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F-1
Form 10-KSB
U.S. Securities and Exchange Commission
Washington D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-70334-A
INTERNATIONAL ASSETS HOLDING CORPORATION
(Exact name of small business issuer as specified in its charter)
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Delaware 59-2921318
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
250 Park Avenue South, Suite 200
Winter Park, FL 32789
(Address of principal executive offices)
(407) 629-1400
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of class)
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 is not 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-KSB
or any amendment to this Form 10-KSB. [X]
State issue's revenues for its most recent fiscal year: $9,350,223
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the last sale price of such stock as of December 15,
1998: $1,241,689
The number of shares outstanding of Common Stock was 1,478,090 as of December
15, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants Proxy Statement, to be filed, for the Annual Meeting
of Stockholders to be held on February 16, 1999 are incorporated by reference
into Part III.
Transitional small business disclosure format Yes [ ] No [X]
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INTERNATIONAL ASSETS HOLDING CORPORATION
1998 FORM 10-KSB
TABLE OF CONTENTS
PART I Page
Item 1 Description of Business................................... 3
Item 2 Description of Property................................... 10
Item 3 Legal Proceedings......................................... 10
Item 4 Submission of Matters to a Vote of Security Holders....... 11
PART II
Item 5 Market for Registrant'sCommon Equity and Related Stockholder Matters 11
Item 6 Management's Discussion and Analysis or Plan of Operation.. 12
Item 7 Consolidated Financial Statements........................... 18
Item 8 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.............................. 19
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.... 19
Item 10 Executive Compensation...................................... 20
Item 11 Security Ownership of Certain Beneficial Owners and Management. 20
Item 12 Certain Relationships and Related Transactions.............. 20
Item 13 Exhibits and Reports on Form 8-K............................ 21
Signatures.................................................. 23
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The following discussion contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks including, but not
limited to, changes in general economic and business conditions, interest rate
and securities market fluctuations, competition from within and from outside the
investment brokerage industry, new products and services in the investment
brokerage industry, changing trends in customer profiles and changes in laws and
regulation applicable to the Company. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may", "will",
"expect", "believe","anticipate", "continue", and similar terms, variations of
these terms or the negative of those terms. Although the Company believes that
its expectations with respect to the forward-looking statements are based upon
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurances that the actual results, performance or
achievement of the Company will not differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
General
International Assets Holding Corporation is a Delaware corporation formed in
October 1987 for the purpose of serving as a holding company for International
Assets Advisory Corp. ("IAAC") and other subsidiaries. Currently, the Company
has five wholly owned subsidiaries, IAAC, Global Assets Advisors, Inc. ("GAA"),
International Asset Management Corp. ("IAMC"), International Financial Products,
Inc. ("IFP") and International Trader Association, Inc. ("ITA"). All of the
Company's subsidiaries are Florida corporations. As used in this Form 10-KSB,
the term "Company" refers, unless the context requires otherwise, to
International Assets Holding Corporation and its subsidiaries IAAC, GAA, IAMC,
IFP and ITA. IAAC operates a full-service securities brokerage firm specializing
in global investing on behalf of its clients. GAA provides investment advisory
and money management services. IAMC functions as the manager of the physical
assets of the Company. IFP, which is currently inactive, was formed as a
financial publishing and marketing group to sell products that are not
investments, but are related to the global financial market. ITA was formed to
take advantage of internet technology developments within the securities
industry and has had minimal start-up activity to date.
IAAC was formed in April 1981 by the Company's Chairman of the Board, Diego J.
Veitia. During its first two years of business, IAAC focused primarily on
private placements. In 1982, IAAC entered the securities brokerage business and
became a member of the National Association of Securities Dealers ("NASD"). In
1982 IAAC began to focus on the sale of global equity and debt securities to
high net worth private clients and, to a lesser degree, small to medium size
financial institutions. Management believes that, until the last five to seven
years, the global securities market has been relatively neglected by the major
securities firms and is a growing segment of the securities business.
The Company believes that it has developed an effective approach for attracting
the investment capital of high net worth private clients. This approach centers
on the need for such investors to diversify their investment portfolios by
purchasing global equity and debt securities. The Company believes it is proper
for investors to become increasingly global in their investment activities, to
correspond to the increasingly globalized economy. On the equity side, the
Company emphasizes both capital and currency appreciation. In the sale of debt
securities, the higher yields available overseas and the potential for currency
appreciation are stressed.
Historically, the securities industry's focus for channeling private client
funds into international investments has been through mutual funds. While the
Company believes that its expertise in the international markets puts it in a
unique position to add value in the sale of global products such as mutual
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funds, its main focus is on the direct investment in carefully selected
international securities by its private clients. The Company has developed an
experienced team specializing in the research, selection, trading, currency
exchange and execution of individual equity and fixed income products on a
global basis.
The Company acts as an introducing broker, in that it does not clear its own
securities transactions, but instead 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).
IAAC is currently registered as a securities broker-dealer under the Securities
Exchange Act of 1934 and the state securities statutes of 49 states and the
District of Columbia. IAAC is a member of the NASD, which is a self-regulatory
body exercising broad supervisory powers over securities broker-dealers
operating in the United States. IAAC is also a member of the Securities Investor
Protection Corporation ("SIPC"), which is a public corporation established to
afford a measure of protection to the account balances of customers of
securities broker-dealers that become insolvent.
GAA is registered with the Securities and Exchange Commission ("SEC"), the State
of Florida and the State of California as an investment advisor. As an SEC
registered investment advisor, investment advisor notification in other states
will proceed as is required by the various states. GAA's primary focus is on the
development of specialized accounts for high net worth private clients. GAA is
dedicated to providing the individual investor with domestic and international
money management and offers a series of investment portfolios tailor-made for
the individual investor seeking investment diversification across a variety of
economies and currencies in order to provide the opportunity for higher overall
investment returns. GAA's strategy is to capitalize on its experienced teams
specializing in the research, selection, trading, currency exchange and
execution of individual equity and fixed income products on a global basis.
IAMC was formed by the Company in 1988 to purchase and manage all of the fixed
assets of the Company. The assets held by IAMC are available for use by the
subsidiaries of the Company.
IFP was formed in 1995 to publish, advertise and sell a wide range of
informational investment tools such as books, newsletters, tapes and faxes
targeted at individual global investors. As of October 1996, Company funding for
all IFP operating activities ceased due to unsuccessful efforts in generating
revenues. However, the legal entity remains active in its state of
incorporation.
ITA was formed by the Company in May 1998 to capitalize on the use of recent and
future technology developments that relate to the securities industry
transacting securities brokerage activities for internet based client
transactions. ITA is currently in the process of applying for NASD membership
and becoming a registered securities broker. The subsidiary will focus on
internet based foreign equity transactions as well as U.S. equity and options
transactions. ITA will also emphasize international investing for this new
business venture.
In September 1998 the Company entered into a 50/50 Joint Venture (JV) with
Lakeside Investments, LLC (Lakeside) of New York. In October 1998 the JV
effected the incorporation of International Assets New York, LLC (IANY) a 50/50
owned entity formed to transact business out of an office in New York City as a
brokerage branch of IAAC and through the money management arm of GAA. IANY will
offer a variety of financial strategies to high net worth private investors.
Among the strategies to be offered are selected approaches to international tax
planning with the primary goal of utilizing established, but less understood
techniques to reduce the exposure of wealthy clients living in a number of high
tax jurisdictions. Additionally, IANY will utilize strategies that are expected
to provide clients with a degree of asset protection in an increasingly
litigious environment.
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Business Strategy
The Company's business strategy is to use its marketing and global securities
expertise to take advantage of opportunities for growth in the global securities
market. Management believes that there are significant opportunities for growth
in the specialized account and institutional sales areas of the international
securities market.
The Company believes that its expertise in the global securities area presents
an opportunity for the Company to expand its market niche into small
institutional sales. The Company further believes that this market niche has
been relatively minimized by the major and mid-sized securities brokerage firms.
Examples of the type of institutions the Company intends to target are pension
funds of corporations or municipalities, money managers, and the trust
departments of smaller commercial banks and other independent broker-dealers.
The Company expects to continue offering discretionary management accounts with
specifically designated objectives in a defined investment area. The Company
also intends to continue to expand its activities in both the private client and
institutional sectors of international securities. In addition, the Company
plans to continue to sponsor the development of proprietary unit investment
trusts, where management believes it can add value for its clients.
The International Securities Markets
The Company believes that investment in the international markets by U.S.
investors will continue to grow in the coming years, as the global capital
markets continue to grow. In 1980 the non-U.S. world stock market capitalization
totaled $931 billion. In 1997 that number grew almost eight-fold to $7.3
trillion (Ibbotson Associates, a company which studies capital markets). The
number of American Depository Receipts (ADRs) that are now trading on U.S.
exchanges further evidences this growth. ADR's, which represent shares in
foreign companies, issued by U.S. banks and traded in this country as domestic
shares simplify trading in foreign securities by eliminating currency exchange
and legal obstacles. In 1997, ADR trading volume reached 13 billion shares, a
25% increase from 1996 (Bloomberg).
Management believes that the two main justifications for the rapid growth in
international investing by U.S. investors are diversification and potentially
superior investment returns. The U.S. market had an exceptional year in 1997,
with an annual return of 33.4%, making it the fourth best performing developed
global stock market (Ibbotson Associates). Less obvious was that Switzerland
with 44.2%, Italy with 36.2% and Denmark with 35.6% all had better returns.
During the years 1993-1996, the U.S. was only in the top five performing
developed markets once, when it placed second in 1995 (Ibbotson
Associates/Morgan Stanley Capital International). As the majority of foreign
markets continue to exhibit a low correlation to the U.S. market (and therefore
offer potential diversification benefits), while offering the potential for
return enhancement, management believes that an increased number of investors
will ultimately see the benefits of investing globally
.
While investing in international markets also 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. Among the risk considerations
involved in investing in international markets is that less information may be
available about foreign companies than about domestic companies. Foreign
companies are also generally not 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 generally are determined by the forces of
supply and demand in the foreign exchange markets and the relative merits of
investments in different countries as seen from an international perspective.
Currency exchange rates can also be affected unpredictably by intervention of
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U.S. or foreign governments or central banks or by currency controls or
political developments in the U.S. or abroad.
The value of international fixed income products also responds to interest rate
changes in both the U.S. and abroad. In general, the value of such products will
rise when interest rates fall, and fall when interest rates rise. Interest rates
in the U.S. and other foreign countries may change independently of each other.
Thus foreign fixed income products may increase in value while U.S. fixed income
products decrease in value and vice versa.
International markets and securities may also not be as liquid as U.S.
securities and their markets. Investing in international securities may further
result in higher expenses than investing in domestic securities because of the
cost of converting foreign currencies to U.S. dollars and expenses relating to
foreign custody. Investment in international securities may also be subject to
local economic or political risks, including instability of some foreign
governments, the possibility of currency blockage or the imposition of
withholding taxes on dividend or interest payments and the potential for
expropriation, nationalization or confiscatory taxation and limitations on the
use or removal of funds or other assets.
As an example of the types of risk discussed above, recent market declines in
the emerging markets, particularly those of Southeast Asia, have resulted in
substantial declines in the valuation of Southeast Asian investment portfolios.
While these market declines can provide low cost buying opportunities for
clients of IAAC, declines in these markets can also cause client concerns and a
reluctance to make further investments in foreign markets. Any such reluctance
could lead to reduced commission revenues to the Company as well as trading
losses from market price declines and overall volatility. These developments
could have a material impact on the consolidated financial statements.
The Brokerage Business
For the fiscal years ended September 30, 1998 and 1997, approximately 75% of the
Company's total revenues were derived from commissions earned from transactions
with its retail clients. The Company's client base is composed primarily of high
net worth individuals. The average age of its clients is approximately 56 and a
substantial portion are retirees. Clients are distributed nationwide. However, a
particularly large number of clients reside in Florida, California, New York,
Texas and Pennsylvania. The Company has approximately 9,000 active client
accounts at September 30, 1998.
Retail commissions are charged on both exchange and over-the-counter agency
transactions based on a schedule, which is subject to change, that the Company
has formulated in accordance with guidelines promulgated by the NASD. During
1995 the Company began selling proprietary Unit Investment Trust ("UIT")
products. The Company acts as the managing underwriter for these UIT products.
The Company has also developed a niche market in the sale of international debt
securities. The Company uses its capital to purchase debt securities and, in
turn, makes offerings as low as $10,000 available to its private clients.
Transactions in securities may be effected on either a cash or margin basis.
Through its clearing agent, the Company allows its clients to maintain margin
accounts for securities purchased or sold short through the Company.
Principal Transactions
In addition to executing trades as agent, the Company acts as a principal in
executing trades in over-the-counter debt and equity securities. When
transactions are executed by the Company on a principal basis, the Company
receives, in lieu of commissions, markups or markdowns that constitute revenues
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from principal transactions. To facilitate trading by its clients, the Company
buys, sells and maintains inventories of approximately 150 primarily
international securities.
The Company places its capital at risk by also trading as a "market maker" in a
select group of approximately 75 international securities which are traded by
the Company's clients. The Company's emphasis in such trades is on earning
revenues from the spread between customer buy and sell orders.
Revenues from principal transactions depend upon the general trend of prices and
level of activity in the securities markets, the skill of employees responsible
for managing the Company's trading accounts and the size of its inventories. The
activities of the Company in trading as a principal require the commitment of
capital and create an opportunity for profit and risk of loss due to market
fluctuations.
The level of securities positions carried in the Company's trading accounts
fluctuates significantly. The size of such positions on any one date may not be
representative of the Company's exposure on any other date because the
securities positions vary substantially depending upon economic and market
conditions, the allocation of capital among types of inventories, customer
demands and trading volume. The aggregate value of the securities in the
Company's inventory is limited by certain requirements of the SEC Net Capital
Rule. See "Net Capital Requirements."
Marketing
The Company believes that its ability to deliver its global securities message
in a cost-effective manner is a key element to its operations. The Company uses
a variety of marketing tools. These include targeted direct mail, newsletter
publishing, advertising, public relations and promoting public appearances by
Mr. Veitia, the Company's Chairman and Chief Executive Officer.
After some experimentation with a variety of marketing tools in the Company's
early years, management has found direct mail marketing to be the most
cost-effective mechanism for attracting customers. The Company believes that it
has developed an expertise in attracting high net worth clients through the use
of low cost, direct mail marketing techniques. The Company further believes that
the most important aspect of its direct mail marketing effort is its database of
potential clients. The Company's database currently has access to approximately
1,000,000 names, including approximately 9,000 clients, 40,000 subscribers and
prospective clients that receive the Company's newsletter. The Company also
sends existing and prospective clients separate items such as research reports,
fax and E-mail alerts and other special reports with a narrower focus than its
newsletters.
Competition
The Company encounters competition in conducting its business and such
competition is expected to continue. Although the securities industry, in
general, is intensely competitive, the Company believes that competition is less
intense in its niche market. However, the Company competes with many firms with
capital and personnel resources far in excess of those which are presently
available to the Company or which are expected to be available to the Company in
the future. Additionally, the Company is affected and will continue to be
affected by the investing public's interest in international securities. In this
regard, international securities are in competition with other investment
vehicles offered by other securities broker-dealers and financial intermediaries
such as commercial banks, savings banks, insurance companies and similar
institutions. The Company believes that the principal competitive factors in the
securities industry are the quality and ability of professional personnel and
the relative prices of services and products offered. The Company believes that,
to date, it has been able to compete favorably with other broker-dealers and
financial intermediaries primarily on the basis of the quality of its services
and the depth of its expertise in the international securities market.
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Research Services
The Company's research activities include reviewing general market conditions,
specific industries, and individual companies and providing information with
respect thereto in Company newsletters, which discuss international economic and
currency trends and give readers specific investment recommendations and ideas.
These services are made available without charge to clients.
The Company's investment research committee (the "Investment Committee") makes
decisions concerning the overall investment policy of the Company based on its
assessment of macro-economic and macro-market factors. The Investment Committee
also makes determinations regarding the allocation of Company and client assets
into geographic, currency, and security type (debt, equity and cash) categories.
After this allocation decision has been made, the research analyists recommend
individual securities for investment. The focus is on the analysis of a
particular company and its debt or equity securities.
Once the investment committee has made its initial recommendations, the research
department analyzes such recommendations to determine which recommendations are
appropriate for the Company's client base. Focus is placed on equity securities
which are priced at a retail level, generally $50 per share or less. In
addition, since private clients are less diversified than institutions, there is
an emphasis on blue-chip and higher quality investments. Following its analysis
of these factors, the research department issues a list of international
securities from which account executives can make recommendations to their
clients.
Administration and Operations
The Company's trading and operations personnel are responsible for executing
orders, transmitting information on all transactions to its clearing broker,
mailing confirmations to clients, receiving all funds and securities, depositing
all client funds into a bank account in the name of the clearing broker and
transmitting securities to the Company's clearing broker for custody.
The Company also utilizes the services of a securities clearing broker. The
Company's clearing broker performs many back office functions for the Company in
connection with its duties as custodian of all client funds and securities. When
a new account is established, the new account information is sent to the
clearing broker, which in turn sets up and maintains the information for the
account. All securities and monies are held in custody by the clearing broker.
The clearing broker prepares and mails account statements directly to clients on
behalf of the Company. Transaction confirmations for customers are formatted
through the clearing broker's wire system for printing and mailing by IAAC. The
Company's brokers and operations staff are able to receive on-line account
information from the clearing broker. By engaging the processing services of a
clearing broker, the Company is exempt from certain reserve requirements imposed
by Rule 15c3-3 under the Securities Exchange Act of 1934, as amended. See "Net
Capital Requirements."
The Company's clearing broker also extends credit to the Company and its
customers to enable them to purchase securities on margin. Margin accounts allow
customers to deposit less than the full cost of a security purchased with the
balance of the purchase price being provided as a loan to the customer secured
by the securities purchased. The amount of the loan in purchasing securities on
margin is subject to both the margin regulations ("Regulation T") of the Board
of Governors of the Federal Reserve System and the Company's clearing broker's
internal policies. In most transactions, Regulation T limits the amount loaned
to a client for the purchase of a particular security to 50% of the purchase
price.
The Company maintains internal records of all transactions, which are compared
on a daily basis to clearing transaction generated reports. The Company uses
automated computer capabilities for these functions, which it will continue to
expand.
The Company believes that its internal controls and safeguards against
securities theft are adequate. As required by the NASD and other authorities,
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the Company carries a fidelity bond covering any loss or theft of securities, as
well as embezzlement and forgery. IAAC annually assesses the total required bond
coverage and carries a $250,000 limit. This $250,000 limit is the maximum
required bond limit of the NASD.
The Company's administrative staff oversees internal financial controls,
accounting functions, office services and compliance with regulatory
requirements.
Regulation
The securities industry in the United States is subject to extensive regulation
under Federal and state laws. The SEC is the Federal agency charged with
administration of the Federal securities laws. Much of the regulation of
broker-dealers, however, has been delegated to self-regulatory organizations,
principally the NASD and the national securities exchanges. The self-regulatory
organizations adopt rules (which are subject to approval by the SEC) that govern
the industry and conduct periodic examinations of member broker-dealers.
Securities firms are also subject to regulation by state securities commissions
in the states in which they do business. IAAC is currently registered as a
broker-dealer in 49 states and the District of Columbia.
The regulations to which broker-dealers are subject cover all aspects of the
securities business, including sales methods, trading practices among
broker-dealers, capital structure of securities firms, uses and safekeeping of
customers' funds and securities, record keeping, the conduct of directors,
officers and employees and supervision of branches and registered
representatives. Lack of adequate supervision could subject the broker-dealer to
regulatory sanctions. Additional legislation, changes in rules promulgated by
the SEC and by self-regulatory organizations, or changes in the interpretation
or enforcement of existing laws and rules often directly affect the method of
operation and profitability of broker-dealers. The SEC, the self-regulatory
organizations and state securities commissions may conduct administrative
proceedings, which can result in censure, fine, suspension or expulsion of a
broker-dealer, its officers or employees. Such administrative proceedings,
whether or not resulting in adverse findings, can require substantial
expenditures. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities markets, rather
than the protection of creditors and stockbrokers of broker-dealers.
IAAC is required by Federal law to belong to SIPC. The SIPC fund provides
protection for securities held in customer accounts of up to $500,000 per
customer, with a limitation of $100,000 on claims for cash balances. In
addition, securities in an account at the Company's clearing broker are afforded
additional protection by the clearing broker of up to $9,500,000.
Net Capital Requirements
IAAC is subject to the SEC's uniform net capital rule (Rule 15c3-1 (the
"Rule")), which is designed to measure the liquidity of a broker-dealer and the
maintenance of minimum net capital deemed necessary to meet its commitments to
its customers. The Rule provides that a broker-dealer doing business with the
public must not permit its aggregate indebtedness to exceed 15 times its net
capital (the "Basic Method") or, alternatively, that it not permit its net
capital to be less than 2% of aggregate debit items computed in accordance with
the Rule (the "Alternative Method"). The Rule requires IAAC to maintain minimum
net capital at an amount equal to the greater of $100,000, 6-2/3% of aggregate
indebtedness or $2,500 for each security in which it makes a market (unless a
security in which it makes a market has a market value of $5 or less, in which
event the amount of net capital shall not be less than $1,000 for each such
security) with a ceiling of $1,000,000.
Any failure to maintain the required net capital may subject a broker-dealer to
expulsion by the NASD, the SEC or other regulatory bodies, and may ultimately
require its liquidation.
IAAC is in compliance with the Rule, as well as the applicable minimum net
capital requirements of the NASD. IAAC has elected to compute its net capital
under the Basic Method. In computing net capital under the Rule, various
adjustments are made to net worth with a view to excluding assets not readily
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convertible into cash and to providing a conservative statement of other assets,
such as a firm's position in securities. To that end, a deduction is made
against the market value of securities to reflect the possibility of a market
decline before their disposition. For every dollar that net capital is reduced,
by means of such deductions or otherwise (for example, through operating losses
or capital distributions), the maximum aggregate indebtedness a firm may carry
is reduced. Thus, net capital rules, which are unique to the securities
industry, impose financial restrictions upon the Company's business that are
more severe than those imposed on other types of businesses. Compliance with the
net capital rules may limit the operations of the Company because they require
minimum capital for such purposes as underwriting securities distributions, and
maintaining the inventory required for trading in securities.
Net capital changes from day to day, but at September 30, 1998 and 1997, IAAC
had excess net capital of $2,845,889 and $2,331,202, respectively, and a ratio
of aggregate indebtedness to net capital of .27 to 1 and .51 to 1, respectively.
Pursuant to paragraph (k)(2)(ii) of SEC Rule 15c3-3, IAAC is exempt from
customer reserve requirements and providing information relating to possession
or control of securities.
Employees
At September 30, 1998, the Company employed 76 employees, of which 70 were full
time employees. Of such employees, 7 have managerial responsibilities, 32 are
account executives, 7 are traders and 30 have administrative duties, including
persons engaged in other service areas such as research, money management,
accounting, operations, compliance and marketing. The Company considers its
relationship with its employees to be good.
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 environment 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.
ITEM 2. DESCRIPTION OF PROPERTY.
Currently the Company occupies leased office space of approximately 13,815
square feet at 250 Park Avenue South, Winter Park, Florida. The lease expires in
May, 2001. The Company believes that suitable additional space will be available
as needed to accommodate the expansion of its operations.
ITEM 3. LEGAL PROCEEDINGS.
During the year ended September 30, 1998, the Company received notification from
an NASD arbitration panel that an award of $99,845 plus $100,000 reimbursement
for a portion of the claimant's legal fees was awarded. During the year ended
September 30, 1997, the Company settled certain client matters arising in the
normal course of business totaling $146,000. These costs have been included in
other operating expenses in the accompanying consolidated statement of
operations.
