiary and Warsaw, Poland based securities
brokerage firm; Eastbrokers s.a., Bucharest, a subsidiary and Bucharest, Romania
based securities brokerage firm; and RealWorld, an internet software developer.
JOHN PAUL DEVITO, 41, Vice President, Brokerage and Sales, since January 1997.
Mr. DeVito has been in the financial service industry since 1976, and holds
eight securities licenses. Mr. De Vito is also President and Chief Executive
Officer of Eastbrokers North America, Inc., a subsidiary and New York, New York
based brokerage business. From 1995 until 1997, Mr. DeVito served as the New
York Branch Manager for J.B. Oxford & Company, a discount brokerage. From 1990
until 1995, Mr. DeVito was Senior Vice President of Sales and Chief Financial
Officer at Adler Coleman Clearing Corporation ("Adler"), a New York Stock
Exchange clearing company. Mr. De Vito was officially removed from the BD
application as Chief Financial Officer prior to the SIPC Liquidation of Adler in
1995. From 1989 until 1990, Mr. DeVito was an account executive at Douglas
Bremen & Co. From 1988 until 1989, Mr DeVito was an account executive at Blaine
Andrew & Co. From 1986 until 1988, Mr. DeVito was Vice President - Brokerage and
Marketing at Glickenhaus & Co., a New Jersey securities firm. From 1981 until
1986, Mr DeVito was Vice President at the Securities Settlement Corporation, a
subsidiary of the Travelers Corporation. From 1978 until 1981, Mr. DeVito was an
auditor at Paine Webber, Inc. and from 1976 until 1978, Mr. DeVito was an
auditor at Smith Barney Harris Upham. Mr. DeVito hold B.A degrees in industrial
psychology and financial planning from New York University.
MICHAEL SUMICHRAST, Ph.D., 76, Director of the Company since 1993, was Chairman
of the Board of the Company since its inception in 1993 until March 1997. From
1990 to 1994, Dr. Sumichrast served as Chairman of the Board of Sumichrast
Publications, Inc., a real estate publication located in Rockville, Maryland.
During this time, he also served as an economic adviser and representative of
various international American companies. From 1963 to 1990, Dr. Sumichrast was
the senior vice president and chief economist of the National Association of
Home Builders (NAHB), a home builders' professional association.
WOLFGANG KOSSNER, 27, Director of the Company since August 1996. Mr. Kossner was
Executive Vice President of the Company from August 1996 until November 1, 1996.
Mr. Kossner is one of the founders of Eastbrokers Beteiligungs AG. From 1993
through 1995, Mr. Kossner has served as the managing director of WMP
Borsenmakler AG. Prior to that, Mr. Kossner was the manager of securities
trading at WMP Borsenmakler from 1991 to 1993. Mr. Kossner presently serves on
the Supervisory Boards of Eastbrokers' subsidiaries in Vienna, Budapest,
Ljubljana and Zagreb.
B. Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership of equity
securities of the Company with the Securities and Exchange Commission. Officers,
directors and greater-than-ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on a review of the copies of Forms 3, 4 and 5 and amendments
thereto furnished to the Company, or written representations from certain
reporting persons that such persons have filed on a timely basis all reports
required by Section 16 (a), and without researching or making any inquiry
regarding delinquent Section 16 (a) filings, the Company believes that, during
the fiscal year ended March 31, 1997, other than initial statements of
beneficial ownership by Messrs. DeVito, McNeil and Mueller-Tyl, all such reports
were filed on a timely basis.
- 42 -
<PAGE>
Item 10. Executive Compensation
The following Summary Compensation Table sets forth the compensation
for the named executives for the year ended March 31, 1997, the three month
transition period ended March 31, 1996, and the twelve month periods ended
December 31, 1995 and December 31, 1994. No other executive officer had total
annual salary and bonus during any such period equal to or greater than
$100,000.
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- --------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Awards ($Options/SARs(#)Payouts Compensation
- - --------------------------- ---- ------ ----- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Schmid(1) 1997* $129,988 -- -- -- -- -- --
Chairman, President 1996** -- -- -- -- -- -- --
and Chief Executive 1995 -- -- -- -- -- -- --
Officer 1994 -- -- -- -- -- -- --
Martin A. Sumichrast(2) 1997* $120,000 $11,000 -- -- -- -- --
Vice-Chairman of the 1996**$ 30,000 -- -- -- -- -- --
Board and Secretary 1995 $107,500 -- -- -- -- -- --
1994 -- -- -- -- -- -- --
Petr Bednarik, Ing.(1) 1997* $ 49,000 -- $24,000*** -- -- -- --
Former President and 1996**$ 10,000 -- -- -- -- -- --
Chief Executive Officer 1995 $107,500 -- -- -- -- -- --
1994 -- -- -- -- -- -- --
August A. de Roode(1)(4) 1997* $ 72,094 -- -- -- -- -- --
Former Chief Executive 1996** -- -- -- -- -- -- --
Officer and Chief 1995 -- -- -- -- -- -- --
Operating Officer 1994 -- -- -- -- -- -- --
Michael Sumichrast, Ph.D.(3) 1997* $100,000 -- $75,000*** -- -- -- --
Former Chairman of the 1996**$ 24,999 -- -- -- -- -- --
Board 1995 $100,000 -- -- -- -- -- --
1994 -- -- -- -- -- -- --
</TABLE>
*for the fiscal year ended March 31, 1997.
**for the three month transition period ended March 31, 1996.
***these amounts constitute severance pay.
(1) Mr. Schmid has been Chairman of the Board and Chief Executive Officer since
March 1997 and President of the Company since August 1996. Mr. Bednarik was
President and Chief Executive Officer from the time of the Company's
inception in 1993 until August 1996. Mr. de Roode was Chief Executive
Officer and Chief Operating Officer from August 1996 to March 1997.
(2) Martin A. Sumichrast became Vice Chairman of the Board in March 1997. Prior
to that, he was Executive Vice President and Chief Financial Officer.
(3) Dr. Sumichrast was Chairman of the Board from the time of the Company's
inception in 1993 until March 1997.
(4) Dr. de Roode's compensation was paid through VCH Vermogensverwaltung Und
Holding GmbH.
- 43 -
<PAGE>
Employment Agreements
Effective January 1995, the Company entered into employment agreements
("Employment Agreements") with Messrs. Michael Sumichrast, Ph.D., Petr Bednarik,
Ing., and Martin A. Sumichrast. Mr. Bednarik's employment was terminated
effective August 1, 1996 in connection with the acquisition of Eastbrokers
Vienna. Under the terms of Mr. Bednarik's Employment Agreement, Mr. Bednarik
received $24,000 in severance compensation in August 1996 as a result of such
termination of employment. Dr. Sumichrast's Employment Agreement was terminated
upon his resignation as Chairman effective March 20, 1997 and he was awarded a
sum of $75,000. Mr. Martin Sumichrast's employment agreement will expire in
December 1999, and will renew for a period of five years following the
expiration date, unless contrary notice is given by either party. The Company
also entered into employment agreements with Messrs. August de Roode and Peter
Schmid, effective as of August 1, 1996. Messr. Kossner continues to be a
Director of the Company. Messr. de Roode's agreement expired upon his
resignation on March 15, 1997. Messr. Schmid's agreement will expire on August
1, 1999, and he will have a three-year renewal option, unless contrary notice is
given by either party. The salaries for Martin A. Sumichrast and Peter Schmid
are $120,000 each. The salaries under the agreements 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 to consist
of three outside directors of the Company, except that during the three years
following June 8, 1995, Mr. Martin Sumichrast's salary may not exceed $150,000.
In the first three years following August 1, 1996, Messr. Schmid's salary may
not exceed $150,000. Messrs. Martin A. Sumichrast and Schmid are each eligible
to receive an annual bonus of up to 25% of their salary under their respective
agreements, such bonuses to be determined by the Board and not subject to any
specified 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 employee benefits
applicable to employees and executives of the Company. The agreements provide
that the Company will establish a performance incentive bonus plan providing
each executive 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 agreements, employment may be terminated by the Company
with cause or by the executive with or without good reason. Termination by the
Company without cause, or by the executive for good reason, would subject the
Company to liability for liquidated damages in an amount equal to the terminated
executive's current salary and a pro rata portion of their prior year's bonus
for the remaining term of the agreement, payable in equal monthly installments,
without any set-off for compensation received from any new employment. In
addition, the terminated executive would be entitled to continue to participate
in and accrue benefits under all employee benefit plans and to receive
supplemental retirement benefits to replace benefits under any qualified plan
for the remaining term of the agreement to the extent permitted by law.
Under the agreements, the Company is obligated to purchase insurance
policies on the lives of Messrs. Martin A. Sumichrast and Schmid. The Company
will pay the premiums on these policies and upon the death of the employee, the
Company will receive an amount equal to the premiums it paid under the policy
and the remaining proceeds will go to the employee's designated beneficiary. The
Company has a one million dollar key man life insurance policy on Martin A.
Sumichrast with the Company as its beneficiary.
- 44 -
<PAGE>
Option/SAR Grants
<TABLE>
<CAPTION>
Individual Grants
Number of Percent of total
securities options/SARs
underlying granted to
options/SARs employees in Exercise or base
Name Granted (#) fiscal year price ($/Sh) Expiration date
(a) (b) (c) (d) (e)
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter Schmid 33,000 16.5% $10.00 August 1, 2001
Martin A. Sumichrast 100,000 50.0% $10.00 August 1, 2001
</TABLE>
Option/SAR Exercises
There were no exercises of options during the fiscal year ended March 31,
1997.
Compensation of Directors
Each Director of the Company is entitled to receive $1,500.00 plus
reasonable expenses, for attending scheduled board meetings at which members
meet in person. Directors are not entitled to receive compensation for board
meetings held by telephonic conference. During the fiscal year ended March 31,
1997, three former Directors received fees totaling $4,500.00. All current
directors have waived such fees for the fiscal year ending March 31, 1997.
1996 Stock Option Plan
At the Annual Meeting held on December 10, 1996, the stockholders approved
the 1996 Stock Option Plan (the "Plan") pursuant to which officers, employees,
directors and consultants of the Company and its Affiliates are eligible to be
granted Awards. The Plan is administered by the Stock Award Committee, or, in
the absence of such a committee by the entire Board, which has the plenary
authority to grant Awards including Stock Options, Stock Appreciation Rights,
Restricted Stock, or any combination of the foregoing, and to determine the
terms and conditions of the Awards.
The total number of shares of Common Stock reserved and available for
distribution as Awards under the Plan is 400,000.
In the fiscal year ended March 31, 1997, an aggregate of 25,000 shares of
Common Stock and options to purchase 35,000 shares were awarded pursuant to the
Plan.
During the fiscal year ended March 31, 1997, an additional 12,000 shares of
common stock were issued outside of the plan as compensation for services to the
Company.
- 45 -
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's
Common Stock owned as of June 27, 1997 by (i) each person who is known by the
Company to own beneficially more than five percent of the Company's Common
Stock; (ii) each of the Company's officers and directors; and (iii) all officers
and directors as a group. The following calculations were based upon there being
3,003,000 shares of the Company's Common Stock issued and outstanding as of June
27, 1997. Except as otherwise noted, the persons named in the table below do not
own any other capital stock of the Company and have sole voting and investment
power with respect to all shares as beneficially owned by them.
<TABLE>
<CAPTION>
Percentage of
Name and Address (1) Position with Company Number of Shares Shares
------------------------------ ------------------------------------- ---------------------- ----------------
<S> <C> <C> <C>
Peter Schmid (2) Chairman of the Board, 554,659 18.47
President and Chief Executive
Officer, Director
Martin A. Sumichrast (3) Vice-Chairman of the 57,000 1.90
Board and Secretary, Director
Falko Mueller-Tyl (6) Vice President and Chief 57,431 1.91
Operating Officer
Kevin D. McNeil Vice President, Treasurer 2,495 *
and Chief Financial Officer
John Paul DeVito (4) Vice President Brokerage 8,268 *
and Sales
Michael Sumichrast, Ph.D. (3) Director 6,600 *
Wolfgang Kossner (5) Director 768,039 25.58
---------------------- ----------------
All Officers and Directors as 1,454,492 48.43
a Group (7 persons)
</TABLE>
* Less than 1%
(1) Except as otherwise noted, c/o Eastbrokers International Incorporated,
15245 Shady Grove Road, Suite 340, Rockville, Maryland 20850.
(2) 359,925 shares are owned by Karntner Landes und Hypothekenbank AG as
nominee for the Tsuyoshi Trust Vaduz and 194,734 are owned by said
bank as nominee for Mr. Schmid. Mr. Schmid has sole voting and
investment power with respect to the trust shares and is a beneficiary
of this trust. Excludes 33,000 shares issuable upon exercise of
options to acquire Common Stock at $10.00 per share.
(3) 53,600 shares are owned by Sumichrast Enterprises, Inc., a corporation
of which Martin A. Sumichrast, Dr. Sumichrast's son, is an officer and
director and the owner. Dr. Sumichrast may be deemed to have voting
and investment power with respect to 1,600 of these 53,600 shares. Dr.
Sumichrast and Martin Sumichrast each own 5,000 shares directly.
Excludes options held by Martin Sumichrast to acquire 100,000 shares
at $10.00 per share and Class A Warrants representing the right to
acquire 1,000 shares at $20.00 per share.
(4) Excludes 10,000 shares issuable upon exercise of options at $7.00 per
share.
(5) 535,539 shares are owned indirectly through General Partners
Beteiligungs AG, formerly KHS Beteiligungs AG ("GP") of which Mr.
Kossner is a principal stockholder. 200,000 shares were owned by
- 46 -
<PAGE>
Karntner Landes und Hypothekenbank AG (the "Bank") as nominee for GP.
Mr. Kossner may be deemed to have shared voting and investment power
with respect to these shares. Also includes 32,500 shares held by the
Bank as nominee for Central and Eastern European Fund ("Fund"), of
which Mr. Kossner is a director. This inclusion of such Fund shares
shall not be construed as an admission that Mr. Kossner is the
beneficial owner of such shares. Excludes 67,000 shares issuable upon
exercise of options to acquire Common Stock at $10.00 per share.
(6) 17,331 shares are owned directly by Dr. Mueller-Tyl. 20,000 shares are
owned indirectly through his step-father and an additional 21,600
shares are owned indirectly through his father. Dr. Mueller-Tyl may be
deemed to have shared voting and investment power with respect to
these shares.
Item 12. Certain Relationships and Related Transactions
Prior to the sale by the Company of the Hotel Fortuna a.s. (the "Hotel") on
October 1, 1996, the Company previously owned 50.2 % of the Hotel. See Item 3.
Stratego Invest a.s. owned 20.6 % of the Hotel. Stratego Invest a.s. is more
than 50% owned by Stratego a.s., which is controlled by Ing. Petr Bednarik,
former President and CEO of the Company.
The sales transaction between the Company and Y.S.E. a.s. was arranged by
Stratego Invest a.s., a broker-dealer and financial consulting company organized
under the laws of the Czech Republic. Ing. Petr Bednarik, a director and
shareholder of the Company, is the Chairperson of the Supervisory Board and a
beneficial owner of Stratego Invest a.s. For providing services related to the
transaction, Stratego Invest a.s. was to have received a commission fee of
1,000,000 CZK (approximately $37,000 USD). Stratego Invest a.s. has agreed to
waive its commission related to this transaction.
In September 1996, Mr. Schmid received from Eastbrokers Beteiligungs AG
3,511,422 Austrian Schillings (approximately $340,000 USD) for his 49.95 percent
ownership interest in Eastbrokers Wertpapiervermittlungs-gesellschaft mbH
("Eastbrokers GmbH"), an Austrian Securities Brokerage Company with limited
liability. The nominal value of these shares was 500,000 Austrian Schillings.
Mr. Schmid, Chairman, President, Chief Executive Officer, and Director of the
Company. GmbH. Eastbrokers GmbH holds the ownership interest for Eastbrokers
Prague.
In September 1996, Mr. Schmid received 376,275 Austrian Schillings
(approximately $36,500 USD) for his 5.60 percent ownership interest in
Easbrokers Slovakia a.s., Bratislava ("Eastbrokers Slovakia"). Eastbrokers
Slovakia is the Company's subsidiary operating in the Slovak Republic. The
nominal value of these shares was 280,000 Slovak Koruna.
In September 1996, Mr. de Roode received 1,110,250 Austrian Schillings
(approximately $107,500 USD) for his 24.40 percent ownership interest in
Easbrokers Slovakia a.s., Bratislava ("Eastbrokers Slovakia"). Eastbrokers
Slovakia is the Company's subsidiary operating in the Slovak Republic. The
nominal value of these shares was 1,220,000 Slovak Koruna. Mr. de Roode was
Chief Executive Officer, Chief Operating Officer and Director of the Company.
The Company has entered into a number of agreements with Randall F. Greene,
a former director of the Company. Mr. Greene provided consulting services
pursuant to an agreement dated July 26, 1996 in connection with the Company's
acquisition of Eastbrokers Vienna. Pursuant to this agreement, Mr. Green
received $20,000 as a non-accountable expense allowance and 10,000 shares of the
Company's common stock. In addition, Mr. Greene was paid $37,000 for consulting
services provided to the Company in connection with potential mergers and/or
acquisitions. In December 1996, Mr. Greene entered into an agreement with the
Company and certain stockholders of the Company pursuant to which he was to
analyze and evaluate the Company's operations and to assist the Company in
evaluating certain possible business combination transactions. Mr. Greene was to
be compensated under this agreement only in the event that such a business
combination transaction was succesfully completed. No such transactions have
occurred, no compensation was paid to Mr. Greene thereunder and the agreement
has been terminated. In addition, in connection with Mr. Greene's resignation
from the Board of Directors of the Company, the Company entered into a
consulting agreement dated March 27, 1997 pursuant to which Mr.
