UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
-------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to _______________________
Commission file number 0-25336
KIRLIN HOLDING CORP.
--------------------------------------------
(Name of small business issuer in its charter)
Delaware 11-3229358
- -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6901 Jericho Turnpike, Syosset, New York 11791
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (800) 899-9400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.0001 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer 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 pursuant to Item
405 of Regulation S-B contained herein, and will not be contained, to the best
of issuer'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]
The information required in Part III by Items 9, 10, 11 and 12 is
incorporated by reference to the issuer's proxy statement in connection with the
Annual Meeting of Shareholders to be held in June 1999 which will be filed by
the issuer within 120 days after the close of its fiscal year.
State issuer's revenues for its most recent fiscal year: $15,555,083.
As of March 16, 1999, the aggregate market value of the issuer's Common
Stock (based on its reported last sale price on the Nasdaq SmallCap Market) held
by non-affiliates of the issuer was $5,647,552. At March 16, 1999, 2,871,764
shares of issuer's Common Stock were outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS.
General
Kirlin Holding Corp. (the "Company") is a holding company engaged in
securities brokerage, securities trading and investment and merchant banking
primarily through Kirlin Securities, Inc. ("Kirlin"), its operating subsidiary.
Kirlin is registered as a broker-dealer with the Securities and Exchange
Commission ("Commission") and is a member firm of the National Association of
Securities Dealers, Inc. ("NASD") and the Securities Investor Protection
Corporation ("SIPC"). Kirlin is a full service retail-oriented brokerage firm,
specializing in the trading and sale of both equity and fixed income securities,
including mutual funds. Kirlin also offers a managed assets portfolio program to
manage the financial assets of its clients. At March 1, 1999, the Company
maintained over 14,000 retail customer accounts, which held over $749 million in
assets. The Company's revenues are generated primarily from principal trading
activities and brokerage transactions. Kirlin is currently licensed to conduct
activities as a broker-dealer in the District of Columbia and in 47 states, and
operates primarily from its headquarters in Syosset, New York, as well as five
branch offices located in California, New Jersey and New York.
The Company was incorporated under the laws of the State of Delaware on
July 28, 1994 to serve as a holding company for Kirlin. Kirlin was incorporated
under the laws of the State of Delaware on January 6, 1988 and became a
wholly-owned subsidiary of the Company on October 20, 1994. All references to
the Company, unless the context requires otherwise, refers to the Company and
Kirlin.
Principal Transactions
The largest portion of the Company's revenues in the last several years
(71.1% in 1996, 75.2% in 1997 and 55.7% in 1998) have been derived from
principal trading activities in equity and fixed income securities, including
merchant banking investments. As a principal, the Company buys and sells
securities, both for proprietary trading and, more significantly, to facilitate
sales to its retail customers and other dealers. These securities are purchased
in secondary markets or from the underwriters of new issues. Principal
transactions with customers are effected at a net price equal to the current
inter-dealer price plus or minus a mark-up or mark-down within the guidelines of
applicable securities regulations.
The Company also engages in proprietary trading, including
market-making, in an attempt to realize trading gains. The Company's trading
activities as a principal require the commitment of capital and create an
opportunity for profits and risk of loss due to trading strategies and market
fluctuations. Trading profits or losses depend upon, among other things, the
skills of the Company's employees engaged in trading, the capital allocated to
securities positions, the financial condition and business prospects of
particular issuers and general trends in the securities markets. At March 16,
1999, the Company made a market in the equity securities of 24 companies.
Commission Business
A significant portion of the Company's revenues are derived from
commissions generated by its brokerage activities in which the Company buys and
sells securities for its customers from other dealers on an agency basis, and
charges its customers a commission for its services. The Company's commission
revenue is derived from brokerage transactions in listed and over-the-counter
securities and mutual fund securities. The Company currently has agreements with
55 mutual fund management companies pursuant to which the Company sells shares
in approximately 100 mutual funds. Mutual fund commissions are derived
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from standard dealers' discounts which are a small percentage of the purchase
price of the shares depending upon the terms of the dealer agreement and the
size of the transaction. In addition, most funds permit the Company to receive
additional periodic fees based upon the customer's investment maintained in
particular funds.
Money Management
The Company established and maintains a Managed Asset Portfolio Program
("MAPP") to manage the financial assets of its clients, for which it receives a
quarterly management fee based upon the value of assets under management. The
program's focus is to manage money to achieve long-term growth or income while
attempting to limit risk. Economic conditions are monitored to determine which
sectors will perform well in order to strategically allocate assets to these
sectors. Under the program, an individual portfolio plan is developed to fit
each client's risk/reward relationship. At March 1, 1999, total assets under
management were over $21 million.
Investment and Merchant Banking
Investment banking revenue is derived principally from underwriting
fees, commissions and expense allowances, as well as the realization of gains
from the exercise of warrants, received in connection with underwriting public
offerings or acting as placement agent in private offerings. During the last
three years, the Company's investment banking activities have consisted of
acting as placement agent for one private placement in 1998, two private
placements in 1997 and co-underwriting an initial public offering and acting as
co-placement agent in a private placement in 1996. The Company also participates
as a member of the underwriting syndicate and selling group member from time to
time in unit trust and equity offerings. The Company believes that investment
banking activities present significant opportunities for its business.
Underwriting public offerings involves certain risks. Because
underwriters commit to purchase securities at a discount from the initial public
offering price, they are exposed to substantial losses in the event that the
securities cannot be sold or must be sold below syndicate cost. Under federal
securities laws, other laws and court decisions with respect to underwriter's
liability and limitations on indemnification by issuers, an underwriter is
exposed to substantial potential liability for misstatements or omissions of
material facts in prospectuses or other communications with respect to
securities offerings.
As a complement to its investment banking business, the Company also
engages in merchant banking activities. From time to time the Company is
presented with opportunities to invest, through debt or equity or combination of
both, in other companies in a variety of industries. Such investments generally
are speculative and involve a high degree of risk for which the Company may
receive significant profits, but no assurance can be given that such will be the
case. Merchant banking investments typically are of a longer term nature than
the Company's trading activities and therefore increase the Company's exposure
to market risks and restrict the use of the Company's capital for longer periods
of time.
Clearing Broker
The Company does not hold any funds or securities of its customers. The
Company currently utilizes, on a fully disclosed basis, the services of
Correspondent Services Corporation ("CSC"), a wholly-owned subsidiary of
PaineWebber Incorporated. As its clearing broker, CSC processes securities
transactions for the Company and the accounts of its customers for which the
Company pays CSC a fee. Customer accounts are protected through the Securities
Investor Protection Corporation for up to $500,000, of which coverage for cash
balances is limited to $100,000. Additional protection is provided through
Traveler's Casualty and Surety Company of America for an additional $5,000,000
per regular account, $10,000,000 per individual retirement account, $25,000,000
per business services accounts and CSC managed program accounts, and an
additional $900,000 of free cash balance protection is provided for all
securities customers. The services of a clearing broker include billing and
credit control, and receipt, custody and delivery of securities. The clearing
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broker in effect provides a "back office" for the Company's brokerage
activities, freeing the Company from the need and expense of creating its own
such capability. Pursuant to the terms of the Company's agreement with its
clearing broker, the Company has agreed to indemnify and hold its clearing
broker harmless from certain liabilities and claims, including claims arising
from the transactions of its customers. In the event that customers fail to pay
for their purchases or fail to supply the securities that they have sold, and
the clearing broker satisfies customer obligations, the Company would be
obligated to indemnify the clearing broker for any resulting losses. The
Company, to date, has not experienced any material losses as a result of the
failure of its customers to satisfy their obligations.
Government Regulation
The securities business is subject to extensive and frequently changing
federal and state laws and substantial regulation by the Commission, state
securities agencies and self-regulatory organizations, such as the NASD
Regulation, Inc. ("NASDR"), the regulatory arm of the NASD, and the Municipal
Securities Rulemaking Board ("MSRB"). Kirlin is registered as a broker-dealer
with the Commission and is a member firm of the NASD. The NASDR has been
designated by the Commission as the Company's primary regulator and it also
enforces the rules of the MSRB with respect to the Company. NASDR adopts rules,
which are subject to approval by the Commission, that govern the members of the
NASD and conducts periodic examinations of member firms' operations. Kirlin also
is registered as an investment advisor with the State of New York and is subject
to its laws and regulations regarding investment advisors.
Broker-dealers are subject to regulations which cover all aspects of
the securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure of securities firms, advertising, record keeping and the conduct of
directors, officers and employees. Additional legislation, changes in rules
promulgated by the Commission and self-regulatory organizations, or changes in
the interpretation or enforcement of existing laws and rules, may directly
affect the mode of operation and profitability of broker-dealers. The
Commission, self-regulatory organizations and state securities commissions may
conduct administrative proceedings which can result in censure, fine, the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker-dealer, its officers or employees. The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the
integrity of the securities markets. The Company believes it is currently in
compliance with all such regulations governing its business.
As a registered broker-dealer, Kirlin is subject to the Commission's
net capital rule. The net capital rule, which specifies minimum net capital
requirements for registered brokers and dealers, is designed to measure the
general financial integrity and liquidity of a broker-dealer and requires that
at least a minimum part of its assets be kept in relatively liquid form. Net
capital is essentially defined as net worth (assets minus liabilities), plus
qualifying subordinated borrowings and less certain mandatory deductions that
result from excluding assets not readily convertible into cash and from valuing
certain other assets, such as a firm's positions in securities, conservatively.
Among these deductions are adjustments in the market value of securities to
reflect the possibility of a market decline prior to disposition. As of December
31, 1998, Kirlin had total net capital of $1,353,358, or $1,103,358 in excess of
its minimum net capital requirement calculated under the aggregate indebtedness
method, as defined.
Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the Commission and other regulatory bodies
and ultimately may require its liquidation. The net capital rule also prohibits
payments of dividends, redemption of stock and the prepayment or payment in
respect of principal of subordinated indebtedness if net capital, after giving
effect to the payment, redemption or repayment, would be less than specified
percentages of the minimum net capital requirement (120%). Compliance with the
net capital rule could limit those operations of Kirlin that require the
intensive use of capital, such as underwriting and trading activities, and also
could restrict the Company's ability to withdraw capital from Kirlin, which in
turn, could limit the Company's ability to pay dividends, repay debt and redeem
or purchase shares of its outstanding capital stock.
4
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Competition
The Company encounters intense competition in all aspects of its
business and competes directly with other securities firms, a significant number
of which offer their customers a broader range of financial services, have
greater capital and other resources and may have greater operating efficiencies
than the Company. In addition to competition from firms currently in the
securities business, recently there has been increasing competition from other
sources, such as commercial banks and insurance companies offering financial
services, and from other investment alternatives. Competition among financial
services firms for professional personnel is intense.
Marketing and Advertising
The Company has pursued an aggressive marketing and advertising program
since 1989. Although its advertising levels were significantly reduced in 1997,
during 1998 the Company believed the market place would be more receptive to
advertising and such expenditures were returned to prior levels. The Company has
advertised itself and its product line in order to get a direct response from
readers and listeners. The Company also uses image advertising to promote the
name and background of the Company, which it believes has increased the
Company's visibility. The Company's advertising program has proven to be very
successful in the building of a larger customer base. The Company's primary
advertising focus has been on major radio stations, and, to a lesser extent,
newspapers in New York, New Jersey, Connecticut, and California. The Company has
also used television advertising in the New York City metropolitan area on a
limited basis. The Company allocates its advertising budget according to
economic conditions and the products available.
Personnel
At March 16, 1999, the Company had approximately 200 full-time
employees, including 153 registered representatives up from 122 registered
representatives at March 16, 1998 due to the opening of additional branch
offices. The Company's sales force primarily serves retail customers and, to a
lesser extent, institutional investors. None of the Company's personnel is
covered by a collective bargaining agreement. The Company considers its
relationships with its employees to be good.
5
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ITEM 2. PROPERTIES.