The Company is party to certain litigation as of September 30, 1998 which
relates primarily to matters arising in the ordinary course of business.
Management of the Company anticipates that the final resolution of these items
will not have a material adverse effect on the Company's consolidated financial
statements.
The foregoing discussion contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
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forward-looking statements involve various risks and uncertainties with respect
to current legal proceedings. Although the Company believes that its expectation
with respect to the forward-looking statements are based upon reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurances that the actual results, performance or achievement
of the Company will not differ materially from any future results, performance
or achievements expressed or implied by such forward-looking statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the NASDAQ SmallCap Market under the symbol
IAAC. The Company's Redeemable Warrants which traded separately on the NASDAQ
SmallCap Market under the symbol IAACW expired unexercised on February 11, 1997.
The Common Stock began trading independently from the Redeemable Warrants on
NASDAQ effective February 11, 1995. Prior to February 11, 1995, one share of
Common Stock and one Warrant, which when exercised enabled the holder thereof to
purchase one share of the Company's Common Stock, traded as one Unit on the
NASDAQ SmallCap Market under the symbol IAACU. The Units began trading on NASDAQ
in March, 1994 and ceased trading in February, 1995.
On November 14, 1997 the Board of Directors of the Company declared a 10% stock
dividend for shareholders of record on December 26, 1997 and payable on January
20, 1998. As a result of this stock dividend the common stock prices prior to
December 26, 1997 (Fiscal Year 1998 first fiscal quarter) presented have been
restated (reduced) by 10%.
The following table sets forth, for the periods indicated, the range of high and
low sales prices per Common Share and Warrant as reported by NASDAQ, which
prices do not include retail mark-ups, mark-downs, or commissions and represent
prices between dealers and not necessarily actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C>
High Low
The Company's Common Stock, as traded under the symbol IAAC
Fiscal Year 1997
First Quarter............................................... 4 2 1/2
Second Quarter.............................................. 3 1/8 2 3/8
Third Quarter............................................... 3 1/4 2 1/2
Fourth Quarter.............................................. 4 3/4 2 13/16
Fiscal Year 1998
First Quarter............................................... 4 3/4 3 5/8
Second Quarter.............................................. 4 1/4 3 1/4
Third Quarter............................................... 3 3/4 3
Fourth Quarter.............................................. 3 3/8 1 1/2
The Company's Warrants, as traded under the symbol IAACW,expired
February 11,1997
Fiscal Year 1997
First Quarter............................................... 1/8 1/32
Second Quarter.............................................. 1/32 1/32
</TABLE>
11
<PAGE>
There were approximately 158 shareholders of record of the Common Stock at
September 30, 1998. The total shareholders of record stated does not include the
approximate number of total beneficial shareholders.
The Company has never paid or declared cash dividends on its Common Stock and
does not intend to pay cash dividends on its Common Stock in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The payment by the Company of cash
dividends, if any, on its Common Stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
Certain statements in this discussion may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks
including, but not limited to, changes in general economic and business
conditions, interest rate and securities market fluctuations, competition from
within and from outside the investment brokerage industry, new products and
services in the investment brokerage industry, changing trends in customer
profiles, Year 2000 issues and changes in laws and regulation applicable to the
Company. Although the Company believes that its expectation with respect to the
forward-looking statements are based upon reasonable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurances that the actual results, performance or achievement of the Company
will not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.
The Company's assets have decreased from $7,928,214 in 1997 to $6,560,081 in
1998 and the Company's liabilities decreased from $2,100,820 in 1997 to
$1,148,931 in 1998. The decrease in assets is primarily attributable to a
$1,813,910 decrease in securities owned offset by a $386,703 increase in
receivable from clearing broker. The decrease in total liabilities is primarily
attributable to a $609,437 decrease in accrued salaries and a $391,651 decrease
in securities sold, but not yet purchased. The decrease in the net assets
(assets less liabilities) of $416,244 relates to the $217,338 net loss incurred
by the Company for the fiscal year ended September 30, 1998, and costs from
Company stock repurchases totaling $198,906 for the same period.
The Company's consolidated balance sheet at September 30, 1998, reflects a net
receivable from clearing broker, for trades which had not yet settled for cash,
due to the proceeds from the sale of securities exceeding the cost of securities
purchased.
The Company's principal activities, securities brokerage and the trading of and
market-making in securities, are highly competitive and extremely volatile. 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.
Recent market declines in the emerging markets, particularly those of Southeast
Asia, have resulted in substantial declines in the valuation of Southeast Asian
investment portfolios. While these market declines can provide low cost buying
opportunities for clients of IAAC, declines in these markets can also cause
client concerns and a reluctance to make further investments in foreign markets.
Any such reluctance could lead to reduced commission revenues to the Company as
well as trading losses from market price declines and overall volatility. These
developments could have a material impact on the consolidated financial
statements.
12
<PAGE>
Results of Operations: 1998 Compared to 1997
The Company's revenues are derived primarily from commissions earned on the sale
of securities and net dealer inventory and investment gains (trading income) in
securities purchased or sold for the Company's account. For each of the years
ended September 30, 1998 and 1997, approximately 75% of the Company's revenues
were derived from commissions earned on the sale of securities, with
approximately 19% and 20%, respectively, of revenues coming from net dealer
inventory and investment gains.
Total revenues decreased by approximately 24% to $9,350,223 in 1998 from
$12,301,621 in 1997. This decrease was primarily attributable to a $2,249,192
decrease in commission revenue primarily due to a decrease in retail security
order flow. Commission revenue decreased by approximately 24% to $7,000,069 for
1998 from $9,249,261 for 1997. Revenues from commissions are affected by both
retail trading volume and the dollar amount of retail trades. Based on the
number of retail trades processed, 1998 volume decreased by approximately 13%
from 1997 levels. In addition, the dollar average of retail trades decreased by
14% for 1998 as compared with 1997. The average number of account executives
decreased from an average of 44 in 1997 to an average of 39 in 1998, or a
decrease of approximately 11%.
Net dealer inventory and investment gains decreased by approximately 27% to
$1,791,739 for 1998 from $2,457,892 for 1997. The decrease in net dealer
inventory and investment gains is primarily attributable to decreases in both
retail trading and decreases in Company investment portfolio valuations due to
the volatility of the foreign and especially Asian financial markets. The
decreases in retail trading and investment portfolio valuations were partially
offset by increases in wholesale trading activity. The increase in wholesale
trading is attributable to the ongoing development of new wholesale trading
relationships by the Company as well as maintenance of existing wholesale
relationships. The Company's retail trading department primarily concentrates on
global securities which it believes are likely to be traded by the Company's
clients. By focusing on these types of securities, trading income is more
directly related to commission income and order flow.
Revenues from management and investment advisory fees decreased by approximately
9% to $73,657 for 1998 from $81,302 for 1997. The decrease is primarily due to
decreases in the dollar amount of money under management as well as decreases in
investment supervisory fees.
Interest and dividend revenue decreased by approximately 3% to $269,855 for 1998
from $279,041 in 1997. This decrease is partly attributable to somewhat lower
yields on securities and investments held by the Company throughout the 1998
fiscal year. The decrease is also attributable to decreases in invested funds
available from the operations of the Company.
Total expenses decreased by $1,433,987, or approximately 13% from 1997 as
compared to 1998. This decrease in total expense is related to the corresponding
decrease in total revenues. The major expenses incurred by the Company relate to
direct costs of its securities operations such as commissions and clearing fees,
employees compensation and benefits, communications and promotion expense.
Commissions and clearing fees decreased by $936,854, or approximately 18% from
1997 as compared to 1998. This decrease in commissions and clearing fees is
directly related to the 24% decrease in commission revenue and the 27% decrease
in net dealer inventory and investment gains.
Employees compensation and benefits decreased by $683,493, or approximately 26%
from 1997 as compared to 1998. The decrease in employees compensation and
benefits expense is primarily due to the decrease in performance based bonus
expense and a decrease in retirement plan profit sharing expense. The decrease
in performance based bonus and retirement plan profit sharing expense is based
on the $297,159 loss before income taxes incurred for 1998 compared to the
$1,220,252 income before income taxes for 1997.
13
<PAGE>
Promotion expense decreased by $42,000, or approximately 3% from 1997 as
compared to 1998. This decrease is primarily due to the reduction of promotion
related expenditures including travel and entertainment expenditures.
Expenditures by the marketing department for print media, including newsletter
publication and postage, remained approximately the same for 1998 as compared to
1997.
Communications expense decreased by $45,012, or approximately 12% from 1997 as
compared to 1998. This decrease is due to decreased telephone expense due to the
corresponding decrease in average account executives from 44 in 1997 to 39 for
1998. Occupancy and equipment rental expense increased by $35,750, or
approximately 11% from 1997 as compared to 1998. This increase was due to a
scheduled rent increase previously negotiated with the owner of the Company's
leased premises as well as an increase in other leased equipment expense.
Professional fees increased by $62,303, or approximately 17% from 1997 as
compared to 1998. This increase is primarily due to the legal fees incurred from
a closed NASD arbitration matter. Other operating expenses increased by
$179,394, or approximately 32% from 1997 as compared to 1998. Approximately
$100,000 of the increase in other operating expenses is for the award of the
same closed arbitration matter and an additional $100,000 of the increase is for
partial reimbursement of the claimants legal fees also awarded to the claimant
in the same matter. Other operating expenses included various other expenses
that decreased from 1997 to 1998 offsetting a portion of the expenses related to
the closed arbitration matter.
As a result of the above, the Company is reporting a net loss of $217,338 for
the year ended September 30, 1998. This is compared to net income of $717,869
for the year ended September 30, 1997. The Company's effective income tax
benefit was approximately 26.8% for 1998 compared to the effective income tax
rate of 41.2% for 1997. The effective tax rate decrease for 1998 from the
expected 34% benefit is primarily due to the effect of permanent differences.
1997 Compared to 1996
Total revenues increased by approximately 9% to $12,301,621 in 1997 from
$11,321,295 in 1996. This increase was derived primarily from a $862,433
increase in commission revenue primarily due to an increase in security order
flow. Commission revenue increased by approximately 10% to $9,249,261 for 1997
from $8,386,828 for 1996. Revenues from commissions are affected by both trading
volume and the dollar amount of trades. Based on the number of trades processed,
1997 volume increased by approximately 15% from 1996 levels. However, this 15%
increase in trades processed volume was somewhat offset by a 4% decrease in the
dollar average of trades for 1997 as compared with 1996. The average number of
account executives increased from 40 in 1996 to 44 in 1997, or an increase of
approximately 10%.
Net dealer inventory and investment gains increased by approximately 5% to
$2,457,892 for 1997 from $2,355,761 for 1996. The increase in net dealer
inventory and investment gains is primarily attributable to increases in both
fixed income trading and increases in the volume of wholesale trading
activities. The Company's retail trading desk primarily concentrates on global
securities which it believes are likely to be traded by the Company's clients.
By focusing on these types of securities, retail trading income is more directly
related to commission income and order flow.
Revenues from management and investment advisory fees increased by approximately
43% to $81,302 for 1997 from $56,694 for 1996. The increase is primarily due to
increases in the dollar amount of money under management as well as increases in
investment supervisory fees.
Interest and dividend revenue increased by approximately 6% to $279,041 for 1997
from $263,951 in 1996. This increase is partly attributable to somewhat higher
yields on securities and investments held by the Company throughout the 1997
fiscal year. The increase is also attributable to increases in invested funds
from profitable operations of the Company.
14
<PAGE>
Total expenses increased by $975,235, or approximately 10% from 1996 as compared
to 1997. This increase in total expense is partially offset by the approximate
9% increase in total revenues. The major expenses incurred by the Company relate
to direct costs of its securities operations such as commissions and clearing
fees, employees compensation and benefits, communications and promotion expense.
Commissions and clearing fees increased by $557,454, or approximately 12% from
1996 as compared to 1997. This increase in commissions and clearing fees is
directly related to the 10% increase in commission revenue and the 5% increase
in net dealer inventory and investment gains.
Employee compensation and benefits increased by $137,539, or approximately 6%
from 1996 as compared to 1997. The increase in employee compensation and benefit
expense is primarily due to the cost of additional employees hired by the
Company and overall wage increases.
Promotion expense decreased by $74,790, or approximately 6% from 1996 as
compared to 1997. This decrease is primarily due to the elimination of funding
from the Company to IFP for promotional activities. As of October 1996, Company
funding for all IFP promotional activities was ceased due to the unsuccessful
efforts of IFP in generating revenues.
Communications expense increased by $15,476, or approximately 4% from 1996 as
compared to 1997. This increase is due to increased telephone and general
corporate use printing activities. Occupancy and equipment rental expense
decreased by $25,514, or approximately 7% from 1996 as compared to 1997. This
decrease was due to a rent reduction negotiated with the owner of the Company's
leased premises.
As a result of the above, income before income taxes increased by $5,091, or
approximately .4% in 1997 over 1996. Income tax expense increased by $13,583, or
approximately 3% from 1996 as compared to 1997. The increase in income tax
expense is due to the $5,091 increase in income before income taxes and an
increase in the effective income tax rate, due to the increase in several non
deductible expenses. As a result of the above net income decreased by $8,492, or
approximately 1% in 1997 as compared to 1996. The Company's effective income tax
rate was approximately 41.2% and 40.2% for 1997 and 1996, respectively.
Liquidity and Capital Resources
A substantial portion of the Company's assets are liquid. At September 30, 1998,
approximately 88% of the Company's assets consisted of cash, cash deposits with
clearing broker (a cash equivalent), marketable securities and receivable from
clearing broker, net. All assets are financed by the Company's equity capital,
short-term borrowings from securities lending transactions and other payables.
IAAC is subject to the requirements of the SEC and the NASD relating to
liquidity and net capital levels. At September 30, 1998, IAAC had net capital of
$2,961,389, which was $2,845,889 in excess of its minimum net capital
requirement at that date.
In the opinion of management, the Company's existing capital and cash flow from
operations will be adequate to meet the Company's capital needs for at least the
next 12 months in light of known and reasonably estimated trends. In addition,
management believes that the Company will be able to obtain additional short or
medium-term financing that may be desirable in the ordinary conduct of its
business. The Company has no plans for additional financing and there can be no
assurance such financing will be available.
Year 2000 Compliance
The securities industry is, to a significant extent, technologically driven and
dependent. In addition to some internally utilized technological applications,
the Company's businesses are materially dependant upon the performance of
exchanges, market centers, counterparties, customers and vendors (collectively
15
<PAGE>
"the Company's material third parties") who, in turn, may be heavily reliant on
technological applications. The securities industry is interdependent with each
other, strengthened or weakened by the quality and performance of its attendant
information and embedded technology.
The Company is aware that the Year 2000 provides potential problems with the
programming code in existing computer systems. The Year 2000 problem is
extensive and complex as virtually every computer operation will be affected to
some degree by the change of the two digit year value to 00. The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or fail.
The failure or faulty performance of computer systems could potentially have a
far ranging impact on the Company's business such as a diminution in its ability
to (a) ascertain information vital to strategic decision making by both the
Company and its customers; (b) perform interest rate and pricing calculations;
(c) execute and settle proprietary and customer transactions; (d) undertake
regulatory surveillance and risk management; (e) maintain accurate books and
records and provide timely reports; (f) maintain appropriate internal financial
operations and accounting; and (g) access credit facilities for both the Company
and its customers.
Accordingly it is necessary for the Company, to the extent reasonably
practicable, to identify the internal computer systems and software which are
likely to have a critical impact on its operations, make an assessment of its
Year 2000 readiness and modify or replace information and embedded technology as
needed. Some of these critical internal data processing systems include the
Company's internal Novel network, sales contact management software, general
ledger accounting software, trading income calculation software and retail
commission tracking programs. Assessment of these internal programs is primarily
completed and final remediation in process and largely completed. In addition,
the Company must make a Year 2000 readiness assessment for the Company's
material third parties.
Because the Company utilizes the services of Wexford Clearing Services
Corporation ("Wexford") in its business, data processing system aspects of the
Year 2000 problem related to securities clearing, custody of client securities,
back office operations, cashiering and margin and credit will be addressed by
Wexford (a wholly owned guaranteed subsidiary of Prudential Securities
Incorporated "Prudential"). Although Wexford is the contracting party for the
provision of these critical services, Wexford in fact delivers those services
through the operations of Prudential, a leading registered broker and dealer.
Consequently, it is the readiness of Prudential that is critical when assessing
the Year 2000 compliance of the clearing and operations capacity of the
Company's active broker-dealer. Prudential has been assessed, by internal
industry standards established by the Securities Industry Association, to be
within the top tier of Year 2000 readiness. In recent industry-wide testing
conducted by the Securities Industry Association, in which Prudential took part,
Prudential and other participants were able to input transactions and send them
to the appropriate markets for execution, confirmation and clearance under
simulated Year 2000 conditions.
Additionally, the Company has assessed the state of readiness of almost all
known technologically oriented service vendors and believes, based on letters of
certification, that the vast majority of these vendors are Year 2000 compliant
with the remainder expected to be compliant before April 1999. This
determination does not mean that the vast majority of the Company's material
third parties pose no Year 2000 risk to the Company. First, the Company is
relying in large measure on these parties' assessments of their readiness.
Second, there are several vendors, which account for a substantial portion of
the Company's mission critical operations, which may be partially or largely,
but not fully, Year 2000 compliant. Finally, certain critical third parties,
such as exchanges, clearing houses, depositaries and other service vendors have
no direct functional contact with the Company (as they operate directly with
Wexford) but may impact the Company's operations.
During fiscal year 1997 the Company began the strategic review process as it
relates to the Year 2000 process. The Board of Directors of the Company approved
the Company's Year 2000 plan at its meeting on July 17, 1998. This plan includes
16
<PAGE>
all phases necessary and budgetary consideration for each fiscal year through
the Year 2000.
The Year 2000 remediation plan and process includes (1) identification,
modification and testing of non-compliant Year 2000 code; (2) identification,
inventory, assessment and, if necessary, modification of internal ad hoc systems
or applications that may be material to the Company's operations; (3) with the
exception of counterparties and customers, documentation of the assessment of
the readiness of the Company's material third parties; and (4) a timetable for
completion of all year 2000 plans implementation steps for amendment to the plan
as required. Specifically, the Company intends to test the Year 2000 readiness
of its major vendor for market data and undertake certain disaster recovery
simulations of its systems by April 1999. During the year ended September 30,
1998 the Company incurred approximately $76,000 of costs related to the Year
2000 problem. The Company has budgeted a total of $193,000 for Year 2000 related
costs for the 20 month period from June 1998 through January 2000. This Year
2000 budget will be funded from the working capital of the Company. Provided
there is an absence of unanticipated critical events, the Company does not
expect Year 2000 costs to have a material effect on its operating results,
financial condition or cash flows.
At this stage the Company has not developed any substantial Year 2000
contingency plans for the following reasons: (1) the Company has minimal
internally generated systems; (2) the Company's vendors have represented that
they are either currently Year 2000 compliant or will become so by April 1999;
(3) there are no alternatives in the event the exchanges or other market centers
fail to perform; and (4) the Company believes it is highly likely that the
factors which may present a particular clearing firm from performing would
similarly affect all other clearing firms which would either preclude the
availability of alternative clearing service providers or overwhelm the
resources of surviving alternative clearing services providers. The Year 2000
presents a problem which is not likely to be susceptible to remediation at a
future date if it is not fixed in advance. The Company will, however, continue
to consider the viability of a contingency plan on a system-by-system basis.
The Company is cautiously optimistic about its current state of readiness and
its ability to make any further necessary modifications to internal systems in
time for the Year 2000. The Company also believes that its major third party
service provider, Prudential/Wexford, has undertaken a systematic approach to
the Year 2000 problem and will complete its plan which is designed to achieve a
state of readiness. However, there are factors outside the control of the
Company which make certainty impossible such as: (1) the inability to assess the
readiness of market counterparties and customers; (2) the inability to achieve
assurance as to any material third parties' representations of readiness; (3)
the global exposure to material third parties to Year 2000 problems outside the
United States which have a corresponding effect within the domestic securities
markets and operations; and (4) the limitations in anticipating all aspects of a
problem with which there is no prior historical experience. The presence of any
or all of these and other factors may well have a material adverse effect on the
Company's business, operating results, financial condition and cash flows.
Effects of Inflation
Because the Company's assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. Increases in the Company's expenses,
such as employee compensation, rent and communications, due to inflation, may
not be readily recoverable in the prices of services offered by the Company. In
addition, to the extent that inflation results in rising interest rates and has
other adverse effects on the securities markets and on the value of the
securities held in inventory, it may adversely affect the Company's financial
position and results of operations.