- 47 -
<PAGE>
Greene is to provide business and financial advisory services to the Company and
into a related letter agreement also dated March 27, 1997, as amended by a
letter dated April 29, 1997. Under the consulting agreement, Mr. Greene is to be
compensated at the rate of $4,000 per month for the six month term of the
agreement which commenced on April 1, 1997. As additional compensation under
this agreement, Mr. Greene was granted options to purchase 7,750 shares of the
Company's common stock at $6.50 per share. Under the related letter agreement,
Mr. Greene was paid $13,750 and granted 12,500 shares in full satisfaction for
consulting services rendered during the period August 1, 1996 through March 31,
1997. Also pursuant to this agreement, the Company agreed to indemnify Mr.
Greene against certain liabilities, the parties exchanged mutual releases and
Mr. Greene agreed to sell his shares of the Company's common stock subject to
certain conditions.
The Company entered into a Consulting Agreement dated March 31, 1997 with
Dr. Sumichrast, a Director of the Company, pursuant to which Dr. Sumichrast will
provide services to the Company through March 31, 1998, and the Company has
granted him 20,000 shares of the Company's Common Stock to vest ratably over the
term of the Agreement.
In March 1997, Eastbrokers Vienna purchased 30,000 shares of Schneiders
1895 AG for 3,618,000 Austrian Schillings (approximately $302,000 USD). Mr.
Schmid is also a Director of Schneiders 1895 AG. Mr. Schmid's father is an
Officer and Director of Schneiders 1895 AG.
During 1996, the Company entered into a verbal agreement with RealWorld, an
internet software developer, to design and build an online stock exchange game
and online trading system. The initial deposit to begin development of the game
and system was 530,000 Austrian Schillings (approximately $50,000 USD).
Currently the Company has a liability to RealWorld of 208,000 Austrian
Schillings (approximately $20,000 USD) representing amounts due on progress
billings. The agreement recognizes costs will be charged on an hourly basis and
monthly progress billings will be made once the original deposit has been
depleted. Dr. Mueller-Tyl is a member of the Supervisory Board for RealWorld.
VCH and Messrs. Schmid, Kossner, and Mueller-Tyl are all shareholders of
Realworld and represent a combined ownership interest of 26 percent.
In December 1996, Eastbrokers Vienna loaned Dr. Mueller-Tyl approximately
$72,000 USD. Interest on the outstanding balance of this obligation is computed
at 8 percent per annum until paid in full. Dr. Mueller-Tyl is currently the
Chief Operating Officer of the Company.
The Company leases office space from Residenz Realbesitz AG ("Residenz")
for its Vienna operations. Under the terms of the leases, the Company incurred
occupancy costs of approximately 1,200,000 Austrian Schillings (approximately
$114,000 USD). The terms of this lease were negotiated such that the Company is
subject to occupancy expenses no greater than the current market rates. Residenz
is a subsidiary of General Partners Beteiligungs AG ("General Partners")
(formerly KHS Beteiligungs AG). Mr. Kossner owns 30 percent of the outstanding
shares of GP. He is a member of GP's Supervisory Board, WMP's Supervisory Board,
the Eastbrokers AG Supervisory Board, and is a Director of the Company.
General Partners, of which Mr. Kossner is a principal stockholder and
member of the Supervisory Board, owns 535,539 shares of the Company's
outstanding shares.
At December 31, 1996, the Company has a receivable related to share
transactions from Mr. Kossner in the amount of 2,269,198 Austrian Schillings
(approximately $209,000 USD).
At December 31, 1996, the Company has a receivable related to share
transactions from Z.E. Beteiligungs AG. in the amount of 5,537,202 Austrian
Schillings (approximately $511,000 USD). Z.E. Beteiligungs AG is a subsidiary of
General Partners.
WMP is an Austrian broker-dealer, market maker, and member of the Vienna
Stock Exchange. WMP's common stock is publicly traded on the Main Market of the
Vienna Stock Exchange. From time to time, WMP will make a market in a company's
stock that has a direct relationship to the Company through its directors.
- 48 -
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits required by Item 601 of Regulation S-B
1. See Index to Exhibits on pages 50-51.
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of the
fiscal year ended March 31, 1997 through the date hereof.
- 49 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EASTBROKERS INTERNATIONAL INCORPORATED
(Registrant)
By /s/ Peter Schmid * June 30, 1997
- - ---------------------------------------------- ---------------------
Peter Schmid Date
Chairman, President, Chief Executive Officer, and Director
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Peter Schmid * June 30, 1997
- - ---------------------------------------------- ---------------------
Peter Schmid Date
Chairman, President, Chief Executive Officer, and Director
/s/ Martin A. Sumichrast June 30, 1997
- - ---------------------------------------------- ---------------------
Martin A. Sumichrast Date
Vice Chairman of the Board, Secretary, and Director
/s/ Kevin D. McNeil June 30, 1997
- - ---------------------------------------------- ---------------------
Kevin D. McNeil Date
Vice President, Treasurer, and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Michael Sumichrast * June 30, 1997
- - ---------------------------------------------- ---------------------
Michael Sumichrast, PhD Date
Director
/s/ Wolfgang Kossner * June 30, 1997
- - ---------------------------------------------- ---------------------
Wolfgang Kossner Date
Director
* By Martin A. Sumichrast and Kevin D. McNeil as attorneys-in fact.
- 50 -
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Exhibit No. Description
----------- -----------
<S> <C> <C>
(2.1) Stock Purchase Agreement dated June 14, 1996 between the Company and
Eastbrokers Beteiligungs AG incorporated by reference to the Company's Form
8-K dated August 1, 1996.
(3.1) Certificate of Incorporation, as amended, incorporated by reference to the
Company's Form 10-QSB for the nine months ended December 31, 1996.
(3.2) Bylaws of the Company, as amended, incorporated by reference to the
Company's Form 10-QSB for the three months ended March 31, 1995.
(3.3) Amendments to the Bylaws, incorporated by reference to the Company's Form
10-QSB for the three months ended June 30, 1996.
(4.1) Specimen copy of Common Stock Certificate, Form of
Class A Warrant Agreement, Form of Class B Warrant
Agreement, and Form of Warrant Agreement are each
incorporated by reference to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission (No.
33-89544).
(4.2) Underwriter's Unit Purchase Option, incorporated by reference to the
Company's Form 10-KSB for the year ended December 31, 1995.
(4.3) Warrant Certificate between the Company and J.B. Sutton Group, LLC, dated
March 27, 1997, incorporated by reference to the Company's Form S-3 filed
with the Securities and Exchange Commission on May 9, 1997 (No. 333-26825).
(10.1) Employment Agreement between the Company and Martin A. Sumichrast dated
February 1995, incorporated by reference to the Company's Form S-1.
(10.2) Employment Agreement between the Company and Peter Schmid dated August 1,
1996, the form of such employment agreement is incorporated by reference to
the Company's Form 8-K dated August 1, 1996.
(10.3) Form of Restrictive Covenants of Wolfgang M. Kossner, August A. de Roode
and Peter Schmid, such covenants executed on August 1, 1996, incorporated
by reference to the Company's Form 10-QSB for the three months ended June
30, 1996.
(10.4) Stock Option Agreement between the Company and Wolfgang
M. Kossner dated August 1, 1996, the form of such stock
option agreement is incorporated by reference to the
Company's Form 8-K dated August 1, 1996.
(10.5) Stock Option Agreement between the Company and August
A. de Roode dated August 1, 1996, the form of such
stock option agreement is incorporated by reference to
the Company's Form 8-K dated August 1, 1996.
(10.6) Stock Option Agreement between the Company and Peter Schmid dated August 1,
1996, the form of such stock option agreement is incorporated by reference
to the Company's Form 8-K dated August 1, 1996.
(10.7) Stock Option Agreement between the Company and Sumichrast Enterprises dated
August 1, 1996, the form of such stock option agreement is incorporated by
reference from Form 8-K dated August 1, 1996.
</TABLE>
- 51 -
<PAGE>
INDEX TO EXHIBITS (Continued)
<TABLE>
<CAPTION>
Page
Exhibit No. Description
----------- -----------
<S> <C> <C>
(10.9) Letter Agreement between the Company and Randall F. Greene, Director of the
Company, for advisory services dated July 26, 1996, incorporated by reference
to the Company's Form 10-QSB for the three months ended June 30, 1996.
(10.10) Stock Sale/Purchase Agreement by and between Y.S.E. a.s. and Czech
Industries, Inc., dated as of October 1, 1996, incorporated by reference to
the Company's Report on Form 10-QSB for the nine months ended December 31,
1996.
(10.11) The 1996 Stock Option Plan of the Company, incorporated
by reference to the Company's Report on Form 10-QSB for
the nine months ended December 31, 1996.
(10.12) Consulting Agreement between the Company and Randall F. Greene ("Greene"),
Director of the Company, dated March 27, 1997, and Letter from Greene to
the Company amending the Agreement, dated April 29, 1997. 52
(10.13) Stock Purchase and Sale Agreement by and among the Company, John Paul De
Vito, and Robert Sass, dated March 6, 1997 67
(10.14) Consulting Agreement between Michael Sumichrast, Ph.D. and the Company dated
April 1, 1997. 92
(10.15) Letter Agreement between the Company and August de Roode dated March 10, 1997. 95
(21.1) Subsidiaries of the Company. 97
(23.1) Consent of Pannell Kerr Forster PC, dated June 27, 1997. 98
(24.1) Powers of Attorney, granted by Peter Schmid, Chairman, President and CEO of
the Company, on behalf of the Company, and by Peter Schmid, Michael Sumichrast
Ph.D. and Wolfgang Kossner, individually, appointing Martin A. Sumichrast and
Kevin D. McNeil as attorneys-in-fact. 99
(27) Financial Data Schedule (Electronic Filing Only).
</TABLE>
- 52 -
<PAGE>
EXHIBIT NO. 10.12
EASTBROKERS INTERNATIONAL INCORPORATED
March 27, 1997
Mr. Randall F. Greene
P.O. Box 18938
Tampa, FL 33679
Dear Randy:
This letter will confirm the agreement between Eastbrokers International
Incorporated (the "Company") and you relating to the matters set forth herein:
1. The effective date (the "Effective Date") of this Agreement shall be March
31, 1997.
2. Upon the Effective Date, the Company will pay to you $13,750 and will issue
to you as a restricted stock award under the 1996 Stock Option Plan of the
Company 12,500 shares of Common Stock (the "Consulting Shares") in full
satisfaction of any amounts due you for consulting services rendered by you
during the period August 1, 1996 through March 31, 1997. The foregoing
shares have not been registered under the Securities Act of 1933, are
"restricted shares", are not freely transferable and the certificate
evidencing same will be legended to reflect the restricted status of such
shares. You hereby grant an option to Martin A. Sumichrast and/or Peter
Schmid to purchase the Consulting Shares at $6.50 per share and Messrs.
Sumichrast and Schmid hereby grant to you the right to put the Consulting
Shares to them at a price of $6.50 per share. The foregoing put and call
options shall be exercisable on or about September 30, 1997 by giving no
less than ten days prior written notice of the exercise of such options.
The obligations of Messrs. Sumichrast and Schmid hereunder shall be joint
and several. If the closing of the sale of the Shares as contemplated by
Paragraph 9 does not occur on or before April 30, 1997, the put granted to
you hereunder shall immediately accelerate and become exercisable on May 1,
1997.
3. Simultaneously with the execution and delivery by the parties of this
agreement, the Company and you shall enter into a consulting agreement
substantially in the form of Exhibit A annexed hereto.
4. You hereby resign from the Board of Directors effective as of the closing
of the sale of the Shares as contemplated by Paragraph 9.
5. The Company and you mutually agree to refrain from making any comments or
statements to the press, employees of the Company or any of its
subsidiaries or affiliates or any individual or entity with whom the
Company or you has a business relationship or others which are likely to
adversely affect each other's reputation in the business community.
6. You agree that you will not disclose, nor use for your benefit or the
benefit of any other person or entity any information received from the
Company or any of its affiliates which is confidential or proprietary and
(i) which has not been disclosed publicly by the Company, (ii) which is not
otherwise a matter of public knowledge, or (iii) which is a matter of
public knowledge but you have reason to know that such information became a
matter of public knowledge through an unauthorized source. For the purposes
hereof, this agreement shall constitute confidential information.
7. The Company agrees to indemnify you to the maximum extent permissible by
law in the event that you are or are threatened to be made a party to any
action by reason of the fact that you were a director, officer, employee or
agent of the Company or any of its subsidiaries or were serving at the
request of the Company as a director, officer, employee or agent of another
entity against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by you.
- 53 -
<PAGE>
Mr. Randall F. Greene March 27, 1997
8. In consideration of the covenants and agreements contained herein, as of
the Effective Date the Company and its subsidiaries and affiliates hereby
release and forever discharge you and you hereby release and forever
discharge the Company and its subsidiaries and affiliates (including,
without limitation, the shareholders, officers, directors and agents of the
Company) from any and all claims, causes of action and liabilities of any
kind, whether known or unknown, whether legal or equitable, arising out of
or in connection with your dealings with the Company and/or any of its
subsidiaries or affiliates (including without limitation any and all
claims, causes of action and liabilities of any kind relating to
Eastbrokers U.S.) and/or your service as a director of the Company and/or
any of its subsidiaries or affiliates; provided, however, that the
foregoing release shall not release (a) either party from any obligations
under or expressly contemplated by this Agreement; or (b) you from any
liabilities in connection with the foregoing arising out of any conduct
engaged by you involving (i) fraud; (ii) the commission of a felony crime;
or (iii) willful or grossly negligent conduct which is demonstrably and
materially injurious to the Company and/or any of its subsidiaries or
affiliates. For the purposes hereof, conduct which you reasonably believe
to be in the best interests of the Company shall not be deemed "willful."
In connection with the foregoing, you specifically acknowledge that you
have no interest or right to acquire any interest in Eastbrokers U.S. The
foregoing release shall not apply to the obligations of certain of the
parties under that certain investment banking agreement dated December 17,
1996, a copy of which is attached hereto as Exhibit B; provided, however,
that the initial term of said agreement shall expire as of the Effective
Date and the sales fee payable under Section 2A of the agreement shall only
be payable if a sale occurs within the 12 month period specified and the
transaction is with a party introduced by you and identified on Exhibit C
attached hereto.
9. You hereby represent and warrant to the Company that you and your
affiliates are the record and beneficial owner of approximately 33,000
shares (the "Shares") of the Company's Common Stock. You hereby agree that
the Shares may not be sold, assigned, hypothecated or otherwise
transferred, in whole or in part, prior to April 30, 1997 without the prior
written consent of The J.B. Sutton Group, Inc. ("JBSG"). You also grant to
JBSG or its designee(s) the option to purchase the Shares on or before
April 30, 1997 for a price of $6.50 per share. If such purchases have not
been consummated by April 30, 1997, you will be free to sell the Shares
without restriction other than those imposed by applicable law. In order to
facilitate the foregoing, within 15 days of the execution and delivery of
this agreement, you agree to deposit the certificates evidencing the Shares
and executed stock powers in escrow with Gould & Wilkie under cover of
instructions in the form of Exhibit D attached hereto.
10. It is understood and agreed that this agreement together with the exhibits
hereto constitute the entire understanding between you and the Company
relating to the subject matter hereof and supersede all prior written or
verbal understandings. This agreement shall be binding upon your executor
or other legal representative and upon your assigns. This agreement is not
assignable by any party in the absence of the written consent of the other
parties hereto.
11. By signing this agreement, you acknowledge that you have had the
opportunity to consult with the counsel of your choice in connection with
the negotiation and execution of this agreement.
If the above accurately sets forth the agreement by and among the parties,
please sign and return the enclosed copy of this letter. This agreement may be
executed in counterparts, all of which taken together shall constitute one and
the same instrument.
As a final note, please allow me to take this opportunity on behalf of the
Company and the other members of the Board of Directors to express our
appreciation to you for your years of service to the Company.
Very truly yours,
EASTBROKERS INTERNATIONAL
INCORPORATED
By /s/ MARTIN A. SUMICHRAST
---------------------------
Martin A. Sumichrast
Vice Chairman
- 54 -
<PAGE>
Mr. Randall F. Greene March 27, 1997
Accepted and Agreed to as of
the 31st day of March, 1997
/s/ RANDALL F. GREENE
- - ---------------------
Randall F. Greene
/s/ PETER SCHMID
- - ----------------
Peter Schmid
/s/ MARTIN A. SUMICHRAST
- - ------------------------
Martin A. Sumichrast
- 55 -
<PAGE>
EXHIBIT A
CONSULTING AGREEMENT
This Agreement is made and entered into as of the 31st day of March, 1997,
by and between Randall F. Greene ("Consultant"), an individual residing at P.O.
Box 18938, Tampa, Florida 33679 and Eastbrokers International Incorporated
("Company"), a Delaware corporation having offices at 15245 Shady Grove Road,
Suite 340, Rockville, Maryland 20850.
WITNESSETH
WHEREAS, the Company wishes to retain the Consultant to render business and
financial advisory and consulting services on the terms and conditions herein
set forth; and
WHEREAS, Consultant wishes to render such services on the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Retention. The Company hereby retains the Consultant, for the term
hereof (as set forth in Section 2), to render such business and financial
advisory and consulting services as may be reasonably requested from time to
time by the Company. The Consultant shall not be required to render services to
the Company hereunder on any day on which banks are not open for business in the
State of Florida or for any periods which exceed 20 hours per month.
2. Term. The term of this Agreement shall commence as of April 1, 1997, and
shall continue for a period of six (6) months, terminating on September 30,
1997.
3. Compensation.
3.1 The Company shall pay the Consultant compensation of $4,000.00 per
month, payable on the first business day of each month of the term of this
Agreement.
3.2 As additional compensation to the Consultant for his services under the
Agreement, the Company hereby grants to you options to purchase 7,750 shares of
the Company's Common Stock at $6.50 per share. These options are being granted
under the Company's 1996 Stock Option Plan (the "Plan") and will be subject to
the terms and conditions of the Plan and of a stock option agreement to be
entered into substantially in the form of Exhibit I attached hereto. These
options will vest and become exercisable on October 1, 1997 on the condition
that this Agreement has not been terminated by either party prior to its
scheduled termination. The options shall remain exercisable through the third
anniversary of the date hereof. The Company agrees to use its best efforts to
cause the shares of Common Stock issuable upon exercise of these options to be
registered at the Company's expense on a Registration Statement on Form S-8.