The principal executive offices of the Company and Kirlin are located
at 6901 Jericho Turnpike, Syosset, New York 11791 where the Company leases
approximately 18,600 square feet of office space at a base rent of approximately
$290,000 per year with annual increases of 3.6%. The initial term of the lease
expires in December 2004, with one option to renew for an additional three-year
period. The Company also operates the following branch offices:
<TABLE>
<CAPTION>
Approximate
Approximate Annual
Office Location Square Footage Lease Rental Expiration
- --------------- -------------- ------------ ----------
<S> <C> <C> <C>
4370 La Jolla Village Drive 2,720 $77,000 January 2004
San Diego, California
612 Howard Street 8,400 $277,000 March 2004
San Francisco, California
2001 Route 46 2,900 $68,000 June 2001
Parsippany, New Jersey
485 Route 1 5,300 $106,000 March 2004
Iselin, New Jersey
400 Andrews Street 2,400 $24,000 March 2000
Rochester, New York
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company's business involves substantial risks of liability,
including exposure to liability under federal and state securities laws in
connection with the underwriting or distribution of securities and claims by
dissatisfied customers for fraud, unauthorized trading, churning, mismanagement
and breach of fiduciary duty. The Company does not presently maintain an errors
and omissions insurance policy insuring it against these risks. In the normal
course of the Company's business, the Company from time to time is involved in
claims, lawsuits and arbitrations brought by its customers. It is the opinion of
management that the resolution of all claims presently pending will not have a
material adverse effect on the consolidated financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Prior to the completion of the Company's initial public offering on
January 18, 1995, there was no established public trading market for the
Company's Common Stock. The Company's Common Stock commenced quotation on the
Nasdaq SmallCap Market on January 19, 1995. The following table sets forth, for
the periods indicated, the high and low bid prices for the Common Stock as
reported by the Nasdaq SmallCap Market (representing interdealer quotations
which do not include retail markups, markdowns or commissions), with prices
adjusted to reflect the Company's two-for-one stock split effected on December
22, 1997:
Period High($) Low($)
- ------------------- ---------- ---------
Fiscal 1998
Fourth Quarter 4.0 3.0
Third Quarter 6.188 3.75
Second Quarter 7.75 6
First Quarter 7.75 5.5
Fiscal 1997
Fourth Quarter 8.5 3.9375
Third Quarter 3.9375 3.5
Second Quarter 4.25 3.5
First Quarter 4.75 4.3125
On March 16, 1999, the last sale price of the Common Stock as reported
by the Nasdaq SmallCap Market was $4.00. On March 16, 1999, there were 66
holders of record of the Company's Common Stock and, the Company believes, over
800 beneficial owners of the Company's Company Stock.
The Company presently intends to retain all earnings for the Company's
continued growth. Depending upon the Company's capital resources and needs, the
Company may pay cash dividends in the future. The payment of dividends, if any,
in the future is within the discretion of the Board of Directors and will depend
upon the Company's earnings, its capital requirements and financial condition,
and other relevant factors, although this may change based upon the foregoing
factors. The Company's ability to pay dividends in the future also may be
restricted by Kirlin's obligation to comply with the net capital requirements
imposed on broker-dealers under regulations and rules promulgated by the
Commission and the NASDR.
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Recent Sales of Unregistered Securities
During the three months ended December 31, 1998 and through March 16,
1999, the Company made the following sales of unregistered securities:
<TABLE>
<CAPTION>
Considered Received and If Option,
Description of Warrant or
Underwriting or Other Convertible
Discounts to Market Price Exemption from Security, Terms
Afforded to Registration of Exercise or
Date of Sale Title of Security Number Sold Purchasers Claimed Conversion
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1/11/99 Common Stock 69,000 Restricted stock awarded 4(2) N/A
to employees under 1996
stock plan; no cash
consideration received by
the Company
- ------------------------------------------------------------------------------------------------------------------------
1/11/99 Options to purchase 142,000 Options granted under 1996 4(2) Exercisable for
Common Stock stock plan; no cash ten years from
consideration received by date of grant
Company until exercise at an exercise
price of $3.875
per share
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Forward-Looking Statements
When used in this Form 10-KSB and in future filings by the Company with
the Commission, the words or phrases "will likely result," "management expects"
or "the Company expects," "will continue," "is anticipated," "estimated" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements,
each of which speak only as of the date made. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company has no obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Overview
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the notes presented
following the consolidated financial statements. The discussion of results,
causes and trends should not be construed to imply any conclusion that such
results or trends will necessarily continue in the future.
The Company's revenues are generated primarily from principal trading
activities and brokerage transactions. As a principal, the Company buys and
sells securities, both for proprietary trading and, more significantly, to
facilitate sales to its retail customers and other dealers. These securities are
purchased in secondary markets or from the underwriters of new issues. Principal
transactions with customers are effected at a net price equal to the current
interdealer price plus or minus a mark-up or mark-down within the guidelines of
applicable securities regulations. The revenues derived from the Company's
transactions as principal reflect realized and unrealized gains and losses on
such transactions. Revenues from principal transactions are primarily derived
from trading fixed income securities, which may be purchased from and/or sold to
other dealers or retail clients. In addition, revenues from principal
transactions also reflect gains and/or losses derived from writing and
purchasing option contracts. As part of the Company's growth strategy, it
intends to continue to increase its principal trading activities in equity
securities and promote its Managed Asset Portfolio Program to manage the
financial assets of its clients, for which it receives a quarterly management
fee based upon the value of assets under management. As a result of its
principal trading activities, the amount of the Company's liabilities and assets
can vary widely from period-to-period.
The Company pays its brokers commissions equal to varying percentages
of gross commissions and mark-ups and mark-downs in connection with the
purchases and sales of securities on behalf of its customers. The Company pays
its traders a salary plus a percentage of net gains derived from trading
activities. In addition, the Company pays ticket charges to its clearing broker
for the processing of security transactions. The Company maintains inventories
of securities in order to facilitate sales to customers. In this regard, the
Company pays interest on the securities held in inventory since substantially
all of its securities are purchased on margin through its clearing broker.
The Company is directly affected by general economic conditions,
interest rates and market conditions. All of these factors may have an impact on
its principal trading and overall business volume. The Company's costs
associated with occupancy, communications and equipment costs are relatively
fixed and, in periods of reduced volume, can have an adverse effect on earnings.
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The following table shows each specified item as a dollar amount and as
a percentage of revenues in each fiscal period, and should be read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Annual Report on Form 10-KSB:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1998 1997
---- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Principal transactions, net $ 8,663,603 55.7% $ 16,097,818 75.2%
Commissions 5,834,873 37.5% 4,922,375 23.0%
Other Income 1,056,607 6.8% 397,568 1.8%
-------------- -------- -------------- --------
Total revenues 15,555,083 100.0% 21,417,761 100.0%
-------------- -------- -------------- --------
Expenses:
Employee compensation and benefits 11,760,624 75.6% 13,593,522 63.5%
Promotion and advertising 699,332 4.5% 262,742 1.2%
Clearance and execution charges 812,018 5.2% 833,998 3.9%
Occupancy and communications 1,925,824 12.4% 1,750,123 8.2%
Professional fees 601,933 3.9% 273,696 1.3%
Interest 408,164 2.6% 294,970 1.4%
Other 584,651 3.8% 570,592 2.6%
-------------- -------- -------------- --------
Total expenses 16,792,546 108.0% 17,579,643 82.1%
-------------- -------- -------------- --------
Net (loss) income before income tax (benefit)
provision (1,237,463) (8.0)% 3,838,118 17.9%
(Benefit) Provision for income taxes (500,573) (3.2)% 1,645,695 7.7%
----------- -------- ----------- --------
Net (loss) income $ (736,890) (4.8)% $ 2,192,423 10.2%
============== ======== ============== ========
</TABLE>
Results of Operations
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Principal transactions, net for the year ended December 31, 1998 decreased
46.2% to $8,663,603 from $16,097,818 in 1997. The decrease is primarily
attributable to the following factors: Principal transactions related to the
Company's fixed income business declined, which the Company believes was due to
reduced investor interest in fixed income securities in view of the bull market
in equity securities. Principal transactions related to the Company's equity
business declined due to a shift from principal to agency transactions, which
the Company believes was a result of investor interest in equity securities for
which the Company did not maintain an inventory. In addition, the Company
recorded significant unrealized gains in its investment account in 1997 which
were not continued in 1998 and because certain positions for which the Company
recognized unrealized gains in 1997 were liquidated at prices less than their
recorded value at December 31, 1997.
Commissions for the year ended December 31, 1998 increased 18.5% to
$5,834,873 from $4,922,375 in 1997. The increase is primarily attributable to
the Company's increased business in equity securities and mutual funds, which,
except for equity securities for which the Company maintains an inventory, are
bought and sold on an agency basis for which the Company receives a commission.
Other income for the year ended December 31, 1998 increased 165.8% to
$1,056,607 from $397,568 in 1997. The increase is primarily attributable to
settlements the Company received in three lawsuits it commenced and which
settled in 1998.
Employee compensation and benefits in 1998 decreased 13.5% to $11,760,624
from $13,593,522 in 1997. Since employee compensation to the Company's traders
and registered representatives is directly related to revenue, a portion of
employee compensation follows the change in the Company's revenues. The decrease
in employee compensation is not directly proportionate with the decrease in
10
<PAGE>
revenues because a portion of the revenue decrease is related to a reduction in
value of the Company's investment account, which has no relationship to employee
compensation. In addition, during the past year the Company has increased its
roster of salaried personnel, has increased certain benefits for its employees
and has increased its commission structure for its registered representatives.
Promotion and advertising in 1998 increased 166.2% to $699,332 from
$262,742 in 1997 primarily as a result of the Company's planned increase in
advertising expenditures to attract new customers.
Clearance and execution charges in 1998 decreased only slightly from 1997
despite the significant reduction in revenues because the Company paid a higher
average ticket charge.
Occupancy and communications costs in 1998 increased 10.0% to $1,925,824
from $1,750,123 in 1997. This increase is a result of the establishment and
operations of new branch offices.
Professional fees in 1998 increased 119.9% to $601,933 from $273,696 in
1997 primarily as a result of expenses incurred for three lawsuits initiated by
the Company and subsequently settled in a manner favorable to the Company, as
well as an increase in external consultation with outside professionals.
Interest expense in 1998 increased 38.4% to $408,164 from $294,970 in 1997
as a result of inventory positions purchased on margin and securities sold
short, which are held at the clearing broker and charged interest. The Company
seeks to minimize its cash balances and withdraws cash for operations from its
trading accounts as needed. To the extent necessary, inventory positions are
utilized as collateral for such withdrawals.
Other expenses in 1998 were roughly comparable to such expenses in 1997.
Income tax benefit for the year ended December 31, 1998 was $500,573 as
compared to the income tax provision of $1,645,695 for the year ended December
31, 1997, which was consistent with the decrease in income before this income
tax provision.
Net loss of $736,890 for the year ended December 31, 1998 compares to net
income of $2,192,423 for the year ended December 31, 1997 primarily as a result
of a reduction in revenues discussed above and the increases in expenses for
promotion and advertising, professional fees and occupancy and communication
discussed above.
Effects of Inflation; Fluctuations in Interest Rates
The Company's business is affected by the rate of inflation. Inflation or
inflationary fears, which results in higher interest rates, may have an adverse
impact upon the securities markets and on the value of securities held in
inventory, thereby adversely affecting the Company's financial position and
results of operations.
Liquidity and Capital Resources
Securities owned, at market value, at December 31, 1998 were $12,768,231 as
compared to $14,631,398 at December 31, 1997. This 12.7% decrease is primarily
attributable to a decrease in securities held in inventory for resale to its
customers. Approximately 56% of the Company's assets at December 31, 1998 were
comprised of cash and highly liquid securities.
Furniture, fixtures and leasehold improvements, net, at December 31, 1998,
decreased to $706,498 as compared to $836,832 at December 31, 1997. This 15.6%
decrease primarily results from the depreciation of the Company's furniture,
fixtures and leasehold improvements.
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Other assets increased to $1,974,691 at December 31, 1998, from $1,109,559
at December 31, 1997, a 78.0% increase. This increase is primarily attributable
to advances provided to newly-hired registered representatives as part of the
Company's recruiting efforts.
Securities sold short amounted to $641,739 at December 31, 1998 as compared
to $1,599,279 at December 31, 1997. Management monitors these positions on a
daily basis and covers short positions when deemed appropriate.