17
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Independent Auditors' Report...................................... F-1
Consolidated Balance Sheets as of
September 30, 1998 and 1997................................ F-2
Consolidated Statements of Operations for the Years Ended
September 30, 1998 and 1997................................ F-4
Consolidated Statements of Stockholder' Equity for the Years Ended
September 30, 1998 and 1997................................ F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998 and 1997................................ F-6
Notes to Consolidated Financial Statements...................... F-8
</TABLE>
18
<PAGE>
Independent Auditors' Report
The Board of Directors
International Assets Holding Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of International
Assets Holding Corporation and Subsidiaries as of September 30, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International Assets
Holding Corporation and Subsidiaries as of September 30, 1998 and 1997 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Orlando, Florida
November 17, 1998
F-1
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets 1998 1997
--------- ---------
Cash $ 617,628 551,257
Cash deposits with clearing broker 2,424,486 2,415,582
Foreign currency 3,961 -
Receivable from clearing broker, net 791,753 405,050
Other receivables 63,523 58,602
Securities owned, at market value 2,014,734 3,828,644
Income taxes receivable 67,398 3,655
Deferred income tax benefit 127,065 48,851
Property and equipment, at cost:
Leasehold improvements 52,953 52,953
Furniture and equipment 902,719 843,995
----------- ---------
955,672 896,948
Less accumulated depreciation and amortizatio (605,059) (456,822)
----------- ---------
Net property and equipment 350,613 440,126
Other assets, net of accumulated amortization of
$118,504 in 1998 and $88,750 in 1997 98,920 176,447
------------ ---------
Total assets $ 6,560,081 7,928,214
============ =========
See accompanying notes to consolidated financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities and Stockholders' Equity 1998 1997
----------- ----------
Liabilities:
Foreign currency sold, but not yet purchased $ 7,206 3,992
Securities sold, but not yet purchased, at market
value 290,403 682,054
Accounts payable 72,600 116,067
Accrued employee compensation and benefits 291,536 900,973
Accrued expenses 352,544 268,314
Deferred income taxes 16,797 20,059
Other liabilities 117,845 109,361
----------- ----------
Total liabilities 1,148,931 2,100,820
----------- ----------
Stockholders'equity:
Preferred stock, $.01 par value. Authorized 1,000,000
shares; issued and outstanding -0- shares ------ ------
Common stock, $.01 par value. Authorized 3,000,000
shares; issued and outstanding 1,481,574 and 1,411,262
shares in 1998 and 1997, respectively 14,816 14,113
Additional paid-in capital 3,564,648 3,125,043
Retained earnings 1,831,686 2,688,238
---------- ----------
Total stockholders' equity 5,411,150 5,827,394
Commitments and contingent liabilities
========== ==========
Total liabilities and stockholders' equity $ 6,560,081 7,928,214
========== ==========
</TABLE>
F-3
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
------------ ----------
Revenues:
Commissions $ 7,000,069 9,249,261
Net dealer inventory and investment gains 1,791,739 2,457,892
Management and investment advisory fees 73,657 81,302
Account maintenance fees 164,238 148,395
Interest and dividends 269,855 279,041
Other 50,666 85,730
------------ ----------
Total revenues 9,350,223 12,301,621
------------ ----------
Expenses:
Commissions and clearing fees 4,289,969 5,226,823
Employees compensation and benefits 1,926,792 2,610,285
Communications 328,295 373,307
Promotion 1,186,344 1,228,344
Occupancy and equipment rental 361,234 325,484
Interest 5,704 3,543
Professional fees 426,291 363,988
Insurance 197,718 219,823
Depreciation and amortization 177,991 162,122
Other operating expenses 747,044 567,650
------------ ----------
Total expenses 9,647,382 11,081,369
------------ ----------
Income (loss) before income taxes (297,159) 1,220,252
Income tax expense (benefit) (79,821) 502,383
============ ==========
Net income (loss) $ (217,338) 717,869
============ ==========
Earnings (loss) per share:
Basic $ (0.14) 0.45
============ ==========
Diluted $ (0.14) 0.44
============ ==========
Weighted average number of common shares outstanding:
Basic 1,533,534 1,578,966
============ ==========
Diluted 1,533,534 1,643,001
============ ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Additional Total
Preferred Common paid-in Retained Treasury stockholders'
stock stock capital earnings stock equity
-------------- ------------- ------------- -------------- ------------ -----------------
Balances at September 30, 1996 $ ------ 14,508 3,237,125 1,990,748 ------ 5,242,381
Acquisition of 24,025 common
shares ------ ------ ------ ------ (75,700) (75,700)
Acquisition of 15,500 common
shares ------ ------ ------ ------ (57,156) (57,156)
Retirement of 39,525 common
shares held in treasury ------ (395) (112,082) (20,379) 132,856 ------
Net income ------ ------ ------ 717,869 ------ 717,869
------------- ------------- ------------- -------------- ------------- -----------------
Balances at September 30, 1997 ------ 14,113 3,125,043 2,688,238 ------ 5,827,394
Acquisition of 63,336 common
shares ------ ------ ------ ------ (168,297) (168,297)
Acquisition of 7,000 common
shares ------ ------ ------ ------ (30,609) (30,609)
Retirement of 70,336 common
shares held in treasury ------ (703) (134,379) (63,824) 198,906 ------
10% stock dividend ------ 1,406 573,984 (575,390) ------ ------
============== ============= =============== ============== ================= ============
Balances at September 30, 1998 $ ------ 14,816 3,564,648 1,831,686 ------ 5,411,150
============== ============= =============== ============== ================= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----------------- -----------------
Cash flows from operating activities:
Net income $ (217,338) 717,869
(loss)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 177,991 162,122
Deferred income taxes (81,476) (17,843)
Cash provided by (used for) changes in:
Receivable from clearing broker, net (386,703) (167,914)
Receivable from affiliated company ----- 26,542
Other receivables (4,921) 49,483
Securities owned, at market value 1,813,910 (39,052)
Income taxes receivable (63,743) (3,655)
Other assets 47,773 (18,744)
Securities sold, but not yet purchased at market value (391,651) (347,027)
Accounts payable (43,467) 5,034
Accrued employee compensation and benefits (609,437) 57,029
Accrued expenses 84,230 111,993
Income taxes payable ----- (121,318)
Other liabilities 8,484 4,627
----------------- -----------------
Net cash provided by operating activities 333,652 419,146
----------------- -----------------
Cash flows from investing activities:
Acquisition of property and equipment and other assets (58,724) (250,096)
----------------- -----------------
Net cash used for investing activities (58,724) (250,096)
----------------- -----------------
Cash flows from financing activities:
Acquisition of common shares related to repurchase program (30,609) (57,156)
Acquisition of common shares related to terminated
ESOP participants and RSP participants (168,297) (75,700)
----------------- -----------------
Net cash used for financing activities (198,906) (132,856)
----------------- -----------------
Net increase in cash and cash equivalents 76,022 36,194
Cash and cash equivalents at beginning of year 2,962,847 2,926,653
================= =================
Cash and cash equivalents at end of year $ 3,038,869 2,962,847
================= =================
</TABLE>
(Continued)
F-6
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----------------- -----------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 5,704 3,543
================= =================
Income taxes paid $ 75,399 645,200
================= =================
Supplemental disclosure of noncash financing activities:
On January 20, 1998, the Company issued 140,648 shares of
common stock in conjunction with a ten percent stock
dividend.
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of International
Assets Holding Corporation (the Company or the parent company) and its five
wholly-owned subsidiaries, International Assets Advisory Corp., International
Assets Management Corp., Global Assets Advisors, Inc., International Financial
Products, Inc. and International Trader Association, Inc. International Assets
Advisory Corp. is a registered broker/dealer under the Securities Act of 1934.
Its securities transactions are cleared through Wexford Clearing Services
Corporation (a wholly-owned, guaranteed subsidiary of Prudential Securities
Incorporated) on a fully disclosed basis. International Assets Management Corp.
was formed to manage the physical assets of the Company. Global Assets Advisors,
Inc. provides investment advisory and account management services. International
Financial Products, Inc. is inactive but was formed to market products which are
not investments, but are related to the financial industry. International Trader
Association, Inc. was formed to capitalize on the use of recent and future
technology developments that relate to the securities industry and has had
minimal start-up activity to date. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Reclassifications
Certain prior year amounts have been reclassified to conform to fiscal year end
1998 presentation. These changes had no impact on previously reported results of
operations or stockholders' equity.
(c) Cash and Cash Equivalents
Cash equivalents consist of cash deposits with clearing broker, foreign currency
and foreign currency sold, but not yet purchased. Cash deposits with clearing
broker consist of cash and money market funds stated at cost which approximates
market. The money market funds earn interest at varying rates on a daily basis.
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
(d) Financial Instruments
As of September 30, 1998 and 1997, the carrying value of the Company's financial
instruments including cash, cash deposits with clearing broker, foreign
currency, receivables, accounts payable and accrued expenses approximate their
fair values, based on the short-term maturities of these instruments.
Additionally, the carrying value of securities owned and any securities and
foreign currency sold, but not yet purchased, approximate their fair value at
September 30, 1998 and 1997 as they are based on quoted market prices.
(Continued)
F-8
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(e) Valuation of Securities and Foreign Currency
Each listed security is valued at the last reported sale price. Listed
securities not traded on an exchange that day, and other securities, which are
traded in the over-the-counter market, are valued at the market's current bid
price for securities owned and current asked price for securities sold, but not
yet purchased. The value of a foreign security is determined in its national
currency on the exchange on which it is traded, which value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect following
the close of the stock exchange in the country where the security is issued and
traded.
The value of a foreign currency, including a foreign currency sold, but not yet
purchased, is converted into its U.S. dollar equivalent at the foreign exchange
rate in effect at the close of business on the measurement date.
As of September 30, 1998, securities includes a limited partnership ownership
interest of $86,992. The limited partnership ownership interest is recorded at
fair value, which has been determined by management. This limited partnership
ownership interest is held for the Company's investing purposes and is not held
for sale to the Company's customers.
(f) Revenue Recognition
The revenues of the Company are derived principally from commissions earned on
the sale of securities, from management and investment advisory fees, from
account maintenance fees charged to customers and from realized and unrealized
trading income in securities purchased or sold for the Company's account.
Commission and trading income are recorded as of the trade date of the
securities. Interest income is recorded on the accrual basis and dividend income
is recognized upon receipt.
(g) Depreciation and Amortization
Depreciation on property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets, which range from five to
seven years. Leasehold improvements are amortized using the straight-line method
over the estimated period of benefit to be received from the assets, which
approximates six years.
Intangible assets, included in other assets in the accompanying consolidated
balance sheets, are amortized using the straight-line method over the estimated
period of benefit to be received from the assets, which approximates five years.
(Continued)
F-90
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
as expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to an amount that, in the opinion
of management, is more likely than not to be realized.
The Company and its subsidiaries file consolidated federal and state income tax
returns.
(i) Advertising
The Company expenses costs of advertising as incurred and has included these
expenses in promotion expenses in the accompanying consolidated statements of
operations. Advertising costs for the years ended September 30, 1998 and 1997
were $872,882 and $816,835, respectively.
(j) Stock Option Plan
Prior to October 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
October 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(k) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported revenues and expenses during the period. Actual results could
differ from these estimates.
(Continued)
F-10
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(l) Earnings Per Share
Basic earnings (loss) per share has been computed by dividing net income (loss)
by the weighted average number of common shares outstanding. Diluted earnings
(loss) per share has been computed by dividing net income (loss) by the weighted
average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares, amounting to 64,035 shares for
the year ended September 30, 1997, reflect the potential dilution that could
occur if options to issue common stock were exercised.
Options to purchase 170,000 shares of common stock were excluded from the
calculation of diluted earnings per share for the year ended September 30, 1997
because their exercise prices exceeded the average market price of common shares
for the period. All options were excluded from the calculation of diluted
earnings (loss) per share for the year ended September 30, 1998, because their
inclusion would have been antidilutive.
(m) Future Application of Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The Company
is currently reviewing SFAS 133 to see what impact, if any, it will have on the
Company.
(2) Related Party Transactions
During the years ended September 30, 1998 and 1997, the Board of Directors of
the Company approved the reimbursement of approximately $39,000 and $100,000,
respectively, of expenses incurred in connection with responding to issues
raised during a Securities and Exchange Commission (SEC) inspection of an
affiliated company.
(Continued)
F-11
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
3) Securities Owned and Securities Sold, But Not Yet Purchased
Securities owned and securities sold, but not yet purchased at September 30,
1998 and 1997 consist of trading and investment securities at market values as
follows:
<TABLE>
<S> <C> <C>
Sold, but not
yet
Owned Purchased
__________ ________________
1998:
Obligations of U.S. Government $ 373,841 --
Common stock and American Depository Receipts 836,057 290,403
Corporate and municipal bonds 341,066 --
Foreign government obligations 26,713 --
Unit investment trusts, mutual funds and other investments
437,057 --
----------------- -----------------
$ 2,014,734 290,403
================= =================
1997:
Obligations of U.S. Government $ 933,766 --
Common stock and American Depository Receipts 1,302,419 682,054
Corporate and municipal bonds 426,254 --
Foreign government obligations 68,591 --
Unit investment trusts, mutual funds and other investments
1,097,614 --
----------------- -----------------
3,828,644 682,054
================= =================
</TABLE>
(4) Financial Instruments with Off-Balance Sheet Risk
The Company is party to certain financial instruments with off-balance sheet
risk in the normal course of business as a registered securities broker/dealer.
As of September 30, 1998 and 1997, the Company remains liable for a number of
equity securities it has sold, which are owned by outside parties (see note 3).
Risks arise from movements in the value of these securities which the Company
must purchase to cover those previously sold.
(Continued)
F-12
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(5) Liabilities Subordinated to Claims of General Creditors
During the years ended September 30, 1998 and 1997, International Assets
Advisory Corp. (IAAC) did not have any liabilities which were subordinated to
the claims of general creditors.
6) Capital and Cash Reserve Requirements
As of September 30, 1998 and 1997, IAAC is subject to the SEC uniform net
capital rule (Rule 15c3-1), which requires the maintenance of minimum net
capital at an amount equal to the greater of $100,000, 6-2/3% of aggregate
indebtedness, or $2,500 for each security in which a market is made with a bid
price over $5 and $1,000 for each security in which a market is made with a bid
price of $5 or less with a ceiling of $1,000,000, and requires that the ratio of
aggregate indebtedness to net capital not exceed 15 to 1. At September 30, 1998,
IAAC had excess net capital of approximately $2,845,889 and a ratio of aggregate
indebtedness to net capital of approximately .27 to 1.
IAAC is exempt from customer reserve requirements and providing information
relating to possession or control of securities pursuant to Rule 15c3-3 of the
Securities and Exchange Act of 1934. IAAC meets the exemptive provisions of
Paragraph (k)(2)(ii).
(7) Leases
The Company is obligated under various noncancelable operating leases for the
rental of its office facilities and certain office equipment. Rent expense
associated with these operating leases amounted to $284,800 and $264,045 for the
years ended September 30, 1998 and 1997, respectively. The future minimum lease
payments under noncancelable operating leases as of September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year ending September 30,
1999 $ 319,000
2000 330,100
2001 236,200
2002 29,500
2003 27,500
Thereafter 3,200
-----------------
Total future minimum lease payments $ 945,500
=================
</TABLE>
(Continued)
F-13
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
8) Income Taxes
Income tax expense (benefit) for the years ended September 30, 1998 and 1997
consists of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Current Deferred Total
------------------------------------
1998:
------------------------------------
Federal $ 1,345 (69,568) (68,223)
------------------------------------
State 310 (11,908) (11,598)
---------------- ---------------- ----------------
$ 1,655 (81,476) (79,821)
================ ================ ================
1997:
Federal $ 444,439 (15,244) 429,195
State 75,787 (2,599) 73,188
---------------- ---------------- ----------------
$ 520,226 (17,843) 502,383
================ ================ ================
</TABLE>
Total income tax expense (benefit) for the years ended September 30, 1998 and
1997 differed from the amounts computed by applying the U.S. federal income tax
rate of 34% to income (loss) before income taxes as a result of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----------------------------- -----------------------------
% of % of
pretax pretax
Amount income Amount income
-------------- ------------ ------------ ------------
Computed "expected" tax expense (benefit)
$ (101,034) (34.0)% $ 414,885 34.0%
Increase (decrease) in income tax
expense resulting from:
State income taxes, net of
federal income tax benefit (7,655) (2.6) 46,927 3.9
Meals and entertainment
expense not deductible for 21,552 7.3 27,034 2.2
tax purposes
Memberships, net 7,076 2.4 10,002 .8
Other, net 240 .1 3,535 .3
-------------- ------------ ------------ ------------
$ (79,821) (26.8)% $ 502,383 41.2%
============== ============ ============ ============
</TABLE>
(Continued)
F-14
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Deferred income taxes as of September 30, 1998 and 1997 reflect the impact of
"temporary differences" between amounts of assets and liabilities for financial
statement purposes and such amounts as measured by tax laws. The temporary
differences give rise to deferred tax assets and liabilities, which are
summarized below as of September 30, 1998 and 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
--------- ---------
Gross deferred tax liabilities:
Accumulated depreciation and amortization $ (16,797) (20,059)
---------------- -----------------
Gross deferred tax assets:
Accrued reserves 84,667 11,400
Rent abatement 8,208 14,144
Amortization of other assets 29,885 23,307
Contributions carryover 4,305 --
Total gross deferred tax assets 127,065 --
--------------- ------------------
$ 110,268 28,792
=============== ==================
</TABLE>
There was no valuation allowance for deferred tax assets as of September 30,
1998 and 1997. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income or the
reversal of deferred tax liabilities during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. As of September 30, 1998, based upon the
level of historical taxable income and projections for future taxable income,
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences.
(9) Employee Benefit Plans
IAAC has an Employee Stock Ownership Plan (ESOP) with 401(k) features which
enables generally all Company employees who have completed one year of
continuous service and who have attained the age of twenty-one to acquire shares
of the parent Company's common stock. The 401(k) feature allows employees to
elect to defer a portion of their salary into the ESOP. The amount contributed
reduces the employee's taxable compensation. IAAC has the option to make a
matching contribution based on a percentage of the participants' contributions.
The ESOP is a "nonleveraged" ESOP as of September 30, 1998 and 1997.
(Continued)
F-15
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
IAAC implemented a defined contribution Retirement Savings Plan ("RSP")
effective January 1, 1995. All employees who have completed one year of
continuous service and who have attained the age of twenty-one are eligible for
the RSP. The contributions to the RSP are at the sole discretion of IAAC.
IAAC's contributions to the various employee benefit plans for the years ended
September 30, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
------------ ------------
RSP $ -- 64,600
ESOP- 401(k) portion 1,209 59,864
--------------- -----------
$ 1,209 124,464
=============== ===========
</TABLE>
Benefits under the ESOP feature of the plan, which gradually vest over seven
years, and benefits under the 401(k) feature of the ESOP relative to participant
contributions, which are fully vested at all times, are paid upon death,
disability, retirement or termination of employment.
As of September 30, 1998 and 1997, 312,120 and 336,690 common shares of the
Company were allocated to ESOP participants, respectively. During the years
ended September 30, 1998 and 1997, 58,238 and 24,025 common shares of the
Company were purchased from terminated ESOP participants.
As of September 30, 1998 and 1997, 56,896 and 56,350 common shares of the
Company were allocated to RSP participants, respectively. During the years ended
September 30, 1998 and 1997, 5,089 and -0- common shares of the Company were
purchased from terminated RSP participants.
10) Stock Options
The International Assets Holding Corporation Stock Option Plan (the Plan) was
adopted by the Board of Directors of the Company and approved by the Company's
stockholders during January 1993. The Plan permits the granting of awards to
employees and directors of the Company and its subsidiaries in the form of stock
options. Stock options granted under the Plan may be "incentive stock options"
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended, or nonqualified options which do not meet the requirements of Section
422. As of September 30, 1998, a total of 500,000 shares of the Company's common
stock had been reserved for issuance pursuant to options granted under the Plan.
(Continued)
F-16
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
The Plan is administered by the Company's Board of Directors or a committee
thereof. The Plan gives broad powers to the Board of Directors to administer and
interpret the Plan, including the authority to select the individuals to be
granted options and rights and to prescribe the particular form and conditions
of each option or right granted. All options are granted at an exercise price
equal to the fair market value or 110 percent of the fair market value of the
Company's common stock on the date of the grant. Awards may be granted pursuant
to the Plan through January 2003. The Plan may be terminated earlier by the
Board of Directors at its sole discretion.
At September 30, 1998, there were 57,500 additional shares available for grant
under the Plan. Using the Black Scholes option-pricing model, the per share
weighted-average fair value of stock options granted during 1998 and 1997, where
exercise price equals the market price of the stock on the grant date, was $1.83
and $2.15, respectively.
The following weighted average assumptions were used:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---------------- ---------------
Exercise price equal to market price on grant date
Expected risk-free interest rate 5.56% 6.40%
Expected life 6.0 years 7.0 years
Expected volatility 55.60% 60.10%
Expected dividend yield 0.00% 0.00%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
-------------- -------------
Net income (loss) As reported $ (217,338) 717,869
Pro forma $ (305,656) 626,736
Basic earnings (loss) per share As reported $ (.14) 0.45
Pro forma $ (.20) 0.40
Diluted earnings (loss) per share As reported $ (.14) 0.44
Pro forma $ (.20) 0.38
</TABLE>
(Continued)
F-17
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Pro forma net income (loss) reflects only options granted in 1998, 1997 and
1996. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income (loss)
amounts presented above because compensation cost is reflected over the options'
expected life ranging from 5 to 7 years and compensation cost for options
granted prior to October 1, 1995 is not considered.
Stock option activity during the fiscal years ended September 30, 1997 and 1998
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Weighted-average
exercise price
Number of
shares
---------------- -----------------
Outstanding at September 30, 1996 425,000 $ 3.28
Granted 40,000 3.24
Exercised -- --
Forfeited -- --
Expired -- --
---------------- -----------------
Outstanding at September 30, 1997 465,000 $ 3.28
Granted 20,000 3.13
Exercised -- --
Forfeited (42,500) 3.88
Expired -- --
---------------- -----------------
Outstanding at September 30, 1998 442,500 $ 3.24
================ =================
</TABLE>
At September 30, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.27 - $5.11 and 6.53
years, respectively.
At September 30, 1998 and 1997, the number of options exercisable was 201,500
and 145,500, respectively, and the weighted-average exercise price of those
options was $3.64 and $3.89, respectively.
(Continued)
F-18
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Qualified Incentive Stock Options
As of September 30, 1998, options outstanding under qualified incentive stock
options, including their grant date, exercise price and expiration date, were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Options Exercise
outstanding Grant Date Price Expiration Date
____________ ___________________ __________ ________________
85,000 January 23, 1993 $ 4.64 January 23, 2003
40,000 August 12, 1994 5.00 August 12, 2004
10,000 December 21, 1995 2.73 December 21, 2005
110,000 December 28, 1995 2.50 December 28, 2005
105,000 December 28, 1995 2.27 December 28, 2005
5,000 March 7, 1996 2.73 March 7, 2006
30,000 December 11, 1996 3.01 December 11, 2006
10,000 August 26, 1997 3.92 August 26, 2007
10,000 February 13, 1998 3.38 February 13, 2008
------------------
405,000
==================
</TABLE>
The options granted on January 23, 1993 are exercisable at 25% per year
beginning two years from the date of grant. The options granted on August 12,
1994, December 21, 1995, March 7, 1996, December 11, 1996, August 26, 1997 and
February 13, 1998, are exercisable at 20% per year beginning three years from
the date of grant. The options granted on December 28, 1995 are exercisable at
20% per year beginning one year from the date of grant.
As of September 30, 1998 and 1997, no options have been exercised and 187,000
and 126,000 options, respectively, were exercisable under qualified incentive
stock options.
(Continued)
F-19
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
Nonqualified Options
As of September 30, 1998, options outstanding under nonqualified options,
including their grant date, exercise price and expiration date, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Options Exercise
outstanding Grant date Price Expiration date
________________ _________________ ______ ___________________
10,000 May 13, 1994 5.11 May 13, 2004
17,500 December 28, 1995 2.27 December 28, 2005
10,000 July 20, 1998 2.88 July 20, 2008
------------------
37,500
==================
</TABLE>
The nonqualified options granted May 13, 1994 are exercisable at 25% per year
beginning two years from the date of grant. The nonqualified options granted
December 28, 1995 and July 20, 1998 are exercisable at 20% per year beginning
one year from the date of grant.
As of September 30, 1998 and 1997, no options have been exercised and 14,500 and
19,500 options, respectively, were exercisable under nonqualified stock options.
(11) Preferred Stock
The Company has authorized 1,000,000 shares of its preferred stock for issuance
at a par value of $.01 per share. As of September 30, 1998 and 1997, no shares
have been issued and the specific rights and privileges of these shares have not
yet been determined by the Board of Directors.
(12) Warrants
The Company had reserved 697,902 shares of its common stock for issuance upon
exercise of 697,902 outstanding warrants. The warrants, which were issued in
connection with the Company's initial offering of common stock to the public in
March of 1994, were exercisable at a price of $5.45 per share (as adjusted for
stock dividend) and expired unexercised on February 11, 1997.
(Continued)
F-20
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
13) Stock Dividend
On December 15, 1997, the Company declared a ten percent stock dividend to
shareholders of record as of December 26, 1997. On January 20, 1998, the Company
issued 140,648 shares of common stock in conjunction with this dividend.
Accordingly, amounts equal to the fair market value (based on quoted market
prices as adjusted) of the additional shares issued have been charged to
retained earnings and credited to common stock and additional paid-in capital.
Earnings per common share, weighted average shares outstanding, and all stock
option activity have been restated to reflect the ten percent stock dividend.
14) Commitments and Contingent Liabilities
The Company has entered into employment agreements with its chief executive
officer and chief operating officer which expire March 25, 1999. Under the terms
of the agreements, the two officers will receive a specified annual
compensation, a bonus to each officer equal to 10% of consolidated income before
income taxes, monthly automobile allowances and reimbursement for personal
income tax preparation fees. In the event of termination of the agreements by
the Company other than for cause, as defined, or if the executives resign as a
result of a breach by the Company, the agreements provide for payments to such
individuals in an amount equal to 100% of their total compensation for 24 months
following the date of termination. In addition, upon termination of the
agreements by the Company prior to their expiration, other than for cause or if
the executives resign as a result of a breach by the Company, the Company has
agreed, at the option of the executives, to the extent such payments may be made
under applicable law, to repurchase within 60 days of such termination at market
value (average of bid and asked prices) all shares of stock of the Company owned
by the executives, including ESOP shares, which amount to approximately 578,000
common shares as of September 30, 1998. In addition, these executives have
220,000 option shares granted of which 112,000 are vested at September 30, 1998.
The agreements also contain nondisclosure and noncompetition provisions.