4. Reimbursement for Expenses. The Company shall reimburse the Consultant
for all reasonable out-of-pocket expenses paid or incurred by him in the course
of his duties hereunder and approved in writing by the Company, upon
presentation by the Consultant of valid receipts or invoices thereof, utilizing
procedures as are reasonably established by the Company with regard to
reimbursement of employees and consultants for expenses.
- 56 -
<PAGE>
5. Termination of Services.
5.1 Death or Disability. This Agreement shall terminate upon the death or
disability of the Consultant. For purposes hereof, the term "disability" shall
mean physical or mental illness or injury which has prevented the Consultant
from performing his customary duties for the Company for a period of ninety (90)
consecutive days. In the event of Consultant's death or disability prior to the
scheduled termination of this Agreement, the Company shall be obligated to make
any such remaining payments to the Consultant's estate or legal representative
and the options granted pursuant to Section 3.2 shall immediately vest and
become exercisable.
5.2 For "Cause". The Company shall have the right to terminate the services
of Consultant hereunder "for cause", as herein defined. The term "for cause"
shall mean:
(i) the commission by Consultant of an act of theft, embezzlement, or fraud
which is materially injurious to the Company or any affiliate; or
(ii) the conviction of the Consultant in any jurisdiction for a criminal
offense constituting a felony.
5.3 Without Cause. In the event of the termination by the Company of the
Consultant's services under this Agreement prior to the scheduled expiration
date (as the same may be extended from time to time), for any reason other than
"for cause" pursuant to Section 5.2, the Consultant shall be entitled to the
remaining monthly payments that would have otherwise been payable to the
Consultant under the terms of this Agreement had his services not been
terminated and the options granted pursuant to Section 3.2 shall immediately
vest and become exercisable.
6. Indemnification. The Company shall indemnify and hold harmless the
Consultant, his heirs and legal representatives from and against all claims,
damages, losses, liabilities and expenses, including reasonable legal fees and
expenses (collectively "Losses"), arising out of or relating to his services
under this Agreement; provided, however, that the foregoing shall not apply to
the extent of any Losses resulting from the willful misconduct or negligence of
the Consultant. The Consultant shall indemnify and hold harmless the Company,
its officers, directors and agents, from and against all Losses arising out of
any misrepresentation made by the Consultant to any third party as to the scope
of his authority to act on behalf of or to bind the Company.
7. Miscellaneous.
7.1. Legal Relationship of Parties. The Consultant shall render services
hereunder as an independent contractor and not as an employee and nothing herein
contained shall be deemed to constitute a partnership between or a joint venture
by the parties, nor shall anything herein contained be deemed to constitute
either the Consultant or the Company the agent of the other except as is
expressly provided herein.
7.2 Notices. All notices and communications hereunder shall be in writing
and delivered by hand or sent by registered or certified mail, postage and other
fees prepaid, return receipt requested, or by a nationally recognized overnight
delivery service. Such notice shall be deemed given when hand delivered or three
(3) business days after the date when mailed or one (1) business day after
delivery to an overnight delivery service.
7.3 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the retention of the Consultant by the
Company during the term hereof, and the provisions hereof may not be altered,
amended, waived, terminated or discharged in any way whatsoever except by
subsequent written agreement executed by the party sought to be charged
therewith. This Agreement supersedes all prior agreements, understandings and
arrangements between the Consultant and the Company pertaining to the subject
matter hereof. A waiver by either of the parties of any of the terms or
conditions of this Agreement, or of any breach hereof, shall not be deemed a
waiver of such terms or conditions for the future or of any other term or
condition hereof, or of any subsequent breach hereof.
- 57 -
<PAGE>
7.4 Severability. The provisions of this Agreement are severable, and if
any provision of this Agreement is invalid, void, inoperative or unenforceable,
the balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any circumstance, it shall nevertheless remain applicable to all
other circumstances.
7.5 Survival. The provisions of Section 6 shall survive any termination of
the Consultant's services under this Agreement.
7.6 Miscellaneous. The Consultant shall be free to render services to other
persons or entities during the term of this Agreement so long as the same do not
unreasonably interfere with his services hereunder.
7.7 Counterparts. This agreement may be executed in counterparts, all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EASTBROKERS INTERNATIONAL
INCORPORATED
By:/s/ MARTIN A. SUMICHRAST
---------------------------
Martin A. Sumichrast
Vice Chairman
CONSULTANT
/s/ RANDALL F. GREENE
---------------------
Randall F. Greene
- 58 -
<PAGE>
EXHIBIT I
NO. OF SHARES: 7,750
EASTBROKERS INTERNATIONAL INCORPORATED
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of March 31, 1997, between EASTBROKERS
INTERNATIONAL INCORPORATED, a Delaware corporation ("Company"), with an address
of 15245 Shady Grove Road, Suite 340, Rockville, Maryland 20850 and RANDALL F.
GREENE ("Consultant"), as a consultant to the Company, with an address of P.O.
Box 18938, Tampa, Florida 33679.
1. INCORPORATION BY REFERENCE OF PLAN
The provisions of the Company's 1996 Stock Option Plan ("Plan"), a copy of
which is being furnished herewith to the Consultant, are incorporated by
reference herein and shall govern as to all matters not expressly provided
for in this Agreement. Terms not defined herein have the meanings set forth
in the Plan. In the event of any conflict between the terms of this
Agreement and the Plan, the terms of the Plan shall govern.
2. GRANT OF OPTION
The Company, effective March 31, 1997 ("Date of Grant"), hereby grants to
the Consultant the Option to purchase all or any part of an aggregate of
7,750 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 the Option
shall be $6.50 per share subject to the adjustment as provided in Section 4
of the Plan.
4. TERMS OF OPTION
A. Exercise Dates. Except as otherwise expressly set forth herein, this
Option shall not vest and be exercisable until October 1, 1997
("Vesting Date"); provided, however, that the Options shall vest and
become immediately exercisable in the event of Consultant's
disability, death or termination by the Company without cause prior to
the Vesting Date.
B. Final Termination. Notwithstanding anything herein to the contrary,
the Option shall no longer be exercisable three (3) years from the
date hereof ("Expiration Date") or such shorter time as prescribed
below.
C. Restrictions. This Option is subject to all the terms and conditions
set forth in the Plan including, but not limited to, the following:
i. This Option is not transferrable, as provided in Section 8(e) of
the Plan;
ii. This Option shall lapse in the event the Consulting Agreement of
even date pursuant to which the Option is being granted
("Consulting Agreement") is terminated by the Company for cause.
iii. This Option may be exercised by the Consultant's legal
representative until the shorter of the period ending on the
Expiration Date or the period of one year and one day from
- 59 -
<PAGE>
the date of the termination of the Consulting Agreement by reason
of Consultant's death, as provided in Section 8(f) of the Plan.
iv. This Option may be exercised by the Consultant, or his legal
representative, until the shorter of the period ending on the
Expiration Date or the period of one (1) year and one day from
the date of the termination of the Consulting Agreement by reason
of Disability, as provided in Section 8(g) of the Plan.
v. This Option may be exercised by the Consultant through the
Expiration Date in the event that the Consulting Agreement is
terminated by the Company other than for cause.
vi. This Option is subject to adjustment pursuant to the provisions
of Section 4 of the Plan and is subject to the change in control
provisions of Section 11 of the Plan.
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, as set forth in Section 8(d) of the Plan.
Payment in full or in part may also be made in the form of shares of
Common Stock owned by the Consultant, which shall be free and clear of
all liens, encumbrances and restrictions of any kind whatsoever and
Consultant 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 Committee shall require. Any such exercise shall also be subject
to receipt by the Company of the representation and undertaking set
forth in Section 4F hereof. Any such exercise will be subject to the
"cash out" provisions of Section 8(i) of the Plan.
E. Securities Law Restrictions. The Company will use its best efforts to
file a registration statement on Form S-8 under the Securities Act of
1933 ("Act") with respect to the shares of Common Stock subject to the
Option. Unless a registration statement under the Act has been filed
and remains effective with respect to such shares, the Company shall
require that the offer and sale of such shares be exempt from the
registration provisions of the Act. Under Rule 144, as amended, under
the Act, sales under such Rule could be made following the expiration
of one year from the exercise of the Option. 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 Consultant is acquiring the shares for the Consultant'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 or an opinion of counsel
acceptable to the Company that an exemption from registration is
available."
If said shares were registered under the Act, to the extent that Consultant
is an "affiliate" of the Company, any reoffers or resales of Common Stock
acquired pursuant to the Plan, 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.
- 60 -
<PAGE>
5. ACCEPTANCE OF PROVISIONS
The execution of this Agreement by the Consultant shall constitute the
Consultant's acceptance of and agreement to all of the terms and conditions
of the Plan and this Agreement.
6. NOTICES
All notices and other communications required or permitted under the Plan
and this 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 4D 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 the principal office at the address first set forth
above, and to the Consultant at his last address appearing on the 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 Agreement and the Plan contain a complete statement of all the
arrangements between the parties with respect to their subject matter, and
this 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. This agreement may be executed in counterparts, all of
which taken together shall constitute one and the same instrument.
CONSULTANT EASTBROKERS INTERNATIONAL
INCORPORATED
/s/ RANDALL F. GREENE By: /s/ MARTIN A. SUMICHRAST
- - --------------------- ----------------------------
Randall F. Greene Martin A. Sumichrast
Vice Chairman
- 61 -
<PAGE>
EXHIBIT B
December 17, 1996
Mr. August A. deRoode, Chief Executive Officer
Eastbrokers International, Inc.
15245 Shady Grove Road, Suite 340
Rockville, Maryland 20850
Dear Gus:
The purpose of this letter is to confirm the engagement of Randall F. Greene
("Greene") by Eastbrokers International, Inc. ("Eastbrokers") and August A.
deRoode, Peter Schmid, and Martin A. Sumichrast ("Selling Shareholders") as the
exclusive financial advisor with respect to the sale of Eastbrokers and/or any
of its subsidiaries. For purposes of this Agreement, the term "Sale" shall
include the sale of all or substantially all of the assets or capital stock of
Eastbrokers, or a sale of the majority control of the capital stock, or any
other form of disposition which results in the effective transfer of the
principal business and operations of Eastbrokers by its present security holders
or a change in control of Eastbrokers or any material portion thereof. For
purposes of this Agreement, "Sale" shall include a transaction contemplated by
the preceding sentence, even if buyers approach Eastbrokers during the term of
this Agreement directly or through an intermediary other than Greene.
1. Services
Greene shall provide the following services during the term of the
Agreement: oAnalyze and evaluate the operations of Eastbrokers;
oPrepare and implement a marketing plan and information package;
oScreen and contact prospective purchasers under strict
confidentiality; oAssist prospective purchasers with their due
diligence investigation; oAssist the Company in evaluating proposals
which are received from potential purchasers; oAssist in structuring
and negotiating the Sale.
2. Fees
As compensation for Greene's services as financial advisor,
Eastbrokers and its Selling Shareholders will pay, or cause to be
paid, the following non-refundable fees (payable in U.S. dollars) to
Greene;
A. Sales Fee: If a sale is consummated during the term of Greene's
engagement or within 12 months after the termination of such
engagement, a fee will be payable and calculated as follows:
Consideration Percentage Fee
Up to $50.0 million 8.00%
$50.0 to $60.0 million 7.50%
Over $60.0 million 7.00%
B. Expenses: Eastbrokers agrees to reimburse Greene for all expenses
incurred in connection with this transaction, provided however
that all such expenses in excess of $1,000 shall be subject to
prior approval by Eastbrokers.
C. Term: The initial term of this Agreement shall be for six (6)
months, but may be terminated by either party with sixty (60)
days written notice thereof to the other party; provided,
however, that the provisions of paragraphs 2 and 3A shall survive
such termination.
D. Governing Law: This Agreement shall be governed by the laws of
the State of Florida.
E. Information: Eastbrokers agrees to provide Greene with such
information as may reasonably be requested to perform the
engagement hereunder.
- 62 -
<PAGE>
F. Miscellaneous: This Agreement may be executed in two or more
counterparts, all of which together shall be considered a single
instrument. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter
hereof.
I am pleased to accept this engagement and look forward to working
toward a successful sale. Please confirm that the foregoing is in
accordance with your understanding by signing and returning one
original of this Agreement.
Very truly yours,
/s/ RANDALL F. GREENE
---------------------
Randall F. Greene
- 63 -
<PAGE>
Agreed and Accepted:
/s/ AUGUST A. DEROODE
- - ---------------------
August A. deRoode
Chief Executive Officer
/s/ PETER SCHMID
- - ----------------
Peter Schmid
President & Chief Operating Officer
/s/ MARTIN A. SUMICHRAST
- - ------------------------
Martin A. Sumichrast
Executive Vice President & Chief Financial Officer
/s/ AUGUST A. DEROODE
- - ---------------------
August A. deRoode
Selling Shareholder
/s/ PETER SCHMID
- - ----------------
Peter Schmid
Selling Shareholder
/s/ MARTIN A. SUMICHRAST
- - ------------------------
Martin A. Sumichrast
Selling Shareholder
- 64 -
<PAGE>
EXHIBIT C
Raymond, James Financial
Merrill Lynch & Co., Inc.
Bear Stearns Companies, Inc.
Alex Brown
Bankers Trust
Charles Schwab
Lehman Bros.
The Advest Group, Inc.
Quick & Reilly Group, Inc.
Morgan Keegan
Legg Mason, Inc.
- 65 -
<PAGE>
EXHIBIT D
---------
March __, 1997
Gould & Wilkie
One Chase Manhattan Plaza
58th Floor
New York, New York 10005
Re: Eastbrokers International Incorporated
Dear Sirs:
I am hereby depositing with you Certificate Nos. ____ representing _____ shares
of Common Stock of the above issuer together with duly executed stock powers.
This letter will also constitute my irrevocable instructions to you to release
such shares if the same are to be sold in a transaction or series of
transactions at a price not less than $6.50 per share.
The foregoing instructions shall expire and be of no further force or effect if
my sale order has not been filled on or before April 30, 1997.
Very truly yours,
Randall F. Greene
- 66 -
<PAGE>
PREMIER CHEMICAL PRODUCTS, INC.
1916 N. 14th Street, Suite 203
Tampa, Florida 33605
April 29, 1997
Mr. Martin A. Sumichrast
Eastbrokers International Incorporated
15245 Shady Grove Road, Suite 340
Rockville, Maryland 20850
Re: Agreement Dated March 27, 1997
Dear Marty:
I understand from our conversation yesterday that the sale of my 10,000 shares
of Eastbrokers stock will be delayed for up to 45 days due to registration
requirements. You've also informed me that the sale of the other 23,547 shares
tendered by my group will close on or about April 30th, as scheduled.
I agree to extend the closing date and put option outlined in paragraph 2 of our
agreement, until June 15th, in exchange for prepayment of consulting fees for
May through September in the amount of $20,000.00. I appreciate your offer to do
this very much.
Please confirm your agreement and forward a check.
Thank you.