Payable to clearing broker amounted to $3,467,579 at December 31, 1998 as
compared to $2,828,519 at December 31, 1997. This 22.6% increase is a result of
cash borrowed on margin to fund the Company's establishment of branch offices.
Accrued compensation was $1,799,531 at December 31, 1998 as compared to
$2,194,143 at December 31, 1997, a 18.0% decrease attributable to decreased
revenues upon which commission income to registered representatives is based,
partially offset by increased commission rates for registered representatives.
Accounts payable and accrued expenses were $585,084 at December 31, 1998 as
compared to $509,649 at December 31, 1997, a 14.8% increase primarily
attributable to accrued promotion expenses.
Deferred income taxes payable was $728,060 at December 31, 1998 as compared
to $1,197,696 at December 31, 1997. This decrease is reflective of the
adjustment for deferred income taxes payable resulting from a decline in the
value of certain securities positions in the Company's investment account.
The Company, as guarantor of its customer accounts to its clearing broker,
is exposed to off-balance-sheet risks in the event that its customers do not
fulfill their obligations with the clearing broker. In addition, to the extent
the Company maintains a short position in certain securities, it is exposed to a
further off-balance-sheet market risk, since the Company's ultimate obligation
may exceed the amount recognized in the financial statements.
The Company believes its financial resources will be sufficient to fund the
Company's operations and capital requirements for the foreseeable future.
Year 2000
The Company has been evaluating the potential impact of the situation
commonly referred to as the "Year 2000 Issue" ("Y2K"). The Y2K issue is the
result of computer systems and applications that currently use two digits rather
than four to recognize a particular year (e.g., "98" for "1998"). The Y2K issue
affects the Company's information technology systems (i.e., computer systems,
network elements and software applications) as well as other business systems
that might have time-sensitive programs or microprocessors that may not properly
reflect or recognize the year 2000 ("non-IT systems"). The failure to reflect or
recognize dates after 1999 could cause the Company's information technology and
non-IT systems to fail or cause errors, which could lead to disruptions in
operations or increased costs. The Company, similar to most securities
institutions, is significantly subject to the potential impact of the Y2K issue
due to the nature of the industry. Potential impacts to the Company may arise
from software, computer hardware, and other equipment both within the Company's
direct control and outside the Company's ownership, yet with which the Company
interfaces either electronically or operationally. The Company has commenced a
review of its internal systems and programs to determine the extent to which its
information technology systems are Y2K compliant. The Company has commenced a
review of whether its non-IT systems are Y2K compliant. Since much of the
Company's internal information technology has been developed fairly recently,
the Company does not anticipate that its internal information technology systems
will face significant issues of non-compliance. The Company has completed an
evaluation of its mission critical systems and remediation of certain systems
12
<PAGE>
will be necessary. It is expected that such remediation will be completed by the
second quarter of 1999 and that testing will be completed by the third quarter
of 1999. Based on current information, the Company believes it will spend
approximately $50,000 to $100,000 in 1999 and expects to accrue approximately
$50,000 to $100,000 for 2000, although there can be no assurance that such
amounts will be sufficient due to unforeseen difficulties to complete the review
and address the Y2K issue with respect to its internal information technology
systems and non-IT systems.
However, even if the Company's internal systems are Y2K compliant, the
Company remains at risk from Y2K failure caused by third parties. The Company
has commenced to contact third parties with which it interacts to determine the
state of their assessment and remediation of any Y2K issues they face. To date,
the Company has not received sufficient information from such third parties to
complete its assessment of their Y2K readiness. Some of the third parties with
which the Company has significant interaction include, most significantly, its
clearing broker, Correspondent Services Corporation ("CSC"), and vendors
providing phone service, payroll services and banking services. The Company
believes that in April 1999 CSC will be Y2K compliant. If the Company's major
third-party vendors do not confirm to the Company that they are Y2K compliant by
the second quarter of 1999 or provide assurances of subsequent, but timely,
compliance, the Company will determine whether it is necessary to retain the
services of other third-party vendors who are Y2K compliant in order to prevent
a disruption in the Company's business. The Company has not yet developed a
contingency plan for those areas where plans to achieve Y2K compliance fail,
although it intends to develop such a plan.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the Y2K readiness of third-party vendors, the Company is unable to determine
at this time whether the consequences of Y2K failures will have a material
impact on the Company's results of operations, liquidity or financial condition.
Although the Company expects that its mission critical systems will be compliant
and tested by the third quarter of 1999, there is no guarantee that these
results will be achieved. Specific factors that give rise to this uncertainty
include a possible loss of technical resources to perform the work, failure to
identify all susceptible systems, non-compliance by third parties whose systems
and operations impact the Company, and other similar uncertainties. A reasonably
possible worst case scenario might include one or more of the Company's or a
third-party vendor's significant systems being non-compliant. Such an event
could result in a material disruption to the Company's operations, which would
adversely affect the Company's results of operations, liquidity and financial
condition.
ITEM 7. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements: Page
-----
Report of Goldstein Golub Kessler LLP on the Consolidated
Financial Statements as of December 31, 1998 and 1997 and
for the years then ended F-1
Consolidated Statement of Financial Condition as of
December 31, 1998 and 1997 F-2
Consolidated Statement of Operations for the Years Ended
December 31, 1998 and 1997 F-3
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1998 and 1997 F-4
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6 - F-12
13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Kirlin Holding Corp.
We have audited the accompanying consolidated statements of financial condition
of Kirlin Holding Corp. and Subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kirlin Holding
Corp. and Subsidiary as of December 31, 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.
/s/ Goldstein Golub Kessler LLP
- --------------------------------
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
February 15, 1999
F-1
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------- ---- ----
<S> <C> <C> <C>
ASSETS
Cash (Note 1) $ 85,092 $ 316,219
Securities Owned, at market value (Note 2):
U.S. government and agency obligations 2,261,874 2,949,723
State and municipal obligations 3,254,247 1,618,284
Corporate bonds and other securities 7,252,110 10,063,391
Furniture, Fixtures and Leasehold Improvements, at cost,
net of accumulated depreciation and amortization of $972,523 and
$713,626, respectively (Note 1) 706,498 836,832
Other Assets 1,974,691 1,109,559
-------------- -----------
Total Assets $15,534,512 $16,894,008
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value (Note 2) $ 641,739 $ 1,599,279
Payable to clearing broker (Note 1) 3,467,579 2,828,519
Accrued compensation 1,799,531 2,194,143
Accounts payable and accrued expenses 585,084 509,649
Deferred taxes payable 728,060 1,197,696
-------------- -----------
Total liabilities 7,221,993 8,329,286
-------------- -----------
Commitments (Note 6)
Stockholders' Equity (Note 3):
Common stock - $.0001 par value; authorized 15,000,000 shares,
issued and outstanding 2,802,764 and 2,720,264 shares, respectively 280 272
Additional paid-in capital 6,354,187 5,869,508
Retained earnings 1,958,052 2,694,942
-------------- -----------
Total stockholders' equity 8,312,519 8,564,722
-------------- -----------
Total Liabilities and Stockholders' Equity $15,534,512 $16,894,008
============== ===========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
Year ended December 31, 1998 1997
-------------- -----------
<S> <C> <C>
Revenue:
Principal transactions, net (Notes 1 and 2) $ 8,663,603 $16,097,818
Commissions 5,834,873 4,922,375
Other income 1,056,607 397,568
-------------- -----------
15,555,083 21,417,761
-------------- -----------
Expenses:
Employee compensation and benefits 11,760,624 13,593,522
Promotion and advertising (Note 1) 699,332 262,742
Clearance and execution charges 812,018 833,998
Occupancy and communications 1,925,824 1,750,123
Professional fees 601,933 273,696
Interest 408,164 294,970
Other 584,651 570,592
-------------- -----------
16,792,546 17,579,643
-------------- -----------
Income (loss) before income tax benefit (provision) (1,237,463) 3,838,118
Income tax benefit (provision) (Note 8) 500,573 (1,645,695)
-------------- -----------
Net income (loss) $ (736,890) $ 2,192,423
=============== =============
Basic earnings (loss) per common share $ (.26) $ .83
=============== =============
Diluted earnings (loss) per common share $ (.26) $ .78
=============== =============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Par Value Capital Earnings Total
--------------------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Stockholders' equity at
January 1, 1997 1,302,330 130 $5,522,036 $ 502,519 $6,024,685
Exercise of stock options 38,000 4 208,996 - 209,000
Stock option exchange 19,802 2 138,612 - 138,614
2-for-1 stock dividend 1,360,132 136 (136) - -
Net income - - - 2,192,423 2,192,423
------------ ------- ----------- ---------- ----------
Stockholders' equity at
December 31, 1997 2,720,264 272 5,869,508 2,694,942 8,564,722
Stock issuance 82,500 8 484,679 484,687
Net loss (736,890) (736,890)
------------ ------- ----------- ---------- -----------
Stockholders' equity at
December 31, 1998 2,802,764 280 $6,354,187 $1,958,052 $8,312,519
------------ ------- ----------- ---------- -----------
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
Year ended December 31, 1998 1997
- ------------------------- ----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (736,890) $ 2,192,423
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 258,897 202,530
Deferred income taxes (469,636) 999,160
Noncash compensation 138,614
(Increase) decrease in operating assets:
Securities owned, at market value 1,863,167 (997,050)
Other assets (865,132) (472,493)
(Decrease) increase in operating liabilities:
Securities sold, not yet purchased, at market value (957,540) (420,385)
Payable to clearing broker 639,060 (1,758,198)
Accrued compensation (394,612) 1,019,437
Accounts payable and accrued expenses 75,435 (139,907)
Income taxes payable (383,978)
----------- -----------
Total adjustments 149,639 (1,812,270)
----------- -----------
Net cash provided by (used in) operating activities (587,251) 380,153
Cash flows used in investing activity - purchase of furniture, fixtures
and leasehold improvements (128,563) (348,238)
Cash flows provided by financing activity - issuance of common stock 484,687 209,000
----------- -----------
Net increase (decrease) in cash (231,127) 240,915
Cash at beginning of year 316,219 75,304
----------- ------------
Cash at end of year $ 85,092 $ 316,219
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 408,164 $ 294,970
----------- -----------
Income taxes $ 50,705 $ 1,279,160
=========== ============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of Kirlin
Holding Corp. ("KHC") and its wholly owned subsidiary, Kirlin Securities,
Inc. ("Kirlin") (collectively the "Company"). The Company, through Kirlin,
is a full-service, retail-oriented brokerage firm, specializing in the
trading and sale of both equity and fixed income securities, including
mutual funds. Kirlin also offers a managed assets portfolio program to
manage the financial assets of its clients. Primarily all activity of the
Company has been through Kirlin. All material intercompany transactions and
balances have been eliminated in consolidation. Kirlin has offices in New
York, New Jersey and California.
Kirlin is registered as a broker-dealer with the Securities and Exchange
Commission (the "SEC") and is a member of the National Association of
Securities Dealers, Inc.
Kirlin does not carry accounts for customers or perform custodial functions
related to customers' securities. Kirlin introduces all of its customer
transactions, which are not reflected in these financial statements, to its
clearing broker, which maintains the customers' accounts and clears such
transactions. Additionally, this clearing broker provides the clearing and
depository operations for Kirlin's proprietary securities transactions.
These activities may expose the Company to off-balance-sheet risk in the
event that customers do not fulfill their obligations with the clearing
broker, as Kirlin has agreed to indemnify the clearing broker for any
resulting losses.
At December 31, 1998, the payable to clearing broker in the consolidated
statement of financial condition is for the Company's net acquisition of
securities and is collateralized by securities owned by the Company.
Substantially all securities owned reflected on the consolidated statement
of financial condition are positions held by the clearing broker.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits.
Securities transactions, commission revenue and commission expenses are
recorded on a trade-date basis. Unrealized gains and losses on securities
transactions are included in principal transactions in the consolidated
statement of operations.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require the use of estimates by
management.
Furniture and fixtures are depreciated on a straight-line basis over the
economic useful lives of the assets, not exceeding seven years. Leasehold
improvements are amortized over the lesser of their economic useful lives
or the expected term of the related lease.