On March 13, 1996, the Company announced that the Board of Directors authorized
the Company to repurchase up to $500,000 of its common stock in the open market
for the remainder of fiscal year 1996. On October 1, 1996, the Company, being
authorized by the Board of Directors, extended the buyback program through the
end of fiscal year 1997. On September 2, 1997, the Company, being authorized by
the Board of Directors, extended the buyback program through December 31, 1997.
On November 10, 1998, the Company, being authorized by the Board of Directors,
extended the buyback program through September 30, 1999. The stock purchases
will be made in the open market from time to time as market conditions permit.
The Company is required to comply with Rule 10b-18 of the Securities and
Exchange Commission which regulates the specific terms in which shares may be
repurchased. As of September 30, 1998, the Company had repurchased a total of
35,630 shares under this program since its inception at a total repurchase cost
of $129,233.
(Continued)
F-21
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
In addition, concurrent with the open market repurchase program, the Company has
repurchased and retired an additional 89,757 shares from terminated participants
of the Company's ESOP and RSP for a total cost of $243,997 since the inception
of the program.
On September 30, 1998, the Company signed a 50/50 Joint Venture Agreement (JV)
with Lakeside Investments, LLC (Lakeside) of New York. On October 1, 1998, the
joint venture effected the incorporation of International Assets New York, LLC
(IANY) a 50/50 owned entity formed to transact the business for the JV. IANY has
elected partnership federal income tax treatment. Each party will contribute an
equal capital contribution of $100,000 with an additional optional $100,000
contribution at a later date. A principal of Lakeside will actively manage the
new business. IANY will offer a variety of financial strategies to high net
worth private investors resident in the United States and certain foreign
countries. IANY is in the process of negotiating an office lease as well as
other equipment and furniture leases. The Company expects to sign 50/50
guarantees for the execution of these prospective leases. The Company will
account for this investment under the equity method of accounting. As of
September 30, 1998, no amounts have been funded.
During the year ended September 30, 1998, the Company received notification from
a National Association of Securities Dealers (NASD) arbitration panel that an
award of $99,845 plus $100,000 reimbursement for a portion of a claimant's legal
fees was awarded. During the year ended September 30, 1997, the Company settled
certain client matters arising in the normal course of business totaling
$146,000. These costs have been included in other operating expenses in the
accompanying consolidated statements of operations.
The Company is party to certain litigation as of September 30, 1998 which
relates primarily to matters arising in the ordinary course of business.
Management of the Company anticipates that the final resolution of these items
will not have a material adverse effect on the Company's consolidated financial
statements.
15) Subsequent Events
On October 1, 1998, one qualified employee incentive stock option for 5,000
shares with an exercise price of $1.78125 was authorized. The options granted on
October 1, 1998 are exercisable at 20% per year beginning three years from the
date of grant.
On November 2, 1998, two qualified employee incentive stock options for 100,000
and 20,000 shares with an exercise price of $1.50 were authorized. Also on
November 2, 1998, one qualified employee incentive stock option for 100,000
shares with an exercise price of $1.65 was authorized. The options granted on
November 2, 1998 are exercisable at 33% per year beginning one year from the
date of grant. The options issued November 2, 1998 are issued subject to
shareholder approval including an amendment to the stock option plan to increase
the number of shares issuable under the plan from 500,000 shares to 700,000
shares. The next shareholder's meeting is scheduled for February 1999.
F-22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table lists certain information about the directors, executive
officers and significant employees of the Company:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Director Officer
Name Age Since Since Position
____ ___ ________ _______ ________
Diego J. Veitia 55 1987 1987 Director, Chairman of the Board and Chief
Executive Officer
Jerome F. Miceli 55 1990 1991 Director, President, Chief Operating Officer and
Treasurer
Stephen A. Saker 52 1990 1991 Director, Vice President and Secretary
Elmer L. Jacobs 63 1994 Director of the Company
Robert A. Miller, PhD 55 1998 - Director of the Company
Jonathan C. Hinz 36 - 1995 Vice President and Controller
</TABLE>
Each of the Company's directors have been elected to serve until the next annual
meeting of stockholders and until his respective successor is elected and
qualified. Officers are elected annually by the Board of Directors.
Diego J. Veitia founded the Company in 1987 to serve as a holding company for
IAAC and other subsidiaries. He has served as Chairman of the Board, director
and Chief Executive Officer of the Company since its inception. He also served
as President of the Company from 1987 until 1991. Mr. Veitia founded IAAC in
1981 and has served as Chairman of the Board and director since that time. Mr.
Veitia is also currently serving as Chairman and Chief Executive Officer of GAA,
IAMC, IFP and Chairman of ITA. Mr. Veitia also serves as Chairman of Veitia and
Associates, Inc., an inactive registered investment advisor. Mr. Veitia served
as Chairman of All Seasons Global Fund, Inc., a publicly held closed-end
management investment company from October 1987 until October 1996. During the
last five years Mr. Veitia has also served as director of America's All Seasons
Income Fund, Inc., an inactive management investment company
Jerome F. Miceli has been a director of the Company since 1990 and has served as
President, Chief Operating Officer and Treasurer of the Company since 1991. Mr.
Miceli has also served as President, Chief Executive Officer, Treasurer and
director of IAAC since 1990. Mr. Miceli currently serves as President, Treasurer
and Director of GAA, IAMC and IFP. Mr. Miceli also serves as CEO, President and
Treasurer of ITA. In addition, from December 1990 until October 1996, Mr. Miceli
served as Treasurer and director of All Seasons Global Fund Inc., a publicly
19
<PAGE>
held closed-end management investment company. Mr. Miceli is also President of
Veitia and Associates, Inc., an inactive registered investment advisor.
Stephen A. Saker has been a director of the Company since 1990 and has served as
Secretary and Vice President of the Company since 1991. Mr. Saker has also
served as director, Executive Vice President and Secretary of IAAC since 1985.
Mr. Saker currently serves as Vice President, Secretary and Director of GAA,
IAMC and ITA. Since November 1991, Mr. Saker has served as Vice President and
Secretary of Veitia and Associates, Inc., an inactive registered investment
advisor. Mr. Saker also served as Secretary and director of All Seasons Global
Fund, Inc. from October 1987 until October 1996.
Elmer L. Jacobs became a director of the Company in May 1994. He has served as
an independent consultant on agribusiness development and bulk transportation
issues for agribusiness since 1990. From 1987 to 1990, he was a partner with the
Sparks Group, a consulting company. Before entering private consultation, Mr.
Jacobs was Group President of six divisions of Continental Grain, a leading
worldwide agribusiness firm.
Robert A. Miller, Ph.D. became a director of the Company in February 1998. Dr.
Miller has served as President of Nazareth College in Rochester, New York since
1998. Dr. Miller served as the Academic Vice President of Queens College in
Charlotte, North Carolina from 1994 to 1998. In addition, Dr. Miller served as
Provost of Antioch University in Ohio from 1991 to 1994. Dr. Miller served as a
director of All Seasons Global Fund, Inc. from 1988 until 1996.
Jonathan C. Hinz joined the Company in October 1995 and serves as Vice President
and Controller for the Company and Controller of IAAC, GAA and ITA. Prior to
joining the Company, Mr. Hinz served as Chief Financial Officer and Controller
of Computer Science Innovations, Inc. from 1987 to 1995. Mr. Hinz is a certified
public accountant.
Compliance with Section 16(a) of the Exchange Act
Pursuant to Section 16(a) of the Exchange Act and the rules issued thereunder,
the Company's executive officers, directors and owners of in excess of 10% of
the issued and outstanding common stock are required to file with the SEC
reports of ownership and changes in ownership of the common stock of the
Company. Copies of such reports are required to furnished to the Company. Based
solely on the review of such reports furnished to the Company, the Company
believes that during fiscal year 1998, all of its executive officers and
directors complied with the Section 16(a) requirements.
ITEM 10. EXECUTIVE COMPENSATION.
Information with respect to this item will be contained in the Proxy Statement
for the 1999 Annual meeting of Shareholders, which is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to this item will be contained in the Proxy Statement
for the 1999 Annual meeting of Shareholders, which is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item will be contained in the Proxy Statement
for the 1999 Annual meeting of Shareholders, which is incorporated herein by
reference.
20
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Company's consolidated financial statements are listed in the index set
forth in Item 7 on this Form 10-KSB. Financial statement schedules are not
required under the related instructions of the SEC or are inapplicable, and
therefore, have been omitted.
(b) There were no reports filed on Form 8-K.
(c) The following exhibits are incorporated by reference herein unless otherwise
indicated:
(3.1) The Company's Certificate of Incorporation and amendments are incorporated
by reference to Exhibits 3.1, 3.2, and 3.3 of the Registrant's Registration
Statement on Form SB-2 (No. 33-70334-A), as amended, filed with the SEC on
February 2, 1994.
(3.2) The Company's By-laws are incorporated by reference to Exhibit 3.4, of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as amended,
filed with the SEC on February 2, 1994.
(4.1) The Company's Form of Common Stock Certificate is incorporated by
reference to Exhibit 4.1, of the Registrant's Registration Statement on Form
SB-2 (No. 33-70334-A), as amended, filed with the SEC on February 2, 1994.
(4.2) The Company's Revised Form of Warrant Certificate is incorporated by
reference to Exhibit 4.2, of the Registrant's Registration Statement on Form
SB-2 (No. 33-70334-A), as amended, filed with the SEC on February 2, 1994.
(4.3) The Company's Warrant Agreement dated January 31, 1994, between the
Company and Chemical Bank is incorporated by reference to Exhibit 4.3, of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as amended,
filed with the SEC on February 2, 1994.
(4.4) The Company's Revised Form of Subscription Agreement is incorporated by
reference to Exhibit 4.4, of the Registrant's Registration Statement on Form
SB-2 (No. 33-70334-A), as amended, filed with the SEC on February 2, 1994.
(10.1) The Company's International Assets Holding Corporation Stock Option Plan
is incorporated by reference to Exhibit 10.2, of the Registran's Registration
Statement on Form SB-2 (No. 33-70334-A), as amended, filed with the SEC on
February 2, 1994.
(10.1.a) The Company's International Assets Holding Corporation Stock Option
Plan, Amendment dated December 28, 1995, is incorporated by reference to Exhibit
10.2 (a), of the Registrant's Registration Statement on Form S-8 (No.
333-10727), filed with the SEC on August 23, 1996.
(10.2) The Compan's International Assets Advisory Corporation Employee Stock
Ownership Plan and Trust ("ESOP") is incorporated by reference to Exhibit 10.3,
of the Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as
amended, filed with the SEC on February 2, 1994.
(10.2.a) The Company's International Assets Advisory Corporation Employee Stock
Ownership Plan and Trust ("ESOP"), First Amendment dated November 4, 1993, is
incorporated by reference to Exhibit 10.3(a), of the Registrant's Registration
Statement on Form S-8 (No. 333-10727), filed with the SEC on August 23, 1996.
(10.2.b) The Company's International Assets Advisory Corporation Employee Stock
Ownership Plan and Trust ("ESOP"), Amendment 1994-1, dated July 19, 1994, is
incorporated by reference to Exhibit 10.3(b), of the Registrant's Registration
Statement on Form S-8 (No. 333-10727), filed with the SEC on August 23, 1996.
(10.2.c) The Company's International Assets Advisory Corporation Employee Stock
Ownership Plan and Trust ("ESOP"), Amendment 1994-1, dated December 30, 1994, is
21
<PAGE>
incorporated by reference to Exhibit 10.3(c), of the Registrant's Registration
Statement on Form S-8 (No. 333-10727), filed with the SEC on August 23, 1996.
(10.2.d) The Company's International Assets Advisory Corporation Employee Stock
Ownership Plan and Trust ("ESOP"), Amendment 1995-1, dated July 21, 1995, is
incorporated by reference to Exhibit 10.3(d), of the Registrant's Registration
Statement on Form S-8 (No. 333-10727), filed with the SEC on August 23, 1996.
(10.3) The Company's $200,000 ESOP Loan Agreement dated as of December 30, 1992,
is incorporated by reference to Exhibit 10.4, of the Registrant's Registration
Statement on Form SB-2 (No. 33-70334-A), as amended, filed with the SEC on
February 2, 1994.
(10.4) The Company's $200,000 ESOP Note dated December 30, 1992, payable to the
Company, is incorporated by reference to Exhibit 10.5, of the Registrant's
Registration Statement on Form SB-2 (No. 33-70334-A), as amended, filed with the
SEC on February 2, 1994.
(10.5) The Company's ESOP Pledge Agreement dated December 30, 1992, between the
Company and the ESOP, is incorporated by reference to Exhibit 10.6, of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as amended,
filed with the SEC on February 2, 1994.
(10.6) The Company's Clearing Agreement dated February 29, 1984, between
Prudential Securities, Inc. and IAAC, as amended, is incorporated by reference
to Exhibit 10.10, of the Registrant's Registration Statement on Form SB-2 (No.
33-70334-A), as amended, filed with the SEC on February 2, 1994.
(10.7) The Company's Revised Form of Employment Agreement, between the Company
and Jerome F. Miceli is incorporated by reference to Exhibit 10.11, of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as amended,
filed with the SEC on February 2, 1994.
(10.8) The Company's Revised Form of Employment Agreement, between the Company
and Diego J. Veitia is incorporated by reference to Exhibit 10.12, of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as amended,
filed with the SEC on February 2, 1994.
(10.9) The Company's Lease dated November 5, 1993, by and between Barnett Bank
of Central Florida and IAAC is incorporated by reference to Exhibits 10.15, of
the Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as
amended, filed with the SEC on February 2, 1994.
(10.10)* Joint Venture Agreement between the Company and Lakeside Investments,
LLC, a limited liability company organized under the laws of Delaware, dated
September 30, 1998.
(10.11)* Limited Liability Company Agreement for International Assets New York,
LLC, a limited liability company organized under the laws of Delaware, between
the Company and Lakeside Investments, LLC, dated September 30, 1998.
(11)* The Statement of Computation of per share earnings is attached hereto as
Exhibit 11.
(21)* List of Subsidiaries of the Company.
22
<PAGE>
(99) The Articles of Incorporation, and amendments thereto, and the By-laws of
IAAC are incorporated by reference to Exhibits 99.1,99.2 and 99.3 of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A), as amended,
filed with the SEC on February 2, 1994.
_______________
*Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the under signed, thereunto duly authorized.
INTERNATIONAL ASSETS HOLDING
CORPORATION
Dated: December 23, 1998 By: /s/ Jerome F. Miceli
Jerome F. Miceli, President
and Chief Operating Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Signature Title Date
/s/ Diego J. Veitia Chief Executive Officer and December 23, 1998
Diego J. Veitia Chairman of the Board
/s/ Jerome F. Miceli President, Chief Operating Officer, December 23, 1998
Jerome F. Miceli Treasurer and Director
/s/ Stephen A. Saker Vice President, Secretary, December 23, 1998
Stephen A. Saker and Director
/s/ Robert A. Miller Director December 23, 1998
Robert A. Miller
/s/ Elmer L. Jacobs Director December 23, 1998
Elmer L. Jacobs
/s/ Jonathan C. Hinz Vice President and Controller December 23, 1998
Jonathan C. Hinz (Person Performing Similar Functions
of Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
23
<PAGE>
EXHIBIT 10.10
JOINT VENTURE AGREEMENT
between
INTERNATIONAL ASSETS HOLDING CORP.
and
LAKESIDE INVESTMENTS, LLC
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS AND INTERPRETATION.....................................1
1.1 Definitions.................................................1
1.2 Interpretation..............................................4
ARTICLE 2 THE COMPANY........................................................5
2.1 Formation..............................................5
2.2 Purpose................................................6
2.3 Place of Business......................................6
2.4 Term...................................................6
2.5 Statutory Compliance...................................6
2.6 Title to Property......................................6
2.7 Payments of Individual Obligations.....................6
ARTICLE 3 PARTIES' CAPITAL CONTRIBUTIONS.....................................7
3.1 Initial Capital Contributions and Percentage Interests.7
3.2 Additional Capital Contributions.......................7
3.3 Other Matters..........................................8
ARTICLE 4 MANAGEMENT........................................................8
4.1 Management of the Company..............................8
4.2 Membership of Board of Managers........................8
ARTICLE 5 OPERATIONS OF THE COMPANY.........................................9
5.1 Business Plan..........................................9
5.2 Budget.................................................9
5.3 Deadlock..............................................10
ARTICLE 6 ACCOUNTING, BOOKS, RECORDS AND REPORTS...........................11
6.1 Accounting, Books and Records.........................11
6.2 Tax Returns; Information..............................11
6.3 Reports...............................................12
6.4 Certified Public Accounting Firm......................12
ARTICLE 7 PRODUCTS.........................................................12
7.1 Products Made Available to the Company................12
7.2 Company Products Developed by the Joint Venture.......12
7.3 Costs Associated with the Marketing and Sale of
Company Products......................................13
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<PAGE>
RTICLE 8 TRANSFERS OF INTERESTS...........................................13
8.1 Restrictions on Transfers.............................13
8.2 Permitted Transfers...................................14
8.3 Purchase and Sale Rights..............................14
8.4 General Provisions Regarding Transfers................15
ARTICLE 9 COMPLIANCE WITH LAW..............................................16
9.1 General Compliance....................................16
ARTICLE 10 [Intentionally Omitted]..........................................16
ARTICLE 11 INDEMNIFICATIONS................................................17
11.1 Parties' Indemnification...............................17
11.2 Indemnification as to Actions or Omissions in
Company's Business..................................17
11.3 Cross Indemnification..................................17
11.4 Indemnifications by Lakeside...........................18
11.5 Indemnifications by IAHC...............................19
11.6 Procedure for Indemnification..........................19
11.7 Survival...............................................19
ARTICLE 12 EVENTS OF DEFAULT...............................................19
12.1 Events of Default......................................19
12.2 Remedies Upon Default..................................21
ARTICLE 13 TERMINATION.....................................................21
13.1 Passage of Time........................................21
13.2 Early Termination......................................21
13.3 Dissolution, Liquidation, and Winding Up Generally.....22
ARTICLE 14 MISCELLANEOUS...................................................22
14.1 Notices................................................22
14.2 Binding Effect.........................................22
14.3 Construction...........................................23
14.4 Headings...............................................23
14.5 Severability...........................................23
14.6 Further Action.........................................23
14.7 Governing Law..........................................23
14.8 Counterpart Execution..................................23
14.9 Force Majeure..........................................24
14.10 Entire Agreement.......................................24
14.11 Conflict with LLC Agreement............................24
14.12 Confidentiality........................................24
14.13 Due Authorization......................................26
14.14 No Third Party Rights..................................26
14.15 Dispute Resolution.....................................26
-ii-
<PAGE>
-ivi-
<PAGE>
EXHIBITS
Exhibit 5.2 Budget
-v-
<PAGE>
JOINT VENTURE AGREEMENT
This Joint Venture Agreement (the "Agreement") made this 30th day of September,
1998 (the "Effective Date"), by and between International Assets Holding Corp.,
a corporation organized under the laws of Delaware ("IAHC"), and Lakeside
Investments, LLC, a limited liability company organized under the laws of
Delaware ("Lakeside") (IAHC and Lakeside being collectively referred to herein
as the "Parties," and either one of them as a "Party");
WITNESSETH:
WHEREAS, the Parties intend to form a joint venture for the purpose of marketing
and selling certain securities related products developed by International
Assets Advisory Corp., a subsidiary of IAHC ("IAAC"), and by Lakeside, and new
products to be developed by the joint venture (the "Business");
WHEREAS, the Parties intend that their joint venture relationship should be
governed by the terms and conditions of this Agreement and the ancillary
agreements referred to in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
promises and agreements hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties, intending to be and being legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. Capitalized words and phrases used in this Agreement have the
following meanings:
(a)
"Additional Capital Contribution" has the meaning given in the LLC
Agreement.
(b) "Adverse Event" shall have the meaning set forth in Section 3.2.
(c) "Affiliate" of a Person shall mean a company, corporation, Company, or other
Person that the Person, whether directly or indirectly, controls, is controlled
by, or is under common control with; provided however that neither IAHC nor
Lakeside shall be deemed to be an Affiliate of the other. For purposes of this
definition "control" shall exist if such Person has direct or indirect ownership
of 50% or more of the voting securities or other ownership interests of such
Person.
<PAGE>
(d) "Agreement" means this Agreement, as amended from time to time. Words such
as "herein," "hereinafter," "hereof," "hereto," and "hereunder" refer to this
Agreement as a whole, unless the context otherwise requires.
(e) "Board of Managers" means the Board of Managers of the Company.
(f) "Budget" means the Company's budget for a given Fiscal Year which has been
approved pursuant to Section 5.2, which Budget will include (i) an income
statement prepared on an accrual basis which will show in reasonable detail the
revenues and expenses projected for the Company's business for such Fiscal Year,
(ii) a cash flow statement which will show in reasonable detail the receipts and
disbursements projected for the Company's business for such Fiscal Year and the
amount of any corresponding cash deficiency or surplus, (iii) any contemplated
borrowings of the Company for such Fiscal Year, (iv) any Additional Capital
Contributions required of the Parties for such Fiscal Year.
(g) "Business" has the meaning set forth in the first recital to this Agreement.
(h) "Business Plan" means the overall business plan of the Company for a given
Fiscal Year, and modifications or amendment thereto, as approved in accordance
with the Section 5.1.
(i) "Call Right" shall have the meaning set forth in Section 8.3(b).
(j) "Company" means the limited liability company formed pursuant to this
Agreement.
(k) "Company Products" shall have the meaning set forth in Section 7.2.
(l) "Consumer Price Index" shall mean the average price index for the prior
twelve (12) months, counting from the first day of each Fiscal Year, for the New
York City metropolitan area as published monthly by the Bureau of Labor
Statistics of the United States Department of Labor.
(m) "Default Budget" shall have the meaning set forth in Section 5.2(b).
(n) "Default Budget Year" shall have the meaning set forth in Section 5.2(b).
(o) "Defaulting Party" shall have the meaning set forth in Section 12.1.
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<PAGE>
(p) "Delaware Act" shall mean the Delaware Limited Liability Company Act at
Title 6 of the Delaware Code, ss 18-101 through ss 18-1109, as the same may be
amended from time to time.
(q) "Entity" shall mean any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative, association, foreign trust or foreign business organization.
(r) "Event of Default" shall have the meaning given in Section 12.1.
(s) "Fiscal Year" means the Company's fiscal year, which shall end on September
30.
(t) "Force Majeure" shall mean all events which are beyond the control of the
Parties to this Agreement and which are unforeseen, unavoidable or
insurmountable, and which prevent total or partial performance by a Party. Such
events shall include any strikes, lockouts, explosions, shipwrecks, acts of
nature or the public enemy, fires, floods, sabotage, accidents, wars, riots,
interference by military authorities, insurrections and any other similar
incident.
(u) "Indemnified Party" shall have the meaning set forth in Section 11.6(a).
(v) "Indemnifying Party" shall have the meaning set forth in Section 11.6(a).
(w) "Indemnitees" has the meaning given in Section 11.2.
(x) "Know-How" shall have the meaning set forth in Section 14.12(b).
(y) "LLC Agreement" has the meaning given in Section 2.1.
(z) "Manager" shall mean any one or more of the members of the Board of Managers
of the Company.
(aa) "Membership Interest" has the meaning given in the LLC Agreement.
(bb) "Non-Defaulting Party" shall have the meaning set forth in Section 12.1.
(cc) "Option Agreement" shall mean the option agreement to be entered into
between the parties.
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<PAGE>
(dd) "Parties" means those Entities executing this Agreement. "Party" means any
one of the Parties. All references in this Agreement to a majority of the
Parties shall mean Parties whose combined Percentage Interests equal more than
fifty percent (50%).
(ee) "Percentage Interest" has the meaning given in the LLC Agreement.
(ff) "Permitted Transfer" has the meaning set forth in Section 8.2(b).
(gg) "Person" shall mean any individual or Entity, and their heirs, executors,
administrators, legal representatives, successors and assigns where the context
so permits.