Best regards,
PREMIER CHEMICAL PRODUCTS
Randall F. Greene
President
RFG:sg
cc: Fred London
- 67 -
<PAGE>
Exhibit No. 10.13
STOCK PURCHASE AND SALE AGREEMENT
by and among
EASTBROKERS INTERNATIONAL INCORPORATED,
JOHN PAUL DEVITO
and
ROBERT SASS
dated as of
march 6, 1997
- 68 -
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - PURCHASE AND SALE OF STOCK; CLOSING................................................................. 1
1.1 Purchase and Sale of the Stock......................................................... 1
1.2 Payment in Shares...................................................................... 1
1.3 Time of Closing........................................................................ 2
1.4 Seller's Deliveries.................................................................... 2
1.5 Buyers' Deliveries..................................................................... 3
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLER............................................................ 3
2.1 Company Organization................................................................... 3
2.2 Seller's Authorization................................................................. 3
2.3 Subsidiaries........................................................................... 3
2.4 Organizational Instruments of Company.................................................. 3
2.5 Capital Stock.......................................................................... 4
2.6 No Breach.............................................................................. 4
2.7 Financial Statements................................................................... 4
2.8 Tax Matters............................................................................ 5
2.9 Real Property.......................................................................... 5
2.10 Owned Personal Property................................................................ 5
2.11 Title to Owned Properties.............................................................. 6
2.12 Absence of Changes..................................................................... 6
2.13 Litigation............................................................................. 7
2.14 Intellectual Property.................................................................. 7
2.15 Compliance with Laws; Licenses, Approvals and Other Authorizations..................... 8
2.16 Undisclosed Liabilities................................................................ 8
2.17 Material Contracts and Other Data...................................................... 8
2.18 Pension and Other Employee Plans; Employees............................................ 9
2.19 Environmental Matters.................................................................. 9
2.20 Insurance.............................................................................. 9
2.21 Banks; Proxies......................................................................... 10
2.22 Customers and Suppliers................................................................ 10
2.23 Net Book Value......................................................................... 10
2.24 Labor Matters.......................................................................... 10
2.25 Full Disclosure........................................................................ 10
2.26 Restricted Securities.................................................................. 10
2.27 Investment Experience; Access to Information........................................... 11
2.28 Consents............................................................................... 11
2.29 SEC, NASD, Etc. Filings................................................................ 12
2.30 Securities and Exchange Commission Broker-Dealer Registration.......................... 12
2.31 NASD Matters........................................................................... 12
2.32 SIPC/CRD Registration.................................................................. 12
2.33 State Broker-Dealer Registrations...................................................... 12
2.34 Registered Principals and Representatives.............................................. 12
2.35 Brokers' Bond.......................................................................... 12
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BUYERS............................................................ 12
3.1 Eastbrokers Organization and Authorization............................................. 12
3.2 Executive Purchaser's Authorization.................................................... 13
3.3 No Breach.............................................................................. 13
3.4 Consents............................................................................... 13
3.5 Investment Intent and Acknowledgement.................................................. 13
3.6 EII Shares............................................................................. 13
- 69 -
<PAGE>
ARTICLE 4 - PRE-CLOSING COVENANTS............................................................................... 14
4.1 Seller's Covenants..................................................................... 14
4.2 Buyers' Covenants...................................................................... 16
4.3 Authorization and Approvals............................................................ 16
4.4 Transactions in Eastbrokers' Common Stock.............................................. 16
ARTICLE 5 - CONDITIONS TO CLOSING............................................................................... 16
5.1 Conditions to Obligations of Buyers.................................................... 16
5.2 Conditions to Obligations of Seller.................................................... 17
ARTICLE 6 - POST-CLOSING COVENANTS.............................................................................. 18
6.1 Transactional Taxes and Costs.......................................................... 18
6.2 Further Assurances..................................................................... 18
6.3 Records Retained by Seller............................................................. 18
6.4 Access by Seller....................................................................... 19
6.5 Preservation of Records................................................................ 19
6.6 Standstill............................................................................. 19
6.7 Accounts Receivable and Liabilities.................................................... 19
ARTICLE 7 - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION........................................................ 20
7.1 Survival of Representations of Seller.................................................. 20
7.2 Indemnification by Seller.............................................................. 20
7.3 Survival of Representations of Buyers.................................................. 21
7.4 Indemnification by Eastbrokers......................................................... 21
7.5 Indemnification Procedure.............................................................. 22
7.6 Subrogation............................................................................ 23
ARTICLE 8 - PUBLICITY; CONFIDENTIALITY.......................................................................... 23
8.1 Publicity.............................................................................. 23
8.2 Confidentiality........................................................................ 24
8.3 Survival............................................................................... 24
ARTICLE 9 - NOTICES............................................................................................. 24
ARTICLE 10 - BROKERAGE FEES; CERTAIN EXPENSES................................................................... 26
10.1 Brokerage Fees......................................................................... 26
10.2 Certain Expenses....................................................................... 26
ARTICLE 11 - MISCELLANEOUS...................................................................................... 26
11.1 Governing Law; Forum................................................................... 26
11.2 Binding Effect; Assignment; Third-Party Beneficiaries.................................. 27
11.3 Entire Agreement....................................................................... 27
11.4 Amendments............................................................................. 27
11.5 Waivers................................................................................ 27
11.6 Headings; Counterparts................................................................. 28
11.7 Severability........................................................................... 28
11.8 Certain References..................................................................... 28
11.9 Exclusive Remedy....................................................................... 28
</TABLE>
- 70 -
<PAGE>
SCHEDULES
Schedule 2.7(a) --- Audited Financial Statements
Schedule 2.7(b) --- Unaudited Financial Statements
Schedule 2.9 --- Leased Real Property
Schedule 2.14 --- Intellectual Property
Schedule 2.15 --- Licenses and Other Authorizations
Schedule 2.17 --- Material Contracts and Other Data
Schedule 2.20 --- Insurance
Schedule 2.21 --- Banks; Proxies
Schedule 2.28 --- Consents
Schedule 2.34 --- Registered Principals and Representatives
- 71 -
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
This STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") has been made and
entered into as of the 6th day of March, 1997 by and among Eastbrokers
International Incorporated, a Delaware corporation ("Eastbrokers"), John Paul
DeVito, an individual residing at 95 Peconic Hills Drive, South Hampton, New
York 11968 ("Executive Purchaser" and, together with Eastbrokers, "Buyers" and,
sometimes individually, a "Buyer"), and Robert Sass, an individual residing at
42 Barneburg, Dove Cannon, California 92679 ("Seller").
W I T N E S S E T H:
WHEREAS, Financial Planning Services-International, Inc., a Delaware
corporation (the "Company"), is engaged in the business of providing investment
and insurance services to groups and individuals (such business as conducted by
the Company being hereinafter referred to as the "Business");
WHEREAS, Seller owns all of the issued and outstanding shares of common
stock, no par value, of the Company (the "Common Stock"); and
WHEREAS, Seller desires to sell all of the issued and outstanding shares of
Common Stock (the "Stock"), and Buyers desire to purchase the Stock, on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, representations and
warranties set forth herein and the mutual covenants and agreements set forth
herein, Buyers and Seller (collectively, the "Parties" and, sometimes
individually, a "Party") agree as follows:
ARTICLE 1 - PURCHASE AND SALE OF STOCK; CLOSING
1.1 Purchase and Sale of the Stock. Seller hereby agrees, subject to the
terms and conditions of this Agreement, to sell, assign and deliver to Buyers,
and Buyers hereby agree, subject to the terms and conditions of this Agreement,
to purchase and accept, all right, title and interest in and to 100 shares of
the Stock, representing all of the issued and outstanding shares of Common
Stock. In consideration for such sale, assignment and delivery, Eastbrokers
shall pay to Seller $90,000 for 90 shares of the Stock, and Executive Purchaser
shall pay to Seller $10,000 for 10 shares of the Stock, for an aggregate
purchase price equal to $100,000, which shall be payable as set forth in Section
1.2 (the "Purchase Price").
1.2 Payment in Shares. Buyers shall pay Seller the Purchase Price by
issuing and delivering to Seller at the Closing (as defined in Section 1.3),
free and clear of all liens, charges, pledges, security interests, claims and
encumbrances, except as provided in Sections 2.26 and 2.27, that number of
shares (the "EII Shares") of common stock, $.05 par value per share, of
Eastbrokers (NASDAQ symbol "EAST") ("Eastbrokers' Common Stock"), determined by
dividing $90,000 (in the case of Eastbrokers) and $10,000 (in the case of
Executive Purchaser) by the Average Closing Price (as hereinafter defined) of
Eastbrokers' Common Stock immediately preceding the Closing Date (as defined in
Section 1.3); provided, however, if the Average Closing Price is less than $4
per share, then the Average Closing Price shall be deemed to be $4 per share,
and, if the Average Closing Price is greater than $6 per share, then the Average
Closing Price shall be deemed to be $6 per share. The shares of Eastbrokers'
Common Stock to be transferred to Seller pursuant to this Section 1.2 shall be
registered in the name of or endorsed to Robert Sass or accompanied by a duly
executed stock power assigning such shares to Robert Sass.
As used herein, the phrase "Average Closing Price" shall mean the average
of the last reported sale price of Eastbrokers' Common Stock for the 15 trading
days immediately preceding such date as specified in this Agreement, as
officially reported by the Nasdaq SmallCap Market ("NASDAQ"), or, if not quoted
on NASDAQ, by the principal securities exchange on which Eastbrokers' Common
Stock is listed or admitted to trading, or, if Eastbrokers' Common Stock is not
listed or admitted to trading on any national securities exchange or quoted by
NASDAQ, the average closing ask price as furnished by the National Association
of Securities Dealers, Inc. ("NASD") automated quotation system, the OTC
Bulletin Board Service, the NQB Pink Sheets or any similar organization with
which Eastbrokers' Common Stock is quoted, or, if Eastbrokers' Common Stock is
not listed on an exchange or quoted by a service, as determined by an investment
banking firm selected by the Parties.
- 72 -
<PAGE>
1.3 Time of Closing. The closing for the sale of the Stock hereunder (the
"Closing") shall take place at the offices of Kelley Drye & Warren LLP, 101 Park
Avenue, New York, New York, at 9:30 a.m., on March 6, 1997, unless a later date
is mutually agreed upon by the Parties. The date upon which the Closing shall
occur is herein called the "Closing Date".
1.4 Seller's Deliveries. At the Closing, Seller shall deliver or cause to
be delivered to Buyers:
(a) one stock certificate in the name of Eastbrokers International
Incorporated for 90 shares of the Common Stock, and one stock certificate in the
name of John Paul DeVito for 10 shares of the Common Stock, both certificates
having been duly endorsed to Robert Sass;
(b) all minutes and minute books of the Company;
(c) all stock transfer books and stock ledgers of the Company;
(d) all blank certificates for shares of the Common Stock;
(e) resignations of all directors and officers of the Company serving in
office immediately prior to the Closing Date;
(f) all consents, approvals and notifications required to be obtained by
Seller, as set forth on
Schedule 2.28; and
(g) one copy of the resolutions adopted by the Board of Directors of the
Company authorizing the transactions contemplated hereby, and authorizing the
execution, delivery and performance by Seller of this Agreement, certified by
the Secretary of the Company.
1.5 Buyers' Deliveries. At the Closing, Buyers shall deliver or cause to be
delivered to Seller:
(a) one copy of the resolutions adopted by the Board of Directors of
Eastbrokers authorizing the transactions contemplated hereby, and authorizing
the execution, delivery and performance by Eastbrokers of this Agreement,
certified by the Secretary of Eastbrokers; and
(b) the payment required pursuant to Section 1.1.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLERS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyers as of the date hereof and
as of the Closing Date as follows:
2.1 Company Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company has all corporate power and authority necessary to (i) own, lease or
use the properties owned, leased or used by it and (ii) engage in the conduct of
the Business as presently conducted by it. The Company is duly authorized,
qualified or licensed and in good standing as a foreign corporation authorized
to do business under the laws of the jurisdictions in which a license,
authorization or qualification is required for the transaction of business by
it, except where the failure to be so licensed, authorized or qualified would
not have a material adverse effect on the business, operations, condition
(financial or otherwise) or results of operations (the "Business Conditions") of
the Company.
2.2 Seller's Authorization. Seller has all power and authority necessary to
execute, deliver and perform his obligations under this Agreement and to
consummate the transactions contemplated hereby. Assuming due execution and
delivery by the other Parties, this Agreement shall constitute the legal, valid
and binding obligations of Seller, enforceable against Seller in accordance with
its terms, except insofar as enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws which may affect creditors' rights and
remedies generally and by principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
- 73 -
<PAGE>
2.3 Subsidiaries. The Company has no subsidiaries and the Company is not a
partner of any partnership or a member of any limited liability company or joint
venture.
2.4 Organizational Instruments of Company. The Company has delivered or
caused to be delivered to Buyers true, correct and complete copies of the
Certificate of Incorporation of the Company, as amended to date (the
"Certificate of Incorporation"), and By-Laws of the Company, as amended to date
(the "By-Laws"). The Company is not in violation of any provision of the
Certificate of Incorporation or the By-Laws. There are no agreements or
commitments which obligate or require Seller or the Company to amend or
authorize an amendment of the Certificate of Incorporation or the By-Laws.
2.5 Capital Stock
(a) The authorized capital stock of the Company consists of 1,000 shares of
Common Stock, 100 of which have been duly issued and are fully paid, outstanding
and non-assessable. There are no outstanding subscriptions, options, warrants,
rights, convertible or exchangeable securities, agreements or commitments which
obligate or require the Company to issue or sell any shares of the Common Stock.
The Common Stock is the only authorized class of capital stock of the Company.
(b) The Stock is owned by Seller free and clear of all liens, charges,
pledges, security interests, claims and encumbrances. Upon consummation of the
transactions contemplated hereby, all right, good and valid title and interest
in and to the Stock shall have been sold, assigned and delivered to Buyers free
and clear of all liens, charges, pledges, security interests, claims and
encumbrances.
2.6 No Breach. The execution and delivery by Seller of this Agreement, the
performance by Seller of his obligations hereunder and the consummation of the
transactions contemplated hereby by Seller will not (i) constitute a default
under, result in the cancellation or termination of, accelerate the performance
required under or result in the creation of any lien, claim or encumbrance upon
any of the properties owned, leased or used by the Company pursuant to any
mortgage, indenture, franchise, license, permit, deed of trust, guaranty, note,
agreement, lease or other instrument to which the Company or Seller is a party
or by which any of their respective properties is bound or subject; (ii) result
in a violation of or conflict with any law, ordinance, rule or regulation or any
order, writ, judgment, stipulation, award, edict or decree of any court of
competent jurisdiction or any governmental or quasi-governmental or regulatory
agency, authority or instrumentality of competent jurisdiction applicable to
Seller, the Company or any of their respective properties, which default,
breach, cancellation, termination, acceleration, creation, violation or
conflict, singly or in the aggregate, would have a material adverse effect on
the ability of Seller to perform this Agreement or on the ability of the Company
to conduct the Business as presently conducted by it or on the ownership,
leasing or use by the Company of such properties as presently owned, leased or
used by it; or (iii) conflict with, result in a violation of or constitute a
default under the Certificate of Incorporation or the By-Laws of the Company.
2.7 Financial Statements.
(a) Schedule 2.7(a) attached hereto sets forth a true, correct and complete
copy of the audited financial statements of the Company for the fiscal year
ended June 30, 1996, including the report of Daily & Tagarsis, the Company's
certified public accountants, thereon and the notes thereto (collectively, the
"Audited Financial Statements"). The Audited Financial Statements present in
conformity with generally accepted accounting principles ("GAAP") the financial
position and shareholders' equity of the Company at such date and the results of
operations and cash flows of the Company.
(b) Schedule 2.7(b) attached hereto sets forth a true, correct and complete
copy of the unaudited financial statements of the Company for the period
commencing October 1, 1996 and ending on December 31, 1996 (the "Unaudited
Financial Statements"). The Unaudited Financial Statements present in conformity
with GAAP the financial position and shareholders' equity of the Company for the
period ending December 31, 1996 (the "Balance Sheet Date") and the results of
operations of the Company for the period commencing October 1, 1996 and ending
on December 31, 1996, subject, however, to year-end adjustments consistent with
past practices for preparation of the Company's interim financial statements.
(c) All books and records of the Company are accurate and complete, have
been maintained in the normal course of business and accurately reflect the
business, transactions and operations of the Company.
- 74 -
<PAGE>
2.8 Tax Matters. All federal, state, local and foreign income, sales, use,
property, franchise, privilege, employment (including, without limitation,
social security) and other taxes, tax returns, reports, estimates and
information statements required to be paid or filed by, or with respect to, the
Company have been paid or timely filed for all years and periods for which such
payments, returns, reports, estimates and information statements were due
(taking into account all filing date extensions), all taxes shown thereon to be
payable have been paid, there are no outstanding waivers or extensions of
statutes of limitation with respect to any taxes required to be shown on any tax
return and there are no material misstatements contained in any such return,
report, estimate or information statement. The Company has not incurred any
liability with respect to any federal, state, local or foreign tax, except in
the ordinary course of the Business. There are no presently pending or
threatened audits or assessments by any federal, state, local or foreign taxing
authority involving issues which pertain to the Company or any of the properties
owned by the Company.
2.9 Real Property. The Company does not own any real property. Schedule 2.9
attached hereto identifies all real property which is leased to the Company. The
Company has not granted any rights of occupancy or use to any third party with
respect to the real property leased by it.
2.10 Owned Personal Property. All of the tangible personal property and
assets (including, without limitation, leasehold improvements, furnishings,
furniture, office equipment, vehicles, inventories, machinery, equipment,
structures and movable fixtures) that are, individually or in the aggregate,
material to the conduct of the Business as presently conducted by the Company
and which are owned by the Company, are reflected in the Audited Financial
Statements and Unaudited Financial Statements. All of such personal property is
in good condition and is suitable for the purposes for which it is used. All
items of inventory are in merchantable condition, of first quality and in
conformance to the specifications for such products, saleable or usable in the
ordinary course of the Business for the purposes for which intended. Without
limiting the foregoing, the inventories do not include any obsolete or defective
materials or excess stock items or any item that was at any prior time written
off or written down by the Company. There are no assets or properties necessary
for or used in the conduct of the Business which are not owned or leased by, or
licensed to, the Company.
2.11 Title to Owned Properties. The Company is the sole and exclusive owner
of, and has good and marketable title to, all of the properties and assets owned
by it and used in the Business, free and clear of all liens, claims, pledges,
charges, security interests and other encumbrances.
2.12 Absence of Changes. Since January 1, 1996, there has not been with
respect to the Company:
(a) any change in the conduct of the Business or any change in practices,
operations or policies with respect to (i) the method of selling services, (ii)
the standard commissions, mark-ups or terms and conditions of sale of services
(including standard terms regarding discounts and commissions, but excluding
price changes), (iii) the method for accounting for sale of services or
commissions, (iv) the compensation of employees, (v) the policy regarding
maintenance of inventory levels or (vi) the conduct of accounts receivable
collection and accounts payable payment activities of the Business;
(b) any change which has affected, or may reasonably be expected to affect,
the Business Conditions of the Company from that shown in the Audited Financial
Statements and Unaudited Financial Statements (other than changes relating to
the economy in general or the Company's industry in general and not specifically
relating to the Company, as to which no representation is made herein);
(c) other than in the ordinary course of business, any change in any of the
properties, assets, licenses, permits or franchises of the Company or any change
in the methods of accounting or accounting practice or manner of conducting the
Business which has, or may reasonably be expected to have, a material adverse
effect on the Business Conditions of the Company;
(d) any damage, destruction or loss (whether or not covered by insurance)
with respect to the property
of the Company;
(e) other than in the ordinary course of business, any amendment,
modification or termination of any existing, or adoption, approval, execution or
delivery of any new contract, agreement, plan, lease, license, permit or
- 75 -
<PAGE>
franchise;
(f) other than in the ordinary course of business (which includes ordinary
investment activities), any acquisition or disposition by the Company of any
material asset or property;
(g) any direct or indirect redemption, purchase or other acquisition of any
shares of any class of the capital stock of the Company or any declaration,
setting aside or payment of any dividend or other distribution on or with
respect to, or any split, combination or similar change in, shares of any class
of the capital stock of the Company;
(h) any incurrence, assumption or guarantee of any indebtedness or
obligation relating to any lending or borrowing of money or any other liability,
except current liabilities and commitments incurred in the ordinary course of
business;
(i) any payment of any obligation or liability other than current
liabilities in the ordinary course of business;
(j) any notification or indication to Seller or the Company that a material
customer of the Company intends to discontinue or reduce its relationship with
the Company;
(k) any waiver or compromise of any right of material value;
(l) any receipt of any notice of termination of any contract, policy,
lease, franchise, permit, governmental consent, regulatory approvals, grant or
authorization, license or other agreement, or of any breach or event of default
with respect to any of the foregoing, which, individually or in the aggregate,
has had, or may reasonably be expected to have, an adverse effect on the
Business Condition of the Company; no such termination is or has been threatened
against the Company; or
(m) any agreement to do any of the things described in this Section 2.12.