F-6
<PAGE>
Kirlin expenses the costs of advertising the first time the advertising
takes place. Advertising expense was approximately $483,000 and $37,000 for
the years ended December 31, 1998 and 1997, respectively.
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a
material effect on the accompanying consolidated financial statements.
2. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED:
Securities sold, not yet purchased, consist of the following:
December 31, 1998 1997
-------------------------------------------------------------------------
U.S. government and agency obligations $ 25,774
State and municipal obligations $285,875 784,135
Corporate bonds and other securities 355,864 789,370
-------- --------
$641,739 $1,599,279
======== ==========
Securities sold, not yet purchased, represent obligations of Kirlin to
deliver specified securities by purchasing the securities in the market at
prevailing market prices. Accordingly, these transactions result in
off-balance-sheet market risk as Kirlin's ultimate obligation may exceed
the amount recognized in the financial statements.
Securities owned and securities sold, not yet purchased, are stated at
quoted market values. Included in securities owned at December 31, 1998 and
1997 are stock warrants and investments in privately held companies not
readily marketable amounting to approximately $4,083,000 and $3,908,000,
respectively (49% and 46%, respectively, of stockholders' equity) which
have been valued at fair value as determined by management. The warrants
are valued based on a percentage of the market value of the underlying
securities. The resulting unrealized gains and losses are reflected in
principal transactions.
3. STOCKHOLDERS' EQUITY:
The Company has authorized 1,000,000 shares of preferred stock, par value
$.0001 per share. No shares have been issued as of December 31, 1998.
In August 1994, the Company adopted the 1994 Stock Plan ("1994 Plan")
covering 1,200,000 shares of the Company's common stock pursuant to which
officers, directors, key employees and consultants of the Company are
eligible to receive incentive or nonqualified stock options, stock
appreciation rights, restricted stock awards, deferred stock, stock reload
options and other stock-based awards. At December 31, 1998, options to
purchase 80,500 shares of common stock at exercise price between $2.50 and
$5.00 per share are outstanding. Such options vest over periods of up to
five years and are exercisable at various dates through January 2006.
On July 16, 1997, the Company made an exchange offer to the holders of all
of its outstanding options and warrants. The offer involved the exchange of
these options and warrants for cash, stock of the Company or a combination
of one-half cash and one-half stock, all at various specified exchange
rates dependent upon the grant date and exercise price of the outstanding
options and warrants.
F-7
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to this offer, 169,500 options and warrants were exchanged for
stock representing 39,604 shares valued at $138,614 and 727,476 were
exchanged for cash. The Company recognized $675,912 of compensation expense
related to this exchange. Concurrent with the exchange offer, Kirlin
surrendered to KHC warrants to purchase 32,190 shares.
The following table summarizes the 1998 and 1997 activity in the Company's
stock options:
Number of
Shares Price per Share
---------- ----------------
Balance at January 1, 1997 1,105,600 $2.50 - $5.50
Exercised during the year (76,000) $2.50 - $5.50
Surrendered during the year (848,700) $2.50 - $5.50
Forfeited during the year (96,400) $2.50 - $4.13
---------- --------------
Balance at December 31, 1997 84,500 $2.50 - $5.00
Forfeited during the year (4,000) $2.50 - $4.13
---------- -------------
Balance at December 31, 1998 80,500 $2.50 - $5.00
========== =============
The following table summarizes information about stock options outstanding
at December 31, 1998:
Remaining
Number Contractual
Exercise Price Outstanding Life
---------------- ----------- ------------
$5.00 12,500 73 months
$4.13 2,000 67 months
$2.50 66,000 84 months
----------------- ----------- ----------
$2.50 - $5.00 80,500
================= ===========
As of December 31, 1998, 12,500 and 667 options with exercise prices of
$5.00 and $4.13, respectively, per share were exercisable.
During the year ended December 31, 1997, the Company declared a 2-for-1
stock split. The above number of shares and price per share have been
adjusted to reflect the stock split.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-based
Compensation. Accordingly, no compensation costs have been recognized for
the options granted. Had compensation cost been determined based on the
F-8
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fair value at the date of grant consistent with the provisions of SFAS No.
123, the Company's net income (loss) and earnings (loss) per common share
would have been as follows:
Year ended December 31, 1998 1997
----------------------- ------------- ---------
Net income (loss) - as reported $(736,890) $2,192,423
Net income (loss) - pro forma (855,390) 2,073,923
Basic earnings (loss) per common
share - as reported (.26) .83
Basic earnings (loss) per common
share - pro forma (.31) .78
Diluted earnings (loss) per common
share - as reported (.26) .78
Diluted earnings (loss) per common
share - pro forma (.31) .73
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
expected volatility of 40%, risk-free interest rate of approximately 7% and
expected option lives of six years.
The pro forma disclosures are not likely to be representative of the
effects on reported net income for future periods.
In April 1996, the Company adopted the 1996 Stock Plan ("1996 Plan")
covering 2,000,000 shares of common stock pursuant to which officers,
directors, key employees and consultants of the Company are eligible to
receive incentive or nonqualified stock options, stock appreciation rights,
restricted stock awards, deferred stock, stock reload options and other
stock-based awards. At December 31, 1998, no common stock or options had
been issued pursuant to the 1996 Plan.
4. NET CAPITAL REQUIREMENT:
As a registered broker-dealer, Kirlin is subject to the SEC's Uniform Net
Capital Rule 15c3-1, which requires the maintenance of minimum net capital.
Kirlin computes its net capital under the aggregate indebtedness method
permitted by Rule 15c3-1, which requires that Kirlin maintain minimum net
capital, as defined, of 6-2/3% of aggregate indebtedness, as defined, or
$250,000, whichever is greater. Additionally, the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15-to-1.
At December 31, 1998 and 1997, Kirlin had net capital, as defined, of
$1,353,358 and $1,461,274, respectively, which exceeded the minimum net
capital requirements by $1,103,358 and $1,211,274, respectively. Kirlin's
ratio of aggregate indebtedness to net capital was 1.97-to-1 and 1.82-to-1
at December 31, 1998 and 1997, respectively.
F-9
<PAGE>
5. RETIREMENT AND SAVINGS PLAN:
Kirlin sponsors a Retirement and Savings Plan for all full-time employees
over the age of 19 pursuant to Section 401(k) of the Internal Revenue Code.
Kirlin matches 50% of each participant's contribution up to $1,500 per
participant per year. Kirlin's contributions to the plan for the years
ended December 31, 1998 and 1997 were $104,411 and $69,876, respectively.
6. COMMITMENTS:
Kirlin leases office space at several locations under noncancelable leases
expiring at various times through December 31, 2004. The minimum annual
rental payments for these leases are as follows:
Year ending December 31,
1999 $ 787,401
2000 831,062
2001 810,651
2002 798,608
2003 813,614
2004 450,661
-----------
$4,491,997
===========
The leases contain provisions for escalations based on increases in certain
costs incurred by the lessor. Rent expense was $492,181 and $454,778 for
the years ended December 31, 1998 and 1997, respectively.
7. FINANCIAL INSTRUMENTS:
The Company's activities include the purchase and sale of stock options and
warrants. Stock options and warrants give the buyer the right to purchase
or sell securities at a specific price until a specified expiration date.
These financial instruments are used to conduct trading activities and
manage market risk.
The Company may receive warrants as part of its underwriting activities.
See Note 2 for fair value methodology of these warrants.
Such transactions may result in credit exposure in the event the
counterparty to the transaction is unable to fulfill its contractual
obligations. Substantially all of the stock options and warrants are traded
on national exchanges, which can be subject to market risk in the form of
price fluctuations.
F-10
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES:
The Company files consolidated federal income tax returns and separate
Company state income tax returns.
The income tax benefit (provision) consists of:
Year ended December 31, 1998 1997
----------------------- ------- --------
Current:
Federal $ 73,349 $ (467,572)
State (42,412) (178,963)
------- ---------
30,937 (646,535)
------- ---------
Deferred:
Federal 345,851 (747,550)
State 123,785 (251,610)
------- ---------
469,636 (999,160)
------- ---------
$500,573 $(1,645,695)
======== ============
The provision (benefit) for income taxes for the years ended December 31,
1998 and 1997 differs from the amount computed using the federal statutory
rate of 34% as a result of the following:
1998 1997
------- --------
Tax (benefit) at federal statutory rate (34)% 34%
State income taxes (9) 9
Other 3
------- --------
(40)% 43%
======= ========
The deferred tax asset (liability) results from the following:
1998 1997
------- --------
Unrealized appreciation on investment
securities not readily marketable $(1,051,164) $(1,184,249)
Other temporary differences 322,007 (13,447)
---------- -----------
$ (729,157) $(1,197,696)
============ ============
F-11
<PAGE>
KIRLIN HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EARNINGS PER SHARE:
Net income per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding. The
following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations.
Year ended December 31, 1998
----------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic and diluted EPS:
Distribution of loss to
common stockholders $(736,890) 2,801,860 $(.26)
============ ========== =======
Year ended December 31, 1997
-----------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic EPS:
Income available to
common stockholders $2,192,423 2,655,860 $.83
Effect of Dilutive Securities
- options 169,651
------------ ---------- ------
Diluted EPS:
Income available to common
stockholders and assumed
exercise $2,192,423 2,825,511 $.78
=========== ========== =======
The incremental shares from assumed conversions of options are not included
for the year ended December 31, 1998 since their inclusion would be
anti-dilutive.
F-12
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See Item 12.
ITEM 10. EXECUTIVE COMPENSATION.
See Item 12.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See Item 12.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Items 9, 10, 11 and 12 is incorporated by
reference to the information included in the Company's definitive proxy
statement in connection with the Annual Meeting of Stockholders to be held on
June 4, 1999.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Filed.
See Exhibit Index appearing later in this Report.
(b) Reports on Form 8-K.
None.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KIRLIN HOLDING CORP.
(Registrant)
Dated: March 30, 1999
By: /s/ Anthony J. Kirincic
----------------------------
Name: Anthony J. Kirincic
Title: President
In accordance with the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
Signatures Title Date
- ----------------------------- -------------------------------------- ---------------
<S> <C> <C>
/s/ David O. Lindner
_____________________________ Chairman of the Board of Directors and March 30, 1999
David O. Lindner Chief Executive Officer (Principal
Executive Officer)
/s/ Anthony J. Kirincic
_____________________________ Director, President and Chief Financial March 30, 1999
Anthony J. Kirincic Officer (Principal Financial Officer)
/s/ Barry Shapiro
_____________________________ Controller (Principal March 30, 1999
Barry Shapiro Accounting Officer)
/s/ Edward J. Casey
_____________________________ Director March 30, 1999
Edward J. Casey
/s/ Edmund McCormick
_____________________________ Director March 30, 1999
Edmund McCormick
</TABLE>
27
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated
Exhibit By Reference from No. in
Number Description Document Document Page
- ------ ----------- -------- -------- ----
<S> <C> <C> <C> <C>
3.1 Certificate of Incorporation A 3.1
3.1.1 Certificate of Correction to Certificate of A 3.1.1
Incorporation, dated July 29, 1994
3.2 Amended and Restated By-Laws A 3.2
4.1 Form of Common Stock Certificate A 4.1
10.1 1994 Stock Plan A 10.2
10.2 Clearing Agreement between Kirlin Securities, A 10.3
Inc. and Correspondent Services Corporation
10.3 1996 Stock Plan C Appendix A
10.4 Indemnification Agreement, dated November 14, B 10.9
1995, between the Registrant and Edward J. Casey
10.5 Indemnification Agreement, dated February 5, D 10.6
1998, between the Registrant and Edmund McCormick
10.6 Agreement, dated April 27, 1998, between the E 10.7
Registrant and Robert A. Paduano
10.7 Stock Option Agreement, dated January 11, 1999, -- -- Filed
between the Registrant and David O. Lindner Herewith
10.7.1 Schedule of Omitted Document in the form of -- -- Filed
Exhibit 10.7, including material detail in which Herewith
such document differs from Exhibit 10.7
10.8 Stock Option Agreement, dated January 11, 1999, -- -- Filed
between the Registrant and Edward J. Casey Herewith
10.8.1 Schedule of Omitted Document in the form of -- -- Filed
Exhibit 10.8, including material detail in which Herewith
such document differs from Exhibit 10.8
10.9 Restricted Stock Agreement, dated January 11, -- -- Filed
1999, between the Registrant and Barry Shapiro Herewith
21 List of Subsidiaries -- -- Filed
Herewith
27.1 Financial Data Schedule (12/31/98) -- -- Filed
Herewith
</TABLE>
(Footnotes on next page)
28
<PAGE>
A. Registrant's Form SB-2 Registration Statement (No. 33-84512), declared
effective November 14, 1994.