(hh) "President" shall have the meaning given in the LLC Agreement.
(ii) "Products" shall mean the proprietary securities products marketed and sold
by the Company.
(jj) "Property" means all real and personal property acquired by the Company and
any improvements thereto, and shall include both tangible and intangible
property, as well as the contractual rights of the Company.
(kk) "Put Right" shall have the meaning set forth in Section 8.3(a).
(ll) "SEC" shall have the meaning set forth in Section 3.2.
(mm) "Transfer" means, as a noun, any voluntary or involuntary transfer, sale,
pledge, encumbrance or other disposition and, as a verb, voluntarily or
involuntarily to transfer, sell, pledge, encumber or otherwise dispose of.
1.2 Interpretation.
In this Agreement, unless the context otherwise requires:
(a) words importing the singular include the plural and vice versa;
(b) words importing a gender include both genders;
(c) references to any document (including this Agreement) are references to that
document as amended, consolidated, supplemented, novated or replaced from time
to time;
(d) references to Articles, Sections and Exhibits are references to articles and
sections of, and exhibits to, this Agreement;
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(e) headings are for convenience only and shall be ignored in construing this
Agreement;
(f) references to any Party include references to its successors and permitted
assigns;
(g) references to law include references to any constitutional provision,
treaty, decree, convention, statute, act, regulation, rule, ordinance,
subordinate legislation and any judgment or determination of any competent
authority;
(h) references to any law are references to that law as amended, consolidated,
supplemented or replaced from time to time; and
(i) references to any judgment include references to any order, injunction,
decree, determination or award of any court or tribunal.
ARTICLE 2
THE COMPANY
2.1 Formation.
In order to carry out the purposes of this Agreement, the Parties shall form a
Delaware limited liability company to be named International Assets New York,
LLC (the "Company") and shall enter into an operating agreement for the Company
substantially in the form of Exhibit 2.1 (the "LLC Agreement"). The Business
shall be conducted by the Company in accordance with the LLC Agreement and with
this Agreement.
2.2 Purpose.
(a) The purpose of the Company will be to carry out the Business. The Company
will have all powers necessary to engage in any and all activities which the
Parties deem necessary or desirable to accomplish the purpose of the Company.
(b) The Company shall exist and act only for the purpose specified in this
Section 2.2. Except as otherwise provided in this Agreement, the Company shall
not engage in any other activity or business. Neither Party shall have any
authority to hold itself out as a general agent of the other Party in any other
business or activity.
2.3 Place of Business.
The principal place of business of the Company shall be International Assets New
York, LLC, New York, New York, or at such other place within or without the
State of Delaware as may be determined by the Parties.
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2.4 Term.
The term of the Company shall commence on the date hereof and shall continue
until December 31, 2020, unless earlier terminated.
2.5 Statutory Compliance.
The Company shall exist under and be governed by the applicable laws of the
State of Delaware. The Parties shall make all filings and disclosures required
by, and shall otherwise comply with, all such laws. The Parties shall execute
and file in the appropriate records within or without the State of Delaware any
assumed or fictitious name certificates and other documents and instruments as
may be necessary or appropriate with respect to the formation of, and conduct of
business by, the Company.
2.6 Title to Property.
All Property owned by the Company shall be owned by the Company as an entity and
no Party shall have any ownership interest in such property in its individual
name or right, and each Party's interest in the Company shall be personal
property for all purposes. Except as otherwise provided in this Agreement, the
Company shall hold all of its Property in the name of the Company and not in the
name of either Party.
2.7 Payments of Individual Obligations.
The Company's credit and assets shall be used solely for the benefit of the
Company, and no asset of the Company shall be transferred or encumbered for or
in payment of any individual obligation of a Party.
ARTICLE 3
PARTIES' CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions and Percentage Interests.
(a) Immediately following the effectiveness of this Agreement and the formation
of the Company, IAHC shall contribute to the Company $100,000 in cash.
(b) Immediately following the effectiveness of this Agreement and the formation
of the Company, Lakeside shall contribute to the Company $100,000 in cash.
(c) The initial Percentage Interest of each Party in the Company is the
percentage interest set forth in Exhibit A to the LLC Agreement.
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(d) The Parties' capital contributions and capital accounts in the Company shall
be governed by the terms of the LLC Agreement. The Parties' Percentage Interests
shall be governed by the terms of the LLC Agreement.
3.2 Additional Capital Contributions.
(a) On such date or dates as may be specified in the Budget adopted by the
Parties, each Party shall provide one or more Additional Capital Contributions
of a mutually-agreed upon sum not exceeding $100,000 per Party in the aggregate,
provided, however, neither Party shall be required to make an Additional Capital
Contribution if any of the following events (an "Adverse Event") occur:
(i) the Company is the subject of an investigation by the NASD or Securities and
Exchange Commission ("SEC") with respect to any sales or trading practices or
other matter relating to the Business other than routine inspections of the
Company's books and records; or
(ii) the Company is the subject of a lawsuit in which the relief sought against
the Company is greater than $500,000.
(b) In the event that either Party elects not to make an Additional Capital
Contribution due to the occurrence of an Adverse Event, neither Party shall make
such Additional Capital Contribution. During the ninety (90) day period
following the occurrence of an Adverse Event, IAHC shall have the right to
exercise its Put Right under Section 8.3(a), and Lakeside shall have the right
to exercise its Call Right under Section 8.3(b).
3.3 Other Matters.
Except as otherwise provided in this Agreement or in the LLC Agreement no Party
shall demand or receive a return of its contributions to the Company without the
consent of all Parties. Under circumstances requiring a return of any
contribution to the Company, no Party shall have the right to receive property
other than cash except as may be specifically provided in this Agreement or the
LLC Agreement.
ARTICLE 4
MANAGEMENT
4.1 Management of the Company.
(a) The management of the Company will be undertaken in accordance with the
applicable provisions of the LLC Agreement.
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(b) The initial officers of the Company shall consist of a President, Vice
President, Secretary and Treasurer. IAHC shall have the right to appoint the
Vice-President and the Treasurer, and Lakeside shall have the right to appoint
the President and the Secretary.
(c) Mark Frankel shall be the initial President, and shall receive an initial
salary of Seventy-Five Thousand Dollars ($75,000) per year. Such salary shall be
increased at the beginning of each Fiscal Year following the initial Fiscal Year
of the Company in an amount equal to the prior year's salary multiplied by the
prior year's Consumer Price Index percentage amount. A bonus may be paid from
time to time in the sole discretion of the Board of Managers. Operation of the
Business shall be Mr. Frankel's primary endeavor. Mr. Frankel may engage in
other business activities provided such activities are not competitive with the
Business of the Company and do not interfere with the fulfillment of his
obligations to the Company as determined from time to time by the Board of
Managers.
4.2 Membership of Board of Managers.
Each of the Parties shall have the right to nominate two of the Managers. IAHC
shall nominate Diego J. Veitia and Jerome F. Miceli as its initial Managers, and
Lakeside shall nominate Menashe Frankel and Sharon Frankel as its initial
Managers. Each of the Parties covenants that it shall take all actions from time
to time necessary or desirable including, without limitation, the voting of its
Membership Interest, the execution of written consents, the calling of special
meetings, the waiving of notice and the attending of meetings, so as to cause
the two persons nominated by the other Party to be Managers for so long as the
other Party shall so desire. Each Party also agrees to take all action necessary
to remove forthwith any Manager when (and only when) such removal is requested
for any reason with or without cause by the Party that nominated such Manager
and in the case of death, resignation or other removal as herein provided of
such a Manager, to appoint forthwith another Manager nominated by the same Party
that nominated the deceased, resigning or removed Manager.
ARTICLE 5
OPERATIONS OF THE COMPANY
5.1 Business Plan.
(a) The Company shall carry out, and the Parties shall cause the Company to
carry out, all activities which are necessary to meet the objective of the
Company's then applicable Business Plan.
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(b) The initial Business Plan will be developed by the Parties on or before
September 30, 1998.
(c) The Business Plan shall be reviewed at least annually by the President and
shall be submitted to the Board of Managers for its review and consideration
within forty-five (45) days before the end of each Fiscal Year of the Company.
The Business Plan presented to the Board of Managers may be amended or modified
by the Board of Managers, and the Business Plan, as approved by the Board of
Managers, shall be implemented by the Company during the following Fiscal Year.
5.2 Budget.
(a) To meet the objectives of the Business Plan as from time to time in force,
the Company shall establish a Budget for each Fiscal Year of the Company. The
Budget for the first Fiscal Year is attached hereto as Exhibit 5.2. At least
forty-five (45) days before the end of each Fiscal Year the President will
provide the Board of Managers with a proposed Budget for the forthcoming Fiscal
Year, for approval by the Board of Managers.
(b) If the Budget for any Fiscal Year thereafter has not been approved by the
Board of Managers by the last day of the preceding Fiscal Year, the Budget for
the preceding Fiscal Year (the "Default Budget") will remain in effect for such
new Fiscal Year (the "Default Budget Year"), as adjusted (without duplication)
to reflect increases or decreases resulting from the following events:
(i) the operation of escalation or de-escalation provisions in contracts in
effect at the time of approval of the prior Fiscal Year's Budget solely as a
result of the passage of time or the occurrence of events beyond the control of
the Company to the extent such contracts are still in effect and have not been
terminated;
(ii) elections made in any prior Fiscal Year under contracts contemplated by the
Budget for the prior Fiscal Year regardless of which party to such contracts
makes such election;
(iii) increases or decreases in expenses attributable to the annualized effect
of employee additions or reductions during the prior Fiscal Year contemplated by
the Budget for the prior Fiscal Year;
(iv) interest expense attributable to any loans made to the Company;
(v) increases or decreases in overhead expenses in an amount equal to the total
of overhead expenses reflected in the Budget for the prior Fiscal Year
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(excluding nonrecurring items) multiplied by the increase or decrease in the
Consumer Price Index for the prior year (but in no event will such change be
more than 5% of the corresponding items in the prior Fiscal Year Budget); and
(vi) decreases in expense attributable to non-recurring items reflected in the
prior Fiscal Year's Budget.
(c) Following the approval of the Business Plan and Budget for a Fiscal Year (or
deemed approval in the case of a Default Budget), the President of the Company
will cause a copy of such Business Plan and Budget to be delivered to each
Party. In the event any modification to the Business Plan or Budget is adopted
in accordance with this Agreement, the President will promptly issue a revised
Business Plan or Budget reflecting such modification for the remainder of such
Fiscal Year and deliver a copy of it to each Party.
5.3 Deadlock.
(a) In the event that in two consecutive meetings the Board is unable to reach a
decision on any of the matters listed in Section 5.3(b), either Party may
request in a writing to the other Party that the President (or his designee) of
each of the Parties use all reasonable efforts to reach agreement on the matter.
If the Parties' Presidents or designees do not reach agreement in writing on the
matter within fourteen (14) days of the date of receipt of such a written
request, then the Parties may, at any time between the fifteenth and the
twenty-second day after the date or receipt of the written request, exercise
their respective Put Right and Call Right pursuant to, and in accordance with,
the provisions of Section 8.3.
(b) The matters as to which Section 5.3(a) applies are:
(i) The approval of the Budget for a Fiscal Year (other than the first Fiscal
Year of the Company), if the Company failed to meet the sales and earnings
targets set for the Company in the Budget for the prior Fiscal Year; or
(ii) The raising of additional funds for the Company if the Company failed to
meet the sales and earnings targets set for the Company in the Budget for the
prior Fiscal Year.
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ARTICLE 6
ACCOUNTING, BOOKS, RECORDS AND REPORTS
6.1 Accounting, Books and Records.
The Company shall maintain, and the Parties shall cause the Company to maintain,
at IAHC's principal place of business separate books of account for the Company
which shall show a true and accurate record of all costs and expenses incurred,
all charges made, all credits made and received, and all income derived in
connection with the operation of the Company's business in accordance with
generally accepted accounting principles consistently applied and, to the extent
inconsistent therewith, in accordance with this Agreement. The Company shall use
the accrual method of accounting in preparation of its annual reports and for
tax purposes and shall keep its books accordingly. Each Party shall, at its sole
expense, have the right, at any time without notice to any other Party, to
examine, copy, and audit the Company's books and records during normal business
hours.
6.2 Tax Returns; Information.
The Parties shall cause the Company's accountants to prepare all income and
other tax returns of the Company and shall cause the same to be filed in a
timely manner. The Parties shall cause the Company to furnish to each Party a
copy of each such return, together with any schedules or other information which
each Party may require in connection with such Party's own tax affairs.
6.3 Reports.
Within thirty days of the end of each calendar year the President of the Company
shall provide the Parties with summary financial information in a format to be
determined by the Board of Managers relating to the operations of the Company
for the year just ended. The President shall also prepare annual financial
statements, including balance sheets, statements of operations, Company
interests and cash flow, for each fiscal year of the Company. The annual
financial statements shall be prepared in accordance with U.S. generally
accepted accounting principles.
6.4 Certified Public Accounting Firm.
The Company shall retain a nationally recognized (that is, one of the six
largest) independent certified accounting firm to audit its annual financial
statements. The Company shall cause draft, unaudited financial statements to be
provided to the Parties within 60 days following the end of each Fiscal Year and
the audited annual financial statements and the report of the certified public
accounting firm shall be provided, together with any management letter prepared
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by such accounting firm, to the Parties within 90 days following the end of each
Fiscal Year.
ARTICLE 7
PRODUCTS
7.1 Products Made Available to the Company.
(a) Each Party hereby promises to make its Products available to the Company, in
a nonexclusive manner, for the purpose of marketing and selling the Products by
the Company.
(b) The Parties shall provide the Company at cost with such marketing
information concerning the Products as the Company may reasonably require in
order to assist the Company with the marketing and sale of the Products.
(c) The Parties shall similarly provide other information to the Company as the
Board of Managers of the Company may from time to time reasonably request, to
facilitate the Company's marketing and sale of the Products, including, but not
limited to mail lists.
7.2 Company Products Developed by the Joint Venture.
Any securities products developed by the Company (the "Company Products") shall
be the property of the Company, in accordance with Section 2.6 hereof.
7.3 Costs Associated with the Marketing and Sale of Company Products
IAHC shall undertake to enter into a Services Agreement between IAHC and the
Company, which shall govern the provision of services by IAHC to the Company.
Such services shall include, but not be limited to, the provision of
sub-clearing services, registration of Company Products, and sales and
administrative services and costs attributable to the Company and the Company
Products. The Services Agreement shall provide that services performed on behalf
of the Company shall be provided at cost.
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ARTICLE 8
TRANSFERS OF INTERESTS
8.1 Restrictions on Transfers.
Except as expressly permitted or required by this Agreement, no Party shall
Transfer all or any portion of its Membership Interest or any rights therein
without the unanimous consent of the Parties. Any Transfer or attempted Transfer
by any Party in violation of the preceding sentence shall be null and void and
of no force or effect whatsoever. Each Party hereby acknowledges the
reasonableness of the restrictions on Transfer imposed by this Agreement in view
of the purposes of this Agreement and the relationship of the Parties.
Accordingly, the restrictions on Transfer contained herein shall be specifically
enforceable. Each Party hereby further agrees to hold the Company and each other
Party (and each other Party's successors and assigns) wholly and completely
harmless from any cost, liability, or damage (including, without limitation,
liabilities for income taxes and costs of enforcing this indemnity) incurred by
any of such indemnified Persons as a result of a Transfer or an attempted
Transfer in violation of this Agreement.
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8.2 Permitted Transfers.
(a) Subject to the conditions and restrictions set forth in this Section 8.2 and
in Section 8.4, a Party shall have the right to Transfer all (but not less than
all) of its Membership Interest by means of a Permitted Transfer.
(b) A "Permitted Transfer" is:
(i) Any Transfer by a Party of all of its Membership Interest to a wholly-owned
subsidiary of such Party;
(ii) Any Transfer made pursuant to the Option Agreement; and
(iii) Any Transfer made pursuant to Section 8.3 of this Agreement.
8.3 Purchase and Sale Rights.
(a) In the event that IAHC has the right to exercise its Put Right pursuant to
Section 3.2 or 5.3, IAHC shall have the right to require Lakeside to purchase
(the "Put Right") all but not less than all of the Membership Interest of IAHC.
IAHC may exercise the Put Right by providing written notice to Lakeside of its
intent to sell all of IAHC's Membership Interest to Lakeside. The notice shall
include a closing date for such sale which shall be at least ninety (90) and no
more than one hundred and twenty (120) days from the date of such notice. At the
closing date, Lakeside shall purchase IAHC's right, title and interest in the
Company at a price equal the lesser of the following two numbers:
(i) The product of the Percentage Interest represented by IAHC's Membership
Interest and the shareholders' equity of the Company as determined in accordance
with GAAP and as of the last day of the calendar quarter ended immediately prior
to the date of the Put Right exercise notice; or
(ii) The sum total of IAHC's capital contributions to the Company.
If Lakeside fails to purchase IAHC's Membership Interest in connection with an
exercise of the Put Right, such failure shall constitute an Event of Default
under Section 12.1 and IAHC shall be the Non-Defaulting Party.
(b) In the event that Lakeside has the right to exercise its Call Right,
Lakeside shall have the right to purchase (the "Call Right") all but not less
than all of IAHC's Membership Interest pursuant to Section 3.2 or 5.3. Lakeside
may exercise the Call Right by providing written notice to IAHC of its intent to
purchase all of IAHC's Membership Interest. The notice shall include a closing
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date for such sale which shall be at least ninety (90) and no more than one
hundred and twenty (120) days from the date of such notice. At the closing date,
Lakeside shall purchase IAHC's right, title and interest in the Company at a
price equal the lesser of the following two numbers:
(i) The product of the Percentage Interest represented by IAHC's Membership
Interest and the shareholders' equity of the Company as determined in accordance
with GAAP and as of the last day of the calendar quarter ended immediately prior
to the date of the Put Right exercise notice; or
(ii) The sum total of IAHC's capital contributions to the Company.
8.4 General Provisions Regarding Transfers.
(a) A Transfer otherwise permitted under this Article 8 shall not take effect
unless and until the following conditions are satisfied:
(i) The transferor and transferee shall execute such documents and instruments
of conveyance and assumptions as may be necessary or appropriate in the opinion
of counsel to the Company to effect such Transfer and to confirm the
transferee's agreement to be bound by the provisions of this Agreement and
assumption of all monetary obligations of the transferor Party with respect to
the Membership Interest being transferred and the transferor Party's agreement
to guarantee the prompt payment and performance of such assumed obligations.
(ii) The transferee shall deliver such assurances as may be necessary or
appropriate in the opinion of counsel to the Company to confirm such Transfer
and that such transferor Party remains liable to perform all monetary
obligations with respect to such interest.
(iii) The Company shall receive, prior to such Transfer, if it deems it
necessary, an opinion of counsel satisfactory to the Company confirming that
such Transfer will not terminate the Company for federal income tax purposes.
(iv) The transferor and transferee shall furnish the Company with the
transferee's taxpayer identification number, sufficient information to determine
the transferee's initial tax basis in the interest transferred, and any other
information reasonably necessary to permit the Company to file all required
federal and state tax returns and other legally required information statements
or returns. Without limiting the generality of the foregoing, the Company shall
not be required to make any distribution otherwise provided for in this
Agreement with respect to any transferred interest until it has received such
information.
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(b) The requirements of Section 8.4(a) shall not apply to an adjustment of
Percentage Interests pursuant to Section 8.3 or a Transfer of Membership
Interests pursuant to Section 8.3.
(c) The Parties intend that the Permitted Transfer of an interest in the Company
shall not cause the dissolution of the Company under the Delaware Act; however,
in the event of any such dissolution, the Parties shall cause the Company to be
reformed and shall make reasonably best efforts to continue the business of the
Company under this Agreement as if no such dissolution had occurred.
(d) In the event any Membership Interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
Membership Interest.
ARTICLE 9
COMPLIANCE WITH LAW
9.1 General Compliance.
IAHC and Lakeside in the performance of their obligations under this Agreement
and the Company in the conduct of its Business shall comply in all respects with
all applicable laws and regulations of the United States of America (including
all applicable state and federal securities laws) and of any country in which
the Company does business. Each of the Parties shall cooperate with the other
and with the Company in meeting this obligation.
ARTICLE 10
[Intentionally Omitted]
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ARTICLE 11
INDEMNIFICATIONS
11.1 Parties' Indemnification.
No Party has or will have any authority to act for or to assume any obligation
or responsibility on behalf of another Party or the Company except as expressly
provided in this Agreement or in a writing signed by both Parties. In addition
to the other remedies specified in this Agreement, each Party agrees to
indemnify and hold each other Party harmless from and against any claim, demand,
loss, damage, liability or expense of any kind or nature whatsoever, including
reasonable outside attorneys' fees, incurred by or against such other Party and
arising out of or resulting from any action taken by the indemnifying Party in
violation of the first sentence of this Section 11.1
11.2 Indemnification as to Actions or Omissions in Company's Business.
Except to the extent otherwise provided in this Agreement, the Parties will
cause the Company to indemnify, defend and hold harmless each Party and their
respective officers, directors, employees and agents (collectively,
"Indemnitees") from any loss, liability or damage incurred or suffered by any
such Indemnitees with respect to any third-party claim by reason of any act
performed or omitted to be performed, or alleged to have been performed or
omitted, by such Indemnitees in connection with the Business of the Company
(including any judgment, award, settlement, costs and other expenses, and
reasonable outside attorneys' fees incurred in connection with the defense of
any actual or threatened claim or action based on any such act or omission);
provided that, if an Indemnitee's action or omission to act caused the loss,
liability or damage incurred or suffered, such Indemnitee may not receive
indemnification or avoid liability by reason of this provision with respect to
any claim as to which the Indemnitee is adjudged by a final nonappealable
decision of a court of competent jurisdiction to have acted in or with fraud,
bad faith or willful misconduct. Any such indemnification will be made promptly
following the fixing of the loss, liability or damage incurred or suffered by
final nonappealable decision, settlement, contract or otherwise (except that any
attorneys' fees and the expenses of defense may be paid as incurred).
11.3 Cross Indemnification.
As between the Parties, no Party will be liable or bear responsibility for more
than its proportionate share (based on its Percentage Interest at the time such
liability or obligation arises) of each of the liabilities and obligations of
the Company. In the event that either Party is required to pay, discharge or
otherwise bear responsibility for any amount of any liability or obligation of
the Company in excess of such Party's proportionate share (otherwise than by
reason of such Party's violation of this Agreement, fraud, bad faith or willful
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misconduct), the other Party agrees to indemnify, hold harmless and reimburse
such Party against and for such other Party's proportion share of such excess.
It is the intention of the Parties that, following the operation of this
Section, each Party will have borne exactly its proportionate share of the
liability or obligation of the Company at issue.
11.4 Indemnifications by Lakeside.
Lakeside shall indemnify, defend and hold harmless IAHC and keep IAHC
indemnified against any loss, damage, costs or expense (including reasonable
attorneys' fees) suffered or incurred by IAHC as the result of any action,
claim, demand or proceeding commenced by any Person due to:
(a) Lakeside's breach of this Agreement; or
(b) Lakeside's willful misconduct in the performance of its obligations under
this Agreement.
11.5 Indemnifications by IAHC.
IAHC shall indemnify, defend and hold harmless Lakeside and keep Lakeside
indemnified against any loss, damage, costs or expense (including reasonable
attorneys' fees) suffered or incurred by Lakeside as the result of any action,
claim, demand or proceeding commenced by any Person due to:
(a) IAHC's breach of this Agreement; or
(b) IAHC's willful misconduct in the performance of its obligations under this
Agreement.