2.13 Litigation.ation
(a) Other than customer claims arising in the ordinary course of the
Company's business and claims which do not seek monetary damages in excess of
$5,000 individually or, if arising out of the same facts and circumstances, in
the aggregate, there are no claims, lawsuits, actions, customer complaints,
arbitrations or administrative or regulatory or governmental proceedings or
regulatory or governmental investigations pending or threatened or contemplated
either by or against the Company or against any officer, director, employee or
agent of the Company which purport to relate to activities of any such person as
an officer, director, employee or agent of the Company.
(b) There are no judgments, orders, injunctions, decrees, stipulations or
awards (whether rendered by a court, commission, securities exchange,
self-regulatory organization or administrative agency, or by arbitration)
outstanding against the Company or any of its properties or assets.
2.14 Intellectual Property. Except as set forth in Schedule 2.14, the
Company does not own any copyright, trademark, patent or trade name, nor has any
license to use any copyright, trademark, patent or trade name been issued to it,
nor does the Company use any copyright, trademark, patent or trade name in its
operations or the Business. Each of the registered trademarks and trade names
listed in Schedule 2.14 has been validly issued and is owned by the Company free
and clear of all liens, claims and encumbrances, and the Company has the
exclusive rights to use all such copyrights, registered trademarks, patents and
trade names in the Business and operations. Except as set forth in Schedule
2.14, the Company owns all copyrights, trademarks, trade names, know-how, trade
secrets and other proprietary rights necessary to conduct its operations and the
Business and Seller does not know of any claim, or any basis of any claim, that
the Company has infringed any copyright, trademark, trade name, know-how, trade
secret or other proprietary right of any other person. Seller knows of no
potential claim of infringement of any copyright, trademark, trade name,
know-how, trade secret or other proprietary right of any other person that has
not been asserted but that, if asserted, would adversely affect the Business
Conditions of the Company.
2.15 Compliance with Laws; Licenses, Approvals and Other Authorizations.
Schedule 2.15 lists all franchises, permits, licenses and other similar
authority necessary or appropriate for the conduct of the Business of the
Company. The conduct of the Business of the Company complies in all material
respects with all applicable laws,
- 76 -
<PAGE>
ordinances, governmental licenses, permits, regulations, orders and other
authorizations (including, without limitation, those issued by any
self-regulatory organization or administrative agency), with which failure to
comply would adversely affect the Business Conditions of the Company. The
Company has filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with any
governmental or regulatory authority, securities exchange or self-regulatory
organization or any agency having jurisdiction over the Company, its business or
operations. Each license, permit, order and other authorization which is
material to the Business Conditions of the Company has been duly obtained and is
in full force and effect.
2.16 Undisclosed Liabilities. The Company has no obligations or liabilities
of any nature, whether absolute, accrued, contingent or otherwise, except and to
the extent disclosed in Schedule 2.17 hereto. Except as set forth in any
Schedule attached hereto, nothing has come to the attention of Seller or the
Company which would cause it to believe that there exists any circumstances,
conditions, events or arrangements which are likely to hereafter give rise to
any such obligations or liabilities.
2.17 Material Contracts and Other Data. Schedule 2.17 is a correct and
complete list setting forth:
(a) all material licenses, including software licenses (other than for
commercially available software packages), company owned proprietary software
and leases of items of personal property with an individual fair market value in
excess of $2,000, exclusive of leasehold improvements, permits, franchises,
concessions and the like to which the Company is a party;
(b) all existing contracts to which the Company is a party, except (i)
agreements with respect to securities transactions in the ordinary course of
Business, (ii) other agreements entered into in the ordinary course of business
of the Company and involving the payment by or to the Company of less than
$2,000 with respect to any one contract and (iii) contracts which are terminable
by the Company upon not more than 90 days notice and with a termination penalty,
if any, not exceeding $2,000, but in any event including all contracts to which
Seller or any of his affiliates (other than the Company) is also a party; and
(c) all outstanding loans and debt instruments where the Company is the
debtor, a surety or a guarantor.
2.18 Pension and Other Employee Plans; Employees.oyees
(a) The Company does not maintain and has never maintained any employee
benefit plans as defined in Section 2(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(b) There are no profit sharing, bonus, stock purchase, stock option,
severance or any other employee benefit plan agreements, programs or
arrangements of the Company, whether maintained for current employees, former
employees or retirees (the "Plans"), except individual arrangements by the
Company with employees relating to their employment.
(c) There is no bonus, deferred compensation or commission arrangement, or
any employment agreement, with any of the Company's employees. All of the
Company's employees are employed at will.
2.19 Environmental Matters. The Company has complied with and is in
compliance with all federal, state, local and foreign statutes, laws,
ordinances, regulations, rules, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations or businesses,
relating to environmental protection, including, without limitation, standards
relating to air, water, land and the generation, storage, transportation,
treatment or disposal of solid wastes and hazardous wastes. The Company has
obtained and adhered to all permits and other approvals necessary to store,
dispose of and otherwise handle hazardous wastes and has reported, to the extent
required by federal, state, local and foreign statutes, laws, ordinances,
regulations, rules, permits, judgments, orders and decrees, all past and present
sites owned or operated by the Company where hazardous wastes have been treated,
stored or disposed of. Seller has made a diligent search and knows of no
location on any of the property now or previously owned or used by the Company
where hazardous wastes or other harmful substances may have entered or are
likely to enter into the soil or groundwater. Seller has made a diligent search
and knows of no on-site or off-site location to which the Company has
transported hazardous wastes or arranged for the transportation of hazardous
wastes, which site is the subject of any federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the Company or Buyers for any clean-up cost, remedial work, damage to
natural resources or personal injury, including,
- 77 -
<PAGE>
but not limited to, claims under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
2.20 Insurance. Schedule 2.20 hereto lists all of the insurance policies
which cover employees, properties, products or operations (including, without
limitation, fire, public liability, worker's compensation and vehicular
insurance policies) and which are owned by the Company or under which the
Company is an insured or beneficiary or loss payee. Except as set forth in
Schedule 2.20, (i) there are no disputes with, or reservations of rights by,
insurers or underwriters under any such policies with respect to any pending
suit, action or proceeding or asserted or unasserted claim to which such
policies relate; (ii) all premiums due for such policies have been paid and no
such policy is subject to retroactive premium adjustment; (iii) there are no
defaults by the Company or, to the knowledge of Seller, by any insurer or
underwriter under any such policy; (iv) no misrepresentation has been made in
any application which would result in termination of any such policy or result
in a refusal to pay claims thereunder; and (v) no notice has been received of
cancellation or non-renewal relating to such policies.
2.21 Banks; Proxies. Schedule 2.21 hereto sets forth (i) the name of each
bank at which the Company maintains an account, safe deposit box, lock box or
vault; (ii) the name of each individual authorized by the Company to effect
transactions with respect to such account, safe deposit box, lock box or vault;
and (iii) all outstanding proxies, powers of attorney and other similar
instruments delivered to act on behalf of the Company other than proxies, powers
of attorney and other similar instruments delivered in the ordinary course of
the Business.
2.22 Customers and Suppliers. There has not been and Seller does not
recognize a basis on which one should reasonably anticipate, by reason of the
transactions contemplated by this Agreement or otherwise, any material adverse
change in relations between the Company and any of its present customers and/or
suppliers.
2.23 Net Book Value.Value
(a) Seller shall reduce the Company's Net Book Value to as close to zero as
possible (but not below zero) prior to the Closing. For purposes hereof, the
"Company's Net Book Value" shall mean the amount obtained by subtracting the
total liabilities of the Company (including liabilities subordinated to claims
of general creditors) from the total assets of the Company determined as of the
Closing Date and determined in accordance with GAAP.
(b) Buyers acknowledge that the Company intends to declare and pay one or
more dividends and/or make one or more payments in order to reduce the Company's
Net Book Value.
2.24 Labor Matters. The Company is not a party to any representation or
collective bargaining agreement with any employees of the Company. Seller has no
reason to believe that there are pending or threatened any representation
campaigns, collective bargaining elections or other organizing efforts with
respect to any employees of the Company.
2.25 Full Disclosure. Neither this Agreement nor any agreement, document,
instrument, certificate or statement made or furnished to a Buyer in connection
with this Agreement and the transactions contemplated hereby contains any untrue
statement of a material fact or omits the statement of a material fact required
to be stated in order to make the statements contained herein and therein not
misleading.
2.26 Restricted Securities. Seller understands that the EII Shares to be
transferred hereunder are unregistered and may be required to be held
indefinitely and may not be sold, transferred or otherwise disposed of except
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), and applicable state securities laws or
pursuant to an exemption therefrom. In addition to any and all other legends
which may be required by applicable law, each share certificate representing the
EII Shares shall have endorsed, to the extent appropriate, upon its face the
following words:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER SUCH ACT,
- 78 -
<PAGE>
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
2.27 Investment Experience; Access to Information. Seller (i) is an
"Accredited Investor" as defined in Rule 501(a) promulgated under the Securities
Act; (ii) is an investor experienced in the evaluation of businesses similar to
the business of Eastbrokers; (iii) is able to fend for himself in the
transactions contemplated by this Agreement; (iv) has such knowledge and
experience in financial, business and investment matters as to be capable of
evaluating the merits and risks of an investment in the EII Shares; (v) has the
ability to bear the economic risks of such investment; (vi) has had access to
such information regarding Eastbrokers as is specified in subparagraph (b)(2) of
Rule 502 promulgated under the Securities Act; (vii) will hold such EII Shares
for his own account and not with a view toward, or for resale in connection
with, any distribution thereof; and (viii) has been afforded, prior to the
Closing, the opportunity to ask questions of, and to receive answers from,
Eastbrokers and to obtain any additional information, to the extent that Buyers
have such information or could have acquired it without unreasonable effort or
expense, all as necessary for Seller to make an informed investment decision
with respect to the receipt of the EII Shares as consideration for the sale of
the Stock. Seller has received, prior to the date hereof, Eastbrokers' most
recent Form 10-K, all Form 10-Q's for the fiscal year 1996, all Form 8-K's for
the fiscal year 1996 and all 1996 and 1997 press releases of Eastbrokers.
2.28 Consents. Except as set forth in Schedule 2.28, no consent, approval,
exemption or authorization is required to be obtained from, no notice is
required to be given to and no filing is required to be made with any third
party (including, without limitation, self-regulatory organizations,
governmental and quasi-governmental agencies, authorities and instrumentalities
of competent jurisdiction) by Seller or the Company (i) in order for this
Agreement to constitute legal, valid and binding obligations of Seller and the
Company or to authorize or permit the consummation by Seller and the Company of
the transactions contemplated hereby or (ii) under or pursuant to any
self-regulatory organization, governmental or quasi-governmental permits,
licenses, consents, authorizations or approvals held by or issued to Seller or
the Company (including, without limitation, environmental, health, safety and
operating permits and licenses) by reason of this Agreement or the consummation
of the transactions contemplated hereby.
2.29 SEC, NASD, Etc. Filings. All reports required to be filed with the
Securities and Exchange Commission, the NASD and any other applicable
governmental, quasi-governmental or self-regulatory organization, and pursuant
to state and foreign securities laws, have been duly and timely filed. All such
reports were true, complete and correct as filed, except where the failure to be
true, complete and correct as filed would not have an adverse effect on the
Business of the Company.
2.30 Securities and Exchange Commission Broker-Dealer Registration. The
Company is duly registered as a broker-dealer with the Securities and Exchange
Commission pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended. The Company has previously delivered to Buyers a complete and correct
copy of the Company's current Form BD.
2.31 NASD Matters. The Company is a member in good standing of the NASD.
There are no special restrictions or limitations imposed by the NASD on the
conduct by the Company of the Business.
2.32 SIPC/CRD Registration. The Company is duly registered with the
Security Investors Protection Corporation (the "SIPC"). The Company has paid all
SIPC fees due to date. The Company is registered with the Central Registration
Depository under CRD Number 10673.
2.33 State Broker-Dealer Registrations. The Company is registered as a
broker-dealer and such registrations are current and the Company is in good
standing as a registered broker-dealer in each state or jurisdiction in which
the Company is required to be registered. No renewal or registration fee is due
or owing to any state. The Company's state broker-dealer registrations are in
good standing.
2.34 Registered Principals and Representatives. Attached hereto as Schedule
2.34 is a list of each Person registered as a registered principal or a
registered representative with the Company, and each state or jurisdiction in
which such individual is registered.
- 79 -
<PAGE>
2.35 Brokers' Bond. The Company currently has in effect a blanket
broker-dealer fidelity bond, a copy of which has previously been delivered to
Buyers.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers hereby represent and warrant to Seller as of the date hereof and as
of the Closing Date as follows:
3.1 Eastbrokers Organization and Authorization. Eastbrokers is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Eastbrokers has all corporate power and authority
necessary to execute, deliver and perform its obligations under this Agreement
and each agreement, instrument and other document contemplated hereby to which
it will be a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Eastbrokers of this Agreement and each
agreement, instrument and other document contemplated hereby to which it will be
a party, the performance by Eastbrokers of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby by Eastbrokers have been duly authorized by all necessary corporate
actions on the part of Eastbrokers. Assuming due execution and delivery by the
other Parties, this Agreement shall constitute the legal, valid and binding
obligations of Eastbrokers, enforceable against Eastbrokers in accordance with
its terms, except insofar as enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws which may affect creditors' rights and
remedies generally and by principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
3.2 Executive Purchaser's Authorization. Executive Purchaser has all power
and authority necessary to execute, deliver and perform his obligations under
this Agreement and to consummate the transactions contemplated hereby. Assuming
due execution and delivery by the other Parties, this Agreement shall constitute
the legal, valid and binding obligations of Executive Purchaser, enforceable
against Executive Purchaser in accordance with its terms, except insofar as
enforceability may be limited by bankruptcy, insolvency, moratorium or other
laws which may affect creditors' rights and remedies generally and by principles
of equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
3.3 No Breach. The execution and delivery by Buyers of this Agreement and
of each agreement, instrument and other document contemplated hereby to which
they will be a party, the performance by Buyers of their obligations hereunder
and thereunder and the consummation of the transactions contemplated hereby and
thereby by Buyers will not (i) conflict with, result in any violation of or
constitute a default under the certificate of incorporation or the by-laws of
Eastbrokers; (ii) constitute a default under, result in a breach of, result in
the cancellation or termination of, accelerate the performance required under or
result in the creation of any lien, claim or encumbrance upon any of the
material properties of Buyers pursuant to any material mortgage, indenture, deed
of trust, guaranty, note, agreement, lease or other instrument to which Buyers
are a party or by which any of such properties is bound; or (iii) result in a
violation of or conflict with any law, ordinance, rule or regulation or any
order, writ, judgment, stipulation, award, edict or decree of any court of
competent jurisdiction or any governmental or quasi-governmental or regulatory
agency, authority or instrumentality of competent jurisdiction applicable to
Buyers or any of such properties.
3.4 Consents. No consent, approval or authorization is required to be
obtained from, no notice is required to be given to and no filing is required to
be made with any third party (including, without limitation, self-regulatory
organizations, governmental and quasi-governmental and regulatory agencies,
authorities and instrumentalities of competent jurisdiction) by either Buyer in
order for (i) this Agreement to constitute legal, valid and binding obligations
of Buyers or (ii) to authorize or permit the consummation of the transactions
contemplated hereby.
3.5 Investment Intent and Acknowledgement. Buyers are purchasing the Stock
for their own account and not with a view toward, or for resale in connection
with, any distribution thereof.
3.6 EII Shares. Upon consummation of the Closing, the EII Shares shall have
been duly authorized and validly issued; shall be outstanding, fully paid and
non-assessable; and title thereto shall pass to Seller free and clear of all
liens, charges, pledges, security interests, claims and encumbrances, except as
provided in Sections 2.26 and 2.27.