B. Registrant's Form 10-KSB for the fiscal year ended December 31, 1995.
C. Registrant's Definitive Proxy Statement dated May 8, 1996.
D. Registrant's Form 10-KSB for the fiscal year ended December 31, 1997.
E. Registrant's Form 10-KSB for the fiscal quarter ended March 31, 1998.
29
<PAGE>
EXHIBIT 10.7
STOCK OPTION AGREEMENT
[Executive Non-Qualified]
AGREEMENT made as of the 11th day of January, 1999, by and
between KIRLIN HOLDING CORP., a Delaware corporation (the "Company"), and David
O. Lindner (the "Executive").
WHEREAS, on January 11, 1999 (the "Grant Date"), pursuant to
the terms and conditions of the Kirlin Holding Corp. 1996 Stock Plan (the
"Plan"), the Board of Directors of the Company authorized the grant to the
Executive of an option (the "Option") to purchase an aggregate of 66,000 shares
of the authorized but unissued Common Stock of the Company, $.0001 par value
(the "Common Stock"), conditioned upon the Executive's acceptance thereof upon
the terms and conditions set forth in this Agreement and subject to the terms of
the Plan; and
WHEREAS, the Executive desires to acquire the Option on the
terms and conditions set forth in this Agreement and subject to the terms of the
Plan;
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants the
Executive the Option to purchase all or any part of an aggregate of 66,000
shares of Common Stock (the "Option Shares") on the terms and conditions set
forth herein and subject to the provisions of the Plan.
2. Non-Incentive Stock Option. The Option represented hereby
is not intended to be an Option which qualifies as an "Incentive Stock Option"
under Section 422 of the Internal Revenue Code of 1986, as amended.
3. Exercise Price. The exercise price of the Option shall be
$3.875 per share, subject to adjustment as hereinafter provided.
4. Exercisability. This Option is exercisable, subject to the
terms and conditions of the Plan, as follows: (i) the right to purchase 33-1/3%
of the Option Shares shall be exercisable on and after January 1, 2000 (ii) the
right to purchase an additional 33-1/3% of the Option Shares shall be
exercisable on and after January 1, 2001; and (iii) the right to purchase the
remaining 33-1/3% shall be exercisable on or after January 1, 2002. After a
portion of the Option becomes exercisable, it shall remain exercisable except as
otherwise provided herein, until the close of business on January 10, 2009 (the
"Exercise Period").
5. Effect of Termination of Employment.
5.1. Termination Due to Death. If Executive's
employment by the Company terminates by reason of death, the portion of the
Option, if any, that was exercisable as of the date of death may thereafter be
exercised by the legal representative of the estate or by the legatee of the
Executive under the will of the Executive, for a period of one year from the
date of such death or until the expiration of the Exercise Period, whichever
period is shorter. The portion of the Option, if any, that was not exercisable
as of the date of death shall immediately terminate upon death.
<PAGE>
5.2. Termination Due to Disability. If
Executive's employment by the Company terminates by reason of Disability (as
such term is defined in the Plan), the portion of the Option, if any, that was
exercisable as of the date of termination of employment may thereafter be
exercised by the Executive or legal representative for a period of one year from
the date of the termination of employment or until the expiration of the
Exercise Period, whichever period is shorter. The portion of the Option, if any,
that was not exercisable as of the date of the termination of employment shall
immediately terminate upon the termination of employment.
5.3. Other Termination.
(a) If Executive's employment is
terminated by the Company for "cause" as defined below (or, if there is a
written employment agreement then in effect between the Company and the
Executive ("Employment Agreement") and such Employment Agreement provides for
termination for "cause", the definition of "for cause" in such Employment
Agreement shall control), or the Executive for any reason other than the
Company's breach of an Employment Agreement, if any, the Option, whether or not
then exercisable, shall immediately expire upon such termination.
(b) The Company may, in the event the
Executive's employment is terminated for "cause", require the Executive to
return to the Company the economic value of any Option Shares purchased
hereunder by the Executive within the six month period prior to the date of
termination. In such event, the Executive hereby agrees to remit to the Company,
in cash, an amount equal to the difference between the Fair Market Value of the
Option Shares on the date of termination (or the sales price of such Shares if
the Option Shares were sold during such six month period) and the Exercise Price
of such Shares.
(c) If Executive's employment is
terminated by the Company for any reason other than as specified in Section 5.1,
5.2 or 5.3(a) hereof, then the Option shall not terminate, whether or not then
exercisable, and it shall continue to become exercisable pursuant to the
schedule provided in Section 4 hereof and once exercisable shall continue in
full force and effect during the Exercise Period.
(d) For purposes of this Agreement,
termination for "cause" shall mean termination as a result of (i) Executive's
conviction for, or plea of guilty or nolo contendere to, a felony or a crime
involving moral turpitude (which, through lapse of time or otherwise, is not
subject to appeal); (ii) the imposition of a permanent bar from association with
a securities or member firm by any federal, state, regulatory agency or
self-regulatory body against Executive and after exhaustion of all judicial and
administrative appeals therefrom; (iii) willful misconduct as an employee of the
Company, or willful or reckless disregard of his responsibilities as an officer,
director and employee of the Company, provided, however, if termination is a
result of the circumstances described in this clause (iii), the Company must
provide written notice to Executive specifying the conduct with reasonable
particularity and termination cannot result if Executive shall have cured such
conduct within 60 days after Executive shall have received such notice or shall
have taken reasonable steps to cure such conduct and shall have diligently
proceeded thereafter to eliminate it.
2
<PAGE>
5.4. Non-Solicitation of Employees. If at any
time while Executive is employed by the company or during a period of six months
from the date of termination of said employment for any reason other than
Executive's voluntary termination as a result of the Company's failure to
perform all of its then existing employment obligations to Executive (the
"Restricted Period"), Executive causes or influences any employee then employed
by the Company or any subsidiary of the Company to work in any way for Executive
or in any business enterprise in which Executive is participating, whether as an
employee, consultant, advisor, agent, owner, partner, co-venturer, principal,
stockholder, director or otherwise, directly or indirectly, the Board, in its
sole discretion, may require such Executive to return to the Company the
economic value of any Option Shares purchased hereunder by the Executive within
the six month period prior to the date of termination of employment and may
cancel any unexercised options. In such event, Executive agrees to remit the
economic value to the Company in accordance with Section 5.3(b).
6. Withholding Tax. Not later than the date as of which an
amount first becomes includible in the gross income of the Executive for Federal
income tax purposes with respect to the Option, the Executive shall pay to the
Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. The obligations of the Company
under the Plan and pursuant to this Agreement shall be conditional upon such
payment or arrangements with the Company and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Executive from the Company.
7. Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, consolidation, recapitalization, dividend
(other than cash dividend), stock split, reverse stock split, or other change in
corporate structure affecting the number of issued shares of Common Stock, the
Company shall proportionally adjust the number and kind of Option Shares and the
exercise price of the Option in order to prevent the dilution or enlargement of
the Executive's proportionate interest in the Company and her rights hereunder,
provided that the number of Option Shares shall always be a whole number.
8. Method of Exercise.
8.1. Notice to the Company. The Option shall be
exercised in whole or in part by written notice in substantially the form
attached hereto as Exhibit A directed to the Company at its principal place of
business accompanied by full payment as hereinafter provided of the exercise
price for the number of Option Shares specified in the notice.
8.2. Delivery of Option Shares. The Company
shall deliver a certificate for the Option Shares to the Executive as soon as
practicable after payment therefor.
8.3. Payment of Purchase Price.
8.3.1. Cash Payment. The Executive shall
make cash payments by wire transfer, certified or bank check or personal check,
in each case payable to the order of the Company; the Company shall not be
required to deliver certificates for Option Shares until the Company has
confirmed the receipt of good and available funds in payment of the purchase
price thereof.
3
<PAGE>
8.3.2. Cashless Payment. At the election
of the Executive, the purchase price for any or all of the Option Shares to be
acquired may be paid by: (i) the surrender of shares of Common Stock of the
Company held by or for the account of the Executive with a fair market value
equal to the purchase price multiplied by the number of Option Shares to be
purchased, or (ii) the surrender of any exercisable but unexercised portion of
the Option having a fair market value equal to the purchase price multiplied by
the number of Option Shares to be purchased. In either case, the fair market
value of the surrendered shares or options shall be determined as of the date of
exercise as follows: "Fair market value" of the Common Stock means, as of the
exercise date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on the last day trading day preceding such date, as reported by the
exchange or Nasdaq, as the case may be; (ii) if the Common Stock is not listed
on a national securities exchange or quoted on the Nasdaq National Market or
Nasdaq SmallCap Market, but is traded in the over-the-counter market, the
closing bid price of the Common Stock on the last trading day preceding such
date for which such quotations are reported by the National Quotation Bureau,
Incorporated or similar publisher of such quotations; and (iii) if the fair
market value of the Common Stock cannot be determined pursuant to clause (i) or
(ii) above, such price as the Company shall determine, in good faith. The "fair
market value" of a surrendered portion of the Option means, as of the exercise
date, an amount equal to the excess of the total fair market value of the shares
of Common Stock underlying the surrendered portion of the Option (as determined
in accordance with the immediately preceding sentence) over the total purchase
price of such shares of Common Stock underlying the surrendered portion of the
Option. The Company shall issue a certificate or certificates evidencing the
Option Shares as soon as practicable after the notice and payment is received.
The certificate or certificates evidencing the Option Shares shall be registered
in the name of the person or persons so exercising the Option.
8.3.3. Payment Price of Withholding Tax.
Any required withholding tax may be paid in cash or with Common Stock in
accordance with Sections 8.3.1. and 8.3.2.
8.3.4. Exchange Act Compliance.
Notwithstanding the foregoing, the Company shall have the right to reject
payment in the form of Common Stock if in the opinion of counsel for the
Company, (i) it could result in an event of "recapture" under Section 16(b) of
the Securities Exchange Act of 1934; (ii) such shares of Common Stock may not be
sold or transferred to the Company; or (iii) such transfer could create legal
difficulties for the Company.
9. Nonassignability. The Option shall not be assignable or
transferable except by will or by the laws of descent and distribution in the
event of the death of the Executive. No transfer of the Option by the Executive
by will or by the laws of descent and distribution shall be effective to bind
the Company unless the Company shall have been furnished with written notice
thereof and a copy of the will and such other evidence as the Company may deem
necessary to establish the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions of the Option.
4
<PAGE>
10. Company Representations. The Company hereby represents and
warrants to the Executive that:
(i) the Company, by appropriate and all required
action, is duly authorized to enter into this Agreement and consummate
all of the transactions contemplated hereunder; and
(ii) the Option Shares, when issued and delivered by
the Company to the Executive in accordance with the terms and
conditions hereof, will be duly and validly issued and fully paid and
non-assessable.
11. Executive Representations. The Executive hereby
represents and warrants to the Company that
(i) he or she is acquiring the Option and shall
acquire the Option Shares for his or her own account and not with a
view towards the distribution thereof;
(ii) he or she has received a copy of all reports and
documents required to be filed by the Company with the Commission
pursuant to the Exchange Act within the last 24 months and all reports
issued by the Company to its stockholders;
(iii) he or she understands that he or she must bear
the economic risk of the investment in the Option Shares, which cannot
be sold by his or her unless they are registered under the Securities
Act of 1933 (the "1933 Act") or an exemption therefrom is available
thereunder and that the Company is under no obligation to register the
Option Shares for sale under the 1933 Act;
(iv) in his or her position with the Company, he or
she has had both the opportunity to ask questions and receive answers
from the officers and directors of the Company and all persons acting
on its behalf concerning the terms and conditions of the offer made
hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it
without unreasonable effort or expense necessary to verify the accuracy
of the information obtained pursuant to clause (ii) above;
(v) he or she is aware that the Company shall place
stop transfer orders with its transfer agent against the transfer of
the Option Shares in the absence of registration under the 1933 Act or
an exemption therefrom as provided herein; and
(vi) in the absence of registration under the 1933
Act, the certificates evidencing the Option Shares shall bear the
following legend:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said
Act."