11.6 Procedure for Indemnification.
(a) Each Party (the "Indemnified Party") shall give prompt written notice to the
other Party (the "Indemnifying Party") of any claim or event known to it which
does or may give rise to a claim by the Notifying Party based on the
indemnification provisions of this Agreement, stating the nature and basis and
said claim or events and the amounts thereof, to the extent known. Such notice
shall be a condition precedent to any indemnification obligation of the Notified
Party. Notwithstanding the foregoing, failure to give reasonably prompt written
notice pursuant to this Section 11.6 shall not defeat a claim made pursuant the
indemnification provisions of this Agreement, except to the extent that the
Notified Party can establish that it has been harmed by such delay.
(b) In the event of any claim, action, suit or proceeding made or brought
against an Indemnified Party, the Indemnified Party shall give the Indemnifying
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Party written notice of such claim, action, suit or proceeding as described in
Section 11.6(a), with a copy of the claim, process and legal pleadings with
respect thereto. After notification, the Indemnifying Party may participate in
and assume the defense thereof, with counsel reasonably satisfactory to such
Indemnified Party at the time of such assumption. If the Indemnifying Party
assumes the defense of the claim, action, suit or proceeding, the Indemnified
Party shall nonetheless have the right to employ its own counsel and such
counsel may participate in such action, but the fees and expenses of such
counsel shall be at the expense of the Indemnified Party, when and as incurred,
unless (a) the employment of counsel by the Indemnified Party has been
authorized by the Indemnifying Party, or (b) the Indemnifying Party shall not in
fact have employed counsel to assume the defense of such claim, action, suit or
proceeding reasonably satisfactory to the Indemnified Party. If clause (b) of
the preceding sentence applies, then counsel for the Indemnified Party shall
have the right to direct the defense of such claim, action, suit or proceeding
on behalf of the Indemnified Party. The Parties shall keep each other fully
informed of such claim, action, suit or proceeding at all stages thereof whether
or not both Parties are represented by its own counsel.
11.7 Survival.
The provisions of this Article 11 shall survive dissolution and liquidation of
the Company and shall survive termination of this Agreement for any reason.
ARTICLE 12
EVENTS OF DEFAULT
12.1 Events of Default.
A Party ("the Defaulting Party") shall be in default under this Agreement, and
shall thereby give rise to the rights and remedies of the other Party ("the
Non-Defaulting Party") and other consequences specified in Section 12.2, if any
of the following events (each such event, an "Event of Default") occurs:
(a) if the Defaulting Party fails to duly and punctually perform or comply with
any of its material obligations under this Agreement and does not remedy such
failure within 30 days from the earlier of:
(i) the date on which the Defaulting Party became aware of such failure; and
(ii) receipt of written notice from the Non-Defaulting Party requiring it to do
so;
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(b) if any representation made by the Defaulting Party in this Agreement is
incorrect or is misleading in a material respect and the Defaulting Party does
not remedy such defect within 30 days from the earlier of:
(i) the date on which the Defaulting Party became aware of such defect; and
(ii) receipt of written notice from the Non-Defaulting Party requiring it to do
so;
(c) the Defaulting Party becomes or is deemed to be insolvent, bankrupt or
unable to pay its debts; or a resolution is passed for, or an application is
made for an order of, winding up the Defaulting Party; or the Defaulting Party
enters into bankruptcy, reorganization or liquidation proceedings however
described, whether voluntary or involuntary, under the U.S. Bankruptcy Code,
state insolvency law, or the law of any country or jurisdiction; or the
Defaulting Party makes an assignment for the benefit of creditors; or any action
is taken by or against the Defaulting Party the purpose or effect of which is or
may be to relieve the Defaulting Party from the payment of its debts; or the
Defaulting Party has a trustee, receiver, administrator, or liquidator appointed
for all or some of its assets; or the Defaulting Party takes or suffers any
similar action in consequence of debt, bankruptcy or insolvency in any
jurisdiction, provided that this paragraph shall not apply to a bona fide
re-organization of the Defaulting Party while solvent on terms approved by the
other Party (such approval not to be unreasonably withheld or delayed);
(d) without the prior written consent of the Non-Defaulting Party or as
otherwise provided in this Agreement, the Defaulting Party assigns all or any
part of its rights or interests under this Agreement, or the Defaulting Party
gives notice of its withdrawal from the Company, or undertakes a Resignation (as
that term is defined in the LLC Agreement); or
(e) the Defaulting Party is prevented by any law from carrying out any of its
material obligations under this Agreement.
12.2 Remedies Upon Default.
The rights and remedies of the Non-Defaulting Party and other consequences that
are triggered by the occurrence of any and every Event of Default are as
follows:
(a) The Non-Defaulting Party may sue the Defaulting Party for compensatory
damages, but in no event shall a Defaulting Party be liable for consequential
damages;
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(b) Notwithstanding any other provision of this Agreement, the Non-Defaulting
Party shall be entitled to fill unilaterally all vacancies that may occur on the
Board of Managers until the Event of Default is rectified;
(c) Notwithstanding any other provision of this Agreement, the Non-Defaulting
Party shall be entitled to fill unilaterally any vacancies that may occur in any
of the officer positions of the Company;
(d) The Non-Defaulting Party may order the dissolution of the Company in
accordance with Article 14 of the LLC Agreement; and
(e) Exercise any other rights and remedies available to the Non-Defaulting Party
at law or in equity.
The rights and remedies specified in this Section 12.2 are cumulative.
ARTICLE 13
TERMINATION
13.1 Passage of Time.
In the event that the Company has not been dissolved, wound up or liquidated on
the date specified in Section 2.4, then this Agreement will terminate on that
date and the Company shall be dissolved in accordance with the provisions of the
LLC Agreement.
13.2 Early Termination.
If not previously terminated, this Agreement shall terminate on the first date
that one of the Parties no longer owns a Membership Interest.
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13.3 Dissolution, Liquidation, and Winding Up Generally.
Any dissolution, liquidation or winding up of the Company shall be done in
accordance with the terms of the LLC Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Notices.
Any notice, payment, demand, or communication required or permitted to be given
by any provision of this Agreement shall be in writing and (a) personally
delivered, including over-night delivery by a courier service, (b) sent by
postage prepaid registered first-class airmail or (c) transmitted by telecopy as
follows:
If to IAHC:
International Assets Holding Corporation
250 Park Avenue South, Suite 200...
Winter Park, Florida 32789
Facsimile Number: (407) 629-2470
Attention: Diego J. Veitia
If to Lakeside:
Lakeside Investments, LLC
211 Private Way
Lakewood, New Jersey 08701
Facsimile Number: (732) 364-0956
Attention: Menashe Frankel
14.2 Binding Effect.
Except as otherwise provided in this Agreement, every covenant, term, and
provision of this Agreement shall be binding upon and inure to the benefit of
the Parties and their respective legal representatives, and permitted
successors, transferees, and permitted assigns.
14.3 Construction.
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Every covenant, term, and provision of this Agreement shall be construed simply
according to its fair meaning and not strictly for or against any Party. The
terms of this Agreement are intended to embody the economic relationship among
the Parties and shall not be subject to modification by, or be conformed with,
any actions by the Internal Revenue Service except as this Agreement may be
explicitly so amended and except as may relate specifically to the filing of tax
returns.
14.4 Headings.
Article headings, Section headings, and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define, or limit the scope, extent, or intent of this Agreement or
any provision of this Agreement.
14.5 Severability.
Every provision of this Agreement is intended to be severable. If any term or
provision hereof is illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the validity or legality of the
remainder of this Agreement.
14.6 Further Action.
Each Party agrees to perform all further acts and execute, acknowledge, and
deliver any documents which may be reasonably necess ary, appropriate,
ordesirable to carry out the provisions of this Agreement.
14.7 Governing Law.
The laws of the State of New York, excluding the rules on conflict of laws and
choice of law, shall govern the validity of this Agreement, the construction of
its terms, and the interpretation of the rights and duties of the Parties.
14.8 Counterpart Execution.
This Agreement may be executed in several counterparts, each of which shall be
an original, and such counterparts shall together constitute but one and the
same instrument.
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14.9 Force Majeure.
If an event of Force Majeure occurs, a Party's contractual obligations affected
by such an event shall be suspended during the period of delay caused by the
Force Majeure and shall be automatically extended, without penalty, for a period
equal to such suspension. The Party claiming Force Majeure shall promptly inform
the other Party in writing and shall furnish sufficient proof of the occurrence
and duration of such Force Majeure. The Party claiming Force Majeure shall also
use all reasonable endeavors to terminate the Force Majeure. In the event of
Force Majeure, the Parties shall immediately consult with each other in order to
find an equitable solution and shall use all reasonable endeavors to minimize
the consequences of such Force Majeure.
14.10 Entire Agreement.
This Agreement and the schedules and exhibits hereto and the other agreements
referred to herein constitute the entire agreement between the Parties
pertaining to the Business and the Company and supersede all previous
communications, agreements and understandings between the Parties relating to
the Company. Neither Party has entered into this Agreement in reliance upon any
representation, warranty or undertaking of the other Party that is not set out
or referred to in this Agreement. This Agreement may be amended or modified only
by a written agreement signed by all of the Parties.
14.11 Conflict with LLC Agreement.
Notwithstanding anything in this Agreement or the LLC Agreement to the contrary,
in the event of any conflict between this Agreement and the LLC Agreement, the
provisions of this Agreement shall control.
14.12 Confidentiality.
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(a) Subject to the requirements of applicable law, each Party shall maintain in
confidence the terms and existence of this Agreement and all confidential
information identified as such received from the other, whether of a commercial
or technical nature, shall use such information only for the benefit of the
Company, and shall not disclose any such information to a third party (other
than such Party's officers, directors, shareholders, partners and professional
advisers) or make any unauthorized use thereof. Each Party shall treat such
information with the same degree of care against disclosure or unauthorized use
which it affords to its own confidential information. The obligation of
confidential treatment shall not apply to any information that (i) has become
generally available in the public domain, (ii) was in the receiving Party's
possession prior to disclosure, (iii) was independently developed by the
receiving Party, (iv) was received from a third party who had a right to
disclose such information, or (v) is required to be disclosed to comply with
applicable laws, rules, regulations or court orders; provided, that with respect
to any disclosure of information pursuant to this Section 14.12(a)(v) each Party
will consult with the other Party prior to making any such disclosure.
(b) The Parties acknowledge that the Company will receive from IAHC and IAHC's
Affiliates and Lakeside and Lakeside's Affiliates certain proprietary
information regarding the investment products developed prior to this Agreement
by the Parties (the "Know-How"). The Parties and the Company acknowledge and
agree that the Know-How of each Party is proprietary to such Party and is
confidential. The Parties shall cause the Company to keep all Know-How in
confidence, and shall not use such Know-How other than in the normal course of
the Business. Except as permitted herein or as expressly permitted by the
Parties in writing, the Company shall not, directly or indirectly, disclose,
divulge, copy, furnish to or make accessible to any third party any Know-How.
Notwithstanding the foregoing sentence, the Company may disclose the Know-How to
those employees or officers of the Company who require such information in
connection with the operation of the Business. The Parties shall cause the
Company to ensure that such employees or officers are aware of and comply with
the confidentiality obligation imposed on the Company under this Agreement. The
Company's obligation of confidential treatment of the Know-How shall not apply
to any information that (i) has become generally available in the public domain,
(ii) was in the Company's possession prior to the date hereof, (iii) was
independently developed by the Company, (iv) was received from a third party who
had a right to disclose such information, or (v) is required to be disclosed to
comply with applicable laws, rules, regulations or court orders; provided, that
with respect to any disclosure of information pursuant to Section 14.12(b)(v)
the Parties and the Company will consult with each other prior to the Company
making any such disclosure.
(c) In order to avoid the disclosure or misappropriation of the Know-How, the
Parties shall cause the Company to maintain appropriate security measures which
are no less stringent than those security measures used to safeguard the
Company's proprietary information and in any event that are no less stringent
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than are reasonably necessary to protect that the Know-How from unauthorized
disclosure. The Parties shall cause the Company to promptly notify each Party of
any unauthorized disclosure of the Know-How and take such action as the Party
affected by such disclosure reasonably requests to prevent any further
unauthorized disclosure of the Know-How.
(d) This Section 14.12 will survive termination of this Agreement for any
reason.
14.13 Due Authorization.
Each of the Parties represents and warrants that it has all requisite corporate
and other power and authority to enter into and perform its obligations under
this Agreement, and that the execution, delivery and performance of this
Agreement by such Party has been duly authorized by all necessary corporate and
other action on the part of such Party.
14.14 No Third Party Rights.
The representations, warranties, covenants and agreement contained in this
Agreement are for the sole benefit of the Parties and shall not be deemed or
construed as in any way creating or conferring any rights or obligations on any
third party.
14.15 Dispute Resolution.
Any disputes arising out of, relating to, or arising in connection with this
Agreement or any of the documents or agreements attached hereto as exhibits
(including without limitation the LLC Agreement) shall be finally settled by
arbitration in accordance with the Commercial Arbitration Rules and the
Supplementary Procedures for Commercial Arbitration of the American Arbitration
Association (except insofar as those rules and procedures are modified by the
terms of this paragraph). Each of the Parties shall appoint one arbitrator, and
the two arbitrators thus selected shall designate a third. If either of the
Parties fails to appoint its arbitrator within sixty (60) days after receipt of
notice of the appointment by the other of its arbitrator, or if the two
arbitrators fail to appoint a third within sixty (60) days, then the American
Arbitration Association will have the power, on the request of either party, to
make the appointments. The arbitration will be held in New York City unless both
Parties agree otherwise; and it shall be held as promptly as possible at such
time as the arbitrators may determine. The arbitration shall be conducted in the
English language. The decision of a majority of the arbitrators will be final
and binding upon the parties hereto, and the expenses of the arbitration will be
shared equally between the parties. The arbitration proceedings and all evidence
provided by both parties shall be kept secret and confidential and not disclosed
to any person not a party to the arbitration. Judgment upon the arbitration
award may be entered in any court of competent jurisdiction, or application may
be made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. Anything to the contrary in this Agreement
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notwithstanding, neither Party shall be prevented from applying to a court of
competent jurisdiction for such preliminary or interim injunctive relief, or
relief in aid of arbitration, as may be necessary to preserve or restore the
status quo, and neither Party shall be prevented from impleading any other Party
into a lawsuit or other legal proceeding brought by a third person or entity
where the impleading Party has a claim or cause of action against the impleaded
Party for contribution, for indemnity, or otherwise related to or arising out of
the same transaction or occurrence as is the subject of the third person or
entity's lawsuit or proceeding.
IN WITNESS WHEREOF, the Parties have entered into this Joint Venture Agreement
as of the day first above set forth.
International Assets Holding Corp.
_____________________________
By: /s/ Diego J. Veitia
Its: Chairman & CEO
Lakeside Investments, LLC
_____________________________
By: /s/ Menashe Frankel
Its: President
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EXHIBIT 10.11
INTERNATIONAL ASSETS NEW YORK, LLC
LIMITED LIABILITY COMPANY AGREEMENT
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.......................................................1
ARTICLE 2 FORMATION OF COMPANY..............................................7
2.1 Formation.....................................................7
2.2 Name..........................................................7
2.3 Principal Place of Business...................................7
2.4 Registered Office and Registered Agent........................7
2.5 Term..........................................................7
2.6 Certificates of Membership Interests..........................7
ARTICLE 3 BUSINESS OF COMPANY...............................................8
3.1 Permitted Businesses.....................................8
ARTICLE 4 NAMES AND ADDRESSES OF MEMBERS....................................8
ARTICLE 5 RIGHTS AND DUTIES OF BOARD OF MANAGERS............................8
5.1 Management....................................................8
5.2 Number, Election, Tenure and Qualifications...................9
5.3 Manner of Acting..............................................9
5.4 Certain Powers of Managers....................................9
5.5 Managers Have No Exclusive Duty to Company...................10
5.6 Bank Accounts................................................10
5.7 Resignation..................................................10
5.8 Removal......................................................10
5.9 Vacancies....................................................10
ARTICLE 6 OFFICERS11
6.1 Officers of Company..........................................11
6.2 Election and Term of Office..................................11
6.3 Removal......................................................11
6.4 Vacancies....................................................11
6.5 President....................................................11
6.6 The Vice Presidents..........................................12
6.7 The Treasurer................................................12
6.8 The Secretary................................................12
6.9 Assistant Treasurers and Assistant Secretaries...............12
6.10Salaries.....................................................13
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ARTICLE 7 RIGHTS AND OBLIGATIONS OF MEMBERS................................13
7.1 Limitation of Liability......................................13
7.2 List of Members..............................................13
7.3 Company Books................................................13
7.4 Priority and Return of Capital...............................13
7.5 No Preemptive Rights.........................................13
ARTICLE 8 MEETINGS OF MEMBERS..............................................14
8.1 Meetings.....................................................14
8.2 Place of Meetings............................................14
8.3 Notice of Meetings...........................................14
8.4 Meeting of All Members.......................................14
8.5 Record Date..................................................14
8.6 Quorum.......................................................14
8.7 Manner of Acting.............................................15
8.8 Proxies......................................................15
8.9 Telephone Conference.........................................15
8.10Action by Members Without a Meeting..........................15
8.11Waiver of Notice.............................................15
ARTICLE 9 STANDARD OF CARE AND INDEMNIFICATION OF MANAGERS, OFFICERS
AND EMPLOYEES....................................................15
9.1 Standard of Care.............................................15
9.2 Indemnification of Managers, Officers and Employees..........15
ARTICLE 10 CONTRIBUTIONS TO THE COMPANY
AND CAPITAL ACCOUNTS...........................................16
10.1Initial Capital Contributions..............................16
10.2Additional Contributions...................................16
10.3Capital Accounts...........................................16
ARTICLE 11 ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS..17
11.1Allocations of Net Profits and Net Losses..................17
11.2Additional Allocation Provisions...........................17
11.3Tax Allocations............................................19
11.4Distributions..............................................20
11.5Accounting Principles......................................21
11.6Interest on and Return of Capital Contributions............21
11.7Loans to Company...........................................21
11.8Records and Report.........................................21
11.9Returns and Other Elections................................21
11.10.Tax Matters Partner..................................... 21
ARTICLE 12 [Intentionally Omitted]........................................22
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ARTICLE 13 ADDITIONAL MEMBERS.............................................22
13.1Admission of New Members...................................22
13.2Allocations to New Members.................................22
ARTICLE 14 DISSOLUTION AND TERMINATION....................................22
14.1Dissolution................................................22
14.2Winding Up, Liquidation and Distribution of Assets.........23
14.3Certificate of Cancellation................................25
14.4Effect of Filing of Certificate of Cancellation............25
14.5Return of Contribution Nonrecourse to Other Members........25
ARTICLE 15 MISCELLANEOUS PROVISIONS.......................................25
15.1Notices....................................................25
15.2Application of Delaware Law................................25
15.3Waiver of Action for Partition.............................26
15.4Amendments.................................................26
15.5Execution of Additional Instruments........................26
15.6Construction...............................................26
15.7Headings...................................................26
15.8Waivers....................................................26
15.9Rights and Remedies Cumulative.............................26
15.10Severability ............................................ 26
15.11 Heirs, Successors and Assigns .......................... 26
15.12No Third Party Beneficiaries............................. 26
15.13Conflict of Provisions .................................. 27
15.14Counterparts............................................. 27
15.15Investment Representations............................... 27
SCHEDULE A...................................................................29
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INTERNATIONAL ASSETS NEW YORK, LLC
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "Agreement") is made and entered
into as of this 30th day of September, 1998, by and among International Assets
Holding Corp. ("IAHC") and Lakeside Investments, LLC ("Lakeside") (collectively,
the "Members").
WHEREAS, the Members intend to form the Company (as hereinafter defined) for the
purposes set forth herein; and
WHEREAS, the Members wish their relations and the Company to be governed by this
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
The following terms used in this Agreement shall have the following meanings
(unless otherwise expressly provided herein):
(a) "Adjusted Capital Account Deficit" shall mean with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the taxable year, after giving effect to the following adjustments:
(i) credit to such Capital Account that amount which such Member is obligated to
restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, as well
as any addition thereto pursuant to the next to last sentence of
Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations, after taking into
account thereunder any changes during such year in Partnership Minimum Gain (as
determined in accordance with Section 1.704-2(d) of the Treasury Regulations)
and in Partner Minimum Gain (as determined under Section 1.704-2(i)(3) of the
Treasury Regulations); and
(ii) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
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This definition of Adjusted Capital Account Deficit is intended to comply with
the provisions of Treasury Regulation Sections 1.704-1(b)(2)(ii)(d) and 1.704-2,
and will be interpreted consistently with those provisions.
(b) "Board of Managers" means the Board of Managers described in Section 5.1.
(c) "Capital Account" as of any given date shall mean the Capital Account as
defined by Article 10.3.
(d) "Capital Contribution" shall mean any contribution to the capital of the
Company in cash or property by a Member whenever made. "Initial Capital
Contribution" shall mean the initial contribution to the capital of the Company
pursuant to this Agreement. "Additional Capital Contribution" shall mean any
Capital Contribution other than an Initial Capital Contribution.
(e) "Certificate" shall mean the Certificate of Formation of the Company as
filed by the organizer of the Company with the Delaware Secretary of State, as
the same may be amended from time to time.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent superseding federal revenue laws.
(g) "Company" shall refer to International Assets New York, LLC.
(h) "Company Products" shall have the meaning given in the Joint Venture
Agreement.
(i) "Continued Products" has the meaning set forth in Section 14.2(g).
(j) "Delaware Act" shall mean the Delaware Limited Liability Company Act at
Title 6 of the Delaware Code, ss 18-101 through ss 18-1109, as the same may be
amended from time to time.
(k) "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
any time during such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such Gross Asset Value as of such time as the federal income
tax depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such adjusted tax basis; provided, however, that if the adjusted
basis for federal income tax purposes of an asset is zero, Depreciation shall be
determined with reference to such Gross Asset Value using any reasonable method
selected by the Manager.
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(l) "Distributable Cash" shall mean all cash, revenues and funds received by the
Company from Company operations, less the sum of the following to the extent
paid or set aside by the Company: (i) all principal and interest payments on
indebtedness of the Company and all other sums paid to lenders; (ii) all cash
expenditures incurred in the normal operation of the Company's business; and
(iii) such reserves as the Managers deem reasonably necessary for the proper
operation of the Company's business.
(m) "Entity" shall mean any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative, association, foreign trust or foreign business organization.
(n) "Fiscal Year" means the Company's fiscal year, which shall end on September
30.
(o) "Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such asset, as determined by the
Members hereunder.
(ii) The Gross Asset Values of all Company assets shall be adjusted to equal
their respective gross fair market values, as of the following times:
(a) the acquisition of a Membership Interest in the Company by a new or existing
Member in exchange for more than a de minimis Capital Contribution, if such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
(b) the distribution by the Company to a Member of more than a de minimis amount
of Company money or property as consideration for a Membership Interest in the
Company, if necessary or appropriate to reflect the relative economic interests
of the Members in the Company;
(c) the liquidation of the Company within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g); and
(d) at such other times as necessary or advisable in order to comply with
Treasury Regulation Sections 1.704-1(b) and 1.704-2.
(iii) The Gross Asset Value of any Company asset distributed to a Member shall
be the gross fair market value of such asset on the date of distribution as
determined by the Members.
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(iv) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m); provided, however,
that Gross Asset Values shall not be adjusted pursuant to this subparagraph (d)
to the extent that the Members reasonably determine that an adjustment pursuant
to subparagraph (b) is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 1(p)(i), Section 1(p)(ii), or Section 1(p)(iv) hereof, such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Net Profits and Net Losses.
(p) "Joint Venture Agreement" means that certain Joint Venture Agreement dated
September 30, 1998, between International Assets Holding Corp. and Lakeside
Investments, LLC.
(q) "Majority Interest" shall mean the affirmative vote of Members holding more
than fifty percent (50%) of the aggregate Percentage Interests in the Company.