- 80 -
<PAGE>
ARTICLE 4 - PRE-CLOSING COVENANTS
4.1 Seller's Covenants. Seller agrees that from the date of this Agreement
until the Closing Date, he shall or shall cause the Company:
(a) to grant Buyers and their counsel, accountants and other
representatives reasonable access during normal business hours to (i) all
properties, books, accounts, records, tax returns, contracts and documents of or
relating to the Company and the business, finances, assets and properties of the
Company and (ii) all employees, agents, consultants, representatives and others
with whom the Company has business or other dealings; and to furnish or cause to
be furnished to Buyers or their representatives all data and information
concerning the business, assets, finances and properties of the Company as may
be reasonably requested;
(b) to carry on the Business diligently, in the ordinary course consistent
with past practices, and in substantially the same manner as it previously had
been carried out, and not to make or institute any unusual or novel methods of
purchase, sale, lease, management, accounting or operation that vary materially
from those methods used by the Company as of the date of this Agreement;
(c) to use its best efforts (i) to preserve its business organization
intact and (ii) to preserve its present relationships with suppliers, customers
and others having business relationships with the Company;
(d) not to amend its Certificate of Incorporation or By-laws; issue any
shares of its capital stock; issue or create any warrants, obligations,
subscriptions, options, convertible securities or other commitments under which
any additional shares of its capital stock of any class might be directly or
indirectly authorized, issued or transferred from treasury; or agree to do any
of the foregoing acts;
(e) to use its best efforts to continue to carry its existing or comparable
insurance;
(f) except in the ordinary course of business and consistent with past
practice, not to or agree to grant any increase in salaries, bonus or other
compensation payable or to become payable by it to any officer, employee or
representative; increase or create benefits payable to any officer, employee or
representative under any bonus or pension plan, employee benefit plan or other
contract or commitment; or modify any collective bargaining agreement to which
it is a party or by which it is bound;
(g) not to do or agree to do any of the following acts, other than in the
ordinary course of business consistent with past practice, without the consent
of Buyers, which consent shall not be unreasonably withheld:
(i) enter into any contract, commitment or transaction;
(ii) make any capital expenditures in excess of $5,000
individually or $10,000 in the aggregate, or enter into any
lease of capital equipment or property under which the
annual lease charge is in excess of $5,000;
(iii)sell, transfer, encumber, retire, abandon or dispose of any
property of the Company;
(iv) pay any obligation or liability, fixed or contingent, other
than current liabilities and obligations disclosed in this
Agreement or the Schedules hereto;
(v) waive or compromise any right or claim;
(vi) cancel, without full payment, any note, loan or other
obligation owed to the Company;
(vii)discharge or satisfy any security interest, lien or
encumbrance;
(viii)mortgage, pledge or subject to lien, charge or encumbrance
any of the Company's assets;
(ix) make any loans to any person or entity;
- 81 -
<PAGE>
(x) incur any indebtedness for borrowed money to any person or
entity except for trade payables incurred in the ordinary
course of business;
(xi) settle or compromise any of the actions, suits or
proceedings described in response to Section 2.13;
(xii)take any action or omit to take any action which could cause
a material breach or violation of (in and of itself, with
the giving of notice, passage of time or both) any contract,
agreement, commitment or obligation or any federal, state,
foreign, territorial or possessions law, rule, regulation,
order or notice; or
(xiii)fail to pay its payables in the ordinary course of business
consistent with past practice;
(h) not to declare, set aside or pay any dividend or make any distribution
with respect to its capital stock, directly or indirectly purchase, redeem or
otherwise acquire any shares of its capital stock, enter into any agreement
obligating it to do any of the foregoing acts or cause the Company to borrow any
funds;
(i) not to modify, amend, cancel or terminate any of its existing contracts
or agreements, or agree to do any of the foregoing acts, except in the ordinary
course of business;
(j) to refrain from entering into any agreement, committing to take any
action or taking any action which would, if taken on or before the Closing Date,
make any of the representations or warranties of Seller contained in this
Agreement untrue or incorrect as of the Closing Date or prevent Seller from
performing or cause Seller not to perform his covenants hereunder;
(k) not to apply to transfer or otherwise attempt to transfer, assign or
otherwise dispose of, or take any action which might reasonably be expected to
jeopardize its rights to possess or enjoy, any license or other rights granted
to the Company by any self-regulatory organization or any governmental
authorities; or
(l) to continue to file all regulatory reports, notifications and other
documents required by applicable laws, rules, regulations, orders and notices;
to continue in full force and effect all licenses, leases, policies, rights and
other agreements and authorizations necessary or appropriate to operate the
Company; and to comply with all laws, rules, regulations, orders and notices
applicable to the Company or the Business.
4.2 Buyers' Covenants. From the date hereof until the Closing, Buyers shall
refrain from entering into any agreement, committing to take any action or
taking any action which would, if taken on or before the Closing Date, make any
of the representations or warranties of Buyers contained in this Agreement
untrue or incorrect as of the Closing Date or prevent Buyers from performing or
cause Buyers not to perform their covenants hereunder.
4.3 Authorization and Approvals. As soon as practicable following the
execution of this Agreement, Seller shall diligently and in good faith prepare
and prosecute all applications and filings required for the reissuance of any
and all licenses of the Company.
4.4 Transactions in Eastbrokers' Common Stock. Pending the Closing, Seller
and the Company shall not, directly or indirectly, effectuate or cause to be
effectuated, purchases or sales of Eastbrokers' Common Stock.
ARTICLE 5 - CONDITIONS TO CLOSING
5.1 Conditions to Obligations of Buyers. The obligations of Buyers to
purchase the Stock under this Agreement is subject to the satisfaction (unless
waived by Buyers in writing), at or before the Closing Date, of the following
conditions:
(a) All representations and warranties by Seller as contained in this
Agreement or in any written statement delivered by Seller under this Agreement
shall be true on and as of the Closing Date as if such representations and
warranties were made on and as of that date;
- 82 -
<PAGE>
(b) Seller shall have performed and complied with all covenants and
agreements, and satisfied all conditions, that he is required by this Agreement
to perform, comply with or satisfy, before or at the Closing;
(c) All final consents, approvals, authorizations of or notices to or
filings with applicable self-regulatory organizations, governmental authorities
and other third parties necessary or appropriate for the change of ownership of
the Company or the consummation of the transactions contemplated by this
Agreement (including those contemplated by Section 4.3) shall have been obtained
without conditions that would impose an unreasonable burden on Buyers or the
Company;
(d) During the period from the date of this Agreement to the Closing Date,
there shall not have occurred (i) any material adverse change in the Business,
properties, assets results of operation or financial condition of the Company or
(ii) any material adverse change in the laws, rules, regulations or orders
applicable to the Company or to the Buyers' purchase of the Stock; and
(e) No action, complaint, notification or proceeding shall have been
received, instituted or threatened in writing challenging or seeking to enjoin
or restrict the execution or delivery of this Agreement or the consummation of
the transactions contemplated hereby, or challenging or questioning the
compliance of the Company with any law, rule, regulation or notice.
5.2 Conditions to Obligations of Seller. The obligation of Seller to sell
the Stock under this Agreement is subject to the satisfaction (unless waived by
Seller in writing), at or before the Closing Date, of the following conditions:
(a) All representations and warranties by Buyers as contained in this
Agreement or in any written statement delivered by Buyers under this Agreement
shall be true on and as of the Closing Date as if such representations and
warranties were made on and as of that date;
(b) Buyers shall have performed and complied with all covenants and
agreements, and satisfied all conditions, that they are required by this
Agreement to perform, comply with or satisfy, before or at the Closing;
(c) All final consents, approvals, authorizations of or notices to or
filings with applicable self-regulatory organizations, governmental authorities
and other third parties necessary or appropriate for the change of ownership of
the Company or the consummation of the transactions contemplated by this
Agreement shall have been obtained without conditions that would impose an
unreasonable burden on Seller;
(d) During the period from the date of this Agreement to the Closing Date,
there shall not have occurred (i) any material adverse change in the business,
properties, assets results of operation or financial condition of Eastbrokers or
(ii) any material change in the laws, rules, regulations or orders applicable to
Eastbrokers or to Seller's sale of the Stock; and
(e) No action, complaint, notification or proceeding shall have been
received, instituted or threatened in writing challenging or seeking to enjoin
or restrict the execution or delivery of this Agreement or the consummation of
the transactions contemplated hereby.
- 83 -
<PAGE>
ARTICLE 6 - POST-CLOSING COVENANTS
6.1 Transactional Taxes and Costs.Costs
(a) Seller shall be responsible for all transfer, conveyance, excise,
stamp, documentary or other similar taxes and other governmental taxes, duties,
charges, fees, imposts and assessments, and all interest and penalties thereon,
imposed at any time by any taxing authority with respect to this Agreement, the
transfer, assignment, conveyance or delivery of the Stock or the consummation of
the transactions contemplated hereby (the "Transactional Taxes"). If either
Buyer shall be required to pay any of the Transactional Taxes, Seller shall
promptly reimburse such Buyer therefor. Seller shall indemnify Buyers for, and
shall hold them harmless from, any and all damages, claims, losses, liabilities
and expenses (including, without limitation, reasonable legal fees, accounting
and other expenses) asserted against or incurred or sustained by Buyers relating
to the Transactional Taxes pursuant to the procedure set forth in Section 7.5
hereof.
(b) Eastbrokers shall be responsible for all filing fees, notarial fees and
other similar fees and costs arising out of this Agreement, the transfer,
assignment, conveyance or delivery of the Stock or the consummation of the
transactions contemplated hereby (the "Transactional Costs"). Eastbrokers shall
promptly pay and discharge all of the Transactional Costs. If Seller shall be
required to pay any of the Transactional Costs, Eastbrokers shall promptly
reimburse Seller therefor. Eastbrokers shall indemnify Seller for, and shall
hold him harmless from, any and all damages, claims, losses, liabilities and
expenses (including, without limitation, reasonable legal fees, accounting and
other expenses) asserted against or incurred or sustained by Seller relating to
the Transactional Costs pursuant to the procedure set forth in Section 7.5
hereof.
6.2 Further Assurances. At any time and from time to time after the Closing
Date, the Parties shall execute, deliver and acknowledge such other documents
and instruments of transfer, assignment or conveyance and do such further acts
and things as may be reasonably required in order to consummate the transactions
contemplated hereby.
6.3 Records Retained by Seller
(a) Except as otherwise provided in Section 6.3(b), Seller shall deliver or
cause to be delivered to Buyers or the Company, within ten days after the
Closing Date, all books, records and files which pertain to the Business or the
Company or any of the properties or assets owned, leased or used by the Company
and which are possessed by Seller or any of his respective partners, employees,
agents or representatives (the "Business Records").
(b) Except as otherwise provided in Section 6.2 hereof, or as required by
law, rule or regulation, nothing contained herein shall obligate or require
Seller to deliver to Buyers any Business Records which pertain to the evaluation
or negotiation of the transactions contemplated hereby.
6.4 Access by Seller
(a) At any time and from time to time after the Closing Date, and, upon
reasonable request by Seller, Buyers shall provide and shall cause the Company
to provide full access to Seller and the partners, employees and other
representatives of Seller, at no charge and during normal business hours, to the
facilities and the books, records, files, papers, data and information relating
to the Business, the Company or any of the properties or assets owned, leased or
used by the Company, with respect to the operations of the Business prior to the
Closing Date.
(b) At any time and from time to time after the Closing Date, and, upon
reasonable request by Seller, Buyers shall cause the Company to make its
employees available to Seller and counsel for Seller in connection with the
prosecution or defense of any claim, suit, action, proceeding or investigation,
at no charge; provided, however, that Seller shall reimburse the Company for
travel, lodging, meals and other expenses directly and reasonably incurred by
such employees in connection with such request.
(c) At any time and from time to time after the Closing Date, and, upon
reasonable request by either Buyer, Seller and his respective partners,
employees, agents or representatives shall be available to such Buyer and such
counsel for Buyer in connection with the prosecution or defense of any claim,
suit, action, proceeding or investigation, at no charge; provided, however, that
such Buyer shall reimburse Seller for travel, lodging, meals and other expenses
directly and reasonably incurred by such individuals in connection with such
request.
- 84 -
<PAGE>
6.5 Preservation of Records. After the Closing Date, Buyers shall, and
shall cause the Company to, preserve all books, records, files, papers, data and
information relating to the Business, the Company and the properties owned,
leased or used by the Company for such period as may be required by any law,
ordinance, rule, regulation or any order, writ, judgment, stipulation, edict,
award or decree or in connection with any pending or threatened claim, suit,
action, proceeding or investigation (including, without limitation, tax
examinations and audits).
6.6 Standstill. Until the earlier of (i) March 31, 1997 or (ii) the
termination of this Agreement, neither Seller nor any of his affiliates, nor any
of the shareholders, officers, directors, employees, representative, agents of,
or professional advisers to (collectively, the "Representatives") Seller or any
of his affiliates, shall, directly or indirectly, solicit, initiate or
participate in discussions with, or provide any information or assistance to
(including, but not limited to, affording access to the properties, assets,
books and records of the Company) or enter into any agreement with any person
concerning any transaction that would result, directly or indirectly, in the
transfer, to any such person, of control of the Company or any part of the
Business or assets of the Company.
6.7 Accounts Receivable and Liabilities.ities
(a) Buyers and the Company shall cause all payments on accounts receivable
and other rights to payment relating to the Business ("Accounts Receivable")
which were payable to the Company prior to the Closing Date and delivered to
Buyers or the Company after the Closing Date to be endorsed and forwarded to
Seller as soon as practicable after receipt.
(b) Seller shall pay all claims, liabilities, losses, expenses, fines,
penalties and damages of any kind or nature whatsoever ("Liabilities") which
were incurred by the Company prior to the Closing Date and presented to Buyers,
Seller or the Company for payment before or after the date hereof. If Buyers or
the Company shall be required to pay any Liabilities, Seller shall promptly
reimburse such party therefor. Seller shall indemnify Buyers and the Company
for, and shall hold them harmless from any and all damages, claims, losses,
liabilities and expenses (including, without limitation, reasonable legal fees,
accounting and other expenses) asserted against or incurred or sustained by
Buyers or the Company relating to Liabilities pursuant to the procedure set
forth in Section 7.5 hereof.
ARTICLE 7 - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.1 Survival of Representations of Seller. The representations and
warranties set forth in Article 2 shall survive the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby for a period of three years from the date hereof. No suit,
action or proceeding may be commenced by a Buyer with respect to any claim
arising out of or relating to such representations and warranties more than
three years following from the date hereof; provided, however, that, subject to
Section 7.6 hereof, a Buyer shall have the right to commence a suit, action or
proceeding more than three years following the date hereof with respect to
claims arising out of or relating to such representations or warranties which
shall have been asserted by such Buyer under Section 7.5 within three years
following the date hereof.
7.2 Indemnification by Seller
(a) Subject to Sections 7.1 and 7.2(b), Seller shall indemnify Buyers, the
Company and each of their officers, directors, employees, agents,
representatives, consultants, attorneys, successors, transferors and assigns
(collectively, the "Buyers' Group") for, and shall hold the Buyers' Group
harmless from, any and all damages, claims, losses, liabilities, fines,
penalties and expenses (including, without limitation, reasonable legal fees,
accounting and other expenses to investigate, defend or mitigate any of the
foregoing) asserted against or incurred or sustained by any or all of the
Buyers' Group arising out of: (i) any breach of any covenant or agreement
contained in this Agreement by Seller; (ii) any breach of any of the warranties
or representations set forth in Article 2 hereof; (iii) the operations of the
Company on or before the Closing Date, to the extent such operations involve or
result in violations of or noncompliance with any Environmental Laws, any
self-regulatory organization's rules and regulations or any foreign, federal,
state or local law, ordinance, regulation or rule relating to the conduct of the
Business; the term "Environmental Laws" shall mean any foreign, federal, state
or local law, ordinance, regulation or rule, whether now existing or hereinafter
enacted or adopted, relating to the pollution or protection of the environment
or any permit, license or registration issued thereunder; (iv) all taxes
(including, without limitation, income, payroll, ad valorem real and
- 85 -
<PAGE>
personal property, gross receipts, sales, use, franchise and stamp taxes)
imposed by any federal, state or local government or other taxing authority in
the United States or any foreign government or subdivision or taxing authority
thereof, together with any interest or penalties thereon, which arise from or
relate to the operations of the Company on or before the Closing Date
(collectively, "Taxes"); (v) the termination by the Company, Eastbrokers or
Executive Purchaser, before or after the date hereof, of any of the Company's
employees; and (vi) all other liabilities or obligations of the Company other
than liabilities or obligations incurred in connection with the operation of the
Business after the Closing Date. Notwithstanding the immediately preceding
sentence, in no event shall Seller have any indemnification liability in excess
of $100,000.
(b) If any event shall occur or circumstance shall exist which would
otherwise entitle the Buyers' Group to indemnification hereunder, no loss,
damage, claim, liability or expense shall be deemed to have been asserted
against or incurred or sustained by any or all of the members of the Buyers'
Group to the extent of any proceeds (other than proceeds from self-insurance)
recovered or recoverable by the Buyers' Group from any third party (excluding
any insurance company) or from any insurance company under policies, under which
the Company is insured, existing on or before the Closing Date and for which
premiums have been fully paid before the Closing Date. Buyers agree, and shall
cause the Company, (i) in good faith, to diligently seek recovery, at its own
expense from all third parties (including, without limitation, all such
insurance companies) with respect to all losses, claims, damages, liabilities
and expenses with respect to which Buyers' Group makes or may make a claim for
indemnification hereunder and (ii) to keep Seller fully and promptly informed of
all material matters related thereto.
7.3 Survival of Representations of Buyers. The representations and
warranties set forth in Article 3 shall survive the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby for a period of three years following the date hereof. No
suit, action or proceeding may be commenced by Seller with respect to any claim
arising out of or relating to such representations and warranties more than
three years following the date hereof; provided, however, that, subject to
Section 7.6 hereof, Seller shall have the right to commence a suit, action or
proceeding more than three years following the date hereof with respect to
claims arising out of or relating to such representations or warranties which
shall have been asserted by Seller under Section 7.5 hereof within three years
following the date hereof.
7.4 Indemnification by Eastbrokers.okers
(a) Subject to Sections 7.3 and 7.4(b), Eastbrokers shall indemnify Seller
and his respective partners, agents, representatives, consultants, attorneys and
successors, transferees and assigns (the "Seller's Group") for, and shall hold
the Seller's Group harmless from, any and all damages, claims, losses,
liabilities and expenses (including, without limitation, reasonable legal fees,
accounting and other expenses to investigate, defend or mitigate any of the
foregoing) asserted against or incurred or sustained by any or all of the
Seller's Group arising out of (i) any breach of any covenant or agreement
contained in this Agreement by Buyers or made by the Company to or with Seller
or (ii) any breach of any of the warranties or representations set forth in
Article 3. Notwithstanding the immediately preceding sentence, in no event shall
Eastbrokers have any indemnification liability in excess of $100,000.
(b) If any event shall occur or circumstance shall exist which would
otherwise entitle the Seller's Group to indemnification hereunder, no loss,
damage, claim, liability or expense shall be deemed to have been asserted
against or incurred or sustained by any or all of the members of the Seller's
Group to the extent of any proceeds (other than proceeds from self-insurance)
recovered or recoverable by the Seller's Group from any third party (excluding
any insurance company) or from any insurance company under policies, under which
the Company is insured, existing on or before the Closing Date and for which
premiums have been fully paid before the Closing Date. Seller agrees (i) in good
faith, to diligently seek recovery, at his own expense from all third parties
(including, without limitation, all such insurance companies) with respect to
all losses, claims, damages, liabilities and expenses with respect to which
Seller's Group makes or may make a claim for indemnification hereunder and (ii)
to keep Buyers fully and promptly informed of all material matters related
thereto.