5
<PAGE>
12. Restriction on Transfer of Option Shares. Anything in this
Agreement to the contrary notwithstanding, the Executive hereby agrees that he
or she shall not sell, transfer by any means or otherwise dispose of the Option
Shares acquired by him or her without registration under the 1933 Act, or in the
event that they are not so registered, unless (i) an exemption from the 1933 Act
registration requirements is available thereunder, and (ii) the Executive has
furnished the Company with notice of such proposed transfer and the Company's
legal counsel, in its reasonable opinion, shall deem such proposed transfer to
be so exempt.
13. Miscellaneous.
13.1. Notices. All notices, requests, deliveries,
payments, demands and other communications which are required or permitted to be
given under this Agreement shall be in writing and shall be either delivered
personally or sent by registered or certified mail, or by private courier,
return receipt requested, postage prepaid to the Company at its principal
executive office and to the Executive at his address set forth below, or to such
other address as either party shall have specified by notice in writing to the
other. Notice shall be deemed duly given hereunder when delivered or mailed as
provided herein.
13.2. Plan Paramount; Conflicts with Plan. This
Agreement and the Option shall, in all respects, be subject to the terms and
conditions of the Plan, whether or not stated herein. In the event of a conflict
between the provisions of the Plan and the provisions of this Agreement, the
provisions of the Plan shall in all respects be controlling.
13.3. Stockholder Rights. The Executive shall not
have any of the rights of a stockholder with respect to the Option Shares until
such shares have been issued after the due exercise of the Option.
13.4. Waiver. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any other or subsequent breach.
13.5. Entire Agreement. This Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof. This Agreement may not be amended except by writing executed by
the Executive and the Company.
13.6. Binding Effect; Successors. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and, to the
extent not prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives any rights, remedies,
obligations or liabilities.
13.7. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to choice of law provisions).
13.8. Headings. The headings contained herein are
for the sole purpose of convenience of reference, and shall not in any way limit
or affect the meaning or interpretation of any of the terms or provisions of
this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written.
Executive: KIRLIN HOLDING CORP.
/s/ David O. Lindner /s/ Anthony J. Kirincic
____________________________ By: ____________________________
David O. Lindner Anthony J. Kirincic, President
7
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
- --------------------
DATE
Kirlin Holding Corp.
Attention: Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of
January 11, 1999 ("Agreement") with Kirlin Holding Corp. (the "Company"), I
hereby irrevocably elect to exercise the right to purchase _________ shares of
the Company's common stock, par value $.0001 per share ("Common Stock"), which
are being purchased for investment and not for resale.
As payment for my shares, enclosed is (check and complete
applicable box[es]):
|_| a [personal check] [certified check] [bank check]
payable to the order of "Kirlin Holding Corp." in the
sum of $_________;
|_| confirmation of wire transfer in the amount of
$_____________; and/or
|_| certificate for ____ shares of the Company's Common
Stock, free and clear of any encumbrances, duly
endorsed, having a Fair Market Value (as such term is
defined in the Company's 1994 Stock Plan) of
$_________.
|_| I hereby surrender that portion of the unexercised,
but exercisable, portion of the Option having a fair
market value equal to the purchase price multiplied
by the number of shares of Common Stock being
purchased hereunder, to wit: the Option to purchase
_____ Option Shares.
I hereby represent, warrant to, and agree with, the Company
that
(i) I am acquiring the Option Shares for my own account and
not with a view towards the distribution thereof;
(ii) I have received a copy of all reports and documents
required to be filed by the Company with the Commission pursuant to the Exchange
Act within the last 24 months and all reports issued by the Company to its
stockholders;
(iii) I understand that I must bear the economic risk
of the investment in the Option Shares, which cannot be sold by me unless they
are registered under the Securities Act of 1933 (the "1933 Act") or an exemption
therefrom is available thereunder and that the Company is under no obligation to
register the Option Shares for sale under the 1933 Act;
<PAGE>
(iv) in my position with the Company, I have had both
the opportunity to ask questions and receive answers from the officers and
directors of the Company and all persons act ing on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information obtained pursuant to clause (ii) above;
(v) I am aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the Option
Shares in the absence of registration under the 1933 Act or an exemption
therefrom as provided herein;
(vi) my rights with respect to the Option Shares
shall, in all respects, be subject to the terms and conditions of this Company's
1996 Stock Plan and this Agreement; and
(vii) in the absence of registration under the 1933
Act, the certificates evidencing the Option Shares shall bear the following
legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
- ------------------------------ ------------------------------
(Signature) (Address)
- ------------------------------ ------------------------------
(Print Name) (Address)
------------------------------
(Social Security Number)
2
<PAGE>
EXHIBIT 10.7.1
Schedule of Omitted Documents in the Form of
Exhibit 10.7, Including Material Detail in
Which Such Documents Differ from Exhibit 10.7
1. Stock Option Agreement, dated as of January 11, 1999, between the
Registrant and Anthony J. Kirincic.
The form of the document listed above does not differ in material detail
from the form of Exhibit 10.7, except with respect to the identity of the
optionholder.
<PAGE>
EXHIBIT 10.8
STOCK OPTION AGREEMENT
[Director Non-Qualified]
AGREEMENT made as of the 11th day of January, 1999, by and
between KIRLIN HOLDING CORP., a Delaware corporation (the "Company"), and Edward
J. Casey (the "Director").
WHEREAS, on January 11, 1999 (the "Grant Date"), pursuant to
the terms and conditions of the Kirlin Holding Corp. 1996 Stock Plan (the
"Plan"), the Board of Directors of the Company authorized the grant to the
Director of an option (the "Option") to purchase an aggregate of 5,000 shares of
the authorized but unissued Common Stock of the Company, $.0001 par value (the
"Common Stock"), conditioned upon the Director's acceptance thereof upon the
terms and conditions set forth in this Agreement and subject to the terms of the
Plan; and
WHEREAS, the Director desires to acquire the Option on the
terms and conditions set forth in this Agreement and subject to the terms of the
Plan;
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants the
Director the Option to purchase all or any part of an aggregate of 5,000 shares
of Common Stock (the "Option Shares") on the terms and conditions set forth
herein and subject to the provisions of the Plan.
2. Non-Incentive Stock Option. The Option represented hereby
is not intended to be an Option which qualifies as an "Incentive Stock Option"
under Section 422 of the Internal Revenue Code of 1986, as amended.
3. Exercise Price. The exercise price of the Option shall be
$3.875 per share, subject to adjustment as hereinafter provided.
4. Exercisability. This Option is exercisable, subject to the
terms and conditions of the Plan, immediately. It shall remain exercisable
except as otherwise provided herein, until the close of business on January 10,
2009 (the "Exercise Period").
5. Termination of Directorship. The Option shall terminate on
the third anniversary of the first date upon which the Director shall no longer
be a member of the Board of Directors of the Company, or any successor company,
for any reason whatsoever.
6. Withholding Tax. Not later than the date as of which an
amount first becomes includible in the gross income of the Director for Federal
income tax purposes with respect to the Option, the Director shall pay to the
Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. The obligations of the Company
under the Plan and pursuant to this Agreement shall be conditional upon such
payment or arrangements with the Company and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Director from the Company.
<PAGE>
7. Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, consolidation, recapitalization, dividend
(other than cash dividend), stock split, reverse stock split, or other change in
corporate structure affecting the number of issued shares of Common Stock, the
Company shall proportionally adjust the number and kind of Option Shares and the
exercise price of the Option in order to prevent the dilution or enlargement of
the Director's proportionate interest in the Company and her rights hereunder,
provided that the number of Option Shares shall always be a whole number.
8. Method of Exercise.
8.1. Notice to the Company. The Option shall be
exercised in whole or in part by written notice in substantially the form
attached hereto as Exhibit A directed to the Company at its principal place of
business accompanied by full payment as hereinafter provided of the exercise
price for the number of Option Shares specified in the notice.
8.2. Delivery of Option Shares. The Company
shall deliver a certificate for the Option Shares to the Director as soon as
practicable after payment therefor.
8.3. Payment of Purchase Price.
8.3.1. Cash Payment. The Director shall
make cash payments by wire transfer, certified or bank check or personal check,
in each case payable to the order of the Company; the Company shall not be
required to deliver certificates for Option Shares until the Company has
confirmed the receipt of good and available funds in payment of the purchase
price thereof.
8.3.2. Cashless Payment. Provided that
prior approval of the Company has been obtained, the Director may use Common
Stock of the Company owned by him or her to pay the purchase price for the
Option Shares by delivery of stock certificates in negotiable form which are
effective to transfer good and valid title thereto to the Company, free of any
liens or encumbrances. Shares of Common Stock used for this purpose shall be
valued at the Fair Market Value.
8.3.3. Payment Price of Withholding Tax.
Any required withholding tax may be paid in cash or with Common Stock in
accordance with Sections 8.3.1. and 8.3.2.
8.3.4. Exchange Act Compliance.
Notwithstanding the foregoing, the Company shall have the right to reject
payment in the form of Common Stock if in the opinion of counsel for the
Company, (i) it could result in an event of "recapture" under Section 16(b) of
the Securities Exchange Act of 1934; (ii) such shares of Common Stock may not be
sold or transferred to the Company; or (iii) such transfer could create legal
difficulties for the Company.
9. Nonassignability. The Option shall not be assignable or
transferable except by will or by the laws of descent and distribution in the
event of the death of the Director. No transfer of the Option by the Director by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice
2
<PAGE>
thereof and a copy of the will and such other evidence as the Company may deem
necessary to establish the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions of the Option.
10. Company Representations. The Company hereby represents and
warrants to the Director that:
(i) the Company, by appropriate and all required
action, is duly authorized to enter into this Agreement and consummate
all of the transactions contemplated hereunder; and
(ii) the Option Shares, when issued and delivered by
the Company to the Director in accordance with the terms and conditions
hereof, will be duly and validly issued and fully paid and
non-assessable.
11. Director Representations. The Director hereby represents
and warrants to the Company that
(i) he or she is acquiring the Option and shall
acquire the Option Shares for his or her own account and not with a
view towards the distribution thereof;
(ii) he or she has received a copy of all reports and
documents required to be filed by the Company with the Commission
pursuant to the Exchange Act within the last 24 months and all reports
issued by the Company to its stockholders;
(iii) he or she understands that he or she must bear
the economic risk of the investment in the Option Shares, which cannot
be sold by his or her unless they are registered under the Securities
Act of 1933 (the "1933 Act") or an exemption therefrom is available
thereunder and that the Company is under no obligation to register the
Option Shares for sale under the 1933 Act;
(iv) in his or her position with the Company, he or
she has had both the opportunity to ask questions and receive answers
from the officers and directors of the Company and all persons acting
on its behalf concerning the terms and conditions of the offer made
hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it
without unreasonable effort or expense necessary to verify the accuracy
of the information obtained pursuant to clause (ii) above;
(v) he or she is aware that the Company shall place
stop transfer orders with its transfer agent against the transfer of
the Option Shares in the absence of registration under the 1933 Act or
an exemption therefrom as provided herein; and
3
<PAGE>
(vi) in the absence of registration under the 1933
Act, the certificates evidencing the Option Shares shall bear the
following legend:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said
Act."
12. Restriction on Transfer of Option Shares. Anything in this
Agreement to the contrary notwithstanding, the Director hereby agrees that he or
she shall not sell, transfer by any means or otherwise dispose of the Option
Shares acquired by him or her without registration under the 1933 Act, or in the
event that they are not so registered, unless (i) an exemption from the 1933 Act
registration requirements is available thereunder, and (ii) the Director has
furnished the Company with notice of such proposed transfer and the Company's
legal counsel, in its reasonable opinion, shall deem such proposed transfer to
be so exempt.