(r) "Manager" shall mean one or more members of the Board of Managers of the
Company. References to the Managers in the singular or as him, her, it, itself
or other like references shall also, where the context so requires, be deemed to
include the plural or the masculine or feminine reference, as the case may be.
(s) "Member" shall mean, in connection with the formation of the Company, each
of the parties who executes a counterpart of this Agreement as a Member and,
after the formation of the Company, each of the parties who may be admitted as a
Member in accordance with Article 13 of this Agreement. References to a Member
as it, itself or other like references shall also, where the context so
requires, be deemed to include the masculine or feminine reference, as the case
may be.
(t) "Membership Interest" shall mean a Member's entire interest in the Company,
including the right to participate in the management of the business and affairs
of the Company, including the right to vote on, consent to or otherwise
participate in any decision or action of or by the Members granted pursuant to
this Agreement and the Delaware Act.
(u) "Net Profits" and "Net Losses" shall mean, for each Fiscal Year, an amount
equal to the Company's taxable income or loss for such fiscal year, determined
in accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss, and all fees and
reimbursements payable to any Member shall be regarded as deductions), with the
following adjustments:
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(i) Any income of the Company that is exempt from federal income tax and not
otherwise taken into account in computing Net Profit or Net Loss pursuant to
this definition of Net Profit or Net Loss shall be added to such taxable income
or loss;
(ii) Any expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Net Profit or Net Loss pursuant to this definition of Net Profit or
Net Loss shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (ii)(b) or subparagraph (ii)(c) of the definition of
Gross Asset Value, the amount of such adjustment shall be taken into account as
gain or loss from the disposition of such asset for purposes of computing Net
Profit or Net Loss;
(iv) Gain or loss resulting from any disposition of property with respect to
which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year, computed in
accordance with Section 1(i) hereof.
(vi) To the extent an adjustment to the adjusted tax basis of any Company asset
pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Membership Interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be taken into account for purposes
of computing Net Profit or Net Loss; and
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(vii) Notwithstanding any other provision of this definition of Net Profit or
Net Loss, any items which are specially allocated pursuant to Section 11.2
hereof shall not be taken into account in computing Net Profit or Net Loss.
(v) "Nonrecourse Debt" has the meaning set forth in Treasury Regulation Section
1.704-2(b)(3).
(w) "Nonrecourse Deductions" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a fiscal
year of the Company shall be determined in accordance with the rules of Treasury
Regulation Section 1.704-2(c).
(x) "Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such
Partner Nonrecourse Debt were treated as a Nonrecourse Debt, determined in
accordance with Treasury Regulation Section 1.704-2(i)(3).
(y) "Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).
(z) "Partner Nonrecourse Deductions" has the meaning set forth in Treasury
Regulation Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Company year shall
be determined in accordance with the rules of Treasury Regulation Section
1.704-2(i)(2).
(aa) "Partnership Minimum Gain" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Company year
shall be determined in accordance with Treasury Regulation Section 1.704-2(d).
(bb) "Percentage Interest" shall mean the proportion that a Member's Initial
Capital Contribution and Additional Capital Contribution(s), if any, bears to
the aggregate Initial Capital Contributions and Additional Capital
Contribution(s), if any, of all Members and shall be as stated on Schedule A to
this Agreement. Schedule A shall be amended from time to time upon the
occurrence of an Additional Capital Contribution to reflect the aggregate
Capital Contributions and Percentage Interest of each Member.
(cc) "Person" shall mean any individual or Entity, and their heirs, executors,
administrators, legal representatives, successors and assigns where the context
so permits.
(dd) "Regulatory Allocations" has the meaning set forth in Section
11.2(a)(viii).
(ee) "Reserves" shall mean funds set aside or amounts allocated to reserves
which shall be maintained in amounts deemed sufficient by the Board of Managers
for working capital and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's business.
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(ff) "Transferring Member" shall mean (i) any Member who sells, assigns,
pledges, hypothecates, transfers, exchanges or otherwise transfers for
consideration all or any portion of its Membership Interest or (ii) any Member
who gifts, bequeaths or otherwise transfers for no consideration (by operation
of law or otherwise, except with respect to bankruptcy) all or any part of its
Membership Interest.
(gg) "Treasury Regulations" shall include proposed, temporary and final
regulations promulgated under the Code.
(hh) "Withdrawal Event" shall mean the death, Resignation, Expulsion,
bankruptcy, or dissolution of, a Member or upon the occurrence of any other
event that terminates the continued membership of a Member in the Company other
than by transfer of all of the Member's Membership Interest to another person.
ARTICLE 2
FORMATION OF COMPANY
2.1 Formation. The Company has been organized as a Delaware limited liability
company by executing and delivering the Certificate to the Delaware Secretary of
State in accordance with and pursuant to the Delaware Act.
2.2 Name. The name of the Company is International Assets New York, LLC.
2.3 Principal Place of Business. The principal place of business of the Company
shall be in New York, New York. The Company may locate its places of business
and registered office at any other place or places as the Board of Managers may
deem advisable.
2.4 Registered Office and Registered Agent. The Company's initial registered
office shall be at the office of its registered agent at 1013 Centre Street,
Wilmington, Delaware, County of New Castle and the name of its initial
registered agent shall be Corporation Service Company.
2.5 Term. The term of the Company shall commence on the date of the formation of
the Company in accordance with and pursuant to the Delaware Act, and shall
continue until December 31, 2010, unless the Company is earlier dissolved in
accordance with either the provisions of this Agreement or the Delaware Act.
2.6 Certificates of Membership Interests. The Board of Managers of the Company
may make such rules and regulations as they may deem appropriate concerning the
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issuance and registration of Membership Interests of the Company. The Board of
Managers may authorize the issuance of any Membership Interests without
certificates. Such authorization shall not affect Membership Interests already
represented by certificates until they are surrendered to the Company.
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ARTICLE 3
BUSINESS OF COMPANY
3.1 Permitted Businesses. The business of the Company shall be to engage in the
marketing and sale of certain securities related products developed by the
Members and new products to be developed by the Company and to carry on any
other lawful business or activity in connection with the foregoing.
ARTICLE 4
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the initial Members are as follows:
- -------------------------------------------------------------------------------
NAME ADDRESS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
International Assets Holding Corp. 250 Park Avenue South, Suite 200
Winter Park, Florida 32789
Facsimile Number: (407) 629-2470
Attention: Diego Veitia
Lakeside Investments, LLC 211 Private Way
Lakewood, New Jersey 08701
Facsimile Number: (732) 364-0956
Attention: Menashe Frankel
- -------------------------------------------------------------------------------
ARTICLE 5
RIGHTS AND DUTIES OF BOARD OF MANAGERS
5.1 Management. The business and affairs of the Company shall be managed by its
Board of Managers. The Board of Managers shall have full and complete authority,
power and discretion to manage and control the business, affairs and properties
of the Company, to make all decisions regarding those matters and to perform any
and all other acts or activities customary or incident to the management of the
Company's business and objectives. No one Manager may take or effect any action
on behalf of the Company or otherwise bind the Company in the absence of a
formal delegation of authority by the Board of Managers to such Manager. Unless
authorized to do so
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by this Agreement or by the Board of Managers of the Company, no Member,
officer, attorney-in-fact, employee or other agent of the Company shall have any
power or authority to bind the Company.
5.2 Number, Election, Tenure and Qualifications. The number of Managers which
shall constitute the first Board of Managers shall be four (4), which Board of
Managers shall be established in accordance with Section 4.2 of the Joint
Venture Agreement. Managers need not be Members of the Company.
5.3 Manner of Acting. The Board of Managers shall meet at least once each
calendar quarter. The Board of Managers may designate any place, either within
or outside the State of Delaware, as the place of meeting of the Board of
Managers. If no designation is made, the place of meeting shall be the principal
place of business of the Company. A majority of the Board of Managers shall
constitute a quorum at meetings of the Board of Managers. If a quorum is
present, the unanimous vote of those in attendance shall constitute the act of
the Board of Managers, unless the vote of all Members is otherwise required by
this Agreement, the Delaware Act or the Certificate. Any Manager may participate
in a meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting by means of such equipment shall
constitute presence in person at such meeting. Action may be taken without a
meeting if the action is evidenced by one or more written consents signed by
each Manager.
5.4 Certain Powers of Managers. Without limiting the generality of Section 5.1,
the Board of Managers shall have power and authority, after due action, on
behalf of the Company:
(a) to acquire property from any Person as the Board of Managers may determine,
whether or not such Person is directly or indirectly affiliated or connected
with any Manager or Member;
(b) to borrow money for the Company on such terms as the Board of Managers deem
appropriate, and in connection therewith, to hypothecate, encumber and grant
security interests in the assets of the Company to secure repayment of the
borrowed sums. No debt shall be contracted or liability incurred by or on behalf
of the Company except by the Board of Managers, or to the extent permitted under
the Delaware Act, by agents or employees of the Company expressly authorized to
contract such debt or incur such liability by the Board of Managers;
(c) to purchase liability and other insurance to protect the Company's property
and business;
(d) to hold and own Company real and personal properties in the name of the
Company;
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(e) to invest Company funds;
(f) to execute on behalf of the Company all instruments and documents,
including, without limitation, checks; drafts; notes and other negotiable
instruments; mortgages or deeds of trust; security agreements; financing
statements; documents providing for the acquisition, mortgage or disposition of
the Company's property; assignments, bills of sale; leases; and any other
instruments or documents necessary to the business of the Company;
(g) to employ accountants, legal counsel, agents or other experts to perform
services for the Company;
(h) to enter into any and all other agreements on behalf of the Company, in such
forms as the Board of Managers may approve;
(i) to appoint such agents, officers and delegees as may be necessary or
appropriate to the conduct of the business; and
(j) to do and perform all other acts as may be necessary or appropriate to the
conduct of the Company's business.
5.5 Managers Have No Exclusive Duty to Company. No Manager shall be required to
manage the Company as his or her sole and exclusive function and he or she may
have other business interests and engage in activities in addition to those
relating to the Company. Neither the Company, the Members, nor any other Manager
shall have any right, by virtue of this Agreement, to share or participate in
such other investments or activities of the Manager or in the income or proceeds
derived therefrom.
5.6 Bank Accounts. The Board of Managers may from time to time authorize the
opening of bank accounts in the name and on behalf of the Company, and the Board
of Managers shall determine who shall have the signatory power over such
accounts.
5.7 Resignation. Any Manager of the Company may resign at any time by giving
written notice to the Members of the Company and the other Managers of the
Company. The resignation of any Manager shall take effect upon receipt of notice
thereof or at such later date specified in such notice; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. The resignation of a Manager who is also a Member shall not
affect the Manager's rights as a Member and shall not constitute a withdrawal of
a Member.
5.8 Removal. Removal of any Manager shall be effected in accordance with Section
4.2 of the Joint Venture Agreement.
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5.9 Vacancies. Any vacancy occurring for any reason in the number of Managers of
the Company shall be filled in accordance with Section 4.2 of the Joint Venture
Agreement.
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ARTICLE 6
OFFICERS
6.1 Officers of Company. The officers of the Company shall consist of a
President, a Treasurer and a Secretary, and such Vice Presidents, Assistant Vice
Presidents, Assistant Treasurers, Assistant Secretaries or other officers or
agents as may be elected and appointed by the Board of Managers. Any two or more
offices may be held by the same person. The officers shall act in the name of
the Company and shall supervise its operation under the direction and management
of the Board of Managers, as further described below.
6.2 Election and Term of Office. The officers of the Company shall be elected
annually by the Board of Managers. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Managers. Each officer shall
hold office until his or her successor shall have been duly elected and shall
have qualified or until his or her death or until he or she shall resign or
shall have been removed in the manner hereinafter provided. Election or
appointment of an officer or agent shall not of itself create contract rights.
6.3 Removal. Subject to the terms of the Joint Venture Agreement, any officer or
agent may be removed by the Board of Managers whenever in their judgment the
best interests of the Company would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
6.4 Vacancies. A vacancy in any office because of death, resignation, removal,
disqualification or otherwise may be filled by the Board of Managers for the
unexpired portion of the term.
6.5 President. The President of the Company shall be the chief operating officer
and in general and active charge of the entire business and all the affairs of
the Company and shall have the powers and perform the duties incident to that
position, including the power to bind the Company in accordance with this
Section 6.5. The President shall, when present, preside at all meetings of the
Board of Managers. He or she shall have such other powers and perform such
duties as are specified in this Agreement and as may from time to time be
assigned to him or her by the Board of Managers of the Company.
The President shall have general and active management of the business of the
Company and shall see that all orders and resolutions of the Board of Managers
of the Company are carried into effect. The President may execute bonds,
mortgages and other contracts (whenever requiring a seal, under the seal of the
Company), except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Managers of the Company to some other officer or agent
of the Company. The President shall have general powers of supervision and shall
be the final arbiter of all differences between
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officers of the Company, and such decision as to any matter affecting the
Company shall be final and binding as between the officers of the Company
subject only to the Board of Managers of the Company.
6.6 The Vice Presidents. In the absence of the President or in the event of his
or her inability or refusal to act, a Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any Vice
President shall perform such other duties as from time to time may be assigned
to him by the President or the Board of Managers of the Company.
6.7 The Treasurer. The Treasurer shall be the chief financial officer of the
Company. The Treasurer shall not be required to give a bond for the faithful
discharge of his or her duties. He or she shall: (i) have charge and custody of
and be responsible for all funds and securities of the Company; (ii) be charged
with primary responsibility for dealing with national securities exchanges or
other exchanges in which the Company may hold a membership or on which the
Company may trade; (iii) receive and give receipts for moneys due and payable to
the Company from any source whatsoever, and deposit all such moneys in the name
of the Company in such banks, trust companies or other depositaries as shall be
selected by the Board of Managers of the Company; and (iv) in general perform
all the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the President or by the Board of Managers
of the Company.
6.8 The Secretary. The Secretary shall: (a) keep the minutes of the Board of
Managers' meetings in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of this Agreement
or as required by law; (c) be custodian of Company records; (d) keep a register
of the post office address of each Member which shall be furnished to the
Secretary by such Member; (e) sign with the President or a Vice President (as
designated by the President), any certificates for Membership Interests, the
issue of which shall have been authorized by resolution of the Board of
Managers; (f) certify the resolutions of the Board of Managers, and other
documents to the Company as true and correct thereof; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him or her by the President, a Vice President
(as designated by the President) or the Board of Managers of the Company.
6.9 Assistant Treasurers and Assistant Secretaries. The Assistant Treasurers
shall respectively, if required by the Board of Managers of the Company, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Managers of the Company shall determine. The Assistant
Treasurers and Assistant Secretaries, in general, shall perform such duties as
shall be assigned to them by the Treasurer or the Secretary, respectively, or by
the President or the Board of Managers of the Company.
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6.10 Salaries. Except as otherwise provided in the Joint Venture Agreement, the
salaries and other compensation of the officers and other employees of the
Company shall be fixed from time to time by the Board of Managers, and no
officer or employee shall be prevented from receiving such salary by reason of
the fact that he or she is also a Manager or Member of the Company.
ARTICLE 7
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 Limitation of Liability. A Member shall not be personally liable to
creditors of the Company for any debts, obligations, liabilities or losses of
the Company, whether arising in contract, tort or otherwise, beyond such
Member's Capital Contribution under Section 10.1 and any additional Capital
Contributions made by such Member under Section 10.2, except as otherwise
required by law.
7.2 List of Members. Upon the written request of any Member, the Board of
Managers shall provide a list showing the names, addresses and Membership
Interests of all Members.
7.3 Company Books. In accordance with Section 11.8 hereof, the Board of Managers
shall maintain and preserve, during the term of the Company, the accounts, books
and other relevant Company documents. Upon reasonable written request, each
Member and its duly authorized representative shall have the right, at a time
during ordinary business hours, as reasonably determined by the Board of
Managers, to inspect and copy such Company documents (at the requesting Member's
expense) which the Board of Managers, in its discretion, deems appropriate for
any purpose reasonably related to the requesting Member's Membership Interest.
7.4 Priority and Return of Capital. Except as may be expressly provided in
Article 11, no Member shall have priority over any other Member, either as to
the return of Capital Contributions or as to Net Profits, Net Losses or
distributions; provided that this Section shall not apply to the repayment by
the Company of loans (as distinguished from Capital Contributions) which a
Member has made to the Company.
7.5 No Preemptive Rights. No Member shall have any preemptive or preferential
right, including any such right with respect to (a) Additional Capital
Contributions; (b) issuance or sale of Membership Interests, whether unissued or
hereafter created; (c) issuance of any obligations, evidences of indebtedness or
other securities of the Company convertible into or exchangeable for, or
carrying or accompanied by any rights to receive, purchase or subscribe to, any
such unissued Membership Interest; (d) issuance of any right of, subscription to
or right to receive, or any warrant or option for the purchase of, any of the
foregoing securities; or (e) issuance or sale of any other securities that may
be issued or sold by the Company.
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ARTICLE 8
MEETINGS OF MEMBERS
8.1 Meetings. Meetings of the Members, for any purpose or purposes, may be
called by any Member or Members owning a Majority Interest or by any Manager.
8.2 Place of Meetings. The Members may designate any place, either within or
outside the State of Delaware, as the place of meeting for any meeting of the
Members. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the principal place of business of the Company.
8.3 Notice of Meetings. Except as provided in Section 8.4, written notice
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called shall be delivered not less than five (5) nor more
than thirty (30) days before the date of the meeting, either personally or by
mail, by or at the direction of the Board of Managers or Member or Members
calling the meeting, to each Member entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered two (2) calendar days after being
deposited in the United States mail, addressed to the Member at its address as
it appears on the books of the Company, with postage thereon prepaid.
8.4 Meeting of All Members. If Members owning a Majority Interest consent to the
holding of a meeting at any time and place, such meeting shall be valid without
call or notice, and at such meeting lawful action may be taken.
8.5 Record Date. For the purpose of determining Members entitled to notice of or
to vote at any meeting of Members or any adjournment thereof, or Members
entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.
8.6 Quorum. Members owning a Majority Interest, represented in person or by
proxy, shall constitute a quorum at any meeting of Members. In the absence of a
quorum at any such meeting, a majority of the Percentage Interests so
represented may adjourn the meeting from time to time for a period not to exceed
sixty (60) days without further notice. However, if the adjournment is for more
than sixty (60) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
Member of record entitled to vote at the meeting. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally
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noticed. The Members present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal during such
meeting of that number of Percentage Interests whose absence would cause less
than a quorum.
8.7 Manner of Acting. If a quorum is present, the affirmative vote of a majority
of the Percentage Interests so represented shall be the act of the Members,
unless the vote of a greater or lesser proportion or number is otherwise
required by the Delaware Act, by the Certificate or by this Agreement.
8.8 Proxies. At all meetings of Members, a Member may vote in person or by proxy
executed in writing by the Member or by a duly authorized attorney-in-fact. Such
proxy shall be filed with the Board of Managers of the Company before or at the
time of the meeting. No proxy shall be valid after eleven (11) months from the
date of its execution, unless otherwise provided in the proxy.
8.9 Telephone Conference. Any Member may participate in a meeting of the Members
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in the meeting by means of such equipment shall constitute
presence in person at such meeting.
8.10 Action by Members Without a Meeting. Action required or permitted to be
taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written consents describing the action taken, signed by
each Member entitled to vote and delivered to the Board of Managers of the
Company for inclusion in the minutes or for filing with the Company records.
Action taken under this Section is effective when all Members entitled to vote
have signed the consent, unless the consent specifies a different effective
date.
8.11 Waiver of Notice. When any notice is required to be given to any Member, a
waiver thereof in writing signed by the person entitled to such notice, whether
before, at or after the time stated therein, shall be equivalent to the giving
of such notice.
ARTICLE 9
STANDARD OF CARE AND INDEMNIFICATION
OF MANAGERS, OFFICERS AND EMPLOYEES
9.1 Standard of Care. No Manager or officer shall be liable to any Member or to
the Company by reason of the actions of such person in the conduct of the
business of the Company except for fraud, gross negligence or willful
misconduct.
9.2 Indemnification of Managers, Officers and Employees. The Company shall, to
the fullest extent to which is it empowered to do so by the Delaware Act or any
other applicable law, indemnify and make advances for expenses to any person who
was or is
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a party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a Manager, officer
or employee of the Company, against losses, damages, expenses (including
attorneys' fees), judgments, fines and amounts reasonably incurred by him or her
in connection with such action, suit or proceeding.
ARTICLE 10
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
10.1 Initial Capital Contributions. Each Member shall contribute such amount set
forth in Schedule A as its Initial Capital Contribution.
10.2 Additional Contributions. Except as provided in Section 3.2 of the Joint
Venture Agreement, or as otherwise agreed by all the Members, no Member shall be
required to make Additional Capital Contributions. The failure of any Member to
make an Additional Capital Contribution required by Section 3.2 shall be deemed
to constitute an Event of Default.
10.3 Capital Accounts. (a) There shall be established and maintained for each
Member on the books of the Company a capital account (the "Capital Account") in
accordance with the following provisions: A separate Capital Account will be
maintained for each Member. Each Member's Capital Account will be increased by
(1) the amount of money contributed by such Member to the Company; (2) the Gross
Asset Value of property contributed by such Member to the Company (net of
liabilities secured by such contributed property that the Company is considered
to assume or take subject to under Code Section 752); (3) allocations to such
Member of Net Profits; (4) items in the nature of income or gain which are
specially allocated pursuant to Section 11.2 hereof; and (5) allocations to such
Member of income described in Code Section 705(a)(1)(B). Each Member's Capital
Account will be decreased by (1) the amount of money distributed to such Member
by the Company; (2) the Gross Asset Value of property distributed to such Member
by the Company (net of liabilities secured by such distributed property that
such Member is considered to assume or take subject to under Code Section 752);
(3) allocations to such Member of Net Losses; (4) allocations to such Member of
expenditures described in Code Section 705(a)(2)(B); and (5) items in the nature
of expenses or losses which are specially allocated pursuant to Section 11.2
hereof.
(b) In the event of a permitted sale or exchange of a Membership Interest in the
Company pursuant to Article 12 hereof, the Capital Account of the Transferring
Member shall become the Capital Account of the transferee to the extent it
relates to the transferred Membership Interest in accordance with
Section 1.704-1(b)(2)(iv) of the Treasury Regulations.
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(c) The manner in which Capital Accounts are to be maintained pursuant to this
Section 10.3 is intended to comply with the requirements of Code Section 704(b)
and the Treasury Regulations promulgated thereunder and the provisions herein
regarding maintenance of Capital Accounts shall be interpreted and applied in a
manner consistent with such Regulations. If the Company determines that the
manner in which Capital Accounts are to be maintained pursuant to the preceding
provisions of this Section 10.3 should be modified in order to comply with Code
Section 704(b) and the Treasury Regulations, then notwithstanding anything to
the contrary contained in the preceding provisions of this Section 10.3, the
method in which Capital Accounts are maintained shall be so modified; provided,
however, that any change in the manner of maintaining Capital Accounts shall not
materially alter the economic agreement between or among the Members as set
forth in this Agreement.
ARTICLE 11
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS
AND REPORTS
11.1 Allocations of Net Profits and Net Losses. The Net Profits and Net Losses
of the Company for each Fiscal Year shall be allocated among the Members in
proportion to their respective Percentage Interests in the Company. Subject to
the other provisions of this Article 11, allocations to a Member of Net Profits
or Net Loss shall be treated as an allocation of the same share of each item of
income, gain, loss, deduction or credit that is taken into account in computing
Net Profits or Net Loss.
11.2 Additional Allocation Provisions. Notwithstanding the foregoing provisions
of this Article 11:
(a) Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in Treasury
Regulation Section 1.704-2(f), notwithstanding the provisions of Section 11.1 of
this Agreement, or any other provision of this Article 11, if there is a net
decrease in Partnership Minimum Gain during any fiscal year, each Member shall
be specially allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Member's share of the
net decrease in Partnership Minimum Gain, as determined under Treasury
Regulation Section 1.704-2(g). The items to be allocated shall be determined in
accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2).