7.5 Indemnification Procedure
(a) Upon obtaining knowledge thereof, a person who may be entitled to
indemnification hereunder (the "Indemnitee") shall promptly give the Party who
may be obligated to provide such indemnification (the "Indemnitor") written
notice of any Loss (as defined in Section 7.5(b)) which the Indemnitee has
determined has given or could give rise to a claim for indemnification hereunder
(a "Notice of Claim"). A Notice of Claim shall specify in reasonable
- 86 -
<PAGE>
detail the nature and all known particulars related to a Loss. The Indemnitor
shall perform its obligations with respect to a Loss described in a Notice of
Claim under Sections 7.2 or 7.4, as the case may be, within 30 days after the
Indemnitor shall have received such Notice of Claim; provided, however, that
such obligations shall be suspended (i) so long as the Indemnitor is in good
faith defending, contesting or otherwise opposing pursuant to Section 7.5(c) a
Loss which constitutes a claim, demand, suit, action or proceeding described in
Section 7.5(c); (ii) in the case of a Notice of Claim given by a Buyer or the
Company, until such Buyer or the Company, as the case may be, shall have fully
performed its obligations under Section 7.2(b) with respect to a Loss for which
Buyers or the Company may be entitled to recovery from a third party (including,
without limitation, an insurance company); and (iii) in the case of a Notice of
Claim given by Seller, until Seller shall have fully performed his obligations
under Section 7.4(b) with respect to a Loss for which Seller may be entitled to
recovery from a third party (including, without limitation, an insurance
company).
(b) As used in this Section 7.5, the term "Loss" shall mean a damage,
liability, claim, loss, expense or cost described in Section 6.1(a), 6.1(b),
6.7(b), 7.2(a) or 7.4(a), or a fee, commission, compensation or payment
described in Section 10.1, as the case may be.
(c) With respect to a Loss which constitutes a third-party claim, demand,
suit, action or proceeding and which is the subject of a Notice of Claim, the
Indemnitor shall, in good faith and at its own expense, defend, contest or
otherwise oppose such claim, demand, suit, action or proceeding with legal
counsel selected by it. The Indemnitee shall have the right, but not the
obligation, to participate, at its own expense, in the defense, contest or other
opposition thereof through legal counsel selected by it and shall have the
right, but not the obligation, to assert any and all cross-claims or
counterclaims which it may have. So long as the Indemnitor is, in good faith,
defending, contesting or otherwise opposing such claim, demand, suit, action or
proceeding, the Indemnitee shall (i) at all times cooperate, at its own expense,
in all reasonable ways with, make its relevant files and records available for
inspection and copying by, make its employees reasonably available to and
otherwise render reasonable assistance to the Indemnitor upon request; and (ii)
not compromise or settle such claim, demand, suit, action or proceeding without
the prior written consent of the Indemnitor. If the Indemnitor fails to so
defend, contest or otherwise oppose such claim, demand, suit, action or
proceeding, the Indemnitee shall have the right, but not the obligation, to
defend, contest or otherwise oppose, to assert cross-claims or counterclaims
with respect to and to compromise and settle such claim, demand, suit, action or
proceeding without affecting, impairing or limiting any indemnification to which
the Indemnitee is entitled hereunder. If the Indemnitee is entitled to
indemnification hereunder with respect to such claim, demand, suit, action or
proceeding, the Indemnitor shall also indemnify the Indemnitee for all of the
legal fees and expenses reasonably and actually incurred in connection with the
defense, contest or other opposition of such claim, demand, suit, action or
proceeding pursuant to the immediately preceding sentence.
(d) Whether or not a Notice of Claim has been given pursuant to Section
7.5(a), Seller shall have the right, at his own expense, to participate in the
defense, contest or other opposition of all of actions, claims, demands, suits
or proceedings which involve events occurring or conditions existing prior to
the Closing with respect to the Business or the properties owned, leased or used
by the Company and which, in the sole opinion of Seller, might have an adverse
impact on Seller. Seller shall give prompt written notice to Eastbrokers and the
Company of his election to exercise such right. Without the prior written
consent of Seller, neither Eastbrokers nor the Company shall settle or
compromise any action, demand, claim, suit or proceeding with respect to which
Seller shall have given such a notice. If Seller does not consent to such a
settlement or compromise, Seller will assume the defense, contest or other
opposition of such action, demand, claim, suit or proceeding for his own
account, whereupon Eastbrokers and the Company shall be released from any
liability with respect to such action, claim, demand, suit or proceeding to the
extent that such liability exceeds the liability which Eastbrokers and the
Company would have had with respect to such a settlement or compromise. Except
as otherwise provided in the preceding sentence, neither such right nor the
exercise thereof shall be construed to modify, expand or enlarge the obligations
or liabilities of Seller hereunder in any respect.
7.6 Subrogation. Any indemnifying Party shall be subrogated to the rights
of the Indemnitee with respect to any claims, suits or demands for which the
indemnifying Party has indemnified the Indemnitee.
ARTICLE 8 - PUBLICITY; CONFIDENTIALITY
8.1 Publicity. The Parties agree that no publicity, release or announcement
concerning the execution and delivery of this Agreement, the provisions hereof
or the transactions contemplated hereby shall be issued by a Party without the
prior written approval of the form and content of such publicity, release or
announcement by the other
- 87 -
<PAGE>
Parties; provided, however, that no such approval shall be required when such
publicity, release or announcement is required by (i) any applicable law,
ordinance, rule or regulation; (ii) any applicable rules or regulations of a
national or foreign stock exchange; or (iii) any order, writ, judgment,
stipulation, award, edict or decree of any court of competent jurisdiction or
any governmental or quasi-governmental or regulatory agency, authority or
instrumentality of competent jurisdiction and, provided further, that, prior to
issuing any publicity, release or announcement without such prior written
approval, the issuing Party shall have given reasonable prior notice to the
other Parties of such intended issuance and, if requested by a non-issuing
Party, shall have used reasonable efforts at its own expense to obtain a
protective order or similar relief for the benefit of such other Party.
8.2 Confidentiality
(a) All data, reports, records and other information of any kind received
by a Party ("Receiving Party") from another Party or its affiliates,
shareholders, partners, directors, officers, employees, agents, representatives
or consultants (the "Delivering Party") under this Agreement, shall be treated
by a Receiving Party as confidential (collectively, "Confidential Information").
A Receiving Party shall not use Confidential Information for its own benefit and
shall use all reasonable efforts to maintain the confidentiality of Confidential
Information (including, without limitation, using all reasonable efforts to
limit disclosure of Confidential Information to its shareholders, prospective
investors, partners, directors, officers, affiliates, employees, agents,
representatives and consultants and use by them of Confidential Information for
their own benefit). If a Receiving Party or, to the knowledge of a Receiving
Party, any of its shareholders, partners, directors, officers, affiliates,
employees, agents, representatives or consultants is required to disclose
Confidential Information to any self-regulatory organization, governmental or
quasi-governmental agency, authority or instrumentality, such Receiving Party
shall, prior to such disclosure, immediately notify the Delivering Party of such
requirement and all particulars related to such requirement. The Delivering
Party shall have the right, at its expense, to object to such disclosure and to
seek confidential treatment of any Confidential Information to be so disclosed
on such terms as it shall determine.
(b) The restrictions set forth in Section 8.2(a) shall not apply to the use
or disclosure of Confidential Information (i) pursuant to any other agreement
between the Parties, (ii) by a Party in connection with exercising its rights or
performing its duties or obligations under this Agreement or the agreements,
instruments and other documents contemplated hereby, (iii) as contemplated by
the last two sentences of Section 8.2(a) or (iv) with respect to Confidential
Information which (A) is or becomes generally available to the public through no
fault or neglect of a Receiving Party or any of its shareholders, partners,
directors, officers, affiliates, employees, agents, representatives or
consultants, (B) is received in good faith on a non-confidential basis from a
third party who discloses such Confidential Information to a Receiving Party
without violating any obligations of secrecy or confidentiality or (C) was
already in the possession of a Receiving Party at the time of receipt as
demonstrated by the prior dated written records of such Receiving Party.
8.3 Survival. This Article 8 shall survive the termination of this
Agreement for any reason and the consummation of the transactions contemplated
hereby.
- 88 -
<PAGE>
ARTICLE 9 - NOTICES
All notices, demands, requests or other communications (collectively,
"notices") required or permitted to be given pursuant to this Agreement shall be
given in writing, shall be transmitted by personal delivery; by registered or
certified mail, return receipt requested, postage prepaid; or by telegram,
telecopier or other electronic means and shall be addressed as follows:
When Seller is to be notified:
Mr. Robert Sass
42 Barneburg
Dove Cannon, California 92679
Telephone No.: (714) 888-8103
Telecopy No.: (714) 888-7967
With a copy to:
Stephen Kukta, Esq.
1500 S.W. Arrowhead Road
Topeka, Kansas 66604
Telephone No.: (913) 271-3240
Telecopy No.: (913) 271-3167
When Eastbrokers is to be notified:
Eastbrokers International Incorporated
15245 Shady Grove Road, Suite 340
Rockville, Maryland 20850
Attention: Martin A. Sumichrast
Telephone No.: (301) 527-1110
Telecopy No.: (301) 527-1112
With a copy to:
Kelley Drye & Warren LLP
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Paul F. McCurdy, Esq.
Telephone No.: (203) 324-1400
Telecopy No.: (203) 327-2669
When Executive Purchaser is to be notified:
Eastbrokers North America, Inc.
26 Broadway, 4th Floor, Room 6
New York, New York 10004
Telephone No.: (212) 837-7926
Telecopy No.: (212) 837-7792
With a copy to:
Kelley Drye & Warren LLP
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Paul F. McCurdy, Esq.
Telephone No.: (203) 324-1400
Telecopy No.: (203) 327-2669
- 89 -
<PAGE>
A Party may designate a new address to which notices required or permitted to be
given pursuant to this Agreement shall thereafter be transmitted by giving
written notice to that effect to the other Parties. Each notice transmitted in
the manner described in this Article 9 shall be deemed to have been given,
received and become effective for all purposes at the time it shall have been
(i) delivered to the addressee as indicated by the return receipt (if
transmitted by mail), the affidavit of the messenger (if transmitted by personal
delivery) or the receipt of confirmation (if transmitted by telegram, telecopier
or other electronic means) or (ii) presented for delivery to the addressee as so
indicated during normal business hours, if such delivery shall have been refused
for any reason.
ARTICLE 10 - BROKERAGE FEES; CERTAIN EXPENSES
10.1 Brokerage Fees. Each Party agrees to indemnify the other Parties for,
and shall hold such other Parties harmless from, any claim or liability for any
fee, commission, compensation or other payment by any broker, finder,
consultant, advisor or similar agent who claims to have been, or who was in
fact, engaged by or on behalf of such Party, pursuant to the procedure set forth
in Section 7.5.
10.2 Certain Expenses. Except as otherwise provided herein and regardless
of whether the transactions contemplated hereby are consummated, (i) each Party
will pay all expenses incurred by it in connection with the transactions
contemplated hereby and (ii) the Company shall pay all expenses incurred by it
(A) on or before the date hereof in connection with the transactions
contemplated hereby (including, without limitation, the preparation of the
Schedules attached hereto and other documents related to the transactions
contemplated hereby) and (B) after the date hereof, in connection with actions
which a Party is required to cause it to take hereunder; provided, however, the
Company will not bear any legal fees in connection with such contemplated
transactions or required actions (all of which will be borne by Seller).
ARTICLE 11 - MISCELLANEOUS
11.1 Governing Law; Forum. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of New
York (without giving effect to the laws, rules or principles of the State of New
York regarding conflict of laws). Each Party agrees that any proceeding arising
out of or relating to this Agreement or the breach or threatened breach of this
Agreement may be commenced and prosecuted in any court in the State of New York.
Each Party consents and submits to the non-exclusive personal jurisdiction of
any such court with respect to any such proceeding. Each Party consents to
service of process upon him, her or it with respect to any such proceeding by
registered mail, return receipt requested and by any other means permitted by
applicable laws and rules. Each Party waives any objection that he, she or it
may now or hereafter have to the laying of venue of any such proceeding in any
such court and any claim that he, she or it may now or hereafter have that any
such proceeding in any such court has been brought in an inconvenient forum.
11.2 Binding Effect; Assignment; Third-Party Beneficiaries. This Agreement
shall be binding upon the Parties and their respective heirs, legal
representatives, estates, successors and assigns, as the case may be, and shall
inure to the benefit of the Parties and their respective heirs, legal
representatives, estates, successors and permitted assigns. No Party may assign
any of his, her or its rights or delegate any of his, her or its duties under
this Agreement (in the case of corporations, by operation of law or otherwise)
without the prior written consent of the other Parties and any assignment or
delegation of this Agreement by a Party without the prior written consent of the
other Parties shall be void.
11.3 Entire Agreement. This Agreement together with the Schedules attached
hereto constitutes the entire agreement and understanding among the Parties with
respect to the subject matter hereof and cancels and supersedes all of the
previous or contemporaneous contracts, representations, warranties and
understandings (whether oral or written) by or between the Parties with respect
to the subject matter hereof. Except for the representations and warranties
expressly set forth herein, Buyers disclaim reliance upon (i) any
representations, warranties or guarantees (whether express or implied and
whether oral or written) by Seller, the Company or any of their respective
partners, directors, officers, employees, agents or representatives or (ii) any
other information with respect to the Business, the Company or its industry
provided by or on behalf of them. Notwithstanding the foregoing, each Party
agrees that the other Parties have the right to rely upon the representations,
warranties, covenants and agreements of each Party contained in this
- 90 -
<PAGE>
Agreement. Nothing contained in any document or instrument of conveyance,
transfer, assignment or delivery delivered pursuant hereto shall amend, extend,
modify, renew or alter in any manner any representation, warranty, covenant,
agreement or indemnity contained herein.
11.4 Amendments. No addition to, and no cancellation, renewal, extension,
modification or amendment of, this Agreement shall be binding upon a Party
unless such addition, cancellation, renewal, extension, modification or
amendment is set forth in a written instrument which states that it adds to,
amends, cancels, renews, extends or modifies this Agreement and which is
executed and delivered on behalf of such Party by an officer of (in the case of
a corporation) or attorney-in-fact for such Party.
11.5 Waivers. No waiver of any provision of this Agreement shall be binding
upon a Party unless such waiver is expressly set forth in a written instrument
which is executed and delivered on behalf of such Party by an officer of (in the
case of a corporation) or attorney-in-fact for such Party. Such waiver shall be
effective only to the extent specifically set forth in such written instrument.
Neither the exercise (from time to time and at any time) by a Party of, nor the
delay or failure (at any time or for any period of time) to exercise, any right,
power or remedy shall constitute a waiver of the right to exercise, or impair,
limit or restrict the exercise of, such right, power or remedy or any other
right, power or remedy at any time and from time to time thereafter. No waiver
of any right, power or remedy of a Party shall be deemed to be a waiver of any
other right, power or remedy of such Party or shall, except to the extent so
waived, impair, limit or restrict the exercise of such right, power or remedy.
11.6 Headings; Counterparts. The headings set forth in this Agreement have
been inserted for convenience of reference only, shall not be considered a part
of this Agreement and shall not limit, modify or affect in any way the meaning
or interpretation of this Agreement. This Agreement may be signed in any number
of counterparts, each of which (when executed and delivered) shall constitute an
original instrument, but all of which together shall constitute one and the same
instrument. This Agreement shall become effective and be deemed to have been
executed and delivered by all of the Parties at such time as counterparts shall
have been executed and delivered by each of the Parties, regardless of whether
each of the Parties has executed the same counterpart. It shall not be necessary
when making proof of this Agreement to account for any counterparts other than a
sufficient number of counterparts which, when taken together, contain signatures
of all of the Parties.
11.7 Severability. If any provision of this Agreement shall hereafter be
held to be invalid, unenforceable or illegal in any jurisdiction under any
circumstances for any reason, (i) such provision shall be reformed to the
minimum extent necessary to cause such provision to be valid, enforceable and
legal and preserve the original intent of the Parties or (ii) if such provision
cannot be so reformed, such provision shall be severed from this Agreement. Such
holding shall not affect or impair the validity, enforceability or legality of
such provision in any other jurisdiction or under any other circumstances.
Neither such holding nor such reformation or severance shall affect or impair
the legality, validity or enforceability of any other provision of this
Agreement.
11.8 Certain References. As used herein, references to a "person" means an
individual or an entity, including, without limitation, a corporation, limited
liability company, partnership, joint venture, trust, joint-stock company,
association, unincorporated organization or group acting in concert. References
to the phrases "to the knowledge of Seller", "to Seller's knowledge" and similar
phrases shall in all cases herein mean "to the knowledge of Seller and the
Company after reasonable inquiry".
11.9 Exclusive Remedy. The sole and exclusive rights, powers and remedies
of the Parties, other than such injunctive or other equitable remedies as may be
available to a Party, for a breach or default under this Agreement (including,
without limitation, a breach of or default under any of the representations,
warranties, covenants or agreements contained in this Agreement) shall be
recovery under Sections 6.1 and 6.7 and indemnification under Sections 6.1 and
6.7 and Articles 7 and 10 hereof, in each case limited as set forth therein.
- 91 -
<PAGE>
IN WITNESS WHEREOF, the Parties have executed and delivered or caused this
Agreement to be executed and delivered by their duly authorized representatives
as of the date first above written.
EASTBROKERS INTERNATIONAL INCORPORATED,
as a Buyer
By: /s/ Martin A. Sumichrast
-------------------------------
Name: Martin A. Sumichrast
Title: Chief Financial Officer and
Secretary
JOHN PAUL DEVITO, as a Buyer
/s/ John Paul De Vito
-------------------------
ROBERT SASS, as Seller
/s/ Robert Sass
-------------------------
- 92 -
<PAGE>
EXHIBIT NO. 10.14
Consulting Agreement between Michael Sumichrast, Ph.D. and the Company
CONSULTING AGREEMENT
This Agreement is made and entered into as of the 1st day of April, 1997,
by and between Michael Sumichrast ("Consultant"), an individual residing at
11527 Le Havre Drive, Potomac, MD 20854 and Eastbrokers International
Incorporated ("Company"), a Delaware corporation having offices at 15245 Shady
Grove Road, Suite 340, Rockville, Maryland 20850
WITNESSETH
WHEREAS, the Company wishes to retain the Consultant to render business and
financial advisory and consulting services on the terms and conditions herein
set forth; and
WHEREAS, Consultant wishes to render such service on the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants agreements contained herein, the parties hereto agree as follows:
1. Retention. The Company hereby retains the Consultant, for the term
hereof (as set forth in Section 2), to render such business and financial
advisory and consulting services as may be reasonably requested from time to
time by the Company. The Consultant shall not be required to render services to
the Company hereunder on any day on which banks are not open for business in the
State of Maryland for any periods which exceed 30 hours per month.