13. Miscellaneous.
13.1. Notices. All notices, requests, deliveries,
payments, demands and other communications which are required or permitted to be
given under this Agreement shall be in writing and shall be either delivered
personally or sent by registered or certified mail, or by private courier,
return receipt requested, postage prepaid to the Company at its principal
executive office and to the Director at his address set forth below, or to such
other address as either party shall have specified by notice in writing to the
other. Notice shall be deemed duly given hereunder when delivered or mailed as
provided herein.
13.2. Plan Paramount; Conflicts with Plan. This
Agreement and the Option shall, in all respects, be subject to the terms and
conditions of the Plan, whether or not stated herein. In the event of a conflict
between the provisions of the Plan and the provisions of this Agreement, the
provisions of the Plan shall in all respects be controlling.
13.3. Stockholder Rights. The Director shall not
have any of the rights of a stockholder with respect to the Option Shares until
such shares have been issued after the due exercise of the Option.
13.4. Waiver. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any other or subsequent breach.
13.5. Entire Agreement. This Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof. This Agreement may not be amended except by writing executed by
the Director and the Company.
13.6. Binding Effect; Successors. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and, to the
extent not prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives any rights, remedies,
obligations or liabilities.
4
<PAGE>
13.7. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to choice of law provisions).
13.8. Headings. The headings contained herein are
for the sole purpose of convenience of reference, and shall not in any way limit
or affect the meaning or interpretation of any of the terms or provisions of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written.
DIRECTOR : KIRLIN HOLDING CORP.
/s/ Edward J. Casey /s/ Anthony J. Kirincic
____________________________ By:______________________________
Edward J. Casey Anthony J. Kirincic, President
5
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
- --------------------
DATE
Kirlin Holding Corp.
Attention: Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of
January 11, 1999 ("Agreement") with Kirlin Holding Corp. (the "Company"), I
hereby irrevocably elect to exercise the right to purchase _________ shares of
the Company's common stock, par value $.0001 per share ("Common Stock"), which
are being purchased for investment and not for resale.
As payment for my shares, enclosed is (check and complete
applicable box[es]):
|_| a [personal check] [certified check] [bank check]
payable to the order of "Kirlin Holding Corp." in the
sum of $_________;
|_| confirmation of wire transfer in the amount of
$_____________; and/or
|_| [If prior approval of the Company has been obtained,]
certificate for ____ shares of the Company's Common
Stock, free and clear of any encumbrances, duly
endorsed, having a Fair Market Value (as such term is
defined in the Company's 1996 Stock Plan) of
$_________.
I hereby represent, warrant to, and agree with, the Company
that
(i) I am acquiring the Option Shares for my own
account and not with a view towards the distribution thereof;
(ii) I have received a copy of all reports and
documents required to be filed by the Company with the Commission
pursuant to the Exchange Act within the last 24 months and all reports
issued by the Company to its stockholders;
(iii) I understand that I must bear the economic risk
of the investment in the Option Shares, which cannot be sold by me
unless they are registered under the Securities Act of 1933 (the "1933
Act") or an exemption therefrom is available thereunder and that the
Company is under no obligation to register the Option Shares for sale
under the 1933 Act;
<PAGE>
(iv) in my position with the Company, I have had both
the opportunity to ask questions and receive answers from the officers
and directors of the Company and all persons act ing on its behalf
concerning the terms and conditions of the offer made hereunder and to
obtain any additional information to the extent the Company possesses
or may possess such information or can acquire it without unreasonable
effort or expense necessary to verify the accuracy of the information
obtained pursuant to clause (ii) above;
(v) I am aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the
Option Shares in the absence of registration under the 1933 Act or an
exemption therefrom as provided herein;
(vi) my rights with respect to the Option Shares
shall, in all respects, be subject to the terms and conditions of this
Company's 1996 Stock Plan and this Agreement; and
(vii) in the absence of registration under the 1933
Act, the certificates evidencing the Option Shares shall bear the
following legend:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said
Act."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
- ------------------------------ ------------------------------
(Signature) (Address)
- ----------------------------- ------------------------------
(Print Name) (Address)
------------------------------
(Social Security Number)
2
<PAGE>
EXHIBIT 10.8.1
Schedule of Omitted documents in the Form of
Exhibit 10.8, Including Material Detail in
Which Such Documents Differ From Exhibit 10.8
1. Stock Option Agreement, dated as of January 11, 1999, between the
Registrant and Edmund McCormick.
The form of the document listed above does not differ in material detail
from the form of Exhibit 10.8, except with respect to the identity of the
optionholder.
<PAGE>
EXHIBIT 10.9
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, entered into as of the Grant Date (as defined in paragraph
1), by and between the Participant (identified in paragraph 1) and Kirlin
Holding Corp. (the "Company").
WITNESSETH THAT:
WHEREAS, the Company maintains the Kirlin Holding Corp. 1996 Stock Option
Plan (the "Plan"), which is incorporated into and forms a part of this
Agreement, and the Participant has been selected by the Board of Directors of
the Company or by a committee established by the Board to select recipients of
awards under and to administer the Plan (the "Administrator") to receive a
Restricted Stock award under the Plan;
NOW, THEREFORE, IT IS AGREED, by and between the Company and the
Participant, as follows:
1. Terms of Award. The following terms, when used in this Agreement, shall have
the meanings set forth in this paragraph 1:
a. The "Participant" is Barry Shapiro.
b. The "Grant Date" is January 11, 1999.
c. The "Restricted Period" for one-half of the total number of
shares of Restricted Stock set forth in subparagraph d, below,
is the period beginning on the Grant Date and ending on
January 1, 2001 (or, if later, the later of the Extended
Vesting Date or the Post-Employment Termination Vesting Date
described in paragraph 5). The "Restricted Period" for the
other one-half of the total number of shares of Restricted
Stock set forth in subparagraph d, below, is the period
beginning on the Grant Date and ending on January 1, 2002 (or,
if later, the later of the Extended Vesting Date or the
Post-Employment Termination Vesting Date described in
paragraph 5).
d. The number of shares of Common Stock granted hereunder as
"Restricted Stock" shall be 7,500 shares. Shares of
"Restricted Stock" are shares of Common Stock granted under
this Agreement and are subject to the terms of this Agreement
and the Plan.
Other terms used in this Agreement are defined pursuant to paragraph 6 or
elsewhere in this Agreement or in the Plan.
2. Award. The Participant is hereby granted the number of shares of Restricted
Stock set forth in paragraph 1.
2
<PAGE>
3. Dividends and Voting Rights. The Participant shall be entitled to receive any
cash dividends paid with respect to shares of Restricted Stock that become
payable during the Restricted Period; provided, however, that no cash dividends
shall be payable to or for the benefit of the Participant with respect to record
dates occurring prior to the Grant Date, or with respect to record dates
occurring on or after the date, if any, on which the Participant has forfeited
the Restricted Stock. The Participant shall be entitled to vote the shares of
Restricted Stock during the Restricted Period to the same extent as would have
been applicable to the Participant if the Participant was then vested in the
shares; provided, however, that the Participant shall not be entitled to vote
the shares with respect to record dates for such voting rights arising prior to
the Grant Date, or with respect to record dates occurring on or after the date,
if any, on which the Participant has forfeited the Restricted Stock. The
Participant shall not be entitled to delivery of the stock certificate or
certificates representing such Restricted Stock until the Restricted Period
shall have expired with respect to such Restricted Stock and unless all vesting
requirements with respect thereto shall have been fulfilled. Notwithstanding the
preceding, other than regular cash dividends and other cash equivalent
distributions as the Board of the Company may in its sole discretion designate,
pay or distribute, the Company shall retain custody of all distributions
("Retained Distributions") made or declared with respect to the Restricted Stock
(and such Retained Distributions will be subject to the same restrictions, terms
and conditions as are applicable to Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions have
been made, paid or declared shall have become vested and with respect to which
the Restricted Period with respect to such Restricted Stock shall have expired.
4. Deposit of Shares of Restricted Stock. Each certificate issued in respect of
shares of Restricted Stock granted under this Agreement shall be registered in
the name of the Participant and shall be retained by the Company until the
Restricted Period with respect to such Restricted Stock lapses under paragraph
1. The grant of Restricted Stock is conditioned upon the Participant endorsing
in blank a stock power for the Restricted Stock in favor of the Company.
5. Transfer and Forfeiture of Shares.
a. Forfeiture; Transferability. If the Participant's Date of Termination
(as defined below) does not occur during the Restricted Period or if
the Participant dies during the Restricted Period and prior to his or
her Date of Termination, then, at the end of the Restricted Period
(or, if earlier, date of death), the Participant shall become vested
in the shares of Restricted Stock with respect to which the Restricted
Period has ended (or all Restricted Stock in the case of death), and
shall own the shares free of all restrictions otherwise imposed by
this Agreement. Except as otherwise provided in subparagraph c of this
paragraph 5, if the Participant's Date of Termination occurs prior to
the end of the Restricted Period, the Participant shall forfeit the
Restricted Stock with respect to which the Restricted Period has not
ended as of the Participant's Date of Termination.
Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered until the expiration of the Restricted
Period with respect to such Restricted Stock (or date of death, if
applicable).
3
<PAGE>
b. Extended Vesting Date. The Participant and the Company shall be
entitled to agree, on or prior to the June 30th next preceding any
January 1st date set forth at subparagraph c of paragraph 1, to extend
such January 1st date (on a form and in a manner provided by the
Administrator) to a future January 1st date, in which case the January
1st date to which such original January 1st date is extended shall for
all purposes under this Agreement replace the original January 1st
date as the end of the Restricted Period with respect to the
Restricted Stock subject to such agreement (such January 1st date to
which the end of the Restricted Period is thereby extended being
referred to herein as the "Extended Vesting Date"). The Participant
and the Company shall further have the right to agree, on or prior to
the June 30th next preceding any Extended Vesting Date to further
extend such Extended Vesting Date to a later-occurring January 1st
date and any such further extended Extended Vesting Date shall replace
the prior Extended Vesting Date as the new end of the Restricted
Period with respect to the Restricted Stock subject to such agreement
for all purposes under the Plan. An agreement to extend a Restricted
Period with respect to particular shares of Restricted Stock granted
hereunder (e.g., shares to become nonforfeitable on a particular date
but not other shares awarded hereunder that are to become
nonforfeitable on a later date) shall not impact the Restricted Period
of any Restricted Stock granted hereunder that is not subject to such
agreement.
c. Post-Employment Termination Vesting Date. If the Participant's Date of
Termination with the Company or a Subsidiary occurs as a result of the
Participant's voluntary termination of employment after age 65,
termination of employment on account of Disability or involuntary
termination of employment by the Company or a Subsidiary without Cause
(each as determined by the Company in its discretion), the Restricted
Period shall be extended to the later of the applicable date(s)
provided in paragraph 1 (as extended, if applicable, in accordance
with subparagraph b of this paragraph 5) or the first anniversary of
the Participant's Date of Termination (the "Post-Employment
Termination Vesting Date"). In such case, the Participant shall not be
deemed to incur a forfeiture of the Restricted Stock on such Date of
Termination and shall become vested in the shares of Restricted Stock,
and shall own the shares free of all restrictions otherwise imposed by
this Agreement, if, and only if, through and until the Post-Employment
Termination Vesting Date, the Participant shall refrain from engaging
in a Competition or Breach.