This Section 11.2(a)(i) is intended to qualify as a "minimum gain chargeback"
within the meaning of Treasury Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
(ii) Partner Minimum Gain Chargeback. Except as otherwise provided in Treasury
Regulation Section 1.704-2(i)(4), and notwithstanding the provisions
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of Section 11.1 of this Agreement or any other provision of this Article 11
(except Section 11.2(a)(i)), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any fiscal year, each Member
who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Treasury Regulation Section
1.704-2(i)(5), shall be specially allocated items of Company income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Treasury Regulation
Section 1.704-2(i)(4). The items to be so allocated shall be determined in
accordance with Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2).
This Section 11.2(a)(ii) is intended to qualify as a "chargeback of partner
nonrecourse debt minimum gain" within the meaning of Treasury Regulation Section
1.704-2(i) and shall be interpreted consistently therewith.
(iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the Members in
accordance with their Percentage Interests. Any Partner Nonrecourse Deductions
for any Fiscal Year shall be specially allocated to the Member(s) who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable, in accordance with Treasury
Regulation Section 1.704-2(i).
(iv) Qualified Income Offset. If any Member unexpectedly receives an
adjustment, allocation or distribution described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), that causes such Member to have a Adjusted
Capital Account Deficit, items of Company income and gain shall be allocated, in
accordance with Treasury Regulation Section 1.704-1(b)(2)(ii)(d), to the Member
in an amount and manner sufficient to eliminate, to the extent required by such
Treasury Regulation, the Adjusted Capital Account Deficit of the Member as
quickly as possible provided that an allocation pursuant to this Section
11.2(a)(iv) shall be made if and only to the extent that such Member would have
an Adjusted Capital Account Deficit after all other allocations provided in this
Article 11 have been tentatively made as if this Section 11.2(a)(iv) were not in
the Agreement. It is intended that this Section 11.2(a)(iv) qualify and be
construed as a "qualified income offset" within the meaning of treasury
Regulation 1.704-1(b)(2)(ii)(d), and shall be interpreted consistently
therewith.
(v) Gross Income Allocation. In the event any Member has a deficit balance in
its Capital Account at the end of any Fiscal Year which is in excess of the sum
of (1) the amount (if any) such Member is obligated to restore to the Company,
and (2) the amount such Member is deemed to be obligated to restore pursuant to
Treasury Regulation Section 1.704-1(b)(2)(ii)(c) or the penultimate sentences of
Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Membe
20-
<PAGE>
shall be specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
Section 11.2(a)(v) shall be made if and only to the extent that such Member
would have a Adjusted Capital Account Deficit in excess of such sum after all
other allocations provided in this Article 11 have been tentatively made as if
this Section 11.2(a)(v) and Section 11.2(a)(iv) were not in this Agreement.
(vi) Limitation on Allocation of Net Losses. The allocation of Net Losses to any
Member pursuant to Section 11.1 hereof shall not exceed the maximum amount of
Net Loss that can be so allocated to such Member without causing such Member to
have an Adjusted Capital Account Deficit at the end of any Fiscal Year. To the
extent an allocation of Net Loss would cause or increase an Adjusted Capital
Account Deficit as to any Member, the limitation set forth in this Section
11.2(a)(vi) shall be applied on a Member by Member basis in accordance with
their respective Percentage Interests so as to allocate the maximum permissible
Net Loss to each Member without causing any Member to have an Adjusted Capital
Account Deficit.
(vii) Section 754 Adjustment. To the extent an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m)(2) or Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4),
to be taken into account in determining Capital Accounts as the result of a
distribution to a Member in liquidation of its interest in the Company, the
amount of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Members in accordance with their Percentage Interests in the
event that Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) applies, or to
the Members to whom such distribution was made in the event that Treasury
Regulation Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocation. The allocations set forth in Sections 11.2(a)(i),
(ii), (iii), (iv), (v), (vi), and (vii) (the "Regulatory Allocations") are
intended to comply with certain regulatory requirements, including the
requirements of Treasury Regulation Sections 1.704-1(b) and 1.704-2.
Notwithstanding the provisions of Section 11.1, the Regulatory Allocations shall
be taken into account if necessary in allocating other items of income, gain,
loss and deduction among the Members so that, to the extent possible, the net
amount of such allocations of other items and the Regulatory Allocations to each
Member shall be equal to the net amount that would have been allocated to each
such Member if the Regulatory Allocations had not occurred.
11.3 Tax Allocations.
21
<PAGE>
(a) In General. Except as otherwise provided in this Section 11.3, for income
tax purposes each item of income, gain, loss and deduction (collectively, "Tax
Items") shall be allocated among the Members in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated pursuant
to Sections 11.1 and 11.2.
(b) Allocations Respecting Section 704(c) Revaluations. Notwithstanding Section
11.3(a), Tax Items with respect to Company property that is contributed to the
Company by a Member shall be shared among the Members for income tax purposes
pursuant to Treasury Regulation promulgated under Section 704(c) of the Code, so
as to take into account the variation, if any, between the basis of the property
to the Company and its initial Gross Asset Value. With respect to Company
property, if any, that is initially contributed to the Company upon its
formation, such variation between basis and initial Gross Asset Value shall be
taken into account under the "traditional method" as described in Proposed
Treasury Regulation 1.704-3(b) and Treasury Regulation 1.704-1(c)(2). In the
event the Gross Asset Value of any Company asset is adjusted pursuant to
subparagraph (b) of the definition of Gross Asset Value, subsequent allocations
of tax items with respect to such asset shall take account of the variation, if
any, between the adjusted basis of such asset and its Gross Asset Value in the
same manner as under Code Section 704(c) and the applicable Treasury Regulation
under the same method.
11.4 Distributions. Interim distributions, liquidating distributions and
redemption distributions shall be made as follows:
(a) Subject to Section 18-607 of the Delaware Act the Board of Managers may
cause the Company to make interim distributions of Distributable Cash or other
property at such time and for such amounts as determined by the Board of
Managers. All interim distributions of Distributable Cash or other property
shall be made in proportion to the Members' Percentage Interests.
(b) Upon liquidation of the Company, liquidating distributions shall be made in
accordance with Section 14.2 below.
(c) Upon redemption of any Member's Membership Interest upon the occurrence of a
Withdrawal Event, redemption distributions will be made in accordance with
Section 14.1(d).
(d) The Company may offset damages for breach of this Agreement by a Member
whose Membership Interest is liquidated (either upon the redemption of a
Member's Membership Interest or the liquidation of the Company) against the
amount otherwise distributable to such Member pursuant to this Section or
Section 14.1(d).
(e) A Member has no right to demand and receive any distribution in a form other
than cash.
22
<PAGE>
(f) All amounts withheld pursuant to the Code or any provision of any state or
local tax law with respect to any payment, distribution or allocation to the
Company or the Members may be treated as amounts distributed to the Members
pursuant to this Section 11.4 for all purposes under this Agreement. The Manager
is authorized to withhold from distributions, or with respect to allocations, to
the Members and pay over to any federal, state, or local government any amounts
required to be so withheld pursuant to the Code or any provisions of any other
federal, state or local law and may allocate such amounts to the Members with
respect to which such amount was withheld.
11.5 Accounting Principles. The Company's financial statements shall be prepared
and its profit and loss statement shall be determined in accordance with
generally accepted accounting principles applied on a consistent basis using the
accrual method of accounting.
11.6 Interest on and Return of Capital Contributions. No Member shall be
entitled to interest on its Capital Contribution or to a return of its Capital
Contribution.
11.7 Loans to Company. Nothing in this Agreement shall prevent any Member from
making secured or unsecured loans to the Company by agreement with the Company.
11.8 Records and Report. At the expense of the Company, the Board of Managers
shall maintain records and accounts of the operations and expenditures of the
Company. At a minimum, the Company shall keep at its principal place of business
the following records:
(a) A current list of the full name and last known business or mailing address
of each Member and Manager;
(b) A copy of the Certificate and all amendments thereto, together with executed
copies of any powers of attorney pursuant to which any amendment has been
executed;
(c) Copies of the Company's financial statements and federal, state and local
income tax returns and reports, if any, for the three most recent years; and
(d) Copies of the Company's currently effective written Agreement, as amended.
11.9 Returns and Other Elections. The Treasurer shall cause the preparation and
timely filing of all tax returns required to be filed by the Company pursuant to
the Code and all other tax returns deemed necessary and required in each
jurisdiction in which the Company does business. Copies of such returns or
pertinent information therefrom shall be furnished to the Members within a
reasonable time after the end of the Company's Fiscal Year. All elections
permitted to be made by the Company under federal or state laws shall be made by
the treasurer in his or her sole discretion. In recognition of the fact that the
Company expects to be treated as a partnership for U.S. federal income tax
23
<PAGE>
purposes, the Members agree to treat their Membership Interest as partnership
interests for U.S. federal and state income tax reporting purposes.
11.10 Tax Matters Partner. IAHC is designated the "Tax Matters Partner" (as
defined in Code Section 6231), and is authorized and required to represent the
Company (at the Company's expense) in connection with all examinations of the
Company's affairs by tax authorities, including, without limitation,
administrative and judicial proceedings, and to expend Company funds for
professional services and costs associated therewith. The Members agree to
cooperate with each other and to do or refrain from doing any and all things
reasonably required to conduct such proceedings.
ARTICLE 12
[Intentionally Omitted]
ARTICLE 13
ADDITIONAL MEMBERS
13.1 Admission of New Members. From the date of the formation of the Company,
any Person or Entity acceptable to the Members by their unanimous vote thereof
may become a Member in the Company by the issuance by the Company of a
Membership Interest for such consideration as the Members by their unanimous
votes shall determine, or by being a permitted transferee of an existing
Membership Interest in accordance with Article 12, subject to the terms and
conditions of this Agreement.
13.2 Allocations to New Members. No new Members shall be entitled to any
retroactive allocation of any item of income, gain, loss, deduction or credit of
the Company. The Board of Managers may, at its option, at the time a Member is
admitted, close the Company books (as though the Company's tax year has ended)
or make pro rata allocations of items of income, gain, loss, deduction or credit
to a new Member for that portion of the Company's tax year in which a new Member
was admitted in accordance with the provisions of Code Section 706(d) and the
Treasury Regulations promulgated thereunder.
ARTICLE 14
DISSOLUTION AND TERMINATION
14.1 Dissolution.
(a) The Company shall be dissolved upon the occurrence of any of the following
events:
24
<PAGE>
(i) When the period fixed for the duration of the Company pursuant to
Section 2.5 hereof shall expire;
(ii) by the unanimous written agreement of all Members;
(iii) upon a Withdrawal Event, unless the business of the Company is continued
by the affirmative vote of all of the remaining Members within ninety (90) days
following the Withdrawal Event and there is at least one Member; or
(iv) the entry of a decree of judicial dissolution under Section 18-802 of the
Delaware Act.
(b) If a Member who is an individual dies or a court of competent jurisdiction
adjudges him to be incompetent to manage his or her person or his or her
property, the Member's executor, administrator, guardian, conservator or other
legal representative may exercise all of the Member's rights for the purpose of
settling his or her estate or administering his or her property.
(c) Unless the business of the Company is continued by the remaining Members in
accordance with Section 14.1(a)(iii) above, dissolution of the Company shall be
effective on the day on which a Withdrawal Event occurs, but the Company shall
not terminate until the certificate of cancellation shall be filed with the
Secretary of State of the State of Delaware and the assets of the Company are
distributed as provided in Section 14.2 below. Notwithstanding the dissolution
of the Company, prior to the termination of the Company, the business of the
Company and the affairs of the Members shall continue to be governed by this
Agreement.
(d) If there is a Withdrawal Event and all of the remaining Members consent to
continue the business of the Company in accordance with Section 14.1(a)(iii),
the Company shall, subject to Section 11.4(d), pay to the withdrawing Member any
positive balance in the withdrawing Member's Capital Account within ninety (90)
days from the date of the Withdrawal Event. The remaining Members shall have the
right in their sole discretion at any time within sixty (60) days of the
Withdrawal Event to determine all Net Profits and Net Losses of the Company as
of the date of such determination and to make appropriate credits and debits to
the Members' Capital Accounts. The Capital Account of the withdrawing Member as
of the date of determination shall be conclusively deemed to be the fair value
of all of its Membership Interest and the payment provided for in this
Section 14.1(d) shall be the full and only consideration for the redemption of
the withdrawing Member's Membership Interest.
14.2 Winding Up, Liquidation and Distribution of Assets.
(a Subject to the provisions of the Joint Venture Agreement, the Members who
have not wrongfully dissolved the Company may wind up the Company's affairs, but
the Court of Chancery, upon cause shown, may wind up the Company's affairs upon
25
<PAGE>
application of any Member or his legal representative, and in connection
therewith, may appoint a liquidating trustee.
(b Upon dissolution, an accounting shall be made of the Company's assets,
liabilities and operations, from the date of the last previous accounting until
the date of dissolution. The Board of Managers shall immediately proceed to wind
up the affairs of the Company.
(c If the Company is dissolved and its affairs are to be wound up, the Board of
Managers shall:
(i0 Except as provided in Section 14.2(g) and subparagraph (ii), sell or
otherwise liquidate all of the Company's assets as promptly as practicable;
(ii0 Allocate any Net Profit or Net Loss resulting from such sales to the
Member's Capital Accounts in accordance with Article 11 hereof;
(iii0 Discharge all liabilities of the Company, including liabilities to Members
who are creditors of the Company to the extent permitted by law, excluding
liabilities for distributions to Members under Sections 11.4(a) and 11.4(c); and
(iv0 Distribute the remaining assets to Members in accordance with the positive
balance (if any) of each Member's Capital Account (as determined after taking
into account all Capital Account adjustments for the Company's taxable year
during which the liquidation occurs). Any such distributions to the Members in
respect of their Capital Accounts shall be made within the time specified in
Section 1.704-1(b)(2)(ii)(b)(2) of the Treasury Regulations.
(d Notwithstanding anything to the contrary in this Agreement, if any Member has
a deficit balance in its Capital Account (after giving effect to all
contributions, distributions, allocations and other Capital Account adjustments
for all taxable years, including the year during which such liquidation occurs),
such Member shall have no obligation to make any Capital Contribution, and the
deficit balance shall not be considered a debt owed by such Member to the
Company or to any other Person for any purpose whatsoever.
(e Upon completion of the winding up, liquidation and distribution of the assets
of the Company, the Company shall be deemed terminated.
(f The Board of Managers shall comply with all requirements of applicable law
pertaining to the winding up of the affairs of the Company and the final
distribution of its assets.
(g) The Members hereby agree that in the event of a winding up of the Company,
the Members shall agree upon which, if any, Company Products (as such term is
defined in Section 7.2 of the Joint Venture Agreement) shall continue subsequent
26
<PAGE>
to the Company's termination. Such Company Products so continued shall be
designated the "Continued Products". The Members shall negotiate in good faith
to determine the terms upon which the Continued Products will be marketed and
sold subsequent to the Company's termination. In the event the Members agree to
jointly market and sell the Continued Products, the Members shall divide the net
earnings derived from such Continued Products equally (net of all costs incurred
by each of the Members in marketing and selling such Continued Products). In the
event the Members agree to individually market and sell the Continued Products,
each Member shall be responsible for the costs incurred in marketing and selling
such Continued Products. All Company Products which are not designated as
Continued Products upon the winding up of the Company, or are thereafter
discontinued upon the request of either Member, shall be terminated and
distributed to the Members in accordance with this Section 14.2.
14.3 Certificate of Cancellation. When all debts, liabilities and obligations of
the Company have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets of the Company have been
distributed, a certificate of cancellation shall be executed by one or more
authorized persons, which certificate shall set forth the information required
by the Delaware Act. A certificate of cancellation shall be filed with the
Delaware Secretary of State to accomplish the cancellation of the Certificate of
the Company upon the dissolution and completion of the winding up of the
Company.
14.4 Effect of Filing of Certificate of Cancellation. Upon the filing of the
certificate of cancellation with the Delaware Secretary of State, the existence
of the Company shall cease, except for the purpose of suits, other proceedings
and appropriate action as provided in the Delaware Act. The Board of Managers
shall have authority to distribute any Company property discovered after
dissolution, convey real estate and take such other action as may be necessary
on behalf of and in the name of the Company.
14.5 Return of Contribution Nonrecourse to Other Members. Except as provided by
law or as expressly provided in this Agreement, upon dissolution, each Member
shall look solely to the assets of the Company for the return of its Capital
Contribution. If the property remaining after the payment or discharge of the
debts and liabilities of the Company is insufficient to return the cash
contribution of one or more Members, such Member or Members shall have no
recourse against any other Member, except as otherwise provided by law.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 Notices. Any notice, demand or communication required or permitted to be
given by any provision of this Agreement shall be in writing and shall be deemed
to have been given when actually received. Any such notice, demand or
communication may be given by mail, express package service, telex or telefax
27
<PAGE>
and shall be addressed to each Member at the addresses shown in Article 4,
and/or to the Company at its principal office or to such other address as a
party may from time to time designate by notice to the other parties.
15.2 Application of Delaware Law. This Agreement and its interpretation shall be
subject to and is governed exclusively by its terms and by the laws of the State
of Delaware, and specifically the Delaware Act and the Certificate. In the event
of a direct conflict between the provisions of this Agreement and the provisions
of the Delaware Act or the Certificate, such provisions of the Delaware Act or
the Certificate, as the case may be, will be controlling.
15.3 Waiver of Action for Partition. Each Member irrevocably waives during the
term of the Company any right that it may have to maintain any action for
partition with respect to the property of the Company.
15.4 Amendments. This Agreement may be amended at any time in a writing executed
by all the Members.
15.5 Execution of Additional Instruments. Each Member hereby agrees to execute
such other and further statements of interest and holdings, designations, powers
of attorney and other instruments necessary to comply with any laws, rules or
regulations.
15.6 Construction. Whenever the singular number is used in this Agreement and
when required by the context, the same shall include the plural and vice versa,
and the masculine gender shall include the feminine and neuter genders and vice
versa.
15.7 Headings. The headings in this Agreement are inserted for convenience only
and are in no way intended to describe, interpret, define, or limit the scope,
extent or intent of this Agreement or any provision hereof.
15.8 Waivers. The failure of any party to seek redress for violation of or to
insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
15.9 Rights and Remedies Cumulative. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive the right to use any or all other remedy. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.
15.10 Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by law.
28
<PAGE>
15.11 Heirs, Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns.
15.12 No Third Party Beneficiaries. None of the provisions of this Agreement
shall be for the benefit of or enforceable by any Person other than the Members.
15.13 Conflict of Provisions. In the event of a conflict between provisions of
this Agreement provisions of the Joint Venture Agreement, the Joint Venture
Agreement shall prevail.
15.14 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
15.15 Investment Representations. The undersigned Members, if any, understand
(1) that the Membership Interests issued pursuant to this Agreement have not
been registered under the Securities Act of 1933 or any state securities laws
(the "Securities Acts") because the Company is issuing these Membership
Interests in reliance upon the exemptions from the registrations requirements of
the Securities Acts providing for issuance of securities not involving a public
offering, (2) that the Company has relied upon the fact that the Membership
Interests are to be held by each Member for investment, and (3) that exemption
from registrations under the Securities Acts would not be available if the
Membership Interests were acquired by a Member with a view to distribution.
Accordingly, each Member hereby confirms to the Company that such Member is
acquiring a Membership Interest for such own Member's account, for investment
and not with a view to the resale or distribution thereof without complying with
an exemption for registration under the Securities Acts. Each Member agrees
not-to-transfer, sell or offer for sale any of portion of the Membership
Interest unless there is an effective registration or other qualification
relating thereto under the Securities Acts or unless the holder of the
Membership Interest delivers to the Company an opinion of counsel, satisfactory
to the Company, that such registration or other qualification under such
Securities Acts is not required in connection with such transfer, offer or sale.
Each Member understands that the Company is under no obligation to register the
Membership Interests or to assist such Member in complying with any exemption
from registration under the Securities Acts if such Member should at a later
date wish to dispose of the Membership Interest. Furthermore, each Member
realizes that the Membership Interests are unlikely to qualify for disposition
under Rule 144 of the Securities and Exchange Commission unless such Member is
not an "affiliate" of the Company and the Membership Interest has been
beneficially owned and fully paid for by such Member for at least three years.
Prior to acquiring a Membership Interest, each Member has made an investigation
of the Company and its business and the Company has made available to each such
29
<PAGE>
Member all information with respect thereto which such Member needed to make an
informed decision to acquire a Membership Interest. Each Member considers
himself to be a person possessing experience and sophistication as an investor
which are adequate for the evaluation of the merits and risks of such Member's
investment in a Membership Interest.
IN WITNESS WHEREOF, the parties hereto have caused their signatures, or the
signatures of their duly authorized representatives, to be set forth below on
the day and year first above written.
MEMBERS:
International Assets Holding Corp.
By: /s/ Diego J. Veitia
Its: Chairman & CEO
Lakeside Investments, LLC
By: /s/ Menashe Frankel
Its: President
30
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount of Initial Percentage
Member Capital Contribution Interest
- -----------------------------------------------------------------------------------------------------------
International Assets Holding Corp. $100,000 50%
- -----------------------------------------------------------------------------------------------------------
Lakeside Investments, LLC $100,000 50%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
31
EXHIBIT 11
INTERNATIONAL ASSETS HOLDING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
For the Year Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 (1) 1997
Basic Earnings (Loss) Per Share
Numerator:
Net income (loss) $ (217,338) $ 717,869
Denominator:
Weighted average number of common shares outstanding 1,533,534 1,578,966
Basic earnings (loss) per share $ (0.14) $ 0.45
Diluted Earnings (Loss) Per Share
Numerator:
Net income (loss) $ (217,338) $ 717,869
Denominator:
Weighted average number of common shares outstanding 1,533,534 1,578,966
Weighted average number of net common shares that would
be issued upon exercise of dilutive options and warrants assuming
proceeds used to repurchase shares pursuant to the treasury
stock method (2) 64,035
Weighted average number of common shares and dilutive
potential common shares outstanding 1,533,534 1,643,001
Diluted earnings (loss) per share $ (0.14) $ 0.44
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Diluted loss per share is the same as basic loss per share for 1998 because
of the anti-dilutive impact of the dilutive potential common shares due to the
net loss for 1998.
(2) The treasury stock method recognizes the use of proceeds that could be
obtained upon exercise of options and warrants in computing diluted earnings per
share. It assumes exercise of options and warrants as of the beginning of the
period or when issued, if later, and that any proceeds would be used to purchase
common stock at the average market price during the period.
<PAGE>
EXHIBIT 21
INTERNATIONAL ASSETS HOLDING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
<S> <C> <C>
Name State of Incorporation
International Assets Advisory Corp. Florida
International Asset Management Corp. Florida
Global Assets Advisors, Inc. Florida
International Financial Products, Inc. Florida
International Trader Association, Inc. Florida
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 3,038,869
<RECEIVABLES> 922,674
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 2,014,734
<PP&E> 350,613
<TOTAL-ASSETS> 6,560,081
<SHORT-TERM> 0
<PAYABLES> 716,680
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 290,403
<LONG-TERM> 0
0
0
<COMMON> 14,816
<OTHER-SE> 5,396,334
<TOTAL-LIABILITY-AND-EQUITY> 6,560,081
<TRADING-REVENUE> 1,791,739
<INTEREST-DIVIDENDS> 269,855
<COMMISSIONS> 7,000,069
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 237,895
<INTEREST-EXPENSE> 5,704
<COMPENSATION> 4,851,142
<INCOME-PRETAX> (297,159)
<INCOME-PRE-EXTRAORDINARY> (297,159)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217,338)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