2. Term. The term of this Agreement shall commence as of April 1, 1997, and
shall continue for a period of twelve (12) months, terminating on March 31,
1998.
3. Compensation.
3.1 The Company shall pay the Consultant compensation of 5,000 restricted
shares of the Company's common stock per quarter, payable in equal installments
on July 1, 1997, October 1, 1997, January 1, 1997 and April 1, 1998.
3.2 As additional compensation to the Consultant for his services under the
Agreement, the Consultant will receive a project success fee to be determined.
4. Reimbursement for Expenses. The Company shall reimburse the Consultant
for all reasonable out-of-pocket expenses paid or incurred by him in the course
of his duties hereunder and approved in writing by the Company, upon
presentation by the Consultant of valid receipts or invoices thereof, utilizing
procedures as are reasonably established by the Company with regard to
reimbursement of employees and consultants for expenses.
5. Termination of Services.
5.1 Death or Disability. This Agreement shall terminate upon the death or
disability of the Consultant. For purposes hereof, the term "disability" shall
mean physical or mental illness or injury which has prevented the Consultant
from performing his customary duties for the Company for a period of (30) thirty
consecutive days. In the event this agreement is terminated, pursuant to this
section, Consultant's estate shall be entitled to receive full compensation and
reimbursement of expenses as set forth in sections 3 and 4.
5.2 For "Cause". The Company shall have the right to terminate the services
of Consultant hereunder "for cause", as herein defined. The term "for cause"
shall mean:
(i) the commission by Consultant of an act of theft, embezzlement, or fraud
which is materially injurious to the Company or any affiliate; or
- 93 -
<PAGE>
(ii) the conviction of the Consultant in any jurisdiction for a criminal
offense constituting a felony.
5.3 Without Cause. In the event of the termination by the Company of the
Consultant's services under this Agreement prior to the scheduled expiration
date (as the same may be extended from time to time), for any reason other than
"for cause" pursuant to Section 5.2, the Consultant shall be entitled to the
remaining payments that would have otherwise been payable to the Consultant
under the terms of this Agreement had his services not been terminated.
6. Indemnification. The Company shall indemnify and hold harmless the
Consultant, his heirs and legal representatives from and against all claims,
damages, losses, liabilities and expenses, including reasonable legal fees and
expenses (collectively "Losses"), arising out of or relating to his services
under this Agreement; provided, however, that the foregoing shall not apply to
the extent of any Losses resulting from the willful misconduct or negligence of
the Consultant. The Consultant shall indemnify and hold harmless the Company,
its officers, directors and agents, from and against all Loses arising out of
any misrepresentation made by the Consultant to any third party as to the scope
of his authority to act on behalf of or to bind the Company.
7. Miscellaneous.
7.1 Legal Relationship of Parties. The Consultant shall render services
hereunder as an independent contractor and not as an employee and nothing herein
contained shall be deemed to constitute a partnership between or a joint venture
by the parties, nor shall anything herein contained be deemed to constitute
either the Consultant or the Company the agent of the other except as is
expressly provided herein.
7.2 Notices. All notices and communications hereunder shall be in writing
and delivered by hand or sent by registered or certified mail, postage and other
fees prepaid, return receipt requested, or by a nationally recognized overnight
delivery service. Such notice shall be deemed given when hand delivered or three
(3) business days after the date when mailed or one (1) business day after
delivery to an overnight delivery service.
7.3 Entire Agreement.This Agreement contains the entire understanding of
the parties hereto with respect to the retention of the Consultant by the
Company during the term hereof, and the provisions hereof may not be altered,
amended, waived, terminated or discharged in any way whatsoever except by
subsequent written agreement executed by the party sought to be charged
therewith. This Agreement supersedes all prior agreements, understandings and
arrangements between the Consultant and the Company pertaining to the subject
matter hereof. A waiver by either of the parties of any of the terms or
conditions of this Agreement, or of any breach hereof, shall not be deemed a
waiver of such terms or conditions for the future or of any other term or
condition hereof, or of any subsequent breach hereof.
7.4 Severability. The provisions of this Agreement are severable, and if
any provision of this Agreement is invalid, void, inoperative or unenforceable,
the balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any circumstance, it shall nevertheless remain applicable to all
other circumstances.
7.5 Survival. The provisions of Section 6 shall survive any termination of
the Consultant's services under this Agreement.
7.6 Miscellaneous. The Consultant shall be free to render service to other
persons or entities during the term of this Agreement so long as the same do not
unreasonably interfere with his services hereunder.
- 94 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EASTBROKERS INTERNATIONAL
INCORPORATED
By:/s/ Martin A. Sumichrast
Martin A. Sumichrast
CONSULTANT
/s/ Michael Sumichrast
Michael Sumichrast
- 95 -
<PAGE>
EXHIBIT NO. 10.15
Letter Agreement between the Company and August de Roode dated March 10, 1997
Eastbrokers International Incorporated
15245 Shady Grove Road, Suite 340
Rockville, Maryland 20850
Phone (+301) 527-1110 Fax (+301) 527-1112
email: [email protected]
March 10, 1997
August A. de Roode
Eastbrokers Beteiligungs A.G.
Schlickgasse 1
1090 Vienna
Austria
Dear Gus:
This letter agreement (this "Agreement") will confirm our agreement relating to
the matters covered herein.
1. You hereby resign, effective March 15, 1997 (the "Effective Date"), as an
officer and director of Eastbrokers International Incorporated, a Delaware
corporation (the "Company"), and all of the Company's subsidiaries.
2. The Employment Agreement dated as of August 1, 1996 (the "Employment
Agreement") between the Company and you will be terminated as of the Effective
Date and, except as expressly set forth herein, shall be of no further force or
effect after such date. The Company shall be obligated under the Employment
Agreement to pay all accrued but unpaid salary and benefits earned by you as of
the Effective Date. No bonus compensation shall be payable under the Employment
Agreement. Upon the making of these payments to you, the Company shall have no
further obligation to you under the Employment Agreement.
3. The Restrictive Covenant dated August 1, 1996 in favor of the Company whereby
you agreed to refrain from taking certain actions shall continue in full force
and effect except that the provisions of Paragraph 2 thereof shall no longer
apply.
4. Notwithstanding the terms of the Stock Option Agreement dated as of August 1,
1996 (the "Stock Option Agreement") relating to options to acquire 170,000
shares of the Company's common stock at $2.00 per share (34,000 shares at $10.00
per share on a post-split basis), said options shall not terminate by reason of
your employment by the Company, but shall be assignable by you to the purchaser
of your shares of the Company's common stock or its designee provided, however,
that such assignee is an employee or director of the Company at the time of such
assignment. Such assignee's right to exercise the options granted under the
Stock Option Agreement shall terminate at such time as such assignee ceases to
be an employee or director of the Company.
5. The Company releases you as of the Effective Date from any obligations under
the Unconditional Guaranty dated as of June 14, 1996 of obligations of
Eastbrokers Beteiligungs AG ("AG") under that certain Loan Agreement of even
date between the Company and AG.
- 96 -
<PAGE>
6. The Company releases you as of the Effective Date from any obligations under
Section 10.2(a) of the Stock Purchase Agreement dated as of June 14, 1996 (the
"Stock Purchase Agreement"); provided, however, that the foregoing shall not
relieve you of any obligation under said Section 10.2(a) insofar as it relates
to the indemnity obligations arising under Section 4.3 of the Stock Purchase
Agreement and relates to the shares of AG sold by you to the Company under said
Agreement. You, in turn, release the Company from any obligations under Section
10.2(b) of the Stock Purchase Agreement and agree that no additional shares of
the Company's stock shall be issuable to you or your successors or assigns by
reason of Section 2.4 of the Stock Purchase Agreement. Any shares which may
hereafter be issuable to you under Section 2.3 of the Stock Purchase Agreement
shall be issued to your assignee which shall be the purchaser of your shares of
the Company's common stock or its designee. You agree to provide the Company
with evidence reasonably satisfactory to it of such assignment.
7. The Company agrees to indemnify you to the maximum extent permissible by law
in the event that you are or are threatened to be made a party to any action by
reason of the fact that you were a director, officer, employee or agent of the
Company or any of its subsidiaries or were serving at the request of the Company
as a director, officer, employee or agent of another entity against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by you.
8. In consideration of the covenants and agreements contained herein, the
Company and its subsidiaries hereby release and forever discharge you and you
hereby release and forever discharge the Company and its subsidiaries
(including, without limitation, the shareholders, officers and directors of the
Company) from any and all claims, causes of action and liabilities of any kind,
whether known or unknown, whether legal or equitable, arising out of or in
connection with your employment with the Company and/or any of its subsidiaries
and/or your service as a director or officer of the Company and/or any of its
subsidiaries; provided, however, that the foregoing release shall not release
(a) either party from any obligations under or expressly contemplated by this
Agreement; or (b) you from any liabilities in connection with the foregoing
arising out of any conduct engaged by you involving (i) fraud; (ii) the
commission of a felony crime; or (iii) willful or grossly negligent conduct
which is demonstrably and materially injurious to the Company and/or any of its
subsidiaries. For the purposes hereof, conduct which you reasonably believe to
be in the best interests of the Company shall not be deemed "willful."
It is hereby acknowledged by both parties that the foregoing contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
any prior written or verbal agreements or understandings relating to such
subject matter. This agreement cannot be modified or terminated verbally, but
only by a writing signed by the party sought to be charged.
If the foregoing correctly sets forth the agreement between you and the Company,
please sign this letter agreement in the space provided and return it to the
undersigned thereby making this a binding agreement to be governed by the laws
of the State of New York without reference to its conflicts of laws provisions.
Very truly yours,
EASTBROKERS INTERNATIONAL INCORPORATED
By /s/ Martin A. Sumichrast
Martin A. Sumichrast
Executive Vice President, Secretary
Accepted and Agreed to as of the
15th day of March, 1997
/s/ August A. deRoode
August A. deRoode
- 97 -
<PAGE>
Exhibit No. 21.1
Subsidiaries of Company
Jurisdiction of
Company Incorporation
Eastbrokers Beteiligungs AG Austria
Eastbrokers North America, Inc. Delaware
Eastbrokers US, Inc. Delaware
- 98 -
<PAGE>
Exhibit No. 23.1
Consent of Pannell Kerr Forster PC
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in the Annual Report on Form 10-KSB (the "10-KSB")
of Eastbrokers International Incorporated (the "Company") for the fiscal year
ended March 31, 1997 of our report dated June 23, 1997. We also consent to the
incorporation by reference of our report into the Company's Registration
Statement on Form S-8 dated April 25, 1997 (No. 333-25887) and into the
Company's Registration Statement on Form S-3 dated May 9, 1997 (No. 333-26825).
/s/ PANNELL KERR FORSTER PC
Certified Public Accountants
Alexandria, Virginia
June 27, 1997
- 99 -
<PAGE>
Exhibit No. 24.1
Powers of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints Martin A.
Sumichrast and Kevin D. McNeil and each of them severally as his attorney and
agent with full power of substitution and resubstitution to execute on his
behalf and in his name and in any and all capacities set forth below: (1) any
and all amendments to the Registration Statement of Eastbrokers International
Incorporated, a Delaware corporation (the "Company") on Form S-3 as filed with
the Securities and Exchange Commission (the "Commission") on May 9, 1997; (2)
any and all amendments to the Company's Reports on Form 10-KSB for the periods
ended March 31, 1996, and December 31, 1995 as filed with the Commission on June
28, 1996, and March 16, 1996, respectively; (3) any and all amendments to the
Company's Reports on Form 10-QSB for the periods ended June 30, 1996, September
30, 1996, and December 31, 1996, as filed with the Commission on August 14,
1996, November 14, 1996, and February 13, 1997, respectively; (4) any and all
amendments to the Company's Reports on Form 8-K dated April 22, 1996, May 13,
1996, and August 1, 1996; (5) the Company's Report on Form 10-KSB for the fiscal
year ended March 31, 1997 and any and amendments thereto; and to do all such
other acts and execute all such other documents which any said attorney and
agent may deem necessary or desirable in connection therewith or to comply with
any rules, regulations or requirements of the Commission in respect thereof.
EASTBROKERS INTERNATIONAL INCORPORATED
(Registrant)
/s/ Peter Schmid June 27, 1997
- - ---------------------------------------------- ---------------------
Peter Schmid Date
Chairman, President, Chief Executive Officer, and Director
- 100 -
<PAGE>
Exhibit No. 24.1
Powers of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints Martin A.
Sumichrast and Kevin D. McNeil and each of them severally as his attorney and
agent with full power of substitution and resubstitution to execute on his
behalf and in his name and in any and all capacities set forth below: (1) any
and all amendments to the Registration Statement of Eastbrokers International
Incorporated, a Delaware corporation (the "Company") on Form S-3 as filed with
the Securities and Exchange Commission (the "Commission") on May 9, 1997; (2)
any and all amendments to the Company's Reports on Form 10-KSB for the periods
ended March 31, 1996, and December 31, 1995 as filed with the Commission on June
28, 1996, and March 16, 1996, respectively; (3) any and all amendments to the
Company's Reports on Form 10-QSB for the periods ended June 30, 1996, September
30, 1996, and December 31, 1996, as filed with the Commission on August 14,
1996, November 14, 1996, and February 13, 1997, respectively; (4) any and all
amendments to the Company's Reports on Form 8-K dated April 22, 1996, May 13,
1996, and August 1, 1996; (5) the Company's Report on Form 10-KSB for the fiscal
year ended March 31, 1997 and any and amendments thereto; and to do all such
other acts and execute all such other documents which any said attorney and
agent may deem necessary or desirable in connection therewith or to comply with
any rules, regulations or requirements of the Commission in respect thereof.
/s/ Peter Schmid June 27, 1997
- - ---------------------------------------------- ---------------------
Peter Schmid Date
Chairman, President, Chief Executive Officer, and Director
- 101 -
<PAGE>
Exhibit No. 24.1
Powers of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints Martin A.
Sumichrast and Kevin D. McNeil and each of them severally as his attorney and
agent with full power of substitution and resubstitution to execute on his
behalf and in his name and in any and all capacities set forth below: (1) any
and all amendments to the Registration Statement of Eastbrokers International
Incorporated, a Delaware corporation (the "Company") on Form S-3 as filed with
the Securities and Exchange Commission (the "Commission") on May 9, 1997; (2)
any and all amendments to the Company's Reports on Form 10-KSB for the periods
ended March 31, 1996, and December 31, 1995 as filed with the Commission on June
28, 1996, and March 16, 1996, respectively; (3) any and all amendments to the
Company's Reports on Form 10-QSB for the periods ended June 30, 1996, September
30, 1996, and December 31, 1996, as filed with the Commission on August 14,
1996, November 14, 1996, and February 13, 1997, respectively; (4) any and all
amendments to the Company's Reports on Form 8-K dated April 22, 1996, May 13,
1996, and August 1, 1996; (5) the Company's Report on Form 10-KSB for the fiscal
year ended March 31, 1997 and any and amendments thereto; and to do all such
other acts and execute all such other documents which any said attorney and
agent may deem necessary or desirable in connection therewith or to comply with
any rules, regulations or requirements of the Commission in respect thereof.
/s/ Michael Sumichrast June 27, 1997
- - ---------------------------------------------- ---------------------
Michael Sumichrast, PhD Date
Director
- 102 -
<PAGE>
Exhibit No. 24.1
Powers of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints Martin A.
Sumichrast and Kevin D. McNeil and each of them severally as his attorney and
agent with full power of substitution and resubstitution to execute on his
behalf and in his name and in any and all capacities set forth below: (1) any
and all amendments to the Registration Statement of Eastbrokers International
Incorporated, a Delaware corporation (the "Company") on Form S-3 as filed with
the Securities and Exchange Commission (the "Commission") on May 9, 1997; (2)
any and all amendments to the Company's Reports on Form 10-KSB for the periods
ended March 31, 1996, and December 31, 1995 as filed with the Commission on June
28, 1996, and March 16, 1996, respectively; (3) any and all amendments to the
Company's Reports on Form 10-QSB for the periods ended June 30, 1996, September
30, 1996, and December 31, 1996, as filed with the Commission on August 14,
1996, November 14, 1996, and February 13, 1997, respectively; (4) any and all
amendments to the Company's Reports on Form 8-K dated April 22, 1996, May 13,
1996, and August 1, 1996; (5) the Company's Report on Form 10-KSB for the fiscal
year ended March 31, 1997 and any and amendments thereto; and to do all such
other acts and execute all such other documents which any said attorney and
agent may deem necessary or desirable in connection therewith or to comply with
any rules, regulations or requirements of the Commission in respect thereof.
/s/ Wolfgang Kossner June 27, 1997
- - ---------------------------------------------- ---------------------
Wolfgang Kossner Date
Director
- 103 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 4,755,723
<SECURITIES> 7,040,083
<RECEIVABLES> 8,143,635
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,058,715
<PP&E> 1,766,782
<DEPRECIATION> 840,214
<TOTAL-ASSETS> 32,014,929
<CURRENT-LIABILITIES> 11,679,118
<BONDS> 934,374
0
0
<COMMON> 146,150
<OTHER-SE> 19,314,883
<TOTAL-LIABILITY-AND-EQUITY> 32,014,929
<SALES> 0
<TOTAL-REVENUES> 5,552,069
<CGS> 0
<TOTAL-COSTS> 5,492,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,235
<INCOME-PRETAX> 59,446
<INCOME-TAX> (249,911)
<INCOME-CONTINUING> 414,773
<DISCONTINUED> (1,281,184)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (866,411)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