6. Definitions. For purposes of this Agreement, the following terms shall have
the following meanings:
4
<PAGE>
a. Cause. In connection with the termination of the Participant's
employment by the Company or a Subsidiary, "Cause" shall mean (a) the
continued failure by the Participant, as a result of willful intent or
gross negligence, substantially to perform the Participant's duties
with the Company or Subsidiary (other than any such failure resulting
from his or her incapacity due to physical or mental illness), (b) the
Participant's commission of an act of dishonesty that results in a
loss, damage or injury to the Company, a Subsidiary or their customers
or otherwise engaging in conduct that is injurious to the Company or a
Subsidiary, monetarily or otherwise, or (c) the conviction of the
Participant, by a court of competent jurisdiction and after all appeal
procedures have been exhausted or expired, or entry of a guilty or
nolo contendere plea, of a crime which constitutes a felony in the
jurisdiction involved.
b. Competition or Breach. A "Competition or Breach" shall occur upon the
Participant's engagement in employment competitive with the Company or
a Subsidiary or a violation by the Participant of the Participant's
Association Agreement with the Company or a Subsidiary (each as
determined by the Company in its discretion). A Participant shall be
deemed to be in employment competitive with the Company or a
Subsidiary if the Participant performs services, as a sole proprietor,
independent contractor, employee, partner, shareholder or otherwise,
of a nature similar to the services that had been performed by the
Participant for the Company or a Subsidiary other than the performance
of services for the Participant's own account. A Participant's
forfeiture of his or her Restricted Stock by virtue of a Competition
or Breach activity shall not affect the Company's or any Subsidiary's
other legal rights against the Participant as may arise from such
activities by the Participant.
c. Date of Termination. The Participant's "Date of Termination" shall be
the first day occurring on or after the Grant Date on which the
Participant is not employed by the Company or any Subsidiary,
regardless of the reason for the termination of employment; provided,
however, that a termination of employment shall not be deemed to occur
by reason of a transfer of the Participant between the Company and a
Subsidiary or between two Subsidiaries; and further provided that the
Participant's employment shall not be considered terminated while the
Participant is on a leave of absence from the Company or a Subsidiary
approved by the Company or the Subsidiary.
d. Disability. Except as otherwise provided by the Administrator, the
Participant shall be considered to have a "Disability" during the
period in which the Participant is unable, by reason of a medically
determinable physical or mental impairment, to engage in any
substantial gainful activity, which condition, in the opinion of a
physician selected by the Administrator, is expected to have a
duration of not less than 120 days.
e. Plan Definitions. Except where the context clearly implies or
indicates the contrary, a word, term, or phrase used in the Plan is
similarly used in this Agreement.
5
<PAGE>
7. Heirs and Successors. If any rights of the Participant or benefits
distributable to the Participant under this Agreement have not been exercised or
distributed, respectively, at the time of the Participant's death, such rights
shall be exercisable by the Designated Beneficiary, and such benefits shall be
distributed to the Designated Beneficiary, in accordance with the provisions of
this Agreement and the Plan. The "Designated Beneficiary" shall be the
beneficiary or beneficiaries designated by the Participant in a writing filed
with the Administrator in such form and at such time as the Administrator shall
require. If a deceased Participant fails to designate a beneficiary, or if the
Designated Beneficiary does not survive the Participant, any rights that would
have been exercisable by the Participant and any benefits distributable to the
Participant shall be exercised by or distributed to the legal representative of
the estate of the Participant. If a deceased Participant designates a
beneficiary but the Designated Beneficiary dies before the Designated
Beneficiary's exercise of all rights under this Agreement or before the complete
distribution of benefits to the Designated Beneficiary under this Agreement,
then any rights that would have been exercisable by the Designated Beneficiary
shall be exercised by the legal representative of the estate of the Designated
Beneficiary, and any benefits distributable to the Designated Beneficiary shall
be distributed to the legal representative of the estate of the Designated
Beneficiary.
8. Administration. The authority to manage and control the operation and
administration of this Agreement shall be vested in the Administrator, and the
Administrator shall have all powers with respect to this Agreement as it has
with respect to the Plan. Any interpretation of the Agreement by the
Administrator and any decision made by it with respect to the Agreement is final
and binding.
9. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the
terms of this Agreement shall be subject to the terms of the Plan, a copy of
which may be obtained by the Participant from the office of the Secretary of the
Company.
10. Delivery of Shares. As soon as practicable after the end of the Restricted
Period, the Company shall, subject to the receipt of withholding tax, if any,
issue to the Participant the Restricted Shares, and shall deliver to the
Participant a certificate (or certificates) therefor. The certificate(s) shall
bear the following legends, if applicable:
"THIS COMMON STOCK HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAW AND MAY BE OFFERED, SOLD
OR TRANSFERRED ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT OR
APPLICABLE STATE SECURITIES LAW OR IF THE PROVISIONS OF RULE 144(K) UNDER THE
ACT ARE APPLICABLE OR IF, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY,
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED PURSUANT TO A
RESTRICTED STOCK AGREEMENT, DATED AS OF JANUARY 11, 1999, A COPY OF WHICH IS ON
FILE WITH THE COMPANY, AND MAY NOT BE TRANSFERRED, PLEDGED OR DISPOSED OF EXCEPT
IN ACCORDANCE WITH THE TERMS AND CONDITIONS THEREOF."
6
<PAGE>
Further, if, at the time of delivery of the shares, in the opinion of
counsel for the Company, it is necessary or desirable, in order to comply with
any applicable laws or regulations relating to the sale of securities, that the
Participant shall agree to receive the shares for investment only and not with
any present intention to resell the same and that the Participant will dispose
of such shares only in compliance with such laws and regulations, the
Participant will, upon the request of the Company, execute and deliver to the
Company an agreement to such effect.
11. Company Transactions. The existence of this Agreement shall not affect in
any way the right or power of the Company, any Subsidiary or the stockholders of
either of them to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's (or Subsidiary's) capital
structure or its business, or any merger or consolidation of the Company (or a
Subsidiary), or any issue of bonds, debentures, preferred or other stocks with
preference ahead of or convertible into, or otherwise affecting the Common Stock
of the Company (or a Subsidiary) or the rights thereof, or the dissolution or
liquidation of the Company (or a Subsidiary), or any sale or transfer of all or
any part of the Company's (or Subsidiary's) assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
12. Dissolution, Merger and Consolidation. Upon dissolution or liquidation of
the Company (or a Subsidiary employing the Participant), or upon reorganization,
merger or consolidation of the Company (or Subsidiary employing the Participant)
in which the Company (or Subsidiary) is not the surviving corporation, or upon
the sale of substantially all the property of the Company (or Subsidiary
employing the Participant) to another corporation, the Restricted Stock shall
vest and be nonforfeitable, unless provision is made in connection with such
transaction for the assumption of the Company's (or Subsidiary's) obligations
hereunder and the substitution of shares issued hereunder with replacement
shares in the successor employer corporation or a parent or subsidiary thereof,
with appropriate adjustment as to the number and kinds of shares based on, for
example, the per share value of the successor's shares.
13. Preemption by Applicable Laws or Regulations. Anything in this Agreement to
the contrary notwithstanding, if, at any time specified herein for the issuance
of shares to the Participant, any law, regulation or requirements of any
governmental authority having appropriate jurisdiction shall require either the
Company or the Participant to take any action prior to or in connection with the
shares of Common Stock then to be issued, sold or repurchased, the issue, sale
or repurchase of such shares of Common Stock shall be deferred until such action
is taken.
14. Resolution of Disputes. Any dispute or disagreement which shall arise under,
or as a result of, or pursuant to, this Agreement shall be determined by the
Administrator in its sole and absolute discretion, and any such determination or
any other determination by the Administrator under or pursuant to this Agreement
and any interpretation by the Administrator of the terms of this Agreement,
shall be final, binding and conclusive on all persons affected thereby.
7
<PAGE>
15. Amendments. The Company's Board shall have the right, in its sole and
absolute discretion, to alter or amend this Agreement, from time to time, in any
manner, for the purpose of promoting the objectives of the Plan but only if all
agreements granting Restricted Stock pursuant to the Plan which are in effect at
the time of such alteration or amendment shall also be similarly altered or
amended with substantially the same effect, and any alteration or amendment of
this Agreement by the Board shall, upon adoption thereof by the Board, become
and be binding and conclusive on all persons affected thereby without
requirement for consent or other action with respect thereto by any such person.
The Company shall give written notice to the Participant of any such alteration
or amendment of this Agreement by the Board as promptly as practical after the
adoption thereof. The foregoing shall not restrict the ability of the
Participant and the Company by mutual consent to alter or amend this Agreement
in any manner which is consistent with the Plan and approved by the
Administrator. The Participant and the Company agree that this Agreement shall
be subject to any provision necessary to assure compliance with federal and
state securities laws, including, as applicable, such changes as might be
necessary for the Agreement to qualify for exempt status under Rule 16b-3 under
the Securities Exchange Act of 1934.
16. Notice. Any notice which either party hereto may be required or permitted to
give to the other shall be in writing, and may be delivered personally or by
mail, postage prepaid, addressed as follows: to the Company at Kirlin
Securities, Inc., 6901 Jericho Turnpike, Syosset, New York 11791 (Attention:
Office of the Secretary), or at such other address as the Company, by notice to
the Participant, may designate in writing from time to time; to the Participant,
at his or her address as shown on the records of the Company, or at such other
address as the Participant, by notice to the Secretary of the Company, may
designate in writing from time to time.
17. Tax Withholding. The Company or any Subsidiary shall have the right to
deduct from any payment hereunder or from any other payment from the Company or
Subsidiary to the Participant any federal, state, local or employment taxes
which it deems are required by law to be withheld. At the request of the
Participant, or as required by law, such sums as may be required for the payment
of any estimated or accrued income tax liability may be withheld and paid over
to the governmental entity entitled to receive the same.
18. Fractional Shares. Any fractional shares concerning this Agreement shall be
eliminated at the time of delivery of shares by rounding down for fractions of
less than one-half (1/2) and rounding up for fractions of equal to or more than
one-half (1/2). No cash settlements shall be made with respect to fractional
shares eliminated by rounding.
19. Governing Law. All matters relating to this Agreement shall be governed by
the laws of the State of New York, without regard to the principles of the
conflict of laws, except to the extent preempted by the laws of the United
States.
20. Construction. This Agreement has been entered into in accordance with the
terms of the Plan, and wherever a conflict may arise between the terms of this
Agreement and the terms of the Plan, the terms of the Plan shall control.
8
<PAGE>
21. Regulatory Compliance. No Common Stock shall be issued hereunder until the
Company has received all necessary regulatory approvals and has taken all
necessary steps to assure compliance with federal and state securities laws or
has determined to its satisfaction and the satisfaction of its counsel that an
exemption from the requirements of the federal and applicable state securities
laws are available.
22. No Employment Right. Neither this Agreement nor any action taken hereunder
shall be construed as giving any right to the Participant to be retained as an
officer or employee of the Company.
23. Participant Representations, Warranties, Acknowledgments and Agreements. The
Participant hereby represents and warrants to the Company that:
a. the Participant is acquiring the Restricted Stock for his or her own
account and not with a view towards the distribution thereof;
b. the Participant has received a copy of the Company's most recent
Prospectus and a copy of all reports and documents required to be
filed by the Company with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, within
the last 24 months and all reports issued by the Company to its
stockholders during such period;
c. the Participant understands that he or she must bear the economic risk
of the investment in the Restricted Stock, which cannot be sold by the
Participant unless they are registered under the Securities Act of
1933, as amended, or an exemption therefrom is available thereunder
and that the Company is under no obligation to register the Restricted
Stock for sale under the Securities Act;
d. the Participant has had both the opportunity to ask questions and
receive answers from the officers and directors of the Company and all
persons acting on the Company's behalf concerning the terms and
conditions of the award made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such
information or can acquire it without unreasonable effort or expense
necessary to verify the accuracy of the information obtained pursuant
to subparagraph b, above; and
e. the Participant is aware that the Company shall place stop transfer
orders with its transfer agent against the transfer of the Restricted
Stock in the absence of registration under the Securities Act of 1933,
as amended, or an exemption therefrom as provided herein.
<PAGE>
IN WITNESS WHEREOF, the Participant has executed this Agreement, and
the Company has caused these presents to be executed in its name and on its
behalf, all as of the Grant Date.
PARTICIPANT
/s/ Barry Shapiro
___________________________________________
KIRLIN HOLDINGS CORP.
/s/ Anthony J. Kirincic
By:________________________________________
Print Name: Anthony J. Kirincic
Print Title: President
Date: 2-4-1999
<PAGE>
EXHIBIT 21
Subsidiaries of Registrant
Percentage State of
Name Ownership Organization
- --------------------------------------------------------------------------------
Kirlin Securities, Inc. 100% Delaware
Greenleaf Management Corp. 100% New York
(Development stage and incorporated
in February 1999)
VentureHighway.com Inc. 100% New York
(Development stage and incorporated
in February 1999)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
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0
0
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